internal_revenue_service department of the treasury number release date index number legend individual individual company esop x shares dollar_figurey dollar_figurez washington dc person to contact telephone number refer reply to cc tege eb qp2- plr-158083-02 date february dear this responds to your letter requesting a ruling on behalf of the above-named taxpayers that under the facts described below the taxpayers will have substantially complied with the requirements of sec_1042 of the internal_revenue_code_of_1986 code and the applicable regulations in connection with the sale of stock of the company to the employee_stock_ownership_plan esop maintained by the company individual sec_1 and are husband and wife their filing_status for their u s individual_income_tax_return is married filing joint_return the company is a domestic_corporation with only one class of common_stock outstanding at the time of the sale to the esop and at present the company has never had any stock outstanding that was readily_tradable on an established_securities_market the company established an esop which is intended to be qualified under sec_401 and to meet the requirements of sec_4975 of the code on date individual sec_1 and sold x shares of common_stock of the company to the esop for a purchase_price of dollar_figurey as a result of the sale individual sec_1 plr-158083-02 and realized a gain of dollar_figurez individual sec_1 and had held the common_stock for more than years and had not received the stock in a distribution from a plan described in sec_401 or in a transfer pursuant to an option or other right to acquire stock to which sec_83 sec_422 or sec_423 applied after the transaction the esop held more than of the total value of the outstanding_stock of the company individual sec_1 and represent that at all times before and after the transaction they intended to defer recognition of the gain on the sale under sec_1042 on the date of the transaction company executed a statement of consent pursuant to sec_1042 whereby the company agreed to be bound by the terms of sec_4978 and sec_4979a the attorney handling the transaction advised individual of some of the requirements for electing deferral of gain under sec_1042 the attorney did not however advise individual sec_1 or of the requirement that a statement of purchase be notarized within days of each purchase of qualified_replacement_property individual sec_1 and placed the proceeds from the esop transaction into several segregated jointly-owned accounts at various investment firms in a series of transactions from date through date individual sec_1 and invested the proceeds of the sale in stock of domestic operating corporations individual sec_1 and intended these shares to be qualified_replacement_property however individual sec_1 and did not execute a notarized statement of purchase until the series of transactions was complete individual sec_1 and relied on their long-standing tax_return_preparer to prepare their u s individual income_tax returns individual instructed the tax_return_preparer that dollar_figurey had been received as proceeds from the sale of company stock to the esop and that it was intended to defer recognition of gain on this transaction under sec_1042 the tax_return_preparer did not attach any of the required statements to the tax_return that he prepared or advise individual sec_1 and that the tax_return he had prepared was incomplete without the required statements as a result none of the required statements were attached to the tax_return that individual sec_1 and filed on or about date in date individual realized that the required statements had not been attached to the tax_return and that the statements of purchase had not been notarized within the required day period upon completing the series of transactions through which qualified_replacement_property was acquired individual sec_1 and promptly executed a notarized statement of purchase pursuant to sec_301_9100-2 of the procedure and administration regulations as of a date on or before date individual sec_1 and filed an amended u s individual_income_tax_return for which included the required statement of election statement of consent and notarized statement of purchase you have requested a ruling that based on the specific facts of this case the taxpayer will be treated as having substantially complied with the requirements for an plr-158083-02 election for the nonrecognition of gain under sec_1042 and that the election will be treated as having satisfied the requirements of sec_1_1042-1t of the temporary income_tax regulations sec_1042 of the code provides that a taxpayer or executor may elect in certain cases not to recognize long-term_capital_gain on the sale of qualified_securities to an esop as defined in sec_4975 or eligible worker owned cooperative if the taxpayer purchases qualified_replacement_property as defined in sec_1042 within the replacement_period of sec_1042 and the requirements of sec_1042 and sec_1_1042-1t of the temporary income_tax regulations are satisfied a sale of qualified_securities meets the requirements of sec_1042 if the qualified_securities are sold to an esop as defined in sec_4975 or an eligible worker owned cooperative the plan or cooperative owns after application of a immediately after the sale at least percent of - a each class of outstanding_stock of the corporation other than stock described in sec_1504 which issued the securities or b the total value of all outstanding_stock of the corporation other than stock described in sec_1504 the taxpayer files with the secretary a verified written_statement of the employer whose employees are covered by the esop or an authorized officer of the cooperative consenting to the application of sec_4978 and sec_4979a with respect to such employer or cooperative and the taxpayer's holding_period with respect to the qualified_securities is at least years determined as of the time of the sale for taxable years beginning after date sec_1042 provides that the term qualified_securities means employer_securities as defined in sec_409 which are issued by a domestic c_corporation that has no stock outstanding that is readily_tradable on an established_securities_market and were not received by the taxpayer in a distribution from a plan described in sec_401 or in a transfer pursuant to an option or other right to acquire stock to which sec_83 sec_422 or sec_423 applied the taxpayer must purchase qualified_replacement_property within the replacement_period which is defined in sec_1042 as the period which begin sec_3 months before the date on which the sale of qualified_securities occurs and end sec_12 months after the date of such sale sec_1042 defines qualified_replacement_property qrp as any security issued by a domestic operating_corporation which did not for the taxable_year preceding the taxable_year in which such security was purchased have passive_investment_income as defined in sec_1362 in excess of percent of the gross_receipts of such corporation for such preceding_taxable_year and is not the corporation which issued the qualified_securities which such security is replacing or a member of the same controlled_group_of_corporations within the meaning of sec_1563 as such corporation plr-158083-02 sec_1_1042-1t q a-3 of the temporary income_tax regulations states that the election shall be made in a statement of election attached to the taxpayer's income_tax return filed on or before the due_date including extensions of time for the taxable_year in which the sale occurs sec_1_1042-1t q a-3 of the temporary income_tax regulations states that the statement of election shall provide that the taxpayer elects to treat the sale of securities as a sale of qualified_securities under sec_1042 and shall contain the following information a description of the qualified_securities sold including the type and number of shares the date of the sale of the qualified_securities the adjusted_basis of the qualified_securities the amount_realized upon the sale of the qualified_securities the identity of the esop or worker-owned cooperative to which the qualified_securities were sold if the sale was part of a single interrelated transaction under a prearranged agreement between taxpayers involving other sales of qualified_securities the names and taxpayer identification numbers of the other taxpayers under the agreement and the number of shares sold by the other taxpayers sec_1_1042-1t q a-3 of the temporary income_tax regulations further provides that if the taxpayer has purchased qualified_replacement_property at the time of the election the taxpayer must attach as part of the statement of election a statement of purchase describing the qualified_replacement_property the date of the purchase and the cost of the property and declaring such property to be qualified_replacement_property with respect to the sale of qualified_securities the statement of purchase must be notarized no later than days after the purchase sec_301_9100-1 sec_301_9100-2 and sec_301_9100-3 of the procedure and administration regulations provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 and sec_301_9100-2 also provide an automatic_extension of time to make certain statutory elections sec_301_9100-1 of the regulations defines a 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 defines a statutory election as an election whose due_date is prescribed by statute sec_301_9100-2 provides that an automatic_extension of months from plr-158083-02 the due_date of a return excluding extensions is granted to make a statutory election whose due_date is the due_date of the return or the due_date of the return including extensions provided that the taxpayer timely filed its return for the year the election should have been made and the taxpayer takes corrective action as defined in paragraph c of this section within the 6_month period sec_301_9100-2 provides that corrective action means taking the steps required to file the election in accordance with the statute or the regulation published in the federal_register for those elections required to be filed with a return corrective action includes filing an original or an amended_return for the year the statutory election should have been made and attaching the appropriate form for or statement for making the election taxpayers who make an election under an automatic_extension and all taxpayers whose tax_liability would be affected by the election must file their return in a manner that is consistent with the election and comply with all other requirements for making the election for the year the election should have been made and for all affected years otherwise the irs may invalidate the election literal compliance with procedural directions in treasury regulations on making elections is not always required see 67_tc_736 acq in result 1979_1_cb_1 regulatory requirements that relate to the substance or the essence of the statute on the other hand must be complied with strictly with respect to the present ruling_request because the deadline for making an election to defer recognition of gain under sec_1042 is set by sec_1042 as the due_date including extensions of the taxpayer's return for the year of the sale sec_1042 is a statutory election accordingly sec_301_9100-2 provides an automatic_extension of months from the due_date of the return for the year in which the sale to the esop was made in order to make a sec_1042 election provided that the taxpayers' return was timely filed for the year the election should have been made and the taxpayer takes corrective action as defined in sec_301_9100-2 within the 6_month period in the present case individual and 2's tax_return for the year of the sale to the esop was filed before the due_date set forth in sec_1042 and corrective action within the meaning of sec_301_9100-2 was taken by individual sec_1 and before months from such due_date with respect to the notarized statements of purchase individual sec_1 and relied on the advice of tax professionals concerning the requirements necessary to complete the sec_1042 election in a timely and correct manner promptly upon discovering that the statements of purchase were not notarized in a timely manner individual sec_1 and completed a notarized statement of purchase for the qualified_replacement_property therefore based on the specific facts of this case and representations made by individual sec_1 and and provided that the esop was qualified under sec_401 and met the requirements of sec_4975 of the code at the time of the sale we conclude that individual sec_1 and have substantially complied with the requirements for an election under sec_1042 of the code and that the election will be treated as plr-158083-02 satisfying the requirements of sec_1042 and of sec_1_1042-1t of the temporary income_tax regulations 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 the taxpayer 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 yours robert d patchell chief qualified_plans branch division counsel associate chief_counsel tax exempt and government entities enclosures copy for purposes cc


internal_revenue_service number release date index number - ------------------------------------- ------------------------------------------- --------------------------------------------- ---------- --------------------- -------------------------- - department of the treasury washington dc person to contact -------------------- id no -------------- telephone number --------------------- refer reply to cc psi b02 - plr-139927-03 date ---------------------- a -------------------------------------------- b ------------------------------ -------------------------------------------- -------------------------- --------- country d1 dear ----------------- ------------------ this letter responds to a letter dated date and subsequent correspondence submitted on behalf of b by its authorized representative requesting a ruling that b be given an extension of time to elect under ' c of the procedure and administration regulations to be classified as a disregarded_entity for federal tax purposes the information submitted states that a is a us partnership for federal tax purposes b a limited_company was formed on d1 pursuant to the laws of country b is wholly owned by a b represents that pursuant to ' a b is a foreign eligible_entity that is not required to be classified as a corporation for federal tax purposes b has single owner that has limited_liability as defined in sec_301_7701-3 b intended to disregarded for federal tax purposes effective d1 however b inadvertently failed to timely file a form_8832 entity classification election sec_301_7701-3 provides that a business_entity that is not classified as a corporation under ' b or an eligible_entity can elect its classification for federal tax purposes a business_entity is any entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code sec_301_7701-2 sec_301_7701-3 provides that unless a foreign eligible_entity elects otherwise the entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owners if it has a single owner that does not have limited_liability sec_301_7701-3 provides that for purposes of ' b i a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides that to elect to be classified other than as provided in ' b an eligible_entity must file form_8832 entity classification election with the designated service_center sec_301_7701-3 provides that an election will be effective on the date specified on the form_8832 or on the date filed if no such date is specified the effective date specified on the form_8832 cannot be more than days prior to the date the election is filed under c the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except 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 an announcement published in the internal_revenue_bulletin use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of ' granted when the taxpayer provides evidence to establish that the taxpayer acted sec_301_9100-3 provides that requests for relief under ' will be sec_301_9100-1 and sec_301_9100-3 provide the standards the commissioner will based solely on the facts submitted and representations made we conclude that reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer failed to make the election because after exercising reasonable diligence taking into account the taxpayer's experience and the complexity of the return or issue the taxpayer was unaware of the necessity for the election the requirements of ' have been satisfied as a result b 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 under ' c to be classified as a disregarded_entity for federal tax purposes effective for d1 a copy of this letter should be attached to the form_8832 a copy is included for that purpose federal tax consequences of the facts described above under any other provision of the code the internal_revenue_code provides that it may not be used or cited as precedent sent to b’s authorized representatives except as specifically set forth above no opinion is expressed concerning the pursuant to a power_of_attorney on file with this office a copy of this letter is being this ruling is directed only to the taxpayer who requested it sec_6110 of sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for ' purposes


internal_revenue_service number release date index number ---------------------------------- ------------------------- -------------------------------- re --------------------------------- ------------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------- telephone number --------------------- refer reply to cc psi b04 plr-148954-08 date april --------------------------------------------------------------- ------------------------ -------------------- -------------------------- --------------------------------------------------------------------- legend donor ------------------------------------------------------------------ spouse a b_trust ----------------------------------------------------------------------------------------------------------------------- date date date year year company stock ------------------------------------------------------------------------- dollar_figureu dollar_figurev dollar_figurew dollar_figurex dollar_figurey -------------------------- -------------------------- ------------------- -------- ------- --------------------------------------------------------------------- ------------- ----------- ------------------------------------- --------------- -------------------------------- dear ------------------ this responds to your authorized representative’s letter of date requesting an extension of time pursuant to sec_2642 of the internal_revenue_code and sec_301 of the procedure and administration regulations to make an allocation of generation-skipping gst_exemption the facts and representations submitted are as follows donor created an irrevocable_trust the trust on date to be held in part for the benefit of her descendants and plr-148954-08 her descendants’ spouses on date in year donor transferred shares of company stock valued at dollar_figureu to the trust donor relied on a a certified_public_accountant for tax_advice and to prepare and file the form_709 united_states gift and generation-skipping_transfer_tax return reporting the transfer the return was timely filed but gst_exemption was not allocated to the transfer on date in year donor transferred to the trust a life_insurance_policy valued at dollar_figurev donor relied on b a certified_public_accountant for tax_advice and to prepare the gift_tax_return reporting this transfer b discovered that donor had not allocated gst_exemption to the transfer of shares on the return filed for year b advised donor to make a late allocation on the return to be filed for year donor timely filed the return for year and reported her transfer of the policy she allocated gst_exemption of dollar_figurev to that transfer in addition she made a late allocation of her available gst_exemption of dollar_figurex to the shares transferred in year at the time of the late allocation the value of the shares had increased to dollar_figurew which was dollar_figurey greater than the dollar_figurex of gst_exemption available for allocation as a result the trust had an inclusion_ratio of after the allocation sec_2601 imposes a tax on every generation-skipping_transfer gst a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the tax is the taxable_amount multiplied by the applicable_rate sec_2641 defines applicable_rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer under sec_2642 the inclusion_ratio with respect to any property transferred in a generation-skipping_transfer is generally defined as the excess of over the applicable_fraction the applicable_fraction as defined in sec_2642 is a fraction the numerator of which is the amount of gst_exemption under sec_2631 allocated to the trust or to property transferred in a direct_skip and the denominator of which is the value of the property transferred to the trust or involved in the direct_skip in year sec_2631 provided that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under subsection a once made shall be irrevocable sec_2631 currently provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption amount which may be allocated by such individual or his executor to any property with respect to which the individual is the transferor sec_2631 provides that for purposes of subsection a the gst_exemption amount for any calendar_year shall be equal to the applicable_exclusion_amount under sec_2010 for such calendar_year plr-148954-08 sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual's estate determined with regard to extensions regardless of whether such a return is required to be filed sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that an allocation of gst_exemption to property transferred during the transferor's lifetime other than in a direct_skip is made on form_709 sec_2642 provides in relevant part that if the allocation of the gst_exemption to any transfers of property is made on a timely filed gift_tax_return or is deemed to be made under sec_2632 or c the value of the property for purposes of determining the inclusion_ratio shall be its value as finally determined for gift_tax purposes and such allocation shall be effective on and after the date of the transfer sec_2642 provides in part that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption sec_2642 provides that in determining whether to grant relief the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief the time for making the allocation shall be treated as if not expressly prescribed by statute notice_2001_50 2001_2_cb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers is to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 under the provisions of sec_301_9100-3 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than 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_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 under plr-148954-08 the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly donor is granted an extension of time of days from the date of this letter to allocate gst_exemption to the transfer of company shares as reported on the gift_tax_return filed for year the allocation will be effective as of the date of the transfer and the value of the transfer for gift_tax purposes will be used in determining the amount of gst_exemption to be allocated with respect to it the late allocation donor’s gst_exemption on the return filed for year is treated as ineffective because assuming an allocation of donor's gst_exemption is made pursuant to the relief granted above the allocation will be deemed timely thus assuming donor has sufficient available gst_exemption and that gst_exemption is allocated to the transfer of company shares pursuant to the relief granted herein then immediately prior to the late allocation the trust will be deemed to have a zero inclusion_ratio for gst tax purposes the allocation should be made on a supplemental form_709 united_states gift and generation-skipping_transfer_tax return filed for year and filed with the internal_revenue_service center cincinnati ohio a copy of this letter should be attached to the supplemental form_709 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 except as specifically ruled herein we express or imply no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-148954-08 in accordance with a power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely curt g wilson associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes


internal_revenue_service number release date index number -------------------------------------- ------------------------------------------------ -------------------------- -------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-129894-06 date date - x trust trust trust trust state d1 d2 d3 d4 d5 ----------------------- ------------------------- ------------------------- ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- ------------------------ ----------------------------------------------------------------------------------------------------- ------------------------ -------- ------------------- ----------------------- ----------------------- --------------------------- ------------------- --------------------- d6 dear---------------- plr-129894-06 this responds to a letter dated date submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated under the laws of state and elected to be an s_corporation effective d1 on d2 trust trust and trust trusts owned all of the issued and outstanding shares of x trusts were treated as grantor trusts under subpart e of part i of subchapter_j of chapter of the code on d3 trust transferred all of its shares of x stock to trust trust a charitable_remainder_unitrust is an impermissible s_corporation shareholder under sec_1361 accordingly x’s s_corporation_election was terminated on d3 x was not aware that the transfer of stock to trust would terminate x’s s_corporation_election x’s s_corporation_election would also have terminated if it had not already terminated on d3 on d4 when trust transferred half of its shares of x stock to trust as well as half of its shares of x stock to trust and ceased to be a shareholder of x on d5 an accountant for trust notified x that x’s s election had terminated effective d6 trust transferred all of its shares of x back to trust during the period that trust held the stock of x x and its shareholders including trust filed returns treating x as if it were an s_corporation x represents that the circumstances resulting in the termination of x’s s_corporation_election were inadvertent and were not motivated by tax_avoidance or retroactive tax planning x and its shareholders have agreed to make such adjustments as the service may require with respect to all periods since d3 sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 provides that the term small_business_corporation means a domestic_corporation which is not an ineligible_corporation and which does not have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1361 provides that for purposes of sec_1361 a_trust all of which is treated under subpart e of part i of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states may be a shareholder sec_1362 provides that an election under sec_1362 will be terminated whenever at any time on or after the 1st day of the 1st taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business plr-129894-06 corporation sec_1362 provides that the termination shall be effective on and after the date of cessation sec_1362 provides that if-- an election under sec_1362 by any corporation-- a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such ineffectiveness or termination steps were taken-- a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person who was a shareholder in the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness or termination such corporation shall be treated as an s_corporation during the period specified by the secretary based solely on the representations made and the information submitted we conclude that x’s s_corporation_election terminated on d3 under sec_1362 because shares were transferred to trust a charitable_remainder_unitrust we also conclude that the termination of x’s s_corporation_election was inadvertent within the meaning of sec_1362 accordingly we hold that under the provisions of sec_1362 x will be treated as if it were an s_corporation from d3 and thereafter provided that x’s s_corporation_election was valid and not otherwise terminated under sec_1362 during the termination period trust shall be treated as owning the stock that it transferred to trust in addition trust shall be treated as owning the stock that was transferred to trust by trust since d4 accordingly trust in determining its respective income_tax liabilities during the termination period and thereafter must include its pro_rata share of the separately and nonseparately computed items of x as provided in sec_1366 make any adjustments to basis as provided in sec_1367 and take into account any distributions made by x as provided in sec_1368 if x or trust fail to treat themselves as described above this ruling shall be null and void except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed on whether x was otherwise eligible to be treated as an s_corporation furthermore we express no opinion on the consequences to trust of the above transactions under sec_664 this ruling is directed only to the taxpayer on whose behalf it was requested sec_6110 provides that it may not be used or cited as precedent plr-129894-06 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely bradford r poston senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


department of the treasury internal_revenue_service washington d c date tax_exempt_and_government_entities_division number release date uniform issue list numbers dear contact person identification_number contact number employer_identification_number form required to be filed tax years this is our final_determination that you do not qualify for exemption from federal_income_tax as an organization described in sec_501 c recently we sent you a letter in response to your application that proposed an adverse determination the letter explained the facts law and rationale and gave you days to file a protest since we did not receive a protest within the requisite days the proposed adverse determination is now final because you do not qualify for exemption as an organization described in code sec_501 c donors may not deduct contributions to you under code sec_170 you must file federal_income_tax returns on the form and for the years listed above within days of this letter unless you request an extension of time to file file the returns in accordance with their instructions and do not send them to this office failure_to_file the returns timely may result in a penalty we will make this letter and our proposed adverse determination_letter available for public inspection under code sec_6110 after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in notice if you agree with our deletions you do not need to take any further action if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter if you have any questions about your federal_income_tax status and responsibilities please contact irs customer service pincite-829-1040 or the irs customer service number for businesses the irs customer service number for people with hearing impairments is sincerely tamera ripperda director exempt_organizations enclosure notice redacted proposed adverse determination_letter redacted final adverse determination_letter department of the treasury internal_revenue_service washington d c date tax_exempt_and_government_entities_division contact person identification_number contact number fax number employer_identification_number uniform issue list numbers legend state commission road project dear we have considered your application_for recognition of exemption from federal_income_tax under sec_501 a based on the information provided we have concluded that you do not qualify for exemption under code sec_501 c the basis for our conclusion is set forth below you were formed as a nonprofit corporation in state your articles of incorporation state that you are to be organized and operated exclusively for charitable purposes and that your specific purpose is to empower communities with sustainable technologies that enhance the quality of life and equality of information access your mission is to create metropolitan area networks man in urban communities in order to help revitalize technologically underserved business districts your bylaws state that your purposes are to support and conduct technological research education and informational activities to increase public awareness of emerging technologies to combat the digital divide in un-served and under-served business communities and empower businesses to help prevent business deterioration in minority communities through technology you have established a free public wi-fi network covering the business districts along road you stated that in addition to free public internet access a private wi-fi network for business participants connected at a higher-capacity with enhanced security and increased speed is available to business owners moreover a secure website business portal provides business users with many emerging technology software applications your primary activity appears to be project which your advertising materials describe as a wireless network project developed to help increase business visibility along the road corridor the goal of project is to promote a community friendly hotspot environment in an effort to bring business back to road by providing free wi-fi connectivity to patrons customers and residents businesses will see increased traffic resulting in increased sales you will charge dollar_figure to businesses wishing to participate in project plus dollar_figure for each additional outdoor wi-fi unit and dollar_figure for each additional indoor wi-fi unit participating businesses will be designated project partners and will receive additional benefits including web and radio advertising you also provide a collection of websites which emphasize business public safety and emergency preparedness faith community a social networking site and internet radio you stated that your goals are to interconnect and collaborate with local businesses to create a network peering node and establish a true regional network encourage access to community anchor institutions and spur affordable broadband access for local business your promotional materials aimed at local businesses state many businesses are offering free wi-fi to their customers not just because it's nice to have but to attract more business if you don't offer wi-fi your customers will go where it is offered that's why for your economic development your wi-fi service is a must-have your promotional materials also state that by providing free wi fi connectivity to patrons customers and residents businesses will see increased traffic resulting in increased sales you will provide advertising services to local businesses through your website although you stated that your programs and services are geared toward technologically unserved and underserved communities you did not provide evidence that the communities you serve are technologically unserved or underserved you received a grant from commission a part of the state government to provide wi-fi access via your business-sponsored model you will use a large portion of the grant to purchase wi-fi equipment you have engaged in some community activities such as sponsoring seminars demonstrating online emerging technologies coordinating local technology events and promoting computer awareness however many of these activities appear to have occurred prior to your date of legal formation you have a three-member board_of directors two of your board members are blood relatives your bylaws state that you will have a board_of advisors of not fewer than members however there is no evidence that you have a board_of advisors sec_501 provides exemption from federal_income_tax for organizations organized and operated exclusively for charitable educational or other exempt purposes sec_1 c -1 a of the income_tax regulations regulations provides that in order to be exempt as an organization described in sec_501 an organization must be both organized and operated exclusively for one or more purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt sec_1 c -1 c provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_1 c -1 d ii provides that 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 this requirement it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests sec_1 c -1 d states in part that the term charitable in sec_501 c includes lessening the burdens of government relief of the poor and distressed or of the underprivileged and promotion of social welfare by organizations designed to eliminate prejudice and discrimination or to combat community deterioration and juvenile delinquency revrul_65_299 1965_2_cb_165 granted exemption under sec_501 to an organization whose purpose was to assist families and individuals with financial problems and help reduce the incidence of personal bankruptcy its primary activity was meeting with these persons to analyze their specific financial problems and counsel on payment of their debts the organization advised applicants on debt payment negotiated with creditors and set up debt repayment plans it did not restrict its services to the needy the organization did not charge fees for counseling services it made a nominal charge for monthly pro-rating services to cover postage and supplies for financial support it relied upon voluntary contributions from local businesses lending agencies and labor unions the service maintained that the objective and activities of the agency contribute to the betterment of the community as a whole revrul_68_655 c b held that by educating the public about integrated housing and conducting intensive neighborhood educational programs to prevent panic selling because of the introduction of a non-white resident into a formerly all-white neighborhood the organization is striving to eliminate prejudice and discrimination and to lessen neighborhood tensions by making mortgage loans to families that cannot obtain such loans commercially but that otherwise are considered desirable residents the organization is trying to break down the barriers of prejudice and gain acceptance of integrated housing within the community it accomplishes this same objective by purchasing homes and reselling or leasing them on an open occupancy basis to families that will be compatible to a neighborhood and demonstrate the feasibility of integrated communities by stabilizing the neighborhood the organization is combating potential community deterioration accordingly the organization is exempt from federal_income_tax under sec_501 c revrul_69_441 c b granted sec_501 c status to an organization with two functions educating the public about personal money management through films speakers and publications and providing individual counseling to low-income individuals and families as part of its counseling it established budget plans ie debt management plans for some clients the organization provided the debt management services without charge it was supported by contributions primarily from creditors by virtue of aiding low-income people without charge and providing education to the public the organization qualified for sec_501 status moreover by educating the public on budgeting information buying practices and the sound use of consumer credit the organization was instructing the public on subjects useful to the individual and beneficial to the community revrul_70_585 1970_2_cb_115 provides four situations where an organization is formed for charitable purposes and accomplishes its charitable purposes through a program of providing housing for low and in certain circumstances moderate income families situation -by providing homes for low income families who otherwise could not afford them the organization is relieving the poor and distressed thus it is held that this organization is organized and operated exclusively for charitable purposes and it is exempt from federal_income_tax under sec_501 c situation the organization's activities are designed to eliminate prejudice and discrimination and to lessen neighborhood tensions it is engaged in charitable activities within the meaning of sec_501 c situation the organization's purposes and activities combat community deterioration by assisting in the rehabilitation of an old and run-down residential area they are charitable within the meaning of sec_501 c situation - the organization plans to erect housing that is to be rented at cost to moderate income families the organization is financed by mortgage money obtained under federal and state programs and by contributions from the general_public since the organization's program is not designed to provide relief to the poor or to carry out any other charitable purpose within the meaning of the regulations applicable to sec_501 c it is not eligible for exemption revrul_74_587 1974_2_cb_162 provides that a nonprofit organization formed to relieve poverty and fight community deterioration through a program of financial assistance in the form of low cost or long term loans to various businesses in economically depressed areas is exempt under sec_501 c although some of the individuals receiving financial assistance in their business endeavors may not themselves qualify for charitable assistance that fact does not detract from the charitable nature of the program the recipients of the loans are merely the instruments by which the charitable purposes are sought to be accomplished revrul_76_419 1976_2_cb_146 held that a nonprofit organization that purchased blighted land in an economically depressed community converted the land into an industrial park and induced industrial enterprises to locate new facilities in the park through favorable lease terms that required employment and training opportunities for unemployed and underemployed residents in the area is operated exclusively for charitable purposes revrul_77_111 c b held that an organization formed to increase business patronage in a deteriorated area by providing information about the shopping opportunities is not operated for charitable purposes and is not exempt under sec_501 increasing business patronage and reviving lagging sales are not charitable purposes revrul_81_276 1981_2_cb_128 describes a professional standards review organization established pursuant to a federal statute to review health care practitioners' and institutions' provision of health care services and items for which payment is made under medicare and medicaid and determine whether the quality of services met professionally recognized standards of care the irs ruled that by taking on the government's burden of reviewing the quality of services provided under medicare and medicaid the organization lessened the burdens of government within the meaning of sec_1 c -1 d any benefit to members of the medical profession from such activities was incidental to the benefit the organization provided in lessening the burdens of government therefore the organization qualified for exemption under sec_501 c revrul_85_1 1985_1_cb_177 applied the criteria set out in revrul_85_2 infra for determining whether an organization's activities are lessening the burdens of government in this ruling the organization was created to assist a county's law enforcement agencies in policing illegal narcotics traffic more effectively the organization provides funds that allowed the county's agents to engage in certain activities for which funds were not otherwise available this ruling concluded that by funding activities the county treats as an integral part of its program to prevent the trafficking of illegal narcotics the county demonstrates that these activities are a part of its burden thus the organization is lessening the burdens of the county by enabling it to augment its law enforcement activities revrul_85_2 1985_1_cb_178 states that to determine whether an activity is a burden of government the question is whether there is an objective manifestation by the government that it considers such activity to be part of its burden the fact an organization is engaged in an activity that is sometimes undertaken by the government is insufficient to establish a burden of government similarly the fact that the government or an official of the government expresses approval of an organization and its activities is also not sufficient to establish that the organization is lessening the burdens of government the interrelationship between the organization and the government may provide evidence that the government considers the organization's activities to be its burden to determine whether the organization is actually lessening the burdens of government all the relevant facts and circumstances must be considered a favorable working relationship between the government and the organization is strong evidence that the organization is actually lessening the burdens of the government in 92_tc_1053 the tax_court determined that the american campaign academy a training program for political campaign professionals operated for the private benefit of a political_party because its curriculum was tailored to that party's interests the tax_court defined private benefit as nonincidental benefits conferred on disinterested persons that serve private interests private benefits included advantage profit fruit privilege gain or interest however o ccasional economic benefits flowing to persons as an incidental consequence of an organization pursuing exempt charitable purposes will not generally constitute prohibited private benefit analysis based on the information and supporting documentation you provided in your application we conclude that your activities do not further charitable purposes and that you operate for a substantial nonexempt private purpose an organization cannot be recognized as exempt under sec_501 c unless it shows that it is both organized and operated exclusively for one or more exempt purposes sec_1_501_c_3_-1 to be regarded as operated exclusively for exempt purposes you must engage primarily in activities that accomplish such exempt purposes sec_1_501_c_3_-1 although you may have some stated purposes that are exempt such as conducting research and education few if any of your activities actually further these exempt purposes moreover your primary activity namely the operation of project does not further any exempt purposes organizations that are created to help revitalize a depressed economic area by assisting business operations in the depressed area have been recognized exempt under sec_501 c on the theory that their activities relieve the poor distressed or underprivileged or that they promote social welfare by eliminating prejudice and discrimination and combating community deterioration see sec_1 c -1 d however to be exempt an organization must do more than simply encourage business development while incidentally furthering social welfare purposes if it is to accomplish purposes that are considered charitable under sec_501 c an organization that seeks to encourage business development must limit it activities to certain areas and individuals below we explain our finding that you do not further any charitable purposes relief of the poor and distressed or of the underprivileged revrul_69_441 describes an organization that is relieving the poor and distressed or the underprivileged within the meaning of sec_1 c -1 d the organization provides free money management services to low-income individuals the ruling contrasts that organization with the organization described in revrul_65_299 which is exempt under sec_501 rather than sec_501 c because it does not limit its services to low-income individuals and is not engaged in any educational activities like the organization in revrul_65_299 you do not limit your services to low-income individuals similarly your educational activities appear to be sporadic and insubstantial and much of the educational activity you claim to have engaged in took place prior to your legal formation therefore unlike the organization described in revrul_69_441 you are not relieving the poor and distressed or underprivileged combating community deterioration and juvenile delinquency combating community deterioration is an exempt_purpose within the meaning of sec_501 c see sec_1 c -1 d organizations combating community deterioration in a charitable manner provide economic development activities in which the good received by the general_public outweighs the private benefit afforded to the beneficiaries organizations that combat community deterioration typically convert deteriorated properties or blighted land into economically useful structures for individuals in need see eg revrul_70_585 situation revrul_76_419 unlike those organizations you have neither suggested that the communities in which you operate are deteriorating nor provided evidence that your activities reduce deterioration in addition you do not provide economic development in a manner that would qualify you for exemption under sec_501 unlike the organization described in revrul_74_587 you have not demonstrated that the area you serve suffers from a lack of capital for development owners with limited entrepreneurial skills social unrest and instability or a depressed economic market ' unlike the organizations described in that ruling and in revrul_76_419 you make no attempt to ensure that the businesses that receive your assistance and services will fill a community need and offer a community benefit that is you do not purposefully select businesses that have the potential to for instance create new area jobs utilize unused or underused facilities or that infuse cash into the community from the local purchase of goods and services moreover you have not demonstrated that providing free wireless internet service to these businesses would actually alleviate any of these issues like the organization described in revrul_77_111 you do not limit your offer to provide wi-fi connectivity and related advertising services solely to businesses that would otherwise be unable to acquire wi-fi connectivity because of their location in a depressed area or their affiliation with a disadvantaged group but instead you offer services to any business willing to host a wireless router elimination of prejudice and discrimination revrul_68_655 and revrul_70_585 situation describe organizations that endeavor to eliminate prejudice and discrimination in revrul_68_655 the organization makes loans to minority homeowners to purchase homes in formerly all-white neighborhoods revrul_70_585 situation describes an organization that educates the public about integrated housing and construct new housing that is designed to reduce racial and ethnic imbalances within a community although your activities may yield a financial benefit to minority-owned businesses you do not serve such businesses exclusively in other words unlike the organizations described in revrul_68_655 and situation of revrul_70_585 your services are available to all businesses in a given geographic area regardless of whether the businesses are minority-owned we have never ruled that merely providing a product to local businesses many of which may be minority owned helps to eliminate prejudice and discrimination and you have not indicated how the sale of your wi-fi equipment helps to achieve such aims government involvement the term charitable includes lessening the burdens of government sec_1 c - d in revrul_85_1 supra and revrul_85_2 supra an organization's activities lessen the burdens of government within the meaning of sec_1 c -1 d of the regulations if the government considers the activities to be its burden and the activities actually lessen the government's burden an activity is a government burden if there is an objective manifestation by a government unit that it considers the organization's activities to be its burden such consideration may be evidenced by the interrelationship between the government unit and the organization an organization's performance of activities that a government unit treats as an integral part of its programs is evidence that the organization is lessening the burdens of government see also revrul_81_276 supra organization took on the government's burden of reviewing the quality of services provided under medicare and medicaid and thus lessened the government's burden of performing this task you do not lessen the burdens of government under sec_1 c -1 d although you received a grant from commission there is no evidence of an objective manifestation by state that it considers the activities you perform to be its burden moreover there is no evidence of a close working relationship between you and state or any other government state has no voting power on your board or other means of exerting substantial influence over you and no obligation to fund you beyond your initial grant substantial private benefit sec_1 c -1 d ii of the regulations provides that an organization does not operate exclusively for exempt purposes if it operates for the benefit of private interests your primary purpose is to benefit private interests namely the businesses to whom you sell wi-fi service therefore you serve substantial private interests in violation of sec_501 c an organization is not organized or operated exclusively for one or more exempt_purpose unless it serves a public rather than private interest sec_1 c -1 d ii thus it is necessary for an organization to establish 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 it is impermissible for an organization's activities to excessively benefit the private interests of disinterested persons as well 92_tc_1053 prohibited private benefits may include an 'advantage profit fruit privilege gain or interest ' d pincite citing 78_tc_280 applicant must show that no more than an insubstantial part of its activities benefit private interests or any other nonexempt purpose d pincite by providing a service designed to attract additional customers to area businesses you are providing such businesses with a substantial private benefit you did not provide evidence that the businesses you serve are members of a charitable_class thus as the primary beneficiaries of your activities these businesses are receiving a private benefit that precludes you from qualifying for exemption under sec_501 as revrul_77_111 makes clear increasing business patronage and reviving lagging sales are not charitable purposes yet your promotional materials and other information you submitted about your activities make clear that your primary aims are to improve sales and profits for local businesses for example you tout increased traffic resulting in increased sales and increase d business visibility in addition a substantial part of your activities appears to consist of providing advertising services for local businesses not only does the provision of advertising fail to further exempt purposes it also may yield impermissible private benefit to such businesses conclusion because your activities do not further charitable purposes but instead serve private interests we conclude that you are not operated exclusively for charitable purposes within the meaning of sec_501 you have the right to file a protest if you believe this determination is incorrect to protest you must submit a statement of your views and fully explain your reasoning you must submit the statement signed by one of your officers within days from the date of this letter we will consider your statement and decide if the information affects our determination your protest statement should be accompanied by the following declaration under penalties of perjury i declare that i have examined this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all the relevant facts and such facts are true correct and complete you also have a right to request a conference to discuss your protest this request should be made when you file your protest statement an attorney certified_public_accountant or an individual enrolled to practice before the internal_revenue_service may represent you if you want representation during the conference procedures you must file a proper power_of_attorney form_2848 power_of_attorney and declaration of representative if you have not already done so for more information about representation see publication practice_before_the_irs and power_of_attorney all forms and publications mentioned in this letter can be found at www irs gov forms and publications if you do not file a protest within days you will not be able to file a suit for declaratory_judgment in court because the internal_revenue_service irs will consider the failure to protest as a failure to exhaust available administrative remedies code sec_7428 provides in part that a declaratory_judgment or decree shall not be issued in any proceeding unless the tax_court the united_states court of federal claims or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted all of the administrative remedies available to it within the irs if you do not intend to protest this determination you do not need to take any further action if we do not hear from you within days we will issue a final adverse determination_letter that letter will provide information about filing tax returns and other matters please send your protest statement form_2848 and any supporting documents to this address internal_revenue_service constitution ave n w washington dc you may also fax your statement using the fax number shown in the heading of this letter if you fax your statement please call the person identified in the heading of this letter to confirm that he or she received your fax if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely kenneth corbin acting director exempt_organizations


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 2-plr-122570-02 date date legend x date dear this responds to a letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated on date the sole shareholder of x desired that x elect s_corporation treatment for x effective on date but the election to be treated as an s_corporation was not timely filed accordingly x requests a ruling that it will be treated as an s_corporation effective date law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides in relevant part that if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made under sec_1362 however if an s election is made after the first two and one-half months of a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is filed plr-122570-02 sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply x did not file an election to be treated as an s_corporation under sec_1362 x has however established reasonable_cause for not making a timely s election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and the representations made and provided that x otherwise qualifies as an s_corporation we conclude that x will be treated as an s_corporation effective date within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the relevant service_center except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transaction described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x sincerely matthew lay acting branch chief branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court richard a stasewich petitioner v commissioner of internal revenue respondent docket no filed date richard a stasewich pro_se naseem j khan for respondent memorandum findings_of_fact and opinion cohen judge respondent determined deficiencies and accuracy-related_penalties with respect to petitioner’s federal_income_tax as follows penalty i r c year deficiency sec_6662 a dollar_figure dollar_figure big_number dollar_figure big_number dollar_figure big_number dollar_figure the issues for decision are whether petitioner’s artist activity was not engaged in for profit within the meaning of sec_183 and whether petitioner is liable for accuracy-related_penalties pursuant to sec_6662 a unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue findings_of_fact some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference richard a stasewich petitioner resided in chicago tllinois at the time he filed his petition petitioner attended northern illinois university between and majoring in art and minoring in accounting but he did not graduate in petitioner was registered as a certified_public_accountant by the university of illinois and in he was licenced as a public accountant by the state of illinois between and petitioner was employed in various positions utilizing his accounting background during the years in issue petitioner operated both his accounting and artist activities out of the same building where he also resided beginning in petitioner treated his artist activity as a schedule c profit or loss from business sole_proprietorship for federal_income_tax purposes petitioner reported net profits and losses for his two separate schedule c activities as follows artist accounting year activity activity dollar_figure dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number -0o- for the years in issue artist activity were as follows artist activity gross_receipts dollar_figure sec_266 less deductions big_number big_number big_number big_number profit loss big_number big_number big_number big_number during the years in issue with the income that he received from his artist activity the relevant figures for petitioner’s petitioner did not support himself instead supported himself with the income that he received from his accounting practice petitioner provided adequate substantiation for the expenses that he claimed on his tax returns during the years in issue he kept a spreadsheet of income and expenses a cash receipts - journal and receipts for expenses petitioner had a certificate of registration in the state of illinois that authorized him to engage in the business of selling tangible_personal_property at retail in illinois for through petitioner filed forms st-1 sales and use_tax returns with the illinois department of revenue in petitioner completed forms w-2 wage and tax statements for the art students that he employed petitioner neither kept records of a budget or financial projections for his artist activity nor kept a record of the costs that he might incur in attempting to develop his artist activity prior to petitioner decided to create a commercially viable product from his nude drawings petitioner tried fashion illustrations and spent a lot of money on materials and props but he never secured a large client and never earned anything from it on or around petitioner’s artist activities changed from nude drawings and fashion illustrations to portraitures and installation art displays at a cost of about dollar_figure he placed two advertisements in his local newspaper on december and to solicit work as a commissioned artist of portraits petitioner painted two portraitures between and that generated about dollar_figure in revenue during to petitioner created four displays of installation art consisting of peppers dolls pumpkins and cucumbers that were displayed in front of - - his residence petitioner’s installation exhibit that consisted of dolls received media attention the exhibit was the subject of two newsspaper articles in date and was mentioned in a newspaper article in date petitioner’s income from the installation displays consisted of donations that totaled dollar_figure opinion petitioner previously litigated the issue of whether his artist activity was engaged in for profit within the meaning of sec_183 for and in stasewich v commissioner tcmemo_1996_302 the court held that petitioner’s artist activity was not engaged in for profit within the meaning of sec_183 for through respondent in this case determined that petitioner’s artist activity was not entered into for profit under sec_183 for and i activity_not_engaged_in_for_profit under sec_183 c the threshold issue presented is whether petitioner’s artist activity was not engaged in for profit within the meaning of sec_183 sec_183 in general limits the amount_of_deductions for an activity not entered into for profit to the amount of the activity’s income see sec_183 sec_183 defines an activity_not_engaged_in_for_profit as any activity other than one with respect to which deductions are allowable for the taxable_year under sec_162 or under -- - paragraph or of sec_212 deductions are allowed under sec_162 for the ordinary and necessary expenses of carrying on an activity that constitutes the taxpayer’s trade_or_business deductions are allowed under sec_212 for expenses paid_or_incurred in connection with an activity engaged in for the production_or_collection_of_income or for the management_conservation_or_maintenance_of_property_held_for_the_production_of_income with respect to either section however the taxpayer must demonstrate the requisite profit objective for the activities in order to deduct associated expenses see 66_tc_312 sec_1_183-2 income_tax regs whether the required profit objective exists is a question of fact that must be determined on the basis of all of the facts and circumstances of each case see 72_tc_411 affd without published opinion 647_f2d_170 9th cir sec_1_183-2 income_tax regs while the focus of the test is on the subjective intention of the taxpayer greater weight is given to the objective facts than to the taxpayer’s mere statement of his or her intent see 781_f2d_724 9th cir affg tcmemo_1984_472 78_tc_642 affd without opinion 702_f2d_1205 d c cir 68_tc_696 sec_1_183-2 income_tax regs sec_1_183-2 income_tax regs sets forth some relevant factors for determining whether an activity is engaged in for profit no one factor is controlling see 722_f2d_695 11th cir affg t c a71 golanty v commissioner supra pincite the relevant factors include the manner in which the taxpayer carries on the activity the expertise of the taxpayer or his or her advisers the time and effort expended by the taxpayer in carrying on the activity the expectation that assets used in the activity may appreciate in value the success of the taxpayer in carrying on other similar or dissimilar activities the taxpayer’s history of income and loss with respect to the activity the amount of occasional profits if any which are earned the financial status of the taxpayer and the elements of personal pleasure or recreation see sec_1 b income_tax regs objective facts showing that a taxpayer carried on his activity in a businesslike manner and maintained complete and accurate books_and_records may indicate that the activity is engaged in for profit see sec_1_183-2 income_tax regs generally speaking a taxpayer who maintains good records may be genuinely interested in using the records to develop a profitable business see stasewich v commissioner supra petitioner contends that he maintained business records that substantiated his income and expenses for his artist activity and --- - hired art students as his employees petitioner kept a spreadsheet of income and expenses a cash receipts journal receipts for expenses forms st-1 sales and use_tax returns forms w-2 wage and tax statements and a certificate of registration to sell tangible_property in illinois although petitioner’s artist activity had some of the trappings of a business such trappings are insufficient to demonstrate that the activity was a business carried on for profit golanty v commissioner supra pincite petitioner’s maintenance of such books_and_records may represent nothing more than a conscious attention to detail see id petitioner failed to show that the books_and_records were kept for the purpose of cutting expenses increasing profits and evaluating the overall performance of the operation he did not maintain a budget for the activity or make any sort of financial projections petitioner has not persuaded us that he conducted his artist activity in a businesslike manner where losses continue to be sustained beyond the period that customarily is necessary to bring the operation to profitable status such continued losses if not explainable as due to customary business risks or reverses may be indicative that the activity is not being engaged in for profit see sec_1 b income_tax regs a taxpayer’s failure to implement any operating changes after continued losses may indicate the lack of intent to make a profit see 236_f2d_35 10th cir lewis v commissioner tcmemo_1992_420 stubblefield v commissioner tcmemo_1988_480 there is no evidence in the record that petitioner has ever earned a profit from his artist activity in addition to the losses reported during through the years in issue petitioner also reported losses for every year from through petitioner’s two advertisements to solicit work as a commissioned artist of portraits in cost him about dollar_figure and resulted in only two commissioned portraits that generated about dollar_figure in revenue petitioner has demonstrated a change in the type of artwork he creates but he has not presented evidence of a change in his operating methods that would allow him to generate a profit from his artist activities petitioner has not reversed his uninterrupted history of losses and such losses tend to indicate that he was content to sustain those losses for purely personal reasons see breckenridge v commissioner tcmemo_1983_66 the amount of profits in relation to the amount of losses_incurred may provide useful criteria in determining the taxpayer’s intent see sec_1_183-2 income_tax regs petitioner’s income from his artist activities consisted of donations and commissions and such income was insufficient to offset any significant portion of the expenses resulting from petitioner’s artist activity see golanty v commissioner supra pincite the gross_receipts from petitioner’s artist activity - ranged from dollar_figure to dollar_figure annually during the years in issue while expenses ranged from dollar_figure to dollar_figure annually based on the evidence it appears that petitioner never expected to recoup the large losses that he generated from his artist activity substantial income from sources other than the activity may indicate that the activity is not engaged in for profit see sec_1_183-2 income_tax regs in general a taxpayer with substantial income unrelated to the activity can more readily afford a hobby see stasewich v commissioner supra petitioner had an independent source_of_income from his accounting business and did not rely on his artist activity to support himself additionally for and although is not in issue petitioner reported a loss from his artist activity exactly equal to the income from his accounting activity such an unlikely coincidence indicates that petitioner may be using his artist activity as a device to eliminate federal_income_tax on the income from his accounting business this pattern weighs against finding a profit objective that a taxpayer derives personal pleasure from a particular activity does not necessarily mean that he or she lacks a profit objective with respect to the activity see glenn v commissioner tcmemo_1995_399 affd without published opinion 103_f3d_129 6th cir sec_1_183-2 income_tax regs where however there are recreational or other personal elements involved the personal motives may negate the profit objective see sec_1_183-2 income_tax regs we previously stated with respect to this factor unquestionably an enterprise is no less a business because the entrepreneur gets satisfaction from his work however where the possibility for profit is small given all the other factors and the possibility for gratification is substantial it is clear that the latter possibility constitutes the primary motivation for the activity burger v commissioner tcmemo_1985_523 affd 809_f2d_355 7th cir fn ref omitted based on the evidence we conclude that petitioner did not have a profit objective when he created his installation art exhibits in the front of his residence petitioner received only nominal donations that totaled dollar_figure from his installation art exhibits and such donations could not have compensated him for the time or expense involved in creating his artwork petitioner did not seek to make a profit from his installation art exhibits but rather engaged in the artist activity because of the satisfaction pride and prestige that it afforded him in the previous case of stasewich v commissioner supra we held that petitioner’s artist activity was not entered into for profit for through petitioner has not made any significant changes in the operation of his artist activity during the years in issue here that would create a market or allow him to benefit from a market for his artwork or allow him to make up for his substantial losses in stasewich v commissioner supra we explained our holding in language equally applicable here the large unabated expenditures the absence even at this late date of any concrete business plans to reverse the losses and the manner in which petitioner conducted his artist activity lead to the conclusion that this was not an activity engaged in for profit 58_tc_691 affd without published opinion f 2d 7th cir we sustain respondent’s determination that petitioner’s artist activity was an activity_not_engaged_in_for_profit within the meaning of sec_183 accordingly the losses_incurred by petitioner during the years in issue are not deductible il penalties under sec_6662 a respondent determined that petitioner is liable for accuracy-related_penalties under sec_6662 for through sec_6662 imposes an accuracy-related_penalty equal to percent of the portion of the underpayment attributable to among other things negligence petitioner presented neither evidence nor argument on this subject at trial in view of petitioner’s training and experience imposition of the accuracy-related_penalty is justified for all years in issue to reflect the foregoing decision will be entered for respondent


o f f i c e o f t h e c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date cc psi b06 conex-130145-11 number release date uil 30d the honorable frank r wolf u s house of representatives washington dc dear mr wolf thank you for your letter dated date on behalf of your constituent ---------------------------- ------------------ wrote about a potential abuse of the sec_30d tax_credit in which a car dealer could title to itself a vehicle subject_to the credit claim the credit then sell the vehicle as a used vehicle the energy improvement and extension act of provided a credit for new qualified plug-in electric drive motor vehicles under sec_30d of the internal_revenue_code the american_recovery_and_reinvestment_act_of_2009 the act amended sec_30d for vehicles acquired after date section a of the act the amendment changed sec_30d to narrow the scope of eligible vehicles and reduce the maximum amount of the credit available for a vehicle to its present level of dollar_figure the initial user of the vehicle who must acquire the vehicle for use or lease and not for resale is the only individual who qualifies for the credit sec_30d in the situation -------------------described the dealership would acquire the vehicle for resale rather than for use or lease as sec_30d requires and thus the dealership could not claim the credit we are working to ensure that only the initial user of a vehicle who has acquired the vehicle for use or lease can claim the credit for example the draft of the form_8936 on which taxpayers claim the sec_30d credit requires that a claimant list the vehicle identification_number to claim the credit this change will help us determine whether the correct person is taking the credit conex-130145-11 i appreciate ---------------------comments on this issue and i hope this information is helpful in responding to him please contact me at ----- ------------- if i can assist you further sincerely curt g wilson associate chief_counsel passthroughs special industries