department of the treasury director exempt_organizations contact person tdentification number telephone number employer_identification_number uniform issue list number internal_revenue_service p o box cincinnati oh release number release date date legend f administrator b scholarship program c scholarship program d scholarship program e employer p applicant organization x qualifying examination y qualifying examination dear is this in reference to your representative's letter of date requesting advance approval of your scholarship grant procedures under sec_4945 of the internal_revenue_code the information submitted shows that the grants funded by you private_foundation p will be b program a publicly_supported_organization under its administered and paid out organizations operating under the b program may elect the c option and or the d option by f in the c option p enters into an agreement with f to sponsor a specified number of college students enter the scholarships for children and or other relatives nationwide scholarship competition by taking a test called the x those students scoring within the top one-half of one percent on a state-by-state basis are designated as semifinalists they may advance to the finalist level by confirming their scores on a second test the y and by submitting an application form that includes a high school record provided by their high school extra-curricular officials accomplishments and the recommendation of their high school principal or school official designated by the principal of employees of performance academic personal showing essay strong e a f selects students from among those children and or other relatives of employees who attained the finalist level in the b program to receive p-sponsored scholarships the d option procedures generally parallel those of the c option procedures except that eligibility in the d program is limited to top-scoring black high school students the selection of individual grant recipients is made by selection committees designated by f the members of the selection committee are totally independent and separate from e and p f confirms the individual scholarship recipient's enrollment at the educational_institution makes payment of the award through the appropriate financial aid office of the educational_institution and supervises and investigates the use of the grant funds by the recipients in their educational program the scholarships will not be used as a means of inducement to recruit employees nor will a scholarships will only be grant be terminated if an employee parent or relative leaves e awarded to students who plan to enroll in an institution that meets the requirements of section after the scholarship i sec_170 of the code and which may further be limited by f awarded the recipient will not be restricted in his ner course of study in rare cases sponsors may ask f to give preference in selection to individuals who propose to study in certain broad fields sec_4945 of the code provides for the imposition of taxes on each taxable_expenditure of a private_foundation sec_4945 of the code provides that the term taxable_expenditure means any amount_paid or incurred by a private_foundation as a grant to an individual for travel study or other similar purposes by such individual unless such grant satisfies the requirements of sec_4945 sec_4945 of the code provides that sec_4945 shall an individual grant awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance by the secretary if is demonstrated to the satisfaction of the secretary that the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 and is to be used for study at an educational_organization described in sec_170 not apply to it c b revenue_ruling describes a a an organization that situation private_foundation making grants to is not private_foundation to provide scholarships only to children of a particular employer the organization that is not a private_foundation evaluates the students according to its own criteria including student performance on a qualifying examination since grant funds are distributed only to children of employees of a particular students completely who independently of the grantor accordingly any such scholarships awarded and paid after date are considered to be individual grants under sec_4945 for which advance approval of grant procedures are required under sec_4945 scholarships company involving selected receive are not a revproc_76_47 1976_2_cb_670 sets forth guidelines to be used in determining whether a grant made by a private_foundation under an employer-related program to a child of an employee of the particular employer to which the program relates is a scholarship grant subject_to the provisions of sec_117 if a private foundation's program satisfies the seven conditions set forth in sections dollar_figure through dollar_figure of revproc_76_47 and meets the percentage_test described in sec_4 the service will assume the grant will be subject_to the provisions of sec_117 section dollar_figure of revproc_76_47 provides a percentage_test guideline it states that in the case of a program that awards grants to children of employees of a particular employer the program meets the percentage_test if the number of grants awarded under that program in any year to such children does not exceed percent of the number of employees' children who i were eligible ii were applicants for such grants and iii were considered by the selection committee in selecting the recipients of grants in that year or percent of the number of employees' children who can be shown to be eligible for grants whether or not they submitted an application in that year as stated in sec_4 of revproc_76_47 if a sponsor's program satisfies the seven conditions set forth in sections dollar_figure through but does not meet the percentage_test of section dollar_figure applicable to grants to employees' children the question whether the grants are scholarship or fellowship grants subject_to the provisions of sec_117 of the code will be resolved on the basis of all the facts and circumstances in making this determination the service will consider as a substitute for the percentage_test of section dollar_figure all the relevant facts and circumstances to determine whether the primary purpose of the program is to provide extra compensation or other employment incentive or whether the primary purpose is to educate recipients in their individual capacities these facts and circumstances will be considered in the context of the probability that a grant will be available to any eligible applicant such relevant facts and circumstances could include the history of the program such as the source of the program's funding the courses of study for which the grants are available any eligibility requirements imposed by the program other than employment of the applicants or their parents and the age and grade level prerequisites for the studies for which the grants are available the publicity given the grant program the degree of independence of the selection committee the particular standards used for selection the specific means used to determine whether those standards have been met the precise nature of the employee limitation or preference the number of grants available the number of employees or their children who would be eligible for them the percentage of eligible employees or their children applying for grants who normally eg on an average basis receive grants under the program and whether and how many grants are awarded to individuals who do not qualify as employees or children of employees a in your case the following facts and circumstances are considered relevant aside from the private_foundation sponsored b its nationwide college scholarship program for no application is required individuals must recipients are chosen by selection involved employment preference f program in a substantially_similar manner to academically talented high school students achieve finalist status in their respective competitions committees no limitations are placed on the recipients’ choice of course of study after the grant is awarded public charity operates its independent foundation employer private totally the the or of under the facts and circumstances as stated above there is only an insignificant probability that any particular employee's child and or other relative will be selected and thus the grant s primary purpose is not one of providing extra compensation or other employment incentive and the facts_and_circumstances_test of revproc_76_47 sec_4 is met accordingly based upon the information presented and assuming your scholarship program will be conducted as proposed with a view to providing objectivity and non-discrimination in the awarding of scholarship grants we rule that your grants to f for the awarding of scholarship grants to children and or other relatives of employees of e comply with the requirements of sec_4945 of the code thus such expenditures made in accordance with those procedures will not constitute taxable_expenditures within the meaning of sec_4945 of the code the recipient of the scholarship is responsible for determining whether all or part of the scholarship is includible in gross_income under sec_117 of the code we understand that f will advise the recipient that amounts granted are taxable_income if the aggregate scholarship amounts received by the recipient exceed tuition and fees not including room and board required for enrollment or attendance at the educational_institution and fees books supplies and equipment required for courses of instruction this ruling is based on the understanding that there will be no material_change in the facts upon which it is based and that no grants will be awarded to relatives of members of selection committees or for a purpose inconsistent with the purposes described in sec_170 of the code this ruling will remain in effect as long as the procedures in awarding grants under your program remain in compliance with sections dollar_figure through dollar_figure of revproc_76_47 please note that this ruling is only applicable to grants awarded under the b program before you enter into any other scholarship or educational loan program you should submit a request for advance approval of that program your procedures for awarding grants under the b program are considered to satisfy the facts_and_circumstances_test of revproc_76_47 and therefore will not be counted in determining whether the percentage_test of revproc_76_47 is met with respect to any other such program for which prior approval has been granted this ruling will be made available for public inspection under sec_6110 of the code after for details see enclosed notice a copy of this ruling with deletions that we intend to make if you disagree with our proposed certain deletions of identifying information are made notice of intention to disclose available for public inspection is attached to notice deletions you should follow the instructions in notice this ruling letter is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent because this ruling letter could help to resolve any questions please keep it in your permanent records if you have any questions about this ruling letter please contact the person whose name and telephone number are shown in the heading of this letter sincerely robert choi director exempt_organizations rulings and agreements enclosure notice


internal_revenue_service department of the treasury u ll washington dc i a q yo f208 g contact person telephone number in refe we we date op e ep t jan ‘attn legend state a empioyer m group b employees plan x proposed ordinance r dear this is in response to a ruling_request dated date submitted on your behalf by your authorized representative concerning the federal_income_tax treatment under sec_414 of the internal_revenue_code code of certain contributions to pian x including contributions to purchase additional service_credit the following facts and representations have been submitted employer m a political_subdivision of state a has been a participating employer in plan x a qualified_pension plan under sec_401 of the code plan x is also a governmental_plan as defined in code sec_414 ail participants are required to contribute a specified percentage of their compensation to plan x request the service concluded that such contributions meet the requirements of sec_414 of the code in a prior ruling employer m’s employees are mandatory participants in plan x unless they are covered by another retirement_system or qualify for certain exemptions provided to certain types of employees eg temporary employees participation in plan x is in lieu of social_security and provides the covered_employee with retirement disability and survivor benefits through a funded plan funding for plan x is provided by both employee and employer contributions pursuant to the terms set forth in state a’s statute employees may purchase additional service_credit by payroll deduction in accordance with the foregoing statute employer m has proposed to enact ordinance r which will become effective upon a favorable ruling from the internal_revenue_service sec_1 of proposed ordinance r provides that any election by the employee to have his or her payroll deductions purchase service_credit under plan x must comply with state a’s statute governing pickup contributions and must be irrevocable sec_2 and of the proposed ordinance r provide that employer m shail pay the pick-up amount directly to plan x in lieu of such payment being made by the employee in addition sec_5 of proposed ordinance r provides that the pickup shall be mandatory for the covered_employee until the earlier of termination of employment or the completion of all required_payments for the service_credit further sec_5 of proposed ordinance r states that no covered_employee shall have the option of choosing to receive the picked up amounts directly instead of having them paid_by employer m to plan x for purposes of the internal_revenue_code such picked-up contributions shall be treated as employer contributions within the meaning of sec_414 of the code based on the aforementioned facts you request the following rulings that amounts picked up by employer m on behalf of the group b employees pursuant to proposed ordinance r although designated as employee contributions will be treated as employer contributions for federal_income_tax purposes that amounts picked up by employer m pursuant to proposed ordinance r are excluded from the gross_income of the group b employees for federal_income_tax purposes that amounts picked up by employer m will not constitute wages from which federal income taxes must be withheld sec_414 of the code provides that contributions otherwise designated as employee contributions shall be treated as employer contributions if such contributions are made to a plan determined to be qualified under sec_401 established by a state government or a political_subdivision thereof and are picked up by the employing unit the federal_income_tax treatment to be accorded contributions which are picked up by the employer within the meaning of sec_414 of the code is specified in revrul_77_462 1977_2_cb_358 in that revenue_ruling the employer schoo district agreed to assume and pay the amounts employees were required by state law to contribute to a state pension_plan revrul_77_462 concluded that the school district's picked-up contributions to the plan are excluded from the employees’ gross_income until such time as they are distributed to the employees the revenue_ruling held further that under the provisions of sec_3401 of the code the school district's contributions to the plan are excluded from wages for purposes of the collection of income_tax at source on wages therefore no withholding is required from the employees’ salaries with respect to such picked-up contributions the issue of whether contributions have been picked up by an employer within the meaning of sec_414 of the code is addressed in revrul_81_35 1981_1_cb_255 and revrul_81_36 1981_1_cb_255 these revenue rulings established that the following two criteria must be met the employer must specify that the contributions although designated as employee contributions are being paid_by the employer in lieu of contributions by the employee and the employee must not be given the option of choosing to receive the contributed amounts directly instead of having them paid_by the employer to the pension_plan in revrul_87_10 1987_1_cb_136 the internal_revenue_service considered whether contributions designated as employee contributions to a governmental_plan are exciudable from the gross_income of the employee the service concluded that to satisfy the criteria set forth in revenue rulings and with respect to particular contributions the required specification of designated employee contributions must be completed before the period to which such contributions relate in this request proposed ordinance r if adopted as proposed would satisfy the criteria set forth in revrul_81_35 and revrul_81_36 it provides that employer m will make contributions in lieu of contributions by group b employees and that the employees may not elect to receive such contributions directly e n o j accordingly we conclude with respect to ruling requests number sec_1 and that the amounts picked up by employer m on behalf of the group b employees who participate in pla x shall be treated as employer contributions and will not be inciudible in the employees’ gross_income in the year in which such amounts are contributed for federal_income_tax treatment these amounts will be includible in the gross_income of the employees or their beneficiaries only in the taxable_year in which they are distributed to the extent that the amounts represent contributions made by employer m because we have determined that the picked-up amounts are to be treated as employer contributions they are excepted from wages as defined in sec_3401 of the code for federal_income_tax withholding purposes in addition no part of the amounts picked up by employer m will constitute wages for federal_income_tax withholding purposes in the taxable_year in which they are contributed to plan x these rulings apply only if the effective date for the commencement of any proposed pick up as specified in proposed ordinance r cannot be any earlier than the later of the date proposed ordinance r is signed into law or the date it is put into effect in addition these rulings are contingent upon the adoption of proposed ordinance r as contained in your correspondence dated date for purposes of the application of sec_414 of the code it is immaterial whether an employer picks up contributions through a reduction in salary an offset against future salary increases or a combination of both these rulings are based on the assumption that plan x will be qualified under sec_401 of the code at the time of the proposed contributions and distributions no opinion is expressed as to whether the amounts in question are subject_to tax under the federal_insurance_contributions_act no opinion is expressed as to whether the amounts in question are paid pursuant to a salary reduction agreement within the meaning of sec_3121 a t k o a copy of this letter has been sent to your authorized representative in accordance with the power_of_attorney on file with this office sincerely yours signed d0yus b flotd joyce e floyd chief employee_plans technical branch enclosures copy of this letter deleted copy notice


t c memo united_states tax_court harold cortes and julie cortes petitioners v commissioner of internal revenue respondent docket nos filed date scott w gross for petitioners vladislav m rozenzhak and miles d friedman for respondent memorandum findings_of_fact and opinion buch judge respondent issued notices of deficiency determining the following deficiencies and penalties with respect to mr and mrs cortes’ federal_income_tax for years and unless otherwise indicated all section references are to the internal continued year deficiency dollar_figure big_number big_number penalty sec_6662 dollar_figure big_number big_number after concessions by both parties the issues remaining for consideration are whether mr cortes had unreported income and whether the corteses are liable for an accuracy-related_penalty for each year the corteses argue that the money mr cortes received from seventh day sabbath church in return for his services as a pastor should not be included in income because he took a vow of poverty that insulated him from having to report the income we conclude that the compensation_for his services was income and that the corteses are liable for the accuracy-related_penalty for each year in issue findings_of_fact in mr cortes helped found the christian fellowship of seventh day adventists a church fellowship also in mr cortes was appointed as a pastor and elder of the church fellowship and mrs cortes was appointed continued revenue code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure all monetary amounts are rounded to the nearest dollar secretary at some point the church fellowship became known as seventh day sabbath church an unincorporated association in mr cortes met frederic and elizabeth gardner through another pastor the church council invited the gardners to give a presentation on church organization and setting up ministries and vows of poverty mr cortes later contacted the gardners about setting up a ministry setting up a corporation sole and taking a vow of poverty mr cortes was a customer of the gardners and made contributions to bethel aram ministries an entity formed by the gardners in date mr cortes incorporated a corporation in nevada named the office of presiding head elder salomon haroldo cortes after the order of jesus mrs cortes served as secretary for only one year the gardners’ corporation sole and vow of poverty arrangement has been the subject of litigation both here and elsewhere see gardner v commissioner tcmemo_2013_67 payments made to a corporation sole included in income notwithstanding vow of poverty united_states v gardner no cv05-3073-pct- ehc wl at d ariz date aff’d 457_fedappx_611 9th cir enjoining the gardners from promoting organizing and selling their corporation sole tax arrangement see also gunkle v commissioner tcmemo_2012_305 aff’d 753_f3d_502 5th cir holding that payments to a corporation sole established with the help of the gardners are taxable notwithstanding a vow of poverty three of mr cortes’ witnesses also made contributions to bethel aram ministries and each set up a ministry or corporation and took a vow of poverty consistent with the gardners’ instructions christ the high priest and king and his successors a corporation sole at some point in mr cortes became an ordained minister mr cortes signed a vow of poverty in date after mr cortes signed the vow of poverty the corteses purchased a home in mrs cortes’ name the corteses own three vehicles they jointly own a truck and a mercedes and mr cortes owns a volkswagen mr cortes is the owner of an entity called living waters ministries during the years in issue living waters ministries held three bank accounts at wells fargo bank in the name of living waters ministries a corporation sole mr and mrs cortes were the only signatories on the living waters ministries accounts during the years in issue mr cortes was a pastor with the seventh day sabbath church in return for his services seventh day sabbath church issued checks every two weeks for dollar_figure to living waters ministries the church also issued checks of varying amounts made out to cash that mr cortes endorsed terms two versions of the vow of poverty appear in the record with different on date mr cortes submitted a form to wells fargo bank to delete the words a corporation sole from the bank statements beginning in date that amount was increased to dollar_figure and deposited into the living waters ministries accounts mr cortes was a signatory on the seventh day sabbath church bank account but in order to draw on that account each check required two signatures once the money from seventh day sabbath church was deposited into the living waters ministries accounts the church had no control_over how that money was spent and mr cortes did not have to make an accounting to the church of how the money was spent out of the living waters ministries bank accounts mr cortes paid the mortgage and utilities for the home in mrs cortes’ name as well as other personal expenses such as for food and transportation the corteses filed joint federal_income_tax returns for through each reporting mrs cortes’ earnings as wages and reporting mr cortes as unemployed although the corteses paid a return preparer to prepare their returns they did not did not discuss with the preparer mr cortes’ activities as a pastor or the money deposited into the living waters ministries accounts that he used to support his wife and two children respondent issued notices of deficiency for through determining that the deposits into the living waters ministries accounts were unreported income to mr cortes and that the corteses are liable for an accuracy- related penalty for each year the corteses while residing in california timely filed petitions disputing the notices of deficiency and the cases were consolidated respondent allowed mr cortes a deduction for a parsonage_allowance of dollar_figure per year the parties have agreed by stipulation that some of the deposits were reimbursements or were otherwise not taxable the parties have also agreed that the corteses failed to report state tax refunds for and we address the issues of unreported income and the accuracy-related_penalty opinion in general the commissioner’s determinations set forth in a notice_of_deficiency are presumed correct and the taxpayer bears the burden of proving that the determinations are in error in the court_of_appeals for the ninth circuit to which an appeal of these cases would lie the presumption of correctness does not attach in cases involving unreported income unless the commissioner first establishes an evidentiary foundation linking the taxpayer to the alleged income- rule a 290_us_111 see sec_7482 producing activity the requisite evidentiary foundation is minimal and need not include direct evidencedollar_figure once the commissioner produces evidence linking the taxpayer to an income-producing activity the burden shifts to the taxpayer to rebut the presumption of correctness of respondent’s deficiency determination by establishing by a preponderance_of_the_evidence that the deficiency determination is arbitrary or erroneous respondent has established the requisite minimal evidentiary foundation by linking mr cortes and his activities as a pastor to the payments the church made to living waters ministries therefore the corteses have the burden_of_proof the corteses have neither claimed nor established that they satisfy the requirements of sec_7491 to shift the burden_of_proof to respondent see 596_f2d_358 9th cir rev’g 67_tc_672 see banister v commissioner tcmemo_2008_201 aff’d 418_fedappx_637 9th cir 92_tc_661 see also 181_f3d_1002 9th cir aff’g tcmemo_1997_97 vow of poverty the corteses acknowledge that the seventh day sabbath church paid money to living waters ministries on behalf of mr cortes for his personal and housing_expenses the corteses also acknowledge that the amounts were received by them personally from seventh day sabbath church mr cortes asserts however that because he received the money after he signed a vow of poverty it is not taxable sec_61 defines gross_income as all income from whatever source derived including compensation_for services this definition is construed broadly and extends to all accessions to wealth over which the taxpayer has complete control as the supreme court explained a gain constitutes taxable_income when its recipient has such control_over it that as a practical matter he derives readily realizable economic value from it a taxpayer has dominion and control when the taxpayer is free to use the funds at will the use of funds for personal purposes indicates dominion and control even over an account titled in the name of a church or other religious organizationdollar_figure see 348_us_426 343_us_130 rutkin v united_states u s pincite gardner v commissioner tcmemo_2013_67 at citing woods v continued mr cortes alleges that the vow of poverty he took insulated him from being taxed on the compensation he received from seventh day sabbath church mr cortes points us to three cases to support his assertion that the income he received is actually tax-exempt_income of the church itself shuster v commissioner fogarty v united_states and mceneany v commissioner those cases do not advance mr cortes’ position first the cases are factually distinguishable in the cited cases the taxpayer was paid a salary by a third party and then remitted the salary to the religious_order in accordance with a vow of poverty in contrast mr cortes received compensation_for providing services to the church and he made no attempt to assign his income back to seventh day sabbath church in accordance with the vow of poverty in addition to being factually distinguishable the outcomes in those cases do not favor mr cortes in each case the taxpayer was held to have earned the income individually and thus the taxpayers were required to include their compensation in their taxable_income continued commissioner tcmemo_1989_611 and chambers v commissioner t c memo see shuster v commissioner 800_f2d_672 7th cir aff’g 84_tc_764 780_f2d_1005 fed cir mceneany v commissioner tcmemo_1986_413 a distinction here is that the payments were not made directly to mr cortes but instead to living waters ministries but mr cortes individually provided his services as a pastor to seventh day sabbath church and he received compensation_for those services in the form of payments the church made to living waters ministries the living waters ministries accounts were controlled by mr and mrs cortes and that money was used for mr cortes and his family’s personal expenses mr cortes has been unable to provide any statute or caselaw that would support exclusion of those amounts from income therefore the money received for his services to seventh day sabbath church is mr cortes’ unreported income accuracy-related_penalty sec_6662 and b and imposes a penalty on any portion of an underpayment_of_tax required to be shown on a return if the underpayment is due to among other reasons negligence disregard of rules or regulations or any substantial_understatement_of_income_tax the term negligence includes any failure to make a reasonable attempt to comply with the provisions of the code the term disregard includes any careless reckless or intentional disregard an understatement of income_tax is substantial if the understatement exceeds the sec_6662 greater of of the tax required to be shown on the return or dollar_figure respondent bears the burden of production as to the penalty the understatement for each year in issue exceeds of the tax required to be shown on the return which is greater than dollar_figure consequently respondent satisfied his burden of production the penalty will not apply to any portion of an underpayment for which a taxpayer establishes that he or she had reasonable_cause and acted in good_faith the court must consider all facts and circumstances in determining whether the taxpayer acted with reasonable_cause and in good_faith in order to establish good-faith reliance on an adviser the taxpayer must prove that i he gave the return preparer complete and accurate information ii an incorrect return was the preparer’s fault and iii he believed in good_faith that he was relying on a competent return preparer’s advice as to the tax treatment although the corteses sec_6662 sec_7491 sec_6664 sec_1_6664-4 income_tax regs 112_tc_317 citing 88_tc_654 aff’d without published opinion sub nom schutter v commissioner 242_f3d_390 10th cir continued had a paid return preparer mrs cortes admitted that they did not discuss with the preparer mr cortes’ activities as a pastor or the money deposited into the living waters ministries accounts that he used to support his wife and two children therefore the corteses have not shown reasonable reliance on their return preparer or any other evidence supporting a reasonable_cause and good_faith and they are liable for the accuracy-related_penalty for each year to reflect the foregoing and the concessions by the parties decisions will be entered under rule continued


internal_revenue_service number release date index number ------------------------------------------------------ -------------------------------------- ------------------ ----------------------------- - legend decedent 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 b09 plr-161357-05 date february ----------------------------------------------------------------------------------------- ----------------------- ----------- ------- -------------- this is in response to your authorized representative’s letter dated ------------------- -------- ----------------------------------------------- ------------------------------------ date x corporation accounting firm y year z dear ------------------- date submitted on behalf of decedent’s estate requesting an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to make an election under sec_2057 of the internal_revenue_code decedent died on date at the time of decedent’s death decedent owned x shares of stock in corporation during the administration of decedent’s estate accounting firm was hired to determine the value of decedent’s stock in corporation accounting firm determined that the value of decedent’s stock in corporation at decedent’s death was dollar_figurey decedent’s form_706 united_states estate and generation-skipping_transfer_tax return was timely filed however the qualified_family-owned_business_interest qfobi election under sec_2057 was not made because based on the value of the corporation stock as reported on the form_706 decedent’s estate did not satisfy the threshold requirements to make the election the facts submitted and representations made are summarized as follows decedent’s form_706 was subsequently examined by the internal revenue sec_2001 imposes a tax on the transfer of the taxable_estate of every sec_2057 provides that for purposes of the tax imposed by sec_2001 in plr-161357-05 service in year decedent’s estate and the appeals_office of the internal_revenue_service entered into a proposed settlement agreement that increased to dollar_figurez the value of the shares of corporation stock owned by decedent at his death decedent’s estate requests an extension of time under sec_301_9100-1 and sec_301_9100-3 to make an election under sec_2057 to deduct the adjusted_value of decedent’s qualified family-owned business interests decedent who is a citizen or resident_of_the_united_states the case of an estate of a decedent to which this section applies the value of the taxable_estate shall be determined by deducting from the value of the gross_estate the adjusted_value of the qualified family-owned business interests of the decedent sec_2057 provides that the deduction allowed by sec_2057 shall not exceed dollar_figure sec_2057 provides generally that sec_2057 shall apply to an estate if a the decedent was at the date of the decedent’s death a citizen or resident_of_the_united_states b the executor elects the application of this section and files the agreement referred to in sec_2057 c the sum of the adjusted_value of the qualified family-owned business interests described in sec_2057 plus the amount of the gifts of such interests determined under sec_2057 exceed sec_50 percent of the adjusted_gross_estate and d during the 8-year period ending on the date of the decedent’s death there have been periods aggregating years or more during which such interests were owned by the decedent or a member_of_the_decedent’s_family and there was material_participation within the meaning of sec_2032a by the decedent or a member_of_the_decedent’s_family in the operation of the business to which such interests relate under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted based on the facts submitted and the representations made we conclude that plr-161357-05 reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government therefore an extension of time is granted until days from the date of this letter for making an election under sec_2057 the election should be made on a supplemental form_706 united_states estate and generation-skipping_transfer_tax return and filed with the internal_revenue_service center cincinnati oh a copy of this letter should be attached to the supplemental form_706 a copy is enclosed for this purpose 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 tax consequences of the transaction under the cited provisions or under any other provisions of the code specifically we express or imply no opinion on whether the estate qualifies for the deduction under sec_2057 the burden of establishing to the satisfaction of the service that all of the requirements of sec_2057 have been met remains with decedent’s estate provides that it may not be used or cited as precedent is being sent to your authorized representative except as specifically ruled herein we express or imply no opinion on the federal in accordance with a power_of_attorney on file with this office a copy of this letter this ruling is directed only to the taxpayer requesting it sec_6110 sincerely heather c maloy associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes copy of letter


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si 1-plr-109336-99 date nov legend x y year1 year2 state a b c properties plr-109336-99 dollar_figured dollar_figuree dollar_figuref dollar_figureg this letter responds to a letter dated date written on behalf of x requesting a ruling that the rental income received by x and its qualified subchapter_s subsidiaries qsubs from properties is not passive_investment_income within the meaning of sec_1362 of the code facts x has elected to be an s_corporation and is engaged in the business of owning and managing real_estate x owns a residential apartments and b square feet of retail_space x performs management services through y a corporation for which a qsub election is in effect x proposes to form under state law a series of wholly-owned subsidiaries and elect for them to be treated as qsubs each of properties currently owned by x would be transferred to one of the newly formed qsubs x conducts regular inspections of its real_estate and is responsible for maintaining the roofs exterior walls heating and air conditioning systems plumbing foundations and structures of the real_estate x is responsible for providing on- premises superintendent or janitor arranging social activities painting of apartments repairs within apartments maintenance of common areas pest control snow removal trash removal seasonal decorations provision of utilities building security and patrol services maintenance of alarm and sprinkler systems handling tenant complaints handling some eviction proceedings general bidding for supplies and labor plr-109336-99 maintenance and capital improvements and ongoing capital improvement programs to existing properties x also oversees the leasing of the real_estate advertising and marketing of the properties these activities are performed for x through its qsub y y has c employees who provide these services in year1 x received or accrued approximately dollar_figured in rents and paid_or_incurred approximately dollar_figuree in relevant expenses with respect to properties in year2 x received or accrued approximately dollar_figuref in rents and paid_or_incurred approximately dollar_figureg in relevant expenses with respect to properties law and analysis sec_1361 a provides that a corporation which is a qualified_subchapter_s_subsidiary shall not be treated as a separate corporation and all assets liabilities and items of income deduction and credit of a qualified_subchapter_s_subsidiary shall be treated as assets liabilities and such items of the s_corporation sec_1361 provides that a qualified_subchapter_s_subsidiary means any domestic_corporation which is not an ineligible_corporation if percent of the stock of such corporation is held by the s_corporation and the s_corporation elects to treat such corporation as a qualified_subchapter_s_subsidiary except as provided in sec_1362 sec_1362 provides that a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1362 provides that an election under sec_1362 terminates whenever the corporation i has accumulated_earnings_and_profits at the close of each of three consecutive tax years and ii has gross_receipts for each of such tax years more than percent of which are passive_investment_income except as otherwise provided in subparagraph c sec_1362 provides that 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 means amounts received for_the_use_of or the right to use property whether real or personal of the corporation sec_1_1362-2 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 plr-109336-99 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 conclusion based solely on the facts as presented in this ruling_request and viewed in light of the applicable law and regulations we conclude that the rents x receives from properties are not passive_investment_income under sec_1362 this ruling assumes that valid qsub elections are in effect for each of the subsidiary corporations to which properties are transferred and that y has a valid qsub election in effect except for the specific ruling above no opinion is expressed or implied concerning the federal tax consequences of the facts of this case under any other provision of the code specifically no opinion is expressed regarding company’s eligibility under sec_1361 to be an s_corporation or the validity of the relevant qsub elections further the passive_investment_income rules of sec_1362 are completely independent of the passive_activity rules of sec_469 unless an exception under sec_469 applies the rental_activity remains passive for purposes of sec_469 in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative this ruling is directed only to the taxpayer who requested it according to sec_6110 this ruling may not be used or cited as precedent signed david r haglund sincerely david r haglund senior technician reviewer branch office of the assistant chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index nos cc tege eb ec - plr-106780-00 date plan x this is in response to your request for a ruling on behalf of x concerning the federal_income_tax consequences of an amendment to plan on which x previously received a private_letter_ruling plr that ruling concluded that benefits payable under the terms of the plan and a grantor_trust commonly referred to as a rabbi_trust were includible when paid or made available that the creation and operation of the trust did not result in income to participants or beneficiaries under the doctrines of constructive receipt and economic benefit or under sec_83 of the internal_revenue_code the ruling also concluded that the trust would be classified as a_trust within the meaning of sec_301_7701-4 of the procedure and administration regulations and that x should be treated as the owner of the entire trust under sec_677 of the code x now proposes to amend the plan to provide for a new class of plan participant under the terms of the amendment an employee must have retired have completed at least years of active_participation in a group health insurance plan or health_maintenance_organization maintained by x have been enrolled in such plan or organization on the day before retirement and receive an immediate_annuity from x’s qualified_pension plan in order to be included in the new class the amendment provides that this new class of plan participant their spouses dependents and survivors participants are entitled to receive health care benefits under the plan in accordance with the terms of the health care plan or organization in which they participate the benefits may be paid either in the form of reimbursements to a participant for covered expenses paid_or_incurred to the service provider that renders the health care or to a voluntary employee beneficiary association that has paid or is expected to pay the costs of the covered health care participants are not entitled to any payment that results in a double benefit under the plan or any other plan maintained by x x has represented that the amendment will not change the level of benefits payable to participants under the plan and it will have no effect on eligibility or the amount of health care benefits to which a participant may be entitled finally x has represented that none of x’s plans is subject_to title i of the employee income security act of erisa sec_61 of the internal_revenue_code provides that unless otherwise excepted gross_income includes all compensation received for services performed including fringe_benefits sec_83 of the internal_revenue_code provides that the excess if any of the fair_market_value of property transferred in_connection_with_the_performance_of_services over the amount_paid if any for the property is includible in the gross_income of the person who performed the services for the first taxable_year in which the property becomes transferable or is not subject_to a substantial_risk_of_forfeiture sec_1_83-3 of the income_tax regulations provides that for purposes of sec_83 the term property includes real and personal_property other than money or an unfunded and unsecured promise to pay money or property in the future property also includes a beneficial_interest in assets including money transferred or set_aside from claims of the transferor's creditors for example in a_trust or escrow account sec_105 of the code provides that generally amounts received by an employee through accident_or_health_insurance for personal injuries or sickness shall be included in gross_income to the extent such amounts are attributable to contributions by the employer which were not includible in the gross_income of the employee or are paid_by the employer sec_105 of the code provides that except in the case of amounts attributable to and not in excess of deductions allowed under sec_213 relating to medical etc expenses for any prior taxable_year gross_income does not include amounts referred to in subsection a if such amounts are paid directly or indirectly to the taxpayer to reimburse the taxpayer for expenses_incurred by the taxpayer for the medical_care as defined in sec_213 of the taxpayer the taxpayer’s spouse and dependents as defined in sec_152 however pursuant to sec_105 of the code the exclusion provided in sec_105 does not apply to excess_reimbursements paid to highly compensated individuals under a discriminatory self-insured medical expense reimbursement plan sec_105 of the code states that amounts received under an accident_or_health_plan for employees shall be treated as amounts received through accident_or_health_insurance sec_1_105-5 of the income_tax regulations provides that generally an accident_or_health_plan is an arrangement for the payment of amounts to employees in the event of personal injuries or sickness an accident_or_health_plan may be either insured or noninsured sec_106 of the code provides that the gross_income of an employee does not include employer-provided coverage under an accident_or_health_plan sec_1_106-1 of the regulations states that the gross_income of an employee does not include contributions which his employer makes to an accident_or_health_plan for compensation through insurance or otherwise to the employee for personal injuries or sickness incurred by the employee the employee’s spouse or the employee’s dependents as defined in sec_152 of the code the employer may contribute to an accident_or_health_plan either by paying the premium on a policy of accident_or_health_insurance covering one or more of the employees or by contributing to a separate trust or fund which provides accident or health benefits directly or through insurance to one or more of the employees however if the insurance_policy trust or fund provides other_benefits in addition to accident or health sec_106 applies only to the portion of the contributions allocable to the accident or health benefits in revrul_62_199 1962_2_cb_38 the service concluded that sec_106 applies to retired employees as well as active employees sec_402 of the code provides that contributions made by an employer to an employees' trust that is not exempt from tax under sec_501 are included in the employee's gross_income in accordance with sec_83 except that the value of the employee's interest in the trust will be substituted for the fair_market_value of the property in applying sec_83 under sec_1_402_b_-1 of the regulations employer contributions to a nonexempt employee's trust are included as compensation in the employee's gross_income for the taxable_year in which the contribution is made but only to the extent that the employee's interest in such contribution is substantially_vested as defined in the regulations under sec_83 sec_451 of the code and sec_1_451-1 of the regulations provide that an item_of_gross_income is includible in gross_income for the taxable_year in which actually or constructively received by a taxpayer using the cash_receipts_and_disbursements_method of accounting under sec_1_451-2 of the regulations income is constructively received in the taxable_year during which it is credited to a taxpayer's account or set apart or otherwise made available so that the taxpayer may draw on it at any time however income is not constructively received if the taxpayer's control of its receipt is subject_to substantial limitations or restrictions various revenue rulings have considered the tax consequences of nonqualified_deferred_compensation arrangements revrul_60_31 situations 1960_1_cb_174 holds that a mere promise to pay not represented by notes or secured in any way does not constitute receipt of income within the meaning of the cash_receipts_and_disbursements_method of accounting see also revrul_69_650 1969_2_cb_106 and revrul_69_649 1969_2_cb_106 under the economic_benefit_doctrine an employee has currently includible income from an economic or financial benefit received as compensation though not in cash form economic benefit applies when assets are unconditionally and irrevocably paid into a fund or trust to be used for the employee’s sole benefit 16_tc_244 aff’d per curiam 194_f2d_541 6th cir revrul_60_31 situation in revrul_72_25 1972_1_cb_127 and revrul_68_99 1968_1_cb_193 an employee does not receive income as a result of the employer’s purchase of an insurance_contract to provide a source of funds for deferred_compensation because the insurance_contract is the employer’s asset subject_to claims of the employer’s creditors under the terms of the trust amounts have been placed in trust to provide benefits to participants in accordance with the terms of the plan however the trustee has the obligation to hold the trust assets and income for the benefit of x’s general creditors in the event of x’s insolvency the trust agreement further provides that a participant receives no beneficial_ownership in or preferred claim on trust assets therefore although amounts are held in trust in the event of x’s insolvency they are fully within reach of x’s general creditors as are any other assets of x sec_301_7701-4 of the procedure and administration regulations provides that generally an arrangement will be treated as a_trust if it can be shown that the purpose of the arrangement is to vest in trustees the responsibility for the protection and conservation of property for beneficiaries who cannot share in the discharge of this responsibility and therefore are not associates in a joint enterprise for the conduct of business for profit sec_671 of the code provides that where a grantor shall be treated as the owner of any portion of a_trust under subpart e part i subchapter_j chapter of the code there shall then be included in computing the taxable_income and credits of the grantor those items of income deductions and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under chapter in computing taxable_income or credits against tax of an individual sec_677 of the code provides that the grantor shall be treated as the owner of any portion of a_trust whose income without the approval of or consent of any adverse_party is or in the discretion of the grantor or a nonadverse_party or both may be held or accumulated for the future distribution to the grantor sec_1_677_a_-1 of the regulations provides that under sec_677 of the code a grantor is in general treated as the owner of a portion of a_trust whose income is or in the discretion of the grantor or a nonadverse_party or both may be applied in discharge of a legal_obligation of the grantor based on the information submitted and representations made and provided the provisions of the plan and trust requiring use of plan and trust assets to satisfy claims of x's general creditors in the event of x's insolvency is enforceable by such creditors under the federal and state law we conclude that the trust will be classified as a_trust within the meaning of sec_301_7701-4 of the regulations and because trust assets may be used to discharge x's obligations to participants x shall be treated as the owner the trust under sec_677 of the code accordingly under sec_671 there shall be included in computing the taxable_income and credits of x all items of income deductions and credits against tax of the trust the adoption of the amendment to the plan and the use of trust assets to provide health care benefits to participants under x’s health care benefits plans will not constitute a transfer of property within the meaning of sec_83 and sec_1_83-3 of the regulations and will not result in current realization of income by participants under sec_402 the adoption of the amendment to the plan will not cause participants who are on the cash_receipts_and_disbursements_method of accounting to recognize income prior to the amounts being paid or made available whichever is earlier under either the doctrine_of constructive receipt within the meaning of sec_451 of the code nor under the economic_benefit_doctrine except in the case of amounts attributable to and not in excess of deductions allowed under sec_213 for any prior taxable_year amounts paid from the trust directly or indirectly to a participant to reimburse the participant under the x’s health care plan for expenses_incurred for the medical_care as defined in sec_213 of the retired employee his or her spouse and dependents as defined in sec_152 are excludable from gross_income under sec_105 of the code provided there are no excess_reimbursements of highly compensated individuals under sec_105 of the code premiums_paid from the trust for accident_or_health_insurance under the x’s health care plan which compensates a participant for personal injuries or sickness incurred by the retired employee his or her spouse and dependents as defined in sec_152 are excludable from gross_income under sec_106 of the code except as specifically ruled on above no opinion is expressed as to the federal tax consequences of the above transaction under any other provision of the code specifically no opinion is expressed or implied concerning whether the employer’s retiree health care plan is a discriminatory self-insured accident_and_health_plan within the meaning of sec_105 of the code this ruling is directed only to the taxpayer who requested it and applies only to the plan and trust submitted as of the date of this ruling if the plan or the trust are amended this ruling may not necessarily remain in effect sec_6110 of the code provides that this ruling may not be used or cited as precedent sincerely yours charles t deliee chief executive compensation branch office of division counsel associate chief_counsel tax exempt and government entities enclosure copy for sec_6110 purposes