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 intl plr-142543-09 date date a ---------------------- ------------------------------------------------------------------------------ tax years year year dear----------------- --------------- ------- ------- this is in reply to a letter dated date requesting an extension of time under sec_301_9100-3 for a to elect the provisions of revproc_2002_23 2002_1_cb_744 for tax years the information submitted for consideration is substantially as set forth below the ruling contained in this letter is predicated upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as a part of the audit process a is a canadian citizen who established a canadian registered retirement savings_plan rrsp in year a became a u s resident in year a and her husband file a joint income_tax return a was not aware nor was she ever advised by her previous tax advisor that she had to make an election under paragraph of article xviii of the u s - canada income_tax treaty to defer u s taxation of income accruing in her rrsp or to file form_8891 for her rrsp until their current tax preparer started to prepare a’s and her husband’s joint_return for plr-142543-09 a states that the internal_revenue_service has not communicated with her in any way regarding her rrsp sec_301_9100-1 provides that the commissioner has discretion to grant a taxpayer a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301 -1 b provides that an election includes an application_for relief in respect of tax and defines a regulatory election as an election whose due_date is prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government in the present situation the election provided in revproc_2002_23 is a regulatory election within the meaning of sec_301_9100-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant a an extension of time provided that a satisfies the standards set forth in sec_301_9100-3 based on the facts and circumstances of this case we conclude that a satisfies the standards of sec_301_9100-3 accordingly a is granted an extension of time until days from the date of this ruling letter to elect the provisions of revproc_2002_23 for tax years pursuant to section dollar_figure of revproc_2002_23 the election once made cannot be revoked except with the consent of the commissioner for and all subsequent tax years until the tax_year in which a final distribution is made from the rrsp a must file a form_8891 for the rrsp for which the election is made as provided in sec_301_9100-1 the granting of an extension of time is not a determination that a is otherwise eligible to make the above-described election no ruling has been requested and none is expressed as to the application of any other section of the code or regulations to the facts presented a copy of this ruling letter should be associated with a’s and her husband’s amended tax returns for tax years plr-142543-09 this ruling is directed only to the taxpayer who has requested it sec_6110 provides that it may not be used or cited as precedent sincerely _______________ m grace fleeman senior technical reviewer cc intl br1 enclosure copy for purposes


office_of_chief_counsel department of the treasury i n t e r n al r e v e n u e s e r v i c e washington d c date number info release date index no control no conex-151549-04 the honorable dennis a cardoza u s house of representative washington dc attention gary palmquist dear mr cardoza this letter responds to your inquiry of date on behalf of the ------------------ ------------------------- city the letter expresses your concerns over whether the city can transfer amounts from its eligible governmental sec_457 deferred_compensation plan to a governmental defined_benefit_plan for the purchase of permissive service credits without tax consequences your constituent’s letter indicates that the city is concerned about whether the transfer would affect the plan’s eligible status or cause its employees to be taxed on the transferred amounts in the year of the transfer we hope the following information will be of assistance to you starting in changes made by the economic_growth_and_tax_relief_reconciliation_act_of_2001 publaw_107_16 egtrra permit in-service trustee-to-trustee transfers from eligible governmental sec_457 plans to governmental defined benefit plans to purchase permissive_service_credit under sec_457 of the internal_revenue_code code in general no amount shall be includible in gross_income by reason of a direct trustee-to-trustee transfer to a defined benefit governmental_plan as defined in sec_414 if such transfers are for the purchase of permissive_service_credit as defined in sec_415 under such plan under sec_415 there are specific rules for determining whether the service_credit is in fact permissive_service_credit that meets the requirements of the code prior to egttra a participant in an eligible sec_457 plan was not permitted to make such a transfer on date the irs published final regulations td in the federal_register fr the regulations provide in part that the value of the amount transferred into the new plan must be equal to the amount transferred out of the prior plan in addition treasury and irs concluded that sec_415 of the code does not apply to a such a transfer in any case in which the actuarial value of the benefit increase conex-151549-04 that results from the transfer does not exceed the amount transferred sec_1 b of the regulations whether an amount purchased under the defined_benefit_plan exceeds the amount transferred from the eligible governmental b plan and causes sec_415 to apply to a governmental_plan is an issue that can realistically be answered only on a case by case basis with the facts and formulas available for an actuarial evaluation to the extent the benefits purchased under the defined_benefit_plan were greater than the amount transferred from the eligible sec_457 plan taxable consequences could result from the excess however it is unlikely that the eligible status of the b plan would be affected by such an excess your constituent’s letter seems to indicate that the -------------------------may already have applied for a ruling from the irs on this matter due to disclosure issues we do not have access to this information a request for a private_letter_ruling on the sec_415 issue would be considered by the tax exempt and government entities tege division of the commissioner’s office and inquiries should be forwarded to that office i hope this information is helpful if you have additional questions please contact me or -----------------------at -------------------- sincerely robert d patchell chief qualified_plans branch office of the division counsel associate chief_counsel tax exempt and government entities


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 b02 plr-129680-07 date date ------------- ------------------- ------------------------------------- legend x ------------------------------------------ state date dear -------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting that the service grant x an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an entity classification election a limited_liability_company formed on date under the laws of state x inadvertently failed to file a form_8832 entity classification election electing to treat x as a corporation for federal_income_tax purposes effective date 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 internal_revenue_code sec_301_7701-3 provides that an eligible_entity with at least two members may elect to be classified as either an association and thus a corporation under the facts submitted and representations made are summarized as follows x is sec_301_7701-2 generally provides that a business_entity is any entity sec_301_7701-3 further provides that so long as a business_entity is not sec_301_9100-1 provides that the commissioner may grant a reasonable plr-129680-07 sec_301_7701-2 or as a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner classified as a corporation under sec_301_7701-2 or an eligible_entity it may elect its classification for federal tax purposes sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 by filing form_8832 entity classification election the effective date of the election can not be more than seventy-five days prior to the date the form is filed and can not be more than twelve months after the date on which the election is filed 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 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 conclude that the requirements of 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 file a form_8832 with the appropriate service_center to elect to be treated as a corporation for u s income_tax purposes effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose federal tax consequences of the facts described above under any other provision of the code except as specifically set forth above no opinion is expressed concerning the based solely on the information submitted and the representations made we sec_301_9100-1 through provide the standards the plr-129680-07 provides that it may not be used or cited as precedent being sent to x’s authorized representative this ruling is directed only to the taxpayer requesting it sec_6110 pursuant to a power_of_attorney on file with this office a copy of this letter is sincerely william p o’shea associate chief_counsel passthroughs and special industries copy of this letter copy for sec_6110 purposes enclosures cc


department of the treasury internal_revenue_service mandatory review mc dal commerce street dallas tx date date release number release date legend org - organization name ea ee org address date employer_identification_number person to contact id number contact numbers voice fax certified mail - return receipt requested dear in a determination_letter dated november 19xx you were held to be exempt from federal_income_tax under sec_501 of the internal_revenue_code the code as a subordinate organization to the org pursuant to a group ruling group exemption number based on recent information received we have determined you have not operated in accordance with the provisions of sec_501 of the code accordingly your exemption from federal_income_tax is revoked effective january 20xx this is a adverse determination_letter with regard to your status under sec_501 of the code final we previously provided you a report of examination explaining why we believe revocation of your exempt status is necessary at that time we informed you of your right to contact the taxpayer_advocate as well as your appeal rights on march 20xx you signed form 6018-a consent to proposed action agreeing to the revocation of your exempt status under sec_501 of the code as a taxable entity you are required to file form s u s corporate_income_tax return with the appropriate service_center indicated in the instructions for the return you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please contact the person whose name and telephone number are shown at the beginning of this letter sincerely nanette m downing director eo examinations oe eer ane government entities division org address department of the treasury internal_revenue_service town country commons drive attention te_ge eo 7956as chesterfield mo date taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe an adjustment of your organization's exempt status is necessary if you do not agree with our position you may appeal your case the enclosed publication the examination process explains how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process if you request a conference we will forward your written_statement of protest to the appeals_office and they will contact you for your convenience an envelope is enclosed if you and appeals do not agree on some or all of the issues after your appeals_conference or if you do not request an appeals_conference you may file suit in united_states tax_court the united_states court of federal claims or united_states district_court after satisfying procedural and jurisdictional requirements as described in publication letter catalog number 34801v you may also request that we refer this matter for technical_advice as explained in publication exempt_organization appeal procedures for unagreed issues lf a determination_letter is issued to you based on technical_advice no further administrative appeal is available to you within the irs on the issue that was the subject of the technical_advice if we do not hear from you within days from the date of this letter we lf you accept our findings please sign and return the enclosed form_6018 consent to proposed adverse action we will then send you a final letter modifying or revoking exempt status will process your case on the basis of the recommendations shown in the report of examination and this letter will become final in that event you will be required to file federal_income_tax returns for the tax period s shown above file these returns with the ogden service_center within days from the date of this letter unless a request for an extension of time is granted file returns for later tax years with the appropriate service_center indicated in the instructions for those returns you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter the most convenient time to call if we need to contact you if you write please provide a telephone number and letter catalog number 34801v thank you for your cooperation sincerely nanette m downing acting director eo examinations enclosures publication publication form_6018 report of examination envelope letter catalog number 34801v form 886a department of the treasury internal_revenue_service explanation of items schedule no or exhibr form 6018-a name of taxpayer org 20xx 20kx year period ended legend org organization name state state ra through bm cpa cpa co-1 through co-8 xx date address address city - city agent agent through companies ra-1 ra-2 ra-3 bm-1 through bm-9 issues issue whether org org’ doing business as co-1 meets the requirements for exemption under sec_501 of the internal_revenue_code irc issue whether org operated exclusively for purposes listed in sec_1 c - c background information facts org is a veterans organization that holds a group exemption for veterans organizations described in r c sec_501 hereinafter org will be referred to as co-2 co-2 web page states that its mission is to co-2 website lists several advantages to be included in its group exemption as a subordinate organization these advantages include selling liquor operating on sundays holding bingo_games and obtaining liquor licenses in dry counties co-2 website markets the org organization and its group exemption to existing bars and restaurants located in state as a way to avoid restrictive local liquor laws and as a way to operate on a tax-exempt basis co-2 website states that it will assist in a club's formation and application_for a liquor license co-2 refers to its subordinate organizations as clubs co-2 website requires that its clubs have at least veteran members it also requires its subordinate organizations to send it proof of all veteran affiliation one question that appears on co-2 web page is do have to be a member's only club the response is a lthough the tax advantages of being a members only club are greater we do not require you to limit your bar to members your doors may be kept open by incorporating separately you keep control of your own club to keep your doors open or closed we only ask that you honor members of other chapters it is your choice if you wish form 886-a rev department of the treasury - internal_revenue_service page -1- form 886a department of the treasury- internal_revenue_service explanation of items schedule no or exhibit form 6018-a name of taxpayer org year period ended 20xx 20xx org’s formation and purpose org doing business as co-1 was incorporated by bm-1 and bm-2 according to org’s articles of incorporation dated april 20xx the corporation was formed to unite veterans and their families with other veteran families the articles further provide org is a membership_organization in the event of dissolution the assets of the corporation will be distributed to other war_veteran organizations covered under sec_501 of the internal_revenue_code org is a subordinate organization of co-2 effective october 20xx org's governing documents include the org constitution and by laws a governing instrument provided to it by co-2 according to section iii of the bylaws for org corporations org’s stated purpose is these purposes include but are not limited to the following a helping fellow veterans and their families receive the benefits for which they are entitled b finding employment for veterans and their families c helping the homeless veterans find housing and re-adjust to civilian life d carrying on programs to perpetuate the memory of deceased veterans and members of the armed_forces and to comfort their survivors e sponsoring or participating in activities of a patriotic nature f providing social and recreational activities for its members g assisting the disabled and needy war veterans and their dependents h promoting awareness of the prisoners of war and the missing in action issues and j government promoting the general welfare and prosperity of all org corporations presenting and supporting the purposes of org before the public and the according to corporate annual registration reports filed by org between june 20xx and july 20xx with the state secretary of state officers and board members of the corporation are as follows 20xx 20xx 20xx 20xx form 886-a rev department of the treasury - internal_revenue_service page -2- form 886a department of the treasury - explanation of items internal_revenue_service schedule no or exhibn form 6018-a name of taxpayer org year period ended 20xx 20xx president bm-1 bm-1 bm-1 bm-1 vice-president bm-3 none named none named bm-4 secretary bm-5' none named none named bm-3 treasurer bm-5 none named none named none named bm-1 bm-1 board member board member board member bm-3 bm-3 bm-3 bm-1 bm-1 bm-3 bm-5 bm-5 bm-5 bm-5 the corporation’s current registered agent is bm-1 address city state org’s business operations business activities and members history and background an operational interview was conducted with bm-1 bm-3 and cpa on october 20xx cpa has been designated by the corporation as its authorized representative for the purpose of the examination by execution of form_2848 power_of_attorney and declaration of representative signed by bm-1 on october 20xx form_8821 tax_information_authorization was also signed by bm-1 on october 20xx authorizing bm-3 to inspect and receive confidential tax information for tax matters related to this examination the operational interview revealed that co-1 is the first bar owned by bm-1 bm-1 purchased the bar as a means to supplement his retirement income when he purchased the bar it was a co-3 organization an organization exempt under sec_501 of the internal_revenue_code the previous owner of the bar bm-6 and bm-1 met and the topic of purchasing the bar came up in conversation there is no mortgage on the property bm-1 made the purchase by making monthly payments to the previous owner bm-1 does not have the purchase agreement related to the sale purchase however he did provide the deed of release full showing the release x ke kk the annual registration report dated july 20xx statement of correction provides that the authorized officer for signatory purposes is bm-7 title of secretary form 886-a rev department of the treasury - internal_revenue_service page -3- form_886 a department of the treasury - internal_revenue_service explanation of items schedule no or exhibit form 6018-a name of taxpayer org year period ended 20xx 20xx of the property effective october 20xx pursuant to deed_of_trust entered into by the parties bm-6 and bm-1 the deed_of_trust is dated april 20xx bm-1 provided that while co-1 was operating as a co-3 organization when he purchased it the previous owner owed such a substantial debt to the co-3 parent organization that bm-1 said he had to convert to org all of the paperwork associated with converting the bar to a org as a subordinate organization eg the application_for membership to org the articles of incorporation and the application_for the liquor license was completed by bm-1’s then girlfriend bm-1 is unaware of the former girlfriend’s current whereabouts he did not maintain copies of any of the paperwork related to applying for membership in the org it was later transferred to bm- the former girlfriend obtained the original liquor license 1’s name cpa responding to questions regarding encumbrances on liquor licenses such as licenses being only offered to charities and or have limitations with regard to package liquor sales offered that distributors sell to bars at higher prices than they do convenience stores the bar may sell liquor to go however they do not do so very often when they do it is usually after last call’ they do not do so often as it encourages drinking and driving liquor licenses are not available to for-profit establishments without the sale of food the establishment to qualify must have a full kitchen and a full menu bm-8 advised that the rule is relaxed for exempt_organizations as for example org co-1 does not have a full kitchen or menu bm-1 provided that his understanding of the requirements for operating as an organization exempt under sec_501 means he has to operate the corporation as a membership_organization similar to the co-4 his understanding of the benefits of being affiliated with the org organization is e socialization conventions networking meet other veterans newsletter subscription co-2 advised about the form_990 filing requirement in fact they filled out the first few form 990s for the corporation the first few years bm-1 does not believe there was a charge for the service in 20xx or 20xx the corporation hired an accounting service to prepare its form 990s it continues to use an independent accounting service to prepare the information returns bm-1 has not been involved with any exempt_organizations previously as a volunteer employee owner or administrator he does however have experience as a commercial form 886-a rev department of the treasury - internal_revenue_service page -4- form_886 a department of the treasupy internal_revenue_service explanation of items schedule no or exhibit form 6018-a name of taxpayer org year period ended 20xx 20xx business owner he owns co-5 bm-1 is a high school graduate he also completed a year apprenticeship with the plumber’s local facility org's primary activity is running a bar org operates its business on a cash_basis ie it only took cash and no credit card payments co-1 d b a co-1 is located at address city state the building’s facade exhibits signs reflecting the names org and co-1 nothing on the building’s fagade provides for it being a members only or even a member’ facility the facility consists of approximately - big_number sq ft of space which includes a full service bar assets identified within the facility are a newer flat screen color television another standard television about two commercial hotplates or portable stoves one small microwave a bar bar stools tables with about three chairs each two coin operated pool tables a beer cooler refrigerator electronic dart machine pinball type gaming machine juke box dorm size refrigerators another commercial cooler a chest freezer cash register a multiple video gaming unit miscellaneous neon liquor signs and a coffee pot room for inventory and two restrooms there are chips hanging behind the bar miscellaneous photographs of bar patrons and sport team schedule eg kc chiefs football team all of the assets are located in the bar area there is a store org’s hours of operation are a m to a m monday through saturday sunday bar hours are a m to p m org is open to members and nonmembers ie the general_public patronage of the facility varies by day of week time of year and weather since the variables are so great the corporation is not able to provide an estimate of the number of customers it serves daily in sheet to gauge its patronage by the general_public it does not maintain a log or sign membership the organization considers a veteran his her spouse and their children over to be eligible members other relatives such as grand children parents cousins aunts and uncles are not eligible the corporation to confirm its membership provided a member roster containing ten names exhibit a the member roster was faxed over from co-2 on october 20xx according to the facsimile stamp none of the corporation's officers are included in the member roster including bm-8 and bm-1 who both claim to be members bm-8 advised that it is probably because the list has not been updated noting the member list only has ten names on it bm-8 advised that her recent check form 886-a rev department of the treasury - internal_revenue_service page -5- form_886 a department of the treasury - internal_revenue_service explanation of items schedule no or exhibit form 6018-a name of taxpayer org 20xx 20kx year period ended october 20xx with co-2 provided org actually has members despite there only being ten names on the list the corporation provided membership cards for the ten people on the member list exhibitb the cards were sent pursuant to the request for a member roster and were forwarded to org by postal mail subsequent to that request according to bm-8 noting the corporation and not the member is in possession of the membership card bm-8 advised org’s recordkeeping requires it to keep a duplicate of the membership cards and since the cards presented were the only ones the org parent sent the corporation kept them the cards correspond to the names on the member roster bm- 8’s attempts to contact the organization to secure an updated member roster from co-2 during the field visit were unsuccessful however in response to an information_document_request idr dated october 20xx exhibit c bm-8 provided a written_statement bm-3 called 20xx she called org again they told her that they did not fax 20xx 20xx rosters because they are the same as the 20xx roster’ - they did not respond on november the corporation provided that other applications for becoming members of org are pending submission to co-2 noting that bm-8’s is one of the pending applications she was asked if she had only just become a member bm-8 responded that she and her husband became members of org when the organization converted from a co-3 to org she could not explain why she and her husband’s names are not on the member roster but since they aren't they just re-applied bm-8-9 membership applications are dated august 20xx exhibit d noting all of the applications are dated beginning the end of august through the beginning of september 20xx bm-8 advised that she just started signing people up because of a letter from co-2 to start signing more people up the corporation was unable to produce such a letter additionally neither bm-8 nor bm-1 are veterans however bm-8 pointed out that her husband is a veteran there is no application_for membership pending for bm-1 there are no separate levels of membership new applications and a membership joining fee of dollar_figure are forwarded to co-2 members are required to pay their own joining fee the corporation provided there is no annual membership fee or dues recruitment for new members is accomplished by signs in the bar open enrollment for org permanent membership cards are issued by co-2 until the permanent membership card is issued a part of the application_for membership form serves as a temporary membership form all of the pending applications are in tact ie the portion to serve as a temporary membership card is still attached form 886-a rev department of the treasury - internal_revenue_service page -6- form_886 a department of the reas internal_revenue_service explanation of items schedule no or exhibit form 6018-a name of taxpayer org 20xx 20kx year period ended the corporation assumes that veteran status and period of active_duty service is confirmed by co-2 based on the dd information provided in the application org does not confirm such status and length of service org does not have a sign-in book for members or nonmembers to sign when they use the organization's facilities however the corporation maintains one of the advantages of being a member of org is the discounted liquor prices although members and nonmembers pay the same price for food members of other org chapters are afforded the same benefits as org’s members the corporation maintains the revenue from such sales is as well considered in member receipts the corporation provided its current pricing list exhibit e and the pricing list in effect during 20xx and 20xx exhibit f no separate liquor prices are noted for members operations and activities the bar is operated by volunteers volunteers are bm-5 ra-1 and ra-2 occasionally all tend bar they receive tips only no wages according to persons interviewed the corporation does not track the tips bm-9 is at the bar on saturdays and every other sunday and thursday ra-3 is the only employee currently he formerly worked for the organization as a volunteer the week of october 20xx was his second week on payroll ra-3 was put on the corporation’s payroll to provide record of earned_income in order for ra-3 to claim dependent exemptions for his children he works on monday wednesday friday saturday and sunday nights from pm until close all other times either bm-4 or bm-3 is there bm-8 is also at the bar in the mornings from until about to set things up for the day she remains at the bar until wendy or whoever is working that day comes in to work tables are waited and food is prepared by the bartender on duty this person is also responsible for clean up bm-1 stated he receives little to no compensation rather receipts are put back into the building and operations he no longer considers the corporation a retirement investment as it is more trouble than anything during the operational interview the corporation when describing member benefits provided its activities consist of fundraiser events sending care packages to soldiers overseas and social activities such as the annual fish fry when dinner is prepared for org’s members and their families flags are placed on the graves of local veterans on veteran’s day the corporation maintains it has an ongoing outreach to active_duty soldiers sending them care package sec_3 - times per year providing as evidence a flag form 886-a rev department of the treasury - internal_revenue_service page -7- form_8 a department of the ‘treasury internal_revenue_service explanation of items schedule no or exhibit form 6018-a name of taxpayer org 20xx 20xx year period ended and plaque signed by the soldiers of a troop currently serving in iraq as their thanks for its support upon further inquiries and observations the corporation provided one of the troop’s members is a relative of bm-3 org holds its board_of directors’ meetings every three months the corporation provided during the operational interview that attendees used to be bm-5 bm-3 and bm-1 however currently meetings are attended by only bm-8 and bm-1 meeting minutes for board meetings held from january 20xx through july 20xx were provided for review the minutes of the 20xx 20xx and 20xx meetings are exhibit g the minutes provide no specific dates and do not provide any detail with regard to attendees as well they are not signed by any officer or member of the board they provide the corporation’s activities were as follows date of minutes january 20xx___ april 20xx july 20xx october 20xx_ annual fish fry october 20xx __ annual fish fry january 20xx_ annual chili cook off proceeds to meals on activity chili cook off proceeds to meals on wheels ball tournament proceeds to co-6 co-7 proceeds to co-8 date of activity january 20xx may 20xx july 20xx november 20xx none provided january 20xx wheels april 20xx ball tournament proceeds to co-8 pitch tournament proceeds to be spent on flags july 20xx to be placed on graves in 20xx april 20xx july 20xx january 20xx__ october 20xx_ annual fish fry and adopting veterans for planning and organization of disbursing flags at local cemeteries in honor of veterans pitch tournament proceeds split between flags july 20xx and adopt a veteran at christmas christmas annual chili cook off proceeds to meals on wheels october 20xx january 20xx none provided april 20xx july 20xx org’s financial information k the organization presented two meeting minutes dated october 20xx there is no indication as to whether one is a continuation correction etc of the other form 886-a rev department of the treasury - internal_revenue_service page -8- form_8 a department of the treasury internal_revenue_service explanation of items schedule no or exhibit form 6018-a name of taxpayer org year period ended 20xx 20xx information obtained from bm-1 and bm-3 during the initial telephone contact with the corporation on october 20xx includes the following bm-3 is the bar manager she prepares a spreadsheet monthly detailing the revenue and expenses of the organization using an excel program set up by her daughter the detail is prepared on her home computer and the spreadsheets along with bank statements which are reconciled monthly are maintained in her home it is the documentation that is provided to the return preparer for preparation of the form_990 and the employment_tax returns the organization does not receive cancelled checks however there are copies provided with the bank statements bm-8 s spreadsheet identifies receipts that are from members member receipts are identified by using a special key on the cash register the member identifies him or herself by their identification card or face recognition because of their frequent visits to the establishment bm-8’s spreadsheet further breaks the receipts down by source for example cigarettes beer food and liquor and payment type cash or checks supporting documentation eg receipts invoices cash register receipts etc that support the spreadsheet are given to bm-1 the corporation is also required to file sales_tax returns with the state the returns are also in the possession of bm-1 with regard to the sales_tax returns the corporation provided during the operational interview that sales_tax is paid on all receipts including member receipts the corporation was advised by co-2 of a requirement to keep a separate_accounting of member and non-member receipts however neither bm-1 nor bm-8 understand the purpose of such accounting additionally neither bm-1 or bm-8 knows whether or not the receipts reported on form_990 include revenue from both member and non-member sources neither is aware of a requirement to file form 990-t to accommodate tax_liabilities associated with non-member receipts additional information provided includes the following fundraisers are used to buy items for care packages sent to active_duty military troops and to accommodate related mailing costs some of the corporation’s revenues are donated to charitable organizations such as the cancer foundation in the name of veterans affected by cancer and meals on wheels as some veterans in town use the service fundraiser and special event revenue is deposited with general receipts cash receipts are deposited into the organization’s bank account every week monday until they are deposited they are locked in a cabinet in bm-8’s form 886-a rev department of the treasury - internal_revenue_service page -9- department of the ne internal_revenue_service explanation of items form_886 a name of taxpayer org schedule no or exhibit form 6018-a year period ended 20xx 20xx house the corporation has no procedure to cross check the weekly receipts tally with receipts deposited bm-1 has check writing authority bm-8 has a signature stamp to use in lieu of bm-1’s actual signature bm-1 is not required to review checks invoices or other billings against payment made cash expenditures are recorded in bm-8’s spreadsheet and receipts for such are maintained by the corporation there is no formal or official petty cash fund cash purchases are taken from the cash register to account for inventory on hand bm-8 said she keeps a clipboard in the store room where anyone taking anything out is required to log it off the clipboard so she knows at all times exactly what is in the store room she does not know whether the beginning or ending inventory is included in the preparer’s cost_of_goods_sold computation the preparer never asked her for beginning and ending inventory amounts the corporation has a sam’s warehouse club membership in the name of co- receipts for such purchases are maintained with the cash receipts e e e e e e per the 20xx and 20xx form_990 of org the corporation’s only revenue source in 20xx was from gross_sales of inventory in 20xx there was also a small amount of interest revenue the corporation’s 20xx sales_tax returns provide its 20xx gross_receipts were dollar_figure the spreadsheet prepared by bm-8 detailing the source of the receipts provides only liquor and food sales were allocated between member and non-members cigarettes were not according to the spreadsheets members consumed of liquor and of the food sold in the bar total member liquor receipts in 20xx were dollar_figure and food dollar_figure gross_receipts per the corporation’s 20xx sales_tax returns total dollar_figure according to the spreadsheets attached to the returns members consumed of liquor and of the food sold in the bar total member liquor receipts in 20xx were dollar_figure and food dollar_figure in item of the 20xx idr the corporation was asked to provide cash register tapes to support the allocations on the spreadsheets accompanying the sales_tax returns the corporation provided a written response to the request cash register tapes were not kept information from them is entered into the spreadsheet and then the tapes are thrown away the organization was not aware that they should be kept they will be from now on form 886-a rev department of the treasury - internal_revenue_service page -10- form 886a department of the treasury- internal_revenue_service explanation of items schedule no or exhibit form 6018-a name of taxpayer org year period ended 20xx 20xx item of the 20xx idr asked the organization to provide the two week sign in roster that was started on october 20xx plus cash register receipts for the corresponding period in order to gauge the corporation’s volume of patronage the corporation returned exhibit h the date range of the entries on the form is october 20xx through november 20xx the instructions given the corporation were to have every person entering the bar sign in and indicate their status eg member non- member or guest of member bar receipts which the corporation claims it now maintains were not provided as requested the corporation’s written response is exhibit the corporation’s gross_profit from the sales of inventory is as shown per form_990 20xx 20xx gross_sales of inventory less returns and allowances less cost_of_goods_sold gross_profit from sales of inventory cost_of_goods_sold reported in part line 10b of the respective years’ form_990 per the instructions should include items usually included in a cost_of_goods_sold computation such as direct and indirect labor materials_and_supplies consumed freight-in and a proportion of overhead expenses where applicable the return provided no insight into items included in the cost_of_goods_sold computation as it is reflected on the returns including information with regard to beginning and ending inventories or returns and allowances profits from the corporation’s sales are reported in part line 10c of form_990 a schedule is required which according to form_990 instructions is to include a breakdown of the items sold for example sales of food souvenirs electronic equipment uniforms or educational publications no such schedule is included with either return the corporation reported the following expenses in part ii of its 20xx and 20xx form_990 salaries and wages legal fees supplies equipment rental and maintenance taxes and licenses office expense 20xx dollar_figure h a h a a a h p form 886-a rev department of the treasury - internal_revenue_service page -11- form 886a department of the ‘treasary - internal_revenue_service explanation of items schedule no or exhibit form 6018-a name of taxpayer year period ended org 20xx 20xx event expenses pest control utilities miscellaneous expenses total salaries and wages supplies equipment rental and maintenance depreciation depletion etc taxes and licenses office expenses event expenses pest control utilities repairs maintenance miscellaneous expenses total 20xx w w e k p i h h h a a a a a a r p a p i f i the expenses tracked on the spreadsheets prepared by bm-8 have been analyzed the analysis is found in exhibit j for 20xx and exhibit k for 20xxexpenses a summary dated october 20xx which was signed by bm-3 and witnessed by cpa and agent internal revenue_agent for the irs attesting to the facts taken from the statements offered during the operational interview on october 20xx by bm-3 and bm-1 is included as exhibit l a statement provided by bm-1 addressing the decision to join org and the requirement for the corporation to have members is exhibit m tax exemption - veterans organizations law and analysis prior to the enactment of r c sec_501 by public law 1972_2_cb_675 many veterans organizations qualified for exemption from federal_income_tax under r c sec_501 because most of the traditional activities of these organizations were recognized by the irs as primarily promoting social welfare staff of joint comm on taxation cong historical development and present law of the federal tax form 886-a rev department of the treasury - internal_revenue_service page - form_886 a department of the treasury - internal_revenue_service explanation of items schedule no or exhibit form 6018-a name of taxpayer org year period ended 20xx 20xx exemption for charities and other tax-exempt organizations jcx-29-05 no comm print 20xx the traditional activities of veterans organizations that were social welfare organizations included promoting patriotism preserving the memory of those who died in war and assisting veterans in need id a veterans organization whose primary activity consisted of operating social facilities for its members was not able to qualify for exemption as a sec_501 social_welfare_organization but it could qualify as a social_club under sec_501 revrul_66_150 1966_1_cb_147 s rep no 92d cong 2d sess reprinted in 1972_2_cb_713 h_r rep no 92d cong 2d sess in congress enacted sec_501 and sec_512 to address the concern that a veterans organization exempt under sec_501 or may be subject_to unrelated_business_income_tax on the provision of insurance to its members s rep no 92d cong 2d sess reprinted in 1972_2_cb_713 sec_512 excludes amounts attributable to or set_aside by a sec_501 veterans organization for the payment of life sick accident_or_health_insurance benefits for their members and their members’ dependents public law 1972_2_cb_675 the sec_501 exemption requirements in general sec_501 of the internal_revenue_code provides for the exemption from federal_income_tax of a post or organization of past or present members of the united_states armed_forces if it is a organized in the united_states or any of its possessions b at least percent of its members are past or present members of the armed_forces_of_the_united_states c substantially_all of its other members are individuals who are cadets or are spouses widows widowers ancestors or lineal_descendants of past or present members of the armed_forces of the unites states or of cadets and kk k wk ok before the enactment of the tax reform act of there was no tax on the insurance activities of the veterans’ organizations since the unrelated_business_income did not apply to social welfare organizations and social clubs however the act extended the application of the unrelated_business_income_tax to virtually all exempt_organizations including social welfare organizations and social clubs s rep no 92d cong 2d sess reprinted in 1972_2_cb_713 form 886-a rev department of the treasury - internal_revenue_service page - form 886a department of the ‘treanay- internal_revenue_service explanation of items schedule no or exhibn form 6018-a name of taxpayer org year period ended 20xx 20xx d no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual membership requirements under sec_501 at least percent of an organization’s members must be past or present members of the armed_forces_of_the_united_states veterans sec_501 does not define the term armed_forces_of_the_united_states the regulations under sec_501 likewise do not define the term sec_7701 of the code however defines armed_forces to include all regular and reserve components of the uniformed_services which are subject_to the jurisdiction of the secretary of defense the secretary of the army the secretary of the navy or the secretary of the air force and the coast guard in addition r c sec_501 requires that substantially_all other members of an organization be cadets or spouses widows widowers ancestors or lineal_descendants of veterans or cadets according to the senate report accompanying the legislation substantially_all mean sec_90 percent see s rep no cong 2d sess reprinted in 1972_2_cb_713 therefore of the percent of the members that do not have to be veterans percent must be cadets or spouses etc consequently no more than percent x of an ilr c sec_501 organization’ s total membership may consist of individuals not mentioned in the statute ’ neither r c sec_501 its legislative_history nor the regulations under r c sec_501 define what it means to be a member of a veterans organization however whatever the organization requires for one to become a member the organization must maintain records tracking who its members are and the proportions in the various categories of membership permitted under sec_501 member of armed_forces cadet relative etc to substantiate that its members are veterans or other permitted members see r c sec_6001 and sec_1 -1 c kk kek ke prior to 20xx ancestors and lineal descendent were not included in the statutory list of persons permitted to be members in 20xx congress amended sec_501 to include ancestors or lineal descendents of present or former members of the united_states armed_forces or cadets in the statutory list of individuals who may be members of an organization the regulations have not been updated to reflect this change nor do they reflect the statutory change eliminating a requirement that veterans be veterans of war sec_6001 of the code provides that every person liable for any_tax imposed by the code or for the collection thereof shall keep adequate_records as the secretary_of_the_treasury of his delegate may from time to time proscribe every organization exempt from tax under sec_501 and subject_to the unrelated footnote continues next page form 886-a rev department of the treasury - internal_revenue_service page -14- form_886 a department of the a - internal_revenue_service explanation of items schedule no or exhibit form 6018-a name of taxpayer org year period ended 20xx 20xx operational_test sec_1_501_c_19_-1 of the regulations provides that an organization exempt under sec_501 must be operated exclusively for one or more of the following purposes to promote the social welfare of the community as defined in sec_1_501_c_4_-1 of the regulations to assist disabled and needy war veterans and members of the united_states armed_forces and their dependents and widows and orphans of deceased veterans to provide entertainment care and assistance to hospitalized veterans or members of the armed_forces_of_the_united_states to carry on programs to perpetuate the memory of deceased veterans and members of the armed_forces and to comfort their survivors to conduct programs for religious charitable scientific literary or educational_purposes to sponsor or participate in activities of a patriotic nature to provide insurance benefits for their members or the dependents of their members or both or to provide social and recreational activities for their members sec_1 c social and recreational activities for members while sec_1_501_c_19_-1 does not address what it means to exclusively provide social and recreational activities for members it is similar to the exempt_purpose contained in r c sec_501 as both provisions permit an exempt_organization to operate social and recreational facilities for its members in fact prior to the enactment of ilr c sec_501 a veterans organization whose primary activity consisted of operating a bar or restaurant for the benefit of its members would have to qualify as continued footnote business income_tax including veterans organizations must keep such records sec_1 a these books_and_records are required to be available for inspection by the service sec_1_6001-1 in addition veterans organizations are required to keep books_and_records to substantiate information reported on their information_return see sec_6033 and sec_1_6001-1 they are also required to submit additional information to the service for the purpose of enabling the service to inquire further into its exempt status form 886-a rev department of the treasury - internal_revenue_service page - form 886a department of the ‘treasury - internal_revenue_service explanation of items schedule no or exhibit form 6018-a name of taxpayer org 20xx 20xx year period ended sec_501 social_club to be tax-exempt see revrul_60_324 and revrul_69_219 these organizations prior to were required to operate exclusively for the pleasure and recreation of its members see r c sec_501 thus the rulings and case law under sec_501 are useful for purposes of determining whether an sec_501 veterans organization is providing social and recreational activities exclusively for its members sec_1_501_c_7_-1 provides that a club that engages in business such as making its social and recreational facilities available to the general_public is not organized and operated exclusively for pleasure recreation and other nonprofit 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 in west side tennis club v commissioner f 2d cir cert_denied 311_us_674 the second circuit upheld the board_of_tax_appeals determination that a social_club was not exempt because a substantial amount of its income was received from the general_public west side tennis club was organized to provide tennis facilities for the use and enjoyment of its members the facilities were only available to members for most of the year the club hosted annual national championship tennis matches however that were open to the general_public the club shared in the ticket proceeds from these matches the second circuit upheld the board_of_tax_appeals determination that the national championship matches were a substantial and profitable business which jeopardized the club’s exemption west side tennis club f 2d at p in revrul_60_324 1960_2_cb_173 and revrul_69_219 1969_1_cb_153 the service held that a sec_501 social_club is not operated exclusively for the pleasure or recreation of its members if it makes its facilities available to the general_public to a x kk kk in congress amended sec_501 replacing exclusively with substantially_all this change was effected to establish that social clubs will not jeopardize their exempt status if they receive of their gross_receipts from non-membership sources only of their gross_receipts however may be derived from nonmembers’ use of club facilities or services pub_l_no s rep cong 2d sess in congress amended sec_501 replacing exclusively with substantially_all this change was effected to establish that social clubs will not jeopardize their exempt status if they receive of their gross_receipts from non-membership sources only of their gross_receipts however may be derived from nonmembers’ use of club facilities or services pub_l_no s rep cong 2d sess form 886-a rev department of the treasury - internal_revenue_service page -16- form_886 a department of the treasury - internal_revenue_service explanation of items schedule no or exhibit form 6018-a name of taxpayer org year period ended 20xx 20xx substantial degree id however this does not mean that all dealings with the general_public are necessarily inconsistent with the club’s exempt purposes for instance in revrul_60_324 1960_2_cb_173 the service stated that while the regulations indicate that a club may lose its exempt status if it makes its facilities available to the general_public it does not mean that any dealings with outsiders will automatically cause a club to lose its exemption a club will not lose its exemption merely because it receives some income from the general is persons other than members and their bona_fide guests or because the general_public may occasionally be permitted to affairs provided such participation is incidental to and in furtherance of its general club purposes and the income therefrom does not inure to members participate public that its in in the service issued revproc_71_17 1971_1_cb_683 which contains guidelines for determining the impact of an organization's nonmember gross_receipts on its exempt status under sec_501 the revenue_procedure provides that a significant factor reflecting the existence of a nonexempt purpose is the amount of gross_receipts derived from use of a club’s facilities by the general_public the revenue_procedure went on to provide a safe_harbor for organizations serving the general_public as an audit_standard the gross_receipts derived from the general_public alone will not be relied upon by the service if annual gross_receipts from the general_public for use of the club's facility is dollar_figure or less or if more than dollar_figure where gross_receipts from the general_public for use is five percent or less of total gross_receipts of the organization revproc_71_17 1971_1_cb_683 at sec_3 the term general_public is defined as persons other than members or their dependents or guests id at sec_2 section dollar_figure of revproc_71_17 provides four instances in which nonmembers are assumed to be the guests of the members the assumptions include where a group of eight or fewer individuals at least one of whom is a member uses club facilities it will be assumed for audit purposes that the nonmembers are the guests of the member provided payment for such use is received by the club directly from the member or the member's employer form 886-a rev department of the treasury - internal_revenue_service page -17- form 886a department of the ‘treasury - internal_revenue_service explanation of items schedule no or exhibit form 6018-a name of taxpayer org 20xx 20xx year period ended where percent or more of a group using club facilities are members it will likewise be assumed for audit purposes that the nonmembers in the group are guests of members provided payment for such use is received by the club directly from one or more of the members or the member's employer revproc_71_17 sec_3 in 615_f2d_600 cir the third circuit upheld the commissioner's determination that a social_club failed to qualify for exemption from income_tax as a sec_501 organization because it was operated for business and not for the pleasure and recreation of its members the pittsburgh press club was organized for the purpose of providing a professional and social meeting place for its members during the years under exam however the pittsburgh press club hosted several functions for nonmember outside groups although each such group had been member sponsored based on the amount of nonmember revenues dollar_figure of nonmember receipts as well as the percentage of those revenues to percent of gross_receipts the third circuit upheld the revocation stating that the exemption from federal_income_tax for sec_501 organizations is to be strictly construed pittsburgh press club f 2d pincite the court stated that such strict construction cannot be reconciled with the fact that a substantial amount of the club’s activities and income consisted of nonmember functions and nonmember income therefore the court held revocation of its exemption was proper id recordkeeping and reporting requirements every organization exempt from tax under every person liable for any_tax imposed by the code or for the collection thereof shall keep adequate_records as the secretary_of_the_treasury or_his_delegate may from time to time prescribe see sec_6001 sec_501 and subject_to the tax imposed by sec_511 on its unrelated_business_income must keep such permanent books or accounts or records including inventories as are sufficient to establish the amount of gross_income deduction credits or other matters required to be shown by such person in any return of such tax such organization shall also keep such books_and_records as are required to substantiate the information required by sec_6033 see sec_1_6001-1 and sec_1_6001-1 the books_or_records required by sec_1_6001-1 shall be kept at all times available for inspection by authorized internal revenue officers or employees and shall be retained so long as the contents thereof may become material in the administration of any internal revenue law see sec_1_6001-1 form 886-a rev department of the treasury - internal_revenue_service page -18- department of the treasury - internal_revenue_service explanation of items form 886a name of taxpayer org schedule no or exhibit form 6018-a 20xx 20xx year period ended except as provided every organization exempt from tax under sec_501 shall file an annual return stating specifically the items of gross_income receipts and disbursements and such other information for the purposes of carrying out the internal revenue laws as the secretary may by forms or regulations prescribe and keep such records render under oath such statements make such other returns and comply with such rules and regulations as the secretary may from time to time prescribe see sec_6033 every organization which is exempt from tax whether or not it is required to file an annual information_return shall submit such additional information as may be required by the service for the purpose of inquiring into its exempt status and administering the provisions of subchapter_f ie r c sec_501 and following chapter of subtitle a of the code sec_6033 and chapter of subtitle d of the code see sec_1_6033-2 see also sec_6001 sec_1_6001-1 an organization’s failure or inability to file required information returns or otherwise to comply with the provisions of r c sec_6033 and the regulations which implement it may result in the termination of the organization’s exempt status based on the grounds that the organization has not established that it is observing the conditions that are required for the continuation of its exempt status see revrul_59_95 these conditions require the filing of a complete and accurate annual information_return and other required federal tax forms and the retention of records sufficient to determine whether the organization is operated for the purposes for which it was granted tax-exempt status and to determine its liability for any unrelated_business_income_tax id revrul_59_95 1959_1_cb_627 concerns an exempt_organization that was requested to produce a financial statement and statement of its operations for a certain year its records were so incomplete however that the organization was unable to furnish such statements the internal_revenue_service held that the organization’s failure or inability to file the required information_return or otherwise to comply with the provision of sec_6033 of the code and the regulations which implement it may result in the termination of the exempt status of an organization previously held exempt on the grounds that the organization has not established that it is observing the conditions required for the continuation of its exempt status government’s position and conclusions issue org has not established it meets the membership requirements of sec_501 form 886-a rev department of the treasury - internal_revenue_service page - form_886 a department of the ‘toeasury - internal_revenue_service explanation of items schedule no or exhibit form 6018-a name of taxpayer org 20xx 20xx year period ended the irc provides that an exempt veterans organization must meet certain membership requirements to maintain its exempt status at least of the members must be past or present members of the armed_forces_of_the_united_states veterans substantially_all which the irc defines a sec_90 of all other members must be cadets or spouses widows or widowers of veterans or cadets specifically of the of the organization's members that are not veterans must be cadets spouses etc only of the organizations total membership may consist of individuals who are not veterans cadets or spouses widows or widowers of these individuals an organization failing to meet the membership requirements will no longer qualify for exemption to illustrate where a veterans organization consists of members at least must be veterans of the remaining members must be cadets or spouses widows or widowers of veterans or cadets the remaining people may be members who are not veterans cadets spouses etc the instruction offered by co-2 to its subordinates org among them is that it requires only ten members and the proof of the veteran status of such members and a lthough the tax advantages of being a members only club are greater it does not require it subordinates to limit their bar to members the tax advantages of being a members only club are greater for an organization exempt under sec_501 because as the statute clearly provides it is the organizational requirement for such exempt status an organization that does not meet the membership requirements is not exempt the statutes as cited above further provide that in order that it may be clear that such membership exists the organization must maintain records tracking who its members are and the proportions in the various categories of membership permitted members of the armed_forces cadets spouses etc to substantiate that its members are veterans or other permitted members the facts provide org does not maintain its own membership roster when asked to present such it called upon co-2 to produce one which included the names of ten people further inquiries to co-2 by org resulted in the fact that there has been no change in its membership through 20xx 20xx and even up to november of 20xx since org does not verify the veteran status of its so-called members it was unable to provide that these members meet the definition of veteran or other permissible member eg cadet spouse etc bringing further into question the validity of this form 886-a rev department of the treasury - internal_revenue_service page -20- form 886a department of the treasury - internal_revenue_service explanation of items schedule no or exhibit form 6018-a name of taxpayer org 20xx 20xx year period ended membership is the fact that the so-called members do not carry their own membership cards rather the cards are maintained at org now as they were only obtained from co-2 at the time it made inquiries with regard to its member list accordingly until it received the member cards and lists in october 20xx org did not know who its members were the facts provide that neither bm-1 nor bm-8 who both claimed to be non-veteran members themselves are not listed as existing members however bm-8 and her husband did complete membership applications in august 20xx seven years after org became a subordinate of co-2 org presented as evidence of its on-going efforts to attract new members denoted only by a sign inside of the facility with regard to open enrollment applications completed during august and september of 20xx mindful of the fact that the membership went unchanged in the two years prior this appears to be a recent attempt at increasing membership however not a legitimate one seemingly the original applications were still at the org a bar in date having sat for one to two months without having being submitted to co-2 with the membership fee of dollar_figure per member org by its own admission does not verify veteran or other permissible status a requirement for membership and the gross_receipts as presented by org’s own records do not provide for a fee having been collected for any new members during the examination period issue org has not established that it operates exclusively for exempt purposes listed in sec_1_501_c_19_-1 as is discussed more fully above an organization described in r c sec_501 carries out activities in furtherance of its exempt purposes only when such activities are carried out exclusively in furtherance of the purposes listed in sec_1_501_c_19_-1 among these purposes is the provision of social and recreational activities for its members accordingly when a veterans organization described in sec_501 provides social and recreational activities for its members or for guests whose expenses are paid_by members the organization is engaged in activities in furtherance of its exempt purposes if such an organization makes its facilities available to the general_public to a substantial degree and or a significant amount of the organization’s income is received from the general_public the organization may lose its tax exemption the statute is clear that an organization recognized as exempt under sec_501 is a membership_organization patronage of the facility and the participation in the activities of an organization so exempt is limited to the exclusively to the organization's membership and guests form 886-a rev department of the treasury - internal_revenue_service page -21- form 886a department of the ‘eeesbury's internal_revenue_service explanation of items schedule no or exhibit form 6018-a name of taxpayer org 20xx 20xx year period ended the statute provides that a club that engages in business such as making its social and recreational facilities available to the general_public is not organized and operated exclusively for pleasure recreation and other nonprofit 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 evidence of such solicitation is further suggested by making the facility easily accessible to the general_public and by failing to denote that the facility is a members’ only establishment revproc_71_17 provides that a significant factor reflecting the existence of a nonexempt purpose is the amount of gross_receipts derived from use of a club's facilities by the general_public however gross_receipts alone will not be relied upon by the service where gross_receipts from non-member use of the organization’s facility is dollar_figure or less or if more than dollar_figure where gross_receipts from non-member use i sec_5 or less of the organization's total gross_receipts the recordkeeping requirements under the code if followed enable the service to engage the audit_standard afforded by the revenue_procedure that is a member organization whose exempt status is predicated on its ability to establish that its facility meets the exclusive use test as defined by the statute is required to maintain books_and_records to account for patronage of its facility and the relationship of its patrons to the exempt_organization member guest of member spouse etc additionally adequate books_and_records sufficient to establish how the amount of gross_receipts and related expenses are allocated to each type of patronage are required where the organization has failed to maintain such a recordation the audit standards require that all receipts and expenses of the organization are treated as if from non-member sources in the instant case very few documents were produced during the examination that demonstrated org engaged in exempt_activities during the years at issue org did not maintain any records that distinguished the amount of income that its bar operations generated from org’s members their families guests auxiliary members and nonveterans nor did it maintain any records that tracked who used the facilities ie members members’ families guests non-veterans etc on a daily basis bm-8 provided in a written_statement that the single record the cash register receipts on which member and non-member revenues were tracked were discarded according to org’s president bm-1 who has had no prior experience with operating a veteran's or any other type of exempt_organization and who himself is not a veteran said he purchased the business as a retirement investment since bm-1 has also stated that he does not receive a salary or rent from use of the facility it is not clear form 886-a rev department of the treasury - internal_revenue_service page -22- form 886a department of the ‘treasury explanation of items internal_revenue_service schedule no or exhibit form 6018-a name of taxpayer org 20xx 20xx year period ended how purchasing a bar and converting it to an exempt member organization will meet that financial goal except that he never intended that it be operated in accordance with such exempt_purpose but rather as a commercial facility organizations exempt under sec_501 of the irc have been permitted broad purposes by congress they promote americanism sponsor youth activities provide color guards conduct patriotic ceremonies and functions and conduct community activities in other words they promote the social welfare of the community conduct social activities among their members some examples of promoting social welfare are many also e e e e sponsoring youth activities sponsoring the boy scouts girl scouts or other youth units of the post and providing scholarships for students making donations to charities described in sec_501 of the irc such as hospitals schools the red cross and the local community chest visiting sick or hospitalized members veterans and their families the meeting minutes provide some insight into charitable and some civic activities information provided established org made some contributions to its local fire department and national and local charities and the purchase of flags to be placed at the graves of local veterans allotting a full_day to plan and one to execute the minutes provide that over a three year period from january 20xx through july 20xx twenty days out of big_number days days x were devoted to such activities in accordance with the foregoing the organization did not maintain records adequate to confirm the percentage of member receipts in the sales_tax returns and as such in accordance with the audit standards afforded by revproc_71_17 all of the corporation’s receipts are considered to be from non-member sources or the general_public while the records and information obtained provide the organization did engage in some exempt_activities the time devoted to such activities are insignificant in comparison to org’s bar operations the facts support that org primary activity was operating a bar for use by the general_public a non-exempt activity and it has not established that it has met the membership requirements necessary to be recognized as exempt under sec_501 of the internal_revenue_code it is proposed that its exempt status be revoked effective january 20xx an examination closing conference was offered and held on january 20xx with exempt_organizations manager form 886-a rev department of the treasury - internal_revenue_service page -23- department of the ‘treasury- internal_revenue_service explanation of items form 886a name of taxpayer org schedule no or exhibit form 6018-a year period ended 20xx 20xx if you accept our findings please sign the enclosed form 6018-a consent to proposed action-non declaratory_judgment please return it to the following address within days of the date of this letter internal_revenue_service as a taxable entity you are required to file form_1120 u s_corporation income_tax return please submit the completed returns for 20xx 20xx and 20xx to the address shown above within days of this report conference to discuss this report please call agent at between a m and p m to schedule if you would like to schedule a form 886-a rev department of the treasury - internal_revenue_service page -24-


internal_revenue_service number release date index numbers --------------------- -------------------------------------------- ------------------------- ------------------------- department of the treasury washington dc person to contact --------------------- id no ---------------- telephone number -------------------- refer reply to cc psi b03 - plr-106107-17 date date x ----------------------- ---------------------------------------------------------- legend fund ----------------------------------------------------------------------------------------- ---------------------------------------------------------- ------------------- ------------------------------------------------------------------------- ---------------------------------------------------------- ------------------------------------ country --------- d1 --------------------------- dear ------------------------------------- this letter 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 to file an election under sec_301_7701-3 to be classified as a partnership for federal tax purposes plr-106107-17 facts the information submitted discloses that x was formed on d1 under the laws of country the fund which holds x intends it to be classified as a partnership for federal tax purposes effective d1 however x failed to timely file form_8832 entity classification election to be classified as a partnership for federal tax purposes effective d1 law and analysis sec_301_7701-3 provides in part 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 as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that except as provided in sec_301 b unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides in part that for purposes of sec_301_7701-3 a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides in part that except as provided in sec_301_7701-3 and v an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides in part that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code code except subtitles e g h and i sec_301_9100-1 provides plr-106107-17 that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register 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_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based solely on the facts and representations submitted we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 consequently x is granted an extension of time of one hundred twenty days from the date of this letter to elect under sec_301_7701-3 to be classified as a partnership effective d1 x must file form_8832 within the extension period with the appropriate service_center with a copy of this letter attached except for the specific ruling above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code in addition sec_301_9100-1 provides that the granting of an extension of time for making an election is not a determination that the taxpayer is otherwise eligible to make the election this ruling is directed only to the taxpayer requesting it according to sec_6110 of the code this ruling may not be used or cited as precedent under a power_of_attorney on file with this office we are sending a copy of this letter to x’s authorized representative plr-106107-17 the ruling contained in this letter is 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 ruling_request it is subject_to verification on examination sincerely associate chief_counsel passthroughs special industries by _ s ____________________________ richard t probst senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes