tax_exempt_and_government_entities_division number release date date date department of the treasury internal_revenue_service washington d c contact person identification_number contact number employer_identification_number form required to be filed tax years uil dear this is our final_determination that you do not qualify for exemption from federal_income_tax as an organization described in internal_revenue_code sec_501 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 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 instructions and do not send them to this office failure_to_file the returns timely may result in a penalty file the returns in accordance with their 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 instructions in notice action if you agree with our deletions you do not need to take any further if you disagree with our proposed deletions follow the 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 federal_income_tax status and responsibilities please contact irs customer service at if you have any questions about your or the irs customer service number for businesses the irs customer service number for people with hearing impairments is sincerely lois g lerner 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 contact person identification_number contact number fax number employer_identification_number tax_exempt_and_government_entities_division date date uil code legend parent hospital medical center medical center foreign government country a country b country c dear we have considered your application_for recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code code based on the information provided we have concluded that you do not qualify for exemption as an organization described in sec_501 the basis for our conclusion is set forth below facts you were incorporated on date under state law as a nonprofit membership corporation your sole member is parent hospital parent hospital is a nonprofit corporation that is described in sec_501 of the code and classified as other than a private_foundation under sec_509 and sec_170 parent hospital owns and operates a tertiary care hospital and related medical office buildings research outpatient and other facilities parent hospital is also the parent of a large integrated healthcare delivery system controlling directly or indirectly a number of other exempt and non-exempt entities that own and operate various healthcare facilities including three full service acute care hospitals a research institute and a physician organization your articles of incorporation state that you wjill conduct health care related activities by means of providing services relating to management and operation of health care facilities providing inpatient outpatient and or other health care services all undertaken with the goal of improving health and the delivery of health care services in communities served in your form_1023 application you state the corporation will conduct health care related activities by means of providing services relating to management and operation of health care facilities providing inpatient outpatient and or other health care services all undertaken with the goal of improving health and the delivery of health care services in the communities served in support of such activities the corporation will enter into affiliation agreements to provide consulting services materials and limited licenses to health care facilities the affiliate’ throughout the world the purpose of such affiliations is to improve the quality of health care services by sharing the efficiency and effectiveness measures currently utilized by parent hospital in accomplishment of such goals the corporation will provide opportunities for the affiliate to observe departments at parent hospital provide in-depth analysis of the affiliate’s systems resources and processes and will monitor activities of the affiliate to improve the performance of the facility the corporation will provide educational opportunities internships and fellowships for the employees and staff of the affiliate you also state in your application the corporation will assist hospitals in over countries throughout the world including the corporation’s operations in foreign countries will allow the corporation to fulfill its commitment to improving health and the delivery of health care services throughout the world in subsequent correspondence you state that you do not expect your charges for affiliation and consulting services to be substantially below your costs you state further that you anticipate that some of your affiliation arrangements and consulting arrangements will be entered into with for-profit organizations and the corporation will not limit its services to organization that are the equivalent of governmental and charitable organizations you represent in your correspondence that you have received and expect to receive in the future contributions of capital from parent hospital you have also represented that you will solicit public funding and charitable donations and that you expect about percent of your activities will be funded through public and charitable funds your form_1023 indicates that dollar_figure of your dollar_figure in revenue in was intercompany revenue while the remaining dollar_figure was consulting fee revenue by contrast your form_990 indicates that all dollar_figure represented fees from health care consulting similarly your and forms show that health care consulting fees represented about percent of your revenue during those years you maintain two websites on the internet on one of your websites under the heading consulting services you state our consulting services provide expedient step-by-step processes to create a foundation for efficient quality-driven healthcare we can offer specific services to address highly specific needs or we can provide comprehensive across-the- board institutional assessments we offer consulting services over a range of vital areas e e e e e e e organization and leadership patient care and quality measures nursing staff support services finance and accounting medical staff organization information_technology on this same website under the heading affiliations you state we work with select hospitals around the world to help them achieve levels of excellence--clinical technical administrative financial and operational-- unrivaled by any competing institution in their respective regions these consulting services are offered to affiliated hospitals at significantly reduced rates to join this elite network candidate hospitals must in addition to complying with the mandated standards demonstrate their commitment to the highest quality and performance this engagement generally consists of the following steps e e e e e an initial assessment of facility systems operations and quality indicators developing custom plans for clinical financial and or operational improvements implementing these improvements utilizing appropriate consulting services mplementing a quality measurement system to ensure long-term compliance with standards optional branding as four affiliate on your other website under the heading about us you state advisory services providing expert consultation and recommendations for international clients through parent hospital ’s network of highly experienced administrators physicians and health care professionals education and training developing academic and practical programs that advance professionals and institutions through customized learning opportunities at our facilities or onsite at a client’s location hospital management planning developing and operating specialty and general hospitals - including leadership team recruitment staff and resource management affiliation building a global network of hospitals committed to a higher level of clinical operational and quality standards through this unique model affiliates have real-time access to parent hospital ’s vast intellectual_property validated expertise and brand you describe each of these activities on this same website under the heading advisory services you state market analysis and business development conducting feasibility studies developing strategic and business plans leadership development recommending effective strategy and models for organizational governance and structure clinical programs and operations assessing clinical programs and identifying opportunities for growth determining the scope of services and planning for existing and new service lines consulting on the design of medical facilities and identifying appropriate diagnostic and therapeutic equipment quality and patient safety developing systems and processes for clinical quality management benchmarking identifying areas for performance improvement and designing interventional procedures establishing policies and procedures for patient care patient safety infection control and patient education nursing operations developing leadership structure and governance strategies implementing evidence-based practice and care delivery models setting standards for continuing education and quality assessment financial and business operations selecting appropriate accounting systems and establishing effective ‘budgeting processes revenue cycle and supply chain management identifying key operational indicators and benchmarks and implementing robust financial reporting and analysis information_technology and infrastructure selecting and implementing it systems to efficiently and securely capture clinical operational quality and financial data in a reliable infrastructure international accreditation and recognition assessing organizations against international standards to determine readiness and compliance assisting clients to prepare for accreditation by internationally recognized certifying organizations on this same website under the heading education and training you state observerships organized individual learning experiences onsite at our facilities personalized programs allow clients to interact and observe with colleagues and mentors in most areas of clinical and business operations training programs comprehensive rotations structured as practical experience these programs provide clients the option of either receiving training onsite or at our facilities in a dynamic and relevant setting continuing medical education conferences seminars and other targeted education offered by parent hospital can either be attended in person or where available broadcast via videoconferencing technology medical nursing and administrative education content is also developed and conducted at international locations as requested on this same website under the heading hospital management you state leadership selection choosing and directing executive leaders of the managed hospital training comprehensive in-depth training programs conducted at our facilities operation using predetermined business and quality objectives to run the facility to international standards and on this same website under the heading global affiliations you state knowledge transfer unique privileges and up-to-date access to parent hospital ’s administrative and clinical knowledge operating standards expertise and measures benchmarking access to information including key operating statistics and performance measures connected to a global initiative based on quality patient safety and performance local and regional differentiation enabling affiliates to provide best- in-market medicine and demonstrate superior operating efficiency and clinical outcomes to competing institutions brand differentiation access to parent hospital ’s marketing expertise and assistance with marketing and business development you have entered into several agreements with foreign governments and foreign healthcare organizations you state that in the future you intend to enter into similar agreements with many other foreign governments and foreign healthcare organizations three of these agreements which are typical of the types of agreements you expect to enter into in the future are described below agreement with medical center effective date you entered into a consulting services agreement with medical center under this agreement which would continue through date you will provide various specified services to medical center a hospital located in country a in connection with the opening of a cancer center your agreement with medical center states the objective is comprehensive review analysis and recommendations for the cancer center opening nov date the approach is you will first conduct a thorough needs assessment prior to visiting the hospital in country a next two visits to the hospital to meet and collaborate with the key personnel and to develop relationships that solidify assessing the information required to complete all phases of this process the resource team will consist of five of your employees specified by name your fee for the above services is dollar_figure plus a mentoring fee of dollar_figure per year in you reported the receipt of dollar_figure in contract revenue from medical center agreement with medical center effective date you entered into a consulting services agreement for a term of two years with the medical center a hospital located in country b sec_1 of this agreement states you shail provide to medical center management and administration consulting services collectively the consulting services in the areas of administrative leadership and organization financial operations and systems nursing quality and support services while personnel of you may travel to country b in order to undertake some on-site assessments most of the consulting services will be provided by your personnel consulting services will be designed in order to allow medical center to achieve specific improvements in operations staffing and evidence-based medical practices through the assessments undertaken by the personnel of you during the course of providing the consulting services as well as during the visits by medical center personnel to parent hospital center project will be the primary objective of the medical the focus of the a _ assist medical center ’s management leadership to organize an efficient and effective governance structure that can better formulate and execute medical center ’s strategic plan as well as identify areas for improvement b advise medical center regarding the institution of systems and processes that provide oversight and direction for quality patient care ie medical staff bylaws and continuing medical education for physicians c educating the financial leadership of medical center regarding how to effectively utilize accounting and budgeting systems in order to maintain viable hospital operations and determine future sources of increased revenues for medical center d assisting medical center ‘s management to identify the clinical services needed in the local community and thereafter design plans for the growth and development of appropriate areas to serve the healthcare needs of the local community e advising medical center on the establishment of nursing quality and safety programs including additional training that are developed to facilitate the measurement of outcomes and continuous improvement of clinical care and counseling medical center on what actions can be taken by medical center to improve the medical center facilities support services and supply chain management eg radiology laboratory food and nutrition waste management housekeeping security etc f the agreement does not state that medical center will pay you any fees although they will reimburse you for travel costs and for any costs directly in the course of rendering the consulting services that are not paid directly by medical center receipt of dollar_figure in contract revenue from medical center in you reported the agreement with foreign government on date you entered into health system management and development agreement’ with the investment development office ido or owner’ of foreign government in country c for a term of ten years the preamble to this agreement states that ido is building a private fifty bed acute care hospital the hospital’ in the country c as well as the centers of excellence to be developed in accordance with this agreement the centers’ and desires the assistance of you to provide management services to assist in the operation of the hospital and or the centers and to consult in the development and management of additional private healthcare facilities to be owned by ido in the hospital system you desire to work with ido in the management and development of its hospitals and healthcare facilities in country c article of the agreement is entitled general scope of the agreement article of states ido hereby engages manager ie you and manager hereby accept such engagement to provide the hospital management services set forth in this agreement the management services’ the management services include manager shall assist ido in pre-opening requirements and managing the hospital manager shall assist ido in evaluating the feasibility of developing and operating three or four ambulatory care centers the centers’ - specializing in heart ortho neurology and or urology including rehab and observation facilities - manager shall assist ido in reviewing opportunities to develop other healthcare facilities in country c and elsewhere the management of such facilities is not included in the management services but ido can request manager to consider entering into a management_contract for such facilities article is entitled joint goals and objectives article of states the parties recognize that manager is qualified and competent to provide the management services to advise owner as to the hospital’s and the centers’ needs and to suggest ways to enhance and improve services to the patients and the communities served by the hospital and the centers article states it is the joint goal of manager and owner to establish goals and objectives for the operation of the hospital and the centers provide a consistent level of high quality services to patients of the hospital and the centers operate the hospital and the centers on a sound financial basis through effective financial_accounting reporting systems and internal controls establish and maintain an excellent public image for the hospital and the centers and operate the hospital and the centers at appropriate levels of staffing to promote quality care and financial viability article of the agreement relating to governance establishes a steering committee article states a steering committee comprised of four appropriately experienced designated healthcare executives designated by you and four appropriately experienced ido designated healthcare executives shall be established to oversee the development and operations of the hospital and the centers the steering committee manager shall present to the steering committee i annual operating and capital budgets ii a three year strategic plan iii an annual work plan iv an annual business plan and v the administrative and financial policies proposals and make a final recommendation to do for approval ido shall have sole authority to approve all matters brought before the steering committee and manager shall be entitled to rely on the approval of chairman of the steering committee to act on behalf of ido the steering committee shall review such budgets plans and article states the steering committee shall be chaired by a nominee designated by ido article states in the case of equal votes the chairman of the steering committee shall have a casting vote article states manager shall provide the management services consistent with the following standards dollar_figure dollar_figure standard of health care quality controls planning jci joint commission international standards confidentiality of records patient services physician recruiting third party contacts - training method statement strategic plan feasibility study article is entitled intellectual_property article states you shall provide the hospital and the center with a revocable non- transferable and non-exclusive license to access the applicable policies and procedures of the parent hospital system article is entitled marketing article states you shall provide access to its marketing expertise and assist the hospital and the centers in developing methods for the hospital and the centers to more effectively market the hospital’s and the centers’ services in country c article is entitled branding article states during the term of this agreement the hospital and the centers shall have the ability to brand itself as a network hospital of you or a similar term as mutually agreed by you and ido after the confirmation of applicable regulatory requirements article states the hospital and the centers shall have the ability to use your name and logo in the manner authorized by you in its marketing activities and in its materials as approved by you for each separate marketing activity the fee arrangement between you and ido is stated in article the fees consist of two components fee for developing the centers and fee for managing the hospital and the centers the fee for developing the centers consists of three parts e dollar_figure for the preparation of the feasibility study for the centers e dollar_figure for the development of the centers e dollar_figure for the continued development of the centers the fee for managing the hospital and the centers consists of e e e the greater of dollar_figure or percent of net revenue of the hospital the centers and any other ido facility managed by manager collectively the health system from date through date the greater of dollar_figure or percent of net revenue of the health system from date through date the greater of dollar_figure of percent of net revenue of the health system beginning date and for each twelve-month period thereafter during the term of the agreement article provides that ido will pay you an additional incentive equal to percent of adjusted net earnings’ for the health system for each fiscal_year will pay you for the name license referred to in article date of the agreement through date dollar_figure for date through date and dollar_figure per year for each twelve-month period from date during the term of the agreement article states that ido dollar_figure for the period beginning on the article states that you will have the exclusive right to recommend a chief_executive_officer chief financial officer medical director and chief nursing officer subject_to final recommendation of the steering committee and the approval of ido you will not have any employees on site on a full time basis at the hospital or the centers article entitled no partnership states manager and owner shall not by virtue of this agreement be deemed partners or joint venturers or landlord and tenant in the operation of the health system or any related facility owner as an independent_contractor to manage health system on behalf of owner it is expressly understood that manager is hereby retained by for your contract revenues were international observer fees physician training for medical center hospital quality assessment nursing assessment physician training for medical center hospital - physicist training for medical center hospital dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure wees kkrkk rkkkk kkk kerkk rakkk inexplicably the agreement does not address the period from date through date foreign government mgm t affiliation medical center hospital affiliation medical center consultation a p a i p kekkk kkk kkekk krkkk law sec_501 of the code provides for the exemption from federal_income_tax for organizations described in sec_501 of the code organizations described in sec_501 of the code include corporations organized and operated exclusively for charitable scientific or educational_purposes provided no part of the corporation’s net_earnings inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 of the income_tax regulations regulations states that to be described in sec_501 of the code an organization must be organized and operated exclusively for the purposes specified therein which include charitable and educational_purposes sec_1_501_c_3_-1 of the regulations states that 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 of the code an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_1_501_c_3_-1 of the regulations states that an organization is not organized or operated exclusively for one or more exempt purposes specified in sec_501 unless it serves a public rather than a private interest thus in order for an organization to qualify for exemption under sec_501 it is necessary for the 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 sec_1_501_c_3_-1 of the regulations states in part that the term charitable in sec_501 of the code includes relief of the poor and distressed or of the underprivileged advancement of religion advancement of education or science lessening of the burdens of government and promotion of social welfare by organizations designed to accomplish any of the above purposes sec_1_501_c_3_-1 of the regulations states that the term educational in sec_501 of the code includes the instruction or training of the individual for the purpose of improving or developing his or her capabilities or the instruction of the public on subjects useful to the individual and beneficial to the community sec_1_501_c_3_-1 of the regulations states that an organization may meet the requirements of sec_501 even though it operates a trade_or_business as a substantial part of its activities as long as the operation of the trade_or_business is in furtherance of its exempt_purpose and if the organization is not organized or operated for the primary purpose of carrying on an unrelated_trade_or_business in determining the existence or nonexistence of such primary purpose all the circumstances must be considered including the size and extent of the trade_or_business and the size and extent of the activities that are in furtherance of an exempt_purpose in revrul_68_504 1968_2_cb_211 a nonprofit organization that was formed to conduct an educational program for bank employees in a particular urban_area qualified for exemption under sec_501 of the code revrul_69_545 c b holds that a non-profit hospital that benefits a broad cross section of its community by having an open medical staff and a board_of trustees broadly representative of the community operating a full-time emergency room open to all regardless of ability to pay and otherwise admitting all patients able to pay either themselves or through third party payers such as private health insurance or government programs such as medicare may qualify as an organization described in sec_501 of the code revrul_71_529 c b describes a nonprofit organization that provides assistance in the management of participating colleges’ and universities’ endowment or investment funds because the organization is performing an essential function for tax-exempt organizations for a charge substantially below cost it qualifies for exemption under sec_501 revrul_72_369 1972_2_cb_245 describes an organization formed to provide managerial and consulting services for nonprofit_organizations to improve the administration of their programs its primary activities were to enter into agreements with unrelated exempt_organizations to provide managerial and consulting services on a cost_basis the ruling held that the organization was not exempt because its primary activity of providing managerial and consulting services for a fee was a trade_or_business ordinarily carried on for profit the fact that services were provided at cost solely to exempt_organizations was not sufficient to characterize the activity as charitable within the meaning of sec_501 of the code revrul_85_110 1985_2_cb_166 describes a hospital exempt under sec_501 that performed diagnostic laboratory testing on referred specimens from private patients of hospital staff physicians the ruling held in effect that this activity had no substantial casual relationship to the achievement of the hospital’s exempt_purpose of promoting community health in revrul_98_15 1998_1_cb_718 the irs noted that not every activity that promotes health supports tax exemption under sec_501 for example selling prescription pharmaceuticals certainly promotes health but pharmacies cannot qualify for recognition of exemption under section c on that basis alone in 326_us_279 the supreme court held that the presence of a single non-exempt purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes the court found that a trade_association had an underlying commercial motive that distinguished its educational program from that carried out by a university and therefore the association did not qualify for exemption 302_f2d_934 ct_cl cert_denied 372_us_976 described an organization that had a stated aim of teaching and disseminating economic knowledge published two semi-monthly periodicals available for subscription and provided investment advice services for a fee the court held that this organization did not qualify for exemption under sec_501 of the code because its commercial purpose of selling investment advice was primary and not incidental to its educational purpose in 70_tc_352 the tax_court considered the qualification for exemption under sec_501 of the code of an organization formed to provide consulting services for a fee to nonprofit and tax exempt_organizations in the areas of health and health delivery systems housing vocational skills and cooperative management in concluding that the organization did not qualify for exemption the court noted that such consulting services were not inherently charitable educational or scientific id pincite it also noted that the critical inquiry is whether petitioner's primary purpose for engaging in its sole activity is an exempt_purpose or whether its primary purpose is the nonexempt one of operating a commercial business producing net profits for petitioner id pincite among the factors the court listed in support of its conclusion that the organization was furthering a substantial non- exempt commercial purpose were competition with commercial firms the lack of financing in the form of voluntary contributions from the public the presence of net profits the failure to offer any free or below-cost services and the failure to limit its clientele to organizations which are themselves sec_501 exempt_organizations id pincite in 72_tc_687 aff'd 625_f2d_804 cir the court held that while selling prescription pharmaceuticals to elderly persons at a discount promotes health the pharmacy did not qualify for recognition of exemption under sec_501 of the code on that basis alone because the pharmacy operated for a substantial commercial purpose it did not qualify for exemption under sec_501 in 92_tc_1053 an organization was formed for charitable and educational_purposes the organization’s primary activity was to operate a school the school trained individuals for careers as political campaign professionals prior to the formation of the organization the national republican congressional committee nrcc sponsored programs designed to train candidates and to train and subsequently place campaign professionals in republican campaigns the organization stated that it was an outgrowth of the programs operated by the nrcc while applicants were not required to formally declare their political affiliation to attend the organization’s school such affiliation could be deduced from the campaign experiences and political references contained in the applications no graduate was known to affiliate with any domestic political_party other than the republican party the court held that an organization's activities did not exclusively serve exempt purposes because it did not operate on a nonpartisan basis and it served private interests more than incidentally the court concluded that the organization conducted its activities to benefit the private interests of republican entities and candidates although the candidates and entities benefited were not organization insiders the court stated that the conferral of benefits on disinterested persons who are not members of a charitable_class may cause an organization to serve a private interest while the school had a legitimate educational program the court held that the school conducted its educational activities with the objective of benefiting the private interests of the republican party living faith inc v commissioner f 2d cir involved an organization established by the seventh day adventist church to carry out its health ministry through operation of two vegetarian restaurants and health food stores the court sustained the irs's denial of tax exemption under sec_501 of the code because the organization was operated for a substantial non-exempt commercial purpose the court found that the organization’s activities were presumptively commercial because the organization was in competition with other restaurants engaged in marketing and generally operated in a manner similar to commercial businesses in 985_f2d_1210 cir the court held that a pre-paid health care organization that arranged for the provision of health care services only for its members benefited its members not the community as a whole and therefore did not further charitable purposes within the meaning of sec_501 325_f3d_1188 cir involved an operator of health maintenance organizations hmos one of which served approximately one-quarter of utah's residents and approximately one-half of its medicaid population the court held that the hmos failed to qualify for exemption under sec_501 of the code because their sole activity was arranging for health care services for its members in exchange for a fee reaching this conclusion the court noted that engaging in an activity that promotes health standing alone offers an insufficient indicium of an organization's purpose as n umerous for- profit enterprises offer products or services that promote health id pincite in in 283_fsupp2d_58 d d c the court concluded that an organization did not qualify for tax-exemption under sec_501 of the code because it was operated for non-exempt commercial purposes rather than for exempt purposes among the major factors the court considered in reaching this conclusion was the organization’s competition with for-profit commercial entities the extent and degree of below cost services provided the pricing policies and the reasonableness of financial reserves additional factors included whether the organization used commercial promotional methods such as advertising and the extent to which the organization received charitable donations rationale based on the information in your form_1023 application the additional information you submitted in subsequent correspondence and the information that appears on your two internet websites we have concluded that you do not qualify as an organization described in sec_501 of the code because e e you are not operated exclusively for charitable educational or any other exempt purposes within the meaning of sec_501 of the code more than an insubstantial part of your activities is not in furtherance of a tax-exempt purpose as prohibited by sec_1_501_c_3_-1 of the regulations promotion of health the promotion of health has long been recognized as a charitable purpose under common_law see restatement second of trusts sec_368 sec_372 4a austin w scott and william f fratcher the law of trusts sec_368 sec_372 4th ed however not every activity that generally promotes health furthers exclusively charitable purposes under sec_501 of the code for example selling prescription pharmaceuticals promotes health but pharmacies cannot qualify for recognition of exemption under sec_501 on that basis alone fed'n pharmacy services inc supra nor does a hospital primarily further a charitable purpose solely by offering health care services to the public in exchange for a fee see ihc health_plans supra revrul_98_15 supra revrul_69_545 supra rather a hospital or other health- promoting organization must be organized and operated primarily for the benefit of the community as evidenced by such factors as a board that represents the community operation of an emergency room provision of charity care medical training or medical_research revrul_69_545 supra see also ihc health_plans supra applying the same community benefit standard to hmos geisinger health plan supra applying the same community benefit standard to hmos you describe your activities in your application in subsequent correspondence and on your two internet websites in addition the services you plan to provide to your paying clients are described in the three agreements discussed above these activities consist of providing management advisory and consulting services in return for fees to foreign hospitals and foreign governments to assist them in designing developing and operating healthcare facilities in foreign countries you are not an owner or operator of these healthcare facilities but rather a vendor of management advisory and consulting services to their owners and operators merely because your activities involve healthcare does not per se constitute the promotion of health for a charitable purpose within the meaning of sec_501 of the code see ihc health_plans supra federation pharmacy services inc supra revrul_98_15 supra revrul_69_545 supra hospitals in revrul_69_545 instead you provide managerial advisory and consulting services to your paying clients although the services you perform may incidentally result in benefiting a community through the improvement of healthcare services your primary purpose is to provide your paying clients with management advisory and consulting services which are not inherently charitable activities see b s w group inc supra revrul_72_369 supra therefore your activities do not primarily promote health for a charitable purpose within the meaning of sec_501 of the code and sec_1_501_c_3_-1 of the regulations you do not provide healthcare services directly to patients as do the education furthering education is also an exempt_purpose within the meaning of sec_501 of the code the regulations explain that the term educational in sec_501 of the code includes the instruction or training of the individual for the purpose of improving or developing his or her capabilities or the instruction of the public on subjects useful to the individual and beneficial to the community see sec_1_501_c_3_-1 of the regulations the management advisory and consulting services you provide in return for fees to foreign hospitals and foreign governments to assist them in designing developing and operating healthcare facilities in foreign countries include a certain amount of training for the employees of your clients with respect to some of this training the primary beneficiaries are the institutional clients paying for the services not the individuals receiving the training or the public in general the tax_court has made clear that where the training of individuals is focused on furthering a particular targeted private interest the conferred secondary benefit constitutes a nonincidental private benefit inconsistent with tax-exemption under sec_501 american campaign academy supra pincite additionally the training is but a minor component of the overall management advisory and consulting services that you provide to your clients thus even if these activities were considered to instruct individuals or the public within the meaning of sec_1 c - d i they are not your primary activity because they constitute only an incidental portion of your overall activities conducted by the organization in revrul_68_504 supra which was its sole activity for this reason they are distinguishable from the educational program therefore your primary activities do not further education within the meaning of sec_1 c -1 d of the regulations substantial non-exempt purpose an organization is 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 of the code an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose see sec_1_501_c_3_-1 of the regulations an organization may qualify under sec_501 of the code even though it operates a trade_or_business as a substantial part of its activities as long as the trade_or_business furthers its exempt_purpose and it is not operated for the primary purpose of carrying on an unrelated_trade_or_business in making this determination one factor that is considered is the size and extent of the trade_or_business in relation to the size and extent of the activities that further an exempt_purpose see sec_1_501_c_3_-1 of the regulations your activities -- providing management advisory and consulting services in return for fees to foreign hospitals and foreign governments to assist them in designing developing and operating healthcare facilities in foreign countries -- are not inherently charitable or educational b s w group inc supra rather p roviding managerial and consulting services on a regular basis for a fee is a trade_or_business ordinarily carried on for profit revrul_72_369 supra moreover you have represented that you will not charge substantially below cost for these services nor will you limit the provision of services to organization that are the equivalent of governmental and charitable organizations as such your furnishing of the services lacks the donative element necessary to establish this activity as charitable revrul_72_369 supra thus your primary activities do not further charitable or other exempt purposes within the meaning of sec_501 moreover the facts that you are providing services for a fee that are characteristic of for- profit management and consulting companies not providing free or below-cost services receiving the vast majority of your revenues from service fees rather than from voluntary contributions from the public and not limiting your clientele to organizations that are themselves sec_501 exempt_organizations all indicate that you are primarily operated for non-exempt commercial purposes rather than exempt purposes b s w group inc supra airlie found supra the presence of a single non-exempt purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes better business bureau of washington d c supra inconsistent with tax exemption under sec_501 your substantial non-exempt purposes are thus therefore you have not established that you are organized and operated for exempt purposes within the meaning of sec_501 of the code 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 declare that 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 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 and power_of_attorney all forms and publications mentioned in this letter can be found at www irs gov forms and publications for more information about representation see publication practice_before_the_irs if you 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 if you do not intend to protest this determination you do not need to take any further action 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 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 if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter thank you for your cooperation we have sent a copy of this letter to your representative as indicated in your power_of_attorney sincerely lois g lerner 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 corp b05-plr-125530-02 date date corporation shareholder a shareholder b shareholder c shareholder d shareholder e shareholder f shareholder g shareholder h shareholder i plr-125530-02 shareholder j shareholder k shareholder l shareholder m shareholder n shareholder o shareholder p shareholder q shareholder r shareholder s shareholder t shareholder u state a brand x company x x shares plr-125530-02 y shares x y z year a year b year c year d year e date a a shares b shares c shares d shares e shares f shares g shares h shares i shares j shares k shares l shares plr-125530-02 m shares n shares o shares p shares q shares r shares s shares t shares u shares v shares w shares x shares dollar_figurea dear this letter responds to your date request for rulings concerning the federal_income_tax consequences of a proposed transaction the information submitted for consideration is summarized below corporation is incorporated in state a and is the state-wide distributor of brand x it uses an accrual_method of accounting and computes income on a calendar_year basis for federal_income_tax purposes corporation has outstanding two classes of stock x shares of class a voting common_stock and y shares of class b non-voting common_stock the class a voting common_stock is currently voted according to a voting_trust agreement under the voting_trust agreement shareholder f and shareholder m are assigned the vote of all of the corporation’s class a voting common_stock as trustees under the voting_trust agreement shareholder m votes x of the shares while shareholder f votes y of the shares all of the shareholders of the corporation are the descendants of the founder their spouses and or trusts established plr-125530-02 for their benefit in year a company x informed corporation of a change in policy regarding the distribution of brand x the new policy is informally characterized as a single set of eyes theory meaning that company x desired to have one individual referred to as a dealer principal to look to for distributor decisions the new policy requires that a dealer principal own at least z of the vote and value of the corporation the old policy had only required that the dealer principal hold z of the vote of the corporation not value to comply with this new policy the corporation will engage in the following transaction shareholder m will be named dealer principal_shareholder m and shareholder k will each purchase a shares of the corporation’s class b non-voting common_stock from shareholder d shareholder f will purchase from shareholder a and shareholder c their b shares of the corporation’s class a voting common_stock the corporation will then purchase for cash or for cash and the corporation’s promissory note all of the outstanding shares of class b non-voting stock owned by the following shareholders shareholder shareholder a shareholder b shareholder c shareholder d shareholder e shareholder h shareholder i shareholder j shareholder o shareholder p shareholder q shareholder r shareholder s shares of class b non-voting common_stock owned and redeemed c shares d shares e shares f shares g shares h shares i shares j shares k shares l shares k shares l shares o shares plr-125530-02 shareholder shareholder t shareholder u shares of class b non-voting common_stock owned and redeemed k shares l shares during the period year b through year a shareholder p shareholder r and shareholder u received gifts of class b non-voting common_stock from shareholder d and shareholder e totaling x shares each during the period year b through year c shareholder l and shareholder n received gifts of class b non-voting common_stock from shareholder d and shareholder e totaling w shares each in year e shareholder m received v shares of class a voting common_stock as a gift from shareholder d and shareholder e the taxpayers have made the following representations concerning the proposed transaction a b c d e there are no outstanding options or warrants to purchase the corporation’s stock nor are there any outstanding debentures or other obligations that are convertible into the corporation’s stock or would be considered the corporation’s stock notes or other obligations of the corporation may be distributed to one or more of the redeemed shareholders in no event will the last payment on any note or other obligation be made more than years after the date_of_issuance of the note or other obligation the amount to be paid including interest is a fixed amount payable at a fixed time and the amount and the time of payment are not subject_to any change or adjustment none of the consideration from the corporation including interest consists entirely or partly of the corporation’s promise to pay an amount that is based on or contingent on future earnings_of the corporation an amount that is contingent on working_capital being maintained at a certain level or any other similar contingency f any note or other obligation to be issued to a redeemed shareholder will not be subordinated to claims of general creditors of the corporation g in the event of default on any note or other obligation no shares of stock plr-125530-02 h i j will revert to or be received by a redeemed shareholder nor will any redeemed shareholder be permitted to purchase the stock at public or private sale no shareholder of the corporation has been or will be obligated to purchase any of the stock to be redeemed the redemption described in this ruling_request is not an isolated transaction it is related to shareholder f’s purchase of all the voting_stock owned by shareholder a and shareholder c and to the purchases by shareholder k and shareholder m of a shares each of non-voting common_stock from shareholder d the impact of this related transaction is that coupled with the redemption it fully divests shareholder a shareholder c shareholder d and shareholder e of any stock of the corporation and it enables the three family members who are active in the business on an ongoing basis to have equal ownership in the non-voting equity of the corporation the corporation has had changes in its outstanding equity in the past five years in date a each shareholder of voting preferred_stock of the corporation exchanged his or her voting preferred shares for a number of voting common shares such that before and after the exchange the voting percentage owned by each exchanging shareholder was the same more specifically shareholder a exchanged m shares of class b voting preferred_stock having a stated_value of dollar_figurea per share for n shares of class a voting common_stock shareholder c exchanged p shares of class b voting preferred_stock having a stated_value of dollar_figurea per share for q shares of class a voting common_stock shareholder k exchanged r shares of class b voting preferred_stock having a stated_value of dollar_figurea per share for s shares of class a voting common_stock shareholder m exchanged t shares of class b voting preferred_stock having a stated_value of dollar_figurea per share for u shares of class a voting common_stock as a result of these exchanges the corporation has outstanding only one class of common_stock with differing voting privileges so that if the shareholders so elect the corporation may be treated as an s_corporation beginning in year d in year c the corporation purchased all the outstanding shares of its class a non-voting preferred_stock as either part of a sec_303 redemption_of_stock_to_pay_death_taxes or as a purchase from shareholders who were beneficiaries of the estate k other than the proposed redemption and with the exception of additional shares that may be issued to shareholder m in compliance with the company x requirements regarding the dealer principal the corporation has no plans or intention to issue redeem or exchange additional shares plr-125530-02 of stock l there will be no distributions redemptions or issuances of the stock of any related corporation m other than the contemplated purchases all described above by shareholder f shareholder k and shareholder m and other than through gifts made by shareholder d to his children in each of the years year b through year c no redeemed shareholder or a related_party has sold or acquired or intends to sell or acquire any stock of the corporation or any related corporation either directly or constructively within five years of redemption but shareholder m may acquire additional shares within such five year period in connection with the requirements of company x the purchases by shareholder f shareholder k and shareholder m have been considered consummated for purposes of computing the ownership of stock after the redemption the corporation will not be liable directly or indirectly for any part of their obligations in the purchase of such stock n o p q r the only relationship or transactions affecting a redeemed shareholder’s percentage of ownership of any class of the corporation’s stock are the purchases at fair_market_value by shareholder k and shareholder m of certain shares of class b non-voting common_stock and by shareholder f of certain shares of class a voting common_stock although some of the stock to be redeemed was acquired by some redeemed shareholders within the 10-year period preceding the redemption from a person whose stock would be attributed under sec_318 to such redeemed shareholders at the time of redemption the acquisition did not have as one of its principal purposes the avoidance of federal_income_tax after the redemption no redeemed shareholder will have any interest in the corporation including an interest as officer director or employee other than an interest as a creditor as described in sec_1_302-4 and constructive_ownership under sec_318 shareholder a shareholder b shareholder c shareholder d and shareholder e will execute and file the agreement required by sec_302 with respect to the acquisition of any interest in the corporation within years from the date of the redemption the only partnership estate_trust or corporation that is a redeemed shareholder and has stock attributed to it under sec_318 from a related_person is shareholder b the related_person to shareholder b plr-125530-02 is shareholder f none of the stock to be redeemed was acquired by shareholder b within the 10-year period preceding the redemption from a person whose stock would be attributed under sec_318 to shareholder b at the time of redemption moreover no person whose stock would be attributed to shareholder b under sec_318 will own stock of the corporation after the redemption if the stock was acquired by that person from shareholder b within 10-years preceding the redemption after the redemption shareholder b will not have any interest in the corporation including an interest as officer director or employee other than an interest as a creditor as described in sec_1_302-4 and constructive_ownership under sec_318 shareholder b and each related_person will agree to be jointly and severally liable for any deficiency including interest and additional tax resulting from an acquisition by shareholder b of an interest in the corporation within 10-years from the date of redemption none of the stock to be redeemed is sec_306 stock within the meaning of sec_306 the stock to be redeemed is common_stock but it was not received in exchange for preferred_stock there are no declared but unpaid dividends or funds set apart for dividends on any of the stock to be redeemed the redemption will be financed with notes of the corporation or from funds on hand or borrowed from a third party lender the corporation intends to borrow the funds necessary for the cash redemption from third party financial institutions such as banks or insurance_companies none of whom will be related to the corporation or its shareholders in addition the corporation may utilize its ongoing unsecured line of credit from an unrelated banking institution to fund part of the cash purchase money obligation for the redemptions no party other than the corporation will hold the stock to be redeemed no redeemed shareholder owes any amount to the corporation at the time of the exchange the fair_market_value of the consideration to be received by each redeemed shareholder will be approximately equal to the fair_market_value of the corporation’s stock to be exchanged therefor the price to be paid for the corporation’s stock to be redeemed will not result in a loss with respect to those shares of stock the proposed redemption will satisfy the definition of installment_sale as s t u v w x y z plr-125530-02 defined in sec_453 it is a disposition of property where at least one payment will be received after the close of the taxable_year in which the disposition occurs moreover the proposed redemption of the corporation’s stock i is not a disposition of personal_property on the installment_plan by a person who regularly sells or otherwise disposes of personal_property on the installment_plan and ii is not a disposition of personal_property of a kind required to be included in the inventory of any redeemed shareholder at the close of the taxable_year any note or other obligation to be issued to a redeemed shareholder will not be issued in any form designed to render it readily_tradable on an established_securities_market aa the redeemed shareholders will receive from the corporation either united_states cash or notes or other obligations of the corporation the amount received by each redeemed shareholder will be the fair_market_value of each redeemed shareholder’s shares as determined by independent appraisal the amount received by each redeemed shareholder will be the fair_market_value of each redeemed shareholder’s shares as determined by independent appraisal the corporation will not distribute any inventory or appreciated_property to the redeemed shareholders no liabilities of the corporation will be assumed by a redeemed shareholder and none of the property distributed will be subject_to a liability the corporation will not distribute to a redeemed shareholder as part of the redemption any of the following any appreciated_property any assets representing earned but unreported income or other assets resulting in an anticipatory_assignment_of_income any installment_obligation from a third party any property described in the recapture provisions of the code any property for which the corporation obtained a deduction any property described in sec_1256 contracts marked to market or sec_1276 market_discount bonds or any receivable the redeemed shareholders have no plan or intention to sell lease or otherwise dispose_of any notes received in the redemption based solely on the information submitted and on the representations set forth above we hereby rule as follows sec_318 shall not apply in determining ownership of the corporation’s shares immediately after the redemptions to any redeemed shareholder who files the election required by sec_302 each redemption shall be treated as a complete redemption of stock within the meaning of sec_302 for each redeemed shareholder each redeemed shareholder shall be treated as having received in the plr-125530-02 redemption a distribution in part or full payment in exchange for the stock redeemed under sec_302 any gain recognized by each selling or redeeming shareholder shall be treated as gain from the sale of a capital_asset as defined in sec_1221 shareholders receiving the corporation’s promissory note as consideration for the redemption of their shares may qualify to report the gain under the installment_method under sec_453 in determining whether or the extent to which a selling and or redeeming shareholder has made a gift under applicable federal gift_tax law the fair_market_value of each selling and or redeeming shareholder’s shares will be determined with reference to the shares sold and or redeemed by that shareholder and not with reference to the shares sold and or redeemed in the aggregate by all shareholders in determining whether or the extent to which a shareholder both selling shares and having shares redeemed in the transaction has made a gift under applicable federal gift_tax law the fair_market_value of each such shareholder’s shares will be determined with reference to the shares sold and redeemed by that shareholder this ruling is directed only to the taxpayers requesting it sec_6110 of the code provides that it may not be used or cited as precedent it is important that a copy of this letter be attached to the federal_income_tax returns of the taxpayers involved for the taxable years in which the transaction covered by this letter is consummated pursuant to a power_of_attorney on file in this office a copy of this letter has been sent to your authorized representative sincerely yours debra carlisle branch chief branch associate chief_counsel corporate cc plr-125530-02


internal_revenue_service number release date index number ---------------------------------- ------------------------- ----------------------- ------------------------ - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-154275-05 date date legend x ------------------------- ------------------------------------ d1 ------------------------- dear ---------------- this responds to the letter dated date submitted on behalf of x requesting relief under ' b of the internal_revenue_code facts the information submitted states that x was incorporated on d1 the shareholder of x intended that x be treated as an s_corporation effective on d1 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 d1 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 ' b 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-154275-05 sec_1362 provides that if no ' a 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 ' b shall not apply x did not timely file an election to be treated as an s_corporation under ' a x has however established reasonable_cause for not making a timely s election and is entitled to relief under ' b 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 d1 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 appropriate service_center except as specifically set forth above no opinion is expressed or implied as to the federal tax consequences of the facts 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 provides that it may not be used or cited as precedent this ruling is directed only to the taxpayer requesting it sec_6110 pursuant to the power_of_attorney on file with this office a copy of this letter will sincerely audrey w ellis audrey w ellis senior counsel branch office of associate chief_counsel passthroughs and special industries be sent to x’s authorized representative enclosures cc copy of this letter 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 b03 plr-136734-13 date date legend x a b c --------------------------------------------------------------------------------------------------- ------------------------ --------------------------------------------------------------------------------------------------- -------------------------- --------------------------------------------------------------------------------------------------- -------------------------- --------------------------------------------------------------------------------------------------- -------------------------- grat -------------------------------------------------------------------------- grat -------------------------------------------------------------------------- trust trust trust --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- ------------------------ --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- ------------------------ --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- ------------------------ trust --------------------------------------------------------------------------------------------------- plr-136734-13 --------------------------------------------------------------------------------------------------- ------------------------ --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- ------------------------ --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- ------------------------ --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- ------------------------ --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- ------------------------ --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- ------------------------ --------------------------------------------------------------------------------------------------- ------------------------ --------------------------------------------------------------------------------------------------- ------------------------ --------------------------------------------------------------------------------------------------- ------------------------ trust trust trust trust trust trust trust trust state -------------- date ----------------------- date -------------------------- date --------------------------- date --------------------------- date ------------------------ plr-136734-13 dear ------------------ this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code facts x was incorporated on date under state law and elected to be an s_corporation effective date on date all of the issued and outstanding shares of x were held by individuals and grat grat trust trust and trust grat and grat were treated as grantor trusts under subpart e of part i of subchapter_j of chapter of the code on date grat ceased to be a grantor_trust and trust trust and trust were established as successor trusts on date grat ceased to be a grantor_trust and trust trust and trust were established as successor trusts finally on date their trustees combined the trusts as follows trust trust and trust into trust trust trust and trust into trust and trust trust and trust into trust collectively the trusts x represents that each of the trusts satisfied all of the requirements of a qualified_subchapter_s_trust qsst within the meaning of sec_1361 however a the income_beneficiary of trust trust trust and trust b the income_beneficiary of trust trust trust and trust and c the income_beneficiary of trust trust trust and trust failed to timely file elections under sec_1361 accordingly x's s_corporation_election was ineffective on date even if x’s election had not been ineffective x’s election would have terminated on date date or date x and x's shareholders represent that the circumstances resulting in the invalidity of x's s_corporation_election and the subsequent terminations if the election had been valid were inadvertent and were not motivated by tax_avoidance or retroactive tax planning additionally x represents that x and its shareholders have filed their federal_income_tax returns consistent with having a valid s_corporation_election in effect for x for all relevant periods and that its shareholders have filed consistent with having valid qsst elections in effect as appropriate x and x’s shareholders agree to make such adjustments consistent with the treatment of x as an s_corporation as may be required by the secretary with respect to such period law and analysis plr-136734-13 sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1361 defines an s_corporation as a small_business_corporation for which an election under sec_1362 is in effect for the taxable_year sec_1361 defines a small_business_corporation as a domestic_corporation that is not an ineligible_corporation and that does not a have more than shareholders b 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 c have a nonresident_alien as a shareholder and d have more than one class of stock 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_1361 provides that for purposes of sec_1361 in the case of a_trust described in sec_1361 the deemed owner shall be treated as the shareholder sec_1361 provides that if a qsst’s beneficiary makes an election under sec_1361 such trust shall be treated as a_trust described in sec_1361 and for purposes of sec_678 the beneficiary of such trust shall be treated as the owner of that portion of the trust which consists of stock in an s_corporation with respect to which the election under sec_1361 is made sec_1362 provides that a beneficiary of a qsst or his legal_representative may elect to have sec_1361 apply sec_1361 provides that an election under sec_1362 shall be effective up to days and months before the date of the election sec_1361 provides that the term qualified_subchapter_s_trust means a_trust a the terms of which require that i during the life of the current income_beneficiary there shall be only income_beneficiary of the trust ii any corpus distributed during the life of the current income_beneficiary may be distributed only to such beneficiary iii the income_interest of the current income_beneficiary in the trust shall terminate on the earlier of such beneficiary's death or the termination of the trust and iv upon termination of the trust during the life of the current income_beneficiary the trust shall distribute all of its assets to such beneficiary and b all of the income within the meaning of sec_643 of which is distributed or required to be distributed currently to individual who is a citizen or resident_of_the_united_states sec_1_1361-1 of the income_tax regulations provides that if s_corporation stock is transferred to a_trust the qsst election must be made within the plr-136734-13 16-day-and-2-month period beginning on the day that the stock is transferred to the trust sec_1362 provides that an election under sec_1362 shall be terminated whenever at any time on or after the first day of the first taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides that if an election under sec_1362 or sec_1361 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 or sec_1361 the secretary determines that the circumstances resulting in the ineffectiveness or termination were inadvertent no later than a reasonable_time after discovery of the circumstances resulting in the ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or a qualified_subchapter_s_subsidiary qsub as the case may be or b to acquire the shareholder consents and the corporation and each person who was a shareholder of 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 or a qsub as the case may be as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in the ineffectiveness or termination the corporation will be treated as an s_corporation or a qsub as the case may be during the period specified by the secretary conclusion based solely on the facts submitted and the representations made we hold that x's election to be an s_corporation was ineffective on date as a result of the failure of the beneficiaries of trust trust and trust to make the elections required under sec_1361 additionally even if x’s s_corporation_election had not been ineffective we hold that x’s s_corporation_election would have terminated on date date or date when stock was transferred to the remaining trusts and the beneficiaries of those trusts failed to make the elections required under sec_1361 we also hold that the ineffective election and terminations were inadvertent within the meaning of sec_1362 we further hold that pursuant to the provisions of sec_1362 x will be treated as an s_corporation from date and thereafter provided that x’s election to be an s_corporation was otherwise valid and was not otherwise terminated under sec_1362 and that a makes the required qsst elections for trust trust trust and trust with effective dates of date date date and date respectively b makes the required qsst elections for trust trust trust and trust with effective dates plr-136734-13 of date date date and date respectively and c makes the required qsst elections for trust trust trust and trust with effective dates of date date date and date respectively these elections must be filed with the appropriate service_center within days from the date of this letter a copy of this letter should be attached to the qsst elections if a b and c make the elections as instructed herein the trusts as qssts shall be treated as owning the x stock from the trusts’ respective creation dates accordingly the shareholders of x must include in income their pro_rata share of the separately_stated 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 its shareholders fail to treat x as described above this letter_ruling will be null and void 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 specifically we express or imply no opinion concerning whether x is otherwise eligible to be an s_corporation for federal tax purposes in accordance with a power_of_attorney on file with this office we are sending a copy of this letter to x’s authorized representative this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent the ruling contained in this letter is 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 ruling_request it is subject_to verification on examination sincerely s stacy l short senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter letter for sec_6110 purposes


department of thetreasury internal_revenue_service washington d c tax_exempt_and_government_entities_division dec se t ep et az re plan no _ plan ein taxpayer dear this letter constitutes notice that approval has been granted for your request for a 5-year automatic_extension for amortizing the unfunded liabilities as of for the above-named plan which are described in sec_431 and sec_431 of the internal_revenue_code code and sec_304 and sec_304 of the employee_retirement_income_security_act_of_1974 erisa this extension is effective with the plan_year beginning bases’ as identified in your application submission established as of this-extension applies to the eligible amortization charge the extension of the amortization periods of the unfunded liabilities of the plan was granted in accordance with sec_431 of the code sec_431 of the code requires the secretary to extend the period of time required to amortize any unfunded_liability of a plan for a period of time not in excess of years if the plan submits an application meeting the criteria stated in sec_431 the plan has submitted the required information to meet the criteria in sec_431 including a certification from the plan’s actuary that i absent the extension under subparagraph a the plan would have an accumulated_funding_deficiency in the current plan_year or any of the succeeding plan years ‘funding standard account charges under sec_431 or sec_431 of the code ii the plan_sponsor has adopted a plan to improve the plan's funding status iii the plan is projected to have sufficient assets to timely pay expected benefits and anticipated expenditures over the amortization period as extended and iv the notice required under paragraph a has been provided in granting this ruling it is expected that the plan's assumptions and methods will be reviewed and updated as appropriate so that each prescribed assumption was applied in accordance with applicable law and regulations and each other assumption is reasonable taking into account the experience of the plan and reasonable expectations and such other assumptions in combination offer the best estimate of anticipated experience under the plan in addition we are not expressing any opinion as to the accuracy of any material submitted with your request we have sent a copy of this letter to the manager ep classification in baltimore maryland to the manager ep compliance unit in chicago illinois and to your authorized representative pursuant to a power_of_attorney on file in this office this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited by others as precedent if you require further assistance in this matter please contact id at sincerely yours - cc david m ziegler manager ep actuarial group


third party communication none date of communication ------------------------ cca_2015101912193322 id uilc number release date from sent monday date pm to cc bcc subject sec_467 analysis this addresses the question of whether a rental agreement contains a specific allocation of rent for purposes of sec_467 issue does a taxpayer’s sec_467 rental agreement provide a specific allocation of fixed rent if it includes a provision stating that the sec_467 loan balance is reduced to zero upon any termination of the lease discussion taxpayers subject_to sec_467 of the internal_revenue_code must account for fixed rent using one of the methods prescribed in the regulations under sec_467 unless a taxpayer is required to use constant rental accrual or proportional rental accrual the taxpayer must take fixed rent into account in accordance with the manner in which rent is allocated in the rental agreement its rental agreement that meets the requirements of sec_1_467-1 the taxpayer’s rent allocation schedule is used to determine the rent allocated under the rental agreement ie the rent the taxpayer takes into account for a taxable_year if there is no specific allocation of rent the taxpayer uses the payment schedule to account for rent if a taxpayer has a specific allocation of fixed rent in sec_1_467-1 provides as follows a rental agreement specifically allocates fixed rent if the rental agreement unambiguously specifies for periods no longer than a year a fixed amount of rent for which the lessee becomes liable on account of the use of the property during that period and the total amount of fixed rent specified is equal to the total amount of fixed rent payable under the lease a rental agreement stating only when rent is payable does not specifically allocate rent thus under sec_1_467-1 the rent allocation must be meaningful - it must actually represent the amount of rent for which the lessee is liable for using the property the allocation does not meet the requirements of sec_1_467-1 if its sole purpose is to dictate the tax consequences to the lessee and lessor agreement provides that the rent allocation exists only for tax purposes it does not meet the requirements of sec_1_467-1 because it does not represent amounts for which the lessee becomes liable on account of the use of the property during that period if the rental a rental agreement provides the following term upon any termination of this lease the balance of the sec_467 loan is reduced to zero and is fully discharged for all purposes in our view this provision means that the allocation schedule fails to represent the amount of rent for which the lessee becomes liable on account of the use of the property thus the allocation schedule does not meet the requirements of sec_1_467-1 under sec_1_467-4 a taxpayer has a sec_467 loan under certain circumstances the taxpayer’s sec_467 loan is equal to the difference between the payments under the rental agreement and the allocations under the agreement if the payments are more than the allocations the lessee is considered to have made a loan to the lessor allocations exceed the payments the lessor has made a loan to the lessee balance is reduced to zero and fully discharged upon termination of the lease the payment schedule and not the allocation schedule represents the amount of rent for which the lessee becomes liable on account of the use of the property consequently if a rental agreement includes a provision stating that the balance of the loan is reduced to zero and fully discharged for all purposes upon any termination of the lease the allocation schedule does not meet the requirements of sec_1_467-1 in that case the taxpayer should be accounting for its rents in accordance with the rent payment schedule in the rental agreement if the loan if the