internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc fip 4-plr-153737-01 date date legend trust fund state date manager dear this ruling responds to a letter dated date submitted on behalf of the trust requesting a ruling concerning the look-through_rule of sec_817 of the internal_revenue_code and sec_1_817-5 of the regulations facts the trust a state law business_trust is an open-end management investment_company the trust is registered under the investment_company act of the act and its shares are registered under the securities act of the sole current series of the trust is the fund the fund utilizes the accrual_method of accounting and is a calendar_year taxpayer under sec_851 the fund is treated as a separate corporation for federal_income_tax purposes the fund has qualified and elected to be treated as a regulated_investment_company ric since date and has since computed its income under sec_852 of the code for each taxable_year manager is a registered investment adviser under the investment advisers act of and acts as investment adviser to the fund pursuant to an investment management agreement between the trust and manager the fund serves as an investment vehicle for variable_contracts variable_contracts as defined under sec_817 of the code these variable_contracts are funded by segregated_asset accounts separate_accounts of life_insurance_companies the fund may offer its shares to certain qualified persons or retirement plans but has sold shares only to manager and to the separate_accounts that fund certain variable_contracts no shares have been sold to the general_public plr-153737-01 each separate_account is a segregated_asset_account the assets of each separate_account are owned by various life_insurance_companies none of the life_insurance_companies is affiliated with the trust or manager each separate_account is divided into sub-accounts each of which invests its assets in a particular open-end investment_company registered under the act or series thereof including the fund purchasers of the variable_contracts may allocate premiums under their variable_contracts to one or more sub-accounts of the separate_accounts supporting those variable_contracts the income gains or losses realized or unrealized of each sub- account are credited to or charged against the assets held in the sub-account without regard to the relevant insurance company’s other income gains or losses manager and the separate_accounts hold all the interests in the fund there is no public access to the fund other than through the purchase of variable_contracts the separate_accounts look-through to the assets of the fund for purposes of determining whether the diversification requirements of sec_817 are met proposed transaction the fund proposes to offer and sell its shares directly to individual_retirement_accounts described in sec_408 individual_retirement_accounts p simple retirement accounts and 408a roth iras and annuity_contracts described in sec_403 law and analysis sec_851 defines a ric in part as a domestic_corporation which at all times during the taxable_year is registered under the act as a management company or unit_investment_trust sec_851 limits the definition of a ric to a corporation meeting certain election gross_income and diversification requirements sec_851 provides that each fund of a ric shall be treated as a separate corporation for federal_income_tax purposes sec_851 defines the term fund for this purpose as a segregated portfolio of assets the beneficial interests in which are owned by holders of a class or series of stock of the ric that is preferred over all other classes or series in respect of such portfolio of assets sec_817 defines the term variable_contract as a contract that meets three requirements first the contract must provide for the allocation of all or part of the amounts received under the contract to an account that is segregated from the general asset accounts of the company under state law second the contract must be an annuity_contract a life_insurance_contract or a contract that provides funding of insurance on retired lives as described in sec_807 third in the case of an annuity_contract the amounts paid in or the amount_paid out must reflect the investment return and the market_value of the segregated_asset_account in the case of a life_insurance_contract the amount of the death_benefit or the period of coverage plr-153737-01 must be adjusted on the basis of the investment return and the market_value of the account and in the case of a contract for funding of insurance on retired lives the amounts paid in or the amount_paid out must reflect the investment return and the market_value of the account sec_817 provides that a variable_contract based on a segregated_asset_account shall not be treated as an annuity endowment or life_insurance_contract unless it is adequately diversified in accordance with regulations prescribed by the secretary under sec_1_817-5 of the regulations a no more than of the value of the total assets of the account may be represented by any one investment b no more than of the value of the total assets of the account may be represented by any two investments c no more than of the value of the total assets of the account may be represented by any three investments and d no more than of the value of the total assets of the account may be represented by any four investments regulation sec_1_817-5 provides that if the look-through_rule applies a beneficial_interest in a ric will not be treated as a single investment of a segregated_asset_account for purposes of testing diversification instead a pro-rata portion of each asset of the investment_company will be treated as an asset of the segregated_asset_account regulation sec_1_817-5 provides that the look-through_rule of sec_1_817-5 applies to any investment_company if a all the beneficial interests in the investment_company other than those described in sec_1_817-5 are held by one or more segregated_asset accounts of one or more insurance_companies and b public access to such investment_company is available exclusively except as otherwise permitted in sec_1_817-5 through the purchase of a variable_contract solely for this purpose the status of the contract as a variable_contract is determined without regard to sec_817 of the code and sec_1_817-5 of the regulations regulation sec_1_817-5 provides that satisfaction of the requirements of sec_1_817-5 is not prevented by reason of beneficial interests in a ric that are i held by the general account of a life_insurance_company or a corporation related to a life_insurance_company under sec_267 but only if the return on such interest is computed in the same manner as the return on an interest held by a segregated_asset_account is computed there is no intent to sell such interests to the public and a segregated_asset_account of such life_insurance_company also holds or will hold a beneficial_interest in the ric ii held by the manager or a corporation related to the manager under sec_267 but only if the holding of the interest is in connection with the creation or management of the ric the return on such interest is computed in the same manner as the return on an interest held by a segregated_asset_account is computed and there is no intent to sell such interests to the public plr-153737-01 iii held by the trustee of a qualified_pension or retirement_plan or iv held by the public or treated as owned by the policyholders pursuant to revrul_81_225 1981_2_cb_12 but only if a the ric was closed to the public in accordance with revrul_82_55 1982_1_cb_12 or b all the assets of the segregated_asset_account are attributable to premium payments made by policyholders prior to date to premium payments made in connection with a qualified_pension or retirement_plan or to any combination of such premium payments revrul_94_62 1994_2_cb_164 lists the following types of arrangements that are considered qualified_plans for purposes of sec_1_817-5 of the regulations a plan described in sec_401 that includes a_trust exempt from tax under sec_501 an annuity plan described in sec_403 an annuity_contract described in sec_403 including a custodial_account described in sec_403 an individual_retirement_account described in sec_408 an individual_retirement_annuity described in sec_408 a governmental_plan within the meaning of sec_414 or an eligible_deferred_compensation_plan within the meaning of sec_457 a simplified_employee_pension of an employer that satisfies the requirements of sec_408 a plan described in sec_501 any other trust plan account contract or annuity that the internal_revenue_service has determined in a letter_ruling to be within the scope of sec_1_817-5 of the regulations in the present case the fund proposes to offer and sell its shares directly to four new types of investors two of those types of investors - individual_retirement_accounts described in sec_408 and annuity_contracts described in sec_403 - are explicitly identified in revrul_94_62 as qualified_plans for purposes of sec_1_817-5 of the regulations the other two types of investors - simple retirement accounts under sec_408 and roth iras under sec_408a - did not exist in when the revrul_94_62 was published rulings plr-153737-01 based on the facts as presented by the trust we rule that an investment in the fund by an individual_retirement_account described in sec_408 a simple_retirement_account described in sec_408 a roth_ira described in sec_408a or an annuity_contract described in sec_403 will not prevent a separate_account from looking through to the fund’s underlying assets for purposes of meeting the diversification requirements of sec_817 of the code and sec_1_817-5 of the regulations caveats except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling concerns only the facts and arrangements identified by the taxpayer and no opinion is expressed concerning investment in the fund by type of investor other than those described in sec_408 sec_408 sec_408a or sec_403 this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely mark smith chief branch office of associate chief_counsel financial institutions and products


significant index no dollar_figure tax_exempt_and_government_entities_division department of the treasury internal_revenue_service washington d c nvr s se tel fa tal _l l lo - plan a plan b plan c plan d date date amount this is in response to the request dated date for rulings under sec_404 of the internal_revenue_code the code - facts the company is a calendar_year taxpayer that maintains its books_and_records under the accrual_method of accounting plan a plan b plan c and plan d collectively the plans are defined benefit plans intended to be qualified under sec_401 of the code the plans each have calendar plan years the taxpayer intends to make approximately amount contributions to the plans on or about date a significant portion of the proposed contributions the contributions will be made to the plans the remaining portion of the proposed contributions the contributions will be made on or about date but in no event earlier than the date of the contributions and in no event later than the date on which the taxpayer files the federal_income_tax return in contributions proposed each of the contributions will be accompanied by a letter from the taxpayer to the respective plans’ trustees to the effect that the contribution is on account of the plan and tax years the taxpayer has been advised by its actuary that the portion of the contributions attributable to each plan is less than the unfunded_liability described in sec_404 of the code with respect to each plan each of the contributions will be accompanied by a letter from the taxpayer to the respective plans’ trustees to the effect that the contribution is on account of the plan and tax years the taxpayer has been advised by its actuary that the portion of the contributions attributable to each plan is less than the projected unfunded_liability described in sec_404 of the code with respect to each plan subject_to the uniform_capitalization_rules of sec_263a of the code the taxpayer will deduct the contributions on its consolidated_income_tax_return and will report the contributions as contributions for the plan years on the schedules b of the forms filed by the plans subject_to the uniform_capitalization_rules of sec_263a of the code the taxpayer will deduct the contributions on its consolidated_income_tax_return and will report the contributions as contributions for the plan_year on the schedules b of the forms filed by the plans the credit balance in the funding_standard_account for each of the relevant plans as of date will reflect the contributions but will not reflect the contributions in addition none of the plans will record any amounts on line 9k of schedule b of the form_5500 filed for the plan_year for interest earned on the contributions the credit balance in the funding_standard_account for each of the relevant plans as of date will reflect the contributions the relevant plans will record an amount on line 9k of schedule b of the form_5500 filed for the plan_year for interest earned on the contributions from the date of such contributions through the end of the plan_year in accordance with the foregoing you have requested rulings that for purposes of sec_404 of the code the contributions will be on account of the tax_year and accordingly because the contributions will be made not later than the time prescribed by law for filing the return including extensions thereof the taxpayer will be deemed under sec_404 to have made a payment on the last day of and subject_to the uniform_capitalization_rules in sec_263a of the code will be entitled to take a deduction in the amount of the contributions pursuant to sec_404 of the code the contributions will be on account of the tax_year and subject_to the uniform_capitalization_rules in sec_263a of the code the taxpayer will be entitled to take a deduction on its tax_return in the amount of the contributions law sec_263a of the code provides that in the case of any property to which that section applies any cost described in paragraph -------- a in the case of property which is inventory in the hands of the taxpayer shall be included in inventory costs and b in the case of any other_property shall be capitalized sec_263a of the code provides that the costs described in that paragraph with respect to any property are ---- a the direct costs of such property and b such property's proper share of those indirect_costs including taxes part or all of which are allocable to such property any costs which but for that subsection could not be taken into account in computing taxable_income for any taxable_year shall not be treated as a cost described in that paragraph sec_404 of the code provides if contributions are paid_by an employer to or under a stock bonus pension profit-sharing or annuity plan or if compensation is paid_or_accrued by an employer on account of any employee under a plan deferring the receipt of such compensation such contributions or compensation is not deductible under chapter of the code but if it would otherwise be deductible is deductible under sec_404 subject_to the limitations of that section sec_404 of the code provides that for purposes of paragraphs and of sec_404 a taxpayer shall be deemed to have made a payment on the last day of the preceding_taxable_year if the payment is on account of such taxable_year and is made not later than the time prescribed by law for filing the return for such taxable_year or extensions thereof revrul_76_28 1976_1_cb_106 provides that a payment made after the close of an employer's taxable_year to which sec_404 applies shall be considered to be on account of the preceding_taxable_year if a the payment is treated by the plan in the same manner that the plan would treat a payment actually received on the last day of such preceding_taxable_year of the employer and b either of the following conditions are satisfied the employer designates the payment in writing to the plan_administrator or trustee as a payment on account of the employer's preceding_taxable_year or the employer claims such payment as a deduction on his tax_return for such preceding_taxable_year revrul_76_28 further provides that for purposes of the above requirements a payment may be designated on account of the preceding_taxable_year in the manner provided above at any time on or before the due_date of the employer's tax_return for such year including extensions thereof in addition revrul_76_28 provides that once a payment has been designated or claimed on a return in the manner provided above as being on account of a preceding_taxable_year the choice made shall be irrevocable and an employer may not retract or change such designation or claim analysis in the instant case the preceding_taxable_year is the taxable_year beginning date and ending date thus the last day of the preceding_taxable_year was date the taxpayer intends to make the contributions on or about date a date after the close of the taxable_year and not later than the time prescribed by law for filing the return for such taxable_year or extensions thereof revrul_76_28 provides two conditions that must be satisfied in order for a payment made after the close of an employer's taxable_year to which sec_404 applies to be considered to be on account of such preceding_taxable_year the first condition is that the payment is treated by the plan in the same manner that the plan would treat a payment actually received on the last day of such preceding_taxable_year of the employer in the instant case the taxpayer intends to record on the respective schedules b of forms the contributions as contributions to the plans for the plan years the credit balances in the respective funding standard accounts as of date will include the contribution in addition no amounts will be recorded on line 9k of the schedules b of forms for the plan_year for interest earned on the contributions thus the contributions will be treated in the same manner as if they had been actually received on date therefore the first condition of revrul_76_28 will be satisfied the second condition of revrul_76_28 is satisfied if either the employer designates the payment in writing to the plan_administrator or trustee as a payment on account of the employer's preceding_taxable_year or the employer claims such payment as a deduction on his tax_return for such preceding_taxable_year in the instant case the taxpayer intends to both claim the contribution as a deduction on its tax_return for the taxable_year ending date and designate the contributions as payments on account of such year therefore the second condition of revrul_76_28 will also be satisfied thus the two conditions that must be satisfied under revrul_76_28 in order for a payment that is made after the close of an employer's taxable_year to which sec_404 applies to be considered to be on account of the preceding_taxable_year will be satisfied accordingly it is ruled that for purposes of sec_404 of the code the contributions will be on account of the tax_year and thus because the contributions will be made not later than the time prescribed by law for filing the return including extensions thereof the company will be deemed under sec_404 to have made a payment on the last day of and will be entitled to take a deduction on its tax_return in the amount of the contributions subject_to the uniform_capitalization_rules under sec_263a of the code and the applicable deduction limitations of sec_404 of the code in the instant case the taxpayer intends to make the contributions on or about date a date within the taxable and plans’ years the taxpayer also intends to instruct the respective plans’ trustees to the effect that the contribution is on account of the plan and tax years the taxpayer also intends to record on the respective schedules b of forms the contributions as contributions to the plans for the plan years account of the tax_year accordingly the company will be entitled to take a deduction on its tax_return in the amount of the contributions subject_to the uniform_capitalization_rules under sec_263a of the code and the applicable deduction limitations of sec_404 of the code thus the contributions will be on this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited by others as precedent a copy of this letter is being furnished to your authorized representative pursuant to a power_of_attorney form on file if you have any questions on this ruling letter please contact sincerely rrr bellot-f- james e holland jr manager employee_plans technical


department of the treasury internal_revenue_service tege eo examinations mail stop dal commerce st dallas texas tax_exempt_and_government_entities_division number release date date date tax_year ending taxpayer_identification_number person to contact employee identification_number employee telephone number phone fax uil certified mail - return receipt dear this is a final_determination that you do not qualify for exemption from federal_income_tax under internal_revenue_code the code sec_501 as an organization described in code sec_501 effective october 20xx your determination_letter dated april 19xx is revoked the revocation of your exempt status was made for the following reason s organizations described in sec_501 of the internal_revenue_code and exempt from tax under sec_501 must be both organized and operated exclusively for exempt purposes a hospital organization must also comply with sec_501 in order to be treated as described in sec_501 you are not in compliance with any of the provisions imposed under sec_501 you are a dual status hospital which is a governmental hospital that is also exempt under sec_501 you will retain your status as a governmental hospital upon the loss of your status as exempt under sec_501 if you decide to contest this determination you may file an action for declaratory_judgment under the provisions of sec_7428 of the code in one of the following three venues united_states tax_court the united_states court of federal claims or the united_states district_court for the district of columbia a petition or complaint in one of these three courts must be filed within days from the date this determination_letter was mailed to you please contact the clerk of the appropriate court for rules and the appropriate forms for filing petitions for declaratory_judgment by referring to the enclosed publication you may write to the courts at the following addresses united_states tax_court second street n w washington d c u s court of federal claims madison place n w washington d c u s district_court for the district of columbia constitution ave n w washington d c 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 if you 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 have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter sincerely maria hooke director eo examinations enclosure publication department of the treasury internal_revenue_service tax exempt and government entities irs exempt_organizations examinations date date taxpayer_identification_number form tax_year s ended person to contact id number employee id contact numbers telephone fax manager’s name id number employee id manager’s contact number response due_date united parcel service - proof of delivery dear why you are receiving this letter we propose to revoke your status as an organization described in sec_501 of the internal_revenue_code code enclosed is our report of examination explaining the proposed action what you need to do if you agree if you agree with our proposal please sign the enclosed form_6018 consent to proposed action - sec_7428 and return it to the contact person at the address listed above unless you have already provided us a signed form we'll issue a final revocation letter determining that you aren’t an organization described in sec_501 c after we issue the final revocation letter we'll announce that your organization is no longer eligible for contributions deductible under sec_170 of the code 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 revocation letter failing to respond to this proposal will adversely impact your legal standing to seek a declaratory_judgment because you failed to exhaust your administrative remedies effect of revocation status if you receive a final revocation letter you'll be required to file federal_income_tax returns for the tax_year s shown above as well as for subsequent tax years what you need to do if you disagree with the proposed revocation letter rev catalog number 34809f if you disagree with our proposed revocation you may request a meeting or telephone conference with the supervisor of the irs contact identified in the heading of this letter you also may file a protest with the irs appeals_office by submitting a written request to the contact person at the address listed above within calendar days from the date of this letter the appeals_office is independent of the exempt_organizations division and resolves most disputes informally for your protest to be valid it must contain certain specific information including a statement of the facts the applicable law and arguments in support of your position for specific information needed for a valid protest please refer to page one of the enclosed publication how to appeal an irs decision on tax-exempt status and page six of the enclosed publication the examination process publication also includes information on your rights as a taxpayer and the irs collection process please note that fast track mediation referred to in publication generally doesn’t apply after we issue this letter you also may request that we refer this matter for technical_advice as explained in publication please contact the individual identified on the first page of this letter if you are considering requesting technical_advice if we issue a determination_letter to you based on a technical_advice_memorandum issued by the exempt_organizations rulings and agreements office no further irs administrative appeal will be available to you contacting the taxpayer_advocate office is a taxpayer right you have the right to contact the office_of_the_taxpayer_advocate their assistance isn’t a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate can't reverse a legally correct_tax determination or extend the time you have fixed by law to file a petition in a united_states court they can however see that a tax matter that hasn't 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 internal_revenue_service office_of_the_taxpayer_advocate phone fax letter rev catalog number 34809f for additional information 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 maria hooke director eo examinations enclosures report of examination form_6018 publication publication letter rev catalog number 34809f schedule number or exhibit form 886-a rev date explanations of items name of taxpayer tax identification_number year period ended 20xx issue whether the tax-exempt status of provisions of internal_revenue_code sec_501 should be revoked for its failure to comply with facts or is a governmental hospital and an internal_revenue_code irc sec_501 exempt_organization as well irs records show they submitted form_1023 seeking tax-exempt status under sec_501 during april of 19xx per the application the entity was created jointly by the city of governing document is a hospital contract between the parties which addresses the establishment and funding of the hospital jointly each by the municipalities article x of the hospital contract states the hospital will be supervised governed by a five-member board_of trustees each municipality will appoint two trustees with the fifth trustee being appointed jointly by the municipalities county the and the entity's initial determination_letter was issued april 19xx granting exemption under sec_501 upon expiration of the advance_ruling period a final_determination letter was issued june 19xx stating they were not a private_foundation because they are described in sec_170 as a hospital was founded in 19xx as hospital during 20xx major renovations were made to the hospital which included the addition of three new patient floors a new surgical intensive care unit new private short stay surgery rooms new private heart catheterizations rooms new surgery recovery positions new operating rooms and new medical office suites opened its newly constructed square foot addition which included a new emergency department cardiology area lab area and centralized registration general medical and surgical hospital serving residents in counties in northeast have more than doubled during its existence a0 bed acute care facility is a county the five surrounding and three counties in southern the entity’s operations in 20xx workforce in excess of persons has nearly doubled over the past decade making them the number one employer in behavior as they are critical in county the employees are held to a high standard of quest to provide quality care to their patients states on its website they are committed to improving the health of the communities they serve by providing the highest quality care and patient experience imaginable to achieve this goal emergency room operate sec_24 hours daily and they own or are affiliated with at least clinics the provide that following services employs over doctors who provide expertise in more than medical specialties their form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date name of taxpayer tax identification_number year period ended 20xx explanations of items e e e e e offers state-of-the-art radiation therapy consisting of behavioral health is a bed inpatient adult and senior behavioral health - psychiatric unit located on the - floor north at geropsychiatry beds and adult beds cancer treatment - the cancer center at technology and imaging which allows us to collaborate and focus on your care and treatment we offer the latest advances in cancer care and complete information on prevention screenings and cancer care education endocrinology heart and vascular - the critical care unit is a bed unit that combines coronary and intensive care this unit cares for patients whose condition requires critical and medical nursing intervention nephrology orthopedic center pediatrics plastic surgery radiology rehabilitation respiratory care sleep lab surgical services women’s health wound and hyperbaric center critical care emergency medical services - ambulance service that was founded in 19xx and was the first nationally recognized emt service in the state calls annually home health and hospice laboratory services express care ems employs paramedics and emt's that respond to over ems is a state licensed advanced life support was selected for examination for possible deficiencies relative to sec_501 which imposes additional requirements on hospitals identified as tax-exempt under sec_501 per provisions of the affordable_care_act aca virtue of its status as a governmental entity however that does not preclude its adherence to statutes enacted in response to the aca for sec_501 hospitals does not have a form_990 filing requirement by since the entity is not required to file form_990 information reported on schedule h of that return was sought from other sources a review of the entity's website did not provide the data nor was there a link or indication of where the data was located other searches were performed which also resulted in sec_501 data not being located therefore the searches performed identified form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date explanations of items tax identification_number year period ended name of taxpayer 20xx deficiencies relevant to the aca requirements and sec_501 specifically preliminary review of the entity did not locate its e e e e e community health needs assessment chna on instructions identifying where the chna was located implementation strategy is addressing the chna financial assistance policy fap emergency medical_care policy emcp billing and collection procedures website nor was there a link or along with several information document requests idrs to letter was mailed to obtain information relative to the items noted above when there was no response to the correspondence mailed to discuss the documents submitted to them when none of the personnel contacted answered the calls messages were left requesting a call from the ceo cfo and director of finance the director of finance contacted the agent and subsequently a phone call was received from the ceo telephone calls were made to administrative personnel to he became the main contact for the entity after speaking with did state had a chna prepared to identify the needs in their community and found they were already addressing issues identified in the chna implementation strategy nor have they complied with the other provisions of sec_501 the chna conducted for 20xx was posted on their website at some point subsequent to being contacted about the existence of the document and discussions germane to the aca requirements did not complete an to retain tax-exempt status under sec_501 during discussions with sec_501 states a hospital must comply with the items noted above and addressed in the idrs mailed to he was advised that irs records indicate c tax exempt hospital dual status entities when they have received a determination_letter from the irs stating they are exempt under sec_501 as a hospital is both a government hospital and an irc it was explained that governmental hospitals are described as stated he was not aware was exempt under sec_501 there was discussion regarding why some governmental hospitals prefer to be dual status hospitals stated none of the reasons discussed are applicable to their employees are covered by the retirement_plan offered by the state of they do not need the sales and or property_tax exemption nor do they receive a discounted rate from the post office they do not offer b plans as board had a meeting scheduled and said the issue would be addressed at that time he subsequently stated that the meeting was held and the board voted to relinquish the c status of the he sought guidance on how to terminate their exempt status research was conducted and advice sought on the proper procedure to relinquish c form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit rev date form 886-a explanations of items name of taxpayer status before contacting the best solution was revocation of the entity’ sec_501 status discussions were held with the ceo and it was determined tax identification_number year period ended 20xx law sec_501 r additional requirements for certain hospitals -- in general --a hospital organization to which this subsection applies shall not be treated as described in subsection c unless the organization-- a meets the community health needs assessment requirements described in paragraph b meets the financial assistance policy requirements described in paragraph c meets the requirements on charges described in paragraph and d meets the billing and collection requirement described in paragraph hospital organizations to which subsection applies -- a in general --this subsection shall apply to-- i an organization which operates a facility which is required by a state to be licensed registered or similarly recognized as a hospital and ii any other organization which the secretary determines has the provision of hospital care as its principal function or purpose constituting the basis for its exemption under subsection c determined without regard to this subsection b organizations with more than hospital facility --if a hospital organization operates more than hospital facility-- i the organization shall meet the requirements of this subsection separately with respect to each such facility and ii the organization shall not be treated as described in subsection c with respect to any such facility for which such requirements are not separately met community health needs assessments -- a in general --an organization meets the requirements of this paragraph with respect to any taxable_year only if the organization-- i has conducted a community health needs assessment which meets the requirements of subparagraph b in such taxable_year or in either of the taxable years immediately preceding such taxable_year and ii has adopted an implementation strategy to meet the community health needs identified through such assessment form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date name of taxpayer explanations of items tax identification_number year period ended 20xx b community health needs assessment --a community health needs assessment meets the requirements of this paragraph if such community health needs assessment-- i takes into account input from persons who represent the broad interests of the community served by the hospital facility including those with special knowledge of or expertise in public health and ii is made widely available to the public financial assistance policy --an organization meets the requirements of this paragraph if the organization establishes the following policies a financial assistance policy --a written financial assistance policy which includes-- i eligibility criteria for financial assistance and whether such assistance includes free or discounted care ii the basis for calculating amounts charged to patients iii the method for applying for financial assistance iv in the case of an organization which does not have a separate billing and collections policy the actions the organization may take in the event of non-payment including collections action and reporting to credit agencies and v measures to widely publicize the policy within the community to be served by the organization b policy relating to emergency medical_care --a written policy requiring the organization to provide without discrimination care for emergency medical conditions within the meaning of section of the social_security act u s c 1395dd to individuals regardless of their eligibility under the financial assistance policy described in subparagraph a limitation on charges --an organization meets the requirements of this paragraph if the organization-- a limits amounts charged for emergency or other medically necessary care provided to individuals eligible for assistance under the financial assistance policy described in paragraph a to not more than the amounts generally billed to individuals who have insurance covering such care and b prohibits the use of gross charges billing and collection requirements --an organization meets the requirement of this paragraph only if the organization does not engage in extraordinary collection actions before the organization has made reasonable efforts to determine whether the individual is eligible for assistance under the financial assistance policy described in paragraph a regulatory authority --the secretary shall issue such regulations and guidance as may be necessary to carry out the provisions of this subsection including guidance relating to what constitutes reasonable efforts to determine the eligibility of a patient under a financial assistance policy for purposes of paragraph form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a explanations of items rev date tax identification_number year period ended name of taxpayer 20xx c f_r sec_1_501_r_-1 sec_1_501_r_-1 sec_1_501_r_-1 definitions currentness a application the definitions set forth in this section apply to sec_1_501_r_-2 through r -7 b definitions- amounts generally billed agb means the amounts generally billed for emergency or other medically necessary care to individuals who have insurance covering such care determined in accordance with sec_1_501_r_-5 agb percentage means a percentage of gross charges that a hospital facility uses under sec_1 r - b to determine the agb for any emergency or other medically necessary care it provides to an individual who is eligible for assistance under its financial assistance policy fap application period means the period during which a hospital facility must accept and process an application_for financial assistance under its fap submitted by an individual in order to have made reasonable efforts to determine whether the individual is fap-eligible under sec_1_501_r_-6 authorized body of a hospital facility means- i the governing body that is the board_of directors board_of trustees or equivalent controlling body of the hospital organization that operates the hospital facility or a committee of or other party authorized by that governing body to the extent such committee or other party is permitted under state law to act on behalf of the governing body billing and collections policy means a written policy that includes all of the elements described in sec_1 r -4 b i date provided means in the case of any billing statement written notice or other written communication that is mailed the date of mailing the date that a billing statement written notice or other written communication is provided can also be the date such communication is sent electronically or delivered by hand emergency medical_care means care provided by a hospital facility for emergency medical conditions emergency medical conditions means emergency medical conditions as defined in section of the social_security act u s c 1395dd extraordinary collection action eca means an action described in sec_1_501_r_-6 financial assistance policy fap means a written policy that meets the requirements described in sec_1_501_r_-4 hospital facility means a facility that is required by a state to be licensed registered or similarly recognized as a hospital multiple buildings operated under a single state license are considered to be a single hospital facility plain language summary of the fap means a written_statement that notifies an individual that the hospital facility offers financial assistance under a fap and provides the following additional information in language that is clear concise and easy to understand vi a statement of the availability of translations of the fap fap application form and plain language summary of the fap in other languages if applicable widely available on a web site means- i the hospital facility conspicuously posts a complete and current version of the document on- a the hospital facility's web site b if the hospital facility does not have its own web site separate from the hospital organization that operates it the hospital organization's web site or form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a explanations of items rev date name of taxpayer tax identification_number year period ended 20xx c a web site established and maintained by another entity but only if the web site of the hospital facility or hospital organization if the facility or organization has a web site provides a conspicuously-displayed link to the web page where the document is posted along with clear instructions for accessing the document on that web site ii individuals with access to the internet can access download view and print a hard copy of the document from the web site- a without requiring special computer hardware or software other than software that is readily available to members of the public without payment of any fee b without paying a fee to the hospitality facility hospital organization or other entity maintaining the web site and c without creating an account or being otherwise required to provide personally identifiable information and iii the hospital facility provides individuals who ask how to access a copy of the document online with the direct web site address or url of the web page where the document is posted c f_r sec_1_501_r_-2 sec_1_501_r_-2 sec_1_501_r_-2 failures to satisfy sec_501 currentness a revocation of sec_501 status except as otherwise provided in paragraphs b and c of this section a hospital organization failing to meet one or more of the requirements of sec_501 separately with respect to one or more hospital facilities it operates may have its sec_501 status revoked as of the first day of the taxable_year in which the failure occurs in determining whether to continue to recognize the sec_501 status of a hospital organization that fails to meet one or more of the requirements of sec_501 with respect to one or more hospital facilities the commissioner will consider all relevant facts and circumstances including but not limited to the following whether the organization has previously failed to meet the requirements of sec_501 and if so whether the same type of failure previously occurred the size scope nature and significance of the organization's failure s in the case of an organization that operates more than one hospital facility the number size and significance of the facilities that have failed to meet the sec_501 requirements relative to those that have complied with these requirements the reason for the failure s whether the organization had prior to the failure s established practices or procedures formal or informal reasonably designed to promote and facilitate overall compliance with the sec_501 requirements whether the practices or procedures had been routinely followed and the failure s occurred through an oversight or mistake in applying them form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service rou bbg explanations of items schedule number or exhibit year period ended tax identification_number name of taxpayer 20xx whether the organization has implemented safeguards that are reasonably calculated to prevent similar failures from occurring in the future whether the organization corrected the failure s as promptly after discovery as is reasonable given the nature of the failure s whether the organization took the measures described in paragraphs a and a of this section before the commissioner discovered the failure s b minor omissions and errors- in general a hospital facility's omission of required information from a policy or report described in sec_1_501_r_-3 or sec_1_501_r_-4 or error with respect to the implementation or operational requirements described in sec_1_501_r_-3 through r -6 will not be considered a failure to meet a requirement of sec_501 if the following conditions are satisfied i such omission or error was minor and either inadvertent or due to reasonable_cause ii the hospital facility corrects such omission or error as promptly after discovery as is reasonable given the nature of the omission or error such correction must include establishment or review and if necessary revision of practices or procedures formal or informal that are reasonably designed to promote and facilitate overall compliance with the requirements of sec_501 reasonable_cause for purposes of this paragraph b the fact that a hospital facility has established practices or procedures formal or informal reasonably designed to promote and facilitate overall compliance with the sec_501 requirements prior to the occurrence of an omission or error is a factor tending to show that the omission or error is due to reasonable_cause c excusing certain failures if hospital facility corrects and discloses a hospital facility's failure to meet one or more of the requirements described in sec_1_501_r_-3 through r -6 that is neither willful nor egregious shall be excused for purposes of this section if the hospital facility corrects and makes disclosure in accordance with rules set forth by revenue_procedure notice or other guidance published in the internal_revenue_bulletin for purposes of this paragraph c a willful failure includes a failure due to gross negligence reckless disregard or willful neglect and an egregious failure includes only a very serious failure taking into account the severity of the impact and the number of affected persons whether a failure is willful or egregious will be determined based on all of the facts and circumstances a hospital facility's correction and disclosure of a failure in accordance with the relevant guidance is a factor tending to show that the failure was not willful d taxation of noncompliant hospital facilities- in general except as otherwise provided in paragraphs b and c of this section if a hospital organization that operates more than one hospital facility fails to meet one or more of the requirements of sec_501 separately with respect to a hospital facility form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date explanations of items tax identification_number year period ended name of taxpayer 20xx during a taxable_year the income derived from the noncompliant hospital facility noncompliant facility income during that taxable_year will be subject_to tax noncompliant facility income- i in general for purposes of this paragraph d the noncompliant facility income derived from a hospital facility during a taxable_year will be the gross_income derived from that hospital facility during the taxable_year less the deductions allowed by chapter that are directly connected to the operation of that hospital facility during the taxable_year excluding any gross_income and deductions taken into account in computing any unrelated_business_taxable_income described in sec_512 that is derived from the facility during the taxable_year analysis and government position the aca enacted march 20xx added new mandatory requirements on hospital organizations to retain their exemption under sec_501 most of the provisions were effective upon passage of the aca the chna requirements became effective for tax years beginning after march 20xx and stated the hospital must conduct a chna and implementation strategy at least once every three years for tax years beginning after march 20xx the entity operates on a fiscal_year ending september annually the chna would have be conducted no later than its year ended september 20xx for them to be compliant the final regulations were issued on december 20xx effective for tax years beginning after december 20xx and states the documents required must be made widely available on policy was not enforceable for the period examined but was a requirement when the exam was initiated website for the current periods and that would therefore the data requested should have been on have made some of the documents sought for the year under audit automatically available website this sec_501 states hospitals required to follow its provisions will not be recognized as an entity described in sub sec_501 unless it meets the criteria enumerated in sub sec_501 b c and d those sections state the entity must have a chna fap limit the amounts charged for emergency or other medically necessary care provided to patients eligible for assistance under its fap prohibit the use of gross charges and states the hospital cannot engage in extraordinary collection actions before reasonable efforts have been made to determine whether the patient is eligible for assistance under the hospital's fap sec_501 further states this law is applicable to organization's that operate a facility required to be licensed registered or recognized as a hospital and any other organization determined to have the provision of hospital care as its principal function or purpose constituting the basis for its exemption under sub sec_501 sec_1_501_r_-1 provides definitions of terms pertinent to sec_501 regarding amounts that can be charged patients billing policies fap applications governing body of the hospital and other pertinent items it provides clarity form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date explanations of items name of taxpayer sec_1_501_r_-2 states hospitals failing to meet one or more of the requirements of this section could have it sec_501 status revoked effective the first day of the taxable_year in which the failure occurs tax identification_number year period ended 20xx the entity does have a website which we reviewed during the pre-audit phase of the examination and as the exam progressed the website did not meet the final regulations nor was there any indication the temporary and or proposed_regulations had been followed or met the entity performed a chna which in their opinion identified issues in the community that were being addressed by them otherwise none of the provisions of the aca or sec_501 were followed during conversations with the entity and review of their operations it was established they were not in compliance with the provision of sec_501 furthermore they were not aware of their statutory obligation to do so as was not aware of its exemption under sec_501 the entity's ceo stated after discussions with the governing body they had discussed termination of the c status since they were not aware for its existence nor was a tangible benefit being derived from the status the entity was established as governmental hospital and has been operating as such they were concerned about the assessment of penalties due to their lack of compliance upon review of the procedures to terminate which results in a prospective action and a subsequent request for retroactive termination of the exempt status along with discussions with counsel it was determined revocation of their exempt status was applicable and appropriate based upon the facts the entity will retain its status as a governmental hospital upon loss of its status as a public charity taxpayer’s position the taxpayer has stated they will agree to revocation of their status as an sec_501 hospital since they would remain a governmental hospital conclusion is a hospital that was selected for an examination to determine its compliance with the aca provisions under sec_501 the entity is a governmental hospital that is also exempt under sec_501 of the code this type entity is referred to as a dual status hospital compliance with any of the provisions imposed under sec_501 of the code the entity stated they were not aware of the sec_501 exemption and were not availing themselves of benefits afforded under that subsection therefore revocation of their exempt status is proposed effective for the year beginning october 20xx as this is the first taxable_year failure to comply with sec_501 was noted it was determined the entity is not in form a catalog number 20810w page _ publish no irs gov department of the treasury-internal revenue service


id office uilc cca-621150-09 -------------- number release date from ---------------- sent tuesday june am to ------------------------ cc subject re need legal advice- info for another case- promoter tax_shelter case hello ---------------- under h irs employees can have access to any returns and return_information that they need to know to perform their official tax_administration duties need to know means reasonably necessary to do the job correctly efficiently economically need if the exam teams here perceive that they are working on similar types of shelters or similar issues then they can share with each other material that will help each team to better understand the transaction including who is involved it does not require a cannot function without it level of it is vitally important that each exam team label everything they receive from the other team as the third party return_information of the other team's taxpayer or whichever other taxpayer the return_information actually belongs to in the event of a foia request a e request or a discovery demand by either taxpayer we must be able to identify what information is the return_information of that taxpayer and what is third party return_information and who is the third party taxpayer the situation described below sounds like much maybe all of what will be exchanged is for training and information purposes not directly for determining liability as such it is unlikely that any of it could be disclosed to the recipient exam team's taxpayer comparables are not disclosable to taxpayers you might want to check out the disclosure litigation training reference on the counsel website it's part of the ---- tab under reference tools training texts this is a few years old but the basic law hasn't changed hope this helps if you have further questions please feel free to contact me -------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------- ----------------


department of the treasury internal_revenue_service washington d c t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n all ------------- tax years --------------------- contact number identification_number form required to be filed employer_identification_number contact person ------------------ release date release number date date uil dollar_figure dear ------------- this is our final_determination that you do not qualify for exemption from federal_income_tax as an organization described in sec_501 recently we sent you a letter in response to your application that proposed an adverse determination the letter explained the facts law and rationale and gave you days to file a protest since we did not receive a protest within the requisite days the proposed adverse determination is now final you must file federal_income_tax returns on the form and for the years listed above within days of this letter unless you request an extension of time to file file the returns in accordance with their instructions and do not send them to this office failure_to_file the returns timely may result in a penalty we will make this letter and our proposed adverse determination_letter available for public inspection under code sec_6110 after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in notice if you agree with our deletions you do not need to take any further action if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter if you have any questions about your federal_income_tax status and responsibilities please contact irs customer service pincite-829-1040 or the irs customer service number for businesses the irs customer service number for people with hearing impairments is sincerely lois g lerner director exempt_organizations rulings agreements enclosure notice redacted proposed adverse determination_letter redacted final adverse determination_letter informa t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n department of the treasury internal_revenue_service washington d c ------------- fax number --------------------- --------------------- contact number identification_number contact person ------------------ employer_identification_number date date uil dear ------------- we have considered your application_for recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code as any organization described in sec_501 based on the information provided we have concluded that you do not qualify for exemption under that section the basis for our conclusion is set forth below you were incorporated on according to your articles of incorporation you are organized exclusively for charitable religious scientific literary or educational_purposes within the meaning of sec_501 of the internal_revenue_code_of_1986 the code including for such purposes the making of distributions to organizations that qualify as exempt_organizations under sec_501 of the code or corresponding section of any future federal tax code in particular the corporation shall advance education and promote social welfare by providing information regarding the sound use of consumer credit in addition the corporation shall instruct the public on subjects useful to individuals and beneficial to the community our evaluation of your form_1023 application and other supporting documentation indicates that your primary activity in furtherance of your purposes is the sale of a debt consolidation program in your application you stated that representatives of the organization will counsel debtors on problems with debt and how to relieve it in your sales script which you use to sell and promote your program you made clear that you market a debt consolidation program when you stated the following as you know we are not a loan company we are a debt management company we help consumers become debt free the best program to become debt free is our debt consolidation program you also made the following statement as you pay your bills through this program we are able to gain certain benefits for you from your creditors to help you save money we can reduce the interest rates the banks are charging you anywhere from to some go as low as depending on the creditor they also allow us to lower the amount of money you are spending monthly to make things a little more comfortable for you and we’ll simplify your bill-paying process so you only have one monthly payment you administer the program through a joint arrangement with another organization engaged in the debt management business you call this program a debt management plan dmp you stated in your application that clients with five or fewer creditors pay dollar_figure per month clients with six or more creditors pay dollar_figure per month and all clients pay a dollar_figure processing fee you represented that clients learn of the availability of your services through word-of-mouth you also stated that your services are not limited to a particular group or class you do however require that potential dmp clients have dollar_figure in unsecured debt to participate in the program the joint_venture arrangement requires that potential clients send enrollment forms to you that clients discuss goals expectations and financial history with you that you draw up the agreement and send it to the client and that after you review the agreement you fax it to your business partner essentially your role appears to be limited to procuring potential clients and delivering those qualified clients to your partner who handles all processing services related to your dmp you do not directly negotiate with creditors on behalf of your clients to achieve reductions in monthly payment amounts or reduction or elimination of interest rates and penalties you do not directly arrange to forward payment on the debtors’ behalf at mutually accepted times you do not negotiate with creditors on behalf of the debtors by submitting repayment proposals but rather contract for these services with your partner who acts as the dmp processor for a fee you represented that your counselors spend thirty minutes in their initial inquiry with a client subsequent calls last from to minutes and after enrollment in a dmp from to minutes per month you also stated that employees make from to calls per hour and they answer from to calls per day you appear to be operated solely as an intake office to secure qualified dmp clients for your joint_venture partner under the agreement your partner is responsible for all processing services related to the dmp including the initial setup of debt management clients normal management of client’s funds received and creditors paid negotiations with creditors and customer service for clients in return for your operation of the front-end call center on behalf of your processor you receive a share of the fees generated from the dmp a dollar_figure fee is transferred to your partners operating account and all remaining funds are shared between you percent and your partner percent in addition any fair share contribution the processor receives from the creditors in relation to clients you refer to them is shared with you it is not clear whether these fees are in lieu of or in addition to the fees you initially charge your clients you indicated that there is no charge for educational material to the debtor it is not clear however whether you provide any material to callers who do not sign up for your dmp all of the materials you submitted in support of your application were provided to you by your dmp processing partner or other organizations affiliated with your partner you provided no evidence that you created any of these materials the materials included a sales script a income worksheet a client debt management agreement a sheet titled ten steps to financial success a client information form a creditor information sheet a monthly budget worksheet etc you provided no indication of how these materials would be used in a systematic educational program with a structured educational methodology to counsel your clients additionally you provided no evidence that you have or will conduct any seminars workshops or other educational forums on money management consumer buying or budgeting directed to the general_public you also provided no materials to be specifically used in the training of your counselors or employees you provided no manuals employee guides or other materials commonly used in any such training moreover you provided no evidence that any of these individuals have been certified to perform credit counseling by an accredited credit counselor training agency as part of your response to our letter dated date you attached appendix b in which you indicated that for fiscal years and all revenue is generated from debt consolidation activities you provided no evidence that you have an active fundraising program in operation you also did not show in your proposed budgets that you have or will allocate any revenue for donations to educational or charitable programs you did however indicate that you paid dollar_figure per month for shared use of office space with a relative during you did not provide a copy of any written_agreement between you and the relative we also note that in your letter dated date you failed to answer the question of whether you have ever been a party any lawsuits you also failed to indicate whether you have been the recipient of any start-up loans capital from any sources your board_of directors is controlled by five individuals two of whom are related by blood you stated that the majority of members of your board_of directors also serve as employees of your organization you did not provide a copy of any employment agreements these individuals have employment experiences in general business and the customer service industry sec_501 of the code exempts from federal_income_tax corporations organized and operated exclusively for charitable educational and other purposes provided that no part of its net_earnings inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 of the regulations provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities that accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_1_501_c_3_-1 of the regulations provides that the term charitable is used in sec_501 of the code in its generally accepted legal sense and includes relief of the poor and distressed or of the underprivileged as well as the advancement of education sec_1_501_c_3_-1 of the regulations provides that the term educational refers to a the instruction or training of the individual for the purpose of improving or developing his capabilities or b the instruction of the public on subjects useful to the individual and beneficial to the community sec_1_501_c_3_-1 of the regulations provides that an organization may meet the requirements of sec_501 although it operates a trade_or_business as a substantial part of its activities if the operation of such trade_or_business is in furtherance of the organization’s exempt_purpose or purposes and if the organization is not organized or operated for the primary purposes of carrying on an unrelated_trade_or_business in 326_us_279 the supreme court held that the presence of a single non-exempt purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes the court found that the trade_association had an underlying commercial motive that distinguished its educational program from that carried out by a university in 302_f2d_934 ct_cl the court considered an organization that provided analyses of securities and industries and of the economic climate in general it sold subscriptions to various periodicals and services providing advice for purchases of individual securities the court noted that education is a broad concept and assumed arguendo that the organization had an educational purpose however the totality of the organization’s activities which included the sale of many publications as well as the sale of advice for a fee to individuals was indicative of a business therefore the court held that the organization had a significant non-exempt commercial purpose that was not incidental to the educational purpose and was not entitled to be regarded as exempt in consumer credit counseling service of alabama inc v united_states u s tax cas d d c the court held an organization that provided free information on budgeting buying practices and the sound use of consumer credit qualified for exemption from income_tax because its activities were charitable and educational the consumer credit counseling service which had been recognized as exempt under sec_501 in a group ruling is an umbrella organization made up of numerous credit counseling service agencies in this case these agencies provided information to the general_public through the use of speakers films and publications on the subjects of budgeting buying practices and the sound use of consumer credit they also provided counseling on budgeting and the appropriate use of consumer credit to debt-distressed individuals and families the professional counselors used only percent of their time for debt management programs they did not limit these services to low-income individuals and families but they provided their services free of charge the court found that the law did not require that an organization must perform its exempt functions solely for the benefit of low-income individuals to qualify under sec_501 nonetheless these agencies did not charge a fee for the programs that constituted their principal activities a nominal fee was charged for the debt management services but was waived when payment would work a financial hardship the agencies received the bulk of their support from government and private_foundation grants contributions and assistance from labor agencies and the united way an incidental amount of their revenue was from fees thus the court concluded that each of the plaintiff consumer credit counseling agencies was an organization described in sec_501 as a charitable and educational_organization see also credit counseling centers of oklahoma inc v united_states u s tax cas d d c in which the facts were virtually identical and the law was identical to those in consumer credit counseling centers of alabama inc v united_states discussed immediately above in revrul_69_441 1969_2_cb_115 the service found that a nonprofit organization formed to help reduce personal bankruptcy by informing the public on personal money management and aiding low-income individuals and families with financial problems was exempt under sec_501 of the code its board_of directors was comprised of representatives from religious organizations civic groups labor unions business groups and educational institutions the organization provided information to the public on budgeting buying practices and the sound use of consumer credit through the use of films speakers and publications it aided low- income individuals and families who have financial problems by providing them with individual counseling and if necessary by establishing budget plans under the budget plan the debtor voluntarily made fixed payments to the organization which held the funds in a_trust account and disbursed the funds on a partial payment basis to the creditors the organization did not charge fees for counseling services or proration services the debtor received full credit against his debts for all amounts paid the organization did not make loans to debtors or negotiate loans on their behalf finally the organization relied upon voluntary contributions primarily from the creditors participating in the organization’s budget plans for its support the service found that by aiding low-income individuals and families who have financial problems and by providing without charge counseling and a means for the orderly discharge_of_indebtedness the organization was relieving the poor and distressed moreover by providing the public with information on budgeting buying practices and the sound use of consumer credit the organization was instructing the public on subjects useful to the individual and beneficial to the community thus the organization was exempt from federal_income_tax under sec_501 of the code for an organization claiming the benefits of sec_501 exemption is a privilege a matter of grace rather than right 470_f2d_849 10th cir cert_denied 414_us_864 the applicant for tax exempt status under sec_501 has the burden of showing it comes squarely within the terms of the law conferring the benefit sought 30_tc_1151 the tax_court has stated that an application_for tax-exempt status calls for open and candid disclosure of all facts bearing upon an applicant’s organization operations and finances to assure that there is not abuse of the revenue laws if such disclosure is not made the logical inference is that the facts if disclosed would show that the applicant fails to meet the requirements of sec_501 74_tc_531 see also 412_f2d_1197 cert_denied 397_us_1009 furthermore the courts have repeatedly upheld the service’s determination that an organization has failed to establish exemption when the organization fails to provide requested information applicant has for the most part provided only generalizations in response to repeated requests by the service for more detail on prospective activities such generalizations do not satisfy us that applicant qualifies for the exemption peoples prize v commissioner t c memo section dollar_figure of revproc_90_27 1990_1_cb_514 provides that exempt status will be recognized in advance of operations if proposed operations can be described in sufficient detail to permit a conclusion that the organization will clearly meet the particular requirements of the section under which exemption is claimed a mere restatement of purposes or a statement that proposed activities will be in furtherance of such purposes will not satisfy this requirement the organization must fully describe the activities in which it expects to engage including the standards criteria procedures or other means adopted or planned for carrying out the activities the anticipated sources of receipts and the nature of contemplated expenditures an organization that cannot demonstrate to the satisfaction of the service the proposed activities will be exempt may be required to provide a record of actual operations for the service to issue a ruling or determination_letter our analysis of the information you submitted shows that while you are organized for charitable purposes you do not satisfy the operational requirements to be recognized as exempt under sec_501 of the code there is no evidence that your primary purpose is to provide financial education to individuals or to the general_public in that you do not have a tailored educational program with a structured educational methodology in place in fact the administrative record demonstrates that you operate for the substantial non-exempt purpose of selling dmp services to the general_public in addition you have not shown that you operate for exclusively charitable and educational_purposes rather than for purely private purposes based on the information you submitted you have not established that you operate for educational_purposes within the meaning of sec_501 training an individual to develop his capabilities or instructing the public on subjects useful to the individual and beneficial to the community are both educational_purposes recognized as exempt see sec_1 c - d of the regulations financial counseling could be carried out as an educational activity consumer credit counseling service of alabama inc v united_states and revrul_69_441 supra while education is a broad concept the service and the courts require an organization to have a substantial educational program not a non-educational program with some random educational features the information you have submitted provides no basis for us to conclude that you offer either education to the public on subjects useful to the individual and beneficial to the community or training to the individual you failed to substantiate that you follow an educational methodology in operating your dmp you failed to provide any evidence that your dmp is an incidental adjunct to a substantial and substantive program of public education and individual counseling your discussion with clients does not appear to include any educational material or counseling component in fact the limited materials you submitted were not created by you instead they were supplied to you by your dmp partner you did not explain how these materials would be used in the context of a systematic educational program with a structured educational methodology you have not demonstrated that you conduct seminars workshops interactive on-line classes or other educational forums on money management consumer buying budgeting and financial management you have provided no evidence that you provide individual counseling or additional educational activities after you sell a dmp in fact your contract with your processor seems to preclude ongoing educational activities upon completing the sale your statement of revenue and expenses reflects no expenditures related to educational activities your primary focus is the sale of your dmp rather than the provision of substantial education to your clients the activities you have described are completely different from those found to be providing community education and individual training by the court in consumer credit counseling service of alabama inc v united_states supra you are also unlike the organization described in revrul_69_441 supra that organization aided low-income individuals and families by providing them with individual counseling and if necessary by establishing budget plans you represent that you will not limit your services to a particular class of people such as minorities low-income or the elderly in addition the information your submitted is insufficient to establish that you are not operated for a substantial non-exempt commercial purpose this is reflected in the fact that your revenue will come exclusively from fees charged to clients and creditors for enrollment in dmps you limit your responsibility for managing your dmps to that of merely selling the products while you have contracted out all other processing and customer service responsibilities to another company for a percentage of the fees generated furthermore the efforts of your counselors as reflected in the language in your sales script are primarily focused on aggressively promoting and selling dmps your financial structure does not resemble that of a typical charity you have provided no evidence that any part of your funding will come from donations from foundations private corporations and individual contributions moreover you have failed to provide evidence that you received such donations or that you have a substantive plan to solicit these types of donations your funding comes entirely from fees from the sale of dmps both client fees and creditor fees the presence of a single non-exempt purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes see better business bureau of washington d c inc v united_states supra you appear to have a substantial non-exempt commercial purpose lastly rather than being representative of a broad cross-section of the community your board_of directors is controlled by five directors two of whom are related to each other the majority of the directors also serve as employees and as such it would be impossible for them to conduct arms-length negotiations as it relates to their individual compensation and other financial matters that will affect the organization’s financial interests as well as their own this presents an obvious and inherent conflict of interest where each individual is concerned moreover you have not shown that the rent payments made to a relative during were negotiated and made on an arms-length basis thus you have failed to establish that you serve a public rather than a private interest and that your income will not inure to the benefit of private individuals see sec_1_501_c_3_-1 of the regulations because much of the information you provided is nonspecific and vague it does not meet the burden of showing that your activities and operations are such that you are entitled to recognition of exemption under sec_501 see christian echoes national ministry inc nelson and revproc_90_27 supra you have failed to describe your operations in sufficient detail to show that you are furthering an exclusively educational purpose you failed to provide any documentation to establish that you engage in a substantial educational program and failed to clearly and fully explain how your operating a telephone call center to procure dmp clients for your joint_venture processor furthers charitable purposes you have not provided sufficient information and documentation to clearly establish that you will be operated for public rather than private purposes you failed to answer the question of whether you have ever been a party to any lawsuits you failed to indicate whether you have been the recipient of any start-up loans capital from any sources lastly you failed to provide adequate documentation of the financial transactions including compensation between you and members of your board_of directors to permit us to conclude that you are not operated for the private benefit of private individuals and that your income will not inure to private individuals you have the right to file a protest if you believe this determination is incorrect to protest you must submit a statement of your views and fully explain your reasoning you must submit the statement signed by one of your officers within days from the date of this letter we will consider your statement and decide if the information affects our determination your protest statement should be accompanied by the following declaration under penalties of perjury i declare that i have examined this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all the relevant facts and such facts are true correct and complete you also have a right to request a conference to discuss your protest this request should be made when you file your protest statement an attorney certified_public_accountant or an individual enrolled to practice before the internal_revenue_service may represent you if you want representation during the conference procedures you must file a proper power_of_attorney form_2848 power_of_attorney and declaration of representative if you have not already done so for more information about representation see publication practice_before_the_irs and power_of_attorney all forms and publications mentioned in this letter can be found at www irs gov forms and publications if you do not file a protest within days you will not be able to file a suit for declaratory_judgment in court because the internal_revenue_service irs will consider the failure to protest as a failure to exhaust available administrative remedies code sec_7428 provides in part that a declaratory_judgment or decree shall not be issued in any proceeding unless the tax_court the united_states court of federal claims or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted all of the administrative remedies available to it within the irs if you do not intend to protest this determination you do not need to take any further action if we do not hear from you within days we will issue a final adverse determination_letter that letter will provide information about filing tax returns and other matters please send your protest statement form_2848 and any supporting documents to this address you may also fax your statement using the fax number shown in the heading of this letter if you fax your statement please call the person identified in the heading of this letter to confirm that he or she received your fax if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter lois g lerner director exempt_organizations rulings agreements sincerely


department of the treasury internal_revenue_service washington d c date jan contact person identification_number telephone number t'eo-bs employer_identification_number sin dollar_figure i o l e o n dear sir or madam this is in reply to a ruling_request dated date submitted on behalf of a and b concerning a proposed transfer of assets by a to c and subsequent termination of a's foundation status ais a community_trust fund recognized as a private_foundation under sec_509 a coordinates the charitable grants made by a variety of trusts of the internal_revenue_code that incorporate the terms of the declaration of trust that created a bis an organization recognized as exempt from federal_income_tax under sec_501 of the code and classified as a publicly_supported_organization under sec_170 of the code b operates as a public community_foundation to meet the needs of the local community a and b have entered into a memorandum of understanding whereby both entities will share administrative resources c is an organization recognized as exempt from federal_income_tax under sec_501 of the code and classified as other than a private_foundation under sec_509 a has determined that it can better serve its community and those individuals wishing to make charitable gifts through the auspices of a in the corporate form with the concomitant structural flexibility and liability protection upon receipt of a letter_ruling from the service in response to this request and upon receipt of approval from attorney_general a will transfer all its assets to c thereafter any subtrust referring to a will be interpreted to refer to c one day after such transfer of assets a will send a notice of termination pursuant to sec_507 to the service a will thereafter dissolve courts and the sec_507 of the code provides that except as provided in sec_507 the status of any organization as a private_foundation shall be terminated only if such organization notifies the secretary of its intent to accomplish such termination or a with respect to such organization there have been either willful repeated acts or failures to act or a willful and flagrant act or failure to act giving rise to a liability for tax under chapter and b the secretary notifies such organization that by reason of subparagraph a such organization is liable for the tax imposed by subsection c and either such organization pays the tax imposed by subsection c or any portion not abated under subsection g or is liable for the entire amount of such tax abated under subsection g sec_507 of the code provides that the status as a private_foundation of any organization with respect to which there have not been either willful repeated acts or failures to act or a willful and flagrant act or failure to act giving rise to liability for tax under chapter shall be terminated if such organization distributes all of its net assets to one or more organizations described in sec_170 other than in clauses vii and viii each of which has been in existence and so described for continuous period of at least calendar months immediately preceding such distribution sec_507 of the code imposes on each organization which is referred to in subsection a a tax equal to the lower_of the amount which the private_foundation substantiates by adequate_records or other corroborating evidence as the aggregate tax_benefit resulting from the sec_501 status of such foundation or the value of the net assets of such foundation sec_4940 of the code provides for the imposition on each private_foundation which is exempt from taxation under sec_501 for the taxable_year with respect to the carrying on its activities a tax equal to percent of the net_investment_income of such foundation sec_4941 a of the code provides that there is hereby imposed a tax on each act of self-dealing between a disqualified_person and a private_foundation the rate_of_tax shall be equal to percent of the amount_involved with respect to the act of self-dealing for each year or part thereof in the taxable_period sec_4942 of the code imposes a tax on the undistributed_income_of_a_private_foundation other than on operating_foundation under sec_4942 for any taxable_year which has not been distributed before the first day of the second or any succeeding taxable_year following such taxable_year sec_4942 of the code defines the term qualifying_distribution as any amount including that portion of reasonable and necessary administrative expenses paid to accomplish one or more purposes describe in sec_170 other than a contribution to i an organization controlled directly or indirectly by the foundation or by one or more disqualified persons with respect to the foundation unless certain requirements are satisfied or ii any private_foundation which is not an operating_foundation under sec_4942 unless certain requirements are satisfied sec_4944 of the code imposes a tax on any amount invested by a private_foundation in a manner that jeopardizes the carrying out of any of the foundation's exempt purposes sec_4945 of the code imposes a tax on any taxable_expenditure as defined in sec_4945 made by a private_foundation sec_4945 defines a taxable_expenditure to include among other things a grant to another organization unless such organization is not a private_foundation or unless the donor private_foundation exercises expenditure_responsibility with respect to such grant in accordance with sec_4945 d of the code provides that the term taxable_expenditure includes any amount_paid or incurred as a grant to an organization unless a such organization is described in paragraph or of sec_509 or is an exempt_operating_foundation as defined in sec_4940 or b the private_foundation exercises expenditure_responsibility with respect to such grant in accordance with sec_4945 sec_53_4946-1 of the foundation and similar excise_taxes regulations provides that for purposes of sec_4941 only the term disqualified_person shall not include an organization which is described in sec_501 other than an organization described in sec_509 revrul_2003_13 r b discusses four fact patterns in which a private_foundation distributes all of its net assets to one or more public_charities described in sec_509 sec_509 or sec_509 of the internal_revenue_code and the underlying tax consequences of such transfer under sec_507 and sec_4940 through under sec_507 of the code an organization's status as a private_foundation is terminated if it distributes all its net assets to one or more organizations described in sec_509 e organizations described in sec_170 other than in clauses vii and viii each of which has been in existence and so described for a continuous period of at least calendar months immediately preceding the distribution an organization that terminates its private_foundation_status under sec_507 is not required to give notice under sec_507 of the code and is not subject_to the tax described in sec_507 if a private_foundation distributes all its net assets to a public charity not described in sec_509 of the code or is described in sec_509 or then the rules of sec_507 do not apply in this case a’s distribution to c is not described in sec_507 of the code because c is an organization described in sec_509 of the code thus a’s private_foundation_status is not terminated unless it gives notice under sec_507 of the code since a will have will have no assets on the date it provides notice the tax imposed by sec_507 will be zero see revrul_2003_13 based on the information furnished and assuming that your organization and bwill operate as described above we rule as follows a's proposed transfer of all of its assets to c is not a voluntary or involuntary private_foundation_status termination described within sec_507 or a thus a’s transfer will not result in any private_foundation_status termination_tax under sec_507 of the code a’s termination of its private_foundation_status at a time when it will have no assets will not result in any private_foundation_status termination_tax under sec_507 of the code the proposed transfer of a's assets to c will not give rise to net_investment_income subject_to tax under sec_4940 of the code the proposed transfer of a's assets to c does not constitute an act of self-dealing and is not subject_to tax under sec_4941 of the code the proposed transfer of a’s assets to c constitutes a qualifying_distribution such that a will not be subject_to tax under sec_4942 of the code the proposed transfer of a’s assets to c does not constitute investments that will jeopardize a’s exempt purposes and will not be subject_to tax under sec_4944 of the code and the proposed transfer of a's assets to c does not constitute a taxable_expenditure and is not subject_to tax under sec_4945 of the code this ruling is directed only to the organization that requested it sec_61 k of the code provides that it may not be used or cited as precedent if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely signed robert c harper jr robert c harper jr manager exempt_organizations technical group