internal_revenue_service number release date index number ----------------------- ------------------------------------------- ------------------------------------ --------------------------------- ------------- ------------------------------- in re ----------------------------------------------- --------------------------------------------------- --------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact -------------------------- id no ------------- telephone number --------------------- refer reply to cc intl b04 plr-109278-06 date september -------------------------------------------------------------- ------------------------------------ ----------------------------------------------- legend pr sec_1 -------------------------------------------------- pr sec_2 -------------------------------------------------- pr sec_3 -------------------------------------------------- pr sec_4 -------------------------------------------------- u -------------------------------------------------- v --------------------------------------------------------------------------------------- w ------------------------------------------------------------- x ------------------------------------------------------- ------------------------------------------- ---------------------------------------- ------------------ ---------------------------------------------------------------------- ------------------------------------------------- ------------------------------------ plr-109278-06 ------------------------------------------------------------- y ----------------------------------------------------------- z ------------------------------------------------------------ state country year dear ---------------- ---------------------- ------------- ------- this letter responds to your letter dated date and related correspondence submitted on behalf of pr sec_1 and pr sec_2 requesting extensions of time under sec_301_9100-1 and -3 to comply with the notice requirements of sec_1_1445-5 the information submitted for consideration is set forth below the rulings contained in this letter are based upon information and representations submitted by the taxpayers 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 prior to the transaction described below pr sec_1 was a limited_liability_company organized under the laws of state and was classified as a partnership for u s federal_income_tax purposes pr sec_1 was the sole general_partner in pr sec_2 a limited_partnership organized under the laws of state pr sec_2 was classified as a partnership for u s federal_income_tax purposes the members of pr sec_1 were v w x y and z the limited partners of pr sec_2 were u v w x and z v w x and y are foreign persons and the interests of pr sec_1 and pr sec_2 held by v w x and y were u s real_property interests as defined in sec_897 of the internal_revenue_code pr sec_3 is a limited_liability_company organized under the laws of state and is classified as a partnership for federal_income_tax purposes pr sec_3 is the general_partner in pr sec_4 a limited_partnership organized under the laws of country which is classified as a partnership for u s federal_income_tax purposes plr-109278-06 in year pr sec_1 merged into pr sec_3 with pr sec_1 terminating and pr sec_2 merged into pr sec_4 with pr sec_2 terminating in a series transactions pursuant to sec_1_708-1 as a result of the merger of pr sec_1 into pr sec_3 v w x and y exchanged their interests in pr sec_1 for interests in pr sec_3 as a result of the merger of pr sec_2 into pr sec_4 u v w and x exchanged their interests in pr sec_2 for interests in pr sec_4 the interests in pr sec_3 and pr sec_4 received by v w x and y respectively were u s real_property interests the sale of which immediately following the exchange would be subject_to u s taxation under sec_897 following the merger pr sec_3 and pr sec_4 hired their tax advisor to review the transaction although it was determined that no tax was required to be paid as a result of the transfers under sec_897 the tax advisor determined that due to an oversight pr sec_1 and pr sec_2 failed to file the required notices of nonrecognition transfer pursuant to sec_1_1445-5 accordingly the tax advisor suggested that pr sec_1 and pr sec_2 seek relief under sec_301_9100-3 to make the requisite filing as requested sec_301_9100-1 defines a regulatory election as an election whose due_date is prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement sec_301_9100-1 provides that the commissioner has discretion to grant a taxpayer a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides that requests for relief subject_to this section 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 in the present situation sec_1_1445-5 provides the time to file certain notices therefore the commissioner has discretionary authority under sec_301_9100-1 to grant pr sec_1 and pr sec_2 extensions of time provided that pr sec_1 and pr sec_2 satisfy the requirements set forth in sec_301_9100-3 based solely on the facts submitted and the representations made we conclude that pr sec_1 and pr sec_2 satisfy the requirements of sec_301_9100-3 accordingly extensions of time are granted until days from the date of this ruling letter to comply with the notice requirements of sec_1_1445-5 with respect to each of the transfers by v w x and y described above a copy of this letter should be attached to each notice filed pursuant to sec_1_1445-5 plr-109278-06 the granting of the extensions of time is not a determination that pr sec_1 or pr sec_2 were otherwise eligible to file a notice of nonrecognition transfer pursuant to sec_1_1445-5 in addition the granting of the extension of time is not a determination as to whether the transfers were subject_to tax under sec_897 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely chistopher l trump assistant to the branch chief branch international enclosure copy for purposes cc


internal_revenue_service national_office technical_advice_memorandum index numbers control number appeais office tam-119982-97 kile sf bg ee - 7am sef taxpayer's name taxpayer's id number taxpayer's address tax years ended date of conference legend taxpayer entity x corp a corp b corp c corp d corpe u tam-119982-97 financial advisor law firm _accounting firm c o a i a t y i _ z i b sec_5 o l o f o l tam-119982-97 w l i c i i issue t i l w a whether the expenditures incurred by the taxpayer in connection with the acquisition of corp c quality as start-up_expenditures under sec_195 of the internal_revenue_code conclusion the expenditures incurred by the taxpayer in the course of a general or preliminary investigation in order to determine whether to acquire corp c qualify as start-up_expenditures under sec_195 however once the taxpayer made its decision to acquire corp c expenditures incurred in that attempt do not qualify as start-up_expenditures because they must be capitalized under sec_263 as acquisition costs the determination of when a taxpayer has gone beyond a general search or preliminary investigation and made its decisions as to whether to enter a transaction and which transaction to enter requires a facts and circumstances analysis the facts and circumstances of this case indicate that the taxpayer had completed its preliminary investigation and made ‘its decision to acquire corp c when the decision was made to prepare and submit the letter of intent facts during a the corp a board_of directors decided to explore the sale of its percent owned subsidiary corp c corp b owned the remaining g percent of corp c during financial advisor was retained for the purpose of effectuating the sale during dg financial advisor approached a number of potential buyers of corp c who were not in the same business or industry as corp c one of the potential buyers was entity x after conducting a preliminary due diligence investigation of corp c entity x submitted a letter of intent dated f containing an offer of dollar_figuree for corp c as outlined in the letter of intent the transaction would occur via a cash purchase by entity x of ail of the outstanding_stock of corp a and corp b onf the corp a board_of directors and tam-119982-97 corp b's sole shareholder approved the offer the letter of intent specifically stated that a binding commitment with respect to the proposed transaction will result only from a definitive purchase agreement subject_to the conditions xpressed therein for a transaction of this kind including the negotiation and execution of an acquisition agreement verification of information and completion of our accounting and legal due diligence investigation further the terms of the letter of intent prohibited corp a and corp b from discussing or negotiating any transaction involving the merger consolidation sale of substantial assets sale of capital stock or similar transactions with any entity other than entity x and its affiliates until vy thus on f negotiations with all other potential buyers were terminated following acceptance of the offer entity x continued investigatory activities by using its own personne and the services of law firm and accounting firm on h corp a and corp b approved a final acquisition agreement for the sale of corp c the partnership_agreement between entity x as general_partner and its limited partners required creation of an acquisition company corp d in order to accomplish the acquisition on i corp d through its wholly-owned subsidiary corp e corporations formed by affiliates of entity x entered into an agreement of purchase and sale to acquire all of the outstanding_stock of corp a and corp b for dollar_figureu including cash after completion of the sale corp c on behalf of corp d received and paid invoices from entity x law firm and accounting firm for investigatory services rendered prior to the sale on corp d's consolidated_income_tax_return for the tax_year ended which included corp a corp b corp c and coppe a timely election was made under sec_195 to amortize start-up_expenditures over period of not less than beginning n through was dollar_figureo subsequently corp d changed its name to the taxpayer the amount amortized for taxpayer's tax_year ended p was dollar_figureq the dollar_figurem of claimed start-up_expenditures consists of the following investigatory costs paid_by corp c on behalf of corp d hereinafter the taxpayer entity x received dollar_figurer for its preliminary due diligence investigation of corp c entity x's investigation involved reviewing an offering memorandum on corp c prepared by financial advisor corp c's financial statements and its budgets researching the ee for purposes of this technical_advice_memorandum the dollar amounts of the taxpayer's investigatory costs are not in dispute tam-119982-97 industry and competitors analyzing corp c's products and margins designing and directing market surveys interviewing distributors and corp c's management and coordinating due diligence activities with legal accounting and other advisors law firm received dollar_figures for its review of corp c's internal corporate documents including minutes and stockhoider ledgers lease agreements union contracts royalty agreements personnel files and employment agreements federal and state tax returns key man insurance policies etc accounting firm received dollar_figuret for an extensive review upon examination of the taxpayer's consolidated retums including the sec_195 election statement for the acquisition of corp c the district_director concluded that all of the expenditures incurred by the taxpayer in connection with its acquisition of corp c j the amounts paid to entity x law firm and accounting firm are capital expenditures under sec_263 the appeals_office agrees with the district director's conclusion law and analysis sec_195 provides that except as otherwise provided therein no deduction is allowed for start-up_expenditures under sec_195 start-up_expenditures may at the sec_195 defines start-up_expenditure in relevant part the term means any amount_paid or incurred in connection with investigating the creation or would be allowabie as a deduction for the taxable_year in which paid_or_incurred within the meaning of sec_195 c b start-up_expenditures however do not include any amounts that may be deducted under sec_163 sec_164 or sec_174 generally under sec_162 a deduction is allowed for all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business courts have generally construed this provision as containing five conditions that an expenditure must meet to qualify for deduction the expenditure must be an expense an ordinary xpense a necessary expense paid or tam-119982-97 incurred during the taxable_year and made to carry on a trade_or_business see 403_us_345 taxpayer's investigatory costs must satisfy the requirements in both sec_195 ai and c b the appeals_office has not questioned whether the taxpayer's costs satisfy the requirements in sec_195 ma i however the appeals_office has questioned whether the taxpayer's costs at issue satisfy sec_195 which requires that the costs must be of type that would be deductible if paid_or_incurred in connection with the operation of an existing active trade_or_business in the same field as the acquired_business allowable as a deduction test accordingly the issue in this case is to what extent the taxpayer's xpenditures qualify as investigatory costs that satisfy the allowable as a deduction test of sec_195 b connection with the acquisition of a trade_or_business prior to the time a final_decision le a legally binding decision to cquire or enter that business is made are start-up costs amortizable under sec_195 the taxpayer's position is premised on its theory that the allowable as a deduction test of sec_195 b provides a hypothetical framework under which the deductibility of xpenditures is determined by assuming the taxpayer's basic position is that all investigatory costs incurred in affiliated_group which includes the taxpayer incurring the investigatory expenses and a consolidated_income_tax_return is filed for that group h_r rep no 96th cong 2d sess house report s rep no 96th cong 2d sess senate report tam-119982-97 7s you begin with a hypothetica framework created by sec_195 investigatory costs should be viewed costs incurred in connection with the operation of an existing business within that hypothetical framework investigatory costs would be deductible in the year incurred this leads to the conclusion that they must be amortized under _ see a of the deficit_reduction_act_of_1984 c b vol tam-119982-97 the taxpayer believes that sec_195 b does provide a limitation but that ion only applies to certain costs such as costs incurred to acquire assets used in instead the taxpayer argues that investigatory costs include all costs incurred in deciding whether and which business to enter or acquire a decision the taxpayer argues cannot be made until the agreement of purchase and sale is entered into under present law ordinary and necessary expenses paid_or_incurred in carrying_on_a_trade_or_business or engaging ina profit-seeking activity tam-119982-97 actual operation generally the term startup costs refers to expenses which would be deductible currently if they were incurred after the commencement of the particular business operation to which they relate house report at pages senate report at pages under sec_162 we believe the language in sec_196 b addresses this concern by providing the assumption that the expenses described in sec_195 a i were paid_or_incurred in connection with the operation of an existing active trade_or_business in the same field as the trade_or_business referred to in sec_195 a i incurred in connection with the operation of a trade_or_business is ordinary or must be capitalized depends on the context in which the expenditure is incurred for example dollar_figuree commissioner vy idaho power 418_us_4 in support of its conclusion that depreciation on equipment used in the construction of a capital_asset must be capitalized the court noted that wages paid in constructing or acquiring a capital_asset reform act ein act of see joint_committee on taxation staff general explanation of the tax of 98th cong 2d sess tam-119982-97 operation of a business that might normally be deductible may nonetheless be capital in nature depending on the context in which the expenditure is incurred nothing in the statutory language or the legislative_history indicates congress intended to disregard the context in which the expenses were actually paid_or_incurred instead the unambiguous statutory language along with the legislative_history of sec_195 makes it clear that congress intended that expenditures eligible for amortization meet two separate requirements in general expenditures eligible for amortization must satisfy two requirements first the expenditures must be paid_or_incurred in connection with creating or investigating the creation or acquisition of a trade_or_business entered into by the taxpayer second the expenditure involved must be one which would be allowable as a deduction for the taxable_year in which it is paid_or_incurred if it were paid_or_incurred in connection with the expansion of an existing trade_or_business in the same field as that entered into by the taxpayer under this provision eligible expenses consist of investigatory costs incurred in reviewing a prospective business prior to reaching a final_decision to acquire or enter that business house report at page senate report at page emphasis added thus sec_195 must be applied in this case by considering the investigatory costs as having been incurred not only in the operation of corp c's existing business but also in the context of an acquisition if an expenditure is not deductible because it would be a capital_expenditure if incurred in the operation of an existing trade_or_business the expenditure does not qualify for amortization under sec_195 that is sec_195 does not override sec_263 see sec_161 sec_261 duecaster v commissioner tcmemo_1990_518 in response to the taxpayer's argument that education costs were incurred in connection with creating a new trade_or_business and would have been deductible if they had been paid in connection with the operation of an existing trade_or_business a g as continuing legal education the tax_court concluded that nothing in the statute or the legislative_history suggests that sec_195 was intended to create a deduction by way of amortization in respect of an item which would not in any event have been deductible under prior law’ if incurred in an existing trade_or_business fmr corp v commissioner t c no date sec_195 did not create a new class of deductible expenditures_for existing businesses i n order to qualify under sec_195 an expenditure must be one that would have been allowable as a deduction by an existing trade_or_business when it was paid_or_incurred tam-119982-97 the taxpayer relies heavily on the reference to a final_decision in the legislative_history arguing that it manifests congressional intent that sec_195 amortization would be available for all investigatory costs incurred in investigating a potential acquisition up to the time at which the acquisition is evidenced by a binding commitment a final_decision in that sense however would require that both the taxpayer and the seller be bound to the acquisition transaction nothing in the statute or legislative_history suggests that the tax treatment of a prospective purchaser's investigatory costs is dependent upon the seller's commitment to the transaction the legislative_history provides the following guidance regarding which costs are eligible for amortization under sec_195 start-up sxpenditures eligible for amortization do not include any amount with respect to which a deduction would not be allowed to an existing trade_or_business for the taxable_year in which the expenditure was paid_or_incurred expenditures does not apply to amounts paid_or_incurred as part of the in addition the amortization election for start-up tam-119982-97 acquisition_cost of a trade_or_business whether an amount is consideration paid to acquire a business depends upon the facts and circumstances of the situation house report at pages senate report at pages costs under sec_162 and sec_165 the service's position regarding the deductibility of costs incurred to investigate the potential acquisition of a new trade_or_business is articulated in revrul_77_254 1977_2_cb_63 that ruling provides guidance on when a transaction is entered into for profit ie when a taxpayer has entered into a capital_transaction in that ruling the taxpayer placed advertisements in several newspapers businesses that were for sale the taxpayer commissioned audits to evaluate the potential of several of these businesses eventually the taxpayer decided to purchase specific business and incurred expenses in an attempt to purchase the business the example in the ruling is that the individual retained a law firm to draft the documents necessary for the purchase the taxpayer ultimately abandoned all attempts to acquire the business and reported a sec_165 loss revrul_77_254 provides that expenses_incurred in the course of a general search for or preliminary investigation of a business or investment include those expenses related to the decisions whether to enter a transaction and which transaction to enter once the taxpayer has focused on the acquisition of a specific business or _ e r r n tam-119982-97 ses that are related to an attempt investment investment are capital in nature thus the ruling concluded that the expenses for advertisements travel to search for a new business and the cost of audits that were designed to help the individual decide whether to attempt an acquisition were investigatory expenses that were not deductible under sec_165 however the expenses of retaining a law firm to draft the purchase documents and any other expenses_incurred in the attempt to complete the urchase of the business were capital in nature and thus were deductible under sec_165 emphasis added to acquire such business or under sec_263 costs of acquiring property having a useful_life substantially beyond the taxable_year must be capitalized thus costs incurred in a capital_transaction an acquisition of a capital_asset must be capitalized under sec_263 some general examples of capital expenditures are provided in sec_1_263_a_-2 of the regulations and include costs of acquisition of buildings machinery and equipment furniture and fixtures and similar_property having a useful_life substantially beyond the taxable_year under this general regulatory provision courts have long held that legal brokerage accounting and similar costs incurred in the acquisition or disposition of such property are capital expenditures 397_us_572 citing 323_f2d_913 8th cir 284_f2d_430 sth cir for example in 397_us_572 the taxpayer was required to capitalize attorney accountant and appraiser fees incurred in connection with appraisal proceedings as part of the cost of the stock acquired since ancillary expenses_incurred in acquiring or disposing of an asset are as much part of the cost of that asset as is the price paid for it the supreme court concluded wlhen property is acquired by purchase nothing is more clearly a part of the process of acquisition than the establishment of a purchase_price id pincite see also corp 397_us_580 costs of appraisal proceeding must be capitalized since the capitalization requirement extends beyond the price payable to the seller to include any cost incurred in connection with the purchase such as appraisals or costs of meeting any conditions of sale 16_fsupp_110 d dei affd 92_f2d_74 3d cir it is too clear for argument that accounting fees to review financial statements and to value acquired properties pursuant to a reorganization agreement are capital expenditures revrul_73_580 1973_2_cb_86 portion of compensation paid_by a corporation to its employees attributable to services performed in connection with corporate mergers and acquisitions must be capitalized however such amounts paid with respect to abandoned plans for merger or acquisitions are deductible as losses in the year of abandonment states v hilton hotels united loan in 688_f2d_1376 11th cir the taxpayer incurred expenses for office supplies filing fees travel and accounting services in connection with its examination ommissioner t c memo affd in part v corp tam-119982-97 process however is not relevant in determining the character of the expenditure and t he link between the expenditures in issue and the stock acquisition is not negated by the absence of a contractual obligation to obtain the stock when the expenditures reviewing a prospective business prior to reaching a final_decision to acquire or to enter that business but did not indicate that final means legally binding as to both the potential purchaser and seller the determination of whether a taxpayer's expenditures are incurred in the course of general search or preliminary investigation or in an attempt to acquire a specific business will depend on all the facts and circumstances tam-119982-97 investigatory costs incurred prior to the time the agreement of purchase and sale was entered into meet the requirements of sec_195 b oo purchaser accordingly wwe believe that the letter of intent manifests the taxpayer's decision to attempt to acquire corp c tam-119982-97 taxpayer before the taxpayer decided to prepare and submit the letter of intent qualify as start-up_expenditures under sec_195 to the extent those expenditures were incurred in order to determine whether to acquire corp c caveat a copy of this technical_advice_memorandum is to be given to the taxpayer sec_6110 of the code provides that it may not be used or cited as precedent - end -


department of the treasury internal_revenue_service washington d c jun tax_exempt_and_government_entities_division uniform issue list si ll mat legend taxpayer a amount d amount e company e company p company x ira x ira y company u company r dear in letters dated date date and date your authorized representative requested a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested upon his retirement in date taxpayer a withdrew assets held by the profit sharing trust of his former employer the funds were deposited into ira x sponsored by company x within the required 60-day rollover period in date taxpayer a became aware of an investment opportunity marketed by company r company x did not list this investment as a choice for its ira accounts ira x did however allow taxpayer a to transfer funds to another ira rollover account taxpayer a directed company x to wire transfer amount d from ira x to ira y sponsored by company r which would allow an investment in a fund managed by company r company r facilitated the transaction for taxpayer a taxpayer a received a form 1099-r from company x and received a form_5498 from company e showing that the rollover was not taxable in date taxpayer a became aware of another investment opportunity marketed by company p company x did not include these investments as a choice for its ira accounts taxpayer a directed company x to wire transfer amount e from ira x to company p for deposit into an ira rollover account for the benefit of taxpayer a which would allow an investment in a fund managed by company p company p facilitated the transaction for taxpayer a in date taxpayer a received a year if form 1099-r from company x reporting distribution of a taxable_amount e taxpayer a did not receive a year form_5498 concerning amount e taxpayer a questioned company p and was told that company p would not issue a form_5498 because it was not a custodian and only custodians could issue forms taxpayer a was then told by company p that company u would facilitate a solution as company u could act as a custodian of an ira account for an investment in a fund managed by company p taxpayer a prepared his own ij federal_income_tax return the return was filed on or about date taxpayer a did not report amount e as income because he believed that there was a clerical_error that would be corrected by company u in date taxpayer a contacted company u and was told that he was misinformed company u would not accept his investment with company p as an ira rollover account based on the facts and representations you request that the internal_revenue_service waive the 60-day rollover requirement with respect to the distribution of amount e because the failure to waive such requirement would be a hardship and against equity or good conscience sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if - the entire amount received including money and any other_property is paid into i an ira for the benefit of such individual not later than the 60th day after the day on which the individual receives the payment or distribution or the entire amount received including money and any other_property is paid into ii an eligible_retirement_plan other than an ira for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers code sec_408 provides in general that rules similar to the rules of sec_401 shall apply to the distribution of the entire_interest of an individual for whose benefit the trust is maintained code sec_408 provides that paragraph d shall not apply to any amount to the extent such amount is required to be distributed under subsection a sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code 20053903t revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented on behalf of taxpayer a indicates that taxpayer a relied on company p to complete the rollover of amount e from ira x account taxpayer a intended to maintain with company p taxpayer a relied on company p’s representation that it was a proper custodian for ira accounts as a result of taxpayer a’s reliance on this misleading information taxpayer a failed to make a rollover of amount e within the requisite days into a rollover therefore pursuant to code sec_408 the service hereby waives the 60-day rollover requirement with respect to the withdrawal of amount e pursuant to this ruling letter taxpayer a is granted a period of days measured from the date of the issuance of this letter_ruling to make a rollover_contribution of an amount equal to amount e to another ira or iras described in code sec_408 provided all other requirements of code sec_408 except the 60-day requirement are met with respect to such ira contribution the contribution will be considered a rollover_contribution within the meaning of code sec_408 no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter 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 a copy of this letter has been sent to your authorized representative in accordance with a power_of_attorney on file in this office 20053903tf if oe wish to inquire about this ruling please contac at i please address all correspondence to se t ep ra t3 sincerely yours employee_plans technical group enclosures deleted copy of letter_ruling notice of intention to disclose


department of the treasury internal_revenue_service tax_exempt_and_government_entities_division exempt_organizations examinations sw 6th court stop plantation florida number release date date date org address taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax number 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 you may also request that we refer this matter for technical_advice as explained in publication exempt_organization appeal procedures for unagreed issues lf 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 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 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 in that event you will be required to file federal_income_tax returns for the tax period s if letter rev catalog number 34801v 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 director eo examinations nanette m downing enclosures publication publication form_6018 report of examination envelope letter rev catalog number 34801v form 886-a rev date schedule number or exhibit name of taxpayer org tax identification_number year period ended december 20xx ein explanations of items legend org - organization name secretary - secretary issues xx - date co-2 co-1 state - state president - president co-3 ccoo-4 - companies whether any part of the net_earnings of the org inured to the private benefit of any private shareholder or individual’ facts org was incorporated april 19xx as a state non-profit corporation the organization filed form1024 application_for recognition of exemption with the internal_revenue_service in april 19xx and was granted tax-exempt status february 19xx under sec_501 the organization was granted exemption from most federal income taxes however donations made to a c are not tax deductible as charitable_contributions in the original application the organization’s stated purpose is to provide a forum to address issues affecting emergency medical technicians emt’s and paramedics statewide also the organization purpose is to promote the professional and educational advancements of career emt’s and paramedics the daily operations and control of the organization is the responsible of president president the secretary secretary is also activity in the organization a filed audit was conducted week of april 20xx based on a referral and to determine if the organization was in compliance with its exempt status during the audit agent reviewed the books_and_records available limited bank records were available agent later issued two summonses for additional bank statements and cancelled checks for the organization in reviewing the bank statements and cancelled checks for 20xx it was revealed that substantially_all of the organization's funds were through fundraising activities the organization hired a private for-profit company co-1 to operate and solicit non-deductible contributions on behalf of the organization the organizations account at co-2 reveals deposits of dollar_figure in 20xx co- the for-profit business received approximately dollar_figure in fees in 20xx eo received limited member dues the professional funder’s income is not used to supplement membership support the income reported on form_990 for tax_year ending december 20xx revenue sources amounts contributions and grants expenses form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service form 886-a rev date explanations of items name of taxpayer org tax identification_number year period ended december 20xx ein schedule number or exhibit a review of the bank statements and cancelled checks reveals org funds were used to pay the expense co-3 a for-profit business owned by the president an exempt_organization funds received from non-member income is for the benefit of member and cannot use to pay the expenses of a private for-profit business this is inurement to the president since he owns the private entity also funds were paid to the president and secretary on regular basis as compensation_for services the organization did not report the compensation and no employment_taxes were filed or paid president president is the sole person authorized with access to the organizations bank accounts the table below shows checks written to cover expenses for co-3 payments to withdrawals rent payments co-3 benefited from rent paid_by org the years at issue see exhibit payee amount secretary president co-3 co-3 co-4 law sec_501 the regulation provides that in order for an organization to qualify for an exemption its activities must be ‘directed to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons ’ and it must not 'engage in a regular business of a kind ordinarily carried on for profit ’ sec_501 further allows exemption for professional organizations which is not organized for profit and where no part of the net_earnings inures to the benefit of any shareholder or individual a c organization has a common business_interest which the organization promotes the organization is supported by membership eo members of the emergency medical technician emt’s paramedics organized to improve emergency medical_care and high standards to meet the requirements of sec_501 and reg c -1 an organization must meet the following characteristics an association of persons having a common interest and its purpose to promote the common interest must be a membership_organization and have membership support must not be organized for profit no part of its net_earnings may inure to the benefit of any shareholder or individual form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service form 886-a rev date schedule number or exhibit name of taxpayer org tax identification_number year period ended december 20xx ein explanations of item sec_5 the activities must be directed to the improvement of business conditions or one or more lines of business the primary activity is not to perform particular services for individual persons its purpose is not to engage in a regular business activity ordinarily carried on by a for profit fapap fails to meet the characteristics described above fapap is operated with any membership support and no exempt_activities are regularly carried on the organization is not supported by membership dues fapap is primary supported from non-member income received from outside professional fundraiser the income is exclusively used by the president and secretary this constitutes inurement inurement alone can disqualify an organization from exemption sec_1_501_c_3_-1 of the regulations provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities that accomplish one or more of such exempt purposes an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_1_501_a_-1 of the income_tax regulations provides private_shareholder_or_individual s in sec_501 refer to persons having a personal and private interest in the activities of the organization taxpayer's position the taxpayer ha sec_30 days to respond to the examination determination if the organization does not agree with it government’s position an organization exempt under sec_501 of the internal_revenue_code does not qualify for exempt when inurement is shown to exist the organization cannot use members and non- member income for the purposes of paying the operating_expenses of a for-profit business owned and operated by the president the expenditure of organization's funds to individuals above the benefits received by general membership constitutes inurement which is prohibited under sec_501 the audit conducted week of april 20xx it did not appear that the any membership activities were conducted the facility is used to operate the president's for profit business students attended classes in cpr first aid and other occupational safety courses put on by the co-3 co- the organization does not hold monthly meetings with members on issues affecting the concerns of emergency medical technicians and paramedics’ the officers conduct lectures and technical training courses to general_public interest in careers as emt and paramedics these classes are not put on by the organization the organization does not sponsor any educational training nor does it conduct any social or recreational activities such as membership dinners tournaments annual party and dance for the members finally the organization receives a substantial portion of its income from non-member sources namely professional fundraiser the income received from professional funders has no direct form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service form 886-a rev date schedule number or exhibit name of taxpayer org tax identification_number year period ended december 20xx ein explanations of items relationship to the organization's activities the income was primarily used for co-3 expenses salaries and other expenses for officers if this proposed revocation becomes final appropriate state officials will be advised of the action in accordance with internal_revenue_code sec_6104 and applicable regulations conclusion it is the government's position that the organization failed to meet the requirements for an organization exempt under sec_501 it was determined that inurement exist because the organization’s income is used to pay the expenses for- profit entity owned and operated by the president also the expenditure of funds for personal expenses of the officers constitutes inurnment as a result we have determined that org no longer qualify for exemption under sec_501 as a professional organization therefore we propose to revoke the organization’s exempt status under sec_501 of the internal_revenue_code effective january 20xx form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service