internal_revenue_service number release date index number ------------------------------------------------------ --------------------------------------------- -------------------- ------------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no -------------- telephone number ---------------------- refer reply to cc fip b5 plr-113154-13 date date legend bonds --------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------------------ authority --------------------------------------------------- state act facility ------------------------- ------------------------------------------------------------------------- ------------------------------------------------- dear ------------------ this letter is in response to your request for a ruling that the lease arrangement described herein will not cause the bonds to meet the private_security_or_payment_test under sec_141 of the internal_revenue_code facts and representations you make the following factual representations authority was created by the act as a body corporate separate from the state authority acquires constructs and maintains facilities on behalf of the state and is the primary issuer of debt to finance the acquisition and construction of buildings for various state purposes typically authority plr-113154-13 holds legal_title to the buildings and the state leases the building pursuant to long term operating leases authority uses the lease payments from the state to pay debt service on the lease revenue bonds issued for acquisition or construction of buildings authority issued the bonds to finance construction and or renovation of various buildings including the facility authority holds legal_title to the facility and the state leases the facility pursuant to a multi-year operating_lease the lease the debt service on the bonds is payable from and secured_by the state’s payments on the lease the lease payments along with the rentals with respect to various other facilities financed with proceeds of authority’s bonds issued under the same indenture the parity bonds the state is obligated to pay all costs of operating and maintaining the facility the only payments from nongovernmental persons with respect to the facility are payments that do not exceed direct operating costs of the facility attributable to use by such persons the bondholders do not have a mortgage on or other security_agreement creating a security_interest in the facility under state law the remedies available to the bondholders upon nonpayment of debt service are obtaining a money judgment against the state for unpaid lease payments or other rentals and filing suit to compel authority or the state to perform in accordance with the terms of the leases act or related indenture by means of an action in the nature of mandamus pursuant to the lease the state may cease lease payments only if the facility becomes untenantable for reasons other than those caused by the state in the indenture for the bonds authority has covenanted not to sell lease mortgage or otherwise dispose_of the facility other than the lease so long as the parity bonds are outstanding with the following exceptions authority can do so in a manner it determines is in the best interest of the bondholders if the lease is terminated if the rental for the part of the facility retained is not less than the rental just prior to such action at the end of the lease_term or if authority has sufficient funds to pay the remaining lease payments when due the state intends to enter into management contracts with nongovernmental persons for performance of certain substantial services at the facility the management contracts authority represents that the terms of the management contracts will cause the bonds to satisfy the private_business_use_test of sec_141 law sec_103 provides generally that gross_income does not include interest on any state_or_local_bond sec_103 provides that this exclusion does not apply to any private_activity_bond unless it is a qualified_bond under sec_141 under sec_141 a bond is a private_activity_bond if either the private_business_use_test under plr-113154-13 sec_141 and the private_security_or_payment_test under sec_141 are satisfied or the private_loan_financing_test under sec_141 is satisfied sec_141 provides in part that the private_security_or_payment_test is satisfied if the payment of the principal of or the interest on more than percent of the proceeds of such issue is under the terms of such issue or any underlying arrangement directly or indirectly a secured_by any interest in property used or to be used for a private_business_use or payments in respect of such property or b to be derived from payments whether or not to the issuer in respect of property or borrowed money used or to be used for a private_business_use sec_1_141-4 of the income_tax regulations provides that the private_security_or_payment_test relates to the nature of the security for and the source of the payment of debt service on an issue the private payment portion of the test takes into account the payment of the debt service on the issue that is directly or indirectly to be derived from payments whether or not to the issuer or any related_party in respect of property or borrowed money used or to be used for a private_business_use the private security portion of the test takes into account the payment of the debt service on the issue that is directly or indirectly secured_by any interest in property used or to be used for a private_business_use or payments in respect of property used or to be used for a private_business_use sec_1_141-4 provides that the security for and payment of debt service on an issue is determined from both the terms of the bond documents and on the basis of any underlying arrangement an underlying arrangement may result from separate agreements between the parties or may be determined on the basis of all of the facts and circumstances surrounding the issuance of the bonds for example if the payment of debt service on an issue is secured_by both a pledge of the full faith and credit of a state_or_local_governmental_unit and any interest in property used or to be used in private_business_use the issue meets the private_security_or_payment_test sec_1_141-4 provides that both direct and indirect payments made by any nongovernmental person that is treated as using proceeds of the issue are taken into account as private payments to the extent allocable to the proceeds used by that person payments are taken into account as private payments only to the extent that they are made for the period of time that proceeds are used for a private_business_use payments for a use of proceeds include payments whether or not to the issuer in respect of property financed directly or indirectly with those proceeds even if not made by a private business user payments are not made in respect of financed property if those payments are directly allocable to other_property being directly used by the person making the payment and those payments represent fair_market_value compensation_for that other use plr-113154-13 sec_1_141-4 provides that payments by a person for a use of proceeds do not include the portion of any payment that is properly allocable to the payment of ordinary and necessary expenses as defined under sec_162 directly attributable to the operation and maintenance of the financed property used by that person for this purpose general overhead and administrative expenses are not directly attributable to those operations and maintenance sec_1_141-4 provides that property used or to be used for a private_business_use and payments in respect of that property are treated as private security if any interest in that property or payments secures the payment of debt service on the bonds for this purpose the phrase any interest in is to be interpreted broadly and includes for example any right claim title or legal share in property or payments sec_1_141-4 provides that the payments taken into account as private security are payments in respect of property used or to be used for a private_business_use except as otherwise provided in this paragraph d and paragraph d of this section the rules in paragraphs c i a and b and c ii of this section apply to determine the amount of payments treated as payments in respect of property used or to be used for a private_business_use thus payments made by members of the general_public for use of a facility used for a private_business_use for example a facility that is subject of a management_contract that results in private_business_use are taken into account as private security to the extent that they are made for the period of time that property is used by a private business user analysis authority represents that the terms of the management_contract will cause the bonds to satisfy the private_business_use_test because the private use test is met the bonds will be private_activity_bonds if the private_security_or_payment_test is also met specifically you ask whether the lease and covenants related to the facility will give rise to private security when authority enters into the management contracts whether or not a particular arrangement rises to a security_interest for purposes of sec_1 d depends on the facts and circumstances associated with the arrangement the lease payments and the state’s rental payments on other facilities financed by the parity bonds are security for the bonds these payments are not private payments as they are made by a governmental person accordingly neither are they private security authority represents that the bondholders do not have a mortgage or other security_agreement creating a security_interest in the facility under state law however because sec_1_141-1 provides that the phrase any interest in property is to be interpreted broadly authority is concerned that in its documents relating to the facility plr-113154-13 and the bonds it has given the bondholders rights in the facility that might be within the meaning of that provision the bondholders’ remedies for nonpayment of debt service include obtaining a money judgment against the state or filing suit to compel performance under the lease act or indenture authority has covenanted that generally it will not sell lease mortgage or otherwise dispose_of the facility other than the lease as long as the parity bonds are outstanding these restrictions do not apply after the lease is terminated or if the rentals or authority’s other monies are sufficient to cover the amounts of the lease payments however only authority can initiate these actions such as leasing or selling the facility for the benefit of the bondholders after the lease is terminated the bondholders cannot compel authority to so act we conclude that the terms of the lease and the covenants contained in the indenture merely provide some assurance to bondholders that authority will continue to make the facility available to the state and that the state will continue to use the facility and make lease payments until the lease is ended or other monies are available to pay debt service on the bonds until such time neither the bondholders nor any other parties other than the state or authority will be granted rights in the facility accordingly the terms do not give rise to a security_interest in the facility within the meaning of sec_1_141-4 conclusion based solely on the facts described herein and representations made by authority we conclude that the lease and related covenants will not cause the private_security_or_payment_test of sec_141 to be met except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any transaction or item discussed or referenced in this letter specifically we express no opinion as to whether the interest_paid on the bonds is excludable from gross_income this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office a copy of this letter is being sent to authority’s authorized representative plr-113154-13 the ruling contained in this letter is based upon information and representations submitted by authority and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the materials submitted in support of the request for a ruling it is subject_to verification upon examination sincerely associate chief_counsel financial institutions products by _____________________ johanna som de cerff senior technician reviewer branch cc


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom corp plr-120909-98 date date legend purchaser disregarded sub sellers target target affiliates plr-120909-98 us sub country x date a date b date c date x date y date z x taxable_year purchaser’s company officials outside tax professional authorized representatives business a plr-120909-98 dear this responds to your authorized representatives’ date letter requesting an extension of time under sec_301_9100-1 through of the procedure and administration regulations for purchaser to make late elections purchaser as the deemed purchasing_corporation the common parent of the consolidated_group and the united_states_shareholder of the controlled_foreign_corporations making deemed purchases is requesting an extension to make sec_338 elections under sec_338 of the internal_revenue_code and sec_1_338-1 and sec_1_338-1 of the income_tax regulations with respect to the acquisition of the stock of target and deemed acquisitions of the stock of the target affiliates sometimes hereinafter such elections are collectively referred to as the election or elections on date a additional information was received in letters dated february and march and date the material information is summarized below purchaser is a publically traded corporation that is the common parent of a consolidated_group has a calendar taxable_year and uses the accrual_method of accounting disregarded sub is a country x corporation the specific country of incorporation is set forth above in the redacted legend that prior to the subject acquisition and on or before date y was newly formed by purchaser as a wholly owned subsidiary to acquire the stock of target target is a country x corporation the specific country of incorporation is set forth above in the redacted legend that was wholly owned by sellers individuals and trusts who are citizens and residents of country x except as set forth in the above redacted legend target affiliates are foreign_corporations the specific countries of incorporation are set forth above in the redacted legend that are direct wholly owned subsidiaries of target and u s sub is a wholly owned domestic subsidiary of target purchaser and target and their subsidiaries are engaged in business a prior to the below described acquisition sellers except for the domestic shareholders which are set forth above in the redacted legend and target including target affiliates did not file u s income_tax returns and they were not subject_to u s income_taxation except that target did file a united_states income_tax return for u s sub its only domestic subsidiary which is further discussed below further neither target nor any of the target affiliates except for u s sub target’s only domestic subsidiary which is further discussed below was a controlled_foreign_corporation within the meaning of sec_957 a passive_foreign_investment_company for which an election under sec_1295 was in effect a foreign_investment_company or a foreign_corporation the stock ownership of which is described in sec_552 or required under sec_1_6012-2 to file a u s income_tax return on date a purchaser disregarded sub target and sellers entered into a stock purchase agreement for disregarded sub to acquire all of sellers’ target stock including plr-120909-98 the stock of the target affiliates and certain other subsidiaries for which a sec_338 election has not and will not be made also on date a disregarded sub acquired all of the sellers’ target stock including the stock of the target affiliates and certain other subsidiaries for which a sec_338 election has not and will not be made pursuant to the stock purchase agreement solely in exchange for cash and the assumption of target’s liabilities in a fully taxable transaction it is represented that purchaser was not related to sellers within the meaning of sec_338 and purchaser's deemed acquisition of the stock of target and target affiliates qualified as a qualified_stock_purchase as defined in sec_338 the period of limitations on assessments under sec_6501 has not expired for purchaser’s or target's and its subsidiaries’ taxable_year s in which the acquisition occurred the taxable years in which the elections should have been filed or any taxable years that would have been affected by the elections had they been timely filed on date x disregarded sub made an election that was timely filed under sec_301_7701-3 by filing form_8832 entity classification election to disregard disregarded sub as a separate_entity for united_states tax purposes effective on date y which is before the subject acquisition also on date z which is after the acquisition but before the due_date of the elections target distributed all of the stock of u s sub to purchaser we have been informed that the distribution was not reported on purchaser’s tax_return purchaser viewed the distribution as a return_of_capital since after the subject acquisition and by reason of the intended election target had no earnings_and_profits the elections were due on date b however for various reasons the elections were not filed on date c which is after the due_date for the elections purchaser’s company officials outside tax professional and authorized representatives discovered that the elections had not been filed subsequently this request was submitted under sec_301_9100-1 for an extension of time to file the elections sec_338 permits certain stock purchases to be treated as asset purchases if the purchasing_corporation makes or is treated as having made a sec_338 election under sec_338 and the acquisition is a qualified_stock_purchase sec_338 defines a qualified_stock_purchase as any transaction or series of transactions in which stock meeting the requirements of sec_1504 of one corporation is acquired by another corporation by purchase during the month acquisition period sec_1_338-1 and v provide inter alia that a foreign purchasing_corporation or deemed foreign purchasing_corporation is not eligible for the special rule under sec_1_338-1 ie which specifies a filing_date for the election that is later than the filing_date required by sec_338 and sec_1_338-1 if such foreign_corporation is considered subject_to united_states tax eg is a cfc or is required to file a united_states income_tax return sec_338 provides that the term purchase means any acquisition of stock but only if the basis of the stock in the hands of the purchasing_corporation is not determined in whole or in part by reference to the adjusted_basis of such stock in the hands of the person from whom acquired or under sec_1014 plr-120909-98 relating to property_acquired_from_a_decedent the stock is not acquired in an exchange to which sec_351 sec_354 sec_355 or sec_356 applies and is not acquired in any other transaction described in regulations in which the transferor does not recognize the entire amount of the gain_or_loss realized on the transaction and the stock is not acquired from a person the ownership of whose stock would under sec_318 be attributed to the person acquiring such stock sec_1_338-1 provides that a purchasing_corporation makes a sec_338 election for target by filing a statement of sec_338 election on form_8023 or form 8023-a in accordance with the instructions on the form the sec_338 election must be filed not later than the 15th day of the ninth month beginning after the month in which the acquisition_date occurs a sec_338 election is irrevocable sec_1_338-1 provides that the united_states_shareholders as defined in sec_951 of a foreign purchasing_corporation that is a controlled_foreign_corporation as defined in sec_957 taking into account sec_953 may file a statement of sec_338 election on behalf of the purchasing_corporation if the purchasing_corporation is not required under sec_1_6012-2 other than sec_1_6012-2 to file a united_states income_tax return for its taxable_year that includes the acquisition_date form 8023-a or form_8023 must be filed as described in the form and its instructions and also must be attached to form_5471 information_return with respect to foreign_corporation filed with respect to the purchasing_corporation by each united_states_shareholder for the purchasing_corporation sec_1_338-1 provides that the term target_affiliate has the same meaning as in sec_338 applied without sec_338 thus a corporation described in sec_338 is considered a target_affiliate for all purposes of sec_338 if a target_affiliate is acquired in a qualified_stock_purchase it is also a target sec_1_338-2 provides that if an election under sec_338 is made for target old target is deemed to sell target’s assets and new target is deemed to acquire those assets under sec_338 new target’s deemed purchase of stock of another corporation is a purchase for purposes of sec_338 on the acquisition_date of target if new target’s deemed purchase causes a qualified_stock_purchase of the other corporation and if a sec_338 election is made for the other corporation the acquisition_date for the other corporation is the same as the acquisition_date of target however the deemed sale and purchase of the other corporation’s assets is considered to take place after the deemed sale and purchase of target’s assets sec_1_1502-77 provides that the common parent for all purposes other than for several purposes not relevant here shall be the sole agent for each subsidiary in the group duly authorized to act in its own name in all matters relating to the tax_liability of the consolidated_return_year see also form 8023-a and the instructions thereto plr-120909-98 under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i provided the taxpayer demonstrates to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301 a in this case the time for filing the elections was fixed by the regulations ie sec_1_338-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant an extension of time for purchaser to file the elections provided purchaser shows it acted reasonably and in good_faith the requirements of sec_301 and are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by company officials outside tax professional and authorized representatives explain the circumstances that resulted in the failure_to_file the elections the information establishes that tax professionals were responsible for the elections that purchaser relied on the tax professionals to timely make the elections and that the government will not be prejudiced if relief is granted see sec_301_9100-3 based on the facts and information submitted including the representations that have been made we conclude that purchaser acted reasonably and in good_faith in failing to timely file the elections the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly we grant an extension of time under sec_301_9100-1 until days from the date_of_issuance of this letter for purchaser as the deemed purchasing_corporation the common parent of the consolidated_group and the united_states_shareholder of the controlled_foreign_corporations making deemed purchases to file the elections with respect to the acquisition of the stock of target and deemed acquisitions of the stock of the target affiliates as described above plr-120909-98 the above extension of time is conditioned on the taxpayer not altering a return position for which an accuracy-related_penalty could be imposed under sec_6662 see sec_301_9100-3 and example of sec_301_9100-3 and the taxpayers' purchaser's and its subsidiaries' target’s target affiliates’ u s sub’s target’s other subsidiaries all other subsidiaries of target basically those for which sec_338 elections have not and will not be made and seller’s to the extent they have any u s tax_liability tax_liability being not lower in the aggregate for all years to which the elections apply than it would have been if the elections had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers' tax_liability for the years involved a determination thereof will be made by the district director's office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers' liability is lower sec_301_9100-3 purchaser should file the elections in accordance with sec_1_338-1 and sec_1 g that is a new election on form 8023-a or form_8023 must be executed on or after the date of this letter which grants an extension and filed in accordance with the instructions on the election form a copy of this letter should be attached to the election form purchaser must amend its applicable return s and target and target affiliates must file a final return s if and as applicable to report the acquisition sale and deemed acquisitions sales as sec_338 transactions and attach thereto a copy of this letter and a copy of the election form also see sec_1_338-1 and sec_1_338-5 that is the old applicable targets must file separate final returns if and as applicable and the new applicable targets must be included in purchaser’s return by being listed on form_5471 information_return with respect to a foreign_corporation for the first year following the acquisitions see sec_1_338-1 and1 g and announcement 1998_2_irb_38 also a single form 8023-a or form_8023 may be used and the target affiliates should be listed on an attachment thereto see sec_1_338-1 and the instructions to the form no opinion is expressed as to whether the acquisition of the stock of target and or the deemed acquisition of the stocks of the target affiliates qualifies as a qualified_stock_purchase whether the acquisition of stock of target and or the deemed acquisition of the stocks of the target affiliates qualifies for sec_338 treatment if the acquisition of stock of target and or the deemed acquisition of the stocks of the target affiliates qualifies for sec_338 treatment as to the amount of gain_or_loss recognized if any by such targets on the deemed asset sales as to the tax consequents of target’s distribution of its u s sub to purchaser or whether sec_301_9100-3 applies to deny relief in addition no opinion is expressed as to the tax effects or consequences of filing the elections late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the elections late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-1 we relied on certain statements and representations plr-120909-98 made by the taxpayer its employees and representatives however the district_director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-1 to file the election penalties and interest that would otherwise be applicable if any continue to apply a copy of this letter is being sent to the authorized representative designated on your power_of_attorney this letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours assistant chief_counsel corporate by richard todd counsel to the assistant chief_counsel corporate


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division release number release date date date uil contact person identification_number contact number employer_identification_number form required to be filed tax years dear this is our final_determination that you do not qualify for exemption from federal_income_tax under internal_revenue_code sec_501 as an organization described in code sec_501 we made this determination for the following reason s you are in the business of issuing loans which is not a permissible activity within the meaning of sec_501 of the code you do not hold title to real_property you do not have a qualified parent described in sec_501 of the code in this respect you have failed to show that you are operated for the exclusive purpose of acquiring holding title to and collecting income from real_property and remitting the entire amount of such income less expenses to one or more organizations described in sec_501 you must file federal_income_tax returns on the form and for the years listed above within days of this letter unless you request an extension of time to file with their instructions and do not send them to this office result in a penalty_failure_to_file the returns timely may file the returns in accordance we will make this letter and our proposed adverse determination_letter available for public inspection under code sec_6110 after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions instructions in notice action if you agree with our deletions you do not need to take any further if you disagree with our proposed deletions follow the if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter federal_income_tax status and responsibilities please contact irs customer service at if you have any questions about your or the irs customer service number for businesses the irs customer service number for people with hearing impairments is sincerely director exempt_organizations enclosure notice redacted proposed adverse determination_letter redacted final adverse determination_letter department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division date date contact person identification_number contact number fax number employer_identification_number uil legend date a b dear we have considered your application_for recognition of exemption from federal_income_tax under internal_revenue_code sec_501 based on the information provided we have concluded that you do not qualify for exemption under sec_501 of the code facts you indicate that you are an unincorporated association formed on date a however you have provided no document of formation that could attest to this statement or establish an organizational purpose you indicate that you are an authorized broker-dealer accounts manager and clearinghouse for unsecured debt your apparent purpose is to act as a private to private lending institution specifically you issue loans to b as separate insurance for tax-free investing you have no designated shareholders you have provided no financial information as requested in form_1024 part ill p as such there is no record describing your financial activities you do not currently hold title to nor do you plan to hold title to real_property you also will not be collecting any income from real_property and as such you will not be remitting any income from such property to one or more organizations described in sec_501 of the code law sec_501 of the internal_revenue_code provides that an organization described in subsection c or d or sec_401 shall be exempt from taxation under this subtitle unless such exemption is denied under sec_502 or sec_503 sec_501 of the code provides for exemption from federal_income_tax for organizations that meet the following substantive requirements a any corporation or trust which-- i has no more than shareholders or beneficiaries ii has only class of stock or beneficial_interest and iii is organized for the exclusive purposes of-- acquiring real_property and holding title to and collecting income from such property and il remitting the entire amount of income from such property less expenses to or more organizations described in subparagraph c which are shareholders of such corporation or beneficiaries of such trust for purposes of clause iii the term real_property shall not include any interest as a tenant in common or similar interest and shall not include any indirect interest b a corporation or trust shall be described in subparagraph a without regard to whether the corporation or trust is organized by or more organizations described in subparagraph c c an organization is described in this subparagraph if such organization is-- i a qualified_pension profit sharing or stock_bonus_plan that meets the requirements of sec_401 ii a governmental_plan within the meaning of sec_414 iii the united_states any state or political_subdivision thereof or any agency_or_instrumentality of any of the foregoing or iv any organization described in paragraph d a corporation or trust shall in no event be treated as described in subparagraph a unless such corporation or trust permits its shareholders or beneficiaries-- i to dismiss the corporation's or trust's investment adviser following reasonable notice upon a vote of the shareholders or beneficiaries holding a majority of interest in the corporation or trust and ii to terminate their interest in the corporation or trust by either or both of the following alternatives as determined by the corporation or trust i by selling or exchanging their stock in the corporation or interest in the trust subject_to any federal or state securities law to any organization described in subparagraph c so long as the sale_or_exchange does not increase the number of shareholders or beneficiaries in such corporation or trust above or il by having their stock or interest redeemed by the corporation or trust after the shareholder or beneficiary has provided days notice to such corporation or trust e i for purposes of this title-- a corporation which is a qualified_subsidiary shall not be treated as a separate corporation and il all assets liabilities and items of income deduction and credit of a qualified_subsidiary shall be treated as assets liabilities and such items as the case may be of the corporation or trust described in subparagraph a ii for purposes of this subparagraph the term qualified_subsidiary means any corporation if at all times during the period such corporation was in existence percent of the stock of such corporation is held by the corporation or trust described in subparagraph a iii for purposes of this subtitle if any corporation which was a qualified_subsidiary ceases to meet the requirements of clause ii such corporation shall be treated as a new corporation acquiring all of its assets and assuming all of its liabilities immediately before such cessation from the corporation or trust described in subparagraph a in exchange for its stock f for purposes of subparagraph a the term real_property includes any personal_property which is leased under or in connection with a lease of real_property but only if the rent attributable to such personal_property determined under the rules of sec_856 for the taxable_year does not exceed percent of the total rent for the taxable_year attributable to both the real and personal_property leased under or in connection with such lease g i an organization shall not be treated as failing to be described in this paragraph merely by reason of the receipt of any otherwise disqualifying income which is incidentally derived from the holding of real_property ii clause i shall not apply if the amount of gross_income described in such clause exceeds percent of the organization's gross_income for the taxable_year unless the organization establishes to the satisfaction of the secretary that the receipt of gross_income described in clause i in excess of such limitation was inadvertent and reasonable steps are being taken to correct the circumstances giving rise to such income analysis you are in the business of issuing loans which is not a permissible activity within the meaning of sec_501 of the code you do not hold title to real_property you do not have a qualified parent describe in sec_501 of the code in this respect you have failed to show that you are operated for the exclusive purpose of acquiring holding title to and collecting income from real_property and remitting the entire amount of such income less expenses to one or more organizations described in sec_501 conclusion you fail to meet the requirements of sec_501 of the code therefore you do not qualify for exemption under sec_501 and must file federal_income_tax returns you have the right to file a protest if you believe this determination is incorrect to protest you must submit a statement of your views and fully explain your reasoning you must submit the statement signed by one of your officers within days from the date of this letter we will consider your statement and decide if the information affects our determination your protest statement should be accompanied by the following declaration under penalties of perjury declare that have examined this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all the relevant facts and such facts are true correct and complete you also have a right to request a conference to discuss your protest this request should be made when you file your protest statement an attorney certified_public_accountant or an individual enrolled to practice before the internal_revenue_service may represent you want representation during the conference procedures you must file a proper power_of_attorney form_2848 power_of_attorney and declaration of representative if you have not already done so and power_of_attorney all forms and publications mentioned in this letter can be found at www irs gov forms and publications for more information about representation see publication practice_before_the_irs if you if you do not intend to protest this determination you do not need to take any further action if we do not hear from you within days we will issue a final adverse determination_letter that letter will provide information about filing tax returns and other matters please send your protest statement form_2848 and any supporting documents to this address internal_revenue_service se t eo ra t pe-3l7 attn constitution ave n w washington dc you may also fax your statement using the fax number shown in the heading of this letter you fax your statement please call the person identified in the heading of this letter to confirm that he or she received your fax if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter if sincerely director exempt_organizations rulings agreements


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc dom corp 1-plr-155976-01 date date parent holding_company foundation business l state x y dear this letter is in reply to your letter dated date requesting rulings with respect to a proposed transaction additional information was submitted in a letter dated date the information submitted for consideration is summarized below parent is a nonprofit nonstock state x corporation engaged in business l parent is the common parent of an affiliated_group_of_corporations that files a consolidated federal_income_tax return foundation is a state x nonprofit corporation that has been formed to effectuate the proposed transaction foundation has applied for recognition as an organization described in sec_501 of the internal_revenue_code the above corporations represent that in order to accomplish corporate business plr-155976-01 purposes they desire to convert parent into a stock corporation which will eliminate certain restrictions on parent’s business operations to accomplish these goals the following transaction has been proposed and partially consummated foundation has been formed parent will file a the plan with the appropriate state x regulatory body pursuant to the plan parent will amend and restate its articles of incorporation to convert from a state x nonprofit nonstock corporation to a state x stock corporation the conversion and the surviving corporation newco will continue the legal existence of parent at the time of the conversion all of the outstanding_stock of newco will be transferred to foundation holding_company will be formed as a state x stock corporation and foundation will transfer all of the newco stock to holding_company in exchange for all of the stock of holding_company on or after the effective date of the conversion foundation may sell holding_company stock in one or more private placements or in an initial_public_offering to the public over a period of y years the following representations have been submitted with respect to the proposed transaction a b c d e for purposes of state x law parent and newco will be the same legal entity both before and after the conversion the conversion will occur under a plan_of_reorganization agreed upon before the transaction each party to the conversion will pay its own expenses if any incurred in connection with the conversion other than expenses associated with the formation of foundation which will be paid_by parent in addition parent is obligated to reimburse state x officials for the actual costs of reviewing analyzing and processing the conversion plan after the effective date of the conversion newco and its affiliated subsidiaries will continue to conduct the business operations that parent and its affiliated subsidiaries conducted immediately prior to the effective date of the conversion the conversion is not part of a plan to periodically increase the proportionate interest of any shareholder in the assets or earnings_and_profits of parent plr-155976-01 f g parent is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 foundation has no current plan or intention to sell holding_company stock to holding_company or any corporation related to holding_company based solely on the information submitted and the representations made it is held as follows with respect to the conversion described above the conversion of parent from a nonprofit nonstock corporation to a stock corporation will constitute a reorganization within the meaning of sec_368 parent will be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by parent parent’s basis in its assets its holding_period for its assets its earnings_and_profits its annual_accounting_period and its accounting methods will not be affected by the conversion no gain_or_loss will be recognized by foundation on its receipt of parent’s shares in connection with the conversion sec_354 the parent consolidated_group will remain in existence following the transaction with holding_company as the new common parent sec_1_1502-75 the proposed transaction will qualify as a group structure change under sec_1_1502-33 and the earnings_and_profits of holding_company will be adjusted immediately after holding_company becomes the new common parent to reflect the earnings_and_profits of parent immediately before parent ceases to be the common parent sec_1_1502-33 holding company’s basis in newco stock immediately after the group structure change will be newco’s net asset basis as determined under sec_1_1502-31 subject_to the adjustments described in sec_1_1502-31 sec_1 b based solely on the information submitted and the representations made it is held as follows with respect to the formation of holding_company described above no gain_or_loss will be recognized by holding_company upon the receipt of newco stock in exchange for the issuance of holding plr-155976-01 company stock sec_1032 we express no opinion about the tax treatment of the transaction under other provisions of the internal_revenue_code or the regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the transaction that are not specifically covered by the above rulings furthermore we express no opinion with respect to sec_833 of the code including whether the conversion constitutes a material_change within the meaning of sec_833 if the conversion constitutes such a material_change we express no opinion on its effect on the above rulings this ruling letter has no effect on any earlier documents and 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 each affected taxpayer must attach a copy of this letter to the taxpayer’s federal_income_tax return for the taxable_year in which the transaction covered by this letter_ruling is consummated in accordance with the power_of_attorney on file in this office a copy of this letter is being sent to the taxpayer sincerely yours associate chief_counsel corporate michael j wilder senior technician reviewer branch


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 ----------------------------------------------------- ----------------------------------------- telephone number ---------------------- refer reply to cc psi b04 plr-137400-16 date date legend decedent spouse individual date date dear ----- ---------- ---------------------------------------------------- ------------------------ ------------------------ ------------------------ ------------------------ this letter responds to your personal representative’s letter of date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election under sec_2010 of the internal_revenue_code code a portability election to allow a decedent’s surviving_spouse to take into account that decedent’s deceased spousal unused exclusion dsue amount the facts and representations submitted are summarized as follows decedent died on date survived by spouse date is a date after the effective date of the amendment to sec_2010 to provide for portability of a dsue amount to a surviving_spouse to obtain the benefit of portability of decedent’s dsue amount to spouse decedent’s estate was required to file form_706 united_states estate and generation-skipping_transfer_tax return on or before the date that is nine months after decedent’s date of death or the last day of the period covered by an extension decedent’s form_706 was due on date but the estate did not file a form_706 to make the portability election prior to the due_date the estate discovered its failure to elect portability after the due_date for making the election plr-137400-16 individual served as executor of decedent’s estate individual represents that the value of decedent’s gross_estate is less than the basic exclusion amount in the year of the decedent’s death and that during his lifetime decedent made no taxable_gifts as executor individual requests an extension of time pursuant to sec_301_9100-3 to elect portability of decedent’s dsue amount pursuant to sec_2010 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2010 provides that a credit of the applicable credit_amount shall be allowed to the estate of every decedent against the tax imposed by sec_2001 sec_2010 provides that the applicable credit_amount is the amount of the tentative_tax that would be determined under sec_2001 if the amount with respect to which such tentative_tax is to be computed were equal to the applicable_exclusion_amount on date congress amended sec_2010 effective for estates of decedents dying and gifts made after date to allow portability of a decedent’s unused applicable_exclusion_amount between spouses tax relief unemployment insurance reauthorization and job creation act of pub_l_no sec_303 124_stat_3296 sec_2010 provides that the applicable_exclusion_amount is the sum of the basic exclusion amount and in the case of a surviving_spouse the dsue amount sec_2010 generally provides that the basic exclusion amount is dollar_figure to be adjusted for inflation annually after calendar_year sec_2010 defines the dsue amount to mean the lesser_of a the basic exclusion amount or b the excess of -- i the applicable_exclusion_amount of the last deceased spouse of the surviving_spouse over ii the amount with respect to which the tentative_tax is determined under sec_2001 on the estate of such deceased spouse sec_2010 provides that a dsue amount may not be taken into account by a surviving_spouse under sec_2010 unless the executor of the estate of the deceased spouse files an estate_tax_return on which such amount is computed and makes an election on such return that such amount may be so taken into account the election once made shall be irrevocable no election may be made if such return is filed after the time prescribed by law including extensions for filing such return plr-137400-16 sec_2010 provides that the secretary shall prescribe regulations as may be necessary or appropriate to implement sec_2010 sec_20_2010-2t a of the estate_tax regulations as in effect on date provides that to allow a decedent’s surviving_spouse to take into account that decedent’s dsue amount the executor of the decedent’s estate must elect portability of the dsue amount on a timely-filed form_706 under sec_20_2010-2t a the due_date of an estate_tax_return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been granted under sec_20_2010-2t a the portability election is made by timely filing a complete and properly prepared estate_tax_return unless the executor satisfies the requirements for the election not to apply in sec_20_2010-2t a i sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that the term statutory election means an election whose due_date is prescribed by statute the term regulatory election means 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_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute a request for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the 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 due_date for the portability election is prescribed by statute in the case of an estate required to file an estate_tax_return under sec_6018 see sec_2010 sec_6075 and sec_6018 in the case of an estate that is not required to file an estate_tax_return under sec_6018 the due_date is prescribed by regulation see sec_20_2010-2t a see also sec_20_2010-2 and revproc_2014_18 plr-137400-16 2014_7_irb_513 sec_2 accordingly in the latter case a taxpayer may seek an extension of time to elect portability under the provisions of sec_301_9100-3 sec_6018 requires the filing of an estate_tax_return in all cases where the gross_estate exceeds the basic exclusion amount in effect under sec_2010 for the calendar_year which includes the date of death for purposes of this determination under sec_6018 the basic exclusion amount is reduced but not below zero by the sum of -- a the amount of the adjusted_taxable_gifts within the meaning of sec_2001 made by the decedent after date plus b the aggregate amount allowed as a specific exemption under sec_2521 as in effect before its repeal by the tax reform act of with respect to gifts made by the decedent after date as executor individual represents that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is not required to file an estate_tax_return under sec_6018 under these facts the commissioner has discretionary authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly we grant an extension of time of days from the date of this letter in which to elect portability under sec_2010 the election should be made by filing a complete and properly prepared form_706 and a copy of this letter within days from the date of this letter to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center stop cincinnati oh for purposes of electing portability a form_706 filed by decedent’s estate within days from the date of this letter will be considered to be timely filed in accordance with the power_of_attorney on file with this office we have sent a copy of this letter to your authorized representatives except as expressly provided herein we neither express nor imply any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination if it is later determined that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is required to file an estate_tax_return plr-137400-16 pursuant to sec_6018 the commissioner is without authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely associate chief_counsel passthroughs and special industries by lorraine e gardner _________________________ lorraine e gardner senior counsel branch office of the associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter


internal_revenue_service number release date index number ---------------------------------------------------------- ------------------ ------------------------------- -------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------------- ---------------------------------------------------- telephone number --------------------- refer reply to cc psi b02 plr-108711-12 date date legend x ------------------ ------------------------------------ state ------ date1 ---------------------- date2 ---------------------- dear ------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a corporation for federal tax purposes and relief to file a late s_corporation_election under sec_1362 of the internal_revenue_code the information submitted states that x was formed on date1 as a limited_liability_company under the laws of state x intended to elect to be treated as an association_taxable_as_a_corporation and to elect to be treated as an s_corporation for federal tax purposes with both elections effective date2 however neither form_8832 entity classification election nor form_2553 election by a small_business_corporation was timely filed for x sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes elections are necessary only when an eligible_entity does not want to be classified under the default classification or when an eligible_entity chooses to change its classification plr-108711-12 sec_301_7701-3 provides that unless the entity elects otherwise a domestic eligible_entity is i a partnership if it has two or more members or ii disregarded as an entity separate from its owner if it has a single owner sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under sec_301 b by filing form_8832 with the appropriate service_center under sec_301_7701-3 this election will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified the date specified on form_8832 cannot be more than days prior to the date on which the election is filed 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 sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides in relevant part that if an s election is made within the first two and one-half months of a corporation’s taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made under sec_1362 however if an s election is made after the first two and one-half months of a corporation’s taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is filed sec_1362 provides that if a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year plr-108711-12 based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect to be treated as an association_taxable_as_a_corporation for federal tax purposes effective date2 a copy of this letter should be attached to the form_8832 in addition based solely on the facts submitted and the representations made we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation effective date2 accordingly provided that x makes an election to be an s_corporation by filing a complete form_2553 effective date2 along with a copy of this letter with the appropriate service_center within days from the date of this letter then such election will be treated as timely made for date2 except as expressly provided herein no opinion is expressed or implied concerning the federal_income_tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely associate chief_counsel passthroughs special industries by _____________________________ bradford r poston senior counsel branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


t c memo united_states tax_court marco deplano petitioner v commissioner of internal revenue respondent docket no filed date bernard schulman for petitioner robert e marum for respondent memorandum findings_of_fact and opinion gale judge respondent determined the following additions to petitioner's federal_income_tax for sec_6653 dollar_figure sec_6653 sec_6661 dollar_figure percent of the interest due on dollar_figure unless otherwise noted all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure the issues for decision are whether petitioner is liable for additions to tax under sec_6653 and we hold that he is whether petitioner is liable for an addition_to_tax under sec_6661 we hold that he is findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time the petition was filed petitioner resided in new york new york petitioner received a bachelor of science degree from trinity university of texas in in petitioner was employed as an art director by marsteller inc and also did graphic design and advertising work for gorman-glassberg inc also during petitioner ran a sole_proprietorship providing freelance work in the field of graphic design and advertising from which he reported gross_receipts of dollar_figure and a net profit of dollar_figure petitioner wa sec_26 years old in petitioner's return was prepared by nicholas j coscia an accountant with coscia and amsterdam at this time mr coscia had been petitioner's accountant for approximately years mr coscia was recommended to petitioner by a friend and coworker herb karlitz an entertainment lawyer petitioner relied heavily on mr coscia with respect to all financial matters and even consulted him for help in selecting a health insurance plan prior to and beginning in or around or petitioner's investments had been exclusively in individual_retirement_accounts however at some point in mr coscia approached petitioner with the idea of investing in a partnership known as ridge energy systems ridge energy which was in the business of leasing energy management equipment from the saxon energy corporation saxon energy mr coscia recommended the investment to petitioner describing it as a good idea that would be very beneficial to petitioner petitioner did not independently investigate ridge energy but instead relied on mr coscia's advice in making the investment mr coscia assured him that there was a bank involved a tax consultant involved tax specialist that made the whole thing completely kosher mr coscia also indicated to petitioner that there was profit potential in the investment mr coscia advised him that he had done this kind of thing before they were completely legal and there were benefits to be had especially from a profit point of view with respect to the payment schedule mr coscia indicated to petitioner that he would most likely receive profits back from his investment even before he paid it in full mr coscia also told petitioner that he was an investor in ridge energy as well as members of his own family mr coscia did not disclose that he was receiving commissions from saxon energy for bringing in ridge energy investors in late petitioner made a capital_contribution of dollar_figure to ridge energy and received a 3-percent interest in the partnership petitioner knew two of the other partners in ridge energy one of whom was his coworker mr karlitz petitioner did not seek any other professional advice regarding the investment but did speak with mr karlitz who reinforced what mr coscia told him petitioner had no prior experience with or knowledge of energy management systems and with respect ridge energy in particular he did not know where the equipment was placed how it worked what it looked like or its function also petitioner was not aware that the equipment was leased from saxon energy petitioner received certain written materials upon his investment in ridge energy that coincided with what he had been told by mr coscia however petitioner did not receive appraisals on the equipment and did not ask to see any appraisals because he felt ignorant about such matters these written materials are not a part of the record in this case ridge energy filed a form_1065 u s partnership return of income for calendar_year partnership return on date prepared by peter j amsterdam a partner of mr coscia in the partnership return ridge energy claimed a loss of dollar_figure which consisted of dollar_figure in leasing expenses dollar_figure in management fees and dollar_figure in attorney fees ridge energy also claimed a basis of dollar_figure for investment_tax_credit purposes in the energy management system leased from saxon energy petitioner's allocable shares of losses and investment_tax_credit basis flowing from ridge energy for were dollar_figure and dollar_figure respectively as reported on schedule_k-1 partner's share of income credits deductions etc on date respondent issued a notice of final_partnership_administrative_adjustment fpaa to the tax_matters_partner for ridge energy in which respondent disallowed the losses and investment_tax_credit basis claimed by ridge energy on the partnership return ridge energy and two of its partners filed a petition with this court contesting the adjustments made by the fpaa in ridge energy systems nicholas j and sandra coscia partners other than the tax_matters_partner v commissioner docket no on date this court entered a decision under rule b sustaining respondent's disallowance of the losses and investment_tax_credit basis reported by the ridge energy for its taxable_year on date respondent issued a notice_of_deficiency in which he determined that petitioner was liable for additions to tax for negligence or intentional disregard of rules or regulations under sec_6653 and and for substantial_understatement of tax under sec_6661 with respect to his taxable_year negligence opinion it is respondent's position that petitioner was negligent in claiming a loss and investment_tax_credit from his investment in ridge energy petitioner claims that he is not liable for the additions to tax for negligence because he reasonably relied on mr coscia's advice when he invested in ridge energy and when he claimed a loss and credit with respect to the same to support his contention that his reliance was reasonably based petitioner points to his age and limited investment experience and to the fact that mr coscia had been his accountant for years at the time of his investment sec_6653 imposes an addition_to_tax equal to percent of any underpayment_of_tax if any part of the underpayment is due to negligence in addition sec_6653 adds to the tax an amount equal to percent of the respondent does not argue that petitioner is liable for the additions to tax under sec_6653 due to intentional disregard of rules or regulations interest payable with respect to that portion of the underpayment attributable to negligence negligence is defined as a lack of due care or a failure to act in a reasonable and prudent manner under the circumstances 89_tc_849 affd 904_f2d_1011 5th cir affd on another issue 501_us_868 petitioner bears the burden of proving that his actions in claiming the loss and credit were not negligent rule a freytag v commissioner supra pincite when considering the negligence addition we evaluate the particular facts of each case judging the relative sophistication of the taxpayers as well as the manner in which the taxpayers approached their investment turner v commissioner tcmemo_1995_363 under certain circumstances reliance on professional advice may provide an adequate excuse for a taxpayer's actions under sec_6653 however standing alone it is not an absolute defense to negligence but rather a factor to be considered freytag v commissioner supra pincite the taxpayer must show that his expert had the relevant expertise and knowledge of pertinent facts to give competent advice 39_f3d_402 2d cir affg tcmemo_1993_480 freytag v commissioner supra pincite reliance on expert advice is not reasonable where the 'expert' relied on knows nothing about the business in which the taxpayer invested goldman v commissioner supra pincite in addition the taxpayer must not have any reason to suspect that the expert's advice may not be disinterested 91_tc_524 under the standard applied by the court_of_appeals for the second circuit in goldman it was negligent for petitioner to rely on mr coscia his accountant for advice on investments or energy management systems absent evidence that mr coscia held some degree of expertise or specialized knowledge in these areas petitioner failed to present any evidence that mr coscia had expertise in investments or knowledge of energy management systems and nothing in the record indicates that petitioner made any attempt to ascertain the extent to which mr coscia possessed these skills before acting on his advice in addition although petitioner was not aware that mr coscia was being compensated by saxon energy for bringing in ridge energy investors petitioner did know that mr coscia himself and members of his family had invested in ridge energy which arguably affected mr coscia's ability to give disinterested advice on the investment neither did petitioner independently investigate the bona fides of the investment at the time he made his initial capital_contribution petitioner did not know the nature or function of the equipment being marketed the value of the equipment the identity of the lessor the specifics of any leasing arrangement or how a profit was to be derived from such arrangement petitioner did not request an appraisal of the equipment even though it was the sole income-producing asset of ridge energy indeed according to his testimony petitioner had only a vague and in fact incorrect understanding of the investment namely that it had something to do with drilling the failure to make even minimal inquiries regarding the investment is a strong indication of negligence see goldman v commissioner supra pincite lucas v commissioner tcmemo_1995_341 moreover there is no evidence that petitioner monitored his investment or the activities of ridge energy after investing petitioner points to his age and lack of sophistication as an excuse for failing to make an effort to ascertain mr coscia's expertise or the merits of the investment being proposed we disagree petitioner held a college degree and was successfully operating his own business at the time we have previously sustained respondent's determination imposing additions to tax for negligence and substantial_understatement relating to a loss and investment_tax_credit claimed with respect to another ridge energy partner in buck v commissioner tcmemo_1997_191 likewise we have upheld respondent's negligence determinations in numerous cases involving taxpayers who invested in energy management systems leased from saxon energy and argued that their reliance on professional advice precluded the negligence addition see turner v commissioner tcmemo_1995_363 levine v commissioner tcmemo_1995_362 maminga v commissioner tcmemo_1995_361 lucas v commissioner tcmemo_1995_341 poplar v commissioner tcmemo_1995_337 schillinger v commissioner tcmemo_1990_640 affd without published opinion 1_f3d_954 9th cir in all these cases we required a showing of reasonable effort by the taxpayer to ensure that the investment was a viable profit-motivated transaction in order for the taxpayer to avoid imposition of the negligence additions in an attempt to distinguish himself from the taxpayers in buck and other cases where negligence additions have been sustained petitioner cites 902_f2d_380 5th cir revg tcmemo_1988_408 71_f3d_515 5th cir affg in part and revg in part tcmemo_1994_179 66_f3d_729 5th cir affg in part and revg in part tcmemo_1994_228 22_f3d_1001 10th cir revg tcmemo_1993_23 petitioner cites these cases as support for his contention that it was reasonable and not negligent for him to rely on the advice of a professional adviser without second-guessing or independently verifying the adviser to require otherwise petitioner argues would nullify the purpose for seeking advice in the first place see heasley v commissioner supra however these cases are distinguishable because they involve taxpayers who performed significantly more investigation into the merits of the investment and or sought out the advice of a professional who was qualified to give advice on the matter involved heasley involved taxpayers who were not high school graduates despite substantially less education than petitioner they nonetheless read at least part of the prospectus reviewed it with their financial adviser and subsequently monitored their investment after investing in these circumstances the court_of_appeals declined to sustain the commissioner's negligence determination in mauerman v commissioner supra which concerned the question of whether the commissioner's refusal to waive additions for a substantial_understatement was an abuse_of_discretion the commissioner's deficiency determination involved only the timing of the deduction the court_of_appeals concluded that the taxpayer's reliance on a tax professional's advice as to the appropriate timing of a deduction was reasonable and therefore the commissioner's refusal to waive the understatement penalty was an abuse_of_discretion the situation in the instant case involves reliance on a professional without any demonstrated capacity in the area with which the advice was concerned as to durrett v commissioner supra and chamberlain v commissioner supra to the extent the holdings in these two cases suggest a relaxation of the requirement that advisers must be knowledgeable if reliance on their advice is to be considered reasonable cf freytag v commissioner supra we note that both are decisions of the court_of_appeals for the fifth circuit appeal of this case is to the court_of_appeals for the second circuit which requires a knowledgeable expert before reliance on his advice is deemed reasonable goldman v commissioner f 3d pincite the record in this case demonstrates that petitioner knew virtually nothing about the ridge energy investment either before or after making it he chose instead to rely on an adviser with no demonstrated knowledge or experience with respect to energy management systems in the circumstances such reliance was not reasonable and does not bar a finding of negligence goldman v commissioner supra freytag v commissioner supra accordingly we sustain respondent's determination imposing additions to tax under sec_6653 and for petitioner's taxable_year sec_6661 sec_6661 imposes an addition_to_tax equal to percent of the amount of any underpayment attributable to a substantial_understatement_of_income_tax for a noncorporate taxpayer an understatement is substantial if it exceeds the greater of dollar_figure or percent of the amount of tax required to be shown on the return sec_6661 generally the understatement is the amount of tax required to be shown on the return over the amount of tax imposed which is shown on the return reduced by that portion of the understatement attributable to the treatment of an item for which there is or was substantial_authority or with respect to which the relevant facts affecting its treatment were adequately disclosed on the return or in a statement attached thereto sec_6661 and b petitioner makes no argument that there was adequate_disclosure likewise petitioner has not produced substantial_authority for the treatment of these items petitioner's claim that he reasonably and in good_faith relied on the advice of his accountant in claiming such items without evidence of what authority mr coscia relied upon in determining the treatment of such items is insufficient to show substantial_authority see buck v commissioner tcmemo_1997_191 authority for this purpose includes statutes or regulatory provisions court decisions administrative pronouncements tax_treaties or legislative_history sec_1 b income_tax regs opinions rendered by tax professionals are not substantial_authority id in the instant case the deficiency upon which the additions to tax were imposed equals dollar_figure the amount of tax required to be shown on the return pursuant to the previous partnership proceedings is dollar_figure thus the understatement dollar_figure i sec_3 because we conclude that petitioner has not made adequate_disclosure or produced substantial_authority it is unnecessary for us to consider whether petitioner's investment in ridge energy is a tax_shelter within the meaning of sec_6661 substantial because it exceeds the greater of dollar_figure or percent of the amount required to be shown on the return dollar_figure petitioner has not shown that the understatement is reduced under sec_6661 we accordingly sustain respondent's determination of this addition sec_6661 provides that respondent may waive all or any part of the addition_to_tax under sec_6661 upon a showing by petitioner that there was reasonable_cause for the understatement or a part thereof and that petitioner acted in good_faith there is no evidence that a waiver was requested or denied in this case even if we were to assume that a waiver had been requested respondent's refusal to grant one is reviewable only for abuse_of_discretion 91_tc_1079 based upon our holding that petitioner's reliance on his accountant in claiming the deduction and credit with respect to the ridge energy investment was not reasonable we likewise hold that any failure by respondent to grant a waiver based on petitioner's reliance would not constitute an abuse_of_discretion to reflect the foregoing decision will be entered for respondent


internal_revenue_service number release date index number --------------------------------------------------------------- ------------- -------------------------------- --------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------- id no ------------- telephone number --------------------- refer reply to cc psi plr-123602-09 date date legend decedent child child cpa date date date date -------------------------------------------------- -------------------------------------------------- ---------------------------------------------- --------------------------------------------------------------- --------------------- -- ------------------------- ---------------- ---------------- dear --------------------------------------- this responds to a letter from your authorized representative dated date and subsequent correspondence requesting an extension of time under sec_301 of the procedure and administration regulations to make an alternate_valuation election under sec_2032 of the internal_revenue_code the facts and representations submitted are summarized as follows decedent died on date child and child were duly appointed as the co-executors of decedent's_estate the co-executors retained cpa to prepare and file form_706 united_states estate and generation-skipping_transfer_tax return form_4768 application_for extension of time to file the form_706 was timely filed on date the estate’s form_706 was timely filed on date form_706 was prepared by cpa without consideration of the alternate_valuation election under sec_2032 on date within one year of the due_date of the return including extensions the co-executors filed supplemental information on form_706 making that election plr-123602-09 sec_2032 provides in part that the value of the gross_estate may be determined if the executor so elects by valuing all the property included in the gross_estate as follows in the case of property distributed sold exchanged or otherwise_disposed_of within months after the decedent's death such property shall be valued as of the date of distribution sale exchange or other_disposition in the case of property not distributed sold exchanged or otherwise_disposed_of within months after the decedent's death such property shall be valued as of the date months after the decedent's death sec_2032 provides that no election may be made under sec_2032 with respect to an estate unless such election will decrease the value of the gross_estate and the sum of the tax imposed under chapter of the code and the tax imposed by chapter with respect to property includible in the decedent's gross_estate reduced by credits allowable against such taxes sec_2032 provides that an election under sec_2032 shall be made by the executor on the return of tax imposed by sec_2001 under sec_2032 no election may be made under sec_2032 if such return is filed more than year after the time prescribed by law including extensions for filing such return sec_20_2032-1 of the estate_tax regulations provides that a request for an extension of time pursuant to sec_301_9100-1 and sec_301_9100-3 will not be granted unless the estate_tax_return is filed no later than year after the due_date of the return including extensions under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or 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 if the taxpayer demonstrates to the satisfaction of the commissioner that the taxpayer has acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic_extension of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted plr-123602-09 reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the 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 based on the facts submitted and the representations made we conclude that the standards of sec_301_9100-1 and sec_301_9100-3 have been satisfied the supplemental form_706 was filed within one year after the due_date of the return including extensions consequently the co-executors are granted an extension of time to date for making the alternate_valuation election under sec_2032 a copy of this letter should be forwarded to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center -- stop cincinnati oh the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as 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 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely yours curt g wilson associate chief_counsel passthrough special industries enclosures copy for sec_6110 purposes copy of this letter cc


cca_2016031510335151 id uilc number release date from ----------------------- sent tuesday date am to ------------------------ cc bcc subject question re audit protection for tangibles method changes recently you posed a question regarding audit protection for changes under the final tangible_property regulations specifically you asked whether a taxpayer that makes an automatic change in method_of_accounting to utilize the final tangible regulations pursuant to section dollar_figure of revproc_2015_14 2015_5_irb_450 and takes into account the limited sec_481 adjustment for that change as required by section b i of that revenue_procedure should have audit protection for that item in taxable years prior to the year_of_change or at least prior to the date that amounts paid_or_incurred for the item may be included in the sec_481 adjustment your example involved a taxpayer that made an automatic change for its taxable_year beginning under section a i to deduct non-incidental materials_and_supplies in the taxable_year they are used or consumed in accordance with sec_1_162-3 and c under section b i of revproc_2015_14 the taxpayer calculated its sec_481 adjustment taking into account only amounts paid_or_incurred in taxable years beginning on or after your question was for costs paid_or_incurred by the taxpayer in taxable years beginning prior to whether exam can examine or change the taxpayer’s method_of_accounting for non-incidental materials_and_supplies that were deducted when paid_or_incurred by the taxpayer to the correct method of deducting those items when they were used or consumed in the taxpayer’s operations under your example we believe that the taxpayer has audit protection for the costs of non-incidental materials_and_supplies paid_or_incurred prior to section dollar_figure of revproc_2015_13 2015_5_irb_419 provides that except as otherwise provided in section dollar_figure of revproc_2015_13 or under any guidance provided in the i r b when a taxpayer timely files a form_3115 the irs will not require the taxpayer to change its method_of_accounting for the same item for a taxable_year prior to the requested year_of_change note that section dollar_figure of revproc_2015_14 addressing automatic method changes under tangible_property regulations does not specifically address audit protection for taxpayers that file method changes under its general provisions or its provisions for automatic changes made with a limited adjustment therefore the general_rule under section dollar_figure of revproc_2015_13 should apply to these changes if the taxpayer timely filed a form_3115 for to change its method_of_accounting for non-incidental materials_and_supplies pursuant to section a i of revproc_2015_14 and properly included the limited sec_481 adjustment then the irs cannot require the taxpayer to change its method_of_accounting for its non-incidental materials_and_supplies costs incurred prior to the year_of_change for the same reasons if a taxpayer made an automatic change in method_of_accounting to utilize the final tangible regulations pursuant to section dollar_figure of revproc_2015_14 2015_5_irb_450 and that change was made with the limited sec_481 adjustment required under section b of that revenue_procedure this taxpayer cannot request a subsequent or additional method change for the same item but only for costs paid_or_incurred prior to taxable years beginning prior to for these purposes we believe the taxpayer would have already made the appropriate method change for all costs paid_or_incurred for these items and the taxpayer would have taken into account the appropriate sec_481 adjustment for these items regardless of the taxable_year in which such costs were incurred as with any change in method_of_accounting under the final tangible_property regulations a taxpayer that desires to change its method_of_accounting for any item that it previously changed under section dollar_figure of revproc_2015_14 or for any item that it has not yet changed under section must change to a method under the final tangible_property regulations using the procedures under revproc_2015_13 and revproc_2015_14 but only if the taxpayer meets the eligibility requirements for an automatic change and the taxpayer must include a sec_481 adjustment as appropriate under the final tangible_property regulations i hope that this information was helpful if you need additional information please give me a call