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 b3 plr-129207-17 date date legend x a b_trust trust trust trust state date date date date date date date -------------------------- ------------------------- ------------------------ ------------------ --------------------------------------------------- ---------------------------------------------- ------------------------------------------------------- -------------------------------------------------- -------------- ------------------------ ----------------- -------------------- -------------------- ----------------------- ----------------------- --------------------------- plr-129207-17 dear -------------- this letter responds to a letter dated date submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code code the information submitted states that x was incorporated under the laws of state on date and elected to be an s_corporation effective date on date a created trust and then transferred shares of x stock to trust a revocable_trust treated as a wholly-owned grantor_trust under sec_671 and sec_676 on date b created trust and transferred shares of x stock to trust a revocable_trust treated as a wholly-owned grantor_trust under sec_671 and sec_676 on date b died trust pursuant to its terms transferred its shares of x to trust on date on date a died trust pursuant to its terms transferred its shares of x to trust on date x represents that trust and trust intended to be a qualified subchapter_s trusts qsst described in sec_1361 as of date and date respectively however the income_beneficiary of trust failed to make a qsst election within the meaning of sec_1361 for trust consequently x’s s_corporation_election terminated on date if x’s s_corporation_election had not already terminated on date it would have terminated on date because trust failed to qualify as a qsst because of a_trust provision inconsistent with qsst status and the income_beneficiary failed to make a qsst election for trust on date x redeemed all of its shares held by trust and trust x represents that all circumstances resulting in the termination of its s_corporation_election were inadvertent and not motivated by tax_avoidance further since date x and x’s shareholders have continually treated x as an s_corporation as such all items of income gain loss and deduction recognized by x since date have been allocated among the shareholders of x x and its shareholders agreed to make such adjustments consistent with the treatment of x as an s_corporation as may be required by the secretary sec_1361 provides that the term small_business_corporation means a domestic_corporation which is not an ineligible_corporation and which does not have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1361 provides that in the case of a qsst for which a beneficiary makes an election under sec_1361 the trust is treated as a_trust described in plr-129207-17 sec_1361 and for purposes of sec_678 the beneficiary of the trust shall be treated as the owner of that portion of the trust that consists of stock in an s_corporation with respect to which the election under sec_1361 is made sec_1361 provides that a beneficiary of a qsst may elect to have sec_1361 apply sec_1_1361-1 provides that the current income_beneficiary of a qsst must make the election under sec_1361 by signing and filing with the service_center with which the corporation files its income_tax returns the applicable form or a statement including the information listed in sec_1_1361-1 sec_1362 provides that a in general an election under sec_1362 shall be terminated whenever at any time on or after the first day of the first taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation and b any termination under sec_1362 shall be effective on and after the date of cessation sec_1362 provides in part that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in the ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in the ineffectiveness or termination the corporation will be treated as an s_corporation during the period specified by the secretary based solely on the facts submitted and the representations made we conclude that x’s s_corporation_election terminated on date when the x stock was transferred to trust because of the failure of the beneficiary of trust to make the required qsst election with respect to the trust we further conclude that this termination of x’s s_corporation_election was an inadvertent termination within the meaning of sec_1362 moreover had x’s s_corporation_election not already terminated on date it would have terminated on date when the stock was transferred to trust because of a_trust provision inconsistent with qsst status and the income beneficiary’s failure to make a qsst election for trust similarly this would have been an inadvertent termination within f accordingly pursuant to the provisions of sec_1362 x will be treated as continuing to be an s_corporation from date and thereafter provided x’s s_corporation_election was valid and not otherwise terminated under sec_1362 plr-129207-17 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x is a small_business_corporation under sec_1361 or whether trust and trust were eligible to be treated as qssts within the meaning of sec_1361 the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file a copy of this letter is being sent to x’s authorized representative sincerely bradford r poston special counsel to the associate chief_counsel office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c july cc intl br3 genin-125445-10 o f f i c e o f t h e c h i e f c o u n s e l number release date uil ---------------------- ------------------------------------------ ------------------------------------------- ---------------------- dear ------------------- this letter responds to your authorized representative’s request for information dated date regarding whether the salvadoran withholding_tax that is imposed only where the recipient’s country of residency grants a foreign_tax_credit is a creditable tax under sec_901 and the regulations under that section in response to your inquiry we are providing the following general information this information_letter is advisory only and has no binding effect on the internal_revenue_service article of the salvadoran law provides financial institutions domiciled outside of el salvador that have had qualifications granted by the central reserve bank during and that on the effective date of this law the countries states or territories in which they are domiciled do not provide in their internal laws with legal means to eliminate the respective double_taxation or that have not enacted and ratified conventions with el salvador to avoid the double_taxation of the income_tax that allows them to effectively eliminate the double_taxation for the tax paid on the interest for debt instruments given in the country either by way of fiscal credit or exemption will continue to enjoy the exemption of the income_tax and obtaining annual qualifications from the central reserve bank until the countries states or territories in which the referenced financial institutions are domiciled have in their laws legal means to eliminate the double_taxation or enacted and ratified conventions to avoid the double_taxation of the income_tax with the republic of el salvador genin-125445-10 sec_901 allows a credit against u s income_tax for the amount of any income war profits or excess profits taxes paid_or_accrued during the taxable_year to any foreign_country sec_901 whether a levy is an income_tax within the meaning of sec_901 and the regulations under that section is determined by two tests whether it is a tax and whether its predominant character is that of an income_tax in the u s sense treas reg ' sec_1_901-2 and sec_1_901-2a the predominant character of a foreign levy will be that of an income_tax if the levy reaches net gain in the normal circumstances to which it applies but only to the extent that liability for the tax is not dependent on the availability of a credit for the tax against tax_liability to another country treas reg ' a liability for foreign tax is dependent on the availability of a credit for the foreign tax against income_tax_liability to another country only if and to the extent that the foreign tax would not be imposed on the taxpayer but for the availability of such a credit treas reg ' c if the foreign tax is only imposed in this situation the foreign levy is called a soak-up_tax example of sec_1_901-2 illustrates a situation where the withholding_tax imposed by a foreign_country is increased from to on royalties paid to residents of a foreign_country which allows its residents a foreign_tax_credit for taxes paid to another country the additional is considered a soak-up_tax and therefore is not an income_tax sec_903 allows a credit against u s income_tax for an amount of tax paid_or_accrued to a foreign_country in lieu of an income_tax otherwise generally imposed by the foreign_country under sec_1_903-1 a foreign levy is in lieu of an income_tax only if it is a tax and meets the substitution requirement of sec_1_903-1 sec_1_903-1 provides that a foreign tax meets the substitution requirement only to the extent that the liability for the foreign tax is not dependent by its terms or otherwise on the availability of a credit for the foreign tax against the income_tax_liability to another country accordingly a foreign_income_tax or a tax in lieu of an income_tax that is dependent by its terms or otherwise on the availability of a u s foreign_tax_credit as appears to be the case with the salvadoran withholding_tax is a soak-up_tax for which no u s foreign_tax_credit is allowed genin-125445-10 this letter has called your attention to certain general principles of the law it is intended for informational purposes only and does not constitute a ruling see revproc_2010_1 sec_2 2010_1_irb_7 date in accordance with the provisions of a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative if you have any additional questions please contact our office at -------------------- sincerely barbara a felker chief branch office of the associate chief_counsel international cc ---------------------------- --------------------------------------- ------------------------------------------ --------------------------------


department of the treasury internal_revenue_service washington d c contact person identification_number telephone number employer_identification_number se t eo ra t tax_exempt_and_government_entities_division number release date date date uil egend i o i o t i q g x n i a e w u o a u n u o n o s this is in response to your ruling_request as to the effects of the transfer of assets from a and b to c ais an organization described in sec_501 of the internal_revenue_code and classified as an organization described in sec_509 and sec_170 of the code a has a valid dissolution clause in accordance with sec_1_501_c_3_-1 of the income_tax regulations a is a_trust that distributes financial aid for charitable purposes to z and their dependents that reside in d for charitable purposes a also administers restricted funds under the terms of f’s program for charitable purposes within the meaning of sec_501 of the code f is an organization described in sec_501 b is an organization described in sec_501 of the code and classified as an organization described in sec_509 and sec_170 of the code c is an organization described in sec_501 of the code and is classified as a supporting_organization under sec_509 of the code c supports g an organization exempt from federal_income_tax under sec_501 of the code in order to reduce administrative expenses amongst the organizations a reorganization occurred amongst a b and c as part of the reorganization a and b agreed to terminate their operations a’s trustees agreed to transfer all of its funds to c which includes restricted funds of x to be used in accordance with the terms of f’s program previously carried on by a b’s trustees also agreed to transfer all of its funds to c without any restrictions the proposed reorganization will also increase the number of beneficiaries that will benefit from c’s exempt purposes c upon obtaining a favorable private_letter_ruling will change its name and comply with a's requested restriction on specific funds to be used only for the purposes allowed by f a b and c have requested the following rulings the termination of a and the conditional distribution of a portion of its assets to c with specific instructions to c restricting the use of these assets only for the purposes allowed by f that would allow c to continue participating in f program will not jeopardize a’s tax-exempt status under sec_501 of the code the termination of a and the distribution of the remaining portion of its assets with no restrictions as to the use of those assets to c will not jeopardize a’s tax-exempt status under sec_501 of the code the termination of b and the distribution of its assets to the c will not jeopardize the tax-exempt status of b under sec_501 of the code the acceptance of cash assets by c from a which contain restrictions as to the use of the conditionally transferred cash assets by c and c’s agreement to comply with these restrictions will not jeopardize the tax-exempt status of c under sec_501 of the code the acceptance of cash assets by c from a and b with no restrictions as to the use of those assets will not jeopardize c’s tax-exempt status under sec_501 or its non-private foundation classification under sec_170 of the code law sec_501 of the internal_revenue_code exempts from taxation organizations described in subsection c which includes corporations organized and operated exclusively for charitable and educational_purposes furthermore the aforementioned subsection requires that no part of the organization's net_earnings inure to the benefit of any private_shareholder_or_individual that no substantial part of its activities is to influence legisiation and that it does not participate in any political campaign on behalf of or in opposition to any candidate for public_office sec_1_501_c_3_-1 of the income_tax reguiations provides that an organization's articles of organization must limit its purposes to one or more exempt purposes sec_1_501_c_3_-1 of the regulations provides than an organization is not organized exclusively for one or more exempt purposes if its articles expressly empower it to carry on otherwise than as an insubstantial part of its activities activities that are not in furtherance of one or more exempt purposes sec_1_501_c_3_-1 of the regulations provides than an organization's assets will be considered dedicated to an exempt_purpose for example if upon dissolution such assets would by reason of a provision in the organization's articles be distributed for one or more exempt purposes rationale in order for a and b to be described in sec_501 of the code each organization must satisfy the organizational and operational_test when an organization dissolves it must ensure that its assets are being transferred for exclusively exempt within the meaning of sec_501 of the code see sec_1_501_c_3_-1 of the regulations the transfer of funds by a to c a sec_501 of the code organization furthers sec_501 purposes because the unrestricted and restricted funds held by a were previously used for sec_501 purposes and will be used by c for sec_501 purposes a's transfer was in accordance with its dissolution provision as set forth in sec_1_501_c_3_-1 of the regulations the transfer of funds by b to c further sec_501 purposes because the funds held by b were previously used for sec_501 purposes and will be used by c for sec_501 purposes b’s transfer was in accordance with its dissolution provision as set forth in sec_1_501_c_3_-1 of the regulations the restructuring of a and b and the transfer of assets to c will not adversely affect c's exempt status under sec_501 c will perform the same as a performed with respect to the funds restricted by f that are consistent with its exempt purposes c is also receiving some unrestricted funds from a and b that will use to further its own exempt purposes under sec_501 of the code ruling therefore we rule as follows the termination of a and distribution of a portion of its assets to c with specific instructions to c restricting the use of these assets only for the purposes allowed by e that would allow c to continue participating in f’s relief fund program will not jeopardize a’s tax-exempt status under sec_501 of the code the termination of a and the distribution of the remaining portion of its assets with no restrictions as to the use of those assets to c will not jeopardize a’s tax-exempt status under sec_501 of the code the termination of b and the distribution of its assets to c will not jeopardize the tax- exempt status of b under sec_501 of the code the acceptance of cash assets by c from a which contain restrictions as to the use of the transferred cash assets and c’s agreement to comply with these restrictions will not jeopardize the tax-exempt status of c under sec_501 of the code the acceptance of cash assets by c from a and b with no restrictions as to the use of those assets will not jeopardize c’s tax-exempt status under sec_501 or its non-private foundation classification under sec_170 of the code 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 if you disagree with our proposed deletions you should follow the instructions in notice 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 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 sincerely steven grodnitzky manager exempt_organizations technical group enclosure notice


t c memo united_states tax_court sylvia osterbauer and estate of joseph osterbauer deceased sylvia osterbauer personal representative petitioners v commissioner of internal revenue respondent docket no filed date don c st peter for petitioners thomas e ritter for respondent memorandum findings_of_fact and opinion fay judge by statutory_notice_of_deficiency respondent determined a deficiency of dollar_figure in the federal_income_tax of joseph osterbauer now deceased decedent and sylvia osterbauer petitioner the issue for decision1 is whether petitioners are entitled to deduct in a worthless_debt as a business_bad_debt under sec_166 or are limited to a deduction for a nonbusi- ness bad_debt under sec_166 we hold that the debt is a nonbusiness_bad_debt and therefore petitioners are limited to a short-term_capital_loss findings_of_fact some of the facts have been stipulated and are so found we incorporate by this reference the stipulation of facts and attached exhibits petitioner resided in hamilton montana on the date the petition was filed decedent passed away on date prior to the date on which the petition was filed petitioner filed the petition on her own behalf and as personal representa- tive for the estate of her husband joseph osterbauer peti- tioner and decedent filed a joint federal tax_return for the tax_year 1there is an issue raised by the pleadings of whether petitioners realized a dollar_figure gain on the repossession of certain property during petitioners have offered no evidence on this issue and have not raised it on brief so we conclude they have abandoned it 2all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated decedent during his lifetime worked primarily in the real_estate business decedent was involved in subdividing and developing real_estate as well as building and purchasing residential_rental_property petitioner testified that decedent's interests were broad based and at various times in his life he was also a farmer and held an interest in an oil well and a gold mining claim petitioner presented no evidence except for her own self-serving testimony that would indicate the exact breadth of decedent's various interests outside the scope of his general real_estate business petitioner spent much of her time at home with her four children however she had some limited involvement in the family real_estate business petitioner assisted decedent in book- keeping chores and showed rental properties to prospective tenants as vacancies arose in decedent became involved in a gold mining venture international mining research_and_development inc interna- tional mining international mining was a montana corporation whose purpose was to engage in mining activities petitioner and decedent were among five investors in international mining petitioner and decedent contributed four subdivided residential lots for a 20-percent stake in international mining some of the other investors contributed some money to the project however others contributed instead their expertise international mining was supposed to use the funds contributed by its investors to buy and develop gold mining_property because decedent had a good reputation in missoula montana he was asked by the other investors to serve as president of international mining he accepted the post despite being president decedent had no daily involvement in the business of international mining nor did he have operating control_over the business of international mining international mining needed additional capital shortly after it was formed in order to continue operations international mining attempted to secure a loan from the first state bank of stevensville montana the bank however the bank was unwilling to make such a loan the bank did lend dollar_figure on date to decedent and warren e meader another international mining investor to secure the loan the bank required that decedent pledge his personally owned cessna airplane as collateral mr meader put up stock as collateral the loan proceeds were contributed to international mining international mining entered into a resolution on date pledging proceeds from sales for repayment of the dollar_figure promissory note drawn by joseph d osterbauer and warren e meader in favor of first state of stevensville bank said promissory note in 3it is unclear from the record whether any gold mining properties were ever bought by international mining lieu of pledge has been secured_by personal assets of joseph d osterbauer by date international mining had ceased operations all of the other investors disappeared and decedent was left to wind up the affairs of international mining in order to pay off the dollar_figure loan to the bank petitioner and decedent rolled over the dollar_figure loan with other personal loans and refinanced the loans by the rollover in other words they consolidated the loan with other personal loans and refinanced the loans by consolidation petitioner testified at trial that upon investi- gation it was found that the stock put up by mr meader as collateral had no value the consolidated loan was eventually paid off by the sale of decedent's cessna aircraft opinion we must decide whether petitioner's and decedent's payments of international mining's debts are deductible as business or nonbusiness bad_debts under sec_166 it is undisputed that petitioner and decedent suffered a loss on the worthlessness of the debt due them from international mining sec_166 provides in relevant part as follows sec_166 general_rule -- wholly worthless debts --there shall be allowed as a deduction any debt which becomes worthless within the taxable_year d nonbusiness debts -- general_rule --in the case of a taxpayer other than a corporation-- a subsections a and c shall not apply to any nonbusiness_debt and b where any nonbusiness_debt becomes worthless within the taxable_year the loss resulting therefrom shall be considered a loss from the sale_or_exchange during the taxable_year of a capital_asset held for not more than months nonbusiness_debt defined --for purposes of paragraph the term nonbusiness_debt means a debt other than-- a a debt created or acquired as the case may be in connection with a trade_or_business of the taxpayer or b a debt the loss from the worthless- ness of which is incurred in the taxpayer's trade_or_business under sec_166 if a debt arose in the course of the taxpayer's trade_or_business a loss is deductible against ordinary_income in the year in which the debt becomes worthless sec_1_166-9 income_tax regs however under sec_166 where a debt is a nonbusiness_bad_debt a loss must be treated as a short-term_capital_loss subject_to the limita- tions of sec_1211 under sec_1_166-9 income_tax regs a payment by a taxpayer in discharge of his or her obligations as a guarantor is treated as a business_bad_debt if the guaranty is entered into in the course of the taxpayer's trade_or_business if however the guaranty is entered into as a transaction for profit but not in the course of the taxpayer's trade or busi- ness the regulation provides that the discharging payment is a nonbusiness_bad_debt sec_1_166-9 income_tax regs the question of whether a debt is a business or nonbusiness_bad_debt is essentially a question of fact the resolution of which depends upon whether the debt is proximately related to the trade_or_business of the taxpayer sec_1_166-5 income_tax regs in determining whether a bad_debt had a proximate relation to the taxpayer's trade_or_business the supreme court has stated that the proper measure is the dominant motivation of the taxpayer in making the loan 405_us_93 the taxpayer's motive is assessed at the time the guaranty was made 590_f2d_884 10th cir petitioner first argues that had decedent not agreed to secure a loan for international mining the corporation would have failed negatively affecting petitioner's and decedent's business dealings in the community petitioner argues that the dominant motivation in making the loan was to protect the real_estate business petitioner offers only her own testimony to support this argument and offers no facts that suggest that when international mining did fail any of the real_estate business interests were negatively affected petitioner and decedent next contend that their dominant motivation in lending the money to international mining was to protect their good name in the community where they lived petitioner and decedent argue that failing to pay off the debt would have soured their relationship with the bank which held the mortgage on some of their real_estate projects petitioner and decedent presented no evidence to support this claim other than petitioner's testimony to that effect moreover while petitioner and decedent contend that forcing the bank to foreclose on its collateral the cessna airplane would have soured their relationship with the bank the parties have stipulated that the debt was in fact fully paid with the proceeds of the sale of the cessna plane petitioner and decedent presented no evidence that had the bank been forced to foreclose on this debt their real_estate business would have been adversely affected there is no evidence to support petitioner's and decedent's contention that the bank would have called all of petitioner's and decedent's outstanding loans if the bank had foreclosed on this loan petitioners contend on brief that the size of their invest- ment in international mining is a factor tending to show that their dominant motive in guaranteeing the debt was a business one petitioners' reliance on 983_f2d_997 10th cir and 503_f2d_1291 10th cir to support their contention that the size of petitioner's and decedent's investment is persuasive evidence of petitioners' motive is misplaced petitioners assert that where the investment is relatively small a dominant business motive is more likely petitioners appear to arrive at this conclusion from language in litwin stating that a court is more likely to find a nonbusiness loan where the taxpayer's investment is relatively large the taxpayer's salary is relatively small and the taxpayer's other sources of income are relatively large litwin v united_states supra pincite it does not follow that a small investment is more likely to be made in a taxpayer's trade_or_business the court in litwin referring to a situation where three factors existed a large investment a small salary and large alternative sources of income concluded that in that instance a nonbusiness motive is more likely the court did not say that independent of all other factors size of investment alone will be determinative furthermore even should we accept petitioners' statement as true petitioners have put forth no evidence as to the value of the four parcels of land that petitioner and decedent contributed to international and thus we do not know the size of their investment in order to determine a taxpayer's dominant motivation it is often helpful to determine how the taxpayer would have benefited if the loan had not gone bad when the creditor or guarantor of a corporate debt is a shareholder investor and also an employee mixed motives for the loan or guaranty are often present and the critical issue becomes which motive is dominant id pincite in the case at bar petitioners would have bene- fited in that the value of their stock in international mining would have gone up or dividends could have been paid to them the increase in value of stock is the type of capital increase that suggests a nonbusiness motive see 373_us_193 petitioner and decedent argue further that their investment in international mining a gold mining venture is proximately related to their business of subdividing and developing rental real_estate we find that it is not petitioner and decedent were merely investors in this corporation gold mining was not a real_estate venture of the type that would be considered to be part of petitioners' trade_or_business mining is quite different from general real_estate ventures and petitioners have failed to put forth sufficient evidence such that we could conclude that they engaged in a trade_or_business so broad as to encompass mining i nvesting is not a trade_or_business id pincite this venture was an investment unrelated to petitioner's and dece- dent's trade_or_business therefore we hold that petitioner's and decedent's loans to international mining which became worthless are nonbusiness bad_debts within the meaning of sec_166 decision will be entered under rule


department of the treasury internal_revenue_service p o box irs cincinnati oh number release date uil number dear date date employer id number contact person id number contact telephone number form you must file tax years this letter is our final_determination that you don’t qualify for tax-exempt status under sec_501 of the internal_revenue_code the code recently we sent you a proposed adverse determination in response to your application the proposed adverse determination explained the facts law and basis for our conclusion and it gave you days to file a protest because we didn’t receive a protest within the required days the proposed determination is now final because you don’t qualify as a tax-exempt_organization under sec_501 of the code donors can’t deduct contributions to you under sec_170 of the code you must file federal_income_tax returns for the tax years listed at the top of this letter using the required form also listed at the top of this letter within days of this letter unless you request an extension of time to file we’ll make this final adverse determination_letter and the proposed adverse determination_letter available for public inspection as required under sec_6110 of the code after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in the notice on how to notify us if you agree with our deletions you don’t need to take any further action we'll also notify the appropriate state officials of our determination by sending them a copy of this final letter and the proposed determination_letter under sec_6104 of the code you should contact your state officials if you have questions about how this determination will affect your state responsibilities and requirements letter rev catalog number 47632s if you have questions about this letter you can contact the person listed at the top of this letter if you have questions about your federal_income_tax status and responsibilities call our customer service number pincite-829-1040 tty for deaf or hard of hearing or customer service for businesses pincite-829-4933 sincerely stephen a martin director exempt_organizations rulings and agreements enclosures notice redacted letter proposed adverse determination under sec_501 redacted letter final adverse determination under sec_501 - no protest letter rev catalog number 47632s department of the treasury internal_revenue_service cincinnati oh legend b state c date d individuals dear date date employer id number contact person id number contact telephone number contact fax number uil we considered your application_for recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code the code based on the information provided we determined that you don’t qualify for exemption under sec_501 of the code this letter explains the basis for our conclusion please keep it for your records issues do you qualify for exemption under sec_501 of the code no for the reasons stated below facts you submitted form 1023-ez streamline application_for recognition of exemption under sec_501 of the internal_revenue_code your application was selected for further development and detailed information was requested supplemental to the form 1023-ez according to your articles of incorporation articles you were formed in the state of b on c to operate and maintain historical sic cemetary sic for the benefit of burial plots contained therein your articles are silent regarding the disposition of your assets upon your dissolution we informed you that your articles did not meet the organizational_test under sec_501 of the code and you attested that you had amended the purpose and dissolution of your articles to include the necessary provisions as required under sec_501 you were established to operate and maintain a cemetery for the benefit of the direct descendants of d there shall be no discrimination in the permitting of lots including selecting permitting or family favoritism the cemetery is located on about a quarter of an acre of land and it is not owned by you you said that the current landowner has stated that due to this being a historical burial site they are hoping to one day sell this cemetery parcel you hope to purchase this piece of land to continue the mourning of your family members that have passed this is a burial site only for family with family documentation going back several hundred years it has been used to help preserve local family and regional history activities at the cemetery may vary from visits burials masses and even cleaning based on weather vegetation and need at a minimum two site cleanings a year take place as well as quarterly meetings there are no employees or paid staff the cemetery and all burials require volunteer time from others within the family with an abundance of history and loved ones on site a family representative is frequently there you shall establish rules and regulations for the use and maintenance of the cemetery your board will consist of seven volunteer members they will determine the location of graves capacity of lots the type of plantings monuments and markers that will be permitted and will keep accurate record of permitted and available lots a maintenance program shall be established for the care of the cemetery and management in according with the u s department of agriculture’s policies and procedures no deceased person shall be entered in to the cemetery until a board member has found that the burial permit has been obtained from the public health office as required_by_law the burial use permit for the cemetery has been paid to the u s department of agriculture the person being buried has the burial rights to such lot as approved by the u s department of agriculture such lot is not beyond its capacity and the proper record is made of the name and age of the deceased person and the exact location of the grave you will charge no fees for available lots in the cemetery you said that family is currently supported by family and loved ones in the burial process this includes site preparation and placement of the remains the board will keep records and an official map or plan of the cemetery in addition to any permit fees any person company or entity which desires a permit to open and close graves in the cemetery shall execute an indemnification agreement holding the board harmless from any and all damages resulting from permit activities within the cemetery you will have a cemetery maintenance fund for the maintenance and care of the cemetery the treasurer will be responsible for the fund the board may determine all amounts paid into or which become part of the cemetery maintenance fund may be invested or reinvested by the treasurer in a manner that is allowable by law law sec_501 of the code provides in part for the exemption from federal_income_tax organizations organized and operated exclusively for charitable religious or educational_purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 states that in order to be exempt as an organization described in sec_501 of the code 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 sec_1_501_c_3_-1 states that in order to meet the operational_test 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 letter rev catalog number 47630w sec_1_501_c_3_-1 defines charitable as including the following purposes relief of the poor and distressed or of the underprivileged advancement of religion advancement of education or science erection or maintenance of public buildings monuments or works lessening of the burdens of government and promotion of social welfare by organizations designed to accomplish any of the above purposes or i to lessen neighborhood tensions ii to eliminate prejudice and discrimination iii to defend human and civil rights secured_by law or iv to combat community deterioration and juvenile delinquency in better business bureau of washington d c inc v united_states 326_us_179 the supreme court held that the presence of a single non-exempt purpose if substantial in nature will destroy a claim for exemption under sec_501 of the code regardless of the number or importance of truly exempt purposes application of law in order to qualify for exemption as described in sec_501 of the code you must be both organized and operated exclusively for one or more of the purposes specified in such section as explained in sec_1_501_c_3_-1 you are not operating exclusively for exempt purposes described under sec_501 rather your sole activity is operating and maintaining a family cemetery to satisfy the operational_test under sec_1_501_c_3_-1 an organization must establish that it is operated exclusively for one or more exempt purposes you were formed for the sole non-exempt purpose of operating and maintaining a family cemetery your activities are not charitable as defined in sec_1_501_c_3_-1 because your activities do not further sec_501 purposes you do not qualify for exemption as stated in better business bureau of washington d c inc the presence of a single non-exempt purpose if substantial in nation will destroy a claim for exemption under sec_501 since operating a family cemetery does not further sec_501 purposes you do not qualify for exemption under sec_501 conclusion based on the information submitted you are not operating exclusively for exempt purposes within the meaning of sec_501 of the code your only activity is operating a family cemetery therefore you do not qualify for exemption under sec_501 if you don’t agree you have a right to file a protest if you don’t agree with our proposed adverse determination to do so you must send a statement to us within days of the date of this letter the statement must include e e e e your name address employer_identification_number ein and a daytime phone number acopy of this letter highlighting the findings you disagree with anexplanation of why you disagree including any supporting documents the law or authority if any you are relying on letter rev catalog number 47630w e e the signature of an officer director trustee or other official who is authorized to sign for the organization or your authorized representative one of the following declarations for an officer director trustee or other official who is authorized to sign for the organization under penalties of perjury i declare that i examined this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete for authorized representatives under penalties of perjury i declare that i prepared this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete your representative attorney certified_public_accountant or other individual enrolled to practice_before_the_irs must file a form_2848 power_of_attorney and declaration of representative with us if he or she hasn’t already done so you can find more information about representation in publication practice_before_the_irs and power_of_attorney we'll review your protest statement and decide if you provided a basis for us to reconsider our determination if so we'll continue to process your case considering the information you provided if you haven’t provided a basis for reconsideration we’ll forward your case to the office of appeals and notify you you can find more information about the role of the appeals_office in publication how to appeal an irs decision on tax- exempt status if you don’t file a protest within days you can’t seek a declaratory_judgment in court at a later date because the law requires that you use the irs administrative process first sec_7428 of the code where to send your protest please send your protest statement form_2848 if needed and any supporting documents to the applicable address u s mail street address for delivery service internal_revenue_service eo determinations quality assurance room p o box cincinnati oh internal_revenue_service eo determinations quality assurance main street room cincinnati oh you can also fax your statement and supporting documents to the fax number listed at the top of this letter if you fax your statement please contact the person listed at the top of this letter to confirm that he or she received it letter rev catalog number 47630w if you agree if you agree with our proposed adverse determination you don’t need to do anything if we don’t hear from you within days we’ll issue a final adverse determination_letter that letter will provide information on your income_tax filing_requirements you can find all forms and publications mentioned in this letter on our website at www irs gov formspubs if you have questions you can contact the person listed at the top of this letter sincerely stephen a martin director exempt_organizations rulings and agreements enclosure publication letter rev catalog number 47630w


t c memo united_states tax_court ion and paulina semen petitioners v commissioner of internal revenue respondent docket no 11577-09l filed date ion and paulina semen pro sese robert h berman for respondent memorandum findings_of_fact and opinion vasquez judge pursuant to sec_6330 petitioners seek review of respondent’s appeals office’s appeals determination to treat petitioners’ outstanding federal_income_tax liabilities for and as currently not all section references are to the internal_revenue_code and all rule references are to the tax_court rules_of_practice and procedure collectible cnc and to not proceed with collection activity the issues for decision are whether petitioners are liable for failure to timely pay additions to tax under sec_6651 for and and whether appeals’ determination constitutes an abuse_of_discretion findings_of_fact there are no stipulations of facts however respondent’s exhibits 1-r through 6-r and petitioners’ exhibit 7-p were received in evidence and are incorporated herein by this reference petitioners resided in california at the time they filed their petition petitioners’ and tax years previously were before the court on petitions for redetermination of deficiencies on date the court entered a stipulated decision setting forth an agreed-upon deficiency in petitioners’ federal_income_tax of dollar_figure and an addition_to_tax pursuant to sec_6651 of dollar_figure on date the court entered a stipulated decision setting forth an agreed-upon deficiency in petitioners’ federal_income_tax of dollar_figure and an addition_to_tax pursuant to sec_6651 of dollar_figure both stipulated decisions stated that interest would be assessed on the deficiencies and additions to tax as provided by law in date respondent assessed petitioners’ and federal_income_tax liabilities in the amounts stated in the decision documents respondent then mailed to petitioners statutory notices of balance due covering the foregoing assessments notice_and_demand letter petitioners did not pay their liabilities and in date respondent mailed to petitioners a final notice_of_intent_to_levy and notice of your right to a hearing levy notice the levy notice included an account summary showing that petitioners owed late payment penalties of dollar_figure and dollar_figure the levy notice explained that petitioners had a right to request a hearing with appeals to challenge the proposed collection action and to discuss payment method options by submitting form request for a collection_due_process or equivalent_hearing petitioners timely submitted form on which mr semen stated the decision made by the united_states tax_court on the amount owed for and does not match what the i r s has sent to me i am asking that they fix it the u s tax_court decision also states there is no penalty due on date appeals sent to petitioners a letter with copies of the stipulated decisions for and and petitioners’ account transcripts for and appeals and petitioners held a telephone conference to discuss the proposed collection activity petitioners argued the late payment penalties referred to in the account summary were failure to timely pay additions to tax under sec_6651 that the stipulated decisions for and stated that they were not liable for a penalty yet the account summary included with the levy notice showed that petitioners owed late payment penalties petitioners did not offer any collection alternatives however appeals analyzed petitioners’ financial situation and determined that their and liabilities were eligible for cnc status on date appeals sent to petitioners a letter informing them that respondent added only the sec_6651 penalties petitioners agreed to the letter also explained the possibility of cnc status and asked petitioners whether they would accept this option petitioners did not respond and appeals issued a notice_of_determination stating that petitioners’ liabilities would be treated as cnc and levy action was not appropriate petitioners then filed a petition with the court stating that they disagree with interest and penalty appeals determined that petitioners’ monthly expenses exceeded their monthly income by dollar_figure appeals calculated petitioners’ income by averaging the amounts of income reported on petitioners’ and federal_income_tax returns it is not clear whether appeals explained to petitioners why they were liable for the sec_6651 additions to tax with respect to petitioners’ disagreement with interest it is not clear whether petitioners are arguing that interest should begin to accrue on the date they signed the decision documents and not from the date petitioners’ and tax_liabilities were originally due see sec_6601 e b or whether petitioners feel that no interest should be continued opinion sec_6330 provides that the secretary shall furnish taxpayers with written notice of their right to a hearing before any property is levied upon sec_6330 and b further provides that the taxpayer may request administrative review of the matter in the form of a hearing within a 30-day period pursuant to sec_6330 a taxpayer may raise at the sec_6330 hearing any relevant issue with regard to the commissioner’s collection activities including spousal defenses challenges to the appropriateness of the commissioner’s intended collection action and alternative means of collection 114_tc_604 114_tc_176 if a taxpayer received a statutory_notice_of_deficiency for the years in issue or otherwise had the opportunity to dispute the underlying tax_liability the taxpayer is precluded from challenging the existence or amount of the underlying tax_liability sec_6330 sego v commissioner supra pincite goza v commissioner supra pincite the phrase underlying tax_liability includes the tax continued charged at trial the court explained to petitioners that they had agreed to the assessments of interest by signing the stipulated decisions the court also explained that congress determines when interest begins to accrue and at what rate not the court or the commissioner deficiency additions to tax penalties and statutory interest 115_tc_329 petitioners received notices of deficiency for and challenged the commissioner’s determinations for each year before the court and agreed to the stipulated decisions for each year accordingly they cannot challenge the existence or amount of the underlying liabilities for the years at issue see sec_6330 sego v commissioner supra pincite goza v commissioner supra pincite with respect to the sec_6651 additions to tax however petitioners did not have a prior opportunity to dispute that determination thus petitioners were entitled to challenge the sec_6651 additions to tax during the sec_6330 hearing and to litigate them here see burke v commissioner tcmemo_2009_282 where the validity of the underlying tax_liability is properly at issue the court will review the matter de novo sego v commissioner supra pincite goza v commissioner supra pincite the court reviews any other administrative determination regarding the proposed levy action for abuse_of_discretion sego v commissioner supra pincite goza v commissioner supra pincite appeals abuses its discretion if its determination has been exercised arbitrarily capriciously or without sound basis in fact 91_tc_1079 i petitioners’ liability for the sec_6651 additions to tax sec_6651 imposes an addition_to_tax in the case of a failure to pay a tax required to be shown on a return which was not so shown within days after the date of the irs’ notice_and_demand letter the commissioner has the burden of production with respect to a taxpayer’s liability for the addition_to_tax sec_7491 to meet that burden respondent must come forward with sufficient evidence indicating that it is appropriate to impose the addition_to_tax see 116_tc_438 petitioners failed to pay the tax required to be shown on their and returns within days after the date of the irs’ notice_and_demand for payment therefore respondent has met his burden however the sec_6651 addition_to_tax is not imposed if the taxpayer proves that the failure to pay is due to reasonable_cause and not willful neglect sec_301_6651-1 proced admin regs reasonable_cause is shown if the taxpayer exercised ordinary business care and prudence in providing for payment of his tax_liability and was nevertheless either unable to pay the tax or would suffer an undue_hardship if he paid on the due_date sec_301_6651-1 proced admin regs whether the taxpayer has shown reasonable_cause is a question of fact to be decided on the entire record duncan v commissioner tcmemo_2000_269 we believe petitioners’ failure to timely pay is due to reasonable_cause and not willful neglect at the time petitioners’ and tax_liabilities became due petitioners’ monthly expenses as adjusted by appeals exceeded their monthly income by dollar_figure petitioners were therefore unable to pay the tax_liabilities on the due dates and would have suffered an undue_hardship if they had significantly this inability to pay is the reason appeals treated petitioners’ outstanding liabilities as cnc accordingly we find that petitioners are not liable for the sec_6651 additions to tax ii whether appeals abused its discretion petitioners did not argue that appeals abused its discretion in treating petitioners’ liabilities as cnc and determining that collection activity should not proceed nor did they offer any other collection alternatives in making its determination appeals verified that the requirements of all applicable law and administrative procedure had been met under these circumstances appeals did not abuse its discretion when it determined that petitioners’ liabilities should be reported as cnc and collection activity should not proceed to reflect the foregoing an appropriate decision will be entered


internal_revenue_service uil number release date cc dom p si 7--plr-103367-99 date re legend decedent ssn son ssn daughter ssn grandchildren son’s children daughter’s children trust ein trustees corporate trustee court state date date date date date dear we received your letter dated submitted on behalf of trustees requesting a ruling concerning the proper application of the generation-skipping_transfer gst tax under sec_2601 et seq of the internal_revenue_code to an exempt trust with a non-general power_of_appointment this letter responds to that request the taxpayer represents that the facts are as follows decedent executed a last will and testament on date the decedent’s will created a_trust for the benefit of decedent’s spouse if decedent’s spouse predeceased decedent spouse’s trust was to be divided into two equal trusts for decedent’s children and their lineal_descendants decedent’s spouse died on date on date the court in state adjudicated decedent mentally incompetent decedent died on date decedent was survived by son daughter and grandchildren all of whom are still living under article eighth paragraph i subparagraph b of decedent’s will decedent directs that the principal of the residuary_trust as it is then constituted shall be divided into two equal shares article eight paragraph i subparagraph b b further provides that one of the equal shares trust shall be held as one fund for and during the lifetime of son the trustees are required to pay the net_income from the share held for son at such time or times and in such amounts and proportions as the corporate trustee in its sole discretion shall deem advisable to or for the benefit of son and or son’s children the subparagraph also provides that the decedent’s trustees will be under no duty to equalize disbursements of income and or principal from this share of the trust to or for the benefit of the beneficiaries thereof for it is the decedent’s intent to specifically authorize by the terms of this subparagraph unequal distributions as made in the sole discretion of decedent’s corporate trustee article eighth paragraph i subparagraph b b provides that upon the death of son during the continuance of this trust for son’s benefit trustees shall pay and distribute the principal of this share of the trust as son shall appoint and direct by specific reference to this power_of_appointment in son’s last will and testament provided however any appointment or direction to son to son’s estate to son’s creditors or to the creditors of son’s estate shall in all respects be null and void in default of the valid exercise of this limited_power_of_appointment herein given or in the event son is not living at the time for the creation of this separate trust the principal of this share of the residuary_trust as it is then constituted shall be divided into as many equal shares as there are children of son living at the time for this division and children of son then deceased with issue then surviving article eighth paragraph ii provides that notwithstanding anything to the contrary herein contained upon the expiration of twenty-one years following the death of the survivor of all the beneficiaries herein named or described who are living at my death any trust remaining hereunder shall terminate and the principal shall be transferred and delivered to the persons then entitled to the income on date son exercised the power_of_appointment granted to son in decedent’s will in behalf of son’s spouse children and grandchildren by specific reference to the power_of_appointment in son’s last will and testament article b of son’s will provides that the trustees shall pay the net_income from the trust to or for the benefit of son’s wife during her life in convenient installments not less frequently than quarter- annually together with so much principal if any as the corporate trustee in its sole discretion deems advisable for her health maintenance and support in her accustomed manner of living after giving consideration to the prior utilization of other assets and sources of income readily available to her article c of son’s will provides that upon his wife’s death or upon son’s death if son’s wife does not survive son the trustee shall divide the trust corpus of the trust for the family of son into such number of equal shares as son has children then living and deceased children with issue then living the share of each such deceased child shall be distributed as provided in article c below the share of each living child shall be held in a separate trust under the following provisions article c provides that the trustees shall pay so much income of the trust to or for the benefit of son’s child and son’s child’s issue or any of them in such proportions and at such times as the corporate trustee acting alone and in its sole discretion shall deem advisable and so much principal as the corporate trustee shall deem advisable for their health maintenance and support in their accustomed manner of living and complete education any undistributed_income shall be added to principal and invested as such article c provides that upon the death of any of son’s children prior to the termination of his or her trust or upon son’s wife’s death should a child have survived son but predeceased son’s wife the trustee shall distribute the remaining trust corpus to any one or more beneficiaries other than the child’s estate or the creditors of child’s estate in such proportions and subject_to such trusts and conditions as such child shall appoint by specific reference to this power in his or her will provided however that this power_of_appointment shall not be exercised in any manner which might postpone or suspend the vesting absolute ownership or power of alienation of an interest in property for a period extending beyond the date of such child’s death plus a period of twenty-one years each of such children having been alive at the death of decedent who died on date if such power is not exercised in full the unappointed portion or the portion for the living issue of a child of son who has predeceased son shall be distributed to such child’s then living issue per stirpes and if the child has no such living issue to son’s then living issue per stirpes provided however any portion of such principal which would be distributable to any beneficiary for whom a_trust is then held hereunder shall be added to such trust and subject if applicable to the trust continuation provisions of this will trustees request a ruling that son’s exercise of the testamentary_power_of_appointment in favor of son’s spouse for life then to son’s children for life and then to son’s grandchildren not extending beyond the period of perpetuities with respect to the death of decedent does not constitute a constructive_addition to the residuary_trust and therefore does not affect the gst tax exempt status of the trust under gst tax regulation sec_26_2601-1 law sec_2041 provides in part that the value of the gross_estate shall include the value of all property-- to the extent of any property with respect to which the decedent has at the time of his death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released such a power_of_appointment by a disposition which is of such nature that if it were a transfer of property owned by the decedent such property would be includible in the decedent’s gross_estate under sec_2035 to inclusive for purposes of sec_2041 the power_of_appointment shall be considered to exist on the date of the decedent’s death even though the exercise of the power is subject_to a precedent giving of notice or even though the exercise of the power takes effect only on the expiration of a stated period after its exercise whether or not on or before the date of the decedent’s death notice has been given or the power has been exercised sec_2041 provides in part that the term general_power_of_appointment means a power which is exercisable in favor of the decedent his estate his creditors or the creditors or his estate sec_20_2041-1 of the estate_tax regulations provides that a power_of_appointment is not a general_power_of_appointment if by its terms it is either-- a exercisable only in favor of one or more designated persons or classes other than the decedent or his creditors or the decedent’s estate or the creditors of his estate or b expressly not exercisable in favor of the decedent or his creditors or the decedent’s estate or the creditor’s of his estate sec_2601 imposes a tax on every generation-skipping_transfer within the meaning of subchapter_b sec_26_2601-1 of the generation-skipping_transfer_tax regulations provides that except as otherwise provided in sec_26 the provisions of chapter of the internal_revenue_code_of_1986 code apply to any generation-skipping_transfer as defined in sec_2611 made after date sec_26_2601-1 provides that the tax does not apply to any generation-skipping_transfer under a_trust as defined in sec_2652 that was irrevocable on date the rule_of the preceding sentence does not apply to a pro_rata portion of any generation-skipping_transfer under an irrevocable_trust if additions are made to the trust after date sec_26_2601-1 provides that except as provided in sec_26_2601-1 property includible in the gross_estate under sec_2038 or c property includible in the gross_estate under sec_2042 any trust in existence on date is considered an irrevocable_trust sec_26_2601-1 provides that if an individual was under a mental_disability to change the disposition of his or her property continuously from date until the date of his or her death the provisions of chapter do not apply to any generation-skipping_transfer -- a under a_trust as defined in sec_2652 to the extent that the trust consists of property or the proceeds of property the value of which was included in the gross_estate of the individual other than property transferred by or on behalf of the individual during the individual's life after date or b which is a direct_skip other than a direct_skip from a_trust that occurs by reason of the death of an individual sec_26_2601-1 provides that the term mental_disability means mental incompetence to execute an instrument governing the disposition of the individual’s property whether or not there was an adjudication of incompetence and regardless of whether there has been an appointment of a guardian fiduciary or other person charged with the care of the individual or the care of the individual’s property sec_26_2601-1 provides that if there has not been a court adjudication that the decedent was mentally incompetent on or before date the executor must file with form_706 either-- a certification from a qualified physician stating that the decedent was-- i mentally incompetent at all times on and after date and ii did not regain competence to modify or revoke the terms of the trust or will prior to his or her death or sufficient other evidence demonstrating that the decedent was mentally incompetent at all times on and after date as well as a statement explaining why no certification is available from a physician and any judgment or decree relating to the decedent’s incompetency that was made after date sec_26_2601-1 provides that such items will be considered relevant but not determinative in establishing the decedent’s state of competency sec_26 b iv provides that if the decedent has been adjudged mentally incompetent on or before date a copy of the judgment or decree and any modification thereof must be filed with the form_706 sec_2611 defines the term generation-skipping_transfer as a taxable_distribution a taxable_termination and a direct_skip sec_26_2611-1 provides that a generation-skipping_transfer is an event that is either a direct_skip a taxable_distribution or a taxable_termination the determination as to whether an event is a generation-skipping_transfer is made by reference to the most recent transfer subject_to the estate or gift_tax sec_2612 provides that the term taxable_termination means the termination by death lapse of time release of power or otherwise of an interest in property held in a_trust unless a immediately after the termination a non- skip_person has an interest in the property or b at no time after the termination may a distribution including distributions on termination be made from the trust to a skip_person sec_2612 provides that the term taxable_distribution means any distribution from a_trust to a skip_person other than a taxable_termination or a direct_skip sec_2612 provides that the term direct_skip means a transfer subject_to a tax imposed by chapter or of an interest in property to a skip_person sec_2613 provides that the term skip_person means-- a natural_person assigned to a generation which i sec_2 or more generations below the generation assignment of the transferor or a trust-- a if all interests in the trust are held by skip persons or b if-- i there is no person holding an interest in the trust and ii at no time after such transfer may a distribution including distributions on termination be made from the trust to a non-skip_person in this case trust is a generation-skipping_trust because trust provides for distributions to persons that are two or more generations below the decedent’s generation the trustees represent however that the trust is exempt from the gst tax under sec_26_2601-1 because the decedent was under a mental_disability at all times on and after date through the date of her death whether decedent was under a mental_disability at all times on and after date is an issue to be determined by the director district with audit jurisdiction over decedent's federal estate_tax_return accordingly this letter does not address that issue based on the information submitted and the representations made we conclude that if the decedent was mentally incompetent as of date within the meaning of sec_26_2601-1 through decedent’s death on date son’s exercise of the testamentary limited_power_of_appointment in favor of son’s spouse for life then to son’s children for life and then to son’s grandchildren not extending beyond the period of perpetuities stated in decedent’s will does not constitute a constructive_addition to the trust therefore the son’s exercise of the testamentary limited_power_of_appointment does not affect the gst tax exempt status of the trust under sec_26_2601-1 if no other actual or constructive additions are made to trust trust will retain its tax exempt status except as ruled above we express or imply no opinion concerning the federal tax consequences of this transaction under the cited provisions or any other provision of the code this letter_ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours christine e ellison christine e ellison branch chief branch office of the assistant chief_counsel passthroughs and special industries


internal_revenue_service index number department of the treasury washington dc person to contact telephone number refer reply to co dom corp ate date - plr-113132-99 date a dear we respond to a letter from your authorized representative dated date requesting that we supplement our letter rulings dated date plr-11958-97 the prior letter_ruling and date plr-111623-98 the prior supplemental letter_ruling additional information was submitted on september october and date the information submitted for consideration is summarized below capitalized terms retain the meaning assigned to them in the prior letter_ruling the taxpayer requested a private_letter_ruling for a proposed transaction consisting of an initial_public_offering of controlled stock the ipo followed by the distribution of the controlled stock held by distributing to distributing s shareholders on a pro-rata basis the spin-off’ based on the facts submitted and representations made the prior letter_ruling was issued however a change in market conditions caused the taxpayer to restructure the proposed transaction to complete the spin-off prior to the ipo the taxpayer requested a supplemental letter_ruling that the revised transaction would not affect the earlier rulings based on the facts submitted and the taxpayer's representation that it would complete the public offering within twelve months of the distribution the prior supplemental letter_ruling was issued consistent with the prior letter_ruling and prior supplemental letter_ruling distributing completed the spin-off on date a however the ipo of controlled stock has not been completed and more than twelve months has passed since the spin-off in its request for a second supplemental letter_ruling the taxpayer explained that unanticipated sustained unfavorable market conditions for companies of controlled's type have caused controlled to postpone indefinitely a public offering of its stock controlled’s investment bankers analyzed market conditions and recommended that controlled satisfy its need for additional capital through other means accordingly the taxpayer requests a second supplemental letter_ruling confirming the rulings in the prior letter_ruling based on either the unanticipated sustained unfavorable market conditions or a fit and focus business_purpose in the prior letter_ruling request the taxpayer made the following representation e the distribution of the stock of the controlled_corporation is carried out for the following corporate business purposes i to permit the managements of the distributing and controlled corporations to focus on their respective core businesses ii to improve the near term earnings_of the distributing_corporation by eliminating from the distributing corporation’s results of operations the expenses associated with developing the controlled corporation's business b iii to permit the financial community to focus separately on the distributing_corporation and the controlled_corporation and iv to enable the controlled_corporation to have greater access to capital to finance its business the distribution of the stock of the controlled_corporation is motivated in whole or substantial part by these corporate business purposes information concerning business_purpose i submitted by the taxpayer in its first request as supplemented by additional submissions in connection with this ruling demonstrate that under the organizational structure of the corporation prior to the distribution of controlled the taxpayer was unable to pursue effectively the strategies necessary to enhance its performance the two different businesses required distributing's management to implement two distinct and incompatible strategies to operate each business successfully the taxpayer has substantiated its business_purpose analysis that both business a and business b would benefit from the separation based upon the information and representations submitted with the original and supplemental ruling requests we reaffirm the rulings set forth in the prior letter_ruling provided that the spin-off on date a is not being examined by a district_director no opinion is expressed concerning the federal_income_tax treatment of the transactions under other provisions of the code or regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the transactions that are not specifically covered by the above rulings this supplemental letter_ruling 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 a copy of this letter should be attached to the federal_income_tax returns of the taxpayers involved for the taxable_year in which the transaction covered by this supplemental jetter ruling was consummated in accordance with the power_of_attorney on file in this office copies of this letter are being sent to your authorized representatives sincerely yours assistant chief_counsel corporate by mark s jennings acting chief branch


number release date id office uilc cca_2009013012274850 ----------------------- 409a from ------------------------ sent friday date pm to ------------------------------------------------ cc -------------------- subject fw counsel's position attached are our proposed changes to the email you regarding the case we discussed recently there are a few minor deletions that i was unable to figure out how to show so please compare this to the original if you have any questions please contact --------or myself i will be on vacation next week so please contact --------during that week thanks ------------------------- in the case we discussed recently our arguments are as follows accordingly all participants in the plan would be required to include the the doctrine_of constructive receipt applies to the salary advances that the taxpayer made to the recipients of the same advances available to the participant in the earliest open_year in which such amount was available even if not paid and the amount would be subject_to income_tax_withholding at such time as a constructive_payment even if there was no constructive receipt advances which the recipient is expected to earn out through future services are taxed as compensation at the time of receipt accordingly these advances would be included in the recipients’ income in the year of their receipt we are assuming that the employment_tax exception we recently discussed applies to all of the salary advance recipients therefore it is our position that there are no employment_tax issues present in this matter alternatively assuming that the doctrine_of constructive receipt does not apply to the salary advances the taxpayer’s salary advance program is problematic because it causes the taxpayer’s nonqualified_deferred_compensation_plan plan to fail to comply with sec_409a the salary advance program as currently implemented causes the plan to fail because it allows the salary advance recipients to off- set their outstanding salary advance balances against the deferred_compensation to which they are entitled upon the termination of their positions with the taxpayer ie the off-set feature which is contrary to the provisions of sec_409a and the regulations promulgated under that section to remedy this situation the taxpayer will need to discontinue its current salary advance program or formally modify the terms of the plan by eliminating the off-set feature so that the plan complies with the provisions of sec_409a and the applicable regulations notwithstanding the foregoing the taxpayer may implement a new salary advance program in lieu of the current one as long as the new salary advance program is set up properly ---------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- -----------------------------------------------------------------------------------


t c memo united_states tax_court douglas e kahle and barbara w kahle petitioners v commissioner of internal revenue respondent docket no filed date douglas e kahle for petitioners veena luthra for respondent memorandum opinion tannenwald judge respondent determined a deficiency in petitioners' federal_income_tax for the taxable_year in the amount of dollar_figure as well as an addition_to_tax under sec_6651 in the amount of dollar_figure and an accuracy- unless otherwise indicated all section references are to continued related penalty under sec_6662 in the amount of dollar_figure the deficiency results from the disallowance of the carryover of a net_operating_loss nol of petitioner husband douglas e kahle mr kahle from the taxable_year the issue for decision in this case is whether petitioners may use the nol to reduce income in the year in which petitioners filed for personal bankruptcy based on our decision with regard to this issue we will have to decide whether petitioners are liable for the addition_to_tax for delinquent filing and an accuracy-related_penalty for substantial_understatement of tax_liability background this case was submitted fully stipulated under rule the stipulation of facts and attached exhibits are incorporated herein by this reference and found accordingly petitioners are married individuals filing jointly and resided at the time the petition in this case was filed in virginia beach virginia their return was filed delinquently on date with the internal_revenue_service at norfolk virginia on date mr kahle filed a voluntary bankruptcy petition under chapter of the u s bankruptcy code in the u s bankruptcy court eastern district of virginia newport new sec_1 continued the internal_revenue_code in effect for the taxable_year in issue and all rule references are to the tax_court rules_of_practice and procedure division he reported total liabilities in the amount of dollar_figure which he shared in part with various codebtors on date he received a discharge from the bankruptcy court of the total amount of the dollar_figure debt mr kahle had an nol for the taxable_year he did not make a election pursuant to sec_1398 to adopt a short taxable_year ending on the date before the commencement_date of the bankruptcy on their return petitioners claimed they should be allowed to utilize mr kahle's nol a claim which respondent has disallowed statutory framework a bankruptcy_estate is created in a voluntary case upon the filing of the petition of bankruptcy bankruptcy code u s c sec_301 sec_542 at that time certain tax_attributes including any nol's determined as of the first day of the debtor-taxpayer's taxable_year in which the bankruptcy case commences become part of the estate and no longer belong to the debtor-taxpayer sec_1398 if the debtor-taxpayer makes an election under sec_1398 to adopt a short taxable_year ending on the date before the commencement of the bankruptcy case he or she may use an nol to reduce his or her income earned during that short taxable_year and only any unused portion of the nol becomes part of the bankruptcy_estate sec_1398 any remaining nol belonging to the estate will be returned to the debtor-taxpayer after the discharge_in_bankruptcy and termination of the estate sec_1398 the debtor is then free to use the nol as a carryforward sec_1398 or carryback as long as the nol arose before the commencement of the bankruptcy case sec_1398 sec_108 provides that debt discharged in bankruptcy is not includable in gross_income sec_108 provides in turn that upon discharge the taxpayer must reduce any_tax attributes by the amount of the debt discharged sec_108 provides that nol's are the first attribute to be reduced and sec_108 provides that they be reduced dollar-for-dollar by the amount of the debt discharged in the bankruptcy sec_108 provides that the reduction is made after the determination of the tax imposed by this chapter for the taxable_year of the discharge in the alternative the taxpayer can elect under sec_108 to first reduce the basis of any depreciable_property by the amount of debt discharged before reducing the amount of any_tax attributes importantly sec_108 clarifies that the taxpayer for purposes of sec_108 and is the bankruptcy_estate and not the individual debtor discussion petitioners argue that even though they did not make the short-taxable-year election under sec_1398 they should be allowed to use the nol in the year of discharge first to reduce their income before the inevitable reduction by the amount of the discharge they base this argument on their interpretation of sec_108 and sec_108 sec_108 which specifies the estate as the taxpayer does not specifically refer to the ordering rule_of sec_108 and confines such reference to paragraphs and of subsection b of sec_108 thus according to petitioners the reductions under sec_108 occur after the individual taxpayer not the estate determines his or her tax_liability for the year of discharge pursuant to sec_108 using whatever tax_attributes are left in the bankruptcy_estate in other words petitioners claim that the individual taxpayer gets one last chance to use up the nol before it is reduced by the amount of debt discharged we divide our analysis into two parts first we dispose_of the question whether the nol is available to petitioners as a carryforward to the answer to this question is clearly in the negative upon the filing of the petition in bankruptcy on date the nol passed to the bankrupt estate and belonged to the estate until discharge on date mr kahle did not file an election to adopt a short taxable_year in respect of which the nol could have been utilized thus at the end of the nol was not available to petitioners as a carryforward indeed petitioners do not contend otherwise second we consider the question whether as petitioners contend the nol was extant at the time of mr kahle's discharge and became available as a carryback to here again the answer is clearly in the negative sec_108 applies to sec_108 sec_108 refers to reductions provided for in sec_108 thus the reduction which occurs under sec_108 is determined by the bankrupt estate not the individual debtor sec_108 does not specifically refer to sec_108 because sec_108 does not actually refer to a taxpayer but only to the determination of tax_liability thus the estate may use the tax_attributes to determine its tax_liability for the year of discharge after which the tax_attributes are reduced by the estate under sec_108 before being returned to the debtor-taxpayer such a reading comports with the overall purpose of the statutory scheme it is clear from the statute that the price the debtor-taxpayer pays for not including in income the amount of the discharged debt is the surrender of certain enumerated tax_attributes as provided for in sec_108 and sec_1398 and i the legislative_history confirms this view when it states see beery v commissioner tcmemo_1996_464 the bill provides that the debt_discharge_amount thus excluded from income is applied to reduce the taxpayer's net operating losses and certain other tax_attributes s rept 1980_2_cb_620 see also h rept moreover sec_108 was enacted at the same time as the reduction provisions of sec_108 and the same congress that wanted to reduce tax_attributes as a price for tax- free debt_discharge was quite aware of who would be doing the reducing--the estate not the individual finally if petitioners were correct the debtor-taxpayer would receive a windfall a result which simply does not fit the statutory scheme as the court_of_appeals for the sixth circuit has stated in 95_f3d_444 6th cir a case in which the government prevailed on the issue involved herein sec_108 of the i r c provides that any amount excluded from gross_income under sec_108 shall be applied to reduce the tax_attributes of the taxpayer including nols the obvious reason for this provision is to prevent bankrupt debtors from procuring a double benefit from the tax laws--a tax-free cancellation of debt plus favorable tax_attributes from the bankrupt estate petitioners do not argue that any of the nol would remain after discharge and in fact appear to concede on brief that the nol ultimately would have been eliminated by operation of sec_108 and this concession comports with the reality of the circumstances the nol in question in this case was in the amount of dollar_figure mr kahle appears to have had liabilities of over dollar_figure million it is true that mr kahle shared these liabilities with various codebtors a large number of codebtors could have reduced mr kahle's share of the debt discharged but the discharge by the bankruptcy court did not list so many codebtors as to make it likely that in the end mr kahle's share of the liability ultimately discharged could have been less than the amount of the nol so that some portion of the nol would have been returned unused to him in addition there is no evidence in the record that there was any depreciable_property in the bankruptcy_estate in respect of which an election under sec_108 was made nor did petitioners offer any evidence that the basis of any such property could have been reduced by the discharge of debt under sec_108 in place of a reduction of the nol in any event the burden was on petitioners to prove any such ameliorating circumstances rule a 290_us_111 that burden is not lessened in a fully stipulated case 95_tc_82 affd 943_f2d_22 8th cir in sum we hold that the nol was not available for use by petitioners in firsdon v united_states supra addition_to_tax and penalty respondent determined an addition_to_tax for delinquency under sec_6651 and a penalty for substantial_understatement under sec_6662 petitioners have the burden_of_proof rule a 104_tc_518 petitioners have conceded that the return for the year at issue was filed delinquently and have offered no other evidence on the issue of the addition_to_tax and penalty which they did not address on brief accordingly we sustain respondent's determinations tippin v commissioner supra 103_tc_111 decision will be entered for respondent


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 ------------------------- ------------------- telephone number --------------------- refer reply to cc psi b2 plr-111668-10 date date legend x ------------------------------------------------------------------------------------------------------ ------------------------ state ---------- d1 d2 -------------------------- ---------------------- dear -------------------------- this responds to the letter dated date and subsequent correspondence submitted on behalf of x by x's authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated in state on d1 it was intended for x to be an s_corporation effective d2 however no form_2553 election by a small_business_corporation was timely filed for x accordingly x requests a ruling that it will be treated as an s_corporation effective d2 sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective generally if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made sec_1362 provides that if an s election plr-111668-10 is made after the first two and one-half months of a corporation's taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election for the taxable_year or no sec_1362 election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for such taxable_year and sec_1362 shall not apply based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation effective d2 accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective d2 within days following the date of this letter then such election will be treated as timely made for x's taxable_year beginning d2 a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x's authorized representative sincerely bradford r poston senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes