department of the treasury internal_revenue_service washington d c 2v u319027 tax_exempt_and_government_entities_division release date date date xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx employer_identification_number xxxxxxx uniform issue list legend contact person identification_number telephone number m is the trustee of a number of charitable_remainder trusts collectively the trusts’ and as trustee m is the legal owner of the trusts’ assets in addition m has a remainder_interest in each of the trusts n is one such charitable_remainder_trust in which m is trustee and as a result of the relationship with the trusts as both trustee and beneficiary m has a substantial interest in the value of each trust moreover the donors to the trusts have funded the trusts with the intention that m benefit substantially from the assets of the trusts and that the assets will be managed to achieve the greatest possible return on investment 20vu810027 xxxxxxk m's endowment is invested in a diversified manner with investments in private equity global equities hedge funds fixed income assets cash and real_estate and other assets much of the income earned by the portfolio consists of passive dividends interest and long and short-term_capital_gains but some income is debt-financed or otherwise treated as unrelated_business_taxable_income m proposes to create a contractual obligation pursuant to which it would issue a contract right to each of the trusts for a proportionate share of m's endowment the cumulative value of the shares would be the dollar value of the assets held by the individual trusts combined with the shares of the endowment held by the various departments and schools making up m's institution the contract right would entitle the trusts to receive periodic_payments based on the shares owned by each of the trusts the trusts would thereby be able to receive an investment return equal to that of the endowment m determines a payout rate on the endowment each year based in part on the endowment's investment performance m calculates the market_value of each endowment share on a monthly basis the market_value of each endowment share initially equals the value_of_the_gift or contribution to the endowment and is subsequently adjusted in accordance with the market_value of the endowment each department and division is entitled to an amount equal to the payout rate times the number of shares it holds m seeks to enable the trusts to invest in the endowment in a manner identical to m's departments or schools a_trust would acquire a share in the endowment which would give the trusts a contractual right against the university but no interest whatsoever in the underlying investment_assets of the endowment the shares would have the same value that m uses for internal accounting purposes the contract would provide that each trust would receive payments on the shares held by it equal to the payout rate m has established for the endowment with payouts made at least annually or more frequently as appropriate a_trust could choose either to reinvest part of the payout or redeem additional shares depending on its cash requirements the trusts will treat payouts as ordinary_income regardless of the character of the underlying income of the endowment whether capital_gain ordinary_income or return_of_capital and regardless of whether the payout is made entirely by distributions of income or in part by redemption of shares the trusts will treat redemptions of shares over and above receipt of the payout rate as generating long or short-term_capital_gain or loss depending on the holding_period of the redeemed shares under the contract the trusts would not have any ownership_interest in the underlying assets of the endowment or any contract rights with respect to the other trusts the trusts would have no power or right of any kind to control direct supervise recommend or review m's business activities operations or decisions with respect to the endowment except the right to review the payout computations they would not have the right to veto or opt_out of any of the underlying endowment investments the contract would provide that with respect to the issuance of shares m is neither a partner nor an agent of the trusts that the trusts would never be or become liable for any cost expense or payment incurred or due by m or for which xxxxxkxk m is liable or responsible relating to the endowment or the underlying endowment assets and m would indemnify and hold the trusts harmless from and against any liability arising out of any_action or inaction by m with respect to the endowment or the underlying endowment assets n has requested the following ruling the issuance of shares by m to the trusts the making or receipt of payments with respect to the shares and the holding or redemption of the shares will not generate unrelated_business_taxable_income to n law sec_512 of the code defines the term unrelated_business_taxable_income as the gross_income derived by any organization from any unrelated_trade_or_business regularly carried on by it less the allowable deductions which are directly connected with the carrying on of such trade_or_business both computed with the modifications provided in sec_512 sec_512 of the code sets forth so-called modifications which are excluded from the computation of unrelated_business_taxable_income these modifications include dividends interest royalties rent from real_property and gain from the sale of property sec_513 of the code defines the term unrelated_trade_or_business as any trade_or_business the conduct of which is not substantially related aside from the need of such organization for income or funds or the use it makes of the profits derived to the exercise or performance by such organization of its exempt_purpose or function sec_513 of the code provides that the term trade_or_business includes any activity which is carried on for the production_of_income from the sale_of_goods or the performance of services sec_1_513-1 of the income_tax regulations provides that gross_income of an exempt_organization subject_to the tax imposed by sec_511 of the code is includible in the computation of unrelated_business_taxable_income if it is income from a trade_or_business such trade_or_business is regularly carried on by the organization and the conduct of such trade_or_business is not substantially related other than through the production of funds to the organization's performance of its exempt functions sec_1_513-1 of the regulations provides that for purposes of sec_513 the term trade_or_business has the same meaning it has in sec_162 and generally includes any activity carried on for the production_of_income from the sale_of_goods or performance of services sec_1_513-1 of the regulations provides that in determining whether trade_or_business from which a particular amount of gross_income derives is regularly carried on within the meaning of sec_512 of the code regard must be had to the frequency and continuity with which the activities productive of the income are conducted and the manner in which they xxxxxx are pursued for example specific business activities of an exempt_organization will ordinarily be deemed to be regularly carried on if they manifest a frequency and continuity and are pursued in a manner generally similar to comparable commercial activities of non-exempt organizations sec_1_513-1 of the regulations provides that in general gross_income derives from unrelated_trade_or_business within the meaning of sec_513 of the code if the conduct of the trade_or_business which produces the income is not substantially related other than through the production of funds to the purposes for which exemption is granted the presence of this requirement necessitates an examination of the relationship between the business activities which generate the particular income in question -- the activities that is of producing or distributing the goods or performing the services involved -- and the accomplishment of the organization's exempt purposes sec_1_513-1 of the regulations provides that trade_or_business is related to exempt purposes in the relevant sense only where the conduct of the business activities has a causal relationship to the achievement of exempt purposes and is substantially related for purposes of sec_513 of the code only if the causal relationship is a substantial one thus for the conduct of trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of those purposes where the production or distribution of the goods or the performance of the services does not contribute importantly to the accomplishment of the exempt purposes of an organization the income from the sale of the goods or the performance of the services does not derive from the conduct of related trade_or_business whether activities productive of gross_income contribute importantly to the accomplishment of any purpose for which an organization is granted exemption depends in each case upon the facts and circumstances involved revrul_69_528 1969_2_cb_127 describes an organization that was formed to provide investment services on a fee basis exclusively to organizations exempt under sec_501 of the code it receives funds from the participating exempt_organizations invests in common stocks reinvests income and realized appreciation and upon request liquidates a participant's interest and distributes the proceeds to the participant the rev_rul states that providing investment services on a regular basis for a fee is a trade_or_business ordinarily carried on for profit tax-exempt organizations such activity would constitute unrelated_trade_or_business the rev_rul holds that the organization is not exempt under sec_501 if the services were regularly provided by one tax-exempt_organization for other as noted previously organizations described in sec_501 c of the code are subject_to tax on their unrelated_business_income under sec_511 in order for such an organization’s income to be subject_to the unrelated_business_income_tax three requirement must be met the income must be from a trade_or_business the trade_or_business must be regularly carried on and the conduct of the trade_or_business must not be substantially related to the organization's exempt_purpose or function see sec_1_513-1 of the regulations xxxxxx analysis m proposes to enter into a contractual relationship with certain trusts that are charitable_remainder trusts in which m has an interest as a beneficiary and serves as trustee of the trust under such a contractual relationship each trust would receive payments on the shares held by it equal to the payout rate m establishes for its endowment with payouts made in accordance with the trust instruments a_trust would acquire shares from m's endowment which would give the trusts a contractual right against m but no interest whatsoever in the underlying investment_assets of the endowment the contract between m and the trusts would provide that the price of the shares would equal their value at the time of acquisition the shares would have the same value that m uses for internal accounting purposes consequently a_trust could choose either to reinvest part of the payout or redeem a portion of the shares depending on its cash requirements thus under the contractual relationship with m the trusts would have a right to the payout declared by m plus the right to redeem the shares at the value that m uses for internal accounting purposes generally an organization that otherwise qualifies for recognition of exemption under sec_501 of the code and provides investment services on a regular basis for a fee to other exempt or nonexempt organizations would be engaged in an unrelated_trade_or_business under sec_513 see revrul_69_528 supra such an activity would constitute a trade_or_business under sec_513 and sec_1_513-1 of the regulations and would be regularly carried on under sec_512 and sec_1_513-1 thus if m charged a fee for investment management services provided to organizations unrelated to m or generated income from the management of the funds invested by such organizations these activities could result in unrelated_business_taxable_income under sec_512 here however m is not charging a fee for its services and not otherwise receiving income from the services it provides to the trusts thus under these circumstances m will not receive unrelated_business_taxable_income under sec_512 the fact that m will engage in the investment activity for the benefit of individuals who are co-beneficiaries of the trusts at the same time that it engages in investment activity for its own benefit as the remainder beneficiary limits the scope of the service provided to others and distinguishes it from a commercial venture as stated above under the contract the trusts would not have any ownership_interest in the underlying assets of the endowment nor any contract rights with respect to the other trusts the trusts would have no power or right of any kind to control direct supervise recommend or review m's business activities operations or decisions with respect to the endowment except the right to review the payout computations they would not have any right to veto or opt_out of any of the underlying endowment investments the contract would provide that with respect to the issuance of the shares m is neither a partner nor an agent of the trusts that the trusts would never be or become liable for any cost expense or payment incurred or due by m or for 29u81 xxxxxkx which m is liable or responsible relating to the endowment or the underlying endowment assets and m would indemnify and hold the trusts harmless from and against any liability arising out of any_action or inaction by m with respect to the endowment or the underlying endowment assets the trusts do not have a position of ownership in the underlying assets of m’s endowment since the contractual relationship between m and the trusts is not in the nature of a partnership or agency the income earned by the trusts from the payout m establishes for the shares reflects ordinary_income and does not take on the character of the income of the underlying assets or debt-financed or unrelated_business_taxable_income m would pay any_tax owed on ubti earned by the endowment portfolio with no deduction taken against ubti for any payments made to the trusts in view of the foregoing we rule as follows the issuance of shares from m to the trusts the making or receipt of payments with respect to the shares and the holding or redemption of the shares will not generate unrelated_business_taxable_income to n a charitable_remainder_trust this ruling is based on the understanding that there will be no material changes in the facts upon which it is based we express no opinion as to the tax consequences of the proposed transaction under any other section of the code pursuant to a power of attomey on file in this office a copy of this letter is being sent to n's authorized representatives a copy of this letter should be kept in its permanent records this ruling is directed only to the organization that requested it sec_61 k of the code provides that it may not be used or cited by others as precedent if there are any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely robert c harper jr manager exempt_organizations technical group enclosure notice


t c memo united_states tax_court gene hawkins petitioner v commissioner of internal revenue respondent docket no 20408-14l filed date gene hawkins pro_se andrew k glover for respondent memorandum opinion lauber judge in this collection_due_process cdp case petitioner seeks review pursuant to sec_6330 of the determination by the internal_revenue_service irs or respondent to uphold a notice_of_intent_to_levy respon- all statutory references are to the internal_revenue_code in effect at all relevant times and all rule references are to the tax_court rules_of_practice and procedure we round all monetary amounts to the nearest dollar dent has moved for summary_judgment under rule contending that there are no disputed issues of material fact and that his determination to sustain the proposed collection action was proper as a matter of law we agree and accordingly will grant the motion background the following facts are based on the parties’ pleadings and respondent’s motion including the attached affidavits and exhibits petitioner resided in mary- land when he filed his petition petitioner filed delinquent federal_income_tax returns for tax years through and did not pay the tax shown as due the irs subsequently made tax assessments against him on date in an effort to collect these unpaid liabilities the irs sent petitioner a final notice_of_intent_to_levy and notice of your right to a hearing on date petitioner timely submitted a form request for a collection_due_process or equivalent_hearing in his request petitioner stated that he could not pay the balances owed and sought a collection alternative in the form of an installment_agreement or an offer-in- compromise petitioner did not indicate an intention to challenge his underlying tax_liability for any of the tax years at issue immediately after receiving petitioner’s case a settlement officer so from the irs appeals_office reviewed his administrative file and confirmed that the tax_liabilities in question had been properly assessed and that all other requirements of applicable law and administrative procedure had been met on date the so sent petitioner a letter scheduling a telephone cdp hearing for date the so informed petitioner that in order for her to consider a collection alternative he had to provide her by date a completed form 433-a collection information statement for wage earners and self-employed individuals and form 656-b offer_in_compromise together with supporting financial information the so emphasized in her letter that she could not consider a collection alternative unless petitioner supplied the completed forms and information to her petitioner provided none of the requested documentation before the cdp hearing he participated in that hearing during which the so reiterated that she could not consider a collection alternative without those documents petitioner acknowledged that he had not sent the so any of the requested documents and there is no evidence that he requested additional time to do so petitioner noted that he previously had an installment_agreement under which he was to pay the irs dollar_figure per month and asked why it had been terminated the so explained that this agreement had been terminated because significant new liabilities had been added to the balances owed on his accounts petitioner did not raise during the hearing any challenge to his underlying tax_liabilities for because petitioner failed to submit the required financial information the so determined that he was not eligible for a collection alternative the so ac- cordingly closed the case and on date issued petitioner a notice_of_determination concerning collection action sustaining the proposed levy for the ten tax years at issue on date petitioner timely petitioned this court for review of the notice_of_determination in his petition he acknowledged that he had not sub- mitted the required paperwork to the so at the time of the cdp hearing but said that he had the paperwork ready and wished to make a compromise on taxes on date respondent filed a motion for summary_judgment on date this court ordered petitioner to respond our order informed him that if he disagreed with any facts stated in the irs motion he should point out those factual issues our order also informed petitioner that failure to respond would be grounds for granting respondent’s motion and entering judgment against him petitioner did not respond to this court’s order and has not otherwise responded to the irs motion for summary_judgment discussion a summary_judgment the purpose of summary_judgment is to expedite litigation and avoid costly time-consuming and unnecessary trials fla peach corp v commissioner 90_tc_678 under rule b the court may grant summary_judgment when there is no genuine dispute as to any material fact and a decision may be rendered as a matter of law 98_tc_518 aff’d 17_f3d_965 7th cir in deciding whether to grant summary_judgment we construe factual materials and inferences drawn from them in the light most favorable to the nonmoving party id however the nonmoving party may not rest upon mere allegations or denials but instead must set forth specific facts showing that there is a genuine dispute for trial rule d see sundstrand corp t c pincite because petitioner did not respond to the motion for summary_judgment we could enter decision against him for that reason alone see rule d we will nevertheless consider the motion on its merits we conclude that no material facts are in dispute and that this case is appropriate for summary adjudication b standard of review where as here there is no challenge to the amount of a taxpayer’s under- lying tax_liabilities for the years at issue the court reviews the irs determination for abuse_of_discretion 114_tc_176 abuse_of_discretion exists when a determination is arbitrary capricious or without sound basis in fact or law see 125_tc_301 aff’d 469_f3d_27 1st cir c analysis the only question is whether the irs properly sustained a proposed levy to collect petitioner’s unpaid tax_liabilities we review the record to determine whether the so properly verified that the requirements of any applicable law or administrative procedure have been met considered any relevant issues petitioner raised and considered whether any proposed collection action balances the need for the efficient collection_of_taxes with the legitimate concern petitioner did not challenge his underlying tax_liabilities during the cdp hearing or in his petition to this court he is thus precluded from challenging those liabilities here rule b any issue not raised in the assignments of error shall be deemed to be conceded see 140_tc_173 a taxpayer is precluded from disputing the underlying liability if it was not properly raised in the cdp hearing sec_301_6330-1 q a-f3 proced admin regs of the person that any collection action be no more intrusive than necessary sec_6330 as to the first point this court has authority to review an so’s satisfaction of the verification requirement regardless of whether the taxpayer raised that issue at the cdp hearing see 131_tc_197 however petitioner did not allege in his petition that the so failed to satisfy the verification requirement that issue is therefore deemed conceded see rule b any issue not raised in the assignments of error shall be deemed to be conceded triola v commissioner tcmemo_2014_166 at dinino v commissioner tcmemo_2009_284 in any event even if petitioner had properly preserved this issue he has set forth no specific facts showing that there is a genuine issue for trial concerning the propriety of the assessments for at his cdp hearing petitioner was entitled to make offers of collection alternatives such as an offer-in-compromise or an installment_agreement sec_6330 and this right however carries with it certain obligations on the taxpayer’s part as provided in the regulations t axpayers will be expected to provide all relevant information requested by the appeals officer including financial statements for her consideration of the facts and issues involved in the hearing sec_301_6330-1 proced admin regs on his form petitioner indicated that he could not pay the balances due and expressed interest in an installment_agreement or an offer-in-compromise before the cdp hearing the so asked petitioner to submit a completed form a and form_656 to enable her to consider collection alternatives petitioner ne- glected to put any offer on the table and failed to submit the documentation required for consideration of an offer the so provided petitioner ample time to submit the required documenta- tion cf szekely v commissioner tcmemo_2013_227 at in her response to petitioner’s request for a cdp hearing the so asked petitioner to provide these documents by date three weeks after petitioner submitted his request petitioner failed to supply any documentation by that date or during the ensuing three weeks before the hearing on date the so waited an- other three weeks before closing the case on date petitioner could have asked the so to afford him additional time to submit the documents but he made no such request and offered no excuse for his failure to timely provide the information we have consistently held that it is not an abuse_of_discretion for an ap- peals officer to reject collection alternatives and sustain the proposed collection action where the taxpayer has failed to put a specific offer on the table and has failed after being given sufficient opportunities to supply the so with the re- quired forms and supporting financial information see huntress v commis- sioner tcmemo_2009_161 prater v commissioner tcmemo_2007_241 roman v commissioner tcmemo_2004_20 we will accordingly grant sum- mary judgment for respondent and affirm the proposed collection action as to all tax years petitioner is advised that he is free to submit to the irs an offer-in- compromise on form_656 supported by the necessary financial information for consideration by the irs at any time to reflect the foregoing an appropriate order and decision will be entered


internal_revenue_service number release date index number ---------------------- ------------- ------------------------------------------- ------------------------- --------------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc intl plr-127072-04 date august taxpayer legend legend ---------------------------------------------------------------------------------------------- ------------------------ ---------------- ----------------- ------------------------------ ---------------------- ------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------- -------- individual a individual b cpa firm date a year one r return s return t return u return v return w return state y state z dear ------------- this replies to your representative’s letter dated date in which your representative requests on behalf of taxpayer an extension of time under sec_301_9100-3 to file the election and agreement described in sec_1_1503-2 in accordance with schedule a which is attached to and made a part of this ruling letter the information submitted for consideration is substantially as set forth below plr-127072-04 the ruling contained in this letter is predicated upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as a part of the audit process prior to date a taxpayer’s administrative offices and national headquarters were located in state y for the tax_return years r through v the in-house tax department at the state y location with individual a as the tax director was responsible for complying with all federal and state tax matters in the summer of year one during the preparation of the u s consolidated tax_return for the v return taxpayer began to move its tax department to state z this move caused a nearly complete turn-over of personnel in the accounting and tax departments at the state y location this turn-over included individual a who decided not to move to state z because so few tax personnel relocated to state z from state y new personnel had to be hired to work in the tax department at the state z location however the tax department at the state y location and individual a remained responsible for the preparation and filing of the u s consolidated tax_return for the v return individual b was hired at the state z location as the new tax director to replace individual a but there was no formal transition of individual a’s position to individual b individual b began the process of preparing the tax_return for the w return by reviewing the v return during this review individual b raised questions concerning whether taxpayer had any losses in foreign jurisdictions that were deducted on the v return these questions eventually led individual b to engage the services of cpa firm to assist in the understanding of this issue subsequently cpa firm together with individual b and other in-house tax professionals confirmed that taxpayer should have filed dual_consolidated_loss elections and agreements for the entities and tax years listed on schedule a sec_301_9100-1 provides that the commissioner has discretion to grant a taxpayer a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301 -1 b provides that an election includes an application_for relief in respect of tax and defines a regulatory election as an election whose due_date is prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides evidence including affidavits described in plr-127072-04 sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith within the meaning of sec_301_9100-3 subject_to the conditions set forth in sec_301_9100-3 and the grant of relief will not prejudice the interests of the government within the meaning of sec_301_9100-3 in the present situation the election and agreement described in sec_1 g i is a regulatory election as defined in sec_301_9100-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayer an extension of time provided that taxpayer satisfies the rules set forth in sec_301_9100-3 based on the facts and information submitted we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time of days from the date of this ruling letter to file to file the election and agreement described in sec_1_1503-2 in accordance with schedule a the granting of an extension of time is not a determination that taxpayer is otherwise eligible to file the elections and agreements sec_301_9100-1 a copy of this ruling letter should be associated with the elections and agreements this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent no ruling has been requested and none is expressed as to the application of any other section of the code or regulations to the facts presented pursuant to a power_of_attorney on file in this office a copy of this ruling letter is being furnished to your authorized representatives sincerely associate chief_counsel international by s meryl silver meryl silver reviewer enclosures schedule a copy for purposes plr-127072-04 schedule a ------------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- ------ ----------------------------------------------------------- ----------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------- -------------------------------------------------------- ----------------------------------------------------------------------------- --------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------ 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office_of_chief_counsel internal_revenue_service memorandum number release date cc tege eb qp1 preno-103030-18 uilc date february third party communication none date of communication not applicable to david conrad area_counsel mountain states area denver tax_exempt_and_government_entities_division counsel from stephen b tackney deputy associate chief_counsel employee_benefits tax exempt and government entities subject application of sec_401 and sec_401 to a cash_balance_plan that offsets benefits with benefits under a defined_contribution_plan this chief_counsel_advice responds to your request for assistance dated date this advice may not be used or cited as precedent issues you have asked the following questions regarding a floor-offset arrangement under which benefits under a defined_benefit_plan are offset by benefits under a defined_contribution_plan only for nonhighly compensated employees nhces so that for nhces who participate in both plans but not for highly compensated employees hces who participate in both plans benefits are eliminated under the defined_benefit_plan how may this combination of plans satisfy the conditions for combined testing on the basis of equivalent benefits under sec_1_401_a_4_-9 are the nhces whose benefit under the defined_benefit_plan is entirely offset considered to be benefitting under the defined_benefit_plan and to have a meaningful benefit under the defined_benefit_plan for purposes of determining whether the plan satisfies the minimum participation requirement of sec_401 preno-103030-18 conclusions the special rule_of sec_1_401_a_4_-3 under which an employee’s accrued_benefit under a plan includes that portion of the benefit that is offset by benefits under another plan applies only to the extent that the benefit is attributable to pre-participation service or past service therefore the offset is taken into account in determining whether the db dc plan is primarily defined benefit in character within the meaning of sec_1_401_a_4_-9 or consists of broadly available separate plans within the meaning of sec_401 -9 b v c because after the offset nhces receive no benefit under the defined_benefit_plan the db dc plan is not primarily defined benefit in character similarly the db dc plan does not consist of broadly available separate plans because the defined_benefit_plan does not satisfy the applicable conditions set forth in sec_1_401_a_4_-9 accordingly the db dc plan must satisfy the minimum aggregate allocation gateway of sec_1_401_a_4_-9 to be eligible for testing for nondiscrimination on the basis of equivalent benefits the special rule_of sec_1_401_a_26_-5 under which an offset of benefits under a defined_benefit_plan by benefits under another plan is disregarded does not apply to an offset that applies only to a subset of participants in the defined_benefit_plan because the offset must be taken into account and reduces the benefits of nhces under the defined_benefit_plan to zero the nhces do not benefit under the defined_benefit_plan within the meaning of sec_401 and sec_1_401_a_26_-2 and do not have a meaningful benefit under the plan’s prior benefit structure as specified in sec_1_401_a_26_-3 accordingly the nhces are not taken into account for purposes of satisfying the requirements of sec_401 facts the employer maintains a cash_balance_plan and a defined_contribution_plan for the benefit of its employees the defined_contribution_plan is a profit sharing plan to which the employer makes an annual contribution that is allocated ratably to all participants based on compensation all employees of the employer are eligible to participate in the defined_contribution_plan the cash_balance_plan covers two groups of participants the first group of participants all of whom are hces consists of the owner-employees of the employer this group of participants receives the lesser_of the maximum pay credit so that the resulting annual_benefit will not exceed the limitations of sec_415 and the maximum pay credit that enables the plan to comply with sec_401 determined using a method specified in the plan the second group of participants all of whom are nhces consists of the lowest-paid group_of_employees who are not owner-employees and who perform at least one hour_of_service during the plan_year the lowest-paid group is limited to the number of employees necessary so that the plan covers the lesser_of preno-103030-18 of the total number of employees for the plan_year or employees this second group of participants receives an annual pay credit of of compensation_for an owner-employee the accrued_benefit under the cash_balance_plan is the single_life_annuity payable at age that is the actuarial equivalent of the current balance of the cash balance account for a participant who is not an owner-employee the accrued_benefit under the cash_balance_plan is the single_life_annuity payable at age that is the actuarial equivalent of the current balance of the cash balance account offset by the single_life_annuity payable at age that is the actuarial equivalent of the participant's vested account balance attributable to employer contributions under the profit-sharing_plan because the benefits for this second group of participants attributable to employer contributions under the profit-sharing_plan is larger than the benefits payable under the cash_balance_plan absent the offset the offset for this second group_of_employees reduces the benefit under the cash_balance_plan to zero law and analysis issue sec_401 provides that a plan is a qualified_plan only if the contributions or the benefits provided under the plan do not discriminate in favor of highly-compensated employees hces sec_1_401_a_4_-1 requires that either the contributions or the benefits provided under the plan must be nondiscriminatory in amount to be nondiscriminatory in amount either the contributions alone or the benefits alone must be nondiscriminatory in amount it is not required that both the contributions and the benefits be nondiscriminatory in amount sec_1_401_a_4_-3 describes the rules for determining nondiscrimination in amount of employer_provided benefits under a defined_benefit_plan sec_1_401_a_4_-3 provides a number of safe harbors that apply to a plan that provides for uniform benefits and sec_1_401_a_4_-3 provides a general test that applies to a plan that does not provide for uniform benefits sec_1_401_a_4_-3 provides that the employer-provided benefits under a defined_benefit_plan are nondiscriminatory in amount for a plan_year if each rate group under the plan satisfies sec_410 for purposes of sec_1_401_a_4_-3 a rate group generally consists of an hce and all other employees with a normal accrual rate greater than or equal to the hce’s normal accrual rate and who also have a most valuable accrual rate greater than or equal to the hce’s most valuable accrual rate sec_1_401_a_4_-3 provides special rules of application sec_1_401_a_4_-3 provides that an employee’s accrued_benefit under a plan includes that portion of the benefit that is offset under an offset described in sec_1_401_a_4_-11 pertaining preno-103030-18 to offsets for pre-participation service the rule applies only to the extent that the benefit is attributable to periods for which the plan being tested credits pre-participation service or past service sec_1_401_a_4_-3 example illustrates that the rule applies to an offset for pre-participation service but not to an offset for concurrently earned benefits sec_1_401_a_4_-9 provides the requirements for testing situations in which plan aggregation or restructuring is used to satisfy nondiscrimination sec_1_401_a_4_-9 addresses a plan that consists of one or more defined contribution plans and one or more defined benefit plans a db dc plan specifically it provides that unless the db dc plan is primarily defined benefit in character or consists of broadly available separate plans the db dc plan must satisfy the minimum aggregate allocation gateway of sec_1_401_a_4_-9 for the plan_year in order to be permitted to demonstrate satisfaction of the nondiscrimination in amount requirement of sec_1_401_a_4_-1 on the basis of equivalent benefits sec_1_401_a_4_-9 provides that a db dc plan is primarily defined benefit in character if for more than of the non-highly compensated employees nhces benefitting under the plan the normal accrual rate for the nhce attributable to benefits provided under defined benefit plans that are part of the db dc plan exceeds the equivalent accrual rate for the nhce attributable to contributions under the defined contribution plans that are part of the db dc plan sec_1_401_a_4_-9 provides that a db dc plan consists of broadly available separate plans if the defined_contribution_plan and the defined_benefit_plan that are part of the db dc plan each would satisfy the requirements of sec_410 and the nondiscrimination in amount requirement of sec_1_401_a_4_-1 if each plan were tested separately and assuming that the average_benefit_percentage test of sec_1_410_b_-5 were satisfied for this purpose all defined contribution plans that are part of the db dc plan are treated as a single defined_contribution_plan and all defined benefit plans that are part of the db dc plan are treated as a single defined_benefit_plan sec_1_401_a_4_-9 provides that a db dc plan satisfies the minimum aggregate allocation gateway if each nhce has an aggregate normal allocation rate that is at least one third of the aggregate normal allocation rate of the hce with the highest such rate hce rate or if less of the nhce's compensation provided that the hce rate does not exceed of compensation if the hce rate exceed sec_25 of compensation then the aggregate normal allocation rate for each nhce must be pincite an additional exception from the minimum aggregate allocation gateway applies under some circumstances to a db dc plan that contains a defined_benefit_plan that is closed to new entrants see notice_2014_5 2014_2_irb_276 and successor notices extending the relief in notice_2014_5 see also proposed amendments to sec_1_401_a_4_-9 in reg-125761-14 fr date this exception does not apply under these facts and is not discussed further in this memorandum preno-103030-18 least increased by one percentage_point for each 5-percentage-point increment or portion thereof by which the hce rate exceed sec_25 the employer intends to aggregate the cash_balance_plan and the profit-sharing_plan for purposes of nondiscrimination testing accordingly in order to demonstrate satisfaction of the nondiscrimination requirements on the basis of equivalent benefits without satisfying the minimum aggregate gateway allocation the aggregated_plan must either be primarily defined benefit in character or consist of broadly available separate plans the db dc plan resulting from aggregating the cash_balance_plan and the profit-sharing_plan is not primarily defined benefit in character within the meaning of sec_1 a - b v b that is because for the nhces accruing pay credits under the plan the normal accrual rate attributable to benefits provided under the cash_balance_plan is zero as a result of the offset by the larger benefit attributable to the defined_contribution_plan the offset may not be disregarded because it is an offset for concurrently earned benefits and only an offset for pre-participation service may be disregarded therefore the benefit for each nhce does not exceed the equivalent accrual rate for the nhce attributable to contributions under the defined_contribution_plan the db dc plan resulting from aggregating the cash_balance_plan and the profit-sharing_plan does not consist of broadly available separate plans sec_1 a - b v c requires that to be considered broadly available separate plans each plan separately must satisfy the requirements of sec_410 and the nondiscrimination in amount requirement of sec_1_401_a_4_-1 if each plan were tested separately and assuming that the average_benefit_percentage test of sec_1_410_b_-5 were satisfied the cash_balance_plan does not separately meet the coverage requirements taking the offset into account because the benefits under the cash_balance_plan for participants who are nhces are reduced to zero under the offset as discussed above this offset may not be disregarded in testing the cash_balance_plan because it is not an offset attributable to pre-participation service and under sec_1_401_a_4_-3 the only offsets that may be disregarded are offsets attributable to pre-participation service after applying the offset to determine the accrued_benefit the cash_balance_plan does not satisfy the requirements of sec_410 when tested separately because an insufficient number of employees have normal and most valuable accrual rates greater than or equal to the rates of the hces since the aggregated_plan is not primarily defined benefit in character and does not consist of broadly available separate plans in order for the db dc plan to be permitted to demonstrate satisfaction of the nondiscrimination requirements on the basis of equivalent benefits nhces must receive sufficient allocations under the profit-sharing_plan to satisfy the minimum aggregate allocation gateway of sec_1_401_a_4_-9 issue preno-103030-18 sec_401 provides that a_trust that is part of defined_benefit_plan is a qualified_trust only if it benefits at least the lesser_of i employees of the employer or ii the greater of i percent of all employees of the employer or ii employees or if there is only employee such employee sec_1_401_a_26_-1 provides that a plan is a qualified_plan for a plan_year only if the plan satisfies sec_401 for the plan_year a plan that satisfies any of the exceptions described in sec_1_401_a_26_-1 passes sec_401 automatically for the plan_year a plan that does not satisfy one of those exceptions must satisfy sec_1_401_a_26_-2 in addition a defined_benefit_plan must satisfy sec_1_401_a_26_-3 with respect to its prior benefit structure finally a defined_benefit_plan that benefits former employees must separately satisfy sec_1_401_a_26_-4 with respect to its former employees sec_1_401_a_26_-1 provides exceptions for plans that do not benefit any highly compensated employees multiemployer plans certain underfunded defined benefit plans and certain plans involved in acquisition or disposition transactions of the employer sec_1_401_a_26_-2 provides that a defined_benefit_plan that does not meet an applicable exception must benefit at least the lesser_of employees or percent of the employer’s employees sec_1_401_a_26_-3 provides that a defined_benefit_plan that does not meet one of the exceptions in sec_1_401_a_26_-1 must satisfy sec_1_401_a_26_-3 with respect to its prior benefit structure sec_1_401_a_26_-3 provides that a plan’s prior benefit structure satisfies sec_1_401_a_26_-3 if the plan provides meaningful benefits to a group_of_employees that includes the lesser_of employees or percent of the employer’s employees sec_1_401_a_26_-3 provides that whether a plan is providing meaningful benefits or whether individuals have meaningful accrued_benefits under a plan is determined on the basis of all the facts and circumstances the relevant factors in making this determination include but are not limited to the level of current benefit accruals the comparative rate of accruals under the current benefit formula compared to prior rates of accrual under the plan the projected accrued_benefits under the current benefit formula compared to accrued_benefits as of the close of the immediately preceding plan_year the length of time the current benefit formula has been in effect the number of employees with accrued_benefits under the plan and the length of time the plan has been in effect a plan does not satisfy sec_1_401_a_26_-3 if it exists primarily to preserve accrued_benefits for a small_group of employees and thereby functions more as an individual plan for the small_group of employees or for the employer preno-103030-18 sec_1_401_a_26_-5 provides a rule for determining whether an offset_plan provides meaningful benefits sec_1_401_a_26_-5 provides that generally an employee is treated as accruing a benefit under a plan that includes an offset or reduction of benefits that satisfies sec_1_401_a_26_-5 or iii if either the employee accrues a benefit under the plan for the year or the employee would have accrued a benefit under the plan if the offset or reduction of the benefit were disregarded sec_1_401_a_26_-5 states an offset or reduction of benefits under a defined_benefit_plan satisfies the requirements of this paragraph a iii if the benefit formula provides a benefit that is offset or reduced by contributions or benefits under another plan that is maintained by the same employer and the following additional requirements are met the contributions or benefits under a plan that are used to offset or reduce the benefits under the positive portion of the formula being tested accrued under such other plan the employees who benefit under the formula being tested also benefit under the other plan on a reasonable and uniform basis and the contributions or benefits under the plan that are used to offset or reduce the benefits under the formula being tested are not used to offset or reduce that employee's benefits under any other plan or any other formula in the present case the cash_balance_plan does not meet any of the exceptions listed in sec_1_401_a_26_-1 therefore it must satisfy sec_1_401_a_26_-2 by benefitting a group_of_employees that includes the lesser_of employees or percent of the employer’s employees furthermore the cash_balance_plan must satisfy sec_1_401_a_26_-3 with respect to its prior benefit structure by providing meaningful benefits to a group_of_employees that includes the lesser_of employees or percent of the employer’s employees in order for the offset to be disregarded in determining whether the cash_balance_plan satisfies sec_1_401_a_26_-2 and -3 so that nhces who benefit under the cash_balance_plan disregarding the offset but not if the offset is taken into account are counted for purposes of satisfying these requirements the offset must fall within the exception of sec_1_401_a_26_-5 that exception applies to a defined_benefit_plan only if the benefit formula provides a benefit that is offset or reduced by a contribution or benefit under another plan in addition the regulations provide that employees who benefit under the formula being tested must also benefit under the other plan on a reasonable and uniform basis since as explained below the benefit under the cash_balance_plan is not fully offset or reduced by the benefit under another plan under which the preno-103030-18 employees who benefit under the cash_balance_plan benefit on a reasonable and uniform basis the offset may not be disregarded in determining whether the cash_balance_plan satisfies the minimum participation requirements of sec_401 an employer may argue that the reasonable and uniform basis requirement applies only to the coverage and benefits under the other plan and that the exception for a benefit that is offset or reduced by a contribution or benefit under another plan is not restricted to full offsets that apply to all participants in the defined_benefit_plan however this is an unreasonable interpretation of sec_1_401_a_26_-5 because the effect of an offset that does not apply fully to all participants is identical to the effect of an offset that applies uniformly to reduce benefits under the defined_benefit_plan by non-uniform benefits in the offsetting plan for example if each participant in an offsetting defined_contribution_plan receives an allocation of of compensation and therefore each participant has uniform benefits and the benefit under the defined_benefit_plan is offset by of the benefit under the defined_contribution_plan the offset applies uniformly and may be disregarded under sec_1_401_a_26_-5 but if the defined_contribution_plan provides for an allocation of of compensation to one group of participants and of compensation to another group of participants so that the employees do not benefit under the defined_contribution_plan on a uniform basis application of the offset results in the group with the allocation experiencing a larger benefit reduction as a result of the offset than the group with the allocation under sec_1 a - a this offset may not be disregarded because employees who benefit under the defined_benefit_plan being tested do not also benefit under the offsetting defined_contribution_plan on a reasonable and uniform basis if instead all allocations to participants under the defined_contribution_plan are of compensation but the offset under the defined_benefit_plan is of the defined_contribution_plan benefits for one group of participants and for another group the reduction in the benefits in the defined_benefit_plan being tested is identical to the reduction in the prior alternative offset formulation which does not satisfy the exception in sec_1_401_a_26_-5 the regulations under sec_1_401_a_26_-5 are intended to have a meaningful effect and prohibit certain arrangements this goal would not be accomplished if the regulations could be applied to make the requirements so easily circumvented to achieve the prohibited result accordingly the only reasonable reading of sec_1_401_a_26_-5 is that a benefit that is offset or reduced by a contribution or benefit under another plan refers to a benefit to the extent it is offset or reduced by contributions or benefits under that other plan in the same manner for all participants if the offset were not required to be applied in the same manner for all participants in the defined_benefit_plan then as demonstrated above the uniformity provision with respect to the other plan would be rendered meaningless in addition the effect of such a non-uniform offset would be that the participants in the other plan do not in effect receive uniform benefits under that plan because the use of the defined_contribution_plan benefit to offset the defined_benefit_plan benefit effectively diminishes the value of the defined_contribution_plan benefit for some participants but not for others preno-103030-18 under the terms of the cash_balance_plan the benefits for nhce participants are reduced to zero by the offset of the profit-sharing_plan benefit while the benefits for owner-employee participants are not offset since the offset does not apply to all of the employees in the cash_balance_plan but only to nhces it may not be disregarded as a result of the offset nhce participants do not benefit under the cash_balance_plan and have not accrued a meaningful benefit under the cash_balance_plan moreover the operation of the offset causes the cash_balance_plan to exist primarily to preserve accrued_benefits for a small_group of employees therefore the nhce participants in the cash_balance_plan are not taken into account for purposes of determining whether the cash_balance_plan satisfies the requirements of sec_1_401_a_26_-2 and -3 this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call laura warshawsky at -317-6799 or linda marshall at if you have any further questions


internal_revenue_service number release date index numbers ------------------------------------------------ ----------------------------------- -------------------------------------------------- ----------------------------------- department of the treasury washington dc person to contact ------------------ id no ------------- telephone number --------------------- refer reply to cc fip b03 plr-144667-08 date date legend company ---------------------------------------- partnership ------------------------------------------------------- parent --------------------------------------------------- subsidiary ----------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- state x ------------- accounting firm ---------------- a b c d date date date ------ ----- ----- -- ------------------------ -------------------------- ---------------- plr-144667-08 date ------------------ date ----------------- date ----------------------- date ----------------- dear -------------- this responds to a letter dated date on behalf of parent and subsidiary requesting an extension of time under sec_301_9100-1 of the procedure and administration regulations to make an election under sec_856 of the internal_revenue_code to treat subsidiary as a taxable_reit_subsidiary of parent facts company was organized as a state x real_estate_investment_trust reit on date to buy own redevelop and lease hotels it owns a percent of the outstanding partnership_interest in partnership partnership previously owned b percent of the stock of subsidiary on date company and subsidiary made a taxable_reit_subsidiary election to treat subsidiary as a taxable_reit_subsidiary of company on date partnership created parent which was organized as a reit partnership owns c percent of parent’s common_stock on date parent purchased d shares of preferred_stock of subsidiary during the creation of parent accounting firm informed company that a taxable_reit_subsidiary election would need to be made so that subsidiary would be considered as a taxable_reit_subsidiary of parent accounting firm inadvertently failed to prepare the election on a timely basis the taxable_reit_subsidiary election was due to be filed by date on date company requested that accounting firm provide it with a copy of a taxable_reit_subsidiary election form that it believed accounting firm had filed on its behalf after reviewing its files accounting firm determined that the election had not been prepared and immediately prepared the election form that was filed on date parent and subsidiary make the following additional representations the request for relief was filed by parent and subsidiary before the failure to make regulatory elections was discovered by the service granting the relief requested will not result in parent and subsidiary having a lower tax_liability in the aggregate for all years to which the regulatory election plr-144667-08 applies then that they would have had if the election had been timely made taking into account the time_value_of_money parent and subsidiary did not seek to alter a return position for which an accuracy-related_penalty has been or could have been imposed under sec_6662 of the code at the time they requested relief and the new position requires or permits a regulatory election for which relief is requested being fully informed of the required regulatory election and related tax consequences parent and subsidiary did not choose to not file the election law and analysis the ticket to work and work incentives improvement act of p l included a change for tax years beginning after date to the reit provisions of sec_856 this change allows a reit to form a taxable_reit_subsidiary that can perform activities that otherwise would result in impermissible_tenant_service_income the election under sec_856 is made on form_8875 taxable_reit_subsidiary election officers of both the reit and the taxable_reit_subsidiary must jointly sign the form which is filed with the irs service_center in ogden ut sec_856 of the code provides that a reit and a corporation other than a reit may jointly elect to treat such corporation as a taxable_reit_subsidiary to be eligible for treatment as a taxable_reit_subsidiary sec_856 provides that the reit must directly or indirectly own stock in the corporation and the reit and the corporation must jointly elect such treatment the election is irrevocable once made unless both the reit and the subsidiary consent to its revocation in addition sec_856 specifically provides that the election and any revocation thereof may be made without the consent of the secretary in announcement i r b the service announced the availability of new form_8875 taxable_reit_subsidiary election according to the announcement this form is to be used for tax years beginning after for eligible entities to elect treatment as a taxable_reit_subsidiary the instructions to form_8875 provide that the subsidiary and the reit can make the election at any time during the tax_year however the effective date of the election depends upon when the form_8875 is filed the instructions further provide that the effective date on the form cannot be more than months and days prior to the date of filing the election or months after the date of filing the election if no date is specified on the form the election is effective on the date the form is filed with the service sec_301_9100-1 of the regulations provides that the commissioner has discretion to grant a reasonable extension of time to make a regulatory election defined in sec_301_9100-1 as an election whose due_date is prescribed by regulations or by a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin or a statutory election but no more than months except in plr-144667-08 the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 through c i sets forth rules that the internal_revenue_service generally will use to determine whether under the particular facts and circumstances of each situation the commissioner will grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that subject_to paragraphs b i through iii of sec_301_9100-3 when a taxpayer applies for relief under this section before the failure to make the regulatory election is discovered by the service the taxpayer will be deemed to have acted reasonably and in good_faith and sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all years to which the regulatory election applies than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money conclusion based on the information submitted and representations made we conclude that parent and subsidiary have satisfied the requirements for granting a reasonable extension of time to elect under sec_856 to treat subsidiary as a taxable_reit_subsidiary of parent accordingly the form_8875 to treat subsidiary as a taxable_reit_subsidiary of parent filed by parent and subsidiary on date will be treated as timely filed and effective as of date this ruling is limited to the timeliness of the filing of the form_8875 this ruling’s application is limited to the facts representations code sections and regulations cited herein no opinion is expressed with regard to whether parent qualifies as a reit under subchapter_m of the code no opinion is expressed with regard to whether the tax_liability of parent and subsidiary is not lower in the aggregate for all years to which the election applies than such tax_liability would have been if the election had been timely made taking into account the time_value_of_money upon audit of the federal_income_tax returns involved the director’s office will determine such tax_liability for the years involved if the director’s office determines that such tax_liability is lower that office will determine the federal_income_tax effect 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 request for rulings it is subject_to verification on examination plr-144667-08 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely alice m bennett chief branch office of associate chief_counsel financial institutions products enclosures copy of this letter copy for sec_6110 purposes