department of the treasury ya internal_revenue_service constitution ave nw irs washington dc release number release date date ' ate date employer id number contact person id number contact telephone number form you must file tax years dear this letter is our final_determination that you don’t qualify for tax-exempt status under sec_501 of the internal_revenue_code the code recently we sent you a proposed adverse determination in response to your application the proposed adverse determination explained the facts law and basis for our conclusion and it gave you days to file a protest because we didn’t receive a protest within the required days the proposed determination is now final because you don’t qualify as a tax-exempt_organization under sec_501 of the code donors can’t deduct contributions to you under sec_170 of the code you must file federal_income_tax returns for the tax years listed at the top of this letter using the required form also listed at the top of this letter within days of this letter unless you request an extension of time to file we’ll also notify the appropriate state officials of our determination by sending them a copy of this final letter and the proposed determination_letter under sec_6104 of the code you should contact your state officials if you have questions about how this determination will affect your state responsibilities and requirements we’ll make this final adverse determination_letter and the proposed adverse determination_letter available for public inspection as required under sec_6110 of the code after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in the notice on how to notify us if you agree with our deletions you don’t need to take any further action letter rev catalog number 47632s if you have questions about this letter you can contact the person listed at the top of this letter if you have questions about your federal_income_tax status and responsibilities call our customer service number pincite-829-1040 tty for deaf or hard of hearing or customer service for businesses pincite-829-4933 sincerely mary jo salins acting manager eo technical enclosures notice redacted letter proposed adverse determination under sec_501 redacted letter final adverse determination under sec_501 c - no protest letter rev catalog number 47632s department of the treasury internal_revenue_service constitution ave nw irs washington dc date date employer id number contact person id number contact telephone number contact fax number legend state dear we considered your application_for recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code the code based on the information provided we determined that you don’t qualify for exemption under sec_501 of the code this letter explains the basis for our conclusion please keep it for your records issue whether you qualify for exemption as an organization described in sec_501 facts you are a nonprofit corporation incorporated under state law fewer than months after formation you submitted form_1023 for recognition of exemption under sec_501 as an organization described in sec_501 you also requested classification as a public charity under sec_509 your articles of incorporation state that you are organized exclusively for charitable purposes they provide that upon dissolution your assets will be distributed to a tax-exempt charitable_organization for charitable purposes directors comprised of between five and eleven members your ceo and cfo secretary are husband and wife one of your board members is the ceo’s brother your ceo and under your bylaws you are governed by a board_of letter rev catalog number 47630w cfo secretary will be full-time employees board members will not be paid for their services however they will receive reimbursement for out-of-pocket travel_expenses to the annual board meeting subject_to a dollar_figure annual cap in your narrative description of activities you state that your primary activity will be assisting small businesses in areas that have been affected by natural or man-made disasters you state that following disasters many small businesses in stricken areas do not have adequate capital to continue their operations you will benefit these businesses by connecting them with consumers who wish to buy from them in turn these businesses will receive additional capital and have a greater chance of being able to continue their operations and avoid shutdowns and layoffs of their employees you point out that businesses in disaster stricken areas often must wait several months to receive insurance payments and government relief businesses fail overall your plan is for your operations to offer small businesses in local economies much-needed infusions of capital during the time periods immediately following disasters in the interim many of these you will operate throughout the country in order to receive your assistance a small_business will have to register with you before a disaster occurs in its area to register with you a small_business will submit information about itself including owners’ names website address products or services offered and photographs in order to keep its registration current a small_business will be required to pay an annual registration fee of dollar_figure these fees will provide a majority of your revenue you stated that you will verify that each registrant is a legal entity but otherwise you will not impose any restrictions on the types of small businesses that may use your services when a disaster occurs in an area you will help facilitate economic recovery and tax-base stabilization process you will market on your website and through social media those small businesses that have previously registered with you and are located in the stricken area you will advertise these businesses to consumers and encourage them to purchase goods or services by entering into futures contracts with these businesses you describe futures contracts as standardized contract s that require delivery of a product or service at a specified price on a specified future date consumers will be able to enter into these contracts with these businesses and pay for these orders on your website you state that your work will allow consumers to consume with a conscience and directly support disaster-stricken businesses you also will charge a 10-percent processing fee on each contract that you facilitate on your website these fees will be placed in a reserve fund to support a money-back guarantee to consumers who enter into futures contracts on your website you state that having a money- back guarantee policy is necessary because some of the small businesses that take orders on your website will ultimately fail and not be able to deliver the goods and services under contract in addition to connecting consumers with small businesses you will also document the recovery process in disaster stricken areas each week you will share this information with consumers who have purchased goods so that they can track the impacts of their payments and the conditions in the affected areas consumers will continue receiving information until their letter rev catalog number 47630w orders have been filled you plan to establish relationships with local chambers_of_commerce and will ask these organizations to promote your operations to small businesses in their areas you expect that some of the small businesses that register with you will be affiliated with their local chambers_of_commerce for those registrants you will donate dollar_figure of their dollar_figure yearly registration fees to their local chambers_of_commerce you noted that chambers_of_commerce are generally not exempt from taxation under sec_501 but did not state that you will restrict the manner in which chambers_of_commerce may expend the donations that you will provide you state that you are similar to for-profit entities that promote third party businesses over the internet and social media and allow consumers to make purchases from these businesses through a website however you distinguish yourself from these entities by stating that you will allow your registrant small businesses to set their own prices and will not require them to offer discounts further you state that you will work exclusively in areas affected by disaster you say that you are not designed as a for-profit enterprise because the outcomes and impact of your work is based on charitable purposes only finally you project in part xi and supplemental materials that you have explored the possibility of obtaining contributions from the general_public and from private_foundations in part xi you project contributions that would equal less than percent of your total receipts over the three projected taxable years law lr c sec_501 provides that a corporation will be exempt from federal income_taxation if it is organized and operated exclusively for charitable educational and other purposes provided that no part of its net_earnings inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 provides that in order to be exempt as an organization described in sec_501 an organization must be both organized and operated exclusively for one or more of the purposes specified in this section if an organization fails to meet either the organizational_test or the operational_test it is not exempt sec_1_501_c_3_-1 states that an organization may be exempt as an organization described in sec_501 if it is organized and operated exclusively for one or more of the following purposes religious charitable scientific testing for public safety literary educational or prevention of cruelty to children or animals sec_1_501_c_3_-1gi provides that an organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest sec_1_501_c_3_-1 provides that the term charitable is used in sec_501 in its generally accepted legal sense it also includes the promotion of social welfare by letter rev catalog number 47630w relieving the poor and distressed or the underprivileged combating community deterioration lessening neighborhood tensions and eliminating prejudice and discrimination 326_us_279 holds that the presence of a single non-exempt purpose if substantial in nature will preclude exemption regardless of the number or importance of statutorily exempt purposes its primary purpose was not charitable in 70_tc_352 the court found that a corporation formed to provide consulting services was not exempt under sec_501 because its activities constituted the conduct_of_a_trade_or_business that is ordinarily carried on by commercial ventures organized for profit educational nor scientific but rather commercial the court found that the corporation had completely failed to demonstrate that its services were not in competition with commercial businesses the court found that the organization’s financing did not resemble that of the typical sec_501 organization it had not solicited nor had it received voluntary contributions from the public its only source_of_income was from fees for services and those fees were set high enough to recoup all projected costs and to produce a profit moreover it did not appear that the corporation ever planned to charge a fee less than cost and finally the corporation had failed to limit its clientele to organizations that were sec_501 exempt_organizations in wendy parker rehabilitation foundation inc v commissioner t c memo 52_tcm_51 the organization was created by the parker family to aid an open-ended class of victims of coma however the organization stated that it anticipated spending percent of its income for the benefit of wendy parker significant contributions were made to the organization by the parker family and the parker family controlled the organization wendy parker's selection as a substantial recipient of funds substantially benefited the parker family by assisting with the economic burden of caring for her the benefit did not flow primarily to the general_public as required under sec_1_501_c_3_-1 therefore the foundation was not exempt from federal_income_tax under sec_501 in easter house v united_states cl_ct cl_ct aff'd 846_f2d_78 fed cir the court found that adoption services were the primary activity of the organization in deciding that the organization conducted adoption services for a business_purpose rather for a charitable purpose the court considered the manner in which the organization operated the record established a number of factors that characterized a commercial activity and which were evident in the operations of easter house also the court determined that the organization competed with other commercial organizations providing similar services fees were the only source of revenue it accumulated very substantial profits because it set its fees in order to generate a profit the accumulated capital was substantially greater than the amounts spent on charitable and educational activity and the organization did not solicit and did not plan to solicit contributions letter rev catalog number 47630w in 283_fsupp2d_58 d d c the court laid out the factors for determining whether an organization’s activity is of a commercial nature it said among the major factors courts have considered in assessing commerciality are competition with for profit commercial entities extent and degree of below cost services provided pricing policies and reasonableness of financial reserves additional factors include whether the organization uses commercial promotional methods eg advertising and the extent to which the organization receives charitable donations id pincite in revrul_68_489 1968_2_cb_210 an organization exempt under sec_501 distributed part of its funds to organizations that were not themselves exempt under sec_501 the exempt_organization ensured use of the funds for sec_501 purposes by limiting distributions to specific projects that were in furtherance of its own exempt purposes it retained control and discretion as to the use of the funds and maintained records establishing that the funds were used for sec_501 purposes revrul_71_529 c b considered an organization that provided investment management services for a fee to specified colleges and university the organization’s board was composed of representatives from the schools receiving its services the fee was set substantially below the organization’s costs so the organization obtained contributions to cover all or part of the cost of its management services it also used those contributions to provide supplemental income or capital to be used exclusively for the charitable educational or scientific purposes of the organizations it served the fees paid_by the member organizations represented less than fifteen percent of the total costs of operation the service ruled that the organization was exempt under sec_501 in revrul_72_369 1972_2_cb_245 an organization formed to provide managerial and consulting services at cost to unrelated exempt_organizations did not qualify for exemption under sec_501 the services consisted of writing job descriptions and training manuals recruiting personnel constructing organizational charts and advising organizations on specific methods of operation the ruling stated that an organization is not exempt merely because its operations are not conducted for the purpose of producing a profit providing managerial and consulting services on a regular basis for a fee is a trade_or_business ordinarily carried on for profit the fact that the services are provided at cost and solely for exempt_organizations is not sufficient to characterize this activity as charitable within the meaning of sec_501 furnishing the services at cost lacks the donative element necessary to establish this activity as charitable in revrul_74_587 1974_2_cb_162 an organization that devoted its resources to programs that stimulated economic development in economically depressed high-density urban areas inhabited mainly by low-income minority or other disadvantaged groups qualified for exemption under sec_501 the ruling said although some of the individuals receiving financial assistance in their business endeavors under the organization's program may not themselves qualify for charitable assistance as such that fact does not detract from the charitable character of the organization's program the recipients of loans and working_capital in such cases are merely the instruments by which the charitable purposes are sought to be accomplished letter rev catalog number 47630w revrul_75_286 1975_2_cb_210 describes an organization formed by the residents of a city block to preserve and beautify that block its activities consisted of paying the city government to plant trees on public property within the block organizing residents to pick up litter and refuse in the public streets and on public sidewalks within the block and encouraging residents to take an active part in beautifying the block by placing shrubbery in public areas within the block membership in the organization was restricted to residents of the block and those owning property or operating businesses there the revenue_ruling concluded that the organization did not qualify for exemption under ilr c sec_501 because it operated to serve private interests by enhancing members’ property rights application of law your application does not meet the requirements for exemption as a charitable_organization described in sec_501 under sec_1_501_c_3_-1 an exempt_organization must be organized and operated for exempt purposes you are not operated for exempt purposes your articles of incorporation contain the required purposes and dissolution clauses as such your articles satisfy the organizational_test however you do not pass the operations test you do not benefit a defined a charitable_class you operate for a commercial purpose and you do not restrict expenditures of your funds to the accomplishment of your exempt purposes each of these three factors precludes your exemption first you do not restrict the beneficiaries of your activity to a charitable_class in order for an organization to fulfill a charitable purpose it generally must assist a charitable_class of individuals if an organization allows its activities to benefit individuals beyond a charitable_class then it is not a charitable_organization see wendy parker rehabilitation foundation inc v commissioner your activities are not restricted to a charitable_class any legal entity that is a small_business may register with you and you will provide services and benefits to all of your registrants located in areas affected by a disaster small businesses in areas affected by a disaster are not a charitable_class per se some of these businesses may have large sums of cash in reserve you will verify only that the small businesses are legal entities but will not assess anything further about their ownership or finances thus the small businesses that you will assist will not necessarily be members of a charitable_class further you will not restrict your operations to low income or otherwise needy areas this factor distinguishes you from the organization ruled as exempt in revrul_74_587 that organization expended its resources to assist businesses with the aim of improving economically depressed high-density urban areas thus although the businesses receiving its assistance were not members of a charitable_class the residents of the neighborhoods where the businesses were located were in contrast you will offer assistance to businesses in any area affected by a disaster regardless of the economic climate of that area some of these areas may be populated by individuals who have the means to avoid the negative impact of the disaster your focus will be on assisting small businesses that have registered with you not to assist an identifiable charitable_class directly or indirectly as such you do letter rev catalog number 47630w not limit your operations to benefitting a charitable_class in addition characteristics of your operations indicate a non-exempt commercial purpose rather than a charitable purpose specifically your pricing structure and your competition with for-profit entities see airlie foundation v commissioner easter house v united_states under better business bureau of washington d c inc v uls operating for a single non-exempt purpose is a bar to exemption under sec_501 with respect to your funding structure most of your income will come from fees for services namely registration fees and processing fees registration fees to you in exchange for your assurance that you will market their products and allow them to collect orders on your website in the event of a disaster second you will collect processing fees to be paid at the time when consumers enter into futures contracts thus most of your funding will come from fees for services also you plan to hold all of the processing fees in reserve at least until the related contracts are fulfilled as stated in airlie foundation setting fees at a rate to cover costs and holding extensive financial reserves are major factors indicating a commercial purpose first small businesses will pay further by your own admission you will provide services - connecting small businesses with buyers - that are similar to those provided by for-profit entities in general offering such services is not an exempt activity exception exists when an organization provides services exclusively to tax-exempt entities see revrul_71_529 as stated above your fees will not at a fee substantially below cost be set substantially below your costs and you will not receive the majority of your funding from contributions as previously noted you project that contributions will be less than percent of total receipts thus you cannot rely on this exception see revrul_72_369 b s w group inc an finally you propose to make grants to chambers_of_commerce without any limitations on the use of the grants as you acknowledged chambers_of_commerce are generally not exempt under sec_501 thus they may engage in activities in which a charitable_organization may not such a political campaign intervention and substantial lobbying_activities under revrul_68_489 an organization exempt under sec_501 must exercise discretion and control_over money that it grants to organizations that are not exempt under this section purposes you will not be following this rule with respect to your granting unrestricted money to chambers_of_commerce you will be giving these organizations the freedom to spend your resources in a manner that would be impermissible for you a grantor must ensure that donated funds are used only for its exempt conclusion since you will not benefit exclusively a charitable_class you will operate for a commercial purpose and you propose to allow others to expend your income for non-exempt purposes you do not operate for exempt purposes you do not meet the requirements for exemption under sec_501 letter rev catalog number 47630w if you don’t agree you have a right to file a protest if you don’t agree with our proposed adverse determination to do so you must send us a statement within days of the date of this letter the statement must include e your name address employer_identification_number ein and a daytime phone number acopy of this letter highlighting the findings you disagree with anexplanation of why you disagree including any supporting documents the law or authority if any you are relying on the signature of an officer director trustee or other official who is authorized to sign for the organization or your authorized representative one of the following declarations for an officer director trustee or other official who is authorized to sign for the organization under penalties of perjury i declare that i examined this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete for an authorized representative under penalties of perjury i declare that i prepared this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete your representative attorney certified_public_accountant or other individual enrolled to practice_before_the_irs must file a form_2848 power_of_attorney and declaration of representative with us if he or she hasn’t already done so you can find more information about representation in publication practice_before_the_irs and power_of_attorney we’ll review your protest statement and decide if you provided a basis for us to reconsider our determination you also have a right to a conference after you submit your statement if you want a conference you must request it when you file your protest statement you can also ask the office of appeals to review your application_for tax-exempt status your right to request appeals review is in addition to your right to a conference as outlined letter rev catalog number 47630w in revenue_procedure rev_proc and revproc_2014_9 you must notify us in writing if you want us to forward your case to the appeals_office you can find more information about the process and the role of the appeals_office in section of revproc_2014_9 and publication overview of the appeals process if the person representing you in this process is not an officer director trustee or other official who is authorized to sign for the organization he or she must file form_2848 as explained above and otherwise meet the requirements in publication conference and practice requirements if you don’t file a protest within days you can’t seek a declaratory_judgment in court ata later date because the law requires that you use the irs administrative process first sec_7428 of the code where to send your protest please send your protest statement any request for consideration by the office of appeals form_2848 if needed and any supporting documents to the applicable address u s mail ‘street address for delivery service you can also fax your statement and supporting documents to the fax number listed at the top of this letter if you fax your statement please contact the person listed at the top of this letter to confirm that he or she received it if you agree if you agree with our proposed adverse determination you don’t need to do anything if we don’t hear from you within days we’ll issue a final adverse determination_letter that letter will provide information on your income_tax filing_requirements letter rev catalog number 47630w you can find all forms and publications mentioned in this letter on our website at www irs gov formspubs if you have questions you can contact the person listed at the top of this letter sincerely michael seto manager exempt_organizations technical enclosure publication letter rev catalog number 47630w


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b09 plr-143381-03 date date legend taxpayer trust date taxpayer child child child child grandchild grandchild grandchild grandchild grandchild grandchild grandchild plr-143381-03 grandchild nephew x year dear sir this is in response to your letter dated date requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations and sec_2642 of the internal_revenue_code to make an allocation of generation-skipping_transfer_tax_exemption taxpayer created trust on date trust is an irrevocable_trust that holds insurance on taxpayer 2's life taxpayer and taxpayer 2’s are married the discretionary beneficiaries of trust are the children and grandchildren of taxpayer and taxpayer child child child child grandchild grandchild grandchild grandchild grandchild grandchild grandchild and grandchild the current trustees of trust are child child and nephew article first provides that during taxpayer 2's lifetime the trustees may pay income and principal even to the extent of all principal as the trustee s other than the children of taxpayers shall in their absolute discretion determine to taxpayers’ children living at the time of any payment in equal shares the power to pay principal shall be subordinate to the exercise of any power_of_withdrawal conferred by article second of the trust agreement any income not paid shall be added to principal article fourth provides that upon the death of taxpayer the trust property shall be divided by the trustees into that number of equal shares that will provide one share for each of the children of taxpayer who are then living and one share of the then living descendants collectively of each of the children of taxpayer who are then deceased each share shall be set_aside and held by the trustees as a separate trust bearing the name of the child of taxpayer for whom or for whose descendants the share has been set_aside article fourth paragraph c provides that unless terminated sooner each of the trusts for the benefit of descendants of taxpayer shall terminate twenty-one years after the death of the last to die of taxpayer and the descendants of taxpayer living on date or if earlier when there is no longer a living beneficiary of the trust upon termination the principal as it shall then exist together with all then accrued and undistributed_income shall be paid over to the then living descendants of taxpayer who were beneficiaries of the trust other than a child of taxpayer per stirpes if there are no living descendants of taxpayer who were beneficiaries of the trust the trust assets shall be paid to the then living descendants of taxpayer other than a child of taxpayer if there are more remote descendants per stirpes any property becoming plr-143381-03 distributable to the descendants of taxpayer who are then the beneficiaries of another trust created pursuant to article fourth of the trust agreement shall not vest in them but shall be added to the trust for their benefit potential beneficiaries include individuals who are two or more generations below the grantor’s generation therefore distributions from trust may be subject_to the generation-skipping_transfer_tax taxpayer transferred dollar_figurex to trust in year taxpayer and taxpayer each reported the transfer on a timely filed form_709 united_states gift and generation- skipping transfer_tax return taxpayer and taxpayer elected to split_gifts for year under sec_2513 accordingly the transfer to trust is treated as if made one-half by each of them taxpayer and taxpayer relied on an accounting firm to prepare their year gift_tax returns the accountant mistakenly allocated generation-skipping_transfer_tax_exemption to only one-fifth of the transfer to trust taxpayer and taxpayer have requested an extension of time to make allocations of generation-skipping_transfer_tax_exemption with respect to the assets transferred to trust sec_2513 provides that a gift made by one spouse to any person other than the other spouse shall for the purposes of this chapter be considered as made one-half by him and one-half by his spouse but only if at the time of the gift each spouse is a citizen or resident_of_the_united_states sec_2513 provides that paragraph shall apply only if both spouses have signified under the regulations provided for in subsection b their consent to the application of paragraph in the case of all such gifts made during the calendar_year by either while married to the other sec_25_2513-2 of the gift_tax regulations provides that consent to the application of the provisions of sec_2513 with respect to a calendar_period shall in order to be effective be signified by both spouses if both spouses file gift_tax returns within the time for signifying consent it is sufficient if the consent of each spouse is signified on his own return sec_2601 imposes a tax on every generation-skipping_transfer a generation-skipping_transfer is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a generation-skipping_transfer_tax_exemption of dollar_figure adjusted for inflation under sec_2631 that may be allocated by such individual or his executor to any property with respect to which such individual is the transferor plr-143381-03 sec_2632 provides that any allocation by an individual of his or her generation-skipping_transfer_tax_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for the individual’s estate determined with regard to extensions regardless of whether a return is required to be filed sec_2642 provides that except as provided in sec_2642 if the allocation of the generation-skipping_transfer_tax_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 or c the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period on and after the close of the estate_tax_inclusion_period sec_2642 provides generally that the secretary shall by regulation prescribe the circumstances and procedures under which extensions of time will be granted to make an allocation of generation-skipping_transfer_tax_exemption described in sec_2642 or and an election under sec_2632 or c the regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph sec_2642 provides that in determining whether to grant relief the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief under this paragraph the time for making the allocation or election shall be treated as if not expressly prescribed by statute notice_2001_50 2001_34_irb_189 provides that under sec_2642 the time for allocating the generation-skipping_transfer_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a generation-skipping_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 sec_301_9100-1 provides that the commissioner has discretion to 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 months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides that in general requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 must be made under the rules of sec_301_9100-3 requests for relief under sec_301_9100-3 will plr-143381-03 be granted when the taxpayer provides the 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 under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 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 requirements of sec_301_9100-3 have been satisfied therefore taxpayer and taxpayer are granted an extension of time of days from the date of this letter to file supplemental form sec_709 with notices of allocation for year the allocation will be effective as of the date of the transfer and the gift_tax value of the transfer to trust will be used in determining the amount of generation-skipping_transfer_tax_exemption to be allocated to trust the inclusion_ratio for trust will be determined under sec_2642 and sec_2642 a copy of this letter should be attached to the supplemental form_709 and filed with the internal_revenue_service center cincinnati ohio except as expressly provided herein no opinion is expressed or implied concerning the federal 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 pursuant to the power_of_attorney on file with this office this letter is being sent to taxpayer’s representative plr-143381-03 this ruling is directed only to the taxpayer s requesting it sec_6110 provides that it may not be used or cited as precedent sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter for sec_6110 purposes copy of this letter


department of the treasury internal_revenue_service washington d c t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n contact person telephone number identification_number number release date date date uil index legend m x dear ------------------ this responds to a letter from m’s authorized representatives who requested rulings under sec_501 sec_4941 and sec_4943 of the internal_revenue_code on m’s behalf facts m is a nonprofit corporation exempt from federal income_taxation as an organization described in sec_501 of the code m is classified as a private_foundation within the meaning of sec_509 of the code n and o have not yet been identified but will also be organizations described in sec_501 of the code and private_foundations within the meaning of sec_509 of the code m n and o all hold investment_assets and use the investment earnings to fund grants to other charitable organizations a substantial_contributor to m donor is an individual with considerable wealth derived largely from the construction and development of commercial real_estate and from investments in commercial real_estate donor wishes to create a vehicle through which he may join with others who have experience with real_estate investments to provide opportunities for their respective charitable foundations to participate in real_estate investments at relatively low risk x is a general_partnership x is a disqualified_person within the meaning of sec_4946 of the code with respect to m because substantial contributors within the meaning of sec_507 of the code with respect to m including donor own more than percent of the profits interest of x y and z have not yet been identified but will be entities or individuals that are disqualified persons with respect to n and o respectively x will not be a disqualified_person with respect to n or o y will not be a disqualified_person with respect to m or o and z will not be a disqualified_person with respect to m and n m n and o will form a limited_liability_company the land llc and will be the members of the land llc member interests will be measured in units each member will have big_number units and will be entitled to one vote for each unit profits and losses will be allocated in proportion to the number of units held by each member the business and affairs of the land llc will be managed by a board_of three directors each member will have the right to appoint one director and each director will have one vote no person who is a disqualified_person with respect to more than one private_foundation that is a member of the land llc will be permitted to serve as a member unit holder or director of the land llc during the term of the lease described below the land llc will acquire one or more parcels of land the land from one or more persons who are not disqualified persons with respect to m n or o the land will not be subject_to acquisition_indebtedness within the meaning of sec_514 of the code the sole activity of the land llc will be to own the land for the purpose of leasing it the governing documents of the land llc will require that at least of the gross_income of the llc be derived from passive sources within the meaning of sec_4943 of the code and the land llc will comply with that requirement m or one or more of its foundation managers acting only in such capacity may not by aggregating their votes or positions of authority require the land llc to engage in any transaction the same will be true of n and its foundation managers and o and its foundation managers x together with one or more persons who are disqualified persons by reasons of such person or persons’ relationship within the meaning of sec_4946 through g to x may not only by aggregating their votes or positions of authority with that of m require the land llc to engage in any transaction the same will be true of y and such disqualified persons with respect to n and z and such disqualified persons with respect to o neither m nor m together with x or one or more persons who are disqualified persons by reason of such person’s relationship within the meaning of sec_4946 through g to x will be able in fact to control the land llc and no such person will have the right to exercise veto power over actions of the land llc x y and z will form a limited_liability_company the building llc and will be the members of the building llc member interests will be measured in units each member will have big_number units and will be entitled to one vote for each unit no person who is a disqualified_person with respect to a private_foundation that is a member of the land llc will be permitted to hold more than percent of the units of the building llc during the term of the lease profits and losses will be allocated in proportion to the number of units held by each member the business and affairs of the building llc will be managed by a board_of three directors each member will have the right to appoint one director no person who is a disqualified_person with respect to more than one private_foundation that is a member of the land llc will be permitted to serve as a member unit holder or director of the building llc during the term of the lease defined below m or any of its foundation managers acting only in such capacity may not by aggregating their votes or positions of authority require the building llc to engage in any transaction the same will be true of n and its foundation managers and o and its foundation managers similarly the land llc will have no power acting alone or with others to require the building llc to engage in any transaction neither m nor m together with x or one or more persons who are disqualified persons by reason of such person’s relationship within the meaning of sec_4946 through g to x will be able in fact to control the building llc and no such person will have the right to exercise veto power over actions of the building llc the land llc will lease the land under a long-term_lease the lease to the building llc which will pay market-rate rent to the land llc for the term of the lease the rent amount will be based on a valuation conducted by an independent valuation expert the building llc will construct one or more commercial buildings the building on the land and will lease the space within the building at market rates the construction of the building will be debt-financed with the debt secured_by the building and the leasehold interest it is anticipated although not a requirement of the transaction that x y and z will at some later date donate their membership interests in the building llc to one or more charitable organizations the term transaction refers to collectively the acquisition of the land by the land llc the leasing of the land to the building llc the construction of the building by the building llc and the leasing of the building by the building llc to third parties rulings requested the following rulings are requested the transaction will not adversely affect the status of m as an organization described in sec_501 of the code the transaction will not constitute one or more acts of self-dealing between m and a disqualified_person with respect to m within the meaning sec_4941 of the code the transaction will not result in m having excess_business_holdings in a business_enterprise within the meaning of sec_4943 of the code law sec_501 of the code describes corporations trusts and associations organized and operated exclusively for charitable and other exempt purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_1_501_a_-1 of the income_tax regulations provides that the words private_shareholder_or_individual refer to persons having a personal and private interest in the activities of the organization sec_1_501_c_3_-1 or the regulations provides that an organization is not operated exclusively for one or more exempt purposes if its net_earnings inure in whole or in part to the benefit of private shareholders or individuals sec_1_501_c_3_-1 of the regulations provides that an organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest thus it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests revrul_76_91 1976_1_cb_149 holds that the purchase in a transaction not at arm's length of all of the assets of a profit-making hospital by a nonprofit_hospital corporation at a price that includes the value of intangible assets determined by the capitalization of excess earnings formula does not result in the inurement of the hospital's net_earnings to the benefit of any private_shareholder_or_individual or serve a private interest precluding exemption under sec_501 of the code the ruling states that generally where an organization purchases assets from an independent third party a presumption exists that the purchase_price arrived at through negotiations represents fair_market_value however where the purchaser is controlled by the seller or there is a close relationship between the two at the time of the sale this presumption cannot be made because the elements of an arm's length transaction are not present in situations where there is common_control of or a close relationship between the buyer and seller and both tangible and intangible assets are being purchased the value of the tangible assets must first be established by independent appraisal the purchaser must then establish the components of the intangible assets indicate how these components will be used to further its exempt purposes and establish the aggregate value of these intangibles sec_4946 of the code provides that the term disqualified_person means with respect to a private_foundation a person who is-- a a substantial_contributor to the foundation b a foundation_manager within the meaning of subsection b c an owner of more than percent of-- i the total combined voting power of a corporation ii the profits interest of a partnership or iii the beneficial_interest of a_trust or unincorporated enterprise which is a substantial_contributor to the foundation d a member_of_the_family as defined in subsection d of any individual described in subparagraph a b or c e a corporation of which persons described in subparagraph a b c or d own more than percent of the total combined voting power f a partnership in which persons described in subparagraph a b c or d own more than percent of the profits interest g a_trust or estate in which persons described in subparagraph a b c or d hold more than percent of the beneficial_interest h only for purposes of sec_4943 a private foundation-- i which is effectively controlled directly or indirectly by the same person or persons who control the private_foundation in question or ii substantially_all of the contributions to which were made directly or indirectly by the same person or persons described in subparagraph a b or c or members of their families within the meaning of subsection d who made directly or indirectly substantially_all of the contributions to the private_foundation in question and i only for purposes of sec_4941 a government_official as defined in subsection c sec_4946 of the code provides that for purposes of paragraph the term substantial_contributor means a person who is described in sec_507 sec_4941 of the code imposes a tax on each act of self-dealing between a disqualified_person and a private_foundation sec_4941 of the code provides that the term self-dealing means any direct or indirect-- a sale_or_exchange or leasing of property between a private_foundation and a disqualified_person b lending of money or other extension of credit between a private_foundation and a disqualified_person c furnishing of goods services or facilities between a private_foundation and a disqualified_person d payment of compensation or payment or reimbursement of expenses by a private_foundation to a disqualified_person e transfer to or use by or for the benefit of a disqualified_person of the income or assets of a private_foundation and f agreement by a private_foundation to make any payment of money or other_property to a government_official as defined in sec_4946 other than an agreement to employ such individual for any period after the termination of his government service if such individual is terminating his government service within a 90-day period sec_53_4941_d_-1 of the foundation and similar excise_taxes regulations provides that the term indirect self-dealing shall not include any transaction described in sec_53_4941_d_-2 eg the leasing of property between a disqualified_person and an organization controlled by a private_foundation under certain circumstances sec_53_4941_d_-1 of the regulations provides that a transaction between a private_foundation and an organization which is not controlled by the foundation within the meaning of subparagraph of this paragraph and which is not described in sec_4946 f or g of the code because persons described in sec_4946 b c or d own no more than percent of the total combined voting power or profits or beneficial_interest of such organization shall not be treated as an indirect act of self-dealing between the foundation and such disqualified persons solely because of the ownership_interest of such persons in such organization sec_53_4941_d_-1 of the regulations provides that an organization is controlled by a private_foundation if the foundation or one or more of its foundation managers acting only in such capacity may only by aggregating their votes or positions of authority require the organization to engage in a transaction which if engaged in with the private_foundation would constitute self-dealing similarly for purposes of this paragraph an organization is controlled by a private_foundation in the case of such a transaction between the organization and a disqualified_person if such disqualified_person together with one or more persons who are disqualified persons by reason of such a person's relationship within the meaning of sec_4946 through g of the code to such disqualified_person may only by aggregating their votes or positions of authority with that of the foundation require the organization to engage in such a transaction the controlled organization need not be a private_foundation for example it may be any type of exempt or nonexempt organization including a school hospital operating_foundation or social_welfare_organization for purposes of this paragraph an organization will be considered to be controlled by a private_foundation or by a private_foundation and disqualified persons referred to in the second sentence of this subparagraph if such persons are able in fact to control the organization even if their aggregate voting power is less than percent of the total voting power of the organization's governing body or if one or more of such persons has the right to exercise veto power over the actions of such organization relevant to any potential acts of self-dealing sec_4943 of the code provides that the term excess_business_holdings means with respect to the holdings of any private_foundation in any business_enterprise the amount of stock or other interest in the enterprise which the foundation would have to dispose_of to a person other than a disqualified_person in order for the remaining holdings of the foundation in such enterprise to be permitted holdings sec_53_4943-3 of the regulations provides that except as otherwise provided in sec_4943 and of the code the permitted holdings of any private_foundation in an incorporated business_enterprise including a real_estate_investment_trust as defined in sec_856 are a percent of the voting_stock in such enterprise reduced but not below zero by b the percentage of voting_stock in such enterprise actually or constructively owned by all disqualified persons sec_53_4943-3 of the regulations provides that in the case of a partnership including a limited_partnership or joint_venture the terms profits interest and capital interest shall be substituted for voting_stock and nonvoting_stock respectively wherever those terms appear in paragraph b of this section sec_4943 of the code provides that the term business_enterprise does not include-- a a functionally_related_business as defined in sec_4942 or b a trade_or_business at least percent of the gross_income of which is derived from passive sources for purposes of subparagraph b gross_income from passive sources includes the items excluded by sec_512 and and income from the sale_of_goods including charges or costs passed on at cost to purchasers of such goods or income received in settlement of a dispute concerning or in lieu of the exercise of the right to sell such goods if the seller does not manufacture produce physically receive or deliver negotiate sales of or maintain inventories in such goods sec_512 of the code provides that in the case of rents-- a except as provided in subparagraph b there shall be excluded-- i all rents_from_real_property including property described in sec_1245 and ii all rents from personal_property including for purposes of this paragraph as personal_property any property described in sec_1245 b leased with such real_property if the rents attributable to such personal_property are an incidental amount of the total rents received or accrued under the lease determined at the time the personal_property is placed_in_service b subparagraph a shall not apply-- i if more than percent of the total rent received or accrued under the lease is attributable to personal_property described in subparagraph a ii or ii if the determination of the amount of such rent depends in whole or in part on the income or profits derived by any person from the property leased other than an amount based on a fixed percentage or percentages of receipts or sales c there shall be excluded all deductions directly connected with rents excluded under subparagraph a sec_53_4943-10 of the regulations provides in part that any income classified as passive does not lose its character merely because sec_512 or sec_514 of the code relating to debt-financed_income applies to such income analysis sec_501 status -- inurement and private benefit revrul_76_91 supra indicates that the purchase of assets when the seller controls the purchaser or has a close relationship with the purchaser does not result in inurement of the purchaser’s net_earnings to the benefit of any private_shareholder_or_individual if the value of the assets are established by independent appraisal x y and z each are private shareholders or individuals within the meaning of sec_501 of the code and sec_1_501_c_3_-1 and sec_1_501_c_3_-1 of the regulations with respect to the private_foundations with which they are associated respectively the transaction will not however result in private_inurement to x y or z or result in m being operated for the benefit of private interests because the land llc will lease the land to building llc for a market-rate rent which will be based on a valuation conducted by an independent valuation expert because the land llc will receive fair market rent m n and o will not be using their income or assets to subsidize or otherwise benefit their respective private parties x y or z for the same reason there is no impermissible private benefit to x y or z because the lease between the land llc and the building llc will be for fair_market_value direct self-dealing under sec_4941 of the code the direct or indirect leasing of property between a private_foundation and a disqualified_person is generally an act of self-dealing x is a disqualified_person with respect to m because substantial contributors with respect to m own more than percent of the profits interest in x according to sec_4946 of the code land llc would be a disqualified_person with respect to m only if a substantial_contributor to m a foundation_manager of m a percent owner of a substantial_contributor or family members of the foregoing owned more than percent of the profits interest in land llc since only m n and o will be members of land llc and each will hold less than a percent profits interest land llc is not a disqualified_person with respect to m similarly the building llc is not a disqualified_person with respect to m because substantial contributors foundation managers percent owners of substantial contributors and members of the families of the foregoing with respect to m do not own more than percent of the profits interest of the building llc the transaction therefore will not involve any direct transaction between m and a disqualified_person indirect self-dealing through building llc the interest of x a disqualified_person with respect to m in the building llc will not cause the transaction between x and building llc to be an indirect self-dealing transaction between x and m under sec_53_4941_d_-1 of the regulations transactions between a private_foundation and an organization in which the foundation’s disqualified persons own percent or less of the voting power or profits interest shall not be treated as an act of indirect self-dealing between the private_foundation and the disqualified persons solely because of the ownership_interest of such persons in the organization provided that the organization is not controlled by the private_foundation x owns only percent of the voting and profits interest in the building llc because x does not hold more than percent of the voting power or profits interest of the building llc the first condition of sec_53_4941_d_-1 of the regulations is satisfied the second condition of sec_53_4941_d_-1 of the regulations is also satisfied because m does not control the building llc under sec_53_4941_d_-1 the building llc would be controlled by m if m or one or more of its foundation managers acting only in such capacity could only by aggregating their votes or positions of authority require the building llc to engage in a particular transaction alternatively m would control the building llc if a disqualified_person together with one or more persons who are disqualified persons by reason of sec_4946 d e f or g of the code could only by aggregating their votes or positions of authority with that of m require the building llc to engage in the transaction finally m would control the building llc if m or m together with its disqualified persons were able in fact to control the building llc or if one or more of such persons were able to veto the actions of the building llc relevant to any potential acts of self-dealing neither m nor x nor any disqualified persons with respect to m either alone or in combination has any of the powers necessary in order to find control of the building llc under sec_53_4941_d_-1 indirect self-dealing through land llc sec_53_4941_d_-1 of the regulations implies that certain transactions between a disqualified_person and an organization controlled by a private_foundation will be regarded as indirect self-dealing however the interest of m in land llc will not cause the transaction between land llc and x to be an indirect self-dealing transaction between m and x because the land llc will not be controlled by m within the meaning of sec_53_4941_d_-1 neither m nor any disqualified persons with respect to m either alone or in combination has any of the powers necessary in order to find control of the land llc under sec_53 d - b excess_business_holdings sec_4943 of the code imposes a tax on the excess_business_holdings of any private_foundation in a business_enterprise under sec_4943 of the code a trade_or_business in which at least percent of the gross_income is derived from passive sources is not a business_enterprise for purposes of sec_4943 income from passive sources includes rents_from_real_property excluded by sec_512 of the code income from passive sources does not lose its character merely because it is unrelated_debt-financed_income within the meaning of sec_514 m’s interest in the land llc does not constitute an excess business holding in a business_enterprise within the meaning of sec_4943 of the code because the land llc is not a business_enterprise at least percent of the income of the land llc will be passive_income in the form of rents received from the building llc because the land llc will not be a business_enterprise m’s interest in the land llc will not constitute excess_business_holdings in a business_enterprise conclusions accordingly based on the information submitted we rule as follows the transaction will not adversely affect the status of m as an organization described in sec_501 of the code the transaction will not constitute one or more acts of self-dealing between m and a disqualified_person with respect to m within the meaning sec_4941 of the code the transaction will not result in m having excess_business_holdings in a business_enterprise within the meaning of sec_4943 of the code this ruling is made on the understanding that there will be no material changes in the facts upon which it is based except as specifically ruled upon above no opinion is expressed concerning the federal_income_tax consequences of the transactions described above under any other provision of the code this ruling letter is directed only to the organization that requested it sec_6110 of the code provides that they may not be used or cited as precedent pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to m’s authorized representative a copy of this letter should be kept in m’s permanent records if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter jane baniewicz manager exempt_organizations technical group sincerely


qwhuqdo 5hyhqxh 6huylfh department of the treasury washington dc person to contact telephone number refer reply to cc ita b06 - plr-112768-02 date date number release date index no in re attention legend a b c d date date date date date date date x y dear this ruling is in reply to the letter and enclosures requesting an extension of time under sec_301_9100-1 of the procedure and administration regulations for a to file a form_970 application to use lifo inventory_method on behalf of its subsidiary b which is to be effective for the tax_year ended date this request is made in accordance with sec_301_9100-3 page c was incorporated on date five days later on date c acquired inventory and other assets from d in exchange for all of the stock of c in a transaction represented as described in sec_351 of the internal_revenue_code the inventory received had been consistently accounted for under the last-in_first-out lifo inventory_method by the transferor since the early x’s on date all of the stock of c was acquired by a from d c's name was changed to b a and its affiliated corporations file consolidated_returns accordingly c filed a separate_return for the period date to date thereafter b was included in a’s consolidated_return for the short_period date to date and for the year ended date c used the lifo_method to account for its inventory but failed to attach form_970 to its initial return to make a proper election as a result c reported its income using the lifo_method on its return for the year ended date b also used the lifo_method to account for its inventory for all tax periods beginning with date furthermore the lifo inventory_method was used for financial reporting purposes beginning with the period ending date a represents that the tax manager who was responsible for preparing c's income_tax return for the period ended date was not aware of the necessity to file form_970 where a sec_351 transaction is involved based on his experience in addition a paid tax preparer reviewed the return but signed it without form_970 attached b continued the lifo_method used by c without filing said form in mid y a discovered that form_970 had not been filed with c's income_tax return for the period ended date on date a notified d that form_970 was not filed with c's return soon thereafter a submitted this request for relief on behalf of its subsidiary b f k a c sec_472 provides that a taxpayer may use the lifo_method of inventorying goods specified in an application to use such method filed at such time and in such manner as the secretary may prescribed sec_1_472-3 of the income_tax regulations provides that the lifo inventory_method may be adopted and used only if the taxpayer files with its income_tax return for the tax_year as of the close of which the method is first to be used a statement of its election to use such inventory_method revrul_70_564 1970_1_cb_109 holds that a corporation that acquires inventories in a transfer under sec_351 must file a form_970 in order to adopt the lifo inventory_method under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of the time to make a regulatory election under all subtitles of the page code except subtitles e g h and i provided 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 a regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin an election is defined in sec_301_9100-1 to include a request to adopt change or retain an accounting_method or accounting_period sec_301_9100-2 sets forth rules governing automatic extensions for regulatory elections if the provisions of sec_301_9100-2 do not apply to a taxpayer’s situation the provisions of sec_301_9100-3 may apply sec_301_9100-3 sets forth the standards that the commissioner will use in determining whether to grant an extension of time to make a regulatory election it also sets forth information and representations that must be furnished by the taxpayer to enable the internal_revenue_service to determine whether the taxpayer has satisfied these standards the standards to be applied in this case are whether the taxpayer acted reasonably and in good_faith and whether granting relief would prejudice the interests of the government under sec_301_9100-3 a taxpayer that applies for relief for failure to make an election before the failure is discovered by the service ordinarily will be deemed to have acted reasonably and in good_faith however pursuant to sec_301_9100-3 a taxpayer will not be considered to have acted reasonably and in good_faith if the taxpayer seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested or if the taxpayer was informed in all material respects of the required election and related tax consequences but chose not to file the election furthermore a taxpayer ordinarily will not be considered to have acted reasonably and in good_faith if the taxpayer uses hindsight in requesting relief sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all tax years affected by the regulatory election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money likewise if the tax consequences of more than one taxpayer are affected by the election the government’s interests are prejudiced if extending the time for making the election may result in the affected taxpayers in the aggregate having a lower tax_liability than if the election had been timely made further the interests of the government are ordinarily prejudiced if the tax_year in which the regulatory election should have been made or any_tax years that would have page been affected by the election had it been timely made are closed by the period of limitations on assessment under sec_6501 before the taxpayer’s receipt of a ruling granting relief under sec_301_9100-3 the information and representations furnished by a establish that it has acted reasonably and in good_faith in this request furthermore granting an extension will not prejudice the interests of the government accordingly an extension of time is hereby granted for a to file form_970 on behalf of its subsidiary b for the tax_year ending date this extension shall be for a period of days from the date of this ruling please attach a copy of this ruling to the form_970 when it is filed no opinion is expressed as to the application of any other provisions of the code or the regulations which may be applicable to the transaction specifically no opinion is expressed regarding whether c acquired the inventory at issue in a sec_351 transaction this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the terms of a power_of_attorney on file with this office a copy of this ruling is being sent to a in addition a copy of this ruling is being sent to the second named authorized representative sincerely james atkinson deputy associate chief_counsel income_tax accounting


department of the treasury internal_revenue_service washington d c date number release date gl-610467-99 cc el gl b2 uilc memorandum for district_counsel indiana from subject kathryn a zuba chief branch general litigation offers-in-compromise - effect of bankruptcy on processability this memorandum responds to your memorandum dated date you ask that we pre-review your memorandum to acting chief special procedures branch indiana district this document is not to be cited as precedent we agree with your conclusion that the service can return as nonprocessable an offer_in_compromise that has not been accepted or rejected as of the date of the filing of the taxpayer’s bankruptcy petition as you discussed service procedures provide that offers based on doubt as to collectibility or effective tax_administration from taxpayers in bankruptcy are nonprocessable irm irm irm see also sec_301_7122-1t e however with respect to taxpayers who file for bankruptcy after appealing a rejected offer we disagree that appeals must consider appeals of rejected offers even though the taxpayer has filed bankruptcy because service procedures provide that offers from taxpayers in bankruptcy are nonprocessable the appeal of a rejected offer is rendered moot by the bankruptcy filing the offer can therefore be returned as nonprocessable your memorandum also raises the issues decided in in re 240_br_689 bankr s d w v and in re chapman bankr lexi sec_1091 s d w v date concerning the service’s discretion with regard to offers in compromise from taxpayers in bankruptcy and the impact of the automatic_stay on the investigation of such an offers we are currently in the process of developing our litigating position with regard to the issues raised in mills and chapman we will respond to you in a detailed supplemental memorandum after our final position is reached if you have any questions contact the attorney assigned to this matter at cc assistant regional_counsel gl southeast region


internal_revenue_service number release date index number ----------------------------- ------------------------------- ----------------------------------------------- -------------------------------- ------------------------------------- ---------------------------------- - ---------------------------re partnership --------02 year --------03 year --------------69 x -----------------00 z --------------------03 date ---------------------------03 date accounting firm ----------------------------o department of the treasury washington dc person to contact ------------------------- id no ------------- telephone number ------------------- refer reply to cc ita - plr-137109-03 date date this is in response to a letter dated date submitted on behalf of partnership dear -------------------- taxpayer requesting permission under sec_453 of the internal_revenue_code and i15a d of the temporary income_tax regulations to revoke the election out of the installment_method for a certain sale of real_property during the year taxable_year facts taxpayer is a cash_basis partnership in year taxpayer sold real_property in exchange for x in cash and a note for z taxpayer under the terms of the note was entitled to monthly payments of interest and principle and a final payment of all unpaid principal and interest on date accounting firm was retained to prepare taxpayer’s year federal_income_tax return taxpayer provided accounting firm with a copy of all the documents pertaining to the sale of the real_property according to the information submitted accounting firm subsequently taxpayer’s partners reviewed the year return and after prepared the return inadvertently reporting all of the gain from the sale of real_property on taxpayer’s year return discovering the mistake and consulting with accounting firm taxpayer in year prepared this request for permission to revoke the election out of the installment_method for the sale taxpayer represents that there was no intention on its part to elect out of the installment_method taxpayer also represents that the request for a change is not due to hindsight law and analysis sec_453 of the code provides that generally a taxpayer shall report pursuant to sec_453 of the code and sec_15a_453-1 of the temporary income from an installment_sale under the installment_method sec_453 defines an installment_sale as a disposition of property for which at least one payment is to be received after the close of the taxable_year of the disposition sec_15a_453-1 of the temporary income_tax regulations defines payment to include amounts actually or constructively received in the taxable_year under an installment_obligation income_tax regulations a taxpayer may elect out of the installment_method in accordance with the manner prescribed by regulations under sec_1 d of the temporary income_tax regulations a taxpayer who reports an amount_realized equal to the selling_price including the full face_amount of any installment_obligation on a timely filed tax_return for the taxable_year in which the installment_sale occurs is considered to have elected out of using the installment_method except as otherwise provided in the income_tax regulations sec_453 of the code requires a taxpayer who desires to elect out of the installment_method to do so on or before the due_date including extensions of the taxpayer’s federal_income_tax return for the taxable_year of the sale pursuant to sec_15a d of the temporary income_tax regulations generally an election under sec_453 of the code is irrevocable an election may be revoked only with the consent of the internal_revenue_service a revocation of an election out of the installment_method is retroactive and will not be permitted when one of its purposes is the avoidance of federal income taxes see temp sec_15a_453-1 indicating application of installment_sale reporting for gain from the sale at issue the accounting firm inadvertently prepared the year return reporting all gain from the sale in that year as soon as accounting firm became aware of the oversight taxpayer was advised to file a request to revoke the election out of the installment_method the information submitted indicates that taxpayer’s desire to revoke the election is due to in the instant case taxpayer supplied accounting firm with documents inadvertence rather than hindsight by taxpayer or a purpose of avoiding federal income taxes conclusion permission to revoke the election out of installment_method reporting for the sale based on a careful consideration of all the information submitted and representations made we conclude taxpayer may revoke the election out of the installment_method of reporting under sec_453 of the code is granted for the period that end sec_75 days after the date of this letter to revoke the election out of the installment_method for the sale at issue taxpayer must file an amended federal_income_tax return for the taxable_year of the sale and any previously filed returns on which a portion of the gain from the sale is reportable under the installment_method a copy of this letter_ruling must be attached to the amended_return s the ruling contained in this letter is based upon information and representations submitted by taxpayer no opinion is expressed regarding the amount of gain realized on the sale of the real_estate or whether the gain qualifies for the installment_method under sec_453 of the code no opinion is expressed as to the tax treatment of the transaction under any other provisions of the code and regulations that may be applicable thereto or the tax treatment of any conditions existing at the time of or effects resulting from the transaction which are not specifically covered by the above ruling the code provides that it may not be used or cited as precedent office the original of this letter_ruling is being sent to taxpayer’s authorized representative and a copy is being sent to taxpayer enclosures j charles strickland senior technician reviewer branch office of associate chief_counsel income_tax and accounting this ruling is directed only to the taxpayer requesting it sec_6110 of in accordance with the provisions of a power_of_attorney currently on file with this copy of this letter copy for sec_6110 purposes sincerely