department of the treasury internal_revenue_service washington d c t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n fax number contact person contact number identification_number employer_identification_number number release date se t eo ra t pe date uniform issue list legend m n state date z dear ------------- under sec_501 of the internal_revenue_code as an organization described in sec_501 based on the information submitted we have concluded that you do not qualify for exemption under that section the basis for our conclusion is set forth below we have considered your application_for recognition of exemption from federal_income_tax facts you m are a state non-profit corporation formed on date your articles of incorporation state that you are organized and shall be operated exclusively for religious charitable and educational_purposes including for such purposes the making of distribution sic to organizations that qualify as exempt_organizations under sec_501 of the internal_revenue_code of or the corresponding provision of any future united_states internal revenue law your application form_1023 provides that you provide gift funds to qualified buyers purchasing participating homes and using eligible_loan programs in your letter of date you indicate that your gifts are available to any individual purchasing a home and having been approved by a mortgage company you distribute a brochure describing your gift program the brochure indicates that there are no income limits with respect to prospective buyers in addition it provides that help is available to people residing in a specified large metropolitan area the brochure states buyers must be pre-qualified by n a member of your governing board owns n your founder and president manages the local office of n you do not actually meet with the buyers contact is made through loan officers familiar with your program you request a copy of the loan application and the related underwriting approval upon receipt you furnish the loan officer with a gift letter for the buyer to sign on the closing date you send the down payment assistance to the closing agent after the sale is completed the closing agent remits the seller’s contribution to you your date submission discusses the eligibility of buyers and the condition of the homes to be purchased in that letter you make the following representations we do not have any set rules for eligibility of sic use of the program we do not limit a buyer because of income and or assets the lender must determine their eligibility you do not determine the amount of the down payment assistance to be provided that amount is determined by the lender however the amount of the down payment assistance cannot exceed of the contract_price you indicate that the only application required with respect to the gift program is a copy of the uniform residential_loan application which the purchaser fills out at the time of the loan application however your brochure contains a gift application to be completed by the buyer the brochure instructs the buyer to give the completed application to a community representative realtor or lender it is the job of the lender to make sure the down payment assistance is being used correctly with the loan program for example a hud sic loan m does not buy sell or rent properties because of that fact we do not provide low- income housing to anyone we do not determine if a home meets any requirements to use the down payment assistance program it is the lender who the buyer is going through to determine if the home meets the loan program the buyer is going through sic we do not approve or reject any home from participating in the program we have no requirements on the appraisal of the property at this time we do not provide any homeowner education courses we do not provide any other services to the buyer after closing at this time we do not require the buyer to use any other service to use our program it is the responsibility of the lender to determine if the buyer needs to use any of those programs with respect to the sellers you make the following representations in your date submission any seller can use the program typically the seller contribution is contingent on the sale of the seller’s home sellers are required to enter into a participating home agreement that agreement was not furnished sellers are required to pay a processing fee of of the sales_price not to exceed z the amount of the down payment assistance is not determined by you or the seller the lender determines the amount necessary to approve the loan you cap that amount pincite of the sales_price the funds are provided to you by the seller and placed in a general fund the seller is required to deliver the real_estate purchase contract and the receipt for the down payment assistance amount to the certified escrow office or closing agent any funds not used by the homebuyer would be returned to m by the closing agent it is the closing agents sic responsibility to insure that m is returned the money from the seller that matches the gift the closing agent would be responsible for any errors to the hud-1 sic settlement statement the sic show m not getting the correct amount we do promote the m program through real_estate agents and mortgage lenders real_estate agents are good sources of potential homebuyers that might need the down payment assistance program as well as mortgage lenders as of right now we market sic these people through direct contact and a computer generated brochure hopefully we will get marketing items such as m pads pens calendars etc to them to help sell the program you make your services known through commercial advertising realtors mortgage companies and mass mailings in an undated letter which was received subsequent to your date letter you state that you have always provided credit_counseling_services to your clients you also provide your clients with a video prepared by another company the video and instructional materials help prospective home buyers gain knowledge about the home buying process and develop a financial plan to help them set realistic goals in buying a home after your clients watch the video you provide help with the paper work in your date submission you state that although you did not have any requirements for participation in your down payment assistance program you would begin to use hud income limits to allow only low income clients the disabled and the elderly to use your program however you stated that effective date you suspended operations pending a ruling by the internal_revenue_service you represent that you operate in a manner similar to a specified organization the manner in which you and this organization operate is referred to as seller-funded downpayment assistance in the final report an examination of downpayment gift programs administered by non-profit organizations commissioned by the office of housing united_states department of housing and urban development hud contract no c-opc-22550 m0001 date the report concludes that seller-funded downpayment assistance for mortgage downpayments has led to underwriting problems that require immediate attention furthermore the report concludes that the effective costs of homeownership are increased even more by the processing fees charged by the seller-funded downpayment assistance providers which get passed through to borrowers in higher property prices a copy of the report is enclosed with this determination_letter you are governed by a four member board_of directors your board consists of a managing general_partner of a financial consulting firm the owner of n a mortgage company and two attorneys employed by title companies you have two officers your president manages the local office of n in that capacity he originates mortgage loans your vice-president is the spouse of your president her last place of employment was a bank where she was a loan originator your application indicates that your sole source of support is donations equal to of the selling_price of the home not to exceed z this is paid_by the seller to cover your administrative costs in fact your primary source of support is contributions provided to you by the sellers you do not engage in any fundraising activities and have no plans to do so law sec_501 of the code provides for the exemption from federal_income_tax of corporations organized and operated exclusively for charitable or educational_purposes provided no part of the net_earnings inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 of the regulations provides in part that the term sec_1_501_c_3_-1 of the regulations provides that an organization is not sec_1_501_c_3_-1 of the regulations defines the term charitable as used in sec_1_501_c_3_-1 of the income_tax regulations provides that an organization sec_1_501_c_3_-1 of the regulations provides that an organization is not operated operates exclusively for exempt purposes only if it engages primarily in activities that accomplish exempt purposes specified in sec_501 of the code an organization must not engage in substantial activities that fail to further an exempt_purpose exclusively for one or more exempt purposes if its net_earnings inure in whole or in part to the benefit of private shareholders or individuals organized or operated exclusively for exempt purposes unless it serves a public rather than a private interest to meet this requirement it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests sec_501 of the code as including the relief of the poor and distressed or of the underprivileged the term charitable also includes the advancement of education educational as used in sec_501 of the code relates to the instruction of the public on subjects useful to the individual and beneficial to the community sec_1_501_c_3_-1 of the regulations provides that an organization that operates a trade_or_business as a substantial part of its activities may meet the requirements of sec_501 of the code if the trade_or_business furthers an exempt_purpose and provided the organization’s primary purpose does not consist of carrying on an unrelated_trade_or_business in 326_us_279 the supreme court held that the presence of a single nonexempt purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes denied 488_us_907 the court found an organization that operated an adoption agency was not exempt under sec_501 of the code because a substantial purpose of the agency was a nonexempt commercial purpose the court concluded that the organization did not qualify for exemption under sec_501 because its primary activity was placing children for adoption in a manner indistinguishable from that of a commercial adoption agency the court rejected the organization’s argument that the adoption services merely complemented the health related_services to unwed mothers and their children rather the court found that the health-related services were merely incident to the organization’s operation of an adoption service which in and of itself did not serve an exempt_purpose the organization’s sole source of support was the fees it charged adoptive parents rather than contributions from the public the court also found that the organization competed with for-profit adoption agencies engaged in substantial advertising and accumulated substantial profits accordingly the court found that the business_purpose and not the advancement of educational and charitable activities in easter house v u s cl_ct aff’d 846_f2d_78 fed cir cert in 92_tc_1053 the court held that purpose of plaintiff’s adoption service is its primary goal and held that the organization was not operated exclusively for purposes described in sec_501 easter house cl_ct pincite an organization that operated a school to train individuals for careers as political campaign professionals but that could not establish that it operated on a nonpartisan basis did not exclusively serve purposes described in sec_501 of the code because it also served private interests more than incidentally the court found that the organization was created and funded by persons affiliated with republican party entities and that most of the organization’s graduates worked in campaigns for republican candidates consequently the court concluded that the organization conducted its educational activities with the objective of benefiting republican candidates and entities although the candidates and entities benefited were not organization insiders the court stated that the conferral of benefits on disinterested persons who are not members of a charitable_class may cause an organization to serve a private interest within the meaning of sec_1_501_c_3_-1 of the regulations the court concluded by stating that even if the republican candidates and entities did comprise a charitable_class the organization would bear the burden of proving that its activities benefited members of the class in a non-select manner that marketed handicrafts made by disadvantaged artisans through museums and other non- profit organizations and shops be operated for exclusively charitable purposes within the meaning of sec_501 of the code the organization in cooperation with national craft agencies selected the handicrafts it would market from craft cooperatives in communities identified as disadvantaged based on objective evidence the bureau of indian affairs or other government agencies the organization marketed only handicrafts it purchased in bulk from these communities of craftsmen it did not select individual craftsmen based on the needs of the purchasers the court concluded that the overall purpose of the activity was to benefit disadvantaged communities the method it used to achieve its purpose did not cause it to serve primarily private interests because the disadvantaged artisans directly benefited by the activity constituted a charitable_class and the organization showed no selectivity with regard to benefiting specific artisans therefore the court held that the organization operated exclusively for exempt purposes on the commerciality doctrine in applying the operational_test because of the commercial manner in which this organization conducted its activities the court found that it was operated for a non-exempt commercial purpose rather than for a tax-exempt purpose among the major factors courts have considered in assessing commerciality are competition with for profit commercial entities extent and degree of below cost services provided pricing policies and reasonableness of financial reserves additional factors include inter alia whether the organization uses commercial promotional methods eg advertising and the extent to which the organization receives charitable donations in 71_tc_202 the court held an organization in 283_fsupp2d_58 d d c the court relied revrul_67_138 1967_1_cb_129 holds that helping low income persons obtain adequate revrul_70_585 1970_2_cb_115 discusses four examples of organizations providing in 86_tc_916 the court stated that while the payment of reasonable salaries does not constitute prohibited inurement the payment of excessive_salaries does and affordable housing is charitable because it relieves the poor and distressed or underprivileged the organization carried on several activities directed to assisting low-income families obtain improved housing including coordinating and supervising joint construction projects purchasing building sites for resale at cost and lending aid in obtaining home construction loans housing and whether each qualified as charitable within the meaning of sec_501 of the code situation describes an organization formed to construct new homes and renovate existing homes for sale to low-income families who could not obtain financing through conventional channels the organization also provides financial aid to eligible families who do not have the necessary down payment when possible the organization recovered the cost of the homes through very small periodic_payments but its operating funds were obtained from federal loans and contributions from the general_public the revenue_ruling holds that by providing homes for low-income families who otherwise could not afford them the organization relieved the poor and distressed situation describes an organization formed to ameliorate the housing needs of minority groups by building housing units for sale to persons of low and moderate income on an open- occupancy basis the housing is made available to members of minority groups who are unable to obtain adequate housing because of local discrimination the housing units are located to help reduce racial and ethnic imbalances in the community as the activities were designed to eliminate prejudice and discrimination and to lessen neighborhood tensions the revenue_ruling holds that the organization was engaged in charitable activities within the meaning of sec_501 of the code rehabilitation of a particular area in a city as a residential community the median income level in the area was lower than in other sections of the city and the housing in the area was generally old and badly deteriorated the organization developed an overall plan for the rehabilitation of the area it sponsored a renewal project and involved residents in the area renewal plan the organization also purchased apartment buildings that it rehabilitated and rented at cost to low and moderate income families with a preference given to residents of the area the revenue_ruling holds that the organization is described in sec_501 of the code because its purposes and activities combated community deterioration moderate-income families in a particular community the organization planned to build housing to be rented at cost to moderate-income families the service held that the organization failed to qualify for exemption under sec_501 of the code because the organization’s program did not provide relief to the poor or further any other charitable purpose within the meaning of sec_501 and the regulations situation describes an organization formed to formulate plans for the renewal and situation describes an organization formed to alleviate a shortage of housing for revrul_72_147 1972_1_cb_147 holds that an organization that provided housing to low income families did not qualify for exemption under sec_501 of the code because it gave preference to employees of a business operated by the individual who also controlled the organization although providing housing for low income families furthers charitable purposes doing so in a manner that gives preference to employees of the founder’s business primarily serves the private interest of the founder rather than a public interest rationale and conclusion charitable purposes include relief of the poor and distressed see sec_1 c - based on the information you provided in your application and supporting documentation we conclude that you are not operated for exempt purposes under sec_501 of the code an organization cannot be recognized as exempt under sec_501 unless it shows that it is both organized and operated exclusively for charitable education or other exempt purposes among other things the application and supporting documentation must demonstrate conclusively that the organization meets the operational_test of sec_1 c - c of the regulations your information indicates that your primary purpose is to operate a down payment assistance program that does not exclusively serve a purpose described in sec_501 d of the regulations however you do not conduct your down payment assistance program in a manner that establishes that your primary purpose is to address the needs of low- income grantees by enabling low-income individuals and families to obtain decent safe housing see revrul_70_585 situation for the three years you were operational your down payment assistance program did not serve exclusively low-income persons instead your program was open to anyone without any income limitations you have not demonstrated that your down payment assistance program exclusively serves any other exempt_purpose such as combating community deterioration and lessening racial tensions you indicated that you do not specifically target the benefits of your program towards any one disadvantaged group for example you have not shown that your program is designed to attract a mixed-income group of homeowners to a specifically defined geographical area that has a history of racial problems see revrul_70_585 situation sec_2 and further though your date submission indicates that you will use hud guidelines in the future you are not currently operational you suspended your operations effective date or target those areas experiencing deterioration or racial tensions see revrul_70_585 situation your program is available to anyone who is able to qualify for a mortgage in a large metropolitan area arranging the purchase of homes in a broadly defined metropolitan area does not combat community deterioration within the meaning of sec_501 of the code your information indicates that you do not limit your assistance to certain geographic areas only an insubstantial portion of the activity of an exempt_organization may further a furthermore you do not engage in any activity to ensure that the house will be habitable or that the buyer will be able to afford to maintain the house over time instead you rely solely on the mortgage_lender insurance agency home inspector or other third party to conduct such review in your date submission you state that you do not provide any educational courses to buyers that is consistent with your representation that you do not have direct contact with the buyers you later indicated that you do provide educational material in the form of a video and study guide you provided a copy of a video tape and guide the video and instructional materials help prospective home buyers gain knowledge about the home buying process and develop a financial plan to help them set realistic goals in buying a home you do not indicate when you began using this video tape or how many buyers received it accordingly you do not provide oversight or conduct any educational program or other activity to ensure that buyers are purchasing properties that are safe decent sanitary and affordable nonexempt purpose as the supreme court held in better business bureau of washington d c inc v united_states supra the presence of a single non-exempt purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes your governing board and all of your officers are individuals directly or indirectly engaged in the selling of homes your brochure indicates that all applicants must have loan approval from a mortgage company owned by one of your directors and managed by your president you conduct your operations in a manner that is consistent with a commercial firm seeking to maximize sales of services rather than in a manner that would be consistent with a charitable or educational_organization seeking to serve a charitable_class or the public at large the manner in which you operate your down payment assistance program indicates that you facilitate the sales of homes in a manner that is indistinguishable from an ordinary trade_or_business you operate as a business that provides services to home sellers for which you charge a market rate fee this type of approach as well as your representation that the amount_of_the_gift is determined by the loan officer rather than you maximizes the number of potential homeowners helps to demonstrate that your primary purpose consists of maximizing the fees you derive from facilitating sales of real_property in this respect you are similar to an organization which was denied exemption because it operated a conference center for a commercial purpose see 283_fsupp2d_58 d d c likewise operating a trade_or_business of facilitating home sales is not an inherently charitable activity thus a substantial part of your activities further a nonexempt purpose you are not supported by contributions from the general_public government or private_foundation grants almost all of your revenue comes from the sellers you serve that your primary activity is to promote and to further your private business interests is reflected in the financing structure of your down payment assistance program in this respect you are similar to the organization described in easter house supra which derived most of its support from fees it charged for its adoption services in this case the court stated that the substantial fees were not incidental to the organization’s exempt_purpose because they were designed to make a profit facilitating home sales like running an adoption service is not an inherently charitable activity and receiving support primarily from fees charged to home sellers is indicative of your commercial purpose another indication of your substantial nonexempt purpose is your lack of public support these contributions are more appropriately characterized as fees received in exchange your grant making procedures indicate that gift funds are only provided if a seller has paid even if your program was directed to exclusively low-income individuals your reliance entirely on home sellers or other real-estate related businesses that stand to benefit from the transactions to finance your down payment assistance activities demonstrates that you are operated for the purpose of benefiting private parties a processing fee and has made a contribution to you in fact while you call the funds you will receive from the sellers contributions these transactions are not contributions because they will not proceed from detached and disinterested generosity 363_us_278 your characterization of these transactions as contributions ignores the business realities surrounding the payments the sellers will make the payments to you and indirectly to the homebuyer to facilitate the sale of their homes in fact your representation that an amount equal to the seller’s contribution will be returned to you by the closing agent demonstrates the circular character of the payments for the sale of a service your information indicates that sellers are required to make contributions needed to cover the down payment assistance an applicant has requested further the funds revert to the seller if there is no sale the fact that you receive a payment from the closing agent corresponding to the amount of the down payment assistance provided by the seller indicates that the benefit to the home seller is not a mere accident but rather an intended outcome of your operations in this respect you are like easter house supra which provided health care to indigent pregnant women but only when a family willing to adopt a woman’s child sponsored the care financially similar to american campaign academy supra you are structured and operated to directly benefit the home sellers who pay for your services therefore a substantial part of your activities serve a private rather than a public interest exempt under sec_501 while you may have provided some facts relating to that other organization you have not provided all the facts relating to the applications for recognition of exempt status submitted by those organizations in any event you must establish based on the facts you submitted that you are organized and operated exclusively for exempt purposes described in sec_501 see interneighborhood housing corporation v commissioner t c memo purposes you have not established that you activities exclusively serve a charitable_class or any other purpose defined in sec_501 your proposed operations further a substantial nonexempt business_purpose and will further the private interests of home sellers and other private parties in addition you have not established that your net_earnings will not inure to the benefit of private shareholders or individuals therefore you are not described in sec_501 of the code c of the code and you must file federal_income_tax returns accordingly you do not qualify for exemption as an organization described in section based on the facts and information submitted you are not operated exclusively for exempt finally you assert that another organization similarly situated has been recognized as contributions to you are not deductible under sec_170 of the code if you do not protest this ruling in a timely manner it will be considered by the internal you have the right to protest this ruling if you believe it is incorrect to protest you should submit a statement of your views to this office with a full explanation of your reasoning this statement signed by one of your officers must be submitted within days from the date of this letter you also have a right to a conference in this office after your statement is submitted you must request the conference if you want one when you file your protest statement if you are to be represented by someone who is not one of your officers that person will need to file a proper power_of_attorney and otherwise qualify under our conference and practices requirements revenue service as a failure to exhaust available administrative remedies sec_7428 of the code provides in part that a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the united_states court of federal claims or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted administrative remedies available to it within the internal_revenue_service if we do not hear from you within days this ruling will become final and a copy will be forwarded to the ohio tax exempt and government entities te_ge office thereafter any questions about your federal_income_tax status should be directed to that office either by calling a toll free number or sending correspondence to internal_revenue_service te_ge customer service p o box cincinnati oh the appropriate state officials will be notified of this action in accordance with sec_6104 of the code sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice shown below if it is convenient you may fax your reply using the fax number shown in the heading of this letter if you fax your reply please contact by telephone to confirm that your fax was received shown in the letter attached to notice you do not need to take any further action internal_revenue_service te_ge se t eo ra t pe constitution ave n w washington d c in the event this ruling becomes final it will be made available for public inspection under if you do not intend to protest this ruling and if you agree with our proposed deletions as if you decide to protest this ruling your protest statement should be sent to the address if you have any questions please contact this proposed determination supercedes our letter dated date enclosure notice an examination of downpayment gift programs administered by non-profit organizations hud contract no c-opc-22550 m0001 date lois g lerner director exempt_organizations rulings agreements sincerely


number release date id office uilc cca_2008081915482448 -------------- from ------------------ sent tuesday date pm to -------------------- cc subject fw transferee interest fyi - ------------------- ---------------------------------- ------------ -------------- ----------------- _____________________________________________ from ------------------ sent friday date pm to ---------------------------------------------------------subject transferee interest at long last i have an answer for you i had some trouble understanding your question along the way so let me state the situation and your question here when a transferor's tax_liability exceeds the value of assets transferred the transferee's liability is limited to the value of the assets transferred however if the state law under which a transferee is held liable for the tax debt of the transferor also provides for the payment of interest on the debt the if the service service will be entitled to interest at the rate and from the date specified under state law seeks to recover the transferee_liability through procedures under sec_6901 the case law recognizes that sec_6601 will impose interest on the transferee at the last date prescribed for the transferee to pay the tax your question is what is that date that interest will begin to accrue against the transferee under sec_6601 in the foregoing situation although 37_tc_945 supp opin 40_tc_275 the leading case in on the subject of interest owed by transferees contains a statement that upon sending the notice_of_deficiency to the transferee the service is entitled to interest thereon just as he is entitled on any deficiency and cites sec_6601 as authority sec_6601 does not actually impose interest on the transferee until the service makes notice_and_demand for payment sec_6601 provides that if tax imposed by the code is not paid on or before the last date prescribed for payment interest runs on the tax until the date it is paid while sec_6901 states that transferee_liability shall be assessed paid and collected in the same manner and subject_to the same provisions and limitations as in the case of the taxes with respect to which the liabilities were incurred it does not prescribe a last date for a transferee to pay tax fn it's true that the code may prescribe a due_date for the tax on which the transferee_liability is based but that date cannot be the date that interest runs against the transferee directly otherwise there could be no rule that state law governs the amount of interest owed by the transferee beginning on the date of transfer when the transfer is less than the total_tax liability including interest liability of the transferor until the date that sec_6601 imposes interest on the transferee directly and the cases are clear that state law does govern interest in those situations 37_tc_945 35_tc_393 sec_6601 states that when the last date for payment is not otherwise prescribed the last date for payment shall be deemed to be the date the liability for tax arises and in no event shall be later than the date notice_and_demand for the tax is made by the secretary arguably a transferee's liability for the tax arises upon the date of the transfer but when the amount of the transfer is less than the transferor's liability the case law is clear that the transferee's liability arises under state law and interest is controlled by state law once the tax is assessed pursuant to the provisions of the internal_revenue_code however it is subject_to payment and collection under the code including the code's provisions for interest and sec_6601 imposes liability for interest on the transferee as of the date of notice_and_demand for payment of the assessed transferee_liability in fact this rule is consistent with the opinion on which estate of stein relies the estate of stein opinion characterizes 281_f2d_577 5th cir as holding that state law determines the existence and extent of the interest liability of transferee from the time of transfer to the date notice_of_deficiency is sent to the transferee estate of stein t c pincite the opinion in patterson actually says however that state law is not a determinant of transferee_liability subsequent to the notice of the transferee assessment patterson f 2d pincite thus the actual rule in patterson that estate of stein cited approvingly was that interest under the code arises upon notice_and_demand for payment of an assessed transferee_liability moreover the subsequent proceedings concerning the decision document in estate of stein the tax_court appears to have applied the rule actually stated in patterson the decision documents in estate of stein set forth the amount of interest at the rate of percent as determined by the tax_court under new york state law running from the dates of various transfers estate of stein t c pincite the decision documents did not identify any change in the interest rate as of the date of the notice_of_deficiency sent to the transferees please let me know if this email meets your needs memo please let me know if you have follow-up questions or would like a formal -------------- --------------------- --------- -------------------


internal_revenue_service department of the treasury index number number release date washington dc person to contact telephone number refer reply to cc dom p si 3-plr-119175-98 date date legend a x y z sec_1 sec_2 sec_3 exchange date a b n properties dear plr-119175-98 this letter responds to your letter dated date submitted on behalf of a requesting rulings under sec_1362 and sec_1375 of the internal_revenue_code facts a is an s_corporation with subchapter_c accumulated_earnings_and_profits that is in the business of constructing developing maintaining servicing and operating a self- created commercial retail marketplace a owns n shopping and commercial properties properties either directly or through general_partnership or llc interests a has the managerial responsibility in all llcs through which it holds properties a performs a number of services with respect to properties either through direct on-site personnel through sec_1 sec_2 or sec_3 or through other outside independent contracting firms services provided by a include but are not limited to the following common area maintenance tenant in-line maintenance food court maintenance cooling and heating systems service and maintenance daily inspection of premises energy management on-call 24-hour staff processing tenant requests and concerns refuse management remodeling safety inspections security personnel sprinkler system maintenance for fire prevention janitorial services plumbing and electrical services tenant amenities both seasonal and daily staffing and personnel services to tenants structural maintenance water and sewage services and other related leasing management and administrative services a incurs various costs in its leasing businesses for the taxable_year ending date a collected approximately dollar_figurea in gross revenue and incurred approximately dollar_figureb in relevant operating_expenses in the rental business from time to time a has invested or will invest either directly or indirectly through a general_partnership or limited_liability_company in certain publicly traded limited_partnerships ptps primarily engaged in the exploration and or production of oil_and_gas also from time to time a has invested or will invest either directly or indirectly through a general_partnership or limited_liability_company in other ptps primarily involved in processing various minerals and chemicals these investments are made to provide for liquidity and also to diversify investment risk presently a has identified three specific ptps listed on exchange that it has or will invest in x y and z x is engaged in the purchasing gathering transporting trading storage and resale of crude_oil and refined petroleum products and related activities y is engaged in the purchasing gathering transporting aggregating and resale of crude_oil z is engaged in the operation of various chemical plants a represents that x and y meet the qualifying_income exception under sec_7704 and are taxed as partnerships for federal tax purposes a further represents that z is an electing_1987_partnership under sec_7704 and is taxed as a partnership for federal tax purposes in addition a represents that x y and z are not electing plr-119175-98 large partnerships under sec_771 and that the normal flow-through provisions of subchapter_k apply to their partners a has requested the following rulings a's distributive_share of partnership gross_receipts attributable to the interests it has or will acquire either directly or indirectly through a general_partnership or limited_liability_company in x y or z will be included in a's gross_receipts for the purpose of applying the passive_investment_income limitations of sec_1362 and sec_1375 a's distributive_share of partnership gross_receipts attributable to the interests it has or will acquire in x y or z will not constitute passive_investment_income for purposes of sec_1362 and sec_1375 to the extent the gross_receipts are derived from the exploration or production of oil_and_gas or the processing of various minerals and chemicals and a's rental income from the leasing of shopping malls strip centers and commercial office buildings will not constitute passive_investment_income under sec_1362 and sec_1375 analysis sec_702 of the code requires each partner to take into account separately its distributive_share of the partnership’s items of income gain loss deduction and credit to the extent provided by regulations sec_1_702-1 of the income_tax regulations requires each partner to take into account separately any partnership_item that would result in an income_tax_liability for that partner different from that which would result if that partner did not take the item into account separately under sec_702 the character of any item_of_income gain loss deduction or credit included in a partner’s distributive_share under sec_702 through shall be determined as if the item were realized directly from the source from which realized by the partnership or incurred in the same manner as incurred by the partnership sec_1362 allows a small_business_corporation as defined in sec_1361 to elect to be an s_corporation this election however terminates under the provisions of sec_1362 if the corporation has accumulated_earnings_and_profits at the close of each of three consecutive taxable years and has gross_receipts for each of such taxable years more than percent of which are passive_investment_income sec_1362 provides in general that the term passive investment plr-119175-98 income means gross_receipts derived from royalties rents dividends interest annuities and sales and exchanges of stock_or_securities gross_receipts from such sales or exchanges being taken into account for purposes of this paragraph only to the extent of gains therefrom sec_1_1362-2 ii b 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 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 sec_1375 imposes a tax on the excess_net_passive_income of an s_corporation in any year in which the corporation has accumulated_earnings_and_profits at the close of the taxable_year and has gross_receipts more than percent of which are passive_investment_income sec_7704 requires that except as provided in sec_7704 a publicly_traded_partnership shall be treated as a corporation for federal_income_tax purposes sec_7704 defines the term publicly_traded_partnership as any partnership if interests in such partnership are traded on an established_securities_market or are readily_tradable on a secondary market or the substantial equivalent thereof under sec_7704 sec_7704 does not apply to any ptp for any taxable_year if the partnership met the gross_income requirements of sec_7704 for the taxable_year and each preceding_taxable_year beginning after date during which the partnership or any predecessor was in existence sec_7704 provides that the gross_income requirement is met for any taxable_year if at least percent of the partnership’s gross_income for the taxable_year consists of qualifying_income sec_7704 provides that income and gains derived from the exploration development mining or production processing refining transportation including pipelines transporting gas oil or products thereof or the marketing of any mineral_or_natural_resource including fertilizer geothermal_energy and timber is qualifying_income for purposes of this section mineral_or_natural_resource means any product of a character with respect to which a deduction for depletion is allowable under plr-119175-98 sec_611 but is not a product described in sec_613 or b under sec_7704 sec_7704 does not apply to an electing_1987_partnership sec_7704 defines an electing_1987_partnership as any ptp if a the ptp is an existing partnership as defined in section c of the revenue reconciliation act of generally a ptp on or before date b sec_7704 has not applied and without regard to sec_7704 would not have applied to such partnership for all prior taxable years beginning after date and before date and c such partnership elects the application of sec_7704 and consents to the application of the tax under sec_7704 for its first taxable_year beginning after date sec_7704 imposes for each taxable_year on the income of each electing_1987_partnership a tax equal to percent of such partnership’s gross_income for the taxable_year from the active_conduct of trades and businesses by the partnership revrul_71_455 1971_2_cb_318 holds that for purposes of the passive_investment_income limitations an electing small_business_corporation should include its distributive_share of gross_receipts from a joint_venture rather than its distributive_share of ordinary_loss from the joint_venture because items of income maintain their character upon distribution to the partners under sec_702 the character of the gross_receipts of the joint_venture were not converted into passive_investment_income upon the distribution to the small_business company described in the revenue_ruling a's distributive_share of gross_receipts from x y or z if separately taken into account may affect a's federal_income_tax liability under sec_1362 the status of a as an s_corporation could depend upon the character of a's distributive_share of gross_receipts from x y or z thus pursuant to sec_1_702-1 a must separately take into account its distributive_share of the gross_receipts from x y and z the character of the partnership receipts for a will be the same as the character of the partnership receipts for x y and z based solely on the facts as represented we rule as follows a's distributive_share of gross_receipts from x y and z will be included in a's gross_receipts for the purpose of applying the passive_investment_income limitations of sec_1362 and sec_1375 a's distributive_share of gross_receipts attributable to x’s crude_oil and petroleum businesses y’s crude_oil businesses and z’s chemical businesses will not constitute passive_investment_income under sec_1362 and sec_1375 plr-119175-98 a’s rental income from properties is not passive_investment_income under sec_1362 and sec_1375 except as specifically set forth above no opinion is expressed as to the federal tax consequences of the above-described facts specifically we express no opinion on whether a’s distributive_share determined in accordance with the partnership agreements of x y or z will be respected under sec_704 or whether x y or z meet the requirements of sec_7704 or g in addition we express no opinion regarding a’s status as an s_corporation under sec_1362 nor do we comment on the amount of gross revenue that constitutes rental income for purposes of sec_1362 and sec_1375 a 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 and the crude_oil petroleum and chemical activities of x y and z remain passive with respect to a for purposes of sec_469 this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this ruling is being sent to a sincerely donna m young senior technician reviewer branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes attachment-list of properties plr-119175-98 properties


department of the treasury internal_revenue_service washington d c tax exempt ano government entities division date jun contact person lue we are -0 identification_number telephone number t eo b2 employer_identification_number legend l m n v u o n a o dear sir or madam this is in reply to your request for a ruling on the proper treatment of your income under sec_512 of the internal_revenue_code and sec_512 of the code by reason of your status as a separate welfare_benefit_fund established under a collective bargaining agreement you have been recognized as exempt from federal_income_tax as a voluntary employees’ beneficiary association veba described in sec_50i c of the code l had entered into collective bargaining agreements with the forerunner to n which covered retiree health benefits for represented employees retiring from l for the purposes of this letter the involved union shall be generally referred to as n liquidated several years ago m a subsidiary of l survived the liquidation and assumed various post-liquidation liabilities of l one of these liabilities was the postretirement health care benefits payable through medical welfare plans which had been established pursuant to a collective bargaining agreement between l and n l was dissolved and in order to control costs m decided to make certain changes to the existing benefit plans after a series of negotiations with n a compromise concerning changes to the original collective bargaining agreement was agreed to between the parties as a result of this new agreement m eventually established two vebas both of which covered certain non-union retirees of l these trusts sought and obtained tax exemption under sec_50l c of the code a third veba was subsequently established exclusively for other retirees who were not union members this veba also sought exemption and has been recognized as exempt under sec_501 the last group of retired employees who remained were the retirees who had been represented by re n mand n entered into negotiations and you were established to provide for the payment of medical benefits to this last group_of_employees as previously noted you sought and obtained tax exempt status as an organization described in sec_50i c of the code you have represented that the secretary of labor would hold that the letter agreement between the m and n is a collective bargaining agreement the information provided concerning the negotiations between m and the union evidences the arm's length nature of the process all of the beneficiaries you provide benefits to are former union employees and dependents of such former employees of l or its subsidiaries therefore at least percent of the employees eligible to receive benefits under the trust are covered by the collective bargaining agreement you have requested the following rulings you are a separate welfare_benefit_fund under a collective bargaining agreement within the meaning of sec_419a and therefore exempt from the account limit requirement your investment_income is not taxable under sec_511 as unrelated_business_taxable_income because such income is exempt_function_income under sec_512 as a set_aside for life health accident or other_benefits which is not in excess of the account limited of sec_419a within the meaning of sec_512 sec_50l a of the code provides an exemption from federal_income_tax for organizations described in sec_50i c sec_50i c of the code describes a voluntary employees' beneficiary association ‘veba providing for the payment of life sick accident or other_benefits to its members or their dependents or designated beneficiaries and in which no part of its net earning inures other than through such payments to the benefit of any private_shareholder_or_individual sec_1 c -2 a i of the federal_income_tax regulations provides that the membership of an organization described in sec_501 must consist of individuals who become entitled to participate by reason of their being employees and whose eligibility for membership is defined by reference to objective standards that constitute an employment-related common bond among such individuals exemption will not be denied merely because the membership of an association includes some individuals who are not employees provided that such individuals share an employment-related bond with the employee-members such individuals may include for example the proprietor of a business whose employees are members of the association sec_511 of the code imposes a tax upon the unrelated_business_taxable_income of organizations exempt from federal_income_tax under sec_50i c zy re sec_512 of the code provides in relevant part that in the case of an organization described in sec_50i c of the code the term unrelated_business_taxable_income means gross_income excluding any exempt_function_income less the deductions which are directly connected with the production of the gross_income excluding exempt_function_income both computed with the modifications set forth herein sec_512 of the code provides that in the case of an organization described in sec_50i c the term exempt_function_income includes all income other than an amount equal to the gross_income derived from any unrelated_trade_or_business regularly carried on by the organization which is set_aside to provide for the payment of life sick accident or other_benefits during the taxable_year an amount which is attributable to income so set_aside is used for a purpose other than that described above such amount shall be included under sec_512 in unrelated_business_taxable_income for the taxable_year if sec_512 of the code provides that in the case of an organization described in sec_50i c a set-aside can be taken into account in determining exempt_function_income only to the extent that such set-aside does not result in an amount of assets set_aside for such purpose in excess of the account limit determined under sec_419a of the code this amount is referred fo as a qualified_asset_account sec_419 of the code provides rules with respect to the tax treatment of funded_welfare_benefit_plans a plan which is determined by the service to be a voluntary employee beneficiary association under sec_50i c is a welfare_benefit_fund within the meaning of sec_419 sec_419a of the code provides that for the purposes of sec_512 the term qualified_asset_account means any account consisting of assets set_aside to provide for the payment of disability medical sub or severance_pay benefits or life_insurance benefits sec_419a of the code describes the account limit in general as being the amount reasonably and actuarially necessary to fund claims incurred but unpaid as of the close of such taxable_year and administrative costs with respect to such claims sec_1_419a-2t q a-1of the regulations provides that neither contributions to nor reserves of a collectively bargained welfare_benefit_fund shall be treated as exceeding the otherwise applicable limits of section b 419a b or a e sec_1_419a-2t q a-2 of the regulations provides that a welfare_benefit_fund maintained pursuant to a collective bargaining agreement between employee_representatives and one or more employers shall not be treated as a collective bargaining agreement unless it is a bona_fide agreement between bona_fide employees and one or more employers a welfare_benefit_fund is not considered to be maintained pursuant to a collective bargaining agreement unless at least percent of the employees eligible to receive benefits under the fund are covered by the collective bargaining agreement re sec_1 419-2t q a -4 of the regulations provides that a welfare_benefit_fund will not be treated as a collectively bargained welfare_benefit fun for purpose of q a-1 if and when after date the number of employees who are not covered by a collective bargaining agreement and are eligible to receive benefits under the fund increases by reason of an amendment merger or other action of the employer or the fund in addition pending the issuance of these regulations for the purposes of applying the percent test of q a to a welfare_benefit_fund that is not in existence on date percent shall be substituted for percent the submitted information establishes that you are exempt under sec_50i c of the code the information provided concerning the negotiations between m and n evidences the arm's length nature of the process and the bona fides of this agreement therefore we have concluded that you were established pursuant to a collectively bargained agreement all of your beneficiaries are former union employees and their dependents of l or its subsidiaries therefore at least percent of the employees eligible to receive benefits under you are covered by the collective bargaining agreement the benefits provided appear to be limited to those allowable under sec_419a sec_419a sets an account limit on the amount of certain reserves that can be maintained by a welfare_benefit_plan the account limit is described in sec_419a as the amount estimated to be necessary to fund plan liabilities for the amount of claims incurred but unpaid as of the close of the taxable_year of the fund it also takes into account administrative costs and sec_419a provides for an additional reserve for post-retirement medical and life_insurance benefits the account limit of sec_419a does not include other_amounts notwithstanding that they are intended to fund permissible benefits in future years sec_1_419a-2t q a-1 of the regulations provides that no account limits shall apply in the case of any qualified_asset_account under a separate welfare_benefit_fund established pursuant to a collective bargaining agreement because this plan has been established pursuant to a collective bargaining agreement the account limits of sec_419a account limits are not applicable however therefore based on the submitted information we have concluded that you are a separate welfare_benefit_fund under a collective bargaining agreement within the meaning of sec_419a and therefore exempt from the account limit requirement your investment_income is not taxable under sec_511 as unrelated_business_taxable_income because such income is exempt_function_income under sec_512 as a set_aside for life health accident or other_benefits because as a collectively_bargained_plan you are not subject_to the account limits this ruling is directed only to the organization that requested it sec_611 o k of the code provides that it may not be used or cited by others as precedent a copy of this ruling should be maintained in your permanent records ber re if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter for other matters including questions concerning reporting requirements please contact the ohio te_ge customer service office sincerely yours ree terrell manager exempt_organizations technical group bb


internal_revenue_service number info release date cc psi 1-genin-155248-01 date uilc we are responding to your correspondence requesting that the internal revenue as an s_corporation effective as of the service treat taxable_year however you are ineligible for automatic late s_corporation relief under revproc_97_48 because irs records reflect that your form_1120s return was received late on date and had no extension on file your corporate tax_return was due march although we are unable to respond to your request as submitted this letter provides useful information about rectifying your s_corporation status announcement copy enclosed provides guidance on seeking relief for late s_corporation elections generally to request relief for a late or invalid s_corporation_election you must request a private_letter_ruling from the national_office the procedures for requesting a ruling are set out in revproc_2002_1 copy enclosed in addition a proper user_fee must be submitted along with your request the fee for a ruling is dollar_figure however taxpayers with gross_income of less than dollar_figure million for the last 12-month taxable_period qualify for a reduced user_fee in the amount of dollar_figure if your business qualifies for the reduced fee your request must include a statement certifying gross_income otherwise you will be billed the higher fee please format your ruling_request as shown in appendix b of revproc_2002_1 if you decide to submit a ruling_request please provide documents supporting your intention to be an s_corporation and include the proper user_fee please refer your package to our office by adding the following to the address attn cc pa t p o box ben franklin station washington dc direct to cc psi b1 room if you have internet access you may wish to visit www irs gov smallbiz for specialized tax information products and forms relating to small businesses please keep this letter with your tax records and feel free to provide a copy of it to your authorized representative we hope that the above information proves helpful sincerely yours s dianna k miosi chief branch associate chief_counsel passthroughs and special industries enclosures announcement revproc_2002_1


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc intl br1-plr-137120-01 date date number release date index number ty a country b date c year d date e dear this is in response to your letter of date requesting a ruling that a’s surrender of her u s alien registration card green card did not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code additional information was submitted by fax in a letter dated date and by letter dated date the information submitted for consideration is substantially as set forth below the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination a was born in country b on date c in addition both of a’s parents and her husband were born in country b all of a’s family reside in country b in year d a moved to the united_states with her husband who had an employment opportunity here her husband has retired and they have been spending part of the year at their home in country b and part of the year at their home in the united_states it is becoming more difficult for them to make this journey and they have chosen to live in plr-137120-01 country b permanently a expatriated on date e sec_877 generally provides that a citizen who loses u s citizenship or a u s 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 a former u s citizen whose net_worth or average tax_liability exceeds these 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 under notice_98_34 1998_27_irb_30 modifying notice_97_19 1997_1_cb_394 a 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 a is eligible to request a ruling pursuant to notice_98_34 because she is a resident of country b and her worldwide income is subject_to country b tax and also because she was born in country b as were both of a’s parents and her husband a submitted all of the information required to be submitted by notice_97_19 as modified by notice_98_34 including additional information requested by the service after review of the submission the taxpayer has made a complete and good_faith submission in accordance with sec_877 and notice_97_19 as modified by notice_98_34 however plr-137120-01 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 will have for one of its principal purposes the avoidance of such taxes while this ruling rebuts the presumption of tax_avoidance under sec_877 it is not conclusive as to whether a subsequently may be found to have a principal purpose of tax_avoidance under sec_877 sec_2107 and sec_2501 based on all the facts and circumstances see sec_877 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter 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 a copy of this letter must be attached to a’s u s income_tax return for the year in which a obtained the ruling whether or not a is otherwise required to file a return this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to a sincerely w edward williams senior technical reviewer cc intl br1 office of the associate chief_counsel international cc


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 psi plr-145944-06 date date ----------------------------------------------- ------- ---------------- ---------------------------------- ------- ---------------- --------------------------- ------------ legend x a country1 country2 ------------------------------------- property1 property2 d1 d2 d3 d4 d5 dear -------------------------- ------- ------------- --------------- ------------- --------------------------- ---------------------- ------------- plr-145944-06 this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting a ruling under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations that x be granted an extension of time to file an election to be classified as a disregarded_entity under ' facts according to the information submitted x was formed on d1 as a corporation under the laws of country1 x is wholly owned by a a citizen of country2 a was a resident of country3 on d1 and remained a resident of country3 until d4 when a became a resident_of_the_united_states since d1 x has been treated as an association_taxable_as_a_corporation for federal tax purposes in d3 x purchased property1 and property2 in the united_states neither a nor x consulted a qualified_tax professional for advice on the federal tax implications of purchasing property1 or property2 after purchasing property1 and through d5 a consulted with several legal and financial advisors regarding x with respect to state and international tax issues however the advice sought did not concern the federal tax treatment of x a was not advised to make an election for x to be treated as a disregarded_entity until d5 at that time a was advised that the election should have been made effective d2 after d2 several facts changed with respect to both x and a that made a change in x’s entity status more advantageous to a because of the delay in receiving the advice however a form_8832 entity classification election electing to be treated as a disregarded_entity was not timely filed law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 under sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that unless an entity elects otherwise a foreign eligible_entity is an association if all members have limited_liability sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided in ' b or to change its classification by filing a form_8832 with the service_center designated on the form_8832 plr-145944-06 sec_301_7701-3 provides that an election made under sec_301_9100-3 provides extensions of time for regulatory elections that do sec_301_9100-1 provides that the commissioner has discretion to grant a sec_301_9100-2 provides the rules governing automatic extensions of time for ' c i will be effective on the date specified by the entity on form_8832 or on the date filed if no date is specified on the election form the effective date specified on form_8832 cannot be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register making certain elections not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides 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 b i through iii a taxpayer is deemed to have acted reasonably and in good_faith if after exercising reasonable diligence taking into account the taxpayer’s experience and the complexity of the return or issue the taxpayer was unaware of the necessity for the election b i through iii a taxpayer is deemed to have acted 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 acted reasonably and in good_faith if the taxpayer uses hindsight in requesting relief if specific facts have changed since the due_date for making the election that make the election advantageous to a taxpayer the irs will not ordinarily grant relief in such a case the irs will grant relief only when the taxpayer provides strong_proof that the taxpayer’s decision to seek relief did not involve hindsight sec_301_9100-3 provides that a taxpayer is deemed to have not sec_301_9100-3 provides that except as provided in sec_301 sec_301_9100-3 provides that except as provided in sec_301 plr-145944-06 conclusion based on the facts submitted and the representations made we do not believe either a or x acted reasonably and in good_faith as required under sec_301_9100-3 specifically we believe that neither a nor x exercised reasonable diligence because both a and x failed to seek advice regarding the federal tax treatment of x with respect to the complex issues involved with the purchase of property1 and property2 despite having sought advice on other tax issues affecting x moreover we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have not been satisfied because specific facts have changed since d2 that make an election to treat x as a disregarded_entity advantageous to a and strong_proof has not been presented that hindsight was not used in the decision to seek relief as a result x is denied an extension of time to file form_8832 to elect to be classified as a disregarded_entity for federal tax purposes except as specifically set forth above no opinion is expressed or implied concerning the federal tax consequences of the transaction described above under any other provision of the code specifically no opinion is expressed or implied as to whether x is otherwise eligible to make the election this ruling is directed only to the taxpayer requesting it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office we are sending a copy of this letter to x s authorized representative sincerely s william p o'shea associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


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 b03 plr-108304-08 date date taxpayer ------------------------------------------------------------------------------------------------- ------------------------ legend y z state date1 date2 date3 date4 date5 ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- ------------------------ ------------------------------------------------------------------------------------------------- ------------------------- ------------- ------------------ ----------------------- -------------------- -------------------------- ---------------------- dear -------------------- this letter responds to a letter dated date submitted on behalf of taxpayer requesting a ruling under sec_301_7701-3 and sec_301_9100-3 of the procedure and administration regulations specifically the service’s consent is plr-108304-08 requested to change taxpayer’s classification from an association_taxable_as_a_corporation to a disregarded_entity effective date5 facts taxpayer a state limited_liability_company was formed on date1 and became the wholly-owned subsidiary of y a domestic_corporation on date2 taxpayer elected to be classified as an association_taxable_as_a_corporation effective date2 on date3 z’s wholly-owned subsidiary merged into y as a result of this merger y became the wholly-owned subsidiary of z on date4 y was converted into a limited_liability_company and treated as a disregarded_entity for federal_income_tax purposes taxpayer intends to be treated as a disregarded_entity effective date5 because an entity classification was made within months prior to date5 taxpayer requests the service’s consent under sec_301_7701-3 to change its classification law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with a single owner can elect to be classified as an association and thus a corporation under sec_301_7701-2 or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that except as provided in sec_301_7701-3 unless the entity elects otherwise a domestic eligible_entity is i a partnership if it has two or more members or ii disregarded as an entity separate from its owner if it has a single owner sec_301_7701-3 provides in part that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 entity classification election with the service_center designated on form_8832 sec_301_7701-3 provides that an election under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed if an election specifies an effective date more than days prior to the date on which the election is filed it will be effective days prior to the date it was filed sec_301_7701-3 provides in part that if an eligible_entity makes an election under sec_301_7701-3 to change its classification the entity cannot plr-108304-08 change its classification by election again during the sixty months succeeding the effective date of the election however the commissioner may permit the entity to change its classification by election within the sixty months if more than fifty percent of the ownership interests in the entity as of the effective date of the subsequent election are owned by persons that did not own any interests in the entity on the filing_date or the effective date of the entity's prior election sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but not 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_9100-2 provides the standards the commissioner will use to determine whether to grant an automatic_extension of time for making certain elections sec_301_9100-3 provides the guidelines for granting extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 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 conclusion based solely on the facts submitted and the representations made we consent to taxpayer changing its classification for federal tax purposes less than months after its previous classification change as a result taxpayer is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect to be classified as a disregarded_entity effective date5 a copy of this letter should be attached to the form_8832 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination plr-108304-08 in accordance with a power_of_attorney on file with this office we are sending a copy of this letter to taxpayer's authorized representatives sincerely s william p o'shea associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


t c memo united_states tax_court estate of kwang lee deceased anthony j frese executor petitioner v commissioner of internal revenue respondent docket nos filed date frank agostino michael p mattaliano and soh-yung erica son for petitioner lisa m rodriquez for respondent memorandum opinion laro judge this case is currently before the court on petitioner’s motion for leave to amend the petition to allege the affirmative defense of equitable_recoupment in estate of lee v commissioner tcmemo_2007_371 estate of lee i we held that the estate of kwang lee decedent’s estate was not entitled to claim a marital_deduction under sec_2056 because kwang lee decedent died after his wife kyoung lee ms lee the estates of decedent and ms lee filed their respective federal estate_tax returns as if decedent had predeceased ms lee consistent therewith ms lee’s estate reported that most of decedent’s wealth passed to her as decedent’s surviving_spouse and was taxable to her estate petitioner argues in support of the subject motion that our holding in estate of lee i means that ms lee’s estate should not have included any of decedent’s wealth inclusion of decedent’s wealth in ms lee’s estate resulted in a dollar_figure overpayment of her estate’s federal estate_tax and decedent’s estate may equitably recoup ms lee’s estate’s claimed dollar_figure overpayment as a reduction of any deficiency determined in this case we decide whether petitioner may amend the petition to allege the affirmative defense of equitable_recoupment we hold that petitioner may not i decedent and ms lee background decedent died testate on date leaving a last will and testament dated date ms lee died testate on 1unless otherwise indicated section references are to the applicable versions of the internal_revenue_code and rule references are to the tax_court rules_of_practice and procedure date leaving a last will and testament dated date the wills of decedent and ms lee were drafted by barbara l de mare ms de mare counsel for the lees and later for their estates and were intended to include a deemed survivorship provision under which ms lee would be deemed to survive decedent if she died shortly before him the wills were administered as if decedent predeceased ms lee when in fact he had not and as if much of decedent’s wealth had passed to ms lee as his surviving_spouse the federal estate_tax returns of decedent’s estate and ms lee’s estate were similarly filed with respondent as if decedent had predeceased ms lee and as if much of his wealth had passed to her anthony j frese judge frese as executor of decedent’s estate claimed a marital_deduction for decedent’s estate for the value of the property that was deemed under the wills to have passed to ms lee as the surviving_spouse judge frese as executor of ms lee’s estate paid to respondent dollar_figure in federal estate_tax on behalf of ms lee’s estate which consisted in part of the property that was treated as passing to her from decedent 2judge frese as executor of ms lee’s estate also paid respondent dollar_figure in interest for the late payment of estate_tax resulting in a total_payment of dollar_figure ii audit of the estates and ms lee’s protective claim respondent audited both estate_tax returns respondent disallowed the marital_deduction claimed by decedent’s estate and advised ms lee’s estate to file a corresponding protective claim_for_refund on behalf of ms lee’s estate at the direction of respondent’s auditor ms de mare delivered a letter to the auditor on date asserting an informal claim_for_refund on behalf of ms lee’s estate attributable to the property that was treated as passing to ms lee under the deemed survivorship provision iii notice_of_deficiency petition and procedural history on date respondent issued decedent’s estate a notice_of_deficiency notice disallowing its marital_deduction because decedent was not actually survived by ms lee petitioner petitioned the court on date in contest of the notice respondent answered the petition on date on date the court ordered each party to file a memorandum setting forth i the issues of fact and law to be resolved by the court and ii a statement of the party’s legal position and theory the order stated that neither party would be allowed to advance a position or theory in the case unless it was mentioned in the memorandum on date petitioner filed petitioner’s memorandum without any mention of equitable_recoupment on date respondent moved the court for partial summary_judgment on the issue of whether decedent’s estate may benefit from the marital_deduction notwithstanding that decedent died after ms lee in estate of lee i we held that decedent’s intent that he be treated as if he predeceased ms lee was insufficient to qualify his estate for the marital_deduction under sec_2056 because ms lee actually had to survive decedent to qualify as a surviving_spouse for purposes of that section accordingly the marital_deduction sought by decedent’s estate was denied on date the parties filed a stipulation of settled issues stating that in accordance with our decision in estate of lee i the marital_deduction claimed by decedent’s estate was disallowed in full the parties also agreed that issues remaining for decision were whether decedent’s estate was liable for the addition_to_tax and the accuracy-related_penalty determined by respondent the court held a trial of the remaining issues on date and closed the evidentiary record at the end of the trial on date the court held in estate of lee v commissioner tcmemo_2009_84 estate of lee ii that neither the addition_to_tax nor the accuracy-related_penalty was applicable to this case the court directed at the end of that opinion that a decision be entered under rule iv subsequent claim_for_refund on date ms lee’s estate filed with respondent a second claim_for_refund referencing the court’s holding in estate of lee i respondent denied that claim on date respondent has yet to determine whether ms lee’s estate is entitled to a refund with respect to its first claim_for_refund ie the date letter that ms de mare delivered to respondent’s auditor v developments following estate of lee ii the parties have been unable to agree on a computation for entry of decision under rule on date petitioner moved the court for leave to file an amendment to petition petitioner desires to amend the petition to allege equitable_recoupment as an affirmative defense petitioner states that ms lee’s estate overpaid its federal estate_tax as a result of our ruling in estate of lee i and that decedent’s estate is allowed to recoup this dollar_figure overpayment as an offset to its estate_tax deficiency i overview discussion petitioner moves the court for leave to amend the petition to allege the affirmative defense of equitable_recoupment sec_6214 provides that this court may apply equitable_recoupment as a defense to the same extent it is available in civil tax cases before the u s district courts and the u s court of federal claims the court_of_appeals for the third circuit to which this case is appealable absent a stipulation to the contrary recognizes equitable_recoupment as a potential affirmative defense in civil matters see eg 355_f2d_233 3d cir accordingly petitioner may benefit from the applicability of equitable_recoupment to the extent that the issue is properly before this court and the law on the subject favors petitioner ii amendment of pleadings a overview rule a gives a petitioning taxpayer the right to amend the petition once before an answer is served afterwards a petition may be amended only by leave of the court or with the written consent of the commissioner id respondent served the answer in this case on date and objects to petitioner’s motion for leave to amend the petition therefore petitioner requires leave of the court to amend the petition rule a states that leave to amend a pleading shall be freely given when justice requires whether justice requires such an amendment is determined by examining the facts and circumstances surrounding the request in the light of sound reason and fairness see 84_tc_985 a court may consider various factors in determining whether to allow an amendment to a pleading out of time these factors include the timeliness of the motion for leave to amend the reasons for the delay and whether the moving party had sufficient prior opportunity to allege the matter contained in the requested amendment see 371_us_178 661_f2d_1022 5th cir see also 84_tc_355 n lacher v commissioner tcmemo_2000_260 affd 32_fedappx_600 2d cir notwithstanding these factors a court should deny a party’s request to amend a pleading where the party cannot prevail on the merits of the requested amendment see klamath-lake pharm association v 701_f2d_1276 9th cir 120_tc_62 98_tc_28 we turn to decide petitioner’s request for leave to amend the petition with these principles in mind b factor sec_1 timeliness of amendment a court should generally consider when weighing a request to amend a pleading whether an excuse for the delay exists and whether the opposing party would suffer unfair surprise disadvantage or prejudice see 110_tc_172 the court applies a heightened skepticism to an untimely request for an amendment that if granted would prejudice the other party see eg 11_tc_552 affd sub nom 188_f2d_254 6th cir petitioner aims to assert a new legal defense to the notice_of_deficiency years after petitioner petitioned the court and years after the court decided estate of lee i the event purportedly giving rise to the claim petitioner has had ample time to assert a claim of equitable_recoupment and respondent asserts and we agree that he would be unfairly prejudiced were we to allow petitioner to prosecute the claim of an estate_tax overpayment attributable to ms lee’s estate to that end petitioner acknowledges that the record would need to be reopened for further trial were the issue to be decided by the court at this time see eg law v commissioner supra pincite denying the commissioner’s motion for leave to amend the answer where a further trial would be necessary to decide the substance of the requested amendment manzoli v commissioner tcmemo_1989_94 denying as inexcusably late and prejudicial a motion for leave to amend the petition where the motion was made incident to the parties’ submission of their rule_155_computations affd 904_f2d_101 1st cir in addition ms lee’s estate is not a party before this court and respondent’s counsel represents that respondent does not have access to the administrative file of ms lee’s estate thus whether ms lee’s estate is entitled to the proffered overpayment is not readily ascertainable we note further that our date order instructed each party to file a memorandum that was intended to advise the parties and the court at the early stages of this proceeding as to each party’s legal positions and thus to eliminate any undue surprise disadvantage or prejudice contrary to the purpose of that order petitioner seeks to raise a new_matter late in the proceeding reasons for delay and prior opportunity to assert equitable_recoupment in certain cases the court may allow a party to raise a new_matter despite prejudice to the other party upon a showing of good cause for the delay eg the lack of opportunity to raise the matter earlier see eg 91_tc_344 we are not persuaded that this is one of those cases petitioner rests the claim for equitable_recoupment on this court’s opinion in estate of lee i which was filed on date the trial of this case occurred on date at which time the court closed the evidentiary record following estate of lee i and leading up to the trial of this case both parties submitted multiple filings with the court including status reports issues memoranda a stipulation of settled issues and other pretrial memoranda petitioner did not raise the application of equitable_recoupment in any of these filings on date the parties were ordered to file computations under rule pursuant to the court’s findings and conclusions only afterwards was equitable_recoupment asserted petitioner asserts that the request for leave to amend the petition is being made at this late stage of the proceeding because respondent only denied the date claim_for_refund after the evidentiary record closed we are unpersuaded that this assertion establishes good cause for the late request the second claim_for_refund was not made until more than year after the court decided estate of lee i in addition petitioner concedes that the first claim is still open and may be properly considered by a refund forum c ability to prevail on the merit sec_1 overview of equitable_recoupment equitable_recoupment has been a permissible affirmative defense in federal tax matters since the supreme court’s decision 3petitioner’s motion also tests the limits of rule c which generally frowns upon the introduction of new issues at the rule stage of a proceeding cf 130_tc_54 n permitting the taxpayer to assert equitable_recoupment at the rule stage of a proceeding because the issue was raised at an earlier stage of the proceeding and thus did not constitute a new issue within the meaning of rule c unlike the taxpayer in menard petitioner did not previously assert equitable_recoupment as an affirmative defense and accordingly the argument constitutes a new issue under rule c in 295_us_247 equitable_recoupment allows the bar of an expired statutory limitation period to be overcome in limited circumstances to prevent inequitable windfalls to a party that would otherwise result from inconsistent tax treatment of the same transaction item or event affecting the taxpayer or a sufficiently related_taxpayer see 494_us_596 n 329_us_296 301_us_532 equitable_recoupment operates out of fairness to reduce a taxpayer’s claim_for_refund or the government’s claim of deficiency 101_tc_551 in estate of mueller v commissioner supra pincite this court ruled that the party claiming the benefit of equitable_recoupment bears the burden of establishing its applicability that burden requires that the moving party prove the following the overpayment or deficiency for which recoupment is sought is barred by an expired period of limitation the time-barred overpayment or deficiency arose out of the same transaction item or taxable_event as the overpayment or deficiency before the court the transaction item or taxable_event has been inconsistently subjected to two taxes and if the transaction item or taxable_event involves two or more taxpayers there is sufficient identity of interest between the taxpayers that they should be treated as one see 130_tc_54 113_tc_6 the test set forth in estate of mueller is conjunctive and therefore the failure to satisfy any one of the four elements precludes relief under the doctrine whether petitioner’s proffered refund due ms lee’s estate is time barred a taxpayer must file a claim_for_refund with the commissioner before the taxpayer may file a suit_for_refund sec_7422 a taxpayer may not initiate a refund_suit until the earlier of months after the filing of the claim or the date on which the commissioner renders a decision on the claim sec_6532 ms lee’s estate filed a claim_for_refund on date which the commissioner denied on date ms lee’s estate also filed an earlier claim_for_refund on date which the commissioner has yet to decide petitioner concedes that the period of limitations remains open on the earlier claim but invites the court to decide the propriety of that claim in this case as part of an equitable_recoupment issue we decline to do 4in certain cases a sufficient identity of interest may exist between the estate of an individual and the estate of his or her spouse see eg 706_f2d_871 8th cir estate of buder v united_states f_supp 2d e d mo affd 436_f3d_936 8th cir so petitioner’s concession coupled with respondent’s acknowledgment that the earlier claim_for_refund has not yet been determined leaves unsatisfied one of the prerequisites to the doctrine_of equitable_recoupment iii conclusion we will deny petitioner’s motion for leave to amend the petition because justice does not require that we grant it we have considered all of the arguments made by the parties and to the extent that we have not specifically addressed them we conclude that they are without merit accordingly an appropriate order will be issued