of f i c e of c h i ef c ou n sel department of the treasury i n t e r n al r e v e n u e s e r v i c e w ashington d c date number info release date genin-116859-09 --------------- --------------- ---------------------- uil dear ------------- thank you for your letter of february to commissioner shulman regarding the tax consequences to victims of the investment fraud mr bernard l madoff perpetrated on date we issued guidance revrul_2009_9 and revproc_2009_20 on the tax treatment of losses from so-called ponzi schemes similar to that mr madoff operated i am enclosing copies for your information revrul_2009_9 explains the income_tax law that applies to an investor who loses money in a fraudulent investment arrangement it provides that an investor who was the victim of a fraudulent investment arrangement is entitled to a theft_loss deduction that is not limited by the rules that apply to capital losses investment theft losses are not subject_to limitations that apply to personal casualty and theft losses the theft_loss is deductible in the year the fraud is discovered except to the extent the investor has a reasonable_prospect_of_recovery the amount of the theft_loss includes not only the investor's unrecovered investment but also amounts reported as income from the investment in prior years and reinvested in the fraudulent investment arrangement a theft_loss deduction that creates a net_operating_loss for the investor can be carried back and forward according to the timeframes prescribed by law to generate a refund of taxes paid in other taxable years genin-116859-09 to claim a theft_loss deduction in any taxable_year an investor must prove that the loss was due to theft and that no reasonable prospect exists of recovering the investment investors often cannot make highly factual determinations with certainty in the year the loss is discovered for this reason we published revproc_2009_20 to provide a simplified_method for investors to compute and report their losses from fraudulent investment schemes this revenue_procedure generally allows an investor who was a victim of mr madoff’s fraud to claim a theft_loss in the amount the investor may deduct is up to percent of the loss less the amount of reimbursement he or she expects to receive as an advance for customer claims from the securities investor protection corporation sipc or from private insurance or other contractual arrangements that guarantee the investor against loss i hope this information is helpful please call me at -------------------- if i can further assist you sincerely john p moriarty chief branch office of associate chief_counsel income_tax and accounting enclosures


t c memo united_states tax_court w c benson and linda r benson petitioners v commissioner of internal revenue respondent docket no filed date w c benson pro_se vicki l miller for respondent memorandum opinion körner judge respondent determined deficiencies in and accuracy-related_penalties on petitioners' federal income taxes for the years and as follows penalty year deficiency sec_6662 dollar_figure dollar_figure dollar_figure dollar_figure all statutory references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure except as otherwise noted petitioners w c and linda r benson husband and wife filed joint income_tax returns for the calendar years and at the time the petition herein was filed petitioners were residents of memphis tennessee by stipulation petitioners agreed to the adjustment made by respondent to petitioners' income for and on account of income from pension and profit-sharing_plans in the respective amounts of dollar_figure and dollar_figure the parties also agreed that petitioners are entitled to an additional deduction for car and truck repairs and maintenance_expenses in the amount of dollar_figure in over that which was allowed by respondent in all other respects respondent has made no concessions with regard to the propriety of the statutory notice issued to petitioners nor of the issues herein except as otherwise provided by statute or by rule_of this court the burden_of_proof is on petitioner to demonstrate that respondent's determination was in error and if necessary the amount thereof rule a 290_us_111 except for the concessions that the parties have agreed to mentioned above there is no evidence in this record from which the court can conclude that respondent erred in any respect in the determination that is the subject of this appeal no one testified at the trial herein except petitioner w c benson and his testimony was rambling discursive and provided no facts either through testimony or admissible exhibits which would assist the court in making meaningful findings_of_fact petitioners' brief was likewise of no assistance we must conclude that with the exception of the items specifically mentioned by the parties and included in the written stipulations petitioners have completely failed to demonstrate any error with respect to respondent's determinations for the years and this includes the determined penalties under sec_6662 these penalties were not mentioned at trial or on brief it is uncertain whether petitioners intended to concede them or not in any case the burden_of_proof was on them 57_tc_781 58_tc_757 and petitioners failed to carry their necessary burden decision will be entered under rule


t c memo united_states tax_court catherine ann riggins petitioner v commissioner of internal revenue respondent docket no filed date catherine ann riggins pro_se michelle m robles for respondent memorandum findings_of_fact and opinion pugh judge in a notice_of_deficiency respondent determined a deficiency of dollar_figure and additions to tax of dollar_figure dollar_figure and dollar_figure pursuant to sec_6651 and and a respectively with respect to petitioner’s tax_year at trial petitioner filed a motion in limine to preclude the admission of certain evidence the issues for decision are whether petitioner’s motion in limine should be granted whether petitioner is entitled to head-of-household filing_status an exemption for one dependent various deductions expense deductions claimed on schedule c profit or loss from business an earned_income_credit and an additional_child_tax_credit as reflected on a federal_income_tax return submitted after respondent issued the notice_of_deficiency whether petitioner is liable for additions to tax under sec_6651 and and whether documents respondent offered after trial should be admitted into evidence respondent has conceded that petitioner had dollar_figure of gross_receipts during rather than the dollar_figure determined in the notice_of_deficiency and is not liable for the addition_to_tax under sec_6654 findings_of_fact some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference at the time the petition was filed petitioner resided in florida unless otherwise indicated all section references are to the internal_revenue_code_of_1986 as amended and in effect for the year at issue rule references are to the tax_court rules_of_practice and procedure petitioner a lawyer did not file a federal_income_tax return for her tax_year before receiving a notice_of_deficiency for that year respondent therefore prepared a substitute for return pursuant to sec_6020 which petitioner claims she did not receive and on date issued a notice_of_deficiency based on that substitute for return the notice_of_deficiency reflected dollar_figure in gross_receipts from her work as an attorney assumed a filing_status of single and included only one personal_exemption and the standard_deduction it also advised petitioner that respondent would accept her tax_return and that filing that return might reduce the amount due on date after respondent had issued the notice_of_deficiency petitioner submitted her form_1040 u s individual_income_tax_return for on schedule c she reported dollar_figure in gross_receipts from her law practice for respondent concedes that this amount is correct petitioner also claimed respondent’s records indicate that petitioner may have been the subject of identity theft resulting in an incorrect address being used on a notice to her of taxes owed pursuant to the substitute for return the actual substitute for return was not sent to petitioner and she appears to have been unaware of the possible identity theft sec_6020 and sec_301_6020-1 proced admin regs do not require respondent to provide the substitute for return and we find that the fact that respondent used the wrong address for the earlier notice does not affect our jurisdiction or the outcome of this case although it is a curious detail the notice_of_deficiency upon which the case is based was correctly addressed to petitioner and she does not argue that she did not receive that notice head-of-household filing_status two personal exemptions claiming one dependent various deductions schedule c expense deductions an earned_income_tax_credit and an additional_child_tax_credit and as a result claimed that she was owed a refund on date respondent received petitioner’ sec_2012 form_1040 on date petitioner timely filed her petition in which she stated pursuant to my completed irs form_1040 i am owed a refund accordingly i do not owe any taxes to the irs for the tax_year and therefore my return was timely filed on or about date respondent’s service_center processed petitioner’ sec_2012 form_1040 and offset her claimed overpayment against a nontax debt on or about date respondent entered litigation hold codes on petitioner’s account preventing any further action from being taken until the resolution of this case on date respondent filed an answer denying petitioner’s allegation that she did not owe any_tax and that her return was timely filed but not otherwise addressing her form_1040 at trial petitioner did not present evidence of her deductions credits or filing_status beyond the form_1040 that she had filed instead she argued in even though respondent had conceded that petitioner’s gross_receipts for were dollar_figure she offered some evidence at trial to show that the gross continued a motion in limine and at trial that respondent had voluntarily redetermined her tax_liability by accepting the form_1040 that she had filed after the notice_of_deficiency was issued therefore she argued respondent should be precluded from offering any evidence inconsistent with the redetermined tax_liability and no longer may rely upon the original notice_of_deficiency citing 998_f2d_238 5th cir rev’g tcmemo_1991_87 she further argued that the court lacks jurisdiction over her redetermined tax_liability because that redetermined liability resulted in a refund citing sec_6512 and 429_f3d_533 5th cir vacating 123_tc_15 we took petitioner’s motion in limine under advisement and asked the parties to address the issue in posttrial briefs as to her failure_to_file a return before the notice_of_deficiency was issued petitioner admitted that she was slothful but testified that her understanding of the law is that when you’re entitled to a refund you have to file a return within three years and therefore had until date to file a return for continued receipts she received in should have been dollar_figure instead of dollar_figure as shown in the notice_of_deficiency to illustrate her point that the notice_of_deficiency was incorrect opinion i effect of postpetition processing of petitioner’s return we first must decide what effect if any we must give the postpetition processing of petitioner’ sec_2012 form_1040 and the issuance to her of a refund sec_6512 provides that i f the secretary has mailed to the taxpayer a notice_of_deficiency and if the taxpayer files a petition with the tax_court within the time prescribed no credit or refund of income_tax for the same taxable_year shall be allowed or made other than as relevant here as determined in a final_decision of the tax_court or as collected in excess of the amount in our decision or to the extent determined as part of our overpayment jurisdiction ordinarily the burden_of_proof in cases before the court is on the taxpayer see rule a 290_us_111 petitioner invoked our jurisdiction by filing her petition for redetermination which has the effect of restricting respondent’s ability to assess or collect the taxes determined to be owed in the notice_of_deficiency until our decision becomes final see sec_6213 because she filed a petition respondent must assess the entire amount that we determine to be a deficiency in our decision see sec_6215 and respondent may not allow a credit or refund for the year to which the petition relates except as we determine under our concurrent jurisdiction to determine overpayments or in other circumstances not relevant here see sec_6512 and b petitioner now seeks to end-run the statute giving the court exclusive jurisdiction over the tax_year at issue once she filed her petition petitioner relies on two cases to argue that respondent may not rely on the liability originally determined in the notice_of_deficiency from which she petitioned us for redetermination petitioner cites 998_f2d_238 arguing that when the irs accepts a tax_return filed after the issuance of a notice_of_deficiency and voluntarily redetermines the tax_liability irs waives its right to rely on its original tax_liability determination petitioner then cites 429_f3d_533 arguing that this court lacks jurisdiction to review respondent’s determination that she was owed a refund these cases do not support petitioner’s position in smaczniak the main issue was whether res_judicata applied in a subsequent proceeding involving the same claim and the same tax_year the years at issue in smaczniak were but the taxpayer husband had been before the court in a prior proceeding for tax years at docket no in that prior case the court entered a final_decision against the taxpayer husband because he had failed properly to prosecute his case and failed to comply with the court’s rules smaczniak v commissioner f 2d pincite after that final_decision and while an appeal was pending the taxpayers submitted joint tax returns for the years at issue in the case at docket no and the irs accepted those returns and redetermined the amounts of the taxpayers’ tax_liabilities for those years id in smaczniak the taxpayers attempted to raise issues relating to tax years id pincite the u s court_of_appeals for the fifth circuit rejected the commissioner’s affirmative defense of res_judicata reasoning that the irs may not rely on a prior judgment of a court regarding a taxpayer’s deficiency when the irs has subsequent to that court’s judgment voluntarily redetermined the amount of the taxpayer’s deficiency res_judicata is an affirmative defense which can be waived by voluntarily redetermining mr smaczniak’s tax_liability the irs in effect waived its right to rely on mr smaczniak’s liability as originally determined by the tax_court id pincite citations and fn ref omitted the court_of_appeals was careful to limit its holding specifying that it applied only for purposes of res_judicata and only in limited circumstances see id pincite n smaczniak thus does not support petitioner’s argument that respondent is precluded from relying on the notice_of_deficiency or that she no longer bears the burden of proving that the notice_of_deficiency is erroneous in estate of smith we had previously determined through rule_155_computations that the taxpayer was owed a refund for overpayment_of_tax the commissioner then took this amount reduced it by the taxpayer’s unpaid interest for the same year and refunded to the taxpayer the reduced_amount the taxpayer filed a motion seeking a refund of the entire amount we granted the motion holding that even though it resulted in a windfall to the taxpayer since the court had not taken the unpaid interest into account in its decision the commissioner was required to refund the full amount of the taxpayer’s overpayment without reduction the u s court_of_appeals for the fifth circuit reversed the court’s holding that since we had not addressed the underpayment of interest the commissioner had authority pursuant to sec_6402 to reduce the overpayment_of_tax that we had determined by the amount of unpaid interest our order to the commissioner to refund the entire amount of the overpayment therefore exceeded our jurisdiction under sec_6512 estate of smith v commissioner f 3d pincite estate of smith likewise does not preclude us from redetermining petitioner’s tax_liability here petitioner has not established that respondent’s processing of her return and offset of her nontax debt was anything other than an error petitioner has not presented nor are we aware of any cases holding that postpetition processing of a tax_return and issuance of a refund or offset constitutes a binding settlement of the liability at issue in the petition nor does she so argue petitioner’s contention that respondent no longer can rely on the notice_of_deficiency is similar to the argument that the irs has rescinded the notice_of_deficiency even though the formal procedures have not been followed this argument consistently has been rejected in slattery v commissioner tcmemo_1995_274 tax ct memo lexis at this court stated sec_6212 provides that the secretary may with the consent of the taxpayer rescind any notice_of_deficiency mailed to the taxpayer clearly the statute requires mutual consent by the secretary and the general principles regarding the enforcement of settlements in the tax_court were set out in 108_tc_320 quoting manko v commissioner t c memo aff’d 208_f3d_205 3d cir as follows in a tax case it ‘is not necessary that the parties execute a closing_agreement under sec_7121 in order to settle a case pending before this court but rather a settlement agreement may be reached through offer and acceptance made by letter or even in the absence of a writing ’ lamborn v commissioner tcmemo_1994_515 settlement offers made and accepted by letters are enforced as binding agreements haiduk v commissioner tcmemo_1990_506 see also himmelwright v commissioner tcmemo_1988_114 furthermore this court in 136_tc_475 aff’d 502_fedappx_1 d c cir held that t he commissioner is not bound by an apparent settlement where an agent is without authority to compromise a taxpayer’s tax_liability taxpayer to effect a rescission of a notice_of_deficiency we know of no authority deeming a notice_of_deficiency rescinded in absence of a formal rescission fn ref omitted in either a settlement or a formal rescission there must be a meeting of the minds between the parties that did not happen here we hold that respondent’s processing of petitioner’ sec_2012 form_1040 and offset after he issued the notice_of_deficiency and after she filed her petition seeking our redetermination of her tax_liability does not limit his authority to rely upon that notice_of_deficiency nor does it restrict our jurisdiction to redetermine her tax_liability as set forth in that notice we therefore will deny petitioner’s motion in limine and now turn to the redetermination of her tax_liability ii petitioner’ sec_2012 federal tax_liability petitioner claimed head-of-household filing_status two personal exemptions various deductions schedule c expense deductions an earned_income_credit and an additional_child_tax_credit on the form_1040 that she submitted after respondent issued the notice_of_deficiency petitioner bears the burden of demonstrating that she is entitled to these items see 503_us_79 292_us_435 even if a taxpayer files a return after the commissioner issues a notice_of_deficiency the taxpayer still must come forward with evidence as to any deductions claimed on the return see van vorst v commissioner tcmemo_1993_353 tax ct memo lexis at n see also mccabe v commissioner tcmemo_1983_325 tax ct memo lexi sec_466 the return itself is not considered evidence 71_tc_633 the fact that a return is signed under penalty of perjury is not sufficient to substantiate deductions claimed on it ehrensperger v commissioner tcmemo_1994_279 tax ct memo lexis at the entries on the returns of petitioner and his spouse are not evidence to establish the truth of the matters set forth therein but merely a statement of their claim mccabe v commissioner tax ct memo lexi sec_466 at explaining that an amended_return admitted into evidence as a statement of the taxpayer’s present position does not affect the jurisdiction of this court or the taxpayer’s burden to show error in the notice_of_deficiency petitioner had the opportunity to present evidence at trial and did submit evidence supporting a reduction to her gross_receipts even though respondent had agreed already to reduce them petitioner however failed to introduce at trial any evidence either documents or testimony other than her general statement that her return was accurate to substantiate her claimed filing_status deductions or credits relying instead solely upon her form_1040 therefore in the absence of any evidence we sustain respondent’s determination that she is not entitled to these items see baker v commissioner tcmemo_2008_247 tax ct memo lexi sec_244 at rejecting taxpayer’s returns as evidence of deductions because no other evidence was introduced except taxpayer’s nonspecific testimony of their accuracy explaining that w hat a taxpayer needs to substantiate his deductions and losses are records sufficient to permit verification of a deduction or loss iii additions to tax under sec_6651 and respondent determined that petitioner is liable for additions to tax under sec_6651 and sec_6651 imposes an addition_to_tax for failure_to_file a return by the date prescribed unless the taxpayer shows that the failure_to_file was due to reasonable_cause and not willful neglect sec_6651 imposes an addition_to_tax for failure timely to pay the amount of tax shown on a return unless the taxpayer shows that the failure to pay was due to reasonable_cause and not willful neglect the addition_to_tax under sec_6651 applies only when an amount of tax is shown on a return 127_tc_200 aff’d 521_f3d_1289 10th cir 120_tc_163 aff’d without published opinion a f t r 2d ria 3d cir under sec_6651 a substitute for return prepared by the secretary pursuant to sec_6020 is treated as a return filed by the taxpayer for the purposes of sec_6651 the commissioner bears the burden of production with respect to a taxpayer’s liability for these additions to tax sec_7491 once the commissioner meets the burden of production the taxpayer bears the burden of proving that her failure timely to file the required return did not result from willful neglect and that the failure was due to reasonable_cause see 116_tc_438 respondent has met his burden of production under sec_7491 with respect to the sec_6651 addition_to_tax by showing that petitioner failed to file her income_tax return before the issuance of the notice_of_deficiency likewise respondent has met his burden of production with respect to the sec_6651 addition_to_tax by showing that respondent prepared a valid substitute for return for petitioner for tax_year the fact that petitioner may not have received notice that the substitute for return was prepared does not change our conclusion the statute requires a return not notice of payment due and the substitute for return constitutes the return for the purposes of calculating the addition_to_tax for failure to pay see sec_6651 and the addition_to_tax is calculated from the time the payment was due which is the due_date of the original return not the date the substitute for return was prepared see sec_6651 sec_301_6651-1 example proced admin regs there is no requirement in sec_6020 that the commissioner send notice to a taxpayer that a substitute for return has been prepared and there is no requirement in sec_6651 that the taxpayer receive notice that the substitute for return was prepared for the commissioner to assess the addition_to_tax for failure timely to pay in fact we have upheld additions to tax where the substitute for return was prepared only days before the notice_of_deficiency was sent to the taxpayer gleason v commissioner tcmemo_2011_154 there the substitute for return was prepared only six days before the issuance of a notice_of_deficiency and the record does not indicate that the commissioner sent notice that the substitute for return was prepared other than the notice_of_deficiency although the taxpayer had received notice of an earlier substitute for return id as respondent has met the burden of production with respect to the additions to tax under sec_6651 and petitioner has the burden of proving that her failure timely to file and pay was due to reasonable_cause and not willful neglect see higbee v commissioner t c pincite petitioner took the position that she was not required to file a return until advised by respondent petitioner’s legal position is expressly contradicted by sec_6012 which requires that individuals file returns if their income exceeds the exemption_amount plus the standard_deduction courts long have held that ignorance of the law is no excuse and we will not make an exception here 402_us_558 the principle that ignorance of the law is no defense applies whether the law be a statute or a duly promulgated and published regulation 139_tc_1 and we find petitioner’s claimed ignorance of the law particularly unappealing because she is a lawyer in addition petitioner did not make any other argument to justify her failure timely to pay as to petitioner’s failure timely to pay she maintained at trial and in posttrial briefing that she did not have an obligation to file a return until advised by respondent because she was due a refund which as we note above does not establish reasonable_cause for her failure to comply with the law she now must accept the consequences of resting her entire case on this one argument consequently we sustain respondent’s additions to tax under sec_6651 and for petitioner’ sec_2012 tax_year iv respondent’s motion to reopen the record respondent filed a motion to reopen the record to add form_2866 certificate_of_official_record and corresponding form_4340 certificate of assessments payments and other specified matters for petitioner’s form_1040 for the tax period ending date that is current through date identified as exhibit 18-r and the certified account transcript for petitioner’s form_1040 for tax period ending date that is current through date identified as exhibit 19-r respondent argued that we should reopen the record for these documents under soltan v commissioner tcmemo_2010_91 because these documents are not cumulative or impeaching they are material and they probably would change the outcome of the case these documents show that respondent was able to recover the offset against petitioner’s nontax debt and freeze her claimed refund for pending the court’s determination petitioner filed a late response to respondent’s motion in which she repeated her position at trial that he should be precluded from relying on the original notice_of_deficiency she also argued that the documents are not timely contain posttrial information are contrary to the stipulation of facts are contrary to the statutory scheme for recovering an erroneous refund are hearsay and are not relevant we granted respondent’s motion and reopened the record solely for the purpose of allowing him to offer into evidence exhibit 18-r and exhibit 19-r so that the parties could brief the issues raised by his motion in the context of the evidence in the case and so that we could decide his motion in that context we conclude that whether respondent was successful in recovering petitioner’s refund has no effect on the outcome of this case therefore we will exclude exhibit 18-r and exhibit 19-r from the record as irrelevant any contentions we have not addressed we deem irrelevant moot or meritless to reflect the foregoing decision will be entered under rule


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 corp b02 plr-105926-11 date date legend parent ------------------------------------------------------------------------------------- ---------------------------------------------------------------------------- ------------------------------------------ sub ------------------------------------------------------------------------------------- ---------------------------------------------------------------------------- --------------- sub ------------------------------------------------------------------------------------- ---------------------------------------------------------------------------- ------------------------------------------ sub ------------------------------------------------------------------------------------- ---------------------------------------------------------------------------- ----------------------- new parent ------------------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------- date date date date --------------------- ----------------------- ----------------------- ----------------------- plr-105926-11 company official --------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------ ---------------------- outside tax practitioner ---------------- --------------------------------------------------------------------- -------------------------------------------------------------------------------- dear ---------------- this letter_ruling responds to a letter from your authorized representatives dated date requesting an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to file an election the extension is being requested for parent and its subsidiaries to make an election to file a consolidated federal_income_tax return with parent as the common parent under sec_1_1502-75 of the income_tax regulations hereinafter referred to as the election effective for the taxable_year ending on date the material information provided in that request and in later correspondence is summarized below parent prior to its acquisition on date was the common parent of an affiliated_group_of_corporations the parent group throughout the pre-acquisition period beginning on date and ending on date parent owned all of the stock of sub which in turn owned all of the stock of sub parent owned all of the stock of sub for a portion of the pre-acquisition period on date in connection with the acquisition parent formed sub and on date sub ceased to be affiliated with parent on date pursuant to a stock purchase agreement and an amendment thereto new parent acquired all of the issued and outstanding common_stock of parent as a result of the acquisition the parent group terminated and a new affiliated_group was formed with new parent as the common parent parent and each of sub sub and sub collectively the subs intended to elect to file a consolidated federal_income_tax return with parent as the common parent for the taxable_year that began on date and ended on date the election was due on the due_date for the common parent’s return but for various reasons a valid election was not filed after the due_date for the election it was discovered that the election had not been filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file the election the period of limitations on assessment under sec_6501 has not expired for the parent group’s taxable_year for which they want to make the election the taxable_year in which the election should have been filed or any taxable years that would be affected by the election had it been timely filed parent has represented that it is not seeking to alter a return position for which an accuracy related penalty has been or could be imposed under sec_6662 with respect to the returns of plr-105926-11 parent sub sub and sub at the time the taxpayer requested relief taking into account any qualified_amended_return filed within the meaning of sec_1_6664-2 sec_1_1502-75 of the income_tax regulations provides in part that an affiliated_group_of_corporations which did not file a consolidated_return for the immediately preceding_taxable_year may file a consolidated_return in lieu of separate returns for the taxable_year provided that each corporation which has been a member of the group during any part of the taxable_year for which the consolidated_return is to be filed consents in accordance with sec_1_1502-75 to the regulations under sec_1502 if a group wishes to exercise its privilege of filing a consolidated_return such consolidated_return must be filed not later than the last day prescribed by law including extensions of time for the filing of the common parent’s return under sec_301_9100-1 the commissioner has discretion to 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 internal_revenue_code except subtitles e g h and i sec_301_9100-1 through 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 sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1 a therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for parent to file the election provided parent shows it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by parent company official and outside tax practitioner explain the circumstances that resulted in the failure to timely file the election the information establishes that the request for relief was filed before the failure to make the election was discovered by the internal_revenue_service see sec_301_9100-3 based on the facts and information submitted including the representations made we conclude that parent has shown it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly provided that the parent group qualifies substantively to file a consolidated_return for the applicable tax_year an extension of time is granted under sec_301_9100-3 until days from the date on this letter for parent plr-105926-11 to file the election by filing a consolidated_return with parent as the common parent and attaching a form_1122 for each of sub sub and sub for their taxable_year ending on date the parent group must attach a copy of this ruling letter to such return or if the parent group files the return electronically a statement must be attached to the return that provides the date and the control number of this ruling letter the above extension of time is conditioned on the parent group’s tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the parent group’s tax_liability for the year involved a determination thereof will be made by the applicable director's office upon audit of the federal_income_tax returns involved we express no opinion with respect to whether in fact the parent group qualifies substantively to file a consolidated_return in addition we express no opinion as to the tax effects or consequences of filing the return or the election late under the provisions of any other section of the code or regulations or as to the tax treatment of any conditions existing at the time of or effects resulting from filing the return or the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by parent company official and outside tax practitioner however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election penalties and interest that would otherwise be applicable if any continue to apply this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely ______________________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc


internal_revenue_service number release date index number ------------------- ---------------------------------------- ---------------------------------------- --------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no ------------- telephone number -------------------- refer reply to cc corp plr-144904-10 date date legend distributing shareholder llc llc llc llc llc ----------------------------------------------- -------------------------------- ---------------------- ---------------------------------------- -------------------------------- ---------------------- ----------------- ------------------------------------------------- ---------------------- - -------------------------- ------------------------------------------------ --------------------------- ----------------------- ------------------------------------------------ ---------------------- - --------------------- --------------------------------------------------- ---------------------- - ---------------- ------------------------------------------------ ---------------------- - plr-144904-10 llc sub year year state x a b c d busine sec_1 busine sec_2 busine sec_3 busine sec_4 x --------------------------------------------------- ------------------------------------------------ ---------------------- - ------------------------------ -------------------------------- ---------------------- - ------- ------- -------------- ---------- ---------- -------- ---- ---------------------------- - - - - - - - --------------------------------------- ---------------------------------- ----------------------------------------------------------- --------------- dear ---------------- this letter responds to your letter dated date the ruling_request submitted on behalf of distributing and shareholder requesting rulings on certain federal_income_tax consequences of a series of proposed transactions additional information was received subsequently the information submitted for consideration is summarized below 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 this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process in particular this office has not reviewed any information pertaining to and has made no plr-144904-10 determination regarding whether the proposed transaction i satisfies the business_purpose requirement of sec_1_355-2 of the income_tax regulations ii is used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation and or the controlled corporations see sec_355 of the internal_revenue_code the code and sec_1_355-2 or iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in the distributing_corporation or the controlled corporations see sec_355 and sec_1_355-7 summary of facts distributing is a state x corporation organized in year distributing has one class of common and two classes of preferred_stock outstanding distributing’s preferred_stock is owned by individuals none of whom are 5-percent shareholders shareholder a state x corporation organized in year owns all of the outstanding common_stock of distributing shareholder is the common parent of an affiliated_group_of_corporations that files a consolidated u s federal_income_tax return in addition to wholly owning all of the common_stock of distributing shareholder wholly owns llc llc llc and llc each of llc llc llc and llc is disregarded as an entity separate and apart from its owner for federal_income_tax purposes under sec_301_7701-3 of the procedure and administration regulations a disregarded_entity distributing owns a of llc b of sub and all of llc a disregarded_entity llc owns c of llc llc owns d of sub distributing is engaged in busine sec_1 busine sec_2 busine sec_3 and busine sec_4 distributing has submitted financial information which indicates that busine sec_1 and busine sec_2 has had gross_receipts and operating_expenses representative of the active_conduct_of_a_trade_or_business for each of the past five years proposed transaction for what are represented as valid business reasons distributing proposes the following transaction the proposed transaction i ii distributing will form controlled in state x controlled will have one class of common_stock outstanding all of which will be owned directly by distributing distributing will form transitory llc a state x limited_liability_company that will be a disregarded_entity distributing will own all of transitory llc’s membership interests plr-144904-10 iii iv v vi distributing will transfer all of the assets related to the conduct of busine sec_2 to transitory llc transitory llc will borrow cash from an external lender the external lender will be aware of the proposed transaction and the terms of the debt will likely consider llc 2’s credit rating existing assets and debt as well as the assets it will acquire in step xii below this should result in more favorable terms than if external lender was only considering transitory llc’s history transitory llc will distribute the borrowed cash to distributing distributing will use the cash received from transitory llc to repay some of its historical debt associated with the busine sec_2 assets distributing will contribute all of its interest in transitory llc sub llc and llc to controlled the contribution in exchange for stock of controlled and the assumption by controlled of the liabilities associated with busine sec_2 and busine sec_3 vii distributing will distribute all the stock of controlled to shareholder the distribution viii shareholder will contribute llc to controlled ix x xi shareholder will contribute llc and llc to controlled controlled will contribute llc to llc controlled will contribute llc and sub to llc xii transitory llc will merge with and into llc with llc surviving following the proposed transaction distributing will be engaged in busine sec_1 and controlled will be engaged in busine sec_2 busine sec_3 and busine sec_4 representations a no part of the consideration to be distributed by distributing will be received by shareholder as a creditor employee or in any capacity other than that of a shareholder of distributing b the five years of financial information submitted on behalf of busine sec_1 is representative of its present operation and with regard to such business there have been no substantial operational changes since the date of the last financial statement submitted plr-144904-10 c the five years of financial information submitted on behalf of busine sec_2 is representative of its present operation and with regard to such business there have been no substantial operational changes since the date of the last financial statement submitted d following the distribution distributing and controlled will each continue the active_conduct of its business independently and with its separate employees e the distribution is being carried out for the following corporate business_purpose regulatory rate making and fit and focus the distribution is motivated in whole or substantial part by one or more of these corporate business purposes f the distribution is not used principally for the distribution of the earnings_and_profits of distributing or controlled or both g for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing fifty percent or more of the total combined voting power of all classes of distributing stock entitled to vote or fifty percent or more of the total value of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution h for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing fifty percent or more of the total combined voting power of all classes of controlled stock entitled to vote or fifty percent or more of the total value of all classes of controlled stock that was either acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution or attributable to distributions on distributing stock that were acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution i the distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly equity representing a fifty percent or greater interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor of any such corporation j the total adjusted bases of the assets transferred to controlled in the contribution will equal or exceed the sum of i the total liabilities assumed as plr-144904-10 determined under sec_357 by controlled and ii the total amount of any money and the fair_market_value of any other_property within the meaning of sec_361 received by distributing and transferred to its creditors in connection with the reorganization k the liabilities assumed as determined under sec_357 by controlled in the contribution and the liabilities to which the assets transferred to controlled in the contribution are subject were incurred in the ordinary course of business and are associated with the assets being transferred l the total fair_market_value of the assets transferred to controlled by distributing in the contribution will exceed the sum of i the amount of any liabilities assumed as determined under sec_357 by controlled in connection with the exchange ii the amount of any liabilities owed to controlled by distributing that are discharged or extinguished in connection with the exchange and iii the amount of any cash and the fair_market_value of any other_property other than stock and securities permitted to be received under sec_361 without the recognition of gain received by distributing in connection with the exchange the fair_market_value of the assets of controlled will exceed the amount of its liabilities immediately_after_the_exchange m no intercorporate debt will exist between distributing and controlled at the time of or subsequent to the distribution n immediately before the distribution items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d 1995_32_irb_6 and as currently in effect sec_1_1502-13 as published by t d further any excess_loss_account of a member in the stock of another member that is required to be taken into account by sec_1 will be included in income immediately before the transaction o payments made in connection with any continuing transactions between distributing and controlled following the distribution will be for fair_market_value based on terms and conditions comparable to those that would be arrived at by the parties bargaining at arm’s length p no two parties to the proposed transaction are investment companies as defined in sec_368 and iv plr-144904-10 q immediately after the distribution neither distributing nor controlled will be a disqualified_investment_corporation as defined in sec_355 r neither busine sec_1 or busine sec_2 nor control of an entity conducting these businesses will have been acquired during the five-year period ending on the date of the distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part ruling sec_1 steps iv through vi only of the proposed transaction will be treated for federal tax purposes as if distributing will contribute all of its interest in transitory llc sub llc and llc to controlled the contribution in exchange for stock of controlled controlled will borrow cash from external lender controlled will distribute the borrowed cash to distributing after the contribution all other steps in the proposed transaction will remain the same the contribution followed by the distribution will be a reorganization under sec_368 distributing and controlled will each be a party to the reorganization under sec_368 distributing will not recognize any gain_or_loss on the contribution sec_357 and sec_361 further distributing will not recognize income or gain upon the receipt of cash from controlled see ruling provided that distributing distributes the entire amount of the cash to its shareholders or creditors within a x period beginning on the date of the distribution under sec_361 and b controlled will not recognize any gain_or_loss upon its receipt of distributing’s interest in transitory llc sub llc and llc from distributing in the contribution sec_1032 the basis of the assets received by controlled in the contribution will equal the basis of such assets in the hands of distributing immediately prior to the proposed transaction sec_362 the holding_period of each asset received by controlled in the contribution will include the holding_period of such asset in the hands of distributing sec_1223 plr-144904-10 no income gain_or_loss will be recognized by distributing on the distribution sec_361 no gain_or_loss will be recognized by and no amount will otherwise be included in the income of distributing’s shareholders on the distribution sec_355 the holding_period of the shares of controlled common_stock received by shareholder in the distribution will include the holding_period of the shares of distributing common_stock with respect to which such shares of controlled common_stock were received sec_1223 the aggregate basis of the shares of distributing stock and the controlled stock held by shareholder immediately after the distribution will equal the aggregate basis of the shares of distributing stock held by shareholder immediately before the distribution allocated in proportion to the fair_market_value of the distributing stock and the controlled stock in accordance with sec_1_358-2 sec_358 earnings_and_profits if any will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 caveats except as expressly provided herein no opinion is expressed about the tax treatment of the proposed transaction under other provisions of the code or regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction not specifically covered by the above rulings in particular no opinion is expressed regarding i whether the distribution satisfies the business_purpose requirement of sec_1_355-2 ii whether the distribution is used principally as a device for the distribution of earnings_and_profits of distributing and controlled or both see sec_355 and sec_1_355-2 or iii whether the distribution is part of a plan or series of related transactions under sec_355 specifically no opinion is expressed concerning the treatment of step i of the proposed transaction described above plr-144904-10 procedural statements 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 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 a copy of this ruling letter must be attached to any federal_income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of this ruling letter under a power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely ___________________________ mark s jennings branch chief branch office of associate chief_counsel corporate cc


internal_revenue_service number release date index number -------------------------------------- ----------------------------------------------- ----------------------------------- -------------------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ---------------- id no ------------- telephone number --------------------- refer reply to cc fip b05 plr-151483-06 date date ---- ---------------------- -------------------------------------- ---------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------------- legend foundation state program department statute a b c d dear ---------- this letter responds to the foundation’s request for a ruling that it is eligible to receive tax-deductible charitable_contributions under sec_170 of the internal_revenue_code code facts and representations the foundation was established by the statute as a public corporation for the purpose of soliciting accepting making and disbursing contributions and making ---- -- -- plr-151483-06 recommendations for the program the program is a state-wide program established and implemented by the department in coordination with other state departments and agencies for the promotion of tourism in the state the department is part of the executive branch of the government of the state according to the statute the creation of the foundation and the carrying out of its purposes are in all respects for the benefit of the people of the state and constitute a public and charitable purpose the foundation is governed by an a member board the board_of which b members are designated by the statute the statutory members and b members are appointed by the governor of the state appointed members the statutory members are the head of the department who is the chairperson the head of another state department the executive directors of c governmental authorities established by the state and a representative from each of the d state-wide organizations for the preservation of state heritage and promotion of tourism in the state the terms of the statutory members expire with their term in their respective government offices the appointed members may be removed by the governor the foundation is attached to the department for administrative purposes members of the department’s staff make payments on behalf of the foundation and prepare the foundation’s budget for approval by the board the department and other state departments authorities and organizations on whose behalf the foundation and the program operate contribute the majority of the foundation’s operating funds from their own tourism related budgets the foundation’s current_assets may be used only to support the program and upon any dissolution of the foundation its assets will devolve in trust to the department or its successor for use only for marketing to promote tourism in the state law and analysis sec_170 allows subject_to certain limitations a deduction for charitable_contributions as defined in sec_170 payment of which is made within the taxable_year sec_170 includes in the definition of charitable_contribution a contribution or gift made for exclusively public purposes to or for_the_use_of a state a possession_of_the_united_states or any political_subdivision of any of the foregoing or the united_states or the district of columbia entities eligible to receive tax-deductible contributions include not only governmental units described in sec_170 but also wholly-owned instrumentalities of states or political subdivisions see revrul_75_359 1975_2_cb_79 revrul_79_323 1979_2_cb_106 revrul_57_128 1957_1_cb_311 sets forth the following factors to be taken into account in determining whether an entity is an instrumentality of one or more plr-151483-06 governmental units whether the organization is used for a governmental purpose and performs a governmental function whether performance of its function is on behalf of one or more states or political subdivisions whether there are any private interests involved or whether the states or political subdivisions have the power and interests of an owner whether control and supervision of the organization is vested in a public authority or authorities whether express or implied statutory or other authority is necessary for the creation and or use of the organization and whether this authority exists and the degree of financial autonomy of the entity and the source of its operating_expenses the foundation was created by the statute the foundation performs the governmental purpose of raising funds to support the various-tourism related activities of the program the program and the foundation were created for the purpose of increasing tourism within the state the foundation in its support of the program acts on behalf of the state the state primarily through the department controls and supervises the foundation the chairman of the board is the head of the department half of the board’s members are appointed directly by the governor and the remaining board members are heads of various state departments or authorities or members of state organizations the staff of the department perform the administrative duties of the foundation including preparing the budget and making payments on behalf of the foundation moreover the operating funds of the foundation are provided primarily by the various state government departments authorities and organizations on whose behalf the foundation and the program operate all of foundation’s assets will be distributed for the state’s benefit while foundation is in existence and upon dissolution of foundation accordingly we conclude that the foundation is an instrumentality of state conclusion we also conclude that foundation as an instrumentality of state is eligible to receive charitable_contributions that are deductible to contributors under sec_170 of the code if all the requirements of that section are satisfied 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 plr-151483-06 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative 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 timothy l jones senior counsel branch financial institutions products cc


department of the treasury internal_revenue_service washington d c tax calmpt and government entities division release number release date date date uniform issue list contact person identification_number contact number employer_identification_number form required to be filed tax years all 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 if you disagree with our proposed deletions follow the instructions in notice action if you agree with our deletions you do not need to take any further in accordance with code sec_6104 we will notify the appropriate state officials of our determination by sending them a copy of this final letter and the proposed adverse letter you should contact your state officials if you have any questions about how this determination may affect your state responsibilities and requirements if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter 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 if you have any questions about your sincerely robert choi director exempt_organizations rulings agreements 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 uniform issue list legend sample budget dear we have considered your form_1023 application_for recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code the code and requesting to be classified as a school under sec_509 and sec_170 ii based on the written information exchanged between us we have determined that you failed to establish your qualification for exemption under that section our reasons for this conclusion and the facts on which it is based are explained below the information submitted shows that you were incorporated on date under the non-profit corporation laws of your state your articles of organization state that you are organized exclusively for charitable religious educational and scientific purposes your bylaws state that you have a strong purpose within your community for preparing young people with learning disabilities and or attention deficit disorder you plan on offering a college preparatory program to through grade students submitted with your form_1023 were several documents that appear to have been developed for another organization several of the documents contained the name of the other organization in addition your website address contained the same organization's name you submitted a copy of your bylaws and conflict of interest policy however there is no indication as to whether or not these documents were ever approved or adopted by your board_of directors on date we sent you a letter requesting additional information from you to help determine whether you qualify for exemption from federal_income_tax under sec_501 of the code a second letter requesting additional information and clarification to your answers to the march letter was sent to you on date among the questions in this letter you were asked if you had a regularly enrolled student body if you owned or leased the facility where your educational activities were regularly carried on and if you maintained a regular faculty of qualified teachers in your initial response to these questions you replied n a a second request for this information revealed that you will start marketing your school to the public in march you plan on entering into a leasing agreement once you receive non-profit status and you anticipate adding qualified teachers in august you were asked to provide copies of the minutes of your board meetings you replied that you have not had any board meetings and will not have a board meeting until you are granted exemption from federal_income_tax under sec_501 of the code your currently have three members on your board_of directors two of whom use the same mailing address moreover you were asked to provide specific financial data for a three year period you completed the financial data schedule on part ix of the form_1023 by filing zeros on all lines however you did submit a document entitled sample budget the submitted budget is not in the required format you stated that you have not received any actual revenue or incurred any actual expenses among your activities is the corporate internship program program under this program sponsoring companies enter into a contract to fill full-time entry level jobs in their offices the students will be employees of the program not the sponsoring companies each student will work standard daily business hours five days per month the program will handle the payroll and other employer issues for the students the students are required to assign their earnings to you you have also submitted a copy of your extensive and challenging curriculum it includes classes such as linear algebra precalculus ab mathematics physics marine biology advanced physics and architecture design etc the budget that you submitted with your application indicates that you will have three teachers sec_170 a ii of the code provides in part that the deduction provided in subsection a shall be limited as provided in the succeeding subparagraphs to an educational_organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on sec_501 of the code provides in part for exemption from federal_income_tax of organizations organized and operated exclusively for charitable religious or educational_purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_1_170a-9 c of the income_tax regulations the regulations states that an educational_organization is described in sec_170 if its primary function is the presentation of formal instruction and it normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on the term includes institutions such as primary secondary preparatory or high schools and colleges and universities it includes federal state and other public-supported schools which otherwise come within the definition it does not include organizations engaged in both educational and noneducational activities unless the latter are merely incidental to the educational activities a recognized university which incidentally operates a museum or sponsors concerts is an educational_organization within the meaning of sec_170 however the operation of a school by a museum does not necessarily qualify the museum as an educational_organization within the meaning of this subparagraph sec_1_501_c_3_-1 of the regulations states that in order to qualify under sec_501 of the code an organization must be both organized and operated exclusively for one or more exempt purposes if an organization fails to meet either the organizational or operational_test it is not exempt sec_1_501_c_3_-1 of the regulations states that an organization will be regarded as operated exclusively for one or more exempt purposes only if 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 it engages primarily in activities sec_1_501_c_3_-1 of the regulations states that an organization is not operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest created it it must not be operated for the benefit of designated individuals or the persons who section dollar_figure of revproc_2010_9 r b provides that exempt status may be recognized in advance of operations if proposed activities are described in sufficient detail to permit a conclusion that the organization will clearly meet the particular requirements of the section under which exemption is claimed a mere restatement of purposes or a statement that proposed activities will be in furtherance of such purposes will not satisfy this requirement the organization must fully describe the activities in which it expects to engage including the standards criteria procedures or other means adopted or planned for carrying out the activities the anticipated sources of receipts and the nature of contemplated expenditures where the organization cannot demonstrate to the satisfaction of the service that its proposed activities will be exempt a record of actual operations may be required before a ruling or determination_letter will be issued rational for an organization claiming the benefits of sec_501 exemption is a privilege a matter of grace rather than right 470_f2d_849 cir cert_denied 414_us_864 the applicant for tax exempt status under sec_501 has the burden of showing it comes squarely within the terms of the law conferring the benefit sought 30_tc_1151 the tax_court has stated that an application_for tax-exempt status calls for open and candid disclosure of all facts bearing upon an applicant's organization operations and finances to assure that there is not abuse of the revenue laws inference is that the facts if disclosed would show that the applicant fails to meet the requirements of sec_501 74_tc_531 see also 412_f2d_1197 cert_denied 397_us_1009 if such disclosure is not made the logical furthermore the courts have repeatedly upheld the service's determination that an organization has failed to establish exemption where the organization fails to provide requested information applicant has for the most part provided only generalizations in response to repeated requests by the service for more detail on prospective activities such generalizations do not satisfy us that applicant qualifies for the exemption peoples prize v commissioner t c memo the information you have submitted is insufficient for us to conclude that you are organized and operated exclusively for educational or other exempt purposes as specified in sec_501 of the code because it is incomplete unresponsive vague contradictory and indicative of substantial non-exempt purposes the limited information you provided in your application your supporting documentation and your responses to two additional inquiries did not provide sufficient detail to conclude that you are operated for an exempt_purpose though you refer to educational activities that could be exempt you are not yet carrying out those activities and have not met your burden of disclosing all the facts bearing on your organization operations and finances that would allow us to make a decision about your future activities section dollar_figure of revproc_2010_9 supra among other important facts we do not know how many students you expect to attend how you will recruit them whether you will lease or purchase a facility and what kind of curriculum you will teach we do not know what portion of your revenue you expect to derive from tuition or from other sources such as payments from public school systems earnings by your students grants and donations information that is vague or nonspecific is not sufficient to meet the requirements under sec_501 of the code see share network foundation and new dynamics foundation supra vague generalizations and conclusory expectations are insufficient to demonstrate that the application meets the operational_test you submitted information that was vague or not specific to the question asked or even apparently to your organization the name of some other organization was in several documents and in your web address the budget attached to your application labeled sample budget appears to have been copied from a boiler plate budget and not prepared specifically for you some of the information that you did submit is flawed for example the revenue items listed in the revenue section of your budget do not equal the total amount also the sample budget includes several items of revenue titled tra reduction federal title funds and federal school start_up grant summer that you have neither supported or explained elsewhere for example the federal school start_up grant was for the summer of when you were not in operation this budget was prepared for varying levels of anticipated enrollment however it is not supported with evidence that you can reach any of the levels of enrollment thus your application does not contain an open and candid disclosure of all facts which bear upon your organization operations and finances as required by the tax_court in bubbling well church of universal love inc supra you have stated that your board_of directors has not met and wii not meet until you have received your tax-exempt status therefore as you plan your activities you are entirely under the control of a single individual there is no indication that your bylaws and conflict of interest policy were ever approved or adopted by the board_of directors even after your board becomes active it will be made up of three individuals two of whom use the same mailing address indicating a close family or business relationship us from concluding that you will operate for the benefit of the public sec_1 c - d ii of the regulations all of these circumstances prevent some of the information that you submitted is contradictory although you said in your application that you intended to educate children with learning disabilities and attention deficit disorder the curriculum that you have submitted is quite extensive and intellectually challenging you have not explained the appropriateness of such classes as linear algebra and advanced physics furthermore the number and range of classes indicated that they belonged to a school with a much larger faculty and student body than yours one of the activities that you did describe in some detail appears to have a non-exempt commercial purpose you said that you would solicit contracts from companies for your corporate internship program program under this program sponsoring companies enter into a contract with the program to fill full-time entry level jobs in their offices you did not describe any educational component of the program that would be appropriate for high school aged students especially those with learning disabilities rather the students would be employees of the program working standard daily business hours five days per month the program would handle the payroll and other employer issues for the students and require them to assign their earnings to you this program is similar to the commercial activities performed by a for-profit temporary manpower agency as such this program has a substantial non-exempt purpose therefore you will not be operated exclusively for charitable purposes therefore you have not established that you are operated exclusively for exempt purposes within the meaning of sec_501 of the code furthermore you have failed to establish that your activities further a public charitable purpose rather than the promotion of private interests 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 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 irs may represent you 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 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 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 te_ge se t eo ra t james zelasko 3q6 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 sincerely robert choi director exempt_organizations rulings agreements


internal_revenue_service number release date index number 468a cc psi 6--plr-105953-00 date re revised schedule of ruling amounts taxpayer parent plant state director location commission a commission b law order dear this letter responds to the request dated and subsequent submissions for a revised schedule of ruling amounts in accordance with sec_1_468a-3 of the income_tax regulations taxpayer is seeking this revised schedule of ruling amounts because a commission having regulatory plr-105953-00 authority over taxpayer has changed the date on which the plant will no longer be in rate base for ratemaking purposes taxpayer was previously granted revised schedules of ruling amounts on information was submitted pursuant to sec_1_468a-3 we understand the facts as presented by taxpayer to be as follows taxpayer is an investor-owned public_utility company engaged in providing electricity to customers within state taxpayer is a wholly-owned subsidiary of parent taxpayer is subject_to the audit jurisdiction of the district taxpayer owns percent of the plant which is located in location the plant began commercial operations in and its operating license is scheduled to expire at midnight on taxpayer is subject_to the ratemaking jurisdiction of commission a and commission b the portion of taxpayer’s sales within the jurisdiction of commission a and commission b is percent and percent respectively because the commission b jurisdictional percentage is so small rates charged to wholesale customers are generally negotiated with the customer and subsequently submitted to commission b for acceptance taxpayer’s request results from the determinations made by commission a in order which removes the plant from taxpayer’s rate base as of taxpayer represents that pursuant to law nuclear decommissioning costs are collected from its customers through a nonbypassable nuclear decommissioning charge that will continue until the time that the costs are fully recovered notwithstanding the removal of plant from rate base as approved by commission a in order the total estimated cost of decommissioning the plant is dollar_figure using an assumed inflation rate of percent for the total estimated future cost of decommissioning the plant is dollar_figure the annual amount of decommissioning costs to be included in taxpayer's cost of service is dollar_figure calculated by using a variable assumed rate of return taxpayer represents that certain figures presented in the text of order are subject_to administrative error and that taxpayer has filed a petition to amend those figures taxpayer plr-105953-00 further represents that commission a nonetheless relied on the correct figures in calculating the amount of decommissioning costs included in cost of service for ratemaking purposes the funding_period extends from however because the date that the plant will no longer be in rate base has been changed to the level_funding limitation period extends from the estimated period for which the fund will be in effect extends from to and the estimated_useful_life of the plant extends from to thus taxpayer has calculated its qualifying percentage to be percent at the present time there are no proceedings pending before commission a or commission b that would increase or decrease the amount of decommissioning costs to be included in taxpayer’s cost of service for ratemaking purposes sec_468a of the code provides that a taxpayer may elect to deduct for any taxable_year the amount of payments made by taxpayer to a qualified decommissioning fund during the taxable_year pursuant to sec_1_468a-1 of the regulations this deduction is available only to an eligible_taxpayer an eligible_taxpayer as defined in sec_1_468a-1 is any taxpayer that has a qualifying interest in a nuclear power plant sec_1_468a-1 of the regulations defines the term qualifying interest as among other things a direct ownership_interest a direct ownership_interest includes an interest held as a tenant in common or joint tenant but does not include stock in a corporation that owns a nuclear power plant or an interest in a partnership that owns a nuclear power plant under sec_468a of the code the amount that a taxpayer may pay into a nuclear decommissioning fund for any taxable_year is limited to the lesser_of the amount of nuclear decommissioning costs allocable to the nuclear decommissioning fund that is included in taxpayer’s cost of service for ratemaking purposes for the taxable_year or the ruling_amount applicable to the nuclear decommissioning fund for the taxable_year sec_1_468a-1 of the regulations defines the term nuclear decommissioning costs or decommissioning costs as all otherwise deductible expenses to be incurred in connection with plr-105953-00 the entombment decontamination dismantlement removal and disposal of the structures systems and components of a nuclear power plant that has permanently ceased the production of electric energy this term includes all otherwise deductible expenses to be incurred in connection with the preparation for decommissioning such as engineering and other planning expenses and all otherwise deductible expenses to be incurred with respect to the plant after the actual decommissioning occurs such as physical security and radiation monitoring expenses sec_468a of the code provides that no deduction shall be allowed for any payment to a nuclear decommissioning fund unless taxpayer requests and receives from the secretary a schedule of ruling amounts sec_468a of the code defines the term ruling_amount as the amount that the secretary determines to be necessary to fund a portion of the decommissioning costs this amount is that portion which bears the same ratio to the total nuclear decommissioning costs for the nuclear power plant as the period for which a nuclear decommissioning fund is in effect bears to the estimated_useful_life of the nuclear power plant the ruling_amount is further restricted under sec_468a to the amount necessary to prevent any excessive funding of decommissioning costs or the funding of these costs at a rate more rapid than level_funding taking into account the discount rates as the secretary deems appropriate sec_1_468a-3 of the regulations requires the schedule of ruling amounts for a nuclear decommissioning fund to specify the annual payments that over the taxable years remaining in the funding_period will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event greater than the amount of decommissioning costs allocable to the nuclear decommissioning fund the projected fund balance is calculated by taking into account the fair_market_value of fund assets as of the first taxable_year to which the schedule of ruling amounts applies and the estimated rate of return to be earned by the fund assets after payment of administrative costs and incidental_expenses to be incurred by the fund including all federal state_and_local_income_taxes to be incurred by the fund the after-tax rate of return sec_1_468a-3 of the regulations provides that to the extent consistent with the principles and provisions of sec_1_468a-3 each schedule of ruling amounts shall be based plr-105953-00 on the reasonable assumptions and determinations used by the applicable public_utility commission in establishing or approving the amount of decommissioning costs to be included in cost of service for ratemaking purposes taking into account amounts that are otherwise required to be included in taxpayer’s income under sec_88 of the code and the regulations thereunder thus for example each schedule of ruling amounts shall be based on the public_utility commission’s reasonable assumptions concerning i the after-tax rate of return to be earned by the amounts collected for decommissioning ii the total estimated cost of decommissioning the nuclear power plant and iii the frequency of contributions to a nuclear decommissioning fund for a taxable_year under sec_1_468a-3 of the regulations the service shall provide a schedule of ruling amounts that is identical to the schedule proposed by taxpayer but no schedule of ruling amounts shall be provided unless taxpayer’s proposed schedule is consistent with the principles and provisions of sec_1_468a-3 sec_1_468a-3 of the regulations provides that the ruling_amount specified in a schedule of ruling amounts for any taxable_year in the level_funding limitation period shall not be less than the ruling_amount specified in the schedule for any earlier taxable_year the amount of decommissioning costs allocable to a nuclear decommissioning fund is determined under sec_1_468a-3 of the regulations pursuant to sec_1_468a-3 this amount is taxpayer’s share of the total estimated cost of decommissioning the nuclear power plant multiplied by the qualifying percentage sec_1_468a-3 of the regulations provides that taxpayer’s share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning the plant multiplied by taxpayer’s qualifying interest in the plant the term qualifying percentage is defined in sec_1_468a-3 of the regulations this regulation provides that the qualifying percentage for any nuclear decommissioning fund is a fraction the numerator of which is the number of taxable years in the estimated period for which the fund is to be in effect and the denominator of which is the number of taxable years in the estimated_useful_life of the nuclear power plant plr-105953-00 sec_1_468a-3 of the regulations provides that the estimated period for which a nuclear decommissioning fund is to be in effect begins on the later of the first day of the first taxable_year for which a deductible payment is made to the nuclear decommissioning fund or the first day of the taxable_year that includes the date that the nuclear power plant begins commercial operations this estimated period ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in taxpayer’s rate base for ratemaking purposes as determined by the applicable public_utility commission at the time the plant was first included in taxpayer’s rate base sec_1_468a-3 of the regulations provides that the estimated_useful_life of the nuclear power plant begins on the first day of the taxable_year that includes the date that the nuclear power plant begins commercial operations and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in taxpayer’s rate base for ratemaking purposes as determined by the applicable public_utility commission at the time the plant was first included in taxpayer’s rate base sec_1_468a-3 of the regulations provides that the service shall not provide a taxpayer with a schedule of ruling amounts for any nuclear decommissioning fund unless the public_utility commission that establishes or approves rates for electric energy generated by a nuclear power plant to which the nuclear decommissioning fund relates has determined the amount of decommissioning costs to be included in taxpayer’s cost of service for ratemaking purposes and has disclosed the after-tax rate of return and any other assumptions and determinations used in establishing or approving the amount if rates are established or approved by two or more public_utility commissions the special rules in sec_1_468a-3 of the regulations apply sec_1_468a-3 and require that a schedule of ruling amounts shall be separately determined for each public_utility commission and this separate determination shall take into account only the portion of the total estimated decommissioning cost that is properly allocated to the ratepayers whose rates are established or approved by the public_utility commission in addition sec_1_468a-3 and provide that the schedule of ruling amounts for any taxable_year is the sum of ruling amounts for the taxable_year determined under the separate schedules of ruling amounts plr-105953-00 sec_1_468a-3 of the regulations requires a taxpayer to request a revised schedule of ruling amounts for a nuclear decommissioning fund if a any public_utility commission that establishes or approves rates for the furnishing or sale of electric energy generated by the nuclear power plant to which the fund relates increases the proposed period over which the decommissioning costs will be included in cost of service for ratemaking purposes adjusts the estimated date on which the nuclear power plant will no longer be included in rate base for ratemaking purposes or reduces the amount of decommissioning costs to be included in cost of service for ratemaking purposes for any taxable_year and b taxpayer’s most recent request for a schedule of ruling amounts did not provide notice to the service of the action by the public_utility commission under sec_1_468a-7 of the regulations an eligible_taxpayer generally is allowed a deduction for the taxable_year in which taxpayer makes a cash payment or is deemed to make a cash payment to a nuclear decommissioning fund only if taxpayer elects the application of sec_468a of the code a separate election is required for each nuclear decommissioning fund and for each taxable_year for which payments are to be deducted under sec_468a in the case of an affiliated_group_of_corporations that join in filing a consolidated_return for a taxable_year the common parent must make a separate election on behalf of each member whose payments to a nuclear decommissioning fund during each taxable_year are to be deducted under sec_468a the election under sec_468a for any taxable_year is irrevocable and must be made by attaching a statement election statement and a copy of the schedule of ruling amounts provided pursuant to the rules of sec_1_468a-3 to taxpayer’s federal_income_tax return or in the case of an affiliated_group_of_corporations that join in filing a consolidated_return the consolidated_return for such taxable_year the return to which the election statement and a copy of the schedule of ruling amounts is attached must be filed on or before the time prescribed by law including extensions for filing the return for the taxable_year for which payments are to be deducted under sec_468a we have examined the representations submitted by taxpayer based solely upon these representations we reach the following conclusions plr-105953-00 taxpayer has a qualifying interest in the plant and therefore is an eligible_taxpayer under sec_1_468a-1 and of the regulations commissions a and b have authorized decommissioning costs to be included in taxpayer’s cost of service for ratemaking purposes as required by sec_1_468a-3 of the regulations as required by sec_1_468a-3 of the regulations taxpayer subject_to the jurisdiction of two public_utility commissions for ratemaking purposes has calculated its share of the total estimated cost of decommissioning the plant allocable to the ratepayers whose rates are established by commissions a and b taxpayer has calculated its qualifying percentage under sec_1_468a-3 of the regulations to be percent taxpayer has proposed a schedule of ruling amounts that meets the requirements of sec_1 468a- a and of the regulations the annual payments specified in the proposed schedule are based on the reasonable assumptions and determinations used by commission a and will result in a projected fund balance at the end of the funding_period that is equal to or less than the amount of decommissioning costs allocable to the fund taxpayer’s proposed schedule of ruling amounts complies with the level_funding requirements of sec_1_468a-3 of the regulations no payment specified in the proposed schedule for any taxable_year is less than the specified_payment for any earlier taxable_year pursuant to sec_468a of the code the maximum amount of cash payments made or deemed made to the fund during any taxable_year is restricted to the lesser amount of the decommissioning costs included in taxpayer’s cost of service for the taxable_year or the ruling plr-105953-00 amount applicable to the fund for the taxable_year based on the above determinations we conclude that taxpayer’s proposed schedule of ruling amounts satisfies the requirements of sec_468a of the code and the regulations thereunder therefore the schedule of ruling amounts requested by taxpayer under the provisions of sec_468a is approved as follows approved schedule of ruling amounts year commission a commission b total approval of the schedule of ruling amounts is contingent on there being no change in the facts and circumstances known or assumed at the time the current ruling is issued if any of the events described in sec_1_468a-3 of the regulations occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or before the deemed payment deadline date for the first tax_year in which the rates reflecting such action became effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline of the 10th tax_year following the close of the tax_year in which the most recent schedule of ruling amounts was received the approved schedule of ruling amounts is relevant only to those payments made to the fund payments allocable to any funds other than the fund cannot qualify for purposes of the deduction under the provisions of sec_468a of the code payments made to such fund can qualify only to the extent they are made while taxpayer is the owner of the plant and only to the extent that they do not exceed the lesser_of the decommissioning costs applicable to such fund or the ruling amounts applicable to this fund in the tax_year plr-105953-00 this ruling is directed only to the taxpayer who requested it section 6ll0 k of the code provides 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’s senior vice president pursuant to sec_1_468a-7 of the regulations a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax return for each tax_year in which the taxpayer claims a deduction for payments made to the fund sincerely yours peter c friedman peter c friedman office of associate chief_counsel passthroughs and special industries senior technician reviewer branch