t c summary opinion united_states tax_court jason emanuel ayala petitioner v commissioner of internal revenue respondent docket no 6369-06s filed date jason emanuel ayala pro_se derek w kaczmarek for respondent armen special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any unless otherwise indicated all subsequent section references are to the internal_revenue_code in effect for the taxable years in issue other court and this opinion shall not be treated as precedent for any other case jason emanuel ayala petitioner received a notice_of_deficiency in which respondent determined deficiencies in income taxes for and of dollar_figure dollar_figure and dollar_figure respectively and accuracy-related_penalties under sec_6662 for negligence or intentional disregard of rules or regulations of dollar_figure dollar_figure and dollar_figure respectively the deficiencies arose from respondent’s disallowance of claimed employee business_expenses we are asked to decide whether petitioner may deduct those expenses under sec_162 this requires that we decide whether petitioner was away from home when he incurred the expenses if we sustain respondent’s determination we are also asked to decide whether petitioner is liable for the accuracy-related_penalties background some of the facts have been stipulated and they are so found we incorporate by reference the parties’ stipulation of facts and accompanying exhibits petitioner’s mailing address at the time he filed his petition was in las vegas nevada petitioner is employed by sheehan pipeline construction company sheehan as a truck driver and he travels all over the country delivering materials for sheehan’s pipe-laying projects when one project is completed he is usually assigned a new project immediately projects can last anywhere from a few weeks to several months during the years at issue petitioner worked on several back-to-back projects when he is traveling for work petitioner tries to find hotel accommodations that offer weekly rates to keep his expenses down when he is not on the road petitioner stays with his family in vallejo california he does not maintain a separate apartment or household and he does not pay rent at his family’s home although he does contribute money towards food and the like when staying in vallejo he does not have any regular household maintenance_expenses as he does not have a home of his own petitioner keeps many of his possessions at his family’s home because petitioner travels frequently and has to receive mail somewhere his mailing address is that of a mail service which forwards his mail to him wherever he happens to be similarly because he does not reside anywhere for any length of time he is not registered to vote petitioner did not generally receive a per_diem or other expense reimbursement from sheehan while working further demonstrating how much ground petitioner covers is the fact that his commercial driver’s license was issued by the state of texas and his personal automobile is registered in continued petitioner and respondent primarily disagree on whether the house in vallejo california is petitioner’s tax_home and consequently whether petitioner’s travel_expenses incurred while working for sheehan are deductible under sec_162 as expenses_incurred in pursuit of a trade_or_business while away from home a sec_162 discussion4 generally outlays for food and shelter are considered personal expenses and are not deductible sec_262 however sec_162 allows a deduction for traveling expenses including amounts expended for meals_and_lodging if the expenses are ordinary and necessary incurred while away from home and incurred in pursuit of a trade_or_business see 67_tc_824 respondent contends that petitioner was not away from home when he incurred the expenses and thus that petitioner does not satisfy the second factor for deductibility of the expenses claimed on his federal_income_tax returns for the years in issue continued nevada given the manner in which these issues were presented to the court we make our decision as to both the deficiencies and additions to tax without regard to the various burdens of proof under sec_7491 as a general_rule a taxpayer’s principal place of employment is the taxpayer’s tax_home 49_tc_557 an employee without a principal_place_of_business may treat a permanent place of residence at which the employee incurs substantial continuing living_expenses as his or her tax_home 29_tc_16 where the taxpayer has neither a principal_place_of_business nor a permanent residence he has no tax_home from which he can be away his home is wherever he happens to be 85_tc_462 affd without published opinion 807_f2d_177 9th cir although the subjective intent of a taxpayer is to be considered in determining whether the taxpayer has a tax_home for purposes of sec_162 this court and others have consistently focused more on objective criteria sec_162 is intended to mitigate the burden of a taxpayer who because of the travel requirements of his or her trade_or_business must maintain two places of abode and therefore incur additional living_expenses 513_f2d_697 6th cir affg tcmemo_1974_160 kroll v commissioner supra pincite in other words sec_162 is intended to provide relief to a taxpayer who incurs substantial continuing expenses of a home that are duplicated by business travel see 308_f2d_204 9th cir kroll v commissioner supra pincite when a taxpayer continuously travels for work and does not have substantial duplicative continuous living_expenses for a permanent home maintained for some business reason the taxpayer has no tax_home 143_f3d_497 9th cir affg tcmemo_1995_559 james v united_states supra most significantly in this case petitioner bore no expenses in maintaining a home notwithstanding his visits to his family’s home in california and financial contributions during those periodic visits petitioner bore no duplicative living_expenses he did not make mortgage payments pay regular utilities costs or regularly pay for running a household petitioner’s costs on the road while they may have been substantial were not redundant and thus petitioner was not away from home within the intent and meaning of sec_162 for the taxable years at issue barone v commissioner supra pincite 61_tc_855 in short petitioner’s tax_home was wherever he happened to be see brandl v commissioner supra accordingly petitioner is not entitled to deduct the expenses claimed on his returns for the years at issue b sec_6662 sec_6662 imposes a penalty equal to percent of the amount of any underpayment attributable to negligence or disregard of the rules or regulations sec_6662 ‘ n egligence’ includes any failure to make a reasonable attempt to comply with the internal_revenue_code and the term ‘disregard’ includes any careless reckless or intentional disregard sec_6662 petitioner does not have a bank account and his credit cards are billed to his father petitioner’s mother assists him by handling his finances and acting as his bookkeeper working for sheehan is the first job he has had and petitioner often pays taxes in several states in addition to his federal_income_tax he strikes us as a hardworking young man who does his best to comply with his tax responsibilities given the facts presented in this case as well as petitioner’s honest and straightforward testimony we are convinced that the reasonable_cause and good_faith provisions of sec_6664 are applicable here accordingly we decide in favor of petitioner on this issue c conclusion we find that petitioner’s family’s home in vallejo was not his tax_home for federal tax purposes during the years in issue rather his tax_home was wherever he happened to be and consequently petitioner had no home from which to be away for purposes of claiming deductions for travel_expenses under sec_162 to reflect our disposition of the disputed issues decision will be entered for respondent as to the deficiencies in income taxes and for petitioner as to the accuracy- related penalties


internal_revenue_service department of the treasury washington dc index number number release date person to contact telephone number refer reply to cc dom p si - plr-120713-98 date date x a b c d d1 year dear this letter responds to your letter dated date submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 a b c and d the sole shareholders of x intended that x elect to be an s_corporation beginning year its first taxable_year the shareholders signed and dated the form_2553 election by a small_business_corporation and a mailed the form_2553 to x’s accountant for filing with the internal_revenue_service subsequently the accountant notified x that the accountant filed the form_2553 on a timely basis however x’s service_center has no record of a form_2553 being submitted on a timely basis for x for year sec_1362 of the code provides that if -- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x's first taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x's year taxable_year a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x sincerely yours branch h grace kim assistant to the chief office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si 03-plr-115131-98 date date legend portfolio fund fund trust date v w x y z plr-115131-98 dear this letter responds to a letter dated date on behalf of portfolio requesting a ruling under sec_704 of the internal_revenue_code specifically a ruling has been requested that portfolio may aggregate built-in gains and losses from qualified_financial_assets contributed to portfolio with built-in gains and losses from revaluations of qualified_financial_assets held by portfolio for making sec_704 and reverse sec_704 allocations facts the following representations have been made fund and fund are registered as open-end diversified management investor companies under the investment_company act of u s c 80a-1 et seq the act and have elected to be taxed as regulated_investment_companies rics under sec_851 together fund and fund will form portfolio fund and fund share a similar investment objective and plan to pursue their objective jointly through portfolio portfolio is a separate share of trust and will be classified as a partnership for federal tax purposes under sec_301_7701-3 to form portfolio fund will contribute property consisting primarily of v lots of securities with a fair_market_value on date of approximately w on date fund 1's assets had an aggregate built-in_gain of x and an aggregate built-in_loss of y fund will contribute cash in the amount of z in exchange for their contributions to portfolio fund and fund as well as any future investors will receive partnership interests in portfolio each partnership_interest represents an equal proportionate interest in portfolio none having priority or preference over another portfolio anticipates that any additional contributing partners will also be management investment companies registered under the act and qualified as rics it is possible however that non-ric investors may invest in portfolio from time to time portfolio will maintain a single capital_account for each of its partners and each partner’s initial capital_account balance will be the amount of money and the fair_market_value of the property contributed to portfolio by the partner under sec_1_704-1 portfolio will revalue its investment portfolio to fair_market_value as of the close of each day portfolio will adjust each partner’s capital_account to reflect the partner’s share of the net change in the value of its portfolio of securities from the close of the prior day to the close of the current day portfolio will use the partial netting method for making aggregate reverse sec_704 allocations plr-115131-98 portfolio represents that i it will be registered as an open-end management company under the act ii substantially_all of its property will consist of readily tradeable securities iii it will comply in all respects with the capital_account maintenance rules set forth in sec_1_704-1 iv it will qualify as a securities_partnership within the meaning of sec_1_704-3 v its revaluations and the corresponding allocations of tax items will not be made with a view to shifting the tax consequences of built-in_gain or loss among its partners in a manner that substantially reduces the present_value of the partners’ aggregate tax_liability and vi it was not organized to enable a partner that is a ric to make distributions that would be prohibited under revrul_89_81 1989_1_cb_226 had the ric invested directly in the assets of portfolio it is anticipated that fund 1's interest in portfolio will exceed percent for the foreseeable future discussion sec_704 provides that income gain loss and deduction with respect to property contributed to the partnership by a partner is shared among the partners so as to take account of the variation between the basis of the property to the partnership and its fair_market_value at the time of contribution sec_1_704-3 states that the purpose of sec_704 is to prevent the shifting of tax consequences among partners with respect to precontribution gain_or_loss under sec_704 a partnership must allocate income gain loss and deductions with respect to property contributed by a partner to the partnership so as to take into account any variation between the adjusted tax basis of the property and its fair_market_value at the time of contribution this allocation must be made using any reasonable method that is consistent with the purpose of sec_704 sec_1_704-3 provides that the principles of sec_1_704-3 apply to allocations with respect to property for which differences between book_value and adjusted tax basis are created when a partnership revalues partnership property under sec_1_704-1 reverse sec_704 allocations a partnership that makes allocations with respect to revalued property must use a reasonable method that is consistent with the purposes of sec_704 and c sec_1_704-3 indicates that sec_704 generally applies on a property-by- property basis therefore in determining whether there is a disparity between adjusted tax basis and fair_market_value the built-in gains and built-in losses on items of contributed or revalued property generally cannot be aggregated sec_1_704-3 sets forth a special rule allowing certain securities partnerships to make reverse sec_704 allocations on an aggregate basis specifically sec_1_704-3 provides that for purposes of making reverse sec_704 allocations a securities_partnership may aggregate gains and losses from qualified_financial_assets plr-115131-98 using any reasonable approach that is consistent with the purpose of sec_704 sec_1_704-3 identifies the approach that portfolio will use for aggregating reverse sec_704 gains as generally reasonable once a partnership adopts an aggregate approach the partnership must apply the same aggregate approach to all of its qualified_financial_assets for all taxable years in which the partnership qualifies as a securities_partnership sec_1_704-3 defines a securities_partnership as a partnership that is either a management company or an investment_partnership and that makes all of its book allocations in proportion to the partners’ relative book capital accounts under sec_1_704-3 a partnership is a management company if it is registered as a management company under the act sec_1_704-3 defines qualified_financial_assets as any personal_property including stock that is actively_traded as defined in sec_1_1092_d_-1 defining actively_traded personal_property for purposes of the straddle rules for a management company qualified_financial_assets also include the following even if not actively_traded shares of stock in a corporation notes bonds debentures or other evidences of indebtedness interest rate currency or equity notional_principal_contracts evidences of an interest in or derivative financial instruments in any security currency or commodity including any option forward or futures_contract or short position or any similar financial_instrument the aggregate approaches described in sec_1_704-3 generally apply only to reverse sec_704 allocations thus a securities_partnership using an aggregate approach must generally account for any built-in_gain or loss from contributed_property separately the preamble to sec_1_704-3 explains that the final regulations do not authorize aggregation of built-in gains and losses from contributed_property with built-in gains and losses from revaluations because this type of aggregation can lead to substantial distortions in the character and timing of income and loss recognized by contributing partners t d 1995_1_cb_120 however the preamble also recognizes that there may be instances in which the likelihood of character and timing distortions is minimal and the burden of making sec_704 allocations separate from reverse sec_704 allocations is great consequently sec_1_704-3 authorizes the commissioner to permit by published guidance or by letter_ruling aggregation of qualified_financial_assets for purposes of making sec_704 allocations in the same manner as that described in sec_1_704-3 in this case portfolio’s burden of making sec_704 allocations separate from reverse sec_704 allocations is represented to be substantial fund will contribute a large number of assets to portfolio unless the commissioner permits portfolio to aggregate sec_704 gains and losses with reverse sec_704 gains and losses portfolio will have to track pre-contribution unrealized gains and losses on a property-by-property plr-115131-98 basis largely nullifying the benefits of the aggregate approach for making reverse sec_704 allocations conclusion we conclude that portfolio may aggregate built-in gains and losses from qualified_financial_assets contributed to portfolio by fund with built-in gains and losses from revaluations of qualified_financial_assets held by portfolio for purposes of making sec_704 and reverse sec_704 allocations we further conclude that portfolio may aggregate built-in gains and losses from qualified_financial_assets contributed by future partners with built-in gains and losses from revaluations of qualified_financial_assets for purposes of making sec_704 and reverse sec_704 allocations to the extent that the future partners are qualified contributors a qualified contributor is a partner for which the following conditions are satisfied the partner is registered under the act and would be considered a publicly_offered_regulated_investment_company as defined in sec_67 and sec_1_67-2t the contribution is made and accepted for valid business purposes and not made primarily for tax motivated reasons other than the fact that the contribution to portfolio is tax-free and to the extent portfolio relies on this ruling for the contribution portfolio will document any such contribution on its tax_return filed subsequent to the contribution except as specifically ruled above we express no opinion concerning the federal tax consequences of the transactions described above under any other provision of the code in particular we express no opinion on whether portfolio is a publicly_traded_partnership or on whether the transfer of assets to portfolio is taxable under sec_721 this letter is issued only to the person who requested it under sec_6110 it may not be used or cited as precedent plr-115131-98 pursuant to a power_of_attorney on file with this office a copy of this ruling is being sent to your authorized representative sincerely yours jeff erickson assistant to the branch chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division dec t' ep 2a tz uniform ssue list legend taxpayer a ira b financial_institution d amount dear this is in response to your request dated date and supplemented by correspondence received date in which you requested a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code’ the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a represents that he received a distribution of amount from ira b taxpayer a asserts that his failure to accomplish a rollover within the day period prescribed by sec_408 was due to an error made by financial_institution d taxpayer a further represents that the amount distributed has not been used for any other purpose taxpayer a maintained ira b at financial_institution d on date taxpayer a instructed financial_institution d to roll over amount from ira b to another ira he maintained at financial_institution d contrary to his instructions financial_institution d deposited amount into a non-ira account taxpayer a first became aware that amount was not transferred into an ira account when he received form 1099-r for taxpayer a alerted financial_institution d of the error and on date financial_institution d completed the rollover of amount into ira c taxpayer a has submitted a letter in which financial_institution d acknowledges its error based on the facts and representations you request a ruling that the internal_revenue_service the service waive the day rollover requirement contained in sec_408 of the code with respect to the distribution of amount sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer a is consistent with his assertion that his failure to accomplish a timely rollover was caused by an error on the part of financial_institution d therefore pursuant to sec_408 of the code the service thereby waives the 60-day rollover requirement with respect to the distribution of amount from ira b provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to the contribution of amount into ira c on date such contribution will be considered a rollover_contribution within the meaning of sec_408 of the code this ruling does not authorize the rollover of amounts that are required to be distributed by sec_401 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent if you wish to inquire about this ruling please contact at please address all correspondence to se t ep ra t2 sincerely yours sherri m edelman manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose


t c memo united_states tax_court arthur takamoto and louise takamoto petitioners v commissioner of internal revenue respondent docket no filed date david m kirsch for petitioner louise takamoto kathey i shaw for respondent memorandum opinion powell special_trial_judge this case was assigned pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_182 this case is before the court on petitioner louise takamoto's petitioner motion for leave to file a motion to all section references are to the internal_revenue_code in effect for the year in issue and rule references are to the tax_court rules_of_practice and procedure vacate decision the gravamen of this motion is that this court should vacate a stipulated decision entered on date the facts are taken from petitioner's declaration attached to the motion to vacate in when she was a medical student petitioner married arthur takamoto mr takamoto mr takamoto a dentist is of japanese ancestry mr takamoto's parents moved from japan to hawaii where they raised mr takamoto in the traditional japanese manner during their marriage petitioner and mr takamoto divided familial responsibilities in accordance with japanese values petitioner tended to domestic responsibilities such as child rearing while mr takamoto handled financial matters including the preparation and filing of all tax returns petitioner typically allowed mr takamoto to open mail that was jointly addressed petitioner graduated from medical school in and upon completing her residency in opened her own medical practice petitioner recorded the cash receipts and disbursements from her business but relied on mr takamoto and accompanying petitioner's motion for leave and lodged with the court are petitioner's motion to vacate motion to dismiss for lack of jurisdiction motion to calendar and memorandum in support of petitioner's motion to vacate and motion to dismiss for lack of jurisdiction both the motion filed and the above lodged documents are dependent on whether this court had jurisdiction over petitioner when the stipulated decision was entered an accountant to prepare the tax returns including the schedule c for her medical practice petitioner did not review the returns when she signed them petitioner and mr takamoto filed a joint federal_income_tax return for the taxable_year on that return they claimed a deduction in excess of dollar_figure relating to an investment in first western government securities respondent disallowed the deduction see 89_tc_849 affd 904_f2d_1011 5th cir affd 501_us_868 during respondent sent a notice_of_deficiency to petitioner and mr takamoto petitioner recalls receiving a certified letter from the internal_revenue_service but never read or was otherwise informed of its contents rather she turned the letter over to mr takamoto mr takamoto hired alan farber mr farber an attorney to represent petitioner and mr takamoto with regard to the dispute with the internal_revenue_service on date mr farber filed a petition with this court on behalf of petitioner and mr takamoto challenging respondent's notice_of_deficiency petitioner and mr takamoto separated in in mr takamoto obtained an ex-parte mexican divorce on date this court entered a stipulated decision that a deficiency in the amount of dollar_figure in federal_income_tax and additions to tax under sec_6653 and sec_6651 in the amounts of dollar_figure and dollar_figure respectively were due from mr takamoto and petitioner for the taxable_year the decision was signed by mr farber on behalf of both petitioner and mr takamoto petitioner first became aware of the deficiency when respondent commenced collection efforts in early the motion currently before the court was filed approximately years later on date in support of her motion petitioner asserts that she had no knowledge of the deficiency did not sign the petition did not know mr farber did not authorize mr farber to file a petition on her behalf and did not authorize mr farber to enter into a settlement agreement on her behalf for the purpose of discussing this motion we take these allegations as true in deciding whether to grant a motion for leave to file a motion to vacate this court may consider the merits of the underlying motion to vacate levitt v commissioner tcmemo_1993_294 prior to discussing the merits of the motion however we note that rule provides that a motion to vacate shall be filed within days after a decision has been entered unless the court shall otherwise permit sec_7481 and sec_7483 provide that a decision of this court becomes final in the absence of a timely filed notice of appeal days from the date the decision is entered if a motion to vacate is filed outside of the 90-day period this court generally is without jurisdiction to entertain the motion 441_f2d_930 9th cir vacating 52_tc_295 on the other hand a decision entered in a case where this court never acquired jurisdiction over a taxpayer is a legal nullity and therefore not a decision as to that taxpayer 868_f2d_1081 9th cir accordingly a judgment void for lack of jurisdiction may be vacated at any time billingsley v commissioner supra pincite 71_tc_108 the motion filed in this case is directed to the latter situation our jurisdiction depends on a timely filed petition 97_tc_437 when a taxpayer files a timely petition this court's jurisdiction is invoked and remains unimpaired until we decide the controversy 57_tc_720 17_tc_942 however when an individual fails to sign the petition or to ratify a petition and does not intend to become a party to the litigation this court acquires no jurisdiction over that individual levitt v commissioner t c pincite ratification requires a showing of proper authorization by the signing party to act on behalf of the non-signing party id when a petition is filed by an attorney on behalf of a taxpayer the issue is whether that individual authorized the attorney to act on behalf of that person this is a factual question to be decided according to common_law principles of agency 85_tc_359 casey v commissioner tcmemo_1992_672 under common_law rules of agency authority may be granted by express statements or may be derived by implication from the principal's words or deeds john arnold executrak sys inc v commissioner tcmemo_1990_6 citing restatement agency 2d sec_26 in casey v commissioner supra we held that the taxpayer's practice of routinely allowing her spouse to handle income_tax matters and to open correspondence received from the commissioner constituted an implied grant of authority to her spouse that allowed him to represent her with respect to their joint income_tax matters furthermore that grant of authority was sufficient to allow the taxpayer's spouse to hire an attorney to file a joint petition with this court we concluded that this court had jurisdiction over the taxpayer even though she never signed the petition because she impliedly authorized it petitioner is a well educated individual she habitually had turned over the responsibility of dealing with her federal the appearance of an attorney on behalf of an individual creates a presumption that the attorney has the authority to represent that individual osborn v united_states bank u s wheat 73_tc_639 income_tax matters to mr takamoto petitioner trusted mr takamoto completely and she did not even review the tax returns petitioner knew that she received correspondence from the internal_revenue_service and allowed mr takamoto to deal with that matter as he would without question this conduct impliedly authorized mr takamoto to represent petitioner with respect to her federal_income_tax matters mr takamoto acted within the scope of this authority when he retained mr farber to file a petition with this court mr farber acted pursuant to the authority granted to him by mr takamoto on mr takamoto's and petitioner's behalf when he filed the joint petition and ultimately settled the case even if petitioner was not aware of the dispute with the irs her own admitted delegation of authority to her husband cannot now be revoked because she is unhappy with the outcome of her case 'deficiencies ex post do not detract from authority ex ante ' disanza v commissioner tcmemo_1993_142 affd without published opinion 9_f3d_1538 2d cir accordingly based upon petitioner's version of the facts we conclude that this court had jurisdiction over petitioner when the stipulated decision was entered and therefore petitioner's motion will be denied an appropriate order denying petitioner's motion for leave to file motion to vacate will be issued


internal_revenue_service number release date index number --------------------------- -------------------------------------- ----------------------------- -------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------- id no ------------ telephone number -------------------- refer reply to cc psi b01 plr-151182-08 date date legend legend x d state ------------------------------ ---------------------- ------------------- ------------------- dear --------------- this responds to the letter dated date and related correspondence submitted on behalf of x requesting relief under ' b of the internal_revenue_code facts x was incorporated on d under the laws of state x intended to be treated as an s_corporation for federal tax purposes effective d but the s election was not timely filed law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation plr-151182-08 sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation s taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made if the election is made after the first two and one-half months of a corporation s taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if no election is made pursuant to ' a or if made the election is made after the date prescribed for making such an election and the secretary determines there was reasonable_cause for the failure to timely make the election then the secretary may treat such an election as timely made for such taxable_year and effective as of the first day of that tax_year x did not file a timely election to be treated as an s_corporation under ' a effective d x has however established reasonable_cause for not making a timely election and is entitled to relief under ' b conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as an s_corporation we conclude that x will be recognized as an s_corporation effective d within days from the date of this letter x should submit a properly completed form_2553 election by a small_business_corporation with a copy of this letter attached to the relevant service_center except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent plr-151182-08 in accordance with the power_of_attorney on file with this office copies of this letter are being mailed to your authorized representatives sincerely dianna k miosi dianna k miosi chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for ' purposes


internal_revenue_service appeals_office release number release date date date org certified mail dear department of the treasury employer_identification_number person to contact tax periods s ended all years uil dollar_figure this is a final adverse 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 the adverse determination is made for the following reason s you are a successor organization to a for-profit business you propose that your principal activity will involve the production and sale of pipes at market rates for construction projects you have not demonstrated that you will be operated exclusively for charitable scientific or other exempt purposes set forth in sec_501 of the internal_revenue_code specifically you have not shown how your proposed activities will lessen the burdens of government or otherwise further charitable purposes more than an insubstantial part of your activities was not in furtherance of an exempt_purpose contributions to your organization are not deductible under sec_170 of the code you are required to file federal_income_tax returns on forms file your return with the appropriate internal_revenue_service center per the instructions of the return for further instructions forms and information please visit www irs gov we will make this letter and the proposed adverse determination_letter available for public inspection under code sec_6110 after deleting certain identifying information we have provided to you in a separate mailing notice notice of intention to disclose please review the notice and the documents attached that show our proposed deletions if you disagree with our proposed deletions follow the instructions in notice 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 federai 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 nw washington dc us court of federal claims madison place nw washington dc u s district_court for the district of columbia constitution ave n w washington dc processing of income_tax returns and assessments of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the code you also have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels get prompt and proper handling if you want taxpayer_advocate assistance please contact the taxpayer_advocate for the irs office that issued this letter you may call toll-free for the taxpayer_advocate or visit www irs gov advocate for more information if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours joseph k phegley appeals team manager enclosure publication date date employer id number contact person id number contact telephone number contact fax number uil department of the treasury internal_revenue_service cincinnati oh legend b organization c board member d board member f organization g organization h organization j organization k organization l organization m organization n organization p state q organization r organization s organization t organization w organization x date dear issues we considered your application_for recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code the code based on the information provided we determined that you don’t qualify for exemption under sec_501 of the code this letter explains the basis for our conclusion please keep it for your records do you qualify for exemption under sec_501 of the code no for the reasons stated below letter rev catalog number 47630w facts you were formed on x as a corporation in the state of p you do not have bylaws you are successor organization of a for-profit company b that was unable to secure funding c who is your president and director is also president and director of b holds the same positions in the for-profit b c and d are each volunteer their time but you anticipate they will both be compensated after you receive funding you do not have a conflict of interest policy at this time you may use a non-fixed compensation arrangement in the future and you believe that at some point a bonus program might make sense you do not have any current plans for such a program but would apply your future conflict of interest policy to the creation of this program should you choose to enact one d c’s wife is your vice president and director and _ shareholders of b both c and d currently the for-profit organization b undertook a great deal of development work tried several business models through the years and made numerous attempts to seek venture capital b simply did not fit within the high tech or new pharmaceutical breakthrough drug mold venture capital firms were looking for you have taken over the activities of b because it was unable to secure funding and it became apparent that a non-profit would be in better position to work with government entities on publicly funded projects b remains in existence but is now idle both c and d will remain as directors and officers until such time as a new purpose or other determination is made regarding the future of b there are no current plans for you to have a business relationship with b you indicated the president of the united_states the speaker of the house and others have called for increased focus on infrastructure specifically on crumbling bridges therefore you contend that your ultimate purpose and core focus will be charitable with your main beneficiary being federal state and local_government agencies within your abilities you will partner with the public government and businesses in rebuilding crumbling roads bridges and highway overpasses you will assist in recovery efforts for disaster relief for hurricanes floods tornadoes and earthquakes by building and replacing bridges in weeks instead of months or years you submitted a description of your pipe manufacturing system and machinery that will be utilized to reshape pipe with this equipment corrugated metal pipe can be made in much larger sizes than have ever been produced before the machinery has not yet been produced and pipe products of this type in the size range needed are not commercially available today c has two patents that he is allowing you to use free of charge regarding the manufacturing of the pipe during your first two years you consider your purpose to fit within the scientific category as prototype machinery must be built and tested before you can pursue your charitable purposes for the scientific endeavor your research will result in encouraging economic development throughout the united_states you state that it will save time and money thereby lessening the burden of government and allowing more infrastructure work to be done throughout the united_states the prototype machinery after testing will be placed into service making very large corrugated metal pipe the pipes needed to make a highway overpass can be made and arched in less than one week you will provide a very large diameter pipe product that is not currently commercially available the cost of these pipes represents a fraction of the cost of traditional methods standardized design and installation methods will greatly reduce engineering requirements this should result in more projects getting the green light thus employing more workers work on these projects will be far less letter rev catalog number 47630w disruptive to the environment and local economies projects will be scheduled to take full advantage of the time savings you explain that pursuing our exempt purposes will result in economic development benefiting the government and local communities providing jobs with fewer disruptions in addition to overall lower project costs further reductions will be found in reduced engineering costs lessening the burden on government current bridge and overpass construction projects require months and a hundred thousand dollars or more of engineering site survey and testing work q’s approach is more or less a pipe install project it does require some engineering but by comparison the work is minimal these reductions go right back into the economy in the form of more projects you would consider an ideal first test project to include working with the r or s to build an actual bridge overpass or disaster relief structure the results of your research and the machinery developed will be dedicated to public purposes as required by your articles of incorporation with this in mind you will retain ownership and control_over any patents copyrights processes etc resulting from this research you will need to set up facilities to build equipment and maintain a staff including engineering and manufacturing personnel this will be an ongoing need to fulfill your purposes as this equipment will be needed in more than one location at the same time the costs of replacing or building a new highway overpass using your approach could be as little as one fourth the current costs thereby enabling you to stretch public funds further you would be able to build more projects and employ more workers after building your machinery which is required to conduct your activities you will begin working with federal state and local agencies civil engineering firms and businesses to identify suitable projects you will provide the pipe portion of the project agencies will include your pipe product as part of the engineering plans in suitable projects and will release requests for quotations as they would with any other projects qualified contractors will present their bids to the government agency and the agency will in most cases accept the lowest bid the project will proceed in the same manner as any other similar project you will operate much like a sub-contractor on the project building your portion of the project in coordination with the contractor that won the bid the agency may pay you directly or may have the contractor include the costs for your contribution as part of its bid based on local rules in addition to providing the agency with a better solution to meet its needs in many cases you will be able to solicit funding from the surrounding community specifically for the project enabling a further reduction of costs in those situations with community support you may be able to help with additional infrastructure needs allocating funds for street overlays water lines sewer lines and more you will provide your pipe portion of projects at your cost plus a reasonable profit the profit will go back to you to for your activities each time you build a pipe approximately itself you estimate projects the remaining from the r s t foundations and corporations of the cost will be in the pipe product of your efforts will be allocated to work on infrastructure once you begin completing will go to various forms of overhead and fundraising you will seek grant funds you will replicate your work in the united_states around the world as you gain expertise you will investigate this further and take steps to make it a reality you believe the pipe and machinery manufacturing portion of your business will be self-funding at some point and that means in time you can make machinery available to take outside the united_states to help in other countries this is a long range plan perhaps five years or more will pass before you begin to expand your operations it is not your intention to license franchise or otherwise letter rev catalog number 47630w partner with any other organizations to pursue international efforts there may be some countries where that is not possible and you will likely avoid those countries it is not your intention to simply prove that something can be done you intend to survive beyond your research and provide ongoing benefit to the public and the government you intend to sell very large pipe to government agencies to help rebuild crumbling roads and bridges as time allows it is likely that you will sell pipe to the private sector as well and profits realized from such sales would be utilized to help fund your ongoing purposes regardless of the customer you sell to the price you sell your pipe product for will be the fair_market_value of the product you will provide the pipe portion of projects at your cost plus a reasonable profit the profit will go back to you purchase of this product will not be considered a donation to you law sec_501 of the internal_revenue_code code provides for the exemption from federal_income_tax of organizations organized and operated exclusively for charitable educational and scientific purposes sec_1_501_c_3_-1 of the income_tax regulations regulations states that in order to be exempt as an organization described in sec_501 of the code an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt sec_1_501_c_3_-1 of the regulations provides that an organization will be regarded as 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 defines the word charitable as used in sec_501 of the code as including the relief of the poor and distressed the term charitable also includes the erection or maintenance of public buildings monuments or works lessening the burdens of government and the promotion of social welfare by combatting community deterioration in revrul_60_351 1960_2_cb_169 a corporation is organized and operated on a non-profit basis it publishes a foreign language magazine containing fiction poetry book reviews and articles which it states is of a literary scientific and educational character the magazine is available to the general_public through regular paid subscriptions the corporation's income is derived mainly from subscriptions and sales of individual copies of the publication and some is from advertising and contributions its expenditures consist of fees paid to authors for their works salaries printing advertising shipping packing postage and other operating costs incurred in the publication of the magazine it is devoted to publishing a magazine and selling it to the general_public in accordance with ordinary commercial publishing practices it is held that the corporation is not an exempt charitable scientific literary or educational_organization within the meaning of sec_501 of the code in revrul_66_147 1966_1_cb_137 an organization's specific purpose is to inform the interested public of current developments appearing in scientific and medical literature the organization employs technical personnel who survey the world's medical and scientific publications as soon as they are published they select and abstract articles appearing in this literature the abstracts are compiled in monthly publications letter rev catalog number 47630w and are distributed free of charge to anyone having particular interest in the subject matter this organization qualifies for exemption from federal_income_tax under sec_501 of the internal_revenue_code of revrul_71_581 1971_2_cb_236 held the operation of a separately incorporated thrift shop to raise funds for a group of specified exempt_organizations qualifies for exemption under sec_501 of the internal_revenue_code the organization was formed by a group of nonprofit_organizations described in sec_501 of the code and all of the organization’s profits were payable to these organizations substantially_all of the merchandise sold by the organization had been contributed and more than half of the work in operating the thrift shop was performed without compensation revrul_72_369 1972_3_cb_245 held an organization formed to provide management and consulting services at cost to unrelated exempt_organizations does not qualify for exemption under sec_501 c of the code because it is a trade_or_business ordinarily carried on for profit revrul_85_2 1985_1_cb_178 sets forth criteria for determining whether an organizations activities are lessening the burdens of government the first is whether the governmental_unit considers the organization’s activities to be its burden the second is whether the activities actually lessen the burden of the governmental_unit an activity is the burden of the government if there is an objective manifestation by the governmental_unit that it considers the activities of the organization to be its burden therefore revrul_85_2 held that an organization that provides legal assistance to guardians ad litem who represent abused and neglected children before a juvenile court that requires their appointment lessens the burdens of government the law of the state in which the organization is incorporated authorizes and the local court’s rules_of_practice require the appointment of a guardian ad litem to represent a child’s interest in a proceeding relating to child abuse in 326_us_279 the supreme court of the united_states interpreted the requirement in sec_501 that an organization be operated exclusively by indicating that an organization must be devoted to exempt purposes exclusively this plainly means that the presence of a single non-exempt purpose if substantial in nature will destroy the exemption regardless of the number and importance of truly exempt purposes in 70_tc_352 the tax_court determined that an organization formed to provide consulting services on the topic of rural-related policy and program development to tax-exempt organizations at or close to cost did not qualify for exemption under sec_501 as an educational scientific or charitable_organization in examining the organization's activities the court noted that an organization may operate a trade_or_business and still qualify under sec_501 rather the critical inquiry is whether the organization's primary purpose for engaging in its sole activity is an exempt_purpose or whether its primary purpose is the nonexempt one of operating a commercial business producing net profits for the organization this determination is a question of fact to be resolved on the basis of all the evidence presented by the administrative record factors to be considered include the particular manner in which an organization's activities are conducted the commercial hue of those activities and the existence and amount of annual or accumulated_profits furthermore c ompetition with commercial firms is strong evidence of the predominance of nonexempt commercial purposes applying this analysis the court determined that the organization's services obviated the need for non-profits to employ full-time staff for that function that the organization's fee was based on the cost of providing services rather than the tax-exempt organization's ability to pay that the organization realized profit that the organization's financing was not typical of sec_501 organizations and that in practice the organization did not limit its services to letter rev catalog number 47630w you are like the organization in revrul_60_351 as you distribute and sell products as a sub-contractor to anyone that wants to use your products your income is derived from a markup on the cost of these items to cover expenses as seen in revrul_66_147 the distribution of products free of charge differentiated that organization from operating as a commercial entity here the sale and distribution of your products are in accordance with commercial distribution practices where a purchase is made and the merchandise is marked up and sold you are similar to the organization described in revrul_72_369 because you are operating a manufacturing business ordinarily carried on for-profit you are not similar to the organization in revrul_71_581 you are purchasing materials to create your pipe none of your materials are donated you are then selling the pipe products to government and other organizations at fair_market_value all of your work will be performed by compensated employees and revenue from your sales will go back to your organization you are similar to the organization described in the b s w_group which provided services to nonprofit_organizations and was not exempt under sec_501 of the code your sole purpose is to manufacture and administer the sale and distribution of pipe products you are dependent on the overhead markup that you charge to operate the sale and distribution of products on a regular basis denotes the carrying on of a trade_or_business in a regular manner similar to the organization in easter house you do not qualify for exemption because you operate in a commercial manner rather than exclusively for charitable purposes you are similar to the organization in living faith as you exhibit certain factors evident of non-exempt commercial operations you sell goods to the public as a substantial part of your activities you are in direct competition with other retailers for-profit included who sell products your prices are set to compete with others finally you are supported substantially through sales rather than charitable_contributions these factors demonstrate a commercial rather than charitable purpose you are competing with for-profit commercial manufacturers and you said you will be priced competitively thus much like the organization described in airlie foundation supra you do not qualify for exemption although the sale of your pipe is used to maintain public bridges the manner in which you plan to provide the pipe through sales does not fulfill the charitable purpose of maintaining public works or lessening the burdens of government under sec_1 d of the regulations you are not lessening the burdens of government simply because your pipe will be used on bridges owned by the government a determination of whether an organization is lessening the burdens of government requires consideration of whether the organization’s activities are activities that a governmental_unit considers its burden and whether such activities actually lessen such governmental burden the fact that you are engaged in an activity that is sometimes undertaken by the government is insufficient to establish a burden of government additionally just because the president of the united_states and speaker of the house may have called for an increased focus on infrastructure specifically roads and bridges does not mean you are lessening the burdens of government by providing pipe for the bridges even though your pipe may be cheaper than from other suppliers and may allow the project to be completed in a faster time you are still selling the pipe at a price above cost for the project additionally a strong working relationship between the government and an organization is strong evidence that an organization is actually lessening the burdens of government you do not have a strong working relationship with the government you will be working with the contractor on a project that wins the bid and you will operate much like a sub-contractor on the project you will not have a close working relationship with the government letter rev catalog number 47630w your activities to not meet the requirements laid out in revrul_85_2 for lessening the burdens of government you indicated the president of the united_states the speaker of the house and others have called for increased focus on infrastructure specifically on crumbling bridges the fact that you will be engaged in an activity that is sometimes undertaken by the government is insufficient to establish a burden of government additionally the fact that the president of the united_states and the speaker of the house are calling for an increased focus on infrastructure such as crumbling bridges is also not sufficient to establish that you are lessening the burdens of government you will not work directly with government authorities to improve a bridge or other structure you will work with engineering firms and other similar companies who will include your pipe product as part of the engineering plans you will operate much like a sub-contractor on the projects and will be providing your product at fair_market_value you will therefore be operating in a commercial manner and not for a charitable purpose you are similar to the organization in better business bureau in which the supreme court held that the presence of a single non-exempt purpose if substantial in nature will destroy a claim for exemption regardless of the number or importance of truly exempt purposes your activity of producing pipe products and acting as a subcontractor is substantial and is an activity that is primarily carried on for the purpose of conducting a commercial business your position you said you are an exempt_organization based on sec_501 of the code you are a corporation that has specifically limited your purposes to the activities described and dedicated your assets to those purposes within your articles of incorporation you stated that c makes no distinction regarding any specific business or trade and it is clear from existing c corporations that many businesses and trades are operated by non-profit and for-profit corporations that are essentially the same such as hospitals and colleges you noted that congress limited the fostering of amateur sports competition to exclude provision of athletic_facilities or equipment within the code from a legal perspective this shows that if congress had intended to preclude certain businesses or trades from c designation they would have done so you stated that your purposes have been clearly described within your application and the trade_or_business you are discussing is central to your exempt charitable purpose s you explained that crumbling roads and bridges are public works infrastructure projects and there may be construction contractors that could and should move from for-profit to non-profit business models roads and bridges benefit all of society and deteriorating roads and bridges affect all forms of commerce which no doubt results in greater problems for the poor you said this is also about competition organizations such as hospitals and colleges compete in the same markets with for-profit competitors and both non-profit and for-profit organizations if properly run make profits you referenced an organization that was granted c status to build and run the light rail system designed for a large city this helped strike a balance between private and public interests depending upon sources there are big_number or more bridges in need of immediate repair or replacement in the u s alone you are going to be part of the solution for this just as in the this above-referenced organization you will work with government agencies and contractors to identify appropriate projects for your revolutionary old school approach to replacing rebuilding bridges and infrastructure you also referenced k which sells ' tt is a c letter rev catalog number 47630w clothing and furniture it says fixtures and materials and it operates similar to how f and g operate with respect to there are also 5u1 c businesses that rehubuitate outside the u s and h that also extend c status to all sorts of businesses and trades or _ and ones that focus on building you stated that all of this illustrates that the irs does you stated the irs has already determined that the government is a viable recipient of charity the dissolution clause on page of your articles of incorporation is a direct quote from page of publication and it states assets shall be distributed for one or more exempt purposes within the meaning of sec_501 of the united_states internal_revenue_code or the corresponding section of any future federal tax code or shall be distributed to the federal government or to a state_or_local_government for a public purpose the instructions for form_1023 on page tells us organizations that receive substantial support from grants governmental units and or contributions from the general_public are public_charities publication on page discusses charitable organizations and tells us such organizations must be organized and operated for purposes that are beneficial to the public interest examples include erection or maintenance of public buildings monuments or works and lessening the burdens of government the instructions for form_1023 on page appendix c glossary of terms defines economic development with organizations formed to combat community deterioration by assisting businesses located in a particular geographic area whose economy is economically depressed or deteriorating you stated that you specifically fit within this context as well but you are not focused on one single community you made an expedite request stating the president of the united_states speaker of the house and others began calling for increased focus on infrastructure specifically discussing our crumbling roads and bridges within your abilities you will partner with the public government and businesses in rebuilding crumbling roads bridges and highway overpasses and in areas affected by natural disaster you will assist recovery efforts in disaster relief for hurricanes floods tornadoes and earthquakes by building and replacing bridges in weeks instead of months or years you stated that if the majority of an organization’s support is derived from the government it is a public charity you said your pipe product will be sold for its fair_market_value regardless of the customer this is the best way to avoid concerns over quid pro quo contributions the engineering services you provide and management coordination between the private sector and government concerns are substantial and very much incidental to your charitable purposes to explain fair_market_value you stated technically each time we build a pipe approximately and that pipe will remain in public service for fifty to one hundred years the funds required to purchase that pipe will come from public and government sources with that said q will clearly fit within the public government support guidelines to qualify as a c charitable_organization -_ of the cost will be in the pipe product itself you said that j and l have a fair_market_value for a while m and n is about dollars you compared your fair_market_value to j and said based on this alone you are a non-profit organization letter rev catalog number 47630w you stated that you clearly intend to assist the government’s efforts to resolve the problem of crumbling roads bridges and infrastructure and that you are clearly a public charity based on your support coming from public and government sources you indicated that you will have an impact on economic development throughout the nation thereby lessening the burden of government you will work extensively with engineering professionals public works directors federal and state departments of transportation w regulators etc to fulfill these purposes and you have the potential for providing real world help working with s and t in the next major disaster as suggested in your expedite request our response to your position although you assert that your purposes have been clearly described within your application and the trade_or_business is central to your exempt charitable purpose s your activities lack any element of charity you are formed for the purpose of manufacturing a product acting as a sub-contractor for anyone that would like your product and selling the product with a substantial mark up the fact that you would like to sell your product to the government does not make your activity lessening the burden of the government you compared yourself to an organization that was granted c status to build and run the light rail system however your operations are commercial you said that because no part of your earnings would inure to the benefit of private individuals you qualify for exemption private benefit is only one factor to consider you must also be organized and operated for charitable or other c purposes you further compared yourself to the f and g as they use revenues generated from sales to fund their operations however you are very different than these two organizations you also referenced h which your operations lack any donative element you are driven by the manufacture and sale of a you stated that the irs has already determined that the government is a viable recipient of charity although the government can be a viable recipient of charity you are not providing charity to the government you are providing the opportunity for the government to purchase a product the same way any other organization or individual would purchase it the fact that you plan to receive part of your support from the government does not cause you to be a public charity you emphasized that your pipe product would be sold for fair_market_value regardless of the customer this is the best way to avoid concerns over quid pro quo contributions you further said your engineering services and management coordination between the private sector and government concerns are substantial these activities are much like the ones described above in b s w group factors to be considered include the particular manner in which an organization's activities are conducted the commercial hue of those activities and the existence and amount of annual or accumulated_profits competition with commercial firms is strong evidence of the predominance of nonexempt commercial purposes you serve a substantial non-exempt commercial purpose product in a commercial manner you said that because your pricing strategy is more like j and less like m based on this alone you are a non- profit organization j as you know is not a charity this is not a basis for exemption_letter rev catalog number 47630w your protest you indicated that this letter offers an us against them approach to the analysis of your application you said you are not the enemy you said receiving a favorable determination is more important to the united_states than it is to you you said we make no attempt to understand your position or suggest a compromise this is simply a flat denial based largely on misrepresentation to illustrate this in real terms you are willing to stipulate certain changes in your proposed operations that should remove concerns as follows e e you could offer your services at or below cost and require donations if necessary to help cover costs in the communities served you could limit your services to government only with no private sector sales at all you believe this is not the best approach but you will allow us to decide you state that you were formed for charitable and initially scientific purposes with manufacturing and acting as a sub-contractor being necessary to fulfill those purposes you provided an illustration of your solution to typical highway overpasses and bridges you said our letter implies that all you do is sell pipe but your illustration shows that the two pipes are equal to the constructed bridge portion of the project both are engineering solutions requiring earthwork under on each end or side and pavement to be placed over the top you referred to this as a revolutionary old school approach to replacing rebuilding bridges and infrastructure your application and this letter describe your predecessor organization as being unable to secure funding to make this happen during your first two years as a not-for- profit you will secure grant funds to build prototype machinery that will be placed into service after testing this machinery is not commercially available and there are no competitors offering this pipe you assert that this letter erroneously implies you operate in a commercial manner and the statement that you are not providing charity to the government appears to suggest the government is not poor needy and distressed choosing to ignore the definitions of sec_1_501_c_3_-1 you state that sec_1 c - d defines charitable as used in sec_501 to say it also includes erection or maintenance of public buildings monuments or works and this is the focus of all your activities even the private sector work estimated to be less than purposes directed to public works you also state that the fact that utilizing your solution will also lessen the burdens of the government is a further charitable purpose as defined in this section of your activities - as time allows was to fund your ongoing charitable you state it is the government itself that brings to this activity a commercial hue we are unfamiliar with any other process where the government can implement a public works design construction method or project where the process does not involve bidding and awarding contracts to various firms we also believe the irs to be unaware of any other process as well we suggested an implementation familiar to this standard process to allow competitive bidding of construction companies engineering firms etc with our organization operating similar to a sub-contractor you state that the commerciality doctrine is not in the code and you look to the courts for guidance on this issue and find the court says an organization may operate a trade_or_business and still qualify under sec_501 citing b s w group inc the quote goes on to say the critical inquiry is whether the organization’s primary purpose for engaging in its sole activity is an exempt_purpose or whether its primary purpose is the nonexempt one of operating a commercial business providing net profits for the organization letter rev catalog number 47630w you said you must take it that your sole activity revolves around the production and sale of pipe technology used for building or replacing bridges which is required to fulfill your primary purpose of erecting and or maintaining public works your stated method of accomplishing this purpose generally involves the construction of two very large pipes you have concluded the most efficient means of providing this solution to the government is by offering that this solution be included in engineering plans and you provide this solution in a manner similar to a sub-contractor on any other construction_project it is your preference to provide this solution at cost plus about additional infrastructure needs of street overlays water lines sewer lines and more as time allows you might offer the same solution to the private sector to obtain additional funds for your ongoing operations you state that from this it can be seen that the development manufacture of machinery and manufacture and sale of pipe is integral to your primary purpose you said the primary purpose for engaging in this business as your sole activity is an exempt_purpose - and in time you hope to solicit funding and allocate funds to help with you estimate your solution will save the government about three fourths of the money typically spent using current methods it will be less disruptive to the environment and local economies using current methods the vast majority of projects go unfunded simply put the cost is so high using current methods that government can no longer afford to use them generally the same contractors that would bid on the project using current methods will bid on projects using your method the result being these contractors should get more work which is economic development the current methods will still be used the solution you offer is not always the best solution and it will take many years before engineers alter some of their choices you said that we may choose to strip you of all profit_motive and you will abide by that decision but the result will simply reduce the impact you will have and delay your progress there will be no actual difference in the way you operate which points to the hypocrisy and error in our position you said we blatantly mischaracterized what you intend to do stating you sell goods to the public as a substantial part of your activities you are in direct competition with other retailers for profit included who sell products your prices are set to compete with others f inally you are supported substantially through sales rather than charitable_contributions you are competing with for-profit commercial manufacturers and you said you will be priced competitively you state that this paragraph speaks of competition with retailers and commercial manufacturers when logically there can be no competitors for a product that does not yet exist you go on to explain that b s w group easter house living faith and airlie foundation each advised a major factor in denying exemption was that these organizations were in competition with for-profit commercial businesses but this is not true of you as you established above your next point was that the irs letter claimed you were conducting the same activities that your for-profit predecessor conducted prior to your request for exemption but that is functionally impossible because your predecessor did nothing more than attempt to seek venture capital offering the sale of equity shares in exchange for a percentage of the company you are now a non-profit corporation and there are no shares to sell the predecessor serves as evidence you were unable to be successful as a for-profit company you state that the overwhelming fact is that grant money is available to non-profits not for-profits you said our letter is replete with erroneous contentions you state that no attempt was made to analyze your organization in context with the legal authority as you did and we simply ignore that charitable purpose includes erection or maintenance of public buildings monuments or works ’ letter rev catalog number 47630w response to your protest you said you could offer your services at or below cost and require donations if necessary to help cover costs in the communities served you also could limit your services to government only with no private sector sales at all you said you will allow us to decide although you assert you could offer your services at or below cost and require donations you have not made any actual changes to the way you plan to operate in fact in your protest you continue to describe offering your product for cost plus markup nonetheless even if there was not a markup your purpose is substantially non-exempt and not one of an exempt nature as previously described you asserted that the commerciality doctrine is not in the code you then indicated that it is your preference to provide this solution at cost plus about and in time you hope to solicit funding and allocate funds to help with additional infrastructure needs of street overlays water lines sewer lines and more although you said the irs may choose to strip us of all profit_motive and you will abide by that decision the issue isn’t based solely on your profit_motive the purposes for which you were formed are not exempt functions you were formed for substantial non-exempt commercial purposes you said you were not similar to the organizations described in b s w group easter house living faith and airlie foundation because these organizations were in competition with for-profit commercial businesses and you are not however you will be offering a product that competes with products and methods that are currently used to build infrastructure despite your assertion that you are different you are in fact similar to the organizations described in the above cited cases conclusion you said that you are not similar to your predecessor for-profit organization because there are no shares to sell you also said that grant money is available to non-profits not for-profits providing services of an ordinary commercial nature regardless of whether the undertaking is conducted on a nonprofit basis and is beneficial to the community does not further a charitable purpose unless the service directly accomplishes a tax-exempt purpose the sale_of_goods eg pipe does not exclusively further charitable purposes because such activities serve a substantial non-exempt commercial purpose you said no attempt was made to analyze your organization in context with the legal authority you said the irs ignores that charitable purpose includes erection or maintenance of public buildings monuments or works however you do not operate for a charitable purpose as you are simply a manufacturer of a material that you are willing to sell to the government or anyone interested in purchasing it an organization is not operated exclusively for charitable purposes and thus will not qualify for exemption under sec_501 if it has a single non-exempt purpose that is substantial in nature based on the information provided you do not qualify for exemption under sec_501 of the code you are not organized and operated exclusively for charitable purposes within the meaning of sec_501 of the code because you operate in a commercial manner if you don’t agree you have a right to file a protest if you don’t agree with our proposed adverse determination to do so you must send a statement to us within days of the date of this letter the statement must include letter rev catalog number 47630w e e e e e your name address employer_identification_number ein and a daytime phone number acopy of this letter highlighting the findings you disagree with anexplanation of why you disagree including any supporting documents the law or authority if any you are relying on the signature of an officer director trustee or other official who is authorized to sign for the organization or your authorized representative e one of the following declarations for an officer director trustee or other official who is authorized to sign for the organization under penalties of perjury i declare that i examined this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete for authorized representatives under penalties of perjury i declare that i prepared this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete your representative attorney certified_public_accountant or other individual enrolled to practice_before_the_irs must file a form_2848 power_of_attorney and declaration of representative with us if he or she hasn’t already done so you can find more information about representation in publication practice_before_the_irs and power_of_attorney we'll review your protest statement and decide if you provided a basis for us to reconsider our determination if so we’ll continue to process your case considering the information you provided if you haven’t provided a basis for reconsideration we'll forward your case to the office of appeals and notify you you can find more information about the role of the appeals_office in publication how to appeal an irs decision on tax- exempt status if you don’t file a protest within days you can’t seek a declaratory_judgment in court at a later date because the law requires that you use the irs administrative process first sec_7428 of the code where to send your protest please send your protest statement form_2848 if needed and any supporting documents to the applicable address letter rev catalog number 47630w u s mail street address for delivery service internal_revenue_service eo determinations quality assurance room p o box cincinnati oh internal_revenue_service eo determinations quality assurance main street room cincinnati oh you can also fax your statement and supporting documents to the fax number listed at the top of this letter if you fax your statement please contact the person listed at the top of this letter to confirm that he or she received it if you agree if you agree with our proposed adverse determination you don’t need to do anything if we don’t hear from you within days we’ll issue a final adverse determination_letter that letter will provide information on your income_tax filing_requirements you can find all forms and publications mentioned in this letter on our website at www irs gov formspubs if you have questions you can contact the person listed at the top of this letter sincerely director exempt_organizations enclosure publication catalog number 47630w letter rev


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc corp b06-plr-131196-00 date date legend foreign parent parent holding corporation a individual c state x country y b business x date a date b date c plr-131196-00 date d this letter responds to your authorized representative’s letter dated date in which rulings were requested as to certain federal_income_tax consequences of a proposed transaction additional information was submitted in letters dated date date and date foreign parent is a country y corporation that wholly owns parent a u s_corporation incorporated in state x that is the common parent of an affiliated_group_of_corporations that files a consolidated federal_income_tax return the parent group parent is engaged in business x the parent group includes holding a wholly owned subsidiary of parent holding is a corporation incorporated in state x that owns b of parent stock that it acquired from individual c on date a parent holds a debenture the debenture that was issued by holding to individual c on date b parent acquired the debenture from corporation a a state x corporation when corporation a merged with and into parent on date c_corporation a acquired the debenture from individual c on date d for its face_amount plus accrued interest for what the taxpayer represents are valid business reasons the following transaction is proposed under state x law parent will cause holding to merge with and into parent parent will succeed to all of holding's assets operations and liabilities the merger the taxpayer has made the following representations about the proposed transaction a parent on the date of adoption of the plan of merger and at all times until the merger is completed will be the owner of percent of the total combined voting power of all classes of holding stock entitled to vote and the owner of percent of the total value of all classes of stock excluding nonvoting_stock that is limited and preferred as to dividends and otherwise meets the requirements of sec_1504 of the code b no shares of holding have been redeemed during the three years preceding the adoption of the merger c the merger will take place within a single taxable_year d effective as of the effective date of the merger the corporate existence of holding will cease under applicable local law plr-131196-00 e f g there is no plan or intention to sell or otherwise dispose_of any holding stock prior to the merger or for holding to issue any additional shares of holding stock holding will not retain any assets following the merger holding will not have acquired assets in any nontaxable_transaction except for acquisitions occurring more than three years prior to the date of adoption of the plan of merger h no assets of holding will have been or will be disposed of either by holding or parent except for dispositions in the ordinary course of business and dispositions occurring more than three years prior to adoption of the plan of merger i the merger will not be preceded or followed by the reincorporation in or transfer of assets to a recipient corporation recipient of any of the businesses or assets of holding if persons holding directly or indirectly more than percent in value of holding stock also hold directly or indirectly more than percent in value of the stock of recipient for purposes of this representation ownership will be determined by application of the constructive_ownership rules of sec_318 of the code as modified by sec_304 j prior to adoption of the merger plan no assets of holding will have been distributed in_kind transferred or sold to parent except for i transactions occurring in the normal course of business and ii transactions occurring more than three years prior to adoption of the merger plan k holding will report all earned_income represented by assets that will be distributed to its shareholder such as receivables being reported on a cash_basis unfinished construction contracts commissions due etc l the fair_market_value of the assets of holding will exceed its liabilities both at the date of the adoption of the plan of merger and immediately prior to the merger m the debenture will be extinguished in the merger corporation a acquired the debenture for its face_amount plus accrued interest neither parent nor corporation a has taken a bad_debt deduction with respect to any portion of the debenture nor has any portion of such debenture been acquired by parent or corporation a from third parties at a discount plr-131196-00 n parent is not an organization that is exempt from federal_income_tax under sec_501 or any other provision of the code o all of the outstanding_stock of holding is owned by parent there are no minority shareholders based solely on the information submitted and the representations set forth above we rule as follows for federal_income_tax purposes the merger will be treated as a distribution by holding to parent in complete_liquidation of holding within the meaning of sec_332 of the code sec_1_332-2 no gain_or_loss will be recognized to parent on the receipt of the assets of and liabilities of holding distributed pursuant to the merger sec_332 no gain_or_loss will be recognized by holding upon the distribution of its assets and liabilities to parent pursuant to the merger sec_337 parent will succeed to and take into account the items of holding described in sec_381 subject_to the provisions and limitations of sec_381 and c and the regulations thereunder sec_381 and sec_1_381_a_-1 pursuant to sec_381 and sec_1_381_c_2_-1 parent will succeed to and take into account the earnings_and_profits of holding as of the date of the transfer as defined by sec_1_381_b_-1 any deficit in earnings_and_profits of parent or holding will be used only to offset earnings_and_profits accumulated after the date of distribution sec_381 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically no opinion is expressed or implied concerning the federal tax treatment of the distribution of the debenture by holding to parent in the merger further no opinion is expressed or implied regarding the characterization of the debenture as debt for federal tax purposes 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 plr-131196-00 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any income_tax return to which it is relevant associate chief_counsel corporate by joseph m calianno assistant to the branch chief branch


internal_revenue_service number release date index number --------------------------- ----------------------------------------- ------------------------- ---------------- ------------------------------- in re ------------------------------ ----------------------- ---------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------- id no ------------- telephone number --------------------- refer reply to cc psi b07 plr-150996-02 date date x y z ------ ------- ------- ------------------------------ corporation legend legend ---- ------------------ dear ---- this letter responds your letter dated date and previous correspondence on behalf of corporation requesting a ruling that corporation be granted permission to revoke its election under ' c of the internal_revenue_code the represented facts are as follows corporation is an accrual_method taxpayer utilizing a calendar taxable_year corporation is the common parent of a sec_41 controlled_group_of_corporations all the members of which file on corporation’s consolidated_income_tax_return for its x taxable_year corporation elected to compute its credit_for_increasing_research_activities research_credit utilizing the alternative_incremental_research_credit airc rules of ' c corporation has continued to utilize the airc prior to the due_date including extensions for corporation’s income_tax return for its z taxable_year corporation requested permission to revoke its sec_41 election for its y taxable_year alternatively corporation requested permission to revoke its sec_41 election for the earliest taxable_year after y for which the commissioner will grant permission plr-150996-02 for taxable years beginning after date taxpayers may elect to determine their research_credit under the airc rules of ' c sec_41 provides that an election under ' c a may be revoked with the consent of the secretary based solely on the facts submitted and representations made we grant permission for corporation to revoke its election to determine its research_credit under the airc rules of ' c for qualified_research_expenses paid_or_incurred during corporation’s z taxable_year however we do not grant permission for corporation to revoke its election to determine its research_credit under the airc rules of sec_41 for qualified_research_expenses paid_or_incurred during corporation’s y taxable_year corporation should compute the research_credit for the taxable_year ending on z and all succeeding years using the general_rule of ' a provided that corporation does not make a new election to determine its research_credit under the airc rules of ' c in a later year except as expressly provided herein we express or imply no opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter further we express or imply no opinion concerning expenditures corporation treated as qualified_research_expenses this ruling is directed only to the taxpayer requesting it sec_6110 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 corporation a copy of this letter must be attached to any income_tax return to which it is relevant 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 heather c maloy associate chief_counsel passthroughs special industries cc