internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 2-plr-135513-02 date date legend x a d1 year dear this responds to your letter dated date requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 a the sole shareholder of x intended for x to be an s_corporation beginning in year however no timely form_2553 election to be a small_business_corporation was filed 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 plr-135513-02 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 except as specifically ruled upon above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provisions of the code including whether x was or is a small_business_corporation under sec_1361 this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely yours matthew lay senior technician reviewer branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


significant index number department of the treasury internal_revenue_service washington d c government entities division mar co se ty ee re plan no ein plan taxpayer dear this letter constitutes notice that approval has been granted for your request for a 5-year automatic_extension for amortizing the unfunded liabilities as of for the above-named plan which are described in sec_431 and sec_431 of the internal_revenue_code code and sec_304 and sec_304 of the employee_retirement_income_security_act_of_1974 erisa this extension is effective with the plan_year beginning established as of this extension applies to the eligible amortization charge bases the extension of the amortization periods of the unfunded liabilities of the plan was granted in accordance with sec_431 of the code sec_431 of the code requires the secretary to extend the period of time required to amortize any unfunded_liability of a plan for a period of time not in excess of years if the plan submits an application meeting the criteria stated in sec_431 the plan has submitted the required information to meet the criteria in sec_431 including a certification from the plan’s actuary that absent the extension under subparagraph a the plan would have an accumulated_funding_deficiency in the current plan_year or any of the succeeding plan years ii the plan_sponsor has adopted a plan to improve the plan's funding status i ili the plan is projected to have sufficient assets to timely pay expected benefits and anticipated expenditures over the amortization period as extended and iv the notice required under paragraph a has been provided in granting this ruling it is expected that the plan's assumptions and methods will be reviewed and updated as appropriate so that each prescribed assumption was applied in accordance with applicable law and regulations and each other assumption is reasonable taking into account the experience of the plan and reasonable expectations and such other assumptions in combination offer the best estimate of anticipated experience under the plan in addition we are not expressing any opinion as to the accuracy of any material submitted with your request we have sent a copy of this letter to the manager ep classification in baltimore maryland and to the manager ep compliance unit in chicago illinois this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited by others as precedent if you require further assistance in this matter please contact id at sincerely yours cc david m ziegler manager ep actuarial group


internal_revenue_service number release date cc psi 1-cor-120331-00 date uilc we are responding to your correspondence requesting relief in order to establish date as the effective date for your s_corporation_election based on the information submitted it appears that you are requesting consideration under revproc_98_55 however the window period for automatic relief under this revenue_procedure had expired on the return_due_date for the first year the corporation wished to be considered an s_corporation date although we are unable to respond to to your request as submitted this letter provides useful information relating to your request announcement copy enclosed provides guidance on seeking relief for late s_corporation elections and inadvertent invalid s_corporation elections generally to request relief for a late or invalid s_corporation_election you must request a private_letter_ruling from the national_office the procedures for requesting a private_letter_ruling are set out in revproc_2000_1 copy enclosed in addition revproc_2000_1 requires taxpayers to submit a user_fee along with their ruling_request the standard user_fee for a private_letter_ruling is dollar_figure however taxpayers with gross_income of less than dollar_figure million on their last-filed tax_return qualify for a reduced- user_fee in the amount of dollar_figure if you are eligible to use the reduced fee provision you must include the statement described in b b of appendix a with your request please review appendix b for a sample format for requesting a private_letter_ruling if you decide to submit a formal request for a private_letter_ruling please include the proper user_fee if applying under the reduced fee provisions send a statement certifying gross_income and refer your request to our office by adding the following to the address attn cc p a p o box ben franklin station washington dc direct to cc psi room please keep this letter with your tax records and feel free to provide a copy of it to your authorized representative we hope that the above information proves helpful sincerely yours s dianna k miosi dianna k miosi chief branch associate chief_counsel passthroughs and special industries enclosures announcement revproc_2000_1


internal_revenue_service national_office technical_advice_memorandum date number release date index uil no 263a 263a case mis no tam-119616-99 cc ita b7 district_director taxpayer’s name taxpayer’s address taxpayer’s identification no years involved date of conference issue whether the cable television distribution plants rebuilt by the taxpayer are real_property for purposes of the interest capitalization provisions in sec_263a of the internal_revenue_code conclusion the cable television distribution plants rebuilt by the taxpayer are inherently permanent structures within the meaning of sec_1_263a-8 of the income_tax regulations and thus are real_property for purposes of sec_263a facts the taxpayer owns and operates cable television systems in various localities each system is operated under a franchise agreement granted by the local political authority having jurisdiction over cable television in the area served by the system cable television systems generally cable television systems are individually designed to suit the unique characteristics of each particular location in general however each system consists of two basic components a headend which generates the television signals and a distribution plant which conveys the television signals from the headend to the subscribers tam-119616-99 the headend obtains television programming from various sources some programming is received by antenna from satellite and terrestrial broadcasters other programming comes from the playback of films or videotapes and from local television studios that produce community access programming all of these programming sources are fed into the electronic equipment of the headend which combines the various programs into a multichanneled television signal for distribution to subscribers the distribution plant can be configured in various ways typically the signal is first distributed into a limited number of trunk cables which carry the signal over relatively long distances through the various neighborhoods served by the headend within each neighborhood the signal from the trunk line is fed into a network of feeder or distribution cables which carry the signal past the homes of every subscriber finally the signal is carried from the feeder cables into the individual homes by means of drop cables that tap into the feeder lines a group of subscribers served by a single connection to the trunk line is generally known as a node the node is used as a unit for many purposes in the design construction and operation of a cable television system in newer cable television systems each node has a unique connection to the headend which allows an operator to control the signal to each node independently of the other nodes cables distribution plants use two types of cable coaxial cable and fiber optic cable originally coaxial cable was used exclusively current practice favors hybrid systems that use a mixture of coaxial cable and fiber optic cable a coaxial cable carries television programs in the form of electrical energy the cable consists of two electrical conductors - an outer metal tube or braid and an inner metal wire - that are separated by dielectric foam in some cases the outer conductor is coated with a protective layer of plastic coaxial cable gradually attenuates an electrical cable signal as it passes through amplifiers are used to boost the cable signal when long runs of coaxial cable are used each amplifier however introduces some additional distortion into the signal this limits the number of times a signal can be boosted between the headend and the customer while maintaining acceptable signal quality which in turn limits the total distance that an electrical signal may be sent over coaxial cable coaxial cable is designed to electrically isolate the cable signal within the cable this is important because cable television and wireless communications systems use overlapping frequencies of electromagnetic waves to transmit information without adequate isolation the cable signal can leak out and disrupt wireless communication and wireless signals can leak in and interfere with the cable signal cable television tam-119616-99 systems operators are required_by_law to maintain their signal leakage below specified levels a fiber optic cable carries television programs in the form of light waves the optical cable signal flows through an optical fiber which is a tiny continuous tube of glass an optical fiber does not attenuate an optical cable signal as quickly as a coaxial cable attenuates an electrical cable signal consequently fiber optic cables generally do not require the use of intermittent booster amplifiers as coaxial cables do and can transmit a clearer signal over longer distances a fiber optic cable can carry significantly more information than a coaxial cable a single fiber optic cable can contain as many as optical fibers each one of which can carry a separate signal independently of the others by contrast a coaxial cable of comparable size can only carry a single signal in a typical hybrid system fiber optic cables are favored over coaxial cables for use as trunk lines fiber optic trunk lines allow operators to distribute television signals over long distances with minimal distortion of the signal and without the use of amplifiers fiber optic trunk lines also give operators the capacity to distribute a relatively high number of independently programable signals which allows them to customize the programming sent to different groups of customers by contrast coaxial cables are favored over fiber optic cables for use in distribution lines and drop cables coaxial cabling is cheaper than fiber optic cabling and is compatible with existing television receivers installation and maintenance cables are typically installed along leased rights of way installation can be either above ground or below above ground installations typically utilize existing utility poles by arrangement with the utilities owning the poles a load-bearing strand is attached to the poles with bolts and suspension clamps and the cable itself is then lashed to the strand cable operators perform routine maintenance and repair of their systems on an ongoing basis periodically operators perform a major or complete reconstruction of their systems which is referred to as a rebuild of the system the decision of when to rebuild a system is affected by numerous considerations including the physical condition and operating performance of the system technological changes desired or required enhancements to the features or functions of the system the extent of signal leakage from the system overall and the requirements of the franchise taxpayer rebuilds the taxpayer begins the process of rebuilding a cable system by completing an tam-119616-99 aerial map of the system a walk-out and house count are also performed to determine how many potential customers are in the system using the map and the house count data the taxpayer’s engineering department does a draft design of the system which is subject_to audit and approval by internal management staff once the design receives final approval the physical work of the rebuild begins most of which is done by outside contractors during the taxable years at issue the taxpayer rebuilt several of its cable systems substantially_all of the existing cabling was replaced with new cables fiber optic cables replaced coaxial cables as trunk lines except for certain nodes located in close proximity to the headend known as headend nodes which were served by new coaxial cable trunk lines each node in the rebuilt system had its own trunk line channel to the headend a fiber optic strand for most nodes or a coaxial trunk line for headend nodes this independent connection to the headend allowed each node to be placed into service independently of the other nodes the complete rebuild of a system from the beginning of the design process to the completion of construction and testing for the last node typically lasted two to three years the amount of time necessary to rebuild an individual node - replacing distribution lines and drop cables - was normally less than one year the taxpayer placed the rebuilt systems into service on a node by node basis each node was placed into service as soon as the trunk line connection to the headend was established and the rebuilding of the distribution and drop cabling within the node was completed the taxpayer provided funding for the rebuilds from internal cash_flow and did not capitalize any interest under sec_263a with respect to the rebuilds law sec_263a provides that in the case of any property to which sec_263a applies any costs described in sec_263a shall be included in inventory costs in the case of property which is inventory in the hands of the taxpayer or shall be capitalized in the case of property that is not inventory in the hands of the taxpayer sec_263a provides that the costs described by such paragraph with respect to any property are i the direct costs of such property and ii such property’s proper share of those indirect_costs including taxes part or all of which are allocable to such property sec_263a provides that except as otherwise provided sec_263a applies to real or tangible_personal_property produced_by_the_taxpayer tam-119616-99 sec_263a provides that sec_263a shall only apply to interest costs which i are paid_or_incurred during the production_period and ii are allocable to property which is described in sec_263a and which has a long_useful_life an estimated production_period exceeding years or an estimated production_period exceeding year and a cost exceeding dollar_figure sec_263a provides that for purposes of sec_263a property has a long_useful_life if such property is real_property or property with a class_life of years or more as determined under sec_168 sec_263a provides that for purposes of sec_263a the term production_period means when used with respect to any property the period beginning on the date on which production of the property begins and ending on the date on which the property is ready to be placed_in_service or is ready to be held_for_sale sec_1_263a-8 provides that capitalization of interest under the avoided_cost_method described in sec_1_263a-9 is required with respect to the production of designated property described in sec_1_263a-8 sec_1_263a-8 provides that except as provided in sec_1_263a-8 and sec_1_263a-8 designated property means any property that is produced and that either is i real_property or ii tangible_personal_property as defined by sec_1 263a- a which is a property with a class_life of years or more under sec_168 long- lived property but only if the property is not property described in sec_1221 in the hands of the taxpayer or a related_person b property with an estimated production_period as defined in sec_1_263a-12 exceeding years 2-year property or c property with an estimated production_period exceeding year and an estimated cost of production exceeding dollar_figure 1-year property sec_1_263a-8 provides that the thresholds described in sec_1 263a- b are applied separately for each unit_of_property as defined in sec_1_263a-10 sec_1_263a-8 provides that real_property includes land unsevered natural products of land buildings and inherently permanent structures sec_1_263a-8 provides that inherently permanent structures include property that is affixed to real_property and that will ordinarily remain affixed for an indefinite period of time such as swimming pools roads bridges tunnels paved parking areas and other pavements special foundations wharves and docks fences inherently permanent advertising displays inherently permanent outdoor lighting facilities railroad tracks and signals telephone poles power generation and transmission facilities permanently installed telecommunications cables broadcasting towers oil_and_gas pipelines derricks and storage equipment grain storage bins and tam-119616-99 silos property may constitute an inherently_permanent_structure even though it is not classified as a building for purposes of former sec_48 and sec_1_48-1 any property not otherwise described in sec_1_263a-8 that constitutes other tangible_property under the principles of former sec_48 and sec_1_48-1 is treated for the purposes of sec_1_263a-8 as an inherently_permanent_structure sec_1_263a-8 provides that produce is defined as provided in sec_263a and sec_1_263a-2 sec_263a provides that for purposes of sec_263a the term produce includes construct build install manufacture develop or improve sec_1_263a-2 provides that for purposes of sec_263a produce includes the following construct build install manufacture develop improve create raise or grow sec_1_263a-12 provides that a separate production_period is determined for each unit_of_property defined in sec_1_263a-10 sec_1_263a-10 provides that whether property is 1-year or 2-year property under sec_1_263a-8 is also determined separately with respect to each unit_of_property as defined in sec_1 263a- sec_1_263a-10 provides that a unit of real_property includes any components of real_property owned by the taxpayer or a related_person that are functionally interdependent and an allocable share of any common feature owned by the taxpayer or a related_person that is real_property even though the common feature does not meet the functional_interdependence test when the production_period begins with respect to any functionally interdependent component or any common feature of the unit of real_property the production_period has begun for the entire unit of real_property sec_1_263a-12 provides that the production_period of a unit of real_property begins on the first date that any physical production activity as defined in sec_1_263a-12 is performed with respect to a unit of real_property sec_1 263a- e provides that the term physical production activities includes any physical activity that constitutes production within the meaning of sec_1_263a-8 sec_1_263a-12 provides that the production_period of a unit of tangible_personal_property begins on the first date by which the taxpayer’s accumulated production_expenditures including planning and design expenditures are at least percent of the taxpayer’s total estimated accumulated production_expenditures for the property unit thus the beginning of the production_period is determined without regard to whether physical production activity has commenced the production_period for a unit of tangible_personal_property produced under a contract begins for the customer when the customer’s accumulated production_expenditures are at least percent of the customer’s total estimated accumulated production_expenditures tam-119616-99 sec_1_263a-12 provides that the production_period for a unit_of_property produced for self use ends on the date that the unit is placed_in_service and all production activities reasonably expected to be undertaken by or for the taxpayer or a related_person are completed sec_1_263a-10 provides that components of real_property produced by or for the taxpayer for use by the taxpayer or a related_person are functionally interdependent if the placing in service of one component is dependent on the placing in service of the other component by the taxpayer or a related_person sec_1_263a-10 provides that components of tangible_personal_property are a single unit_of_property if the components are functionally interdependent components of tangible_personal_property that are produced by or for the taxpayer for use by the taxpayer or a related_person are functionally interdependent if the placing in service of one component is dependent on the placing in service of the other component by the taxpayer or a related_person analysis the issue presented is whether the cable television distribution plants rebuilt by the taxpayer are real_property for purposes of the interest capitalization provisions of sec_263a real_property is not defined within sec_263a but sec_1_263a-8 provides that real_property includes land unsevered natural products of land buildings and inherently permanent structures the taxpayer and the examiner agree that a cable television distribution system is not land an unsevered natural product of land or a building and we concur inherently permanent structures the term inherently_permanent_structure ips is defined by sec_1_263a-8 to include property that is affixed to real_property and that will ordinarily remain affixed for an indefinite period of time this definition establishes two basic criteria for an ips first it is affixed to real_property second it will ordinarily remain affixed for an indefinite period of time cable television distribution plants satisfy the first criterion of an ips because they are affixed to real_property in underground installations cables are affixed to real_property by burial within the land itself in aerial installations cables are affixed to real_property by bolting and lashing the cables to utility poles such poles are real_property because they are affixed to land for an indefinite period of time and thus constitute ipss sec_1_263a-8 lists telephone poles as an example of ipss the second criterion of an ips requires that the property will ordinarily remain affixed for an indefinite period of time sec_1_263a-8 does not expressly tam-119616-99 define this term we believe however that in this context an indefinite period of time generally means the useful_life of the affixed property an indefinite period of time cannot sensibly be interpreted to mean forever because virtually no property would satisfy that definition including most if not all of the examples of ipss in sec_1_263a-8 similarly indefinite cannot adequately be defined by some arbitrarily chosen minimum period of time because of the inherent variability between and within the various types of ipss the examples of ipss in sec_1_263a-8 differ considerably in the length of time that the property typically remains affixed to real_property which varies according to the physical characteristics of the affixed property the location where the affixation occurs and the mode of affixation thus a tunnel or a roadway typically has a significantly longer period of affixation than a billboard or a silo while individual examples within each of these general types of ipss also differ in their periods of affixation according to their individual circumstances the term indefinite therefore is best interpreted relative to the useful_life of the affixed property under this interpretation an item of property is affixed for an indefinite period of time if the property ordinarily remains affixed for the duration of its useful_life the length of that useful_life relative to the useful lives of other items or types of property is not relevant to the determination of whether the property is affixed for an indefinite period similarly the length of the useful_life of affixed property in absolute terms is generally not relevant to the determination of whether the property is affixed for an indefinite period although at some point the useful_life of property may be so limited that the property cannot be considered to be affixed for an indefinite period of time even if it is affixed for the duration of that useful_life this interpretation of indefinite accommodates the inherent variability among and within the various types of ipss a silo is an ips because it ordinarily remains in place for the duration of its useful_life the fact that the useful_life of a silo may be shorter or longer than the useful lives of other types of ipss is not relevant the possibility that various types of silos may have differing useful lives is similarly irrelevant cable television distribution plants satisfy the second criterion of an ips under sec_1_263a-8 because they ordinarily remain affixed to real_property for an indefinite period of time under the foregoing interpretation of indefinite a cable television cable ordinarily remains in place until the end of its useful_life which may occur because of physical deterioration technological obsolescence or economic changes the fact that the useful_life of a cable television distribution plant is shorter than the useful lives of some other types of ipss is not relevant the evidence presented suggests that the useful_life of a cable television plant is at least eight years which is sufficiently long to allow the conclusion that such property is affixed for an indefinite period tam-119616-99 the definition of an ips in sec_1_263a-8 sets forth several examples of ipss including permanently installed telecommunications cables the phrase permanently installed indicates that telecommunications cables are not ipss unless they satisfy the general definition of ipss property affixed to real_property for an indefinite period this apparent redundancy is necessary because the phrase telecommunications cables does not by itself imply affixation to real_property in the same way as many of the other examples such as bridges roads or paved parking areas the phrase permanently installed does not establish a standard that is different than or additional to the general definition of ipss in sec_1_263a-8 first permanently installed telecommunication cables is merely an illustrative example and cannot override the general definition second the same arguments that applied above to determining when affixation is indefinite apply equally well to determining whether installation is permanent the phrase permanently installed cannot mean installed forever or installed for some specific minimum period rather permanence must be defined relative to the useful_life of the installed property a telecommunications cable therefore is permanently installed when it is installed for the useful_life of the cable the taxpayer advances several arguments to show that cable television distribution plants are not ipss first the taxpayer asserts that cable television cables cannot be indefinitely affixed or permanently installed because they have a relatively short useful_life as argued above however whether property is indefinitely affixed or permanently installed is determined by whether the property ordinarily remains affixed to real_property for the useful_life of the affixed property whatever the length of that useful_life may be thus the assertedly short useful_life of cable television cables relative to other types of property is not relevant to determining whether such cable television distribution plants are ipss second the taxpayer argues that cable television cables cannot be ipss because they must be removed so frequently from the real_property to which they are affixed the reasons for removal include the physical exhaustion of the cable the technological or economic obsolescence of the cable and the relocation of cable routes as mandated by the local authorities or the lessors of the rights of way this argument however conflates two different purposes of removing property to retire it from service or to relocate it for additional service in another location these two purposes have different consequences for the determination of whether property is an ips the first purpose -- to retire property from service -- is not inconsistent with characterizing the removed property as an ips for example an advertising display that ordinarily remains affixed to real_property for its useful_life is an ips even though it may and probably will be removed at the end of its useful_life by contrast the second purpose -- to relocate property for additional service in another location -- is inconsistent tam-119616-99 with characterizing the removed property as an ips an advertising display that is frequently moved from place to place during its useful_life is not an ips because it does not ordinarily remain affixed to real_property for its useful_life cable television cables are most often removed from real_property in order to retire the cables from service at the end of their useful lives such removal is not inconsistent with characterization of the cables as ipss cable television cables are rarely removed in order to move them to another location for additional service cable routes do change as the taxpayer points out but the rerouting is usually not accomplished by moving existing cable from the old route to the new this would disrupt service to subscribers and require an extensive reworking of the cable which is cut and spliced to fit the circumstance of the existing route instead rerouting is usually accomplished by two separate activities installing new cable along the new routes and removing or abandoning the existing cable along the old routes to retire it from service accordingly the asserted frequent removal of cable television cables does not preclude classification of these cables as ipss because the removal is most often performed to retire the cable from service rather than to relocate it for additional service third the taxpayer argues that cable television cables cannot be ipss because the mode of affixing the cables to real_property is so weak and easily reversible that it cannot constitute permanent installation or indefinite affixation in the case of aerial installations the taxpayer notes a technician can detach the cable and supporting strand from the pole in to seconds the definition of an ips in sec_1_263a-8 suggests two basic requirements for the means of affixing an ips to real_property first the means of affixation must be sufficiently strong to ordinarily secure the property for the duration of its useful_life second the means of affixation must not be designed or intended to facilitate the movement of the property during its useful_life for example a portable billboard mounted on wheels and held in place with ropes and stakes would not be an ips because it violates both of these requirements but nothing in the definition of an ips requires in addition that the means of affixation be difficult or impossible to reverse many types of ipss are in fact difficult to remove physically massive ipss such as bridges or broadcasting towers are affixed by means of pilings or foundations and require powerful often destructive force to reverse the affixation the difficulty in removing these ipss however is a consequence of their particular physical characteristics rather than a requirement in the definition of an ips an ips that requires less effort to install for its useful_life would logically require less effort to remove at the end of such life tam-119616-99 the bond created by bolting a cable to a pole is sufficiently strong to ordinarily secure the cable for the duration of its useful_life bolting is used because it is an economically efficient means of accomplishing this goal not because it facilitates movement of the cable during its useful_life which as discussed above is rarely done given these facts it is not relevant that removing a bolted cable may require less strenuous efforts than removing other types of ipss the 90-second statistic moreover is misleading unbolting a cable from a single pole does not in itself detach a cable television distribution plant or any material part thereof from the ground any more than removing a single crosstie removes a rail line the same operation must be performed hundreds of times at different locations to accomplish a removal and the cumulative time spent and expenses_incurred are comparable to the removal of property affixed in a more robust manner such as foundations or pilings fourth the taxpayer argues that a cable television distribution plant cannot be an ips because the cables are typically installed along leased rights of way and the lessor may order removal of the cable at its discretion as discussed above rerouting of cables is ordinarily accomplished by retiring the old cable from the old route and installing new cable along the new route thus the possibility that a lessor may order removal of a cable arguably shortens the expected useful_life of the cable but as discussed above the length of the cable’s useful_life is not relevant to its status as an ips so long as the cable ordinarily remains affixed for the duration of such life fifth the taxpayer argues that a cable television distribution plant cannot be an ips because cable television cables are not telecommunications cables within the meaning of permanently installed telecommunications cables in sec_1_263a-8 the taxpayer’s argument implicitly treats permanently installed telecommunications cables as the exclusive example of communications cables qualifying as ipss the taxpayer states that cable television is not telecommunications within the meaning of the communications act of as amended the communications act u s c a west supp the communications act defines telecommunications as the transmission between or among points specified by the user of information of the user’s choosing without change in the form or content of the information as sent and received u s c a by contrast cable service is defined to be the one-way transmission to subscribers of video programming or other programming service and the subscriber interaction if any which is required for the selection or use of such video programming or other programming service u s c a sec_153 sec_522 cable television cannot be telecommunications therefore because it lacks the essential attributes of telecommunications a two-way transmission on a common-carrier basis of user specified content the taxpayer argues that the communications act definition of tam-119616-99 telecommunications should control sec_1_263a-8 because this definition has been incorporated into the asset classification scheme of the modified accelerated_cost_recovery_system macrs the asset classifications in macrs taxpayer asserts consistently reflect the distinction between property that is used in telecommunications as defined by the communications act and property that is not thus asset class dollar_figure telephone distribution plant is defined by reference to accounts within the federal communications commission uniform system of accounts fcc usoa that embody the communications act definition of telecommunications by contrast asset classes relating to cable television catv including dollar_figure subscriber connection and distribution systems expressly exclude assets that are used to provide subscribers with two-way communications_services asset classes relating to telegraph ocean cable and satellite communications tosc that are comparable to telephone distribution plant assets in class dollar_figure are assigned the same class_life as class dollar_figure assets provided that they are used for 2-way exchange of voice and data communication which is the equivalent of telephone communications revproc_87_56 1987_2_cb_674 the taxpayer points out that the macrs distinction between telecommunications and nontelecommunications assets corresponds to a physical difference between these two types of assets telecommunications assets chiefly telephone wires are made of simpler and sturdier materials copper wire than nontelecommuncations assets coaxial cable and fiber optic cables are less susceptible to damage and deterioration of various kinds and enjoy a longer useful_life accordingly telecommunications assets are assigned longer class lives despite taxpayer’s arguments we believe that it is more appropriate to construe telecommunications in sec_1_263a-8 in accord with its everyday meaning which includes cable television service in general the words of a revenue_provision should be given their common and ordinary meaning 506_us_168 339_us_619 this instance presents no persuasive reasons to depart from this general_rule the communications act and the fcc usoa embody federal communications policy the concepts developed therein are not necessarily relevant to federal tax policy and should not be automatically incorporated into the tax law without some indication that such incorporation was intended for example in the case of macrs revproc_87_56 explicitly refers to the fcc usoa and includes substantive provisions that echo the special meaning of telecommunications in the communications act sec_1_263a-8 however contains no explicit reference to the communications act the fcc usoa or any other extrinsic source that uses the more specialized sense of telecommunications the incorporation of the communications act conception of telecommunications into macrs does not in itself warrant the wholesale incorporation of this concept into tam-119616-99 all other areas of the tax law different areas of the tax law have different purposes and concerns and thus a term of art from an extrinsic source may be very useful and appropriate for one area but unsuited or irrelevant for others the concept of telecommunications was imported into macrs from the communications act as an expedient way to define asset classes the taxpayer implies this was done because the distinction between telecommunications and nontelecommunications industries corresponds to a difference in the length of the useful lives of the assets used which is a relevant issue for macrs as discussed above however the useful_life of assets is not a relevant concern in determining whether property is an ips under sec_1_263a-8 thus the apparent rationale for incorporating the communications act conception of telecommunications into macrs is inapplicable to sec_1_263a-8 finally we note that incorporating the communications act concept of telecommunications into sec_1_263a-8 would result in classifying a cable as an ips based upon the content transmitted within the cable which is not a relevant consideration to determining whether the cable will ordinarily remain affixed for the duration of its useful_life the taxpayer believes the distinction between two-way and one-way communications is relevant because it presently corresponds to a difference in physical type and useful lives of the assets utilized in these two different activities but this correspondence may be breaking down as technology changes imagine for example that cable system a is rebuilt to offer only one-way video while cable system b is rebuilt to offer video and telephony under taxpayer’s analysis system a would be characterized as real_property for purposes of sec_263a while system b would be characterized as tangible_personal_property even though similar cabling would be used in both systems this anomalous result underscores that the communications act concept of telecommunications and the two-way one-way distinction are irrelevant to interest capitalization under sec_263a in sum cable television distribution systems satisfy the basic criteria of an ips in sec_1_263a-8 because they are affixed to real_property and ordinarily remain affixed for an indefinite period in addition such systems constitute permanently installed telecommunications cables which are expressly identified as examples of ipss accordingly cable television distribution systems are inherently permanent structures within the meaning of sec_1_263a-8 in addition to the general definition of ipss and the listed examples sec_1 263a- c also provides that any property not otherwise described in this paragraph c that constitutes other tangible_property under the principles of former sec_48 and sec_1_48-1 is treated for purposes of this section as an inherently_permanent_structure because we have concluded that cable television distribution plants satisfy the general definition of ipss we do not need to address this provision tam-119616-99 we believe however that cable television distribution systems may constitute other tangible_property under former sec_48 and sec_1_48-1 cf revrul_72_398 1972_2_cb_9 65_tc_664 units of property and production periods the amount of interest capitalized under sec_263a is calculated with respect to individual units of property and their production periods although guidance regarding the unit_of_property and the production_period was not specifically requested we include the following observations for the benefit of the taxpayer and the examiner the unit_of_property in a cable television distribution system rebuilt by the taxpayer appears to be the node sec_1_263a-10 provides that a unit of real_property includes any components of real_property owned by the taxpayer or related_persons that are functionally interdependent plus an allocable share of any common feature s the facts indicate that the elements within a node are largely functionally interdependent these elements either cannot be or rarely are placed into service independently of one another each node however is functionally independent of the other nodes because it can be placed in and out of service and otherwise manipulated independently of the other nodes trunk lines might plausibly be treated as common features with respect to nodes trunk lines do provide benefits television signals to the nodes but they are also functionally interdependent with the nodes they serve because neither a trunk line nor the associated nodes can be placed into meaningful service without the other being placed into service as well it may be preferable therefor to treat a trunk line as set of components each of which belongs to one of the nodes served by the line this treatment parallels physical reality because each node is in fact connected to the headend by a distinct fiber optic strand the production_period of a node begins when any physical production activity is performed with respect to the node or the trunk line serving the node under sec_1 263a- c the production_period for a unit of real_property begins with the onset of physical activity on the unit physical activity on a trunk line that serves a node starts the production_period with respect to such node because the trunk line is either i a functionally interdependent component of the node or ii a common feature with respect to such node depending upon the chosen analysis sec_1_263a-10 the production_period ends when the node is placed into service and all production activities reasonably expected to be undertaken by or for the taxpayer are completed sec_1_263a-12 cables as personal_property tam-119616-99 finally we note that even if cable television distribution systems were treated purely as personal_property it is likely that some interest should be capitalized with respect to the systems rebuilt by the taxpayer the unit_of_property would remain the node and the trunk line would consist of multiple components belonging to the various nodes served by the line sec_1_263a-10 the production_period of a node would begin on the first date that the accumulated production_expenditures apes including planning and design expenditures are at least of the total estimated apes for the node sec_1_263a-12 the production_period ends when the node is placed into service and all production activities reasonably expected to be undertaken by or for the taxpayer are completed sec_1_263a-12 under these principles the production_period of a node in a system rebuilt by the taxpayer would start in the planning and design phase if at least per cent of total costs of that node were incurred in this phase which seems plausible the production_period of such node would end when it was placed into service and all production activities had ended because the overall process of rebuilding a system - from planning and design through the end of production - lasted two to three years it is likely that some nodes would have had a production_period of two years or more such nodes would be subject_to interest capitalization without regard to the amounts of their total estimated costs sec_263a 263a-8 b ii b


department of the treasury taxpayer_identification_number number person to contact uil internal_revenue_service appeals_office elm street suite cincinnati oh number release date date date name address certified mail name this is a final adverse determination regarding your exempt status under sec_501 of the internal_revenue_code the code’ it is determined that you do not qualify as exempt from federal_income_tax under sec_501 of the code you do not qualify for exemption under sec_501 of the code because you are not formed and operated exclusively for charitable tax-exempt purposes you were formed and controlled by disqualified persons your operations inure to the benefit of private individuals and entities controlled by and significantly influenced by disqualified persons and relatives a substantial amount of your charitable assets were used for private purposes therefore you are not operated exclusively for exempt purposes described in sec_501 of the code and are not exempt contributions to your organization are not deductible under sec_170 of the code you are required to file federal_income_tax returns on forms for all open tax periods and for all tax years thereafter file your return with the appropriate internal_revenue_service center per the instructions of the return for further instructions forms and information please visit www irs gov if you were a private_foundation as of the effective date of the adverse determination you are considered to be taxable private_foundation until you terminate your private_foundation_status under sec_507 of the code in addition to your income_tax return you must also continue to file form_990-pf by the 15th day of the fifth month after the end of your annual_accounting_period processing of income_tax returns and assessments of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the code if you decide to contest this determination you may file an action for declaratory_judgment under the provisions of sec_7428 of the code in one of the following three venues united_states tax_court the united_states court of federal claims or the united_states district_court for the district of columbia a petition or complaint in one of these three courts must be filed within days from the date this determination_letter was mailed to you please contact the clerk of the appropriate court for rules for filing petitions for declaratory_judgment to secure a petition form from the united_states tax_court write to the united_states tax_court second street n w washington d c see also publication you also 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 matters that may not have been resolved through normal channels get prompt and proper handling if you want taxpayer_advocate assistance please contact the taxpayer_advocate for the irs office that issued this letter you may cail toll-free for the taxpayer_advocate or visit www irs gov advocate for more information if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours xxxkxkkkk appeals team manager enclosure publication department of the treasury internal_revenue_service washington d c contact person identification_number contact number fax number employer_identification_number vil tax_exempt_and_government_entities_division date date legend c name of state d date e director f director g director h director j name of organization k name of organization l name of organization m name of for-profit entity n name of for-profit entity o name of individual p name of individual q name of individual r family s date t name of for-profit entity u name of foundation v name of individual we date x dollar_figure y dollar_figure z dollar_figure dear we have considered your application_for recognition of exemption from federal_income_tax under internal_revenue_code sec_501 based on the information provided we have letter cg catalog number 47630w concluded that you do not qualify for exemption under code sec_501 the basis for our conclusion is set forth below issue do you qualify for exemption under sec_501 of the code no for the reasons described below alternative issues if upon appeal exemption is granted would your loan to a related for-profit entity m constitute an act of self-dealing yes for the reasons described below if upon appeal exemption is granted would your loans to m constitute a jeopardizing investment yes for the reasons described below facts you are a corporation formed on d under the laws of the state of c your certificate of incorporation states the purposes for which you were formed are to distribute funds to non-profit organizations who are tax exempt under sec_501 of the internal_revenue_code or the foreign equivalent to support their charitable and religious activities your governing body is comprised of four individuals each titled as director e f g and h all four of your directors are related by blood marriage as two of your directors are brothers and the other two directors are their spouses you adopted non profit bylaws listing general purposes and operational procedures article of your bylaws outlines your conflict of interest policy and procedures regarding interested parties under the activities description given in form_1023 your stated activities will be the making of contributions to other organizations the nature of whose activities is such as to qualify them under internal_revenue_code c this activity will be conducted by the directors of your organization and will be funded by unsolicited contributions from individuals and or closely held corporations you indicated that directors will choose c entities with no relationship to your foundation to whom donations would be made records will be retained with the date names and addresses of the recipient organizations and the amount of the donation distributions will only be made to exempt c organizations in good standing and they will be selected by their reputation as helping the community at large although your organizing document makes reference to making distributions to foreign entities you have indicated your intention to not make any gifts to foreign organizations at this time catalog number 47630w your correspondence provided further detail on your loan making activities you will provide letter cg interest free short term loans to charitable organizations you will also make long term loans to if a for-profit entity requests a loan it will be charged interest you have stated for-profit entities the purpose of the short term loans is to assist non profit organizations by providing interest free working_capital and help with their charitable activities the loans made to for profit entities were long term to generate interest_income loans were made to three charities j k and l and one for-profit entity m m was not the end user of the loan you transferred the loan funds to m because m had obligated itself to lend the money to n a for-profit llc after receiving the loan from you m entered into a loan agreement with n for x dollars total advanced on w v an uncle to e and g arranged for the financing of the transaction between nand m vis designated as a manager of n and signed the agreement between n and m your loans to m were on promissory notes signed by e on behalf of the borrower m and were not collateralized in any manner the loan from m to n was secured_by a mortgage on certain real_property y dollars of that amount was advanced to n on s and z dollars was m is partially owned by two of your board members g and e the majority owner of mis p father of g and e total ownership by percentage is broken down as follows the - bowe cece ee qn s ce cec ccna - prise ccccceceeuee - qh - g woe eeceeeeee - others - cee eee ‘ in total the r family owns and e disqualified persons own more than of m of m with g and e owning since p is the father of g t is a corporation board t has contributed the majority of funds to you owned and controlled by g and e and therefore owned by your u is the second largest donor to you u is a c private_foundation and you indicated that you have no relationship to u however you did indicate that t has also made substantial contributions to u throughout the dollars you totaled approximately dollar_figure fiscal_year t donated approximately dollar_figure to you and u donated y e provided a loan to you which was repaid in full with no interest loan repayments to you made approximately dollar_figure loans to m in donations dollar_figure in loans to other organizations and the catalog number 47630w on s u gave y dollars to you t gave what appears to be y dollars ten days after receiving y dollars you made a loan to m for the same amount on the same day m entered into the agreement with n and made an initial distribution of funds for y dollars thirty days later t gave z dollars to you on the same day another payment was made to m for letter cg to u days later z dollars under the agreement law sec_501 of the internal_revenue_code_of_1986 provides for the exemption from federal_income_tax for organizations described in sec_501 such organizations are recognized as exempt if they are organized and operated exclusively for religious charitable and educational_purposes sec_1_501_c_3_-1 of the income_tax regulations states that in order to be exempt as an organization described in sec_501 of the code an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt sec_1_501_c_3_-1 of the regulations provides that an organization will be regarded as it engages primarily in activities operated exclusively for one or more exempt purposes only if which accomplish one or more of such exempt purposes specified in sec_501 of the code 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_c_3_-1 of the regulations provides that an organization is not operated exclusively for one or more exempt purposes if its net_earnings inure in whole or in part to the benefit of private shareholders or individuals sec_1_501_c_3_-1 of the regulations states that an organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest thus to meet the requirement of this subdivision it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests in salvation navy v commissioner tcmemo_2002_275 the court found that one of the reasons why the organization did not qualify for exemption from federal_income_tax was because it could not provide that its net_earnings would not inure to the benefit of a private individual which was its founder in old dominion box co v united_states 477_f2d_344 cir cert_denied 413_us_910 the court held that operating for the benefit of private parties constitutes a substantial _ non-exempt purpose 35_tc_490 provided that where an exempt _ organization engages in a transaction with a related interest and there is a purpose to benefit the private interest rather than the organization exemption may be fost even though the transaction ultimately proves profitable for the exempt_organization catalog number 47630w letter cg in better business bureau of washington d c inc v united_states 326_us_179 the supreme court held that the presence of a single non-exempt purpose if substantial in nature will destroy a claim for exemption regardless of the number or importance of truly exempt purposes law regarding alternative issues section d of the regulations defines self-dealing as any direct or indirect transaction described in sec_53_4941_d_-2 for purposes of this section it is immaterial whether the transaction results in a benefit or a detriment to the private_foundation section d -2 c indicates that the lending of money or other extension of credit between a private_foundation and a disqualified_person shall constitute an act of self-dealing section of the regulations indicates that an investment shall be considered to jeopardize the carrying out of the exempt purposes of a private_foundation if it is determined that the foundation managers in making such investment have failed to exercise ordinary business care and prudence under the facts and circumstances prevailing at the time of making the investment in providing for the long and short term financial needs of the foundation to carry out its exempt purposes in the exercise of the requisite standard of care and prudence the foundation managers may take into account the expected_return the risks of rising and falling price levels and need for diversification within the investment portfolio revrul_77_161 1977_1_cb_358 this ruling held that a loan by a private_foundation to a disqualified_person constitutes an act of self dealing but is not a taxable_expenditure within the meaning of sec_4945 of the code the private_foundation made a loan to a disqualified_person to generate income to be used solely for the foundation's charitable purposes the loan was made at a reasonable rate of interest adequately secured and otherwise met prudent investment standards application of law you operate for the benefit of private interests by channeling funds from one related for-profit to another related for-profit through you the loans you provide to the related for-profit m are used by it to operate its mortgage lending business thereby resulting in inurement to g and e its owners therefore you are not operated exclusively for charitable purposes as described in sec_501 c of the code and fail the operational_test under c -1 a of the regulations since your primary purpose is to operate for the benefit of insiders you also are not as described in c -1 c of the regulations you obtained funds from a related for-profit and then channeled these funds as a loan to another related for-profit which is owned by your board members and their family members as a result your earnings inured to your directors and you operated for the benefit of private interests such as your creators and their family therefore you are not as described in sec_1 c -1 c and c -1 d ii of the regulations catalog number 47630w as shown in salvation navy v comm and old dominion v u s the transactions conducted letter cg through you benefitted private interests the loans that in the normal course of business would have been made directly to m were directed through you the transactions generated charitable_contributions while still allowing access to the funds through loans to related for-profit entities the loans also served the private interests of the other for-profit m owned by gande and members of the r family by providing it funds to operate its business the timing of the transactions the amounts and the fact that the loans were unsecured clearly demonstrate the transactions were structured for the private benefit of insiders was made to satisfy an obligation of m to n which was an arrangement orchestrated by v an uncle of e and g in addition your investment in m similar to leon beeghly v comm the loans you made to m were to satisfy an obligation m had to provide funding to n purpose of these loans was to benefit the end user n m would also benefit from this transaction by using the funds for its own business purposes and earning interest therefrom although the loans to m would generate interest_income for you the as in better business bureau of washington d c inc v united_states 326_us_179 and you are set up to operate for the non- sec_1_501_c_3_-1 and sec_1_501_c_3_-1 exempt_purpose of receiving funding from a for-profit entity turning around and providing loans to another for-profit entity both of which are owned by your directors and their family you operate to serve the private interests of these for-profit entities and also allow your income to inure to the benefit of your directors and family members by providing loans to for-profit substantially_all of your businesses that are owned by your directors and family members income was used to provide loans to related for-profit entities which represents a significant non-exempt purpose application of law on alternative issues the foans to m clearly constitute an act of self-dealing based on section d and section d -2 c of the regulations as in revrul_77_161 you made a loan to a disqualified_person which resulted in an act of self dealing the loans made by you also constitute a jeopardizing investment as described in section of the regulations your loans to m were made to enable m to satisfy its obligation to n without consideration of your long and short term needs to carry out your exempt purposes also in making this investment you have failed to exercise the requisite standard of care and prudence taking into account the expected_return the risks of falling price levels and the need for diversification of the investment portfolio there was no diversification in your investments the loans were unsecured all made to a single entity which was involved in mortgage lending therefore it is clear that the required ordinary business care and prudence was not exercised by you in making this loan applicant’s position you indicated that the loans were never intended for m’s use but rather for unrelated third party entities the purpose of these loans backed by mortgages on real_property was to produce interest revenue for your charitable purposes the loans were channeled through m because they had been providing mortgage loans for years and had the infrastructure necessary for letter cg catalog number 47630w making such loans relatively quickly all interest on the loans has been remitted entirely to you soon afterward you realized the problem of making loans through related entities you immediately discontinued the practice and make all loans directly to unrelated parties service response to applicant's position owned by disqualified persons therefore in effect you financed m so you provided funds to m so that they can make mortgage loans on real_property m is a for- profit entity which is that they could operate their mortgage business which they have been conducting for years therefore you operated for the private benefit of m and your earnings inured to the directors and owners of m because they were able to use your funds to operate their business and to earn profits therefrom your loans to m were unsecured in addition had you been exempt the loans made to m would constitute self-dealing and also a jeopardizing investment you indicate you now make loans directly to unrelated third parties the making of loans to unrelated third parties is not an exempt_purpose you did not provide any information as to the nature of these loans and the purpose and terms of these loans conclusion based on the above facts and law we conclude that you do not qualify for exemption under sec_501 of the code because you are operating for a substantial non exempt_purpose your operations result in private benefit to for-profit organizations and your earnings inure to your directors and family members who are owners of these for-profit businesses that contribute to you as well as receive funds from you conclusion-alternative issues we further conclude that if upon appeal exemption is granted the lending of money to a related company results in a self-dealing transaction in addition the lack of requisite care and prudence in making the purported investment in the related company indicates that the investment would be a jeopardizing investment you have the right to file a protest if you believe this determination is incorrect to protest you must submit a statement of your views and fully explain your reasoning you must submit the statement signed by one of your officers within days from the date of this letter we will consider your statement and decide if the information affects our determination if your statement does not provide a basis to reconsider our determination we will forward your case to our appeals_office you can find more information about the role of the appeals_office in publication exempt_organization appeal procedures for unagreed issues types of information that should be included in your appeal can be found on page of publication under the heading regional_office appeal must be accompanied by the following declaration catalog number 47630w under penalties of perjury declare that have examined the statement of facts presented in this appeal and in any accompanying schedules and statements and to the best of my knowledge and belief they are true correct and complete the statement of facts item letter cg the declaration must be signed by an officer or trustee of the organization who has personal knowledge of the facts your appeal will be considered incomplete without this statement if an organization’s representative submits the appeal a substitute declaration must be included stating that the representative prepared the appeal and accompanying documents and whether the representative knows personally that the statements of facts contained in the appeal and accompanying documents are true and correct an attorney certified_public_accountant or an individual enrolled to practice before the internal_revenue_service may represent you during the appeal process if you want representation during the appeal process you must file a proper power_of_attorney form_2848 power_of_attorney and declaration of representative if you have not already done so you can find more information about representation in publication practice_before_the_irs and power_of_attorney all forms and publications mentioned in this letter can be found at www irs gov forms and publications if you do not file a protest within days you will not be able to file a suit for declaratory_judgment in court because the internal_revenue_service irs will consider the failure to appeal as a failure to exhaust available administrative remedies code sec_7428 provides in part that a declaratory_judgment or decree shall not be issued in any proceeding unless the tax_court the united_states court of federal claims or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted all of the administrative remedies available to it within the irs if if you do not intend to protest this determination you do not need to take any further action we do not hear from you within days we will issue a final adverse determination_letter that letter will provide information about filing tax returns and other matters please send your protest statement form_2848 and any supporting documents to the applicable address mailto deliver to internal_revenue_service eo determinations quality assurance room p o box cincinnati oh internal_revenue_service eo determinations quality assurance main street room cincinnati oh if you fax you may fax your statement using the fax number shown in the heading of this letter your statement please call the person identified in the heading of this letter to confirm that he or she received your fax letter cg catalog number 47630w _ if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely lois g lerner director exempt_organizations enclosure publication letter cg catalog number 47630w


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division release number release date date uil code contact person identification_number contact number employer_identification_number form required to be filed tax years dear this is our final_determination that you do not qualify for exemption from federal_income_tax as an organization described in internal_revenue_code sec_501 recently we sent you a letter in response to your application that proposed an adverse determination the letter explained the facts law and rationale and gave you days to file a protest since we did not receive a protest within the requisite days the proposed adverse determination is now final you must file federal_income_tax returns on the form and for the years listed above within days of this letter unless you request an extension of time to file we will make this letter and our proposed adverse determination_letter available for public inspection under code sec_6110 after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions you should follow the instructions in notice if you agree with our deletions you do not need to take any further action if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter federal_income_tax status and responsibilities please contact irs customer service at if you have any questions about your letter cg catalog number or the irs customer service number for businesses the irs customer service number for people with hearing impairments is sincerely lois lerner director exempt_organizations enclosure notice redacted proposed adverse determination_letter redacted final adverse determination_letter letter cg catalog number department of the treasury internal_revenue_service washington d c contact person identification_number contact number fax number employer_identification_number vil b dollar amount c dollar amount d dollar amount e dollar amount tax_exempt_and_government_entities_division date date legend b water front c name d river e location f members g name o state q date r date u date v date w date x date y newspaper z date dear we have considered your application_for recognition of exemption from federal_income_tax under internal_revenue_code the code sec_501 based on the information provided we have concluded that you do not qualify for exemption under code sec_501 the basis for our conclusion is set forth below issue do you qualify for exemption under sec_501 of the code no for the reasons stated below facts letter cg catalog number 47628k you were formed as a nonprofit corporation in the state of o on q pursuant to the certificate of incorporation you were formed for any lawful non-business purpose or purposes including but not limited to any one or more of the following non-pecuniary purposes civic patriotic political social fraternal athletic agricultural horticultural and for a professional commercial industrial trade or service association the corporation sic actual purpose is to operate a hunting fishing and boating club initial information submitted with the form_1024 application indicates that you have had no past activity it also indicates families maintained fishing cabins on b for decades and passed these cabins down from generation to generation you are formally organizing so that the rights of these cabin owners are protected recently the city completed plans for a large the city was informed that the land on which both the families did not have title to the property upgrade to a sewer plant adjacent to you the sewer plant and your members’ cabins occupied was owned by the state the city therefore could not begin the upgrade until the state deeded the property to the city soon thereafter the land was exchanged for acres underwater that the state desired and the construction_project moved forward you have use of one cabin and do not own any of the property in the b area as of this date ownership and value of the property is in dispute your members have pooled their resources to try to fight the city over ownership of this property you have also hired an attorney your membership consists of present cabin owners who believe they have property rights to the existing waterway and friends of these cabin owners you currently have members all members meet once a month to discuss ways to improve their existing location go over any problems they may have and review the legal dispute with the city membership dues are on an as needed basis your only expenses are legal fees relating to members protecting their rights of ownership of their individual cabin the only assets held by you are the dues collected from members submitted invoices indicate you paid b dollars in legal fees during the period u through v also as of x you had collected c dollars in revenue and spent d dollars with the resulting balance of e dollars minutes from your meeting in late state if members do not pay up then they are off list and there are no refunds in a published newspaper article dated w in the y the members of c have brought an adverse possession or squatter’s rights law-suit sic against o the city of d and the descendants of the city’s original founders in an effort to officially gain ownership of land on the b the collection of hunting and fishing shacks off the intersection of e besides the waste water treatment plant has sat unregulated untaxed and relatively undisturbed for nearly a century ownership of the frequently flooded informal club has been a gray area for the city for many letter cg catalog number 47628k years the cabins have been handed down for decades between families and friends the cabins are used for socializing and storing equipment and f consider the community their heritage immediately f who had endured attempts of municipal encroachment before became concerned that their club would be taken out from under them now that the city apparently had clear title during z f’s counsel filed a petition on your behalf claiming that the members have proven to have adverse possession over the land by occupying it openly and adverse to the titleholder for so many years first it asks the court to find that the o office of general the c lawsuit has two parts services illegally deeded nearly acres it did not own to the city of d the suit further states that the c belongs to the club members and not who they believe are in fact the current title holders the descendants of the proprietors the names of whom are listed in the suit despite being deceased for more than years law sec_501 of the code provides for the exemption from federal_income_tax of clubs organized for pleasure recreation and other nonprofitable purposes substantially_all of the activities which are for such purposes and no part of the net_earnings of which inures to the benefit of any private shareholder sec_1 c of the treasury regulations provides that sec_501 of the code applies only to clubs which are organized and emphasis added operated exclusively for pleasure recreation and other nonprofitable purposes but does not apply to any club if any part emphasis added of its net_earnings inures to the benefit of any private shareholder it primarily aids its members in their individual revrul_69_527 c b states that a social_club is not organized and operated for exempt purposes under sec_501 if business endeavors the ruling also states to qualify for exemption under sec_501 of the code an organization must be both organized and operated exclusively for pleasure recreation and other nonprofitable purposes consequently not only must an organization show that its members are bound together by a common objective but that such common objective is directed towards pleasure recreation and other nonprofitable purposes the term other nonprofitable purposes has been held to mean other purposes similar to pleasure and recreation in 111_f2d_6 2d cir the court indicated the term shareholder includes the member of an organization furthermore the court indicated that in order to qualify as a tax-exempt_organization an organization must be a non-profit entity application of law you are not described in sec_501 because you are not organized and operated primarily letter cg catalog number 47628k for pleasure recreation and other nonprofitable purposes you are not described in sec_1 c of the treasury regulations because you are primarily organized and operated so members can pool their resources to litigate on their behaif as private individual property owners this is substantiated by the fact that you had no activity until your members’ property ownership became disputed and the state subsequently deeded the property to the city you are like the organization in revrul_69_527 1969_2_cb_125 because your members’ common objective is not toward any recreational pursuit but toward litigating on their behalf as individuals this is evidenced by the fact that membership dues are on an as needed basis you are pooling members’ dues to fight the city and your only expense is for legal services you are like the organization in 111_f2d_6 2d cir because you are litigating for your members as private individual property owners constitutes inurement to your shareholders this applicant’s position you maintain your organization qualifies for exemption under sec_501 of the code service response to applicant’s position you failed to provide any additional information from which it can be concluded that your activities primarily further or advance a purpose described in sec_501 because your activities of litigating on your members behalf constitutes inurement as described in the preceding facts and analysis you do not qualify conclusion based on the information submitted you are not operating for one or more purposes described in sec_501 of the code your members’ common objective is not toward any recreational pursuit but toward litigating on their behalf as individuals in addition your net_earnings are inuring to your members who are considered shareholders these findings preclude exemption under sec_501 of the code you have the right to file a protest if you believe this determination is incorrect to protest you must submit a statement of your views and fully explain your reasoning you must submit the statement signed by one of your officers within days from the date of this letter we have sent a copy of this letter to your legal_representative as indicated by the submitted form_2848 we will consider your statement and decide if that information affects our determination if your statement does not provide a basis to reconsider our determination we will forward your case to our appeals_office you can find more information about the role of the appeals_office in publication exempt_organization appeal procedures for unagreed issues letter cg catalog number 47628k types of information that should be included in your appeal can be found on page of publication under the heading regional_office appeal these items include the organization's name address and employer_identification_number astatement that the organization wants to appeal the determination astatement of facts supporting the organization’s position in any contested factual the date and symbols on the determination_letter issue a statement outlining the law or other authority the organization is relying on and a statement as to whether a hearing is desired i o o the statement of facts item must be declared true under penalties of perjury this may be done by adding to the appeal the following signed declaration under penalties of perjury declare that have examined the statement of facts presented in this appeal and in any accompanying schedules and statements and to the best of my knowledge and belief they are true correct and complete your appeal will be considered incomplete without this statement if an organization's representative submits the appeal a substitute declaration must be included stating that the representative prepared the appeal and accompanying documents and whether the representative knows personally that the statements of facts contained in the appeal and accompanying documents are true and correct an attorney certified_public_accountant or an individual enrolled to practice before the internal_revenue_service may represent you during the appeal process to be represented during the appeal process you must file a proper power_of_attorney form_2848 power_of_attorney and declaration of representative if you have not already done so for more information about representation see publication practice_before_the_irs and power_of_attorney all forms and publications mentioned in this letter can be found at www irs gov forms and publications if you do not intend to protest this determination you do not need to take any further action if we do not hear from you within days we will issue a final adverse determination_letter to you that letter will provide information about filing tax returns and other matters please send your protest statement form_2848 and any supporting documents to the applicable address mail to deliver to internal_revenue_service eo determinations quality assurance room p o box cincinnati oh internal_revenue_service eo determinations quality assurance main street room cincinnati oh n i letter cg catalog number 47628k you may also fax your statement using the fax number shown in the heading of this letter you fax your statement please call the person identified in the heading of this letter to confirm that he or she received your fax if if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely lois lerner director exempt_organizations enclosure publication letter cg catalog number 47628k


internal_revenue_service number release date index number ---------------------------- ------------- -------------------------------------------------- ------------------------- ----------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc ita b03 plr-106159-11 date date ty ------- ty ------- legend taxpayer ------------------------------------------------------------------- parent ------ -------------------------------------------------- subsidiary ------ ---------------------------------------------------- fund group -------------------------------- owning funds ---------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- ------------------------------------------------------- year ------- extended due_date --------------------------- discovery date ------------------------- dear -------------------- this is in response to your letter dated date in your letter you requested an extension of time to file the forms necessary to make a consent_dividend election under sec_565 of the internal_revenue_code for the tax_year ending december year the request is based on sec_301_9100-1 and sec_301_9100-3 of the procedure and administrative regulations facts taxpayer a corporation is a regulated_investment_company owned by parent subsidiary and the owning funds in parent’s fund group parent administers the various funds in the fund group parent and subsidiary hold shares of each of the funds in the fund group in separate_accounts established for the purpose of funding variable_annuity contracts and variable life_insurance policies investors in parent and subsidiary may select one of the funds in the fund group including taxpayer as an plr-106159-11 investment option for a variable_annuity contract or life_insurance_policy taxpayer must make minimum distributions each tax_year to continue to be subject_to tax as a regulated_investment_company for future tax years parent prepared taxpayer’s form 1120-ric u s income_tax return for regulated_investment_companies for the tax_year ending december year and filed it before the extended due_date before filing taxpayer’s form 1120-ric the board_of directors approved taxpayer’s issuance of consent dividends to parent subsidiary and the owning funds to satisfy the taxpayer’s year distribution_requirements parent’s employees had no prior experience issuing consent dividends after consulting outside accountants and lawyers parent’s employees prepared an internal memorandum outlining the process of how funds in the fund group should issue consent dividends and the tax consequences of issuing them the memorandum stated that parent needed to file a form_973 corporation claim for deduction for consent dividends with each form 1120-ric of each fund in the fund group but the memorandum did not mention the additional regulatory requirement that parent file a form_972 consent of shareholder to include specific amount in gross_income with each fund’s return for each consent_dividend paid to a different shareholder of taxpayer time passed between when parent’s employees prepared the memorandum and when they began preparing the forms 1120-ric for each fund in the fund group when parent prepared form 1120-ric on behalf of taxpayer parent’s employees followed the memorandum’s instructions thus taxpayer’s return included an executed form_973 with the filing but not any executed form sec_972 the form sec_972 were not attached even though parent’s employees possessed two executed originals of form_972 one authorizing the inclusion of consent dividends in parent’s gross_income and the other authorizing the inclusion of consent dividends in subsidiary’s gross_income parent’s employees never obtained executed form sec_972 authorizing the inclusion of consent dividends in the gross_income of the various owning funds because they were inexperienced in issuing consent dividends they believed the law did not require them to obtain form sec_972 for the owning funds because the gross_income would flow through to parent and subsidiary for whom they had obtained executed form sec_972 taxpayer’s shareholders parent subsidiary and the various owning funds each included the appropriate amount of consent_dividend income in their respective gross incomes on parent’s consolidated_income_tax_return for year after the extended due_date but before the discovery date parent’s auditor discovered that no form sec_972 had been attached to taxpayer’s form 1120-ric to taxpayer’s knowledge the irs was not aware of the omission of the form_972 and has not contacted parent about the year consent_dividend election nor has it notified parent that taxpayer’s year form 1120-ric is under examination plr-106159-11 law and analysis sec_852 provides that a regulated_investment_company may claim a deduction for dividends_paid as defined in sec_561 in computing its investment_company_taxable_income sec_852 provides that a regulated_investment_company may claim a deduction for dividends_paid as defined in sec_561 in computing its net capital_gains determined with reference to capital_gain dividends only sec_561 provides that the deduction for dividends_paid includes consent dividends for the taxable_year as determined under sec_565 sec_565 of the code provides that if any person owns consent_stock as defined in sec_565 in a corporation on the last day of the taxable_year of such corporation and such person agrees in a consent filed with the return of such corporation in accordance with the regulations to treat as a dividend the amount specified in such consent the amount so specified shall except as provided in sec_565 constitute a consent_dividend for purposes of sec_561 relating to the deduction for dividends_paid consent_stock which is the type of stock with respect to which consent dividends are allowed sec_565 includes what is generally known as common_stock and participating preferred_stock the participation rights of which are unlimited sec_1_565-6 of the income_tax regulations sec_1_565-1 provides that the dividends_paid deduction as defined in sec_561 includes the consent dividends for the taxable_year a consent_dividend is a hypothetical distribution as distinguished from an actual distribution made by certain corporations to any person who owns consent_stock on the last day of the taxable_year of such corporation and who agrees to treat the hypothetical distribution as an actual dividend subject_to specified limitations by filing a consent at the time and in the manner specified in sec_1_565-1 sec_1_565-1 provides that a consent may be filed no later than the due_date of the corporation's income_tax return for the taxable_year for which the dividends_paid deduction is claimed with such return and not later than the due_date the corporation must file form sec_972 for each consenting shareholder and a return on form_973 showing by classes the stock outstanding on the first and last days of the taxable_year the dividend rights of such stock distributions made during the taxable years to shareholders and give all other information required by the form under revrul_78_296 1978_2_cb_183 the due_date for purposes of sec_1_565-1 includes the extended due_date of a return filed pursuant to an extension of time to file sec_301_9100-1 through of the procedure and administration regulations provide the standards the commissioner uses to determine whether to plr-106159-11 grant an extension of time to make a regulatory election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides extensions of time to make a regulatory election under code sections other than those for which sec_301_9100-2 expressly permits automatic extensions requests for extensions of time for regulatory elections will be granted when the taxpayer provides evidence including affidavits described in the regulations to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-3 states that a taxpayer will be deemed to have acted reasonably and in good_faith if the taxpayer -- i requests relief before the failure to make the regulatory election is discovered by the service ii failed to make the election because of intervening events beyond the taxpayer's control iii failed to make the election because after exercising due diligence the taxpayer was unaware of the necessity for the election iv reasonably relied on the written advice of the service or v reasonably relied on a qualified_tax professional and the tax professional failed to make or advise the taxpayer to make the election under sec_301_9100-3 a taxpayer will not be considered to have acted reasonably and in good_faith if the taxpayer -- i seeks to alter a return position for which an accuracy related penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief taking plr-106159-11 into account sec_1_6664-2 and the new position requires or permits a regulatory election for which relief is requested ii was informed in all material respects of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief if specific facts have changed since the original deadline that make the election advantageous to a taxpayer the service will not ordinarily grant relief taxpayer in this case requested relief before the failure to make the regulatory election was discovered by the service and thus under sec_301_9100-3 the taxpayer will be deemed to have acted reasonably and in good_faith taxpayer has also represented that none of the circumstances listed in sec_301_9100-3 apply sec_301_9100-3 provides in part that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money sec_301_9100-3 provides in part that the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under sec_6501 before the taxpayer’s receipt of a ruling granting relief under these criteria the interests of the government are not prejudiced in this case taxpayer has represented that granting relief would not result in a lower tax_liability in the aggregate for all taxable years affected by the election than taxpayer would have had if the election had been timely made taking into account the time_value_of_money furthermore the taxable_year in which the regulatory election should have been made and any taxable years that would have been affected had it been timely made are not closed by the period of assessment conclusion taxpayer's election is a regulatory election as defined under sec_301_9100-1 because the due_date of the election is prescribed in the regulations under sec_1_565-1 in the present situation the requirements of sec_301_9100-1 and sec_301_9100-3 of the regulations have been satisfied the information and representations made by taxpayer establish that taxpayer acted reasonably and in good_faith furthermore granting an extension will not prejudice the interests of the government taxpayer represented that it will not have a lower tax_liability in the aggregate for all taxable years affected by the election if given permission to make the plr-106159-11 election than taxpayer would have if the election were made by the original deadline for making the election taxpayer also represented that the period of assessment for year will not be closed before receipt of a ruling accordingly taxpayer is granted an extension of time for making the election to issue consent dividends until days following the date of this ruling the election should be made by filing the forms necessary to make the sec_565 consent_dividend election for year and by including a copy of this ruling with an amended_return for year this ruling is limited to the timeliness of the consent_dividend election taxpayer wishes to make for year this ruling’s application is limited to the facts representations code sections and regulations cited herein except as expressly provided herein no opinion is expressed or implied concerning the federal_income_tax consequences of any aspect of any transaction or item discussed or referenced in this ruling 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 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely robert casey acting branch chief branch income_tax accounting cc