t c summary opinion united_states tax_court nayemul b chowdhury and laila banu petitioners v commissioner of internal revenue respondent docket no 10034-14s filed date nayemul b chowdhury and laila banu pro sese theresa mcqueeney for respondent summary opinion panuthos chief special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case unless otherwise indicated subsequent section references are to the internal_revenue_code code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure in a notice_of_deficiency dated date respondent determined a deficiency of dollar_figure in petitioners’ federal_income_tax a sec_6662 accuracy-related_penalty of dollar_figure and a sec_6651 addition_to_tax of dollar_figure for failure to timely file a return after concessions the issues for decision are whether petitioners are entitled to deduct losses from the sale and abandonment of business property whether petitioners are entitled to deductions claimed on schedule e supplemental income and loss of dollar_figure whether petitioners are entitled to itemized_deductions of dollar_figure in excess of the respondent agrees that petitioners did not receive any income from their business food and frozen stuff llc petitioners agree that they had no deductible expenses from this same business respondent agrees that petitioners are entitled to dependency_exemption deductions for r begum and a ahmed petitioners conceded that they are not allowed a dependency_exemption deduction for s farhana in addition petitioners conceded that they failed to report dollar_figure of income from a new york state tax_refund and had dollar_figure in taxable interest petitioners did not assign error to the determination of the addition_to_tax under sec_6651 for failure to timely file their federal_income_tax return and did not offer any evidence with respect to this determination we therefore assume that petitioners have conceded the correctness of the determination of this addition_to_tax see lawson v commissioner tcmemo_1963_179 aff’d 350_f2d_396 4th cir amount respondent allowed and whether petitioners are liable for an accuracy- related penalty under sec_6662 background some of the facts have been stipulated and we incorporate the stipulation of facts by this reference at the time the petition was timely filed petitioners resided in new york on date petitioners purchased a häagen-dazs franchise that would expire on date from a private seller for a fee of dollar_figure the transfer was approved by häagen-dazs on date petitioners operated this franchise together with a submarina franchise that they had purchased petitioners entered into a lease with steinway street llc for the store premises for both franchises at the same location in astoria queens new york effective date in order to operate the franchises petitioners were the adjustments in the notice_of_deficiency to the child_tax_credit and the self-employment_tax are computational and will be resolved by the concessions and the court’s conclusion on other issues these franchises were operated under the name food frozen stuff llc the record does not show the legal nature of this llc petitioners reported the expenses from this entity on schedule c profit or loss from business for respondent does not assert that these expenses should not have been reported on petitioners’ return accordingly we assume that the llc was a sole_proprietorship for tax purposes required to renovate the premises the record is not entirely clear but it appears that the store was open for two or three months in early before petitioners closed the store for renovation in date the u s small_business administration sba through shinhan bank america approved a dollar_figure loan to petitioners petitioners also invested approximately dollar_figure of their own funds in the business these funds came from various sources including bank accounts and the sale of personal assets petitioners made the following payments to vendors to renovate the store vendor f c dadson inc fitch shepler refrigeration postmatic henderson mill fixture group custom business solutions reddy builders bohler engineering new york city department of buildings jam consultants inc amount dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number consolidated by vendor and rounded to the nearest dollar the store reopened in date the store did not generate the revenue that petitioners had expected by august petitioners had fallen behind on the store rent the store closed on date and petitioners were evicted and abandoned the leasehold improvements petitioners defaulted on the sba loan as a result of the default shinhan bank america repossessed some of petitioners’ equipment and sold it at auction the net_proceeds of dollar_figure from the auction were applied to the amount that petitioners owed on the loan petitioners were also part owners in a sunoco gasoline station this business closed in date petitioners’ home and property in florida were also subject_to foreclosure nayemul chowdhury petitioner filed for bankruptcy protection on date and he received a bankruptcy discharge on date petitioners were able to keep their home and the property in florida on schedule c for food and frozen stuff llc for petitioners reported dollar_figure in income and dollar_figure in expenses for a net_loss of dollar_figure as mentioned above respondent and petitioners now agree that petitioners had no income and no deductible expenses from this business for petitioners assert that some of the expenses reported on this schedule c should have been reported as losses on the sale or abandonment of property on form_4797 sales of rounded to the nearest dollar business property petitioners reported losses of dollar_figure from the abandonment of assets in their franchise activity respondent did not allow a deduction for any of these losses in the notice_of_deficiency on schedule e petitioners reported no income and dollar_figure of expenses related to a rental property in naples florida respondent did not allow a deduction for any of these expenses in the notice_of_deficiency on their tax_return petitioners claimed itemized_deductions totaling dollar_figure respondent allowed itemized_deductions totaling dollar_figure in the notice_of_deficiency petitioners did not provide any evidence to support their deductions on schedule e or the disallowed itemized_deductions to the extent petitioners presented records of their franchise activity those records were disorganized and incomplete i burden_of_proof discussion in general the commissioner’s determination set forth in a notice_of_deficiency is presumed correct and the taxpayer bears the burden of proving that the determination is in error rule a 290_us_111 pursuant to sec_7491 the burden_of_proof as to factual matters shifts to the commissioner under certain circumstances petitioners did not allege or otherwise show that sec_7491 applies see sec_7491 and b therefore petitioners bear the burden_of_proof see rule a ii losses from the sale and abandonment of business property a sale of repossessed business property petitioners seek to deduct losses from the sale of assets repossessed by their creditor a sale in which the collateral is repossessed from the debtor constitutes a taxable sale_or_exchange by the debtor of the encumbered property see 311_us_504 73_tc_15 the debtor’s gain_or_loss in the disposition is measured by the difference between the amount_realized in the disposition of the property and the debtor’s adjusted_basis in the property sec_1001 in the case of recourse_debt the amount_realized is the fair_market_value of the property repossessed 111_tc_243 in general the debtor’s basis is cost sec_1012 the debtor’s basis must be reduced by the amount of depreciation that was allowed_or_allowable during and sec_1016 respondent argued that petitioners’ basis in the assets should not include any amount_paid for the assets with indebtedness that was discharged in we note that the proper basis for property includes amounts paid_by indebtedness even if that indebtedness is discharged in a later year see 331_us_1 if a taxpayer establishes that he or she paid_or_incurred a deductible business_expense but does not establish the amount of the expense we may approximate the amount of the allowable deduction bearing heavily against the taxpayer whose inexactitude is of his or her own making 39_f2d_540 2d cir in benichou v commissioner tcmemo_1970_263 the court used the cohan_rule to approximate the taxpayer’s basis in order for the cohan_rule to apply there must be sufficient evidence in the record to provide a basis for the estimate 85_tc_731 in this case neither party provided evidence of the fair_market_value of the property repossessed we conclude that the fair_market_value of the property repossessed was the dollar_figure that the creditor received from selling the property at auction therefore the amount_realized is dollar_figure although it is clear that many items were sold at the auction it is not clear from the record how the items sold correspond to the assets purchased in order to compute the basis and allowable_depreciation we consider those purchases for items that were subject_to auction upon reviewing the invoices and checks in the record for payments to f c dadson inc shepler refrigeration postmatic and custom business solutions we conclude that these payments were for the items sold in the auction these payments total dollar_figure in order to arrive at petitioners’ adjusted_basis this amount must be reduced by the amount of allowable_depreciation for and because these assets were placed_in_service in date when the store reopened with some exceptions sec_168 allows an additional depreciation deduction for the year in which property is placed_in_service if it is for property that has a recovery_period of years or less was first used by the taxpayer was acquired by the taxpayer after date and before date and is placed_in_service by the taxpayer before date upon reviewing the record we conclude that these items were eligible for the additional depreciation for we also need to consider the classification of the property the basis for depreciation the recovery_period the convention and the method see sec_167 and sec_168 upon reviewing the record we conclude that the property is a seven-year_property sec_168 the basis for dollar_figure f c dadson inc dollar_figure shepler refrigeration dollar_figure postmatic dollar_figure custom business solutions dollar_figure we note that no depreciation was claimed on these assets for and that petitioners conceded that there were no expenses for this business for depreciation is dollar_figure the recovery_period is seven years sec_168 the half-year_convention is applicable sec_168 and the applicable_depreciation_method is the straight_line method sec_1016 on the basis of the above conclusions the parties can compute the depreciation allowable for and in order to ultimately compute the loss from the sale of the repossessed property under rule dollar_figure b abandonment of business property in addition to the assets that were repossessed petitioners abandoned other_property used in the business_losses resulting from abandonment are sustained during the year of abandonment and are deductible in the taxable_year in which the abandonment occurs dezendorf v commissioner tcmemo_1961_280 aff’d 312_f2d_95 5th cir in order to establish abandonment there must be an dollar_figure le sec_50 special depreciation allowance in his pretrial memorandum respondent incorrectly refers to this loss as a capital_loss the sale of certain property used in a trade_or_business is accorded favorable tax treatment sec_1231 with some exceptions that are inapplicable here the term property used in a trade_or_business includes property that is used in a trade_or_business subject_to the allowance for depreciation and held for more than one year sec_1231 if the losses from the sale of property used in a trade_or_business exceed the gains from the sale of property used in a trade_or_business then the net losses are treated as ordinary losses sec_1231 we conclude that the losses from the sale of the repossessed business property are losses from the sale of property used in a trade_or_business intention of the owner to abandon the property coupled with an act of abandonment 5_tc_1195 the intention and the action are ascertained from the facts and circumstances id petitioners abandoned the leasehold improvements in the store and the häagen-dazs franchise when they were evicted from the store by their landlord in general sec_165 allows as a deduction any loss sustained during the taxable_year and not_compensated_for_by_insurance_or_otherwise a deductible loss may arise from the permanent withdrawal of property used in a trade_or_business sec_1_165-2 c a -8 income_tax regs the basis for determining the deduction is the adjusted_basis provided in sec_1011 for determining the loss from the sale_or_other_disposition of property sec_165 the basis is cost reduced by the amounts of amortization or depreciation that were allowed_or_allowable during and see sec_1012 sec_1016 as mentioned above in benichou the court used the cohan_rule to estimate the taxpayer’s basis in date petitioners purchased a häagen-dazs franchise for a transfer fee of dollar_figure the store was open at least briefly in presumably starting in date and it closed in date on the basis of these facts the parties can compute the amortization allowable under sec_197 for and in order to ultimately compute the loss from the abandonment of the franchise fee under rule petitioners also made substantial leasehold improvements although it is clear that petitioners invested significant funds in leasehold improvements they have provided incomplete records regarding these purchases in order to compute the basis and allowable_depreciation we have reviewed the invoices and checks in the record for payments to fitch henderson mill fixture corp reddy builders bohler engineering new york city department of buildings and jam consultants inc we conclude that these payments were for abandoned leasehold improvements these payments total dollar_figure in order to arrive at petitioners’ adjusted_basis we need to reduce this amount by the amounts of allowable_depreciation for and because the assets were placed_in_service in date when the store reopeneddollar_figure dollar_figure fitch dollar_figure henderson mill fixture group dollar_figure reddy builders dollar_figure bohler engineering dollar_figure new york city department of buildings dollar_figure jam consultants inc dollar_figure we note that no depreciation was claimed on these assets for and that petitioners conceded that there were no expenses for this business for in order to calculate the allowable_depreciation we consider whether a special depreciation allowance was available on these items for with some exceptions sec_168 allows an additional depreciation deduction for property that is qualified_leasehold_improvement_property was first used by the taxpayer was acquired by the taxpayer after date and before date and is placed_in_service by the taxpayer before date in general qualified_leasehold_improvement_property is an improvement to the interior portion of a nonresidential_real_property where the improvement is made under the lease the improved portion of the building is occupied exclusively by the lessee and the improvement is placed_in_service more than three years after the date the building was first placed_in_service sec_168 upon reviewing the record we conclude that these leasehold improvements were eligible for the additional depreciation for dollar_figure we also need to consider the classification of the property the basis for depreciation the recovery_period the convention and the method we need not consider whether the leasehold improvements are either qualified_restaurant_property or qualified_retail_improvement_property because both qualified_restaurant_property and qualified_retail_improvement_property are also 15-year_property sec_168 and qualified_restaurant_property and qualified_retail_improvement_property are eligible for the additional depreciation when the property is also qualified_leasehold_improvement_property sec_168 d see sec_167 and sec_168 upon reviewing the record we conclude that the property is a 15-year_property sec_168 the basis for depreciation is dollar_figure the recovery_period i sec_15 years sec_168 the half-year_convention is applicable sec_168 and the applicable_depreciation_method is the straight_line method sec_1016 on the basis of the above conclusions the parties can compute the depreciation allowable for and in order to ultimately compute the amount of the loss from the abandonment of the leasehold improvements under rule dollar_figure c effect of bankruptcy respondent asserts that the loss reported on abandonment and sale of petitioners’ property was addressed by the bankruptcy court nothing in the record supports respondent’s claim petitioner received his discharge_in_bankruptcy on date respondent’s account transcript shows that petitioners’ tax_return was not received until date after the dollar_figure le sec_50 special depreciation allowance respondent incorrectly refers to this loss as a capital_loss in his pretrial memorandum an abandonment_loss under sec_165 is an ordinary_loss unless it arises from the sale_or_exchange of a capital_asset allen v commissioner tcmemo_1994_165 discharge_in_bankruptcy in addition the records from the bankruptcy that were included as part of the record for this case do not show that petitioner sought to be relieved of hi sec_2011 tax_liability in the bankruptcy case respondent also asserts that the basis of the assets sold and abandoned should be reduced as tax_attributes because of petitioner’s discharge_in_bankruptcy in sec_108 allows taxpayers to exclude discharge_of_indebtedness income from gross_income in certain circumstances sec_108 may require the reduction of tax_attributes when discharge_of_indebtedness income is excluded under sec_108 the amount of the reduction of tax_attributes is generally the amount of the discharge_of_indebtedness income that is excluded from income sec_108 barring an election otherwise net operating losses for the year of discharge and any net_operating_loss carried over to the year of discharge are reduced before the basis of the property of the taxpayer is reduced sec_108 any amount of discharge_of_indebtedness income that is left after tax attribute reduction is disregarded and does not either result in income or have any other tax consequences the reductions to tax_attributes are made after the determination of income_tax for the year of discharge sec_108 s rept no pincite 1980_2_cb_620 in this case the year of discharge i sec_2012 to the extent that any discharge_of_indebtedness income was excluded for sec_108 may require a reduction in tax_attributes however this reduction in tax_attributes would not occur until after taxable_income had been calculated for the year of the discharge the basis of the assets repossessed or abandoned in is not reduced for as tax_attributes under sec_108 for the exclusion of discharge_of_indebtedness income that may have occurred in iii deductions a taxpayer must substantiate amounts claimed as deductions by maintaining the records necessary to establish he or she is entitled to the deductions sec_6001 petitioners did not attempt to substantiate either their deductions claimed on schedule e or their itemized_deductions petitioners did not otherwise provide evidence disputing respondent’s determinations for these deductions accordingly the disallowed amounts for these deductions are deemed conceded by petitioners see rule b iv accuracy-related_penalty sec_6662 and b imposes a penalty of of the portion of an underpayment_of_tax attributable to the taxpayer’s negligence negligence includes any failure to make a reasonable attempt to comply with the code including any failure to keep adequate books_and_records or to substantiate items properly see sec_6662 sec_1_6662-3 income_tax regs the sec_6662 accuracy-related_penalty does not apply with respect to any portion of an underpayment if the taxpayer proves that there was reasonable_cause for such portion and that he acted in good_faith with respect thereto sec_6664 the determination of whether a taxpayer acted with reasonable_cause and in good_faith depends on the pertinent facts and circumstances including the taxpayer’s efforts to assess the proper tax_liability the knowledge and the experience of the taxpayer and any reliance on the advice of a professional such as an accountant sec_1_6664-4 income_tax regs generally the most important factor is the taxpayer’s effort to assess the taxpayer’s proper tax_liability id the commissioner has the burden of production under sec_7491 with respect to the accuracy-related_penalty under sec_6662 to satisfy that burden the commissioner must produce sufficient evidence showing that it is appropriate to impose the penalty 116_tc_438 respondent determined the accuracy-related_penalty was due to negligence respondent has satisfied his burden by producing evidence that petitioners failed to maintain adequate books_and_records accordingly because respondent has met his burden of production petitioners must come forward with persuasive evidence that the accuracy-related_penalty should not be imposed with respect to the underpayment because for example they acted with reasonable_cause and in good_faith see sec_6664 rule a higbee v commissioner t c pincite petitioners provided no evidence of expenses underlying either their schedule e deductions or their itemized_deductions petitioners conceded that they claimed losses on their schedule c to which they are not entitled petitioners’ records did not support the loss reported on form_4797 petitioners have not demonstrated that they acted with reasonable_cause and in good_faith with respect to the recordkeeping requirements therefore the court sustains respondent’s determinations on this issue we have considered all of the parties’ arguments and to the extent not addressed herein we conclude that they are moot irrelevant or without merit to reflect the foregoing decision will be entered under rule


cca_2015072408550911 id uilc number release date third party communication date of communication month dd yyyy from sent friday date am to cc bcc subject re assistance coordination of excessive refund interest and sol - ----------------------- ------ after our discussion last week i spoke with ------------- about the year period that someone --------------mentioned to you we think that they may have been referring to the collections period in sec_6502 sec_6502 generally provides that when an assessment of tax has been timely made tax may be collected within years after assessment of the tax sec_6601 provides that interest under sec_6601 on any_tax can be collected at any time during the period within which the tax to which such interest relates may be collected however sec_6601 governs interest on underpayments and nonpayments of tax but it does not apply to an excess refund of overpayment interest in a situation involving an excessive refund of overpayment interest such as the one you described in this case the service could collect the excessive refund by voluntary payment offset of the same type of tax from the same tax period or filing suit to recover the erroneous refund per sec_6532 a suit to recover an erroneous refund must be instituted within years after making the refund you mentioned that the taxpayer is unwilling to make a voluntary payment and that there are no offsets available which means a suit for an excess refund would be the only option for the government to collect the excess refund however this suit would need to be instituted within years of when the refund was made or within years if it appears that any part of the refund was induced by fraud or misrepresentation of a material fact expired because it does not appear there was any fraud or misrepresentation on the part of the taxpayer the 5-year period does not apply thus the government may not institute a suit to recover the erroneously paid overpayment interest if the refund was made on ------------------------ the year period has please let us know if you have further questions thanks -----------


internal_revenue_service p o box cincinnati oh number release date department of the treasury employer_identification_number contact person - id number date date contact telephone number legend uil b name of program d name of program m programs w number x dollar_figure y number z number dear we have considered your request for advance approval of your grant-making program under sec_4945 of the internal_revenue_code dated date our records indicate that you were recognized as exempt from federal_income_tax under sec_501 of the code and that you are classified as a private_foundation as defined in sec_509 your letter indicates that you will operate a grant-making program called m which consists of b and d m was established to achieve the objective of enhancing the education of disadvantaged children and to enhance various skills of the travelers such as leadership skills and communication skills travelers with opportunities for experiential learning and training that cannot otherwise be achieved by standard means or technology m will serve this purpose by providing b is designed primarily for children and young adults to travel within their own country the goals of b are to allow participants to e experience travel to places of interest in their own country that they have never before seen or experienced reinforce school concepts and subjects create relationships with peers as well as with adult chaperones and where possible engage in volunteer work d is designed primarily for young adults worldwide who have completed a technical vocational program senior secondary school or high school to travel outside the borders of their own country the goals of d are to allow participants to conduct pre-trip research experience travel to places of interest outside their own country where they nawe not traveled before and gain insights into different environments and cultures build confidence and provide leadership opportunities practice being an ambassador or representative of their native countries in different countries consider the global world as they plan for their futures create relationships with peers as well as with adult chaperones and where possible engage in volunteer work e e you will take several factors into consideration to determine how many trips under each program will take place and if there is not enough funds the trips will be suspended until the following year or until funds become available during any fiscal_year no more than x dollars will be used to fund trips under m unless specifically approved by your board the budget for a trip under b will range from approximately dollar_figure-dollar_figure per child depending on the length of the trip and the destination during any given fiscal_year no more than w trips with a total of up to z children youth and chaperones will be conducted unless otherwise approved by your board the budget for a trip under d will average approximately dollar_figure per young adult but will range from dollar_figure to dollar_figure depending on the length of the trip and the destination during any given fiscal_year no more than w trips with a total of up to y students will be conducted unless otherwise approved by your board the destinations for the trips under m will be determined by reference to factors including country restrictions limitations and requirements to travel destination cost experiences offered and availability of the lodging transport and other logistics an ideal destination for a trip under m would include attributes such as safety accommodations for youth education training orientation and instruction unique opportunities to see experience and learn about attractions and activities close proximity of lodging meals and complexity of logistics and opportunity to learn about an area_of_interest or prospective future careers especially for the participants in d you will periodically distribute announcements regarding each trip to various children’s homes orphanages youth organizations schools and churches the nominating organizations m will be publicized to the nominating organizations in countries where there are extremely disadvantaged children and young adults who would not normally have the ability to travel your board will ensure that the details about each trip are properly publicized to the nominating organizations well in advance each trip will have a specific itinerary of dates and times of departure return and locations to be visited each trip will also have established goals and objectives individualized for the trip your board will monitor m closely to ensure that the lessons learned from previous trips are applied in ways that keep the participants safe the experiences meaningful and the travel a positive life changing event you plan to send one or more board members mentors from nominating organizations or professional mentors retained by you to supervise and coordinate each trip mentors will be responsible for monitoring the trip mentors retained by you must meet the following eligibility criteria e e e e beaminimum of years of age have successfully completed a university degree or certificate program or a technical vocational program or have the expertise or level of experience that is needed on the trip have demonstrated professionalism and respect for others from other countries cultures and different backgrounds ras values have been recommended by your board or a nominating organization a strong christian faith as demonstrated by a commitment to christian it is expected that you will cover the mentors’ travel and personal expenses and if necessary you will pay a modest stipend to be eligible for b which is designed principally for primary and secondary school students worldwide the prospective candidate must meet the following eligibility criteria be a minimum of five years of age be currently enrolled in primary junior secondary or senior secondary school have demonstrated good citizenship and respect for adults and authority have been recommended by a nominating organization to be eligible for d which is designed to reward hard working young adults who have attained a specific level of academic performance that has taken a decade or more to achieve the prospective candidate must meet the following eligibility criteria e e e e beaminimum of years of age have successfully completed a qualified technical vocational training or instruction program or successfully completed senior secondary school or high school have demonstrated good citizenship and respect for adults and authority have been recommended by a nominating organization have complied with the child rescue centre community service specifications each nominating organization will be requested to submit applications nominating a group of eligible children or young adults and suitable chaperones further each nominee will submit an application requesting consideration for the trip your board will serve as the selection committee and will review the applications submitted by the nominating organization and individual nominees and will select grantees based upon the eligibility criteria set forth above the grantees will be selected based on academic performance citizenship community service and essay submission following each trip the participants will be required to submit narrative reports about their experiences and the lessons they learned in their travels mentors will also be responsible for preparing reports including lessons learned impressions photographs and a log of expenses_incurred if you discover that grant funds have been misappropriated all reasonable steps will be taken to restore any diverted funds or to ensure that any unused portion is either returned or used for the intended purpose of the grant pending the results of any investigation further payments in fulfillment of the grant will be withheld you will review your case histories at the end of each year to determine if the goals and objectives of m were accomplished your board will attempt to make a quantitative and qualitative assessment of the learning return’ training value and support provided by the funds that were expended in b and d disqualified persons with respect to you will be ineligible to receive an award under either b or d further none of your board members are in a position to derive a private benefit directly or directly if certain potential grantees are selected over others to participate in b or d you will retain adequate_records pertaining to the selection of the grantees and the uses of the grant funds specifically you will maintain detailed case histories including the applications submitted by the grantees and the nominating organizations the amount of the grant and the criteria relied upon by your board in selecting grantees further the case histories will include the reports submitted by grantees and mentors as well as expense reports and receipts finally the case histories will record confirmation that the grantees bear no relationship to any of your disqualified persons you expect to maintain these records for a period of at least three years after the conclusion of the trip taken by the grantee the procedures set forth in your proposed programs will comply with federal guidelines procedures and instructions on checking and confirming that foreign organizations and foreign individuals are not involved in terrorist activities specifically you will request the name of every group leader and company to who disbursements will be made sec_4945 and b of the code impose certain excise_taxes on taxable_expenditures made by a private_foundation sec_4945 of the code provides that the term taxable_expenditure means any amount_paid or incurred by a private_foundation as a grant to an individual for travel study or other similar purposes by such individual unless such grant satisfies the requirements of subsection g sec_4945 of the code provides that sec_4945 shall not apply to individual grants awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance if it is demonstrated that the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 and is to be used for study at an educational_organization described in sec_170 the grant constitutes a prize or award which is subject_to the provisions of sec_74 if the recipient of such prize or award is selected from the general_public or the purpose of the grant is to achieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar capacity skill or talent of the grantee sec_53_4945-4 of the regulations provides that to secure approval a private_foundation must demonstrate that i ii its grant procedure includes an objective and nondiscriminatory selection process such procedure is reasonably calculated to result in performance by grantees of the activities that the grants are intended to finance and iii the foundation plans to obtain reports to determine whether the grantees performed activities that the grants are intended to finance based on the information submitted and assuming your award programs will be conducted as proposed with a view to provide objectivity and nondiscrimination in making the awards we have determined that your procedures for granting the awards comply with the requirements contained in sec_4945 of the code and that awards granted in accordance with such procedures will not constitute taxable_expenditures within the meaning of sec_4945 this determination is conditioned on the understanding that there will be no material_change in the facts upon which it is based it is further conditioned on the premise that no grants will be awarded to foundation managers or members of the selection committee or for a purpose that is inconsistent with the purpose described in sec_170 of the code the approval of your award program procedures herein constitutes a one-time approval of your system standards and procedures designed to result in awards which meet the requirements of sec_4945 of the code this determination only covers the grant programs described above thus approval shall apply to subsequent award programs only as long as the standards and procedures under which they are conducted do not differ materially from those described in your request we have not considered whether grants made under your procedures are excludable from the gross_income of recipients under sec_117 of the code any funds you distribute to individuals must be made on a true charitable basis in furtherance of the purposes for which you are organized therefore you should maintain adequate_records and case histories so that any or all award distributions can be substantiated upon request by the internal_revenue_service this determination is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as a precedent you must report any future changes in your grant making procedures please keep a copy of this letter in your permanent records we have sent a copy of this letter to your representative as indicated in your power_of_attorney if you have any questions please contact the person whose name and telephone number are shown above sincerely yours lois g lerner director exempt_organizations enclosures notice a copy of the redacted letter


internal_revenue_service department of the treasury number release date index number x washington dc person to contact telephone number refer reply to cc psi - plr-119782-00 date date a d1 year dear this letter responds your letter dated date and subsequent correspondence submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 of year a represent that a is the sole shareholder of x a the president of x further represents that it was intended for x to be an s_corporation beginning in year its first taxable_year a relied on x’s attorney to take care of the necessary requirements for x to be an s_corporation however x’s attorney failed to timely file a form_2553 for x for year sec_1362 of the code provides that if -- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x's first taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x's year taxable_year a copy of this letter should be attached to the form_2553 mr c dickinson hill except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely yours jeanne m sullivan assistant to the chief office of the associate chief_counsel passthroughs and special industries branch enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ---------------------------- ------------------------------------------- -------------------------------------------------- -------------------------- in re ---------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------- id no ------------------ telephone number ---------------------- refer reply to cc intl b06 plr-109001-13 date date legend ty ------- taxpayer ------------------------------------------------------ accounting firm ---------------------------- shareholder ---------------------------------------------------- date --------------------------- state a -------------- date ------------------------ date ------------------------ dear -------------------- this responds to a letter dated date supplemented by a letter dated date submitted by accounting firm requesting that the internal_revenue_service service grant taxpayer an extension of time under sec_301_9100-1 and sec_301_9100-3 to file form 4876-a election to be treated as an interest_charge_disc for taxpayer’s first taxable_year the rulings contained in this letter are based upon information and representations submitted by taxpayer and accounting firm and accompanied by penalty of perjury statements executed by appropriate parties this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination facts taxpayer is a domestic_corporation with a calendar taxable_year and is wholly owned by shareholder plr-109001-13 shareholder incorporated taxpayer on date in state a taxpayer intended to elect to be treated as an interest charge domestic_international_sales_corporation ic-disc as of date accounting firm had been a long term provider of tax services and has the necessary experience to provide ic-disc advice taxpayer requested accounting firm to perform all the necessary steps to qualify taxpayer as an ic-disc including preparation of all necessary forms accounting firm prepared form 4876-a taxpayer obtained the signatures of an officer and shareholder on date and mailed the election to the appropriate irs service_center on date the election was not sent by certified mail nor was a return receipt requested after taxpayer filed its initial form 1120-ic-disc taxpayer received a notice from an irs service_center indicating that the service_center did not have any record of the original form 4876-a having been filed taxpayer is not contesting whether the service_center received the form 4876-a instead taxpayer requests relief under sec_301_9100-3 for an extension of time to file the ic-disc election effective date law and analysis sec_992 provides that an election by a corporation to be treated as a disc shall be made by such corporation for a taxable_year at any time during the 90-day period immediately preceding the beginning of the taxable_year except that the secretary may give his consent to the making of an election at such other times as he may designate sec_992 provides that such election shall be made in such manner as the secretary shall prescribe and shall be valid only if all persons who are shareholders in such corporation on such first day of the first taxable_year for which such election is effective consent to such election temporary sec_1_921-1t provides in part that a corporation electing ic-disc status must file form 4876-a and that a corporation electing to be treated as an ic-disc for its first taxable_year shall make its election within days after the beginning of that year sec_301_9100-1 provides in part that the commissioner in exercising the commissioner’s discretion may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election under all subtitles of the code except subtitles e g h and i plr-109001-13 sec_301_9100-1 provides that a regulatory election is an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin for this purpose an election includes an application_for relief in respect of tax sec_301_9100-3 provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions must be made under the rules of sec_301_9100-3 requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that the grant of relief will not prejudice the interests of the government based on the facts and representations submitted with taxpayer’s ruling_request we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time of days from the date of this ruling letter to file form 4876-a such filing will be treated as a timely election to be treated as an ic-disc for taxpayer’s first taxable_year beginning date the granting of an extension in this ruling letter is not a determination that taxpayer is otherwise eligible to make the election or to claim ic-disc status or benefits see sec_301_9100-1 a copy of this letter_ruling should be attached to the federal_income_tax return for any taxable_year to which the ruling applies this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely _____________________________________ christopher j bello chief branch office of associate chief_counsel international


t c memo united_states tax_court donald g and claudia a willis petitioners v commissioner of internal revenue respondent docket no 6456-02l filed date mark h westlake for petitioners caroline krivacka for respondent memorandum findings_of_fact and opinion swift judge this case arises from a petition for judicial review timely filed in response to a notice_of_determination concerning collection action under sec_6330 the notice of unless otherwise indicated all section references are to the internal_revenue_code in effect at all relevant times and all rule references are to the tax_court rules_of_practice and procedure determination relates to petitioners’ federal_income_tax liabilities for and petitioners’ liability for the underlying taxes interest and penalties is not disputed the issue for decision is whether respondent’s rejection of petitioners’ three proposed alternatives to collection constitutes an abuse_of_discretion findings_of_fact some of the facts have been stipulated and are so found at the time of filing the petition petitioners resided in lebanon tennessee petitioner donald g willi sec_2 operates a locksmith business as a sole_proprietorship petitioner subcontracts much of the locksmith work in addition petitioner derives income from a part-time ministry petitioner claudia a willis is not employed outside the home on date respondent sent to petitioners a final notice_of_intent_to_levy with respect to petitioners’ outstanding federal income taxes interest and penalties for through cumulative liability on date respondent received petitioners’ timely request for a collection_due_process_hearing after submitting to respondent for consideration certain personal financial information relating to petitioners on may hereinafter unless otherwise indicated references to petitioner in the singular are to petitioner donald g willis petitioners’ counsel met with a settlement officer from respondent’s appeals_office petitioners’ counsel requested that respondent allow petitioners to partially satisfy their cumulative liability by means of an installment_agreement the settlement officer correctly advised petitioners’ counsel that under respondent’s policy an installment_agreement would be acceptable only if the payments thereunder would satisfy in full the total amount of the cumulative liability within the applicable periods of limitation plus any allowable extensions petitioners did not offer to make payments to respondent in an amount sufficient within the applicable periods of limitation plus allowable extensions to fully satisfy the cumulative liability which at that time totaled approximately dollar_figure as a result respondent rejected petitioners’ proposed installment_agreement on date petitioner personally met with the settlement officer at that meeting petitioner requested that respondent designate the cumulative liability as currently not collectible ie as uncollectible and the settlement officer considered the revisions petitioner submitted to his financial information after considering the revisions the settlement officer concluded that petitioners had disposable monthly income of dollar_figure and that petitioners could afford to make payment to respondent of dollar_figure per month as a result the settlement officer advised petitioners that the cumulative liability could not be classified as currently not collectible the settlement officer then suggested to petitioner that petitioners submit an offer_in_compromise in the amount of dollar_figure per month for months under this suggested offer_in_compromise respondent would consider compromising the cumulative liability for a total_payment by petitioners of dollar_figure on or about date petitioners submitted on the appropriate form the above offer_in_compromise as proposed by respondent’s settlement officer on date the settlement officer wrote to petitioners indicating that verification of the financial information petitioners had submitted was required before petitioners’ offer_in_compromise could be reviewed and approved during the settlement officer’s verification of petitioners’ financial information certain real_estate was identified which had not been previously disclosed to respondent petitioners’ mobile home in which they resided was located on the real_estate in the real_estate had been purchased in petitioners’ names using a cashier’s check in the amount of dollar_figure as part of a dollar_figure downpayment toward the dollar_figure total purchase_price in nominal title to this real_estate was transferred by the information that petitioners had submitted up until that time indicated that petitioners paid rent for the land on which the mobile home in which they resided was located petitioners to petitioner’s mother although the warranty deed recording this title transfer reflects consideration of dollar_figure petitioner’s mother made no such payment to petitioners since the mobile home located on this real_estate has been petitioners’ primary residence petitioners advised the settlement officer that the real_estate belonged to petitioner’s mother petitioners indicated that petitioner’s mother had provided the funds for the cashier’s check used to purchase the real_estate petitioners submitted to respondent’s settlement officer copies of checks and a bank statement in support of this contention the bank statement reflects a payment by petitioner’s mother of dollar_figure on date the bank statement however also reflects a deposit of dollar_figure into the same bank account on that same date from the time of purchase in through the time of the collection_due_process_hearing petitioners paid the property taxes and mortgage payments relating to the real_estate no rental agreement between petitioners and petitioner’s mother was provided and none appears to exist on her federal_income_tax returns petitioner’s mother did not include rental income or deduct mortgage interest relating to this real_estate petitioner’s mother was not called as a witness in this case also information obtained by the settlement officer indicated that just prior to the above purchase of the real_estate petitioners sold a house in nashville tennessee petitioners did not provide to the settlement officer requested information regarding the disposition of the proceeds from the sale of the nashville house based on valid and unresolved concerns regarding ownership of the real_estate on which petitioners’ mobile home residence was located the settlement officer rejected petitioners’ offer_in_compromise of dollar_figure per month and calculated a minimum acceptable offer_in_compromise from petitioners of dollar_figure per month for months until a total of dollar_figure would be paid in preparing computations of this new minimum amount for an acceptable offer_in_compromise from petitioners the settlement officer used a fair_market_value for the real_estate of dollar_figure based upon a local property_tax appraisal the settlement officer calculated petitioners’ net realizable equity in the real_estate at dollar_figure petitioners disputed the settlement officer’s decision to consider the equity in the real_estate in evaluating their offer_in_compromise petitioners however did not submit to respondent’s settlement officer information sufficient to resolve the settlement officer’s question regarding ownership of the real_estate on date the settlement officer prepared an appeals case memorandum sustaining the proposed levy action on date respondent issued to petitioners a notice_of_determination concluding that petitioners’ offer_in_compromise was unacceptable and denying petitioners’ request to suspend collection action opinion because the underlying tax_liability is not in dispute we review the settlement officer’s actions under an abuse_of_discretion standard 114_tc_176 an abuse_of_discretion occurs when respondent takes action that is arbitrary or capricious lacks sound basis in law or is not justifiable in light of the facts and circumstances 91_tc_1079 petitioners contend that the settlement officer abused his discretion in refusing to designate petitioners’ cumulative liability as currently not collectible petitioners also contend that the settlement officer abused his discretion in refusing to accept the proposed payments of dollar_figure per month under either an installment_agreement or an offer_in_compromise generally appeals officers are to consider alternatives to collection offered by taxpayers in the course of collection_due_process proceedings sec_6330 as indicated petitioners proposed three alternatives to collection we address each seriatim currently not collectible generally currently not collectible cnc status may be available when a taxpayer has no ability to make payments administration internal_revenue_manual cch sec_5 at big_number a taxpayer’s ability to make payments is determined by calculating the excess of income over necessary living_expenses administration internal_revenue_manual cch sec_5 at big_number cnc status may be available based on hardship if the levy action would prevent the taxpayer from meeting necessary living_expenses petitioners submitted to the settlement officer certain personal financial information in support of their request for cnc status for the cumulative liability the settlement officer concluded that petitioners had the ability to make monthly payments and that cnc status was not appropriate petitioners do not challenge the settlement officer’s conclusion as to their ability to make some payments toward their cumulative liability indeed petitioners’ proposed offer_in_compromise involving payments of dollar_figure per month would belie any such claim petitioners clearly had some ability to make payments toward the cumulative liability as a result petitioners were not eligible to have the cumulative liability classified as cnc we find no abuse_of_discretion in the settlement officer’s decision that petitioners were not eligible for cnc status installment_agreement sec_6159 authorizes respondent to consider installment agreements when a taxpayer lacks the current ability to satisfy the full amount of taxes at the time of the collection_due_process_hearing in this case respondent maintained a policy of accepting installment agreements only with terms that would result in full payment of all federal_income_tax liabilities within the applicable collection periods of limitation internal_revenue_manual sec_5 effective date to date a 5-year extension of the periods of limitation is permissible when making this determination internal_revenue_manual sec_5 effective date to date in light of the amount of petitioners’ cumulative liability an acceptable installment_agreement would have required_payments of approximately dollar_figure per month for the months in the collection periods of limitation even with a 5-year extension payments of more than dollar_figure per month would have been required petitioners do not dispute their inability to make payments in that amount after the notice_of_determination was issued in this case respondent changed its policy related to installment agreements under respondent’s new policy respondent may allow taxpayers to enter into installment agreements to pay specific tax periods in full and to have other tax periods designated as cnc administration internal_revenue_manual cch sec_5 at big_number effective date respondent’s new policy however still requires that taxpayers borrow upon or liquidate current_assets administration internal_revenue_manual cch sec_5 at big_number effective date at trial petitioners’ counsel argued that this case was not about abuse_of_discretion by an individual settlement officer but rather about an institutional abuse_of_discretion in the application of the policy that respondent used when considering petitioners’ proposed installment_agreement petitioners claim respondent should have treated the cumulative liability as consisting of separate liabilities for each year and should have classified some years as cnc while allowing petitioners an installment_agreement for the liabilities for other years the settlement officer properly applied the policies applicable when considering petitioners’ request for an installment_agreement and we find no abuse_of_discretion in his action further particularly in light of the unresolved question relating to ownership of the real_estate petitioners have failed to establish that they would qualify for treatment under respondent’s new policy we find no abuse_of_discretion in respondent’s use in this case of the prior policy for installment agreements offer_in_compromise sec_7122 provides authority for an offer_in_compromise as an alternative to collection action an offer_in_compromise reduces a taxpayer’s overall liability an offer_in_compromise may be granted for reasons such as doubt as to the actual tax_liability doubt as to collectibility or for other purposes relating to effective tax_administration sec_7122 as indicated petitioners do not dispute the amount of the cumulative liability the proposed offer_in_compromise was considered on the grounds of doubt as to collectibility in general an offer_in_compromise based on doubt as to collectibility may be accepted where there are substantial questions concerning whether the tax_liability will be collected in full and where the offered amount reflects realistic collection potential administration internal_revenue_manual cch sec_5 at big_number after reviewing the initial financial information provided by petitioners the settlement officer suggested that petitioners’ proposed offer_in_compromise of dollar_figure a month for months for a total of dollar_figure appeared acceptable however as explained above the settlement officer’s verification of petitioners’ financial information uncovered a significant question regarding ownership of real_estate in which an equity_interest of nearly dollar_figure appeared to exist as a result the settlement officer concluded that petitioners’ offer_in_compromise was not acceptable although petitioners continue to assert that the real_estate belongs to petitioner’s mother petitioners failed to provide to respondent’s settlement officer certain requested information in support of this assertion for example petitioners failed to provide information relating to the proceeds of the nashville house that petitioners sold information that is particularly significant because of the dollar_figure deposit into petitioner’s mother’s bank account on the same day that the cashier’s check used for part of the downpayment on the real_estate was purchased moreover the information petitioners provided to the settlement officer showed that the real_estate was originally titled in petitioners’ names that petitioners transferred title for no consideration that petitioners lived there and that petitioners paid the property taxes and mortgage payments generally when challenging a levy action taxpayers bear the responsibility of providing relevant information rule a the information petitioners provided to the settlement officer was insufficient to resolve the question regarding ownership of the real_estate we find no abuse_of_discretion in the settlement officer’s determination other arguments made by petitioners that are not specifically addressed have been considered and rejected based on the foregoing a decision will be entered for respondent


internal_revenue_service number release date index number ------------------------------ ----------------------------------------------- ---------------------------------------------- -------------------------------------- in re ------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------------------------------------- telephone number ---------------------- refer reply to cc pa plr-103856-13 date date --------------------------------------------------------- ------------------ -------------------------------- ------------------ legend estate decedent executor date shares percentage --------------------------------- ------------------------------- company ------------------------------------------- company number ----- number ---- number number number ---- number ----------------- state state ------- -------------- state ----------------------------------------------------------------- division ----------------------------------------- division division ---------------------------- ------------------------------------------------------------------ division division ------------------------------------ ----------------------------------- this letter is in response to estate’s representative’s letter dated date requesting several rulings under sec_6166 of the internal_revenue_code the request was made on behalf of executor the executor of the estate plr-103856-13 the facts as submitted reflect that decedent died on date at the time of his death he owned shares percentage of company a closely_held_corporation organized in state that has approximately number full-time employees company has several operating divisions division division and division company also owns stock in company company has two operating divisions division and division company as the common parent_corporation files a consolidated corporate_income_tax return along with company company has not ever had more than shareholders rulings requested the activities of division constitute the carrying on of a trade_or_business such that an interest in division qualifies as an interest_in_a_closely_held_business for purposes of sec_6166 the activities of division constitute the carrying on of a trade_or_business such that an interest in division qualifies as an interest_in_a_closely_held_business for purposes of sec_6166 company division and division are qualified lending and finance businesses for the purposes of sec_6166 relevant authorities under sec_6166 if the value of an interest_in_a_closely_held_business which is included in determining the gross_estate of a decedent exceed sec_35 percent of the adjusted_gross_estate the estate may elect to pay all or part of the tax imposed by sec_2001 the estate_tax liability in two or more but not exceeding ten equal installments under sec_6166 the maximum amount of tax that may be deferred is the percentage of estate_tax equal to the percentage of the adjusted_gross_estate that is comprised of the closely_held_business_amount under sec_6166 if the estate makes an election under sec_6166 the estate has up to five years from the due_date prescribed by sec_6151 to make the first installment_payment sec_6166 provides that an asset used in a qualifying_lending_and_finance_business will be treated as an asset used in carrying_on_a_trade_or_business however if the executor elects treatment under this section the sec_6166 five-year deferral is not available and the estate may only elect to pay the tax in up to five installments plr-103856-13 discussion requested ruling the first ruling requested pertains to the activities of division a division of company according to the facts provided division is responsible for selling or leasing thousands of pieces of used equipment that are returned upon the expiration of leases division also provides marketing management and support services to independent third-party lessors division has number full-time employees including marketing personnel sales representatives working out of offices in state and state and personnel staffing an equipment storage warehouse in state division maintains extensive support capabilities including computer and network specialists quantitative analysts lease administration office personnel as well as an in-house counsel division 5’s duties with respect to used equipment include marketing and portfolio management services to company division and to third-party investors and lessors these services involve tracking and monitoring of lease termination dates the delivery of all required notices of lease expiration to lessees the active marketing of equipment for sale or re-lease and management of equipment returned following lease expiration including the inspection shipment and storage of returned equipment the employees of division also hire and monitor third party contractors to perform these services revrul_2006_34 contains a non-exclusive list of factors that are relevant in determining whether real_property interests are interests in a closely_held_business for purposes of sec_6166 the revenue_ruling provides that in determining whether the activities of a corporation that owns real_estate are those of an active trade_or_business the service will consider various nonexclusive factors the amount of time the corporation’s employees devoted to the trade_or_business whether an office was maintained from which the activities of the corporation were conducted and whether the corporation maintained regular business hours for that purpose the extent to which the corporation’s employees were actively involved in finding new tenants and negotiating and executing leases the extent to which the corporation’s employees provided services beyond the mere furnishing of leased premises the extent to which the corporation’s employees personally arranged for performed or supervised repairs and maintenance to the property whether or not performed by independent contractors and the extent to which the corporation’s employees handled tenant repair requests and complaints although in this case division manages personal_property not real_estate as addressed in the revenue_ruling the factors discussed in the revenue_ruling are helpful in evaluating whether the employees of division are engaged in a trade_or_business several offices and a warehouse are maintained by division in which the employees conduct business the employees actively negotiate leases inspect equipment ship plr-103856-13 equipment arrange repairs and hire and monitor third party contractors accordingly the activities of division constitute an active trade_or_business for purposes of sec_6166 requested ruling the second ruling requested pertains to the activities of division a division of company the facts provided reflect that division is a real_estate business involved in the acquisition development leasing operation and management of commercial real properties division has an in-house leasing department with number full-time employees division is involved in the day-to-day operations management and maintenance of its properties division uses a team of in-house professionals and engineers to maintain and operate its commercial office buildings and has developed extensive procedures for hiring and overseeing its third-party suppliers and vendors only major items such as substantial repairs and capital improvements and services unrelated to the management of the properties are performed by independent contractors applying the factors discussed in revrul_2006_34 division has a significant number of full-time employees that are involved in the day-to-day operations management and maintenance of the real_estate therefore the activities of division constitute the carrying on of a trade_or_business for purposes of sec_6166 requested ruling the third ruling requested pertains to the status of company division and division as qualifying lending and finance businesses under sec_6166 under sec_6166 any asset used in a qualified lending_and_finance_business is treated as an asset which is used in carrying out an active trade_or_business we note that in order for an interest in a business to qualify as an interest_in_a_closely_held_business under sec_6166 the decedent must have personally conducted an active trade_or_business or must have held an interest in a partnership llc or corporation that itself carried on an active trade_or_business in this case the decedent did not personally conduct business for company nor did he hold an interest in company decedent owned stock in company which held stock in company in order for company 2’s assets to be included in the estate’s sec_6166 election the estate must make a sec_6166 holding_company election or the assets must qualify for the active corporation exception under sec_6166 whether the estate may make a sec_6166 election or would qualify for the active corporation exception is not addressed in this letter_ruling plr-103856-13 sec_6166 defines the term qualified lending_and_finance_business to mean a lending_and_finance_business if i based on the facts and circumstances at the time of the decedent’s death there was substantial activity with respect to the lending_or_finance_business or ii during out of the years ending before the decedent’s death the business employed at least full-time_employee who actively managed the business full-time non-owner employees whose services directly related to the business and the business had gross_receipts of dollar_figure for lending and finance activities a lending_and_finance_business as defined under sec_6166 is a business that engages in the following activities i ii iii iv v making loans purchasing or discounting accounts_receivable notes or installment_obligations engaging in rental and leasing of real and tangible_personal_property including entering into leases and purchasing servicing and disposing of leases and leased assets rendering services or making facilities available in the ordinary course of a lending_or_finance_business and rendering services or making facilities available in connection with activities described in subclauses i through iv carried on by the corporation rendering services or making facilities available or another corporation which is a member of the same affiliated_group the facts provided indicate that company owns stock in company company which includes the operating divisions of division and division at the time immediately proceeding decedent’s death focused its efforts in several areas including equity ownership in leases of capital equipment such as locomotives airplanes railcars and power plants in at least of the last taxable years ending before the date of decedent’s death company employed at least number full-time management employees and at least number full-time non-owner employees the facts provided also indicate that company 2’s revenue was also well over dollar_figure from its leasing activities division provided client companies with single investor lease financing for material-handling equipment such as forklifts cranes and tractors division as discussed above was responsible for selling or leasing thousands of pieces of used equipment that are returned upon the expiration of leases in order for company 2’s assets to be included in the estate’s sec_6166 election the estate must make a sec_6166 holding_company election or the assets must qualify for the active corporation exception under sec_6166 whether the estate may make a sec_6166 election or would qualify for the active corporation exception is not addressed in this letter_ruling plr-103856-13 based upon the facts provided at the time before the decedent’s death company including division and had substantial activity in activities listed in paragraphs iii and v of sec_6166 company also employed more than full-time management employee and more than full-time non-owner employees company 2’s revenue was also well over dollar_figure from the activities listed in sec_6166 therefore company would qualify for the special election under sec_6166 for assets in a qualified lending_and_finance_business as described in sec_6166 consistent with our conclusions as to company division which was engaged in renting and leasing of personal_property also on its own constitutes a qualified lending_and_finance_business because it engaged in substantial activity with respect to leasing activities and rendering services in connection with its leasing activities division is a division of company based on the facts provided division was started in late when company started to accumulate a residential rental portfolio division employed number full-time non-owner employees and at least was a full-time management employee the company has acquired a portfolio of multi- family real_property in various locations division 3’s employees or independent contractors hired by those employees lease and maintain the rental properties and collect rent based upon the facts provided at the time before decedent’s death division engaged in substantial activities involving renting and leasing of real_property and rendering services in connection with those activities because of this substantial activity division would qualify for the special election under sec_6166 for assets in a qualified lending_and_finance_business as described in sec_6166 conclusions the activities of division are sufficient to constitute the carrying on of a trade_or_business the activities of division are sufficient to constitute the carrying on of a trade_or_business company division and division are qualified lending and finance businesses under sec_6166 a copy of this letter must be attached to any income_tax return to which is it relevant alternatively a taxpayer filing a return electronically may satisfy this requirement by attaching a statement to the return that provides the date and control number of the letter_ruling plr-103856-13 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 internal_revenue_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 the ruling contained in this letter is based upon information and representations submitted by the executor’s representative 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 sincerely mitchel s hyman senior technician reviewer branch procedure and administration enclosures copy for sec_6110 purposes one copy of this letter


internal_revenue_service number release date index number ----------------------------- -------------------- --------------------------------------------- ------------------------------ --------------------------- 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 fip b01 plr-112471-04 date date legend legend trust ------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------- -------- operating partnership ------------------------------------------------- x state a dear ------------------ -------------------------- this is in reply to your letter requesting various rulings relating to trust’s status as a real_estate_investment_trust reit under sec_856 of the internal_revenue_code facts trust is a domestic_corporation that has elected to be treated as a reit under subchapter_m of chapter of the internal_revenue_code trust owns approximately x percent and is the sole managing general_partner of operating partnership op substantially_all of trust’s assets are held by and its operations are conducted through op additionally op owns some of its assets and conducts some of its operations through interests in subsidiary partnerships trust is a self-administered and self-managed reit specializing in acquiring leasing financing managing and developing class a office buildings in the state a area the properties through partnerships the property-owning entities plr-112471-04 under the terms of the leases of space in certain of the properties certain interior cleaning services are required to be performed such services include basic routine dusting emptying of wastepaper baskets cleaning of floors or floor coverings eg vacuuming ceilings doors walls and rendering other general janitorial services including cleaning of lavatories and washing windows the routine cleaning services trust represents that the routine cleaning services are customarily furnished or arranged for by landlords in connection with the leasing of space in class a office buildings located in the state a area the routine cleaning services provided are part of the total package offered in exchange for the rent paid_by tenants and are an integral part of the rental of the space the routine cleaning services and supervision of the workers providing them are currently performed for each of the property-owning entities by an independent_contractor cleaning company from whom trust does not derive or receive any income as provided in sec_856 it is represented that cleaning company qualifies as an independent_contractor within the meaning of sec_856 trust now desires to have these routine cleaning services performed directly by employees of trust trust will contract with cleaning company to supervise the performance of the routine cleaning services currently all of the employees of trust are maintained on the payroll of three or more taxable reit subsidiaries the trss of trust trust is charged an overall management fee by the trss and reimburses the trss for the actual costs of the employees who perform services on behalf of trust under the proposed arrangement the employees performing routine cleaning services to tenants of the properties will be employed directly by operating partnership or a subsidiary partnership if operating partnership does not own the property directly under the supervision of the cleaning company these cleaning employees will perform all of the routine cleaning services to tenants of properties trust will be responsible for all of the costs of providing such services such as employees’ salaries and the costs of equipment and supplies charges to the tenants for routine cleaning services are not separately_stated from rents tenants pay for office space trust will compensate the cleaning company at an arm’s length rate for its supervisory services tenants of the properties may also request to have additional cleaning performed within their leased space for an additional_charge special cleaning services tenants requesting special cleaning services will contact cleaning company cleaning company will separately contract with the tenants for these services collect the amounts and remit a separate fee to the trss no portion of this fee will be remitted by the trss to trust in addition trust will not receive any direct trust does not intend to provide any services in connection with its lease of plr-112471-04 payments from either the trss or from the cleaning company for the special cleaning services space to its tenants other than usual and customary services and activities permitted by landlords with respect to their property or by trustees with respect to the trust the employees providing non-customary services for the tenants of the properties will be employed by the trss of the trust trss on behalf of the trust the trust and the respective trs may enter into reimbursement or cost sharing arrangements for the payment of these employees’ services trust will be responsible for the payment of its share of the cost of these services and expenses the payments made by trust are intended to make the trss whole and not to generate a profit law and analysis for customary services that may be performed by the employees of the trust’s sec_856 provides that to qualify as a reit a corporation must derive at least percent of its gross_income excluding gross_income from prohibited_transactions from sources listed in sec_856 which includes dividends interest rents_from_real_property and certain other items and derive at least percent of its gross_income excluding gross_income from prohibited_transactions from sources listed in sec_856 which includes rents_from_real_property and certain other items under sec_1_856-3 of the income_tax regulations a reit that is a partner in a partnership is deemed to own its proportionate share of each of the assets of the partnership and to be entitled to the income of the partnership attributable to that share for purposes of sec_856 the partner’s interest in the partnership's assets is determined in accordance with the partner's capital interest in the partnership the character of the various assets in the hands of the partnership and items of gross_income of the partnership retain the same character in the hands of the partners for all purposes of sec_856 sec_856 defines the term rents_from_real_property to include a rents from interests_in_real_property b charges for services customarily furnished or rendered in connection with the rental of real_property whether or not such charges are separately_stated and c rent attributable to personal_property leased under or in connection with a lease of real_property but only if the rent attributable to the personal_property for the taxable_year does not exceed percent of the total rent for the taxable_year for both the real and personal_property under the lease sec_1_856-4 provides that for purposes of sec_856 and c the term rents_from_real_property includes charges for services customarily furnished plr-112471-04 or rendered in connection with the rental of real_property whether or not the charges are separately_stated services rendered to tenants of a particular building will be considered customary if in the geographic market in which the building is located tenants in buildings of a similar class are customarily provided with the service the furnishing of water heat light and air-conditioning the cleaning of windows public entrances exits and lobbies the performance of general maintenance and of janitorial and cleaning services the collection of trash and the furnishing of elevator services telephone answering services incidental storage space laundry equipment watchman or guard services parking facilities and swimming pool facilities are examples of services which are customarily furnished to the tenants of a particular class of buildings in many geographic marketing areas required to delegate or contract out their fiduciary duty to manage the trust itself as distinguished from rendering or furnishing services to the tenants of its property or managing or operating the property thus the trustees or directors may do all those things necessary in their fiduciary capacities to manage and conduct the affairs of the trust itself sec_1_856-4 provides that the trustees or directors of a reit are not sec_856 however excludes impermissible_tenant_service_income from the definition of rents_from_real_property sec_856 defines impermissible_tenant_service_income to mean with respect to any real or personal_property any amount received or accrued directly or indirectly by a reit for services furnished or rendered by the reit to tenants of the property or for managing or operating the property sec_856 provides that de_minimis amounts of impermissible_tenant_service_income that is amounts less than one percent of all amounts received or accrued by the reit with respect to a particular property during the taxable_year will not cause otherwise qualifying_amount to not be treated as rents_from_real_property sec_856 excludes from the definition of impermissible_tenant_service_income amounts received for services furnished or rendered or management or operation provided through an independent_contractor from whom the reit does not derive or receive any income similarly sec_856 excludes amounts that would be excluded from unrelated_business_taxable_income ubti under sec_512 if received by an organization described in sec_511 sec_512 provides in part that rents_from_real_property are excluded from the computation of ubti sec_1_512_b_-1 provides that payments for the occupancy of space where services are also rendered to the occupant are not rents_from_real_property generally services are considered rendered to the occupant if they are primarily for the occupant’s convenience and are other than those usually or customarily rendered in connection with the rental of space for occupancy only the supplying of maid service for example constitutes such service whereas the furnishing plr-112471-04 of heat and light the cleaning of public entrances exits stairways and lobbies the collection of trash etc are not considered as services rendered to the occupant payments for the use or occupancy of entire private residences or living quarters in duplex or multiple housing units of offices in any office building etc are generally rent from real_property trust represents that the routine cleaning services are customarily furnished or arranged for by landlords in connection with the leasing of space in class a office buildings in the state a area these routine cleaning services are limited office cleaning services of a janitorial nature and the activities described above are routine cleaning services that are customarily furnished or arranged for by landlords in connection with the leasing of space in class a office buildings in the state a area within the meaning of sec_856 in connection with the special cleaning services provided to the tenants trust will not receive any direct payments from either trss or cleaning company trust represents that it does not intend to provide any services in connection with its lease of space to its tenants other than usual and customary services and activities permitted by landlords with respect to their property or by trustees with respect to the trust further the employees providing noncustomary services for the tenants of the properties will be employed by the trss with regard to customary services that may be performed by the employees of the trss on behalf of trust the trust and the respective trss may enter into reimbursement and or cost sharing arrangements for the payment of these employees’ services the trust will be responsible for the payment of its share of the cost of these services and expenses for example general and administrative overhead expenses of the trust including its share of the employee_expenses associated with customary services performed on the behalf of the trust may be incurred by the trss and reimbursed by the trust the reimbursements are intended to make the trss whole and not to generate a profit holdings based on the information provided and the representations made by trust we conclude as follows the performance of routine cleaning services by the trust will not cause amounts received from the properties to fail to qualify as rents_from_real_property under sec_856 the special cleaning services performed by the cleaning company through its contract with the trss will be considered to be rendered by the cleaning company or by the trss and not by the trust for purposes of sec_856 accordingly plr-112471-04 the special cleaning services will not give rise to impermissible_tenant_service_income and will not cause otherwise qualifying rental income generated by the properties at which these services are performed to be treated as other than rents_from_real_property under sec_856 trust will not be treated as having directly or indirectly received any amounts for special cleaning services as a result of the trss’ receipt of fees from the cleaning company as a third-party provider for special cleaning the amounts paid_by trust to the trss as reimbursements for trust’s allocable share of expenses related to personal general and administrative overhead as well as trust’s share of the costs of customary services performed by the trss on the trust’s behalf pursuant to the reimbursement and cost sharing arrangements as described above will not be considered gross_income to the trss consistent with this conclusion the trss will not be entitled to a deduction for the reimbursed expenses except as expressly provided herein no opinion is expressed or implied in accordance with the terms of a power_of_attorney on file with this office copies this ruling is directed only to the taxpayer requesting it sec_6110 concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular no opinion is expressed with regard to whether trust qualifies as a reit under subchapter_m of the code furthermore no opinion is expressed whether the trss qualify as taxable reit subsidiaries of trust provides that it may not be used or cited as precedent of this letter are being sent to your authorized representatives enclosures sincerely s ___________________________ elizabeth a handler chief branch office of associate chief_counsel financial institutions products copy of this letter copy for sec_6110 purposes