internal_revenue_service number release date index number -------------------------- --------------------------- --------------------------------------------- ------------------------------------------- --------------------------------------- department of the treasury washington dc person to contact ----------------------------------------------- telephone number --------------------- refer reply to cc intl plr-158061-06 date date taxpayer entity entity entity entity entity entity entity entity entity --------------------------------------------- ----------------------- ------------ ----------------------- ------------------------ ----------------------- ------------------------------------------------------------ ---------- ----------------------- ------------------------------------------------------------ ----------------------- ----------------------------------------- ----------------------- --------------------------------------------- ----------------------- ----------------------------- ----------------------- ------------------- ----------------------- --------------------------------------------------- plr-158061-06 entity entity entity entity entity entity entity entity year year year year year year country a cpa firm cpa firm ----------------------- ------------------------------- ----------------------- ----------------------------------------- ----------------------- ------------------------- ----------------------- -------------------------- ----------------------- ------------------------- ------------------------ ---------------- ----------------------- ------------------- ----------------------- -------------------------- ----------------------- ------- ------- ------- ------- ------- ------- ------------ ---------------------------- ------------------------------ plr-158061-06 dear -------------------- this is in response to a letter dated date from your authorized representative requesting an extension of time under sec_301_9100-3 for taxpayer to file elections and agreements under sec_1_1503-2 or sec_1_1503-2t g i as applicable and annual certifications under sec_1_1503-2 or sec_1_1503-2t g vi b as applicable with respect to dual consolidated losses as defined in sec_1 c attributable to the entities described below additional information was submitted in a letter dated date the information submitted for consideration is substantially as set forth below the ruling contained in this letter is predicated upon facts and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as a part of the audit process entity is disregarded as an entity separate from its owner the interest in entity is a hybrid_entity_separate_unit as described in sec_1_1503-2 entity has activities in its country of incorporation that constitute a foreign_branch entity branch within the meaning of sec_1_367_a_-6t entity branch is a separate_unit described in sec_1_1503-2 dual consolidated losses were attributable to entity branch in year sec_1 through no dual consolidated losses were attributable to the interest in entity entity is disregarded as an entity separate from its owner the interest in entity is a hybrid_entity_separate_unit as described in sec_1_1503-2 entity has activities in its country of incorporation that constitute a foreign_branch entity branch within the meaning of sec_1_367_a_-6t entity branch is a separate_unit described in sec_1_1503-2 dual consolidated losses were attributable to entity branch in year sec_1 and no dual consolidated losses were attributable to the interest in entity entity is a foreign_branch within the meaning of sec_1_367_a_-6t of a domestic subsidiary that is indirectly owned by taxpayer and is a separate_unit described in sec_1_1503-2 dual consolidated losses were incurred by entity in year sec_1 and entity is a foreign_branch within the meaning of sec_1_367_a_-6t of a domestic subsidiary that is indirectly owned by taxpayer and is a separate_unit described in sec_1_1503-2 dual consolidated losses were incurred by entity in year sec_2 and plr-158061-06 entity is a foreign_branch within the meaning of sec_1_367_a_-6t of a domestic subsidiary that is indirectly owned by taxpayer and is a separate_unit described in sec_1_1503-2 dual consolidated losses were incurred by entity in year entity is a foreign_branch within the meaning of sec_1_367_a_-6t of a domestic subsidiary that is indirectly owned by taxpayer and is a separate_unit described in sec_1_1503-2 dual consolidated losses were incurred by entity in year entity is a foreign_branch within the meaning of sec_1_367_a_-6t of a domestic subsidiary that is indirectly owned by taxpayer and is a separate_unit described in sec_1_1503-2 dual consolidated losses were incurred by entity in year entity is disregarded as an entity separate from its owner the interest in entity is a hybrid_entity_separate_unit as described in sec_1_1503-2 entity has activities in its country of incorporation that constitute a foreign_branch entity branch within the meaning of sec_1_367_a_-6t entity branch is a separate_unit described in sec_1_1503-2 dual consolidated losses were attributable to entity branch in year no dual consolidated losses were attributable to the interest in entity entity is disregarded as an entity separate from its owner the interest in entity is a hybrid_entity_separate_unit as described in sec_1_1503-2 entity has activities in its country of incorporation that constitute a foreign_branch entity branch within the meaning of sec_1_367_a_-6t entity branch is a separate_unit described in sec_1_1503-2 dual consolidated losses were attributable to entity branch in year no dual consolidated losses were attributable to the interest in entity entity is disregarded as an entity separate from its owner the interest in entity is a hybrid_entity_separate_unit as described in sec_1_1503-2 entity has activities in its country of incorporation that constitute a foreign_branch entity branch within the meaning of sec_1_367_a_-6t entity branch is a separate_unit described in sec_1_1503-2 dual consolidated losses were attributable to entity branch in year no dual consolidated losses were attributable to the interest in entity entity is a foreign_branch within the meaning of sec_1_367_a_-6t of a domestic subsidiary that is indirectly owned by taxpayer and is a separate_unit described in sec_1_1503-2 located in a foreign_country dual consolidated losses were incurred by entity in year plr-158061-06 entity is disregarded as an entity separate from its owner the interest in entity is a hybrid_entity_separate_unit as described in sec_1_1503-2 entity has activities in its country of incorporation that constitute a foreign_branch entity branch within the meaning of sec_1_367_a_-6t entity branch is a separate_unit described in sec_1_1503-2 dual consolidated losses were attributable to entity branch in year no dual consolidated losses were attributable to the interest in entity entity is disregarded as an entity separate from its owner the interest in entity is a hybrid_entity_separate_unit as described in sec_1_1503-2 entity has activities in its country of incorporation that constitute a foreign_branch entity branch within the meaning of sec_1_367_a_-6t entity branch is a separate_unit described in sec_1_1503-2 dual consolidated losses were attributable to entity branch in year no dual consolidated losses were attributable to the interest in entity entity is disregarded as an entity separate from its owner the interest in entity is a hybrid_entity_separate_unit as described in sec_1_1503-2 entity has activities in its country of incorporation that constitute a foreign_branch entity branch within the meaning of sec_1_367_a_-6t entity branch is a separate_unit described in sec_1_1503-2 dual consolidated losses were attributable to entity branch in year no dual consolidated losses were attributable to the interest in entity entity is disregarded as an entity separate from its owner the interest in entity is a hybrid_entity_separate_unit as described in sec_1_1503-2 entity has activities in its country of incorporation that constitute a foreign_branch entity branch within the meaning of sec_1_367_a_-6t entity branch is a separate_unit described in sec_1_1503-2 dual consolidated losses were attributable to entity branch in year no dual consolidated losses were attributable to the interest in entity entity is disregarded as an entity separate from its owner the interest in entity is a hybrid_entity_separate_unit as described in sec_1_1503-2 entity has activities in its country of incorporation that constitute a foreign_branch entity branch within the meaning of sec_1_367_a_-6t entity branch is a separate_unit described in sec_1_1503-2 dual consolidated losses were attributable to entity branch in year no dual consolidated losses were attributable to the interest in entity entity is disregarded as an entity separate from its owner the interest in entity is a hybrid_entity_separate_unit as described in sec_1_1503-2 entity has activities in its country of incorporation that constitute a foreign_branch entity branch within the meaning of sec_1_367_a_-6t entity branch is a plr-158061-06 separate_unit described in sec_1_1503-2 dual consolidated losses were attributable to entity branch in year no dual consolidated losses were attributable to the interest in entity taxpayer’s tax department prepared taxpayer’s returns for the years in question taxpayer engaged cpa firm and cpa firm to review its returns for the years in question neither cpa firm nor cpa firm advised taxpayer to file the necessary elections and agreements under sec_1_1503-2 or sec_1_1503-2t g i with respect to the dual consolidated losses_incurred in the years in question taxpayer represents that it filed this application_for relief before the internal_revenue_service discovered the failure_to_file the necessary elections and agreements under sec_1_1503-2 or sec_1_1503-2t g i as applicable with respect to the dual consolidated losses_incurred in the years in question sec_301_9100-3 taxpayer represents that the income_tax laws of country a do not deny the use of losses expenses or deductions of entity to offset income of another person because the dual_resident_corporation or separate_unit is also subject_to income_taxation by another country on its worldwide income or on a residence basis sec_301_9100-1 provides that the commissioner has discretion to grant a taxpayer a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 provides that an election includes an application_for relief in respect of tax and defines a regulatory election as an election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government in the present situation the filings described in sec_1_1503-2 and sec_1_1503-2t g are regulatory elections as defined in sec_301 b therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayer an extension of time provided that taxpayer satisfies the rules set forth in sec_301_9100-3 plr-158061-06 based on the facts and information submitted we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time of days from the date of this ruling letter to file the elections and agreements under sec_1_1503-2 or sec_1_1503-2t g i as applicable for the dual consolidated losses_incurred in some or all of year sec_1 through as set forth above by entity branch entity branch entitie sec_3 through entity branch entity branch entity branch entity entity branch entity branch entity branch entity branch entity branch and entity branch taxpayer is not required to file annual certifications with respect to these dual consolidated losses because these branches are separate units described in sec_1_1503-2 and therefore an extension of time is not necessary in this regard sec_1_1503-2 the granting of an extension of time is not a determination that taxpayer is otherwise eligible to file the election agreement sec_301_9100-1 for example a taxpayer that is subject_to mirror legislation enacted by a foreign_country may be ineligible to file election agreements pursuant to sec_1_1503-2 a copy of this ruling letter should be associated with the elections that are the subject of this ruling this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent no ruling has been requested and none is expressed as to the application of any other section of the code or regulations to the facts presented pursuant to a power_of_attorney on file in this office a copy of this ruling letter is being furnished to taxpayer’s authorized representative sincerely associate chief_counsel international by richard l chewning senior counsel office of the associate chief_counsel international enclosure copy for purposes


internal_revenue_service number release date index number -------------------------------- --------------------------- ------------------------------------------------------------ ------------- ---------------------------------------------------- ---------------------------------------- department of the treasury washington dc person to contact ------------------------- id no ----------------- ----------------------------------------------------- telephone number --------------------- refer reply to cc fip b02 plr-114496-09 date july legend taxpayer ----------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------- ----------------------------------------------------------------------- year properties lp a b c d e f g h month ------- ---------------------------- ------------------------------- ---- ---- -------------- -------------- ----------------- -------------- ---------- -------------- ------------- plr-114496-09 i j k l m n -------------- ------------------------------ ---------- ---------------------- --------------------- ------ dear -------------------- this is in reply to a letter dated date and subsequent correspondence requesting a ruling on behalf of taxpayer you have requested a ruling that certain_sales of properties as described below will not be characterized as net_income from prohibited_transactions under sec_857 of the internal_revenue_code additionally you have requested a ruling that dividend distributions and security repurchases described herein will not be characterized as partial liquidations under sec_302 and e facts taxpayer is a publicly traded domestic_corporation that has been taxed as a real_estate_investment_trust since year taxpayer is engaged in the ---------------- ------------ -------------------------------------------------------------of properties located throughout the united_states taxpayer conducts its business through lp an operating partnership in which taxpayer owns approximately a percent of the equity interests taxpayer is the sole managing partner of lp lp directly owns approximately b percent of the properties the remaining properties are held by lower tier_partnerships and taxable reit subsidiaries that are directly or indirectly wholly-owned by lp as well as by partnerships with third-parties in which lp is generally the property manager and directly or indirectly the sole managing partner taxpayer regularly reviews its portfolio to identify properties that do not meet its long-term investment criteria taxpayer represents that it has historically sold properties to reposition its holdings --------------------------------------and remained within the prohibited_transactions safe_harbor provided in sec_857 for example taxpayer represents that as of date its aggregate adjusted bases of its properties for purposes of computing earnings_and_profits was c dollars which made its plr-114496-09 percent safe_harbor_limitation d dollars for purposes of sec_857 the properties sold in had aggregate bases of e dollars thereby satisfying the bases limitation taxpayer also represents that it satisfied the other prohibited_transactions safe_harbor conditions taxpayer represents that it presently has f dollars of -------------------------------------- debt that needs to be repaid and approximately g dollars of mortgage debt taxpayer’s current h dollar working_capital line of credit matures in month in addition taxpayer has properties in certain major markets that are experiencing -------------------------- these factors have made refinancing these liabilities difficult taxpayer has also experienced a precipitous drop in its common_stock price over the past twelve months that makes it impractical and inefficient to use stock issuance as a capital raising strategy to generate cash to address ---------------------------------------- taxpayer proposes to sell approximately i properties the sale properties having an aggregate asset value of approximately j dollars out of taxpayer’s estimated total gross asset value of approximately k dollars the sale properties are secured_by mortgage debt and have a net value of approximately l dollars taxpayer seeks to act quickly to capitalize on its current capacity to sell the sale properties at attractive prices so that it may move forward ------ ---------------------- the sale properties are expected to generate additional proceeds of approximately l dollars to taxpayer after satisfaction of associated property-level debt of approximately m dollars taxpayer intends to use the proceeds to repay debt establish a cash reserve for other maturing mortgage debt and increase its working_capital position taxpayer may also use some of the proceeds to repurchase stock there is no current plan or intention to acquire additional properties with the proceeds taxpayer represents that they have never been and have no intention of becoming a dealer as the term is used in reference to the prohibited_transaction provision of sec_857 the proposed sales will generate taxable_income for taxpayer taxpayer indicates that any dividend distributions resulting from the property sales will be in the form of a percent cash percent stock_distribution that will conform to the provisions of revproc_2009_15 2009_4_irb_356 although taxpayer expects the proposed property sales to result in a ---------------------------in revenue and employees the net reduction in taxpayer’s net asset value is expected to be less than n percent of its pre-transaction net asset value in addition taxpayer represents that the total amount of cash proceeds from the proposed sales i that may be distributed in the cash portion of the dividend distributions attributable to income from the proposed sales and ii that may be used for equity repurchases will not exceed n percent of taxpayer’s net asset value prior to the proposed sales the majority of the proceeds from the proposed property sales are expected to be used for corporate purposes other than the payment of a dividend such as repayment of debt increasing working_capital and plr-114496-09 repurchasing stock taxpayer further represents that in no event will the cash portion of the stock election dividend when combined with any equity repurchases constitute percent or more or taxpayer’s net transaction proceeds law and analysis issue prohibited_transactions sec_857 of the code imposes a tax for each taxable_year of a reit equal to percent of the net_income_derived_from_prohibited_transactions under sec_857 the term prohibited_transaction means a sale_or_other_disposition of property described in sec_1221 that is not foreclosure_property sec_857 excludes certain_sales from the definition of a prohibited_transaction under sec_857 the term prohibited_transaction does not include the sale of property which is a real_estate asset as defined in sec_856 and which is described in sec_1221 if - i ii iii iv v the reit has held the property for not less than years the aggregate expenditures made by the reit or any partner of the reit during the 2-year period preceding the date of sale that are includible in the basis of the property do not exceed percent of the net selling_price of the property i during the taxable_year the reit does not make more than sales of property other than sales of foreclosure_property or sales to which sec_1033 applies or ii the aggregate bases as determined for computing earnings_and_profits of property other than sales of foreclosure_property or sales to which sec_1033 applies sold during the taxable_year does not exceed percent of the aggregate bases of all the assets of the reit as of the beginning of the taxable_year or iii the fair_market_value of property other than sales of foreclosure_property or sales to which sec_1033 applies sold during the taxable_year does not exceed percent of the fair_market_value of all the assets of the reit as of the beginning of the taxable_year in the case of property which consists of land or improvements not acquired through foreclosure or deed in lieu of foreclosure or lease termination the reit has held the property for not less than years for production of rental income and if the requirement of clause iii i is not satisfied substantially_all of the marketing and development_expenditures with respect to the property were made through an independent_contractor as defined in sec_856 from whom the reit itself does not derive or receive any income plr-114496-09 property described in sec_1221 includes property held by a taxpayer primarily_for_sale_to_customers in the ordinary course of its trade_or_business the legislative_history underlying sec_857 which was added to the code by the tax reform act of indicates that the purpose of that section was to prevent a reit from retaining any profit from ordinary retailing activities such as sales to customers of condominium units or subdivided lots in a development project s rep no 84th cong 2d sess vol c b to determine whether a taxpayer holds property primarily_for_sale_to_customers in the ordinary course of its trade_or_business the tax_court has held that several factors must be considered none of which is dispositive among those factors are the nature and purpose of the acquisition of the property and the duration of the ownership the extent and nature of the taxpayer’s efforts to sell the property the number extent continuity and substantiality of the sales the extent of subdividing developing and advertising to increase sales and the time and effort the taxpayer habitually devoted to the sales generally it is the purpose for which property is held at the time of the sale that is determinative although earlier events may be considered to decide the taxpayer’s purpose at the time of the sale see 89_tc_467 taxpayer has made the following representations that address its purposes with respect to the sale properties it acquired and has held the sale properties for long- term investment and rental purposes and its plan to sell the sale properties has arisen in response to extreme economic conditions it has actively managed all of the sale properties as rental properties during its entire period of ownership generating significant amounts of rental income and cash_flow from the sale properties taxpayer will have held each of the sale properties for at least two years prior to its sale and has an average holding_period in the sale properties of approximately nine years capital spending on the sale properties has been to maintain the sale properties or to offset depreciation substantially_all marketing and development_expenditures with respect to the sale properties are performed by independent third parties the facts and representations in this case amply demonstrate that taxpayer’s need to sell the sale properties results from the extreme economic conditions taxpayer is not holding the sale properties for sale to customers in the ordinary course of its trade_or_business rather taxpayer is engaged in the business of acquiring managing and holding properties for investment purposes accordingly we conclude that the gain recognized from the proposed sale of the sale properties will not be characterized as net_income from prohibited_transactions under sec_857 plr-114496-09 issue partial_liquidation sec_302 provides that a redemption of stock to which sec_302 applies shall be treated as a distribution in part or full payment in exchange for the redeemed stock sec_302 provides that sec_302 applies to a distribution if the distribution is in redemption of stock held by a shareholder who is not a corporation and the distribution is in partial_liquidation of the distributing_corporation sec_302 provides that a distribution shall be treated as a partial_liquidation of the corporation if the distribution is not essentially the equivalent of a dividend determined at the corporate level rather than the shareholder level and the distribution is pursuant to a plan and occurs within the taxable_year in which the plan is adopted or within the succeeding taxable_year based upon the information received and the representations made by taxpayer we conclude that the dividend distributions and security repurchases described above will not be characterized as partial liquidations under sec_302 and e except as specifically ruled upon above no opinion is expressed concerning any federal_income_tax consequences relating to the facts herein under any other provision of the code specifically we do not rule whether taxpayer otherwise qualifies as a reit under part ii of subchapter_m of chapter of the code this ruling is directed only to the taxpayer requesting it taxpayer should attach a copy of this ruling to each tax_return to which it applies sec_6110 of the code provides that this ruling may not be used or cited as precedent sincerely david b silber________ david b silber chief branch office of associate chief_counsel financial institutions products


department of the treasury internal_revenue_service tege eo examinations mail stop dal commerce st dallas tx number release date date legend org organization name xx date address address org address dear person to contact identification_number contact telephone number in reply refer to te_ge review staff ein this is a final adverse determination_letter as to the org’s exempt status under sec_501 of the internal_revenue_code our adverse determination was made for the following reasons the org has not been operating exclusively for exempt purposes within the meaning of internal_revenue_code sec_501 you are also not a charitable_organization within the meaning of sec_1_501_c_3_-1 you are not an organization which operates exclusively for one or more of the exempt purposes which would qualify it as an exempt_organization you operate substantially for a non-exempt purpose for private benefit and your earnings inure to the benefit of the officers of the organization based upon these reasons your sec_501 tax exempt status is revoked effective january 20xx processing of income_tax returns and assessment of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code contributions to your organization are no longer deductible under sec_170 of the internal_revenue_code if you decide to contest this determination in court you must initiate a suit for declaratory_judgment in the united_states tax_court the united_states claim court or the district_court of the united_states for the district of columbia before the day after the date this determination was mailed to you contact the clerk of the appropriate court for the rules for initiating suits for declaratory_judgment you also have the right to contact the office_of_the_taxpayer_advocate however you should first contact the person whose name and telephone number are shown above since this person can access your tax information and can help you get answers you can call and ask for taxpayer_advocate assistance or you can contact the taxpayer_advocate from the site where the tax_deficiency was determined by calling or writing to internal_revenue_service taxpayer advocates office broadway sin fi new york ny taxpayer_advocate assistance cannot be used as a substitute for established irs procedures formal appeals processes etc the taxpayer_advocate is not able to reverse legal or technically correct_tax determinations nor extend the time fixed by law that you have to file a petition in the united_states tax_court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling we will notify the appropriate state officials of this action as required by sec_6104 of the internal_revenue_code if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours nanette m downing director eo examinations internal_revenue_service date date org address department of the treasury internal_revenue_service te_ge eo examinations commerce street mc dal dallas tx taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under sec_501 of the internal_revenue_code code is necessary if you accept our findings take no further action we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision your protest should include a statement of the facts the applicable law and arguments in support of your position an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process you may also request that we refer this matter for technical_advice as explained in publication if we issue a determination_letter to you based on technical_advice no further administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice letter rev catalog number 34809f if we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notify the appropriate state officials of the revocation in accordance with sec_6104 of the code you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation sincerely sunita lough director eo examinations enclosures publication publication report of examination letter rev catalog number 34809f form_8 a name of taxpayer schedule no or exhibit year period ended explanation of items department of the treasury - internal_revenue_service 20xx12 org legend org organization name xx date issue whether the org the organization qualified for exemption under sec_501 before the cessation of its activities in 20xx facts org is recognized as a section sec_501 tax exempt_organization according to its certificate of incorporation and form_1023 application_for recognition of exemption under sec_501 of the internal_revenue_service the primary purposes of the organization are as follows providing food and shelter as well as legal medical financial and moral support to the victims of crimes and terrorist activity around the world medical support will be in the form of charitable donations of medical equipment and supplies to the medical facilities and hospitals treating the victims exemption under sec_501 was granted based on these activities the organization is no longer operating it filed a final return for its fiscal_year ending december 20xx the organization’s primary activity was organizing and staging protests against terrorism according to written materials supplied during the examination those who participated in the protests were compensated in cash with no formal documentation other than checks written to cash further there were numerous electronic transfers of money into the organization’s accounts from various parts of the world there was no documentation as to why these funds were wired or from whom these funds were wired the bank records for the wired transactions simply indicated the country from which the money was sent during the year under examination it was also noted the organization issued several checks in the name of its vice president totaling dollar_figure as compensation the form_1099 completed ostensibly to report this compensation was never filed with the service notwithstanding the fact that officers such as vice presidents are statutory employees and should have been issued a form w- and had employment_tax withheld further several currency transaction reports completed in 20xx indicate withdrawals were made from the organization’s bank account totaling dollar_figure by the vice president there was no documented business_purpose for these cash withdrawals totaling dollar_figure law sec_501 exempts from federal_income_tax corporations and any community chest fund or foundation organized and operated exclusively for religious charitable scientific testing for public safety literary or educational_purposes or for the prevention of cruelty to children or animals no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual no substantial part of the activities of which is carrying on propaganda form 886-a rev department of the treasury - internal_revenue_service page -1- form_8 a name of taxpayer schedule no or exhibit year period ended explanation of items department of the treasury - internal_revenue_service 20x12 org or otherwise attempting to influence legislation and which does not participate in or intervene in including the publishing or distributing of statements any political campaign on behalf of any candidate for public_office sec_1_501_c_3_-1 provides that an organization is not operated exclusively for one or more exempt purposes if its net_earnings inure in whole or in part to the benefit of private shareholders or individuals the words private_shareholder_or_individual refer to persons having a personal and private interest in the activities of the organization sec_1_501_c_3_-1 provides an organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest thus to meet the requirement of this subdivision it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests sec_1_501_c_3_-1 assigns the burden_of_proof to an organization to show that it serves a public rather than a private interest and specifically that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests in revrul_67_5 1967_1_cb_123 it was held that a foundation controlled by the creator’s family was operated to enable the creator and his family to engage in financial activities which were beneficial to them but detrimental to the foundation it was further held that the foundation was operated for a substantial non-exempt purpose and served the private interests of the creator and his family therefore the foundation was not entitled to exemption from federal_income_tax under sec_501 in 326_us_279 the united_states supreme court held that regardless of the number of truly exempt purposes the presence of a single substantial non-exempt purpose will preclude exemption under sec_501 sec_6001 requires every person liable for any_tax imposed by this title or for the collection thereof to keep such records and comply with the rules and regulations prescribed by the secretary sec_6033 provides except as provided in sec_6033 every organization exempt from tax under sec_501 shall file an annual return stating specifically the items of gross_income receipts and disbursements and such other information for the purposes of carrying out the internal revenue laws as the secretary may by forms or regulations prescribe and keep such form 886-a rev department of the treasury - internal_revenue_service page -2- department of the treasury - internal_revenue_service form_8 a name of taxpayer schedule no or exhibit year period ended explanation of items 20xx12 org records render under oath such statements make such other returns and comply with such rules and regulations as the secretary may from time to time prescribe sec_1_6001-1 states that the books_or_records required by this section shall be kept at all times available for inspection by authorized internal revenue officers or employees and shall be retained as long as the contents thereof may be material in the administration of any internal revenue law sec_1_6033-1 provides that every organization which has established its right to exemption from tax whether or not it is required to file an annual return of information shall submit such additional information as may be required by the district_director for the purpose of enabling him to inquire further into its exempt status and to administer the provisions of subchapter_f sec_501 and the following chapter of the code and sec_6033 government’s position the organization did not meet the burden_of_proof required by sec_1 c - d ii to show that the organization served a public rather than a private interest no documentation was provided to explain who and for what purpose funds were transferred into the organization’s bank accounts a substantial part of the organization’s expenses were paid to cash again there was no documentation as to whom the money was paid or for what specific purpose it was paid the organization which is controlled by the board_of directors enabled the vice president to engage in financial activities which were beneficial to him but detrimental to the organization accordingly the organization was operated for a substantial non-exempt purpose see revrul_67_5 the organization failed to meet the reporting requirements under sec_6001 and sec_6033 as noted in the following instances the organization was unable to show a business_purpose for withdrawals from the organization’s bank accounts that were transacted by the vice president this is also a violation of the prohibition of inurement provision of sec_501 the organization was unable to substantiate conducting any of its organizational purposes as restated in the first paragraph of this document under the caption facts therefore exemption was granted based on activities other than those which were actually carried on the organization was unable to adequately document its stated purposes organizing and staging protest against terrorism as stated on its form_990 for the year ending december 20xx form 886-a rev department of the treasury - internal_revenue_service page -3- form_886 a name of taxpayer schedule no or exhibit year period ended explanation of items - internal_revenue_service department of the treas 20xx12 org conclusion the organizations failed to meet the operational_test of sec_1_501_c_3_-1 the organization failed to meet the reporting requirements under sec_6001 and sec_6033 the organization failed to show its financial transactions served a public rather than private interests as required by sec_1_501_c_3_-1 accordingly the organization’s exempt status is revoked effective january 20xx form 886-a rev department of the treasury - internal_revenue_service page -4-


department of the treasury washington dc person to contact ---------------------- id no ---------------- telephone number -------------------- refer reply to cc ita b05 plr-134945-15 date date internal_revenue_service number release date index number -------------------------------------- ------------------------------------ -------------------------------- ty ------ taxpayer -------------------------------- year ------ year ------ year ------ year ------ company a -------------------------- company b ------------------ e dollar_figuref dollar_figureg dollar_figureh dollar_figurei dollar_figurej dollar_figurek dollar_figurel dollar_figurem dollar_figuren dollar_figureo dollar_figurep --------- ---------------- -------------- --------- ------- ------------- --------- --------- ------------- ---------- ---------- ---------- dear -------------------------------- this is in reply to the taxpayer’s request for a ruling requesting permission to use an alternative method of basis recovery under sec_15a_453-1 of the temporary regulations under the installment_sales revision act of to report payments from a contingent_payment_sale in accordance with sec_15a_453-1 the taxpayer filed its ruling_request prior to the due_date including extensions of its year tax_return facts plr-134945-15 the taxpayer uses a cash_basis method_of_accounting and a calendar tax_year he is the tax owner under sec_671 of the code of trust c and through that trust was the beneficial_owner of approximately e of company a an s_corporation on a fully-diluted basis after considering fully vested option holders of the company in year company a entered into a merger with company b a publically-traded corporation whereby company a would become the wholly-owned indirect subsidiary of company b consideration in the form of cash and company b shares was paid to company a shareholders in an initial_amount of dollar_figuref payable in year and then three deferred payments payable on the successive anniversaries of the merger closing in year year and year the deferred payments are each an amount equal to dollar_figureg multiplied by a fraction with a numerator equal to the average of the closing market prices of company b shares over the previous five trading days and a denominator equal to dollar_figureh the approximate share price of company b at the time of the merger the first deferred payment also included adjustments consisting of certain post-merger true-ups by the time of the first deferred payment in year share prices for company b had declined to dollar_figurei based on this share price the first deferred payment was dollar_figurej the taxpayer estimates that its share of the deferred payments after accounting for remaining transaction costs will be year dollar_figurek year dollar_figurel year dollar_figurel in total the taxpayer estimates based on the year share price that taxpayer’s share of the purchase_price it will receive in exchange for taxpayer’s ownership_interest in company a will be dollar_figurem further taxpayer’s tax basis in its ownership_interest at the time of sale was dollar_figuren the taxpayer requests a ruling that it be permitted to use an alternative method of basis recovery as described below under sec_15a_453-1 to report payments from the contingent_payment_sale of taxpayer’s ownership_interest in company a to company b because the normal basis recovery rule set forth in sec_15a_453-1 will substantially and inappropriately defer recovery_of basis based on company b’s share price pursuant to sec_15a_453-1 taxpayer asserts that its proposed alternative method of basis recovery is a reasonable method of ratably recovering basis and that over time taxpayer likely will recover basis at a rate at least twice as fast as the rate at which basis would have been recovered under the otherwise applicable normal basis recovery rule law and analysis plr-134945-15 sec_453 of the code provides as a general_rule that income from an installment_sale shall be taken into account under the installment_method for federal_income_tax purposes sec_453 defines the term installment_sale to mean a disposition of property if at least one payment is to be received after the close of the taxable_year in which the disposition occurs the term installment_method is defined in sec_453 as a method under which the income recognized for any taxable_year from a disposition is that proportion of the payments received in that year which the gross_profit realized or to be realized when the payment is completed bears to the total_contract_price sec_453 provides that the secretary_of_the_treasury shall prescribe regulations providing for ratable basis recovery in transaction where the gross_profit or the total_contract_price or both cannot be readily ascertained sec_15a_453-1 of the temporary income_tax regulations defines a contingent_payment_sale as a sale_or_other_disposition of property in which the aggregate selling_price cannot be determined by the close of the taxable_year in which such sale_or_other_disposition occurs unless a taxpayer makes an election under sec_15a_453-1 contingent_payment_sales are to be reported on the installment_method sec_15a_453-1 provides that a contingent_payment_sale will be treated as having a maximum selling_price if under the terms of the agreement the maximum amount of sales proceeds that may be received by the taxpayer can be determined as of the end of the taxable_year in which the sale_or_other_disposition occurs generally the taxpayer’s basis shall be allocated to payments received and to be received by treating the stated maximum selling_price as the selling_price for purposes of sec_15a b if however application of the foregoing rules in a particular case would substantially and inappropriately accelerate or defer recovery_of the taxpayer’s basis a special rule will apply the taxpayer has made an installment_sale for a fixed period but for a contingent sales_price accordingly taxpayer is subject_to the rules of sec_15a_453-1 that section provides generally that when a stated maximum selling_price cannot be determined as of the close of the taxable_year in which the sale_or_other_disposition occurs but the maximum period over which payments may be received under the contingent sale price agreement is fixed the taxpayer’s basis shall be allocated to the taxable years in which payments are to be received in equal annual increments additionally sec_15a_453-1 provides generally that if in any taxable_year no payment is received or the payment received is less than the basis allocated to that year no loss shall be allowed unless the taxable_year is the final payment year under the agreement when no loss is allowed the unrecovered portion of basis allocated to the taxable_year is carried forward to the next succeeding taxable_year plr-134945-15 sec_15a_453-1 further provides that a special rule under sec_15a c will apply if application of the foregoing general rules would substantially and inappropriately accelerate or defer recovery_of the taxpayer’s basis in a particular case sec_15a_453-1 provides that the normal basis recovery rules set forth in sec_15a_453-1 may with respect to a particular contingent_payment_sale substantially and inappropriately defer recovery_of the taxpayer’s basis sec_15a_453-1 provides that the taxpayer may use an alternative method of basis recovery if the taxpayer is able to demonstrate prior to the due_date of the return including extensions for the taxable_year in which the first payment is received that application of the normal basis recovery rule will substantially and inappropriately defer recovery_of basis to demonstrate that application of the normal basis recovery rule will substantially and inappropriately defer recover of basis the taxpayer must show a that the alternative method is a reasonable method of ratably recovering basis and b that under that method it is reasonable to conclude that over time the taxpayer likely will recover basis at a rate twice as fast as the rate at which basis would have been recovered under the otherwise applicable normal basis recovery rule the taxpayer must receive a ruling from the internal_revenue_service before using an alternative method of basis recovery sec_15a_453-1 further provides that the taxpayer must file the request for a ruling prior to the due_date for the return including extensions in demonstrating that application of the normal basis recovery rule would substantially and inappropriately defer recovery_of the taxpayer’s basis the taxpayer in appropriate circumstances may rely upon contemporaneous or immediate past relevant sales profit or other factual data that are subject_to verification the taxpayer ordinarily is not permitted to rely upon projections of future productivity receipts profits or the like however in special circumstances a reasonable projection may be acceptable based upon a specific event that has already occurred based on share prices in year the taxpayer expects to receive the following payments in the years noted below year dollar_figureo year dollar_figurek year dollar_figurel year dollar_figurel pursuant to sec_15a_453-1 when a stated maximum selling_price cannot be determined as of the close of the taxable_year in which a sale_or_other_disposition occurs but the maximum period over which payments may be received under the contingent sales_price agreement is fixed the taxpayer’s basis inclusive of selling_expenses shall be allocated to the taxable years in which payment may be received under the agreement in equal annual increments because in this case the stated maximum selling_price was not determinable as of the close of year but the maximum plr-134945-15 period over which the payments may be received under the contingent purchase agreement is fixed ie years under the normal basis recovery rule the taxpayer’s basis should be allocated to the taxable years in which payment may be received under the purchase agreement in equal annual increments the application of this rule assuming no change in company b’s stock price from year is illustrated in scenario below beginning basis -------------------- ---------------------- ------------------ ----------------- ----------------- -------------------- --------------------- ------------------- ---------------------- ------------------------- ------------------------- year ----------- year ----------- year ----------- year ----------- ------------ ----------- ----------- ----------- ------------ ------------ --- ------ ------------ ------------ ------------ ---- ------------ ------------ ------------ ---- ------------ --- ------------ ------ note in year the amount of deferred basis would be dollar_figurep which would be recognized as a loss as is demonstrated in scenario above application of the normal basis recovery rule set forth in sec_15a_453-1 assuming no change in company b’s stock price would substantially and inappropriately defer recovery_of basis based on immediate past relevant share prices resulting in a disproportionately large gain in year and a disproportionately large loss in year pursuant to sec_15a_453-1 the taxpayer may use an alternative method of basis recovery if the taxpayer can show that a the alternative method is a reasonable method of ratably recovering basis and b under the alternative method it is reasonable to conclude that over time the taxpayer likely will recover basis at a rate twice as fast as the rate at which basis would have been recovered under the otherwise applicable normal basis recovery rule under the taxpayer’s proposed alternative method the taxpayer will allocate the ratio of basis to each installment_payment as that installment_payment bears to the estimated amount of aggregate payments_to_be_received by the taxpayer during the 4-year term of the installment_obligation based on the year stock price the basis recovery would be as reflected in scenario below plr-134945-15 scenario - alternative basis recovery beginning basis ------------------------------------ -------------------------------- ------------------------- --------------------- year ------------ ------------ ------ ------------ ------------ year ------------ ----------- ---- ----------- ----------- year ----------- ----------- ---- ----------- ----------- year ----------- ----------- ----------- ---- --- as illustrated above the taxpayer’s proposed alternative basis recovery method is a reasonable method of ratably recovering basis and the taxpayer will recover basis at a rate twice as fast as the rate at which basis would have been recovered under the normal basis recovery rule based on the information provided by the taxpayer the proposed alternative basis recovery methodology thus satisfies the requirements of sec_15a_453-1 conclusion based on the information provided and the representations made we conclude that the taxpayer’s proposed alternative basis recovery method is a reasonable method of ratably recovering basis and that the use of the proposed alternative method of basis recovery will result in basis recovery at a rate more than twice as fast as the rate at which basis would be recovered under the normal basis recovery rules accordingly the taxpayer’s use of the proposed alternative method of basis recovery is approved except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling plr-134945-15 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely william a jackson branch chief branch income_tax accounting cc


t c memo united_states tax_court james f moore petitioner v commissioner of internal revenue respondent docket no filed date keith wolak for petitioner k elizabeth kelly and mayer y silber for respondent memorandum findings_of_fact and opinion vasquez judge respondent determined a deficiency of dollar_figure in petitioner’s federal_income_tax after a concession by respondent the sole issue for decision is whether respondent concedes that petitioner is not liable for an accuracy-related_penalty under sec_6662 unless otherwise indicated all section references are to the internal revenue continued payments of dollar_figure petitioner made to his ex-wife in are deductible as alimony under sec_215 findings_of_fact some of the facts have been stipulated and are so found the stipulations of facts and the attached exhibits are incorporated herein by this reference petitioner resided in illinois at the time the petition was filed petitioner was formerly married to elaine moore ms moore on date the superior court of porter county indiana state court entered an agreed dissolution decree the decree dissolving their marriage paragraph of the decree states as and for maintenance husband shall pay and save wife harmless from the mortgage taxes and insurance on the marital home as they now exist husband shall receive the deductions for said payments this obligation is not modifiable except as herein after stated husband’s payment of these obligations shall not be taxable to wife husband shall save wife harmless from all tax obligations as a result of paying these obligations if wife sells the marital home she shall pay off the then existing mortgage and husband shall pay wife the mortgage pay-off figure at eight percent over the same time period of the mortgage which is paid off ie so his obligation is complete by the end of november continued code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure in date ms moore sold the marital home2 and paid off the existing mortgage of dollar_figure pursuant to the decree petitioner became obligated to reimburse ms moore the dollar_figure she used to pay off the mortgage in early petitioner filed an appeal with the indiana court_of_appeals concerning his reimbursement obligation in date petitioner and ms moore entered into a settlement agreement in which petitioner’s maintenance obligation would terminate upon his paying ms moore dollar_figure in petitioner made payments to ms moore of dollar_figure4 and deducted these amounts as alimony on his form_1040 u s individual_income_tax_return for respondent subsequently determined that petitioner’s payments were not deductible as alimony opinion deductions are a matter of legislative grace and the taxpayer bears the burden of proving his entitlement to the claimed deduction rule a indopco inc v commissioner under the decree ms moore received full ownership of the marital home the grounds of the appeal are unclear from the record petitioner made the following payments to ms moore during dollar_figure on jan dollar_figure on feb dollar_figure on mar and dollar_figure on apr 503_us_79 292_us_435 sec_215 permits a deduction for the payment of alimony during a taxable_year sec_215 defines alimony as alimony which is includable in the gross_income of the recipient under sec_71 sec_71 defines alimony as any cash payment meeting the four criteria provided in subparagraphs a through d of that section accordingly if sec_71 provides sec_71 alimony or separate_maintenance payments defined --for purposes of this section-- in general --the term alimony_or_separate_maintenance_payment means any payment in cash if-- a such payment is received by or on behalf of a spouse under_a_divorce_or_separation_instrument b the divorce_or_separation_instrument does not designate such payment as a payment which is not includible in gross_income under this section and not allowable as a deduction under sec_215 c in the case of an individual legally_separated from his spouse under a decree of divorce or of separate_maintenance the payee spouse and the payor spouse are not members of the same household at the time such payment is made and d there is no liability to make any such payment for any period after the death of the payee spouse and there is no liability to make any payment in cash or property as a substitute for such payments after the death of the payee spouse any portion of the payments made by petitioner fails to meet any one of the four enumerated criteria that portion is not alimony and petitioner cannot deduct it respondent agrees that the requirements of subparagraphs a and c have been satisfied he argues however that petitioner’s payments to ms moore do not satisfy subparagraphs b and d respondent maintains that subparagraph b is not satisfied because paragraph of the decree states that the payments are not income to ms moore and that subparagraph d is not satisfied because the payments do not terminate on the death of ms moore petitioner argues that the language in paragraph excluding the payments from ms moore’s income does not apply to the payments made after the marital home was sold and that the payments terminate on ms moore’s death by operation of indiana law under sec_71 in order to deduct a payment as alimony the payor must have no liability to continue making payments after the recipient’s death otherwise the payor may not deduct any required related payments see 541_f3d_973 9th cir affg tcmemo_2006_105 407_f3d_186 3d cir affg tcmemo_2003_163 if the divorce instrument is silent as to the existence of a postdeath obligation the requirements of sec_71 may still be satisfied if the payments terminate upon the payee spouse’s death by operation of state law johanson v commissioner supra pincite if state law is ambiguous in this regard however a federal court will not engage in complex subjective inquiries under state law rather the court will read the divorce instrument and make its own determination based on the language of the document 102_f3d_842 6th cir affg tcmemo_1995_183 the divorce decree is silent as to whether petitioner’s obligation to reimburse ms moore terminates in the event of ms moore’s death thus we consider whether the obligation to make payments terminates upon ms moore’s death by operation of indiana law indiana statutory law is silent as to whether the obligation to make maintenance payments terminates on the death of the payee spouse the parties point us to no caselaw and we have discovered none that expressly states whether the obligation of maintenance terminates upon the death of the payee spouse therefore we conclude that indiana law is ambiguous finally faced with a silent divorce decree and no state law resolution of the question we independently review the decree to make our own determination as to the satisfaction of the sec_71 requirement see hoover v commissioner supra pincite we do not read the decree as requiring the termination of payments in the event of ms moore’s death under the decree petitioner’s obligation is terminated only by satisfaction of the mortgage or reimbursement to ms moore of the mortgage payoff amount in fact petitioner stated that the termination of the petitioner relies on haville v haville n e 2d ind shepard c j concurring to support his argument that the obligation to pay maintenance terminates by operation of indiana law in haville the concurring opinion states that even during the days of alimony the rule was that periodic alimony payments made to support a former spouse as opposed to alimony provided in lieu of a share of property terminated upon the death of the payee spouse id citing ind acts ch s p and white v white n e 2d ind ct app while this statement appears to be favorable to petitioner his reliance on this concurring opinion is misplaced the issue in haville was whether maintenance may be ordered to continue after the death of the payor spouse the majority never addressed the effect of the death of the payee spouse on maintenance id pincite furthermore the authority relied on by the concurring opinion does not state that the obligation to pay maintenance terminates on death of the payee spouse rather the statute and the opinion cited in the concurrence state that a court may provide for the discontinuance or reduction of periodic_payments of alimony upon death or remarriage of the payee spouse see white v white supra pincite no indiana statute or opinion says that the payor’s obligation to pay alimony terminates upon the death of the payee spouse payments was tied to the mortgage payoff period and not a particular need of ms moore we have no reason to conclude that petitioner’s obligation to reimburse the amount of the mortgage payoff would have terminated on ms moore’s death hence the payments do not satisfy the requirements of sec_71 and petitioner is not entitled to deduct as alimony the dollar_figure of payments to his wife in to reflect the foregoing decision will be entered under rule because petitioner fails to show that the payments comply with subpar d we need not determine whether they satisfied subpar b


ta x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n department of the treasury internal rev enue se rvice washington d c ein contact number contact person identification_number release number release date date date uil se t eo ra t legend c d e f dear ------------------ this is in response to your request for a ruling regarding a proposed sale of real_property facts you are a charitable_trust organized under the laws of the state of c you are exempt under sec_501 of the code as an organization described in sec_501 and are recognized as a private_operating_foundation under sec_4940 your trust instrument directs your trustees to use your property for the benefit of orphans and other destitute children in the state of c and directs the trustees to retain and invest a sufficient portion of the trust corpus in income-producing property or securities to provide for the continued maintenance and support of your charitable activities you own over big_number acres of land approximately of which is under conservation or agricultural land use restrictions your founder gave you the majority of this land nearly years ago you have maintained the majority of this land to produce rental income to fund your charitable and educational activities in particular you operate nine children’s centers in c to provide counseling support and education to children and their families caregivers and to help communities strengthen their systems of care available to orphans and destitute children between and you arranged for the development of three parcels of land d e and f into condominiums collectively condominium properties you currently own or co-own d e and f but do not own the condominium units on those lands you and the co-owner of d entered into a master ground lease with a developer that built condominiums on d sold each unit and subleased the land to each condominium owner you and the co-owner of e entered into a master ground lease with a developer that built condominiums on e sold each unit and subleased the land to each condominium owner subsequently you and the co-owner of e purchased the developer’s sandwich position and now collect rents directly from the condominium_owners you own all the land underlying the condominiums on f and have entered into ground leases with all the condominium_owners directly no sandwich position is involved you are subject_to annual review by a probate_court and the state attorney_general in recent probate_court reports the court has recommended that you continue to review and evaluate the advantages and disadvantages of diversification of trust assets in light of your mission and goals accordingly your trustees have reexamined your holding of interests in the condominium properties you are emerging from financial hardship and seeking greater financial stability diversification of assets and income for your charitable and educational activities as your beneficiaries’ needs are growing you are liquidity-challenged with assets that yield less than annually for your charitable activities in addition the condominium properties are located in an area that is at risk of damage from hurricanes and flooding thus your trustees have determined that it is no longer in your best interest to continue holding your interests in the condominium properties you plan to liquidate your interests in the condominium properties by selling them to the current leaseholders and to their respective condominium associations you are required by c law to give the associations a right_of_first_refusal to purchase any interests in the condominium properties that you offer to sell you plan to offer to sell your interests in f directly to the f leaseholders and their condominium association you plan to acquire the interests of the co- owners of d and e in those properties and to acquire the sandwich leasehold interest of e’s developer so that you can sell the complete leased fee interests in d and e your real_estate broker will be holding separate information meetings with the leaseholders to describe your leased fee interest in the condominium properties your plans to sell such interests and the process and procedures involved in such sales you or your broker will mail an information notice to the leaseholders within two weeks of these meetings you have not planned any additional marketing or advertising of your interests in the condominium properties nor have you placed a for sale sign on d e or f if you are unable to sell all of your interests in the condominium properties to the leaseholders and condominium associations or through unsolicited offers then you may offer to sell your remaining interests to investment_trust s developer s or other interested investor s or buyer s you do not regularly buy or sell real_property you have from time to time sold other lands that you acquired through your founder’s gift or bequest primarily to government or quasi- government entities for public purposes or in response to mandatory lease-to-fee conversion laws of c however you have never sold any of your interests in the condominium properties because you own the land on which the condominiums sit but not the condominiums themselves you have neither made nor will make any improvements to any of the condominium properties rulings requested your sales of the leased fee interests in the condominium properties will not generate unrelated_business_taxable_income under sec_511 of the code your sales of the leased fee interests in the condominium properties will not adversely affect your current sec_501 exempt status law sec_511 of the code imposes a tax on the unrelated_business_taxable_income of exempt_organizations including those described in sec_501 sec_512 of the code defines unrelated_business_taxable_income as the gross_income derived by any organization from any unrelated_trade_or_business regularly carried on by it less certain allowable deductions both computed with the modifications listed in sec_512 sec_512 of the code excludes from the computation of unrelated_business_taxable_income all gains or losses from the sale exchange or other_disposition of property other than property_held_primarily_for_sale to customers in the ordinary course of a trade_or_business revrul_55_449 1955_5_cb_599 states that the construction and sale of houses by a foundation otherwise exempt under sec_501 of the code over a period of months for the sole purpose of raising funds for the support of a church constituted unrelated_trade_or_business within the meaning of sec_513 because construction and sale of houses is a business of a kind ordinarily carried on for-profit in 143_f2d_468 5th cir the taxpayer owned acres of unimproved land used for grazing purposes he decided to sell the land and subdivided it into lots built streets installed storm sewers constructed gas and electric lines and other activities of the kind usually carried out by a real_estate development company each year to lots were sold the court held that the taxpayer was holding lots for sale to customers in the regular course of business in 7_tc_198 the taxpayer purchased platted land to use in his nursery business twelve years later the city built streets through the property that made it less useful for his business even though he made no active sales effort and made no improvements he sold and a half lots in one year the court opined that the sales were essentially made in the nature of a gradual and passive liquidation of an asset and not in the ordinary course of a trade_or_business in 383_us_569 86_sct_1030 the supreme court defined the standard to be applied in determining whether property is held primarily_for_sale_to_customers in the ordinary course of business for purposes of sec_1221 of the code the court interpreted the word primarily to mean of first importance or principally in 60_tc_996 the tax_court held that a taxpayer who purchased and sold nine parcels of undeveloped land over four years was not engaged in the trade_or_business of buying and selling land for purposes of sec_1221 of the code the taxpayer utilized brokers to aid him in disposing of some of the land however neither he nor the brokers ever sought out or solicited prospective buyers or advertised the properties for sale the court analyzed the following factors in determining that the taxpayer was not engaged in the operation of the trade_or_business of buying and selling land the purpose for which the property was acquired the frequency continuity and size of the sales the activities of the owner in the improvement and disposition of the property the extent of improvements made to the property the proximity of sale to purchase and the purpose for which the property was held in adam and subsequent cases courts have found that no one of these factors is controlling but all are relevant to consider in determining whether the sale of property occurred in the regular course of a taxpayer’s trade_or_business see 526_f2d_409 5th cir 606_f2d_77 5th cir 74_tc_187 in rymer v commissioner t c memo a taxpayer who held property acquired for investment purposes purchased an adjacent property to facilitate the sale of his investment_property the court held that the purchase of the adjacent property was not sufficient to raise the taxpayer’s sales activities to the level of a trade_or_business or to cause the sale to be treated as part of the ordinary course of a trade_or_business analysis you received most of the d e and f land by gift and have held these parcels for nearly years between and you arranged for the development of this land into condominium properties you now desire to liquidate your interests in this land because of changed circumstances including a lack of liquid_assets to meet the needs of your beneficiaries and otherwise support your charitable and educational activities the information submitted indicates several facts that distinguish your situation from that of a taxpayer that holds property for sale to customers in the ordinary course of a trade_or_business for purposes of sec_512 of the code the land was received by gift and bequest from your founder for the purpose of furthering your charitable activities you have held the land for nearly years and as condominium properties for years as an income-producing investment without selling any of it you have neither made nor will be making any improvements to the properties on the land and you have not advertised your interest in the land for sale to the general_public your facts are distinguishable from those in revrul_55_449 supra in which a foundation constructed and sold houses over a period of months for the sole purpose of raising funds to support a church they are also distinguishable from the facts in brown v commissioner supra in which a taxpayer subdivided and developed property for the purpose of selling the property then sold lots in both of these cases the taxpayers’ efforts in acquiring and developing the properties for sale suggested that they were holding the property primarily_for_sale_to_customers in the ordinary course of a trade_or_business in contrast you propose to liquidate assets held for investment purposes as in farley v commissioner supra you plan to purchase the interests of your co-owners and a sandwich holder in two of the condominium properties so that you can sell those properties to leaseholders and or their respective condominium associations as in rymer v commissioner supra such purchase will facilitate your sale of the investment_property and will not be in the ordinary course of a trade_or_business accordingly under the primary purpose test of malat v riddell supra and the facts_and_circumstances_test of adam v commissioner supra we conclude that you do not hold your interests in the condominium properties primarily_for_sale_to_customers in the ordinary course of a trade_or_business therefore your sale of the interests in the condominium properties will not generate unrelated_business_taxable_income under sec_511 and sec_512 of the code and will not adversely affect your exempt status under sec_501 ruling sec_1 your sales of the leased fee interests in the condominium properties will not generate unrelated_business_taxable_income under sec_511 of the code your sales of the leased fee interests in the condominium properties will not adversely affect your current sec_501 exempt status this ruling is based on the understanding that there will be no material_change in the facts upon which it is based any changes that may have a bearing on your tax status should be reported to the service 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 this ruling will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely lawrence m brauer steven grodnitzky manager exempt_organizations technical group enclosure notice cc


internal_revenue_service number release date index number --------------------------- ----------------------------------------------------------- ------------------- ------------- --------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ---------------- telephone number -------------------- refer reply to cc psi plr-139445-13 date date ------------------------------------------------------------- x ------------------------------------------------- country date date date a --------------------------------------------------- b --------------------------------------------------- y ------- ---------------- ------ ---------------- -------------- ---------------- ------ dear ------------ this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting that the service grant x an extension of time under sec_301_9100-3 of the procedure and administration regulations to make an entity classification election to be classified as a partnership for federal tax purposes the information submitted states that x was formed under the laws of country on date until date the owners of x were country residents and citizens in date a and b a married couple and us citizens residing in country acquired a y interest in x on date a and b became owners of x x represents that as of date x was a foreign_entity eligible to elect to be treated as a partnership for federal tax purposes however x inadvertently failed to timely file a form_8832 entity classification election electing to treat x as a partnership effective date sec_301_7701-3 provides that a business_entity with at least two members can elect to be classified either as an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect plr-139445-13 to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 further provides that so long as a business_entity is not classified as a corporation under b or - an eligible_entity it may elect its classification for federal tax purposes sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal_income_tax purposes generally a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise sec_301_7701-3 provides that to elect to be classified other than as provided in sec_301_7701-3 an eligible_entity must file form_8832 with the designated service_center and that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to twelve months after the date on which the election is filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that a request for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government based solely on the information submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect to be treated as a partnership effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose plr-139445-13 except as expressly provided herein we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office copies of this letter are being sent to x’s authorized representative sincerely associate chief_counsel passthroughs and special industries by _______________ melissa c liquerman chief branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


tcmemo_2012_140 united_states tax_court david p durden and veronda l durden petitioners v commissioner of internal revenue respondent docket no filed date david p durden and veronda l durden pro sese brock e whalen for respondent memorandum opinion cohen judge respondent determined a deficiency of dollar_figure and an accuracy-related_penalty of dollar_figure with respect to the jointly filed income_tax return of petitioners after concessions including respondent’s concession of the accuracy-related_penalty the issue for decision is whether petitioners are entitled to a deduction for charitable_contributions of more than dollar_figure made to their church this issue is before the court on respondent’s motion for summary_judgment pursuant to rule unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure background petitioners resided in texas at the time their petition was filed during mr durden was employed as an administrator by the texas department of insurance and ms durden was employed as an administrator by the texas department of aging and disability services petitioners timely filed their joint income_tax return on their attached schedule a itemized_deductions petitioners claimed a deduction of dollar_figure for charitable_contributions made by cash or check most of the contributions were made by check to petitioners’ church nevertheless community church ncc except for five checks totaling dollar_figure the checks petitioners wrote to ncc were for amounts larger than dollar_figure ncc is a sec_501 organization and is eligible to receive tax-deductible contributions under sec_170 on date respondent sent a notice_of_deficiency disallowing petitioners’ claimed charitable_contribution deductions for in response petitioners produced records of their contributions including copies of canceled checks and a letter from ncc dated date which acknowledged contributions from them during totaling dollar_figure first acknowledgment respondent did not accept the first acknowledgment and informed petitioners that it lacked a statement regarding whether any goods or services were provided in consideration for the contributions petitioners obtained a letter from ncc dated date second acknowledgment that contained the same information found in the first acknowledgment as well as a statement that no goods or services were provided to them in exchange for their contributions discussion under rule a summary adjudication may be made if the pleadings answers to interrogatories depositions admissions and any other acceptable materials together with the affidavits if any show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law rule b no material facts are in dispute in this case and judgment may be rendered as a matter of law sec_170 allows a deduction for contributions to charitable organizations defined in sec_170 sec_170 provides substantiation requirements for certain charitable_contributions specifically sec_170 provides no deduction shall be allowed under subsection a for any contribution of dollar_figure or more unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgment of the contribution by the donee organization that meets the requirements of subparagraph b for donations of money the donee’s written acknowledgment must state the amount contributed indicate whether the donee organization provided any goods or services in consideration for the contribution and provide a description and good_faith estimate of the value of any goods or services provided by the donee organization see sec_170 sec_1_170a-13 income_tax regs a written acknowledgment is contemporaneous if it is obtained by the taxpayer on or before the earlier of the date the taxpayer files the original return for the taxable_year of the contribution or the due_date including extensions for filing the original return for the year sec_170 sec_1_170a-13 income_tax regs respondent argues that petitioners are not entitled to a deduction for the charitable_contributions of dollar_figure or more made to ncc during because neither the first nor the second acknowledgment from ncc satisfied the requirements of sec_170 respondent contends that the first acknowledgment failed because it did not include a statement regarding whether any goods or services were provided to petitioners in consideration for their contribution and the second acknowledgment which included the statement was not contemporaneous petitioners concede that they have not strictly complied with the statute they argue however that they have substantially complied with the statute and are entitled to the claimed deductions in deciding this matter we focus on whether petitioners’ first acknowledgment which the parties agree was contemporaneous complied with the substantiation requirements of sec_170 the second acknowledgment was not contemporaneous and we do not consider it see sec_170 the doctrine_of substantial compliance is designed to avoid hardship in cases where a taxpayer does all that is reasonably possible but nonetheless fails to comply with the specific requirements of a provision 132_tc_336 this court has held that substantial rather than literal compliance may be sufficient to substantiate a charitable_contribution_deduction in certain instances see consol investors grp v commissioner tcmemo_2010_ most often we have found substantial compliance in cases that involved procedural regulatory requirements where despite a lack of strict compliance the taxpayer substantially complied by fulfilling the essential statutory purpose see eg 100_tc_32 although the taxpayers did not attach an appraisal_summary to their tax_return as required by regulations they substantially complied with sec_170 where virtually all required information was found on their attached form_8283 noncash charitable_contributions consol investors grp v commissioner tcmemo_2010_158 the taxpayer substantially complied with regulations under sec_170 regarding a written appraisal for a contribution of property where the information provided to the commissioner although lacking in strict compliance with the regulatory requirements was sufficient to permit evaluation of the contribution the essential statutory purpose of the contemporaneous written acknowledgment required by sec_170 is to assist taxpayers in determining the deductible amounts of their charitable_contributions and to assist the internal_revenue_service in processing tax returns on which charitable_contribution deductions are claimed see 109_tc_258 aff’d without published opinion 166_f3d_332 4th cir didonato v commissioner tcmemo_2011_153 h_r rept no pincite 1993_3_cb_167 petitioners contend that they have fulfilled the essential statutory purpose even though their written acknowledgment does not include a statement regarding whether goods or services were provided in consideration for the contributions as required by sec_170 we have previously held that the specific statement is necessary for the allowance of a charitable_contribution_deduction see friedman v commissioner tcmemo_2010_45 kendrix v commissioner tcmemo_2006_9 petitioners argue in effect that sec_170 provides only safe_harbor requirements in relation to the content of a written acknowledgment and does not establish the exclusive means by which a written acknowledgment may be deemed sufficient this argument however fails to take into account the plain language of the preceding sec_170 which states no deduction shall be allowed for any contribution of dollar_figure or more unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgment of the contribution by the donee organization that meets the requirements of subparagraph b emphasis added by referencing the requirements in sec_170 one of which is that a statement is required regarding whether goods or services were provided in consideration for the contribution sec_170 makes the satisfaction of these requirements mandatory for a written acknowledgment properly to substantiate a charitable_contribution petitioners argue that the first acknowledgment was sufficient to enable a determination of their contribution amounts because their contributions were of cash and not of property that must be valued petitioners cite no caselaw in support of this position and we have found none neither the statute nor its legislative_history makes any distinction for purposes of substantiation between contributions of cash and those of property even if contributions are of cash such as petitioners’ the statement regarding whether goods or services were provided is necessary to determine the deductible amount of the contributions petitioners’ first acknowledgment stated the amount of their cash contributions to ncc for but included no statement indicating whether goods or services were provided to petitioners it is impossible to determine from the amounts reported or the checks produced whether for example petitioners’ payments were for meals or other goods or services provided by the church therefore the first acknowledgment does not provide enough information to determine the deductible amount of petitioners’ contributions petitioners also argue that the omission of a statement regarding goods or services in the first acknowledgment was sufficient to indicate that no goods or services were provided in consideration for their contributions the express terms of the statute require an affirmative statement in addition the legislative_history of sec_170 confirms if the donee organization provided no goods or services to the taxpayer in consideration of the taxpayer’s contribution the written substantiation is required to include a statement to that effect h_r conf rept no pincite ndollar_figure 1993_3_cb_393 petitioners further contend that respondent should be required to consider information beyond that found in the first acknowledgment to determine whether petitioners received any goods or services as consideration petitioners cite 118_tc_528 aff’d 374_f3d_881 9th cir as an example of a case where the commissioner looked to information beyond what was found in the written acknowledgment in addis a charitable_organization gave the taxpayers a written acknowledgment stating that no goods or services had been provided in consideration for a large cash contribution the commissioner investigated further and learned that the taxpayers actually had been provided with services by the charitable_organization and that the value of the services had been intentionally misrepresented on the written acknowledgment as a result the taxpayers’ charitable_contribution_deduction was disallowed this case is distinguishable in addis the written acknowledgment contained all the statutorily required information although it was ultimately determined that the acknowledgment did not include a good_faith estimate under sec_170 in contrast petitioners’ written acknowledgment lacks essential information required by the statute nothing in the statute or legislative_history requires respondent to look beyond the written acknowledgment when on its face the acknowledgment fails to provide the information required to substantiate a charitable_contribution_deduction petitioners have failed strictly or substantially to comply with the clear substantiation requirements of sec_170 and their deduction for the charitable_contributions in issue for must be disallowed to reflect the foregoing an appropriate order will be issued granting respondent’s motion for summary_judgment and decision will be entered under rule