internal_revenue_service number release date index number --------------------------------------------------- ------------------------- ----------------------- ---------------------------------- legend 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 plr-102489-15 date date x ------------------------------------------------------------------------------------------------------ -------------------------- state -------------- year ------- dear ------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations for x to make an election under sec_754 of the internal_revenue_code facts according to the information submitted x was formed as a limited_liability_company under the laws of state and is classified as a partnership for federal tax purposes in year interests in x were purchased and sold x represents that it intended to make a sec_754 election for year but its tax advisor inadvertently failed to make the election with its information_return for year x further represents that it 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 this election law analysis sec_754 provides that if a partnership files an election in accordance with the regulations prescribed by the secretary the basis of the partnership property is adjusted in the case of a transfer of a partnership_interest in the manner provided in sec_743 such an election shall apply with respect to all distributions of property by the plr-102489-15 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 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 shall 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 thereof for filing the return for the taxable_year sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election 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_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government conclusion based solely on the information 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 days from the date of this letter to make an election under sec_754 effective for year and thereafter the election should be made in a written_statement filed with the appropriate service_center for association with x’s year return a copy of this letter should be attached to the election plr-102489-15 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the internal_revenue_code and the regulations thereunder this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office copy of this letter is being sent to x’s authorized representative sincerely associate chief_counsel passthroughs special industries by joy c spies joy c spies senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for purposes


internal_revenue_service number release date index number -------------------------------------------------- ------------------------------------------------------- ------------------------------- -------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-128246-08 date date legend -------------------------------------------------------- x y ------------------------------------------------------------ ------------------------------------------------------------ ----------------- state date date entity entity ------------- ------- -------------------------- ---------------- ----------------------------------- dear ------------------- this letter is in response to your request dated date on behalf of x seeking relief under sec_301 of the procedure and administration regulations to file a late election to treat x as an association_taxable_as_a_corporation facts plr-128246-08 based on the materials submitted and representations contained within we understand the relevant facts to be as follows x is a domestic wholly-owned subsidiary of y x was organized as entity in accordance with the laws of state on date on date x changed its form of organization from entity to entity x inadvertently failed to make a timely election to be treated as an association_taxable_as_a_corporation effective date x represents that it was its intention to elect to be treated as an association_taxable_as_a_corporation from date x 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_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes a business_entity is an entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the code sec_301_7701-2 an eligible_entity with a single owner can elect either to be classified either as an association and thus a corporation under sec_301 b or as an entity separate from its owner sec_301_7701-3 provides that unless a domestic eligible_entity elects otherwise the entity is disregarded as an entity separate from its owner if it has a single owner to elect to be classified other than as provided in sec_301_7701-3 an eligible_entity must file form_8832 entity classification election with the designated service_center sec_301_7701-3 an election can be effective on the date specified on the form_8832 or on the date filed if no such date is specified the effective date specified on the form_8832 cannot be more than days prior to the date the election is filed sec_301_7701-3 sec_301_9100-1 through provide the standards 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 extensions of time for making 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 sec_301_9100-3 conclusion plr-128246-08 based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly x is granted an extension of time of sixty days from the date of this letter to elect to be treated as an association_taxable_as_a_corporation for federal tax purposes effective date the election should be made by filing form_8832 with the appropriate service_center a copy of this letter should be attached to the election 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 pursuant to the power_of_attorney on file with this office a copy of this letter will be sent to your representative sincerely curt g wilson curt g wilson associate chief_counsel passthrough special industries enclosures copy of this letter copy of this letter for sec_6110 purposes cc


internal_revenue_service number release date index number ---------------------------------------- ------------------- ----------------------------------- ------------------------------- department of the treasury washington dc person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b04 - plr-152220-08 date may re ------------------------------------------------------------- legend grantor ------------------------------------------------ daughter ------------------------ date ------------------------- date --------------------------- trust ----------------------------------------------------------------------- state ------------- state court ---------------------------------------------------------- state law ----------------------------------------------------------- dear ------------ this responds to a letter dated date from your authorized representative requesting gift estate and generation-skipping_transfer_tax rulings with respect to a proposed modification of trust on date grantor established four separate trusts one for the primary benefit of each of grantor’s children this ruling_request applies to trust established for the benefit of daughter and her issue daughter is over age under the terms of trust daughter may request that any and all trust income be distributed to her each year each year daughter may also request distributions of corpus not to exceed the greater of dollar_figure or five percent of the value trust at the time of the request upon the death of daughter the entire trust is to be distributed in equal shares to her then living children provided that if a child is under age the child’s share will remain in trust for that child if daughter dies without living issue the trust estate is to be plr-152220-08 divided equally among the then living children of grantor and to the children per stirpes of any deceased child of the grantor pursuant to state law grantor daughter and daughter’s children have petitioned state court to modify trust the modification provides that no child of the beneficiary shall receive or continue to receive any distribution of principal or income from the trust if prior to entering into marriage or any legally recognized union he or she does not execute a valid premarital agreement under the relevant state’s law declaring that the trust property is and shall remain his or her separate_property if a child of the beneficiary enters into any marriage without having executed such a premarital agreement protecting the trust property which premarital agreement shall remain effective during the marriage he or she shall as of the date of the marriage be deemed to have predeceased the beneficiary and this trust shall be read accordingly the purpose of this provision is to preserve and protect the trust property for the benefit of the beneficiary’s children the modification further clarified that the terms child and children include only the immediate offspring of the person so designated and does not include any further descendants or issue on date state court approved the modification pending internal_revenue_service approval trust became irrevocable prior to date and it is represented that no additions have been made to trust after said date you have requested rulings that the modification of trust will not affect the exempt status of trust under sec_2601 of the internal_revenue_code result in any gift_for federal gift_tax purposes by grantor daughter or other trust beneficiaries and result in any estate_tax liability to the grantor ruling_request sec_2601 imposes a tax on every generation-skipping_transfer gst which is defined under sec_2611 as a taxable_distribution a taxable_termination or a direct_skip under section of the tax_reform_act_of_1986 the act gst tax is generally applicable to generation-skipping transfers made after date however under b a of the act and sec_26_2601-1 of the generation-skipping_transfer_tax regulations the tax does not apply to a transfer under a_trust that was irrevocable on date except to the extent the transfer is made out of corpus added to the trust by an actual or constructive_addition after date sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the generation-skipping_transfer_tax under sec_26_2601-1 will not cause the plr-152220-08 trust to lose its exempt status these rules are applicable only for purposes of determining whether an exempt trust retains exempt status for generation-skipping_transfer_tax purposes the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of sec_1001 sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy paragraph b i a b or c of this section by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 then the person or person who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust state law provides that a non-charitable irrevocable_trust may be modified if upon petition the court finds that the settler and all beneficiaries consent to the proposed modification in the instant case the modification of trust pursuant to state court order provides that if any child of a beneficiary fails to execute a premarital agreement declaring that the trust property is and shall remain his or her separate_property then such child will be treated as predeceasing said beneficiary in that case the interest of a child will be distributed to grantor’s children according to the terms of trust in no event will property pass to a lower generation by reason of the modification further the modification does not extend the time for vesting of any beneficial_interest under these circumstances based on the facts submitted and the representations made we conclude that the modification as approved by state court order will not cause trust to lose its exempt status for generation-skipping_transfer_tax purposes ruling_request sec_2 and sec_2501 imposes a tax on the transfer of property by gift by any individual sec_2511 provides that the gift_tax applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-1 of the gift_tax regulations provides that the gift_tax also applies to gifts indirectly made thus any transaction in which an interest in property is gratuitously passed or conferred upon another regardless of the means or device employed constitutes a gift subject_to tax sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2033 provides that the value of the gross_estate includes the value of all property to the extent of the interest there of the decedent at the time of his death sec_2035 provides that if the decedent transferred an interest in property or relinquished a power with respect to any property during the 3-year period ending on the plr-152220-08 date of the decedent's death and the value of the property or interest therein would have been included in the gross_estate under sec_2036 sec_2037 sec_2038 or sec_2042 if the interest or power had been retained by the decedent on the date of death then the value of the gross_estate includes the value of any property or interest therein that would have been so included under sec_2035 the gross_estate shall be increased by the amount of any gift_tax paid_by the decedent or his estate on any gift made by the decedent or his spouse during the three year period ending on the date of decedent's death sec_2036 provides that the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in the case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise under which he has retained for his life or for any period not ascertainable without reference to his death or for any period that does not in fact end before his death possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income from the property sec_2037 provides that the value of the gross_estate includes the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise if possession or enjoyment of the property can through ownership of such interest be obtained only by surviving the decedent and the decedent has retained a reversionary_interest in the property and the value of such reversionary_interest immediately before the death of the decedent exceed sec_5 percent of the value of such property sec_2038 provides that the value of the gross_estate includes the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona fine sale for adequate_and_full_consideration in money_or_money's_worth by trust or otherwise where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power either by the decedent alone or in conjunction with any person to alter amend or revoke or where the decedent relinquished any such power during the 3-year period ending on the date of the decedent's death in this case the grantor and beneficiaries have not made taxable_gifts by consenting to the modification the beneficial interests in the trust subsequent to the modifications are identical to those prior to the modification therefore based on the facts submitted and representations made we conclude that the modification will not result in any gift_for federal gift_tax purposes by grantor daugher or other trust beneficiaries in order for sec_2035 through to apply the decedent must have made a transfer of property or any interest therein except in the case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth under which the decedent retained an interest in or power over the income or corpus of the transferred property in the present case grantor has not retained any interest in the income or corpus of the trust assets thus based on the facts submitted and representations made we conclude that the plr-152220-08 modification will not result in any estate_tax liability to the grantor under sec_2035 through except as specifically ruled herein we express 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 taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely lorraine gardner senior counsel branch passthroughs and special industries enclosure copy for sec_6110 purposes copy of this letter


number release date internal_revenue_service index number ------------------------------------------------------------ ------- ------------------------- ------------ ----------------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------------------- telephone number -------------------- refer reply to cc pa apjp b01 plr-110471-06 date date sec_3406 -- backup withholding backup withholding sec_6041 -- information_at_source fixed or determinable gains profits or income payments specifically included sec_6045 -- returns of broker sec_6045 returns of brokers sec_6049 -- returns regarding payments of interest reportable interest taxpayer fund x y z a b c years year dollar_figurea dollar_figureb plr-110471-06 dear this letter responds to the letter dated date submitted on behalf of the fund requesting the following rulings settlement payments from the fund to mutual_fund investors are not subject_to information reporting under sec_6041 of the internal_revenue_code except in the case of payments made directly to participants in tax-qualified retirement plans settlement payments from the fund to mutual_fund investors are not subject_to information reporting under sec_6045 settlement payments from the fund to mutual_fund investors are not subject_to information reporting under sec_6049 for purposes of meeting any obligations it may have under sec_3406 as a payor of reportable payments the fund need not solicit taxpayer identification numbers tins from the individuals to whom it will make distributions the fund may obtain the tins from the mutual funds or tax-qualified plans in which such individuals held accounts or from transfer agents performing services for the funds or plans facts based upon the facts and the representations made the fund is a qualified_settlement_fund qsf as described in sec_468b and the regulations thereunder the fund was created in year to resolve an administrative_proceeding brought by the securities_and_exchange_commission commission against x y and z and individuals a b and c relating to investment advice and distribution services provided to certain mutual funds the proceeding related to the inadequate or nonexistent disclosure of x’s policy allowing market timing trading of mutual_fund units units and to the oversight monitoring or management of trades of such units trades during year sec_1 through in an order instituting proceedings oip directed at x y z a b and c the commission alleged that x and a made various material omissions and misrepresentations regarding market timing of funds and that x y z a b and c committed certain other wrongful acts relating to trades in the units improper market timing impairs the value of mutual_fund shares by depressing their net asset value improper market timing also generates excess trading volume and thus increases the advisory and other fees mutual funds must pay to investment advisors such as x and distributors such as z thus the conduct of x y z a b and c resulted in damage to the investors and a loss of capital the commission based on the improper conduct described above and the resulting damage to mutual_fund investors sought profit disgorgement and civil penalties after investigation and negotiations x y z a b and c agreed to pay dollar_figurea to settle the commission’s claims pursuant to section a of plr-110471-06 the sarbanes-oxley_act of u s c the oip authorized a fair fund for virtually the full dollar amount of the disgorgement and penalty components of the settlement thus permitting both components with one exception noted immediately below to be paid to injured investors the penalty b agreed to pay which totals dollar_figureb will apparently be paid to and retained by the federal government those investors holding units of the mutual funds during any portion of the time period specified in the oip will be eligible to receive distributions from the fund the distributions will be based on the commission’s orders the amount available for distribution is the net settlement pool which includes the sum of dollar_figurea - dollar_figureb the amount transferred by x y z a and c into the fund and the amount of net_income earned by the fund investors will be allocated portions of the net settlement pool the commission’s orders provide that investors will first receive their proportionate share of losses suffered by the mutual funds due to market timing and then a proportionate share of advisory fees paid_by the mutual funds that suffered such losses during the period of market timing law and analysis ruling sec_1_468b-2 of the treasury regulations provides that in general distributions by a qsf are subject_to certain information reporting and withholding requirements sec_1_468b-2 provides that a qsf must make a return for or must withhold tax on a distribution to a claimant if one or more transferors would have been required to make a return or withhold tax had that transferor made the distribution directly to the claimant the regulations further provide that for purposes of sec_6041 and sec_6041a if a qsf makes a distribution on behalf of a transferor or a claimant the fund is deemed to make the distribution to the recipient of that payment or distribution in the course of a trade_or_business in such a situation the qsf is also deemed to have made the distribution to the transferor or claimant see sec_1_468b-2 c - d sec_6041 requires all persons engaged in a trade_or_business and making payment in the course of such trade_or_business to another person of rent salaries wages premiums annuities compensations remunerations emoluments or other fixed or determinable gains profits and income of dollar_figure or more in any taxable_year to file an information_return with the service and to furnish an information statement to the payee sec_1_6041-1 provides that payments are fixed when they are paid in amounts definitely predetermined income is determinable whenever there is a basis of calculation by which the amount to be paid may be ascertained sec_1 a requires a payor to report sec_6041 amounts on form_1099 thus payments that are not fixed or determinable are not subject_to information reporting under sec_6041 plr-110471-06 amounts a taxpayer receives to restore a loss of capital are not income except to the extent that the payment exceeds the taxpayer’s basis in the injured property that is the subject of the payment 144_f2d_110 1st cir fund payments to investors for losses the mutual funds suffered from market timing appear to constitute compensation_for a loss of capital market timing conducted by employees of x and permitted or facilitated by x y z a b and c depressed the net asset value of mutual_fund shares compensation from the fund will compensate at least partially for this damage because the fund has no access to the investors’ tax basis in their mutual_fund accounts and has no need or occasion to collect information on tax basis the fund is unable to calculate how much of this compensation_for mutual_fund losses constitutes fixed or determinable income accordingly the fund has no information reporting obligations under sec_6041 for such compensation as noted above a portion of the fund payments will compensate investors for improper advisory fees paid_by the mutual funds to x although such payments may constitute gross_income to investors the fund cannot due to limitations on its data collecting authority determine whether the payments will constitute gross_income to investors the payments therefore are not fixed or determinable income within the meaning of the regulations under sec_6041 accordingly subject_to the exception noted below regarding distributions to qualified_retirement_plan participants the fund has no information reporting obligations under sec_6041 the fund states that it may make a certain number of distributions directly to participants in tax-qualified retirement plans sec_72 of the code controls the taxation of such distributions and the distributions must be reported on form 1099-r pursuant to sec_6041 subject_to the dollar_figure reporting threshold set forth in sec_6041 and sec_1_6041-1 ruling sec_1_468b-2 provides that a qsf must make a return for a distribution to a claimant if one or more transferors would have been required to make a return had that transferor made the distribution directly to the claimant sec_6045 provides generally that every person doing business as a broker shall when required by the secretary make a return in accordance with such regulations as the secretary may prescribe sec_6045 defines the term broker to include a dealer a barter_exchange and any other person who for a consideration regularly acts as a middleman with respect to property or services the regulations further define the term broker to mean a person that in the ordinary course of a trade_or_business during the calendar_year stands ready to effect sales to be made by others see sec_1_6045-1 sec_1_6045-1 provides generally that a broker shall make an information_return for each sale effected by the broker in the ordinary course of the broker’s trade_or_business sec_1_6045-1 defines a sale as any disposition of securities plr-110471-06 commodities regulated_futures_contracts or forward contracts for cash and as including redemptions of stock retirements of indebtedness and entering into short_sales the fund’s payments to investors do not result from a sale as that term is defined above the fund therefore has no information reporting obligations under sec_6045 with respect to these payments ruling sec_6049 provides that every person who makes payments of interest aggregating dollar_figure or more to any other person during any calendar_year or receives payments of interest as a nominee and who makes payments aggregating dollar_figure or more during any calendar_year to any other person with respect to the interest so received shall make a return according to the forms or regulations prescribed by the secretary sec_6049 b provides that the term_interest includes interest on any obligation issued in_registered_form or of a type offered to the public other than any obligation with a maturity at issue of a year or less which is held by a corporation pursuant to sec_6049 interest also includes interest on deposits with brokers as defined in sec_6045 the fund distributions in the present case do not relate to deposits with brokers or obligations issued in_registered_form and do not otherwise qualify as interest within the meaning of sec_6049 this is so even though interest earnings may have accrued on the funds to be paid to investors from the time x y z a and c paid such funds to the fund the fund distributions to investors relate to violations of securities law and compensation_for financial harm not to obligations issued in_registered_form or other instruments that generate interest as sec_6049 defines that term accordingly the fund has no information reporting obligations under sec_6049 regarding its distributions to the investors ruling sec_3406 generally provides that in the case of any reportable_payment if a the payee fails to furnish his or her tin to the payor in the manner required b the secretary notifies the payor that the tin furnished by the payee is incorrect c there has been a notified_payee_underreporting of interest and dividends or d there has been a certification failure collectively referred to as payee failures then the payor shall deduct and withhold from such reportable_payment a backup withholding amount totaling of such payment sec_3406 provides that the term reportable_payment means any reportable_interest_or_dividend_payment and any other_reportable_payment sec_3406 provides that the term other_reportable_payment includes any payment of a kind and to a payee required to be shown on a return under sec_6041 or sec_6045 plr-110471-06 in light of rulings one through three above only direct payments by the fund to participants in tax-qualified plans will be reportable payments subject_to backup withholding under sec_3406 in order to meet its obligations under sec_3406 and to include tins on information returns it must provide for these reportable payments the fund plans to obtain those tins from one of the following sources the plan_administrator the mutual funds in which the participants invested or the transfer agents that provide services to the administrator or mutual funds obtaining the tins in this manner should prove more reliable and less burdensome and costly to the fund than soliciting the tins from the plan participants in light of the authority it has been granted by the commission the fund will be able to obtain the tins of plan participants from the plan administrators mutual funds or transfer agents the fund will not be required to solicit tins from the participants for purposes of applying the backup withholding rules of sec_3406 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 furthermore this letter expresses no opinion about information reporting requirements for fund distributions that are not made directly to the injured investors this letter also expresses no opinion about the income_tax consequences to investors of fund distributions this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination carol p nachman acting senior technician reviewer office of associate chief_counsel procedure and administration administrative provisions and judicial practice sincerely


internal_revenue_service index numbers number release date cc dom it a plr-105844-99 date legend taxpayers partnership a dollar_figurey dollar_figurex dollar_figurez date a year p dear this is in reply to your private_letter_ruling request dated date in which you request an extension of time to make an election under sec_108 of the internal_revenue_code specifically you have requested an extension of time to make an election under sec_108 and sec_1 c -1 of the income_tax regulations to reduce the basis of depreciable_property and to exclude income resulting from the discharge of qualified_real_property_business_indebtedness facts taxpayer is a general_partner in partnership partnership is engaged in the business of owning and operating real_property and owns over commercial properties one of partnership’s properties was encumbered by dollar_figurey of debt the lender reduced the dollar_figurey debt to dollar_figurex resulting in cancellation_of_indebtedness_income of dollar_figurez in on date a the plr-105844-99 - - partnership return reported dollar_figurez of cancellation_of_indebtedness_income in year p a is employed by partnership to prepare partnership’s k-1s when a prepared partnership’s k-1s for year p each partner’s share of the dollar_figurez of cancellation_of_indebtedness_income was reported on each partner’s k-1 as income from rental activities and was not separately_stated as an item of cancellation_of_indebtedness_income therefore taxpayer was not informed regarding the nature of the income and failed to make an election to exclude the income on taxpayer’s federal_income_tax return for year p rather taxpayer’s share of dollar_figurez was included as income from rental activities taxpayer and a’s controller have submitted affidavits consistent with the above stated facts applicable law sec_108 of the code provides that gross_income does not include any amount includible in gross_income by reason of the discharge_of_indebtedness if in the case of a taxpayer other than a c_corporation the indebtedness discharged is qualified_real_property_business_indebtedness sec_108 provides that the taxpayer must make an election in order to take advantage of the exclusion provided by sec_108 sec_108 of the code provides that in the case of a partnership sec_108 and sec_108 shall be applied at the partner level sec_1 c -1 b of the income_tax regulations provides that the election available under sec_108 must be made on the timely-filed including extensions federal_income_tax return for the taxable_year in which the taxpayer has discharge_of_indebtedness income that is excludible from gross_income under sec_108 the election is to be made on a completed form_982 sec_301_9100-3 of the regulations provides that requests for extensions of time for regulatory elections other than automatic changes covered in sec_301_9100-2 will be granted when the taxpayer provides evidence including affidavits to establish that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-3 states that a taxpayer will be deemed to have acted reasonably and in good_faith if the taxpayer-- i requests relief before the failure to make the regulatory election is discovered by the service ii inadvertently failed to make the election because of intervening events beyond the taxpayer's control iii failed to make the election because after exercising due diligence the plr-105844-99 - - taxpayer was unaware of the necessity for the election iv reasonably relied on the written advice of the service or v reasonably relied on a qualified_tax professional and the tax professional failed to make or advise the taxpayer to make the election under sec_301_9100-3 a taxpayer will not be considered to have acted reasonably and in good_faith if the taxpayer-- i seeks to alter a return position for which an accuracy-related_penalty could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires a regulatory election for which relief is requested ii was fully informed of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief if specific facts have changed since the original deadline that make the election advantageous to a taxpayer the service will not ordinarily grant relief sec_301_9100-3 states that the commissioner will grant a reasonable extension of time only when the interests of the government will not be prejudiced by the granting of relief under paragraph i the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money analysis taxpayer reasonably relied on a qualified_tax professional and the professional failed to advise taxpayer to make the election a failed to separately state the cancellation_of_indebtedness_income on taxpayer’s k-1 and incorrectly included the cancellation_of_indebtedness_income as income from rental activities therefore taxpayer was not informed about the existence of the cancellation_of_indebtedness_income and was unable to make the election under sec_108 therefore taxpayers are deemed to have acted reasonably and in good_faith under sec_301_9100-3 in addition based on the facts as represented we have determined that sec_301_9100-3 does not apply furthermore based on the facts as represented we have determined that the interests of the government will not be prejudiced by the granting of relief conclusion based solely on the facts as represented and the applicable law we conclude that the request for relief under sec_301_9100-3 of the regulations should be granted accordingly taxpayers are granted an extension of time of days from the date of plr-105844-99 - - this letter to file an amended_return making the election under sec_108 of the code the election is to be made on form_982 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 or facts assumed in support of the request for rulings it is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this letter does not rule on whether the income at issue is properly treated as cancellation_of_indebtedness_income this letter also does not rule on whether the income can be excluded from gross_income under sec_108 of the code a copy of this letter must be attached to any income_tax return to which it is relevant this ruling is directly only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely assistant chief_counsel income_tax accounting by christopher f kane assistant to the chief branch enclosure copy for sec_6110 purposes


‘ internal_revenue_service department of the treasury index number washington oc person to contact telephone number refer reply to cc dom p si plr-119807-98 date mar b99 legend x i o l e l z j z l o j i t o u t i u o u o w u this letter refers to your ruling_request dated date amended on april and date concerning the effects of a proposed transaction under sec_1245 and sec_1250 of the internal_revenue_code x a corporation organized under the laws of the state of o is recognized as exempt under sec_501 of the code x's sole property is rental income- producing real_estate known as j located in the city of m state of n the property x collects the rental income paid_by tenants of the property and pays it over net of expenses to a on behalf of b b is a governmental_plan for a state's retired employees described in sec_401 and exempt under sec_501 ais a state instrumentality and is comprised of the governor treasurer and comptroller of the state ie plr-119807-98 ahas determined that the form of ownership of the property by x produces an unnecessary tax burden under the state laws of n and that the state tax reduces the benefits available to b’s beneficiaries the state of n imposes an initial franchise tax of dollar_figure and an annual franchise tax of of the paid-in capital of x ahas determined that the state of n will not impose the franchise tax if the property is held by a limited_liability_company acreated y as a limited_liability_company y filed its certificate of formation with the state of o’s division of corporations y’s certificate of formation and the accompanying operating_agreement provide that y was organized for the exclusive purposes of acquiring and holding title to real_property collecting income from the property and remitting net_income therefrom to one or more members of described in sec_501 of the code y's sole member is a on behalf of b y has been determined to be exempt under sec_501 a proposes that x be merged with and into y with y as the surviving entity y will become the owner of the property and will assume all responsibility for managing the property and paying over the rental income net of expenses to a for the benefit of b in a fetter dated date the internal_revenue_service determined that bis a qualified_retirement_plan described in sec_401 of the code and that b is exempt from federal_income_tax under sec_501 ina letter dated date the service determined that x is exempt from income_tax under sec_501 ina letter dated date the service ruled that the statutory merger of x into y will not adversely affect the status of as a title_holding_company described in sec_501 c or result in the imposition on x or y of any unrelated_business_income_tax under sec_511 through x represents that it has always been exempt from federal_income_tax under sec_501 of the code x requests the service to rule that the merger of x into y would not result in the recognition of ordinary_income by x under sec_1245 or sec_1250 a of the code if x can establish by adequate_records that the amount of depreciation or amortization allowed in computing unrelated_business_taxable_income has always been zero under sec_1245 and sec_1250 of the code certain gains on dispositions of depreciable or amortizable property are treated as ordinary_income and recognized notwithstanding any other provision of subtitle a income taxes including sec_501 plr-119807-98 if sec_1245 property is disposed of sec_1245 of the code generally provides that the amount by which the lower_of a the recomputed_basis of the property or b the amount_realized in the case of a sale exchange or involuntary_conversion or the fair_market_value of the property in the case of any other_disposition exceeds the adjusted_basis of the property is treated as ordinary_income this gain is recognized notwithstanding any other provision of subtitle a the term recomputed_basis is defined in sec_1245 of the code as meaning with respect to any property its adjusted_basis recomputed by adding thereto all adjustments reflected in the adjusted_basis on account of deductions whether in respect of the same or other_property allowed_or_allowable to the taxpayer or to any other person for depreciation or amortization sec_1245 of the code provides that for purposes of sec_1245 if the taxpayer can establish by adequate_records or other_sufficient_evidence that the amount allowed for depreciation or amortization for any period was less than the amount allowable the amount added for such period shall be the amount allowed sec_1_1245-2 of the income_tax regulations provides that in respect of property disposed of by an organization that is or was exempt from income taxes within the meaning of sec_501 of the code adjustments reflected in the adjusted_basis within the meaning of sec_1_1245-2 include only depreciation or amortization allowed_or_allowable i in computing unrelated_business_taxable_income as defined in sec_512 or ii in computing taxable_income of the organization or a predecessor organization for a period during which it was not exempt or by reason of the application of sec_502 sec_503 or sec_504 was denied its exemption if sec_1250 property is disposed of sec_1250 of the code generally provides that the applicable_percentage as defined in sec_1250 of the tower of i that portion of the additional_depreciation attributable to periods after date in respect of the property or ii the excess of the amount_realized in the case of a sale exchange or involuntary_conversion or the fair_market_value of the property in the case of any other_disposition over the adjusted_basis of the property is treated as gain that is ordinary_income this gain is recognized notwithstanding any other provision of subtitle a the term additional_depreciation is defined in sec_1250 of the code as meaning in the case of any property the depreciation_adjustments in respect of the property except that in the case of property held more than one year as meaning the depreciation_adjustments only to the extent that they exceed the amount of the o24e plr-119807-98 depreciation_adjustments that would have resulted if the depreciation_adjustments had been determined for each taxable_year under the straight_line method of adjustment the term depreciation_adjustments is defined in sec_1250 of the code as meaning in respect of any property all adjustments attributable to periods after date reflected in the adjusted_basis of such property on account of deductions whether in respect of the same or other_property allowed_or_allowable to the taxpayer or to any other person for exhaustion wear_and_tear obsolescence or amortization other than amortization under sec_168 as in effect before its repeal by the tax reform act of as in effect before its repeal by the tax_reform_act_of_1986 as in effect before its repeal by the revenue reconciliation act of or for purposes of the preceding sentence if the taxpayer can establish by adequate_records or other_sufficient_evidence that the amount allowed as a deduction for any period was less than the amount allowable the amount taken into account for such period shall be the amount allowed sec_1_1250-2 of the regulations provides that in respect of property disposed of by an organization that is or was exempt from income taxes within the meaning of sec_501 of the code the depreciation adjustment reflected in the adjusted_basis referred to in sec_1_1250-2 includes only adjustments allowed_or_allowable i in computing unrelated_business_taxable_income as defined in sec_512 or ii in computing taxable_income of the organization for a period during which it was not exempt or by reason of sec_502 sec_503 or sec_504 was denied its exemption based solely on the representations and the relevant law and regulations set forth above we conclude that the merger of x into y will not result in the recognition of ordinary_income by x under sec_1245 or sec_1250 of the code if x can establish by adequate_records that the amount of depreciation or amortization allowed in computing unrelated_business_taxable_income as defined in sec_5 a has always been zero except as specifically ruled upon above we express no opinion concerning the federal_income_tax consequences of the transaction described above 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 plr-119807-98 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely kathleen reed senior technician reviewer branch office of assistant chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


internal_revenue_service number release date index number ------------------------------- ------------------------ ------------------------- ------------------------------ --------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ----------------- telephone number --------------------- refer reply to cc fip b04 plr-140901-10 date date trust trust --------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- h w ------------------------ ------------------------ beneficiary a -------------------- beneficiary b ------------------- beneficiary c ------------------ beneficiary d ---------------------- beneficiary e ---------------- beneficiary f --------------- dear ----------------- this is in reply to your request for rulings under sec_72 and sec_72 of the internal_revenue_code facts taxpayer represents that prior to death h established trust as a grantor_trust the named beneficiaries were w and a b c d e and f beneficiaries the descendants of h and w plr-140901-10 during h’s life h and w were co-trustees h died upon h’s death w became sole trustee and trust was divided into three sub-trusts trust a_trust b and trust c trust a was allocated an amount based on the allowed exemption and marital_deduction for federal estate_tax purposes trust c was allocated an amount based on the exemption from the federal estate_tax provided the amount was not used for the payment of taxes debts or administration_expenses of h’s estate once all taxes debts and expenses have been paid the assets of trust c are to be distributed to trust b_trust b contains all the property not in trusts a or c during the life of w trustee in this case w may in its discretion pay or use the property of trust b for the benefit of w and others partly or wholly dependent upon w to maintain the standard of living which w enjoyed prior to h’s death and for the support an education of descendants and others dependent upon w at w’s death the property of trust b is to be divided and distributed among beneficiaries a b c d e and f in the proportions stated in trust trustee intends to purchase flexible premium deferred_annuity contracts annuity_contracts naming each of beneficiaries a b c d e and f as the annuitant on one annuity_contract in proportion to each beneficiary’s residuary share of trust the material provisions of each annuity_contracts will be substantially the same except for the dates of annuitization trust will be the owner and beneficiary of the annuity_contracts during the life of w in the event of the death of an annuitant the proceeds from that annuity will be paid to trust trust projects that its other assets will be sufficient to fund its expenses including taxes and make nominal distributions to w there should not be any need for the trust to take a distribution s from the annuity_contracts upon final distribution of trust each beneficiary will be distributed the annuity_contract for which that beneficiary is the annuitant it is anticipated that this distribution will occur prior to that annuity contract’s annuity_starting_date trust will not receive any consideration from any beneficiary in exchange for the distribution of the annuity_contracts requested rulings taxpayer requests rulings that the annuity_contracts are considered owned by natural persons for purposes of sec_72 and the distribution of the annuity_contracts by the trust to the beneficiaries will not be treated as an assignment of an annuity_contract without full and adequate_consideration under sec_72 law and analysis plr-140901-10 request sec_72 provides in part that if any annuity_contract is held by a person who is not a natural_person such contract shall not be treated as an annuity_contract for purposes of the federal_income_tax other than subchapter_l however for purposes of this rule holding by a_trust or other entity as an agent for a natural_person shall not be taken into account this rule is explained by h_r rep no pincite and s rep no pincite the committee believes that the present-law rules relating to deferred_annuity contracts present an opportunity for employers to fund on a tax-favored basis significant amounts of deferred_compensation for employees this favorable tax treatment may create a disincentive for employers to provide benefits to employees under qualified_pension plans which are subject_to significantly greater restrictions in addition because deferred_annuity contracts can be provided to a limited class of employees rather than to employees generally as is required in the case of a qualified_pension plan the committee is concerned that the present-law treatment of deferred_annuity contracts dilutes the effect of the nondiscrimination_rules applicable to qualified_pension plans under the bill in the case of a contract the nominal owner of which is a person who is not a natural_person eg a corporation or a_trust but the beneficial_owner of which is a natural_person the contract generally is treated as held by a natural_person thus if a group_annuity_contract is held by a corporation as an agent for natural persons who are beneficial owners of the contract the contract is treated as an annuity_contract for federal_income_tax purposes however the committee intends that if an employer is the nominal owner of an annuity_contract the beneficial owners of which are employees the contract will be treated as held by the employer the committee intends this rule because it is concerned that the internal_revenue_service would have difficulty monitoring compliance with the general_rule that a deferred_annuity is not available on a tax-favored basis to fund nonqualified_deferred_compensation plr-140901-10 here the annuity_contracts are owned by a_trust under which all the beneficial interests are owned by natural persons in a non-employment context accordingly the contracts will be treated as being owned by a natural_person for purposes of sec_72 request sec_72 provides that if an individual who holds an annuity_contract transfers it without full and adequate_consideration such individual shall be treated as receiving an amount equal to the excess of i the cash_surrender_value of such contract at the time of transfer over ii the investment in such contract at such time under the contract as an amount not received as an annuity explaining the rule as originally proposed h_r rep no pincite indicates that the bill also adds a provision which states that if an individual who holds an annuity_contract transfers it by gift or in the case of a holder which is not an individual if there is any change in the primary_annuitant then such transfer or change shall be treated as the death of the holder this correction is made in order to implement fully the forced distribution rules adopted under the 1984_act which were intended to terminate deferral allowed in annuity_contracts when such contracts were no longer required as a retirement vehicle for the contractholder who was enjoying the tax_deferral on the income accumulating in the contract without the correction covering gratuitous transfers of annuity_contracts the required_distribution rules adopted in the 1984_act could be avoided easily because they would allow taxpayers to continue tax_deferral beyond the life of an individual taxpayer the senate amendment3 was in the same vein and explained at s rep no pincite that the bill also adds a provision which states that if an individual who holds an annuity_contract transfers it by gift or in the case of a holder which is not an individual if there cf sec_72 codified at sec_72 the conference_report indicates that the conference agreement followed the senate amendment with changes h_r rep no vol ii pincite conf_rep as codified sec_72 provides that if an individual who holds an annuity_contract transfers it without full and adequate_consideration such individual shall be treated as receiving a specified amount sec_72 provides that in the case of a holder of a contract which is not an individual if there is a change in a primary_annuitant such change shall be treated as the death of the holder plr-140901-10 is any change in the primary_annuitant then such change shall be treated as an assignment of the contract sec_72 which treats the amount assigned as received as an amount not received as an annuity without the clarification treating gratuitous transfers of annuity_contracts as assignments the required_distribution rules adopted in the 1984_act could be avoided easily because they would allow taxpayers to continue tax_deferral beyond the life of an individual taxpayer here the transfer of the contracts from the trust to the beneficiaries does not have the effect of avoiding the required_distribution rules of sec_72 the annuitant is not changed accordingly the distribution of the contracts from trust to beneficiaries will not be treated as an assignment of an annuity_contract without full and adequate_consideration under sec_72 rulings accordingly we rule that the annuity_contracts are considered owned by natural persons for purposes of sec_72 and the distribution of the annuity_contracts by the trust to the beneficiaries will not be treated as an assignment of an annuity_contract without full and adequate_consideration under sec_72 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as specifically set forth above no opinion is expressed as to the tax treatment of the annuity_contracts or trust under the provisions of any other section of the code or applicable regulations specifically no opinion is expressed as to whether or not the annuity_contracts are in fact annuity_contracts for purposes of sec_72 nor is any opinion expressed regarding the application of subchapter_j relating to estates trusts beneficiaries and decedents or of chapter sec_11 estate_tax gift_tax or generation-skipping transfers of the code to trust or any transaction involving h w trust or beneficiaries these rulings are directed to taxpayer only sec_6110 provides that they may not be used or cited as precedent plr-140901-10 a copy of this letter_ruling should be attached to taxpayer’s return as required by revproc_2010_1 2010_1_irb_1 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely s john e glover senior counsel branch financial institutions products


department of the treasury internal_revenue_service washington d c office_of_chief_counsel date number info release date cc tege eoeg et1 - genin-152924-04 uilc memorandum for director submission processing from subject cincinnati oh attn entity unit office of division counsel associate chief_counsel tax exempt and government entities cc tege eoeg et1 - genin-152924-04 railroad retirement act tax status ------------------------------------- in accordance with the coordination procedure established between the service and the railroad retirement board rrb the rrb has provided us with its opinion dated ---------------------------- that the following business became a rail carrier employer under the railroad retirement act and the railroad unemployment insurance act effective --- ------------------- ------------------------------------------------------------------------ --------------------------------------------------------- --------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------- --------------------------- we have reviewed the opinion of the rrb and based upon the information submitted to us by the rrb we agree with the rrb’s determination that --------------------------- ----- ------ became a rail carrier employer under the railroad_retirement_tax_act on ------------ ------- however we note that the submitted facts indicate that the entity’s representative states the entity has no employees please take the appropriate action regarding this business cc _________________ janine cook


department of the treasury internal_revenue_service p o box irs cincinnati oh number release date uil dear date date employer id number contact person id number contact telephone number form you must file tax years this letter is our final_determination that you don’t qualify for tax-exempt status under sec_501 of the internal_revenue_code the code recently we sent you a proposed adverse determination in response to your application the proposed adverse determination explained the facts law and basis for our conclusion and it gave you days to file a protest because we didn’t receive a protest within the required days the proposed determination is now final you must file federal_income_tax returns for the tax years listed at the top of this letter using the required form also listed at the top of this letter within days of this letter unless you request an extension of time to file we’ll make this final adverse determination_letter and the proposed adverse determination_letter available for public inspection as required under sec_6110 of the code after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in the notice on how to notify us if you agree with our deletions you don’t need to take any further action if you have questions about this letter you can contact the person listed at the top of this letter if you have questions about your federal_income_tax status and responsibilities call our customer service number pincite-829-1040 tty for deaf or hard of hearing or customer service for businesses pincite-829-4933 letter rev catalog number sincerely stephen a martin director exempt_organizations rulings and agreements enclosures notice redacted letter proposed adverse determination under sec_501 other than c redacted letter final adverse determination under sec_501 a other than c - no protest letter rev catalog number department of the treasury internal_revenue_service cincinnati oh legend b date c event d state dear date date employer id number contact person id number contact telephone number contact fax number vil we considered your application_for recognition of exemption from federal_income_tax under internal_revenue_code irc sec_501 we determined that you don’t qualify for exemption under sec_501 this letter explains the reasons for our conclusion please keep it for your records issues do you qualify for exemption under sec_501 of the code no for reasons stated below facts you were chartered as an unincorporated association on b in the state of d you were previously exempt under sec_501 of the code as a part of a group ruling but your exempt status was automatically revoked for failing to file a notice or return for three consecutive tax years your bylaws state that your purposes include recognizing outstanding women educators building fraternal fellowship among women in education promoting high standards of education promoting educational and charitable activities providing scholarships and contributing to world understanding goodwill and peace through an international fellowship of women educators united in the ideals of education you dedicate thirty percent of your time each year to prepare for the c event you did not describe any other activities you conduct the c event is a city-wide public event that honors outstanding educators participants at this event include your club members and members of the public your largest source of revenue is from the sale of the c banquet tickets revenue from ticket sales are used to pay for all expenses_incurred for the event and to fund scholarships the financial data you provided indicated that for the last three years approximately percent of your revenue was derived from the sale of tickets to the c banquet which you attribute to revenue received from the general_public in the most recently completed tax_year _ percent of your receipts were expended for the c banquet law sec_501 of the code provides for the exemption from federal_income_tax for clubs organized for pleasure recreation and other nonprofitable purposes substantially_all of the activities of which are for such purposes and no part of the net_earnings of which inures to the benefit of any private shareholder sec_1_501_c_7_-1 states that the exemption provided by sec_501 a for organizations described in sec_501 applies only to clubs which are organized and operated exclusively for pleasure recreation and other nonprofitable purposes but does not apply to any club if any part of its net_earnings inures to the benefit of any private shareholder in general this exemption extends to social and recreation clubs which are supported solely by membership fees dues and assessments sec_1_501_c_7_-1 states that a club which engages in business such as making its social and recreational facilities available to the general_public or by selling real_estate timber or other products is not organized and operated exclusively for pleasure recreation and other nonprofitable purposes and is not exempt under sec_501 solicitation by advertisement or otherwise for public patronage of its facilities is prima facie evidence that the club is engaging in business and is not being operated exclusively for pleasure recreation or social purposes public law allows clubs to receive up to percent of their gross_receipts including investment_income from sources outside their membership within thi sec_35 percent limit no more than percent of gross_receipts may be derived from nonmember use of the club facilities and or services if a club’s gross_receipts exceed one or both limits then the club may still be able to qualify for exemption provided that substantially_all of its activities are for pleasure recreation and other nonprofitable purposes in short non-member income is acceptable only if it is incidental trivial or nonrecurrent to its tax-exempt purpose revrul_58_589 1958_2_cb_266 sets the criteria for determining if an organization qualifies for exemption as described in sec_501 of the code it explains how income from non-member sources used to reduce the cost of providing services to members it further clarifies that to qualify for income_tax exemption a social_club should not advertise its facilities for non-member patronage since this would be prima facie evidence it was engaging in business revrul_66_149 1966_1_cb_146 held that a social_club was not exempt from federal_income_tax as an organization described in sec_501 of the code because it regularly derived a substantial part of its income from nonmember sources such as for example dividends and interest on investments in polish american club inc v commissioner t c memo the court decided that the club is not qualified for exemption under sec_501 of the code because its non-member income was substantial recurring and the taxpayer was not operated exclusively for pleasure recreation and other nonprofit purposes application of law you are not described under sec_501 of the code sec_1_501_c_7_-1 and b allow for an organization to engage in business transactions with the general_public provided that those transactions are incidental to the organization’s exempt purposes infrequent in occurrence and trivial in value however your gross_receipts from the general_public account for a significant portion of your annual total gross_receipts in fact your gross_receipts from non-members were consistently greater than _ percent of the total letter rev catalog number 47628k gross_receipts received each year these amounts exceed the percent and the percent gross_receipts limits for non-member income as permitted per public law you fail to meet the criteria under revrul_58_589 because you benefit from the significant revenues generated from non-members you stated that receipts from ticket sales for the c event are used to cover all expenses_incurred by you in association with this event if preparing and attending for this event are considered recreation and pleasure activities then you effectively use non-member income to finance your social activities or use that income to reduce the cost of providing benefits to members in other words income from members alone may not have been sufficient for you to carry out your social activities you operate similarly to the organizations described in revrul_66_149 and polish american club inc which were denied exemption under sec_501 of the code because of substantial revenue received from non- members in your case the gross_receipts you receive from the general_public are significant recurrent and not incidental to your exempt purposes therefore you are precluded from exemption under sec_501 of the code conclusion you are not operated exclusively for pleasure recreation and other nonprofitable purposes as described in sec_501 of the code because you are funded primarily through donations from non-members you receive significant revenues from non-members which are recurring and not incidental to your exempt purposes consequently you do not qualify for exemption under sec_501 if you agree if you agree with our proposed adverse determination you don’t need to do anything if we don’t hear from you within days we’ll issue a final adverse determination_letter that letter will provide information on your income_tax filing_requirements if you don't agree you have a right to protest if you don’t agree with our proposed adverse determination to do so send us a protest within days of the date of this letter you must include your name address employer_identification_number ein and a daytime phone number a statement of the facts law and arguments supporting your position a statement indicating whether you are requesting an appeals_office conference the signature of an officer director trustee or other official who is authorized to sign for the organization or your authorized representative the following declaration for an officer director trustee or other official who is authorized to sign for the organization under penalties of perjury i declare that i have examined this request or this modification to the request including accompanying documents and to the best of my knowledge and belief the request or the modification contains all relevant facts relating to the request and such facts are true correct and complete letter rev catalog number 47628k your representative attorney certified_public_accountant or other individual enrolled to practice_before_the_irs must file a form_2848 power_of_attorney and declaration of representative with us if they haven’t already done so you can find more information about representation in publication practice_before_the_irs and power_of_attorney we’ll review your protest statement and decide if you gave us a basis to reconsider our determination if so we’ll continue to process your case considering the information you provided if you haven’t given us a basis for reconsideration we’ll send your case to the appeals_office and notify you you can find more information in publication how to appeal an irs decision on tax-exempt status if you don’t file a protest within days you can’t seek a declaratory_judgment in court later because the law requires that you use the irc administrative process first sec_7428 where to send your protest send your protest form_2848 if applicable and any supporting documents to the applicable address u s mail street address for delivery service internal_revenue_service eo determinations quality assurance mail stop p o box cincinnati oh internal_revenue_service eo determinations quality assurance main street mail stop cincinnati oh you can also fax your protest and supporting documents to the fax number listed at the top of this letter if you fax your statement please contact the person listed at the top of this letter to confirm that they received it you can get the forms and publications mentioned in this letter by visiting our website at www irs gov forms- pubs or by calling 800-tax-form if you have questions you can contact the person listed at the top of this letter contacting the taxpayer_advocate_service the taxpayer_advocate_service tas is an independent organization within the irs that can help protect your taxpayer rights tas can offer you help if your tax problem is causing a hardship or if 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 sincerely stephen a martin director exempt_organizations rulings and agreements letter rev catalog number 47628k


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division number release date date uniform tssue list contact person id number telephone number taxpayer_identification_number se t eo ra t dear this is in response to a letter from your authorized representative dated date requesting a ruling on your behalf regarding the tax consequences associated with the transactions described below facts a is a publicly supported charity exempt from federal income_taxation under sec_501 of the internal_revenue_code code and classified as other than a private_foundation under sec_509 and sec_170 of the code in furtherance of its charitable purposes a promotes economic and environmentally sensitive development in low-income and economically depressed communities a furthers its exempt purposes by making loans to individuals non- profit organizations entrepreneurs and local jurisdictions who are unable to access capital from conventional sources or markets in order to accomplish economic social and civic development objectives awas formed under the laws of state x and is registered to do business in state y b is a publicly supported charity exempt from taxation under sec_501 of the code and is classified as other than a private_foundation since it is described in sec_509 of the code b is a community development financial_institution that provides loans and technical assistance to small businesses and nonprofit_organizations that are unable to access support from traditional sources such as banks b conducts its activities in states x and y a and b are very similar in terms of charitable purpose activities assets and liabilities due to these similarities a and b represent that by combining their respective resources they will be better able to provide services to meet their exempt purposes pursuant to the agreement and plan of merger that is the subject of this ruling_request the merger agreement the parties will execute and file with the secretary of state of x articles of merger and the plan of merger on the effective date as provided in such filing b will merge with and into a in a statutory merger under state x law with a being the surviving entity in the merger the merger will result in the transfer by operation of law to a of all assets and liabilities held by b as of the effective date of such merger b and a represent that all of the assets being transferred from b to a are used in furtherance of and are substantially related to b’s exempt purposes and will be used by a in furtherance of and will be substantially related to its exempt purposes you have requested the following rulings in connection with the proposed merger transaction the merger will not result in the revocation of or otherwise adversely affect a’s continued tax-exempt status and non-private foundation status under sec_501 sec_509 and sec_170 of the code any transfers of funds assets liabilities and or personnel in connection with the merger from b to a will not generate unrelated_business_taxable_income to a or to b under sec_511 through of the code the contemplated transfer of assets and liabilities from b to a to effectuate the merger will be considered an unusual grant pursuant to sec_1_170a-9 and iii of the income_tax regulations regulations and a can exclude that transfer from both the numerator and the denominator of the support_test described in sec_170 of the code law sec_501 of the code provides an exemption from federal_income_tax for organizations described in sec_501 including organizations that are organized and operated exclusively for charitable educational or scientific purposes sec_1_501_c_3_-1 of the regulations provides that the term charitable is used in sec_501 of the code in its generally accepted legal sense the term charitable includes the promotion of social welfare by organizations designed to relieve the poor and distressed or the underprivileged to lessen neighborhood tensions to eliminate prejudice and discrimination or to combat community deterioration sec_509 of the code provides that a sec_501 organization is other than a private_foundation if it is described in sec_170 other than in clauses vii and viil an organization described in sec_170 of the code is one which is referred to in sec_170 and which normally receives a substantial part of its support exclusive of income received in the exercise or performance of its charitable educational or other purpose or function constituting the c of the code or from direct or indirect_contributions from the basis for its exempt status from a governmental_unit referred to in sec_170 or from direct or indirect_contributions from the general_public sec_1_170a-9 of the regulations states that an organization will be treated as publicly supported for purposes of sec_170 of the code if it normally receives at least percent of its total support from governmental units or from contributions made directly or indirectly by the general_public sec_1_170a-9 of the regulations describes the facts_and_circumstances_test under which an organization which does not meet the percent test may still be considered publicly supported generally that section provides that an organization must receive at least percent of its total support from governmental units from contributions made directly or indirectly by the general_public or from a combination of these sources must be organized and operated so as to attract new and additional public or governmental support on a continuous basis and must have a governing body which represents the broad interest of the public rather than the personal or private interests of a limited number of donors sec_509 of the code provides that a sec_501 organization is other than a private_foundation if it a normally receives more than one-third of its support in each taxable_year from any combination of gifts grants contributions or membership fees and gross_receipts from admissions sales of merchandise performance of services or furnishing of facilities in an activity which is not an unrelated_trade_or_business excluding receipts from any person or from a governmental agency which exceed the greater of dollar_figure or percent of the organization’s support in such taxable_year and b normally receives not more than one-third of its support in each taxable_year from the combined sum of gross_investment_income and the excess if any of the amount of the unrelated_business_taxable_income as defined in sec_512 of the code over the amount of the tax imposed by sec_511 of the code sec_511 of the code imposes a tax on the unrelated_business_income of organizations described in sec_501 sec_512 of the code defines unrelated_business_taxable_income as the gross_income derived by an organization from any unrelated_trade_or_business regularly carried on by it less the allowable deductions which are directly connected with the carrying on of the trade_or_business with certain modifications sec_512 of the code provides in part that interest and dividends are excluded from the computation of an exempt organization’s unrelated_business_taxable_income sec_513 of the code defines unrelated_trade_or_business as any trade_or_business the conduct of which is not substantially related aside from the need of the organization for funds or the use it makes of the profits derived to the exercise of the organization’s exempt purposes or functions sec_1_513-1 of the regulations provides in part that a trade_or_business is related to exempt purposes only where the conduct of the business activities has a causal relationship to the achievement of exempt purposes and it is substantially related for purposes of sec_513 of the code only if the causal relationship is a substantial one thus for the conduct of trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of goods or the performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of exempt purposes sec_514 of the code defines the term unrelated_business_taxable_income to include a percentage of the net_income derived from debt-financed_property this percentage in general has as its numerator and denominator the average_acquisition_indebtedness and the average_adjusted_basis respectively for the year with respect to the debt-financed_property sec_514 of the code defines the term debt-financed_property to mean property that is held to produce income and with respect to which there is an acquisition_indebtedness not including any property substantially_all the use of which is substantially related aside from the need of the organization for income or funds to the exercise or performance by such organization of its charitable educational or other exempt purposes sec_1_170a-9 of the regulations generally provides that an organization qualifies as a sec_170 non-private foundation if it is described in sec_170 of the code and is publicly supported by normally receiving at least one-third of it total support from governmental units or contributions from the general_public or at least ten percent in certain situations sec_1_170a-9 of the regulations generally provides that contributions by any corporation shall be taken into account as support from direct or indirect_contributions from the general_public only to the extent that the total amount of the contributions from such corporation during the relevant period does not exceed of the organization’s total support for the period the limitation generally does not apply to contributions from sec_170 organizations sec_1_170a-9 of the regulations provides that certain contributions may be excluded as unusual grants in determining public support the exclusion is generally intended to apply to substantial contributions from disinterested parties which a are attracted by reason of the publicly supported nature of the organization b are unusual or unexpected in amount and c would by reason of their size adversely affect the status of the organization as normally being publicly supported for the applicable_period sec_1_170a-9 of the regulations provides that all pertinent facts and circumstances will be taken into account in determining whether a particular contribution is an unusual grant no single factor will necessarily be determinative sec_1_170a-9 of the regulations generally provides that for purposes of sec_170 of the code the term support does not include a any amounts received from the exercise or performance by an organization of its charitable educational or other purpose or function constituting the basis for its exemption under sec_501 of the code or b contributions of services for which a deduction is not allowable first ruling_request your first requested ruling is that the merger will not result in the revocation of or otherwise adversely affect a’s continued tax-exempt status and non-private foundation status under sec_501 sec_509 and sec_170 of the code a’s pre-merger activities meet the definition of charitable provided in regulation sec_1_501_c_3_-1 a will not adversely affect its tax exempt status under sec_501 of the code by the proposed merger transaction because it will continue to engage in substantially_similar activities which will continue to be charitable activities within the meaning of sec_1_501_c_3_-1 of the regulations following such merger for identical reasons a also will continue to qualify as a non-private foundation under sec_509 of the code until the time of the proposed merger b and a will continue to operate and receive financial support in substantially the same manner which provided the basis for determining their respective tax- exempt classifications based on the sources of support for a and b a will continue to qualify for non-private foundation status under sec_509 of the code following completion of the merger second ruling_request your second requested ruling is that any transfers of funds assets liabilities and or personnel in connection with the merger from b to a will not generate unrelated_business_taxable_income to a or to b under sec_511 through of the code contributions to organizations exempt from federal_income_tax under sec_501 of the code do not fall within the definition of unrelated_business_income under sec_512 of the code nor do they create taxable gain_or_loss to the transferor or transferee moreover all assets to be transferred from b to a in the merger shall be utilized in the furtherance of a’s exempt purposes and thus have a substantial causal relationship with such purposes the tax on unrelated_business_income is not applicable to this transaction because the code and regulations exclude from the definition of unrelated_trade_or_business any trade_or_business that contributes importantly to the accomplishment of an organization’s exempt purposes moreover a will obtain no debt-financed_property as a result of the merger since b does not currently own and will not be transferring to a any property that is subject_to acquisition debt and is used in a manner that is not substantially related aside from the need of the organization for income or funds to the exercise or performance of b’s and later a’s exempt purposes third ruling_request your third requested ruling is that the contemplated transfer of assets and liabilities from b to a to effectuate the merger will be considered an unusual grant pursuant to sec_1 170a- e ii and iii of the regulations and a can exclude that transfer from both the numerator and the denominator of the support_test described in sec_170 of the code based on the facts of this case including the fact that the transfer of b’s assets and liabilities to a is a one-time event necessitated by the merger the transfer qualifies as an unusual grant as described in sec_1_170a-9 and iii of the regulations accordingly based on all the facts and circumstances described above we rule as follows the merger will not result in the revocation of or otherwise adversely affect a’s continued tax-exempt status as a non-private foundation under sec_501 and sec_509 of the code any transfers of funds assets services and or personnel in connection with the merger from b to a will not generate unrelated_business_taxable_income to a or b under sec_514 through of the code the contemplated transfer of funds assets services and or personnel and liabilities from b to a to effectuate the merger is an unusual grant pursuant to sec_1_170a-9 and iii of the regulations and a can exclude that transfer from both the numerator and the denominator of the support_test described in sec_170 a vi of the code these rulings are based on the understanding that there will be no material changes in the facts upon which they are based these rulings are directed only to the organization that requested them sec_6110 of the code provides that they may not be used or cited by others as precedent this ruling does not address the applicability of any section of the code or regulations to the facts submitted other than with respect to the sections cited we are not ruling that the organizations’ economic development activities are conducted in a charitable manner and accomplish charitable purposes but accept the taxpayer’s representation in this regard for purposes of the ruling this ruling will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached as notice if you disagree with our proposed deletions you should follow the instructions in notice if you have any questions about this ruling please contact the person whose name and telephone number are shown on the heading of this letter in accordance with the powers of attorney currently on file with the internal_revenue_service we are sending a copy of this letter to your authorized representative robert c harper jr manager exempt_organizations technical group sincerely