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 br plr-115674-11 date date ----- ----- legend distributing -------------------------------- ----------------------------------------------------------------------------- --------------------------------------------------------------------- controlled ------------------------------- ----------------------------------------------------------------------------- ------------------------------------------------------------ lp --------------------------------------- -------------------------------------------------------------------------------------- --------------------------------------------------------------------- llc --------------------------------------------------------------------------------------------- --------------------------------------------------------------------- ---------------------------------- state x ------------- trust ------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- -------------------------------------------- trust ------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------- -------------------------------------------- trust ------------------------------------------------------------------------------------------------- -------------------------------------------- plr-115674-11 ------------------------------------------------------------------------------------------- trust ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------- ------------------------------------------------- shareholder --------------------------------------------------------------------- -------------------------- shareholder --------------------------------------------------------------------- -------------------------- shareholder ------------------------- --------------------------------------------------------------------- shareholder ------------------------- --------------------------------------------------------------------- shareholder ----------------------- --------------------------------------------------------------------- shareholder ----------------------- --------------------------------------------------------------------- shareholder ------------------------- --------------------------------------------------------------------- busine sec_1 property property aa year dear -------------- ---------------------------------------------- ----------------------------------- ------------------------------------- ---- ---------------------- this letter responds to your representative's letter dated date in which you requested rulings regarding certain federal_income_tax consequences of a series of plr-115674-11 proposed transactions the information submitted in that request and in later correspondence is summarized below the rulings contained in this letter are based on 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 materials 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 in particular this office has not reviewed any information pertaining to and has made no determination regarding whether the proposed transaction i satisfies the business_purpose requirement of sec_1_355-2 of the income_tax regulations ii is used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation or the controlled_corporation or both see sec_355 of the internal_revenue_code the code and sec_1_355-2 or iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a fifty percent or greater interest in the distributing_corporation or the controlled_corporation see sec_355 and sec_1_355-7 summary of facts distributing a state x corporation elected to be treated as a subchapter_s_corporation for federal_income_tax purposes in year distributing has one class of voting common_stock outstanding that is held by its shareholders through various trusts shareholder and shareholder hold their distributing stock in trust shareholder and shareholder hold their distributing stock in trust shareholder and shareholder hold their distributing stock in trust and shareholder holds its distributing stock in trust distributing holds aa a significant amount of the interests in lp a state x limited_partnership lp holds property and property distributing along with the other unrelated partners of lp created llc a state x limited_liability_company which is treated as a partnership for federal tax purposes in anticipation of the transaction described below the ownership of profits losses and capital of lp and llc are identical distributing has submitted financial information which indicates that busine sec_1 as conducted by lp had gross_receipts and operating_expenses representative of the active_conduct_of_a_trade_or_business for each of the past five years proposed transaction for what are represented as valid business reasons distributing proposes the following transactions the proposed transaction plr-115674-11 i ii iii iv distributing will form controlled lp will transfer fee simple title in and to property subject_to any liabilities to llc distributing will contribute its aa membership interest in llc to controlled the contribution immediately after the contribution distributing will distribute all the controlled stock to trust in exchange for all of trust 1’s distributing stock the distribution representations the taxpayer has made the following representations concerning the proposed transaction a b c d e the fair_market_value of the controlled stock to be received by trust will be approximately equal to the fair_market_value of the distributing stock surrendered by trust in the exchange no part of the consideration to be distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a distributing shareholder the five years of financial information submitted concerning busine sec_1 is representative of its present operations and there have been no substantial operational changes since the date of the last financial statements submitted neither busine sec_1 nor control of an entity conducting this business will have been acquired during the five-year period ending on the date of the distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part throughout the five-year period ending on the date of the distribution distributing will have been a principal_owner of the goodwill and significant assets of busine sec_1 following the distribution distributing will be a principal_owner of the goodwill and significant assets of its share of busine sec_1 and controlled will be a principal_owner of the goodwill and significant assets of its share of busine sec_1 following the transaction distributing and controlled will each continue independently and with its separate employees if any the active_conduct of its share of all the integrated activities of the business conducted by distributing prior to the consummation of the transaction plr-115674-11 f g h i j k the distribution is carried out for the following corporate business_purpose to end a dispute among the shareholders of distributing regarding the present focus and future direction of the business of distributing the distribution of the stock of controlled is motivated in whole or substantial part by one or more of these corporate business purposes the transaction is not used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both the distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a fifty percent or greater interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor of any such corporation for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing fifty percent or more of the total combined voting power of all classes of distributing stock entitled to vote or fifty percent or more of the total value of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing fifty percent or more of the total combined voting power of all classes of controlled stock entitled to vote or fifty percent or more of the total value of all classes of controlled stock that was either acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution or attributable to distributions on distributing stock that were acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution the total adjusted_basis and the fair_market_value of the assets transferred to controlled by distributing each will equal or exceed the sum of i the liabilities assumed as determined under sec_357 by controlled and ii the total amount of money and the fair_market_value of any other_property within the meaning of sec_361 if any received by distributing from controlled and transferred to distributing’s creditors in connection with the reorganization the liabilities assumed as determined under sec_357 by controlled in the transaction will have been incurred in the ordinary course of business and will be associated with the assets being transferred plr-115674-11 l m n o p q r s the total fair_market_value of the assets transferred to controlled in the transaction will exceed the sum of i the amount of any liabilities assumed within the meaning of sec_357 by controlled in the exchange ii the amount of any liabilities owed to controlled by distributing that are discharged or extinguished in connection with the exchange and iii the amount of cash and the fair_market_value of any other_property other than stock and securities permitted to be received under sec_361 without the recognition of gain received by the distributing in the contribution the fair_market_value of the assets of controlled will exceed the amount of its liabilities immediately_after_the_exchange distributing neither accumulated its receivables nor made extraordinary payment of its payables in anticipation of the transaction no intercorporate debt will exist between distributing and controlled at the time of or subsequent to the distribution other than intercompany loans or obligations that have arised or will arise between the parties in the ordinary course of business payments made in connection with all continuing transactions if any between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm's length no two parties to the transaction are investment companies as defined in sec_368 and iv immediately after the transaction as defined in sec_355 neither distributing nor controlled will be a disqualified_investment_corporation within the meaning of sec_355 distributing is an s_corporation within the meaning of sec_1361 controlled will elect to be an s_corporation pursuant to sec_1362 on the first available date after the distribution and there is no plan or intent to revoke or otherwise terminate the s_corporation_election of either distributing or controlled trust trust trust and trust are grantor trusts under subpart e of part i of subchapter_j and thus are eligible s_corporation shareholders based solely on information submitted and the representations set forth above we rule as follows rulings plr-115674-11 the contribution followed by the distribution will constitute a reorganization within the meaning of sec_368 distributing and controlled each will be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by distributing upon the contribution except that gain will be recognized to the extent that liabilities of distributing assumed by controlled exceed distributing’s basis in the property transferred sec_361 sec_357 and c revrul_80_323 c b no gain_or_loss will be recognized by controlled on the contribution sec_1032 the basis of each asset received by controlled in the contribution will equal the basis of that asset in the hands of distributing immediately prior to its transfer sec_362 the holding_period for each asset received by controlled from distributing will include the period during which distributing held the asset sec_1223 no gain_or_loss will be recognized by distributing on the distribution sec_361 no gain_or_loss will be recognized by and no amount will otherwise be included in the income of trust upon receipt of controlled stock from distributing sec_355 trust 1’s basis in the controlled stock received in the distribution will equal the basis of the distributing stock surrendered in exchange therefor sec_358 the holding_period of the controlled stock received by trust will include the holding_period of the distributing stock surrendered in exchange therefor provided such stock was held as a capital_asset on the date of the distribution sec_1223 proper allocation of distributing's earnings_and_profits will be made under sec_312 and sec_1_312-10 distributing’s momentary ownership of the stock of controlled as part of the contribution and distribution will not cause controlled to have an ineligible shareholder for any portion of its taxable_year under sec_1361 if controlled otherwise meets the requirements of a small_business_corporation under sec_1361 controlled will be eligible to elect subchapter_s status under sec_1362 for its first taxable_year plr-115674-11 the accumulated_adjustments_account of distributing will be allocated between distributing and controlled in a manner similar to that in which earnings_and_profits of distributing will be allocated under sec_312 in accordance with sec_1_1368-2 caveats except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter we express no opinion about the tax treatment of the proposed transaction under other provisions of the code and regulations or the tax treatment of any condition existing at the time of or effect resulting from the proposed transaction that is not specifically covered by the above rulings in particular we express no opinion regarding i ii whether the proposed transaction satisfies the business_purpose requirement of sec_1_355-2 whether the proposed transaction is used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both see sec_355 and sec_1_355-2 iii whether the proposed transaction is part of a plan or series of related transactions under sec_355 iv whether distributing or controlled is eligible to be an s_corporation v whether the trusts’ are eligible s_corporation shareholders vi vii the application of sec_357 to the proposed transaction the federal tax consequences under subchapter_k of any aspect of lp’s transfer of property to llc which include but are not limited to the application of sec_707 sec_731 sec_732 sec_751 and sec_752 viii the federal tax consequences under subchapter_k of any aspect of the contribution which include but is not limited to the application of sec_752 see revrul_80_323 c b and ix the federal tax consequences under subchapter_k if controlled and distributing are not related under sec_1_752-4 when there is divergent ownership in distributing plr-115674-11 and controlled following the distribution which include but are not limited to the application of sec_707 sec_731 sec_732 sec_751 and sec_752 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent temporary or final regulations pertaining to one or more of the issues addressed in this ruling have not yet been adopted therefore this ruling will be modified or revoked by the adoption of temporary or final regulations to the extent the regulations are inconsistent with any conclusion in the letter_ruling see section dollar_figure of revproc_2011_1 2011_1_irb_1 however when the criteria in section dollar_figure of revproc_2011_1 2010_1_irb_1 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely alfred c bishop jr branch chief branch corporate


t c memo united_states tax_court limited gaming of america inc petitioner v commissioner of internal revenue respondent docket no filed date thomas g potts for petitioner osmun latrobe for respondent memorandum opinion dinan special_trial_judge this matter is before the court on petitioner’s motion for partial summary_judgment and brief in support and addendum to petitioner’s motion for partial summary_judgment and brief in support pursuant to rule a unless otherwise indicated all section references are to the internal_revenue_code and all rule references are to the tax_court rules_of_practice and procedure - - respondent filed a notice of objection to petitioner’s motion for partial summary_judgment and respondent’s memorandum of authorities petitioner filed petitioner’s reply to respondent’s notice of objection to petitioner’s motion for partial summary_judgment as explained more fully below we will deny petitioner’s motion for partial summary_judgment background by a notice_of_deficiency mailed to petitioner on date respondent determined deficiencies in federal income taxes due from petitioner for the fiscal years ended date and in the amounts of dollar_figure and dollar_figure respectively petitioner timely filed a petition in this case on date and respondent timely answered on date limited gaming of america inc hereinafter referred to as lga or petitioner is a colorado corporation originally formed on date lga is a c_corporation it has a fiscal_year ending on february on or about date lga caused to be formed sunrise island timber company hereinafter referred to as sunrise a florida general_partnership for the purpose of holding real_property consisting of an island located in the mississippi river sunrise was subsequently converted to a florida limited_partnership in date - - for the fiscal_year ended date lga filed its federal corporate_income_tax return reporting taxable_income before net_operating_loss_deduction and special_deductions in the amount of dollar_figure from that amount lga deducted a net_operating_loss of dollar_figure reducing its taxable_income to dollar_figure and reported tax due in the amount of dollar_figure for the fiscal_year ended date lga filed its federal corporate_income_tax return reporting taxable_income in the amount of dollar_figure and reported tax due in the amount of dollar_figure during mr robert lobato acquired ownership and control of lga on date both lga and sunrise filed chapter bankruptcy petitions with the bankruptcy court for the northern district of oklahoma on or about date mr lobato caused to have lga prepare a corporation application_for tentative refund form carrying back losses_incurred by lga during its fiscal_year ended date to its fiscal years ended date and date lga claimed refunds for its fiscal years ended date and in the amounts of dollar_figure and dollar_figure respectively the claimed refunds were primarily based upon mr lobato’s decision to substantively consolidate both lga and sunrise for federal_income_tax purposes - in following receipt of the form_1139 from lga respondent began an examination of lga’s fiscal years and federal_income_tax returns respondent denied lga’s refund claims for the fiscal years ended date and and determined deficiencies in federal_income_tax for those years in the amounts of dollar_figure and dollar_figure respectively the denial of the claimed refunds and the determination of deficiencies for the fiscal years and were premised in part on respondent’s determination that lga and sunrise were separate legal entities during the fiscal_year ended date during the pendency of its chapter proceeding lga argued that sunrise should be disregarded as a sham entity lga contended that sunrise should be disregarded for federal_income_tax purposes and that lga was entitled to substantial federal_income_tax refunds for the fiscal years ended date and after lga and sunrise filed their petitions in bankruptcy on date an order was entered by the bankruptcy court setting date as the deadline for filing proofs of claim on date the irs filed a proof_of_claim for unpaid taxes in the amount of dollar_figure the content of the claim was as follows --- - taxable_year type of tax amount of tax corporate_income_tax dollar_figure corporate_income_tax big_number 3rd quarter fica_taxes big_number 4th quarter fica_taxes big_number 4th guarter futa taxes big_number lst guarter fica_taxes big_number total big_number on date after review of lga’s tax returns the irs determined that lga owed neither the fica nor the futa taxes set forth in the above-mentioned proof_of_claim and filed a pleading entitled notice of withdrawal in date the irs commenced an audit of petitioner’s corporate_income_tax returns the audit was completed on date and it was determined that lga owed additional federal income taxes for the fiscal years ended and as follows year type of liability amount of tax corporate_income_tax dollar_figure interest on unpaid income_tax dollar_figure corporate_income_tax dollar_figure interest on unpaid income_tax dollar_figure total dollar_figure on date the irs prepared an amended proof_of_claim showing total deficiencies in taxes and interest in the total amount of dollar_figure for the fiscal years and the irs filed a motion for leave to reinstate and amend its erroneously withdrawn proof_of_claim to claim the total_tax liabilities for the years and in the amount of -- - dollar_figure after a hearing on the motion the bankruptcy court ruled in its memorandum opinion filed date the motion is granted in part and denied in part the withdrawn claim will be reinstated as to the corporate income taxes of lga in its original amount of dollar_figure the irs will not be allowed to amend the claim to reflect the increase which it seeks nor will the irs be allowed to file a completely new claim out of time for either the or income taxes of lga discussion summary_judgment is appropriate if the pleadings answers to interrogatories depositions admissions and any other acceptable materials together with the affidavits if any show that there 1s no genuine issue as to any material fact and that a decision may be rendered as a matter of law rule b 98_tc_518 affd 17_f3d_965 7th cir 85_tc_527 summary_judgment is intended to expedite litigation and avoid unnecessary and expensive trials see fla peach corp v commissioner 90_tc_678 78_tc_412 the moving party bears the burden of proving that there is no genuine issue of material fact and factual inferences will be made in a manner most favorable to the party opposing summary_judgment see 85_tc_812 petitioner’s contentions - petitioner’s contentions as contained in its motion for partial summary_judgment filed date may be summarized as follows petitioner asserts that its motion for partial summary_judgment encompasses the doctrine_of collateral_estoppel in support of this contention petitioner cites to a memorandum opinion filed by the bankruptcy court for the northern district of oklahoma on date and a memorandum opinion filed by the bankruptcy court on date petitioner argues that the date memorandum opinion determined that there were no income_tax deficiencies for the fiscal_year ended date and that there was an income_tax deficiency for the fiscal_year ended date in the amount of dollar_figure petitioner also appears to argue that the date memorandum opinion regarding the confirmation plans of on date the bankruptcy court filed an order confirming plan in which the court ordered inter alia that in accordance with the terms of the third amended plan_of_reorganization the estates of limited gaming of america inc case no 96-00395-m and sunrise island ltd case no 96-00396-m be and the same hereby are substantively consolidated it is further ordered that all pleadings and papers related to the sunrise island ltd matter case no 96-00396-m shall from the date of this order be filed under case no 96-00395-m we also note that in paragraph 6y of its petition the petitioner averred continued --- - reorganization submitted by lga somehow determined that sunrise was not a separate_entity respondent’ s contentions respondent’s contentions as contained in respondent’s memorandum of authorities may be summarized as follows respondent notes that the parties’ disagreement is based upon petitioner’s erroneous premise that a bankruptcy court’s determination as to the collectibility of a debtor’s claim is the same as the determination_of_a_deficiency in income_tax respondent posits that petitioner’s position is that respondent is collaterally estopped from asserting any claims against petitioner for additional deficiencies in corporate_income_tax and interest for the fiscal years ended date and date respondent states the respondent is in complete agreement with this conclusion the respondent agrees that it i sec_2 continued on date the bankruptcy court for the northern district of oklahoma issued an order confirming plan in these documents the bankruptcy court substantively consolidated lga and the sunrise island timber company general and limited_partnership into one entity in so doing the court recognized the sham nature of the partnership and the fraudulent acts of self-dealing as well as asset transfers performed by bleidt and lobato-bleidt therefore the entity should be consolidated with lga as a single entity in computing the federal corporate_income_tax liability of lga for the years in issue - q - collaterally estopped from collecting additional deficiencies in income taxes from the petitioner for the taxable years and if that is the sum of petitioner’s argument then the dispute as to that issue is concluded respondent observes that unfortunately that does not appear to be the ultimate aim of petitioner’s argument respondent notes that petitioner filed a form_1139 claim with the irs applying for a refund of allegedly overpaid and federal income taxes based upon claimed losses in the taxable_year the factual or legal grounds for the alleged loss were not indicated on the form_1139 subseguently on date during lga’s bankruptcy proceeding respondent issued the notice_of_deficiency for the taxable years and which notice is the basis for this case pending before the court petitioner argues that petitioner’s claim for overpayments not yet proved is to be applied not against its actual tax_liability for the taxable years and but only against the de_minimis claim which respondent was allowed to collect in the bankruptcy proceeding respondent submits that such an argument as advanced by petitioner is wholly contrary to established law respondent also disputes petitioner’s contention inferred from petitioner’s arguments that in substantively consolidating lga’s and sunrise’s bankruptcy proceedings the bankruptcy court -- - determined that sunrise was not a separate_entity we agree with respondent in 109_tc_125 affd without published opinion 172_f3d_859 3d cir we stated under the principles established by the supreme court in 284_us_281 a taxpayer’s claim_for_refund must be reduced by the amount of the correct_tax liability for the taxable_year regardless of the fact that the commissioner can no longer assess any deficiency for the taxable_year in lewis v reynolds supra the taxpayer filed a claim_for_refund alleging that certain deductions had been improperly disallowed by the commissioner after the period of limitations on additional_assessment had expired the commissioner agreed with the taxpayer that the period of limitations had expired but denied a refund on the basis that the correct computation of tax resulted in additional tax the taxpayer argued that the commissioner lacked the authority to redetermine the tax after the period of limitations had expired the supreme court disagreed while no new assessment can be made after the bar of the statute has fallen the taxpayer nevertheless is not entitled toa refund unless he has overpaid his tax an overpayment must appear before refund is authorized although the statue of limitations may have barred the assessment and collection of any additional sum it does not obliterate the right to the united_states to retain payments already received when they do not exceed the amount which might have been properly assessed and demanded lewis v reynolds supra pincite the doctrine established in lewis v reynolds supra has been applied by this court in the determination of an overpayment see 40_tc_597 vacated and remanded pursuant to stipulation 2d cir date holding that the decision in lewis v reynolds supra was controlling and allowing a reduction in an overpayment claimed by the taxpayer 28_tc_871 applying the doctrine_of lewis v reynolds supra to this case we find that even though assessment and collection of petitioner’s tax_liability is now barred by the statute_of_limitations respondent has the right to retain prior timely payments to the extent they do not exceed the amount of petitioner’s actual tax_liability footnotes omitted our above-mentioned holding in bachner is equally applicable to the facts in this case the bankruptcy court did not determine lga’s tax_liability for the taxable years and that is abundantly clear from a review of the record in this case we hold that respondent is not collaterally estopped from determining petitioner’s correct_tax liabilities for taxable years and in order to determine if there are tax overpayments in those years because of a net_operating_loss_carryback from the taxable_year from our review of the record we also find that the question of whether or not lga and sunrise were separate entities for tax purposes was not litigated by the bankruptcy court the bankruptcy order confirming petitioner’s third amended plan and consolidating the bankruptcy estates of petitioner and sunrise makes no reference to the determination of federal taxes petitioner’s third amended plan did not specifically state that the substantive consolidation of the estates of petitioner and sunrise would allow petitioner to determine its federal income taxes on a consolidated basis with sunrise the bankruptcy court’s opinion does not state that substantive consolidation would permit petitioner to report its income taxes on a consolidated basis with sunrise the bankruptcy court limited substantive consolidation to the combining of assets and the cancellation of debts between the consolidated debtors in re ltd gaming of america bankr bankr n d okla we hold that respondent is not collaterally estopped from determining petitioner’s federal income taxes as a separate taxable entity accordingly for the reasons stated above the court will deny petitioner’s motion for partial summary_judgment an appropriate order will be issued


jun cc dom fi p - plr-104532-99 internal_revenue_service index nos number release date legend trust fund a fund b date date date date dear this is in reply to a letter dated date and subsequent correspondence submitted on behalf of fund a and fund b funds requesting an extension of time for each fund to make an election under sec_851 of the internal_revenue_code to be treated as a regulated_investment_company ric beginning with its initial taxable_year each fund requests that its election be considered timely filed pursuant to sec_301_9100-1 and -3 of the procedure and administration regulations facts trust is registered with the securities_and_exchange_commission as an open-end management investment_company under the investment_company act of u s c sec_80a-1 et seq fund a and fund b are each organized as a separate series of trust each is treated as a separate corporation for federal tax purposes under sec_851 each fund seeks to qualify annually as a ric as defined in sec_851 beginning with its initial taxable_year for each fund to qualify as a ric it must so elect by plr-104532-99 computing its taxable_income as a ric on form 1120-ric for its first taxable_year for which it seeks to be treated as a ric funds commenced operations on date because both funds’ first taxable_year ended on date both funds had an initial taxable_year consisting of one day each fund’s federal_income_tax returns for its first taxable_year was due_date management company provides administrative services to funds and other mutual funds and is responsible for preparing and filing tax returns for them management company completed funds’ returns before the due_date with the intention that the returns would be filed no later than date on date an authorized person funds’ assistant treasurer signed both funds’ completed returns on date the returns were placed in an envelope that was properly addressed to the internal_revenue_service and a domestic return receipt for certified mail was completed and attached to the envelope then pursuant to established procedures regarding the handling of outgoing mail at management company the envelope was sent to the mailroom serving management company with instructions that the returns had to be mailed that day mailroom personnel affixed postage to the envelope and mailed it that day six days later on date the envelope was returned to the mailroom by the united_states postal service indicating that insufficient postage had been affixed to the envelope mailroom personnel immediately informed appropriate persons at management company that the envelope had been returned the mailroom personnel were instructed to resend the returns immediately to the internal_revenue_service by overnight delivery service the mailroom personnel complied with those instructions and resent funds’ returns to the internal_revenue_service via overnight delivery service on date law sec_851 provides that a corporation shall not be considered a ric for any taxable_year unless it files with its return for the taxable_year an election to be a ric or has made such election for a previous taxable_year sec_1_851-2 of the income_tax regulation provides that the taxpayer shall make its election to be treated as a ric by computing taxable_income as a ric in its federal_income_tax return for the first taxable_year for which the election is applicable plr-104532-99 sec_301_9100-1 provides in part that the commissioner has discretion to grant a reasonable extension of time to make a regulatory election defined in sec_301_9100-1 as an election whose due_date is prescribed by regulations or by a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 through c i set forth rules that the internal_revenue_service generally will use to determine whether under the facts and circumstances of each situation the commissioner will grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that subject_to paragraphs b i through iii of sec_301_9100-3 when a taxpayer applies for relief under this section before the failure to make the regulatory election is discovered by the service the taxpayer will be deemed to have acted reasonably and in good_faith and sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all years to which the regulatory election applies than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money conclusion based on the information provided and the representations made we hold that each fund has demonstrated good cause for the granting of a reasonable extension of time under sec_301_9100-1 and -3 therefore each fund will be treated as having made a timely election under sec_851 on its federal_income_tax return filed for the tax_year that ended on date no opinion is expressed as to whether each fund’s tax_liability is not lower in the aggregate for all years to which the regulatory election applies than its tax_liability would have been if the election had been timely made taking into account the time_value_of_money upon audit of the federal_income_tax returns involved the district director’s office will determine each fund’s tax_liability for the year involved if the district director’s office determines a fund’s liability is lower that office will determine the federal_income_tax effect except as specifically ruled upon herein no opinion is expressed or implied as to any federal_income_tax consequences regarding funds in particular no opinion is expressed or plr-104532-99 implied whether either fund qualifies as a ric that is taxable under subchapter_m part of the code this ruling is directed only to the taxpayers who requested it sec_6110 of the code provides that it may not be used or cited as precedent sincerely yours assistant chief_counsel financial institutions products enclosures copy of this letter sec_6110 copy


internal_revenue_service number info release date index number ------------------------------------ -------------------------------------------------- --------------------------------- ------------------------------- in re department of the treasury washington dc person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc psi b07 - genin-165838-03 date date this is in response to your letter dated date on behalf of --------------- dear -------------------- --------------------------------- in which you seek to defer and amortize research_and_experimental_expenditures r e expenditures relating to the design manufacture and testing of vehicles under sec_174 of the internal_revenue_code the following information is provided to you pursuant to sec_2 of revproc_2003_1 2003_1_irb_1 date this information_letter is advisory only and has no binding effect on the internal_revenue_service irs sec_174 provides that a taxpayer may elect to treat r e expenditures as expenses not chargeable to capital_account expenditures to which the election applies are allowed as a deduction the taxpayer may elect this method without the consent of the secretary_of_the_treasury for the taxpayer’s first taxable_year in which r e expenditures are paid_or_incurred if the taxpayer elects this method the method will apply to all r e expenditures paid_or_incurred by the taxpayer for the tax_year and must be adhered to for all subsequent years unless with permission of the secretary a change is authorized with respect to all or part of such r e expenditures the statute also provides that a taxpayer may adopt this method at any time with the consent of the secretary treat as deferred expenses r e expenditures over a period of not less than months the taxpayer may elect this method without the consent of the secretary for the taxpayer’s first taxable_year in which r e expenditures are paid_or_incurred if the taxpayer elects this method the method and the period selected must be adhered to for the tax_year of the election and all subsequent years unless with the approval of the secretary a change is authorized with respect to part or all of such r e expenditures sec_174 provides that a taxpayer may elect under regulations to amortize sec_1_174-1 of the income_tax regulations provides that if the taxpayer the election under sec_174 will not apply to any expenditure paid_or_incurred in a tax_year before the year for which the election is made does not elect to expense under sec_174 or defer and amortize expenses under sec_174 for the first taxable_year in which r e expenditures are paid_or_incurred then r e expenditures must be charged to capital_account sec_1_174-1 also clarifies that r e expenditures to which sec_174 applies may relate to a general research program or to a particular project sec_1_174-4 of the regulations provides rules for making the election to defer and amortize r e expenditures under sec_174 and for requesting permission to change to or from that method in summary with the exception of an initial election to defer and amortize r e expenditures in the first year they are paid_or_incurred all changes require the consent of the secretary and all changes are effective for the tax_year of the change and must be adhered to for all subsequent years a taxpayer who does not elect to defer and amortize r e expenditures in the first year in which r e expenditures are paid_or_incurred may only adopt the deferral method with permission a taxpayer may not adopt or change a method for any expenditure made prior to the year for which the adoption or change is requested and may not utilize in the same tax_year more than one method for any particular project under which a taxpayer may obtain the automatic consent of the commissioner of internal revenue to change certain methods_of_accounting including procedures for taxpayers to obtain automatic consent to change their treatment of r e expenditures see section of revproc_2002_9 and sec_2a of the appendix to revproc_2002_9 we have enclosed a copy of revproc_2002_9 for your information in revproc_2002_9 2002_3_irb_327 the irs provides procedures this letter should not be regarded as a private_letter_ruling nor relied upon as such if you have any questions you may contact -------------------at --------------------- enclosure sincerely s leslie finlow chief branch office of associate chief_counsel passthroughs special industries


internal_revenue_service number release date index number -------------------------------------- ------------------------ department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ---------------------------- id no -------------- ----------------- telephone number -------------------- refer reply to cc psi plr-140637-15 date date legend a b year --------------------------- -------------------------- ------ ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- dear --------------------------- this responds to a letter dated date together with subsequent correspondence submitted on your behalf by your authorized representative requesting a ruling that you be granted an extension of time under sec_301_9100-3 of the procedure and administrative regulations to file an election under sec_469 of the internal_revenue_code and sec_1_469-9 of the income_tax regulations to treat all interests in rental real_estate as a single rental real_estate activity facts according to the information submitted a and b taxpayers are married individuals who file their tax returns jointly taxpayers represent that in year they were in a real_property business as defined by sec_469 and were qualified under sec_469 to make an election to treat all interests in rental real_estate as a single rental real_estate activity however taxpayers represent that they were not advised by their professional tax_return_preparer that the election under sec_469 was available to them taxpayers represent that they filed their joint_return for year without the statement required under sec_1_469-9 law and analysis plr-140637-15 under sec_469 the term passive_activity general includes any retnal activity sec_469 provides a limited exception to this rule for taxpayers in a real_property business specifically sec_469 provides that if a taxpayer meets the requirements of sec_469 the taxpayer’s rental real_estate activity will no longer be presumably passive by its terms the exception under sec_469 is to be applied as if each interest of the taxpayer n rental real_estate were a separate activity however under sec_469 a taxpayer may elect to treat all interests in rental real_estate as a single activity sec_1_469-9 provides that a qualifying taxpayer makes the election to treat all interests in rental real_estate as a single rental real_estate activity by filing a statement with the taxpayer’s original income_tax return for the taxable_year sec_1_469-9 describes the information that must be contained in the statement sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic_extension 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 the 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 a taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonable and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-3 provides that except as provided in sec_301_9100-3 through iii when a taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election the taxpayer will be deemed to have acted reasonably and in good_faith conclusion based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result taxpayers are granted an extension of time of one hundred twenty days form the date of this plr-140637-15 letter to make an election under sec_469 to treat all of their interests in rental real_estate as a single rental real_estate activity effective year the election must be in the form of the statement required by sec_1_469-9 and attached to an amended_return for year a copy of this letter should be attached to the election except as specifically provided herein no opinion is expressed or implied concerning the federal tax consequences of the facts described above under other provisions of the code specifically no opinion is expressed concerning whether taxpayers satisfy the requirements under sec_469 or whether taxpayers materially participate in any activity this ruling is directed only to the taxpayers requesting it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter will be sent to your authorized representatives sincerely associate chief_counsel passthroughs special industries by laura c fields laura c fields senior technician reviewer branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service index no number release date cc dom p si - plr-115216-98 x a b c d e f g h date date date date date date state y dear this is in reply to a letter dated date and subsequent correspondence submitted on behalf of x by x’s authorized representative requesting a ruling under sec_1362 of the internal_revenue_code x was incorporated under the laws of state y on date in date x filed an election to be an s_corporation for the fiscal_year beginning date a owned all the stock of x until date on date a transferred shares of x to each of c d and e a as the president of x represents that c d and e each qualified as a_trust eligible to make an election to be a qualified_subchapter_s_trust qsst under sec_1361 of the code counsel for x did not inform x that the transfer of stock in x to c d and e would cause x's s_corporation_election to terminate unless an election was made for each trust to be a qsst no election was filed for c d and e to be treated as qssts it is represented that c d and e and not the beneficiaries of c d and e paid the federal_income_tax on their respective share of x's income accordingly the subchapter_s_election of x was terminated on date in date it was determined that the qsst election for each trust had not been made in order to correct the problem effective date c d and e distributed the x stock to its beneficiary each of whom is an eligible shareholder the current shareholders of x are a b f g and h a represents that the terminating event was not part of a plan to terminate the s election or for tax_avoidance purposes and took place without the knowledge of x x and its shareholders have agreed to make any adjustments that the commissioner may require consistent with the treatment of x as an s_corporation sec_1361 of the code provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 of the code as in effect for taxable years beginning on or before date provides that the term small_business_corporation means a domestic_corporation which is not an ineligible_corporation and which does not have as a shareholder a person other than an estate and other than a_trust described in sec_1361 who is not an individual sec_1361 of the code provides that for purposes of sec_1361 a_trust all of which is treated under subpart e of part i of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states may be a shareholder sec_1361 provides that for purposes of sec_1361 in the case of a_trust described in sec_1361 the deemed owner shall be treated as the shareholder sec_1361 of the code provides that in the case of a qualified_subchapter_s_trust with respect to which a beneficiary makes an election under sec_1361 such trust shall be treated as a_trust described in sec_1361 and for purposes of sec_678 the beneficiary of such trust shall be treated as the owner of that portion of the trust which consists of stock in an s_corporation with respect to which the election under sec_1361 is made sec_1361 of the code provides that a beneficiary of a qsst or his legal_representative may elect to have sec_1361 apply sec_1_1361-1 of the income_tax regulations provides that the current income_beneficiary of the trust must make the election under sec_1361 by signing and filing with the service_center with which the corporation files its income_tax return the applicable form or a statement including the information listed in sec_1_1361-1 sec_1362 of the code provides that an election under sec_1362 shall be terminated whenever at any time on or after the 1st day of the 1st taxable_year for which the corporation is an s_corporation such corporation ceases to be small_business_corporation sec_1362 of the code provides that if an election under sec_1362 by any corporation was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or was terminated under paragraph or of sec_1362 the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to this subsection agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness or termination the corporation shall be treated as an s_corporation during the period specified by the secretary based solely on the facts submitted and the representations made we hold that x's election to be an s_corporation terminated on date as a result of a's transfer of shares of x to c d and e we also hold that the termination was inadvertent within the meaning of sec_1362 of the code we further hold that pursuant to the provisions of sec_1362 of the code x will be treated as an s_corporation from date to date and thereafter provided that x's election to be an s_corporation was otherwise valid and was not terminated under sec_1362 during the period from date to date c d and e will each be treated as a shareholder of x but they will not be treated as qssts under sec_1361 therefore the shareholders of x must include their pro_rata share of the separately_stated and nonseparately computed items of x as provided in sec_1366 make any adjustments to basis as provided in sec_1367 and take into account any distributions made by x as provided in sec_1368 if x or its shareholders fail to treat themselves as described above this ruling will be null and void except as specifically ruled above we express no opinion concerning the federal tax consequences of the transactions described above under any other provisions of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representatives sincerely yours arthur h ernst chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service director exempt_organizations rulings and agreements department of the treasury p o box - rm cincinnati oh date jun ue dear sir or madam employer_identification_number person to contact - i d number contact telephone numbers we have considered your application_for recognition of exemption from federal_income_tax under the provisions of sec_501 internal_revenue_code_of_1986 and its applicable income_tax regulations that you do not qualify for the reasons set forth on enclosure i based on the available information we have determined of the consideration was given to whether you qualify for exemption under other subsections of sec_501 of the code however we have concluded that you do not qualify under another subsection as your organization has not established exemption from federal_income_tax it will be necessary for you to file an annual income_tax return on form_1120 of the code contributions to you are not deductible under section if you are in agreement with our proposed denial please sign and return one copy of the enclosed form_6018 consent to proposed adverse action the appeal must the hearing may be held at the if a hearing is requested you will be if you request at any mutually convenient to protest you should submit a written if you are to be represented by someone who is not you have the right to protest this proposed determination if you believe it is incorrect appeal giving the facts law and other information to support your position as explained in the enclosed publication exempt_organizations appeal procedures for unagreed issues be submitted within days from the date of this letter and must be signed by one of your principal officers you may request a hearing with a member of the office of the regional_director_of_appeals when you file your appeal contacted to arrange a date for it regional_office or district_office one of your principal officers he or she must file a proper power_of_attorney and otherwise qualify under our conference and practice requirements as set forth in sec_601_502 of the statement of procedural rules see treasury_department circular no ‘page of if you do not protest this proposed determination in a timely manner it will be considered by the internal_revenue_service as a failure to exhaust available administrative remedies of the internal_revenue_code provides in part that sec_7428 a declaratory judgement or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted administrative remedies available to it within the internal_revenue_service if we do not hear from you within the time specified this will become our final_determination in that event appropriate state officials will be notified of this action in accordance with the provisions of sec_6104 of the code sincerely flan lois g lerner director exempt_organizations rulings and agreements enclosures page of issues the retreats will be unsupervised the organization was formed to provide a christian retreat house unsupervised time available at a christian retreat constitute a religious activity that would qualify for exemption under sec_501 of the irc does significant this property will be maintained with the the organization will use the property of the board_of directors of the organization organization's income additional houses at the organization’s expense property is not owned by the organization the property and all improvements will revert back to the incorporators when the organization terminates does the improvement of a related party’s property constitute inurement and therefore prohibit exemption under sec_501 the property will be expanded with since the of the irc the organization will pay the board_of directors for services rendered to the organization board_of directors which is comprised of related parties does setting salaries by the related board_of directors constitute inurement and therefore prohibit exemption under sec_501 these salaries will be set by the of the irc facts purpose of the organization the organization was incorporated on august of the state of under the laws the organization's objective and purpose is the operation of a non-profit christian retreat membership the organization shall have no members activities and additional facts activities day or day stay ina inviting people to come for a day cabin the activities of the organization as stated in the application_for exemption include participants will not be chaperoned during the course of their page of stay and are allowed to do what they want to do additional facts the board_of directors is made up of three individuals are and the individual who ordained both and by the organization are married and and are also the owners of the property being used ‘ls a neighbor and they the organization will make improvements to the property owned by improvements to the current building along with adding several additional buildings and recreational items to the property this includes repairs and the organization will pay the board_of directors for work performed for the organization the organization states that and are currently uncompensated and that they will never be compensated for ministerial services eventually they will be compensated for services such as maintenance grounds keeping janitorial and bookkeeping amount of compensation will be dollar_figure parties will set their own compensation package per hour the related the the organization was requested to amend the articles of incorporation to include appropriate language for sec_501 exemption amend the articles of incorporation incorporation filed with the state on include appropriate language for section c article iti the purposes for which the corporation is organized is the organization stated that they would the amended articles of did not any provisions which the incorporators elect to article vii set forth for the regulation of the internal affairs of the corporation including any provision for the distribution of assets on dissolution or final liquidation is r the organization was requested to expand the board_of directors to include additional unrelated individuals the page of ‘ organization declined to expand the board_of directors the organization was requested to sign a conflict of interest policy commandments as its conflict of interest policy the organization submitted a signed copy of the ten the organization was requested to provide a lease agreement between the organization and the owners of the property being used a lease was submitted expenses and improvements to be the lease calls for all is also indicated that the source of funding for the it organization will be donations from individuals that use the facility if the organization ceases to exist all property and improvements will revert back to the owners of the property the participants have religious books and as previously mentioned there is no structure to the religious retreat videos at their disposal dated october be the delivery of a light lunch and a n evening meal otherwise the guest will be unchaperoned during the course of their stay significant part of the day therefore participants are unsupervised for a the only scheduled association will based on the response to the letter sec_501 of the internal_revenue_code provides in part for the exemption from federal_income_tax of organizations organized and operated exclusively for charitable religious or educational_purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual it in order to be exempt as an organization described in section sec_1_501_c_3_-1 of the income_tax regulations states that c of the code an organization must be both organized and operated exclusively for one or more of the purposes specified in such section organizational_test or the operational_test is not exempt an organization will not be it engages primarily in activities if an organization fails to meet either the c -1 c of the regulations provides that an sec_1 organization will be regarded as operated exclusively for one or more exempt purposes only if which accomplish one or more of such exempt purposes specified in sec_501 so regarded if more page of than an insubstantial part of its activities-is not in furtherance of an exempt_purpose sec_1 c -1 b iv no case shall an organization be considered to be organized exclusively for one or more exempt purposes if articles the purposes for which such organization is created are broader than the purposes specified in sec_501 c of the regulations provides that in by the terms of its c -1 b of the regulations provides that an sec_1 organization is not organized exclusively for one or more exempt purposes unless its assets are dedicated to an exempt_purpose organization's assets will be considered dedicated to an exempt_purpose for example if upon dissolution such assets would by reason of a provision in the organization's articles or by operation of law state_or_local_government for a public purpose or to the federal government or to a state_or_local_government for a public purpose or would be distributed by a court to another organization to be used in such manner as in the judgement of the court will best accomplish the general purposes for which the dissolved organization was organized be distributed for one or more exempt purposes or toa an thus of the regulations states that an sec_1 c -1 d ii organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than a private to meet the requirement of this subdivision it is interest is not organized necessary for an organization to establish that it or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests sec_1_501_a_-1 of the regulations states that the words private_shareholder_or_individual means an individual having a personal and private interest in the activities of the organization in general an organization that applies for recognition of exemption has the burden of proving that it clearly meets all the requirements of the particular section of the code under which jit has applied cir f and cleveland coral practical college vs commissioner see kenner vs commissioner 318_f_206 cir 2a 2d leon a beeghly v commissioner t c revrul_77_366 holds that a nonprofit organization that arranges and conducts winter-time ocean cruises during which activities to further religious and educational_purposes are provided in addition to extensive social and recreational activities is not operated exclusively for exempt purposes and does not qualify for exemption provided that page of where an exempt_organization engages in a transaction with a related interest and there is rather than the organization exemption may be lost even though the transaction ultimately proves profitable for the exempt_organization a purpose to benefit the private interest in better business bureau of washington d c states u s the supreme court held that the presence of a single non-exempt purpose if substantial in nature will destroy a claim for exemption regardless of the number or importance of truly exempt_purpose inc v united in the 76_tc_380 organization operating a religious retreat facility did not qualify for exemption under sec_501 because it failed to show that the retreat facility was operated exclusively for religious purposes although the organization's mountain lodge offered guests religious recreational and social activities however none were regularly scheduled or required the court concluded that the organization had an not met its burden_of_proof to show that the lodge was operated primarily for an exempt religious purpose and that the recreational and social activities at the lodge were only incidental to a religious purpose 55_f3d_684 d d c u s app it was held that to be no part of an organization's net in airlie foundation inc v united_states of america u s app d c eligible for exempt status earnings may inure to the benefit of any private_shareholder_or_individual see 588_fsupp_693 inurement or benefit is not relevant private_shareholder_or_individual is broadly defined as any person having a personal and private interest in the activities of the organization and it includes the creator of the organization and his family see presbyterian and reformed publishing co in addition an organization is not operated exclusively for exempt purposes if it serves a private rather than a public interest easter house v united_states cl treas reg f 2d v commissioner f 2d 3rd cir citing c f_r sec_1_501_a_-1 citing sec_1 c -1 d ii aff'd without opinion the amount or extent of the fed cir ct in addition no is not operating an organization must be since the organization is improving the with no basis and no outside controls to confirm that to be considered exempt under c operated for public rather than private interests part of the earnings_of the organization can inure to the benefit of any private individual personal_property of the incorporators it exclusively for an exempt_purpose and its activities constitute inurement in addition the related board_of directors will set the salaries that they will receive for services provided to the organization salary payments will be commensurate with the work provided there page of 20v447047 is inurement this will preclude exemption under sec_501 of the code application of law of the regulations provides that in sec_1 c -1 b iv no case shall an organization be considered to be organized exclusively for one or more exempt purposes if articles the purposes for which such organization is created are broader than the purposes specified in sec_501 the organization’s articles of incorporation do not state that it is organized exclusively for on or more exempt purposes by the terms of its sec_1 c -1 b of the regulations provides that an organization is not organized exclusively for one or more exempt purposes unless its assets are dedicated to an exempt_purpose organization's assets will be considered dedicated to an exempt_purpose for example if upon dissolution such assets would by reason of a provision in the organization's articles or by operation of law be distributed for one or more exempt purposes or to a state_or_local_government for a public purpose or to the federal government or to a state_or_local_government for a public purpose or would be distributed by a court to another organization to be used in such manner as in the judgement of the court will best accomplish the general purposes for which the dissolved organization was organized the articles of incorporation state that the assets of the organization will revert back to the donors an sec_501 of the code states that no part of the net earning of a charitable_organization can inure to the benefit of any private_shareholder_or_individual expenses including improvements to a facility that is owned by the incorporators of the organization the incorporators are benefiting substantially from the organization’s funds invested in to the facility back to the owners if the organization ceases to exist as stated in the articles of incorporation the facilities including all improvements will revert by having the organization pay for all in addition the organization will be paying the board_of directors for work performed around the facility the board_of directors will decide on their own salaries two out of three members of the board_of directors are related a strict prohibition against inurement and private benefit burden_of_proof is upon the taxpayer to prove there is under sec_501 that the organization is operating for a public rather than a private interest and that no inurement or private benefit exists the organization has clearly not done this page of 9yv44t 04e in the schoger foundation v commissioner t c organization operating a religious retreat facility did not qualify for exemption under sec_501 because it failed to show that the retreat facility was operated exclusively for religious purposes an this organization similar to your revrul_77_366 discusses a religious_organization which operated a retreat organization allows its participants significant unsupervised time this spare time can be used -at the discretion of the participant to do as the participant desires structured religious activities are unsupervised for the entire time that they are at the facility the participants in the retreat your organization has no applicant’s position the organization has responded to the fact of significant unsupervised time available by stating that there is no unsupervised time the organization stated our guests are chaperoned hours a day either by addition the organization stated that no social or recreational activities are scheduled into its functions and myself or the holy spirit of god in the organization has responded to the inurement issue by stating the descendants to be caretakers of the of this facility is solely to benefit the public at large is our inheritance given to us by god and to our as the functions service response to applicant’s position the organization has not met the organizational_test for exemption under sec_501 regulations provides that in no case shall an organization be considered to be organized exclusively for one or more exempt purposes if such organization is created are broader than the purposes specified in sec_501 by the terms of its articles the purposes for which sec_1 c -1 b iv of the a an in the judgement of the court will best be distributed for one or more exempt purposes or to sec_1 c -1 b of the regulations provides that an organization is not organized exclusively for one or more exempt purposes unless its assets are dedicated to an exempt_purpose organization's assets will be considered dedicated to an exempt_purpose for example if upon dissolution such assets would by reason of a provision in the organization's articles or by operation of law state_or_local_government for a public purpose or to the federal government or to a state_or_local_government for a public purpose or would be distributed by a court to another organization to be used in such manner as accomplish the general purposes for which the dissolved organization page of z0uvu44 v047 was organized the organization’s dissolution clause in its articles of incorporation state that assets will revert back to the donors the will operate on a on-call as stated in the response of date item organization stated ‘the basis as a guest requests spiritual guidance as we share the same premises the only scheduled association will be the delivery of a light lunch and a evening meal otherwise the guest will be unchaperoned during the course of their stay not satisfied the problem of unsupervised time of the participants the organization stated that no social or recreational activities are scheduled activities scheduled either unsupervised whether religious social or recreational as they wish the organization’s response to the inurement issue does not respond to the issue the property that the organization will maintain and improve is still owned by two of the organization’s related board_of directors to the owners upon the dissolution of the organization the organizations response of date the organization plans to build all improvements made to the property will revert back based on as much as this is true there are no religious the participants are able to do the activities the participants time is significantly the organization has conclusion in view of the foregoing we conclude that the principal benefits arising from your activity of providing a retreat house accrue to the board_of directors in addition the requirement that an organization providing religious retreat activities must solely be related to a religious activity has not been fulfilled therefore the requirement of sec_1 c -1 d regulations that an exempt_organization must serve a public rather than a private interest is not satisfied ii of the


internal_revenue_service number release date index number ---------------------------------- --------------------------------- ----------------------------- ------------------ ------------------------- - - department of the treasury washington dc person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc psi plr-114490-04 date date company ----------------------------------------------------------- property -------------------------------------- ------------------------------------------------------------ state business tenant a b c d e f g h i k ------------- -------------------------------------------------------------- ---------------------------------- ------------------------ ---------------------- -- ---- --------------- --------------- ------- ------- --------------- --------------- plr-114490-04 m n p ------- --------------- --------------- dear --------------- this letter responds to a letter from your authorized representative dated date as well as subsequent correspondence submitted on behalf of company requesting a ruling that the rental income received by company from the property is not passive_investment_income within the meaning of ' d c i of the internal_revenue_code this ruling would effectively update plr date to reflect a revised lease facts company was incorporated under the laws of state on a and elected under ' a to be an s_corporation effective b company has accumulated_earnings_and_profits in addition to owning and operating a business_company owns and leases the property the property contains various minerals and is improved with an office and facilities for processing the minerals into products that are sold to third parties for use in the construction industry in exchange for monthly payments calculated as a percentage of tenant’s income from its products tenant has the right under the revised lease to extract minerals from the property to use the property and the processing facilities and equipment and to receive services from company in connection with the use of the facilities and equipment through c of its d full-time employees as well as independent contractors company provides various services under the lease agreement these services include permit and environmental compliance services technical assistance on equipment selection and installation annual equipment inspections and advice on equipment maintenance technical assistance on waste handling and disposal storage and disposal of certain mineral by-products resolution of issues with neighbors and landscaping company maintains an on-site office for_the_use_of its vice president who devotes approximately percent of his work day to fulfilling company’s obligations under the lease agreement plr-114490-04 company received or accrued approximately e in lease payments and paid_or_incurred approximately f in relevant expenses for g on the property the comparable figures for h are i and k respectively and those figures for m are n and p respectively law and analysis except as provided in ' g ' a provides that a small_business_corporation may elect in accordance with the provisions of ' to be an s_corporation sec_1362 provides that an election under ' a terminates whenever the corporation i has accumulated_earnings_and_profits at the close of each of three consecutive tax years and ii has gross_receipts for each of such tax years more than percent of which are passive_investment_income the term passive_investment_income means gross_receipts derived from royalties rents dividends interest annuities and sales or exchanges of stock_or_securities except as otherwise provided in ' d c ' d c i provides that sec_1_1362-2 of the income_tax regulations provides that rents means amounts received for_the_use_of or the right to use property whether real or personal of the corporation sec_1_1362-2 provides that rents does not include rents derived in the active trade_or_business of renting property rents received by a corporation are derived in an active trade_or_business of renting property only if based on all the facts and circumstances the corporation provides significant services or incurs substantial costs in the rental business generally significant services are not rendered and substantial costs are not incurred in connection with net leases whether significant services are performed or substantial costs are incurred in the rental business is determined based upon all the facts and circumstances including the number of persons employed to provide the services and the types and amounts of costs and expenses_incurred other than depreciation conclusion based solely on the facts and representations submitted we conclude that the payments company receives under the property lease that constitute rents are not passive_investment_income under ' d c i 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 specifically we express or imply no opinion regarding company's eligibility to be plr-114490-04 an s_corporation further the passive_investment_income rules of ' are independent of the passive_activity rules of ' unless an exception under ' applies the rental_activity remains passive for purposes of ' under a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative this ruling is directed only to the taxpayer who requested it according to ' k this ruling may not be used or cited as precedent sincerely s james a quinn senior counsel branch office of associate chief_counsel passthroughs and special industries enclosures copy for ' purposes cc


internal_revenue_service national_office technical_advice_memorandum number release date index uil no case mis no tam-123177-02 cc ita b4 area director field compliance sb_se taxpayer's name taxpayer's address taxpayer's tin year involved date of conference legend a b c d y state statute year year year x issue whether by virtue of the language contained in sec_104 of the internal_revenue_code a may exclude from gross_income exemplary damages recovered in a wrongful_death_action conclusion because congress in adding the present version of sec_104 did not abrogate the requirement that to be excludable damages must be received on account of personal physical injuries or physical sickness a must include the exemplary damages in gross_income facts 1although technical_advice was requested only as to a the director has indicated that the same tax treatment should apply to all three taxpayers tam-123177-02 in year d was killed while carrying on duties for his employer y at the time of his death d was married to the taxpayer a and had two minor children b and c later that year a individually and on behalf of the minor children brought suit against y under the state statute under sec_3 of the statute an employee waives his right to recover actual damages for personal injuries sustained during the course of employment unless he gives notice to the employer at the time employment begins in addition to any award of workmens’ compensation authorized by statute certain survivors of an employee may recover exemplary damages under the state constitution2 if the employer’s conduct in causing the death of the employee was wilful or grossly negligent state statute provides a recovery_of workers’ compensation benefits is the exclusive remedy of an employee covered by workers’ compensation insurance coverage or a legal beneficiary against an employer or an agent or employee of the employer for the death of or a work-related injury sustained by the employee b this section does not prohibit the recovery_of exemplary damages by the surviving_spouse or heirs of the body of a deceased employee whose death was caused by an intentional act or omission of the employer or by the employer’s gross negligence by year c had reached his majority and had entered the case on his own behalf in year the trial_court submitted the case to the jury with the following charge what sum of money if any should be assessed against y and awarded to plaintiffs as exemplary damages for the death of d exemplary damages means an amount that you may in your discretion award as an example to others and as a penalty or by way of punishment factors to consider in awarding exemplary damages if any are a b c d e the nature of the wrong the character of the conduct involved the degree of culpability of the wrongdoer the situation and sensibilities of the parties concerned the extent to which such conduct offends a public sense of justice and propriety inconvenience or frequency of the wrongs committed the size of the award needed to deter similar wrongs in the future f g art of the state constitution authorizes the individuals described in the statute to recover exemplary damages from any tortfeasor that may commit a homicide through wilful act or omission or gross neglect tam-123177-02 the jury awarded the plaintiffs dollar_figurex allocating 10x percent to a and 5x percent to b and c respectively subsequently in year the trial_court approved a settlement of the jury verdict for dollar_figurex allocated in the same manner as prescribed by the jury in year a included her share of the proceeds in gross_income and claimed a miscellaneous itemized_deduction for the attorneys’ fees paid to recover the exemplary damages in year the internal_revenue_service allowed a claim_for_refund filed by a for year on the basis that the attorneys’ fees paid were not includible in her gross_income under also in year a filed a second claim_for_refund on the basis that the exemplary damages recovered were excludable from gross_income under sec_104 by virtue of the flush language contained in sec_104 law and analysis under sec_61 except as otherwise provided in the code a taxpayer must include in gross_income all income from whatever source derived the supreme court of the united_states has long recognized that the definition of gross_income sweeps broadly and reflects congress’ intent to exert the full measure of its taxing power and to bring within the definition of income any accession to wealth 515_us_323 504_us_229 accordingly any receipt of funds by a taxpayer is presumed to be gross_income unless the taxpayer can demonstrate that the accession fits into one of the exclusions created by other sections of the code see 348_us_426 one of these exclusions found at sec_104 permits a taxpayer to exclude from gross_income the amount of any damages other than punitive_damages received whether by suit or agreement and whether as lump sums or periodic_payments on account of personal physical injuries or physical sickness the court has emphasized the corollary to sec_61’s broad construction namely the default rule_of statutory interpretation exclusions from income must be narrowly construed commissioner v schleier u s pincite in construing sec_104 prior to its amendment the court enunciated two independent tests a taxpayer who seeks an exclusion thereunder must satisfy first the taxpayer must demonstrate that the underlying cause of action giving rise to the recovery is based on tort or tort type rights and second the taxpayer must show that the damages were received on account of personal injuries or sickness schleier u s pincite in describing the second test the court indicated that there must be a direct relationship between the damages and the injuries ie the damages must be related to the existence and extent of a personal injury schleier u s pincite in in addition to the amendment to sec_104 congress also added the the highlighted portions were added by section of the small_business job protection act of pub_l_no 110_stat_1838 act tam-123177-02 following new subsection to sec_104 c application of prior_law in certain cases the phrase other than punitive_damages shall not apply to punitive_damages awarded in a civil_action - which is a wrongful_death_action and with respect to which applicable state law as in effect on date and without regard to any modification after such date provides or has been construed to provide by a court of competent jurisdiction pursuant to a decision issued on or before date that only punitive_damages may be awarded in such an action this subsection shall cease to apply to any civil_action filed on or after the first date on which the applicable state law ceases to provide or is no longer construed to provide the treatment described in paragraph before congress enacted the act the court determined it would review the appellate court’s opinion in 66_f3d_1550 10th cir that punitive_damages were taxable this was recognized in the legislative_history to the act h_r rep no 104th cong 2d sess c b provides as follows present law the exclusion_from_gross_income of damages received on account of personal injuries or sickness specifically does not apply to punitive_damages received in connection with a case not involving physical injury or sickness courts presently differ as to whether the exclusion applies to punitive_damages received in a case involving a physical injury or a physical sickness fn certain states provide that in the case of claims under a wrongful death statute only punitive_damages may be awarded explanation of provisions include in income all punitive_damages the bill provides that the exclusion_from_gross_income does not apply to any punitive_damages received on account of personal_injury_or_sickness whether or not related to a physical injury or physical sickness under the bill present law continues to apply to punitive_damages received in a wrongful_death_action if the applicable state law as in effect on date without regard to subsequent modification provides or has been construed to provide by a court decision issued on or before such date that only punitive_damages may be awarded in a wrongful_death_action fn the supreme court recently agreed to decide whether punitive_damages awarded in a physical injury lawsuit are excludable from gross_income 66_f3d_1550 10th cir cert granted u s l w u s date no also the tax_court recently held that if punitive_damages are not of a compensatory nature they are not excludable from gross_income regardless of whether the underlying claim involved a physical injury or physical sickness bagley v commissioner t c no thereafter in 519_us_79 the court concluded that punitive_damages recovered in a wrongful_death_action do not qualify for the sec_104 tam-123177-02 exclusion the court held unequivocally that noncompensatory punitive_damages do not meet the second test for exclusion because they do not meet the on account of test the service construes sec_104 as requiring the application of sec_104 as interpreted by the court in schleier with the added requirement that the damages be received on account of physical injuries or physical sickness thus to be excludable all damages regardless of their nature must be received on account of physical injuries or physical sickness the taxpayer relying on argues that under state jurisprudence and exemplary damages serve quasi compensatory purposes and consequently all or a portion of the recovery clearly satisfies the requirements for the sec_104 exclusion however this identical view was rejected by the court_of_appeals in in the first noted that it had recently decided in that noncompensatory punitive_damages awarded under law failed to qualify for the sec_104 exclusion the fifth circuit indicated that the sole was whether punitive_damages awarded under issue to be decided in law are compensatory in a way which would bring them within sec_104’s in concluding that they did not qualify for exclusion exclusion the court stated and we find argument unpersuasive despite notwithstanding any compensatory effect that punitive_damages might have the state supreme court has emphasized at least since that exemplary damages are awarded not to compensate the plaintiff for any injury received but to punish the defendant and to deter others emphasis added citations omitted the that court held that prejudgment_interest was not available on exemplary damages because of their noncompensatory nature noted that one year after the state supreme court decided we conclude therefore that the exemplary damages recovered by a did not serve any compensatory purpose even if such quasi-compensatory purposes may be found generally the tenor of the jury instructions recited above reveal that the recovery_of exemplary damages in this case bore no relation to the existence or extent of any personal injury suffered by the tam-123177-02 decedent or the plaintiffs rather the recovery was measured by the conduct of the employer and served to punish and deter future similar conduct because they did not compensate a or any personal physical injury the exemplary damages fail to qualify for exclusion under sec_104 in situation of revrul_84_108 1984_2_cb_302 the service published its position that proceeds recovered under the alabama wrongful death statute fail to qualify for exclusion under a former version of sec_104 because they were punitive in nature see 476_f2d_943 5th cir recovery not permitted because government had not waived its sovereign immunity against award of punitive_damages notwithstanding a federal district_court disagreed with the ruling citing state court decisions for the proposition that the wrongful death_proceeds were compensatory 642_fsupp_635 n d ala the taxpayer relies on this case in support of her position that when a statute authorizes the recovery_of punitive_damages only such damages are excludable from gross_income the taxpayer construes the statement that from the legislative_history of the act that present law continues to apply to punitive_damages to mean that judicial opinions interpreting state wrongful death statutes rendered on or before date continue to control the taxation of punitive_damages recovered thereunder the only case in this category is burford and because the state statute is similar to the alabama statute a contends that the result reached in burford is required here the court has consistently held that its interpretation of a statute is an authoritative statement of what the statute meant before as well as after the decision of the case giving rise to that construction see eg 509_us_86 511_us_244 511_us_298 in o’gilvie the court rejected the taxpayers’ argument that the on account of test is satisfied by merely showing that the damages would not have been recovered but for the personal injury instead the court adopted a more stringent requirement urged by the government that to come within the exclusion the damages must be received by reason of or because of the personal injuries the court concluded that punitive_damages were not received on account of personal injuries suffered by the victim but because of the reprehensible because a continues to receive nontaxable workmens’ compensation payments due to d’s death it is questionable that the statute qualifies as one described in sec_104 the state supreme court however has held that a plaintiff is not required to prove actual damages in order to recover exemplary damages under the statute and declined to decide whether workmens’ compensation constitutes compensatory_damages tam-123177-02 conduct of the actor applying the principle enunciated in harper the court’s interpretation of the on account of requirement contained in sec_104 in o’gilvie constituted a statement of what the statute meant prior to amendment by the act and thereafter unless that requirement of the statute was changed or eliminated congress in enacting sec_104 in was fully aware that the court was considering whether punitive_damages were excludable from gross_income under sec_104 nevertheless congress did not purport to eliminate the second test for exclusion under sec_104 ie that the damages must be received on account of personal physical injuries or physical sickness see schleier u s pincite had congress wanted to exempt from the scope of sec_61 punitive_damages recovered under a statute providing for an award of such damages only in wrongful death cases it could have done so explicitly regardless of the pending resolution of the issue by the court in o’gilvie this interpretation of the legislative_history comports with the broad reach of sec_61 and the corollary that exemptions from income must be narrowly construed see schleier u s pincite caveat s a copy of this technical_advice_memorandum is to be given to the taxpayer s sec_6110 provides that it may not be used or cited as precedent as passed by the senate section of h_r stated in part that n otwithstanding subsection a gross_income shall not include punitive_damages awarded in an action the difference in the language of sec_104 as enacted supports the conclusion that congress did not intend to exclude from gross_income punitive_damages recovered under the circumstances present here