internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc fip plr-123587-03 date date in re fund a fund b date date date date date firm dear this is in reply to a letter dated date in which funds a and b funds request an extension of time to file an election under sec_855 of the internal_revenue_code sec_855 election plr-123587-03 facts funds are corporations registered under the investment_company act of as amended as open-end management investment companies funds have elected to be treated as regulated_investment_companies rics in accordance with subchapter_m of the code funds’ taxable_year is a fiscal_year ending on date for their taxable_year ending date funds intended to file a sec_855 election the due_date without extensions for filing the return in which the election had to be made was date firm had the responsibility for filing form_7004 requesting an extension of time for filing the returns in which funds were to make sec_855 elections firm failed to enter information on funds into firm’s automated tracking system which generates reports of outstanding returns and extensions if a return or extension does not appear on the report as outstanding the employee responsible for filing it may conclude that the return or extension was filed as a result each fund’s return was not identified by the automated system and the fact that the extensions had inadvertently not been filed by the due_date was not discovered until date on date funds filed late returns making the sec_855 election funds make the following representations the request for relief was filed by funds before the failure to make the regulatory election was discovered by the service granting the relief will not result in funds having a lower tax_liability in the aggregate for all years to which the regulatory election applies than funds would have had if the election had been timely made taking into account the time_value_of_money funds do not seek to alter a return position for which an accuracy-related_penalty has been or could have been imposed under sec_6662 of the code at the time funds requested relief and the new position requires or permits a regulatory election for which relief is requested being fully informed of the required regulatory election and related tax consequences funds did not choose to not file the election applicable law sec_301_9100-1 of the regulations provides in part that the commissioner has discretion to grant a reasonable extension of time to make a regulatory election defined in sec_301_9100-1 as an election whose deadline is prescribed by plr-123587-03 regulations or by a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 through c i of the regulations sets forth rules that the internal_revenue_service generally will use to determine whether under the facts and circumstances of each situation the commissioner will grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that subject_to paragraphs b i through iii of sec_301_9100-3 when a taxpayer applies for relief under this section before the failure to make the regulatory election is discovered by the service the taxpayer will be deemed to have acted reasonably and in good_faith and sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all years to which the regulatory election applies than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money conclusion based upon the facts and representations submitted it is held that funds have shown good cause for granting a reasonable extension of time to allow them to make sec_855 elections accordingly the time for filing the elections is extended to date no opinion is expressed as to whether the funds’ tax_liability is not lower in the aggregate for all years to which the regulatory election applies than the tax_liability would have been if the election had been timely made taking into account the time_value_of_money upon audit of the federal_income_tax returns involved the director's office will determine the taxpayers’ tax_liability for the years involved if the director's office determines the taxpayers’ liability is lower that office will determine the federal_income_tax effect this ruling is limited to the timeliness of funds’ elections this ruling does not relieve funds from any penalties they may owe as a result of the failure_to_file federal_income_tax returns on time this ruling's application is limited to the facts code sections and regulations cited herein no opinion is expressed as to whether funds qualify as rics under subchapter_m part i of the code a copy of this letter is being forwarded to the service_center where funds file returns with instructions that although their returns were not timely filed funds are to be treated as having made timely sec_855 elections except as specifically provided otherwise no opinion is expressed on the federal plr-123587-03 income_tax consequences of the transaction described above this ruling is directed only to the taxpayers that requested it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the terms of a power_of_attorney on file in this office the original of this letter is being sent to you and copies are being sent to the taxpayers sincerely yours s william e coppersmtih william e coppersmith chief branch office of associate chief_counsel financial institutions products cc


t c memo united_states tax_court allied marine systems inc petitioner v commissioner of internal revenue respondent richard m gibbons petitioner v commissioner of internal revenue respondent docket nos filed date mark e kellogg and william f krebs for petitioners susan t mosley for respondent memorandum findings_of_fact and opinion cohen chief_judge in these consolidated cases respondent determined deficiencies in additions to and a penalty on petitioners' federal income taxes as follows docket no year docket no deficiency dollar_figure big_number year deficiency sec_6653 sec_6661 sec_6662 additions to tax and penalty dollar_figure big_number dollar_figure --- dollar_figure --- --- dollar_figure unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure after concessions by the parties the issues for decision are whether petitioner allied marine systems inc allied is entitled to reductions in gross_income and to additional expenses for and whether petitioner richard m gibbons petitioner is entitled to additional miscellaneous_itemized_deductions in whether petitioner received constructive dividends or wages from allied's paying his personal expenses in and whether petitioner can exclude gain under sec_121 and defer gain under sec_1034 in and whether petitioner is liable for the additions to tax and penalty as determined by respondent findings_of_fact some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference at the time the petitions in these cases were filed allied maintained its principal_place_of_business in solomons maryland and petitioner resided in solomons maryland petitioner was born in allied in petitioner retired from the navy while in the navy petitioner's primary duties were underwater construction underwater explosives and deep-sea diving prior to his retirement petitioner formed allied as a partnership allied was incorporated in during the years in issue allied was in the business of general waterfront construction including constructing residential bulkheads piers and marinas allied was a cash_basis taxpayer during the years in issue in and petitioner was president and general manager of allied and owned percent of allied's stock his duties included locating work for allied scheduling work assignments and obtaining the requisite permits required for waterfront construction petitioner also used his skills as a pilot while working for allied for liability insurance purposes allied's accounting system for receipts was divided into two portions services income and other income services income included moneys derived from waterfront construction the other income account recorded payments for materials that were sold by allied loan repayments and payments received in connection with a mortgage during amounts recorded as other income included dollar_figure of payments received in connection with a mortgage held by petitioner and joseph otrompke and a dollar_figure loan made by petitioner to allied the source of the balance of other income deposited in is not reflected on allied's books during allied's books reflect that dollar_figure of loans were made to employees of allied during allied's books reflect that dollar_figure of loans were made to employees of allied although allied paid its officers dollar_figure and dollar_figure in and respectively petitioner was not paid any salary by allied during or allied paid petitioner's personal expenses in the amounts of dollar_figure and dollar_figure in and respectively allied's schedule l balance_sheet of form_1120s u s income_tax return for an s_corporation set forth dollar_figure as outstanding shareholder loans at the end of and dollar_figure as total liabilities and shareholders' equity allied's schedule l does not set forth any specific dollar amount outstanding as shareholder loans at the beginning or end of however for beginning total liabilities and shareholders' equity totaled dollar_figure and ending total liabilities and shareholders' equity for totaled dollar_figure airplanes petitioner owned the following four airplanes during and airplane date acquired date disposed of purchase_price piper pa30 cessna cessna date date date date date not applicable mitsubishi mu2b date not applicable dollar_figure big_number even trade for piper pa30 big_number petitioner's airplanes were used by him personally and by allied as follows business usage hours petitioner's usage hours total hours during allied's use of petitioner's airplanes wa sec_53 percent of the total usage during allied's use of petitioner's airplanes wa sec_43 percent of the total usage during allied paid for all operating_expenses of petitioner's airplanes including those expenses attributable to personal_use petitioner paid at least dollar_figure of airplane expenses during petitioner's airplanes were flown the following number of hours during the years in issue airplane piper pa30 cessna cessna mitsubishi mu2b aztec rental airplane --- --- --- solomons properties partnership on date petitioner richard h fischer jr fischer and delta financial_corporation inc delta entered into a written partnership_agreement for the purpose of acquiring developing and reselling real_property known as oyster bay located in lusby maryland petitioner was responsible for obtaining the necessary permits and overseeing the construction delta was responsible for securing financing for the acquisition and cost of developing the property fischer was responsible for overseeing the acquisition of the land under the terms of the solomons properties solomons partnership_agreement petitioner fischer and delta agreed that the written partnership_agreement was intended to set forth all promises agreements conditions and understandings among them each partner owned a one-third interest in solomons determinations of each partner's share of income gain loss credit or allowance were to be made in accordance with the agreement the partners agreed that legal_title to partnership property would be held in the name of solomons or in such other name or manner that would be in the best interest of the partnership the manner of holding title to partnership property was for the convenience of the partnership and all such property would be treated as partnership property in late solomons purchased property in calvert county maryland the property included a house the solomons house and improvements petitioner resided in the solomons house from until date and paid no rent from time to time solomons business was conducted in the solomons house solomons owned the house and pledged it along with the other partnership property as collateral for loans obtained by the partnership from to solomons purchased additional adjacent property the total acreage acquired by solomons was acres in date solomons sold the acres of land including the house that was occupied by petitioner for dollar_figure the solomons house was destroyed by fire in date on date petitioner and another person purchased a new home in st mary's county maryland for dollar_figure other background petitioner prepared allied's and federal_income_tax returns petitioner prepared his own federal_income_tax return petitioner's federal_income_tax return was prepared by clarkson richard sherwood sherwood an accountant allied's gross_income and deductions opinion allied contends that respondent's determination of allied's gross_income should be reduced by dollar_figure and dollar_figure in and respectively respondent concedes that allied's income in should be reduced by dollar_figure to reflect loans to employees that were repaid during allied's argument is that all of the loans to employees were repaid in the year that the loans were made and thus that allied's income should be reduced by the total amount of the loans to employees in and allied's cash receipts and disbursements journals for and were introduced as evidence none of the deposits were either identified as loan repayments or traceable to particular loans except for the dollar_figure that was conceded by respondent no indication is given in the journals that any other loans to employees were repaid during or petitioner's general and uncorroborated testimony is not sufficient to prove that allied's loans to employees were in fact repaid during the same year that they were made and the december dates of some loans suggest otherwise respondent's determination regarding adjustments to allied's income as modified by her concession will be sustained allied also contends that respondent's determination of allied's expenses for the operation of petitioner's airplanes should be increased by dollar_figure and dollar_figure in and respectively respondent argues that allied is not entitled to additional airplane expenses for and allied argues that it is entitled to additional_depreciation deductions related to petitioner's airplanes respondent admits that amounts representing depreciation for airplanes owned by petitioner were considered in determining the amount that respondent would accept as a reasonable estimate of allied's airplane expenses respondent however argues that allied is not entitled to depreciate airplanes for which it did not have the burdens and benefits of ownership allied bears the burden of establishing that it is entitled to additional deductions rule a 503_us_79 512_f2d_882 9th cir affg tcmemo_1972_133 this includes substantiating the amount of the item claimed 65_tc_87 affd per curiam 540_f2d_821 5th cir generally sec_167 provides that there shall be allowed as a deduction for depreciation a reasonable_allowance_for_exhaustion and wear_and_tear of property used in the taxpayer's trade_or_business or held_for_the_production_of_income sec_167 sec_1_167_a_-1 income_tax regs traditionally such allowance is primarily intended to provide a nontaxable fund to restore property used in producing income at the end of such property's useful_life and is granted to the person who uses property in his trade_or_business or for the production_of_income and who incurs a loss resulting from the depreciation of capital that he has invested 308_us_252 51_tc_799 n depreciation may generally be deducted to the extent that the taxpayer proves that he or she actually expended capital in the acquisition or improvement of the property helvering v f_r lazarus co supra pincite 51_tc_488 allied does not deny that petitioner not allied owned the airplanes and allied does not contend that it provided funds for the acquisition of the airplanes although allied paid some expenses of the airplanes during the relevant period allied has not provided any proof that it had a capital_investment in the airplanes accordingly allied has failed to prove its entitlement to any additional_depreciation deductions with respect to petitioner's airplanes for allied argues that based on the cost per hour for each aircraft to which petitioner testified and the stipulated number of business hours flown allied must have incurred additional expenses allied's position is unsupported by the record respondent determined that allied was entitled to dollar_figure of airplane expenses for based on a concession by respondent the allowance will be dollar_figure at trial allied introduced various receipts as evidence of airplane expenses the receipts totaled less than dollar_figure and not all of the expenses were paid_by allied without supporting independent evidence allied's claim is not sufficient to prove its entitlement to additional airplane expenses allied raised for the first time on brief its claim that it is entitled to the deductions as essentially for airplane rental expenses allied did not give respondent fair warning of this position even if we were to consider this position we would conclude that it was without merit there is not sufficient evidence before us to establish any rental agreement or any rental payments during the years in issue we cannot conclude from the evidence that allied is entitled to any additional airplane expenses in or schedule a deductions petitioner deducted dollar_figure as employee business_expenses on his form_2106 employee business_expenses the parties have stipulated that the amount remaining in dispute is dollar_figure on brief petitioner conceded respondent's disallowance of dollar_figure claimed as expenses for travel while away from home petitioner did not produce any evidence at trial regarding and did not dispute on brief respondent's disallowance of dollar_figure claimed as expenses for meals and entertainment petitioner has failed to meet his burden of proving that respondent's determination is incorrect rule a the remaining items in dispute are vehicle expenses of dollar_figure and parking and tolls expenses of dollar_figure petitioner testified that he maintained a contemporaneous automobile log during but that the log was destroyed when the solomons house burned down in early in place of the original log petitioner introduced a reconstruction of his claimed business use of the automobile such a reconstruction is allowed-- where the taxpayer establishes that the failure to produce adequate_records is due to the loss of such records through circumstances beyond the taxpayer's control such as destruction by fire flood earthquake or other_casualty the taxpayer shall have a right to substantiate a deduction by reasonable reconstruction of his expenditures or use sec_1_274-5t temporary income_tax regs fed reg date respondent argues that petitioner's reconstruction is not reasonable petitioner's form_2106 indicates that his vehicle was driven a total of big_number miles during according to petitioner's form_2106 big_number miles was business mileage big_number miles was commuting mileage and miles was personal mileage other than commuting the reconstruction presented by petitioner indicates big_number miles of purported business travel respondent contends that it is unreasonable to conclude that petitioner in addition to the commuting mileage drove only personal miles during especially when petitioner has failed to offer any proof of another vehicle used for personal transportation we agree with respondent petitioner testified that he used a reconstruction in preparing his form_2106 petitioner could not recall however whether the reconstruction that was received into evidence was the same reconstruction that was used in preparation of his form_2106 or when the reconstruction that was received into evidence was prepared if the reconstruction was not the one used in preparing the return there is no explanation for the missing more contemporaneous record in his brief petitioner acknowledges the difficulty of recalling details occurring years before the trial and a recent reconstruction would inherently be susceptible to error we are not persuaded that the reconstruction is reasonable or reliable petitioner's testimony regarding the claimed parking fees and tolls is likewise vague and unconvincing petitioner's claimed parking fees were based on an average trip petitioner did not introduce any evidence or testify as to the specific number of airport fees for landing and parking petitioner's airplanes or to the number of vehicle parking fees that were included on his form_2106 furthermore petitioner did not attempt to reconstruct any of the claimed parking fee expenses respondent's determination that petitioner is not entitled to employee business_expenses will be sustained allied's payment of petitioner's personal expenses respondent determined that allied's payment of petitioner's personal expenses in the amounts of dollar_figure and dollar_figure in and respectively was includable in petitioner's gross_income after a concession by respondent the amounts remaining in dispute are dollar_figure and dollar_figure for and respectively petitioner contends that allied's payments of his personal expenses were nontaxable loan repayments respondent contends that these payments were dividends or in the alternative wages at trial the evidence that was introduced by petitioner consisted mainly of his uncorroborated testimony we are not required to accept testimony that is improbable or vague see 440_f2d_688 9th cir affg tcmemo_1969_159 petitioner's testimony is not supported by the minimal records produced at trial and is not consistent with the contemporaneous corporate records allied's schedule l balance_sheet indicates that at the end of dollar_figure was outstanding as shareholder loans and that liabilities and shareholders' equity totaled dollar_figure allied's schedule l does not indicate any amount outstanding as shareholder loans at the beginning of however beginning liabilities and shareholders' equity totaled dollar_figure ending liabilities and shareholders' equity for totaled dollar_figure we conclude that allied did not have a contemporaneous intent to treat the payments of petitioner's personal expenses as loan repayments petitioner's attempts to characterize retroactively the payments he received from allied as loan repayments are not persuasive see 368_f2d_439 9th cir affg tcmemo_1965_84 the pattern of payments from allied for petitioner's benefit is more consistent with constructive dividends see reis v commissioner tcmemo_1995_231 cordes v commissioner tcmemo_1994_377 petitioner contends that allied did not have earnings_and_profits from which to pay a dividend in or respondent concedes that allied did not make a profit in however respondent argues that petitioner has failed to show that there were no historical earnings available in petitioner argues that allied was only a corporate shell between its incorporation in and and that no historical earnings could exist petitioner's contention is not supported by any evidence in the record petitioner has not met his burden of proving that allied had insufficient earnings_and_profits to support the distribution of dividends to the extent determined by respondent during the years in issue 89_tc_1280 see rescigno v commissioner tcmemo_1991_479 malicki v commissioner tcmemo_1988_559 affd sub nom 910_f2d_1374 7th cir because petitioner has failed to prove error in respondent's determination we need not address respondent's alternative position that the payments represented wages to petitioner we note however petitioner's argument there is no dispute that gibbon's payments were unique among the employees and stockholders of the corporation the distinction is that unlike the other employees and stockholders gibbons was the only one to loan the corporation substantial sums of money to advance on behalf of the corporation funds for its business_expenses and to provide the corporation with the use of his depreciable equipment for the corporation's business uses the unique payments were in recognition and partial satisfaction of these unique activities on its behalf inasmuch as petitioner was not paid any salary during or petitioner's argument suggests that he was compensated by the payments in dispute the tax consequences to petitioner would be the same allied has not timely argued that it would be entitled to deduct the payments as compensation respondent's determination that petitioner received constructive dividends in the amounts of dollar_figure and dollar_figure for and respectively will be sustained sec_121 and sec_1034 respondent determined that petitioner is not entitled to exclude or to defer any gain from the sale of the solomons house petitioner contends that he is entitled to exclude dollar_figure of gain under sec_121 and to rollover dollar_figure of gain under sec_1034 sec_121 provides a one-time exclusion of dollar_figure of gain from the sale of a principal_residence for an individual who has attained age if during the 5-year period ending on the date of the sale_or_exchange such property has been owned and used by the taxpayer as his principal_residence for periods aggregating years or more sec_121 emphasis added b the parties are in agreement that petitioner met the age requirement and used at least a portion of the solomons house as his principal_residence for the requisite period however the solomons house was owned by solomons not by petitioner thus sec_121 is not applicable to petitioner here sec_1034 provides for rollover of gain on the sale of a principal_residence if property in this section called old residence used by the taxpayer as his principal_residence is sold by him and within a period beginning years before the date of such sale and ending years after such date property in this section called new residence is purchased and used by the taxpayer as his principal_residence gain if any from such sale shall be recognized only to the extent that the taxpayer's adjusted_sales_price as defined in subsection b of the old residence exceeds the taxpayer's cost of purchasing the new residence again the parties are in agreement that petitioner used at least a portion of the solomons house as his principal_residence and that petitioner purchased a new residence within the requisite period respondent argues that petitioner has not substantiated the amount of the gain allocable to the portion used as a residence and that petitioner did not own the solomons house and thus cannot claim the benefit of sec_1034 gain rollover petitioner contends that a partner in a partnership may claim an exclusion of the recognition of gain on the sale of property titled to the partnership and used by a partner as his personal_residence petitioner points to lewis testamentary_trust b v commissioner 83_tc_246 to support his position lewis stands for the proposition that an income beneficiary's use of a house owned by the trust cannot be imputed to the trust in determining the trust's tax_liability under sec_57 defining tax_preferences for purposes of the minimum_tax in that case the court therefore concluded that the principal_residence exclusion of sec_57 was unavailable to the trust lewis does not strengthen petitioner's position petitioner also relies on 54_tc_170 arguing that his failing to pay rents and solomons' failing to depreciate the house indicate that the solomons house was a residence and not business property petitioner's syllogism fails the taxpayer's loss in davies based on a conclusion that the property in question was business property does not suggest an opposite result here the solomons property whether depreciated or not was from time to time put to business uses neither the court's dictum in davies v commissioner supra pincite nor sec_704 cited by petitioner relating to property contributed to a partnership applies here the solomons property was purchased by the partnership not contributed to it under sec_1034 the old residence must be sold by a taxpayer claiming nonrecognition treatment the solomons house was sold along with the other partnership property by solomons not by petitioner maintaining continuity of title is a key to receiving nonrecognition treatment under sec_1034 see 602_f2d_1341 9th cir title to the solomons house was held in the name of solomons along with the other partnership property petitioner's new residence was titled in his and another's names no continuity of title exists here petitioner argues that through an oral agreement with his partners he gained an interest in the solomons house neither of the other solomons partners corroborated petitioner's testimony petitioner fischer and a delta representative douglass parran jr parran testified that each partner had the option to receive one of the residential units to be built as part of the development such an agreement would not constitute a transfer to petitioner of title in the solomons house fischer testified that petitioner's use of the solomons house was important to the partnership during the construction phase from a security standpoint and from a convenience standpoint petitioner was overseeing the construction however petitioner fischer and parran also testified that from the outset solomons intended to destroy the solomons house as part of the overall development plan solomons treated the solomons house at all times as partnership property pledging it along with other partnership property as collateral for loans petitioner's claim that he gained title equitable or otherwise in the solomons house is contrary to the evidence respondent's determination that petitioner is not entitled to exclude gain under sec_121 or to defer gain under sec_1034 in will be sustained sec_6661 addition_to_tax respondent determined that petitioner is liable for the sec_6661 addition_to_tax for petitioner bears the burden of proving that respondent’s determination is not correct rule a 105_tc_324 sec_6661 provides for an addition_to_tax on underpayments attributable to a substantial_understatement_of_income_tax sec_6661 defines the term understatement as being the excess of the amount of tax required to be shown on the return for the taxable_year over the amount shown on the return an understatement is substantial if it exceeds the greater of percent of the tax required to be shown on the return or dollar_figure sec_6661 the deficiency resulting from our determinations is a substantial_understatement the sec_6661 addition_to_tax is not applicable however if there was substantial_authority for the taxpayer's treatment of the items in issue or if the relevant facts relating to the tax treatment were adequately disclosed on the return sec_6661 and ii petitioner did not present any evidence or argument that there was substantial_authority for his treatment of the items in issue or that the treatment was adequately disclosed on his return accordingly we conclude that petitioner is liable for the addition_to_tax under sec_6661 for sec_6653 addition_to_tax respondent determined that petitioner is liable for the sec_6653 addition_to_tax for sec_6653 imposes an addition_to_tax equal to percent of the underpayment if any part of the underpayment is due to negligence or intentional disregard of the rules or regulations negligence is defined as a lack of due care or failure to do what a reasonable and ordinarily prudent person would do under the circumstances 963_f2d_907 6th cir affg tcmemo_1991_179 85_tc_934 petitioner bears the burden of proving that respondent's determination is erroneous rule a 58_tc_757 petitioner presented neither evidence at trial nor argument on brief regarding the negligence addition_to_tax for respondent's determination will be sustained sec_6662 penalty respondent determined that petitioner is liable for the sec_6662 penalty for sec_6662 imposes an accuracy-related_penalty in an amount equal to percent of the underpayment_of_tax attributable to one or more of the items set forth in sec_6662 on brief respondent argues that the determination of the sec_6662 penalty should be sustained because petitioner's underpayment was due to negligence or due to a substantial_understatement sec_6662 and the deficiency here determined is a substantial_understatement see sec_6662 the accuracy-related_penalty does not apply with respect to any portion of an underpayment if it is shown that there was reasonable_cause for such portion of an underpayment and that petitioner acted in good_faith with respect to such portion sec_6664 the determination of whether petitioner acted with reasonable_cause and in good_faith depends upon the pertinent facts and circumstances sec_1_6664-4 income_tax regs the most important factor is the extent of the taxpayer's effort to assess his or her proper tax_liability for the year id reliance by the taxpayer on the advice of a qualified adviser will constitute reasonable_cause and good_faith if under all of the facts and circumstances the reliance by the taxpayer was reasonable and the taxpayer acted in good_faith id based on the record we conclude that petitioner is not liable for the sec_6662 accuracy-related_penalty on the portion of the underpayment related to the solomons house petitioner retained sherwood to prepare his return and both petitioner's and sherwood's testimony indicated that petitioner provided sherwood with all of the information regarding the solomons house although petitioner's reliance on sherwood in this regard was misplaced we do not conclude that petitioner's reliance on sherwood was unreasonable petitioner has not shown reasonable_cause or good_faith for the remainder of the underpayment neither petitioner nor sherwood testified as to what information petitioner provided to sherwood regarding allied's payment of petitioner's personal expenses thus the sec_6662 penalty will be sustained as to the remaining portion of the underpayment for to reflect the foregoing and concessions of the parties decisions will be entered under rule


internal_revenue_service number release date index numbers ------------------------------------------- ----------------------------------------------- -------------------------------- ---------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------ id no ------------------ telephone number ---------------------- refer reply to cc psi b01 plr-134053-17 date date legend x ---------------------------------------------------- ----------------------------------------------- a ------------------------------------------------------ ------------------ b ------------------------------------------------------ ----------------- trust1 ----------------------------------------------------- ----------------------------------- trust2 ----------------------------------------------------- -------------------------------------- date date date year year years ---------------------- ---------------------- --------------------------- ------- ------- --------------- plr-134053-17 n m state ----- ------ -------------- dear --------------- this is in response to a letter dated date and supplemental correspondence submitted on behalf of x by x’s authorized representative requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_754 of the internal_revenue_code facts according to the information submitted x was formed as a partnership under the laws of state on date and is treated as a partnership for federal tax purposes on date a a partner of x died after a’s death a’s n interest in x was transferred to b upon a’s death trust1 terminated and trust1’s m interest in x was transferred to trust2 x filed its income_tax return for year x represents that it relied upon its tax advisor when preparing the tax_return for year x represents that it was unaware that it was eligible to make a sec_754 election x further represents that around year x became aware of its eligibility to make a sec_754 election and its failure to timely make the election with its return for its taxable_year ending on date x represents that in year it amended its returns for years reporting a step-up_in_basis consistent with having made a valid sec_754 election x further represents that it has acted reasonably and in good_faith that granting relief will not prejudice the interests of the government and that it is not using hindsight in making the election law and analysis sec_754 provides that a partnership may elect to adjust the basis of partnership property when there is a distribution_of_property or a transfer of a partnership_interest an election under sec_754 applies with respect to all distributions of property by the partnership and to all transfers of interests in the partnership during the taxable_year with respect to which the election was filed and all subsequent taxable years plr-134053-17 sec_1_754-1 of the income_tax regulations provides that an election under sec_754 to adjust the basis of partnership property under sec_734 and sec_743 with respect to a distribution_of_property to a partner or a transfer of an interest in a partnership must be made in a written_statement filed with the partnership return for the taxable_year during which the distribution or transfer occurs for the election to be valid the return must be filed not later than the time prescribed by sec_1 e including extensions for filing the return for such taxable_year under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i section b defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides rules for requesting extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government section a conclusion based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of one hundred twenty days from the date of this letter to make a sec_754 election for year the election should be made in a written_statement filed with the applicable service_center for association with x’s tax_return for its taxable_year ending date a copy of this letter should be attached to the statement filed except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-134053-17 pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely holly porter associate chief_counsel office_of_chief_counsel passthroughs special industries laura c fields by _____________________________ laura c fields senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service department of the treasury number release date index number 468a washington dc person to contact telephone number refer reply to cc psi 6-plr-116471-02 date date in re revised schedule of ruling amounts legend plant taxpayer parent_corporation transferor commission one commission two order method a b c d e f h i j k l plr-116471-02 m n o p q r s t u v w x -2- dear this letter responds to a request for private_letter_ruling dated date filed on behalf of the above taxpayer pursuant to the mandatory requirements of sec_1_468a-3 of the income_tax regulations requesting a schedule of ruling amounts relating to plant's qualified nuclear decommissioning fund fund taxpayer is requesting this schedule because plant was transferred from transferor a regulated_public_utility to taxpayer an unregulated electric generation company the transfer of plant to an unregulated entity changed the date after which plant will no longer be included in rate base and commission one in order increased the amount of decommissioning costs to be included in cost of service for plant effective a the date of the transfer of plant to taxpayer transferor previously received a schedule of ruling amounts pertaining to plant on b information was submitted pursuant to sec_1_468a-3 in a reorganization dated a taxpayer was formed as a wholly owned subsidiary of parent which in turn is a wholly-owned subsidiary of corporation in the same reorganization transferor became a wholly-owned subsidiary of corporation and transferred through a multi-step transaction its entire_interest in plant and all liability for decommissioning plant to taxpayer as a result taxpayer directly owns a c percent interest in the plant which is situated in location taxpayer and transferor join corporation in filing a consolidated tax_return commission one d percent and commission two e percent have regulatory jurisdiction over the rates of taxpayer and taxpayer is under the audit jurisdiction of the industry director natural_resources and construction lm nrc the estimated cost of decommissioning the plant is dollar_figuref commission one in order provided for decommissioning costs for the plant of dollar_figureh to be included in taxpayer's cost of service for ratemaking purposes for the period i during this period transferor will purchase all of taxpayer’s generation capacity for an agreed price plr-116471-02 -3- pursuant to order transferor will collect decommissioning amounts approved by commission one from its ratepayers during period j and will pay over all such collections to taxpayer who will in turn contribute them to its decommissioning funds during the period j transferor has the option of buying power from taxpayer but is not required to do so under order and the amount of decommissioning costs that will be included in taxpayer’s cost of service for ratemaking purposes will be a function of the amount of taxpayer’s capacity that is actually purchased by transferor the level_funding limitation period begins on k and ends on l and the funding_period begins on m and ends on n the assumed after-tax rate of return to be earned by the assets of the fund is o percent the rate of escalation to determine the future cost of the plant is p percent compounded annually the proposed method for decommissioning the plant is method taxpayer has determined the estimated period for which the fund is to be in effect is q years r through s and the estimated_useful_life of the plant is t years u through v therefore the qualifying percentage is w percent sec_468a of the code provides that a taxpayer may elect to deduct the amount of payments made to a qualified decommissioning fund however sec_468a limits the amount_paid into such fund for any taxable_year to the lesser_of the amount of nuclear decommissioning costs allocable to this fund which is included in the taxpayer's cost of service for ratemaking purposes for the tax_year or the ruling_amount applicable to this year sec_468a of the code provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under sec_468a as the amount which the secretary determines to be necessary to fund that portion of nuclear decommissioning costs which bears the same ratio to the total nuclear decommissioning costs with respect to the nuclear power plant as the period for which the nuclear decommissioning fund is in effect bears to the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate sec_468a of the code provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of a taxable_year if the payment is made on account of such taxable_year and is made within ½ months after the close of the tax_year sec_1_468a-1 of the regulations provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an plr-116471-02 -4- eligible_taxpayer as defined under sec_1_468a-1 of the regulations is a taxpayer that has a qualifying interest in among other things a direct ownership_interest including an interest as a tenant in common or joint tenant sec_1_468a-2 of the regulations provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the lesser_of i the cost of service amount applicable to the nuclear decommissioning fund for such tax_year or ii the ruling_amount applicable to the nuclear decommissioning fund for such tax_year if the amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year exceeds the limitation of paragraph b the excess is not deductible by the electing taxpayer in addition under sec_1_468a-5 there are rules which provide that the internal_revenue_service may disqualify a nuclear decommissioning fund if the amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year exceeds the limitation of paragraph b sec_1_468a-3 of the regulations provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3 of the regulations provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on the reasonable assumptions and determinations used by the applicable public_utility commission in establishing or approving the amount of decommissioning costs to be included in the cost of service for ratemaking purposes under sec_1_468a-3 the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of that section sec_1_468a-3 of the regulations provides that in general the amount for any_tax year in the level_funding limitation period shall not be less than the ruling_amount for any earlier tax_year under sec_1_468a-3 the level_funding limitation period begins on the first day of the first tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes sec_1_468a-3 of the regulations provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer's plr-116471-02 -5- share of the total estimated cost of decommissioning the nuclear power plant multiplied by the qualifying percentage sec_1_468a-3 of the regulations provides that in general the total estimated cost of decommissioning a nuclear power plant is the reasonably estimated cost of decommissioning used by the applicable public_utility commission in establishing or approving the amount of these costs to be included in cost of service for ratemaking purposes sec_1_468a-3 of the regulations provides that a taxpayer's share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer's qualifying interest in the plant under sec_1_468a-3 the qualifying percentage for any nuclear decommissioning fund is equal to a fraction the numerator of which is the number of tax years in the estimated period for which the nuclear decommissioning fund is to be in effect and the denominator of which is the number of tax years in the estimated_useful_life of the applicable plant sec_1_468a-3 of the regulations provides that the qualifying percentage for any nuclear decommissioning fund is equal to the fraction the numerator of which is the number of taxable years in the estimated period for which the nuclear decommissioning fund is to be in effect and the denominator of which is the number of taxable years in the estimated_useful_life of the applicable nuclear power plant sec_1_468a-3 of the regulations provides that the estimated period for which a nuclear decommissioning fund is to be in effect begins on the later of the first day of the first taxable_year for which a deductible payment is made to the nuclear decommissioning fund or deemed made or the first day of the taxable_year that includes the date that the nuclear power plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer's rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes according to sec_1_468a-3 the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer's rate base sec_1_468a-3 of the regulations provides that the estimated_useful_life of a nuclear power plant begins on the first day of the taxable_year that includes the date that the plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer's rate plr-116471-02 -6- base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes according to sec_1_468a-3 the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer's rate base sec_1_468a-3 of the regulations provides that if two or more public_utility commissions establish or approve rates for electric energy generated by a single nuclear power plant then the schedule of ruling amounts shall be separately determined pursuant to the rules of sec_1_468a-3 through e for each public_utility commission that has determined the amount of decommissioning costs to be included in the cost of service for ratemaking purposes for this plant under sec_1_468a-3 this separate determination shall be based on the reasonable assumptions and determinations used by the relevant public_utility commission and shall take into account only that portion of the total estimated cost of decommissioning that is properly allocable to the ratepayer whose rates are established or approved by the public_utility commission according to sec_1_468a-3 the ruling amounts for any taxable_year is the sum of the ruling amounts for such taxable_year determined under the separate schedules of ruling amounts sec_1_468a-3 of the regulations provides that the internal_revenue_service shall not provide a taxpayer with a schedule of ruling amounts for any nuclear decommissioning fund unless the public_utility commission that establishes or approves the rates for electric energy generated by the plant has determined the amount of decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes and has disclosed the after-tax rate of return and any other assumptions and determinations used in establishing or approving the amount we have examined the representations and the data submitted by the taxpayer in relation to the requirements set forth in the code and the regulations based solely upon these representations of the facts we reach the following conclusions for the period covered by this schedule of ruling amounts taxpayer had a qualifying interest in the plant and was therefore an eligible_taxpayer under sec_1_468a-1 of the regulations commission one has determined the decommissioning costs to be included in taxpayer's cost of service for ratemaking purposes as required by sec_1_468a-3 of the regulations taxpayer has proposed a schedule of ruling amounts which meets the requirements of sec_1_468a-3 and of the regulations the annual plr-116471-02 -7- payments specified in the proposed schedule of ruling amounts are based on the reasonable assumptions and determinations used by the commission and will result in a projected fund balance at the end of the funding_period equal to or less than the amount of decommissioning costs allocable to the fund taxpayer has determined under sec_1_468a-3 of the regulations that the qualifying percentage for commission one is w percent the maximum amount of cash payments made or deemed made to the fund during any_tax year is restricted to the lesser amount of the cost of service amount applicable to the fund or the ruling_amount applicable to the fund as set forth under sec_1_468a-2 of the regulations taxpayer subject_to the jurisdiction of two public_utility commissions for ratemaking purposes has calculated its share of the total decommissioning costs allocable to commissions one and two as required by sec_1_468a-3 of the regulations based solely on the determinations above we conclude that the taxpayer's proposed schedule of ruling amounts in regard to the commissions satisfies the requirements of sec_468a of the code accordingly the schedule of ruling amounts requested by the taxpayer under sec_468a is approved as follows approved schedule of ruling amounts allocable to the taxpayer approval of the schedule of ruling amounts is contingent on there being no change in the facts and circumstances known or assumed at the time the current ruling is issued except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above in particular no opinion is expressed or implied concerning whether the contract termination charge is includible in the gross_income of and deductible by any entity other than taxpayer the approved schedule of ruling amounts is relevant only to those payments made to the fund payments allocable to any funds other than the fund cannot qualify for purposes of the deduction under the provisions of sec_468a of the code plr-116471-02 -8- payments made to such fund can qualify only to the extent they are made while taxpayer is the owner of the plant and only to the extent that they do not exceed the lesser_of the decommissioning costs applicable to such fund or the ruling amounts applicable to this fund in the tax_year the portion of this ruling pertaining to contributions to taxpayer’s qualified nuclear decommissioning fund made under the jurisdiction of commission one is expressly conditioned on the continued direct or indirect ownership and control of taxpayer parent and transferor by corporation during the periods i and j specifically as continuing conditions taxpayer and transferor must be part of the same affiliated_group or be treated as a division of a member of the same affiliated_group as corporation and corporation must satisfy the ownership requirement of sec_1504 with respect to taxpayer and transferor and corporation taxpayer and transferor must file a consolidated tax_return or must be treated for tax purposes as divisions of entities that file a consolidated_return with corporation for each year for which a deductible payment is made under sec_468a if any of these conditions are no longer applicable no further contributions may be made under the jurisdiction of commission one to the qualified nuclear decommissioning fund this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides it may not be used or cited as precedent in accordance with the powers of attorney we are sending a copy of this ruling to your authorized representatives we are also sending a copy of this letter_ruling to the industry director natural_resources and construction lm nrc pursuant to sec_1_468a-7 of the regulations a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax return for each tax_year in which the taxpayer claims a deduction for payments made to the fund sincerely yours peter c friedman senior technician reviewer branch office of associate chief_counsel passthroughs and special industries


internal_revenue_service appeals_office watt avenue sa sacramento ca date release number release date date date uil code certified mail dear department of the treasury employer_identification_number person to contact empoyee id number fax tax periods ended this is a final_determination that you do not qualify for exemption from federal_income_tax under internal_revenue_code the code sec_501 as an organization described in code sec_501 for the tax periods above your determination_letter dated is revoked our adverse determination as to your exempt status was made for the following reason s organizations exempt from tax under sec_501 of the internal_revenue_code including business_leagues formed to promote the common interests of members engaged in a particular line_of_business must not be organized for profit and no part of the net_earnings may inure to the benefit of any private_shareholder_or_individual a substantial portion of your activities includes the performance of regular services for individual members including the promotion of the individual member's business rather than promoting the industry as a whole or seeking to improve business conditions for the industry as a whole see sec_1_501_c_6_-1 therefore you are not an organization described in code sec_501 you are required to file federal_income_tax returns on forms file your returns with the appropriate internal_revenue_service center per the instructions of the return for further instructions forms and information please visit www irs gov you do not promote the advancement of any particular line_of_business or the improvement of business conditions rather you promote the individual businesses of your members therefore you do not qualify for exemption as an organization described in sec_501 of the code we will make this letter and the proposed adverse determination_letter available for public inspection under code sec_6110 after deleting certain identifying information we have provided to you ina separate mailing notice notice of intention to disclose please review the notice and the documents attached that show our proposed deletions if you disagree with our proposed deletions follow the instructions in notice if you decide to contest this determination you may file an action for declaratory_judgment under the provisions of sec_7428 of the code in one of the following three venues united_states tax_court the united_states court of federal claims or the united_states district_court for the district of columbia a petition or complaint in one of these three courts must be filed within days from the date this determination_letter was mailed to you please contact the clerk of the appropriate court for rules and the appropriate forms for filing petitions for declaratory_judgment by referring to the enclosed publication you may write to the courts at the following addresses united_states tax_court second street n w ’ washington d c u s court of federal claims madison place n w washington d c u s district_court for the district of columbia constitution ave n w washington d c processing of income_tax returns and assessments of any taxes due will not be delayed if you file a petition for declaratory_judgment under sec_7428 of the internal_revenue_code you may also be eligible for help from the taxpayer_advocate_service tas tas is an independent organization within the irs that can help protect your taxpayer rights tas can offer you help if your tax problem is causing a hardship or you've tried but haven't been able to resolve your problem with the irs if you qualify for tas assistance which is always free tas will do everything possible to help you visit www taxpayeradvocate irs gov or call if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours appeals team manager cc enclosure publication department of the treasury internal_revenue_service tax_exempt_and_government_entities_division exempt_organizations examinations org dear date date taxpayer_identification_number form_990 return tax_year s ended december 20xx 20xx 20xx person to contact id number contact numbers telephone fax manager’s name id number manager’s contact number response due_date certified mail - return receipt requested why you are receiving this letter enclosed is a copy of our report of examination explaining why revocation of your organization's tax-exempt status is necessary what you need to do if you agree if you agree with our findings please sign the enclosed form 6018-a consent to proposed action and return it to the contact at the address listed above we'll send you a final letter revoking your exempt status if we don’t hear from you if we don’t hear from you within calendar days from the date of this letter we'll process your case based on the recommendations shown in the report of examination and this letter will become final effects of revocation letter 3610-r catalog number 59432g in the event of revocation you'll be required to file federal_income_tax returns for the tax_year s shown above file these returns with the contact at the address listed above within calendar days from the date of this letter unless a request for an extension of time is granted file returns for later tax years with the appropriate service_center indicated in the instructions for those returns what you need to do if you disagree with our findings if you disagree with our position you may request a meeting or telephone conference with the supervisor of the contact identified in the heading of this letter you also may file a protest with the irs appeals_office by submitting a written request to the contact person at the address listed above within calendar days from the date of this letter the appeals_office is independent of the exempt_organizations division and resolves most disputes informally for your protest to be valid it must contain certain specific information including a statement of the facts the applicable law and arguments in support of your position for specific information needed for a valid protest please refer to page one of the enclosed publication how to appeal an irs decision on tax-exempt status and page six of the enclosed publication the examination process publication also includes information on your rights as a taxpayer and the irs collection process please note that fast track mediation referred to in publication generally doesn’t apply after we issue this letter if you and appeals don’t agree on some or all of the issues after your appeals_conference or if you don’t request an appeals_conference you may file suit in united_states tax_court the united_states court of federal claims or united_states district_court after satisfying procedural and jurisdictional requirements you may also request that we refer this matter for technical_advice as explained in publication please contact the person identified in the heading of this letter if you’re considering requesting technical_advice if we send a determination_letter to you based on a technical_advice_memorandum issued by the exempt_organizations rulings and agreements office then no further irs administrative appeal will be available to you contacting the taxpayer_advocate office is a taxpayer right you have the right to contact the office_of_the_taxpayer_advocate service tas tas is your voice at the irs this service helps taxpayers whose problems with the irs are causing financial difficulties who have tried but haven't been able to resolve their problems with the irs and those who believe an irs system or procedure is not working as it should if you believe you are eligible for tas assistance you can call the toll-free number or tty tdd for more information go to www irs gov advocate if you prefer you may contact your local taxpayer_advocate at for additional information if you have any questions please call the contact at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you internal_revenue_service office_of_the_taxpayer_advocate letter 3610-r catalog number 59432g thank you for your cooperation enclosures report of examination form 6018-a publication publication sincerely margaret von lienen director eo examinations letter 3610-r catalog number 59432g schedule number or exhibit form 886-a rev date explanations of items name of taxpayer year period ended december 20xx 20xx 20xx tax identification_number org issue s whether org continues to qualify for exemption under sec_501 whether the organization's exemption under sec_501 an organization described in sec_501 should be revoked effective january 20xx facts org organization was granted exemption from federal_income_tax under sec_501 of the internal_revenue_code in letter dated july 19xx letter showed the former name of the organization as co-1 the organization was incorporated under the laws of the state of state by-laws dated july 20xx states the organization's mission is the recognition support and promotion of those state professional innkeepers exclusively committed to the highest standards of excellence in distinctive lodging accommodations the organization filed forms return of organization exempt from income_tax for year 20xx 20xx and 20xx the organization did not file forms 990-t exempt_organization business income_tax return form_990 described the organization's mission as to preserve the historical accommodations of state and educate the public and promote conserving utilization of the structures the organization's three largest program services listed on the form_990 are advertising and promoting support for the historic accommodations of state inspections and re-inspections of historical accommodations of state to assure they are being maintained and cared for properly ach and credit card processing facility the organization also conducted an annual convention listed on the form_990 as a fundraising event this convention was open to the membership associated membership and the public the service conducted an examination of the books_and_records and the organization’s form_990 for the year ending december 20xx the director indv-1 stated that the organization had member properties and provided a membership list she was asked in regards of the name of the organization since it was not the same as the one in the determination_letter the director said that as the organization evolved it became org e e e form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit - name of taxpayer tax identification_number form 886-a rev date org explanations of items year period ended december 20xx 20xx 20xx the forms show the following year ending december 20xx revenue current_year contributions and grants investment_income other revenue total revenue expenses total expenses other expenses revenues less expenses net assets or fund balances total liabilities total assets end of year year ending december 20xx revenue current_year contributions and grants investment_income other revenue total revenue expenses other expenses total expenses revenues less expenses end of year total assets total liabilities net assets or fund balances publish no irs gov department of the treasury-internal revenue service form 886-a catalog number 20810w page schedute number or exhibit form 886-a rev date name of taxpayer tax identification_number explanations of items year period ended december 20xx 20xx 20xx org year ending december 20xx revenue current_year contributions and grants investment_income other revenue total revenue expenses total expenses other expenses revenues less expenses net assets or fund balances total liabilities total assets end of year organization activities the review of their activities showed that the organizations main activities are advertisement of the membership properties on their website inspections and re-inspections of the properties and served as an ach and credit card processing facility the review of the transaction reports minutes and interview revealed that the organization's main activities were to advertise and promote their membership properties through their website and publications catalog number 20810w form 886-a page the organization provided to its membership properties advertisement and promotion through their website www statebb org location guide brochure and innkeepers resource manual the website contained a wedding page listing with direct links to the membership websites the organization also provided gift certificate sales through its website and its number as stated on its brochures the examination showed that the organization held an annual convention for the membership associated members and was open to the public the convention had a basic workshop a conference for members sponsors and vendor registration the examination of the books_and_records showed that the organization's main activities were to provide particular services to its membership on december 20xx a review of the form_990 statue date was done we mailed form_872 consent to extend the time to assess tax for the year 20xx to as per phone publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date explanations of items name of taxpayer year period ended december 20xx 20xx 20xx tax identification_number org discussion with the director about the form we mailed form_872 to the president of the organization indv-1 in city state on december 20xx we received a letter from organization's president on december 20xx declining to sign form_872 as of the day of this report we have not received an executed form_872 law sec_6001 of the code provides that every person liable for any_tax imposed by the code or for the collection thereof shail keep adequate record as the secretary_of_the_treasury or_his_delegate may from time to time prescribe sec_6033 of the code provides except as provided in sec_6033 every organization exempt from tax under sec_501 shall file an annual return stating specifically the items of gross_income receipts and disbursements and such other information for the purposes of carrying out the internal revenue laws as the secretary may by forms or regulations prescribe and keep such records render under oath such statements make such other returns and comply with such rules and regulations as the secretary may from time to time prescribe sec_501 provides for the exemption of business_leagues and similar organization whose sec_1_6033-1 of the regulations provides that every organization which has established its right to exemption from tax whether or not it is required to file an annual return of information shall submit such additional information as may be required by the district_director for the purpose of enabling him to inquire further into its exempt status and to administer the provision of subchapter_f sec_501 and the following chapter of the code and sec_6033 sec_501 provides for exemption of business_leagues chambers_of_commerce real_estate boards boards_of_trade and professional_football_leagues whether or not administering a pension fund for football players which are not organized for profit and no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual m catalog number 20810w form 886-a publish no irs gov page purpose is the promotion of the common business_interest of its members net_earnings do not inure to the benefit of any member purpose is not to engage in a regular business of a kind ordinarily carried on for profit principal activity is not the performance of particular services for individual persons sec_1_501_c_6_-1 of the income_tax regulations states that a business league is an association of persons having some common business_interest the purpose of which is to promote such common interest and not to engage in a regular business of a kind ordinarily carried department of the treasury-internal revenue service schedule number or exhibit rev b86 explanations of items name of taxpayer year period ended december 20xx 20xx 20xx tax identification_number org on for profit it is an organization of the same general class as a chamber of commerce or board_of trade thus its activities should be directed to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons an organization whose purpose is to engage in a regular business of a kind ordinarily carried on for profit even though the business is conducted on a cooperative basis or produces only sufficient income to be self-sustaining is not a business league revrul_55_444 states that an organization formed to promote the business of a particular industry that carries out its purposes primarily by conducting a general advertising campaign to encourage the use of products and services of the industry as a whole is exempt from tax notwithstanding that such advertising to a minor extent constitutes the performance of particular services for its members revrul_56_84 states that an organization operated primarily for the purpose of promoting selling and handling the national advertising in its members’ publications is engaged in the performance of particular services for individual members as distinguished from activities for the improvement of the business conditions of its members as a whole and therefore is not entitled to exemption from federal_income_tax as a business league revrul_68_267 states that an exempt retail food merchants’ association that regularly carries on as a minor portion of its activities a coupon redemption service for its members is engaged in unrelated_trade_or_business revrul_67_77 states that an organization composed of dealers of a certain make of automobile in a designated area whose primary purpose is the financing of advertising campaigns for the sale of that make of automobile is performing particular services for its members and is not entitled to exemption from federal_income_tax as a business league under sec_501 of the internal_revenue_code of the publishing of trade journals has been found to constitute the performance of particular services where the journals are mainly catalogues of the product of members advertising that carries the names of members generally constitutes the performance of particular services for members thus an association of the merchants in a particular shopping center whose advertising material contained the names of the individual merchants is denied exemption see revrul_64_315 c b as is an association created to attract tourists to a local area but whose principal activity is the publication of a yearbook consisting largely of paid advertisements by its members see revrul_65_14 c b in another case exemption was denied an association that published catalogues that listed only products manufactured by the members see 168_f2d_366 cir on the other hand an organization formed to promote the business of a particular industry and that conducts a general advertising campaign to encourage the use of products and services of catalog number 20810w form 886-a publish no irs gov department of the treasury-internal revenue service page schedule number or exhibit form 886-a rev date explanations of items name of taxpayer year period ended december 20xx 20xx 20xx tax identification_number org the industry as a whole is exempt notwithstanding that such advertising to a minor extent constitutes the performance of particular services for its members see revrul_55_444 c b activities that constitute the performance of particular services the performance of particular services by an a organization for its members or others is not an exempt activity under sec_501 while such activities do not preclude exemption in and of themselves an organizing whose primary activity is performing particular services is not exempt under sec_501 government’s position we are proposing revocation of the organization’s exemption under sec_501 beginning january 20xx because it is not operated for exempt purposes in accordance with the requirements set forth in sec_501 of the internal_revenue_code the service position is that the organization has failed the basic tests in order to be exempt under sec_501 the basic tests the organization must meet in order to be exempt under sec_501 are as follows a b c d e f g h it must be an association of person having some common business_interest and its purpose must be to promote this common business_interest is must not be organized for profit it must be a membership_organization and have a meaningful extent of membership support no part of its net_earnings may inure to the benefit of any private_shareholder_or_individual its activities must be directed to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons its purpose must not be to engage in a regular business of a kind ordinarily carried on for profit even if the business is operated on a cooperative basis or produces only sufficient income to be self-sustaining it must be primarily engaged in activities or functions constituting the basis for its exemption its primary activity cannot be performing particular services for members the organization does not qualify for exemption from federal_income_tax under sec_501 of the code because its principal activities constitute the performance of particular services for its members its principal activities were advertisement for its members through the organizations’ website inspections and re-inspections for the membership properties ach and credit card processing service and sale of gift certificates thru the website and organization’s number those activities are considered a personal benefit to your members of a commercial nature and would preclude your exemption form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a ilaramnre rn explanations of items name of taxpayer year period ended december 20xx 20xx 20xx tax identification_number org since the advertisement and promotion inspections and re-inspections ach and credit card processing are the organization’s principal activities the organization does not qualify for exemption from federal_income_tax under sec_501 of the internal_revenue_code taxpayer’s position the organization’s position is unknown at this time conclusion the organization does not qualify for exemption from federal_income_tax under sec_501 of the code because its principal activities constitute the performance of particular services for its members the organization’s tax exempt status should be revoked effective january 20xx because it is not operated for exempt purposes pursuant to the requirements set forth in sec_501 of the internal_revenue_code should this revocation be upheld you are required to file form_1120 for the years ending december 20xx 20xx 20xx and all future periods whether or not you have taxable_income catalog number 20810w form 886-a page publish no irs gov department of the treasury-internal revenue service


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi plr-101936-03 date may re legend trust settlors settlor son grandson grandson mother wife b c d date date date date state state statute state statute plr-101936-03 dear this is in response to your authorized representative’s date submission in which a ruling was requested under sec_2501 of the internal_revenue_code concerning the federal gift_tax consequences of a proposed exercise of a power of adjustment under state law according to the facts submitted on date settlors created trust for the benefit of settlors’ son son the pertinent provisions of trust provide as follows article first paragraph i of trust provides that the trustees are to hold the trust fund during the life of son and to collect and receive the rents issues income and profits thereof and after paying all taxes and other charges and expenses to accumulate the remaining net rents issues income and profits until son become sec_21 years of age and then to pay over to him all such accumulations of income and to apply to his use the entire net_income of the trust during his life and upon his death to pay over the principal of the trust fund to his surviving issue in equal shares per stirpes or if he has no issue then to divide the same into so many shares that there shall be one for each child of the settlors who is then living and one for the issue then surviving of each child of settlors who is not then living and each share so set apart for a child of the settlors who is living at the date of trust is to be added to and form a part of the trust created for such child by agreement dated date and each share so set_aside for a child of the settlors who is born after date or for the issue of a deceased child of the settlors is to paid over to the child or in equal shares per stirpes to the issue for whom it was set_aside provided that the identity of any share set_aside for a child of settlors and added to the trust created for such child by agreement dated date shall be maintained and that if such child dies leaving no issue surviving any part of such share which would pursuant to the terms of the date agreement be added to the trust created for any other child of the settlors shall instead be conveyed transferred and paid over to such child in case no child of settlors nor any issue of any deceased child of settlors survives son the trustees are to pay over the principal of the trust fund to the settlor if he is then living or if he is not then living to such persons and in such shares as he may appoint by an instrument executed as a deed and delivered to the trustees or by last will and testament article first paragraph provides that the trustees are authorized and empowered but only with the approval of the settlor so long as he shall live to pay to son from time to time after he has attained the age of the whole or such portion or portions of the principal of trust as the trustees in their absolute discretion may deem advisable and son’s receipt for any such payment will be a complete discharge to the trustees plr-101936-03 under article sixth trust is deemed a state trust and is to be in all respects governed by the laws of state in an agreement dated date settlor renounced and surrendered the following the right to approve or disapprove the whole or any portion or portions of any distributions of trust principal to son authorized by the trustees and the right to direct the retention of any investment at any time held by trust the sale_or_exchange of any investment the purchase of real_estate stocks bonds or other_securities the voting of any stock held by trust or the granting of proxies and consents in connection therewith son has two children grandson and grandson each of grandson and grandson has three children son had a third child who died on date leaving no descendants the current trustees of trust are grandson grandson b c and d state statute provides that where state’s uniform principal and income act applies to a_trust and the terms of the trust describe the amount that may or must be distributed to a beneficiary by referring to the trust’s income the prudent investor standard also authorizes the trustee to adjust between principal and income to the extent the trustee considers advisable to enable the trustee to make appropriate present and future distributions in accordance with risk and return objectives reasonably suited to the entire portfolio and where such an adjustment would be fair and reasonable to all of the beneficiaries so that current beneficiaries may be given such use of the trust property as is consistent with preservation of its value under state statute1 in deciding whether and to what extent to exercise the power to adjust the trustee may consider the intent of the settlor as expressed in the governing instrument whether and to what extent the terms of the trust give the trustee the power to invade principal or accumulate income or prohibit the trustee from invading principal or accumulating income and the extent to which the trustee has exercised a power from time to time to invade principal or accumulate income state statute also provides that a trustee may not make an adjustment if the trustee is a current beneficiary or a presumptive remainderman of the trust further a co-trustee who is not a current beneficiary or a presumptive remainderman may not make the adjustment if the adjustment would benefit that trustee directly or indirectly if there is more than one trustee a co-trustee who is not a current beneficiary or a presumptive remainderman may make the adjustment if the adjustment would not benefit him directly or indirectly and the exercise of the power by the remaining trustee or trustees is permitted by the terms of the trust plr-101936-03 it is represented that b c and d are not current beneficiaries or presumptive remaindermen of trust b has an indirect contingent_interest in trust if son dies before b without descendants one-half of trust would pass to a_trust created by settlors under an agreement dated date1 for his lifetime benefit c has an indirect contingent_interest in trust because of his wife’s wife interest in trust wife has an indirect interest in trust in two circumstances first if son dies before wife without descendants and if wife’s mother mother is still living then one- half of trust would pass to a_trust created by settlors under an agreement dated date for mother’s lifetime benefit wife is a presumptive remainderman of mother’s trust so wife would receive one-fifth of the one-half interest in the trust upon mother’s death second if son dies before wife without descendants and if mother is not living then wife would receive outright one-fifth of the one-half interest in trust it is proposed that b c and d will exercise the power of adjustment under state statute to transfer principal to the income account and then such income will be distributed to son under the terms of trust a ruling is requested that the exercise of the power of adjustment by b c and d will not result in any gift_tax consequences to grandson and grandson under sec_2501 sec_2501 imposes a tax for each calendar_year on the transfer of property by gift during such calendar_year by any individual resident or nonresident sec_2511 provides that subject_to certain limitations the gift_tax applies whether the transfer is in trust or otherwise direct or indirect and whether the property transferred is real or personal tangible or intangible sec_2512 provides that if the gift is made in property the value thereof at the date of the gift is considered the amount_of_the_gift sec_2512 provides that where property is transferred for less than an adequate_consideration in money or money’s worth then the amount by which the value of the property exceeded the value of the consideration is deemed a gift that is included in computing the amount of gifts made during the calendar_year presumptive remaindermen are persons presumptively entitled to the next eventual estate see in the matter of estate of west misc n y s 2d n y sur ct aff’d a d n y s 2d n y app div the word presumptive means assumed supposed black’s law dictionary 6th ed in this case son is the current beneficiary entitled to income from the trust upon son’s death the principal of trust will pass to son’s surviving issue in equal shares per stirpes or if son has no issue then the principal is to be divided into so many shares so that there is one share for each child of the settlors who is living and one for the issue surviving of each child of settlors who is not then living accordingly son’s children grandson and grandson are the persons presumptively entitled to the next eventual estate with respect to trust plr-101936-03 as described above neither b c nor d are current beneficiaries or presumptive remaindermen of trust and the adjustment would not benefit them directly or indirectly accordingly they may exercise the power of adjustment under state statute we conclude that the exercise of the power of adjustment pursuant to state statute1 by b c and d will not result in any gift_tax consequences to grandson and grandson under sec_2501 the ruling contained in this letter is based upon information and representations submitted by the taxpayers and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as specifically ruled herein we express or imply no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayers requesting it sec_6110 provides that it may not be used or cited as precedent sincerely lorraine e gardner senior counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter cc


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to plr-116630-99 cc psi date date number release date index number legend company state d1 d2 d3 d4 h w t1 t2 t3 grantor_trust owners dear plr-116630-99 this responds to your letter dated date and subsequent correspondence on behalf of company requesting rulings under sec_1362 and sec_1362 of the internal_revenue_code facts according to the information submitted company was incorporated on d1 under state law by h and w although h and w intended for company to be an s_corporation from inception an election to be an s_corporation under sec_1362 was not timely filed nevertheless h and w have always acted as though company was an s_corporation on d2 h and w began gifting certain shares of company's stock to six separate trusts each trust was for the benefit of one of h's six children company represents that three of the trusts were grantor trusts and thus were eligible s_corporation shareholders at the time the other three trusts t1 t2 and t3 collectively the trusts were ineligible shareholders of an s_corporation thus had company timely filed its s election it would have terminated on d2 at the time of the transfers the trusts were not eligible to be electing small_business trusts esbts during d3 company's new accountants discovered that company had ineligible shareholders and that the presumed s_corporation_election had never been filed company represents that as of d4 the trusts were eligible to be esbts under sec_1361 and the trustees of the trusts filed esbt elections effective d4 company and its shareholders agree to make any adjustments consistent with the treatment of company as an s_corporation as may be required by the secretary with respect to the period specified by sec_1362 law and analysis sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made if an s election is made after the first two and one-half months of a corporation's taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if a an election under sec_1362 a is made for plr-116630-99 any taxable_year after the date prescribed by sec_1362 for making the election or no election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make the election the secretary may treat the election as timely made for that taxable_year sec_1361 provided that the term small_business_corporation means a domestic_corporation which is not an ineligible_corporation and which 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 effective for tax years beginning after date sec_1361 provides that for the purposes of sec_1361 an esbt may be a shareholder of an s_corporation sec_1362 provides that an s election under sec_1362 shall terminate whenever at any time on or after the first day of the taxable_year for which the corporation is an s_corporation the corporation ceases to be a small_business_corporation the termination is effective on and after the date the s_corporation ceases to be a small_business_corporation sec_1362 sec_1362 provides in relevant part that if an election under sec_1362 by any corporation was terminated under sec_1362 or the secretary determines that the circumstances resulting in such termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in 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 such ineffectiveness or termination the corporation shall be treated as an s_corporation during the period specified by the secretary conclusions after applying the relevant law to the facts submitted and representations made we conclude that company has established reasonable_cause for not making a timely election and is eligible for relief under sec_1362 additionally we hold that the transfer of company's shares to the trusts on d2 was an inadvertent termination within the meaning of sec_1362 therefore company must file a completed form_2553 election by a small_business_corporation with the appropriate service_center within days of the date of this letter the election should specify an effective date of d1 and a copy of this letter should be attached to the election company shall be treated as an s_corporation from d1 and thereafter provided company was otherwise eligible to be an s_corporation on d1 and its election has not otherwise terminated under sec_1362 the trusts will be plr-116630-99 treated as if they were esbts for the tax years beginning after date and ending before d4 and must amend their tax returns accordingly except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the above transactions under any other provision of the code specifically we express no opinion regarding whether company is otherwise eligible to be an s_corporation or whether the trusts are valid esbts the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination pursuant to a power_of_attorney on file with this office a copy of this letter will be sent to the taxpayer this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent sincerely yours robert honigman acting assistant to the chief branch office of the associate chief_counsel passthroughs and special industries