internal_revenue_service number release date index number ------------------------------------------------------- ------------------------------------------------- -------------------------- ------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- id no ------------- telephone number --------------------- refer reply to cc psi b07 plr-120641-06 date date ------------- ------------------- --- -- --- --------- legend corporation ------------------------------------------------------- ----------------------------------------- state date a b c d dear ------------------ we received a letter dated date from your authorized representative requesting rulings regarding the application of sec_216 of the internal_revenue_code to corporation this letter responds to that request the represented facts are as follows corporation is a cooperative_housing_corporation organized under the laws of state corporation is in the process of constructing a mixed-income housing project that will include a residential units in b apartment buildings the a units will be divided into c low income units c moderate income units and c market rate units with share allocations corresponding to each income_category corporation has received below-market private financing and subsidized governmental financing that require the inclusion of low income and moderate income units collectively referred to as the affordable units and also entail income eligibility requirements limitations on purchase prices and restrictions on resale with respect to the affordable units corporation is authorized to issue d shares of common_stock entirely to the residential units corporation represents that it is authorized to issue only one class of stock corporation further represents that the shares of the corporation to be issued plr-120641-06 with respect to each unit will be fully paid up in an amount bearing a reasonable relationship to the portion of the fair_market_value of the leasehold property attributable to that unit bears to the fair_market_value of the leasehold property as a whole the proprietary lease will entitle tenant-stockholder as the purchaser of the shares attributable to a residential unit to occupy the unit the owner of the unit will at all times have the right as against the corporation to occupy the unit for dwelling purposes furthermore under the terms of the lease the corporation is required to pay all real_estate_taxes imposed upon the leasehold property by any governmental authority you have specifically requested the following ruling whether the imposition by governmental agencies of income eligibility requirements limitations on purchase prices and restrictions on resale with respect to certain tenant-stockholders in the corporation shall not cause any person to fail to qualify as a tenant-stockholder as defined in sec_216 or shall prevent the corporation in which such tenant-stockholder holds stock to qualify as a cooperative_housing_corporation as defined in sec_216 subsection b there shall be allowed as a deduction amounts not otherwise deductible paid_or_accrued to a cooperative_housing_corporation within the ty but only to the extent that such amounts represent the tenant-stockholder's proportionate share of- sec_216 provides that in the case of a tenant-stockholder as defined in the real_estate_taxes allowable as a deduction to the corporation under sec_164 which are paid_or_incurred by the corporation on the houses or apartment building and on the land on which such houses or building are situated or the interest allowable as a deduction to the corporation under sec_163 which is paid_or_incurred by the corporation on its indebtedness contracted- a in the acquisition construction alteration rehabilitation or maintenance of the houses or apartment building or b in the acquisition of the land on which the houses or apartment building are situated sec_216 provides that the term cooperative_housing_corporation means a corporation - a having one and only one class of stock outstanding b each of the stockholders of which is entitled solely by reason of his ownership of stock in the corporation to occupy for dwelling purposes a house or an apartment in a building owned or leased by such corporation c no stockholder of which is entitled either conditionally or unconditionally to receive any distribution not out of earnings_and_profits of the corporation except on a complete or partial_liquidation of the corporation and plr-120641-06 d percent or more of the gross_income of which for the taxable_year in which the taxes and interest described in sec_216 are paid_or_incurred is derived from tenant- stockholders sec_216 provides that the term tenant-stockholder means a person who is a stockholder in a cooperative_housing_corporation and whose stock is fully paid-up in an amount not less than an amount shown to the satisfaction of the secretary as bearing a reasonable relationship to the portion of the value of the corporation's equity in the houses or apartment building and the land on which situated which is attributable to the house or apartment which such person is entitled to occupy sec_1_216-1 provides in relevant part that in order to qualify as a cooperative_housing_corporation under sec_216 each stockholder of the corporation whether or not the stockholder qualifies as a tenant-stockholder under sec_216 and sec_1_216-1 must be entitled to occupy for dwelling purposes an apartment in a building or a unit in a housing development owned or leased by such corporation the stockholder is not required to occupy the premises the right as against the corporation to occupy the premises is sufficient such right must be conferred on each stockholder solely by reasons of his or her ownership of stock in the corporation that is the stock must entitle the owner thereof either to occupy the premises or to a lease of the premises the fact that the right to continue to occupy the premises is dependent upon the payment of charges to the corporation in the nature of rentals or assessments is immaterial applying the above standards to the facts and representations submitted and subject_to the limitation below we conclude that provided corporation satisfies the requirements of sec_216 c and d the imposition by governmental agencies of income eligibility requirements limitations on purchase prices and restrictions on resale with respect to certain tenant-stockholders in the corporation shall not cause any person to fail to qualify as a tenant-stockholder as defined in sec_216 or shall prevent the corporation in which such tenant-stockholder holds stock to qualify as a cooperative_housing_corporation as defined in sec_216 we conclude that the purchaser of the stock of corporation attributable to the residential units will qualify as a tenant-stockholder for purposes of sec_216 provided such stock is fully paid up in an amount which bears a reasonable relationship to the portion of the value of corporation's equity in the building and land which is attributable to the unit which the purchaser is entitled to occupy we further conclude based upon corporation’s representation that it is authorized to issue only one class of stock that provided all outstanding shares in corporation confer identical rights to distribution and liquidation proceeds to corporation’s tenant-stockholders corporation will satisfy the requirements of sec_216 specifically we express or imply no opinion as to whether corporation meets the plr-120641-06 except as expressly provided herein we express or imply no opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter further we express or imply no opinion whether corporation otherwise meets the requirements of sec_216 requirements of sec_216 concerning whether the stock bears a reasonable relationship to the portion of the value of the corporation’s equity in the building and land which is attributable to the unit which the purchaser is entitled to occupy provides that it may not be used or cited as precedent 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 copy of this letter to your authorized representative a copy of this ruling must be attached to any income_tax return to which it is relevant this ruling is directed only to the taxpayer requesting it sec_6110 in accordance with the power_of_attorney on file with this office we are sending a the rulings contained in this letter are based upon information and sincerely s joseph h makurath senior technician reviewer branch office of associate chief_counsel passthroughs special industries


department of the treasury internal_revenue_service washington d c t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n fax number contact person contact number identification_number --------------------------------- ------------------------------------ -------------------------------------- ------------------------------------------- ------------------------------------------- employer_identification_number number release date se t eo ra t date date uil legend e c x y z dear ------------ we have considered your application_for recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code as an organization described in sec_501 based on the information submitted we have concluded you do not qualify for exemption under that section the basis for our conclusion is set forth below facts you were incorporated as a non-profit organization in ------- to coordinate-the delivery of home health services you conduct three major activities home health management hospital liaison and physical home call you currently provide your services to two for-profit home health agencies two not for profit home health agencies and a tax-exempt hospital your management services involve providing traditional management and consulting services to structurally and financially unrelated home health organizations to help them achieve efficiencies and effective operations your staff provides these services the recital portion of the consulting services agreement agreement effective as of x between you and e a for-profit corporation states you provide to e management consulting services in management liaison such areas as operations medicare and medicaid regulatory jcaho compliance quality improvement staff development and strategic planning and development section iia of the agreement states you shall furnish qualified personnel to act as the president general manager of e and you shall assist in the day-to-day operations of e financial information submitted with your application_for exemption states the majority of your income is from the provision of management services the hospital liaison services involve a program you have at c and other local sec_501 hospitals liaison services involve you finding home health agencies or home health providers to care for patients after discharge from c you find appropriate providers to deliver follow-up home health care to patients of c sec_1a the home care liaison professional services agreement contract dated y between you and c states that you will not be a provider of health care services nor shall you be responsible for the actions of the home health care agencies providing the services sec_1d of the contract provides you employ the liaison and are solely responsible for the proper payment of the liaison’s wages and benefits sec_2 of the contract states hospital and the liaison will communicate involving the follow-up care in order to provide liaison services you created a network agreement which creates a network of members who provide the home health care services in section a of the recitals of the network agreement dated z between you and e it states you were formed to share expenses related to the provision of home health care liaison services when requested to do so by a limited number of local hospitals you state you and your members seek to obtain economic efficiencies through the pooling of resources and to provide services to c sec_3 of the network agreement states the provider will pay you its pro_rata share of expenses for hospital liaison services provided sec_4 of the network agreement states you will bill the provider for its pro_rata share of expenses for hospital liaison services provided under the network agreement sec_4 of the network agreement states you shall have management responsibility of the liaison program including but not limited to the daily operations of the liaison program financial information submitted with your application_for exemption states your second largest source_of_income is from the provision of liaison services you will provide physician house call services to patients who cannot leave their home or may not be able to afford transportation to the hospital you state you hired a part time physician to coordinate care the information submitted states presently the home call activity is an insubstantial part of your total activities law sec_501 of the code provides for the exemption from federal_income_tax of home call organizations organized and operated exclusively for charitable scientific or educational_purposes provided no part of the organization's net_earnings inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 of the income_tax regulations provides that in order for an organization to be exempt as one described in sec_501 of the code it must be both organized and operated exclusively for one or more exempt purposes under sec_1_501_c_3_-1 of the regulations an exempt_purpose includes a charitable purpose sec_1_501_c_3_-1 of the regulations provides that the term charitable is used in sec_501 of the code in its generally accepted legal sense the promotion of health has long been recognized as a charitable purpose see restatement second of trusts sec_368 sec_372 4a scott and fratcher the law of trusts sec_368 sec_372 4th ed revrul_69_545 1969_2_cb_117 sec_1_501_c_3_-1 of the regulations provides that an organization is organized exclusively for one or more exempt purposes only if its articles of organization a limit the purposes of such organization to one or more exempt purposes and b do not expressly empower the organization to engage otherwise than as an insubstantial part of its activities in activities which in themselves are not in furtherance of one or more exempt purposes sec_1_501_c_3_-1 of the regulations provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 of the code an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_1_501_c_3_-1 of the regulations states that an organization which is organized and operated for the primary purpose of carrying on an unrelated_trade_or_business is not exempt under sec_501 of the code in 326_us_279 the court stated 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 revrul_72_209 1972_1_cb_148 held that a nonprofit organization formed to provide low-cost home health care in a charitable manner qualifies for exemption because it is an actual provider of health care services under the direction and supervision of a physician revrul_77_68 1977_1_cb_142 held that a nonprofit organization formed to provide individual psychological and educational evaluations as well as tutoring and therapy for children and adolescents with learning disabilities qualified for exemption under sec_501 of the code because it both promoted health and advanced education because it is an actual provider of medical services designed to relieve psychological tensions and thereby improve the mental health of the children and adolescents it promotes health 950_f2d_365 7th cir involved an organization that operated restaurants and health food stores with the intention of furthering the religious work of the seventh-day adventist church as a health ministry however the seventh circuit held that these activities were primarily carried on for the purpose of conducting a commercial business_enterprise therefore the organization did not qualify for recognition of exemption under sec_501 of the code 72_tc_687 aff'd 625_f2d_804 8th cir held that while selling prescription pharmaceuticals promotes health pharmacies cannot qualify for recognition of exemption under sec_501 on that basis alone revrul_54_305 1954_2_cb_127 involved an organization whose primary purpose was the operation and maintenance of a purchasing agency for the benefit of its otherwise unrelated members who are exempt as charitable organizations this revenue_ruling held that the organization did not qualify under sec_101 of the code the predecessor to sec_501 because its activities consisted primarily of the purchase of supplies and the performance of other related_services the revenue_ruling stated that such activities in themselves cannot be termed charitable but are ordinary business activities revrul_69_528 1969_2_cb_127 describes an organization formed to provide investment services on a fee basis only to organizations exempt under sec_501 of the code the organization invested funds received from participating tax-exempt organizations the organization was not controlled by the participating organizations and had absolute and uncontrolled discretion over investment policies the ruling held the organization did not qualify under sec_501 of the code and stated that providing investment services on a regular basis for a fee is a trade_or_business ordinarily carried on for profit revrul_72_369 1972_3_cb_245 deals with an organization formed to provide management and consulting services at cost to unrelated exempt_organizations this revenue_ruling held that providing managerial and consulting services on a regular basis for a fee is a trade_or_business that is ordinarily carried on for profit the fact that the services in this case were provided at cost and solely for exempt_organizations was not sufficient to characterize this activity as charitable within the meaning of sec_501 of the code in 70_tc_352 the organization entered into consultant-retainer relationships with five or six limited resource groups involved in the fields of health housing vocational skills and cooperative management the organization's financing did not resemble that of the typical sec_501 organization it had neither solicited nor received any voluntary contributions from the public the court concluded that because its sole activity consisted of offering consulting services for a fee set at or close to cost to nonprofit limited resource organizations it did not qualify for exemption under sec_501 of the code in 70_tc_1037 a nonprofit corporation that assisted charitable organizations in their fund raising activities by providing financial planning advice on charitable giving and tax planning to wealthy individuals was held not to qualify for exemption under sec_501 of the code because its tax planning services were a substantial nonexempt activity enabling the corporation to provide commercially available services to wealthy individuals free of charge in easter house v u s cl_ct aff’d in an unpub opinion 846_f2d_78 fed cir cert den 488_us_907 the organization in exchange for a fee provided adoption services to parents seeking to adopt a child including services to pregnant women who intended to place their newborns for adoption these fees were the organization’s sole source_of_income the claims_court concluded that the organization’s business_purpose of operating an adoption service not the advancement of educational and charitable activities was its primary goal it competed with other commercial organizations providing similar services thus p laintiff’s competition provides its activities with a commercial hue cl_ct pincite accordingly the organization did not qualify for exemption under sec_501 of the code in 283_fsupp2d_58 d d c the district_court found that that the organization was formed principally to organize host conduct and sponsor educational and other charitable functions on its facilities the organization’s patrons were not limited to tax-exempt entities but included patrons of a private and corporate nature the organization paid significant advertising and promotional expenses and derived substantial income from weddings and special event held at its conference center the court determined that the organization’s activities competed with a number of commercial as well as non-commercial entities which strongly evidenced a commercial nature and purpose the court concluded that although the organization carried out a number of charitable and educational activities these were incidental to its primary activity of operating a for-profit conference center the court stated while plaintiff’s organizational purpose is exempt and the foundation operates in important respects in an exempt fashion there is a distinctive commercial hue to the way airlie carries out its business see f_supp 2d pincite rationale your primary activities consists of providing traditional management services to home health care agencies and home health care providers as well as managing and facilitating home health care services for your members all of your services are provided to entities not structurally or financially related to you your agreement with e provides information about your services the recital portion of the agreement states that you provide to e management consulting services section iia of the agreement states you provide the personnel to act as the president general manager of e and assist in the day-to-day operations of e your second primary activity consists of providing liaison services to home health care agencies home health care providers and c all of your services are provided to entities not structurally or financially related to you the contract with c and the network agreement with e provide information about these services sec_1a of a contract states you will not be a provider of health care services sec_1d of the contract provides you employ the liaison and are solely responsible for the proper payment of the liaison’s wages and benefits in section a of the recitals of the network agreement it states you were formed to share expenses related to the provision of home health care liaison services sec_3 of the network agreement states the provider will pay you its pro_rata share of expenses for hospital liaison services sec_4 of the network agreement states you will bill the provider for its pro_rata share of expenses for hospital liaison services provided sec_4 of the network agreement states you have management responsibility of the liaison program including but not limited to the daily operations of the liaison program by operating as a manager or facilitator for the provision of home health services in return for a fee you operate in a commercial manner similar to the organizations in revrul_69_528 supra revrul_72_369 supra and in b s w group inc v commissioner supra christian stewardship assistance inc v commissioner supra easter house v u s supra and airlie foundation v i r s supra thus your activities are not charitable in particular you are similar to the organization in revrul_72_369 supra that was formed to provide management and consulting services to unrelated exempt_organizations this revenue_ruling held providing managerial and consulting services on a regular basis for a fee is a trade_or_business ordinarily carried on for profit unlike you the organization in revrul_72_369 provided its services at cost and solely to exempt_organizations which was still not sufficient to characterize the activity as charitable within the meaning of sec_501 of the code activities promoting health without more do not further a charitable purpose your activities are unlike those in revrul_72_209 supra and revrul_77_68 supra where the internal_revenue_service concluded these organization’s activities promoted health in a charitable manner rather you operate more like the commercial organization federation pharmacy services inc v commissioner supra where the courts concluded that although the organization’s activities promoted health their activities were primarily commercial in nature therefore you are not operated exclusively for charitable purposes under sec_1 c - a of the regulations conclusion based on all the facts and circumstances we conclude your activities do not further an exempt_purpose under sec_1_501_c_3_-1 of the regulations therefore you do not operate exclusively for an exempt_purpose as required under sec_1_501_c_3_-1 accordingly you do not qualify for exemption as an organization described in sec_501 of the code and you must file federal_income_tax returns contributions to you are not deductible under sec_170 of the code you have the right to protest this ruling if you believe it is incorrect to protest you should submit a statement of your views to this office with a full explanation of your reasoning this statement signed by one of your officers must be submitted within days from the date of this letter you also have a right to a conference in this office after your statement is submitted you must request the conference if you want one when you file your protest statement if you are to be represented by someone who is not one of your officers that person will need to file a proper power_of_attorney and otherwise qualify under our conference and practices requirements if you do not protest this ruling in a timely manner it will be considered by the internal_revenue_service as a failure to exhaust available administrative remedies sec_7428 of the code provides in part that a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the united_states court of federal claims or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted administrative remedies available to it within the internal_revenue_service if we do not hear from you within days this ruling will become final and a copy will be forwarded to the ohio tax exempt and government entities te_ge office thereafter any questions about your federal_income_tax status should be directed to that office either by calling a toll free number or sending correspondence to internal_revenue_service te_ge customer service p o box cincinnati oh the appropriate state officials will be notified of this action in accordance with code sec_6104 in the event this ruling becomes final it will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice if you decide to protest this ruling your protest statement should be sent to the address shown below if it is convenient you may fax your reply using the fax number shown in the heading of this letter if you do not intend to protest this ruling and if you agree with our proposed deletions as shown in the letter attached to notice you do not need to take any further action internal_revenue_service te_ge se t eo ra t ----------------------------------- constitution ave n w washington d c if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter enclosure notice lois g lerner director exempt_organizations rulings agreements sincerely


department of the treasury internal_revenue_service washington d c index no date oct of e-e0-t contact person id number telephone number employer_identification_number key district_office dear sir this letter is in response to a letter dated date requesting rulings under sec_507 sec_4941 and sec_4945 of the internal_revenue_code x is an irrevocable inter_vivos charitable_lead_annuity_trust created on date x constitutes a split-interest trust pursuant to sec_4947 of the code the sole charitable_beneficiary is y a state a nonprofit corporation which is exempt under sec_501 and is classified as a private_foundation under a at the time of the creation of x in the grantor transferred to x a number of shares of stock of z a closely-held non-public bank_holding_company which was controlled by the grantor's family at that time the shares of z transferred to x had an estimated value of approximately dollar_figureb the trust document provides that x will continue in existence for years and pay y a guaranteed annuity_payment of percent of the fair_market_value of the z stock at the end of each year to date x has paid the appropriate amount to y each year of its existence if x were to continue in existence for its fuli term of years it would owe y the sum for the remaining years in existence of dollar_figure 8b the trust document provides that at the end of the trust's year term the trustees are to distribute the remainder_interest to the grantor's four children these four children are also all of the trustees of x and all of the foundation managers of y this information is disclosed in the court petition described in detail later in this letter z merged with and into t a corporation whose common_stock is traded on the new york stock exchange as a result of the merger x received a number of shares of stock of t which have a value presently of approximately dollar_figureb such value is substantially in excess of the value of the stock of z when -2- it was originally transferred to x the dividend that x will receive from t is well in excess of the amount necessary to pay the annuity to y because the assets of x have been converted to stock of t which is readily convertible to cash x's charitable interest can now be satisfied much earlier than originally anticipated by the grantor when he created the trust accordingly the grantor the trustees of x the foundation managers of y and the four remaindermen all now wish to pay y in one lump sum payment the remaining amount due to y under the trust document the sum of dollar_figure 8b in the form of cash and stock of t without discount the parties identified in the preceding paragraph have filed a petition in a local court in state a seeking authorization to pre-pay y the entire dollar_figure 8b balance owing on the annuity payments and then to terminate the trust by distribution to the remainder interests the petition has named the attorney_general of state a as a party to the suit to protect the interests of the charity y accordingly the following rulings have been requested the trustees’ prepayment of the entire remaining charitable interest without discount to y as the sole charitable_beneficiary of the trust will not constitute a termination of a private_foundation under sec_507 of the code the trustees’ prepayment of the entire remaining charitable interest without discount to y as the charitable_beneficiary of the trust will not be an act of self-dealing under sec_4941 of the code the trustees’ prepayment of the entire remaining charitable interest without discount to y as the charitable_beneficiary of the trust will not be a taxable_expenditure under sec_4945 of the code sec_507 of the code provides in pertinent part that the status of any organization as a private_foundation shall be terminated only if such organization notifies the secretary of its intent to accomplish such termination sec_507 of the code imposes a tax upon a private foundation's termination of its status as a private_foundation sec_4947 of the code provides that in the case of a_trust which is not exempt from tax under sec_501 not all of the unexpired interests in which are devoted to one or more of the purposes described in sec_170 and which has amounts in trust for which a deduction was allowed under sec_170 sec_545 sec_556 sec_642 sec_2055 sec_2106 or sec_2522 sec_507 relating to the termination of private_foundation_status e relating to governing instruments sec_4941 relating to taxes on self-deating sec_4943 relating to taxes on excess_business_holdings except as provided in subsection b sec_4944 relating to investments which jeopardize charitable purpose except as provided in sec_4947 and sec_4945 relating to tax on taxable_expenditures shall apply as if such trust were a private_foundation sec_53_4947-1 of the foundations and similar excise regulations regulations provides that the provisions of sec_507 shail not apply to a_trust described in sec_4947 or by reason of any payment to a beneficiary that is directed by the terms of the governing instrument of the trust and is not discretionary with the trustee or in the case of a discretionary payment by reason of or following the expiration of the last remaining charitable interest in the trust oh sec_53_4947-1 of the regulations provides examples of the application of sec_53 e section a of the code imposes a tax on any act of self-dealing between a private_foundation and a disqualified_person as defined in sec_4946 of the code sec_4945 of the code imposes a tax on a private foundation's making any taxable_expenditure as defined in sec_4945 sec_53_4946-1 of the regulations provides that for purposes of self-dealing under sec_4941 of the code an exempt_organization is not a disqualified_person with respect to the first ruling the payment of cash and stock to y to extinguish the annuity liability of x to y under the terms of the trust does not constitute a termination under sec_507 section sec_3 e of the regulations specifically provides that the provisions of sec_507 shall not apply to a_trust described in a by reason of any payment that is directed by the terms of the governing instrument of the trust and is not discretionary with the trustee mandatory payment required by the trust document and x payment the payment is no less mandatory nor is it deemed discretionary with the trustee merely because all parties agree to make the charitable payment earlier than required by the trust document the payment to y is only authorized by order of the court on the petition to the court for approval for such accelerated payment the examples under sec_53_4947-1 particularly examples and are illustrative of the general_rule that payout of the charitable amount is not a sec_507 transaction is fulfilling its obligation by making the required in this case x has a there is no act or acts of self-dealing under sec_4941 of the code since the payments by x to y are not made to a disqualified_person the payment to y for the reasons described in the preceding paragraph does not fal under any of the acts of self-dealing described in sec_4941 of the code there are no taxable_expenditures with respect to the proposed transaction the payment to y does not come within the definition of taxable_expenditure under sec_4945 of the code the code and regulations have provided special rules for the income payout of split-interest_trusts in recognition of the special nature of these payments for example a split-interest trust under sec_4947 of the code is subject_to neither the excise_tax on investment_income under sec_4940 nor is the trust required to make a mandatory distribution under sec_4942 no payout is required under sec_4942 since the trust is already subject_to a payout requirement sec_4947 of the code and sec_53_4947-1 of the regulations preclude the application of sec_4941 to the income_interest payable to income beneficiaries of charitable_remainder trusts since such interests are what they are entitled to receive by the trust document as seen above under sec_53_4947-1 of the regulations the provisions of sec_507 do not apply to apply to any split interest trust by reason of any payment to a beneficiary directed by the terms of the governing instrument of the trust by the same token it is our view that the expenditure_responsibility requirement for grants under sec_4945 is not applicable to the income payment by a charitable_lead_trust since the income payout is mandated by the trust instrument in essence the payment is more in the nature of a contribution or donor grant rather than that of the trust similarly sec_4945 is not applicable since the income payout of a lead_trust is for the very charitable purpose for which the trust is established thus there is a direct analogy to sec_53_4947-1 precluding self-dealing with respect to payment of the annuity or unitrust_amount for the charitable_remainder_trust this is not to say that the income payment to the charitable_beneficiary of a charitable_lead_trust will never constitute a taxable_expenditure but under the facts of this case where the payment is made for the appropriate charitable purpose established by the trust document there is no taxable_expenditure cv accordingly we rule as follows the trustees’ prepayment of the entire remaining charitable interest without discount to y as the sole charitable_beneficiary of x will not constitute the termination of a private_foundation under sec_507 of the code the trustees’ prepayment of the entire remaining charitable interest without discount to y as the charitable_beneficiary of x will not be an act of self-dealing under sec_4941 of the code the trustees’ prepayment of the entire remaining charitable interest without discount to y as the charitable_beneficiary of x will not be a taxable_expenditure under sec_4945 of the code this ruling is based on the understanding that you will petition the local court in state a permitting x to make such prepayment and that the office of the attorney_general of state a will be joined in such proceedings further it is understood that neither x the trustor the trustees or any disqualified_person within the meaning of sec_4946 of the code will receive any benefit from the prepayment to y other than the rights of remaindermen provided in the trust document this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as precedent we are sending a copy of this ruling letter to your attorney sincerely robert c harper jr chief exempt_organizations technical branch cc su


department of the treasury internal_revenue_service washington d c date cc dom it a gl-612849-98 uilc number release date memorandum for district_counsel attn from heather c maloy acting assistant chief_counsel income_tax accounting cc dom it a subject significant service_center advice this responds to your request for significant advice dated date in connection with a question posed by the service_center issue is the internal_revenue_service service liable to a spouse for his or her share of a joint refund where the service erroneously issued the refund check to the other spouse conclusion sec_6402 of the internal_revenue_code code provides that the service shall refund an overpayment_of_tax to the person who made the overpayment when married taxpayers file a joint_return each spouse has a separate interest in the overpayment shown on the return in cases where the service issues a refund check in the name of only one spouse and the other spouse demonstrates a separate interest in the overpayment the service is liable to this other spouse for the amount of his or her separate interest in the overpayment accordingly the service is required to pay the other spouse his or her separate interest in the refund also the service should pursue the spouse who received the original refund check and attempt to recover the share of the overpayment which was due to the other spouse gl-612849-98 facts the taxpayers husband and wife were married at all times during the taxable_year the husband filed a return claiming head_of_household filing_status the wife did not file a return service_center conducted an examination of the husband’s return and proposed several adjustments one of the adjustments was to allow the husband married filing joint filing_status with his wife the husband and wife executed form 4549-cg statement of income_tax examination changes agreeing to the proposed adjustments ie an additional personal_exemption for the wife and computation of the tax using joint rates rather than single rates the agreed adjustments resulted in an overpayment_of_tax because the service failed to include the wife’s name on the account the service_center issued the refund check in the name of the husband original filer only the husband cashed the refund check and refused to give the wife any portion of the proceeds the wife contends that the service erred by not issuing the refund check jointly to the taxpayers to correct this alleged error the wife requests that the service issue a duplicate refund check for the full refund to her discussion sec_6013 of the code permits a husband and wife to make a joint_return of individual income taxes sec_6402 of the code provides in part that in the case of any overpayment the secretary may credit the amount of such overpayment against any_tax liability of the person who made the overpayment and shall refund the balance to such person sec_301_6402-2 of the regulations on procedure and administration provides in part that checks in payment of claims allowed will be drawn in the names of the persons entitled to the money the regulations implement the clear statutory rule that a tax_refund should be issued to the person or persons who overpaid the tax sec_6402 of the code authorizes the service to credit or refund any overpayment_of_tax only to the person who made the overpayment although spouses are permitted to file a joint_return they are considered separate taxpayers for purposes of determining the person who made the overpayment 757_f2d_1157 11th cir 153_fsupp_365 ct_cl st john v bookwalter ustc w d mo disputes over entitlement to a joint refund often require an allocation of the spousal shares gl-612849-98 in revrul_74_611 1974_1_cb_399 the service held that a joint income_tax return does not create new property interests for the husband or the wife in each other’s income_tax overpayment instead each spouse has a separate interest in the overpayment shown on a joint_return under the facts of the ruling because the entire overpayment was attributable to the wife no portion of the overpayment shown on the joint_return could be credited against the husband’s separate tax_liability the wife was the person who made the overpayment within the meaning of sec_6402 the amount of a joint_return overpayment that is attributable to each spouse is determined by apportioning the overpayment between the spouses to the extent each spouse contributed to the overpaid tax gens v united_states ct_cl 397_fsupp_342 e d pa the service has set out in a series of revenue rulings the separate tax formula for making this apportionment under the separate tax formula a spouse’s separate interest in an overpayment is determined by subtracting that spouse’s share of the joint tax_liability from that spouse’s contribution toward the payment of the joint tax_liability the service does not typically determine the separate interests of the spouses in an overpayment before crediting or refunding the overpayment as a practical matter the service often cannot determine the separate interests of the spouses based solely on information provided in the return thus when the service refunds an overpayment shown on a joint_return it typically issues the refund in the names of both spouses leaving them to divide the proceeds this procedure satisfies the sec_6402 requirement that the service issue the refund to the person or persons who made the overpayment and is administratively practical considering the volume of joint returns received by the service and the complexity involved in determining a spouse’s separate interest in the overpayment assuming the service were able to determine the separate interest of each spouse in an overpayment shown on a joint_return nothing in the law would prohibit the service from issuing a separate refund check to each spouse in the amount of his or her interest in the overpayment on the other hand where the service issues a refund in the name of only one spouse and the other spouse has a separate interest in that overpayment the service has not issued the refund to the person who made the overpayment within the meaning of sec_6402 of the code see revrul_80_7 1980_1_cb_296 revrul_85_70 1985_1_cb_361 and revrul_87_52 1987_1_cb_347 similarly the service does not determine the separate interests of the spouses in an overpayment when it credits the overpayment against the separate tax debt of one of the spouses rather the service credits the entire amount of the joint overpayment against the separate tax debt of the liable spouse if the nonliable spouse can demonstrate that he or she had a separate interest in the joint overpayment the service will refund that spouse’s share of the overpayment gl-612849-98 in such cases the service is liable to the other spouse for his or her share of the overpayment to remedy this error the service should apply the separate tax formula of revrul_80_7 and issue a refund to the spouse for his or her separate interest in the overpayment the service should then attempt to recover the excessive refund from the spouse who received the original refund check if necessary the service could utilize the erroneous refund procedures of sec_7405 of the code under the facts presented you indicate that the service mistakenly issued the refund to the husband only we suggest that the service_center apply the separate tax formula of revrul_80_7 as modified by revrul_87_52 to the facts if the wife did in fact have a separate interest in the overpayment the service should refund this amount to the wife and take the necessary steps to recover the same amount from the husband however the information you submitted indicates that the wife had no earned_income and made no payments toward the joint tax_liability we note that under the revrul_80_7 formula the wife may not have a separate interest in the overpayment if you have any further questions please contact andrew keyso pincite- heather c maloy s george j blaine by george j blaine chief branch cc


t c memo united_states tax_court lloyd d shepherd petitioner v commissioner of internal revenue respondent docket no filed date timothy patrick assaf for petitioner russell d pinkerton and peter reilly for respondent memorandum opinion armen special_trial_judge this matter is before the court on respondent's motion for summary_judgment filed pursuant to rule as explained in greater detail below we will grant respondent's motion unless otherwise indicated all section references are to the internal_revenue_code as amended and all rule references are to the tax_court rules_of_practice and procedure background respondent issued a notice_of_deficiency to lloyd d shepherd petitioner determining deficiencies in and additions to his federal income taxes for the taxable years and in the amounts as follows additions to tax sec sec sec year deficiency a a dollar_figure dollar_figure dollar_figure dollar_figure big_number dollar_figure -- dollar_figure big_number dollar_figure -- dollar_figure big_number dollar_figure -- dollar_figure big_number dollar_figure -- dollar_figure big_number dollar_figure -- dollar_figure the notice_of_deficiency includes an explanation that in the absence of adequate_records respondent reconstructed petitioner's taxable_income for the years in issue based upon an indirect method of proof petitioner invoked this court's jurisdiction by filing a timely petition for redetermination respondent filed a timely answer to the petition respondent subsequently served petitioner with a request for admissions with attached exhibits pursuant to rule a and filed the same with the court pursuant to rule b petitioner failed to respond to respondent's request for admissions as a consequence each matter set forth therein is deemed admitted at the time that the petition was filed petitioner resided at union city indiana pursuant to rule c 926_f2d_197 2d cir affg tcmemo_1990_315 85_tc_267 81_tc_644 the following is a summary of the matters that petitioner is deemed to have admitted pursuant to rule c petitioner was pastor of the cornerstone baptist church in union city indiana during the taxable years through petitioner did not file income_tax returns for the taxable years through petitioner had taxable_income in the amount sec_3 rule states in pertinent part a scope and time of request a party may serve upon any other party a written request for the admission for purposes of the pending action only of the truth of any matters which are not privileged and are relevant to the subject matter involved in the pending action but only if such matters are set forth in the request and relate to statements or opinions of fact or of the application of law to fact including the genuineness of any documents described in the request c response to request each matter is deemed admitted unless within days after service of the request or within such shorter or longer time as the court may allow the party to whom the request is directed serves upon the requesting party a written answer specifically admitting or denying the matter involved in whole or in part or asserting that it cannot be truthfully admitted or denied and setting forth in detail the reasons why this is so or an objection stating in detail the reasons therefor of dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure and dollar_figure during the taxable years and respectively petitioner is liable for deficiencies in income_tax in the amounts of dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure and dollar_figure for the taxable years and respectively petitioner is also deemed to have admitted pursuant to rule c the following matters petitioner has provided no reasonable_cause for his failure_to_file income_tax returns for the taxable years through petitioner is liable for the additions to tax pursuant to sec_6651 for each of the years in issue as determined in the notice_of_deficiency petitioner has provided no basis for his failure to pay estimated_taxes for the taxable years through petitioner is liable for the additions to tax pursuant to sec_6654 for each of the years in issue as determined in the notice_of_deficiency petitioner's failure_to_file his tax_return for is due to negligence or disregard of rules or regulations petitioner is liable for the addition_to_tax pursuant to sec_6653 for the taxable_year as determined in the notice_of_deficiency as indicated respondent filed a motion for summary_judgment seeking judgment in respondent's favor on all issues respondent contends that the matters deemed admitted in this case pursuant to rule c establish that petitioner is liable for the deficiencies and the additions to tax as determined by the respondent in the notice_of_deficiency on date the court issued an order calendaring respondent's motion for hearing and directing petitioner to file a response to respondent's motion by date the order also included a reminder to the parties of the applicability of rule c petitioner failed to file a response to respondent's motion respondent's motion was called for hearing at the motions session of the court held in washington d c on date counsel for respondent appeared at the hearing and presented argument in support of the motion no appearance was entered by or on behalf of petitioner nor did petitioner file a statement with the court pursuant to rule c discussion summary_judgment is intended to expedite litigation and avoid unnecessary and expensive trials 90_tc_678 summary_judgment is appropriate if the pleadings answers to interrogatories depositions admissions and any other acceptable materials together with the affidavits if any show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law rule b 98_tc_518 affd 17_f3d_965 7th cir 90_tc_753 85_tc_527 rule d states that when a motion for summary_judgment is made and supported as provided in this rule an adverse_party may not rest upon the mere allegations or denials of such party's pleading but such party's response by affidavits or as otherwise provided in this rule must set forth specific facts showing that there is a genuine issue for trial if the adverse_party does not so respond then a decision if appropriate may be entered against such party see 87_tc_1213 the moving party however bears the burden of proving that there is no genuine issue of material fact and factual inferences will be read in a manner most favorable to the party opposing summary_judgment 85_tc_812 79_tc_340 summary_judgment is appropriate where the facts deemed admitted pursuant to rule c support a finding that there is no genuine issue as to any material fact 81_tc_644 based upon our review of the record and as a consequence of petitioner's failure to respond to respondent's motion for summary_judgment we are satisfied that there is no genuine issue of material fact and that respondent is entitled to judgment as a matter of law the deficiencies determined by respondent in this case arise from a reconstruction of petitioner's taxable_income because of petitioner's failure to provide respondent with adequate_records or file income_tax returns for the taxable years in issue the factual allegations deemed admitted by petitioner under rule c establish petitioner received taxable_income during the years in issue in the amounts determined in the notice_of_deficiency petitioner failed to establish reasonable_cause for his failure_to_file income_tax returns and has provided no basis for his failure to pay estimated_taxes during the years in issue petitioner is liable for the addition_to_tax pursuant to sec_6653 for the taxable_year and petitioner is liable for the deficiencies and additions to tax for the years in issue as determined by respondent in the notice_of_deficiency in sum the factual allegations deemed admitted by petitioner under rule c establish that respondent's determinations with respect to petitioner's liabilities for the deficiencies and additions to tax for the taxable years through are correct and we so hold in the absence of any dispute as to a material fact in this case we will grant respondent's motion for summary_judgment to reflect the foregoing an order granting respondent's motion for summary_judgment and decision will be entered


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division jul 200e uniform issue list x e ra ty legend taxpayer a individual b company m ira x roth_ira y ira z date date amount amount e o page dear this is in response to the date letter submitted by your authorized representative as supplemented by correspondence dated date and date in which you request relief under sec_301_9100-3 of the procedure and administration regulations the following facts and representations support your ruling_request taxpayer a maintained ira x an individual_retirement_arrangement described in sec_408 of the internal_revenue_code taxpayer a met with individual b a company m on date adateinlate investment consultant for a portfolio review individual b advised taxpayer a at that time that she should sell certain mutual funds that were held in taxable accounts and that she should also convert ira x to a roth_ira at no time did individual b inform - taxpayer a of the adjusted_gross_income agi limit found at sec_408a of the code which if exceeded would cause taxpayer a to be ineligible to convert a traditional_ira to a roth_ira in in fact taxpayer a disclosed her entire financial position to individual b at this meeting including the fact that she expected to have ag of around dollar_figure without any further taxable transactions and individual b still recommended that taxpayer a sell certain mutual funds that unbeknownst to taxpayer a would cause her agi to exceed the agi limit based on the recommendation of individual b on date taxpayer a converted ira x to a roth_ira account roth_ira y taxpayer a also sold mutual funds in ‘which generated capital_gains of amount which when added to taxpayer a’s wages taxable interest and dividend income caused taxpayer a to exceed the agi limit found at sec_408a of the code at the time of the conversion and throughout calendar_year that she was qualified to make the conversion described above under code sec_408a taxpayer a believed for _ taxpayer a timely filed her calendar_year federal_income_tax return form and taxpayer a used a popular commercial software program to prepare her federal_income_tax returns taxpayer a first became aware that she was ineligible to convert to a roth_ira in federal_income_tax return in april - that was generated by her tax_return software every year represented income_tax due as a result of the roth_ira_conversion spread out ratably over a 4-year period she was unaware that this tax was actually an excise_tax due to the improper conversion however she timely filed such form with her returns and paid the applicable taxes up until this point taxpayer a had believed that the form while preparing her federal_income_tax and page this ruling_request was submitted before the internal_revenue_service discovered the failure to recharacterize on date a date on or before date taxpayer a recharacterized roth_ira y as a traditional_ira ira z also on date taxpayer a filed an amended federal_income_tax return seeking to correct her payment of the excise_tax the amended ‘ federal_income_tax return seeks a refund of amount originally paid as excise_tax on the improper roth_ira_conversion on the theory that the roth_ira has been recharacterized back to a traditional_ira based on the above you through your authorized representative request the following letter_ruling - that pursuant to sec_301_9100-3 of the regulations taxpayer a’s recharacterization of her roth_ira roth_ira y to a traditional_ira ira z was valid and timely made and therefore taxpayer a will be treated for federal_income_tax purposes as if she had never converted ira x into a roth_ira with respect to your request for relief under sec_301_9100-3 of the regulations sec_408a of the internal_revenue_code and sec_1_408a-5 of the income_tax regulations provide that except as otherwise provided by the secretary a taxpayer may elect to recharacterize an ira contribution made to one type of ira as having been made to another type of ira by making a trustee-to-trustee transfer of the ira contribution plus earnings to the other type of ira in a recharacterization the ira contribution is treated as having been made to the transferee ira and not the transferor ira under sec_408a and sec_1 408a- this recharacterization election generally must occur on or before the date prescribed by law including extensions for filing the taxpayer's federal_income_tax returns for the year of contributions sec_1_408a-5 of the regulations question and answer-6 describes how a taxpayer makes the election to recharacterize the ira contribution to recharacterize an amount that has been converted from a traditional_ira to a roth_ira the taxpayer must notify the roth_ira trustee of the taxpayer's intent to recharacterize the amount the taxpayer must provide the trustee and the transferee trustee if different from the transferor trustee with specified information that is sufficient to effect the recharacterization and the trustee must make the transfer code sec_408a provides in relevant part that an individual with adjusted_gross_income in excess of dollar_figure big_number for a taxable_year is not permitted to make a qualified_rollover_contribution to a roth_ira from an individual_retirement_plan other than a roth_ira during that taxable_year page sec_1_408a-4 q a-2 provides in summary that an individual with modified_adjusted_gross_income in excess of dollar_figure big_number for a taxable_year is not permitted to convert an amount to a roth_ira during that taxable_year sec_301_9100-1 sec_301_9100-2 and sec_301_9100-3 of the procedure and administration regulations in general provide guidance concerning requests for relief submitted to the service on or after date sec_301 c of the regulations provides that the commissioner of the internal_revenue_service in his discretion may grant a reasonable extension of the time fixed by a regulation a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin for the making of an election or application_for relief in respect of tax under among others subtitle a of the code sec_301_9100-2 lists certain elections for which automatic extensions of time to file are granted sec_301_9100-3 of the regulations generally provides guidance with respect to the granting of relief with respect to those elections not referenced in sec_301_9100-2 the relief requested in this case is not referenced in sec_301 sec_301_9100-3 of the regulations provides that applications for relief that fall within sec_301_9100-3 will be granted when the taxpayer provides sufficient evidence including affidavits described in sec_301 -9100-3 e to establish that the taxpayer acted reasonably and in good_faith and granting relief would not prejudice the interests of the government sec_301_9100-3 of the regulations provides that a taxpayer will be deemed to have acted reasonably and in good_faith i if its request for sec_301_9100-1 relief is filed before the failure to make a timely election is discovered by the service ii if the taxpayer inadvertently failed to make the election because of intervening events beyond the taxpayer's control iii if the taxpayer failed to make the election because after exercising reasonable diligence the taxpayer was unaware of the necessity for the election iv the taxpayer reasonably relied upon the written advice of the service or v the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election sec_301_9100-3 of the regulations provides that ordinarily the interests of the government will be treated as prejudiced and that ordinarily the service will not grant relief when tax years that would have been affected by the election had it been timely made are closed by the statute_of_limitations before the taxpayer's receipt of a ruling granting relief under this section announcement 1994_24_irb_50 date provided that a taxpayer who timely filed his her federal_income_tax return would have until date page to recharacterize an amount that had been converted from a traditional_ira to a roth_ira announcement r b date provided that a taxpayer who timely filed his her federal_income_tax return would have until date to recharacterize an amount that had been converted from a traditional ra to a roth_ira taxpayer a timely filed her federal_income_tax return as a result she was eligible for relief under either announcement or announcement however she missed the deadlines found in said announcements therefore it is necessary to determine if she is eligible for relief under the provisions of sec_301_9100-3 of the regulations - in this case taxpayer a was ineligible to convert her ira x to roth_ira y since her’ adjusted_gross_income exceeded dollar_figure however until she discovered otherwise taxpayer a believed that she was eligible to convert her ira x to a roth_ira taxpayer a filed this request for sec_301 relief shortly after discovering that she was ineligible to convert ira x to a roth_ira and as noted above before the service discovered her failure to comply with the announcements referenced above with respect to your request for relief we believe that based on the information submitted and the representations contained herein the requirements of sec_301_9100-1 and sec_301_9100-3 of the regulations have been met and that you have acted reasonably and in good_faith with respect to making the election to recharacterize your roth_ira as a traditional_ira specifically the service has concluded that you have met the requirements of clauses i and ili of sec_301 -9100-3 b of the regulations further we believe that granting relief will not prejudice the interests of the government although calendar_year is now a closed tax_year the taxpayer had already taken all necessary actions to recharacterize her roth_ira and amend her federal_income_tax return on date on date calendar_year tax_year this ruling merely validates the recharacterization that was performed on date and does not attempt to give the taxpayer the ability to otherwise engage in subsequent transactions affecting calendar_year therefore we conclude that your recharacterization of your roth_ira roth_ira y toa traditional_ira ira z was valid and timely made and therefore you will be treated for federal_income_tax purposes as if you had never converted ira x into a roth_ira in ‘was not yet a closed no opinion is expressed as to the tax treatment of the transaction described herein 200241u58 page under the provisions of any other section of either the code or regulations that may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent this letter_ruling assumes that all of the iras referenced herein will meet the requirements of either code sec_408 or code sec_408a to the extent applicable at all times relevant thereto this ruling letter was prepared by be contacted at oo of this group he may pursuant to a power_of_attorney on file with this office a copy of this ruling letter is being sent to your authorized representative o sincerely yours s qe prakes alan c pipkin manager technical group employee_plans


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 b06 plr-117570-10 date date legend parent ------------------------------- --------------------------------------------------------- -------------------------------------------------- distributing -------------------------------------------------------- -------------------------------------------------- -------------------------------------------------------- x --------------------------------- sub -------------------------------------------------------- -------------------------------------------- sub sub ------------------------------- ------------------------------------------------------------- -------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------- -------------------------------- sub ------------------------------------ controlled -------------------------------------------------------- -------------------------------------------------- -------------------------------------------------------------------- plr-117570-10 distributing business ------------------------------------------------------ --------------------------------------------------- controlled business ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ dollar_figurex ------- dear -------------- this letter responds to your date letter from your authorized representatives requesting rulings on certain federal_income_tax consequences of a proposed transaction additional information was received in letters dated may july and date the information provided in those letters is summarized below the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party 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 in particular this office has not reviewed any information pertaining to and has made no determination regarding whether the spin-off described below i satisfies the business_purpose requirement of sec_1_355-2 of the income_tax regulations ii is used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation the controlled_corporation or both see sec_355 of the internal_revenue_code and sec_1_355-2 or iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in the distributing_corporation or the controlled_corporation see sec_355 and sec_1_355-7 facts parent is the common parent of an affiliated_group_of_corporations that file a consolidated federal_income_tax return parent group parent owns all of the common_stock of distributing sub sub sub and sub sub owns all of the stock of controlled controlled common_stock distributing is engaged in the distributing business and controlled is engaged in the controlled business distributing has outstanding common_stock distributing common_stock and preferred_stock distributing preferred_stock the distributing preferred_stock consists of dollar_figurex par_value cumulative preferred_stock cumulative preferred_stock and no par_value cumulative preferred_stock no par_value cumulative preferred_stock plr-117570-10 all shares of cumulative preferred_stock constitute one class of stock and all shares of no par_value cumulative preferred_stock constitute one class of stock by the time of the spin-off described below distributing will have changed its name to x this letter will continue to refer to the entity as distributing financial information submitted by distributing indicates that the distributing separate_affiliated_group distributing sag and the controlled separate_affiliated_group controlled sag have each had gross_receipts and operating_expenses representative of the active_conduct_of_a_trade_or_business for each of the past five years proposed transaction for what the parties to the transaction represent are valid business reasons distributing has proposed the following transaction proposed transaction i sub and sub will each merge into distributing with each transaction intended to qualify as a reorganization within the meaning of sec_368 with distributing as the surviving corporation mergers distributing will succeed to all of the assets and assume all of the liabilities of sub and sub including all the controlled common_stock held by sub no shares of distributing common_stock will be issued in the mergers all shares of sub and sub common_stock will be cancelled for no consideration parent will contribute its shares of sub preferred_stock to sub immediately prior to the mergers all other outstanding shares of sub preferred_stock will be converted into new shares of cumulative preferred_stock ii distributing will distribute all of the controlled common_stock to parent spin-off iii parent will contribute all of the controlled common_stock received in the spin-off to sub continuing relationships upon completion of the proposed transaction the distributing sag and the controlled sag will have various continuing relationships as described in the submission representations the following representations are made in connection with the spin-off a indebtedness if any owed by controlled to distributing immediately after the spin- off will not for u s federal_income_tax purposes constitute stock_or_securities plr-117570-10 b no part of the consideration to be distributed by distributing will be received by parent as a creditor employee or in any capacity other than that of a shareholder of distributing c the five years of financial information submitted on behalf of the distributing sag is representative of the distributing sag’s present operation and its operations over the past five years and with regard to the distributing sag there have been no substantial operational changes since the date of the last financial statements submitted d the five years of financial information submitted on behalf of the controlled sag is representative of the controlled sag’s present operation and its operations over the last five years and with regard to the controlled sag there have been no substantial operational changes since the date of the last financial statements submitted e following the spin-off the distributing sag and the controlled sag will each continue the active_conduct of their respective businesses independently and with their separate employees except that each will continue to share in certain administrative support services provided to members of the parent group by sub f the spin-off is being carried out for the corporate business_purpose of reducing distributing’s borrowing costs and improving access to the credit markets of both distributing and controlled and is motivated in whole or substantial part by this corporate business_purpose g the spin-off is not used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both h distributing neither accumulated its receivables nor made extraordinary payment of its payables in anticipation of the spin-off i no indebtedness between distributing and its subsidiaries and controlled and its subsidiaries has been or will be cancelled in connection with the spin-off j no intercorporate debt will exist at the time of or subsequent to the spin-off k immediately before the spin-off items of income gain loss deduction and credit will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d 1995_32_irb_6 and as currently in effect sec_1_1502-13 as published by t d further distributing’s excess_loss_account if any with respect to the controlled stock will be included in income immediately before the spin-off see sec_1_1502-19 plr-117570-10 l payments made in connection with any continuing transactions between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm's length or as provided by applicable regulatory authorities governing such transactions m no parties to the transaction are investment companies as defined in sec_368 and iv n for purposes of sec_355 immediately after the spin-off no person determined after applying sec_355 will hold stock possessing 50-percent or more of the total combined voting power of all classes of distributing stock entitled to vote or 50-percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the spin-off o for purposes of sec_355 immediately after the spin-off no person determined after applying sec_355 will hold stock possessing 50-percent or more of the total combined voting power of all classes of controlled stock entitled to vote or 50-percent or more of the total value of shares of all classes of controlled stock that was either acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the spin-off or attributable to distributions on distributing stock_or_securities that were acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the spin-off p the spin-off is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor of any such corporation q immediately after the spin-off neither distributing nor controlled will be a disqualified_investment_corporation within the meaning of sec_355 r parent distributing controlled sub sub and sub will each pay its own expenses if any incurred in connection with the proposed transaction s at the time of the spin-off distributing will not have an excess_loss_account in the controlled stock within the meaning of sec_1_1502-19 rulings based on the information submitted and the representations provided we rule as follows with respect to the spin-off plr-117570-10 no gain_or_loss will be recognized by and no amount will be included in the income of parent on the spin-off sec_355 no gain_or_loss will be recognized by and no amount will be included in the income of distributing on the spin-off sec_361 the aggregate basis of the distributing and of the controlled stock in the hands of parent will equal the aggregate basis of the stock of distributing held immediately before the spin-off allocated between the stock of distributing and controlled in proportion to the fair_market_value of each in accordance with sec_1 a sec_358 and c the holding_period of the controlled stock received by parent will include the holding_period of the distributing stock with respect to which the distribution is made provided such distributing stock is held as a capital_asset by parent on the date of the spin-off sec_1223 earnings_and_profits will be allocated between distributing and controlled in accordance with sec_312 and sec_1_312-10 and sec_1_1502-33 caveats no opinion is expressed about the tax treatment of the proposed transaction under other provisions of the code or regulations or the tax treatment of any condition existing at the time of or effects resulting from the proposed transaction that is not specifically covered by the above rulings in particular no opinion is expressed regarding i whether the distribution satisfies the business_purpose requirement of sec_1_355-2 ii whether the distribution is used principally as a device for the distribution of the earnings_and_profits of distributing or the controlled corporations or both see sec_355 and sec_1_355-2 or iii whether the distribution is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in distributing or either of the controlled corporations see sec_355 and sec_1_355-7 additionally no opinion is expressed about the tax treatment of steps i and iii of the proposed transaction 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 copies of this letter are being sent to your authorized representatives plr-117570-10 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 richard m heinecke assistant to the branch chief branch office of associate chief_counsel corporate


office_of_chief_counsel internal_revenue_service memorandum number release date cc tege eoeg et1 postn-137530-07 uilc date date to director submission processing cincinnati oh attn entity unit 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 became a rail carrier employer under the jurisdiction of 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 ----------------------------------became a rail carrier under the jurisdiction of the railroad_retirement_tax_act effective ------------------ the date it received by transfer the assets and operating_agreement rights of ------------------ ------------------- a rail carrier please take the appropriate action regarding this business _______________________ janine cook cc


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si plr-107990-99 date date company state current shareholders plr-107990-99 m n p q r a b c d e this letter responds to a letter from your authorized representative dated date as well as subsequent correspondence submitted on behalf of company requesting a ruling under sec_1362 of the internal_revenue_code that the termination of company's s_corporation_election was inadvertent company represents the following plr-107990-99 facts company was incorporated under the laws of state on a and elected under sec_1362 to be an s_corporation effective that same date company’s s election terminated on b when it issued shares to m an ineligible shareholder under sec_1361 between c and d company issued shares to four more ineligible shareholders n p q and r company represents that at the time these shares were issued it was unaware that m n p and q were ineligible to be s_corporation shareholders company’s counsel at the time failed to advise it of this violation of the code company inadvertently issued shares to r when it had intended to issue the stock to a individual member of r it was on e when its accountants were preparing its tax_return for the most recent tax_year that company first became aware that its s election had terminated immediately thereafter upon advice of counsel company rescinded its issuance of stock to the ineligible shareholders except as provided in sec_1362 sec_1362 provides that a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1361 provides that for purposes of subchapter_s the term small_business_corporation means a domestic_corporation that is not an ineligible_corporation and that does not among other things have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1361 provides that for purposes of sec_1361 an organization that is a described in sec_401 or sec_501 and b is exempt from taxation under sec_501 may be a shareholder in an s_corporation effective for tax years beginning after date sec_1362 provides that an election under sec_1362 terminates whenever the corporation ceases to be a small_business_corporation sec_1362 provides that if an election under sec_1362 by any corporation was terminated under sec_1362 or the secretary determines that the circumstances resulting in termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in termination steps were taken so that the corporation is a small_business_corporation and the plr-107990-99 corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make the adjustments consistent with the treatment of the corporation as an s_corporation as might be required by the secretary regarding this period then notwithstanding the circumstances resulting in termination the corporation shall be treated as an s_corporation during the period specified by the secretary sec_1_1362-4 of the income_tax regulations provides that the determination of whether a termination was inadvertent is made by the commissioner the corporation has the burden of establishing that under the relevant facts and circumstances the commissioner should determine that the termination was inadvertent the fact that the terminating event was not reasonably within the control of the corporation and was not part of a plan to terminate the election or the fact that the event took place without the knowledge of the corporation notwithstanding its due diligence to safeguard itself against such an event tends to establish that the termination was inadvertent according to the legislative_history of sec_1362 f -- if the internal_revenue_service determines that a corporation's subchapter_s_election is inadvertently terminated the service can waive the effect of the terminating event for any period if the corporation timely corrects the event and if the corporation and the shareholders agree to be treated as if the election had been in effect for such period the committee intends that the internal_revenue_service be reasonable in granting waivers so that corporations whose subchapter_s eligibility requirements have been inadvertently violated do not suffer the tax consequences of a termination if no tax_avoidance would result from the continued subchapter_s treatment in granting a waiver it is hoped that taxpayers and the government will work out agreements that protect the revenues without undue_hardship to taxpayers for example if a corporation in good_faith determined that it had no earnings_and_profits but it is later determined on audit that its election terminated by reason of violating the passive_income test for three consecutive years because the corporation in fact did have accumulated earnings if the shareholders were to agree to treat the earnings as distributed and include the dividends in income it may be appropriate to waive the terminating events so that the election is treated as never terminated it is expected that the waiver may be made retroactive for all years or retroactive for the period in which the corporation again became eligible for subchapter_s treatment depending on the facts plr-107990-99 s rep no 97th cong 2d sess 1982_2_cb_718 after applying the applicable law and regulations to the facts and representations of this ruling_request we conclude that the termination of company’s s_corporation_election due to having an ineligible shareholder was inadvertent within the meaning of sec_1362 consequently we rule that company will be treated as continuing to be an s_corporation from b to the present unless company's s election otherwise is terminated under sec_1362 except for the specific ruling above no opinion is expressed or implied concerning the federal_income_tax consequences of the facts of this case under any other provision of the code specifically no opinion is expressed regarding company's eligibility to be an s_corporation in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative this ruling is directed only to the taxpayer who requested it according to sec_6110 this ruling may not be used or cited as precedent sincerely william p o'shea chief branch office of assistant chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes