department of the treasury internal_revenue_service te_ge eo examination fulton street room breektyn ny date date tax_exempt_and_government_entities_division reece nas xx date address address et org organization name org address taxpayer_identification_number person to contact identification_number contact telephone number last date for filing a pleading with the tax_court the claims_court or the united_states district_court for the district of columbia october 20xx dear this is a final_determination regarding your exempt status under sec_501 of the internal_revenue_code irc recognition of your exemption from federal_income_tax as an organization described in internal_revenue_code sec_501 is retroactively revoked to january 20xx because it is determined that you are not operated exclusively for an exempt_purpose sec_501 exempts from taxation organizations which are organized and operated exclusively for charitable or educational_purposes no part of the net_earnings of which inure to the benefit of any private_shareholder_or_individual no substantial part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation and which do not participate in or intervene in any political campaign on behalf of or in opposition to any candidate for public_office we have determined that you are not operating exclusively for any charitable purpose educational purpose or any other exempt_purpose our examination reveals that you are not conducting charitable activities educational activities or any other exempt_activities pursuant to sec_501 and that you failed to meet the operational_test under sec_1_501_c_3_-1 we are revoking your exemption from federal_income_tax as an organization described in sec_501 of the internal_revenue_code effective january 20xx contributions to your organization are no longer deductible under sec_170 of the internal_revenue_code you are required to file federal_income_tax returns on form_1120 these returns should be filed with the appropriate service_center for all years beginning january 20xx processing of income_tax returns and assessment of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination in court you must file a pleading seeking a declaratory_judgment in the united_states tax_court the united_states court of federal claims or the united_states district_court for the district of columbia before the day after the date this final_determination was mailed to you please contact the clerk of the appropriate court for rules regarding filing pleadings for declaratory judgments and refer to the enclosed publication you may write to these courts at the following addresses you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call too-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at internal_revenue_service we will notify the appropriate state officials of this action as required by sec_6104 of the internal_revenue_code if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours marsha a ramirez director eo examinations enclosure publication - 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org schedule no or exhibit year period ended 20xx12 legend org organization name co-1 company xx date dir-1l dir-2 xyz state director cpa cpa issue does org satisfy the operational_test of reg sec_1_501_c_3_-1 which requires exempt_organizations to be engaged primarily in exempt activity facts org was incorporated in the state of xyz on february 19xx it applied for and received recognition as a c not for profit organization on january 19xx it has operated as such since that time org’s exempt_purpose as stated on its application is as follows training program for economically and socially deprived children job training and substance abuse services org’s exempt_purpose as stated in its articles of incorporation are as follows to engage in the development of economically and socially deprived children in the areas of among other things job training education health housing etc to provide substance abuse services to engage in any other lawful purpose and business and to do anything permitted by section ' article of the annotated code if xyz of the corporations and associations in the year under examination and the prior and subsequent years this organization has engaged primarily in commercial activity no amendments have been filed with the irs stating that the organization has changed the nature of their exempt_purpose org owns a commercial property that generates unrelated_business_income this income is generated from commercial rentals and parking lot income in the current prior and subsequent years org had revenue and expenses as follows 20xx 20xx 20xx 20xx percentage program revenue ubi rental revenue dollar_figure dollar_figure form 886-a crev department of the treasury - internal_revenue_service page -1- department of the treasury - internal_revenue_service form_886 a explanation of items name of taxpayer org schedule no or exhibit year period ended 20xx12 dollar_figure dollar_figure program expense ubi rental expense in addition to the above ubi activity org has invested substantial assets in the formation of a for profit corporation co-1 the business activity of this corporation is property development and commercial real_estate rental org’s 20xx independent audit report issues a consolidated report for these two entities per the audit report org is the sole shareholder of co-1 this equity position establishes that org exercises control of this for profit corporate entity a parent’s exempt status may be jeopardized if the commercial activities of its subsidiary can be considered to be in fact activities of the parent if the parent_corporation so controls the affairs of the subsidiary that it is merely an instrumentality of the parent the corporate subsidiary may be disregarded see sec_482 this is because the subsidiary is in reality an arm agent or integral part of the parent currently the definition of control in the case of exempt_organizations having taxable subsidiaries is ownership directly indirectly or by attribution of at least percent of stock by vote or value rather than percent of combined voting_stock under present law and extends control rules where exempt_organizations in the aggregate own more than percent of the subsidiary's stock other indications of control are common corporate offices common management and not arms length transactions the 20xx tax_return for co-1’s return indicates that org has invested a total of dollar_figure in co- this consists of dollar_figure for common_stock and dollar_figure in additional paid in capital revenue for this year is stated as dollar_figure associated expenses are stated as dollar_figure if co-1 commercial activity is attributed to the parent org for the year under audit the percentage of the organization’s exempt_purpose revenue and expenses is further diminished total financial activity for 20xx is as follows program revenue ubi rental revenue 990t subsidiary revenue total program expense ubi rental expense 990t subsidiary expense total dollar_figure n e t n e l dollar_figure n e a k p i under either scenario org falls far short of the standard for exemption as found in the operational_test of reg sec_1_501_c_3_-1 the law form 886-a cev department of the treasury - internal_revenue_service page -2- department of the treasury - internal_revenue_service explanation of items form_886 a name of taxpayer org schedule no or exhibit year period ended 20xx12 the law requires that an organization claiming exemption under code sec_501 also be operated exclusively for the prescribed exempt purposes under the operational_test of reg sec_1_501_c_3_-1 an organization is regarded as operated exclusively for exempt purposes only if it engages primarily in activities that accomplish one or more of the exempt purposes as with the organizational_test an organization is not regarded as exempt if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_501 provides tax-exempt status to organizations that are described under sec_501 among the organizations that qualify for tax-exempt status are those described under sec_501 as corporations organized and operated exclusively for religious charitable scientific etc purposes in order to qualify as an organization exempt from tax under sec_501 the organization must be both organized exclusively for one or more of the exempt purposes specified in the code section known as the organizational_test and operated exclusively for this purpose known as the operational_test in applying both of these tests the term exclusively does not mean solely or absolutely without exception nonetheless the presence of a single nonexempt purpose if substantial in nature precludes tax-exempt status irc code sec_501 organizations organized and operated primary purpose doctrine code sec_501 requires an organization to be organized and operated exclusively for exempt purposes in order to qualify for tax-exempt status under that provision in this context the term operated exclusively for exempt purposes is interpreted as engaged primarily in activities in furtherance of one or more of the organization's exempt purposes reg sec_1_501_c_3_-1 this is known as the primary purpose doctrine final-reg tax-regs sec_1_501_c_3_-1 organizations organized and operated for religious charitable scientific testing for public safety literary or educational_purposes or for the prevention of cruelty to children or animals a organizational and operational tests in order to be exempt as an organization described in sec_501 an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt final-reg tax-regs sec_1_501_c_3_-1 organizations organized and operated for religious charitable scientific testing for public safety literary or educational_purposes or for the prevention of cruelty to children or animals c operational_test form 886-a crev department of the treasury - internal_revenue_service page -3- department of the treasury - internal_revenue_service explanation of items oren a name of taxpayer org schedule no or exhibit year period ended 20xx12 primary activities -an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose case law that supports these regulations is as follows in the 326_us_279 66_sct_112 the u s supreme court has declared that the presence of a single nonexempt purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes in 950_f2d_365 a not-for-profit corporation that operated vegetarian restaurants and health food stores did not operate exclusively for exempt purposes and accordingly did not qualify as a tax-exempt_organization although the restaurants and health food stores were operated to further the dietary goals of the seventh day adventist church the purpose of the restaurants and health food stores was substantially commercial in new faith inc 64_tcm_1050 dec big_number m tcmemo_1992_601 a nonprofit public benefit corporation that obtained most of its revenues from providing food to the general_public from lunch trucks in exchange for donations was not operated exclusively for a tax-exempt purpose the commercial activity accounted for nearly all of its gross revenues and there was no evidence that any food items were offered at below-cost prices to needy persons in make a joyful noise inc 56_tcm_1003 dec big_number m tcmemo_1989_4 an organization did not satisfy its burden of proving that the irs' revocation of its tax-exempt status under code sec_501 was erroneous the organization was not regarded as operated exclusively for one or more exempt purposes because it did not engage primarily in activities in order to accomplish its exempt_purpose its primary activity was the management and operation of bingo_games for other exempt_organizations -a trade_or_business activity that did not qualify as an exempt activity under code sec_501 in senior citizens of missouri inc 56_tcm_480 dec big_number m tcmemo_1988_493 a taxpayer that was organized for aiding handicapped and elderly citizens was denied tax-exempt status because it did not prove that it operated exclusively for such tax-exempt purpose in 49_f3d_1395 a housing corporation that was organized to provide affordable housing for low-income and disabled people did not qualify for tax-exempt status as a charitable_organization because it was not operated exclusively for exempt purposes the organization became a co-general partner in two for-profit limited_partnerships in order to take advantage of a state california property_tax reduction for low- form 886-a rev department of the treasury - internal_revenue_service page -4- department of the treasury - internal_revenue_service foun 886a explanation of items name of taxpayer org schedule no or exhibit year period ended 20xx12 income rentals by receiving a portion of the tax_credits with which to pursue its charitable purposes in 283_fsupp2d_58 an organization that operated its conference center in a manner consistent with that of a commercial business did not qualify for tax-exempt status the taxpayer brought a declaratory_judgment action against the irs seeking reinstatement of its exempt status based on the argument that its conference activities were undertaken principally to advance educational and charitable purposes however the totality of the circumstances established that it furthered a substantial nonexempt purpose in interneighborhood housing corp v commissioner t c memo the sole issue for decision is whether inhc was organized and operated exclusively for one or more exempt purposes within the meaning of sec_501 the court stated that a major part of your activity is the management of eight multiple family dwellings for a fee income_tax regulation sec_1 c - a states in order to be exempt as an organization described in sec_501 an organization must be both organized and operated exclusively for one or more of the purposes specified in such section the management of buildings for a fee is not an exempt activity within the scope of sec_501 the requirements for exemption under that section of the code accordingly your organization does not meet in 625_f2d_804 8th cir aff-g 72_tc_687 the appellate court held that a nonprofit pharmaceutical service was not exempt as a charitable_organization because it was operated for the substantial commercial purpose of providing pharmacy services to the general_public although it provided special discount rates for handicapped and senior citizens in its area it was not committed to providing any drugs below cost or free to indigent persons therefore although its services did improve health in the area it was primarily a commercial venture operated in competition with other area pharmacies in 602_f2d_711 5th cir an organization whose stated purpose was to provide training jobs and recreation for senior citizens by operating retail stores did not qualify for exemption under sec_501 although it incidentally served the needs of senior citizens the evidence indicated that the retail sales operation was an end in itself proceeds from the business were used almost exclusively for its perpetuation thus the organization’s primary activity was the operation of the retail store which was not devoted exclusively to charitable purposes in orange county agricultural society and greater united navajo development enterprises inc cited below the activities of the subordinate organization were attributed to the parent and as a result exemption was lost in orange county agricultural society inc ca-2 ustc big_number 893_f2d_647 form 886-arev department of the treasury - internal_revenue_service page -5- form_8 a department of the treasury - internal_revenue_service name of taxpayer explanation of items org 20xx12 schedule no or exhibit year period ended an agricultural society no longer qualified as a tax-exempt_organization since it was not operated exclusively in furtherance of its stated exempt_purpose of promoting the interests of agriculture and horticulture the society's involvement in automobile racing activities that were conducted on the racetrack at the society's fairgrounds was extensive although a separate corporation was formed to conduct the racetrack business it was merely a corporate shield designed to protect the society against potential liability arising from the racing activities in 74_tc_69 dec affd ca-9 a corporation organized to assist the poor of the navajo nation did not qualify as an exempt_organization because it was not operated exclusively for exempt purposes through its agent a wholly owned subsidiary_corporation the corporation engaged in non-charitable profit- motivated activities leading to a finding that non-exempt business activities were more than an insubstantial part of the corporation's total activities taxpayer’s position my findings were presented at the closing conference to dir-1 cpa cpa and dir-2 the current director of org at that time no one took issue with the facts as they are stated in this document nor did anyone dispute my interpretation of the law as it is cited in this document however since none of the persons present at the meeting was a lawyer the t p felt that it would be prudent at this point to consult a lawyer the t p’s lawyer would like to cure the problems with the organization by divesting of certain holdings and refocusing the organization and its assets on the exempt functions as stated in the application_for exempt status org will pursue this option during the appeals process and therefore there will not be an agreed closing of this case service position and recommendation the service’s position on the operational_test and primary activities is consistent with the cited case law the primary activities portion of the regulation helps to harmonize the regulation with the unrelated_business_income_tax provisions set forth in regs c -1 e which allow an exempt_organization to engage in unrelated_trade_or_business activity so long as engaging in such trade_or_business is not the organization's primary purpose the not more than an insubstantial part of its activities standard can be understood by reference to 326_us_279 which held that an organization which engaged in some educational activity but pursued nonprofit goals outside the scope of the statute was not exempt under sec_501 the court stated that an organization is not operated exclusively for charitable purposes if it has a single noncharitable purpose that is substantial in nature this is true regardless of the number or importance of the organization's charitable purposes form 886-acrev department of the treasury - internal_revenue_service page -6- form 886a name of taxpayer explanation of items schedule no or exhibit year period ended department of the treasury - internal_revenue_service org 20xx12 regarding the attribution of the commercial activities of co-1 to that of org this requires that the doctrine_of corporate entity be disregarded legally this is not easy see moline properties inc vs commissioner of internal revenue however a parent’s exempt status may be jeopardized if the commercial activities of its subsidiary can be considered to be in fact activities of the parent if the parent_corporation so controls the affairs of the subsidiary that it is merely an instrumentality of the parent the corporate subsidiary may be disregarded see sec_482 this is because the subsidiary is in reality an arm agent or integral part of the parent as such the activity of the co-1 inc should be considered the activity of org org does not pass the operational or primary purpose test the majority of the financial activity of this eo is commercial in nature the primary activity of org is carrying on a business with the general_public in a manner similar to organizations that are operated for profit status as a 501_c_3_organization should be revoked additionally the activity of the wholly owned subsidiary should be considered the activity of org conclusion in order to be exempt as an organization described in sec_501 an organization must be both organized and operated exclusively for one or more of the purposes specified in such section and if an organization fails to meet either the organizational or operational_test it is not exempt for purposes of sec_501 org does not meet the criteria of a c and classification as such should be discontinued as of january 20xx form 886-acev department of the treasury - internal_revenue_service page -7- tax_exempt_and_government_entities_division org address department of the treasury internal_revenue_service commerce street dallas tx date taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under sec_501 of the internal_revenue_code code is necessary lf you accept our findings take no further action we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision your protest should include a statement of the facts the applicable law and arguments in support of your position an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process you may also request that we refer this matter for technical_advice as explained in publication if we issue a determination_letter to you based on technical_advice no further administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice letter catalog number 34809f if we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notify the appropriate state officials of the revocation in accordance with sec_6104 of the code you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter the most convenient time to call if we need to contact you thank you for your cooperation if you write please provide a telephone number and sincerely marsha a ramirez director eo examinations enclosures form_6018 886-a publication letter catalog number 34809f


office_of_chief_counsel internal_revenue_service memorandum number release date cc pa aegoldstein plr-112958-08 uilc date date to chief estate gift_tax operations sr s sp e g from peter j devlin chief branch procedure administration subject ----------------------- ------------------------- ---------------------- legend decedent ------------------------ --------------------- ---------------------- ------------------ -------------------------- -------------------------- ------------------------- date a date b date c date d date e date f issues issue plr-112958-08 whether an estate is allowed an extension of time under sec_301_9100-3 to make an election under sec_6166 to pay the decedent’s federal estate_tax in installments issue whether a taxpayer can make an sec_6166 election by attaching a statement to a request for an extension of time to file a federal estate_tax_return conclusions issue an estate will not be allowed an extension of time to make an sec_6166 election under sec_301_9100-3 because sec_6166 is a statutory election and sec_301_9100-3 only allow for extensions for regulatory elections issue an sec_6166 election can only be made by attaching a notice of election to a timely filed federal estate_tax_return facts the above estate requested a private_letter_ruling on date a the taxpayer requested the following rulings that the estate be allowed an extension of time under sec_301_9100-3 to make an election under sec_6166 to pay decedent’s federal estate_tax in installments or alternatively that the taxpayer made a sec_6166 election by attaching a statement to a request for an extension of time to file the federal estate_tax_return when the taxpayer was informed that the office_of_chief_counsel anticipated that the ruling would be adverse the taxpayer withdrew the letter_ruling request decedent died testate on date b decedent’s parents were named co-personal representatives in the will and were appointed by the court the representatives retained --------------- a cpa to prepare the decedent’s federal estate_tax_return form_706 when the cpa determined that the tax_return would not be ready to be filed by the original due_date date c nine months after the date of death he requested an extension of time to file by date d six months after the original due_date attached to the extension request was a statement that it was anticipated that the estate would be eligible to make a sec_6166 election the federal estate_tax_return was ultimately filed days after the extended due_date on date e the service sent the personal_representatives a preliminary determination_letter dated date f denying the sec_6166 election as the election was not made with a timely filed federal estate_tax_return law and analysis issue plr-112958-08 sec_301_9100-1 states that the regulations under sec_301_9100-1 sec_301_9100-2 and sec_301_9100-3 provide the standards used to determine whether or not an extension of time to make an election will be granted sec_301_9100-1 and sec_301_9100-2 provide for automatic extensions of time for certain statutory and regulatory elections sec_301_9100-3 provides extension of time for making regulatory elections that do not meet the requirements of automatic extensions under sec_301 sec_301_9100-1 defines a statutory election as an election whose due_date is prescribed by statute a regulatory election is defined as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 sec_6166 states that if the value of an interest_in_a_closely_held_business exceed sec_35 percent of the adjusted_gross_estate and is included in determining the gross_estate of a decedent who was a citizen or resident_of_the_united_states the executor may elect to pay part or all of the tax imposed in or more but not to exceed equal installments sec_6166 sec_6166 states that an election made under sec_6166 shall be made not later than the time prescribed by sec_6075 for filing an estate_tax_return including extensions sec_6075 states that estate_tax returns must be filed within months after the date of decedent’s death as the due_date for filing an election under sec_6166 is prescribed by statute the election is a statutory election as defined under sec_301_9100-1 the due_date for a sec_6166 election cannot be determined without referring to statute an automatic_extension of months is granted to make statutory elections under sec_301_9100-2 excluding extensions in this case the estate filed the estate_tax_return more than six months after the return was due and therefore even with the automatic_extension in sec_301 b the election was not timely made sec_301_9100-3 allows for additional extensions but these extensions are only available for regulatory elections issue sec_6166 states that an election should be made within the time prescribed under sec_6075 and in the manner as prescribed by the secretary in the regulations sec_20_6166-1 states the election provided under sec_6166 is made by attaching a notice of election to a timely filed return this regulation is a legislative_regulation because the code states the manner in which the election is made will be prescribed by the secretary in the regulations the estate has asserted that it made a sec_6166 election by attaching the following statement to the request for an extension of time to file the federal estate_tax_return it is anticipated that the estate will be eligible to elect to defer the payment of the federal estate_tax pursuant to sec_6166 a sec_6166 election must be made by attaching a notice of election to a timely filed return as per sec_6166 and sec_20_6166-1 since the alleged election was attached to the extension and not plr-112958-08 a timely filed return it is not a timely sec_6166 election additionally the statement that was attached to the request for an extension only conveyed that it was anticipated that the estate would be eligible for a sec_6166 election it was not a definitive election under sec_6166 this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call if you have any further questions


t c memo united_states tax_court sony and gwendolyn a jean baptiste petitioners v commissioner of internal revenue respondent docket no filed date sony jean baptiste pro_se michelle or for respondent memorandum opinion nameroff special_trial_judge this case was heard pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_182 respondent determined a deficiency in petitioners’ federal_income_tax in the amount of dollar_figure and an accuracy- related penalty under sec_6662 in the amount of dollar_figure ' unless otherwise specified all section references are to the internal_revenue_code in effect for the year in issue all rule references are to the tax_court rules_of_practice and procedure - - the issues for decision are whether petitioners received nonemployee compensation in the amount of dollar_figure whether petitioners are entitled to deduct schedule c expenses in the amount of dollar_figure and whether petitioners are liable for the accuracy-related_penalty under sec_6662 some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time the petition was filed petitioners resided in pasadena california background sony jean baptiste petitioner earned his living as a truck driver in from date to date petitioner worked for ortega trucking ortega the owner of which is charles ortega mr ortega petitioner would drive one of ortega’s trucks to pacific railroad where he would pick up a shipment petitioner would then transport this shipment to various warehouses for unloading some of the warehouses to which petitioner delivered had their own employees help unload the trucks other warehouses did not and petitioner would hire lumpers to help unload the lumpers would wait in the vicinity of the warehouse for the trucks to come in according to petitioner he would negotiate a price with the lumpers and would pay them about dollar_figure or dollar_figure and sometimes dollar_figure if petitioner needed help unloading a double petitioners conceded that they received a tax_refund of dollar_figure for the taxable_year trailer he would pay around dollar_figure since petitioner was paid per load he hired the lumpers so he could unload quickly and then call dispatch at ortega to see if there were more loads to be picked up petitioner paid for the fuel for the truck for which he was not reimbursed when hired by ortega petitioner was told that a portion of petitioner’s earnings would be placed in an escrow account and after years of employment that account would be paid to petitioner mr ortega also allegedly told petitioner that income taxes would be withheld from his earnings petitioner was paid weekly and with every paycheck petitioner would receive a computer printout detailing the number of dispatches he had the total dispatch earnings earnings_of both the truck and the driver and the driver earnings the printout also detailed the escrow amounts that were being withheld from petitioner’s earnings along with other deductions such as amounts for company advances the latter were repayments of amounts that were lent to petitioner to cover his lumper costs escrow amounts and repayments were deducted from the driver’s gross to determine take home pay if petitioner did not have enough earnings to cover the advances they would be carried over to the next pay_period for example for the week ending date the total dispatch earnings were dollar_figure and the gross driver earnings were dollar_figure from the driver gross of dollar_figure dollar_figure is deducted for advances which consists of two dollar_figure advances and dollar_figure is q4e- deducted for escrow resulting in a net of dollar_figure that was paid to petitioner no taxes were withheld petitioner provided ortega computer printouts for weeks and according to the last printout for the week ending date there was a balance of dollar_figure in escrow most of the advance amounts were for dollar_figure or dollar_figure with four for amounts of dollar_figure dollar_figure dollar_figure and dollar_figure also detailed on the computer printouts are contributions to a vehicle acquisition fund vaf contributions to this fund are made weekly but it does not appear that these contributions came from petitioner’s gross wages petitioner was frustrated that he was not earning as much as he had hoped working for ortega and he quit on date according to the last printout for the week ending date petitioner had gross earnings to date of dollar_figure petitioner argued with mr ortega about money that was owed to him and mr ortega agreed to pay him this money accordingly subsequent to date ortega paid petitioner dollar_figure petitioner received a form 1099-misc from ortega which reflected that he earned dollar_figure petitioners did not report this income on their income_tax return petitioners did not report this amount because they did not believe this to be the correct amount they received in petitioners filed an petitioner testified that there were weeks when he was not paid petitioner did not provide printouts for consecutive weeks from mar to date according to the year-to- date earnings reflected on the printouts for the weeks prior to and after this period petitioner grossed dollar_figure in those weeks - - amended return which included a schedule c for petitioner’s truck driving on the schedule c petitioners reported gross_income of dollar_figure they arrived at this amount by adding dollar_figure the gross earnings to date listed on the date computer printout to dollar_figure which petitioner received from ortega that may petitioners claimed the following expenses bxpense amount taxes and licenses s650 travel wages big_number uniform sec_27 fuel beeper tool sec_150 truck rent big_number unpaid dispatch big_number total big_number petitioners reported a net profit of dollar_figure and self-employment_tax of dollar_figure petitioners did not provide any additional documentation to substantiate these expenses both the original and amended returns were prepared by h_r block in petitioners filed a claim against mr ortega for dollar_figure in small claims_court ’ petitioners won their case but mr ortega never paid respondent attempted to serve mr ortega because of our holding in this case respondent’s determination of increased self-employment_tax and the concomitant self-employment_tax deduction will be recomputed under rule subseguent to trial petitioners filed a motion to supplement the record primarily to submit copies of documents relating to this court action respondent filed an objection thereto upon review we shall grant petitioners’ motion and receive the additional documents they have only been relied upon for our finding as to dates and the amount claimed by petitioners -- - with a subpoena but was informed that mr ortega had sold the business and left the country discussion respondent contends that petitioners failed to report dollar_figure in income while petitioners contend that they received a lesser amount petitioner acknowledges that he received income from ortega in but not dollar_figure petitioner introduced credible testimony and documents which persuade us that the amount of income reported on form 1099-misc received by respondent was incorrect we agree with the amount that petitioners reported on schedule c attached to the amended_return ie dollar_figure in gross_receipts therefore petitioner received dollar_figure as nonemployee compensation from ortega in sec_162 provides that there shall be allowed as a deduction all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business taxpayers must keep sufficient records to establish deduction amounts see sec_6001 43_tc_824 to be entitled to a deduction under sec_162 a taxpayer is required to substantiate the deduction through the maintenance of books_and_records in the event that a taxpayer establishes that he or she hass incurred a deductible expense but is unable to substantiate the precise amount we may estimate the amount of the deductible expense see 39_f2d_540 2d cir we cannot estimate deductible expenses however unless the - j- taxpayer presents evidence sufficient to provide some rational basis upon which estimates may be made 85_tc_731 the only documentary_evidence petitioner provided to substantiate the claimed deductions were the computer printouts petitioner testified that he no longer had any receipts or other records petitioner did not offer any testimony regarding taxes and licenses travel uniforms beeper and tools we assume that petitioners have conceded these issues therefore we shall address only the expenses for wages truck rent fuel and unpaid dispatch petitioners claimed an expense for wages in the amount of dollar_figure this expense was for the amounts that petitioner paid the lumpers to help unload the trucks petitioner would obtain advances from ortega for this purpose repayment of these advances would be made by deductions from petitioner’s wages the computer printouts from ortega substantiate petitioner’s claim we find that petitioners have substantiated the amount that petitioner paid the lumpers and are entitled to a deduction of dollar_figure petitioners deducted dollar_figure for truck rent petitioner testified that this amount is composed of the escrow balance and the vaf after studying the computer printouts we find that no we note that according to the printouts petitioner received dollar_figure in company advances some of these advances were for large amounts and may have been for other purposes that petitioner did not specify --- - amounts were deducted from petitioner’s gross wages for the vaf on the other hand as of date dollar_figure had been deducted from petitioner’s gross_income for the escrow balance therefore petitioners are entitled to a deduction of dollar_figure petitioners claimed a deduction for fuel of dollar_figure petitioner testified that he had to purchase fuel for the trucks out of his own pocket ortega did not have a fuel pump on its premises therefore the drivers had to obtain fuel offsite petitioners did not provide any documentation to support this claimed expense deduction however petitioner was a credible witness and we find that this was an ordinary_and_necessary_expense which petitioner incurred therefore petitioners are entitled to a deduction for fuel in the amount of dollar_figure cohan v commissioner supra ’ the deduction for unpaid dispatch is the difference between the dispatch total the company earned and the driver’s total earnings this amount was never included in petitioner’s gross_income was not paid_by petitioner and is therefore not deductible ’ typically expenses for fuel if purchased in connection with listed_property under sec_280f a and must meet the strict substantiation requirements of sec_274 and 39_f2d_540 2d cir cannot be applied however that rule does not apply for any property substantially_all of the use of which is in a trade_or_business of providing to unrelated persons services consisting of the transportation of persons or property for compensation or hire sec_280f c accuracy-related_penalty in the notice_of_deficiency respondent determined that petitioners were liable for the accuracy-related_penalty under sec_6662 due to substantial_understatement of tax sec_6662 imposes a penalty of percent of the portion of the underpayment which is attributable to any substantial_understatement of income see sec_6662 there is a substantial_understatement_of_income_tax for any year if the amount of the understatement exceeds the greater of percent of the tax required to be shown on the return or dollar_figure see sec_6662 d consequently due to our holdings on the other issues if the rule computation does not indicate that petitioners’ understatement_of_tax exceeded the greater of percent of the amount of tax required to be shown on the return or dollar_figure petitioners will not be liable for the sec_6662 accuracy-related_penalty due to substantial_understatement of tax in the alternative counsel for respondent raised in her trial memorandum the issue that petitioners negligently failed to report the income from ortega and therefore are liable for the sec_6662 penalty for negligence or disregard of rules or regulations where respondent raises a new issue after the issuance of the notice_of_deficiency respondent bears the burden_of_proof see rule a sec_6662 imposes a penalty of percent on the portion of the underpayment which is attributable to negligence -- - or disregard of rules or regulations see sec_6662 negligence is the lack of due care or failure to do what a reasonable and ordinarily prudent person would do under the circumstances 85_tc_934 the term disregard includes any careless reckless or intentional disregard see sec_6662 however sec_6664 provides that no penalty shall be imposed with respect to any portion of an underpayment if it is shown that there was reasonable_cause for such portion and that the taxpayer acted in good_faith with respect to such portion the determination of whether a taxpayer acted with reasonable_cause and in good_faith is made on a case-by-case basis taking into account all pertinent facts and circumstances see sec_1_6664-4 b income_tax regs thus respondent must prove that a portion of the underpayment is attributable to negligence and that petitioners did not act with reasonable_cause and in good_faith petitioners are not sophisticated with regard to income_tax laws and had their return prepared by h_r block while petitioners disclosed to their preparer that they had income from ortega and that there was a dispute about the correct amount of income earned petitioners knew the amount of income earned and paid from ortega as well as their expenses petitioner was involved in a dispute with ortega over the amount of his income and had to file an ultimately unsuccessful lawsuit against mr ortega however that lawsuit was resolved in but petitioner did not file an amended income_tax return until after the commencement of respondent’s audit we hold that respondent has proved that petitioners were negligent and did not act with good_faith and reasonable_cause with respect to the unreported net_income from ortega accordingly petitioners are liable for the accuracy-related_penalty for negligence under sec_6662 to reflect the foregoing decision will be entered under rule


internal_revenue_service number release date index numbers ---------------------------------- ---------------------------------------------- ------------------------ --------------------------------- ------------------------------------- --------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------- id no ------------- telephone number --------------------- refer reply to cc psi plr-122162-09 date date legend x --------------------------------------------------- ----------------------------------------------- d country ---------------- -------- dear -------------- this is in response to a letter dated date submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a disregarded_entity for federal tax purposes facts according to the information submitted x was formed on d under the laws of country x intended to be treated as a disregarded_entity for federal tax purposes effective d however x inadvertently failed to timely file form_8832 entity classification election to be treated as a disregarded_entity for federal tax purposes effective d plr-122162-09 law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with a single owner having limited_liability may elect to be treated as a disregarded_entity pursuant to the rules of sec_301_7701-3 sec_301_7701-3 and iii provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date the form is filed sec_301_7701-3 provides that an election under sec_301_7701-3 must be signed by - a each member of the electing entity who is an owner at the time the election is filed or b any officer manager or member of the electing entity who is authorized under local law or the entity’s organizational documents to make the election and who represents to having such authorization under penalties of perjury sec_301_7701-3 provides that if a purchasing_corporation makes an election under sec_338 regarding an acquired subsidiary an election under sec_301 c i for the acquired subsidiary can be effective no earlier than the day after the acquisition_date within the meaning of sec_338 under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i section b defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides rules for requesting extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 plr-122162-09 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a properly executed form_8832 effective d with the appropriate service_center to elect to be classified as a disregarded_entity a copy of this letter should be attached to the form_8832 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 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely curt g wilson curt g wilson associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


significant index no a department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division sep je la fo fl s s in re this letter constitutes notice that with respect to the above-named defined benefit pension_plan we have granted a conditional waiver of the minimum_funding_standard for the plan_year ended date this letter also constitutes notice that we have modified the conditions set forth in our letter of date for the waiver of the minimum_funding_standard for the plan_year ended date this conditional waiver for the plan_year ended date has been granted in accordance with sec_412 of the internal_revenue_code and sec_303 of the employee_retirement_income_security_act_of_1974 erisa the waived amount is the contribution which would otherwise be required to reduce the balance in the funding_standard_account to zero as of the end of the plan_year for which this conditional waiver has been granted the company has a december to november fiscal_year the company had negative earnings for the fiscal years ended date and date and de minimus positive earnings for the fiscal_year ended date however the company reports negative earnings for the first two quarters of the fiscal_year ending date in addition working_capital was negative at the end of the fiscal years ended date date and date net sales have also shown a general decline over the last three fiscal years and the company is currently operating pincite capacity utilization in response to the aforementioned financial difficulties the company has developed a strategy that aggressively seeks to gain market share in certain areas where the company already has a good reputation but where the company had not previously sought growth because of the company’s excess capacity significant growth is possible without the need for additional capital investments thus if significant sales growth is achieved the company will be able to achieve a return to profitability as of date the value of the assets of the plan was equal to of the plan's current_liability because the prospects for recovery are uncertain and because the plan is under-funded we are granting this waiver subject_to the following conditions the contributions required to satisfy the minimum_funding_standard for the plan years ending date and date shall be timely made within the meaning of sec_412 of the code without a waiver being granted for such years the waiver of the minimum_funding_standard for the plan_year ended date shall be secured within twelve months of the date of this letter in a manner acceptable to the pension_benefit_guaranty_corporation lf these conditions are not satisfied the waiver is retroactively null and void you agreed to these conditions in a letter dated date which was transmitted by facsimile please note that nothing in this letter precludes a request for a modification of these conditions please also note that should such a request be made a new user_fee will be required and that the facts and circumstances at the time of such request as well as the facts and circumstances at the time of the initial request will be examined your attention is called to sec_412 of the code and sec_304 of erisa which describe the consequences that would result in the event the plan is amended to increase benefits change the rate in the accrual_of_benefits or to change the rate of vesting while any portion of the waived_funding_deficiency remains unamortized please note that any amendment to other retirement plans maintained by the company to increase the liabilities of those plans or the establishment of new plans would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa this letter also modifies our ruling letter dated date granting a conditional waiver for the plan_year ended date under the term of the date letter the waiver for the plan_year ended date was subject_to the condition that the contributions required to satisfy the minimum_funding_standard for the plan years ending date and date were to be timely made as defined in sec_412 of the code without a waiver being granted for such years the company did not satisfy that condition accordingly our letter of date is modified to read as follows the contributions required to satisfy the minimum_funding_standard for the plan_year ending date are to be timely made as defined in sec_412 of the code without a waiver being granted for such year this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent when filing form_5500 for the plan_year ended date the date of this letter should be entered on schedule b actuarial information a copy of this letter is being sent to your authorized representative in accordance with a power_of_attorney form on file a copy of this letter is also being sent to the manager employee_plans classification in be furnished to the enrolled_actuary for the plan a copy of this letter should if you have any questions on this ruling letter please contact sincerely carol d gold director employee_plans


office_of_chief_counsel internal_revenue_service memorandum number release date cc tege eoeg et1 postn-138540-07 uilc date date cincinnati oh attn entity unit to director submission processing from office of division counsel associate chief_counsel tax exempt government entities subject railroad_retirement_tax_act status ------------------------------ in accordance with the coordination procedure established between the service and the railroad retirement board rrb the rrb has provided us with its opinion that the following business ceased to be an employer under the railroad retirement act and the railroad unemployment insurance act effective ------------------ ----------------------------------------- -------------------------------------- --------------------------------------------------- we have reviewed the opinion of the rrb and based upon the information submitted to us by the rrb we also conclude that ------------------------------ceased to be an employer under the railroad_retirement_tax_act effective ------------------ the date the entity was dissolved however we note that the rrb opinion indicated that ----------------------------- last compensated employees on --------------------------- please take the appropriate action regarding this business _______________________ janine cook 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 ita b04 plr-119103-05 date date ty ------- ty ------- dear -------------------- this is in reply to taxpayer’s request that it be permitted to make a late election under the authority contained in sec_301_9100-3 of the procedure and administration regulations taxpayer for the tax_year failed to make an election under sec_1045 of the internal_revenue_code following the sale of certain small_business stock taxpayer now seeks a ruling granting it permission to make the election sec_1045 of the internal_revenue_code provides in part that in the case of any sale of qualified_small_business_stock held by a taxpayer other than a corporation for more than months and with respect to which such taxpayer elects the application of this section gain from such sale shall be recognized only to the extent that the amount_realized on such sale exceeds-- the cost of any qualified_small_business_stock purchased by the taxpayer during the 60-day period beginning on the date of such sale reduced by any portion of such cost previously taken into account under this section revproc_98_48 1998_2_cb_367 provides at section dollar_figure that a sec_1045 election must be made on or before the later of date or the due_date including extensions for filing the income_tax return for the taxable_year in which the qsb stock is sold revproc_98_48 generally provides at section dollar_figure that the election is made by a reporting the entire gain from the sale of qsb stock on schedule d capital_gains_and_losses of the return in accordance with instructions for schedule d plr-119103-05 b writing sec_1045 rollover directly below_the_line on which the gain is reported and c entering the amount of the gain deferred under sec_1045 on the same line as b above as a loss in accordance with the instructions for schedule d sec_301_9100-3 provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions such as the instant case must be made under the rules of sec_301_9100-3 requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government under sec_301_9100-3 a taxpayer is deemed to have not acted reasonably and in good_faith if the taxpayer either uses hindsight in requesting relief or was informed in all material respects of the required election and related tax consequences but chose not to file the election in addition sec_301_9100-3 provides that the taxpayer must provide a detailed affidavit from the individuals having knowledge or information about the events leading to the failure to make a valid regulatory election the affidavit must describe the engagement and responsibilities of the individual as well as the advice that the individual provided to the taxpayer in the present case the affidavits submitted by the taxpayer’s return preparer do not adequately describe either the engagement and responsibilities of the preparer or the advice that the preparer provided to the taxpayer accordingly we are unable to conclude that as required by sec_301_9100-3 the taxpayer did not use hindsight in requesting relief and the taxpayer did not intentionally forego making the sec_1045 election thus based on the facts and information submitted and the representations made the service holds that taxpayer has not satisfied the requirements of the regulations for the granting of relief under sec_301_9100-3 and is thus not granted permission to make a late election under sec_1045 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 plr-119103-05 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 cc ---------------------------------- michael j montemurro branch chief office of associate chief_counsel income_tax and accounting sincerely ------------------------------------------------------ ------------------------------------- --------------------------- ------------------------ ------------------------------ ---------------------------------------- -----------------------------------


department of the treasury internal_revenue_service washington d c number release date date uil contact person identification_number telephone number employer_identification_number - a q o i z z l o l o a u a n n n n r n n w o i u n n n r dear we have considered your ruling_request dated date as supplemented by your letter of date in which you request a 5-year extension under sec_4943 of the internal_revenue_code the code of the period to dispose_of certain excess_business_holdings facts m is an organization described in sec_501 of the code is classified as a private_foundation under sec_509 and is a private_operating_foundation as defined in sec_4942 m was incorporated on date as a nonprofit corporation under state q law m has three trustees one of whom is b on date b funded m with a gift of big_number of the total big_number issued and outstanding shares of common_stock of n the shares after the gift of the shares to m b owned a percent interest in n m owned an percent interest in n and p n’s employee_stock_ownership_plan owned a percent interest in n insofar as b is a substantial_contributor to m within the meaning of sec_4946 of the code and a foundation_manager of m within the meaning of sec_4946 the shares would constitute excess_business_holdings within the meaning of sec_4943 in the hands of m except for the operation of sec_4943 which treats the shares as held by a disqualified_person during a 5-year period beginning on date consequently to avoid being treated as having excess_business_holdings in n m was required to dispose_of substantially_all of the shares within years of date ie by date or to seek a 5-year extension of the original 5-year period under the provisions of sec_4943 m states that despite significant and diligent efforts to dispose_of the shares within the year period ending on date it was not able to do so absent a sale of the shares at a price substantially below their historic market_value m attributes the difficulty of selling the shares to the nature of n’s assets and activities prevailing market conditions and the fact that the shares represent a minority interest_in_a_closely_held_business n is in the residential mortgage lending business m states that because of the slump in the mortgage lending market business franchise values in the residential mortgage industry are substantially down including the value of n valued at dollar_figurex per share on date discounted from dollar_figure06x due to their minority interest status but had dropped to dollar_figure163x per share before discount by date for example the shares were m states that between date and date n o buyer ever expressed interest in acquiring a minority shareholding interest such as that of m thus m determined that the only realistic avenue for finding potential buyers of the s hares is through n and b and states that opportunities to sell the shares have generally involved a sale of n in which m would sell its shares as part of the overall transaction m provides detailed information about n’s efforts to sell its business to third party investors as a going concern during the years ending date during this period at least three significant efforts to sell n were made however these efforts were ultimately unsuccessful m states that it became clear that the marketplace of buyers was weak and thus the bargaining power of those few potential buyers was unfairly strong therefore b and the management of n concluded that greater value and better terms for n and its shareholders which include m could be realized by waiting to sell at a future date in addition to its efforts to sell the shares as a part of the overall sale of n m also states that it engaged in numerous discussions with p regarding a potential sale of all or part of the shares however p was not able to acquire m’s shares able to do so in the last years due to insufficient liquidity and has not been m states that it expects the market for n’s shares to improve considerably over the year period ending date the extension period m states that as the financial_market improves and circumstances indicate that the time is right b and the management of n plan to once again put n on the market m plans to dispose_of its shares in n within the extension period either as a part of a sale of n to a third_party_investor through a sale of its minority interest to a third_party_investor or through a sale of its shares to p which m believes will be in a better financial position in the coming years m states that it submitted this plan for disposing of the shares during the extension period to the attorney_general of q and that it will forward a copy of any response it receives from the attorney_general of q to the internal_revenue_service the service’ ruling requested m requests a 5-year extension to dispose_of the shares pursuant to sec_4943 of the code law sec_4943 of the code imposes an excise_tax on the excess_business_holdings of any private_foundation in a business_enterprise sec_4943 of the code defines excess_business_holdings with respect to the holdings of any private_foundation in any business_enterprise as the amount of stock or other interest in the enterprise which the foundation would have to dispose_of to a person other than a disqualified_person for the remaining holdings of the foundation in such enterprise to be permitted holdings sec_4943 of the code provides that the permitted holdings of any private_foundation in any incorporated business_enterprise are percent of the voting_stock reduced by the percentage of the voting_stock owned by all disqualified persons sec_4943 of the code provides that a private_foundation shall not be treated as having excess_business_holdings in any corporation in which it together with all other private_foundations which are described in sec_4946 owns not more than percent of the voting_stock and not more than percent in value of all outstanding shares of all classes of stock sec_4943 of the code provides that if after date there is a change in the holdings in a business_enterprise other than by purchase by the private_foundation or by a disqualified_person which causes the private_foundation to have excess_business_holdings in such enterprise the interest of the foundation in such enterprise immediately after such change shall while held by the foundation be treated as held by a disqualified_person rather than by the foundation during the 5-year period beginning on the date of such change in holdings sec_4943 of the code provides that the secretary may extend for an additional years the initial 5-year period under sec_4943 for disposing of excess_business_holdings in the case of an unusually large gift or bequest of diverse business holdings or holdings with complex corporate structures if- a the foundation establishes that- i ii diligent efforts to dispose_of such holdings have been made within the initial 5-year period and disposition within the initial 5-year period has not been possible except at a price substantially below fair_market_value by reason of such size and complexity or diversity of such holdings b before the close of the initial 5-year period- i ii the private_foundation submits to the secretary a plan for disposing of all of the excess_business_holdings involved in the extension and the private_foundation submits the plan to the attorney_general or other appropriate state official having administrative or supervisory authority or responsibility with respect to the foundation’s disposition of the excess_business_holdings involved and submits to the secretary any response received by the private_foundation from the attorney_general or other appropriate state official to such plan during such 5-year period and c the secretary determines that such plan can reasonably be expected to be carried out before the close of the extension period analysis m is a private_foundation described in sec_509 of the code and therefore subject_to the tax_on_excess_business_holdings imposed under sec_4943 by m’s own admission the shares would be treated as excess_business_holdings if not disposed of by date because it has not been able to dispose_of the shares m requests that the service grant it a 5-year extension to dispose_of the shares under the provisions of sec_4943 based on the information submitted it appears that m made diligent efforts to dispose_of the shares during the initial 5-year period ending date however due to among other reasons the nature of n’s assets and activities the fact that the shares represent a minority interest_in_a_closely_held_business and the substantial decline in the market_value of the shares resulting from prevailing economic conditions m has not been able to dispose_of the shares except at a price substantially below what m believes to be their fair_market_value thus the requirements under sec_4943 of the code have been met before the end of the initial 5-year period m submitted a request to the service under sec_4943 of the code for an additional 5-years to dispose_of the shares in its request m described its plan for disposing of the shares within the extension period m submitted this plan to the attorney_general of q and stated that a copy of any response it receives will be sent to the service thus the requirements under sec_4943 of the code have been met finally based on the information submitted it appears that m’s plan to dispose_of the shares can reasonably be expected to be carried out before the close of the 5-year extension period thus the requirement under sec_4943 of the code has been met consequently m meets the requirements under sec_4943 of the code for an extension of years to dispose_of the shares in n that constitute excess_business_holdings ruling accordingly based on the information submitted we rule as follows under the provisions of sec_4943 of the code we grant m an additional year period ending on date to dispose_of its excess_business_holdings in n this ruling is based on the facts as they were presented and on the understanding that there will be no material changes in these facts this ruling does not address the applicability of any section of the code or regulations to the facts submitted other than the sections described because it could help resolve questions concerning your federal_income_tax status this ruling should be kept in your permanent records this ruling will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice proposed deletions you should follow the instructions in notice if you disagree with our this ruling is directed only to the organization that requested it sec_6110 of the code provides it may not be used or cited by others as precedent if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter in accordance with the power_of_attorney currently on file with the internal_revenue_service we are sending a copy of this letter to your authorized representative sincerely mary jo salins manager exempt_organizations technical group enclosure notice


internal_revenue_service number release date index number -------------------------- ------------------------------------------------------------ ------------- --------------------------- --------------------------- ------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------------- id no ----------------- telephone number --------------------- refer reply to cc corp plr-126571-09 date date legend parent ---------------------------- --------------------------------------------------------- -------------------------------------------------- holdco --------------------------------------------------------- -------------------------------------------------- --------------------------------------- ------------------------------------- sec_1 --------------------------------------------------------------------------------------- ---------------------------------------------------------------------- -------------------------------------------------- sec_2 ----------------------------------------------------- -------------------------------------------------- --------------------------------------------------- state x state y ---------- ------ business a -------------------------------- a b ---- ---- plr-126571-09 c d ---- ---- dear ------------------ this letter responds to your date request for rulings on certain federal_income_tax consequences of the proposed transaction the information provided in that request and in later correspondence is summarized below the rulings contained in this letter are based upon facts and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the material 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 statement of facts parent a state x publicly traded holding_company is the common parent of an affiliated_group_of_corporations filing a consolidated federal_income_tax return parent owns all of holdco an intermediate holding_company holdco has only voting_stock that is authorized or issued and outstanding holdco owns all of sec_1 and sec_2 sec_1 is engaged in business a and is incorporated in both state x and state y sec_2 is incorporated in state y and also is engaged in business a the assets comprising the state y operations are held as a tenancy_in_common tic owned a by sec_1 and b by sec_2 notwithstanding the fact that all of the income and expenses of the state y operations have been reported on sec_2’s federal and state tax returns furthermore parent has taken the position that the tic is not a partnership for federal_income_tax purposes proposed transaction for administrative and regulatory purposes parent proposes the following transaction i sec_1 will convert under state x law to a single-member limited_liability_company sec_1 llc that will be disregarded as an entity separate from holdco the reorganization ii sec_1 llc will transfer its a interest in the tic to sec_2 for no consideration the tic transfer iii sec_1 llc will convert back to a corporation new sec_1 under state x law the reincorporation plr-126571-09 sec_1’s interest in the tic is the only asset that will actually move for state law purposes it represents approximately c of sec_1’s gross assets and d of sec_1’s net assets the initial conversion of sec_1 to sec_1 llc under state x law will cause sec_1 no longer to be incorporated under the laws of state y when sec_1 llc converts back to a corporation it will do so solely under state x law as a result new sec_1 will not be incorporated under or subject_to the laws of state y representations reorganization parent makes the following representations with respect to the reorganization described above in step i 1a the fair_market_value of the holdco stock deemed to be received by holdco in the reorganization will be approximately equal to the fair_market_value of the sec_1 stock deemed to be surrendered in the exchange 1b no property other than the deemed shares of holdco voting_stock will be issued by holdco as consideration with respect to the reorganization 1c upon the reorganization in cancellation of its sec_1 stock holdco will acquire a direct interest in the sec_1 business_enterprise through sec_1 llc 1d holdco will acquire at least percent of the fair_market_value of the net assets and at least percent of the fair_market_value of the gross assets held by sec_1 immediately prior to the transaction for purposes of this representation amounts used by sec_1 to pay its reorganization expenses amounts paid_by sec_1 to shareholders who receive cash or other_property and all redemptions and distributions except for regular normal dividends made by sec_1 immediately preceding the transfer will be included as assets of sec_1 held immediately prior to the transaction 1e during the five-year period ending on the date of the reorganization neither holdco nor any person related as defined in sec_1_368-1 to holdco will have acquired sec_1 stock with consideration other than holdco stock neither sec_1 nor any person related as defined in sec_1_368-1 determined without regard to sec_1_368-1 to sec_1 will have acquired or redeemed sec_1 stock with consideration other than holdco stock or sec_1 stock and no distribution will have been made with respect to the stock of sec_1 other than ordinary normal regular dividend distributions made pursuant to the historic dividend paying practice of sec_1 either directly or through any transaction agreement or plr-126571-09 arrangement with any other person 1f holdco has no plan or intention to sell or otherwise dispose_of any of the assets of sec_1 acquired in the transaction except for dispositions made in the ordinary course of business or transfers described in sec_368 or sec_1_368-2 1g sec_1 will be treated as distributing the holdco stock deemed received in the reorganization and its other properties in pursuance of the plan_of_reorganization 1h the liabilities of sec_1 assumed by holdco as determined under sec_357 were incurred by sec_1 in the ordinary course of its business and are associated with the assets deemed transferred 1i 1j 1k 1l following the transaction holdco will continue either directly or through one or more members of holdco’s qualified_group within the meaning of sec_1_368-1 the historic_business of sec_1 or use a significant portion of sec_1’s historic_business_assets in a business holdco and sec_1 will pay their respective expenses if any incurred in connection with the transaction there is no intercorporate indebtedness existing between holdco and sec_1 that was issued acquired or will be settled at a discount no two parties to the transaction are investment companies as defined in sec_368 and iv 1m the total fair_market_value of the assets of sec_1 deemed transferred to holdco in the reorganization will exceed the sum of i the amount of any liabilities assumed within the meaning of sec_357 by holdco in the exchange ii the amount of any liabilities owed to holdco by sec_1 that are discharged or extinguished in connection with the exchange and iii the amount of cash and the fair_market_value of any other_property other than stock and securities permitted to be received under sec_361 without recognition of gain received by sec_1 in the exchange the fair_market_value of the assets of holdco will exceed the amount of holdco’s liabilities immediately after the reorganization 1n sec_1 is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 plr-126571-09 1o items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations as a result of the reorganization see sec_1_1502-13 and sec_1 as in effect before the publication of t d 1995_2_cb_147 and as currently in effect sec_1_1502-13 as published by t d tic transfer parent makes the following representations with respect to the tic transfer described above in step ii 2a no stock_or_securities will be issued for services rendered to or for the benefit of sec_2 in connection with the tic transfer 2b no stock_or_securities will be issued for indebtedness of sec_2 that is not evidenced by a security or for interest on indebtedness of sec_2 that accrued on or after the beginning of the holding_period of holdco for the debt 2c the transfer is not the result of the solicitation by a promoter broker or investment house 2d neither holdco nor sec_1 llc will retain any rights in the tic interest transferred to sec_2 2e the adjusted_basis of the tic interest to be transferred by holdco to sec_2 will be equal to or exceed the sum of the liabilities to be assumed within the meaning of sec_357 by sec_2 2f the total fair_market_value of the assets transferred to sec_2 in the tic transfer will exceed the sum of i the amount of any liabilities assumed within the meaning of sec_357 by sec_2 in the exchange ii the amount of any liabilities owed to sec_2 by holdco that are discharged or extinguished in connection with the exchange and iii the amount of cash and the fair_market_value of any other_property other than stock permitted to be received under sec_351 without recognition of gain received by holdco in the exchange the fair_market_value of the assets of sec_2 will exceed the amount of its liabilities immediately after the tic transfer 2g the liabilities of holdco to be assumed within the meaning of sec_357 by sec_2 were incurred in the ordinary course of business and are associated with the assets to be transferred plr-126571-09 2h the aggregate fair_market_value of the tic interest to be transferred by holdco to sec_2 will equal or exceed holdco’s aggregate adjusted_basis in that tic interest 2i 2j there is no indebtedness between sec_2 and holdco and there will be no indebtedness created in favor of holdco as a result of the tic transfer the reorganization and the tic transfer will occur under a plan agreed upon before the transaction in which the rights of the parties are defined 2k all exchanges will occur on approximately the same date 2l there is no plan or intention on the part of sec_2 to redeem or otherwise reacquire any stock deemed to be issued in the tic transfer 2m taking into account any issuance deemed or otherwise of additional shares of sec_2 stock any issuance of stock for services the exercise of any sec_2 stock_rights warrants or subscriptions a public offering of sec_2 stock and the sale exchange transfer by gift or other_disposition of any of the stock of sec_2 deemed to be received in the tic transfer holdco will be in control of sec_2 within the meaning of sec_368 2n holdco will be deemed to receive stock of sec_2 with a value approximately equal to the fair_market_value of the tic interest to be transferred to sec_2 2o sec_2 will remain in existence and will retain and use the tic interest transferred to it in a trade_or_business 2p there is no plan or intention by sec_2 to sell or otherwise dispose_of the tic interest other than in the normal course of business operations 2q each of the parties to the tic transfer will pay its own expenses if any incurred in connection with the tic transfer 2r sec_2 will not be an investment_company within the meaning of sec_351 and sec_1_351-1 2s holdco is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 and the stock deemed received in the exchange will not be used to satisfy the indebtedness of such debtor 2t sec_2 will not be a personal_service_corporation within the meaning of sec_269a plr-126571-09 reincorporation parent makes the following representations with respect to the reincorporation described above in step iii 3a no stock_or_securities will be issued for services rendered to or for the benefit of new sec_1 in connection with the reincorporation 3b no stock_or_securities will be issued for indebtedness of new sec_1 that is not evidenced by a security or for interest on indebtedness of new sec_1 which accrued on or after the beginning of the holding_period of holdco for the debt 3c the transfer is not the result of the solicitation by a promoter broker or investment house 3d holdco will not retain any rights in the property transferred to new sec_1 3e the adjusted_basis of the assets to be transferred by holdco to new sec_1 will in each instance be equal to or exceed the sum of the liabilities to be assumed within the meaning of sec_357 by new sec_1 3f the total fair_market_value of the assets transferred to new sec_1 in the reincorporation will exceed the sum of i the amount of any liabilities assumed within the meaning of sec_357 by new sec_1 in the exchange ii the amount of any liabilities owed to new sec_1 by holdco that are discharged or extinguished in connection with the exchange and iii the amount of cash and the fair_market_value of any other_property other than stock permitted to be received under sec_351 without recognition of gain received by holdco in the exchange the fair_market_value of the assets of new sec_1 will exceed the amount of its liabilities immediately after the reincorporation 3g the aggregate fair_market_value of the assets deemed to be transferred by holdco to new sec_1 will equal or exceed holdco’s aggregate adjusted bases in those assets 3h the liabilities of holdco to be assumed within the meaning of sec_357 by new sec_1 were incurred in the ordinary course of business and are associated with the assets to be transferred 3i there is no indebtedness between new sec_1 and holdco and there will be no indebtedness created in favor of holdco as a result of the reincorporation plr-126571-09 3j the reorganization and the reincorporation will occur under a plan agreed upon before the transaction in which the rights of the parties are defined 3k all exchanges will occur on approximately the same date 3l there is no plan or intention on the part of new sec_1 to redeem or otherwise reacquire any stock or indebtedness to be issued or deemed to be issued in the reincorporation 3m taking into account any issuance deemed or otherwise of additional shares of new sec_1 stock any issuance of stock for services the exercise of any new sec_1 stock_rights warrants or subscriptions a public offering of new sec_1 stock and the sale exchange transfer by gift or other_disposition of any of the stock of new sec_1 deemed to be received in the reincorporation holdco will be in control of new sec_1 within the meaning of sec_368 3n holdco will be deemed to receive stock of new sec_1 or other_property approximately equal to the fair_market_value of the assets deemed to be transferred to new sec_1 3o new sec_1 will remain in existence and will retain and use the property deemed transferred to it in a trade_or_business 3p there is no plan or intention by new sec_1 to sell or otherwise dispose_of any of the transferred assets other than in the normal course of business operations 3q each of the parties to the reincorporation will pay its own expenses if any incurred in connection with the reincorporation 3r new sec_1 will not be an investment_company within the meaning of sec_351 and sec_1_351-1 3s holdco is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 and the stock received in the exchange will not be used to satisfy the indebtedness of such debtor 3t new sec_1 will not be a personal_service_corporation within the meaning of sec_269a plr-126571-09 rulings reorganization based solely on the information submitted and the representations set forth above we rule as follows with respect to the reorganization for federal_income_tax purposes the reorganization will be treated as a transfer by sec_1 of substantially_all of its assets to holdco solely in exchange for holdco voting_stock and the assumption of the liabilities of sec_1 followed by the distribution by sec_1 of the holdco voting_stock to holdco in complete_liquidation the deemed transfer by sec_1 of substantially_all of its assets to holdco solely in exchange for holdco voting_stock and the assumption of the liabilities of sec_1 followed by the distribution by sec_1 of the holdco voting_stock to holdco in complete_liquidation will qualify as a reorganization under sec_368 the reorganization will not be disqualified or recharacterized by reason of the tic transfer or the reincorporation sec_368 and sec_1_368-2 sec_1 and holdco will each be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by sec_1 on the deemed transfer of substantially_all of its assets to holdco solely in exchange for shares of holdco voting_stock and the assumption by holdco of the liabilities of sec_1 sec_361 and sec_357 no gain_or_loss will be recognized by sec_1 on the deemed_distribution of holdco voting_stock to holdco sec_361 no gain_or_loss will be recognized by holdco upon the deemed receipt of the assets of sec_1 solely in exchange for holdco voting_stock sec_1032 the basis of the assets of sec_1 in the hands of holdco will be the same as the basis of those assets in the hands of sec_1 immediately prior to the reorganization sec_362 the holding_period of the assets of sec_1 in the hands of holdco will include the period during which those assets were held by sec_1 sec_1223 no gain_or_loss will be recognized by holdco upon the deemed receipt of holdco voting_stock solely in exchange for sec_1 stock sec_354 a plr-126571-09 under sec_381 and sec_1 the taxable_year of sec_1 will end on the effective date of the closing of the reorganization and holdco will succeed to and take into account the items of sec_1 described in sec_381 subject_to the provisions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the regulations thereunder tic transfer based solely on the information submitted and the representations set forth above we rule as follows with respect to the tic transfer for federal_income_tax purposes the tic transfer will be treated as the transfer by holdco of sec_1 llc’s interest in the tic to sec_2 in deemed exchange for shares of sec_2 stock no gain_or_loss will be recognized by holdco on the tic transfer sec_351 and sec_357 no gain_or_loss will be recognized by sec_2 on the tic transfer sec_1032 at the time that holdco determines its basis adjustments under sec_1_1502-32 with respect to its stock in sec_2 such adjustments should be consistent with sec_1’s and sec_2’s formal ownership percentages in the tic reincorporation based solely on the information submitted and the representations set forth above we rule as follows with respect to the reincorporation for federal_income_tax purposes the reincorporation will be treated as the transfer by holdco of the assets remaining in sec_1 llc after the tic transfer to new sec_1 in deemed exchange for stock of new sec_1 no gain_or_loss will be recognized by holdco on the reincorporation sec_351 and sec_357 no gain_or_loss will be recognized by new sec_1 on the reincorporation sec_1032 the basis of the assets received by new sec_1 in the reincorporation will be equal to the basis of those assets in the hands of holdco immediately before the reincorporation sec_362 plr-126571-09 the holding_period of each asset received by new sec_1 in the reincorporation will include the period during which holdco held that asset sec_1223 the basis of the new sec_1 stock deemed to be received by holdco will equal the basis of the assets transferred in exchange therefor reduced by the amount of liabilities deemed assumed by new sec_1 sec_358 and d the holding_period of new sec_1 stock deemed received by holdco will include the holding_period of the assets transferred to new sec_1 provided that the assets are held by holdco as capital assets on the date of the exchange sec_1223 caveats except as expressly provided herein no opinion is expressed or implied concerning the tax treatment of the proposed transaction under other provisions of the code or the regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the above rulings furthermore no opinion is expressed or implied concerning the classification of the tic as a partnership for federal_income_tax purposes procedural statements this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely gerald b fleming senior technician reviewer branch office of associate chief_counsel corporate