o f f i c e o f t h e c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date cc tege eoeg et2 genin-100993-10 number info release date uil ------------------------ ---------------------------------------------------------- --------------------------------------------------------------- --------------------------- ------------------------------- dear ---------------- this letter responds to your request for information dated date in which you asked several questions about the tax consequences of certain employer-provided transportation benefits this letter first provides an overview of the tax treatment of these transportation benefits it then answers your specific questions employers that provide their employees with transportation benefits can exclude those benefits from their employees’ gross incomes if the benefits are qualified_transportation fringes sec_132 of the internal_revenue_code the code we understand that your questions pertain to two types of qualified_transportation fringes employers frequently provide through the use of smartcards transit passes and qualified_parking accordingly this letter focuses on the tax treatment of transit passes and qualified_parking that employers provide by crediting their employees’ smartcards we note that an employer may provide both transit passes and qualified_parking on a tax-favored basis to an employee in a given month as long as each benefit separately meets the requirements described below transit passes a transit_pass is any pass token farecard voucher or similar item including an item exchangeable for fare media that entitles a person to transportation on mass transit facilities code sec_132 transportation benefits employers provide through smartcards debit or credit cards or other electronic media are considered transit passes only if the fare media value stored on the cards is useable only as fare media for a mass transit system and the amount allocated to the cards each month does not exceed the maximum amount which may be excluded from gross_income and wage sec_1 the code’s definition of transit_pass also includes a pass token farecard voucher or similar item that is provided by any person in the business of transporting persons for compensation or hire in a highway vehicle with a seating capacity of at least six adults excluding the driver code sec_132 genin-100993-10 see revrul_2006_57 i r b for the purposes of this letter we will assume that a smartcard segregates qualified_parking benefits so that fare media for mass transit provided via the smartcards meets this definition of transit passes employers may provide employees with tax-free transportation on a mass transit system by distributing transit passes to their employees in an employer is entitled to exclude up to dollar_figure per month of such benefits from an employee’s gross_income and wages substantiation of the use of these transit passes is not a requirement for receiving the tax-favored treatment tax regulations the regulations sec_1_132-9 q a employers may credit up to dollar_figure in transit_pass benefits to their employees’ smartcards each month on a tax-free basis without requiring the employees to show how they use the transit benefits qualified_parking qualified_parking is parking that is located on or near the employer’s business_premises or on or near a location from which the employee commutes to work via mass transit or commuter_highway_vehicle code sec_132 in an employer is entitled to exclude up to dollar_figure per month of such benefits from an employee’s gross_income and wages employers may provide parking benefits only by reimbursing their employees for qualified_parking expenses that they in fact incurred rather than reimbursing their employees in actual cash some employers may choose to make cash reimbursements by crediting the reimbursed amounts onto employees’ smartcards the regulations provide that employers that make cash reimbursements must establish a bona_fide reimbursement arrangement although precisely what constitutes such an arrangement is a question of facts and circumstances it must be an arrangement that is reasonably calculated to ensure that the employee in fact incurred expenses in an amount equal to the reimbursement regulations sec_1_132-9 q a c common characteristics of such arrangements include requirements that employees provide employers with receipts or other records substantiating the parking costs that they incurred salary reduction and salary supplement arrangements employers may provide employees with transit passes or parking benefits either in addition to employees’ stated compensation salary supplement or by reducing employees stated compensation salary reduction for purposes of responding to your questions we assume that what you referred to in your inquiry as employer_provided funds are salary supplement arrangements while what you referred to as pretax funds are salary reduction arrangements in a salary supplement arrangement an although we believe it is outside the scope of your inquiry we do note that it is also possible for employers to provide employees with qualified_parking in_kind genin-100993-10 employer offers to fund the cost of a qualified_transportation_fringe benefit over and above the amount the employer pays to the employee in salary in a salary reduction arrangement the employee is allowed to designate a portion of the amount he would otherwise receive as salary to be set_aside to fund qualified_transportation_fringe_benefits that he then receives from the employer the amount of the salary supplement or salary reduction is excluded from the employee’s income and wages for federal tax purposes provided that the salary supplement or salary reduction is used exclusively to fund qualified_transportation fringes employers may roll over excess salary reduction amounts that is when an employee elects to reduce her compensation_for a month by an amount that exceeds the transportation_expenses that she receives either in the form of transit passes or as reimbursements for qualified_parking expenses actually incurred for that month the employer may apply this excess towards qualified_transportation fringes in subsequent months as long as the employee does not receive an amount in excess of the maximum excludable amount in any month regulations sec_1_132-9 q a thus if an employee elects a monthly salary reduction of dollar_figure to be used to reimburse qualified_parking expenses and the employee incurs only dollar_figure in qualified_parking expenses for that month the dollar_figure in salary reduction that exceeds the expenses can be rolled over and made available to reimburse parking expenses_incurred in a future month in no case however may the employer provide a refund of the amount by which the employee’s salary reduction amounts exceed the actual qualified_transportation fringes provided to the employee by the employer regulations sec_1_132-9 q a in other words an employee may use salary reduction amounts only for qualified_transportation costs your questions also make reference to circumstances where the amount of qualified_transportation fringes provided to the employee by the employer exceeds the expenses_incurred by the employee and the employee requests a benefit refund qualified_parking benefits may be provided solely as reimbursements for qualified_parking expenses after they are incurred thus we presume that your questions are referring to a circumstance where the employer has provided the employee with transit passes by crediting the employee’s smartcard at the beginning of the month and the employee has a balance for fare media remaining at the end of the month i will now address the specific questions you raised in your letter can the combination of rolled over funds plus new month funds exceed current monthly limits yes the sum of rolled over credits that an employee has accumulated on a smartcard from a prior month plus new month funds that are credited to the employee’s smartcard in the current month may exceed the maximum monthly excludable amount genin-100993-10 transit passes because the regulations do not require employers to distribute transit passes pursuant to bona_fide reimbursement arrangements it is possible for the value of the transit passes that employees receive to exceed the actual costs that they incur for transportation on mass transit facilities thus the sum of any excess transit passes that an employee accumulates from prior months and transit passes that an employer makes available in the current month may exceed the monthly limit parking benefits the regulations do not permit employers to provide employees with parking benefits that exceed parking costs that the employees actually incur as employers are required to provide qualified_parking benefits under a bona_fide reimbursement arrangement it is not possible for there to be any excess reimbursement in this context there can consequently be no rolled over funds if yes are there any accumulation limits the metro system limit is dollar_figure per benefit neither the internal_revenue_code nor any of the service’s administrative guidance specifies any accumulation limits if no what is the irs recommended disposition of pretax or employer_provided funds not rolled over and how is this reported in light of the answer to question this question is not applicable what is the irs’ definition of a commuter neither the code nor regulations explicitly define the term commuter the regulations do however specify the individuals who are eligible to exclude transportation benefits from their gross incomes sec_1_132-9 q a of the regulations states that the individuals who may exclude qualified_transportation_fringe_benefits from their gross incomes are those who are currently employees of the employer at the time qualified_transportation_fringe is provided sec_1_132-9 q a of the regulations further clarifies that for the qualified_transportation_fringe benefit rules partners sole proprietors or other independent contractors are not employees and that 2-percent shareholders of s_corporations are treated as partners for fringe benefit purposes are transit and parking benefits for the exclusive use by the employee between home and work travel if there are other permitted uses please provide examples ie share with family members and friends sell benefits for personal gain use for non-work related travel etc transit passes the regulations state that an employer may provide transit passes only to those individuals who are currently employees of the employer at the time the qualified_transportation_fringe is provided sec_1_132-9 q a of the regulations states that there are no substantiation requirements if the employer distributes transit genin-100993-10 passes the regulations do not however prohibit employers from independently requiring employees to certify for example that they used such transit passes only in connection with their own commutes from their residences to their workplaces regulations sec_1_132-9 q a parking benefits like transit passes the regulations state that an employer may provide qualified_parking only to those individuals who are currently employees of the employer at the time the qualified_transportation_fringe is provided unlike transit passes though these parking benefits may be used only by the employees themselves and only in connection with their commutes to their places of employment sec_1_132-9 q a of the regulations limits the exclusion to parking provided to an employee by an employer o n or near the employer’s business_premises or a t a location from which the employee commutes to work the regulations also require employers who provide parking benefits to establish bona_fide substantiation arrangements under which employers verify that the employees have incurred the costs themselves in connection with their travel between home and work regulations sec_1_132-9 q a c how should benefit refund requests from employees be treated and should pretax and employer paid benefits be treated differently we understand benefit refund requests to refer to instances in which an employee asks either an employer or a transit provider to convert unused transit passes that were originally provided as qualified_transportation fringes into cash as qualified_parking benefits are provided exclusively as reimbursements for expenses actually incurred it is not clear to us how an employee could have a benefit refund request for qualified_parking benefits a transit_pass is a qualified_transportation_fringe only if it is useable only as fare media for a mass transit system this requirement applies regardless of whether the employer uses a salary reduction or salary supplement to fund the transit_pass that it provides to the employee thus if employees could receive cash refunds for their unused transit passes then the transit passes would not qualify as qualified_transportation fringes should pretax benefit refund requests from an employee be returned to the employer for payroll adjustments see the response to the preceding question employers that offer a pretax benefits program would prefer to have unused amounts rollover for future use by their employees and employers that offer the benefits as a tax free benefit would like unused amounts returned to them as a credit do these differing treatments of benefits fall into an acceptable manner to address employer concerns genin-100993-10 as discussed earlier if an employee funds transportation benefits under a salary reduction arrangement and if the amount of the salary reduction for a given month exceeds the value of the transportation benefits that the employee receives the employer may rollover this unused amount for future use by the employee if an employee receives transportation benefits as a salary supplement the only unused amounts would be transit_pass amounts as noted above qualified_parking benefits are provided solely as reimbursements for expenses already incurred nothing in either the code or regulations prohibits an employer that provides its employees with transit passes as salary supplements from requiring employees to return unused transit passes please outline the differences and similarities in the treatment of transit and parking benefits please see the information set forth at the beginning of this letter can an employer establish their own internal guidelines to have the benefits limited to travel between home and work yes sec_1_132-9 q a-19 of the regulations states that an employer may choose to implement substantiation requirements in addition to those described in irs guidance this letter has called your attention to certain general principles of the law it is intended for informational purposes only and does not constitute a ruling see revproc_2010_1 sec_2 2010_1_irb_1 date if you have any additional questions please contact our office at -------------------- sincerely lynne camillo branch chief employment_tax branch exempt_organizations employment_tax government entities tax exempt government entities


number release date id office uilc cca-102285-08 -------------- from ---------------- sent wednesday date am to ------------------- cc --------------------------------------- subject follow up multiple tins question after reading sec_1_6013-1 and looking at irm it is clear that the wife’s subsequent mfs return filed after the due_date should not be posted as an original return under tc because she already filed jointly with her husband as we discussed earlier specifically disallows a separate_return to be made after the due_date for filing a return after a joint_return has already been filed with the service irm states that married taxpayers may file separate returns on or before the due_date of their original filed joint_return and all claims marked filed after the due_date should be disallowed there is one exception that allows joint filers to file separate returns after the date this is when the joint election is invalid see irm for specific procedures on how am should handle scenarios where only one spouse is requesting a timely filing_status change am should see irm please let me know if you have any questions -------- ------------------- ---------------- -------------------- -------------------------------------------------


internal_revenue_service number release date index number ------------------------ ------ --------------------------------- -------------------------------------- ----------------------------------------- --------------------------------------- re --------------------------------- ---------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- id no ----------------- ----------------------------------------------------- telephone number --------------------- refer reply to cc corp b05 plr-145741-10 date march legend taxpayer sub1 date1 date2 ------------------------------------------------------------------------------------------ --------------------- ------------------------------------------------------------------------------------------ ---------------------- ----------------- -------------------------- company official ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ---------------------------------- tax professional ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ --------------- dear ----------------- this letter responds to a letter dated date requesting on behalf of taxpayer an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to file a statement under sec_1_337_d_-2 of the income_tax regulations hereinafter referred to as the election that was required to be filed with taxpayer’s consolidated federal_income_tax return for the taxable_year ending date2 additional information was received in subsequent correspondence dated march the material information is summarized below plr-145741-10 taxpayer is the common parent of a consolidated_group that included among other subsidiaries sub1 sub2 and sub3 taxpayer owned percent of sub1 sub1 owned percent of sub2 and an unrelated_person owned the remaining percent of sub2 sub2 owned percent of sub3 on date1 sub1 filed for chapter bankruptcy protection and sub1 sub2 and sub3 were each liquidated taxpayer recognized a loss with respect to shares of sub1 an election under sec_1_337_d_-2 to deduct the loss recognized on the disposition of sub1 stock was required to be filed with or as part of the taxpayer consolidated group's consolidated federal_income_tax return for the year of the disposition however for various reasons the election was not filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file the election taxpayer represents that the period of limitations on assessment under sec_6501 has not expired for the taxpayer group’s consolidated_income_tax_return for the taxable_year ending date or any subsequent tax_year sec_1_337_d_-2 provides a general_rule that no deduction is allowed for any loss recognized by a member of a consolidated_group with respect to the disposition of stock of a subsidiary sec_1_337_d_-2 provides that a disposition means any event in which gain_or_loss is recognized in whole or in part sec_1_337_d_-2 provides that sec_1_337_d_-2 applies with respect to stock of a subsidiary only if a separate statement entitled sec_1_337_d_-2 statement is included with the return in accordance with sec_1_337_d_-2 sec_1_337_d_-2 provides that loss is not disallowed under sec_1_337_d_-2 to the extent the taxpayer establishes that the loss is not attributable to the recognition of built-in_gain net of directly related expenses on the disposition of an asset including stock and securities sec_1_337_d_-2 provides that the statement required under sec_1_337_d_-2 must be included with or as part of the taxpayer's return for the year of the disposition or deconsolidation generally sec_1_337_d_-2 applies with respect to dispositions and deconsolidations on or after date and before date sec_301_9100-1 cites sec_301_9100-1 through as providing the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory plr-145741-10 election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-2 provides automatic extensions of time for making certain elections while sec_301_9100-3 provides for extensions of time for making regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides requests for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government in this case the time for filing the election is fixed by the regulations ie sec_1 d - c therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for taxpayer to file the election provided taxpayer establishes that it acted reasonably and in good_faith that the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and that granting relief will not prejudice the interests of the government information affidavits and representations submitted by taxpayer company official and tax professional explain the circumstances that resulted in the failure to timely file a valid election the information establishes the request for relief was filed before the failure to make the election was discovered by the internal_revenue_service and taxpayer reasonably relied on a qualified_tax professional who failed to make or advise taxpayer to make the election see sec_301_9100-3 and v based on the facts and information submitted including the representations that have been made we conclude that taxpayer has established it acted reasonably and in good_faith in failing to timely file the election for sub1 the requirements sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly we grant an extension of time under sec_301_9100-3 until days from the date on this letter for taxpayer to file the election with respect to the disposition of sub1 the 60-day extension of time is conditioned on taxpayer's consolidated group's tax_liability if any not being lower in the aggregate for all years to which the election applies than it would have been if the election had been made timely taking into account the time_value_of_money we express no opinion with respect to whether taxpayer qualifies substantively to make the election no opinion is expressed as to the tax effects or consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by the taxpayer and its representatives plr-145741-10 however all of the essential facts must be verified in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election penalties and interest that would otherwise be applicable if any continue to apply no opinion is expressed as to taxpayer's consolidated group's tax_liability for the years involved a determination thereof will be made upon audit of the federal_income_tax returns involved 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 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 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely _ken cohen_______________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate


' internal_revenue_service rockside center ill 7'12 west creek road 2nd floor independence oh tax_exempt_and_government_entities_division date number release date taxpayer_identification_number form tax_year s ended person to contact number contact numbers telephone fax uil certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under sec_501 of the internal_revenue_code code is necessary if you accept our findings take no further action we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision your protest should include a statement of the facts the applicable law and arguments in support of your position an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process you may also request that we refer this matter for technical_advice as explained in publication if we issue a determination_letter to you based on technical_advice no further administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice letter catalog number 34809f ' ' if we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies section b of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notify the appropriate state officials of the revocation in accordance with sec_6104 of the code you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation sincerely t r marsha a ramirez director eo examinations enclosures publication publication report of examination letter catalog number 34809f form 886-a explanation of items name of taxpayer a ein issue schedule or exhibit no page of year ended whether a is a charitable_organization exempt from tax pursuant to internal_revenue_code sec_501 c for the taxable years facts a was incorporated as a corporation not for-profit under the laws of in a letter from the internal_revenue_service the state of the organization an organization described under sec_501 c of the code in august of this letter further indicated that the information provided reasonably allowed expected in sec_509 and b a vi of the code supported_organization described its exemption under the consideration the organization for to be a publicly received a that as a is organized exclusively for charitable purposes for such purposes that qualify as exempt_organizations under sec_501 c of the internal_revenue_code_of_1986 the charitable purposes of the organization include the following including to organizations the making of distributions a b c d e to promote and support education through scholarship and tuition assistance to promote and support education through distributions to or for the benefit of exempt educational organizations and their related projects programs and activities to promote and improve the health of the general_public through distributions in support of health related projects programs and activities to provide financial aid and assistance in relief of the poor and underprivileged members of the community to promote assist support own construct maintain lease operate and manage housing facilities and improvements thereto for families or persons displaced from urban renewal areas or as a result of governmental action or as a result of fire low and moderate income families or per sons department of the treasury - internal_revenue_service form 886-a form 886-a explanation of items name of taxpayer a ein schedule or exhibit no page of year ended flood accident or other disaster and elderly persons said housing facilities designed to meet the physical social and psychological needs of said families or persons and to promote their health security and happiness to aid assist and encourage community cultural and artistic endeavors to promote and develop community interest in ad to advance the knowledge and appreciation of the performing arts f g a's application form_1023 at part ii activities and operational information item states as follows the funding of a the organization will take over and pay for the charitable activities formally provided by c - these activities include team for high a high school government school youth the convention called also provided is an annual christmas party for local children the providing of flags for local schools and for funeral ceremonies local baseball funding of all of these activities are for the benefit of the by the trustees of the organization and the members of c area the activities will be conducted part i i activities and operational information the sources of financial support states as follows i tern requesting donations from c - a c organization part i i activities and operational information i tern requesting the nature of fundraising programs both actual and planned states as follows there will be no fundraising program will accept donation only from c - the organization trustees listed on the trustees of c in c of the code will be a very close working relationship with c and c is recognized as tax-exempt under the application further indicates that there represent officers the application department of the treasury- internal_revenue_service form 886-a form 886-a explanation of items name of taxpayer a ein schedule or exhibit no page of year ended dollar_figure into a contract with c for the a entered from instant bingo ticket sales recipient of the post's proceeds this contract was for the calendar_year of under this contract the post would distribute its proceeds as required under chapter of the ohio revised code to a with the understanding that the transferred funds would be used for charitable purposes the purpose of being a's form_990 for revenue was derived from two distinct sources the calendar_year ending reflects that its direct public support in the amount of dollar_figure indirect public support totaling dollar_figure and schedule b of form_990 shows that the indirect public support was received from two sources d in the amount of dollar_figure and c in the amount of dollar_figure a supporting schedule has been attached to form_990 breakdown of part ii statement of functional expenses allocations following were shown as recipients the amount line is dollar_figure shown on this to provide a grants the e dollar_figure c dollar_figure f dollar_figure g dollar_figure h dollar_figure miscellaneous cash donations dollar_figure i dollar_figure n dollar_figure a's form_990 for revenue was derived from the same two distinct sources the calendar_year ending reflects that its direct public support in the amount of dollar_figure indirect public support totaling dollar_figure and department of the treasury - internal_revenue_service form 886-a form 886-a explanation of items name of taxpayer a ein b schedule or exhibit no page of year ended information the indirect public support is comprised of the following shown on a's general ledger indicates that the j in the amount of dollar_figure k in the amount of dollar_figure c in the amount of dollar_figure and the general ledger also reflects how the contributions received have been put to use the following is a partial summary of the different accounts which show how the funds were used and or distributed by a for the year ending - donation - c dollar_figure - l dollar_figure - e dollar_figure i - dollar_figure - organizations included j k m - - other individual sec_5401 - rental expense - l dollar_figure dollar_figure dollar_figure dollar_figure the general ledger has also disclosed various ancillary expenses that were made by a on behalf of c since both entities occupy the same location many office and administrative expenses were paid through a's account a does not have a facility of its own it shares office space with c within c' s own facilities significant rental expenses amounting to this represents a payment dollar_figure for partial use of c's finance officer's office has been paid to c ln the information provided by a's filed form_990 and its general ledger disclosed very in activity of a charitable nature limited activity that would represent engaging during the periods under examination c not to which c entities the this e i g j k and m are organization can make department of the treasury - internal_revenue_service form 886-a form 886-a explanation of items name of taxpayer a ein schedule or exhibit no page of year ended charitable distributions individuals also do not charitable_class to which charitable distributions may has made substantial distributions to entities and or are not charitable a represent be made a classes that law section b a vi of the internal_revenue_code provides an organization referred to in subsection c which normally receives a substantial part of its support exclusive of income received in the exercise or performance by such organization of its charitable educational or other purpose or function constituting the basis for its exemption under sec_501 from a governmental_unit referred to in subsection c or from direct or indirect_contributions from the general_public a internal revenue section c or organization described in subsection this shall be exemption is denied under sec_502 or sec_503 taxation under exempt from the of code provides an d or sec_401 a subtitle unless such is not exempt an organization sec_1 a -1 a of the income_tax regulations provides in part from tax merely because it is not organized and operated for profit in order to establish its exemption it is necessary that every such organization claiming exemption file an application form as set forth subject only to the commissioner's inherent power_to_revoke rulings because of a change in the law or regulations or for other good cause an organization that has been determined by the commissioner or district the corresponding director provision of prior_law may rely on such determination so long as there are no substantial changes in the organization's character purposes or methods of operation to be exempt under sec_501 or sec_1_501_a_-1 of the income_tax regulations provides private shareholder or the words private_shareholder_or_individual in sec_501 refer to persons having a personal and private interest in the activities of the organization individual defined department of the treasury- internal_revenue_service form 886-a form 886-a explanation of items name of taxpayer a ein schedule or exhibit no page of year ended dollar_figure testing internal chest for for public safety to foster national or the community exclusively but only if no part of its activities code revenue fund or religious of c and any opera ted provides section foundation corporations charitable organized and literary or educational scientific international amateur sports purposes or the competition provision of athletic_facilities or equipment or for the prevention of cruelty to children or animals no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual no substantial part of is carrying on propaganda or otherwise attempting to influence legislation except and which does not as otherwise provided participate the publishing or distributing of statements any political campaign on behalf of or in opposition to any candidate for public_office the activities of which subsection including intervene in or involve h in in for the testing for public safety income_tax regulations provides religious charitable literary or educational sec_1 c -1 of organizations organized and operated scientific purposes or for the prevention of cruelty a organizational and operational tests in order to be exempt as an organization described in sec_501 c 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 the term exempt_purpose or purposes as used in this section means any purpose or purposes specified in sec_501 c this section as defined and elaborated to children or animals in paragraph d of the income_tax regulations provides sec_1 c -1 c of operational_test primary activities an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 c an organization will not be so regarded if more than an insubstantial exempt_purpose part of its activities is not in furtherance of an is not operated distribution of earnings an organization exclusively for one or more exempt purposes if its net_earnings inure in whole or the benefit of private shareholders or in part to department of the treasury - internal_revenue_service form 886-a form 886-a explanation of items name of taxpayer a ein b schedule or exhibit no page of year ended individuals individual see paragraph c of sec_1_501_a_-1 for the definition of the words private shareholder or of the income_tax regulations sec_1 c -1 d ii provides an organization is not organized or operated exclusively for one or more of the purposes specified in subdivision i of this subparagraph unless a private to meet the requirement of this subdivision it is interest thus necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals the organization or persons controlled directly or indirectly by such private interests the creator or his shareholders of it serves a public family rather than i the include is used relief of lessening of term charitable the poor and distressed or of tax-exempt purposes which may fall within sec_1 c -1 d of the income_tax regulations provides charitable defined in sec_501 c in its generally accepted legal sense and is therefore not to be construed as limited by the separate enumeration in section the c of other such broad outlines of charity as developed by judicial decisions terms the underprivileged advancement of religion advancement of education or science erection or maintenance of public buildings monuments or works the burdens of government and promotion of social welfare by organizations designed to accomplish any of the above purposes or to to defend human and eliminate prejudice and discrimination community secured civil rights combat and deterioration that an fact organization which the relief of indigent persons may receive voluntary contributions from the persons intended to such from being exempt as an organization organized and organization operated exclusively for charitable purposes that an organization in carrying out its primary purpose advocates social or civic changes or presents opinion on controversial issues with the intention of molding public opinion or creating public sentiment to an acceptance of its views does not preclude such organization from qualifying under sec_501 c so long as it is not an action_organization of any one of the types described in paragraph c of this section juvenile is organized and operated lessen neighborhood relieved will delinquency necessarily tensions prevent iii fact law ii i v the not for the or by to be to department of the treasury - internal_revenue_service form 886-a form 886-a explanation of items name of taxpayer a ein b schedule or exhibit no page of year ended internal_revenue_code provides of the section foundation defined the organization described organization described in sec_170 b a vii and viii a general_rule foundation means private term a private for purposes of this title foreign an other than in clauses domestic than or in sec_501 c other revrul_71_447 c b held all charitable trusts educational or otherwise are subject_to the requirement that the purpose of the trust may not be illegal or contrary to public policy n to residents and businesses on in revrul_75_286 1975_2_cb_210 an organization with membership limited to preserve and beautify public areas in the block was held not exempt under sec_501 because the benefits to private individuals whose property abutted the general_public the public property outweighed benefits a city block formed to revrul_78_232 1978_1_cb_69 describes the abc church whose membership consisted of an individual the individual's spouse their two minor children and a few family friends the individual was employed by a state government and deposited his salary checks in the church's bank account the church's account was primarily used to food individual was denied a clothing and other living_expenses the deduction under sec_170 the the private church's account because purposes of the individual and its income inured to the individual and members of his family for the church was operated for the salary checks deposited family with individual and his lodging furnish the in revrul_80_278 1980_2_cb_175 established a three-part test to determine whether an organization's activities will be considered permissible under sec_501 c of the code the purpose of the activities are not illegal the organization is charitable contrary to a clearly defined and established public policy or in conflict with express statutory restrictions and the activities are the organization's exempt_purpose and are reasonably related to the accomplishment of that purpose in furtherance of department of the treasury - internal_revenue_service form 886-a form 886-a explanation of items name of taxpayer a ein schedule or exhibit no page of year ended revrul_81_94 1981_1_cb_330 a nonprofit organization was formed by a professional nurse the organization described itself as the nurse functioned as the church's minister director a church and principal officer and donated the money from his her outside the only function the church performed was employment to the church acting as a vehicle for handling the nurse's personal finances the revenue_ruling holds that the church was not exempt because it served the private interests of a designated individual rather the public interest than b e t t e - r ---- - b - u - -s - i- n e- s s'---- b u r --e --a u __v _ _ -- -- s c t d c b in construing the meaning of the phrase exclusively for educational_purposes the supreme court of the united_states said u s this plainly noneducational destroy the importance of that means purpose exemption if substantial regardless of truly educational_purposes the presence of a single in nature will or the number this rationale applies equally to any category of charitable purpose under sec_501 c 92_tc_1053 the service argued that the academy substantially benefited the private interests of republican party entities and candidates thereby advancing a nonexempt private purpose the relationship between the academy and republican party entities and candidates was not one of control although the academy was an outgrowth of a training program operated by national republican congressional committee in fact the academy argued that the prohibition against private benefit is limited insiders are benefited the tax_court however disagreed with this view and stated that an organization's conferral of benefits on disinterested persons may cause it to serve a private interest within the meaning of c -1 d ii an organization's to situations in which wendy l parker rehabilitation foundation inc v c i r t c memo a including a family_member of foundation formed to aid coma victims exemption to the the service's position the tax_court upheld recognition of founders was not entitled that department of the treasury - internal_revenue_service form 886-a form 886-a explanation of items name of taxpayer a ein schedule or exhibit no page of year ended approximately of the organization's net_income was expected to be distributed to aid the family coma victim the court found that the family coma victim was a substantial beneficiary of the foundation's funds it also noted that such distributions relieved the family of the economic burden of providing medical and rehabilitation care for their family_member and the benefit of private individuals therefore constituted inurement to 9th cir aff'g 765_f2d_1387 tcmemo_1984_349 the tax_court found it unnecessary to consider the reasonableness of payments made by the applicant to a business owned by in affirming the tax court's decision stated the 9th circuit_court of appeals its officers a to the critical inquiry is not whether particular contractual payments are reasonable or excessive but the entire enterprise is carried on in such a manner that the for profit the operation of the church u instead whether substantially organization organization for-profit benefits related from 640_fsupp_96 the court found cgm plaintiff v united stated irs that operated primarily in order to establish is qualified contested by the burden of proving for three tax-exempt status cgm has is a elements the corporation and or charitable purposes u s c c b c that no part of cgm' sec_26 c f_r c -l c net any private shareholder or u s c c c c c f_r c -1 that cgm maintains records sufficient to demonstrate that it is entitled to tax-exempt status u s c c f_r c that cgm religious the benefit of c and individual earnings for inure to u 74_tc_531 the tax_court an organization considered the qualification 9th cir exemption of 670_f2d_104 aff'd for department of the treasury - internal_revenue_service form 886-a form 886-a explanation of items name of taxpayer a ein schedule or exhibit no page of year ended purporting to be a church family members the court stated the applicant was controlled by three facts bearing while this domination of petitioner by the three harberts alone may not necessarily disqualify it for exemption it provides an obvious opportunity for abuse of the claimed tax-exempt status it calls for open and candid disclosure upon petitioner's organization of all operations should it uphold the claimed exemption can be assured that it is not sanctioning such disclosure is not made the logical inference is that the facts if disclosed would show that petitioner fails to meet the requirements of sec_501 c the court abuse of finances revenue laws that and the if an so t c aff'd est of hawaii v commissioner in unpublished opinion 7_f2d_17 9th cir est of hawaii several for-profit est organizations exerted significant indirect control_over est of hawaii a non-profit entity through contractual arrangements the tax_court concluded that the for-profits were able to use the non-profit as an instrument to further their for-profit purposes neither the fact that the for-profits lacked structural control_over the organization nor the fact that amounts paid to the for-profit organizations under the contracts were reasonable affected the court's conclusion consequently est of hawaii did not qualify as an organization described in sec_501 c government's position from tax pursuant to i r c for the taxable years of a was not a public charity exempt sec_501 c a's primary and predominant business activity during these years was operating as a vehicle to satisfy the state of law requirements as this was accomplished by a being a recipient of they apply to c funds mandated by state law upon c to be distributed to an entity exempt under sec_501 c a was created by c as the instrument to achieve this purpose after receipt of the required distributions a would return these funds to c an organization exempt under sec_501 c additional distributions were also made to entities that gaming department of the treasury - internal_revenue_service form 886-a form 886-a explanation of items name of taxpayer a ein schedule or exhibit no page of year ended are not public_charities or entities exempt under c accordingly a does not qualify as a public charity within the scope of sec_501 c typically the activities of a charitable_organization will result in benefits to both its intended charitable_class of persons and to other business entities such as vendors of goods and services the benefits to be required to advance the organization's goals derived to c and to other entities that are not exempt under sec_501 c and not to the general_public accordingly a was not engaged in the business of furthering charitable purposes from a's activities flow principally benefits to non-charitable entities are permissible so long as they remain incidental to the accomplishment of the charitable goals of any organization a's application focused on the class or classes of persons or entities anticipated to be served to justify its claim to tax-exempt status to provide pertinent information which would have the presence of other underlying motivations ignored or indicated failed a that a must serve a public rather than a private the statement it can be applied in purpose is a basic tenet of the law of charity place of or the proscription against private_inurement the burden_of_proof is upon the organization to establish that it is not organized or operated for the benefit of private interests this requirement applies equally to the potential for inurement and for private benefit in addition to thus the close control of a because of the potential for abuse requires a clear demonstration that private interests will not be served inurement can involve benefit to insiders such as officers trustees or directors the other hand can involve benefits to anyone other than the intended recipients of the benefits conferred by the organization's tax-exempt operation here a's trustees represent officers and or trustees of c the facts show that the a's activities were not dedicated exclusively or primarily to the advancement of religion social welfare or other charitable endeavors because of the presence of substantial nonexempt purposes private benefit on a after making require them to distributions account back to that non-501 c entities the distributions were did not actually department of the treasury - internal_revenue_service form 886-a form 886-a explanation of items name of taxpayer a ein schedule or exhibit no page of year ended 20' used for funds were example of charity charitable purposes this failure to insure that these directly used for the furtherance of charity is another a's failure to safeguard monies permanently dedicated to a's operation can be viewed as an extension of c a's trustees engaged in a veteran philosophy approach to making distributions and did not apply the requirements levied by sec_501 c thus the majority of the distributions were made utilizing the philosophy used by veteran posts and resultantly are in conflict with i r c in order to operate as a public charity a must have full control of the use of the donated funds and to apply that use to the goal of charitable endeavors its charitable donations was to satisfy state requirements and resultantly have a transfer the funds back to c for c's own designs for making charitable distributions intent of c sec_501 c in making instead the c as the creator of a used the charitable distributions to defray to subsidize membership activities post operating_expenses and recreational and social the charitable distributions of a by c inures to the benefit of c's members the use of functions the amount of rental expenses paid_by a to c demonstrates the abusive arrangement under which a operates the sharing of an office within c should not require an excessive rental amount to be charged to an entity that has limited monthly operation sec_501 c the basic principle underlying if an organization does not serve a public interest but rather serves a private interest other than incidentally it is not entitled to this proposition is simply an exemption under i r c the enforcement of expression of charitable organizations and from income_taxation under i r c income and property are exclusively devoted to purposes which are considered beneficial to the community individuals or entities thus a's operations cannot be considered as beneficial to the community or the general_public a's operation clearly serves private interests other than incidentally it is not entitled to exemption than particular their exemption sec_501 c in general federal rather their department of the treasury - internal_revenue_service form 886-a form 886-a explanation of items name of taxpayer a ein b organization's position schedule or exhibit no page of year ended 20' the results of the examination were discussed with your organization's representative indicated disagreement with the examination findings and also indicated that he will present a position upon receipt of the 30-day_letter conclusion the for taxable years of a is not a charitable_organization exempt from tax under i r c sec_501 c a charitable_organization for federal_income_tax purposes is an organization whose primary and predominant business activity during the year is engaging in activity a was only incidentally engaged in charitable undertakings during instead a's predominate activity during activity which directly benefited c charitable_organization taxable years under sec_501 c for was engaging in a the for and therefore is not exempt from taxation serves charity accordingly a tax purposes represents federal is not income that and for department of the treasury - internal_revenue_service form 886-a


internal_revenue_service number release date index number -------------------------- ---------------------------------- -------------------------------- -------------------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact --------------- id no ----------------- telephone number --------------------- refer reply to cc psi plr-108647-10 date date legend taxpayer -------------------------------------------------- ---------------------------------- property ------------------------------------------------------------------------------------------ ---------------------------------- year date date date date date ------- --------------------- -------------- ------------------ ------------ -------------------- consultant -------------------------------- dear ---------------- this letter responds to your letter dated date and subsequent correspondence requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to file an application_for certification of historic status with the united_states department of interior for purposes of claiming rehabilitation tax_credits under sec_47 of the internal_revenue_code plr-108647-10 according to the facts submitted taxpayer acquired property in year on date taxpayer hired a contractor to renovate the property on date taxpayer retained the services of consultant to assist taxpayer in preparing and filing the application_for certification of historic status of property with the department of interior the renovations to property were completed on date and property was placed_in_service on date on date taxpayer submitted the application_for certification of historic status of property to the department of the interior for approval therefore taxpayer failed to file part i of the historic preservation certification application with the department of interior prior to placing property in service taxpayer represents that consultant had failed to inform taxpayer that part i of the application needed to be filed before property was placed_in_service law and anaylysis sec_47 of the internal_revenue_code provides that the rehabilitation_credit for any taxable_year includes an amount equal to percent of the qualified_rehabilitation_expenditures with respect to any certified_historic_structure sec_47 provides that the term certified_historic_structure means any building and its structural_components that is i listed on the national register or ii is located in a registered_historic_district and certified by the secretary of the interior as being of historic significance to the district sec_1_48-12 provides that a building shall be considered to be a certified_historic_structure at the time it is placed_in_service if the taxpayer reasonably believes on that date the building will be determined to be a certified_historic_structure and has requested on or before that date a determination from the department of interior that such building is a certified_historic_structure within the meaning of the historic_rehabilitation_credit provisions and the department of interior later determines that the building is a certified_historic_structure sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that the term election includes an application_for relief in respect of tax sec_301_9100-2 and sec_301_9100-3 provide the standards the commissioner will use to determine whether to grant an extension of time to make an election plr-108647-10 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 a request for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusions based solely on the facts and the representations submitted we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied accordingly taxpayer's application will be considered timely filed for purposes of sec_1_48-12 a copy of this letter should be sent to the appropriate service_center with a request that it be attached to taxpayer's amended tax_return for the taxable_year a copy is enclosed for that purpose except as specifically set forth above we express no opinion concerning the federal_income_tax consequences of the facts described above under any other provisions of the code we are sending a copy of this letter to the appropriate sb_se official this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely associate chief_counsel passthroughs and special industries by _____________________________ nicole cimino senior technician reviewer branch office of associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number ---------------------------- ---------------------------------- ------------------------ ----------------------- - - department of the treasury washington dc person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc psi - plr-149984-04 date date company ---------------------------------- -------------------------- corp a ------------------------------------------------------------------------------------------------------------ ---------------------------------------------------- ----------------------------------------------------------- ------------------------------------------------------------------ ---------------------------------------------- ---------------------------------------- ----------------------------------------------------- corp b ------------------------------------------------------------- ----------------------------------------------------- corp c ------------------------------------------------------------- ----------------------------------------------------- shareholders ------------------------------------------------------ --------------------------------------------------------- ----------------------------------------------------- ---------------------------------------------------------------------- ----------------------------------------------------- ------------------------------------------------ ------------------------------------------------------- ------------------------------------------------------ ------------------------------------------------------ ----------------------------------------------- ------------------------------------------------------- -------------------------------------------------- ------------------------------------------------------- ---------------------------------------------- ------------------------------------------------------- plr-149984-04 ------------------------------------------------------ ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------------------------- ----------------------------------------------------- --------------------------- a b c d e f g h i k m n p --------------------------- ---------------------- ----- --- ------------------ ----------------- ------- ------- ------------------ ----------------- ------- ------------------ ----------------- dear ------------- this letter responds to a letter from your authorized representative dated date as well as subsequent correspondence submitted on behalf of company requesting a ruling that the rental income received by company from its leasing activities is not passive_investment_income within the meaning of ' d c i of the internal_revenue_code plr-149984-04 facts company was incorporated on a and intends to elect under ' a to be an s_corporation effective b it anticipates electing under sec_1361 to treat all of its wholly-owned subsidiaries as qualified subchapter_s subsidiaries qsubs also effective b it has subchapter_c_earnings_and_profits company and its subsidiaries sell and lease information_technology equipment software and other related products and services this ruling letter covers company’s leasing activities which consist in part and on occasion of the sale of the equipment at the end of the lease_term corp a is a wholly-owned subsidiary of company corp b and corp c are wholly-owned subsidiaries of corp a company conducts its equipment_leasing primarily through corp b which uses its own employees and those of corp a and corp c totaling c full-time employees and d part-time employees to carry on the leasing activities corp b pays corps a and c fees in compensation_for services rendered in connection with these activities company helps each customer assess design select and implement its information_technology infrastructure for a customer who decides to finance its equipment acquisition through a lease company works to structure the lease to best suit its needs it consults with the customer during the term of each lease and restructures the lease as necessary at the end of the lease_term company reviews available options with the customer and it remarkets or disposes of the equipment upon receipt company received or accrued approximately e in lease payments and paid_or_incurred approximately f in relevant leasing expenses for g the comparable figures for h are i and k respectively and for m n and p respectively law and analysis except as provided in ' g ' a provides that a small_business_corporation may elect in accordance with the provisions of ' to be an s_corporation sec_1362 provides that an election under ' a terminates whenever the corporation i has accumulated_earnings_and_profits at the close of each of three consecutive tax years and ii has gross_receipts for each of such tax years more than percent of which are passive_investment_income except as otherwise provided in ' d c ' d c i provides that plr-149984-04 the term passive_investment_income means gross_receipts derived from royalties rents dividends interest annuities and sales or exchanges of stock_or_securities sec_1_1362-2 of the income_tax regulations provides that rents means amounts received for_the_use_of or the right to use property whether real or personal of the corporation sec_1_1362-2 provides that rents does not include rents derived in the active trade_or_business of renting property rents received by a corporation are derived in an active trade_or_business of renting property only if based on all the facts and circumstances the corporation provides significant services or incurs substantial costs in the rental business generally significant services are not rendered and substantial costs are not incurred in connection with net leases whether significant services are performed or substantial costs are incurred in the rental business is determined based upon all the facts and circumstances including the number of persons employed to provide the services and the types and amounts of costs and expenses_incurred other than depreciation conclusion based solely on the facts and representations submitted we conclude that the rents company receives from its leasing activities are not passive_investment_income under ' d c i except for the specific ruling above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code specifically we express or imply no opinion regarding company's eligibility to be an s_corporation or to treat its subsidiaries as qsubs further the passive_investment_income rules of ' are independent of the passive_activity rules of ' unless an exception under ' applies the rental_activity remains passive for purposes of ' under a power_of_attorney on file with this office we are sending copies of this letter to your authorized representatives plr-149984-04 this ruling is directed only to the taxpayer who requested it according to ' k this ruling may not be used or cited as precedent s sincerely mary beth collins senior technician reviewer branch office of associate chief_counsel passthroughs and special industries enclosures copy for ' purposes cc


t c memo united_states tax_court estate of clara d baird deceased fleet trust company william c baird and barbara b groetzinger co-executors petitioner v commissioner of internal revenue respondent docket no filed date sherman f levey peter oddleifson and eric r paley for petitioner theodore r leighton mark a ericson and theresa g mcqueeney for respondent memorandum findings_of_fact and opinion foley judge by notice dated date respondent determined a deficiency in petitioner's estate_tax of dollar_figure all section references are to the internal_revenue_code in effect as of the date of decedent's death and all rule references are to the tax_court rules_of_practice and procedure after concessions the sole issue for decision is whether petitioner pursuant to sec_2053 is entitled to deduct from the gross_estate dollar_figure paid for attorney's_fees we hold that petitioner is so entitled to the extent stated herein findings_of_fact some of the facts have been stipulated and are so found at the time of her death on date clara d baird decedent resided in brighton new york at the time the petition was filed the estate of clara d baird petitioner had a mailing address in rochester new york fleet trust company fleet the corporate executor had its principal_place_of_business in rochester new york and co-executors william c baird and barbara b groetzinger resided in rochester new york and virginia beach virginia respectively in decedent retained the services of harris beach wilcox hbw a rochester law firm to prepare her estate_planning documents hbw's trust and estate practice had an excellent reputation in the local community peter oddleifson an hbw partner represented decedent mr oddleifson graduated from harvard law school in and had many years of trust and estate experience on date decedent executed her will decedent executed a codicil to the will on date and a_trust agreement on date the will provided that security trust company of rochester currently fleet mr baird and ms groetzinger would serve as co-executors mr baird and ms groetzinger are decedent's children and the residuary legatees under the will on date at the age of decedent died the executors in accordance with decedent's instructions retained hbw to provide all necessary legal services for petitioner shortly after the decedent's death mr baird ms groetzinger mr oddleifson and mr david lyddon vice president and trust officer of fleet met to review the assets of the estate and discuss anticipated expenses of administration these expenses included the estate's obligation to satisfy all outstanding liabilities pay executor's_commissions pay attorney's_fees and fund the trust created by decedent's will at the meeting mr lyddon produced a schedule estimating the value of the gross_estate and the expenses of administration mr lyddon prepared the schedule the day decedent died based on an estimated gross_estate of dollar_figure the schedule estimated that each executor would receive a statutory commission of dollar_figure the schedule also estimated that hbw would be paid dollar_figure in attorney's_fees the estimate of attorney's_fees was consistent with the community practice that attorney's_fees approximate a single executor's commission on date petitioner's federal estate_tax_return was filed on the return petitioner valued the gross_estate at dollar_figure the estate consisted of the following assets assets value at date of death real_estate stocks and bonds mortgages notes and cash other miscellaneous property transfers during decedent's life dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure on the return petitioner claimed deductions from the gross_estate of dollar_figure for attorney's_fees and dollar_figure x dollar_figure for executor's_commissions on date and date mr oddleifson filed affidavits in support of the requested attorney's_fees with the monroe county surrogate's court both affidavits provided in pertinent part the terms of the retainer agreement are to provide all required legal services for the estate at a fee to be determined in line with the local custom and practice of the monroe county community and subject_to the approval of the monroe county surrogate the amount requested for compensation_for legal services rendered to the estate is dollar_figure based upon an estate valued at dollar_figure this amount includes all services rendered and to be rendered up to and including the settlement of the decree and distribution the date affidavit stated that hbw had performed approximately hours of work on behalf of the estate through date this included approximately hours of work performed in connection with the sale of decedent's residence which was specifically devised to ms groetzinger also included was approximately hours of work performed to obtain advance_payment of executor's_commissions of dollar_figure each to mr baird and ms groetzinger on date the monroe county surrogate issued a decree of judicial settlement allowing the entire dollar_figure in requested attorney's_fees on date a statutory_notice_of_deficiency was timely mailed to petitioner respondent disallowed dollar_figure of petitioner's claimed deduction for attorney's_fees as of date hbw had performed hours of work on behalf of the estate this amount included hours devoted to the controversy with the internal_revenue_service over the subject matter of this case opinion sec_2053 allows a deduction from the gross_estate for administration_expenses administration_expenses include attorney's_fees sec_20_2053-3 estate_tax regs to be deductible under sec_2053 the administration expense must be allowable under local law and the regulations 76_tc_369 57_tc_650 affd 510_f2d_479 2d cir 923_f2d_335 4th cir affg tcmemo_1989_470 petitioner bears the burden of proving its entitlement to the deduction rule a 292_us_435 i local law petitioner contends that the attorney's_fees are allowable under local law because the monroe county surrogate's court issued a decree allowing the fees sec_20_2053-1 estate_tax regs addresses the effect of a local court decree the decision of a local court as to the amount and allowability under local law of a claim or administration expense will ordinarily be accepted if the court passes upon the facts upon which deductibility depends it must appear that the court actually passed upon the merits of the claim this will be presumed in all cases of an active and genuine contest the decree will not be accepted if it is at variance with the law of the state while it appears that the court passed upon the merits of the claim the relevant portion of the surrogate's court's opinion contains no analysis supporting its conclusion therefore it is unclear whether the opinion is consistent with new york law accordingly we must conduct our own examination of whether these expenses are deductible under new york law as determined by the new york court_of_appeals in doing so we give proper regard to the relevant rulings of new york's lower courts 387_us_456 853_f2d_107 2d cir to be approved under new york law requested attorney's_fees must be reasonable in re potts' estate n y s app div affd n e n y the new york court_of_appeals has enumerated the following factors to be considered in determining whether attorney's_fees are reasonable the time and labor required the difficulty of the questions involved and the skill required to handle the problems presented the lawyer's experience ability and reputation the amount_involved and benefit resulting to the client from the services the customary fee charged by attorneys in the community for similar services the contingency or certainty of compensation the results obtained and the responsibility involved in re estate of freeman n e 2d n y after analyzing each of the freeman factors we conclude that the dollar_figure in attorney's_fees is reasonable under new york law first the fees received by hbw were consistent with reasonable customary fees for similar services petitioner presented sufficient evidence to establish that in monroe county attorneys customarily receive fees equal to one executor's commission for representing an estate the monroe county surrogate's court awarded hbw fees equal to approximately one executor's commission in addition the dollar_figure fee was equal to dollar_figure percent of the gross_estate new york courts have held that a fee award equal to percent of the gross_estate is facially reasonable in re goldstick n y s 2d app div see also in re estate of gates n y s 2d app div allowing fees equal to percent of the gross_estate in re kennedy's estate n y s 2d sur ct holding that fees equal to approximately percent of the gross_estate are presumptively reasonable in re kentana's estate n y s 2d sur ct observing that reasonable_compensation will ordinarily approximate between percent of the gross_estate and a single executor's commission second hbw's experience ability and reputation were excellent hbw was highly regarded in the local community for its expertise in trust and estate matters the partner in charge of administering the estate mr oddleifson was an experienced and well-respected attorney third the services rendered by hbw benefitted the estate by obtaining favorable results mr baird testified that hbw has done a very good job representing petitioner and we have no reason to conclude otherwise respondent contends that the estate did not benefit from hbw's services because the litigation relating to the deductibility of hbw's fees delayed the closing of the estate we reject this contention contesting an estate_tax deficiency directly benefits the estate because the estate's tax burden may be reduced fourth decedent's_estate was large and hbw undertook significant responsibility in representing it the amount_involved ie the size of the estate is a significant factor in determining whether the fees are reasonable see in re estate of freeman supra pincite decedent's_estate is valued at dollar_figure because the estate is large hbw took on a great deal of responsibility in representing it a mistake could have resulted in a considerable loss to the estate and ultimately to the decedent's beneficiaries while the previous factors favor petitioner there are other factors we must consider first hbw performed hours_of_service on behalf of petitioner for fees of dollar_figure respondent contends that such large fees are per se unreasonable because they are excessive when compared to the number of hours worked time spent however is not the most important factor in determining whether the fees are reasonable in re brehm's estate n y s 2d app div in re snell's estate n y s 2d app div in re potts' estate supra pincite estate of gillett n y s 2d sur ct in re kentana's estate supra therefore while this factor favors respondent we decline to adopt respondent's proposed time-clock approach second the representation of petitioner did not involve any particularly difficult issues mr lyddon testified that the administration of the estate was not difficult because fleet already had control in an investment management account of most of decedent's assets in addition the estate primarily consisted of marketable_securities that were converted almost immediately into cash or cash equivalents third the fees requested by hbw were fixed and not contingent on the results produced contingency fee arrangements are rarely used however for services related to estate administration moreover given the size and liquidity of the estate the collectibility of hbw's fees was never an issue after a review of all the factors we conclude that the dollar_figure in attorney's_fees is reasonable under new york law accordingly we hold that the attorney's_fees are allowable under local law we next determine whether the fees are allowable under the regulations ii the regulations the regulations provide the following requirements for the deduction of administration_expenses the amounts deductible are limited to such expenses as are actually and necessarily incurred in the administration of the decedent's_estate the expenses contemplated in the law are such only as attend the settlement of an estate and the transfer of the property of the estate to individual beneficiaries expenditures not essential to the proper settlement of the estate but incurred for the individual benefit of the heirs legatees or devisees may not be taken as deductions sec a estate_tax regs expenses_for_selling_property of the estate are deductible if the sale is necessary to pay the decedent's debts expenses of administration or taxes to preserve the estate or to effect distribution sec_20_2053-3 estate_tax regs see also 75_tc_355 respondent contends that the fees relating to hours of work performed in connection with the sale of decedent's residence are not deductible because the sale was not necessary for the administration of the estate petitioner concedes that these services were included in the fees decedent's residence was specifically devised to ms groetzinger and it was not necessary to sell the residence to effect the distribution there were sufficient liquid_assets in the estate to pay the decedent's debts the sale of the residence was for the sole benefit of ms groetzinger and not the estate accordingly we hold that the fees relating to the sale of decedent's residence are not deductible respondent also contends that the fees relating to hours of work performed to obtain advance_payment of executor's_commissions for mr baird and ms groetzinger are not deductible because the advance commissions were not necessary for the administration of the estate petitioner concedes that these services were included in the fees the petition filed on behalf of mr baird and ms groetzinger to the monroe county surrogate's court requesting the advance_payment of commissions provides that the executors needed the commissions for personal reasons ie to prevent them from experiencing difficulty in the management of their cash flows the advance_payment of executor's_commissions was for the sole benefit of mr baird and ms groetzinger and was not necessary for the administration of the estate accordingly we hold that the fees relating to the payment of advance executor commissions are not deductible the remaining services provided by hbw were essential to the administration of the estate accordingly we hold that the remainder of the fees are allowable under the regulations and pursuant to sec_2053 are deductible from the gross_estate we have considered the other arguments made by the parties and found them to be either irrelevant or without merit to reflect the foregoing decision will be entered under rule


internal_revenue_service number release date index number ------------------------------ ----------------------- -------------------------- ------ --------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc psi b03 plr-140875-06 date date ------------------------- ----------------- legend x ----------------------------------------- a ------------------------------------------- d1 d2 state dear ------------ ------------------------ -------------------------- ---------- this letter responds to a letter dated date written on behalf on x requesting a ruling under sec_1362 of the internal_revenue_code facts x was incorporated under state law on d1 and began operations on d2 x’s sole shareholder a intended for x to be an s_corporation effective d2 however x’s form_2553 election by a small_business_corporation was not filed timely the taxable_year beginning d2 x requests a ruling that it may elect to be treated as an s_corporation effective for sec_1362 provides that the election may be made for the current sec_1362 provides that a small_business_corporation may elect to be an plr-140875-06 law and analysis s_corporation taxable_year if it is made during the preceding_taxable_year or at any time during the current taxable_year and on or before the 15th day of the third month of the current taxable_year sec_1362 provides that an election made after the 15th day of the third month of the current taxable_year and on or before the 15th day of the third month of the following taxable_year shall be treated as having been made for the following taxable_year sec_1362 provides that if an election under sec_1362 is made for any taxable_year determined without regard to sec_1362 after the date prescribed by sec_1362 for making the election for the taxable_year or no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for the taxable_year and sec_1362 shall not apply conclusion based on the facts submitted and representations made we conclude that x has established reasonable_cause for failing to make a timely s_corporation_election thus we conclude that x is eligible for relief under sec_1362 accordingly if x makes an election to be an s_corporation by filing with the appropriate service_center a completed form_2553 effective d2 within days following the date of this letter the election shall be treated as timely made the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion concerning whether x is otherwise eligible to be an s_corporation for federal tax purposes except as expressly provided herein we express or imply no opinion concerning plr-140875-06 is being sent to your authorized representative in accordance with a power_of_attorney on file with this office a copy of this letter this ruling is directed only to the taxpayer who requested it sec_6110 sincerely s provides that it may not be used or cited as precedent enclosures cc a copy of this letter a copy for sec_6110 purposes james a quinn senior counsel branch office of associate chief_counsel passthroughs special industries