internal_revenue_service department of the treasury metrotech center release number release date date date fulton street brooklyn ny legend org organization name address address xx date uil 07-o01 org address dear person to contact identification_number contact telephone number in reply refer to te_ge review staff ein this is a final adverse determination as to your exempt status under sec_501 of the internal_revenue_code our adverse determination was made for the following reasons the org fails to meet the requirement for exemption under sec_501 sec_501 as changed by the tax reform act of provides for the exemption of clubs organized and operated for pleasure recreation and other nonprofitable purposes substantially_all of the activities of which are for such purposes and no part of the net_earnings of which inures to the benefit of any private shareholder based on the above we are revoking your organization's exemption from federal_income_tax under sec_501 of the internal_revenue_code effective july 20xx you are required to file federal_income_tax returns on form_1120 these returns should be filed with the appropriate service_center for all years beginning after june 20xx you are required to file form_1120 u s_corporation income_tax return form_1120 must be filed by the day of the third month after the end of your annual_accounting_period a penalty of dollar_figure a day is charged when a return is filed late unless there is reasonable_cause for the delay however the maximum penalty charged cannot exceed dollar_figure or percent of your gross_receipts for the year whichever is less this penalty may also be charged if a return is not complete so please be sure your return is complete before you file it you have the right to contact the office_of_the_taxpayer_advocate however you should first contact the person whose name and telephone number are shown above since this person can access you tax information and can help you get answers you can call and ask for taxpayer_advocate assistance or you can contact the taxpayer_advocate from the site where the tax_deficiency was determined by calling or writing to internal_revenue_service taxpayer_advocate assistance cannot be used as a substitute for established irs procedures formal appeals processes etc the taxpayer_advocate is not able to reverse legal or technically correct_tax determinations nor extend the time fixed by law that you have to file a petition in the united_states tax_court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours vicki l hansen acting director eo examinations schedule number or exhibit form 886-a rev date explanations of items name of taxpayer te june 20xx org tax identification_number year period ended legend org organization name college vice-president-1 scholarship chairman scholarship chairman vice president address address date co-1 xx xyz state city city college company vice-president-2 president president vice president issue whether org meets the requirements for continued recognition of exemption from federal income tax under sec_501 of the internal_revenue_code whether org qualifies for recognition of exemption from federal_income_tax under sec_2 c of the internal_revenue_code facts org was incorporated on september 19xx as a domestic non-profit corporation in the state of xyz org is recognized as an exempt_organization under sec_501 of the internal_revenue_code the officers of org are president and treasurer vice president-1 vice president-2 and scholarship chairman org was notified on december 20xx of a pending examination of its books_and_records for the tax_year ended june 20xx an examination was conducted at president’s office on january 20xx org stated on form_1024 application_for recognition of exemption under sec_501 a that the purpose of the organization is to assist a new fraternity chapter to manage its business affairs and to provide good living and study conditions for undergraduate students at college located in city xyz org indicated in the application that it will receive monthly rental income from the occupants living in the fraternity house org indicated that it will expend funds for the monthly mortgage payments for the chapter house and the necessary repairs to the house to keep it in suitable condition org indicated that the only activity of the organization will be the acceptance of rent from the local fraternity chapter members and the paying out of these funds for the mortgage payments the stated purposes of the organization as described in its articles of incorporation are to provide without profit improved housing and educational facilities for male students in attendance at the college assist needy and deserving male students to complete their educational work at the college set up scholarships for undergraduate and graduate work by male students in attendance at the college initiate undertake encourage promote assist finance administer and execute such programs and projects as may be desirable for the effective realization of the objects and purposes herein set forth and the accomplishments thereof purchase take hold accept title lease or otherwise acquire by contribution gift grant devise bequest or otherwise any real or personal_property including land buildings equipment and other facilities of every form 886-a catalog number 20810w page__1 publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date name of taxpayer explanations of items tax identification_number year period ended org june 20xx kind within the state of xyz or within any state of the united_states or within any foreign_country without limitation as to amount or value and which may appertain to and be useful in the conduct of the affairs of this corporation give grant donate lend sell assign transfer convey lease exchange mortgage convey in trust pledge hypothecate or otherwise subject_to lien or dispose_of any and all of its real and personal_property including land buildings and equipment and other facilities of every kind borrow money for its corporate purposes and to make accept indorse execute and issue promissory notes bills of exchange bonds debentures or other obligations from time to time for the purchase of property or for any purpose in or about the business of the corporation and if deemed proper to secure the payment of any such obligations by mortgage pledge deed_of_trust or otherwise accept money and funds of every kind by gift grant bequest or otherwise for the payment of property acquired for any of the objectives and purposes of this corporation or in relation to the handling of any part of its activities and to carry on such other business enterprises or activities as may be related to or connected with the foregoing article i section i of the organization’s bylaws states that membership in org may be obtained by members of the org chapter of the co-1 and other members of the co- article ii section ii of the organization’s bylaws states that all members will have an equal vote at all membership meetings and equal rights in the corporation article ii section iii states that there will be an annual membership meeting on the second tuesday of may pincite pm at such annual meeting trustees will be elected and all business may be transacted article ii section iv states that a quorum for the transaction of business at any membership meeting will be five article iii section i of the organization’s bylaws states that the business and property of the corporation will be managed by a board_of five trustees elected as provided in the articles of incorporation article iii section ii states that the regular meeting of the trustees will be held immediately after the adjournment of the membership meeting article iii section iv states that a quorum for the transaction of business will consist of three trustees article iii section v states that the trustees will elect officers of the corporation and the election will be held at the directors’ meeting following each annual membership meeting article iv section i of the organization’s bylaws states that the officers of the organization will be a president vice president secretary and treasurer each officer will be elected for one year the office of the secretary and treasurer may be held by one member article iv section ii states that the president will preside at all trustee and membership meetings he will have general supervision over the affairs of the corporation and over all other officers he will sign all written contracts of the corporation countersign all checks and perform all other duties incidental to his office in case of the absence or disability of the form 886-a department of the treasury-internal revenue service catalog number 20810w publish no irs gov page_2 schedule number or exhibit form 886-a rev date name of taxpayer explanations of items tax identification_number year period ended es a president his duties will be performed by the vice president article 1v section iii states that the secretary will keep a membership roll with addresses of members he will issue notices of trustees’ meetings and membership meetings and will attend and keep the meeting minutes he will maintain possession of all corporate books records and papers and will be custodian of the corporate seal and will perform all other duties incidental to his office article iv section iv states that the treasurer will have custody of all money notes and securities of the corporation he will sign all checks of the corporation keep books of account and submit them together with his vouchers receipts records and other papers to the directors and perform all other duties incidental to his office june 20xx the organization’s president president stated during the initial interview held on january 20xx that org owns the fraternity house and property occupied by the co-1 the fraternity house and property is located at address next to xyz state university in city xyz president stated that to become a member of org an individual must be an alumni of either the local or national co-1 president stated that org has approximately initiated members square feet org performed a major renovation of the fraternity house in june of 20xx org purchased the fraternity house and property located in city xyz in 19xx the house holds and is president stated that the organization expended to replace the fraternity’s roof upgrade the kitchen and remodel the bathrooms president stated that org is currently in the process of replacing all of the windows in the fraternity house president also stated that the fraternity house needs new electrical wiring and plumbing and a new boiler men org does not hold regular meetings the organization holds an annual meeting in october each year during the homecoming weekend at xyz state university in city xyz president stated that the organization holds meetings as needed the annual meeting generally consists of up to twelve people that include the board_of directors other alumni members and the undergraduate students living in the fraternity house who offer suggestions about the improvements that should be made to the fraternity house by the org org charges rent to members of the co-1 who reside at the fraternity house the total rent of all tenants is dollar_figure per year and is payable in ten equal payments during the year under examination the organization received dollar_figure in rental income from the fraternity members org used the rental income received from the fraternity members to pay the operational expenses of the fraternity house the expenses_incurred during the year under examination included payments for the mortgage utilities property taxes and maintenance of the fraternity house the organization normally also receives interest_income from a savings account and voluntary donations from alumni members of co-1 on january 20xx president was requested in writing to amend org’s articles of incorporation in order to modify the organization’s tax exempt status from an internal_revenue_code sec_501 social_club to an internal_revenue_code sec_501 title holding corporation president was requested to provide the amended articles of incorporation by february 20xx president was also requested to describe the extent of contro that the members of the co-1 exercise over the use of the funds provided by the org president was advised that the absence of some control by the supported_organization will be fatal to the exemption of the title holding corporation form 886-a department of the treasury-internal revenue service catalog number 20810w publish no irs gov page_3 schedule number or exhibit form 886-a rev date explanations of items tax identification_number year period ended name of taxpayer org june 20xx on february 20xx president provided a written response indicating that he has not been able to prepare the amended articles of incorporation for org to meet the sec_501 requirements discussed in the examination president requested an additional days to amend org’s articles of incorporation and file with the state of xyz on june 20xx president was mailed a second request by certified mail to amend org’s articles of incorporation to properly reflect the statutory requirements under sec_501 of the internal_revenue_code president was requested to provide the information by july 20xx president was also requested to describe the extent of control that the members of the co-1 exercise over the use of the funds provided by the org president was advised that the absence of some control by the supported_organization will be fatal to the exemption of the title holding corporation to date president has not responded to the requests made by the internal_revenue_service law internal_revenue_code sec_501 of the internal_revenue_code provides that an organization described in sec_501 of the code is exempt from income_tax sec_501 of the code exempts from federal_income_tax clubs organized for pleasure recreation and other non-profitable purposes substantially_all of the activities of which are for such purposes and no part of the net_earnings of which inures to the benefit of any private shareholder sec_501 of the internal_revenue_code provides that an organization described in sec_501 of the code is exempt from income_tax sec_501 of the code exempts from federal_income_tax corporations organized for the exclusive purpose of holding title to property collecting income therefrom and turning over the entire amount thereof less expenses to an organization which itself is exempt under this section federal tax regulations sec_1_501_c_7_-1 of the regulations provides that in order to be exempt as an organization described in sec_501 an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt sec_1_501_c_7_-1 of the regulations states that the exemption provided by sec_501 a for organizations described in sec_501 applies only to clubs which are organized and operated exclusively for pleasure recreation and other non-profitable purposes but does not apply to any club if any part of its net_earnings inures to the benefit of any private shareholder in general this exemption extends to social and recreational_clubs which are supported solely by membership fees dues and assessments however a club otherwise entitled to exemption will not be disqualified because it raises revenue from members through the use of club facilities or in connection with club activities form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date name of taxpayer -_ -_--_- tax identification_number year period ended explanations of items june 20xx ue sec_1_501_c_2_-1 of the regulations states that a corporation described in sec_501 and otherwise exempt from tax under sec_501 is taxable upon its unrelated_business_taxable_income since a corporation described in sec_501 cannot be exempt under sec_501 if it engages in any business other than that of holding title to property and collecting income therefrom it cannot have unrelated_business_taxable_income as defined in sec_512 other than income which is treated as unrelated_business_taxable_income solely because of the applicability of sec_512 or debt financed income which is treated as unrelated_business_taxable_income solely because of sec_514 or certain interest annuities or royalties or rents which are treated as unrelated_business_taxable_income solely because of sec_512 or similarly exempt status under sec_501 will not be affected where certain rents from personal_property leased with real_property are treated as unrelated_business_taxable_income under sec_512 solely because such rents attributable to such personal_property are more than incidental when compared to the total rents received or accrued under the lease or under sec_512 solely because such rents attributable to such personal_property exceed percent of the total rents received or accrued under the lease sec_1_501_c_2_-1 of the regulations states that a corporation described in sec_501 cannot accumulate income and retain its exemption but it must turn over the entire amount of such income less expenses to an organization which is itself exempt from tax under sec_501 court cases in the case of 182_f2d_551 the sixth circuit of the united_states court_of_appeals held that the organization was not a club organized and operated exclusively for pleasure recreation and other non-profitable purposes and was not entitled to exemption from federal income taxes the court stated that to be exempt under sec_501 of the internal_revenue_code a club must have been organized and operated exclusively for pleasure recreation and other non-profitable purposes with none of its earnings inuring to the benefit of its membership the court stated that for a corporation to be exempt from taxation as a social_club there must exist a meaningful commingling of members which plays a material part in the life of the organization in the case of 96_f2d_776 the second circuit of the united_states court_of_appeals held that where a corporation organized by testator to operate his property collect income therefrom and transfer the income over to a charitable foundation created by his will not only collected rentals but also operated a bathing beach business from which income of dollar_figure was received the court ruled that the corporation was not exempt from federal_income_tax in that it was not merely holding title to property and collecting income therefrom for an organization exempt from tax in the case of banner building company inc v commissioner of internal revenue 46_bta_857 the united_states board_of_tax_appeals denied the petitioners claim for classification as a title holding corporation the court stated that a title holding corporation is one which has been organized for the exclusive purpose of holding title to property collecting the income therefrom and turning over the entire amount less expenses to an exempt_organization the court stated that the organization has failed to demonstrate that it is organized for this purpose banner building company argued that notwithstanding its form 886-a department of the treasury-internal revenue service catalog number 20810w - page_5 publish no irs gov schedule number or exhibit form 886-a rev date explanations of items name of taxpayer tax identification_number year period ended org charter provisions it was organized to serve the purposes of a title_holding_company for banner council a local lodge unit of the junior order of united american mechanics a fraternal beneficiary society the court held that an essential requirement of a title_holding_company is that it is to turn over the income from the property held less expenses to an exempt association the court held that the organization failed to demonstrate that it had any legal_obligation to turn over any of its funds to banner council nor did it show that it did in fact pay over any of its funds to banner council june 20xx revenue rulings revrul_58_589 1958_2_cb_266 jan provides tests to be met in determining whether a social_club can qualify for exemption from federal_income_tax under the provisions of sec_501 of the internal_revenue_code of sec_501 of the internal_revenue_code provides exemption from federal_income_tax for clubs organized and operated exclusively for pleasure recreation and other non- profitable purposes no part of the net_earnings of which inures to the benefit of any private shareholder in general this exemption extends to social and recreational_clubs which are supported solely by membership fees dues and assessments however a club otherwise entitled to exemption will not be disqualified because it raises revenue from members through the use of club facilities or in connection with club activities the revenue_ruling describes the characteristics of a social_club as personal contacts fellowship and a commingling of members in making a determination of whether an organization satisfies the requirements under sec_501 of the internal_revenue_code all facts pertaining to its form of organization method of operation and activities must be considered an organization must establish that it is a club that is both organized and operated exclusively for pleasure recreation and other non-profitable purposes and that no part of its net_earnings inures to the benefit of any private_shareholder_or_individual in order to qualify for exemption under sec_501 of the code a commingling of members must play a material part in the activities of the organization an organization is primarily a social_club in that its major functions are to provide a meeting place for its members the place where their meals are served and the headquarters for their entertainment a club which engages in business such as making its social and recreational facilities available to the general_public or by selling real_estate timber or other products is not organized and operated exclusively for pleasure recreation and other non-profitable purposes and is not exempt under sec_501 therefore to qualify for income_tax exemption a social_club should not advertise its facilities for non- member patronage since this would be evidence that it was engaged in a business activity likewise a social_club should not engage in any type of business activity for profit which is designed to increase or which could result in an increase in net_earnings inuring to the benefit of any shareholder or individual net_earnings may inure to members in such forms as an increase in services offered by the club without a corresponding increase in dues or other fees paid for club support or as an increase in the club’s assets which would be distributable to members upon the dissolution of the club where a club engages in income producing transactions which are not a part of the club purposes exemption will not be denied because of incidental trivial or non-recurrent activities such as sales of property no longer adapted to club purposes in order to retain exemption a club must not enter into outside activities with the purpose of deriving a form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date explanations of items name of taxpayer tax identification_number year period ended org profit considered that they are designed to produce income and will defeat exemption if such income producing activities are other than incidental trivial or non-recurrent it will be june 20xx revrul_68_222 1968_1_cb_243 provides a stock corporation which was organized and operated for the purpose of holding title to a chapter house of a college fraternity that is exempt from federal_income_tax under sec_501 of the internal_revenue_code the capital stock of the corporation is owned by members of the fraternity who however have no rights to receive profits either in the form of dividends or in liquidating distributions the ownership of the stock by the members rather than by the fraternity will not disqualify the corporation from exemption from federal_income_tax under sec_501 of the code provided that the stockholders do not receive any dividends or profits all of the income from the property less its expenses will be paid directly to the exempt_organization revrul_71_544 1971_2_cb_227 states that a group of philanthropists organized a non-profit corporation to which they transferred income producing stocks and securities the charter of the corporation provides that the purpose of the organization is to hold title to stocks and securities and at the end of each year to turn over its income less expenses to an organization selected by its board_of directors the charter further provides that any recipient organization must be exempt from federal_income_tax under sec_501 of the internal_revenue_code the stock of the title holding corporation is owned by the group of philanthropists the stock confers no rights on the shareholders to receive dividends or to participate in liquidating distributions sec_501 of the code provides for the exemption from federal_income_tax of corporations organized fro the exclusive purpose of holding title to property collecting income from the property and turning over the entire amount less expenses to an organization which itself is exempt under sec_501 of the code sec_501 of the code provides exemption from federal_income_tax for a corporation that holds title to property only where there is effective ownership and control_over the title holding corporation by the related_organization control may be evidenced by owning the voting_stock of the title holding corporation or possessing the power to select nominees to hold the voting_stock the title holding corporation is not owned or controlled by the exempt_organization to which it turns over its income it is held that the organization is not a title holding corporation described in sec_501 of the internal_revenue_code revrul_77_429 1977_2_cb_189 states that an exempt title holding corporation may retain part of its income each year to apply to indebtedness on property to which it holds title the transaction will be treated as if the income had been turned over to the exempt parent and the organization had used the income to make a capital_contribution to the title holding corporation which in turn applied the contribution to the indebtedness all of the corporation’s stock is owned by an organization exempt from federal_income_tax under sec_501 of the internal_revenue_code by agreement with the parent the corporation retains a part of income each year and applies it to the indebtedness it has incurred on the property to which it holds title sec_1_501_c_2_-1 of the regulations provides that a corporation described in sec_501 of the code cannot accumulate income and retain its exemption but must turn over the entire amount of such income less expenses to an organization which is itself exempt from tax under sec_501 the title holding corporation is by its nature responsive to the needs and purposes of its exempt parent which established it mainly to facilitate the administration of the property if the title_holding_company must form 886-a catalog number 20810w page_ publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date explanations of items name of taxpayer tax identification_number year period ended org june 20xx remit all of its net_income to the parent every year it will have no funds with which to meet its own indebtedness rather the title_holding_company would have to turn repeatedly to the parent for additional contributions to its capital or the parent will have to make direct payments on the indebtedness of the subsidiary thus the subsidiary will be restricted in serving the needs of the parent in connection with the administration of the property therefore the title_holding_company may retain part of its income each year to apply to indebtedness on property to which it holds title taxpayer’s position at the time of issuance of the report no position statement has been provided by the organization government’s position issue whether org meets the requirements for continued recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code sec_501 of the internal_revenue_code exempts from federal_income_tax clubs organized for pleasure recreation and other non-profitable purposes substantially_all of the activities of which are for such purposes and no part of the net_earnings of which inures to the benefit of any private shareholder an organization exempt under sec_501 of the internal_revenue_code is generally supported by membership fees dues and assessments an organization may also raise revenue from its members through the use of the club facilities or in connection with the club’s activities the general characteristics of a social_club include an established membership of individuals personal contacts and fellowship and a commingling of members in determining whether an organization satisfies the requirements under sec_501 of the internal_revenue_code all facts pertaining to its form of organization method of operation and activities must be considered an organization must establish that it is a club that is both organized and operated exclusively for pleasure recreation and other non-profitable purposes and that no part of its net_earnings inures to the benefit of any private_shareholder_or_individual an organization is primarily a social_club in that its major functions are to provide a meeting place for its members the place where their meals are served and the headquarters for their entertainment in the case of chattanooga auto club v commissioner of internal revenue the court stated that for a corporation to be exempt from taxation as a social_club there must exist a meaningful commingling of members which plays a material part in the life of the organization the court held that an organization that was not organized and operated exclusively for pleasure recreation and other non-profitable purposes was not entitled to exemption from federal_income_tax under sec_501 of the internal_revenue_code org was formed to hold title to the co-1 house collect the rental income from the fraternity members and pay the expenses_incurred to maintain the property org is not organized and operated exclusively for pleasure recreation or other non-profitable purposes within the meaning of sec_501 of the internal_revenue_code org does not meet the requirements of a social_club because it does not provide a meeting place for its members a regularly established opportunity for commingling by the current and former form 886-a department of the treasury-internal revenue service catalog number 20810w publish no irs gov page_ schedule number or exhibit form 886-a rev date explanations of items name oftaxpayer__ tax identification_number year period ended __ org members of the co-1 or an established facility for member meals or entertainment therefore org does not meet the requirements for continued recognition of exemption under sec_501 of the internal_revenue_code june 20xx i issue c of the internal_revenue_code whether org qualifies for recognition of exemption from federal_income_tax under section sec_501 of the internal_revenue_code exempts from federal_income_tax corporations organized for the exclusive purpose of holding title to property collecting income from the property and turning over the entire amount less expenses to an organization which itself is exempt under sec_501 of the code an organization cannot be exempt under sec_501 of the code if it engages in any business other than holding title to property and collecting income from it sec_501 of the internal_revenue_code also provides exemption from federal_income_tax for a corporation that holds title to property only where there is effective ownership and control_over the title holding corporation by the related sec_501 organization the internal_revenue_service attempted to modify org to an organization recognized as exempt under sec_501 of the internal_revenue_code the organization was requested to amend its articles of incorporation to properly reflect the statutory requirements under sec_501 of the internal_revenue_code org’s articles of incorporation provide for its corporate powers to go beyond holding title to property and collecting income by empowering the organization to engage in other business this is evidence that the corporation is not currently organized for an exclusive purpose as required under the internal_revenue_code org was also requested to describe the extent of control that the members of the co-1 exercise over the use of the funds provided by the org president was advised that the absence of some control by the supported_organization will be fatal to the exemption of the title holding corporation org failed to amend its articles of incorporation to satisfy the statutory requirements under sec_501 of the internal_revenue_code therefore org does not qualify as an exempt_organization under sec_501 of the internal_revenue_code conclusion org does not qualify as an exempt_organization under sec_501 of the internal_revenue_code also the organization failed to amend its articles of incorporation to satisfy the statutory requirements under sec_501 of the internal_revenue_code therefore revocation of org’s tax exempt status under sec_501 of the internal_revenue_code is proposed to be effective as of july 20xx form 886-a catalog number 20810w page q publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date explanations of items name of taxpayer coro june 20xx tax identification_number _ year period ended legend org organization name college vice-president-1 scholarship chairman scholarship chairman vice president address address xx date co-1 xyz state city city college company vice-president-2 president president vice president issue whether org meets the requirements for continued recognition of exemption from federal income tax under sec_501 of the internal_revenue_code whether org qualifies for recognition of exemption from federal_income_tax under sec_2 c of the internal_revenue_code facts org was incorporated on september 19xx as a domestic non-profit corporation in the state of xyz org is recognized as an exempt_organization under sec_501 of the internal_revenue_code the officers of org are president and treasurer vice president-1 vice president-2 and scholarship chairman org was notified on december 20xx of a pending examination of its books_and_records for the tax_year ended june 20xx an examination was conducted at president’s office on january 20xx org stated on form_1024 application_for recognition of exemption under sec_501 a that the purpose of the organization is to assist a new fraternity chapter to manage its business affairs and to provide good living and study conditions for undergraduate students at college located in city xyz org indicated in the application that it will receive monthly rental income from the occupants living in the fraternity house org indicated that it will expend funds for the monthly mortgage payments for the chapter house and the necessary repairs to the house to keep it in suitable condition org indicated that the only activity of the organization will be the acceptance of rent from the local fraternity chapter members and the paying out of these funds for the mortgage payments the stated purposes of the organization as described in its articles of incorporation are to provide without profit improved housing and educational facilities for male students in attendance at the college assist needy and deserving male students to complete their educational work at the college set up scholarships for undergraduate and graduate work by male students in attendance at the college initiate undertake encourage promote assist finance administer and execute such programs and projects as may be desirable for the effective realization of the objects and purposes herein set forth and the accomplishments thereof purchase take hold accept title lease or otherwise acquire by contribution gift grant devise bequest or otherwise any real or personal_property including land buildings equipment and other facilities of every form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date name of taxpayer explanations of items ‘tax identification_number year period ended org june 20xx kind within the state of xyz or within any state of the united_states or within any foreign_country without limitation as to amount or value and which may appertain to and be useful in the conduct of the affairs of this corporation give grant donate lend sell assign transfer convey lease exchange mortgage convey in trust pledge hypothecate or otherwise subject_to lien or dispose_of any and all of its real and personal_property including land buildings and equipment and other facilities of every kind borrow money for its corporate purposes and to make accept indorse execute and issue promissory notes bills of exchange bonds debentures or other obligations from time to time for the purchase of property or for any purpose in or about the business of the corporation and if deemed proper to secure the payment of any such obligations by mortgage pledge deed_of_trust or otherwise accept money and funds of every kind by gift grant bequest or otherwise for the payment of property acquired for any of the objectives and purposes of this corporation or in relation to the handling of any part of its activities and to carry on such other business enterprises or activities as may be related to or connected with the foregoing article ii section i of the organization’s bylaws states that membership in org may be obtained by members of the org chapter of the co-1 and other members of the co-1 article ii section ii of the organization’s bylaws states that all members will have an equal vote at all membership meetings and equal rights in the corporation article ii section iii states that there will be an annual membership meeting on the second tuesday of may pincite pm at such annual meeting trustees will be elected and all business may be transacted article ii section iv states that a quorum for the transaction of business at any membership meeting will be five article iii section i of the organization’s bylaws states that the business and property of the corporation will be managed by a board_of five trustees elected as provided in the articles of incorporation article iii section ii states that the regular meeting of the trustees will be held immediately after the adjournment of the membership meeting article ii section iv states that a quorum for the transaction of business will consist of three trustees article iii section v states that the trustees will elect officers of the corporation and the election will be held at the directors’ meeting following each annual membership meeting article iv section i of the organization’s bylaws states that the officers of the organization will be a president vice president secretary and treasurer each officer will be elected for one year the office of the secretary and treasurer may be held by one member article iv section ii states that the president will preside at all trustee and membership meetings he will have general supervision over the affairs of the corporation and over all other officers he will sign all written contracts of the corporation countersign all checks and perform all other duties incidental to his office in case of the absence or disability of the form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service june 20xx schedule number or exhibit form 886-a rev date explanations of items name of taxpayer tax identification_number a year period ended org president his duties will be performed by the vice president article iv section iii states that the secretary will keep a membership roll with addresses of members he will issue notices of trustees’ meetings and membership meetings and will attend and keep the meeting minutes he will maintain possession of all corporate books records and papers and will be custodian of the corporate seal and will perform all other duties incidental to his office article iv section iv states that the treasurer will have custody of all money notes and securities of the corporation he will sign all checks of the corporation keep books of account and submit them together with his vouchers receipts records and other papers to the directors and perform all other duties incidental to his office the organization’s president president stated during the initial interview held on january 20xx that org owns the fraternity house and property occupied by the co-1 the fraternity house and property is located at address next to xyz state university in city xyz president stated that to become a member of org an individual must be an alumni of either the local or national co-1 president stated that org has approximately initiated members square feet org performed a major renovation of the fraternity house in june of 20xx org purchased the fraternity house and property located in city xyz in 19xx the house holds and is president stated that the organization expended to replace the fraternity’s roof upgrade the kitchen and remodel the bathrooms president stated that org is currently in the process of replacing all of the windows in the fraternity house president also stated that the fraternity house needs new electrical wiring and plumbing and a new boiler men org does not hold regular meetings the organization holds an annual meeting in october each year during the homecoming weekend at xyz state university in city xyz president stated that the organization holds meetings as needed the annual meeting generally consists of up to twelve people that include the board_of directors other alumni members and the undergraduate students living in the fraternity house who offer suggestions about the improvements that should be made to the fraternity house by the org org charges rent to members of the co-1 who reside at the fraternity house the total rent of all tenants is dollar_figure per year and is payable in ten equal payments during the year under examination the organization received dollar_figure in rental income from the fraternity members org used the rental income received from the fraternity members to pay the operational expenses of the fraternity house the expenses_incurred during the year under examination included payments for the mortgage utilities property taxes and maintenance of the fraternity house the organization normally also receives interest_income from a savings account and voluntary donations from alumni members of co-1 on january 20xx president was requested in writing to amend org’s articles of incorporation in order to modify the organization’s tax exempt status from an internal_revenue_code sec_501 social_club to an internal_revenue_code sec_501 title holding corporation president was requested to provide the amended articles of incorporation by february 20xx president was also requested to describe the extent of control that the members of the co-1 exercise over the use of the funds provided by the org president was advised that the absence of some control by the supported_organization will be fatal to the exemption of the title holding corporation form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date explanations of items name of taxpayer tax identification_number year period ended org june 20xx on february 20xx president provided a written response indicating that he has not been able to prepare the amended articles of incorporation for org to meet the sec_501 requirements discussed in the examination president requested an additional days to amend org’s articles of incorporation and file with the state of xyz on june 20xx president was mailed a second request by certified mail to amend org’s articles of incorporation to properly reflect the statutory requirements under sec_501 of the internal_revenue_code president was requested to provide the information by july 20xx president was also requested to describe the extent of control that the members of the co-1 exercise over the use of the funds provided by the org president was advised that the absence of some control by the supported_organization will be fatal to the exemption of the title holding corporation to date president has not responded to the requests made by the internal_revenue_service law internal_revenue_code sec_501 of the internal_revenue_code provides that an organization described in sec_501 of the code is exempt from income_tax sec_501 of the code exempts from federal_income_tax clubs organized for pleasure recreation and other non-profitable purposes substantially_all of the activities of which are for such purposes and no part of the net_earnings of which inures to the benefit of any private shareholder sec_501 of the internal_revenue_code provides that an organization described in sec_501 of the code is exempt from income_tax sec_501 of the code exempts from federal_income_tax corporations organized for the exclusive purpose of holding title to property collecting income therefrom and turning over the entire amount thereof less expenses to an organization which itself is exempt under this section federal tax regulations sec_1_501_c_7_-1 of the regulations provides that in order to be exempt as an organization described in sec_501 an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt sec_1_501_c_7_-1 of the regulations states that the exemption provided by sec_501 a for organizations described in sec_501 applies only to clubs which are organized and operated exclusively for pleasure recreation and other non-profitable purposes but does not apply to any club if any part of its net_earnings inures to the benefit of any private shareholder in general this exemption extends to social and recreational_clubs which are supported solely by membership fees dues and assessments however a club otherwise entitled to exemption will not be disqualified because it raises revenue from members through the use of club facilities or in connection with club activities form 886-a department of the treasury-internal revenue service catalog number 20810w publish no irs gov -page_4 schedule number or exhibit form 886-a rev date explanations of items name of taxpayer tax identification_number org year period ended june 20xx sec_1_501_c_2_-1 of the regulations states that a corporation described in sec_501 and otherwise exempt from tax under sec_501 is taxable upon its unrelated_business_taxable_income since a corporation described in sec_501 cannot be exempt under sec_501 a if it engages in any business other than that of holding title to property and collecting income therefrom it cannot have unrelated_business_taxable_income as defined in sec_512 other than income which is treated as unrelated_business_taxable_income solely because of the applicability of sec_512 or debt financed income which is treated as unrelated_business_taxable_income solely because of sec_514 or certain interest annuities or royalties or rents which are treated as unrelated_business_taxable_income solely because of sec_512 or similarly exempt status under sec_501 will not be affected where certain rents from personal_property leased with real_property are treated as unrelated_business_taxable_income under sec_512 solely because such rents attributable to such personal_property are more than incidental when compared to the total rents received or accrued under the lease or under sec_512 solely because such rents attributable to such personal_property exceed percent of the total rents received or accrued under the lease sec_1_501_c_2_-1 of the regulations states that a corporation described in sec_501 cannot accumulate income and retain its exemption but it must turn over the entire amount of such income less expenses to an organization which is itself exempt from tax under sec_501 court cases in the case of 182_f2d_551 the sixth circuit of the united_states court_of_appeals held that the organization was not a club organized and operated exclusively for pleasure recreation and other non-profitable purposes and was not entitled to exemption from federal income taxes the court stated that to be exempt under sec_501 of the internal_revenue_code a club must have been organized and operated exclusively for pleasure recreation and other non-profitable purposes with none of its earnings inuring to the benefit of its membership the court stated that for a corporation to be exempt from taxation as a social_club there must exist a meaningful commingling of members which plays a material part in the life of the organization in the case of 96_f2d_776 the second circuit of the united_states court_of_appeals held that where a corporation organized by testator to operate his property collect income therefrom and transfer the income over to a charitable foundation created by his will not only collected rentals but also operated a bathing beach business from which income of dollar_figure was received the court ruled that the corporation was not exempt from federal_income_tax in that it was not merely holding title to property and collecting income therefrom for an organization exempt from tax in the case of banner building company inc v commissioner of internal revenue 46_bta_857 the united_states board_of_tax_appeals denied the petitioners claim for classification as a title holding corporation the court stated that a title holding corporation is one which has been organized for the exclusive purpose of holding title to property collecting the income therefrom and turning over the entire amount less expenses to an exempt_organization the court stated that the organization has failed to demonstrate that it is organized for this purpose banner building company argued that notwithstanding its form 886-a catalog number 20810w page_-5 publishno irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date explanations of items name of taxpayer tax identification_number - year period ended - charter provisions it was organized to serve the purposes of a title_holding_company for banner council a local lodge unit of the junior order of united american mechanics a fraternal beneficiary society the court held that an essential requirement of a title_holding_company is that it is to turn over the income from the property held less expenses to an exempt association the court held that the organization failed to demonstrate that it had any legal_obligation to turn over any of its funds to banner council nor did it show that it did in fact pay over any of its funds to banner council june 20xx revenue rulings revrul_58_589 1958_2_cb_266 jan provides tests to be met in determining whether a social_club can qualify for exemption from federal_income_tax under the provisions of sec_501 of the internal_revenue_code of sec_501 of the internal_revenue_code provides exemption from federal_income_tax for clubs organized and operated exclusively for pleasure recreation and other non- profitable purposes no part of the net_earnings of which inures to the benefit of any private shareholder in general this exemption extends to social and recreational_clubs which are supported solely by membership fees dues and assessments however a club otherwise entitled to exemption will not be disqualified because it raises revenue from members through the use of club facilities or in connection with club activities the revenue_ruling describes the characteristics of a social_club as personal contacts fellowship and a commingling of members in making a determination of whether an organization satisfies the requirements under sec_501 of the internal_revenue_code all facts pertaining to its form of organization method of operation and activities must be considered an organization must establish that it is a club that is both organized and operated exclusively for pleasure recreation and other non-profitable purposes and that no part of its net_earnings inures to the benefit of any private_shareholder_or_individual in order to qualify for exemption under sec_501 of the code a commingling of members must play a material part in the activities of the organization an organization is primarily a social_club in that its major functions are to provide a meeting place for its members the place where their meals are served and the headquarters for their entertainment a club which engages in business such as making its social and recreational facilities available to the general_public or by selling real_estate timber or other products is not organized and operated exclusively for pleasure recreation and other non-profitable purposes and is not exempt under sec_501 therefore to qualify for income_tax exemption a social_club should not advertise its facilities for non- member patronage since this would be evidence that it was engaged in a business activity likewise a social_club should not engage in any type of business activity for profit which is designed to increase or which could result in an increase in net_earnings inuring to the benefit of any shareholder or individual net_earnings may inure to members in such forms as an increase in services offered by the club without a corresponding increase in dues or other fees paid for club support or as an increase in the club’s assets which would be distributable to members upon the dissolution of the club where a club engages in income producing transactions which are not a part of the club purposes exemption will not be denied because of incidental trivial or non-recurrent activities such as sales of property no longer adapted to club purposes in order to retain exemption a club must not enter into outside activities with the purpose of deriving a form 886-a department of the treasury-internal revenue service catalog number 20810w publish no irs gov -page_6 schedule number or exhibit form 886-a rev date name of taxpayer explanations of items tax identification_number year period ended org profit considered that they are designed to produce income and will defeat exemption if such income producing activities are other than incidental trivial or non-recurrent it will be june 20xx revrul_68_222 1968_1_cb_243 provides a stock corporation which was organized and operated for the purpose of holding title to a chapter house of a college fraternity that is exempt from federal_income_tax under sec_501 of the internal_revenue_code the capital stock of the corporation is owned by members of the fraternity who however have no rights to receive profits either in the form of dividends or in liquidating distributions the ownership of the stock by the members rather than by the fraternity will not disqualify the corporation from exemption from federal_income_tax under sec_501 of the code provided that the stockholders do not receive any dividends or profits less its expenses will be paid directly to the exempt_organization all of the income from the property revrul_71_544 1971_2_cb_227 states that a group of philanthropists organized a non-profit corporation to which they transferred income producing stocks and securities the charter of the corporation provides that the purpose of the organization is to hold title to stocks and securities and at the end of each year to turn over its income less expenses to an organization selected by its board_of directors the charter further provides that any recipient organization must be exempt from federal_income_tax under sec_501 of the internal_revenue_code the stock of the title holding corporation is owned by the group of philanthropists the stock confers no rights on the shareholders to receive dividends or to participate in liquidating distributions sec_501 of the code provides for the exemption from federal_income_tax of corporations organized fro the exclusive purpose of holding title to property collecting income from the property and turning over the entire amount less expenses to an organization which itself is exempt under sec_501 of the code sec_501 of the code provides exemption from federal_income_tax for a corporation that holds title to property only where there is effective ownership and control_over the title holding corporation by the related_organization control may be evidenced by owning the voting_stock of the title holding corporation or possessing the power to select nominees to hold the voting_stock the title holding corporation is not owned or controlled by the exempt_organization to which it turns over its income it is held that the organization is not a title holding corporation described in sec_501 of the internal_revenue_code revrul_77_429 1977_2_cb_189 states that an exempt title holding corporation may retain part of its income each year to apply to indebtedness on property to which it holds title the transaction will be treated as if the income had been turned over to the exempt parent and the organization had used the income to make a capital_contribution to the title holding corporation which in turn applied the contribution to the indebtedness all of the corporation’s stock is owned by an organization exempt from federal_income_tax under sec_501 of the internal_revenue_code by agreement with the parent the corporation retains a part of income each year and applies it to the indebtedness it has incurred on the property to which it holds title sec_1_501_c_2_-1 of the regulations provides that a corporation described in sec_501 of the code cannot accumulate income and retain its exemption but must turn over the entire amount of such income less expenses to an organization which is itself exempt from tax under sec_501 a the title holding corporation is by its nature responsive to the needs and purposes of its exempt parent which established it mainly to facilitate the administration of the property if the title_holding_company must form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date explanations of items name of taxpayer tax identification_number year period ended org june 20xx remit all of its net_income to the parent every year it will have no funds with which to meet its own indebtedness rather the title_holding_company would have to turn repeatedly to the parent for additional contributions to its capital or the parent will have to make direct payments on the indebtedness of the subsidiary thus the subsidiary will be restricted in serving the needs of the parent in connection with the administration of the property therefore the title_holding_company may retain part of its income each year to apply to indebtedness on property to which it holds title taxpayer’s position at the time of issuance of the report no position statement has been provided by the organization government’s position issue whether org meets the requirements for continued recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code sec_501 of the internal_revenue_code exempts from federal_income_tax clubs organized for pleasure recreation and other non-profitable purposes substantially_all of the activities of which are for such purposes and no part of the net_earnings of which inures to the benefit of any private shareholder an organization exempt under sec_501 of the internal_revenue_code is generally supported by membership fees dues and assessments an organization may also raise revenue from its members through the use of the club facilities or in connection with the club’s activities the general characteristics of a social_club include an established membership of individuals personal contacts and fellowship and a commingling of members in determining whether an organization satisfies the requirements under sec_501 of the internal_revenue_code all facts pertaining to its form of organization method of operation and activities must be considered an organization must establish that it is a club that is both organized and operated exclusively for pleasure recreation and other non-profitable purposes and that no part of its net_earnings inures to the benefit of any private_shareholder_or_individual an organization is primarily a social_club in that its major functions are to provide a meeting place for its members the place where their meals are served and the headquarters for their entertainment in the case of chattanooga auto club vy commissioner of internal revenue the court stated that for a corporation to be exempt from taxation as a social_club there must exist a meaningful commingling of members which plays a material part in the life of the organization the court held that an organization that was not organized and operated exclusively for pleasure recreation and other non-profitable purposes was not entitled to exemption from federal_income_tax under sec_501 of the internal_revenue_code org was formed to hold title to the co-1 house collect the rental income from the fraternity members and pay the expenses_incurred to maintain the property org is not organized and operated exclusively for pleasure recreation or other non-profitable purposes within the meaning of sec_501 of the internal_revenue_code org does not meet the requirements of a social_club because it does not provide a meeting place for its members a regularly established opportunity for commingling by the current and former form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date name of taxpayer tax identification_number year period ended explanations of items org members of the co-1 or an established facility for member meals or entertainment therefore org does not meet the requirements for continued recognition of exemption under sec_501 of the internal_revenue_code june 20xx issue whether org qualifies for recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code sec_501 of the internal_revenue_code exempts from federal_income_tax corporations organized for the exclusive purpose of holding title to property collecting income from the property and turning over the entire amount less expenses to an organization which itself is exempt under sec_501 of the code an organization cannot be exempt under sec_501 of the code if it engages in any business other than holding title to property and collecting income from it sec_501 of the internal_revenue_code also provides exemption from federal_income_tax for a corporation that holds title to property only where there is effective ownership and control_over the title holding corporation by the related sec_501 organization the internal_revenue_service attempted to modify org to an organization recognized as exempt under sec_501 of the internal_revenue_code the organization was requested to amend its articles of incorporation to properly reflect the statutory requirements under sec_501 of the internal_revenue_code org’s articles of incorporation provide for its corporate powers to go beyond holding title to property and collecting income by empowering the organization to engage in other business this is evidence that the corporation is not currently organized for an exclusive purpose as required under the internal_revenue_code org was also requested to describe the extent of contro that the members of the co-1 exercise over the use of the funds provided by the org president was advised that the absence of some control by the supported_organization will be fatal to the exemption of the title holding corporation org failed to amend its articles of incorporation to satisfy the statutory requirements under sec_501 of the internal_revenue_code therefore org does not qualify as an exempt_organization under sec_501 of the internal_revenue_code conclusion org does not qualify as an exempt_organization under sec_501 of the internal_revenue_code also the organization failed to amend its articles of incorporation to satisfy the statutory requirements under sec_501 of the internal_revenue_code therefore revocation of org’s tax exempt status under sec_501 of the internal_revenue_code is proposed to be effective as of july 20xx form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service internal_revenue_service department of the treasury te_ge exempt_organizations examinations second avenue m s w540 seattle washington date date org address taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your organization's exempt status is necessary if you do not agree with our position you may appeal your case the enclosed publication the examination process explains how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process if you request a conference we will forward your written_statement of protest to the appeals_office and they will contact you for your convenience an envelope is enclosed if you and appeals do not agree on some or all of the issues after your appeals_conference or if you do not request an appeals_conference you may file suit in united_states tax_court the united_states court of federal claims or united_states district_court after satisfying procedural and jurisdictional requirements as described in publication letter rev catalog number 34801v you may also request that we refer this matter for technical_advice as explained in publication exempt_organization appeal procedures for unagreed issues if a determination_letter is issued to you based on technical_advice no further administrative appeal is available to you within the irs on the issue that was the subject of the technical_advice if you accept our findings please sign and return the enclosed form_6018 consent to proposed adverse action we will then send you a final letter revoking your exempt status if we do not hear from you within days from the date of this letter we will process your case on the basis of the recommendations shown in the report of examination and this letter will become final in that event you will be required to file federal_income_tax returns for the tax period s shown above file these returns with the ogden service_center within days from the date of this letter unless a request for an extension of time is granted file returns for later tax years with the appropriate service_center indicated in the instructions for those returns you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation sincerely marsha a ramirez director eo examinations enclosures publication publication form_6018 report of examination envelope letter rev catalog number 34801v


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-110240-19 date date internal_revenue_service number release date index number --------------------------------------------------- ---------------------- ---------------------------- -------------------------------- legend x date date date trust --------------------------------------- ---------------------- ---------------- -------------------------- --------------------------------------- --------------------------------------- --------------------------------------- ---------------------- a ----------------------- b --------------------------------------- --------------------------------------- n --------- dear ------------------ this letter is being sent to modify out private_letter_ruling plr dated date the plr we are modifying the plr to include language under the heading conclusion stating that as an adjustment under sec_1362 a payment is due and the mailing and payment requirements associated with the adjustment payment the plr contains a ruling under sec_1362 of the internal_revenue_code the code this ruling modifies and supersedes the plr the plr as modified reads as follows plr-110240-19 facts effective date x elected to be treated as an s_corporation on date a and b transferred shares of x to trust an irrevocable_trust created by a and b it is represented that trust is eligible to be an electing_small_business_trust esbt under sec_1361 however the trustee of trust did not file a timely esbt election for trust and x’s s_corporation_election terminated on date x represents the failure_to_file the esbt election for trust was inadvertent and was not motivated by tax_avoidance or retroactive planning x has filed all returns consistent with x’s status as an s_corporation since date x and its shareholders agree to make any adjustments required as a condition of obtaining relief under the inadvertent_termination_rule as provided in sec_1362 of the code law and analysis sec_1361 of the code provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 provides that the term small_business_corporation means a domestic_corporation which is not an ineligible_corporation and which does not have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1361 provides that a_trust all of which is treated under subpart e of part i of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states is an eligible shareholder sec_1361 provides that a_trust which was described in sec_1361 immediately before the death of the deemed owner and which continues in existence after such death is an eligible shareholder but only for the 2-year period beginning on the day of the deemed owner’s death sec_1361 provides that an esbt is an eligible shareholder sec_1361 provides that except as provided in sec_1362 an esbt means any trust if i such trust does not have as a beneficiary any person other than i an individual ii an estate iii an organization described in sec_170 or or iv an organization described in sec_170 which holds a contingent_interest in such trust and is not a potential_current_beneficiary ii no interest in such trust was acquired by purchase and iii an election under sec_1361 applies to such trust sec_1361 provides that an election under sec_1361 shall be made by the trustee any such election shall apply to the taxable_year of the trust for which made plr-110240-19 and all subsequent taxable years of such trust unless revoked with the consent of the secretary sec_1_1361-1 provides that the trustee of the esbt must make the esbt election by signing and filing with the service_center where the s_corporation files its income_tax return a statement that meets the requirements of sec_1_1361-1 sec_1362 provides that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in the ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in the ineffectiveness or termination the corporation will be treated as an s_corporation during the period specified by the secretary conclusion based solely on the facts and representations submitted we conclude that x’s s_corporation_election was terminated on date because trustee of trust failed to file an esbt election for trust and that this termination was inadvertent within the meaning of sec_1362 we hold that pursuant to the provisions of sec_1362 x will be treated as an s_corporation from date and thereafter provided x was otherwise eligible to make an s_corporation_election and provided that any such election would not have otherwise been terminated under sec_1361 trust will be treated as an esbt effective date the shareholders of x must include their pro-rata share of the separately_stated and nonseparately computed items of x as provided in sec_1366 make any adjustments to basis as provided in sec_1367 and take into account any distributions made by x as provided in sec_1368 if x or its shareholders fail to treat themselves as described above this ruling is null and void this ruling is conditioned upon the trustee of trust filing an appropriately completed esbt election for trust effective date and upon trust and its beneficiaries filing timely amended federal_income_tax returns consistent with the treatment of trust as an esbt effective date the election must be made and the amended returns plr-110240-19 must be timely filed within days following the date of this letter and a copy of this letter should be attached to the election and the returns furthermore as an adjustment under sec_1362 a payment of dollar_figuren and a copy of this letter_ruling must be sent to the following address internal_revenue_service kansas city service_center w pershing road kansas city mo stop manual deposit the payment of this letter must be sent no later than date except as specifically ruled above we express no opinion concerning the federal tax consequences of the transactions described above under any other provisions of the code this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file a copy of this letter is being sent to x’s authorized representative sincerely richard t probst senior technician reviewer branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes