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 corp b02 plr-121479-09 date date legend parent sub sub sub sub partnership state a ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- ----------------------- ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- ----------------------- ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- ----------------------- ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- ----------------------- ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- ----------------------- ------------------- plr-121479-09 state b state c x y business segment a segment b date dear ---------------- ------------- ----------- ------ ------ ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- --------------------- ------------------------------------------ ------------------------------------------------------ ------------------ this letter responds to your request dated date submitted by your authorized representatives on behalf of parent and its affiliates for rulings on certain federal_income_tax consequences of a series of transactions collectively the proposed transactions the information submitted in that request and subsequent correspondence is summarized below the rulings contained in this letter are based on facts and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process summary of facts parent a state a corporation is the common parent of an affiliated_group_of_corporations the parent group that files a consolidated federal_income_tax return certain members of the parent group are engaged in the business sub sub sub and sub each a state b corporation are members of the parent group parent owns approximately x of the stock of sub which directly and through its various subsidiaries conducts the business including activities related to segment a and segment b sub wholly owns sub which also conducts the business including activities related to segment a and segment b sub owns the plr-121479-09 remaining approximately y of the stock of sub which was acquired in a transaction unrelated to the proposed transactions defined below sub 2’s acquisition of the sub stock was not effectuated for the purpose of avoiding federal income taxes sub also wholly owns sub and sub as well as the stock of a number of other affiliates sub was newly formed on date to conduct certain of the parent group’s activities related to segment a of the business sub conducts activities related to segment b of the business sub owns an interest in the partnership directly while parent owns the remaining interests in the partnership directly and indirectly proposed transactions the parent group wishes to consolidate the operation of certain of its business activities and to simplify its corporate structure consistent with these objectives the parent group has proposed the following transactions i ii iii iv v pursuant to one or more contribution agreements and liability assumption agreements sub will contribute to sub its assets used in performing activities related to segment a of the business with the exception of a limited class of segment a assets in exchange for sub stock and sub 3’s assumption of certain of sub 2’s liabilities that sub incurred in connection with the operation of segment a of the business or for other bona_fide business purposes and not in connection with the proposed transactions contribution pursuant to a contribution agreement sub will contribute to sub certain of its assets used in performing activities related to segment b of the business because sub wholly owns sub additional stock of sub will not be issued to sub contribution concurrently with or prior to contribution and contribution sub will sell at arms’ length its remaining segment b assets in state c to partnership the sale after contribution and contribution sub will amend its articles of incorporation in state b changing its legal name the sub name change and sub will amend its articles of incorporation in state b changing its legal name the sub name change after the sub name change and the sub name change and pursuant to state b corporate law sub will merge with and into sub with sub surviving the merger after the merger parent will be the plr-121479-09 sole shareholder of sub and sub will be the sole shareholder of sub and sub vi immediately following the merger and pursuant to a contribution agreement sub will contribute to sub certain of its assets used in performing activities related to segment a of the business in exchange for stock of sub contribution representations the following representations are made with respect to contribution described in step i above 1a no stock_or_securities will be issued for services rendered to or for the benefit of sub in connection with contribution and no stock_or_securities will be issued for indebtedness of sub that is not evidenced by a security or for interest on indebtedness of sub which accrued on or after the beginning of the holding_period of sub for the debt 1b the transfer is not the result of the solicitation by a promoter broker or investment house 1c sub will not retain any rights in the property transferred to sub 1d the value of the stock received in exchange for accounts_receivable will be equal to the net value of the accounts transferred ie the face_amount of the accounts_receivable previously included in income less the amount of the reserve for bad_debts 1e the adjusted_basis and the fair_market_value of the assets to be transferred by sub to sub in contribution will be equal to or exceed the sum of the liabilities to be assumed as determined under sec_357 by sub plus any liabilities to which the transferred assets are subject 1f immediately before contribution the total fair_market_value of the assets to be transferred to sub by sub will exceed the sum of i the amount of any liabilities assumed as determined under sec_357 by sub in connection with contribution ii the amount of any liabilities owed by sub to sub that is discharged or extinguished in connection with contribution and iii the amount of any money and the fair_market_value of any other_property other than stock permitted to be received under sec_351 without the recognition of gain received by sub in connection with contribution plr-121479-09 1g immediately after contribution the fair_market_value of the assets of sub will exceed the amount of its liabilities 1h the liabilities of sub to be assumed by sub plus the liabilities if any to which the transferred assets are subject were incurred in the ordinary course of business and are associated with the assets to be transferred 1i 1j there is no indebtedness between sub and sub and there will be no indebtedness created in favor of sub as a result of contribution the transfers and exchanges will occur under a plan agreed upon before the transaction in which the rights of the parties are defined 1k all transfers and exchanges will occur within a time period of approximately two weeks 1l there is no plan or intention on the part of sub to redeem or otherwise reacquire any stock or indebtedness to be issued in contribution 1m taking into account any issuance of additional shares of sub stock any issuance of sub stock for services the exercise of any sub stock_rights warrants or subscriptions a public offering of sub stock and the sale exchange transfer by gift or other_disposition of any of the stock of sub to be received in the exchange sub will be in control of sub within the meaning of sec_368 of the code 1n sub will receive sub stock approximately equal to the fair_market_value of the property transferred to sub or for services rendered or to be rendered for the benefit of sub 1o sub will remain in existence and retain and use the property transferred to it in a trade_or_business 1p there is no plan or intention by sub to dispose_of the transferred property other than in the ordinary course of business operations 1q each of sub and sub will pay its own expenses if any incurred in connection with contribution 1r sub will not be an investment_company within the meaning of sec_351 of the code and sec_1_351-1 of the regulations plr-121479-09 1s sub is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 and the stock_or_securities received in the exchange will not be used to satisfy the indebtedness of such debtor 1t sub will not be a personal_service_corporation within the meaning of sec_269a of the code the following representations are made with respect to contribution described in step ii above 2a no stock_or_securities will be issued for services rendered to or for the benefit of sub in connection with contribution and no stock_or_securities will be issued for indebtedness of sub that is not evidenced by a security or for interest on indebtedness of sub which accrued on or after the beginning of the holding_period of sub for the debt 2b the transfer is not the result of the solicitation by a promoter broker or investment house 2c sub will not retain any rights in the property transferred to sub 2d the value of the stock received in exchange for accounts_receivable will be equal to the net value of the accounts transferred ie the face_amount of the accounts_receivable previously included in income less the amount of the reserve for bad_debts 2e no liabilities of sub are being assumed by sub in connection with contribution and there are no liabilities to which the transferred assets are subject 2f immediately before contribution the total fair_market_value of the assets to be transferred to sub by sub will exceed the sum of i the amount of any liabilities assumed as determined under sec_357 by sub in connection with contribution ii the amount of any liabilities owed by sub to sub that is discharged or extinguished in connection with contribution and iii the amount of any money and the fair_market_value of any other_property other than stock permitted to be received under sec_351 without the recognition of gain received by sub in connection with contribution 2g immediately after contribution the fair_market_value of the assets of sub will exceed the amount of its liabilities plr-121479-09 2h there is no indebtedness between sub and sub and there will be no indebtedness created in favor of sub as a result of contribution 2i 2j 2k 2l the transfers and exchanges will occur under a plan agreed upon before the transaction in which the rights of the parties are defined all transfers and exchanges will occur within a time period of approximately two weeks there is no plan or intention on the part of sub to redeem or otherwise reacquire any stock or indebtedness to be issued in contribution taking into account any issuance of additional shares of sub stock any issuance of sub stock for services the exercise of any sub stock_rights warrants or subscriptions a public offering of sub stock and the sale exchange transfer by gift or other_disposition of any of the stock of sub to be received in the exchange sub will be in control of the transferee within the meaning of sec_368 of the code 2m sub will receive sub stock approximately equal to the fair_market_value of the property transferred to sub or for services rendered or to be rendered for the benefit of sub 2n sub will remain in existence and retain and use the property transferred to it in a trade_or_business 2o there is no plan or intention by sub to dispose_of the transferred property other than in the ordinary course of business operations 2p each of sub and sub will pay its own expenses if any incurred in connection with contribution 2q sub will not be an investment_company within the meaning of sec_351 of the code and sec_1_351-1 of the regulations 2r sub is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 and the stock_or_securities received in the exchange will not be used to satisfy the indebtedness of such debtor 2s sub will not be a personal_service_corporation within the meaning of sec_269a of the code plr-121479-09 the following representations are made with respect to the merger described in step v above 3a the merger is being effected pursuant to the laws of state b and will qualify as a statutory merger under applicable state b law pursuant to the plan of merger by operation of law the following will occur simultaneously at the effective time of the merger i all of the assets held by sub immediately before the merger after taking into account contribution contribution and the sale and all of the liabilities of sub immediately before the merger after taking into account contribution and except to the extent any liabilities are satisfied or discharged in the merger or are nonrecourse liabilities to which assets distributed in the merger are subject will become the assets and liabilities of sub and ii sub will cease its separate legal existence for all purposes 3b the total fair_market_value of assets of sub including stock of sub transferred to sub in the merger less the amount of any liabilities that sub assumes in connection therewith will be approximately equal to the fair_market_value of the sub stock that sub surrenders in the exchange 3c sub has no plan or intention to sell or otherwise dispose_of any of the assets of sub acquired in the merger except for dispositions made in the ordinary course of business or transfers described in sec_368 of the code or in sec_1_368-2 3d the liabilities of sub assumed as determined under sec_357 by sub and the liabilities to which the transferred assets of sub are subject were incurred by sub in the ordinary course of its business and are associated with the assets transferred 3e following the merger sub either directly or through members of its qualified_group within the meaning of sec_1_368-1 will continue the historic_business of sub or use a significant portion of sub 2’s historic_business_assets in a business 3f sub and sub will pay their respective expenses if any incurred in connection with the merger 3g at the time of the merger there will be no intercorporate indebtedness existing between sub and sub that will be issued acquired or settled plr-121479-09 at a discount provided that certain intercompany receivables will be extinguished by operation of law pursuant to the merger 3h no two parties to the transaction are investment companies as defined in sec_368 and iv of the code 3i 3j sub is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 of the code immediately before the merger the total fair_market_value of the assets of sub including stock of sub transferred to sub will exceed the sum of i the amount of any liabilities assumed as determined under sec_357 by sub in connection with the merger ii the amount of any liabilities owed to sub by sub that is discharged or extinguished in connection with the merger and iii the amount of any money and the fair_market_value of any other_property other than stock permitted to be received under sec_361 without the recognition of gain received by sub in connection with the merger 3k immediately after the merger the fair_market_value of sub 1’s assets will exceed the amount of its liabilities the following representations are made with respect to contribution described in step vi above 4a no stock_or_securities will be issued for services rendered to or for the benefit of sub in connection with contribution and no stock_or_securities will be issued for indebtedness of sub that is not evidenced by a security or for interest on indebtedness of sub which accrued on or after the beginning of the holding_period of sub for the debt 4b the transfer is not the result of the solicitation by a promoter broker or investment house 4c sub will not retain any rights in the property transferred to sub 4d the value of the stock received in exchange for accounts_receivable will be equal to the net value of the accounts transferred ie the face_amount of the accounts_receivable previously included in income less the amount of the reserve for bad_debts 4e no liabilities of sub are being assumed by sub in connection with contribution and there are no liabilities to which the transferred assets are subject plr-121479-09 4f immediately before contribution the total fair_market_value of the assets to be transferred to sub by sub will exceed the sum of i the amount of any liabilities assumed as determined under sec_357 by sub in connection with contribution ii the amount of any liabilities owed by sub to sub that is discharged or extinguished in connection with contribution and iii the amount of any money and the fair_market_value of any other_property other than stock permitted to be received under sec_351 without the recognition of gain received by sub in connection with contribution 4g immediately after contribution the fair_market_value of the assets of sub will exceed the amount of its liabilities 4h there is no indebtedness between sub and sub and there will be no indebtedness created in favor of sub as a result of contribution 4i 4j 4k 4l the transfers and exchanges will occur under a plan agreed upon before the transaction in which the rights of the parties are defined all exchanges will occur on approximately the same date there is no plan or intention on the part of sub to redeem or otherwise reacquire any stock or indebtedness to be issued in contribution taking into account any issuance of additional shares of sub stock any issuance of sub stock for services the exercise of any sub stock_rights warrants or subscriptions a public offering of sub stock and the sale exchange transfer by gift or other_disposition of any of the stock of sub to be received in the exchange sub will be in control of the transferee within the meaning of sec_368 of the code 4m sub will receive sub stock approximately equal to the fair_market_value of the property transferred to sub or for services rendered or to be rendered for the benefit of sub 4n sub will remain in existence and retain and use the property transferred to it in a trade_or_business 4o there is no plan or intention by sub to dispose_of the transferred property other than in the ordinary course of business operations 4p each of sub and sub will pay its own expenses if any incurred in connection with contribution plr-121479-09 4q sub will not be an investment_company within the meaning of sec_351 of the code and sec_1_351-1 of the regulations 4r sub is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 and the stock_or_securities received in the exchange will not be used to satisfy the indebtedness of such debtor 4s sub will not be a personal_service_corporation within the meaning of sec_269a of the code rulings based solely on the information submitted and the representations set forth above and conditioned upon parent’s execution of the closing_agreement attached hereto and made a part hereof we rule as follows contribution contribution will be treated for federal_income_tax purposes in accordance with its form as occurring prior to the merger no gain_or_loss will be recognized by sub on the transfer of assets to sub in exchange for sub stock and sub 3’s assumption_of_liabilities sec_351 and sec_357 the basis of the sub stock received by sub will be the same as the basis of the assets transferred by sub to sub decreased by the sum of the sub liabilities assumed by sub sec_358 and sec_358 the holding_period of the sub stock received by sub will include the holding_period of the sub assets transferred in exchange therefor provided that the assets were held as capital assets on the date of contribution sec_1223 no gain_or_loss will be recognized by sub on the receipt of assets of sub in exchange for sub stock sec_1032 the basis of each sub asset received by sub will be the same as the basis of such asset in the hands of sub immediately prior to contribution sec_362 plr-121479-09 the holding_period of each sub asset received by sub will include the period during which such asset was held by sub sec_1223 no portion of the earnings_and_profits of sub will be allocated to sub as a result of contribution sec_1_312-11 contribution contribution will be treated for federal_income_tax purposes in accordance with its form as occurring prior to the merger no gain_or_loss will be recognized by sub on the transfer of assets to sub in exchange for the deemed issuance of sub stock sec_351 the basis of the sub stock deemed received by sub will be the same as the basis of the assets transferred by sub to sub sec_358 the holding_period of the sub stock deemed received by sub will include the holding_period of the sub assets transferred in exchange therefor provided that the assets were held as capital assets on the date of contribution sec_1223 no gain_or_loss will be recognized by sub on the receipt of assets of sub in deemed exchange for sub stock sec_1032 the basis of each sub asset received by sub will be the same as the basis of such asset in the hands of sub immediately prior to contribution sec_362 the holding_period of each sub asset received by sub will include the period during which such asset was held by sub sec_1223 no portion of the earnings_and_profits of sub will be allocated to sub as a result of contribution sec_1_312-11 sub name change the sub name change will not constitute a realization event 265_us_242 44_sct_490 68_led_1001 1924_2_cb_51 plr-121479-09 sub name change the sub name change will not constitute a realization event 265_us_242 44_sct_490 68_led_1001 1924_2_cb_51 merger provided that the merger qualifies as a statutory merger under applicable state law the merger will constitute a reorganization within the meaning of sec_368 sub and sub each will be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by sub on the transfer of its assets to sub including any sub stock held by sub in exchange for the deemed issuance of sub stock and the assumption by sub of the liabilities of sub sec_361 and sec_357 no gain_or_loss will be recognized by sub on the receipt of the assets of sub including any sub stock held by sub in exchange for the deemed issuance of sub stock sec_1032 the basis of each sub asset received by sub other than sub stock will be the same as the basis of such asset in the hands of sub immediately before the merger sec_362 the holding_period of each sub asset received by sub other than sub stock will include the period during which such asset was held by sub sec_1223 no gain_or_loss will be recognized by sub on the deemed_distribution of sub stock sec_361 no gain_or_loss will be recognized by sub on the deemed receipt of sub stock in exchange for its sub stock sec_354 sub will succeed to and take into account as of the close of the date of the merger the items of sub described in sec_381 subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 and sec_384 and the regulations thereunder sec_381 plr-121479-09 except to the extent sub 1’s earnings_and_profits already reflect sub 2’s earnings_and_profits sub will succeed to and take into account the earnings_and_profits or deficit in earnings_and_profits of sub as of the date of the merger sec_381 and sec_1_381_c_2_-1 and sec_1_1502-33 any deficit in the earnings_and_profits of sub and sub will be used only to offset earnings_and_profits accumulated after the date of the merger sec_381 contribution no gain_or_loss will be recognized by sub on the transfer of assets to sub in exchange for sub stock sec_351 the basis of the sub stock received by sub will be the same as the basis of the assets transferred by sub to sub sec_358 the holding_period of the sub stock received by sub will include the holding_period of the sub assets transferred in exchange therefor provided that the assets were held as capital assets on the date of contribution sec_1223 no gain_or_loss will be recognized by sub on the receipt of assets of sub in exchange for sub stock sec_1032 the basis of each sub asset received by sub will be the same as the basis of such asset in the hands of sub immediately prior to contribution sec_362 the holding_period of each sub asset received by sub will include the period during which such asset was held by sub sec_1223 no portion of the earnings_and_profits of sub will be allocated to sub as a result of contribution sec_1_312-11 plr-121479-09 closing_agreement we will accordingly approve a closing_agreement with the taxpayer with respect to certain of those issues affecting its tax_liability on the basis set forth above the necessary closing_agreement with parent has been prepared in triplicate and is enclosed in pursuance of our practice with respect to such agreements the agreement contains a stipulation to the effect that any change or modification of applicable statutes enacted subsequent to the date of this agreement and made applicable to the taxable_period involved will render the agreement ineffective to the extent that it is dependent upon such statutes caveats no opinion is expressed about the tax treatment of the proposed transactions under other provisions of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transactions that are not specifically covered by the above rulings in particular no opinion is expressed about the treatment of the sale described in step iii above this letter_ruling will become effective upon the execution of the closing_agreement procedural statements 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 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their return electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives cc sincerely _____________________________ william d alexander associate chief_counsel corporate


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to plr-117170-98 cc dom p si date date legend company d1 x dear this letter responds to a letter dated date submitted by your authorized representative on behalf of company requesting a ruling under sec_1362 of the internal_revenue_code that company’s s_corporation_election will be effective as of the taxable_year beginning d1 facts according to the information submitted company was incorporated on d1 its sole shareholder x had intended for company to be an s_corporation from inception but company’s form_2553 election by a small_business_corporation was not timely filed law sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made if an s election is made after the first two and one-half months of a corporation's taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made plr-117170-98 sec_1362 provides that if a an election under sec_1362 a is made for any taxable_year after the date prescribed by sec_1362 for making the election or no election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make the election the secretary may treat the election as timely made for that taxable_year conclusions after applying the relevant law to the facts submitted and representations made we conclude that company has established reasonable_cause for not making a timely election and is eligible for relief under sec_1362 accordingly if company makes an election to be an s_corporation by filing with the appropriate service_center a completed form_2553 containing an effective date of d1 for the election within days following the date of this letter then the election will be treated as timely made a copy of this letter should be attached to the form_2553 filed with the appropriate service_center a copy is enclosed for that purpose except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether company is an s_corporation for federal tax purposes pursuant to a power_of_attorney on file in this office a copy of this letter will be sent to your authorized representative this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours donna m young senior technician reviewer branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service national_office technical_advice_memorandum date date number release date index uil no case mis no tam-111549-99 cc dom p si b2 chief technical and support branch district taxpayer’s name taxpayer’s address tin years involved dates of conferences legend x a b c d company trust trust trust d1 d2 year year year tam-111549-99 year year year a b c d e f g h i issues is the amount of the liability incurred by trust which was secured_by the property in trust included in x’s amount_realized upon the termination of trust and the transfer of the assets and liabilities of trust to the remainder trusts if the service rules adversely to x on issue will the service grant x’s request to apply this technical_advice_memorandum on a nonretroactive basis under sec_7805 of the internal_revenue_code conclusion since trust is a grantor_trust x is treated as the owner of the property of trust for federal_income_tax purposes therefore the amount of debt incurred by trust which was secured_by the property of trust is included in x’s amount_realized when trust terminates and the assets and liabilities of trust are transferred to the remainder trusts x’s request to apply this technical_advice_memorandum on a nonretroactive basis under sec_7805 is denied tam-111549-99 facts x owned a shares of common_stock in company a closely_held_corporation x had originally acquired an interest in the stock in year when a x’s father created trust and funded it with the stock for the benefit of x trust terminated in year and x owned the stock individually until x transferred it to trust on d1 of year prior to the transfer of the stock to trust x had expressed an interest in redeeming or selling the stock at the time of the transfer of the stock to trust x’s basis in the stock was approximately dollar_figureb a nominal amount and the reported value of the stock used by x for gift_tax purposes was approximately dollar_figurec trust names x as the grantor and b as the trustee b is the brother of x the father of c and d and the president of company sec_1 of trust provides that the trustee shall divide all trust property into two equal shares and that these shares shall be administered as two separate trusts for x’s benefit and shall be designated by x’s name one followed by the initials of x’s nephew c and one followed by the initials of x’s nephew d each separate share shall be administered under the provisions of trust as a separate and distinct trust the assets of which may be jointly administered but shall be separately accounted for at all times all references in trust to nephews of x shall refer only to c and d notwithstanding that x may have other nephews sec_2_1 of trust provides that the purpose of trust is to establish two grantor retained annuity trusts grats whereby a qualified_interest within the meaning of sec_2702 is retained by x for a term of two years and upon their termination to provide for the creation of two separate remainder trusts to continue thereafter for the respective benefit of x’s nephews c and d sec_2 of trust provides that x shall be the sole beneficiary of the grats during the two year term of the retained qualified_interest and distributions from the grats to or for the benefit of any other person during the term of the qualified_interest are prohibited sec_2 of trust provides that the trustee shall pay to x an annuity equal in value to dollar_figure percent of the net fair_market_value of the property as finally determined for federal gift_tax purposes transferred to the grats on the date the grats are established and on the first anniversary of that date the trustee shall pay to x an annuity amount equal to dollar_figure tam-111549-99 percent of the value determined in the immediately preceding sentence upon the date the grats terminate the trustee shall pay to x an annuity amount equal to the amount required to result in a present_value on the date the grats are established of all annuity amounts paid to x equal to the total amount of the annuity retained by x the present_value of such annuity amounts shall be determined in the manner prescribed by the code the annuity amounts shall be paid from income and to the extent income is not sufficient from principal any income of the grats for a taxable_year in excess of the annuity amount shall be added to principal the initial value of the trust property for federal gift_tax purposes based upon appraisal is dollar_figurec if the net fair_market_value of the trust property is incorrectly determined then within a reasonable period after the value is finally determined for federal tax purposes the trustee of the grats or the trustee of the remainder trusts established under article of trust if after termination of the grats shall pay from income or principal if income is insufficient of such grat or remainder trust to x in the case of an undervaluation or receive from x in the case of an overvaluation an amount equal to the difference between the annuity amounts properly payable and the annuity amounts actually paid in the manner provided in sec_1_664-2 of the income_tax regulations sec_2 of trust provides that all provisions of trust shall be construed and applied so that each grat shall qualify as a grantor_retained_annuity_trust whereby one or more qualified interests are retained within the meaning of sec_2702 the trustee a shall not take any_action or have any power that would disqualify and b shall have all additional powers necessary to qualify each grat as a grantor_retained_annuity_trust whereby qualified interests are retained within the meaning of sec_2702 sec_3_1 of trust provides in part that each grat established under trust shall terminate two years after the date of the establishment of trust at such time the trustee shall distribute the remaining grat income and principal other than any amounts required to be distributed to x or x’s estate and including any amounts required to be received from x or x’s estate under the provisions of article as follows a each separate grat shall be held and administered by the trustee as a separate trust for the benefit of x’s nephew whose initials are appended thereto if he is then living and if not for such nephews’ descendants sec_5 of trust provides in part that b shall serve as trustee of the trusts established in trust and if for any reason b shall fail or cease to serve as trustee of any trust established in trust then the person or persons including tam-111549-99 corporations b shall designate by written instrument during b’s life or in b’s will shall succeed them as trustee of such trusts section of trust provides that trust shall be irrevocable and may not be altered amended revoked or terminated by x x acknowledges that x has no right or power whether alone or in conjunction with others in whatever capacity to alter amend revoke or terminate trust or any of the terms of trust in whole or in part or designate the persons who shall possess or enjoy the trust property or the income therefrom further x absolutely and forever relinquishes all possession and enjoyment of and right to the income from the trust property whether directly indirectly or constructively and every interest of any nature present or future in the trust property the reported value for gift_tax purposes of the company stock transferred to trust was dollar_figurec x retained an annuity interest in the grats for the two year term which was equal to dollar_figure percent of the net fair_market_value of the property thus the present_value of the retained payment equaled dollar_figured the terms of trust as adjusted for present_value provided that x received following annuity payments on d2 of year dollar_figuree on d1 of year dollar_figuref and on d1 of year dollar_figureg the total annuity payments in year year and year equaled dollar_figureh trust 2's only asset was the company stock which has never paid dividends to make the annuity payments to x trust borrowed funds from trust the beneficiaries of trust are c and d and the trustee of trust is b_trust did not have sufficient cash to fund the entire amount of the payments and in turn borrowed from b of the amounts paid_by trust to trust approximately dollar_figurei approximately was originally borrowed by trust from b as each annuity_payment became due from the grats established under trust to x a loan document with trust was drawn the loans were due in one year with stated_interest neither principal nor interest was ever repaid as each note became due it was extended for another year and the current year’s borrowing was added to it by the terms of trust the grats terminated on d1 of year when the final annuity_payment was made to x at that time the grats had not made any payment of principal or interest on the loans from trust the remainder trusts established under trust succeeded to the assets and liabilities of the grats when the note again became due on d1 of year another extension was executed extending the due_date on the payment of the principal and interest an additional five years to d1 of year tam-111549-99 two years after x transferred x’s company stock to trust x has the full value of the stock in cash and has reported no gain x is not exposed to any liability regarding the loans used to pay the annuity amounts law and analysis nothing in the analysis provided below is intended to state or imply that the facts described above do not constitute a sale of the company stock by x or trust to trust sec_1_1001-2 of the income_tax regulations provides that the amount_realized from a sale_or_other_disposition of property includes the amount of liabilities from which the transferor is discharged as a result of the sale or disposition sec_1_1001-2 states that in the case of a liability incurred by reason of the acquisition of the property this section does not apply to the extent that such liability was not taken into account in determining the transferor's basis for such property in revrul_85_13 1985_1_cb_184 an individual a created an irrevocable_trust t and funded t with shares of stock in corporation z in a’s basis in the shares was dollar_figurex on date when the fair_market_value of the corporation z shares was dollar_figurex w as trustee transferred the shares to a in exchange for a’s unsecured promissory note with a face_amount of dollar_figurex bearing an adequate rate of interest on date a sold the shares to an unrelated party for dollar_figurex the revenue_ruling concludes that a’s acquisition of the entire corpus of t in exchange for an unsecured note was in substance the economic equivalent of borrowing trust corpus and therefore a is treated as the owner of the trust under sec_675 and is considered to be the owner of the trust assets for federal_income_tax purposes furthermore the ruling concludes that the transfer of trust assets to a was not a sale for federal_income_tax purposes and a did not acquire a cost_basis in those assets under sec_1_1001-2 ex c an individual creates t a grantor_trust c is treated as the owner of the entire trust t purchases an interest in p a partnership c as the owner of t deducts the distributive_share of partnership losses attributable to the partnership_interest held by t when c renounces the powers that initially resulted in t being classified as a grantor_trust t ceases to be a grantor_trust and c is no longer considered to be the owner of the trust since prior to the renunciation c was the owner of the entire trust c was tam-111549-99 considered the owner of all the trust property for federal_income_tax purposes and c was considered to be the partner in p during the time t was a grantor_trust when t no longer qualified as a grantor_trust with the result that c was no longer considered to be the owner of the trust and trust property c is considered to have transferred ownership of the interest in p to t now a separate taxable entity at that time c’s share of p’s liabilities is dollar_figure on the transfer c’s share of partnership liabilities is considered as money received similarly in the present case x has created a grantor_trust and is treated as the owner of the entire trust and the owner of all the trust property thus although x has nominally transferred a shares of company stock to trust x remains the owner of the trust property for federal_income_tax purposes therefore when trust terminates and transfers a shares of company stock to the remainder trusts for c and d x is considered to have disposed of the company stock to the remainder trusts along with the associated liability assumed by the remainder trusts and x’s amount_realized includes the amount of liabilities from which x is discharged as a result of the disposition x argues that this case is distinguishable from example in sec_1_1001-2 because in that example t purchased an interest in p and c deducted the distributive_share of partnership losses attributable to the partnership_interest held by t while in the present case x did not deduct losses attributable to debt incurred by trust therefore x argues that x should not be considered the owner of all the trust property for federal_income_tax purposes and x should not be considered to have transferred ownership of the stock subject_to the liability to the remainder trusts x argues that instead trust should be treated as the owner of the stock and trust should be treated as the transferor of the stock subject_to the liability to the remainder trusts in addition x argues that the debt is incurred by reason of trust 2's acquisition of the stock and since under revrul_85_13 the amount of the debt did not increase trust 2's basis in the stock the liability should not be included in trust 2’s amount_realized under sec_1_1001-2 however although x did not deduct losses attributable to debt incurred by trust x received an annuity_payment from trust that was not includible in x’s income and thus x benefitted from the debt incurred by trust therefore we conclude that the present case is not distinguishable from example of sec_1_1001-2 because x was considered the owner of the stock for federal_income_tax purposes the exception in sec_1_1001-2 does not apply to the present case x not trust is the transferor of the stock on termination of trust tam-111549-99 and x did not incur the indebtedness in order to acquire the stock within the meaning of sec_1_1001-2 in addition x argues that the language of sec_1_1001-2 does not require that the debt be incurred by reason of the transferor’s acquisition of the property but merely be incurred by reason of any acquisition of the property therefore x states that regardless of whether x or trust is treated as the transferor of the stock to the remainder trusts the amount of the liability should not be included in x’s amount_realized because the debt was incurred by reason of trust 2's acquisition of company stock sec_1_1001-2 states that in the case of a liability incurred by reason of the acquisition of the property this section does not apply to the extent that such liability was not taken into account in determining the transferor's basis for such property we believe this language can only be reasonably read to refer to the transferor’s acquisition of the property we believe this case is substantially identical to example in sec_1_1001-2 sec_7805 issues a technical_advice_memorandum ordinarily is applied retroactively see dollar_figure of revproc_99_2 1999_1_irb_73 pincite relief under sec_7805 usually is granted only if a taxpayer relied to its detriment on a published position of the service or on a letter_ruling or technical_advice_memorandum issued to that taxpayer x’s arguments for favorable sec_7805 treatment are that a there has been no misstatement or omission of material facts by x b the facts related to the transactions described above are not materially different from the facts on which sec_1 a and revrul_85_13 are based c there has been no change in the applicable law since the transactions described above and d x acted in good_faith in relying on sec_1 a and revrul_85_13 and the retroactive application of an unfavorable holding would be to x’s detriment no ruling was issued to x nor did x reasonably rely on specific language in the cited regulation and revenue_ruling x relies on a literal application of sec_1_1001-2 taken out of context as discussed above x did not incur the indebtedness in order to acquire the stock within the meaning of the regulation thus as there was no acquisition by x x could not rely on sec_1_1001-2 a reading of the entire regulation clearly indicates a result adverse to x’s position the facts described above resemble those described in example in sec_1_1001-2 not those described in revrul_85_13 consequently x’s arguments do not support granting its request for sec_7805 relief tam-111549-99 a copy of this technical_advice_memorandum is to be given to x sec_6110 of the code provides that it may not be used or cited as precedent - end -


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 tege plr-101717-08 date date ----------------------------- legend legend trust ---------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------ state ---------------- statute ----------------------------------------------------------------- dear ------------------ this is in reply to the letter on behalf of the trust dated date requesting a ruling concerning whether certain disability benefits paid under sec_806 of the statute are excludable from the gross_income of recipients under sec_104 of the internal_revenue_code the code sec_401 of the statute requires employers in state to provide the pension benefits of the statewide defined_benefit_plan established by the statute sec_601 of the statute permits employers to withdraw from the statewide pension_plan if they establish and maintain a locally administered and financed alternative pension_plan that is subject_to sec_601 of the statute sec_601 of the statute provides that the members of such plan hired before on or after date shall be covered by the provisions of sections plr-101717-08 and in lieu of any other defined disability and pre-retirement death_benefits sec_803 and of the statute provide that a member who is not eligible for the normal retirement pension described in sec_403 or a local defined benefit retirement pension selected pursuant to sec_704 or provided pursuant to article of the statute and who becomes totally or occupationally disabled shall be retired from active_service for disability and shall be eligible to receive disability benefits under sec_806 of the statute the annual disability benefits provided are based on a certain percentage of a member's annual base salary paid to the member immediately preceding retirement and an additional_amount if the member had a spouse and dependent_children at the time of the disability sec_803 and b and a and b of the statute sec_806 of the statute provides that if a member who is otherwise eligible to apply for the disability retirement benefits under section is required to terminate the member's regular employment due to a total or occupational injury that is the result of an injury received while performing official duties or an occupational disease arising out of and in the course of the member's employment the member is eligible for a disability benefit in an amount provided for in section sec_806 of the statute states that the board shall promulgate rules that specify standards for determining whether a member's disability is the result of an injury received while performing official duties or an occupational disease arising out of and in the course of employment sec_804 of the statute states that the benefits payable under section or to any member who at the time of the award of such benefits is a member of a money purchase plan pursuant to this article shall be reduced by an amount that is the actuarial equivalent of the benefits such member receives from any such money purchase plan whether the benefits received from the money purchase plan are paid on a periodic basis or in a lump sum sec_61 of the code provides that except as otherwise provided by law gross_income means all income from whatever source derived including compensation_for services sec_104 of the code provides that gross_income does not include amounts received under workmen's_compensation acts as compensation_for personal injuries or sickness sec_1_104-1 of the income_tax regulations states that sec_104 of the code excludes from gross_income amounts received by an employee under a workmen's_compensation_act or under a statute in the nature of a workmen's_compensation_act that provides compensation to the employee for personal injury or plr-101717-08 sickness incurred in the course of employment sec_1_104-1 of the regulations also states that this exclusion does not apply to the amount received either to the extent that it is determined by reference to the employee's age or length of service or the employee's prior contributions even though the employee's retirement is occasioned by an occupational injury or sickness or to the extent that it is in excess of the amount provided in the applicable workmen's_compensation_act or acts the fact that the amount received as a disability retirement pension is computed with regard to the employee's salary prior to retirement does not disqualify the payment from being in the nature of workmen's_compensation see revrul_85_104 c b revrul_68_10 1968_1_cb_50 as authorized by sec_401 and sec_601 of the statute the trust withdrew from the statewide defined_benefit_plan and established a locally administered and financed pension_plan however because the plan does not separately provide defined disability benefits sec_601 requires participants in the plan to be covered by the benefits described in sec_806 of the statute the disability benefits provided under sec_806 of the statute are offset by the benefits funded under the plan pursuant to sec_804 of the statute based on the representations made and authorities cited above we conclude sec_806 of the statute limits benefits to a class of employees with service-incurred injuries or disease and the benefits are not determined with reference to the employee's age length of service or prior contributions accordingly sec_806 of the statute is a statute in the nature of a workmen's_compensation_act amounts paid under sec_806 of the statute as funded through the plan in the amount of the offset provided by sec_804 of the statute are excludable from the participant's gross_income under sec_104 of the code no opinion is expressed as to the federal tax consequences of the transaction under any other section of the code or statute other than those specifically stated above this ruling is directed only to the trust requesting it sec_6110 of the code provides that it may not be used or cited as precedent plr-101717-08 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 harry beker chief health and welfare branch office of division counsel associate chief_counsel tax exempt government entities


cag internal_revenue_service te_ge technical_advice_memorandum 4s os teql el uniform issue list taxpayer's name taxpayer's address taxpayer's identification_number year involved date of conference none held legend m n o issues whether the exemption of m under sec_501 c of the internal_revenue_code should be revoked if m’s sec_501 exemption is revoked should the service grant relief under sec_7805 of the code and if so for what taxable periods if m’s sec_501 exemption is revoked and it does not meet the requirements of sec_528 of the code may m file a form_1120 as a taxable membership_organization within the meaning of sec_277 facts m was incorporated under the laws of the state of n in the articles of incorporation provided that the purpose of m is the formation of a recreational club the special purpose of which shall be to acquire provide maintain and operate a club house boat house docks and other facilities necessary for such purposes designed for promoting recreation fellowship and safe boating and to build and construct such buildings and facilities as may be desired for the use benefit recreation and enjoyment of the members 200622v52 item of m’s exemption application submitted in stated its sources of income were certificates of beneficial_interest dues rent of lots rent of boat slips and sale of gasoline and oil in item of the exemption application m stated that its specific purposes were recreation and social activities in response to item of the exemption application inquiring as to the purposes for which expenditures are made m stated developing of our land construction of docks and boat slips and caretaker in response to item of the exemption application inquiring as to m’s activities during the past two years m stated boating skiing fishing hiking and camping out item 15a of the exemption application asking whether any part of m’s property is rented or leased to members m stated to members only the history section of m’s information booklet for year states that m was formed _ for the purpose of operating a nonprofit organization of families to promote recreation fellowship and safe boating on lake o m’s property consists of about -_ acres of land stretched along nearly a mile of shoreline the history section also states that activities sponsored include boat safety courses coast guard auxiliary inspections life saving and first aid training flotilla cruises picnics water sports activities boating instruction church service every sunday during the summer season and frequent gatherings of members families and guests the following facilities are offered to m members launching ramp pavilion rest room drinking water full-time management marine supplies gas and oil wet boat slip storage dry land boat storage lot rentals and protected swimming m owns all of the land used for residences and for boating recreational and social activities all m land and facilities are accessed through a gate that requires a pass code for entrance currently m owns residents on term of ten years and may be renewed for two additional terms of ten years although the amount of the lease rental may change m provides water garbage pick-up and maintenance of all common areas including roads lots the lots are leased to members on an annual basis the lease is for a have houses there are permanent lots of which written approval by the building and grounds committee is required for any clearing or cutting excavation remodeling replacement new_construction or any changes in the use of the lots some lots are restricted to houses while others may have a mobile home that meets specified criteria in an effort to blend with the houses the building and grounds committee conducts annual inspections of all buildings and building areas an inspection report is sent to all building owners who have items that need improvements and they are allowed days to make necessary repairs and maintenance a follow-up inspection is then made m’s treasurer estimates that m spends about percent of its time on social and boating activities and percent of its time on the maintenance of common residential areas data from the year under examination and m’s prior forms and 990-t show gross nonmember sales from the sale of gasoline and oil have consistently exceeded percent of the gross_receipts exclusive of initiation fees and capital contributions for m’s tax years beginning with the percentages have ranged from a low of ' in to a high of in m submitted a letter from the real_estate division of the corps of engineers citing the reason for the fuel services provided by m there was no commercial fuel or service facility on this portion of the lake the letter also stated that m was expected to discontinue the sale of gasoline if and when a commercial concession was established further m’s authorized representative stated the following although the gross_receipts were over the threshold net profit from the sale of gasoline is a small percentage of the total revenue because gasoline prices can fluctuate greatly therefore the use of gross_receipts alone can distort the actual impact of these sales upon m’s revenue stream accordingly these sales should not cause m to lose its tax exemption m has been examined only once previously the past examination was for the tax period ended december m has regularly filed forms and 990-t when applicable m’s exemption under sec_501 of the code should have been questioned in prior years and in particular the long term leasing of lots to members which is specifically prohibited in revrul_68_168 1968_1_cb_269 and resulted in a no_change_letter in a date communication to the service m acknowledged the leasing of lots could nullify its sec_501 exemption in a date communication to the service m stated it was in substantial agreement with the service about the issues in the request for technical_advice dated date m agreed its status as a sec_501 organization would be revoked on a prospective basis m should be a taxable membership_organization within the meaning of sec_277 of the code and m will begin to file form_1120 and pay income_tax on its net taxable_income law sec_501 of the code provides for the exemption from federal_income_tax of clubs organized and operated for pleasure recreation and other nonprofitable purposes substantially_all 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 of the income_tax regulations essentially repeats the language of sec_501 of the code but also states that in general this exemption extends to social and recreation clubs which are supported solely by membership fees dues and assessments however a club otherwise entitled to exemption will not be disqualified because it raises revenue from members through the use of club facilities or in connection with club activities sec_1_501_c_7_-1 of the regulations provides 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 tax exempt 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 revrul_58_589 1958_2_cb_266 discusses the various criteria for recognition of exemption under sec_501 of the code in order to establish that a club is organized and operated for pleasure recreation and other nonprofitable purposes there must be an established membership of individuals personal contacts and fellowship a commingling of the members must play a material part in the life of the organization revrul_58_589 also 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 etc may not be considered organized and operated exclusively for pleasure recreation or social purposes however a social_club will not be denied exemption merely because it receives income from the general_public that is persons other than members and their bona_fide guests or because the general_public on occasion is permitted to participate in its affairs provided such participation is incidental to and in furtherance of its general club purposes this is generally true where the receipts from nonmembers are no more than enough to pay their share of the expenses revrul_68_168 supra holds that a nonprofit organization that leases lots to its members on a long term basis does not qualify for tax exemption under sec_501 of the code the organization was formed to develop a lake and adjacent areas to provide facilities for the pleasure and recreation of its members the organization acquired substantial acreage and after developing recreational facilities on a portion thereof subdivided the remaining land into building lots which it leases to members for years application_for membership and choice of lot are embodied in a single form and each member must lease at least one lot the leased lots may be used for summer cabins or permanent residences or left vacant when a lease is executed the member pays the organization an amount based on the lot value and thereafter pays a nominal annual rental the organization’s receipts are primarily derived from initial payments and annual rentals its expenditures are for acquiring improving and maintaining its properties a lessee-member of the organization may transfer his leasehold interest only after obtaining written consent from the organization and the lessees of all adjacent lots revrul_68_168 cites sec_501 of the code and sec_1_501_c_7_-1 of the regulations which states that a club otherwise entitled to exemption will not be disqualified because it raises revenues from members through the use of club facilities or in connection with club activities the revenue_ruling also cites sec_1_501_c_7_-1 of the regulations which provides that a club which engages in business such as selling real_estate is not organized and operated exclusively for pleasure recreation and other nonprofitable purposes and is not exempt under code sec_501 revrul_68_168 then sets forth the following rationale and conclusion quukzzvve the subdividing and leasing of lots in the manner described constitutes engaging in business although the revenues from this activity are derived from the organization’s members only the revenues are not raised from the members’ use of recreational facilities or in connection with the organization’s recreational activities the conduct of such real_estate activity whether with members only or with the general_public is not in furtherance of any purpose covered by sec_501 of the code accordingly the organization does not qualify for exemption from federal_income_tax under that section revrul_75_494 1975_2_cb_214 holds that a club which provides social and recreational facilities whose membership is limited to homeowners of a housing development will be precluded from qualifying for exemption under sec_501 of the code because of owning and maintaining residential streets enforcing restrictive covenants or providing residential fire and police protection and trash collection service public law amended sec_501 of the code to allow social clubs to receive some outside income without jeopardizing their exempt status specifically the senate_finance_committee report states a social_club is permitted to receive up to of its gross_receipts including investment_income from sources outside of its membership without losing its exempt status however within thi sec_35 limit not more than of gross_receipts should be derived from the use of a social club’s facilities or services by the general_public sec_277 of the code provides that in the case of a non-exempt membership_organization that operates primarily to furnish services or goods to members deductions for the taxable_year attributable to furnishing services insurance goods or other items of value to members shall be allowed only to the extent of income derived during such year from members or transactions with members if such deductions exceed such income the excess shall be treated as a deduction attributable to furnishing services insurance goods or other items of value to members paid_or_incurred in the succeeding taxable_year sec_528 of the code provides that a homeowners_association as defined in subsection c shall be subject_to tax only on its non-exempt function income and shall be considered a tax exempt_organization for the purpose of any law that refers to organizations exempt from tax sec_528 sets forth the amounts percentages of tax on the non- exempt_function_income of a homeowners_association sec_1_528-8 of the regulations states an organization wishing to be treated as a homeowners_association under sec_528 of the code for a taxable_year must elect to be so treated the election shall be made by filing of a properly completed form 1120-h a separate election must be made for each taxable_year sec_1_528-8 of the regulations provides that if an organization is notified after the close of a taxable_year that its exemption for such taxable_year under sec_501 a of the code is being revoked retroactively it may make a timely election under sec_528 for such taxable_year such an election will be considered timely if it is made within months after the date of revocation analysis there are three independent bases for revocation of m’s tax exempt status under sec_501 of the code the first relates to the rental of lots to members which is definitively covered in revrul_68_168 supra this is not an exempt activity of a social_club the second ground for revocation of exemption is m’s maintenance of common roads and provision of trash collection services for which activities m devote sec_25 percent of its time according to m’s treasurer the third and final ground is m’s sale of gasoline and oil to nonmembers accounting for over percent of gross revenues for all years under examination we are aware of the letter from the corps of engineers citing the need for the fuel services provided by m and that m is expected to discontinue the sale of gasoline if and when a commercial concession is established however p l and the accompanying senate report make it clear the threshold for nonmember income is based exclusively on gross_receipts the financial data from the m’s forms and 990-t for the past and the current_year under examination show that m as presently organized and operated will not meet the income and expenditure requirements of sec_528 of the code in other words m will not meet the necessary percentages of exempt_function_income to qualify for exemption under this section therefore the filing of form 1120-h is not a realistic option inasmuch as m’s tax exemption under sec_501 of the code will be revoked the question is whether it can qualify as a taxable membership_organization within the meaning of sec_277 this determination is a factual one m is clearly a membership_organization and its activities primarily involve providing goods and services to its members accordingly when m’s sec_501 exemption is revoked it will be a taxable membership_organization within the meaning of sec_277 at that time m would be required to file form_1120 sec_7805 relief the commissioner tax_exempt_and_government_entities_division in the exercise of his discretionary authority has granted m’s request for relief under sec_7805 of the code in connection with the revocation of its tax exempt status under sec_501 for all taxable years up until the issuance of the revocation letter 2u52 conclusions m’s exempt status under sec_501 of the code should be revoked mis granted relief under sec_7805 of the code for all taxable years up until the issuance of a letter revoking its tax exempt status under sec_501 m may elect to file a tax_return as a homeowners_association described in sec_528 of the code but as it realizes it will not likely meet the requisite income and expenditure tests instead it is a taxable social or membership_organization described in sec_277 and should file form_1120 - end -