department of the treasury internal_revenue_service washington d c contact person identification_number telephone number employer_identification_number tax_exempt_and_government_entities_division release number release date date date uniform issue list numbers legend j x i u o dear this responds to you letter as supplemented in which you request rulings under sec_501 facts you have been recognized as a charitable and educational_organization described in sec_501 and classified as a public charity described in sec_509 you were created by a state legislature to aid and assist students to fulfill a program of higher education by relieving students of the burden to put up the collateral required for educational loans your original loan program was a guarantee fund designed to equal ten percent of the outstanding loans issued by participating banks with the implementation of the federal family education loan program the ffelp under the higher education act of pub_l_no you transitioned from operating a loan guarantee pool funded by charitable donations to administering a system of federally guaranteed student loans as a guarantor your activities have broadened over the years to include a variety of services including public education outreach and community services such as e e e promoting financial aid awareness through school-based outreach programs workshops media events websites and publications working with other guarantee agencies to create a comprehensive online resource for students and families about college career and financial aid choices and conducting debt counseling and repayment counseling and supporting specialized outreach services to potential college students in populations or areas with low college placement rates high poverty rates and high dropout rates and first-generation college- bound students although new ffelp loan originations ceased after date you have continued to provide all other guarantor functions under ffelp working closely with and under the direction of the department of education recognizing the rising levels of debt taken on by students in order to fund a college education you have increased your focus on preventing student_loan delinquency to this end you have refined your internal mission to assist students and parents in successfully completing a program of higher education financing and repayment you entered into a voluntary flexible agreement vfa with the department of education which was aimed at lowering student_loan default rates through proactive outreach and communication intended to teach student borrowers financial literacy and student_loan management skills having identified best practices in student borrower communication you developed several successful programs targeted to distinct segments of student_loan borrowers that helped them to better understand their repayment options as well as to develop the financial competencies necessary to build a healthy financial lifestyle although your vfa ended you have continued your borrower outreach and delinquency and default prevention efforts and have expanded your proactive financial counseling and financial education services in response to escalating student debt you wish to spark a movement to educate and empower students and graduates to successfully manage and repay their loan debt and building on the knowledge and skills developed under your vfa with the department of education to build financial competencies that will enable them to make sound financial decisions throughout their lives you will do this by providing multi-channel integrated services combining on-line education and tools with outreach and counseling all at no cost to student borrowers through targeted campaigns you plan to reach out to student borrowers to i develop their financial acuity ii understand the options available for financing their higher education and iii remain on the right path to repayment of their loans your website will include a variety of educational modules targeted to appeal to and effectively teach a broad range of individuals with different learning styles this new program is being offered under the brand name m student borrowers will sign up for free on the m website by providing a minimal set of credentials including email thereby enabling them to access the educational modules and counseling services to foster a sense of engagement those who register will be referred to as m members members m embodies a new educational model featuring a game-ified highly interactive educational environment that is founded on adult learning methods members will learn through experiential situations with the opportunity to execute decisions and understand the consequences of those decisions in real time they will also have the opportunity to share what they have learned among their community of member peers mobile applications will be used as a component of the m educational delivery platform and members may opt to use mobile applications that enable them to put into practice what they have learned about money management and budgeting to maximize the reach of your educational programs you may distribute m content by placing links to the m website from others’ websites including those of nonprofit and for-profit entities that may also be engaged with student borrowers the most productive relationship you can establish with a member is one in which you have access to the student’s demographic and educational loan data this enables you to better customize the online learning experience to drive proactive communications centered on student_loan management and financial education and to facilitate a counseling experience that is specific to the individual member's financial circumstances currently the most efficient and reliable means of obtaining this data is either from the school itself or from loan servicers with authorization from the school while you hope to broaden your access to data from multiple sources colleges and universities will remain the primary channel through which you will establish a relationship with student borrowers through live one-on-one counseling via telephone or web chat skilled counselors will advise members who have education loans for the purpose of ensuring that they understand their repayment options and keep their loans in good standing in cases where you have borrower loan data provided by the borrower directly or enabled by the borrower’s school or others on behalf of the borrower counselors will be able to provide specific support and guidance on repayment status options for modification of payment terms based on unique borrower circumstances and specific student_loan scenario planning in these cases m counselors will also affirmatively reach out to student borrowers who may appear to be at risk of experiencing repayment difficulties to proactively assist them in avoiding delinquency and default where no such borrower-specific data is available for a member counselors will provide general directional guidance on repayment options help borrowers identify appropriate sources for more detailed information as needed and generally assist them in resolving confusion and conflicts related to repayment of their student loans your initial efforts to deliver these services to students and former students have focused primarily on traditional exempt colleges and universities nonprofit schools pay a fixed fee that constitutes approximately to of the actual cost to provide m to their students and alumni you may also make m available through other institutions and employers for the direct and primary benefit of employees and their families in the future you may broaden m to include information and assistance geared toward high school students who are in the process of deciding which college or university they will attend and how they will pay for it specifically you may offer these students online college matching services access to a free scholarship search engine use of a college and university database with school profiles and student reviews and a scholarship management and matching service in order to engage students you will host events on college and university campuses where students are invited to learn about the m program and are encouraged to register as members in addition you may give small rewards to students when they register for m at campus events to encourage both turnout and registration of new members such rewards may include e m-branded swag bags m labeled drawstring bags with hats t-shirts and cups e eligibility to enter a drawing for an x one x per approximately students e dollar_figure awarded to the student-organization on campus that turns out the most m registrants for the event and e achance to take pictures in an m photo booth if a member tags it on the m page the person with the most likes receives dollar_figure to provide incentives to students and alumni to engage on the m website and avail themselves of the educational programs and counseling services you plan to offer a range of member benefits that appeal to this target audience such as e free song downloads a coffee mug or a coupon for a free cup of coffee t-shirts bearing the m logo free access to online search tools where students can learn about available scholarships and fellowships free smart phone applications that enable real time budgeting and free or discounted access to a reputable online database where students can learn about internships and other employment opportunities on occasion an educational module may provide a modest reward for completing the module or passing a test to demonstrate proficiency in the subject area recognizing that this target audience has grown up with social media you will also explore ways to use rewards and social media to foster a sense of community online and to stimulate healthy competition among students eg a free x to the first students to complete all of the m modules with scores of percent or better on the diagnostic tests in addition you plan to compile a listing of discounts available to members and provide that information on the m website to assist members in putting the money management and budgeting lessons into practice the discounted items and services will have a meaningful connection to the lessons learned and will help members to apply their budgeting skills and live frugally during periods of loan repayment these items and services could include e e discounts on products and services provided by professional test preparation programs to facilitate preparation for graduate school entrance exams discounts on school supplies study aids and technology eg computers calculators printers personal budgeting software etc and discounts on necessary lifestyle items and services eg groceries apartment e furnishings rental car services etc you will periodically review at least semi-annually your educational modules and m membership benefits to ensure that the rewards and benefits offered in connection with the educational modules and the low-cost offers and discounts given in connection with m membership actually further the accomplishment of m’s purposes in particular this periodic review will assess whether receiving a modest reward for completing an educational module or passing a test to demonstrate proficiency in a subject area attracts members to engage in these activities and further whether completing an activity with a modest reward incentivizes members to complete additional modules or tests you will also review the discounts available to members to ensure that they relate to assisting student_loan borrowers with putting the money management and budgeting lessons learned through the m program into practice you are developing a funding model that facilitates support at multiple levels and in various forms including grants service fees qualified sponsorship payments cause-related marketing and royalties service fees are fees paid_by colleges and universities to cover the costs of providing m’s direct outreach program to their students and alumni while such fees currently cover about six percent of the m program budget you expect that they will cover to percent of the budget within a couple of years while loan-specific outreach and counseling may be accessible only to sponsored students whose schools or employers pay a service fee you intend to make many elements of the m program including substantial web-based informational and educational components available to all users without sponsorship or other payment of fees sponsoring entities will have the opportunity to be recognized as contributors through acknowledgments on the m website in addition contributors will have the opportunity to sponsor specific relevant aspects of m’s content or tools you anticipate generating additional revenue from three sources e e e royalty income from the passive licensing of your name and other intellectual_property to organizations with services or products that you believe are complementary to your mission and which might be of interest to your membership base fees from entities that wish to advertise their services on the m website this is anticipated to relate specifically to offers and opportunities being provided specifically for the benefit of members and referral fees from organizations that provide discounts or other_benefits to members referral fees would potentially be paid in instances where a member has connected with a provider through the m website and elected to use the provider's services beyond the m context any such fees would be contributed to a scholarship fund for students who require financial aid to attend college rulings requested you have requested the following rulings the financial literacy and financial counseling programs offered in connection with colleges universities and other nonprofit institutions at no cost to the individual beneficiaries ie higher education students and recent graduates constitute an exempt charitable and educational activity within the meaning of sec_501 and thus revenue from the performance of such services is exempt service income the financial literacy and financial counseling programs offered in connection with for- profit organizations including colleges and universities at no cost to the individual beneficiaries ie higher education students and recent graduates constitute an exempt charitable and educational activity within the meaning of sec_501 and thus revenue from the performance of such services is exempt service income the types of low-cost offers and discounts that you propose to provide to members as an incentive to register for the m program and participate on the m website are incidental to the performance of your charitable and educational activity and thus they do not cause you to be considered operated for the benefit of private interests within the meaning of sec_1_501_c_3_-1 the rewards and benefits that you propose to offer in connection with your financial literacy programs in furtherance of the m program’s interactive learning methodology are incidental to the performance of your charitable and educational activities and thus they do not cause you to be considered operated for the benefit of private interests within the meaning of sec_1_501_c_3_-1 ii law sec_501 exempts from federal income_taxation organizations described in sec_501 sec_501 describes organizations organized and operated exclusively for charitable educational and other specified exempt purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_511 imposes for each taxable_year a tax on the unrelated_business_taxable_income as defined in sec_512 of organizations described in sec_501 sec_512 provides that the term unrelated_business_taxable_income means the gross_income derived by any organization from any unrelated_trade_or_business as defined in sec_513 regularly carried on by it less the deductions allowed by chapter which are directly connected with the carrying on of such trade_or_business both computed with the modifications provided in subsection b r c sec_513 provides that the term unrelated_trade_or_business means in the case of any organization subject_to the tax imposed by sec_511 any trade_or_business the conduct of which is not substantially related aside from the need of such organization for income or funds or the use it makes of the profits derived to the exercise or performance by such organization of its charitable educational or other purpose or function constituting the basis for its exemption under sec_501 sec_513 provides that the term qualified_sponsorship_payment means any payment made by any person engaged in a trade_or_business with respect to which there is no arrangement or expectation that such person will receive any substantial_return_benefit other than the use or acknowledgment of the name or logo or product lines of such person’s trade_or_business in connection with the activities of the organization that receives such payment such a use or acknowledgment does not include advertising such person’s products or services including messages containing qualitative or comparative language price information or other indications of savings or value an endorsement or an inducement to purchase sell or use such products or services sec_1_501_a_-1 provides that the words private_shareholder_or_individual in sec_501 refer to persons having a personal and private interest in the activities of the organization sec_1_501_c_3_-1 provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if 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 it engages primarily in activities which sec_1_501_c_3_-1 provides that an organization is not organized or operated exclusively for one or more of the purposes specified in sec_501 unless it serves a public rather than a private interest thus to meet the requirements of sec_501 it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests sec_1_501_c_3_-1 provides that the term charitable is used in sec_501 in its generally accepted legal sense and includes the relief of the poor and distressed or of the underprivileged sec_1_501_c_3_-1 provides that 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_501_c_3_-1 provides examples of organizations that are educational example describes an organization whose activities consist of presenting public discussion groups forums panels lectures or other similar programs which may be on radio or television example describes an organization which presents a course of instruction by means of correspondence or through the utilization of television or radio sec_1_513-1 provides that gross_income derives from unrelated_trade_or_business within the meaning of sec_513 if the conduct of the trade_or_business which produces the income is not substantially related other through the production of funds to the purposes for which exemption is granted the presence of this requirement necessitates an examination of the relationship between the business activities which generate the particular income in question-the activities that is of producing or distributing the goods or performing the services involved-and the accomplishment of the organization’s exempt purposes sec_1_513-1 provides that trade_or_business is related to exempt purposes in the relevant sense only where the conduct of the business activities has causal relationship to the achievement of exempt purposes other than through the production_of_income and it is substantially related for purposes of sec_513 only if the causal relationship is a substantial one thus for the conduct of trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of those purposes where the production or the distribution of the goods or the performance of the services does not contribute importantly to the accomplishment of the exempt purposes of the organization the income from the sale of the goods or the performance of the services does not derive from the conduct of related trade_or_business whether activities productive of gross_income contribute importantly to the accomplishment of any purpose for which an organization is granted exemption depends in each case upon the facts and circumstances involved revrul_68_71 1968_1_cb_249 concerns an organization that was formed to educate young people and adults about employment opportunities and to assist them in planning their careers and achieving occupational adjustment to implement its purposes the organization conducts occupational research publishes the results of such research and sponsors group and individual vocational counseling its publications provide information to potential job seekers as to the opportunities open to them how to take advantage of such opportunities and descriptions of various vocational areas such as skilled trades business and civil service the publications are sold at a nominal charge to educational institutions agencies of the federal government and the general_public the organization does not provide a job placement service nor does it charge fees for the vocational counseling services rather it derives its income mainly from contributions under these facts the service ruled that the organization qualifies for exemption under sec_501 by helping people in planning their careers and achieving occupational adjustment by distributing educational publications and providing free vocational counseling the organization is engaging in an educational activity revrul_68_225 1968_1_cb_283 concerns an organization exempt from federal_income_tax under sec_501 the organization conducts charitable and educational programs that foster and promote fair housing in a metropolitan area it endeavors to establish a climate conducive to the acceptance of minority groups in the community area employers endeavor to hire minority group members to comply with federal and state fair employment laws but find their efforts hindered by an inability to find suitable housing for minority group employees thus in addition to its charitable and educational programs relating to minority group housing the organization enters into agreements with local businesses for housing referral services these services include counseling employees seeking housing preparing and making available to the employer listings of open housing and advising employers on the steps they can take to establish open housing in the community each employer pays an annual fee depending on the number of employees involved under these facts the service ruled that housing referral services contribute importantly to the accomplishment of the organization's charitable and educational purpose to foster and promote fair housing thus such services are substantially related to the purpose constituting the basis for the organization’s exemption accordingly the performance of these services does not constitute unrelated_trade_or_business within the meaning of sec_513 revrul_68_504 1968_2_cb_211 concerns a nonprofit organization that was formed to conduct an educational program for bank employees in a particular urban_area the organization furnishes classrooms and employs local university professors and specialists in banking law to teach courses on various banking subjects the organization publishes a professional magazine containing items of interest and assistance to members and conducts occasional social affairs to stimulate interest in its educational program no person may take the courses unless he or she is a member of the organization but membership is open to employees of all banks in the area under these facts the service held that the organization qualifies for exemption under sec_501 by instructing individuals to improve their business or professional capabilities the organization is engaged in an educational activity within the meaning of sec_1_501_c_3_-1 the social activities of the organization are insubstantial in relation to its educational activities revrul_69_441 1969_2_cb_115 concerns a nonprofit organization that was formed to help reduce the incidence of personal bankruptcy by informing the public on personal money management and by assisting low-income individuals and families who have financial problems the organization provides information to the public on budgeting buying practices and the sound use of consumer credit through the use of films speakers and publications it aids low- income individuals and families who have financial problems by providing them with individual counseling and if necessary by establishing a budget plan services are provided without charge to the beneficiary the organization’s receipts are from contributions primarily from the creditors participating in the organization’s budget plans although creditors are not required to make a contribution as a condition of participation on these facts the service ruled that the organization qualified for exemption under sec_501 because by aiding low-income individuals and families who have financial problems and by providing without charge counseling and a means for the orderly discharge_of_indebtedness the organization is relieving the poor and distressed furthermore by providing the public with information on budgeting buying practices and the sound use of consumer credit the organization is instructing the public on subjects useful to the individual and beneficial to the community revrul_70_186 1970_1_cb_129 concerns an organization that was formed to preserve a lake as a public recreational facility and to improve the conditions of the water in the lake to enhance its recreational features it is financed by contributions from lake front property owners from members of the community adjacent to the lake and from municipalities bordering the lake water thereby insuring the continued use of the lake for recreational purposes the organization is performing a charitable activity the benefits to be derived from the organization's activities flow principally to the general_public through the maintenance and improvement of public recreational facilities any private benefits derived by the lake front property owners do not by treating the water removing algae and otherwise improving the condition of the lessen the public benefits flowing from the organization’s operations in fact it would be impossible for the organization to accomplish its purposes without providing benefits to the lake front property owners accordingly under these facts the service ruled that the organization is exempt under sec_501 revrul_81_29 1981_1_cb_329 concerns an organization that was formed to assist academic research libraries state libraries and agencies and other library organizations in exchanging bibliographic information the organization has developed a computer network to enable participating libraries to exchange bibliographic information the organization does not provide other services such as routine administrative functions to the member libraries membership includes libraries of colleges universities and historical societies which are exempt under sec_501 as well as libraries of business entities which are not exempt from federal_income_tax income is derived from each of the member libraries for cost of computer time used plus service charges under these circumstances the service ruled that the organizations qualifies for exemption under sec_501 because the computer network makes useful bibliographic information available to researchers it advances education within the meaning of sec_1 c - d the fact that the information is furnished to both exempt and non-exempt libraries does not detract from the educational value of the information itself analysis ruling whether the financial literacy and financial counseling programs offered in connection with colleges universities and other nonprofit institutions at no cost to the individual beneficiaries ie higher education students and recent graduates constitute an exempt charitable and educational activity within the meaning of sec_501 and thus revenue from the performance of such services is exempt service income in order to analyze this ruling_request we must first determine if the m program furthers an exempt charitable and educational purpose within the meaning of sec_501 and then determine if any income derived from such program is subject_to unrelated_business_income_tax the m program will further an exempt educational purpose by teaching students and former students how to manage their finances and repay their student_loan debt you propose to use your expertise and experience as a guarantor of student loans to respond to the challenge of ensuring that higher education is accessible to all students through the improvement of student- borrowers’ financial literacy and well-being to that end you have developed an innovative educational program m that by combining a broad financial literacy curriculum presented primarily through a new interactive website with opportunities for personalized live financial counseling offers student-borrowers the knowledge and skills they need to manage their debt and maximize their financial well-being at no cost to them in addition the m program will also assist students to identify scholarships grants and other sources of funding for their educations determining whether an activity qualifies as an educational activity requires an analysis of the specific facts and circumstances as demonstrated by the examples under sec_1 c - d ii educational activity can take place in a wide variety of settings in revrul_69_441 which by providing information to the public on the sound use of consumer like the organization credit through films speakers publications and individual counseling all without charge was determined to be instructing the public on subjects useful to the individual and beneficial to the community within the meaning of sec_1_501_c_3_-1 you will educate the students on the sound management of student_loan debt through the m website’s instructional features and through individual counseling all without charge to the students furthermore like the organization described in revrul_68_71 which in educating young people about employment opportunities and providing free vocational counseling was determined to be engaging in exempt educational activities you through the m program will be teaching young people how to manage their finances in a manner that likewise furthers exempt educational_purposes your methods of delivering both educational content and personal counseling services to students specifically sponsored by their school or another organization and enrolled as members are distinguishable from traditional credit counseling organizations whose programs are designed to steer clients to debt management plans you do not offer sell market or develop debt management plans or any other fee-for-service plan that generates profit for you rather you provide individualized financial counseling services along with your educational program at no cost to the student borrower since you do not enroll any student-borrowers who register for m in debt management plans and are not in the business of offering debt management plans your counselors and instructors are free to focus on a student’s unique circumstances and to assist them in resolving complex student_loan related problems that may have hindered their ability to successfully manage or repay their loans by counseling students who are having financial problems without charge you are relieving the poor and distressed within the meaning of sec_1 d thus the m program furthers both charitable and educational_purposes and under operational_test of sec_1_501_c_3_-1 constitutes an activity that accomplishes one or more of the exempt purposes specified in sec_501 next we must consider whether the revenue you receive from the performance of services with respect to your financial literacy and financial counseling programs is excludible from your unrelated_business_taxable_income within the meaning of sec_512 you expect to fund the m program from a variety of sources including school fees sponsorship payments grants cause- related marketing and advertising of these only the schools fees ie fees charged to colleges and universities to provide m financial literacy and counseling programs to their students and alumni could be considered revenue from the performance of services for such fees to be considered unrelated_business_taxable_income they need constitute gross_income derived from an unrelated_trade_or_business regularly carried on see sec_1_513-1 an unrelated_trade_or_business is a trade_or_business the conduct of which is not substantially related to the exempt purposes of the organization conducting the business see sec_1_513-1 the conduct_of_a_trade_or_business is substantially related to exempt purposes if it contributes importantly to those purposes see sec_1 d the fee income you receive from colleges and universities is used to pay for m counselors to contact and provide services to the students and alumni of those colleges and universities especially those whose data indicates that they may be delinquent or at risk of default on their student loans the intent of this outreach is to provide timely assistance and information to these members so that they do not jeopardize their credit or incur substantial penalty fees by continuing in delinquency such services are similar to the money management and credit_counseling_services described in revrul_69_441 which were found to be in furtherance of educational_purposes more specifically counseling members to help them avoid student_loan delinquency contributes importantly to the accomplishment of your specific exempt_purpose of aiding and assisting students by relieving them of the burdens associated with educational loans thus since the fees you will be paid_by schools to provide m program services to their students is income from the conduct_of_a_trade_or_business that is substantially related to your exempt purposes such fees will not be considered gross_income from an unrelated_trade_or_business and would be excludible from your unrelated_business_taxable_income whether the financial literacy and financial counseling programs offered in ruling connection with for-profit organizations including colleges and universities at no cost to the individual beneficiaries ie higher education students and recent graduates constitutes an exempt charitable and educational activity within the meaning of sec_501 and thus revenue from the performance of such services is exempt service income again like the ruling above this ruling involves several issues besides providing m to the students of traditional non-profit colleges and universities you may also provide m to the students and alumni of for-profit organizations including colleges and universities an activity that is inherently educational does not cease to be educational merely because the beneficiaries of such activity are affiliated with a non-exempt entity organizations engaged in providing education and training to employees of commercial businesses may further exempt educational_purposes under sec_501 so long as the training is intended to encourage the individual to develop his or her skills for instance in revrul_68_504 an organization that instructs individuals on banking subjects was found to be engaged in exempt educational activities within the meaning of sec_1_501_c_3_-1 despite the fact that only the employees of banks in the area could take the courses revrul_81_29 concludes that a regional computerized library network is operated exclusively for educational_purposes even though it includes nonexempt institution libraries in its membership because the basic nature of the activities of the organization is educational regardiess of the exempt or nonexempt status of the libraries to which membership is extended and services are provided while there is some benefit to the nonexempt institutions that benefit is incidental to the organization’s educational activities in furtherance of exempt purposes and may be said to be a logical byproduct thereof implicit in these rulings is the notion that the primary ie educational benefit accrues to the persons using the services or receiving the instruction and not the institution with which they are affiliated your goal is to educate and advise as many student_loan borrowers as possible at no cost to the student borrower these individuals are the direct and primary beneficiaries of the m services even though other entities including some non-exempt entities pay their membership fees similar to the organization described in revrul_81_29 the fact that some of the payors are non-exempt organizations does not detract from the educational value of the information itself further any benefit that a non-exempt entity might derive from offering m to its students or employees is incidental to and a logical by-product of the substantial direct benefit members derive from the educational content available to them on m secondly we need to determine if the revenue you receive from the performance of services with respect to your financial literacy and financial counseling programs is excludible from your unrelated_business_income within the meaning of sec_512 again only the fees charged to the for- profit organizations including colleges and universities to provide m financial literacy and counseling programs to their students and alumni could be considered revenue from the performance of services in revrul_68_255 a sec_501 organization entered into agreements with local businesses to provide counseling to their employees seeking housing the businesses paid the organization a fee based on the number of employees involved it was held that such services were substantially related to the organization’s exempt_purpose of promoting and fostering fair housing and therefore did not constitute an unrelated_trade_or_business within the meaning of sec_513 similarly you intend to enter into agreements with for-profit organizations including colleges and universities to provide m counselors to contact and provide services to their students and alumni especially those whose data indicates that they may be delinquent or at risk of default on their student loans the intent of this outreach is to provide timely assistance and information to these members so that they do not jeopardize their credit or incur substantial penalty fees by continuing in delinquency regardless of whether the fee is paid_by a non-profit or for-profit organization the counseling of members to help them avoid student_loan delinquency contributes importantly to the accomplishment of your specific exempt_purpose of aiding and assisting students by relieving them of the burdens associated with educational loans thus such services do not constitute and unrelated_trade_or_business within the meaning of sec_513 and the fees you will be paid_by for-profit organizations to provide m program services to their students and alumni would not be considered gross_income from an unrelated_trade_or_business and would be excludible from your unrelated_business_taxable_income ruling whether the types of low-cost offers and discounts that you propose to provide to members as an incentive to register for the m program and participate on the m website are incidental to the performance of your charitable and educational activity and thus they do not cause you to be regarded as operated for the benefit of private interests within the meaning of sec_1 -1 d ii as described above you may offer certain benefits and awards to encourage students to register for m sec_1_501_c_3_-1 states that an organization will be it serves a public considered to be operated exclusively for one or more exempt purposes only if and not a private interest furthermore sec_1_501_c_3_-1 states that an organization will not be regarded as operated exclusively for exempt purposes if more that an insubstantial part of its activities is not in furtherance of an exempt_purpose as illustrated in revrul_70_186 whether a private benefit is incidental is tested on both qualitative and quantitative grounds a benefit is qualitatively incidental if it is a necessary concomitant of the activity which benefits the public at large in the sense that the benefit to the public cannot be achieved without necessarily benefiting certain private individuals a benefit is quantitatively incidental only if it is insubstantial when compared with the public benefit conferred it is indirect or unintentional or if the rewards that you intend to offer to encourage the registration of new members are both qualitatively and quantitatively incidental to the public educational benefits provided by the m program these registration benefits are qualitatively incidental because like the benefits described in revrul_70_186 they are an integral and concomitant part of your efforts to educate and counsel college students and recent graduates about their student_loan debt rather than serving private interests these rewards are made for the sole purpose of encouraging students to register for and participate in the public educational benefits provided by the m program such benefits further your exempt purposes by ensuring that potential members become aware of your educational programs in addition the rewards are quantitatively incidental because they are insubstantial in comparison to the value of the financial literacy courses and personalized counseling offered through the m program these one-time benefits available at campus events or to online registrants are generally of minimal value the possibility of winning is so uncertain that the value of being entered in such a drawing is minimal as such these rewards are akin to the insubstantial social affairs offered by the organization that conducted educational programs for bank employees in revrul_68_504 in the case of a drawing to win an item such as an x finally you will periodically review at least semi-annually these rewards and benefits to ensure that they actually further the accomplishment of m's purposes for instance you will periodically assess whether the offer of modest rewards encourages engagement in m activities and incentivizes members to complete additional modules or tests thus under these circumstances the registration benefits and rewards that are provided to students as an incentive to register for the m program are incidental to the performance of your educational activity and thus do not cause you to be operated for the benefit of private interests within the meaning of sec_1_501_c_3_-1 additionally we must look at whether the types of low-cost offers and discounts that you propose to provide to members as an incentive to participate on the m website are incidental to the public benefits conferred by your educational activities and thus would not cause you to be organized and operated for the benefit of private interests within the meaning of sec_1 c - d ii where you host the m educational program you plan to provide certain benefits described in the facts above such as music downloads coupons smart phone applications access to search tools and databases and discounts on test preparation programs school supplies and other items and services the list of potential benefits is subject_to change based on market eg focus group research in order to motivate students to use their m membership and to visit the website you will seek out entities that may wish to sponsor m activities such sponsors may opt to offer discounts on their products and services to members other entities that do not opt to become sponsors may nevertheless choose to offer benefits to members you plan to provide members with a list of such benefit providers on one or your web pages benefit providers will be listed on the m website in a neutral manner with a description of the discounted product or services any benefits to members or to the service providers in connection with a listing of such member benefits is incidental to the exempt_activities conducted on the m website they are qualitatively incidental because they are intended to be a concomitant part of your efforts to motivate students to participate in the educational activities offered on the m website they are quantitatively incidental because their value is insubstantial and you will not undertake to promote or encourage members to avail themselves of any particular benefits similar to the social gatherings described in revrul_68_504 that were insubstantial in comparison with the educational activities for bank employees these benefits for members are outweighed by the predominant and substantial focus of the m website of providing financial education and by the financial counseling offered to members furthermore obtaining such sponsorships and discounts represents an insignificant investment of your time and resources compared with the time and effort expended on producing the educational content of the m website and by the counselors who provide personalized student_loan assistance to members finally you will periodically review at least semi-annually these offers and discounts to ensure that they relate to assisting student_loan borrowers with putting money management and budgeting lessons learned on m into practice thus under these circumstances the types of low-cost offers and discounts provided to members as an incentive to participate on the m website are incidental to the performance of your educational activity and thus would not cause you to be operated for the benefit of private interests within the meaning of sec_1_501_c_3_-1 ruling whether the rewards and benefits you propose to offer in connection with your financial literacy programs in furtherance of the m program’s interactive learning methodology are incidental to the performance of your charitable and educational activities and thus would not cause you to be considered operated for the benefit of private interests within the meaning of sec_1_501_c_3_-1 m coursework will be presented via a new educational model that is based on adult learning theory your objective is for each member to proactively engage with the educational content in a memorable and self-directed manner and to have the opportunity to reinforce the learning in practical ways the power of peer influence on college students will be utilized in several aspects of the m program most notably in the format and presentation of team learning exercises challenges and game-ified learning modules intended to stimulate healthy competition and cooperation in furtherance of the goal of mastering financial lessons this approach recognizes that some students will respond favorably to the instant gratification of token rewards for achieving various milestones such as completing a learning module or winning a challenge intended to assess their retention of the material or demonstrating specific competencies and proficiencies the types of rewards that will be offered in connection with this program will be similar to those offered to members when they register for m eg a song download a free cup of coffee etc and may also represent special discounts offered for a limited time to a limited number of members such rewards are incidental on both qualitative and quantitative grounds they are qualitatively incidental under the standards of revrul_70_186 because they are a necessary concomitant of the educational activities of m in other words the rewards are an integral part of the m program’s multi-pronged approach to effectively engage and instruct each learner ensuring a greater likelihood of content retention and of repeat visits to the website to explore additional educational modules and they are quantitatively incidental in comparison with the educational benefits conferred by the m program therefore the benefits that you propose to offer in connection with your financial literacy programs in furtherance of the m program’s interactive learning methodology including tools for real-world application of the ideas presented in the learning modules and an occasional reward component are incidental to the performance of your educational activities and thus would not cause you to be considered operated for the benefit of private interests within the meaning of sec_1_501_c_3_-1 conclusion accordingly in light of the above we rule as follows the financial literacy and financial counseling programs that you offer in connection with colleges universities and other nonprofit institutions at no cost to the individual beneficiaries ie higher education students and recent graduates are substantially related within the meaning of sec_1_513-1 to your exempt educational purpose and thus any fees received from such institutions to provide such programs to their students and alumni will not be regarded as unrelated_business_taxable_income within the meaning of sec_512 the financial literacy and financial counseling programs that you offer in connection with for-profit organizations including colleges and universities at no cost to the individual beneficiaries ie higher education students and recent graduates are substantially related within the meaning of sec_1_513-1 to your exempt educational_purposes and thus any fees received from such institutions to provide such programs to their students and alumni will not be regarded as unrelated_business_taxable_income within the meaning of sec_512 the types of low-cost offers and discounts that you propose to provide to members as an incentive to register for the m program and participate on the m website are incidental to the performance of your charitable and educational activities and thus they will not cause you to be regarded as operated for the benefit of private interests within the meaning of sec_1_501_c_3_-1 the rewards and benefits that you propose to offer in connection with your financial literacy programs in furtherance of the m program’s interactive learning methodology are incidental to the performance of your charitable and educational activities and thus they will not cause you to be regarded as operated for the benefit of private interests within the meaning of sec_1_501_c_3_-1 we are specifically not ruling on whether referral fees or any other_payments you might receive from entities that offer discounts on their products or other_benefits or services to members are qualified sponsorship payments within the meaning of sec_513 or are otherwise excludible from unrelated_business_taxable_income under sec_512 this ruling will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent this ruling is based on the facts as they were presented and on the understanding that there will be no material changes in these facts this ruling does not address the applicability of any section of the code or regulations to the facts submitted other than with respect to the sections described because it could help resolve questions concerning your federal_income_tax status this ruling should be kept in your permanent records if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter in accordance with the power_of_attorney currently on file with the internal_revenue_service we are sending a copy of this letter to your authorized representative sincerely steven b grodnitzky manager exempt_organizations technical group enclosure notice


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 br4-plr-114869-97 date date re legend settlor child grandchild trust dollar_figurex state this is in response to your letter of date and prior correspondence submitted by your authorized representative in which you request several rulings on the application of the generation-skipping_transfer gst tax provisions of chapter of the internal_revenue_code in settlor created trust for the benefit of grandchild and her future issue subject_to a monthly payment to child grandchild is the current income_beneficiary of trust article iii paragraph of trust provides that the trustees shall have the fullest power to determine all matters to which any doubts difficulty or question may arise under or in relation to the execution of the trust especially including the question of what is corpus and what is income from the inception of trust the corpus consisted primarily of certain oil_and_gas leases in the trustee obtained a final judgement from the local probate_court which among other things ratified the trustee’s decision not to establish a reserve for depletion and thus pay out the entire net_income of trust to grandchild subject_to the payment to child the court order contains the following statement regarding the depletion reserve with respect to the proceeds of the sale of oil_and_gas interests the trustee has broad discretion to determine whether a depletion reserve should be established with respect to the proceeds of the sale of the trust’s oil gas and other minerals as no depletion reserve has previously been established and it is consistent with the settlor’s intention that no reserve for depletion should be established it would not be an abuse_of_discretion and would be a proper exercise of the discretion conferred upon the trustee for the trustee to establish no reserve for depletion with respect to the proceeds of the sale of the trust’s oil gas and other minerals accordingly the trustee should be ordered and directed by the court to establish no reserve for depletion with respect to the proceeds from the sale of the trust’s oil gas and other minerals and the trustees prior decision not to establish such a depletion reserve should be ratified and approved the order also contained the following statement in keeping with the settlor’s primary intention to benefit the income_beneficiary of the trust for future interpretation of this final judgement and any of the provisions of the trust instruments creating the trust the trustee shall be governed by the findings of this court that the settlor intended the income beneficiaries at any given time now or in the future to be objects of his bounty during such beneficiaries’ lifetimes and that during such beneficiaries’ lifetimes all ambiguities and uncertainties with respect to the trust or the administration of the trust should be resolved in a manner favorable to the income beneficiaries in the trustee sold the oil_and_gas leases according to the terms of trust the proceeds are required to be invested in united_states government bonds municipal_bonds first mortgages on real_estate and corporate bonds trust also provides that the trustee’s fees are to be determined as a percentage of the oil_and_gas income in the trustee obtained a court order with respect to trust which authorized the one-time distribution to grandchild of dollar_figurex from the proceeds of the sale of the oil_and_gas_properties the order concludes that a one-time distribution to grandchild of dollar_figurex is authorized under the terms of trust and under the final judgement authorizing the trustee not to maintain a reserve for depletion and thus pay out to the income_beneficiary a portion of trust receipts that would otherwise be allocated to corpus under state law the court order also authorized the trustee to make investments permissible under state law without regard to the restrictions on investments contained in the trust instrument in addition the court order authorized the trustee to pay reasonable trustee fees the taxpayer has requested a ruling that the court order authorizing the dollar_figurex distribution to grandchild and the modifications to trust regarding permissible investments and trustee fees will not affect the exempt status of trust for gst tax purposes by reason of the effective date rule set forth in b of the tax_reform_act_of_1986 under b a of the tax_reform_act_of_1986 and sec_26_2601-1 of the generation-skipping_transfer_tax regulations provide that the generation-skipping_transfer_tax shall not apply to any generation-skipping_transfer under a_trust that was irrevocable on date but only to the extent that such transfer is not made out of corpus added to the trust after date or out of income attributable to corpus so added sec_26_2601-1 provides that if an addition is made after date to an irrevocable_trust which is excluded from the application of chapter by b a of the act a pro_rata portion of subsequent distributions from and terminations of interests in property held in the trust is subject_to the provisions of chapter sec_26_2601-1 describes constructive additions to trusts in certain situations involving powers of appointment and relief from liability a modification of a generation-skipping_trust that is otherwise exempt from gst tax under the act will generally result in a loss of its exempt or grandfathered status if the modification changes the quality value or timing of any powers beneficial interests rights or expectancies originally provided for under the terms of the trust the court order authorizing the dollar_figurex payment to grandchild is consistent with the terms of trust as interpreted under the final judgement further the court order authorizing broader investment powers and the payment of reasonable trustee fees relates to the administration of the trust accordingly we conclude that the court order does not change the quality value or timing of any powers beneficial interests rights or expectancies originally provided for under the terms of trust we also conclude that the court order does not result in a constructive_addition to trust as described in sec_26_2601-1 except as we have ruled under the cited provisions of the code we express no opinion about the tax consequences of the proposed transaction under those provisions or under any other provisions of the code in accordance with the 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 provides that it may not be used or cited as precedent sincerely yours assistant chief_counsel passthroughs and special industries by george masnik chief branch enclosure copy for purposes


internal_revenue_service department of the treasury index number u i l no washington dc number release date legend person to contact telephone number refer reply to cc dom p si plr-104908-99 date date company state shareholders a b c plan a b c d e f plr-104908-99 g h i dear this letter responds to a letter dated date requesting a ruling on behalf of company under sec_1362 of the internal_revenue_code the information submitted discloses that company was incorporated on a under the laws of state company has two majority shareholders shareholders and several minority shareholders company made an election to be an s_corporation since its incorporation on b company transferred shares of its stock to the individual_retirement_account ira of a one of its shareholders the ira constituted an ineligible shareholder company was not aware that the ira was an ineligible shareholder or that the transfer terminated its s election on c company transferred shares of its stock to the plan of b another shareholder finally later in the same taxable_year another shareholder c assigned shares of company stock to his plan in d company learned of the effect of the transfers on its s election company immediately repurchased its stock from a’s ira on g in addition company repurchased its stock from b’s plan on h and from c’s plan on i company then began preparing its request for inadvertent termination relief company represents that there was no tax_avoidance or retroactive tax planning involved in the termination in addition company represents that the termination occurred because of the lack of knowledge of the shareholder eligibility rules for s_corporations sec_1361 defines the term s_corporation as with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect sec_1361 defines a small_business_corporation as a domestic plr-104908-99 corporation that is not an ineligible_corporation and that among other requirements does not have as a shareholder a person other than an estate and other than a_trust described in sec_1361 who is not an individual sec_1362 provides that an election to be an s_corporation shall be terminated whenever at any time on or after the first day of the first taxable_year for which the corporation is an s_corporation the corporation ceases to be a small_business_corporation sec_1362 provides that the termination shall be effective on or after the date of cessation revrul_92_73 1992_2_cb_224 provides that a_trust that qualifies as an ira under sec_408 is not a permitted shareholder of an s_corporation under sec_1361 in addition revrul_92_73 notes that when an s_corporation inadvertently terminates due to the transfer of s stock to an ira relief may be requested pursuant to sec_1362 sec_1362 provides that if an election under sec_1362 by any corporation was terminated under sec_1362 or the secretary determines that the circumstances resulting in such termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the termination steps were taken so that the corporation is a small_business_corporation and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make the adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary for that period then notwithstanding the circumstances resulting in termination the corporation shall be treated as an s_corporation during the period specified by the secretary the committee reports accompanying the subchapter_s_revision_act_of_1982 explain sec_1362 as follows if the internal_revenue_service determines that a corporation’s subchapter_s_election is inadvertently terminated the service can waive the effect of the terminating event for any period if the corporation timely corrects the event and if the corporation and the shareholders agree to be treated as if the election had been in effect for such period the committee intends that the internal_revenue_service be reasonable in granting waivers so that the corporations whose subchapter_s eligibility requirements have been inadvertently violated do not suffer the tax consequences of a termination if no tax_avoidance would result from the continued subchapter_s treatment in granting a waiver it is hoped that taxpayers and the government will work out agreements to protect the revenue without undue_hardship to taxpayers i t is expected that the waiver may be made retroactive for all years or retroactive for the period plr-104908-99 in which the corporation again became eligible for subchapter_s treatment depending on the facts s rep no 97th cong 2d sess 1982_2_cb_718 h_r rep no 97th cong 2d sess 1982_2_cb_730 after applying the relevant law to the facts submitted and the representations made we conclude that company’s s_corporation_election terminated on b as a result of the transfer of company stock to an ira we also conclude that the termination was inadvertent within the meaning of sec_1362 we further conclude that under the provisions of sec_1362 company will be treated as an s_corporation from b until i when company completed its repurchase of stock from the ira and the plans and thereafter provided company had a valid s_corporation_election and that election was not otherwise terminated under sec_1362 provided that company had a net_loss from b to e or for taxable_year f a’s ira and b’s and c’s respective plans will be treated as shareholders of company for the shares they held otherwise a b and c will be treated as shareholders of company for the shares held in their ira or plans during the termination period accordingly all shareholders of company in determining their respective income_tax liabilities must take into account their pro_rata shares of the separately and nonseparately computed items of company under sec_1366 makes adjustments to stock basis under sec_1367 and take into account any distributions made by company under sec_1368 if company or the shareholders fail to treat company as described above this ruling shall be null and void except as specifically set forth above we express no opinion concerning the federal tax consequences of the foregoing facts specifically we express no opinion on whether company otherwise qualifies as an s_corporation plr-104908-99 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours william p o’shea chief branch office of the assistant chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


internal_revenue_service index nos number release date date dear this responds to a request for a ruling you submitted in a letter dated date and in subsequent correspondence on behalf of corporation c and its designated subsidiaries and related entities including entity e an unincorporated entity this private ruling_request concerns the federal_income_tax consequences of establishing a_trust to assist in providing nonqualified_deferred_compensation benefits to a select group of key or highly compensated employees pursuant to the supplemental_executive_retirement_plan the plan the plan provides for the payment of nonqualified retirement benefits to the participants or their beneficiaries at the time and in the amount and manner determined under the plan after a participant’s death retirement or other termination of employment pursuant to the plan bookkeeping accounts will be created for each participant for the purpose of crediting the deemed deferred_compensation contributions determined under the plan for each participant and the deemed earnings thereon under the plan by agreement with a third party trustee c has established a_trust to which it may in its discretion contribute cash and other_property to assist in providing for accrued deferred_benefit payments under the plan within this trust the assets will be allocated to each corporation or entity that employs one or more plan participants in proportion to each employer’s obligation to its employees who participate in the plan the trustee will have the duty to invest the trust assets and funds in accordance with the terms of the trust agreement the trust agreement provides that in the event of the insolvency as defined therein of c or a designated subsidiary or related_entity the trustee shall hold the employer’s share of the segregable assets of the trust for the benefit of general creditors of the insolvent entity the trust agreement also provides that the chief_executive_officer and board_of directors of c or their equivalent of the insolvent entity have the duty to notify the trustee if c or the entity becomes insolvent pursuant to the provisions of the plan and the trust agreement the participants and their beneficiaries have the status of unsecured general creditors of their employer have only their employer’s unsecured promise to pay benefits and receive no rights or security_interest in their employer’s allocable assets in the trust or their employer’s other assets the plan and the trust agreement also provide that the benefits payable pursuant to such plan may not be assigned pledged transferred or encumbered sec_83 of the internal_revenue_code provides that the excess if any of the fair_market_value of property transferred in_connection_with_the_performance_of_services over the amount_paid if any for the property is includible in the gross_income of the person who performed the services for the first taxable_year in which the property becomes transferable or is not subject_to a substantial_risk_of_forfeiture sec_1_83-3 of the income_tax regulations provides that for purposes of sec_83 the term property does not include an unfunded and unsecured promise to pay money or property in the future however the term property does include a beneficial_interest in assets including money transferred or set_aside from claims of the transferor's creditors for example in a_trust or escrow account sec_451 of the code and sec_1_451-1 of the regulations provide that an item_of_gross_income is includible in gross_income for the taxable_year in which actually or constructively received by a taxpayer using the cash_receipts_and_disbursements_method of accounting under sec_1_451-2 of the regulations income is constructively received in the taxable_year during which it is credited to the taxpayer's account set apart or otherwise made available so that the taxpayer may draw on it at any time however income is not constructively received if the taxpayer's control of its receipt is subject_to substantial limitations or restrictions various revenue rulings have considered the tax consequences of nonqualified_deferred_compensation arrangements revrul_60_31 situations 1960_1_cb_174 holds that a mere promise to pay not represented by notes or secured in any way does not constitute receipt of income within the meaning of the cash_receipts_and_disbursements_method of accounting see also revrul_69_650 1969_2_cb_106 and revrul_69_649 1969_2_cb_106 under the economic_benefit_doctrine an employee has currently includible income from an economic or financial benefit received as compensation though not in cash form economic benefit applies when assets are unconditionally and irrevocably paid into a fund or trust to be used for the employee’s sole benefit 16_tc_244 aff’d per curiam 194_f2d_541 6th cir revrul_60_31 situation in rev_rul 1972_1_cb_127 and revrul_68_99 1968_1_cb_193 an employee does not receive income as a result of the employer’s purchase of an insurance_contract to provide a source of funds for deferred_compensation because the insurance_contract is the employer’s asset subject_to claims of the employer’s creditors under the terms of the trust agreement assets may be placed in trust to provide nonqualified_deferred_compensation benefits to the participants or their beneficiaries however the trustee has the obligation to hold the segregated portion of the trust assets and income for the benefit of the employer’s general creditors in the event of its insolvency the trust agreement further provides that an employee receives no beneficial_ownership in or preferred claim on the trust assets therefore although the assets are held in trust in the event of the employer’s insolvency the segregable assets allocable to the insolvent employer are fully within reach of its general creditors as are any other of its assets sec_402 of the code provides that contributions made by an employer to an employees' trust that is not exempt from tax under sec_501 are included in the employee's gross_income in accordance with sec_83 except that the value of the employee's interest in the trust will be substituted for the property's fair_market_value in applying sec_83 sec_1_402_b_-1 of the regulations provides that employer contributions to a nonexempt employees' trust shall be included as compensation in the employee's gross_income for the taxable_year in which the contribution is made but only to the extent that the employee's interest in such contribution is substantially_vested as defined in sec_1_83-3 sec_404 of the code provides the general deduction timing rules applicable to any plan or arrangement for the deferral of compensation regardless of the code section under which the amounts might otherwise be deductible pursuant to sec_404 of the code and sec_1_404_a_-12 of the regulations and provided that they otherwise meet the requirements for deductibility amounts of compensation deferred under a nonqualified_plan or arrangement are deductible by the employer in the taxable_year in which they are paid or made available whichever is earlier sec_301_7701-4 of the procedure and administration regulations provides that generally an arrangement will be treated as a_trust if it can be shown that the purpose of the arrangement is to vest in trustees responsibility for the protection and conservation of property for beneficiaries who cannot share in the discharge of this responsibility and therefore are not associates in a joint enterprise for the conduct of business for profit the terms of the trust agreement provide that the assets will be transferred to a trustee who will have responsibility for the management protection conservation and investment of the assets according the trust will be classified as a_trust for federal tax purposes under sec_301_7701-4 sec_671 of the code provides that where a grantor shall be treated as the owner of any portion of a_trust under subpart e part i subchapter_j chapter of the code there shall then be included in computing the taxable_income and credits of the grantor those items of income deductions and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under chapter in computing taxable_income or credits against tax of an individual sec_1_671-2 of the regulations states that the term grantor as used in the regulations under subpart e includes a corporation sec_677 of the code provides that the grantor shall be treated as the owner of any portion of a_trust whose income without the approval or consent of any adverse_party is or in the discretion of the grantor or a nonadverse_party or both may be held or accumulated for future distribution to the grantor sec_1_677_a_-1 of the regulations states that under sec_677 of the code a grantor is in general treated as the owner of a portion of a_trust whose income is or in the discretion of the grantor or a nonadverse_party or both may be applied in discharge of a legal_obligation of the grantor provided i that creation of the trust does not cause the arrangement established by the plan to be other than unfunded for purposes of title i of the employee_retirement_income_security_act_of_1974 and ii that the provisions of the trust agree- ment requiring use of trust assets to satisfy claims of the general creditors of the employer in the event of its insolvency are enforceable by such creditors under federal and state law and based on the information submitted and representations made we conclude that the trust created by company c is classified as a_trust within the meaning of sec_301_7701-4 of the procedure and administration regulations because the principal and income of the trust may be applied to discharge legal obligations of the participant’s employer c and the designated subsidiaries and related entities shall each be treated as the owner of their respective shares of the trust assets under sec_677 of the code accordingly under sec_671 there shall be included in computing the taxable_income and credits of c and of each designated subsidiary and related_entity the grantors all items of income deductions and credits against tax of each’s respective share of the trust neither the creation of the trust the contribution of assets or money to the trust the receipt of earnings by the trust nor the adoption of the plan will constitute transfers of property for purposes of sec_83 of the code or sec_1_83-3 of the regulations neither the creation of the trust the contribution of assets or money to the trust nor the adoption of the plan will constitute a contribution to a nonexempt employees' trust under sec_402 of the code neither the establishment of the trust the transfer of assets or money to the trust the receipt of earnings upon such assets the crediting of deferred_compensation contribution to the bookkeeping account of a participant nor the adoption of the plan will cause current recognition of income by the plan's participants or their beneficiaries who are on the cash_receipts_and_disbursements_method of accounting under either the doctrine_of constructive receipt sec_451 of the code or the economic_benefit_doctrine amounts distributed under the plan and the trust agreement will be included in the gross_income of a participant or his beneficiary under the cash_receipts_and_disbursements_method of accounting in the taxable_year or years in which actually paid or otherwise made available to the recipient whichever is earlier upon paying or making available to the participant or his beneficiary the amounts credited to his account the employer that employed the participant either c or the appropriate subsidiary or related_entity will be entitled to a deduction under sec_404 of the code for the amount includible in income by the recipient provided such amount otherwise meets the requirements for deductibility under sec_162 this ruling is directed only to the taxpayer who requested it and it applies only to the trust agreement submitted on date revised in accordance with the amendment submitted on date and to the revised plan submitted on date this ruling applies only to the deferred_compensation benefit credited and deemed earnings thereon accrued after the date of its issuance moreover if either the plan or the trust agreement is significantly amended this ruling may not necessarily remain in effect sec_6110 of the internal_revenue_code provides that this ruling may not be used or cited as precedent except as specifically ruled on above no opinion is expressed as to the federal tax consequences of the transaction described above under any other provision of the code sincerely yours charles t deliee chief branch office of the associate chief_counsel employee_benefits and exempt_organizations


_department of the treasury internal_revenue_service - washington d c nov-3206 tep ray uk uil code taxpayers a individual b amount d dear letters dated date submitted on your behalf by ‘this is in response to a your authorized representative in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code taxpayer a through his authorized representative represents that he received a distribution from his ira totaling amount d taxpayer a asserts that his failure to accomplish a rollover within the 60-day period prescribed by sec_408 was due to mistake made by taxpayer a’s duly appointed representative in not realizing the tax consequences of the withdrawal taxpayer a suffers from a mental impairment disease in date individual b acting under a durable_power_of_attorney on behalf of her father taxpayer a withdrew amount d from taxpayer a's ira in order to provide for his future nursing home care individual b realized the tax consequences of the withdrawal after discussions with the family cpa and after the 60-day rollover period had expired based on the facts and representations you request that the internal_revenue_service waive the 60-day rollover requirement with respect to the distribution of amount d because the failure to waive such requirement would be a hardship and against equity or good conscience 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 - the entire amount received including money and any other_property is paid into i an ira for the benefit of such individual not later than the 60th day after the day on which the individual receives the payment or distribution or the entire amount received including money and any other_property is paid into ii an eligible_retirement_plan other than an ira for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 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 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 only distributions that occurred after date are eligible for the waiver under sec_408 of the code 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 by taxpayer a demonstrates that individual b acting under a durable_power_of_attorney withdrew amount d in order to provide for taxpayer a’s ‘future nursing home care the information presented does not indicate that any of the factors described in revproc_2003_16 prevented taxpayer a or individual b acting on his behalf to accomplish a timely rollover rather it appears from the facts that individual b intended to use the ira distribution to pay for future nursing home care for taxpayer a and now seeks to undo the transaction because of the adverse tax consequences thus the service will not grant any extension to the 60-day rollover period of code sec_408 in this case 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 a copy of this letter has been sent to your authorized representative in accordance with a power_of_attorney on file in this office ‘if vou wish to inquire about this ruling please contact at please address ail correspondence to se t ep ra t3 sincerely yours vo frances v sloan manager employee_plans technical group enclosures deleted copy of letter_ruling notice of intention to disclose


internal_revenue_service number release date index number ----------------------------- -------------- ------------------------------------------------- ---------------------- -------------- ----------------------------- department of the treasury washington dc person to contact ------------------------ id no ------------- telephone number -------------------- refer reply to cc fip b02 plr-104760-08 date date legend fund ---------------------------------------------------------- -------------------------------------------------- corporation index state a interest rate a b c d dear ------------------- --------------------- ----------------------------------------------------------------- ------------ ---------------------- -------------- --- -- --- this responds to the request dated date and supplemental correspondence dated date and date submitted by your authorized representative on behalf of fund fund requests a ruling that income earned from investment in a certain commodity-linked note will constitute qualifying_income to fund plr-104760-08 under sec_851 of the internal_revenue_code_of_1986 as amended the code facts fund is a newly-formed series of corporation a state a corporation corporation is registered as an open-end management investment_company under the investment_company act of u s c sec_80a-1 et seq as amended the act fund plans to elect to be taxed as a regulated_investment_company ric under sec_851 of the code fund intends to seek long-term capital appreciation and income through investing primarily in alternative asset classes such as real_estate a variety of commodity-related securities and currencies that historically have had a low correlation to traditional asset classes such as stocks bonds and money market securities fund expects to pursue this investment objective and strategy in part though the investment in a commodity-linked note the note the note will be issued to fund at an expected par_value of dollar_figurea and will have a payout based on a formula determined by reference to the index the note will have a term of one year and one day fund as holder of note has the right to put the note to the issuer at the calculated redemption price based on the closing index as of the next business_day after notification to the issuer in addition if the index falls to a level that is equal to or below b of the beginning index value on any day the note will knock-out and automatically redeem based on the closing index value of the next business_day on which trading is generally conducted with respect to the components of the index the repayment obligation upon early redemption knock-out or maturity equals the face_amount of the note plus or minus an adjustment the adjustment is calculated by multiplying the face_amount of the note by a leverage factor of c the leveraged face_amount of the note times the percentage of the increase or decrease of the beginning index level compared to the ending index level for the applicable_period the total of this amount is then increased by a coupon amount equal to the interest rate times the face_amount of the note and decreased by an annual fee amount equal to d basis points of the leveraged face_amount of the note finally the adjustment is decreased by the reversal of an interest factor that is included in the index fund makes the following representations with respect to this note the issuer of the note will receive payment in full of the purchase_price of the note substantially contemporaneously with the delivery of the note the fund while holding the note will not be required to make any payment to the issuer of the note in addition to the purchase_price paid for the note whether as plr-104760-08 margin settlement payment or otherwise during the life of the note or at maturity the issuer of the note is not subject by the terms of the instrument to mark-to- market margining requirements of the commodities exchange act u s c a as amended cea and the note is not marketed as a contract of sale of a commodity for future delivery or option on such a contract subject_to the cea law and analysis sec_851 of the code provides that a corporation shall not be considered a ric for any taxable_year unless it meets an income test the qualifying_income requirement under this test at least percent of its gross_income must be derived from certain enumerated sources sec_851 defines qualifying_income in relevant part as - dividends interest payments_with_respect_to_securities_loans as defined in sec_512 and gains from the sale_or_other_disposition of stock_or_securities as defined in sec_2 of the act or foreign_currencies or other income including but not limited to gains from options futures or forward contracts derived with respect to the ric’s business of investing in such stock securities or currencies sec_2 of the act defines the term security as - any note stock treasury_stock security future bond debenture evidence_of_indebtedness certificate of interest or participation in any profit-sharing agreement collateral-trust certificate preorganization certificate or subscription transferable share investment contract voting-trust certificate certificate of deposit for a security fractional undivided_interest in oil gas or other mineral rights any put call straddle option or privilege on any security including a certificate of deposit or on any group or index of securities including any interest therein or based on the value thereof or any put call straddle option or privilege entered into on a national securities exchange relating to foreign_currency or in general any interest or instrument commonly known as a security or any certificate of interest or participation in temporary or interim certificate for receipt for guarantee of or warrant or right to subscribe to or purchase any of the foregoing plr-104760-08 sec_2 of the cea provides that the cea is not applicable to a hybrid instrument that is predominantly a security sec_2 of the cea provides that a hybrid instrument shall be considered predominantly a security if - a the issuer of the hybrid instrument receives payment in full of the purchase_price of the hybrid instrument substantially contemporaneously with the delivery of the hybrid instrument b the purchaser or holder of the hybrid instrument is not required to make any payment to the issuer in addition to the purchase_price paid under subparagraph a whether as margin settlement payment or otherwise during the life of the hybrid instrument or at maturity c the issuer of the hybrid instrument is not subject by the terms of the instrument to mark-to-market margining requirements and d the hybrid instrument is not marketed as a contract of sale of a commodity for future delivery or option on such a contract subject_to the cea sec_2 of the cea provides in part that for purposes of sec_2 of the cea mark-to-market margining requirements do not include the obligation of an issuer of a secured debt_instrument to increase the amount of collateral held in pledge for the benefit of the purchaser of the secured debt_instrument to secure the repayment obligations of the issuer under the secured debt_instrument conclusion based on the facts as represented we rule that income and gain arising from the note constitute qualifying_income to fund under sec_851 of the code this ruling is directed only to the taxpayer who requested it and is limited to the facts as represented by the taxpayer sec_6110 provides that this letter 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 sincerely david b silber david b silber chief branch office of associate chief_counsel financial institutions and products