department of the treasury p o box cincinnati ohio employer_identification_number person to contact - id contact telephone numbers phone fax uil code internal_revenue_service director exempt_organizations release number release date date legend b organization c scholarship program d community f region amount dear we have considered your request dated date for advance approval of your grant-making program under sec_4945 of the internal_revenue_code our records indicate that b was recognized as exempt from federal_income_tax under sec_501 of the code and that it is classified as a private_foundation as defined in sec_501 of the code you intend to provide scholarship grants to individuals the name of the scholarship program is called c the first year you contemplate awarding between zero and five scholarships to under privileged students to obtain an education for secondary technical associate undergraduate or graduate degrees the amount and number of scholarships available each year will be determined by the scholarship committee based on the total amount available for the scholarships for each year as determined by the board_of directors after taking into account b’s financial position b does not expect to award more than five scholarships in any year it is not expected that any one scholarship will exceed x per school year terms and conditions of c include full-time enrollment at a secondary school_college_or_university and remaining in good standing with the school the student is attending the scholarship may be renewed annually if the student notifies b and continues to meet c's criteria however the amount of the scholarship can fluctuate each year based on the overall financial condition of b for ls general provisions for scholarships a selection of grantees selection of grantees will be made by the scholarship committee comprised of b’s board_of directors and or individuals appointed by the board b will publicize the scholarship program to local schools and charitable organizations in d and the surrounding f area the recipient cannot be related to a member of the scholarship committee or to any disqualified persons in relation to your organization the group from which grant recipients will be selected will primarily consist of high school juniors and seniors in d b criteria for selection b will utilize an objective and non-discriminatory selection process including as to race religion and gender without prescribing priority criteria for selection will include the following without limitation a b ci d f g financial need academic performance performance on tests designed to measure ability and aptitude for education at the level being considered recommendations from teachers coaches and others who know the applicant extra-curricular and community activities interviews such other criteria that the scholarship committee deems relevant c scholarship committee the scholarship committee will be comprised of the board_of directors of b and or individuals appointed by the board the scholarship committee will initially have three members consisting of the board_of directors of b but may have as many as fifteen members no member of the scholarship committee will be permitted to be in a position to derive a private benefit directly or indirectly from the selection of the scholarship recipient s a recipient cannot be related to a member of the scholarship committee or to any disqualified persons in relation to b when a new member of the board or scholarship committee is considered b will consider various factors including particularly whether the individual has a strong interest in education especially with respect to under privileged students additionally a potential board member is expected to have a solid understanding of financial matters and to have the time to devote to both b and to the examination of applicants for the scholarship finally as it has in connection with seeking approval of these scholarship procedures b will continue to engage legal counsel to advise b and the board including with respect to possible conflicts of interest terms and conditions of scholarship grants the recipient will be notified at the beginning of each academic year that he or she must agree to and meet the following standards a b the funds will be disbursed only for the purpose of paying qualified_educational_expenses during the applicable academic period the recipient will make arrangements with the institution to have a transcript or other acceptable report of his her courses and grades and a report regarding the recipient’s progress and standing at the institution sent to b as soon as it is available for each term attended c d e f the recipient will make arrangements with the educational_institution to have a report sent to b in the event that the institution obtains any information indicating the recipient is engaging in any activities or is otherwise performing at a level which would jeopardize the recipient’s position and standing at the institution the recipient will notify b immediately in the event the recipient fails to maintain an academic record or meet other requirements sufficient to be classified as a student in good standing or ceases to be enrolled as a full-time_student the recipient agrees to have restored to b immediately upon the organization’s request all funds not expended for educational expenses in accordance with the terms and conditions of this grant the recipient will furnish b with a current address and telephone number and any subsequent changes during the life of the grant supervision over scholarship grants at the discretion of the board_of directors the scholarship may be paid directly to the recipient or to the educational_institution of the recipient’s choice if the funds are distributed directly to the recipient b shall notify the recipient that the funds may be applied only to qualified_education_expenses at a qualifying educational_institution if the funds are distributed to an educational_institution the financial aid or other appropriate office of the receiving educational_institution will administer and distribute the funds the educational_institution will be requested to take such actions as may be determined by b including possibly withholding disbursement of funds if the progress of the recipient is deemed unacceptable by b or the educational_institution b will retain records submitted by the educational_institution or recipient in the event of any notification requested under these scholarship procedures or any other notification indicating academic financial or other issues relating to the recipient’s performance at the educational_institution b will consult with the recipient and will determine the actions to be taken which may include reducing or suspending disbursement of the scholarship funds until the recipient makes acceptable progress additional procedures a qualifications for obtaining maintaining and renewing scholarships to be eligible to obtain a scholarship an applicant must meet the criteria as stated in criteria for selection mentioned above the board will consider the factors listed on each application and then notify the recipient s of its decision the board will also notify the recipient that the scholarship amount will be determined after further discussion with the educational_institution taking into account the funds available from the educational_institution and government sources as well as funds which may be available to the recipient from third parties in order to continue receiving scholarship funds the recipient must maintain the status of a student in good-standing at the educational_institution this determination will be made by the board following a review of the periodic reports sent by the student and or the educational_institution since each educational_institution has different requirements for a student to be in good standing b cannot specify an exact grade point average or number of credit hours earned although the typical grade point average to remain a student in good-standing 1s at least on a scale if a recipient does not maintain the status of a student in good-standing b expects to allow a one semester probationary period during which a recipient may receive the scholarship but must take all steps necessary to become a student in good-standing by the end of the probationary period if the recipient fails to become a student in good-standing by the end of the probationary period b will notify the recipient that he or she is longer eligible to receive the scholarship the scholarship recipient will be notified at the time of the award that the scholarship may be renewed annually the recipient must notify b of his or her desire to receive scholarship funds for the upcoming school year and b will repeat the process from the previous year in order to determine the amount of the renewed scholarship procedures to avoid potential conflicts of interest the board will conduct an initial review of all applications received to determine if any applicant is related to a member of the board or to any disqualified_person of b including a substantial_contributor since the board has access to all of the information to determine disqualified persons and or substantial contributors the board will make this determination on an applicant-by-applicant basis prior to a substantive review of each application in addition to following this procedure the board will adopt written procedures to ensure no conflicts of interest arise the written procedures will list the policy of not providing scholarships to persons related to a member of the board or disqualified persons including substantial contributors the written policy will be made available to all board members current disqualified persons and substantial contributors and any future disqualified persons or substantial contributors c recordkeeping requirements b will maintain records and documents including information used when evaluating each of the applicants the documents primarily will consist of each applicant’s application recommendations from third parties and information relating to the board’s review of each application the documents will be retained for a period of seven years after each scholarship is completed sec_4945 of the code provides that the term taxable_expenditure means any amount_paid or incurred by a private_foundation as a grant to an individual for travel study or other similar purposes by such individual unless such grant satisfies the requirements of subsection g sec_4945 of the code provides that sec_4945 shall not apply to individual grants awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance if it is demonstrated that the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 and is to be used for study at an educational_organization described in sec_170 a ii the grant constitutes a prize or award which is subject_to the provisions of sec_74 if the recipient of such prize or award is selected from the general_public or the purpose of the grant is to achieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar capacity skill or talent of the grantee sec_53_4945-4 of the regulations provides that to secure approval a private_foundation must demonstrate that i its grant procedure includes an objective and nondiscriminatory selection process a l il iil such procedure is reasonably calculated to result in performance by grantees of the activities that the grants are intended to finance and the foundation plans to obtain reports to determine whether the grantees performed activities that the grants are intended to finance based on the information submitted and assuming your award programs will be conducted as proposed with a view to provide objectivity and nondiscrimination in making the awards we have determined that your procedures for granting the awards comply with the requirements contained in sec_4945 of the code and that awards granted in accordance with such procedures will not constitute taxable_expenditures within the meaning of sec_4945 in addition we have determined that awards made under your procedures are excludable from the gross_income of the recipients subject_to the limitations provided by sec_117 of the code this determination is conditioned on the understanding that there will be no material_change in the facts upon which it is based it is further conditioned on the premise that no grants will be awarded to foundation managers or members of the selection committee or for a purpose that is inconsistent with the purpose described in sec_170 of the code the approval of your award program procedures herein constitutes a one-time approval of your system standards and procedures designed to result in awards which meet the requirements of sec_4945 of the code this determination only covers the grant programs described above thus approval shall apply to subsequent award programs only as long as the standards and procedures under which they are conducted do not differ materially from those described in your request any funds you distribute to individuals must be made on a true charitable basis in furtherance of the purposes for which you are organized therefore you should maintain adequate_records and case histories so that any or all award distributions can be substantiated upon request by the internal_revenue_service this determination is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as a precedent you must report any future changes in your grant making procedures please keep a copy of this letter in your permanent records we have sent a copy of this letter to your representative as indicated in your power_of_attorney if you have any questions please contact the person whose name and telephone number are shown above sincerely yours robert choi director exempt_organizations rulings and agreements


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi plr-111005-01 date date legend company holdco new sub state date dear we received a letter dated date and subsequent correspondence submitted on behalf of company requesting rulings under sec_1361 of the internal_revenue_code this letter responds to that request facts company was formed as a corporation under the laws of state and elected s_corporation status effective date company represents that all of its shareholders are eligible shareholders under sec_1361 for business reasons company wants to restructure by undertaking the following transactions first company’s shareholders organize a new limited_liability partnership holdco under the laws of state holdco will file an election under sec_301_7701-3 to be classified as an association_taxable_as_a_corporation and will make an s_corporation_election second holdco forms new sub a new qualified_subchapter_s_subsidiary qsub that will be disregarded under sec_1361 plr-111005-01 third the shareholders of company contribute their existing stock in company to holdco holdco contribute sec_1 percent of company’s stock to new sub fourth company coverts under state law to a limited_partnership with new sub as a percent general_partner and holdco as a percent limited_partner company makes the following representations concerning these transactions these transactions are intended to constitute and qualify as a reorganization under sec_368 holdco will have fewer than owners none of which would be ineligible shareholders or nonresident_aliens state law does not require different rights to distributions or liquidation proceeds among the owners of holdco and holdco’s operating_agreement will ensure identical rights to distributions and liquidation proceeds company requests the following rulings holdco is eligible to be treated as an s_corporation and holdco’s partnership_agreement does not create a second class of stock law and analysis sec_1361 defines an s_corporation as a small_business_corporation for which an election under sec_1362 is in effect sec_1361 defines the term small_business_corporation to mean a domestic_corporation that is not an ineligible_corporation and that does not a have more than shareholders b have as a shareholder a person other than an estate and other than a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock sec_1361 identifies an ineligible_corporation as any corporation which is a a financial_institution which uses the reserve_method of accounting for bad_debts described in sec_585 b an insurance_company subject_to tax under subchapter_l c a corporation to which an election under sec_936 applies or d a disc or former_disc according to the representations made neither holdco nor company is an ineligible_corporation as defined in sec_1361 sec_1361 defines a qsub as a domestic_corporation which is not an ineligible_corporation if percent of the stock of the corporation is owned by the s_corporation and the s_corporation elects to treat the corporation as a qsub sec_1361 provides that generally a qsub shall not be treated as a separate corporation and that all assets liabilities and items of income deduction and credit of a qsub shall be treated as assets liabilities and such items of the s_corporation plr-111005-01 sec_1_1361-3 of the income_tax regulations provides that an s_corporation may elect to treat an eligible subsidiary as a qsub by filing a completed form to be prescribed by the service the service prescribes that qsub status may be elected through a form_8869 sec_1_1361-3 provides guidance on when a qsub election will be effective sec_7701 indicates that unless otherwise distinctly expressed or manifestly incompatible with the intent thereof corporation includes associations joint-stock companies and insurance_companies sec_301_7701-3 defines an eligible_entity as a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership sec_301_7701-3 in the absence of an election to be classified as an association a domestic eligible_entity with a single member will be disregarded as an entity separate from its owner if it has a single owner sec_301_7701-3 a corporation’s s election will not terminate during a reorganization under sec_368 if the surviving corporation meets the requirements of an s_corporation under sec_1361 see revrul_64_250 1964_2_cb_333 in state a limited_liability partnership is a partnership formed under state’s version of the uniform_partnership_act state law provides as a general_rule that no partner is liable for debts and obligations of the partnership incurred while the partnership is a registered limited_liability partnership exceptions to the general_rule exist for debts and obligations attributable to errors omissions negligence incompetence or malfeasance where the particular partner is involved in the activity leading to those acts or where the individual partner had knowledge of those acts and failed to take reasonable steps to prevent or cure the errors omissions negligence incompetence or malfeasance accordingly under state law all interests in a limited_liability partnership provide the same liability protections and do not present the distinctions in equity interests limited vs general presented by a typical limited_partnership conclusion based on the information submitted and representations made we conclude that holdco is eligible to be treated as an s_corporation and holdco’s partnership_agreement does not create a second class of stock 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 plr-111005-01 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 in particular no opinion is expressed or implied as to whether company is a valid s_corporation prior to these transactions or whether the described transactions constitute a reorganization under sec_368 furthermore no opinion is expressed on the effect that any modifications in holdco’s partnership_agreement would have under sec_1361 under a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative 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 sincerely yours christine ellison chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes cc


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 fip b4 plr-129357-17 date date legend taxpayer state a foreign_country b state c date m date n date o date p date q date r individual y individual z year year year year year year year year year external business manager cpa firm consulting firm new external business manager --------------------------------------------------- --------------------------- ------------ ----------------------- --------- ------------ -------------------- ------------------- ----------------- ---------- ------------------ -------------------- ------------------------ ------- ------- ------- ------- ------- ------- ------- ------- ------- ------------------------------------------- ------------------------------ ----------------------------------- --------------------------------- plr-129357-17 dear --------------- this letter is in response to taxpayer’s request pursuant to sec_301_9100-3 of the procedure and administration regulations for an extension of time to make the election under sec_831 of the internal_revenue_code facts taxpayer was initially incorporated and licensed under the laws of state a on date m of year effective date n of year taxpayer reincorporated as an insurance_company under the laws of foreign_country b effective date o of year taxpayer became re- domiciled in the united_states and became a state c_corporation taxpayer is licensed as a captive_insurance_company under the laws of state c when taxpayer was incorporated under the laws of foreign county b taxpayer was taxed as a domestic_corporation pursuant to a sec_953 election to be treated as a u s entity for year through year taxpayer filed forms 1120-pc u s property and casualty insurance_company income_tax return since its initial incorporation as a captive_insurance_company under the laws of state a until the present taxpayer has not made a sec_831 election to be taxed under the alternative_tax for small insurance_companies from year to mid-year taxpayer hired external business manager as its captive insurance manager external business manager on behalf of taxpayer engaged cpa firm to provide tax provision and tax compliance services for year to year including the preparation of taxpayer’s u s federal_income_tax returns on forms 1120-pc on date p of year in a communication transmitting taxpayer’s tax provision work papers for year to external business manager individual y an employee of cpa firm informed individual z an employee of external business manager that taxpayer was eligible to make the election under sec_831 individual y stated that it was clear that taxpayer qualified under sec_831 as a small insurance_company and as a result that taxpayer could make an election to be taxed solely on its investment_income in a follow-up correspondence on date q of year individual y again informed individual z about the election that taxpayer was now in a position to make the sec_831 election individual z however left the employ of external business manager prior to the filing of taxpayer’s form 1120-pc for the calendar_year and the question of whether or not to make the election under sec_831 was dropped taxpayer represents that at no time did cpa firm or external business manager discuss the election under sec_831 with taxpayer in mid-year consulting firm was engaged by taxpayer and external business manager was replaced by new external business manager new external business plr-129357-17 manager reviewed taxpayer’s federal_income_tax return for calendar_year sec_4 and and noted that taxpayer was eligible to make the election under sec_831 new external business manager notified consulting firm and consulting firm in turn brought the sec_831 election to the attention of taxpayer in early year in year taxpayer filed an amended form 1120-pc for year to make an election under sec_831 the service rejected the amended_return because the period of limitation on filing a claim_for_refund_or_credit under sec_6511 had expired on date r of year taxpayer filed amended forms 1120-pc for calendar_year and year on these amended returns taxpayer computed its u s federal_income_tax liability consistent with the relief being sought in this request_for_ruling being granted that is consistent with making a sec_831 election effective for calendar_year and thereafter taxpayer represents that it qualifies as a property and casualty insurance_company under part ii of subchapter_l of the internal_revenue_code and that it qualifies as a company eligible to make the election under sec_831 for year additionally taxpayer represents that upon granting of the requested extension taxpayer will not have a lower tax_liability in the aggregate for all taxable years affected by the election than taxpayer would have had if the election had been timely filed taking into account the time_value_of_money and taxpayer is not seeking to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time of this request further taxpayer represents that it requested relief before the failure to make the election was discovered by the internal_revenue_service moreover taxpayer represents that it is not using hindsight in requesting this relief law and analysis sec_831 provides that taxes computed as provided in sec_11 are imposed for each taxable_year on the taxable_income of every insurance_company other than a life_insurance_company however sec_831 allows certain small companies to elect to be subject_to tax on their taxable_investment_income only the election applies to the taxable_year for which the company made it and as long as the company continues to qualify for all subsequent taxable years unless revoked with the consent of the secretary the time and manner to make the sec_831 election is prescribed by sec_301_9100-8 accordingly the election under sec_831 is a regulatory election sec_301_9100-1 pursuant to sec_301_9100-8 the election is to be made by the due_date taking into account any extensions of time to file obtained by the taxpayer of the tax_return for the first taxable_year for which the election is effective by attaching a statement to the tax_return containing the information specified in sec_301_9100-8 plr-129357-17 under sec_301_9100-1 the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory or statutory election sec_301_9100-3 provides that a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that the grant of relief will not prejudice the interests of the government under sec_301_9100-3 a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer i requests relief under this section before the failure to make the regulatory election is discovered by the internal_revenue_service ii failed to make the election because of intervening events beyond the taxpayer’s control iii failed to make the election because after exercising reasonable diligence taking into account the taxpayer’s experience and complexity of the return or issue the taxpayer was unaware of the necessity for the election iv reasonably relied on the written advice of the internal_revenue_service or v reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election under sec_301_9100-3 a taxpayer is deemed not to have acted reasonably and in good_faith if the taxpayer i seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested ii was informed in all material respects of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief the commissioner will grant a reasonable extension of time to make a regulatory election only when the interests of the government will not be prejudiced by the granting of relief sec_301_9100-3 plr-129357-17 the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money sec_301_9100-3 sec_301_9100-1 cautions that granting an extension of time to make an election is not a determination that the taxpayer is otherwise eligible to make the election based solely on taxpayer’s representations and the additional information required under sec_301_9100-3 taxpayer qualifies for an extension of time to make the election under sec_831 taxpayer is deemed to have acted in good_faith as defined by sec_301_9100-3 and the grant of relief will not prejudice the interests of the government ruling accordingly under sec_301_9100-3 taxpayer is granted an extension of time until days following the date of this letter to make the election provided by sec_831 a for the tax_year ending on december of year the election should be made in a written_statement filed with the appropriate service_center a copy of this letter should be attached to the sec_831 election caveats the ruling contained in this letter is based upon the information and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the ruling_request and it is subject_to verification on examination except as provided above no opinion is expressed or implied concerning the federal_income_tax consequences of any other aspect of this or other transactions or item_of_income of taxpayer specifically no ruling is made as to whether taxpayer qualifies as an insurance_company under sec_831 and the granting of the extension under sec_301_9100-1 should not be construed as a determination that taxpayer is eligible to make the election provided by sec_831 this ruling is directed only to the taxpayer that requested it sec_6110 provides that this ruling may not be used or cited as precedent plr-129357-17 in accordance with a power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely alexis a macivor branch chief branch office of the associate chief_counsel financial institutions products cc


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi - plr-127185-00 date date x a d1 year dear this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 in year a as the director of x represents that x was intended to be an s_corporation beginning year its first taxable_year x’s filed form ss-4 application_for employer_identification_number evidences this intent however no form_2553 election by a small_business_corporation had been submitted with the internal_revenue_service for year x filed a form_1120s u s income_tax return for an s_corporation and the shareholders of x filed individual tax returns consistent with x being an s_corporation 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 year 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 requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely yours j thomas hines chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service te_ge eo examination commerce street dallas texas date date tax_exempt_and_government_entities_division number release date legend org organization name xx date address address org address employer_identification_number person to contact id number contact numbers voice fax certified mail - return receipt requested dear in a determination_letter dated october 20xx you were held to be exempt from federal_income_tax under sec_501 of the internal_revenue_code the code based on recent information received we have determined you have not operated in accordance with the provisions of sec_501 of the code accordingly your exemption from federal_income_tax is revoked effective july 20xx this is a final adverse determination_letter with regard to your status under sec_501 of the code we previously provided you a report of examination explaining why we believe revocation of your exempt status is necessary at that time we informed you of your right to contact the taxpayer_advocate as well as your appeal rights our adverse determination was made for the following reasons internal_revenue_code sec_6001 requires organizations exempt from tax to such rules keep such records and render such statements as are required by and regulations as the secretary may prescribe sec_1_6033-2 h requires organizations exempt from tax to submit such additional information as may be required by the internal_revenue_service for the purpose of inquiring into the organization’s exempt status you failed to meet the records keeping and reporting requirements under sec_6001 and sec_6033 you no longer meet the requirements of sec_501 and sec_1 c -1 d in that you failed to establish that you were operated exclusively for an exempt_purpose contributions to your organization are no longer deductible under sec_170 of the internal_revenue_code you are required to file federal_income_tax returns on form_1120 those returns should be filed with the appropriate service_center processing of income_tax returns and assessment of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination in court you must initiate a suit of declaratory_judgment in the united_states tax_court the united_states claims_court or the district_court of the united_states for the district of columbia before the day after the date this determination was mailed to you contact the clerk of the appropriate court for rules for initiating suits for declaratory_judgment you may write to the tax_court at the following address you also have the right to contact the office_of_the_taxpayer_advocate you can call and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at taxpayer_advocate assistance cannot be used as a substitute for established irs procedures formal appeals processes etc the taxpayer_advocate is not able to reverse legal or technically correct_tax determinations or extend the time fixed by law that you have to file a petition in the united_states tax_court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling we will notify the appropriate state officials of this action as required by sec_6104 of the internal_revenue_code if you have any questions in regards to this matter please contact the person whose name and telephone number are shown in the heading of this letter thank you for your cooperation sincerely yours nanette m downing director eo examinations tax_exempt_and_government_entities_division org address department of the treasury internal_revenue_service north 8th street richmond va date taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under sec_501 of the internal_revenue_code code is necessary if you accept our findings take no further action we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision your protest should include a statement of the facts the applicable law and arguments in support of your position an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process you may also request that we refer this matter for technical_advice as explained in publication if we issue a determination_letter to you based on technical_advice no further administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice letter catalog number 34809f if we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notify the appropriate state officials of the revocation in accordance with sec_6104 of the code you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter the most convenient time to call if we need to contact you if you write please provide a telephone number and thank you for your cooperation enclosures publication publication report of examination sincerely nanette m downing director eo examinations letter catalog number 34809f schedule number or exhibit explanations of items form 886-a rev date name of taxpayer tax identification_number year period ended org 20xx06 tin legend 20xx date state state org organization name number activity program director program director program manager bm-2 board member foundation director foundation director chairman chairman chairman chairman bm-3 board member tin taxpayer identification program manager program manager co-1 company co-2 activity company city city program manager bm-1 board member bm-4 board member issue whether org org qualifies for exemption under sec_501 of the internal_revenue_code facts org org was incorporated as a state non-stock corporation effective april 20xx the org was granted exemption under sec_501 on april 20xx the articles of incorporation of org state that the purpose of the corporation is the corporation will be dedicated to coordinating human services and delivering them to at-risk youth in northern state and to their families through the supportive environment of the public schools or alternate education sites the corporation will endeavor to enable said youth and their families to have access to a broad range of needed social and educational_services by establishing a coordinated delivery system of city resources within an educational setting the objective of the corporation will be to reduce the number of school dropouts in northern state attempts to contact the org at the address listed on the form 990-ez resulted in returned letters significant research was required to locate individuals associated with the org program manager was program manager for the org from july 20xx until april 20xx according to a letter she wrote to the service dated august 20xx she provided a copy of minutes of the october 20xx board_of directors meeting attached as exhibit a indicating program manager was to focus only on activity program manager provided a copy of her calendar to support her claim that she conducted activities consistent with the org’s exempt_purpose for the period under examination the correspondence from program manager indicated that she conducted activities consistent with the org’s exempt_purpose for period of july form 886-a catalog number 20810w publish no irs gov service_department of the treasury-internal revenue form 886-a rev date explanations of items schedule number or exhibit name of taxpayer tax identification_number year period ended org tin 20xx06 20xx to april 20xx no evidence was provided that proved the org conducted activities consistent with its exempt_purpose the correspondence from program manager further stated that all board members had resigned leaving chairman chairman of the board_of directors and executive all of the service’s attempted contacts with the director as the only known officer chairman of the board_of directors were unsuccessful the service contacted co- the parent organization in an effort to secure information state program director program director indicated the org had stopped sending reports to the state organization and that he was aware that the board members had all resigned the service contacted the co-2 in city state program manager program manager for the northeast region said that chairman had passed away in january 20xx an obituary showed chairman died january 20xx attached as exhibit b in an effort to secure information about the organization the service contacted the prior chairman of the board chairman who left the board when his term ended at the time chairman became chairman of the board chairman had no information of the org’s activities for the period under examination because he no longer participated the following individuals listed on the october 20xx board meeting minutes as being present at the meeting were contacted bm-1 bm-2 bm-3 and bm-4 bm-4 was the only one who recalled events related to the org she stated she believed it was early in 20xx that the board dissolved when chairman became unresponsive to their requests the agent participated in a meeting on april 20xx with program manager representative from the co-2 program director phd program director for co-1 and foundation director phd foundation director for co-1 foundation director stated that neither the co-1 nor the co-2 had any intent of reestablishing the operation of the org the service reviewed available books_and_records and found no correspondence meeting minutes contracts or other documents that pertained to the period under examination or indication of the org’s performance of its exempt_purpose after april 20xx the agent examined the org’s form 990-ez for the year ending june 20xx the return reflected under part iv on page officers directors and key employees chairman as chair of the board and program manager as program manager the return was signed by program manager indicating the name of program manager program manager the org’s form 990-ez for the year ending june 20xx indicated termination by virtue of checking the box on page under b the return listed chairman as the form 886-a catalog number 20810w publish no irs gov service_department of the treasury-internal revenue form 886-a rev date explanations of items schedule number or exhibit name of taxpayer tax identification_number year period ended org sole officer his position was chairman of the board the return was signed by program manager the program manager officer was lined out on the signature line on page attached as exhibit c tin 20xx06 the org has not filed form_990 990-ez for the years ending june 20xx and june 20xx an information_document_request was sent to org with a request to file the form_990 for the tax period ending june 20xx the org failed to respond to the request to file the forms for the tax period ending june 20xx the org failed to file form w-3 and forms w-2 with the social_security administration for the years ending december 20xx and december 20xx the state state corporation commission terminated the corporate status of the org effective august 20xx law sec_501 provides that corporations and any community chest fund or foundation organized and operated exclusively for religious charitable scientific testing for public safety literary or educational_purposes sec_6001 provides that every person liable for any_tax imposed by the irc or for the collection thereof shall keep adequate_records as the secretary_of_the_treasury or_his_delegate may from time to time prescribe sec_6033 provides except as provided in sec_6033 every organization exempt from tax under sec_501 shall file an annual return stating specifically the items of gross_income receipts and disbursements and such other information for the purposes of carrying out the internal revenue laws as the secretary may by forms or regulations prescribe and keep such records render under oath such statements make such other returns and comply with such rules and regulations as the secretary may from time to time prescribe sec_1_501_c_3_-1 organizations organized and operated for religious charitable scientific testing for public safety literary or educational_purposes or for the prevention of cruelty to children or animals in order to be exempt as an organization described in sec_501 an organization must be both organized and operated exclusively for one or more of a organizational and operational tests form 886-a catalog number 20810w publish no irs gov department of the treasury-internal revenue service schedule number or exhibit explanations of items form 886-a rev date name of taxpayer tax identification_number year period ended org the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt tin 20xx06 c operational_test primary activities -an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 d exempt purposes educational defined i in general -the term educational as used in sec_501 relates to a the instruction or training of the individual for the purpose of improving or developing his capabilities or b the instruction of the public on subjects useful to the individual and beneficial to the community sec_1_6001-1 in conjunction with sec_1_6001-1 provides that every organization exempt from tax under sec_501 a and subject_to the tax imposed by sec_511 on its unrelated_business_income must keep such permanent books or accounts or records including inventories as are sufficient to establish the amount of gross_income deduction credits or other matters required to be shown by such person in any return of such tax such organization shall also keep such books_and_records as are required to substantiate the information required by sec_6033 sec_1_6033-1 provides that every organization which has established its right to exemption from tax whether or not it is required to file an annual return of information shall submit such additional information as may be required by the district_director for the purpose of enabling him to inquire further into its exempt status and to administer the provisions of subchapter_f sec_501 and the following chapter of the code and sec_6033 sec_1_6001-1 states that the books_or_records required by this section shall be kept at all times available for inspection by authorized internal revenue officers or employees and shall be retained as long as the contents thereof may be material in the administration of any internal revenue law form 886-a catalog number 20810w publish-no irs gov service_department of the treasury-internal revenue schedule number or exhibit explanations of items form 886-a rev date name of taxpayer tax identification_number year period ended org tin 20xx06 revrul_59_95 1959_1_cb_627 concerns an exempt_organization that was requested to produce a financial statement and statement of its operations for a certain year however its records were so incomplete that the organization was unable to furnish such statements the service held that the failure or inability to file the required information_return or otherwise to comply with the provisions of sec_6033 and the regulations which implement it may result in the termination of the exempt status of an organization previously held exempt on the grounds that the organization has not established that it is observing the conditions required for the continuation of exempt status government’s position it is the government’s position that org is no longer exempt as a sec_501 organization because it fails the operational_test the org is not being operated exclusively for its exempt_purpose in that it ceased providing instruction and training of individuals for the purpose of improving and developing their capabilities the org indicated termination on its 20xx06 form 990-ez the org has no intention of conducting exempt_activities the org has no governing board and in accordance with treas reg section the org has no means to sustain itself c -1 a when the org fails to meet either the organizational_test or the operational_test it is not exempt the org has failed to file form_990 for the years ending june 20xx and june 20xx despite the fact that the form_990 for june 20xx was specifically solicited in an information_document_request the org has failed to file form w- and forms w-2 with the social_security administration for the calendar years ending december 20xx and 20xx in accordance with the above cited provisions of the code and regulations under sec_6001 and sec_6033 organizations recognized as exempt from federal_income_tax must meet certain reporting requirements these requirements relate to the filing of a complete and accurate annual information and other required federal tax forms and the retention of records sufficient to determine whether such entity is operated for the purposes for which it was granted tax-exempt status and to determine its liability for any unrelated_business_income_tax given the subject organization’s failure_to_file required information returns such as forms for the years ending june 20xx and 20xx and form w-3 and forms w-2 for the years ending december 20xx and december 20xx org’s exemption under sec_501 should be revoked form 886-a catalog number 20810w publish no irs gov service_department of the treasury-internal revenue form 886-a rev date explanations of items schedule number or exhibit name of taxpayer org tax identification_number tin year period ended 20xx06 conclusion based upon audit work performed it is the service’s position that org no longer qualifies for exemption as it fails the operational_test of an sec_501 organization the organization failed to meet the reporting requirements under sec_6001 and sec_6033 to be recognized as exempt from federal_income_tax under sec_501 accordingly we propose revoking the organization's exempt status effective july 20xx form 886-a catalog number 20810w publish no irs gov service_department of the treasury-internal revenue


t c memo united_states tax_court estate of myrtle v dietz deceased edward a dietz iii executor petitioner v commissioner of internal revenue respondent docket no filed date john chalk jr and john w michener jr for petitioner james w lessis for respondent memorandum findings_of_fact and opinion parker judge respondent determined a deficiency of dollar_figure in the federal estate_tax of the estate of myrtle v dietz the estate unless otherwise indicated all section references are to the internal_revenue_code in effect for the date of decedent's death and all rule references are to the tax_court rules_of_practice and procedure the issue for decision is whether myrtle v dietz possessed at her death a general_power_of_appointment over the edward a dietz trust that requires inclusion in decedent's gross_estate under sec_2041 of dollar_figure representing percent of the value of the trust on the date of decedent's death findings_of_fact this case has been submitted fully stipulated the stipulation of facts and the exhibits attached thereto are incorporated herein by this reference myrtle v dietz decedent resided in fort worth texas at the time of her death on date edward a dietz iii the executor was granted letters testamentary by the probate_court in tarrant county texas on date the executor resided in fort worth texas at the time the petition was filed decedent was married to edward a dietz mr dietz from date until his death on date they had two children during their marriage edward a dietz jr edward jr who was born date and died date and virginia m dietz wallace virginia who was born date and died date edward jr was married to barbara stratton dietz from date until his death edward jr and his wife had five children during their marriage all of whom are still living edward a dietz iii born date diane dietz stocker born date debbie dietz born date dixie dietz crow born date and danni dietz lougee born date virginia was married to charles e wallace on date they had four children during their marriage all of whom are still living c e wallace iii born date marsha wallace mills born date carter wallace born date and david c wallace born date mr dietz executed his last will and testament the will on date the will provided that the residue of his estate fund the edward a dietz trust the trust for the benefit of decedent their children and their grandchildren article of the will contained provisions for distributions from the trust sec_5 of the will provided that during the life of decedent the trustee after taking into account other funds of decedent had the discretion to distribute to decedent so much of the trust's net_income and principal which the trustee deemed necessary for the care support and maintenance hospital and medical needs and expenses of invalidism of decedent sec_5 of the will gave the trustee discretion to sprinkle net edward a dietz iii is the executor of decedent's_estate income and principal to the children and grandchildren of mr dietz for their care support and maintenance hospital and medical needs and education sec_5 of the will stated the following any other provision hereof to the contrary notwithstanding my said wife shall have so long as she shall live the absolute right to withdraw from the principal of the trust each calendar_year any amount in cash or in_kind not in excess of five thousand dollars dollar_figure or five percent of the then value of the principal of the trust whichever amount is greater said right to withdraw such amount shall be noncumulative however and if in any such year my said wife shall fail to withdraw all of such amount she shall not be entitled in any subsequent year to withdraw such amount as she failed to withdraw in any prior year the sums if any actually withdrawn from the trust by my said wife pursuant to this authorization therefor shall be in addition to and not in lieu of any discretionary payments to her by the trustee hereunder and need not be taken into account by the trustee in determining my wife's need for such discretionary payments after the death of mr dietz the trust was established pursuant to the provisions of his will at no time prior to decedent's death did she exercise her rights under sec_5 at decedent's death the fair_market_value of the principal of the trust was dollar_figure on date the executor filed a federal estate_tax_return for decedent's_estate on date respondent issued a notice_of_deficiency to the estate determining a deficiency in estate_tax of dollar_figure respondent increased the gross_estate by the amount of dollar_figure which is equal to percent of dollar_figure the fair_market_value of the principal of the trust on the date of decedent's death opinion sec_2041 requires that the value of a decedent's gross_estate include the value of all property-- to the extent of any property with respect to which the decedent has at the time of his death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released such a power_of_appointment by a disposition which is of such nature that if it were a transfer of property owned by the decedent such property would be includible in the decedent's gross_estate under sec_2035 to inclusive for purposes of this paragraph the power_of_appointment shall be considered to exist on the date of the decedent's death even though the exercise of the power is subject_to a precedent giving of notice or even though the exercise of the power takes effect only on the expiration of a stated period after its exercise whether or not on or before the date of the decedent's death notice has been given or the power has been exercised sec_2041 sec_2041 defines a general_power_of_appointment with exceptions not applicable to this case as a power which is exercisable in favor of the decedent his estate his creditors or the creditors of his estate the power to consume the principal of the trust is a power_of_appointment sec_20_2041-1 estate_tax regs the possession of a general_power_of_appointment is subjected to the estate_tax whether or not the power is exercised and the exercise or release of such power during the holder's life is subjected to the gift_tax 101_tc_44 supplemented and reconsideration denied tcmemo_1994_221 affd 68_f3d_1027 7th cir the lapse of such a power during the lifetime of the person possessing the power is considered a release of the power in regard to the lapse of such a power sec_2041 provides the lapse of a power_of_appointment created after date during the life of the individual possessing the power shall be considered a release of such power the preceding sentence shall apply with respect to the lapse of powers during any calendar_year only to the extent that the property which could have been appointed by exercise of such lapsed powers exceeded in value at the time of such lapse the greater of the following amounts a dollar_figure or b percent of the aggregate value at the time of such lapse of the assets out of which or the proceeds of which the exercise of the lapsed powers could have been satisfied decedent had the right to withdraw funds from the principal of the trust this power to consume in favor of decedent herself was a general_power_of_appointment decedent never exercised her power decedent's right to withdraw was noncumulative and thus her failure to exercise her right by the end of each calendar_year prior to her death was a lapse of the power over the amount available to her for that year as the amounts over which decedent's power lapsed each year before the year of her death did not exceed those specified in sec_2041 those amounts were not subjected to the gift_tax during her life nor required to be included in her gross_estate upon her death it is the treatment of the amount over which decedent possessed the power during the year of her death the final year's amount that is at issue it is respondent's position that decedent's power had not lapsed at the time of her death making the exception under sec_2041 of the greater of dollar_figure or percent of the value of assets the sec_2041 exception unavailable and thereby subjecting the final year's amount to the general_rule of inclusion under sec_2041 it is the estate's position that the sec_2041 exception extends to the final year's amount the estate argues that the example given in sec_20_2041-3 estate_tax regs is inconsistent with the language of sec_2041 the estate also argues that the sec_2041 exception was designed as a de_minimis exception and that to include the final year's amount in decedent's gross_estate would defeat the purpose of that section further the estate argues that the final year's amount should not be included because the estate has no dominion or control_over the trust property sec_2514 contains a similar provision for purposes of gift_tax throughout the estate's brief the estate speaks of sec_2041 applying to lapsed powers in all years including those in the year of a taxpayer's death the estate cites estate of noland v commissioner tcmemo_1984_209 for this proposition we agree that sec_2041 applies to lapsed powers in all years our holding in estate of noland v commissioner is in accordance with that in that case we held that under sec_2041 the amount includible in the gross_estate in this case for each of the years through is limited to the amount if any by which the lapsed portion of the power exceeded dollar_figure id emphasis added what the estate fails to grasp in the instant case is that at the time of decedent's death on date her power over the final year's amount had not yet lapsed sec_20_2041-3 estate_tax regs respondent's treatment of the final year's amount follows an example given in sec_20_2041-3 estate_tax regs which the estate says is inconsistent with sec_2041 that example reads for example assume that a transferred dollar_figure worth of securities in trust providing for payment of income in that case the year of decedent's death was and respondent did not determine any deficiency in estate_tax nor seek any increased deficiency from the tax_court in regard to the amount that had not lapsed at the time of her death in thus we did not directly address the issue that is presented in the instant case to b for life with remainder to b's issue assume further that b was given a non-cumulative right to withdraw dollar_figure a year from the principal of the trust fund in such case the failure of b to exercise his right of withdrawal will not result in estate_tax with respect to the power to withdraw dollar_figure which lapses each year before the year of b's death at b's death there will be included in his gross_estate the dollar_figure which he was entitled to withdraw for the year in which his death occurs less any amount which he may have taken during that year sec_20_2041-3 estate_tax regs the above example is taken directly from the senate report on the powers of appointment act of ch sec_2 65_stat_91 see s rept 82d cong 1st sess reprinted in u s code cong admin news u s c c a n with respect to then proposed new sec_811 which in substance is identical to current sec_2041 the senate report stated the house bill provided that the failure to exercise a future power which lapses during the life of the holder of the power shall not be deemed an exercise or release of the power an amendment by your committee modifies this latter provision so as to exempt from estate and gift_tax only limited amounts of property subject_to lapsed powers the committee amendment provides an annual exemption with respect to the lapsed powers equal to dollar_figure or percent of the trust or fund in which the lapsed power existed whichever is the greater thus for example if a person has a noncumulative right to withdraw dollar_figure a year from the principal of a dollar_figure trust fund failure to exercise this right will not result in either estate or gift_tax with respect to the power over dollar_figure which lapses each year prior to the year of death at his death there will be included in his gross_estate the dollar_figure which he was entitled to draw for the year in which his death occurs less any sums which he may have taken on account thereof while he was alive during the year s rept supra u s c c a n pincite the sec_2041 exception is an exception to be applied to the property over which the decedent's general_power_of_appointment has lapsed and would otherwise be considered released it is not an exception to be applied to property over which the decedent still has a general_power_of_appointment at the time of death in the example the exception was applied to the amounts for the years for which b's power had lapsed as in the facts of this case b's final year's power had not lapsed at the time of his death so no exception was available for that year the example in the regulation is not inconsistent with sec_2041 congressional intent the powers of appointment act of was enacted to remedy problems with the changes made to then sec_811 of the internal_revenue_code_of_1939 by the revenue act of see estate of kurz v commissioner t c pincite s rept supra sec_811 as amended by the revenue act of taxed most powers to appoint whether exercised or not and applied to powers created prior to as well as after its enactment this was in direct contrast to the previous version of sec_811 which provided that property subject_to powers of appointment was includable in the gross_estate only if the decedent's power_of_appointment was general the power was in fact exercised and the appointive_property passed as a result of the decedent's exercise of the power estate of kurz v commissioner t c pincite the act included a short transition_period to allow for the release of existing powers but due to widespread dissatisfaction congress granted numerous extensions to the effective date of the amendment s rept supra the powers of appointment act of effectively restored the law as it had existed prior to the act for those powers of appointment created prior to the act for powers created after that date the act maintained the general scheme of taxing powers whether exercised or not but added the lapsed powers provisions now codified as sec_2041 then sec_811 the senate report commented since the problem of the termination or lapse of powers of appointment during life arises primarily in the case of dispositions of moderate-sized properties where the donor is afraid the income will be insufficient for the income_beneficiary and therefore gives the income_beneficiary a noncumulative invasion power it is believed that the exemption provided in the committee amendment dollar_figure or percent of the principal will be adequate to cover the usual cases without being subject_to possible abuses the purpose of the new sec_811 added by this committee amendment is to provide a determination as of the date of the lapse of the power of the proportion of the property over which the power lapsed which is not to be considered as a taxable disposition for estate_tax purposes and the proportion thereof which if other requirements of sec_811 are satisfied will be considered as a taxable disposition s rept supra u s c c a n pincite6 the sec_2041 exception was not intended as an exception to be applied to the property over which a decedent has a general_power_of_appointment at the time of death but rather as an exception to be applied to the property over which such power has lapsed property the value of which after the act might be includable in the gross_estate based on the legislative_history of sec_2041 we do not agree with the estate's argument that the inclusion of the final year's amount in decedent's gross_estate defeats the purpose of that section see also estate of kurz v commissioner supra where we held that percent of the principal of the family_trust over which mrs kurz held a general_power_of_appointment was includable in her gross_estate even though the principal of the marital trust had not yet been exhausted at the time of her death a requirement for her to exercise her right to withdraw principal from the family_trust the estate's lack of dominion or control the estate's final argument is that since the estate has no dominion or control_over the final year's amount the estate should not be taxed on the value of that property petitioner has cited no authority for this argument but asserts that since decedent had no testamentary powers over the final year's amount such amount should not be included in her gross_estate sec_2041 requires inclusion of the value of any property with respect to which the decedent has at the time of his death a general_power_of_appointment the exceptions to the definition of general_power_of_appointment listed in sec_2041 do not include a power only exercisable during the holder's lifetime the inability of decedent to dispose_of the property at her death does not prevent the inclusion of the final year's amount in her gross_estate under sec_2041 in conclusion decedent's power over the trust had not lapsed at the time of her death thus sec_2041 does not apply to the year of her death we hold that the final year's amount dollar_figure is includable in her gross_estate under sec_2041 in keeping with the above holding and to allow for additional estate_tax_deductions for certain administration_expenses under sec_2053 decision will be entered under rule


internal_revenue_service number release date index number -------------------------------------------------- ------------------------------ -------------------------- ------------------- ----------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------------ id no ------------ ---------------- telephone number -------------------- refer reply to cc fip plr-146092-13 date date legend act agreement authority state county agency project statutes x dear -------------- ------------------------------------------- --------------------------------------------------------------------------------- --------------------------------- -------------------------------------------------- ----------------------- --------------------------------- -------------------------------------- ----------------------------------------------------------------- ------------------------------------------------------- -- this letter is in response to your request for rulings that the authority’s income is derived from the exercise of an essential_governmental_function and will accrue to the state or a political_subdivision thereof for purposes of sec_115 of the internal_revenue_code and the authority is a constituted_authority within the meaning of sec_1_103-1 of the income_tax regulations facts and representations the county is a political_subdivision of the state the agency was created by the act as a body politic and corporate the agency is empowered by the act to undertake any lawful act necessary to ensure sufficient water for the present and future beneficial use plr-146092-13 of the land and inhabitants within county the authority represents that agency is a political_subdivision of the state the agency owns the project which consists of hydroelectric power plants dams tunnels and public recreational facilities the agency operates the project pursuant to a license issued by the federal energy regulatory commission ferc pursuant to the statutes the county and the agency entered into the agreement creating the authority the agreement authorizes the authority to exercise the powers of each of the county and the agency the purpose of the authority is to provide financing for costs required by the ferc licensing process to approve electrical energy and related_services contracts and to distribute revenues from those contracts among the powers the authority can exercise in furtherance of these purposes are the powers to acquire to lease and to sell property the agreement and the statutes authorize the authority to issue bonds the county and the agency are the sole members of the authority the authority is governed by a x member board_of directors half of those directors are members of the county’s board_of directors and half are members of the agency’s board_of directors the agreement provides that the authority receives all revenues from the sale of electrical energy produced by the project the agreement also establishes priorities for the expenditure and distribution of those revenues under the agreement revenues must first be spent on basic operation and maintenance of the project compliance with contractual and regulatory requirements maintenance of operating reserves and repayment of debt after those costs are paid revenues must then be spent on additions and betterments such as major improvements emergency reserves and sinking funds for replacements finally any remaining revenues may be distributed equally to the county and the agency upon dissolution the authority’s property will be divided between the county and the agency law and analysis income under sec_115 sec_115 provides that gross_income does not include income derived from any public_utility or the exercise of any essential_governmental_function and accruing to a state or any political_subdivision thereof in revrul_77_261 1977_2_cb_45 income from an investment fund established by a state under a written declaration of trust for the temporary investment of cash balances of the state and its participating political subdivisions was excludable from gross_income for federal_income_tax purposes under sec_115 the ruling explains that the statutory exclusion was intended to extend not to the income of a state or municipality resulting from its own participation in activities but rather to the income of a corporation or other entity engaged in the operation of a public_utility or the performance plr-146092-13 of some governmental function that accrues to either a state or municipality the ruling points out that it may be assumed that congress did not desire in any way to restrict a state’s participation in enterprises that might be useful in carrying out projects that are desirable from the standpoint of a state government and which are within the ambit of a sovereign properly to conduct in revrul_90_74 1990_2_cb_34 the income of an organization formed funded and operated by political subdivisions to pool various risks arising from their obligations regarding public liability workers’ compensation or employees’ health was excludable from gross_income under sec_115 in this ruling private interests did not participate in the organization nor did they benefit more than incidentally from the organization the authority reviews and approves contracts for the sale of electrical energy generated by the project distributes revenues from those contracts and provides financing for costs required by the ferc licensing process engaging in such activities on behalf of the county and the agency constitutes the performance of essential governmental functions see revrul_90_74 and revrul_77_261 all of the authority’s income accrues to the county and the agency which are political subdivisions of the state revenues exceeding amounts necessary for the operation maintenance and support of the project and for additions and betterments to the project are distributed to the county and the agency upon the authority’s dissolution all of its property will be divided between the county and the agency no private interests participate in or benefit more than incidentally from the operation of the authority other than as providers of goods or services or purchasers of electrical energy see revrul_90_74 we conclude therefore that the authority’s income is derived from the exercise of an essential_governmental_function and will accrue to the state or a political_subdivision thereof for purposes of sec_115 constituted_authority sec_103 provides that gross_income does not include interest on any state_or_local_bond sec_1_103-1 provides in part that interest upon obligations of a state territory possession_of_the_united_states the district of columbia or any political_subdivision thereof is not includable in gross_income sec_1_103-1 provides in part that obligations issued by or on behalf of any such governmental_unit by a constituted_authority empowered to issue such an obligation are the obligations of such a unit revrul_57_187 1957_1_cb_65 holds that bonds issued by an entity are considered issued on behalf of a political_subdivision of the state under the following conditions the issuance of bonds is authorized by a specific state statute the bond issuance has a public purpose the governing body of the entity is controlled by the political_subdivision the entity has the power to acquire lease and sell property and issue bonds in furtherance of its purposes earnings do not inure to the benefit plr-146092-13 of private persons and upon dissolution title to all bond-financed property reverts to the political_subdivision the agreement and the statutes authorize the authority to issue bonds and its issuances are for the public purpose of financing costs required by the ferc licensing process the county and the agency which are political subdivisions control the authority’s governing board the agreement empowers the authority to acquire lease and sell property and to issue bonds in furtherance of its public purposes earnings_of the authority inure solely to the benefit of the county and the agency upon the authority’s dissolution all of its property reverts to the county and the agency we conclude therefore that the authority is a constituted_authority within the meaning of sec_1_103-1 conclusion based on the information submitted and representations made we conclude that the authority’s income is derived from the exercise of an essential_governmental_function and will accrue to the state or a political_subdivision thereof for purposes of sec_115 and the authority is a constituted_authority within the meaning of sec_1_103-1 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 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely s james a polfer branch chief financial institutions products


uniform issue list apr se-t' ep’ raat legend taxpayer a ira x date month custodian j custodian m state o amount a amount b dear distribution for the calendar_year will not be considered a modification of a series of substantially equal period payments and will not be subject_to the percent additional tax imposed on premature distributions under code sec_72 the following facts and representations have been submitted under penalty of perjury in support of the ruling requested g page taxpayer a under age y2 owns ira x in taxpayer a established an arrangement with custodian j the custodian holding ira x under which taxpayer a would receive annual ira x distributions in the form of substantially_equal_periodic_payments under the fixed amortization_method using an interest rate that was not more than percent of an applicable federal_mid-term_rate for month and using the single life expectancy table in sec_1_401_a_9_-9 q a-1 of the income_tax regulations under taxpayer a’s arrangement with custodian j the custodian would withhold an appropriate amount to pay state o and federal taxes due on the gross distribution from ira x based on these factors taxpayer a's annual distribution from his ira x beginning in was amount a from which federal and state taxes would be withheld this arrangement was continued for years in custodian m a successor custodian of ira x continued taxpayer a's arrangement and continued to pay all federal and state taxes due on the annual and taxpayer a was unaware that amount b had not been distributed for year until he received his 1099-r from custodian m in taxpayer a contacted custodian m about the distribution error and as a result custodian m issued a letter dated date the date letter states that custodian m due to its administrative error did not pay the state o taxes due on the annual ira x distributions from his own non-ira x state o taxes pending guidance taxpayer a chose to pay the state o taxes due for funds instead of allowing ira x to pay the from the internal_revenue_service based on the foregoing taxpayer a requests a ruling that the failure to distribute the entire required_distribution amount for the calendar_year proposed makeup distribution for the calendar_year will not be considered a modification of a series of substantially equal period payments under code sec_72 and will not result in the imposition of the percent additional tax under sec_72 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 distrbutee as the case may be in the manner provided under sec_72 anda code sec_72 provides rules for determining how amounts received as annuities endowments or life_insurance contracts and distributions from qualified_plans are to be taxed page code sec_72 provides for the imposition of an additional percent tax on early distributions from qualified_plans including iras the additional tax is imposed on that portion of the distribution that is includible in gross_income code sec_72 provides that sec_72 shall not apply to distributions that are part of a series of substantially_equal_periodic_payments not less frequently than annually made for the life or life expectancy of the employee or joint lives or joint life expectancies of such employee and his designated_beneficiary code sec_72 imposes the additional limitation on distributions excepted from the percent tax by sec_72 that if the series of payments is subsequently modified other than by reason of death or disability before the employee's attainment of age then the taxpayers tax for the first taxable_year in which such modification occurs shall be increased by an amount determined under regulations equal to the tax that would have been imposed except for the sec_72 t a iv exception plus interest for the deferral_period sec_1_401_a_9_-9 of the regulations provides tables that are to be used in connection with computations under sec_72 and the regulations thereunder included in this section are tables giving life expectancies for one life q a-1 and joint life and last survivor expectancies for two lives q a-3 notice_89_25 was published on date and provided guidance in the form of questions and answers on certain provisions of the tax_reform_act_of_1986 tra_'86 in absence of regulations on code sec_72 this notice provides guidance with respect to the exception to the tax on premature distributions provided under sec_72 q a-12 of notice_89_25 provides three methods of determining substantially_equal_periodic_payments for purposes of sec_72 revrul_2002_62 r b which was published on date modifies q a-12 of notice_89_25 revrul_2002_62 provides among other things that payments are considered to be substantially_equal_periodic_payments within the meaning of code sec_72 if they are made in accordance with the required_minimum_distribution method the fixed amortization_method or the fixed annuitization method the three methods described in q a- of notice the fixed amortization_method provides that the annual payment for each year is determined by amortizing in level amounts the account balance over a specified number of years determined using the chosen life expectancy table and the chosen interest rate under this method the account page balance the number from the chosen life expectancy table and the resulting annual payment are determined once for the first distribution year and the annual payment is the same amount in each succeeding year taxpayer a represents that custodian m failed to make the scheduled payment of the state o taxes due on the annual distributions and caused him to receive a distribution from ira x for distribution year that was less than the amount determined under the method he chose to commence receiving payments from ira x taxpayer a further represents that the error was not detected until he received his 1099-r from custodian m in taxpayer a proposes to receive a makeup distribution in of amount b that would satisfy his annual payment distribution requirement for as determined under the fixed amortization_method when this amount is added to the amount calculated for that will be more than the annual payment determined under the fixed amortization_method other than this make-up distribution which will be made in continue to use the fixed amortization_method for calculating the annual payments from his iras taxpayer a will receive an amount for calendar_year taxpayer a will based on the foregoing we conclude that the failure to distribute the entire required_annual_payment from ira x for the subsequent make-up distribution for the year that will be made in calendar_year periodic_payments under code sec_72 and therefore will not be subject_to the percent additional tax under on premature distributions under sec_72 will not be considered a modification of a series of substantially equal calendar_year and the this ruling assumes that ira x is an ira within the meaning of code sec_408 at all relevant times 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 pursuant to a power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representative this letter is directed only to the taxpayer who requested it sec_61 k of the code provides that it may not be used or cited as precedent if you wish to inquire about this ruling please contact page sincerely yours soa - frances v sloan manager employee_plans technical group enclosures deleted copy of letter_ruling notice of intention to disclose