t c summary opinion united_states tax_court signature impressions inc petitioner v commissioner of internal revenue respondent docket no 14885-07s filed date glenn scott kiker an officer for petitioner jennifer k martwick for respondent ruwe judge this case was brought pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and unless otherwise indicated all section references are to the internal_revenue_code as amended and all rule references are to the tax_court rules_of_practice and procedure this opinion shall not be treated as precedent for any other case this case is before the court on respondent’s motion for summary_judgment filed pursuant to rule background petitioner’s principal_place_of_business at the time of filing of the petition was located in acworth georgia this collection proceeding involves petitioner’s unpaid employment_tax liabilities for the quarterly tax periods ended date date date and date petitioner filed form_941 employer’s quarterly federal tax_return and reported employment_tax liabilities for each of the periods in question petitioner has not paid these liabilities on or about date respondent sent to petitioner a letter final notice notice_of_intent_to_levy and notice of your right to a hearing the letter informed petitioner that the amounts owed through date including penalties and interest totaled dollar_figure for tax period ended date dollar_figure for tax period ended date dollar_figure for tax period ended date and dollar_figure for tax period ended date petitioner through its authorized representative responded by timely submitting form request for a collection_due_process or equivalent_hearing cdp on form petitioner’s authorized representative indicated that an installment_agreement was the proposed collection alternative and stated we have just been hired to handle this case and have not had time to complete a financial statement we will propose an installment_agreement after doing so after receipt of petitioner’s form respondent’s settlement officer sent to petitioner with a copy to its authorized representative a letter dated date scheduling a telephone conference call for date pincite p m a face-to-face meeting was also offered the letter advised petitioner to call respondent’s settlement office within days from the date of the letter if the scheduled time for the conference call was not convenient this letter also advised petitioner that it had to complete and submit form 433-b collection information statement for businesses within days in order for respondent to consider collection alternatives such as an installment_agreement or an offer-in-compromise neither petitioner nor its authorized representative called respondent’s settlement officer on the scheduled date nor did they timely indicate that the date and or time was inconvenient on date respondent’s settlement officer sent to petitioner with a copy to petitioner’s authorized representative a followup letter indicating that respondent had not received the information requested in the date letter in the date letter respondent’s settlement officer advised petitioner that respondent would make a determination regarding the proposed levy if petitioner did not provide the requested information within days of the letter on date petitioner’s authorized representative responded to the date letter by leaving a message for respondent’s settlement officer indicating that he had never received the date letter and that he had just received the date letter petitioner’s authorized representative promised to call respondent’s settlement officer but failed to do so neither petitioner nor its authorized representative provided any financial information to the settlement officer on date respondent issued to petitioner with a copy to petitioner’s authorized representative a notice_of_determination concerning collection action s under sec_6320 and or notice_of_determination sustaining the proposed levy action against petitioner petitioner timely filed a petition with this court challenging the notice_of_determination the petition was signed by glenn scott kiker the registered agent and chief_executive_officer of signature impressions inc and stated the relief requested and reasons therefor as a financial statement is in the process of being prepared and an installment_agreement will be proposed unfortunate circumstances resulted in the power_of_attorney and the taxpayer not communicating and missing the appointments set by the settlement officer on or about date counsel for respondent asked his appeals_office to give mr kiker another opportunity for a conference with respondent’s settlement officer since the settlement officer’s case activity notes indicated that petitioner had not received the date letter on date respondent’s settlement officer called mr kiker during the course of the call mr kiker indicated that petitioner was no longer generating income mr kiker did not offer any collection alternatives or provide any financial information finally mr kiker indicated that petitioner was no longer interested in an appeal or in going to tax_court but wanted a few days to consider it further on date mr kiker called respondent’s settlement officer and left a voice mail message indicating that he wanted to leave the docketed_case open at no time prior to or during the pendency of this proceeding has petitioner proposed any collection alternatives or submitted the requested financial information to respondent on date approximately weeks after the conference call with mr kiker respondent issued to petitioner a supplemental notice_of_determination concerning collection action s under sec_6320 and or informing petitioner that the proposed levy was sustained on date respondent filed with the court a motion for summary_judgment asserting that no genuine issue of material fact remains for trial by orders dated april and date the court directed petitioner to file a written response to respondent’s motion for summary_judgment no response has been received by or on behalf of petitioner discussion summary_judgment is intended to expedite litigation and avoid unnecessary and expensive trials fla peach corp v commissioner 90_tc_678 the court may grant summary_judgment where there is no genuine issue as to any material fact and a decision may be rendered as a matter of law rule a and b see also 98_tc_518 affd 17_f3d_965 7th cir 85_tc_527 the moving party bears the burden of proving that there is no genuine issue of material fact and factual inferences are read in a manner most favorable to the party opposing summary_judgment 85_tc_812 citing 79_tc_340 and 78_tc_412 naftel v commissioner supra pincite when a motion for summary_judgment is made and properly supported the adverse_party may not rest upon mere allegations or denials of the pleadings but must set forth specific facts showing that there is a genuine issue for trial rule d the motion however must be granted if the court is satisfied that no real factual controversy is present so that the remedy can serve ‘its salutary purpose in avoiding a useless expensive and time consuming trial where there is no genuine material fact issue to be tried ’ 87_tc_214 quoting 523_f2d_340 8th cir sec_6330 provides sec_6330 notice and opportunity for hearing before levy a requirement of notice before levy -- in general --no levy may be made on any property or right to property of any person unless the secretary has notified such person in writing of their right to a hearing under this section before such levy is made if a person makes a valid request for a hearing a hearing shall be held before an impartial officer_or_employee of the irs office of appeals sec_6330 in general a person may raise at the hearing any relevant issues relating to the unpaid tax or the proposed levy including appropriate spousal defenses challenges to the appropriateness of collection actions and offers of collection alternatives sec_6330 congress granted this court jurisdiction to review the determination made by the appeals_office in connection with a cdp hearing sec_6330 as previously indicated petitioner has failed to respond to respondent’s motion for summary_judgment where as here the validity of the unpaid employment_tax liabilities is not properly placed at issue the court will review the commissioner’s administrative determination for abuse_of_discretion 114_tc_604 114_tc_176 because petitioner failed to respond to respondent’s motion for summary_judgment we review the motion and supporting affidavit and exhibits to decide whether to grant the motion see shere v commissioner tcmemo_2008_8 this court’s rules require petitioner to specify the facts upon which it relies for relief see rule b the only relief sought in the petition is an installment_agreement the previously stated undisputed facts establish that petitioner was given multiple opportunities to participate in a cdp hearing when respondent’s settlement officer contacted petitioner’s representative to offer him a cdp hearing to raise any relevant issues mr kiker did not request any collection alternatives on behalf of petitioner on the basis of our examination of the entire record before us we find that respondent did not abuse his discretion and we shall grant respondent’s motion for summary_judgment to reflect the foregoing an appropriate order and decision will be entered


internal_revenue_service department of the treasury uil no number info release date p o box ben franklin station washington dc person to contact telephone number refer reply to cc dom it a - plr-101748-00 date date re scholarship benefits program ein dear sir or madam this is in response to your authorized representative’s letter and submissions of date in which you benefit plan requested a private_letter_ruling regarding the proper federal_income_tax treatment including any reporting and or withholding obligations of certain educational benefits to be awarded to employees and children of employees of participating employers under a collectively bargained benefits plan the information submitted indicates that you are a multiemployer welfare trust fund established pursuant to collectively bargained agreements provide a variety of welfare benefits to participants and beneficiaries and have been recognized as exempt from federal_income_tax under sec_501 of the internal_revenue_code the code under the plan you propose to award educational benefits to employees and children of employees following the guidelines outlined in revproc_76_47 1976_2_cb_670 you requested a ruling that such awards will be treated as scholarships or fellowship grants subject_to the provisions of sec_117 of the code while it is the practice of the internal_revenue_service the service to answer inquiries from taxpayers as to the tax effects of their transactions whenever appropriate in the interests of sound tax_administration there are certain circumstances and situations where private letter rulings will not be issued section dollar_figure of revproc_2000_3 2000_1_irb_103 pincite provides that private letter rulings will not be issued respecting whether an employer-related scholarship of fellowship_grant is excludable from the employee’s gross_income if there is no intermediary private_foundation distributing the grants as there was in revproc_76_47 additionally section dollar_figure of revproc_2000_1 2000_1_irb_4 pincite and sections dollar_figure and dollar_figure of revproc_2000_3 pincite and respectively provide that the service may decline to issue a private_letter_ruling because of the factual nature of the problem involved or for other reasons in the instant case we are unfortunately precluded from providing the ruling s you requested because there is no intermediary private_foundation awarding the grants in question as there was in revproc_76_47 and whether on not the grants in question fall outside the pattern of employment and constitute scholarship grants subject_to the provisions of sec_117 of the code is an inherently factual matter not appropriate for resolution through the ruling process the federal_income_tax treatment of scholarships and fellowship grants is addressed in sec_117 of the code sec_117 provides that gross_income does not include any amount received as a qualified_scholarship or fellowship_grant by an individual who is a candidate_for_a_degree at an educational_organization described in sec_170 describing generally a school excludable grants are generally limited to relatively disinterested ‘no-strings’ educational grants with no requirement of any substantial quid pro quo from the recipient 394_us_741 generally amounts paid to or for the benefit of employees are presumptively compensatory in nature and absent a statutory exclusion ordinarily includible in gross_income as wages where grants are made available to or for the benefit of employees on a preferential basis the employer-employee relationship is immediately suggestive that the grants are compensatory these suggestions are not dispelled simply because the immediate grantor is an independent third party such as a private_foundation voluntary employees’ beneficiary association labor_union or other_benefits fund whether a particular amount is received as a scholarship or fellowship_grant is an inherently factual question to be resolved from the circumstances of each case while a scholarship need not be formally designated as such the mere designation of a payment as a scholarship or fellowship_grant will not govern tax treatment thus for example the exclusion has no application to amounts designated as scholarships that in fact constitute taxable payments distributions or wages where educational grants are awarded in an employment context they must generally be shown to fall outside the pattern of employment before an exclusion is permitted sec_3121 of the code defining wages provides in relevant part that the term generally means all remuneration for employment including the value of benefits except that such term shall not include any benefit provided to or on behalf of an employee if at the time such benefit is provided it is reasonable to believe that the employee will be able to exclude such benefit from income under sec_117 of the code revproc_76_47 provides safe_harbor guidelines for determining whether grants made by private_foundations under employer-related scholarship programs to employees and or children of employees will be treated as scholarships or fellowship grants subject_to the provisions of sec_117 of the code private_foundations awarding grants to individuals must by statute have their procedures for awarding such grants approved in advance by the service accordingly letter rulings and determination letters are ordinarily issued in such circumstances although the guidelines enumerated in revproc_76_47 are relevant in determining whether or not employer-related educational grants are compensatory in nature the revenue_procedure does not address grants awarded either directly by an employer or by entities other than private_foundations such as grants awarded under funds established pursuant to collectively bargained agreements under current procedures private letter rulings are ordinarily not issued in these situations we are currently studying whether the no rule position of sec_3 of revproc_2000_3 should be modified to permit the issuance of letter rulings in circumstances beyond those currently authorized and hope to complete our considerations in time for the next update of the rev_proc in january the materials you submitted in support of your requested ruling will be considered and helpful in reaching our conclusions because we are not issuing the ruling s you requested the user_fee you submitted will be refunded in a separate communication pursuant to a power_of_attorney currently on file with this office the original of this letter is being sent to your first-named authorized representative and a copy is being sent to you thank you for your attention in this matter if additional information is needed please contact the individual named at the beginning of this letter not a toll-free call sincerely yours assistant chief_counsel income_tax accounting s william a jackson by william a jackson chief branch enclosure copy of this letter


of f i c e of c h i ef c ou n sel department of the treasury i n t e r n al r e v e n u e s e r v i c e w ashington d c date cc tege eoeg et1 genin-106800-09 number info release date uil -------------------------- ------------------------------------------ ----------------- --------------------------- --------------------------- dear ---------------- this letter responds to your request for information dated date you requested information regarding per_diem payments made to certain employees working in the temporary staffing industry specifically you requested information regarding when per_diem payments may be treated as non-taxable reimbursements under an accountable_plan generally amounts employers pay as reimbursements for employee business_expenses are taxable unless treated as paid under an accountable_plan amounts treated as paid under an accountable_plan are excluded from the employee’s gross_income are not reported as wages on the employee’s form_w-2 and are exempt from the withholding and payment of employment_taxes in contrast amounts treated as paid under a nonaccountable_plan are included in the employee’s gross_income must be reported as wages or other compensation on the employee’s form_w-2 and are subject_to the withholding and payment of employment_taxes sec_1_62-2 and of the treasury regulations the regulations the law treats a reimbursement or other expense allowance arrangement as an accountable_plan if it meets the requirements of business connection substantiation return of excess sec_62 of the internal_revenue_code the code and sec_1_62-2 of the regulations business connection requirement an arrangement meets the business connection requirement if the employer pays advances allowances including per_diem allowances allowances only for meals and incidental genin-106800-09 expenses and mileage allowances or reimbursements only for deductible1 business_expenses that the employee pays or incurs while performing services for the employer sec_162 of the code permits a deduction for traveling expenses including amounts expended for meals_and_lodging other than amounts which are lavish_or_extravagant under the circumstances paid_or_incurred while away from home in the pursuit of a trade_or_business as such in order to meet the business connection requirement of an accountable_plan an arrangement that reimburses traveling expenses must reimburse only those expenses that are paid_or_incurred by an employee while performing services for the employer while away from home if an employer pays an employee regardless of whether the employee incurs or is reasonably expected to incur bona_fide business_expenses the arrangement does not satisfy the business connection requirement a payor arranges to pay an amount to an employee regardless of whether the employee is reasonably expected to incur bona_fide business_expenses by supplementing the wages of those employees not receiving the reimbursement so that the same gross amount is paid regardless of the reasonable expectation to incur expenses by routinely paying a reimbursement allowance to an employee who has not incurred bona_fide business_expenses or by reducing the wage payment in light of expenses_incurred or reasonably expected to be incurred only to then increase the wage payment again after the expenses have been reimbursed in order to satisfy the business connection requirement no part of an employee’s salary may be recharacterized as being paid under a reimbursement arrangement or other expense allowance arrangement a plan that recharacterizes amounts that would otherwise be payable as wages as a reimbursement allowance will not be treated as an accountable_plan such recharacterization violates the business connection requirement because the employee receives the same amount regardless of whether expenses were incurred or reasonably expected to be incurred sec_1_62-2 example illustrates a recharacterization of wages in violation of the requirement that a reimbursement be paid only when expenses are incurred the example provides that employer s pays its engineers dollar_figure a day on those days that an engineer travels away from home on business for employer s employer s designates dollar_figure of the dollar_figure as nontaxable reimbursements for the engineer’s travel_expenses on all other days the engineer receives the full dollar_figure as taxable wages because employer s pays an engineer dollar_figure a day regardless of whether the engineer is traveling away from home the arrangement does not satisfy the business connection requirement thus no part of the dollar_figure employer s designated as reimbursement is treated as paid under an accountable_plan rather all payments under the arrangement are treated as paid under a nonaccountable_plan and if an arrangement provides advances allowances or reimbursements for other bona_fide expenses related to the employer’s business that are not deductible the payor is treated as maintaining two arrangements the portion of the arrangement that provides payments for the deductible employee business_expenses is treated as one arrangement that satisfies the business connection requirement the portion of the arrangement that provides payments for the nondeductible employee_expenses is treated as a second arrangement that does not satisfy the business connection requirement and all amounts paid under the second arrangement are treated as paid under a nonaccountable_plan sec_1_62-2 of the regulations genin-106800-09 employer s must report the entire dollar_figure as wages or other compensation on the employee’s form_w-2 and must withhold and pay employment_taxes on the entire dollar_figure when paid the prohibition against wage recharacterization does not preclude an employer’s prospective alteration of its compensation structure to include reimbursement of substantiated expenses under an accountable_plan as long as such amount however identified or denominated is only paid if bona_fide expenses are incurred or reasonably expected to be incurred for the employer and the employer does not use an alternate method to get the same amount of gross pay to employees when qualifying expenses are not incurred or reasonably expected to be incurred and subsequently substantiated eg increased compensation bonus reduction in wages for the reimbursement amount with subsequent increase once the reimbursement is complete the presence of wage recharacterization is based on the totality of facts and circumstances substantiation requirement to meet the substantiation requirement an arrangement must require the employee to substantiate each business_expense to the payor within a reasonable period of time for expenses governed by sec_162 the employee must submit enough information to allow the employer to identify the specific nature of each expense and attribute the expense to the employer’s business activity generally the employee must submit an expense account or other written_statement to the employer showing the business nature and amount of each of his or her expenses however for an arrangement that reimburses travel_expenses that are governed by sec_274 the employee must submit to the payor actual substantiation of the amount of their expenses as well as the time place and business_purpose of such expenses sec_1 f of the regulations and sec_1_274-5t of the temporary income_tax regulations we have an optional simplified_method known as deemed substantiation for an employee to substantiate the amount of his or her expenses_incurred while traveling away from home when performing services for the employer this method provides a deemed substantiated amount of expenses but still requires the employee to substantiate the time place and business_purpose specifically revproc_2008_592 provides rules under which the amount of ordinary and necessary business_expenses of an employee for lodging meal and incidental_expenses or for meal and incidental_expenses incurred while traveling away from home are deemed substantiated when a payor the employer its agent or a third party provides a per_diem_allowance under a reimbursement or other expense allowance arrangement to pay for the expenses revproc_2008_59 defines per_diem_allowance as a payment under a reimbursement or other expense allowance arrangement that is revproc_2008_59 is one of a series of revenue procedures updated yearly genin-106800-09 paid with respect to ordinary and necessary business_expenses incurred or that the payor reasonably anticipates will be incurred by an employee for lodging meal and incidental_expenses or for meal and incidental_expenses for travel away from home in_connection_with_the_performance_of_services as an employee of the employer reasonably calculated not to exceed the amount of the expenses or the anticipated expenses and paid at or below the applicable federal per_diem rate a flat rate or stated schedule or in accordance with any other service-specified rate or schedule we explain this optional substantiation method and the other accountable_plan rules in publication circular_e employer’s tax guide available on www irs gov return of excess requirement to meet the return of excess requirement the employee must return to the employer within a reasonable period of time any amount the employer paid in excess of the employee’s substantiated or deemed substantiated expenses sec_1_62-2 of the regulations if an employer’s arrangement has no mechanism or process to determine when an allowance exceeds the amount that may be deemed substantiated and the arrangement routinely pays allowances in excess of the amount that may be deemed substantiated without requiring actual substantiation of all the expenses or repayment of the excess_amount we will treat the arrangement as a nonaccountable_plan and the entire amount of the allowance will be subject_to the withholding and payment of employment_taxes revrul_2006_56 2006_46_irb_874 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_2009_1 sec_2 2009_1_irb_1 date if you have any additional questions please contact our office at -------------------- sincerely janine cook branch chief employment_tax branch exempt_organizations employment_tax government entities tax exempt government entities


tax_exempt_and_government_entities_division number release date legend org organization name org - address department of the treasury internal_revenue_service attn mandatory review mc dal commerce st dallas tx date date uil address address xx date employer_identification_number person to contact id number contact numbers certified mail - return receipt requested dear in a determination_letter dated june 19xx you were held to be exempt from federal_income_tax under sec_501 of the internal_revenue_code the code based on recent information received we have determined you have not operated in accordance with the provisions of sec_501 of the code accordingly your exemption from federal_income_tax is revoked effective july 20xx this is a final adverse determination_letter with regard to your status under sec_501 of the code we previously provided you a report of examination explaining why we believe revocation of your exempt status is necessary at that time we informed you of your right to contact the taxpayer_advocate as well as your appeal rights on november 20xx you signed form 6018-a consent to proposed action agreeing to the revocation of your exempt status under sec_501 of the code you have filed taxable returns on form_1120 us corporation tax_return for the years ended 20xx06 20xx06 20xx06 with us to file form_1120 with the appropriate service_center indicated in the instructions for the return for future periods you are required you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please contact the person whose name and telephone number are shown at the beginning of this letter sincerely marsha a ramirez director eo examinations internal_revenue_service department of the treasury tax_exempt_and_government_entities_division org address date taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe an adjustment of your organization's exempt status is necessary if you do not agree with our position you may appeal your case the enclosed publication the examination process explains how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process if you request a conference we will forward your written_statement of protest to the appeals_office and they will contact you for your convenience an envelope is enclosed if you and appeals do not agree on some or all of the issues after your appeals_conference or if you do not request an appeals_conference you may file suit in united_states tax_court the united_states court of federal claims or united_states district_court after satisfying procedural and jurisdictional requirements as described in publication letter catalog number 34801v you may also request that we refer this matter for technical_advice as explained in publication exempt_organization appeal procedures for unagreed issues ifa determination_letter is issued to you based on technical_advice no further administrative appeal is available to you within the irs on the issue that was the subject of the technical_advice if we do not hear from you within days from the date of this letter we if you accept our findings please sign and return the enclosed form_6018 consent to proposed adverse action we will then send you a final letter modifying or revoking exempt status will process your case on the basis of the recommendations shown in the report of examination and this letter will become final in that event you will be required to file federal_income_tax returns for the tax period s shown above file these returns with the ogden service_center within days from the date of this letter unless a request for an extension of time is granted file returns for later tax years with the appropriate service_center indicated in the instructions for those returns you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter the most convenient time to call if we need to contact you if you write please provide a telephone number and letter catalog number 34801v thank you for your cooperation sincerely marsha ramirez director exempt_organizations enclosures publication publication form_6018 report of examination envelope letter catalog number 34801v department of the treasury - interna revenue service form_8 a name of taxpayer schedule no or exhibit year period ended explanation of items 20xx06 org legend org organization name xx date issue can the org retain its exempt status when it has investment_income in excess of and none of that income is set_aside for charitable purposes summary of facts org was found to have investment_income that constituted for the year ended june ended june 20xx 20xx and for the year ended june 20xx the organization did not file a form 990-t for the years ended june 20xx 20xx 20xx and 20xx and so could not declare any amount as set_aside for charitable activity for those years for the year ended june 20xx of its total revenue for the year the securities that generated the investment_income are not state or municipal securities the other investment_income was found to be loan repayments for loans made to org chapter s and was considered to be exempt_function_income summary of law tax regulation sec_1_501_c_7_-1 states that the exemption provided by sec_501 for organizations described in sec_501 applies only to clubs which are organized and operated exclusively for pleasure recreation and other nonprofitable purposes but does not apply to any club if any part of its net_earnings inures to the benefit of any private shareholder in general this exemption extends to social and recreation clubs which are supported solely by membership fees dues and assessments however a club otherwise entitled to exemption will not be disqualified because it raises revenue from members through the use of club facilities or in connection with club activities tax regulation sec_1_501_c_7_-1 states that a club which engages in business such as making its social and recreational facilities available to the general_public or by selling real_estate timber or other products is not organized and operated exclusively for pleasure recreation and other nonprofitable purposes and is not exempt under sec_501 solicitation by advertisement or otherwise for public patronage of its facilities is prima facie evidence that the club is engaging in business and is not being operated exclusively for pleasure recreation or social purposes however an incidental sale of property will not deprive a club of its exemption reg sec_1_501_c_7_-1 internal_revenue_code sec_512 states that except as otherwise provided in this subsection the term ‘unrelated business taxable_income means the gross_income derived by any organization from any unrelated_trade_or_business as defined in sec_513 regularly carried on form 886-a rev department of the treasury - internal_revenue_service page -1- department of the treasury - internal_revenue_service form_8 a name of taxpayer schedule no or exhibit year period ended explanation of items 20xx06 org legend org organization name xx date by it less the deductions allowed by this chapter which are directly connected with the carrying on of such trade_or_business both computed with the modifications provided in subsection b internal_revenue_code sec_512 states that in the case of an organization described in paragraph or of sec_501 the term unrelated_business_taxable_income means the gross_income excluding any exempt_function_income less the deductions allowed by this chapter which are directly connected with the production of the gross_income excluding exempt_function_income internal_revenue_code sec_512 states that for purposes of subparagraph a the term exempt_function_income means the gross_income from dues fees charges or similar amounts paid_by members of the organization as consideration for providing such members or their dependents or guests goods facilities or services in furtherance of the purposes constituting the basis for the exemption of the organization to which such income is paid such term also means all income other than an amount equal to the gross_income derived from any unrelated_trade_or_business regularly carried on by such organization computed as if the organization were subject_to paragraph which is set_aside for a purpose specified in sec_170 internal_revenue_code sec_512 defines exempt_function_income as the gross_income from dues fees charges or similar amounts paid_by members of the organization as consideration for providing such members or their dependents or guests goods facilities or services in furtherance of the purposes constituting the basis for the exemption of the organization to which such income is paid such term also means all income other than an amount equal to the gross_income derived from any unrelated_trade_or_business regularly carried on by such organization computed as if the organization were subject_to paragraph which is set_aside for sec_170 purposes internal_revenue_code sec_170 states that in the case of a contribution or gift by an individual a domestic fraternal society order or association operating_under_the_lodge_system but only if such contribution or gift is to be used exclusively for religious charitable scientific literary or educational_purposes or for the prevention of cruelty to children or animals revrul_76_337 1976_2_cb_177 jan states that a social_club exempt from federal_income_tax under sec_501 of the internal_revenue_code of must include interest received on obligations issued by a state in gross_income for the purpose of computing unrelated_business_taxable_income under sec_512 sec_103 of the code provides in part that gross_income does not include interest on obligations of a state held interest on obligations of a state received by a social_club exempt under sec_501 of the code is not included in gross_income for the purpose of computing unrelated_business_taxable_income under sec_512 form 886-acrev department of the treasury - internal_revenue_service page -2- form_886 a department of the treasury - internal_revenue_service schedule no or name of taxpayer 20xx06 org exhibit year period ended explanation of items legend org organization name xx date tax regulation sec_1_6033-2 states that organizations described in sec_501 or and for taxable years beginning after december 19xx organizations described in sec_501 that receive contributions or bequests to be used exclusively for purposes described in sec_170 sec_2055 or sec_2522 must attach a schedule with respect to all gifts which aggregate more than dollar_figure from any one person showing the name of the donor the amount of the contribution or bequest the specific purpose for which such amount was received and the specific use to which such amount was put in the case of an amount set_aside for such purposes the organization shall indicate the manner in which such amount is held for instance whether such amount is commingled with amounts held for other purposes if the contribution or bequest was transferred to another organization the schedule must include the name of the transferee organization a description of the nature of such organization and a description of the relationship between the transferee and transferor organizations for taxable years beginning after december such organizations must also attach a statement showing the total dollar amount of contributions and bequests received for such purposes which are dollar_figure or less in 536_f2d_572 579_f2d_751 and 615_f2d_600 the court found that a substantial portion of the club’s total gross_receipts was from nonmember use of club facilities determined to be between of gross_income this indicated to the court that the club was engaged in business with the general_public other factors noted by the court to consider in addition to the level of nonmember income include the purposes for which the club’s facilities were made available to nonmember groups the frequency of use of the club facilities by nonmembers and the amount of net profits derived from the nonmember income in determining a club’s net profits from nonmember use the court found it proper to charge against the outside banquet income the cost_of_goods_sold as well as those variable costs directly attributable to outside banquets such as sales_taxes salaries of employees earned while assigned to outside functions and supplies used specifically for the outside functions the court found it improper however to charge against the outside banquet income fixed costs which the club’s members would have to bear in the absence of nonmember income such as rent depreciation utilities maintenance etc the court sanctioned this allocation method only with regard to determining net profits from nonmember income for example this situation should be distinguished from the proper method of allocating expenses for the purpose of determining unrelated_business_income_tax in cases involving dual use of facilities or personnel provided for in reg a -1 public law 1976_2_cb_596 changed the language of sec_501 from exclusively to substantially_all activities should be exempt_function activities in order to remain qualified to be an exempt_organization it also imposed what is called the percentages no more then of gross_receipts can be from non-exempt sources out of which no more then can be from non-members organizations that have gross_receipts in excess of these amounts can loose their exempt status subject_to a facts and circumstances determination form 886-a cev department of the treasury - internal_revenue_service page -3- form_886 a name of taxpayer schedule no or exhibit year period ended explanation of items department of the treasury - internal_revenue_service 20xx06 org legend org organization name xx date revproc_71_17 states that those activities not associated with members must provide records proving that the non-members are quests of the members the members pay for their quests and the records and documents kept by the club shows and verifies this assertion otherwise all non-member revenue is considered an unrelated business activity in portland golf club v commissioner supra ’ the supreme court held that the sec_501 exempt social_club is allowed to offset investment_income by losses_incurred in sales to nonmembers only if those sales were motivated by an intent to profit the supreme court further held that an intent to profit is determined by using the same method to allocate fixed costs to nonmember sales as that used to compute the club's actual profit or loss applying this standard the court determined that portland failed to show that it had intended to earn gross_income from nonmember sales in excess of its total cost therefore the club lacked the requisite profit_motive with regard to this activity the court initially considered the issue of whether portland golf club must show that nonmember sales were motivated by an intent to profit in order to offset investment_income with losses from such sales it held that profit_motive is essential to come to this conclusion the court analyzed the language of sec_512 sec_512 defines the term unrelated_business_taxable_income as it relates to social clubs as meaning the gross_income excluding any exempt_function_income less the deductions allowed by this chapter which are directly connected with the production of the gross_income excluding exempt_function_income the court viewed the inclusion of the phrase allowed by this chapter as limiting deductions to chapter thus only deductions that meet the criteria of sec_162 are permitted under sec_162 expenses must be incurred in connection with a trade_or_business the court cited a previous ruling’ in stating that trade_or_business activities fall within the scope of sec_162 only if an intent to profit has been shown although conceding that generally a profit_motive is vital in determining whether an activity is a trade_or_business the club argued that by including receipts from nonmember sales within the definition of unrelated_business_taxable_income as that term is used in sec_512 the code has implicitly designated such sales as a trade_or_business consequently there is no reason to question an intent to profit from this source the activity is already within the definition the court dismissed that argument in its opinion the use by congress of the word business within the phrase unrelated_business_taxable_income in sec_512 to refer to all receipts other than payments from members hardly manifests an intent to define as a ‘trade or business’ activities otherwise outside the scope of sec_162 the opinion noted further that the club's reading would render superfluous the words ‘allowed by this chapter’ in sec_512 if each taxable activity is ‘deemed’ to be a trade_or_business then al of the expenses ‘directly connected’ would presumably be deductible the court concluded that a social_club is required to demonstrate an intent to earn gross_receipts in excess of both variable and fixed costs form 886-a crev department of the treasury - internal_revenue_service page -4- department of the treasury - internal_revenue_service form_886 a name of taxpayer schedule no or exhibit year period ended explanation of items 20xx06 org legend org organization name xx date to show an intent to profit in so doing the court also determined the proper method of allocating a share of the fixed costs to nonmember sales the ninth circuit in remanding the case back to the tax_court had ruled that some allocation of the fixed costs was necessary but had left open the possibility that the social_club could apply an allocation method different from that used in calculating its actual losses this rationale was perceived by the supreme court as an inherent contradiction it ruled that a club must allocate fixed expenses between member and nonmember sales according to the same method used in computing actual profit or loss according to the court since portland golf club's calculation of actual losses rests on its position that a portion of its fixed expenses is properly deemed as attributable to the production_of_income from nonmember sales these expenses cannot be ignored or attributed to the club's exempt_activities in determining whether the club had acted with the required profit_motive having relied on the gross-to-gross allocation method in figuring actual losses portland golf according to the court is then foreclosed from arguing that some other allocation method more accurately reflects the economic reality of intent to profit the court noted that it is not advocating that any particular method of allocating fixed expenses must be used by social clubs rather it was holding only that the allocation method used in determining actual profit or loss must also be used in determining whether a social_club acted with a profit_motive in atlanta athletic club v commissioner t c memo cites portland golf club as authority in atlanta we get some insight as to the direction the tax_court will follow in light of portland atlanta athletic club is an exempt social_club that had unrelated_business_taxable_income from the following sources investment_income food and beverage sales to nonmembers use of facilities such as the golf greens and tennis athletic and aquatic centers and amateur tournaments for nonmembers and two professional golf tournaments the club aggregated the income and expenses from the nonmember undertakings the term used by the court to characterize all nonexempt non-member functions offsetting the losses from the sales of food and beverages to nonmembers and the nonmember golf days against the income received from the tournaments the club further offset the excess losses from the nonmember undertakings taken as a whole against its investment_income among the issues facing the court pertinent ones for this discussion include whether the nonmember undertakings listed above constitute one activity or three separate activities if all nonmember activities are considered one activity then whether atlanta athletic club is entitled to offset its losses from all such undertakings against its gross_receipts from all such undertakings and finally whether the club can offset losses from nonmember undertakings against its investment_income form 886-a rev department of the treasury - internal_revenue_service page -5- department of the treasury - internal_revenue_service explanation of items form_886 a name of taxpayer org schedule no or exhibit year period ended 20xx06 legend org organization name xx date the tax_court held that the club is not entitled to offset the losses from its nonmember undertakings against its investment_income for the taxable years in question because it did not enter into such undertakings with an intent to profit it further held that the club's undertakings excluding investment_income constitute one activity and therefore the club is entitled to offset its losses from all such undertakings against its gross_receipts from all such undertakings excluding investment_income in zeta beta tau fraternity v commissioner of internal revenue t c the tax_court held that it is intended that a social_club national organization of a college fraternity or sorority and any other organization exempt under sec_501 may receive the full 35-percent amount of its gross_receipts from investment_income sources and that these sources are considered to be an activity not related to its exempt_purpose government position the amount of money properly set_aside is not subject_to unrelated_business_income_tax however it must be properly set_aside in order to make sure that the money is not taxable org should show the set-aside money and associated charitable activity and donations in it’s form_990 return schedule g of the 990-t should have been filed with the applicable attachments disclosing the set_aside revenue none of this was done there is no evidence to verify that the investment_income was used for any charitable purposes thus the full amount of investment_income is classified as unrelated_business_income and is taxable as such no charitable deduction can be taken because no charitable amount can be confirmed furthermore the investment_income exceeds the of gross_receipts limit established by public law 1976_2_cb_596 in the absence of any additional evidence to consider the exempt status of org should be revoked effective july 20xx the org will need to file tax returns for the years ended june 20xx june 20xx and june 20xx with the revenue_agent who performed the examination for the year ended june 20xx the total amount of taxes owed for the tax years ended june 20xx june 20xx and june 20xx is year taxable revenue expense specific deduction taxable_income tax 20xx06 20xx06 20xx06 dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure form 886-a rev department of the treasury - internal_revenue_service page -6- do form_886 a name of taxpayer schedule no or exhibit year period ended explanation of items department of the treasury - internal_revenue_service org 20xx06 legend org organization name xx date total_tax due dollar_figure this chart summarizes the attached information the amounts spent for org were not considered to be charitable expenses and were not deducted as such from the attached sheets the above tax amounts are based on the filing of a form 990-t form 886-acev department of the treasury - internal_revenue_service page -7-


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 b02 plr-166225-04 date date legend x ------------------------------- ------------------------------ a --------------------- ------------------------------- state ------------ buildings ----------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------------------ business park -------------------------- date ------------------------ date --------------------- date ------ date -------------------------- dollar_figurex ------------- dollar_figurey ----------- this letter responds to a letter dated date submitted on behalf of plr-166225-04 dear ---- ------- x by x’s authorized representative requesting a ruling that x’s rental income from buildings in business park is not passive_investment_income within the meaning of sec_1362 the information submitted states that x was incorporated in state on date effective date x elected to be treated as an s_corporation beginning date x’s principal business has been to develop manage and operate business park as of date buildings have been completed and they are primarily rented to tenants as office space a the president of x represents that x through its independent contractors provides various services to its tenants services provided by x include but are not limited to the following the provision and maintenance of electricity and water for the common areas the provision and maintenance of fire alarm systems maintenance and repair of roofs foundations and exterior walls maintenance and repair of the plumbing electrical heating and air conditioning systems ground maintenance landscaping and tree trimming maintenance of business park lighting maintenance of parking lots maintenance of a private road through business park maintenance of business park water and sewer system maintenance of underground cables maintenance of sidewalks and fencing window washing janitorial services security services regular property inspection hour call service and a newsletter in addition to services provided to tenants x through independent contractors handles the leasing and administrative functions involved with managing the business park including billing tenants and collecting rents finding new tenants and negotiating leases includes reimbursements by some tenants for insurance property taxes and property maintenance_expenses paid_by x x paid_or_incurred dollar_figurey in relevant expenses other than depreciation x represents that it anticipates future amounts of income and expense with respect to buildings to be consistent with the income and expense amounts from previous periods in the taxable_year ending date x received or accrued dollar_figurex in rents which sec_1361 defines an s_corporation as a small_business_corporation for which an election under ' a is in effect for the taxable_year sec_1362 provides than an election under ' a shall be terminated whenever at any time 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 sec_1362 provides that an election under ' a shall be terminated whenever the corporation has accumulated_earnings_and_profits at the close of each of consecutive taxable years and has gross_receipts for each of such taxable years more than percent of which are passive_investment_income any termination plr-166225-04 under this paragraph shall be effective on and after the first day of the first taxable_year beginning after the third consecutive taxable_year referred to above sec_1362 provides that except as otherwise provided the term passive_investment_income means gross_receipts derived from royalties rents dividends interest annuities and sales or exchanges of stock_or_securities sec_1_1362-2 of the income_tax regulations provides that rents does not include rents derived in the active trade_or_business of renting property rents received by a corporation are derived in an active trade_or_business of renting property only if based on all the facts and circumstances the corporation provides significant services or incurs substantial costs in the rental business generally significant services are not rendered and substantial costs are not incurred in connection with net leases whether significant services are performed or substantial costs are incurred in the rental business is determined based upon all the facts and circumstances including but not limited to the number of persons employed to provide the services and the types and amounts of costs and expenses_incurred other than depreciation based solely on the facts and the representations submitted we conclude that the rental income that x derives from buildings is not passive_investment_income as described in ' d c i except as specifically set forth above we express no opinion as to the federal tax consequences of the transaction described above under any other provision of the code specifically we express no opinion on whether x is a small_business_corporation eligible to make an s election further the passive_investment_income rules of ' are completely independent of the passive_activity rules of section ' unless an exception under ' applies the rental_activity remains passive for purposes of ' 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 pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to x s authorized representative enclosures copy of this letter copy for ' purposes sincerely j thomas hines chief branch associate chief_counsel passthroughs special industries


department of the treasury internal_revenue_service washington d c date number release date uil cc psi cam-101395-99 memorandum for industry director natural_resources construction lm nrc from branch chief branch office of associate chief_counsel passthroughs special industries cc psi subject withdrawal of application_for change in method_of_accounting in accordance with section a of revproc_2002_1 2002_1_irb_1 this chief_counsel_advice advises you that a taxpayer within your division has withdrawn its form_3115 application_for change in accounting_method pursuant to sec_6110 of the internal_revenue_code this chief_counsel_advice may not be used or cited as precedent legend b c d e f x y this chief_counsel_advice advises you that a form_3115 dated c filed on behalf of b is withdrawn b did not give any reason for the withdrawal b had requested to change its method of determining salvage_value for depreciable assets described in asset cla sec_49 electric utility transmission and distribution cam-101395-99 facilities of revproc_72_10 1972_1_cb_721 and its successors that were placed_in_service from through and depreciated under the class_life_asset_depreciation_range_system cladr provided in sec_1_167_a_-11 of the income_tax regulations hereinafter these assets are referred to as t d assets presently b estimated the salvage_value of these t d assets to be x percent by taking a six-year average of salvage realized or recognized on property retired during the six years before b did not update this estimate for each succeeding taxable_year b proposes to use a salvage_value of y percent for the t d assets at issue which b states is the estimate used by the utility industry this change would have been effective beginning with the taxable_year beginning d at the time of the withdrawal b had been advised of our tentatively adverse position and had been granted a conference of right on e to discuss its proposed change we are tentatively adverse to b’s proposed change for the following reasons b had elected cladr for its eligible_property placed_in_service from through accordingly b has consented to and agreed to apply all the provisions of sec_1_167_a_-11 for these assets sec_1_167_a_-11 sec_1_167_a_-11 prescribes the rules for salvage_value under the elective cladr the term salvage_value is defined in sec_1_167_a_-11 as meaning gross_salvage_value as defined in sec_1_167_a_-11 less the amount if any by which the gross_salvage_value is reduced by application of sec_167 of the internal_revenue_code of sec_1_167_a_-11 provides that the salvage_value of each vintage_account of the taxable_year shall be estimated by the taxpayer at the time the election to apply cladr is made upon the basis of all facts and circumstances existing at the close of the taxable_year in which the account is established for cladr elections sec_1_167_a_-11 provides that the salvage_value established by the taxpayer for a vintage_account will not be redetermined if it is reasonable this regulation further provides that the salvage_value established by the taxpayer will be deemed to be reasonable unless there is sufficient basis in the facts and circumstances existing at the close of the taxable_year in which the account is established for a determination of an amount of salvage_value for the account that exceeds the salvage_value established by the taxpayer for the account by an amount greater than percent of the unadjusted_basis of the account at the close of the taxable_year in which the account is established sec_1_167_a_-11 also provides that a determination of salvage_value shall include all determinations at all levels of audit and appellate proceedings and as well as all final determinations within the meaning of sec_1313 cam-101395-99 in the present case b determined the salvage_value for the vintage accounts for the t d assets at issue to be x percent and now proposes to change to a salvage_value that is less than x percent accordingly pursuant to sec_1_167_a_-11 the salvage_value of x percent originally established by b is deemed to be reasonable and therefore should not be redetermined b proposes to use a salvage_value of y percent which b states is the estimate used by the utility industry in establishing salvage_value estimates general industry experience may be used until the taxpayer has adequate experience upon which to base the estimate b however had adequate experience to base its estimate of salvage_value and therefore general industry experience is unacceptable in this case in its letter dated f b stated that it is in the process of developing an estimate of salvage based upon the facts and circumstances that existed as of the close of the taxable_year for each year in which the cladr election was made at the time of the withdrawal b had not submitted those estimates to us we note that to the extent that b sells or otherwise disposes of assets retired to a materials_and_supplies account or a construction work-in-process account those facts must be reflected in estimating salvage_value if you have any questions on this matter do not hesitate to call charles b ramsey charles b ramsey


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc ita 4-plr-129548-02 date date number release date index number legend a and b c d t state jointly-owned property date date x dear sir or madam this letter responds to your submission of date and supplemental correspondence dated date and date regarding the income_tax consequences under sec_1001 of the internal_revenue_code of the proposed partition of the jointly-owned property jop into separate parcels you have plr-129548-02 requested a ruling that the partition does not constitute a sale exchange or other_disposition that would cause any of the taxpayers a b c or t to recognize any gain_or_loss under sec_1001 facts ownership of jointly-owned property the jop is a contiguous tract of real_estate owned as tenants-in-common by a and b c and t a and b are parents of c and t is a_trust for the benefit of d another child of a and b a and b as joint_tenants own an undivided fee interest in three- sixths of the jop and a life_estate for the life of the survivor of a and b in one-sixth of the jop c owns an undivided fee interest in two-sixths of the jop t owns a remainder_interest in the one-sixth interest in which a and b own a life_estate a and b hold a mortgage on a portion of the jop the obligors on the mortgage are c as to approximately dollar_figurex and another child who formerly owned an interest in the jop of a and b as to approximately dollar_figurex partition of jointly-owned property the jop will be partitioned into separate parcels of property that will not be owned jointly by a and b c and t but will be owned separately as follows a and b will own a parcel as joint_tenants in fee simple a and b will also own a life_estate for the life of the survivor in a parcel t will own the remainder_interest in the parcel in which a and b own a life_estate and c will own two parcels in fee simple you have made the following representations based on appraisals obtained each parcel of property will be approximately equal in value to the value of the taxpayers’ respective undivided interests in the jop immediately prior to the partition none of the taxpayers will benefit disproportionately as a result of the partition and no gift will be made or received as a result of the partition no interest in the jop property that is subject_to a mortgage will be transferred or assumed by any of the taxpayers as a result of the partition the mortgage obligors will remain indebted to a and b in the same amounts plr-129548-02 you have asked us to rule that the partition of the jop as described above will not constitute a sale exchange or other_disposition that would cause any of the taxpayers to recognize any gain_or_loss under sec_1001 law and analysis sec_61 provides that gross_income includes gains derived from dealings in property under sec_1001 the gain from the sale_or_other_disposition of property is the excess of the amount_realized over the adjusted_basis provided in sec_1011 for determining gain and the loss is the excess of the adjusted_basis over the amount_realized sec_1001 provides that except as otherwise provided in subtitle a of the code the entire amount of the gain_or_loss determined under sec_1001 on the sale_or_exchange of property must be recognized sec_1_1001-1 of the income_tax regulations provides generally that the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or as loss sustained for purposes of sec_1001 in an exchange of property each party to the exchange gives up a property interest in return for a new or additional property interest such an exchange of property is a disposition under sec_1001 see sec_1_1001-1 in a partition the parties do not acquire a new or additional interest see noble v beach p 2d cal the partition of jointly-owned property is not a sale_or_other_disposition but merely the severance of joint_ownership revrul_56_437 1956_2_cb_507 holds that the conversion of a joint_tenancy in corporate stock into a tenancy_in_common for the purpose of eliminating a survivorship feature is a nontaxable_transaction for federal_income_tax purposes similarly the severance of a joint_tenancy in stock pursuant to an action under state law to compel partition and the issuance of two separate stock certificates in the names of each joint tenant is a nontaxable_transaction revrul_56_437 concludes that in both cases there was no sale_or_exchange and the taxpayers neither realized a taxable gain nor sustained a deductible loss revrul_73_476 1973_2_cb_301 holds that if three unrelated tenants-in- common of three separate parcels rearrange their interests so that each party becomes the sole owner of one of the parcels an exchange occurs so that gain_or_loss is realized revrul_79_44 1979_2_cb_265 reaches the same conclusion on similar facts plr-129548-02 conclusion the jop is contiguous and is owned as tenants-in-common by a and b c and t because the jop will be partitioned and no exchange of separate parcels of property will occur the result in revrul_56_437 rather than in revrul_73_476 applies based on the facts presented including the representations made we conclude that the partition of the jop will not be treated as a sale_or_exchange by the taxpayers accordingly no gain will be realized the taxpayers under sec_1001 as a result of the partition caveats a copy of this letter must be attached to any income_tax return to which it is relevant we have enclosed a copy of the letter for this purpose also enclosed is a copy of the letter_ruling showing the deletions proposed to be made in the letter when it is disclosed under sec_6110 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any item discussed or referenced in this letter this ruling is directed only to the taxpayer s requesting it sec_6110 provides that it may not be used or cited as precedent sincerely robert a berkovsky branch chief office of associate chief_counsel income_tax accounting enclosures


internal_revenue_service number release date index number ---------------------- ----------------- -------------------- ------------ department of the treasury washington dc person to contact ---------------------- id no -------------- telephone number -------------------- refer reply to cc intl br1 - plr-104822-05 date ------------ ty ------- --------------------- ----------------------- a ---------------------- ----------------------------------------------------------------------------- date b country c date d dear ----------------- a’s loss of lawful permanent resident status expatriation did not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code the information submitted for consideration is substantially as set forth below 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 will be subject_to country c tax on her worldwide income on the date of a's expatriation her net_worth exceeded the applicable_amount set forth in sec_877 a was born on date b in country c a surrendered her green card on date d a this is in response to a letter received date requesting a ruling that the rulings contained in this letter are based upon information and a former u s citizen whose net_worth or average tax_liability exceeds these sec_877 generally provides that a citizen who loses u s citizenship or a u s plr-104822-05 long-term_resident who ceases to be taxed as a lawful permanent resident individuals who expatriate within the 10-year period immediately preceding the close of the taxable_year will be subject_to the special rules of sec_877 for such taxable_year unless such loss did not have for one of its principal purposes the avoidance of u s taxes sec_2107 and sec_2501 provide special estate and gift_tax regimes respectively for individuals who expatriate with a principal purpose to avoid u s taxes a former u s citizen or former u s long-term_resident will be treated as having expatriated with a principal purpose to avoid u s taxes for purposes of sec_877 sec_2107 and sec_2501 if the individual's average income_tax_liability or the individual's net_worth on the date of expatriation exceed certain thresholds see sec_877 sec_2107 and sec_2501 thresholds however will not be presumed to have a principal purpose of tax_avoidance if that former citizen is described within certain statutory categories and submits a request for a ruling within one year of the date of loss of u s citizenship for the secretary's determination as to whether such loss had for one of its principal purposes the avoidance of u s taxes see sec_877 sec_2107 and sec_2501 former long-term_resident whose net_worth or average tax_liability exceeds the applicable thresholds will not be presumed to have a principal purpose of tax_avoidance if that former resident is described within certain categories and submits a complete and good_faith request for a ruling as to whether such loss had for one of its principal purposes the avoidance of u s taxes notice_98_34 requires that certain information be submitted with a request for a ruling that an individual's expatriation did not have for one of its principal purposes the avoidance of u s taxes and resident fully subject_to tax in country c the country in which she was born modified by notice_98_34 including additional information requested by the service after review of the submission under notice_98_34 1998_2_cb_29 modifying notice_97_19 1997_1_cb_394 a a is eligible to request a ruling pursuant to notice_98_34 because she is a citizen a submitted all of the information required to be submitted by notice_97_19 as accordingly based solely on the facts submitted and the representations made we conclude that a has made a complete and good_faith submission in accordance with sec_877 and notice_98_34 therefore a will not be presumed under sec_877 to have had as one of her principal purposes for expatriating the avoidance of except as expressly provided herein no opinion is expressed or implied plr-104822-05 u s taxes however because the information submitted does not clearly establish the existence or lack of a principal purpose to avoid taxes under subtitle a or b of the code no opinion is expressed as to whether a's expatriation had for one of its principal purposes the avoidance of such taxes concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in addition no opinion is expressed as to a's u s tax_liability for the taxable years prior to or after her expatriation under sections of the code other than sec_877 sec_2107 and sec_2501 which a obtained the ruling whether or not a is otherwise required to file a return the code provides that it may not be used or cited as precedent will be sent to a’s representative a copy of this letter must be attached to a's u s income_tax return for the year in in accordance with a power_of_attorney on file in this office a copy of this letter this ruling is directed only to the taxpayer requesting it sec_6110 of sincerely _______________ elizabeth u karzon branch chief cc intl br1


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 intl b06 plr-107594-09 date date re ---------------------------------------------------------------------- re ---------------------------------------------------------------------- fy ---------- legend taxpayer state x z corp country y date date date date date date date tax_year tax_year tax_year tax_year tax_year dear ------------------ ---------------------------------------------------------------------- ---------------------- --------------------------------------------- ---------------------------------------------------------------- ------------------------- ---------------- -------------------------- ----------------- ---------------------- --------------------------- ------------------- ------------------- ----------------- ----------------- ----------------- ----------------- ----------------- this letter responds to a letter dated date supplemented by letters dated date and date submitted by you and your representatives the correspondence requests that the internal_revenue_service service grant taxpayer consent to retroactively change its method for measuring and identifying plr-107594-09 employee stock_options and restricted shares pursuant to temp sec_1 7t d iii c and sec_301_9100-3 for purposes of determining the amount taxpayer must include in its cost sharing arrangement1 cost pool for tax_year and subsequent tax years alternatively the correspondence requests that the service grant taxpayer consent to prospectively change its method for measuring and identifying employee stock_options and restricted shares pursuant to temp sec_1_482-7t d iii c the consent granted by this letter is based on facts and representations submitted by 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 facts taxpayer a state x corporation and its wholly owned subsidiary z corp an entity organized under the laws of country y and treated as a corporation under sec_301_7701-2 entered into a csa in the form of two contracts a license of preexisting intangibles and an agreement for development of intangible assets on date a date after the effective date of t d date fed reg the cost sharing regulations but before the issuance of t d date fed reg the cost sharing regulations on date a date after the effective date of the cost sharing regulations but before the issuance of the cost sharing regulations taxpayer and z corp amended their csa to include stock_option costs as part of r d costs specifying a measurement method not ultimately adopted in the cost sharing regulations taxpayer used the measurement method provided in its amended csa from the inception of the csa starting in tax_year a taxable_year beginning after the effective date of the regulations but before the issuance of notice_2005_99 2005_2_cb_1214 taxpayer stopped issuing employee stock_options and began issuing restricted shares to its employees neither taxpayer’s original contract establishing its csa original contract nor any amended contract amending its csa amended contract elected to measure employee stock_options using the method provided by temp sec_1_482-7t d iii b or measure restricted shares using the method provided by notice_2005_99 collectively elective method in addition neither the original contract nor any amended contract elected to identify employee stock_options or restricted shares collectively stock-based compensation or sbc using the method provided for purposes of this ruling the terms qualified_cost_sharing_arrangement sec_1 b and cost_sharing_arrangement temp sec_1_482-7t b have materially the same meaning this ruling uses the term cost_sharing_arrangement or csa to signify both as appropriate temp sec_1_482-7t d iii b provides the same measurement method as sec_1_482-7 of the cost sharing regulations plr-107594-09 by notice_2005_99 period-by-period method therefore taxpayer and z corp were required to use the measurement method provided in temp sec_1 7t d iii a default method and identify sbc as of the date of grant under temp sec_1_482-7t d ii taxpayer discovered that it had not properly adopted the elective method of measurement and the period-by-period method of identification sometime after date a date after the periods provided by temp sec_1_482-7t d iii b and notice_2005_99 for making the elections without the commissioner’s consent thereafter taxpayer with assistance of counsel filed this request for commissioner consent to retroactively adopt the elective method of measurement for both employee stock_options and restricted share compensation and the period-by-period method of identification after being informed that the office of associate chief_counsel international was tentatively adverse to such retroactive elections taxpayer and its counsel requested in the alternative to be granted consent to prospectively adopt the elective method of measurement and the period-by-period method of identification for purposes of its alternative request taxpayer made several representations including with regard to its csa taxpayer is and will remain in compliance with all record- keeping requirements of the internal_revenue_code_of_1986 as amended and the regulations thereunder including temp sec_1_482-7t k ii e upon request taxpayer will timely provide to the commissioner records kept pursuant to such requirements taxpayer will file amended returns for tax_year tax_year tax_year and tax_year using the default method of measurement and grant_date identification provided in temp sec_1_482-7t d ii and iii a respectively for all sbc granted before date legacy sbc the first day of the first taxable_year following receipt of commissioner consent taxpayer will use the default method of measurement and grant_date identification until the legacy sbc has been exercised or has lapsed and for all sbc granted on or after date new sbc taxpayer will use the elective method of measurement and the period-by-period method of identification therefore beginning with the return for tax_year taxpayer will include the legacy sbc costs in its cost pool using the default method of measurement and grant_date identification and will include the new sbc costs in its cost pool using the elective temp sec_1_482-7t d iii a provides the same measurement method as sec_1_482-7 of the cost sharing regulations temp sec_1_482-7t d ii provides the same identification rule as sec_1 d ii of the cost sharing regulations plr-107594-09 method of measurement and the period-by-period method of identification in addition to these and other representations taxpayer has represented to our satisfaction that the service and performance vesting restrictions will not have a substantial effect on the fair value of the sbc under u s generally_accepted_accounting_principles gaap and will not result in unreasonably long vesting periods as a condition to granting commissioner consent to change to the elective method and period-by-period method for sbc granted on or after date taxpayer and the service executed a form_872 consent to extend the time to assess tax extending the statute_of_limitations with no restrictions to date in order to give the service sufficient time to examine the amended returns taxpayer has agreed to file law measurement of stock-based compensation related to intangible development the cost sharing regulations required participants to a csa to share all costs related to intangible development see sec_1_482-7 and d of the cost sharing regulations the service has always interpreted the all costs requirement to include sbc costs see 567_f3d_482 9th cir however the cost sharing regulations did not provide specific methods for measuring and identifying sbc it was not until the issuance of the cost sharing regulations that specific methods for measuring and identifying sbc were required in the cost sharing regulations the service and treasury_department added the provision now contained in temp sec_1_482-7t d iii b temp sec_1_482-7t d iii b generally provides that with respect to sbc in the form of options on publicly traded stock the controlled participants in a csa may elect to take into account all intangible_development_costs attributable to those stock_options in the same amount and as of the same time as the fair value of the stock_options reflected as a charge against income in audited financial statements or disclosed in footnotes to such financial statements provided that such statements are prepared in accordance with gaap by or on behalf of the company issuing the publicly traded stock the cost sharing regulations did not extend the elective method of measurement to restricted shares temp sec_1_482-7t d iii b provides that the election provided in temp sec_1_482-7t d iii b is made by an explicit reference to the election in the written contract required by temp sec_1_482-7t k or in a written amendment to the csa entered into with the consent of the commissioner pursuant to temp sec_1_482-7t d iii c in the case of a csa in existence on date the election by written amendment to the csa may be made without the consent of the commissioner if such amendment is entered into not plr-107594-09 later than the latest due_date with regard to extensions of a federal_income_tax return of any controlled participant for the first taxable_year beginning after date temp sec_1_482-7t d iii c provides in part that if controlled participants already have granted stock_options that have been or will be taken into account under the general_rule of temp sec_1_482-7t d iii a then except in cases specified in the last sentence of temp sec_1 7t d iii b the controlled participants may make the election described in temp sec_1_482-7t d iii b only with the consent of the commissioner and the consent will apply only to stock_options granted in taxable years subsequent to the taxable_year in which consent is obtained notice_2005_99 extended the elective method provided by temp sec_1 7t d iii b to restricted shares and restricted share units notice_2005_99 provides that the consent of the commissioner is not required to elect the elective method for restricted shares and restricted share units in the case of a csa if the election is made by a written amendment to the csa not later than the latest due_date with regard to extensions of a federal_income_tax return of any controlled participant for the first taxable_year beginning after date if a taxpayer that issues sbc with respect to a csa does not elect the elective method for measuring employee stock_options and restricted shares then the default method of temp sec_1_482-7t d iii a applies temp sec_1 7t d iii a provides in general that except as otherwise provided in temp sec_1_482-7t d iii the cost attributable to sbc is equal to the amount allowable to the controlled participant as a deduction for federal_income_tax purposes with respect to that sbc for example under sec_83 and is taken into account as an intangible development cost under temp sec_1_482-7t for the taxable_year for which the deduction is allowable identifying stock-based compensation related to intangible development notice_2005_99 provides that a taxpayer may elect to determine whether sbc measured by the elective method is related to the intangible development area by analyzing the activities of the employee recipients of the sbc by reference to financial reporting periods identifying the related compensation on a period-by-period basis the notice further provides that the consent of the commissioner is not required to elect the period-by-period method for identifying sbc that is measured under the elective method in the case of a csa if the election is made by a written amendment to the csa not later than the latest due_date with regard to extensions of a federal_income_tax return of any controlled participant for the first taxable_year beginning after date see temp sec_1_482-7t d iii b and c plr-107594-09 if a taxpayer does not elect the period-by-period method for identifying sbc then the grant_date identification method of temp sec_1_482-7t d ii applies temp sec_1_482-7t d ii provides that the determination of whether sbc is directly identified with or reasonably allocable to the intangible development activity is made as of the date that the sbc is granted accordingly all sbc that is granted during the term of the csa and at date of grant is directly identified with or reasonably allocable to the intangible development activity is included as an intangible development cost analysis pursuant to temp sec_1_482-7t d iii b taxpayer had until date to elect without the consent of the commissioner the elective method for measuring employee stock_options pursuant to notice_2005_99 taxpayer had until date to elect without the consent of the commissioner the elective method for measuring restricted shares and restricted share units also pursuant to notice_2005_99 taxpayer had until date to elect without the consent of the commissioner the period-by-period method for identifying sbc measured by the elective method because taxpayer did not make the applicable elections by date and date respectively taxpayer must use the default method of measurement and grant_date identification method for measuring and identifying sbc until the commissioner grants consent for taxpayer to change from those methods and until taxpayer makes an explicit reference to the applicable elections in the written contract required by temp sec_1_482-7t k or in a written amendment to the csa the commissioner’s consent to change the method for measuring and identifying sbc can apply only to sbc granted in taxable years subsequent to the taxable_year in which consent is obtained see temp sec_1_482-7t d iii c therefore the commissioner cannot grant taxpayer’s request for section relief to retroactively change its methods for measuring and identifying sbc however the commissioner is authorized to grant taxpayer’s request to change its methods of measurement and identification prospectively for sbc granted after the taxable_year commissioner consent is granted based on the execution of the form_872 and the representations taxpayer made the service grants taxpayer prospective consent to change its methods of measuring and identifying employee stock_options and restricted shares or restricted share units pursuant to temp sec_1_482-7t d iii c for purposes of determining the amount taxpayer must include in its csa cost pool this consent is effective for days from the date of this letter therefore if taxpayer chooses to change its method for measuring and identifying employee stock_options and restricted shares or restricted share units it must file its amended returns for tax_year tax_year tax_year and tax_year and make the written election in its csa within days from the date of this letter plr-107594-09 caveats 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 except as expressly provided herein we express or imply no opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely _________________________________ john e hinding senior technical reviewer branch office of associate chief_counsel international enclosures copy of this letter copy for sec_6110 purposes cc