internal_revenue_service number release date index number ---------------------- ----------------------------- -------------------------- ------------------------------------------ in re ----------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------------ telephone number ---------------------- refer reply to cc intl b06 plr-123934-13 date date ty ------- legend taxpayer company z year year month date dear ----------------- ----------------------------- ---------------------------------------- ------- ------- -------------- -------------------------- this responds to a letter dated date supplemented by a letter dated date submitted by your representatives the letters request that the internal_revenue_service service grant taxpayer consent to use the methods described in sec_1_482-7 and notice_2005_99 2005_2_cb_1214 for measuring and identifying employee stock_options restricted shares and restricted share units for purposes of determining the amount taxpayer must include in its cost_sharing_arrangement csa as intangible_development_costs idcs for year and subsequent tax years the rulings contained in this letter are based upon information and representations submitted by taxpayer and its representatives and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for rulings verification of the factual information representations and other data may be required as part of the audit process plr-123934-13 facts taxpayer a domestic_corporation was incorporated in year on date taxpayer and its wholly-owned subsidiary company z entered into an agreement that they intended would constitute a csa within the meaning of sec_1_482-7 the csa provides that stock-based compensation sbc is an idc that taxpayer and company z must share the csa also provides that sbc is measured pursuant to the method provided in sec_1_482-7 and that sbc is identified with intangible development activity pursuant to the method in sec_1 d ii in month taxpayer had an initial_public_offering and became a publicly traded company taxpayer filed this request for the service’s consent to prospectively adopt the method described in sec_1_482-7 for the measuring and timing of options on publicly traded stock which was extended to certain restricted shares and restricted share units by notice_2005_99 taxpayer also requested consent to prospectively use the basis for identification of sbc with the intangible development activity described in notice_2005_99 taxpayer has made the following representations as stated in its submissions regarding its csa taxpayer is and will remain in compliance with all record- keeping requirements of the internal_revenue_code_of_1986 as amended and the regulations thereunder including sec_1_482-7 upon request taxpayer will timely provide to the commissioner records kept pursuant to such requirements the sbc with respect to which taxpayer requests to use the method of measurement and timing and period-by-period identification provided in sec_1_482-7 and notice_2005_99 are publicly traded stock within the meaning of sec_1_482-7 taxpayer’s sbc is not subject_to market conditions or significant post-vesting restrictions within the meaning of statement of financial_accounting standards no share-based payment financial_accounting standards board rev fa sec_123r the service and performance vesting restrictions do not have a substantial effect on the fair value of the sbc under u s generally_accepted_accounting_principles gaap and do not result in unreasonably long vesting periods within the meaning of fa sec_123r plr-123934-13 with respect to any sbc the fair value of which is not reflected as a charge against income in audited financial statements taxpayer will identify such sbc for purposes of sec_1_482-7 as if the fair value of such compensation were reflected as a charge against income in audited financial statements taxpayer will treat sbc granted but not vested during the term of the csa as vesting immediately before expiration or termination of the csa for purposes of sec_1_482-7 as provided in notice_2005_99 for all sbc granted before the first day of the first taxable_year following receipt of the service’s consent legacy sbc taxpayer and all controlled participants to the csa will use the methods of measurement and timing provided in sec_1_482-7 and grant_date identification provided in sec_1_482-7 until all legacy sbc has been exercised or lapsed for all stock_options issued with respect to publicly traded stock within the meaning of sec_1_482-7 granted on or after the first day of the first taxable_year following receipt of the service’s consent taxpayer and all controlled participants to the csa will use the methods of measurement and timing and period-by-period identification provided in sec_1 d iii b and notice_2005_99 for all restricted shares and restricted share units issued with respect to publicly traded stock within the meaning of sec_1_482-7 granted on or after the first day of the first taxable_year following receipt of the service’s consent that are a nonvested equity shares or nonvested equity share units within the meaning of fa sec_123r and b are not subject_to market conditions or significant post-vesting restrictions within the meaning of fa sec_123r taxpayer and all controlled participants to the csa will use the method of measurement and timing and period-by-period identification provided in sec_1 d iii b and notice_2005_99 taxpayer will apply the period-by-period identification methodology provided in notice_2005_99 consistently under the principles of sec_1 d iii c law measurement and timing of sbc related to intangible development sec_1_482-7 provides the general method for measurement and timing of sbc idcs as follows plr-123934-13 except as otherwise provided in this paragraph d iii the cost attributable to stock-based compensation is equal to the amount allowable to the controlled participant as a deduction for federal_income_tax purposes with respect to that stock-based compensation_for example under sec_83 and is taken into account as an idc under this section for the taxable_year for which the deduction is allowable sec_1_482-7 provides an alternate method for measurement and timing of sbc idcs with respect to options on publicly traded stock the elective method as follows with respect to stock-based compensation in the form of options on publicly traded stock the controlled participants in a csa may elect to take into account all idcs attributable to those stock_options in the same amount and as of the same time as the fair value of the stock_options reflected as a charge against income in audited financial statements or disclosed in footnotes to such financial statements provided that such statements are prepared in accordance with united_states generally_accepted_accounting_principles by or on behalf of the company issuing the publicly traded stock sec_1_482-7 provides for the time and manner of making the election in relevant part as follows the election described in this paragraph d iii b is made by an explicit reference to the election in the written contract required by paragraph k of this section or in a written amendment to the csa entered into with the consent of the commissioner pursuant to paragraph d iii c of this section sec_1_482-7 provides generally all controlled participants in a csa taking options on publicly traded stock into account under paragraph d ii d iii a or d iii b of this section must use that same method of identification measurement and timing for all options on publicly traded stock with respect to that csa controlled participants may change their method only with the consent of the commissioner and only with respect to stock_options granted during taxable years subsequent to the taxable_year in which the commissioner’s consent is obtained all controlled participants in the csa must join in requests for the commissioner’s consent under this paragraph d iii c thus for example if the controlled participants make the election described in paragraph d iii b of this section upon the formation of the csa the election may be revoked only plr-123934-13 with the consent of the commissioner and the consent will apply only to stock_options granted in taxable years subsequent to the taxable_year in which consent is obtained similarly if controlled participants already have granted stock_options that have been or will be taken into account under the general_rule of paragraph d iii a of this section then except in cases specified in the last sentence of paragraph d iii b of this section the controlled participants may make the election described in paragraph d iii b of this section only with the consent of the commissioner and the consent will apply only to stock_options granted in taxable years subsequent to the taxable_year in which consent is obtained notice_2005_991 extended the elective method to nonvested equity shares or nonvested equity share units within the meaning of statement of financial_accounting standards no share- based payment financial_accounting standards board rev sfa sec_123r provided that those shares or share units i constitute or are issued with respect to publicly traded stock within the meaning of sec_1_482-7 and ii are not subject_to market conditions or significant post-vesting restrictions within the meaning of sfa sec_123r we refer to such shares and share units as restricted shares and share units an election to apply the elective method to restricted shares or share units is generally made in the time and manner set forth in sec_1_482-7 however the consent of the commissioner is not required to elect the elective method for restricted shares and share units if the election is made by a written amendment to the csa not later than the latest due_date with regard to extensions of a federal_income_tax return of any controlled participant for the first taxable_year beginning after date identifying sbc related to intangible development sec_1_482-7 provides the rule for identification of sbc with the intangible development activity ida grant_date identification in relevant part as follows the determination of whether stock-based compensation is directly identified with or reasonably allocable to the ida is made as of the date that the stock-based compensation is granted accordingly all stock- based compensation that is granted during the term of the csa and at date of grant is directly identified with or reasonably allocable to the ida is included as an idc under paragraph d of this section notice_2005_99 refers to the sbc rules contained in sec_1_482-7 the materially similar predecessor of the rules in sec_1_482-7 that are applicable in the present case plr-123934-13 notice_2005_99 provides that a taxpayer may choose to determine whether sbc measured by the elective method is related to the ida by analyzing the activities of the employee recipients of the sbc by reference to financial reporting periods identifying the related compensation on a period-by-period basis period-by-period identification rather than using grant_date identification notice_2005_99 further provides taxpayers’ implementation of this identification method based on financial reporting periods must meet four requirements first the identification methodology must be applied consistently under the principles of sec_1 d iii c second any stock-based compensation the fair value of which is not reflected as a charge against income in audited financial statements for example as in the case of certain stock_options the fair value of which was disclosed in footnotes prior to the effective date of sfa sec_123r must be identified for purposes of sec_1_482-7 as if the fair value of such compensation were reflected as a charge against income in audited financial statements third as under the grant-date identification rule controlled participants using this identification methodology must exclude stock-based compensation granted prior to the term of the qcsa fourth and finally stock-based compensation granted but not vested during the term of the qcsa must be treated as vesting immediately before expiration or termination of the qcsa for purposes of sec_1_482-7 under this final requirement if costs attributable to stock-based compensation granted during the term of the qcsa are allocable under u s gaap to reporting periods subsequent to the term of the qcsa the determination of whether these costs must be taken into account as intangible_development_costs must be based on the employee's activities as of the financial reporting_period during which the date of the expiration or termination of the qcsa occurs generally pursuant to sec_1_482-7 and b a change_of identification method may be made only by a written amendment to the csa entered into with the consent of the commissioner however notice_2005_99 further provides that the consent of the commissioner is not required to change from grant_date identification to period-by-period identification if such written amendment is made no later than the latest due_date with regard to extensions of a federal_income_tax return of any controlled participant for the first taxable_year beginning after date in applying period-by-period identification notice_2005_99 provides a ctivities within the intangible development area are not necessarily coextensive with those activities classified as research_and_development for financial reporting purposes consequently nothing in this notice should be interpreted as eliminating the requirement to take into account plr-123934-13 all stock-based compensation costs related to the intangible development area controlled participants must identify the stock-based compensation that is related to the intangible development area notwithstanding that the activities conducted to develop intangibles covered by the qcsa may differ from the activities classified as research_and_development for u s gaap purposes analysis based on the representations taxpayer has made the service grants taxpayer prospective consent to change to the elective method and period-by-period identification this consent is effective for days from the date of this letter therefore if taxpayer chooses to adopt the elective method and period-by-period identification it must make the written election in its csa within days from the date of this letter the sole purpose of this private_letter_ruling is to grant consent for taxpayer to use the elective method and period-by-period identification for purposes of including sbc as an idc that taxpayer must share for purposes of its csa except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter including the csa or concerning the validity of any provisions within the csa 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 tax_information_authorization on file with this office a copy of this letter is being sent to your authorized representative sincerely _____________________________________ christopher j bello chief branch office of associate chief_counsel international


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 b01 plr-130848-11 date january legend x --------------------------------------------------------------------------------------------------------------- ---------------------------- y ---------------- state ------ date1 ------------------- date2 -------------------------- date3 ----------------------- date4 ----------------- date5 ------------------------- date6 ----------------- shareholder1 ---------------------------- ------------------------------------------------ shareholder2 ----------------------- ---------------------------------------------- shareholder3 ----------------------- ------------------------------------------------ plr-130848-11 shareholder4 --------------------- ------------------------------------------------ a -- dear ----------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x by x's authorized representative requesting relief under sec_1362 of the internal_revenue_code the code facts according to the information submitted and representations made by shareholder2 the president of x x is a corporation incorporated under the laws of state on date1 x elected to be an s_corporation effective on date1 the initial shareholders of x were shareholder1 and shareholder2 on date2 shareholder3 became a shareholder on date3 x issued a additional shares to shareholder2 for no consideration also on date3 x issued shares to shareholder4 pursuant to a merger transaction the shares issued to shareholder4 were subject_to forfeiture if certain requirements were not met the shares issued to shareholder4 were held in trust by x the trust was treated as a_trust described in sec_1361 accordingly x treated shareholder4 as the shareholder with respect to the shares held in trust as of date3 and shareholder4 also treated himself as the shareholder with respect to the shares of stock held in trust additionally on date3 x and its shareholders entered into a tax indemnification agreement under which x was obligated to reimburse its shareholders for any unanticipated tax_liabilities arising from the merger no payments were ever made pursuant to this provision on date4 x entered into an agreement which changed the relative ownership of x among its four shareholders no consideration was given for these changes on date5 x made disproportionate distributions to its shareholders of x’s ownership of y however x represents that as of date5 y was an inactive business with no assets or value on date6 stock of x was transferred to an ineligible shareholder causing x to no longer be eligible to be an s_corporation x is concerned that when it engaged in the above transactions it may have inadvertently created a second class of stock and terminated its s_corporation_election x seeks a ruling that x will be treated as an s_corporation from date3 to date6 x represents that neither x nor its shareholders knew that any of the above transactions could potentially terminate x's s_corporation_election x and its plr-130848-11 shareholders have consistently treated x as an s_corporation and agree to make any adjustments consistent with the treatment of x as an s_corporation as may be required by the secretary law and analysis sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 provides that for purposes of subchapter_s the term small_business_corporation means a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock sec_1_1361-1 of the income_tax regulations provides in part that a corporation that has more than one class of stock does not qualify as a small_business_corporation except as provided in sec_1_1361-1 relating to instruments obligations or arrangements treated as a second class of stock a corporation is treated as having only one class of stock if all outstanding shares of stock of the corporation confer identical rights to distribution and liquidation proceeds differences in voting rights among shares of stock of a corporation are disregarded in determining whether a corporation has more than one class of stock sec_1_1361-1 provides in part that the determination of whether all outstanding shares of stock confer identical rights to distribution and liquidation proceeds is made based on the corporate charter articles of incorporation bylaws applicable state law and binding agreements relating to distribution and liquidation proceeds collectively the governing provisions although a corporation is not treated as having more than one class of stock so long as the governing provisions provide for identical distribution and liquidation rights any distributions including actual constructive or deemed distributions that differ in timing or amount are to be given appropriate tax effect in accordance with the facts and circumstances sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1362 provides than an election under sec_1362 shall be terminated whenever at any time on or after the first day of the first taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation plr-130848-11 sec_1362 provides in relevant part that if an election under sec_1362 by any corporation was terminated under sec_1362 or the secretary determines that the circumstances resulting in such termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such termination steps were taken so that the corporation for which the termination occurred is a small_business_corporation and the corporation for which the termination occurred and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make the adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to this period then notwithstanding the circumstances resulting in the termination the corporation shall be treated as an s_corporation during the period specified by the secretary conclusion based solely on the representations made and the information submitted we conclude that if x’s s_corporation_election terminated because x had more than one class of stock due to the stock issuances disproportionate distributions or tax indemnity agreement such termination was inadvertent within the meaning of sec_1362 therefore x will be treated as continuing to be an s_corporation from date3 until date6 provided x's s_corporation_election was valid and was not otherwise terminated under sec_1362 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 except as expressly provided herein we express or imply no opinion concerning the tax consequences of any aspect of any transaction engaged in by x and its shareholders from date3 to date6 specifically we express or imply no opinion regarding the appropriate federal tax effects of any stock issuances transfers or disproportionate distributions engaged in by x and its shareholders we also specifically express or imply no opinion regarding the tax treatment of the sale of the stock of x to the ineligible shareholder on date6 or whether x is otherwise eligible to be treated as an s_corporation plr-130848-11 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 sincerely faith p colson faith p colson senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy of this letter for sec_6110 purposes


ae g oa a be ps os tax_exempt_and_government_entities_division release number release date uil code department of the treasury in ternal revenue service commerce street mc dallas tx date ve jul ‘vaxpaver jdengicauien namber tax period ended person to contact dentificanon number ‘ contact information ‘pelephone fax certified mail - return receipt requested dear a final_determination that you do ne qualify for exempuon from federal come tas under this is internal_revenue_code the code section s01 a as an orpanization described w2 code secaon sec_1 for che tax period s above your exernpt status is hereby-revoked effective march our adverse determination as to your exempt stats was made for the following reason s you have not derronstrated that you are operaicd exclusively for exerapt purposes within the meaning of internal_revenue_code sec_501 c and sec_1 q05-1 exempt clubs are organized for pleasure recreation and other nonprofitable purposes the exempuon extends to social and recreation clubs that are supported sole y by membership tees dues and your aciivities are not in furtherance of operated exclusively for pleasure assessments reergation ur other simjar nonprofit surpeses aad are not exempt under sec_501 fa organizations thar are aot exempt under sec_501 generally are cequired to fi'e federal_income_tax recuras and pay tax where appheable kor further mstructions forms and information p ease visit ee tare ont wow wees re 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 onc of the following three veaucs united_states ‘vax court the united_states court of federal claims or the inited states district_court for the district of columbia a petition or complaint in onc of these three courts must be filed within days from the date this determinauon ‘etter was mailed to you please contact the clerk of the appropriate court for rules end the appropsiate forms for filing petuions for declaratory_judgment by referring to the enclosed publication you may write to the courts at the following addresses united_states tax_court second sereer n w washington d c uls court of federal claims madison place n w’ washington d c u s district_court for the district of columbia constitution ave nw washington d c processing of income_tax returns and assessments of any taxes duc will not be delayed if you file a peticion for declaratory_judgment urder sec_7428 of the internal_revenue_code the taxpayer advacate service tas is an independent organization withia the irs that can help protect you taxpayer tights we can offer you help if your tax problem is causing a hardship or if you qualify for our you've tried but haven’t been able to resolve your problem with the irs assistance which is always free we will do everything possible to help you visit taxpayeradvocate irs gov or call if you have any questions please contact the person whose name and telephone aumber are shown in the heading of this letter sincerely yours marta d hooke director eo examinauons enclosure pubkcation a t department of the treasury internal_revenue_service irs tax exempt and government entities exempt_organizations examinations certified mail - return receipt requested dear po bruary identification taxpayer_identification_number number form tax_year s ended person to contact employee id telephone fax manager’s contact information employee id telephone response due_date why you're receiving this letter we enclosed a copy of our audit report form 886-a explanation of items explaining that we propose to revoke your tax-exempt status as an organization described in internal_revenue_code irc sec_501 if you agree if you haven't already please sign the enclosed form_6018 consent to proposed action and return it to the contact person shown at the top of this letter we'll issue a final adverse letter determining that you aren't an organization described in sec_501 for the periods above lf you disagree request a meeting or telephone conference with the manager shown at the top of this letter send any information you want us to consider file a protest with the irs appeals_office send additional information as stated in with irs appeals_office after the meeting or after we consider the information if you request a meeting with the manager or and above you'll still be able to file a protest the irs appeals_office is independent of the exempt_organizations division and resolves most disputes informally sign a consent to extend the period of limitations for assessing tax this is to allow the irs appeals_office enough time to consider your case for your protest to be valid it must contain certain specific information including a statement of the facts applicable if you file a protest the auditing agent may ask you to letter rev catalog number 34809f law and arguments in support of your position valid protest refer to publication how to appeal an irs determination on tax- exempt status for specific information needed fora fast track mediation ftm referred to in publication the examination process generally doesn’t apply now that we’ve issued this letter request technical_advice from the office of associate chief_counsel tax exempt government entities if you feel the issue hasn’t been addressed in published precedent or has been treated inconsistently by the irs if you’re considering requesting technical_advice contact the person shown at the top of if you disagree with the technical_advice decision you will be able to appeal this letter to the irs appeals_office as explained above a decision made in a technical_advice_memorandum however generally is final and binding on appeals if we don't hear from you if you don't respond to this proposal within calendar days from the date of this letter we'll issue a final adverse determination_letter contacting the taxpayer_advocate office is a taxpayer right the taxpayer_advocate_service tas is an independent organization within the irs that can help protect your taxpayer rights tas can offer you help if your tax problem is causing a hardship or you've tried but haven't been able to resolve your problem with the irs qualify for tas assistance which is always free tas will do everything possible to help you visit www taxpayeradvocate irs gov or call if you for additional information you can get any of the forms and publications mentioned in this letter by visiting our website at www irs gov forms-pubs or by calling 800-tax-form if you have questions you can contact the person shown at the top of this letter sincerely maria hooke director exempt_organizations examinations enclosures form 886-a form_6018 letter rev catalog number 34809f oe form 886-a name of taxpayer explanation of items year ended schedule or exhibit no 20xx issue are the requirements to maintain c status met under the rule per treasury regulation for facts organization in august 19xx and received c status from the irs at the same time they were formed for the purpose of being a social_club for residents of and the surrounding course and provide a venue for socializing county area their primary activity is to maintain a golf was incorporated as a not-for-profit looked to enhance revenues from existing due to declining membership facilities to remain financially viable ie the general_public can play on the golf course the same as members also the operation of third-party manager the manager does not segregate member revenues from those of non-members so all revenue is categorized as non-member services to the general_public were ubi and their accounting firm prepared the related forms 990-t along with the 990s house was contracted out to a was aware a sec_501 organization is permitted to receive up to percent of its gross_receipts including investment_income from sources outside of its membership without losing its tax-exempt status of the percent not more than percent of the gross_receipts may be derived from the use of facilities or services by the general_public non-members was offered an opportunity to present facts and circumstances that were unique to their situation that the service could take into account when determining if revocation of exemption should apply the organization did not present any percentages of non-member revenues to total revenues fiscal_year ended 20xx 20xx 20xx 20xx law internal_revenue_code sec_501 applies to social and recreational_clubs which are supported solely by membership fees dues and assessments substantially_all their activities are for pleasure recreation and other non-profitable purposes pl provides that clubs may receive up to of their gross_receipts from sources outside their membership within the limitation no more than of gross_receipts may be derived from nonmember use of club facilities and or services department of the treasury - internal_revenue_service form 886-a er form 886-a explanation of items schedule or exhibit no name of taxpayer year ended 20xx if a club exceeds the test then it will maintain its exempt status only if it can show through facts and circumstances that substantially_all of its activities are for pleasure recreation and other non-profitable purposes applying the facts and circumstances tests for record keeping requirements was discussed in the court_of_appeals case 536_f2d_572 this case set forth factors to determine net profits from nonmember’s use of facilities and services that allow directly related costs fixed costs that would be paid_by in the absence of nonmember income such as depreciation utilities and maintenance should not be charged against nonmember income to determine net profits from nonmembers through its preparer is aware of the allowable taxpayers position thresholds of nonmember revenue and is aware and realizes they are subject_to revocation of their tax-exempt status management's position is that likely could not survive without the nonmember revenue and thus have indicated they will agree to revocation of their exempt status under sec_501 with the fiscal_year beginning march 20xx is outside those boundaries conclusion exemption under sec_501 and should be revoked as of the fiscal_year beginning march 20xx a ‘converted’ return for the fiscal_year ended 20xx will be prepared by the accounting firm and sent to the irs for processing going forward beginning with the fiscal_year ended 20xx the organization will file corporate tax returns no longer meets the requirements for department of the treasury - internal_revenue_service form 886-a


department of the treasury internal_revenue_service washington d c oeg sttff ta taa tax_exempt_and_government_entities_division u l l xxxxxxxxxxk xxxkxxkxkxxak xxxxxxxxaxkk attn xxxxxxx legend state a plan x group b employees board c director d commissioner e statute m dear e ek see this letter is in response to your request for a private_letter_ruling dated as supplemented by correspondence dated and submitted on your behalf by your authorized representative concerning whether plan x is a governmental_plan under sec_414 of the internal_revenue_code code the following facts and representations were made in support of your ruling_request plan x is a defined_benefit_plan created by state a pursuant to statute m plan x was created effective in order to consolidate the various existing retirement plans of state a municipalities that were established for the benefit of group b employees the consolidation was mandated by section 3c of statute m section of statute m provides that plan x shall be a body corporate and an instrumentality of state a and that plan x shall be the responsibility of state a and not that of the participating page -2- municipalities plan x received its most recent determination as to its qualified status under sec_401 of the code in a favorable determination_letter dated the purpose of plan x was to streamline and provide various economic efficiencies to the administration of the separate retirement plans maintained by various state a municipalities for group b employees statute m required the consolidation of these separate retirement plans and the transfer of those assets to plan x plan x are found in statute m all aspects of section of statute m provides that the overall responsibility for the administration of plan x resides in board c section a provides that board c shail be composed of thirteen members seven members shall be elected with six of those elected by active members of plan x from various geographic areas of state a with the members in each area electing an active member from that area and one elected by the retired members of plan x from state a with the retired members electing a retired member one member shall be appointed by the speaker of the house of representatives of state a one member shall be appointed by the president pro tempore of the state a senate one member shall be appointed by the governor of state a one member shall be appointed by the president of the state a municipal league one member shail be the state a insurance commissioner or his designee and one member shall be the director of state a finance or his designee section of statute m provides that board c shall keep a record of all of its proceedings which shall be open for inspection at all reasonable hours a report including such information as the operation of plan x for the past fiscal_year including income disbursements and the financial condition of plan x at the end of each fiscal_year and showing the valuation of plan x assets investments and liabilities shall be delivered to the governor of state a after the end of each fiscal_year the state a auditor and state a inspector shall make an annual audit of the accounts of plan x in accordance with state a statutes further section g provides that board c shall compile a quarterly financial report which shall be distributed to the governor of state a the pension committee of state a the legislative service bureau of state a the speaker of the house of representatives of state a and the president pro tempore of the state a senate among its many responsibilities board c is responsible for the policies and rules for the general administration of plan x section of statute m provides that board c shall appoint an executive director director d subject_to the policy direction of board c director d shall be the managing and the administrative officer of plan x and as such shall have charge of the office records supervision and direction of the employees of plan x section of statute m provides that director d with his staff and consultants shall be responsible to board c for the day-to-day operation of plan x and other duties which are assigned by board c director d shall be responsible to board c board c page -3- must also discharge its duties solely in the interest and for the exclusive benefit of the group b employees and their beneficiaries section of statute m provides that board c shall be responsible for the policies and rules for the general administration of plan x and for the transaction of its business consistent with law which rules and regulations shall be filed with the secretary of state of state a section of statute m provides that board c shall discharge its duties with respect to plan x solely in the interest of the participants of plan x and their beneficiaries the primary source of contributions to plan x is from the participating state a municipalities in the form of group b employees' contributions which are picked up by the state a municipal employer under sec_414 of the code as well as state a municipal employer contributions on behalf of such employees in addition of state a taxes collected by commissioner e on insurance premiums are contributed to plan x section of statute m in general defines a group b employee to mean an eligible officer of a participating municipality any municipality with a municipal police department is considered an eligible_employer under plan x an eligible_employer that elects to become a member of plan x and as such makes contributions to plan x on behalf of its group b employees is considered a participating municipality under section of statute m the only beneficiaries of plan x are group b employees and their beneficiaries as defined in statute m based on the aforementioned facts you have asked for a ruling that plan x is a governmental_plan under sec_414 of the code sec_414 of the code provides that a governmental_plan means a plan established and maintained for its employees by the government of the united_states by the government of any state or political_subdivision thereof or by any agency_or_instrumentality of any of the foregoing revrul_89_49 1989_1_cb_117 provides that a plan will not be considered a governmenial plan merely because the sponsoring_organization has a relationship with a governmental_unit or some quasi-governmental power one of the most important factors to be considered in determining whether an organization is an agency_or_instrumentality of the united_states or any state or political_subdivision is the degree of control that the federal or state government has over the organization’s everyday operations other facts include whether there is specific_legislation creating the organization the source of funds for the organization the manner in which the organization’s trustees or operating board are selected and whether the applicable page -4- governmental_unit considers the employees of the organization to be employees of the applicable governmental_unit although all of the above factors are considered in determining whether an organization is an agency_or_instrumentality of a government the mere satisfaction of one or all of the factors is not necessarily determinative with respect to the first factor of revrul_89_49 section of statute m which created plan x specifically states that plan x is an instrumentality of state a thus there is specific_legislation creating plan x and specifically identifying it as an instrumentality of state a with respect to the second factor of revrul_89_49 plan x does not receive specific funding from state a plan x is a contributory pension_plan and is funded with group b employees’ contributions that are picked up by state a municipal employers under sec_414 of the code as well as state a municipal employer contributions made on behalf of the group b employees further plan x receives fourteen percent of state a taxes collected on insurance premiums by commissioner e with respect to the third factor of revrul_89_49 state a exercises considerable control_over plan x section of statute m provides that the maintenance of plan x is the responsibility of state a and not that of the participating state a municipalities state a also exercises control_over plan x through board c board c is charged with the general administration and management of plan x board c consists of thirteen members seven of whom are elected with six of those elected from various geographic areas of state a and one elected from the entire state a retired plan x membership the other six members of the board c are appointed by various elected state a government officials including the governor of state a the speaker of the house of representatives of state a and the president pro tempore of the state a senate and the directors of other state a departments board c also appoints director d who is the managing and administrative officer of plan x and who is responsible for the day-to-day operation of plan x board c under the direction of director d is required by section g of statute m to make quarterly and annual financial reports on the financial condition of plan x and to submit such reports to the governor of state a and other state a officials further state a exercises oversight authority over plan x's operations pursuant to section of statute m which provides that the state a auditor and the state a inspector shall perform an annual audit of the accounts of plan x in accordance with state a statutes with respect to the fourth factor of revrul_89_49 group b employees are not considered to be direct employees of state a rather a participating municipality that has elected to participate in plan x and that makes contributions to plan x on behalf of its group b employees is considered to be the direct employer of a group b employee a participating municipality that participates in plan x is then subject_to all of the rules regulations and policies enacted by board c as mentioned earlier board c is responsible for the policies and rules for the general administration of plan x which pursuant to section of statute m is the responsibility of state a page -s- in view of the foregoing we conclude that plan x is a governmental_plan for purposes of sec_414 of the code this ruling is based on the assumption that plan x is qualified within the meaning of sec_401 of the code and its related trust is tax-exempt under sec_501 a times relevant to this ruling at all no opinion is expressed as to the federal tax consequences of the transaction described above under any other provision of the code no opinion is expressed as to the validity of the pick up arrangement of plan x under sec_414 of the code a copy of this ruling is being sent to your authorized representative in accordance with a power_of_attorney on file with this office if you have any questions please contact se t ep ra t sincerely yours signed joyce e floyd joyce e floyd manager employee_plans technical group enclosures deleted copy of letter notice


department of the treasury internal_revenue_service washington d c feb government entities division uniform issue list ter rat legend taxpayer a ira b financial_institution c account d financial_institution e city x city y amount dear this is in response to your request dated date as supplemented by correspondence dated date in which you request through your authorized representative a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a represents that she received a distribution equal to amount from ira b which was maintained by financial_institution c taxpayer a asserts that her failure to accomplish a rollover within the 60-day period prescribed by sec_408 of the code was due to her failure to receive notification that financial_institution c would no longer serve as the custodian for ira b taxpayer a maintained ira b with financial_institution c in late financial_institution c attempted to contact taxpayer a to inform her of their resignation as custodian of ira b effective date this notice was sent to taxpayer a’s last_known_address in city x taxpayer a never received the notice from financial_institution c because she had moved to another address in city y when taxpayer a did not respond to the notice financial_institution c transferred ira b to financial_institution e which placed amount in account d a non-ira account in date taxpayer a received the notice from financial_institution c at her new address in city y taxpayer a represents that she does not know why financial_institution c did not have her correct address in nor how they finally were able to send her the notice in august when taxpayer a received the notice she contacted financial_institution c who informed her that ira b had been transferred to financial_institution e and placed in a non-ira account taxpayer a represents that the assets in ira b have not been used for any other purpose taxpayer a also represents that financial_institution e has agreed to serve as an ira custodian if taxpayer a receives a waiver from the service based on the above facts and representations taxpayer a requests a waiver of the 60-day requirement contained in sec_408 of the code with respect to the distribution of amount from ira b sec_408 of the code defines an ira to mean a_trust created or organized in the united_states and requires that the trustee be a bank or an approved non- bank trustee sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money or any other_property is paid into an ira for the benefit of such individual not later than the 60th day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 i received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary_of_the_treasury may waive the 60-day requirement under sec_408 and sec_408 where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement revproc_2003_16 2003_4_irb_359 provides that the service will issue a ruling waiving the 60-day rollover requirement in cases where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the taxpayer in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer a are consistent with her assertion that the failure to complete a rollover of the distribution of amount from ira b was due to a failed notification of the distribution because of a postal delivery error therefore pursuant to sec_408 of the code the service waives the 60-day rollover period with respect to amount provided all other requirements of sec_408 except the 60-day requirement will be met with respect to the contribution of amount to an ira amount will be considered a rollover_contribution with the meaning of sec_408 this ruling does not authorize the rollover of amounts that are required to be distributed by sec_408 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_61 k of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representative if you wish to inquire about this ruling please contact d se t ep ra t1 at please address all correspondence to sincerely yours cariton a watkins manager employee_plans technical group enclosures notice of intention to disclose deleted copy of this letter cc


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to plr-111584-01 cc psi b5 date date legend taxpayer state a city b company c city d boulevard e street f commission g line h job i area j dollar_figurea b dollar_figurec d e f this letter responds to your authorized representative’s letter dated date requesting a letter_ruling concerning whether the payment received by taxpayer for the relocation of a underground gas transmission line is a nonshareholder contribution_to_capital excludable from income under sec_118 of the internal_revenue_code taxpayer represents that the facts are as follows plr-111584-01 facts taxpayer is an investor-owned public_utility incorporated in state a taxpayer is a natural_gas transmission and distribution public_utility serving residential commercial industrial electrical utility generation and wholesale customers in the southern and central parts of state a taxpayer is subject_to the regulation of commission g taxpayer is a wholly-owned subsidiary of company c a company incorporated in state a with whom it files a consolidated_return on a calendar_year basis using the accrual_method of accounting taxpayer is under the audit jurisdiction of the area director of city b city d is constructing a bus transfer station facility for the patrons of the ten transit routes serving the entire area j the facility is located in city d on boulevard e west of street f the facility will provide bus-to-bus transfers by allowing several buses to converge on the location at one time it is expected that the facility will reduce travel time by an estimated average of fifteen minutes for cross-town trips and will allow for an annual reduction of more than big_number bus miles city d is the owner of the real_property on which the bus transfer facility will be located and it will own the facility upon its completion the development of the line transfer facility in city d will require the relocation of a national gas pipeline approximately f feet from the bus transfer facility the gas line is an intrastate transmission pipeline and referred to by taxpayer as line h the relocation is referred to by taxpayer as job i the gas line is a high pressure conduit pipeline that transports gas from one substation to another city d has determined that the gas line must be relocated off of the project site for safety reasons the relocation is not a condition for service from the gas line to city d by taxpayer no customers are served from this line accordingly the gas line will not supply natural_gas to the facility nor will city d derive any benefit or be favored in any way as a result of this relocation city d has been requested to reimburse taxpayer for the cost to relocate the gas line including any_tax imposed pursuant to sec_118 the contract for the relocation provides that city d will pay taxpayer an estimated total of dollar_figurea for the relocation as part of the aforementioned cost for moving the gas line taxpayer has assessed the city a b contribution_in_aid_of_construction ciac tax gross-up of dollar_figurec taxpayer is requiring city d to pay the full amount of the relocation including the ciac in advance and construction is scheduled to begin in d and be completed in e commission g does not allow taxpayer to add amounts received from city d in taxpayer’s rate base for rate-making purposes rather the cost is treated as income as a result taxpayer will not earn a return on the funds it receives from city d to relocate the line plr-111584-01 taxpayer also represents that the relocated gas line remain a permanent part of taxpayer’s working_capital structure the payment by city d to taxpayer is not compensation_for services the payment is a bargained for exchange for the relocation project the payment will result in new equipment as part of taxpayer’s natural_gas transmission system commensurate with the amount of funds paid_by city d and the relocated gas line will continue to be used by taxpayer in the course of its business to produce income rulings requested taxpayer requests the internal_revenue_service to rule that the payment received by taxpayer for the relocation of the gas line is a non-shareholder contribution_to_capital under sec_118 and is not taxable ciac under sec_118 law and analysis sec_61 and sec_1_61-1 of the income_tax regulations provide that gross_income means all income from whatever source derived unless excluded by law sec_118 provides that in the case or a corporation gross_income does not include any contribution_to_the_capital_of_the_taxpayer sec_118 as amended by a of the tax_reform_act_of_1986 the act and a of the small_business job protection act of provides that for purposes of subsection a except as provided in subsection c the term contribution to the capital of taxpayer does not include any ciac or any other contribution as a customer or potential customer sec_1_118-1 provides in part that sec_118 also applies to contributions to capital made by persons other than shareholders for example the exclusion applies to the value of land or other_property contributed to a corporation by a governmental_unit or by a civic group for the purpose of enabling the corporation to expand its operating facilities however the exclusion does not apply to any money or property transferred to the corporation in consideration for goods or services rendered or to subsidies paid to induce the taxpayer to limit production the legislative_history to sec_118 indicates that the exclusion_from_gross_income for nonshareholder contributions to capital of a corporation was intended to apply to those contributions that are neither gifts because the contributor expects to derive indirect benefits nor payments for future services because the anticipated future_benefits are too intangible the legislative_history also indicates that the provision was intended to codify the existing law that had developed through administrative and court decisions on the subject h_r rep no 83rd cong 2d sess s rep no 83rd cong 2d sess in general the amendment made by of the act to sec_118 was plr-111584-01 intended to require a regulated_public_utility to include in income the value of any ciac made to encourage the provision of services by the utility to a customer as a result under the act all ciacs even those received by a regulated_public_utility such as taxpayer are includable in the gross_income of the receiving corporation the house ways_and_means_committee report house report states that property including money is a ciac rather than a contribution_to_capital if it is contributed to provide or encourage the provision of services to or for the benefit of the person making the contribution h_r rep no 99th cong 1st sess vol c b a utility is considered as having received property to encourage the provision of services if any one of the following conditions is met the receipt of the property is a prerequisite to the provision of the services the receipt of the property results in the provision of services earlier than would have been the case had the property not been received or the receipt of the property otherwise causes the transferor to be favored in any way the house report also states that the repeal of the special exclusion does not affect transfers of property that are not made for the provision of services including situations where it is clearly shown that the benefit of the public as a whole was the primary motivating factor in the transfers h_r rep no 99th cong 1st sess vol c b notice_87_82 1987_2_cb_389 provides additional guidance on the treatment of ciacs notice_87_82 follows the language from the house report and states that a payment received by a utility that does not reasonably relate to the provision of services by the utility or for the benefit of the person making the payment but rather relates to the benefit of the public at large is not a ciac in notice_87_82 an example of a payment benefitting the public at large is a relocation payment received by a utility under a government program to place utility lines underground in that situation the relocation is undertaken for either reasons of community aesthetics or in the interest of public safety and does not directly benefit particular customers of the utility in 339_us_583 1950_1_cb_38 the court held that money and property contributions by community groups to induce a shoe company to locate or expand its factory operations in the contributing communities were nonshareholder contributions to capital the court reasoned that when the motivation of the contributors is to benefit the community at large and the contributors do not anticipate any direct benefit from their contributions the contributions are nonshareholder contributions to capital u s pincite c b pincite in 412_us_401 the court articulated five characteristics of a nonshareholder contribution_to_capital first the payment must become a permanent part of the transferee’s working_capital structure second if may not be compensation such as a direct payment for a specific quantifiable service provided for the transferor by the transferee third it must plr-111584-01 be bargained for fourth the asset transferred foreseeably must benefit the transferee in an amount commensurate with its value fifth the asset ordinarily if not always will be employed in or contribute to the production of additional income and its value assured in that respect in the present case city d has determined that the gas line must be relocated off the project site for purposes of public safety prior to commencement of construction it is clear the relocation of gas lines running through the project site will promote public safety accordingly we conclude that the payment to taxpayer for the relocation falls within the public benefit exception described in the house report and notice_87_82 and will not be treated as ciac under sec_118 furthermore the payment to taxpayer meets the five characteristics of a nonshareholder contribution_to_capital stated in united_states v chicago burlington quincy railroad co based solely on the foregoing analysis and the representations made by taxpayer we rule as follows the payment received by taxpayer for the relocation of the gas line is not a ciac under sec_118 and qualifies as a nonshareholder contribution to the capital of taxpayer under sec_118 except as specifically set forth above no opinion is expressed or implied concerning the federal_income_tax consequences of the above described facts under any other provision of the code or regulations in accordance with the power_of_attorney filed with this request we are sending copies of this letter_ruling to your authorized representative this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours walter h woo senior technician reviewer branch office of associate chief_counsel passthroughs and special industries enclosure copy


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division release number release date date date uil code tt og00 contact person identification_number telephone number employer_identification_number foundation association museum m city management x y i dear facts this letter is in reference to the letter of date1 as amended from the authorized representative of foundation as amended foundation is requesting four rulings respecting certain issues arising under sec_501 sec_512 sec_513 and sec_514 of the internal_revenue_code _ foundation is an organization recognized by the internal_revenue_service service on date as exempt from federal_income_tax under sec_501 and was originally determined to be not a private_foundation within the meaning of sec_509 because it was described in sec_509 foundation was a supporting_organization of only one supported_organization association association is a membership_organization for m coaches at the collegiate and high school levels foundation’s public charity status was modified to sec_509 and sec_170 foundation states that it was formed at the behest of association to carry out charitable activities from time to time of interest to association and its members it is recognized as exempt from federal_income_tax under sec_501 on date foundation states that its primary activity is operating museum museum is located in the heart of city adjacent to and connected with a new multi-purpose sports arena museum is centerpiece in efforts that are being made to rejuvenate city central area the mission of museum is to educate and inform the public about amateur m and m coaching and their history and to inculcate in the public the values inherent in certain character traits foundation hopes that visitors to museum through contact with its interactive displays will acquire increased knowledge and appreciation for the game of amateur m particularly men’s college m its rich heritage and tradition and the values and life lessons that it teaches a foundation states that museum building is owned by city city delegated the management of both the sports arena and museum to a development management company management foundation built museum in museum building and operates museum under a contract with management under this contract foundation does not pay rent either to management or city but foundation is responsible for all museum operating_expenses and capital improvements the funding necessary to construct museum came from a variety of resources including a grant from city that was financed through bonds issued by city private donations and loans from city and a private banking institution with respect to the loans city loaned foundation money with an interest rate of the date the loan was made the bank provided a percent foundation drew on the line of credit in order to complete construction of rate of museum other than repayment of the loans owed to city and the bank foundation does not have any outstanding debt related to the construction and improvement of museum foundation states that it is not required to repay the grant received from city percent which is due to be paid no later than _-year line of credit bearing an interest years after foundation states that it rents museum to businesses clubs and other groups and individuals for business meetings retreats weddings parties and other private events during foundation’s through fiscal years museum was available to the general_public from to percent of the time it was open and was available to private parties from to percent of the time it was open foundation states that it provides a lounge and snack bar in museum allowing patrons to watch college m games on television sets located throughout the area visitors can purchase drinks and snacks from several vending machines located in this area foundation is entitled to receive a percentage of the price for each item sold from the vending machines the percentage varies depending on the product sold the vending machines themselves are owned by an unrelated third party who is responsible for making sure the vending machines properly work and are stocked with food and drink foundation states that it has entered into a licensing agent agreement licensing agreement that grants authority to a third party to act as agent on behalf of foundation in licensing the trademarks owned by foundation the agent has the exclusive right under the licensing agreement to develop a public relations advertising and marketing program for foundation’s trademarks and to implement a plan using third party licensees to commercialize license and or sell various products or services which bear or otherwise incorporate foundation’s trademarks except in city and the area within a -mile radius of city as part of the licensing agreement the agent negotiates on behalf of foundation the business terms and conditions of agreements between foundation and any third party licensee who is subject_to the same restrictions as the agent on the use of foundation’s trademarks the terms of an agreement entered into between foundation and a third party licensee varies depending on the agreement reached among the parties however in general the payments received by foundation from the agreements for_the_use_of its trademarks are based on either a percentage of the gross_sales of the licensed products or services using foundation's trademarks or a flat sum that is paid on at least an annual basis the agent collects the amounts due from the third party licensees and then remits the amounts collected to foundation in addition foundation is not required to provide any goods or services in connection with any agreement entered into with a third party licensee the licensing agreement provides foundation with the right of final approval as to any particular arrangement with a third party licensee including the terms and conditions of such arrangement also the agent is required to review each third party licensee’s use of foundation’s trademarks including if necessary visiting a third-party licensee's manufacturing facilities to insure the quality control of foundation’s trademarks in exchange for receiving these services foundation has agreed to pay the agent a percentage of the gross revenues collected from the third party licensees foundation states that management annually receives sponsorship payments from the initial sponsors founding partners of the sports arena foundation is entitled initially to receive dollar_figurex from these sponsorship payments from management with such amount increased by percent each year this amount will also be increased by an amount agreed to by foundation and management for each new sponsor of the sports arena foundation also receives sponsorship payments from various colleges and universities in exchange for foundation displaying each school’s logo foundation states that it receives sponsorship payments for and revenue from ticket sales to attend the annual honor induction ceremonies each sponsor's name and or logo is displayed on signs programs and pamphlets associated with the ceremonies foundation states that it is commencing a financial assistance program to benefit association members who are also coaches or retired coaches foundation states that it will provide financial assistance and may provide other assistance such as crisis referral and counseling services to association members who have demonstrated financial or emotional need including but not limited to need due to job loss serious illness death of a family_member disaster or other appropriate circumstances foundation states that it intends to pursue this program to the extent its human and financial resources permit it to do so the program is particularly aimed at helping the members of the high school and college m coaching profession who suffer severe economic strain due to job loss when a college head m coach loses his job all of the assistant coaches customarily lose their jobs as well the head coach may get a lucrative buyout package or a severance package the assistant coaches however normally get little or no notice that they are going to lose their jobs and receive few if any severance benefits as a result the assistant coaches in this kind of situation which is not unusual frequently encounter severe difficulty in meeting their living needs and paying their financial obligations in this situation even a modest amount of financial for example foundation states assistance to the assistant coach might be quite meaningful to him and the members of his family_foundation states that association currently has approximately members although the exact number changes from time to time however foundation expects that this number will remain reasonably constant in the future foundation believes that the number of such persons who would meet the assistance criteria at any given time would likely be small foundation’s financial assistance program will be set forth in writing and will include appropriate criteria to assure that assistance is provided only to individuals who are eligible members of the charitable_class such criteria will include demonstrable financial or emotional need foundation states that assistance will be granted by a committee established by foundation consisting at least in part of persons with a social work or other relevant background and less than a majority of the committee will at any time be individuals who are directors or officers or key employees of foundation no director or officer or key_employee of foundation while serving in such capacity or any family_member of a director of officer or key_employee of foundation while the director or officer of key_employee is serving in such capacity may be granted financial assistance by foundation foundation states that the amount of financial assistance that it is able to provide to any given recipient of aid will be determined by the committee the amount of aid will vary from time to time depending upon foundation’s financial resources foundation states that the amount of aid that will be available to be given to any individual under the program is dollar_figurey a relatively small amount foundation states that association will not in any of its membership literature characterize or tout or publicize foundation’s financial assistance program as a benefit of association membership thus the operation of foundation’s program will not confer upon or result in any benefit accruing to association however in order to make potential recipients of assistance from foundation aware of the program at foundation’s request association will from time to time include in association’s magazine and in other materials disseminated by association basic information about the availability of assistance through the program this information will make it clear that the program is operated by foundation and will refer interested persons to foundation rulings requested specifically foundation is requesting the following rulings foundation’s status under sec_501 will not be jeopardized or adversely affected by the activities of the foundation as described in this ruling_request including in particular foundation’s implementation and operation of its financial assistance program museum is not debt-financed_property under sec_514 income generated by the vending machines in museum is not unrelated_business_taxable_income under sec_512 the payments received by foundation pursuant to the licensing agreement are royalties within the meaning of sec_512 law sec_170 describes in part an organization 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 direct or indirect_contributions from the general_public sec_501 provides for the exemption from federal_income_tax of organizations organized and operated exclusively for religious charitable or educational_purposes so long as no part of the organization's net_earnings inures to the benefit of any private_shareholder_or_individual sec_501 provides in part for the exemption from federal_income_tax of business_leagues chambers_of_commerce real-estate boards boards_of_trade not organized for profit and no part of the net_earnings of which inures to be benefit of any private_shareholder_or_individual sec_509 provides in part that the term private_foundation means a domestic or foreign organization described in sec_501 other than organizations described in sec_509 and sec_509 is defined as an organization described in sec_170 other than in clauses vii and viii sec_512 provides that there shall be excluded from the definition of unrelated_business_taxable_income all royalties including overriding royalties whether measured by production or by gross or taxable_income_from_the_property and all deductions directly connected with such income sec_513 provides as a general_rule that the term unrelated_trade_or_business means in the case of any organization subject_to the tax imposed by sec_511 any trade_or_business the conduct of which is not substantially related aside from the need of such organization for income or funds or the use it makes of the profits derived to 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 sec_514 provides for the taxation of unrelated_debt-financed_income in computing under sec_512 the unrelated_business_taxable_income for any taxable_year sec_514 defines the term debt-financed_property as any property which is held to produce income and with respect to which there is an acquisition_indebtedness as defined in sec_514 at any time during the taxable_year sec_514 provides that the term debt financed property does not include any property substantially_all the use of which is substantially related aside from the need of the organization for income or funds to 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 sec_514 provides in part that the term debt financed property does not include any property to the extent that the income from such property is taken into account in computing the gross_income of any unrelated_trade_or_business sec_514 defines the term acquisition_indebtedness with respect to any debt- financed property as the unpaid amount of a the indebtedness incurred by the organization in acquiring or improving such property b the indebtedness incurred before the acquisition or improvement of such property if such indebtedness would not have been incurred but for such acquisition or improvement and c the indebtedness incurred after the acquisition or improvement or such property if such indebtedness would not have been incurred but for such acquisition or improvement and the incurrence of such indebtedness was reasonably foreseeable at the time of such acquisition or improvement sec_1_512_b_-1 of the income_tax regulations provides that royalties including overriding royalties and all deductions directly connected with such income shall be excluded in computing unrelated_business_taxable_income however for taxable years beginning after date certain royalties from and certain deductions in connection with either debt-financed_property as defined in sec_514 or controlled organizations as defined in paragraph of this section shall be included in computing unrelated_business_taxable_income sec_1_513-1 provides in general that gross_income derives from unrelated_trade_or_business within the meaning of sec_513 if the conduct of the trade_or_business which produces the income is not substantially related other than through the production of funds to the purposes for which exemption is granted the presence of this requirement necessitates an examination of the relationship between the business activities which generate the particular income in question - the activities that is of producing or distributing the goods or performing the services involved - and the accomplishment of the organization's exempt purposes sec_1_514_c_-1 defines acquisition_indebtedness with respect to debt-financed_property as the outstanding amount of i the principal indebtedness incurred by the organization in acquiring or improving such property ii the principal indebtedness incurred before the acquisition or improvement of such property if such indebtedness would not have been incurred but for such acquisition or improvement and iii the principal indebtedness incurred after the acquisition or improvement of such property if such indebtedness would not have been incurred but for such acquisition or improvement and the incurrence of such indebtedness was reasonable foreseeable at the time of such acquisition or improvement sec_1_514_b_-1 provides in part that to the extent that the use of any property is substantially related aside from the need of the organization for income or funds or the use it makes of the profits derived to the exercise or performance by an organization of its charitable educational or other purpose or function constituting its basis for exemption under sec_501 such property shall not be treated as debt-financed_property see sec_1_513-1 for principles applicable in determining whether there is a substantial relationship to the exempt_purpose of the organization sec_1_514_b_-1 provides that if substantially_all of any property is used in a manner described in sec_1_514_b_-1 such property shall not be treated as debt financed property in general the preceding sentence shall apply if percent or more of the use of such property is devoted to the organization's exempt_purpose the extent to which property is used for a particular purpose shall be determined on the basis of all the facts and circumstances these may include a comparison of the portion of time such property is used for exempt purposes with the total time such property is used revrul_74_399 1974_2_cb_172 describes the operation of a dining room cafeteria and snack bar by an exempt art museum for use by the museum staff employees and members of the public visiting the museum the patronage of the eating facilities by the general_public is not directly or indirectly solicited and the facilities contemplated are not designed to serve as a public restaurant but merely to serve the exempt purposes of the museum the facilities are not directly accessible from the street the operation of the eating facilities within the museum premises helps to attract visitors to the museum exhibits the revenue_ruling holds that the operation of the eating facilities by the museum under the particular circumstances is substantially related to the museum's exempt purposes and consequently is not unrelated_trade_or_business within the meaning of sec_513 of the code revrul_81_178 1981_2_cb_135 holds that payments an exempt_organization receives from various business enterprises for_the_use_of the organization's trademark and similar properties are royalties within the meaning of sec_512 the revenue rulings states that to be a royalty a payment must relate to the use of a valuable right payments for_the_use_of trademarks trade names service marks or copyrights whether or not payment is based on the use made of such property are ordinarily classified as royalties for federal tax purposes similarly payments for as the use of a professional athlete’s name photograph likeness or facsimile signature are ordinarily characterized as royalties on the other hand royalties do not include payments for personal services however the revenue_ruling states that the mere retention of quality control rights by a licensor in a licensing agreement situation does not cause payments to the licensor under the agreements to lose their characterization as royalties analysis an activity carried on by an organization described in sec_501 that is substantially related to the exercise or performance of its exempt_purpose within the meaning of sec_1 d will not constitute unrelated_trade_or_business under sec_513a foundation's financial assistance program is designed to provide modest financial benefits and services such as crisis referral and counseling to association members who have demonstrable financial or emotional need and who have suffered severe economic strain due to various circumstances including job loss in particular a committee of persons consisting at least in part of persons with social work or other relevant backgrounds will grant the assistance less than a majority of the committee will be composed of directors or officers or key employees of foundation association’s members constitute a large and indefinite number or persons and are not considered to be a closed class assistance program is considered to be charitable within the meaning of sec_501 for these reasons foundation’s financial foundation used a variety of funding to construct museum including grants financed through bond issuance private donations and loans from city and a private banking institution other than repayment of the loans owed to city and the bank foundation does not have any outstanding debt related to the construction and improvement of museum since such debt however constitutes acquisition_indebtedness under sec_514 museum would be considered debt-financed_property under sec_514 unless an exception applied under sec_514 the term debt-financed_property does not include any property substantially_all of the use of which is substantially related to the exercise or performance by an organization of its exempt_purpose sec_1_514_b_-1 provides that substantially_all of the use of a property is substantially related to exempt purposes if percent or more of the property is devoted to the organization's exempt_purpose with regards to foundation museum the property for which foundation incurred the debt is generally available to the general_public for more than percent of the total time it is open therefore comparing the portion of time the museum is used for exempt purposes with the total time it is used the facts show that percent or more of the museum is devoted to foundation’s tax exempt purposes but even if museum were open to the general_public less than of the time museum would still not be considered debt-financed_property under sec_514 debt-financed_property does not include any property to the extent that the income from such property is taken into account in computing the gross_income of any unrelated_trade_or_business since the income from the rental of museum to private parties would be taken into account in computing foundation’s gross_income from unrelated_trade_or_business museum would not be considered debt-financed_property to the extent it is open for private events consequently no part of museum would be considered debt-financed_property pursuant to revrul_74_399 supra and under the circumstances presented foundation's income from its vending machines in museum at times when museum is open to the general_public would be considered to be substantially related to foundation’s exempt_purpose and would not be considered as unrelated_business_income pursuant to revrul_81_178 supra payments that an exempt_organization receives from various business enterprises for_the_use_of the organization's trademark and similar properties are royalties within the meaning of sec_512 in this case the payments received by foundation pursuant to agreements for_the_use_of its trademarks are based on either a percentage of the gross_sales of the licensed products or a flat sum paid on at least an annual basis foundation is not required to provide any goods or services in connection with any agreement entered into with a third party licensee foundation has the right of final approval as to any particular arrangement with a third party licensee including the terms and conditions of such arrangement foundation's income in this manner is therefore considered to be royalties within the meaning of sec_512 conclusions accordingly based on the facts and circumstances as stated above we rule as follows foundation’s status under sec_501 of the code will not be jeopardized or adversely affected by the current activities of the foundation as described in this ruling letter including in particular foundation’s implementation and operation of its financial assistance program museum is not considered to be debt-financed_property of foundation under sec_514 income generated by the vending machines in museum at times when museum is open to the general_public is not unrelated_business_taxable_income under sec_512 the payments received by foundation pursuant to the licensing agreement are royalties within the meaning of sec_512 these rulings are based on the facts as they were presented and on the understanding that there will be no material changes in these facts any changes that may have a bearing upon foundation’s tax status should be reported to the service because it could help resolve questions concerning foundation’s federal_income_tax status this ruling should be kept in foundation’s permanent records pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to foundation’s authorized representative except as we have specifically ruled herein we express no opinion as to the consequences of these transactions under the cited provisions or under any other provision of the code these rulings will be made available for public inspection under sec_6110 after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for if you disagree with our proposed deletions you public inspection is attached to notice should follow the instructions in notice these rulings are directed only to the organization that requested it sec_6110 provides that they may not be used or cited as precedent if there are any questions about this ruling contact the person whose name and telephone number are shown in the heading of this letter enclosure notice sincerely yours ronald j shoemaker manager exempt_organizations technical group