internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc tege eoeg teb plr-100590-02 date date legend corporation a corporation b corporation c hospital hospital hospital hospital lp gp state bonds issuer dear this letter is our reply to your request for a ruling that the establishment of a limited_partnership and a general_partnership by two sec_501 hospital-related organizations and the use by these partnerships of certain bond-financed property described below will not cause the bond-financed property to be treated as owned or used by other than a sec_501 organization for purposes of sec_145 and sec_141 facts and representations corporation a is a sec_501 organization other than a private_foundation under sec_509 of the code corporation a owns and operates hospital hospital and hospital each of which operated for many years as independent sec_501 organizations prior to the formation of corporation a corporation b is a sec_501 organization and is the sole member of corporation a and hospital it is also the controlling_organization of a number of other health-related entities all of these hospitals and related entities operate within a local healthcare system corporation c is a sec_501 organization that was formed under sec_509 as a supporting_organization of hospital lp is a limited_partnership formed under the laws of state with corporation a and corporation c as the limited partners and gp as the general_partner gp is a limited_liability_company formed under the laws of state whose members are corporation a and corporation c lp is subject_to the limited_partnership agreement and gp is subject_to the limited_liability_company agreement under these agreements the interests of corporation a and corporation c in gp are in the same proportion as their interests in lp both lp and gp are treated as partnerships for federal_income_tax purposes lp was formed to manage certain properties the properties owned by corporation a hospital hospital hospital and hospital as well as their exempt affiliates in furtherance of their exempt purposes and activities the specific purposes of lp are to centralize management maximize the use and value and to coordinate the current and future use of the properties the properties do not include the participant's basic hospital facilities instead they consist of related peripheral properties on and around the various hospital campuses management control is established through a lease or purchase option of certain of the properties from the limited partners or their affiliates to lp one of the properties a parking garage the garage was acquired and improved with a portion of the bond proceeds the balance of the bond proceeds are allocated to facilities other than the properties the garage which is adjacent to the hospital facility operated by hospital will be leased to lp and will continue to be utilized in a manner relating to the exempt purposes of hospital under sec_501 with respect to the garage no activity of hospital the limited partners of lp the general partners of lp the general partners of gp or any exempt affiliate of the foregoing altogether the entities including leasing the garage to lp or its management by lp will be an unrelated_trade_or_business activity as defined by sec_513 of the entities or any one of them the obligation to repay the bonds remains with corporation a and will not be assumed by lp the purpose of lp's management activities including those related to the garage is to further the exempt purposes of its tax-exempt limited partners both the limited_partnership agreement of lp and the limited_liability_company agreement of gp contain provisions prohibiting each entity from engaging in any activity whose nature and magnitude would adversely affect the tax-exempt status of its partners or members or adversely affect compliance with tax-exempt_bond financing requirements the leases of the properties to lp also contain similar prohibitions furthermore the limited_liability_company agreement of gp places significant limitations on gp s management and control of lp and reserves these areas for approval by corporation a and corporation c it is represented that all allocations to the partners of lp are consistent with each partner being allocated the same distributive_share of each item_of_income gain loss deduction credit and basis and that such share remains the same during the entire period that the entity remains a partner in lp law and analysis sec_103 of the code provides that except as provided in sec_103 gross_income does not include interest on any state_or_local_bond sec_103 provides in part that sec_103 shall not apply to any private_activity_bond that is not a qualified_bond within the meaning of sec_141 sec_141 provides that the term private_activity_bond includes any bond issued as part of an issue that meets the private_business_use_test of sec_141 and the private_security_or_payment_test of sec_141 or meets the private_loan_financing_test of sec_141 sec_141 provides that except as otherwise provided in sec_141 an issue meets the private_business_use_test if more than percent of the proceeds of the issue are to be used for any private_business_use sec_141 provides that for purposes of sec_141 the term private_business_use means use directly or indirectly in a trade_or_business carried on by any person other than a governmental_unit sec_141 provides that any activity carried on by a person other than a natural_person is treated as a trade_or_business sec_141 provides that a qualified_bond includes a qualified_501_c_3_bond under sec_145 qualified c bonds are defined as bonds that would not be private_activity_bonds if sec_501 organizations were treated as governmental units with respect to their activities that do not constitute unrelated trades_or_businesses by applying sec_513 in making this determination a percent of net_proceeds test rather than the percent of proceeds test applicable to governmental bonds is used in applying the private business tests of sec_141 and in sec_145 sec_145 provides that all property which is to be provided by the net_proceeds of a tax-exempt_bond issue must be owned by a 501_c_3_organization or a governmental_unit sec_513 provides that the term unrelated_trade_or_business includes any trade_or_business the conduct of which is not substantially related aside from the need of such organization for income or funds or the use it makes of the profits derived to the exercise or performance by such organization of its charitable educational or other purpose or function constituting the basis for its exemption under sec_501 the term however does not include any trade_or_business that is carried on by the organization primarily for the convenience of its members students patients officers or employees under sec_7701 a person means and includes a partnership where not otherwise distinctly expressed in or manifestly incompatible with the intent of the provision under title_26 where the term is used under sec_7701 the term partnership includes any group joint_venture or other unincorporated organization through or by means of which any business financial operation or venture is carried on and which is not a_trust estate or corporation under subchapter_k of the code a partnership is considered for various purposes to be either an aggregate of its partners or an entity independent of its partners under the aggregate approach each partner is treated as an owner of an undivided_interest in partnership assets and operations under the entity approach the partnership is a separate_entity in which partners have no direct interest in the partnership's assets and operations revrul_75_62 1975_1_cb_188 provides that there is no exclusive rule as to when a partnership will be viewed as an entity or an aggregate the resolution is generally dependent upon the question to be resolved it has been represented that lp and gp will both be treated as partnerships for federal_income_tax purposes in this case the purposes of sec_145 will be furthered if with respect to use of the garage partnerships lp and gp are treated as aggregates rather than as separate entities with limited exceptions sec_145 confines the applicability of sec_103 to financing arrangements that exclusively benefit sec_501 organizations that are engaging in activities related to their charitable purposes or governmental units under the limited_partnership agreement the limited_liability_company agreement and the applicable lease agreements the garage will be used solely in furtherance of the s rep 83d cong 2d sess h_r rep 83d cong 2d sess charitable purposes of hospital the limited partners of lp and the partners of gp further it is represented that leasing the garage will not be an unrelated_trade_or_business activity of hospital any of the limited partners of lp or the general partners of gp finally all allocations to the partners of lp will be consistent with each partner being allocated the same distributive_share of each item_of_income gain loss deduction credit and basis and such share will remain the same during the entire period the entity is a partner conclusion we conclude that the use of the garage by lp and gp will not cause the garage to be treated as owned by or used_in_the_trade_or_business of a person other than a sec_501 organization for purposes of sec_145 and sec_141 no opinion is expressed regarding the consequences of this transaction under any section of the code or the income_tax regulations except as specifically stated in this ruling in particular no opinion is expressed whether interest on the bonds is excludible from the gross_income of the bond holders under sec_103 of the code also no opinion is expressed regarding the effect of the transaction on the exempt status under sec_501 of any of the entities described above this ruling is directed only to the taxpayers who requested it sec_6110 of the code provides that it may not be used or cited as precedent sincerely office of the assistant chief_counsel exempt_organizations employment_tax by timothy l jones senior counsel tax exempt bond 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 --------------------- id no ------------ telephone number -------------------- refer reply to cc intl b02 plr-146451-13 date date ty ------- legend shareholder state x country y country z fc1 fc2 a b c d date date date year year year year year tax advisor tax advisor dear ----------------- ------------------------------------------------------------------------------------ ------------------------------------------- ------------ ---------------- ------------ ---------------------------------- -------------------------------- --- --- ------ ------ ------------------ ----------------------- ----------------------- ------ ------ ------ ------ ------ --------------------------------------- -------------- this is in response to a letter dated date submitted by your authorized representative that requested the consent of the commissioner of the internal_revenue_service commissioner for shareholder to make a retroactive qualified_electing_fund plr-146451-13 qef election under sec_1295 of the internal_revenue_code and sec_1_1295-3 with respect to shareholder’s investment in fc1 the ruling contained in this letter is based upon information and representations submitted on behalf of shareholder by its authorized representative 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 this request_for_ruling such material is subject_to verification on examination the information submitted in the request is substantially as set forth below facts shareholder is a domestic_partnership organized under the laws of state x in year shareholder acquired an a interest in fc1 an entity organized under the laws of country y that was treated as a corporation for u s federal tax purposes and fc1 acquired a b interest in fc2 an entity organized under the laws of country z that was treated as a corporation for u s federal tax purposes in year fc1 executed an initial_public_offering ipo for fc2 as a result of its initial sale of fc2 stock pursuant to the ipo fc1’s ownership_interest in fc2 declined to c as of date as a result of a second sale of fc2 stock pursuant to the ipo fc1’s ownership_interest in fc2 declined to d as of date in year as a result of a final sale of fc2 stock pursuant to the ipo fc1 disposed of its remaining interest in fc2 as of date fc1’s only asset in year through year was its interest in fc2 fc2 was an active company that derived income that was not passive_income under sec_1297 and owned assets that gave rise to non-passive income sufficient to prevent it from qualifying as a passive_foreign_investment_company pfic as defined in sec_1297 for year through year fc1’s b ownership_interest in fc2 was sufficient to allow fc1 to be treated under sec_1297 as if it held its proportionate share of the assets of fc2 and received directly its proportionate share of the income of fc2 thus fc1 did not qualify as a pfic in year through year as a result of the ipo initiated in year however fc1’s c ownership_interest in fc2 as of date was not sufficient to allow fc1 to look through fc2 under sec_1297 and thus fc1’s ownership_interest in fc2 was a passive_asset therefore fc1 qualified as a pfic in year for year through year shareholder engaged tax advisor to prepare its u s federal partnership returns and its tax filings relating to fc1 and engaged tax advisor to prepare its tax filings relating to fc2 in year through year tax advisor employing experienced tax professionals advised shareholder with respect to u s federal_income_tax matters relating to shareholder’s ownership of fc1 shareholder plr-146451-13 made available to tax advisor the books_and_records of fc1 and any other information requested by tax advisor to provide tax_advice and prepare shareholder’s tax returns including any information relating to fc2 tax advisor held itself out as a qualified_tax professional and shareholder reasonably believed that tax advisor was competent to render tax_advice with respect to the ownership of shares of a foreign_corporation with respect to year tax advisor advised that fc1 was not a pfic based on fc1’s b ownership_interest in fc2 and the sec_1297 look through rule with respect to year tax advisor did not appropriately take into account the sales of fc2 stock pursuant to the ipo and as a result incorrectly calculated the average value of the assets held by fc1 for purposes of the sec_1297 asset test accordingly tax advisor did not inform shareholder that fc1 was a pfic or of the availability of a qef election during the preparation of shareholder’s year tax_return in year tax advisor reviewed the transactions completed by fc1 during year following its conclusion that fc1 did not own a sufficient interest in fc2 during year to be eligible for sec_1297 look through treatment tax advisor reviewed fc1’s year transactions including the date of the initial sale of fc2 stock pursuant to the ipo date tax advisor then realized that a mistake was made with respect to shareholder’s year tax_return and notified shareholder shareholder has submitted an affidavit signed under penalties of perjury describing the events that led to the failure to make the qef election before the election due_date including the role of tax advisor shareholder represents that tax advisor did not identify fc1 as a pfic for year or advise shareholder of the possibility of making a qef election with respect to fc1 for year and thus did not advise shareholder of the consequences of making or failing to make a qef election for year shareholder has also submitted an affidavit from tax advisor signed under penalties of perjury corroborating the statements made by shareholder both year and year are open taxable years that would be affected by shareholder’s retroactive qef election with respect to fc1 for year shareholder will not file amended returns for year and year to redetermine its income_tax_liability despite its ability to do so instead shareholder will enter into a closing_agreement with the commissioner that confirms that there is no prejudice to the interests of the united_states government as a result of shareholder’s failure to make a retroactive qef election with respect to fc1 for year the closing_agreement also will require shareholder to pay an additional_amount of tax and interest that would have been owed by shareholder’s direct and indirect partners as a result of shareholder’s failure to treat fc1 as a pfic for year plr-146451-13 shareholder represents that as of the date of this request_for_ruling the pfic status of fc1 has not been raised by the internal_revenue_service irs on audit for any of the taxable years at issue ruling requested shareholder requests the consent of the commissioner to make a retroactive qef election with respect to fc1 for year under sec_1_1295-3 law sec_1295 provides that a pfic will be treated as a qef with respect to a shareholder if an election by the shareholder under sec_1295 applies to the pfic for the taxable_year and the pfic complies with the requirements prescribed by the secretary for purposes of determining the ordinary_earnings and net capital_gains of the company under sec_1295 a qef election may be made for a taxable_year at any time on or before the due_date determined with regard to extensions for filing the return for the taxable_year to the extent provided in regulations the election may be made after the due_date if the shareholder failed to make an election by the due_date because the shareholder reasonably believed the company was not a pfic under sec_1_1295-3 a shareholder may request the consent of the commissioner to make a retroactive qef election for a taxable_year if the shareholder reasonably relied on a qualified_tax professional within the meaning of sec_1_1295-3 granting consent will not prejudice the interests of the united state sec_3 government as provided in sec_1_1295-3 the request is made before a representative of the irs raises upon audit the pfic status of the company for any taxable_year of the shareholder and the shareholder satisfies the procedural requirements of sec_1 f the procedural requirements include filing a request for consent to make a retroactive election with and submitting a user_fee to the office of the associate chief_counsel international sec_1_1295-3 additionally affidavits signed under penalties of perjury must be submitted that describe the events that led to the failure to make a qef election by the election due_date the discovery of the failure the engagement and responsibilities of the qualified_tax professional and plr-146451-13 the extent to which the shareholder relied on the professional sec_1_1295-3 and iii conclusion based on the information submitted and representations made with shareholder’s ruling_request we conclude that shareholder has satisfied sec_1_1295-3 accordingly consent is granted to shareholder to make a retroactive qef election with respect to fc1 for year provided that shareholder complies with the rules under sec_1_1295-3 regarding the time and manner for making the retroactive qef election other than the requirement to file amended returns for all open years subsequent to the year in which the retroactive election is made 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 private_letter_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 power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representatives a copy of this letter_ruling must be attached to any federal_income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely barbara e rasch senior technical reviewer branch international cc


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc ita plr-143838-02 date date taxpayer parent tax director tax director a accounting firm date a date b date c date d date e a b dear plr-143838-02 this is in response to your letter dated date and subsequent correspondence requesting an extension of time under sec_301_9100-1 and -3 of the procedure and administration regulations for taxpayer to make consent_dividend elections pursuant to sec_565 of the internal_revenue_code taxpayer is wholly owned by parent taxpayer and parent are accrual basis taxpayers that join in the filing of a consolidated_income_tax_return on a calendar_year basis for the years at issue a individuals owned more than b percent of the stock of parent taxpayer was incorporated by parent as a holding_company for managing and investing the proceeds of the initial_public_offering of parent parent provides information systems for patient care for hospitals group practices academic medical centers and delivery networks taxpayer represents that it relied on the expertise of its tax director tax director in the preparation and review of its annual corporate_income_tax returns tax director at no time during the preparation of taxpayer’s federal_income_tax returns or in any other discussions with taxpayer or parent apprised either taxpayer or parent of the availability of the consent_dividend election under sec_565 in date a tax director was terminated in date b tax director was hired and in date c determined that taxpayer was a personal_holding_company a phc for the taxable_year ending date d as a result of such determinatiion taxpayer sought assistance from accounting firm after taxpayer and accounting firm reviewed taxpayer’s phc status it was determined that taxpayer was a phc for the taxable years ending date d and date e taxpayer represents that for the taxable years ending date d and date e neither taxpayer nor parent had knowledge of nor did they consider phc status and therefore did not attach form sec_972 and to its originally filed tax returns taxpayer also represents that had it or parent been apprised of taxpayer’s liability for phc tax and taxpayer’s ability to make consent dividends taxpayer and parent would have filed form sec_972 and respectively if form sec_972 and had been timely and properly filed i taxpayer represents that it would not have been classified as a phc and ii parent would not have been subject_to tax on the deemed_dividend for the taxable years ending date e and date e due to the 100-percent dividends received deduction allowed for distributions from wholly-owned subsidiaries the failure to make the consent_dividend election was due to the oversight of tax director who taxpayer relied on to prepare and review its annual corporate_income_tax returns individual a the senior vice president and treasurer of taxpayer and parent has stated in an affidavit that taxpayer relied on tax director a certified_public_accountant who did not identify taxpayer as a phc nor notify individual a of the availability of the consent dividends election and the requirement of filing form sec_972 and the taxpayer requests the commissioner’s consent to extend the due_date to plr-143838-02 make a consent_dividend election under sec_565 on form sec_972 and for the taxable years ending date d and date e sec_301_9100-1 through of the procedure and administration regulations provide the standards the commissioner uses to determine whether to grant an extension of time to make a regulatory election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides in part for extensions of time for making regulatory elections that do not meet the requirements of sec_301_9100-2 for this purpose sec_301_9100-1 defines the term regulatory election as an election where the due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 of the regulations provides in part that the commissioner may grant a reasonable extension of time to make a regulatory election sec_301_9100-3 of the regulations provides in part that requests for relief will be granted when the taxpayer provides evidence including affidavits described above to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government sec_301_9100-3 of the regulations provides that a taxpayer will be deemed to have acted reasonably and in good_faith if the taxpayer - i requests relief before the failure to make the regulatory election is discovered by the service ii inadvertently failed to make the election because of intervening events beyond the taxpayer’s control iii failed to make the election because after exercising due diligence the taxpayer was unaware of the necessity for the election iv reasonably relied on the written advice of the service or v reasonably relied on a qualified_tax professional and the tax professional failed to make or advise the taxpayer to make the election the affidavits presented show that taxpayer acted reasonably and in good_faith having relied on tax director to prepare its returns for the tax years at issue sec_301_9100-3 of the regulations provides that a taxpayer will not be considered to have acted reasonably and in good_faith if the taxpayer plr-143838-02 i seeks to alter a return position for which an accuracy-related_penalty could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires a regulatory election for which relief is requested ii was fully informed of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief in connection with hindsight if specific facts have changed since the original due_date for making the election that make the election advantageous to a taxpayer the service will not ordinarily grant relief in the present case taxpayer is not attempting to alter a return position taken for which a penalty has been or could be imposed under sec_6662 taxpayer was not informed of the need to make the election under sec_565 and so did not make any conscious choice as to whether or not to make the election in addition there is no indication that the taxpayer is using hindsight as defined above in requesting this relief sec_301_9100-3 of the regulations provides that he commissioner will grant a reasonable extension of time only when the interests of the government will not be prejudiced by the granting of relief under paragraph c i 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 taxable years affected by the election than the taxpayer would have had if the election had been timely made sec_301 c ii provides in part that the interests of the government are ordinarily prejudiced if the taxable years in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment in the present case granting the relief requested will not prejudice the interests of the government under the given criteria taken together the disclosed circumstance indicate that the omission taxpayer now seeks to correct originated from an honest mistake on the part of its tax advisor and not from a desire to avoid taxes granting this application will not prejudice the interests of the government accordingly consent of the commissioner is hereby granted for an extension of time to file the forms necessary to make the sec_565 consent_dividend election for the years at issue this extension shall be for a period of days from the date of this ruling please attach a copy of this ruling to the returns schedules and forms filed in connection with making the election under sec_565 when such forms are filed this ruling is based upon information and representations submitted by the taxpayer and accompanied by penalty of perjury statements while this office has not verified any of the material submitted in support of the ruling_request it is subject_to plr-143838-02 verification on examination no opinion is expressed about the tax treatment of any other provisions of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from the election that is not specifically covered by the above ruling in particular this office makes no determination of the taxpayer’s status as a phc and relies on the determination of status as represented in the taxpayer’s application_for relief under the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative 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 lewis j fernandez deputy associate chief_counsel income_tax accounting by robert m casey senior technician reviewer branch office of the associate chief_counsel income_tax and accounting


id office uilc cca_2009122910561037 ---------- number release date from ------------------- sent tuesday date am to --------------------- cc subject re partnership vs non-partnership question the flow through loss from tier one is a partnership_item of tier one that can only be disallowed by issuing an fpaa to tier one 95_tc_243 sec_469 is an affected_item with both partnership_item and partner level components see estate of quick v commissioner a partnership_item component would be whether an actual working_interest exists if we are challenging this aspect we would have to do so through an fpaa the ultimate disallowance of the loss occurs at the partner level through an affected_item notice_of_deficiency issued after the partnership proceeding is complete


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 employer_identification_number number release date tege t1 date uil legend g h x dear ------------------ we have considered your ruling_request dated date requesting approval of a set-aside of your income under the suitability test of sec_4942 of the internal_revenue_code and sec_53_4942_a_-3 of the foundation and similar excise_taxes regulations beginning on you tax_year --------- ---- -------------------------- revenue code the code and are a private_foundation under sec_509 of the code you propose to set_aside x dollars of your income pursuant to sec_4942 of the code your specific project for the income is to renovate h which is an organization exempt from federal_income_tax under sec_501 of the code you represent that all of the amounts to be set_aside for this specific project will be paid out for this project within months from the time when your first amount of income is set_aside you further state that the cost of the project can better be accomplished by the use of a set-aside of your income rather than by immediate you g are exempt from federal_income_tax under sec_501 of the internal sec_4942 of the code imposes an excise_tax on any private_foundation that sec_509 of the code describes organizations exempt from federal income sec_4942 of the code provides that in general a qualifying_distribution is payment of your funds because the project requires an amount more than your annual distributable income under sec_4942 of the code and because it will be paid later when and as the church is being renovated sec_501 of the code provides for the exemption from federal_income_tax of organizations organized and operated exclusively for religious charitable scientific or educational_purposes provided no part of the organization’s net_income inures to the benefit of any private_shareholder_or_individual tax under sec_501 of the code that are private_foundations subject_to the private_foundation provisions of chapter of the code does not expend qualifying distributions for exempt purposes at least equal to its distributable_amount for its tax_year any amount including reasonable and necessary administrative expenses paid to accomplish or to acquire an asset used directly in carrying on one or more of the purposes described in sec_170 of the code which includes charitable purposes aside for a specific project which comes within one or more purposes described in sec_170 of the code may be treated as a qualifying_distribution if the amount meets the set-aside_requirements of sec_4942 of the code sec_4942 of the code provides in pertinent part that an amount set_aside for a specific project may be treated as a qualifying_distribution if at the time of the set-aside the private_foundation establishes for the satisfaction of the secretary that the amount set_aside will be paid for the specific project within five years and that the suitability test for the set-aside under sec_4942 of the code is met foundation at the time of the set-aside must establish to the satisfaction of the secretary that the specific project is one that can be better accomplished by the set-aside of income rather than by the immediate payment of funds regulations the regulations provides that the amounts of income set_aside for a specific project for one or more of the purposes described in sec_170 of c b of the code may be treated as qualifying distributions for the tax_year s in which such amounts are set_aside but not in the tax_year in which actually paid if the sec_4942 of the code provides a suitability test in which the private sec_4942 of the code provides that an amount of income that is set sec_53_4942_a_-3 of the foundation and similar excise_taxes sec_53_4942_a_-3 of the regulations provides that its suitability test for a sec_53_4942_a_-3 of the regulations provides that a private_foundation requirements of sec_4942 of the code are met the requirements are met if the foundation establishes to the satisfaction of the commissioner that the amount set_aside will be paid within months after it is set_aside and the set-aside otherwise meets the suitability test of sec_53_4942_a_-3 of the regulations set-aside is met if the foundation establishes that the specific project is one in which relatively long-term grants or expenditures must be met the regulation cites as an example of a suitable project a plan to erect a building to house the direct charitable educational or similar exempt_activities of the foundation such as a museum building even if the exact location and architectural plans have not been finalized must obtain internal_revenue_service approval of its set-aside of income under the suitability test by applying before the end of the tax_year in which the amount is set_aside you have timely sought approval of your set-aside of income in advance of the time when the amounts of income are to be set_aside as required by sec_4942 of the code and sec_53_4942_a_-3 of the regulations you represent that your amounts of income to be set_aside for this specific project will be paid out for this project within months from the time when the first amount is set_aside as required by sec_4942 of the code and sec_53 a - b of the regulations immediate payment under the suitability test of sec_4942 of the code and sec_53_4942_a_-3 of the regulations because this set-aside will provide adequate time for the grant funds to be earned by you and paid out when and as the renovation of the church is underway requirements for a set-aside of income under the suitability test of sec_4942 of the code and sec_53_4942_a_-3 of the regulations renovation for h will be a qualified_distribution under sec_4942 of the code and sec_53_4942_a_-3 of the regulations for the tax years ending ----------- ---------------------------through -------------------------- when such amounts of income are set_aside sec_53_4942_a_-3 of the regulations provides that any set-aside approval by the internal_revenue_service must be evidenced by the entry of a dollar amount in your books_and_records as a pledge or obligation to be paid at a future date or dates accordingly we rule that your set-aside of x dollars of your income for this church your project is better accomplished by this set-aside of income rather than by thus your specific project of a grant for this church’s renovation meets the because this ruling letter could help to resolve any questions please keep it in your further the amount of the set-aside must be taken into account in determining your minimum_investment_return see sec_53_4942_a_-2 of the regulations and any income attributable to a set-aside must be taken into account in computing your adjusted_net_income see sec_53_4942_a_-2 of the regulations permanent records and include a copy in your annual return on form_990-pf the code provides that it may not be used or cited as precedent michael seto manager exempt_organizations technical group this ruling is directed only to the organization that requested it sec_6110 of sincerely


internal_revenue_service number release date index number ------------------ ------------------------------------------------------------ ---------------------------- ----------------------------------------------------- --------------------------- --------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ---------------------------- id no -------------- ----------------- telephone number --------------------- refer reply to cc tege eoeg e0 plr-134411-11 date february ------------ ------------------------------ ------------------------------ ---------------------------- ------------------------------ --------------------------- ---------------- ------------------- ------------------------------ ------------------------------ ----------- ---------------------- ------------------------------ ------------------------------ -------------------- --------------------------- state trust system date date statute agreement employees profession dear this letter responds to a letter from your authorized representatives dated date in addition to supplemental information submitted on behalf of trust requesting a ruling that trust’s income is excludable from gross_income under sec_115 of the internal_revenue_code the trust represents the facts as follows plr-134411-11 facts system established under state law became operational on date it is an actuarial reserve joint-contributory retirement_system for certain specified employees in profession within state membership in system is mandatory for those specified employees of state in profession system’s administration is the responsibility of the board_of trustees the trustees and the trust administrator selected by the trustees exert significant influence and control_over system trust fund was created and established pursuant to statute and adopted by system’s board_of trustees on date the board_of trustees of system serves as the board_of trustees of the trust the board has arranged to provide hospital and medical benefits for retired employees spouses and specified beneficiaries the trustees may maintain separate sub-trusts or accounts in trust fund for appropriate categories of eligible recipients and employers the board_of trustees amended trust agreement to provide that only contributions to trust from state political subdivisions of state and organizations whose income is excluded from gross_income under sec_115 will be credited to trust the purpose of trust fund is to prefund costs for hospital and medical benefits to retirees and eligible beneficiaries contributions to trust fund will be solely used to fund employer’s expenses for the post-retirement hospital and medical benefits the pre-funding is to satisfy the requirements of governmental accounting standards board gasb issued statement no which requires accounting for post-employment health care benefits on an actuarial basis rather than on a pay-as-you-go basis in no event will trust fund assets be distributed to or revert to any entity that is not state a political_subdivision of state or an entity whose income is excluded from gross under sec_115 other than payments to retired employees and specified beneficiaries and for administrative expenses of trust fund law and analysis sec_115 of the code provides that gross_income does not include income derived from any public_utility or the exercise of any essential government function and accruing to a state or any political_subdivision thereof in revrul_77_261 1977_2_cb_45 income from an investment fund established under a written declaration of trust by a state for the temporary investment of cash balances of the state and its participating political subdivisions was excludable from gross_income for federal_income_tax purposes under sec_115 the ruling indicated that the statutory exclusion was intended to extend not to the income of a state or municipality resulting from its own participation in activities but rather to the income of a corporation or other entity engaged in the operation of a public_utility or the performance plr-134411-11 of some governmental function that accrued to either a state or municipality the ruling points out that it may be assumed that congress did not desire in any way to restrict a state’s participation in enterprises that might be useful in carrying out projects that are desirable from the standpoint of a state government and which are within the ambit of a sovereign to properly conduct in addition pursuant to sec_6012 and the underlying regulations the investment fund being classified as a corporation that is subject_to taxation under subtitle a of the code was required to file a federal_income_tax return each year in revrul_90_74 1990_2_cb_34 the service determined that the income of an organization formed funded and operated by political subdivisions to pool various risks casualty public liability workers’ compensation and employees’ health is excludable from gross_income under sec_115 of the code in revrul_90_74 private interests neither materially participate in the organization nor benefit more than incidentally from the organization trust was organized pursuant to statute by system to enable the pre-funding of health benefits for retired employees their spouses and eligible dependents payment of such benefits constitutes the performance of essential government functions based upon revrul_90_74 and revrul_77_261 trust performs an essential_governmental_function within the meaning of sec_115 of the code trust income accrues to the state or political subdivisions of the state no private interests participate in or benefit from the operation of trust any distribution of funds in trust can only be used to pay benefits or revert to an entity which is the state a political_subdivision or an entity whose income is excluded from income_tax under sec_115 the benefit to the participating employees is incidental to the public benefit see revrul_90_74 based on the information and representations submitted by trust we hold that the income of trust is derived from the exercise of an essential_governmental_function and will accrue to a state or a political_subdivision thereof for purposes of sec_115 accordingly trust’s income is excludable from gross_income under sec_115 of the code 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 in particular no representation is made that contributions or premiums_paid on behalf of or benefits received by employees former employees retirees spouses dependents or others will be tax-free this ruling concerns only the federal tax treatment of trust's income and may not be cited or relied upon as to any matter relating to the taxation of accident or health contributions or benefits plr-134411-11 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 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling 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 sincerely sylvia f hunt assistant branch chief exempt_organizations branch office of division counsel associate chief_counsel tax exempt government entities enclosure copy for ' purposes


department of the treasury internal_revenue_service te_ge eo examinations commerce street mic dal dallas tx tax_exempt_and_government_entities_division number release date uil date aug person to contact identification_number telephone number in reply refer to last date for filing a petition with the tax_court certified mail - return receipt requested dear this is a final adverse determination_letter that your exempt status under sec_501 of the internal_revenue_code irc is revoked recognition of your exemption under sec_501 isrevoked effective november 20xx our adverse determination was made for the following reason s you have not established that you are organized and operated exclusively for an exempt_purpose or that you have been engaged primarily in activities that accomplish one or more exempt purposes within the meaning of sec_501 you have not established that no part of your net_earnings inure to the benefit of any private_shareholder_or_individual within the meaning of sec_501 contributions to your organization are not deductible under section revenue code of the internal you are required to file federal_income_tax returns on form_1120 these returns should be filed with the appropriate service_center for the year ending december 20xx and for all years thereafter processing of income_tax returns and assessment of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination in court you must initiate a suit for declaratory_judgment in the united_states tax_court the united_states claim court or the district_court of the united_states for the district of columbia before the day after the date this determination was mailed to you contact the clerk of the appropriate court for the rules for initiating suits for declaratory_judgment the taxpayer_advocate_service tas is an independent organization within the irs that can help protect your taxpayer rights we can offer you help if your tax problem is causing a hardship or you've tried but haven't been able to resolve your problem with the irs if you qualify for out assistance which is always free we will do everything possible to help you visit taxpayeradvocate irs gov or call we will notify the appropriate state officials of this action as required by sec_6104 of the internal_revenue_code ifyou have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours margaret von lienen director eo examinations enclosure publication i a irs department of the treasury internal_revenue_service tax_exempt_and_government_entities_division 25th st rm mail stop ogden ut date date taxpayer_identification_number form tax_year s ended person to contact id number contact numbers phone number toll free long distance fax number manager's name id number manager's contact number response due_date certified mail - return receipt requested dear why you are receiving this letter we propose to revoke your status as an organization described in sec_501 of the internal_revenue_code code enclosed is our report of examination explaining the proposed action what you need to do if you agree if you agree with our proposal please sign the enclosed form_6018 consent to proposed action - sec_7428 and return it to the contact person at the address listed above unless you have already provided us a signed form we'll issue a final revocation letter determining that you aren’t an organization described in sec_501 if we don’t hear from you if you don’t respond to this proposal within calendar days from the date of this letter we'll issue a final revocation letter failing to respond to this proposal will adversely impact your legal standing to seek a declaratory_judgment because you failed to exhaust your administrative remedies effect of revocation status if you receive a final revocation letter you'll be required to file federal_income_tax returns for the tax_year s shown above as well as for subsequent tax years letter catalog number 34809f what you need to do if you disagree with the proposed revocation if you disagree with our proposed revocation you may request a meeting or telephone conference with the supervisor of the irs contact identified in the heading of this letter you may also file a protest with the irs appeals_office by submitting a written request to the contact person at the address listed above within calendar days from the date of this letter the appeals_office is independent of the exempt_organizations division and resolves most disputes informally for your protest to be valid it must contain certain specific information including a statement of the facts the applicable law and arguments in support of your position for specific information needed for a valid protest please refer to page one of the enclosed publication how to appeal an irs decision on tax-exempt status and page six of the enclosed publication the examination process publication also includes information on your rights as a taxpayer and the irs collection process please note that fast track mediation referred to in publication generally doesn’t apply after we issue this letter you also may request that we refer this matter for technical_advice as explained in publication please contact the individual identified on the first page of this letter if you are considering requesting technical_advice if we issue a determination_letter to you based on a technical_advice_memorandum issued by the exempt_organizations rulings and agreements office no further irs administrative appeal will be available to you contacting the taxpayer_advocate office is a taxpayer right you have the right to contact the office_of_the_taxpayer_advocate their assistance isn't a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate can’t reverse a legally correct_tax determination or extend the time you have fixed by law to file a petition in a united_states court they can however see that a tax matter that hasn’t been resolved through normal channels gets prompt and proper handling you may call toll free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at internal_revenue_service office_of_the_taxpayer_advocate letter catalog number 34809f for additional information if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation sincerely paul a marmolejo acting director exempt_organizations examinations enclosures final report of examination form_6018 consent to proposed action publication publication form_4621 proposed tax change letter catalog number 34809f schedule number or exhibit form 886-a rev date explanations of items name of taxpayer december 20xx december 20xx tax identification_number year period ended final report april 20xx issues should facts be retroactively revoked to the date of creation you were incorporated under the nonprofit laws of the state of your articles of incorporation you stated you were formed for the following purposes on november 20xx per exclusively for charitable religious educational and scientific purposes including for such purposes the making of distributions to organizations that qualify as exempt_organizations under sec_501 of the internal_revenue_code who requires the corporation is formed to meet the substantial requirements of and other related medical needs now or in the future medical_care for his battle with related to his cancer need is defined as therapy transportation all medical costs not covered by insurance hospice home care and special requirements no officers or directors are being elected the trustee will be the father of the beneficiary of the organization no compensation will be paid to the trustee is the only recipient of the funds raised by this organization organization received funds through personal appeals made by parents and siblings to friends co-workers and employers and other known individuals and entities where relationships have been developed solely for the purpose to raise funds story will be told through conversation and brochures developed your organization received recognition of exemption on november 20xx under sec_501 of the internal_revenue_code your organization was selected for examination as a part of the service’s post determination compliance program law sec_501 of the code provides in relevant part exemption from federal_income_tax for corporations and any community chest fund or foundation organized and operated exclusively for religious charitable scientific literary or educational_purposes no part of the net_earnings inure to the benefit of any private_shareholder_or_individual form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date explanations of items tax identification_number year period ended name of taxpayer december 20xx december 20xx sec_1_501_c_3_-1 of the regulations provides that an organization is organized exclusively for one or more exempt purposes only if its articles of organization a limit the purposes of such organization to one or more exempt purposes and b do not expressly empower the organization engage otherwise than as an insubstantial part of its activities in activities that in themselves are not in furtherance of one or more exempt purposes sec_1_501_c_3_-1 of the regulations explains that an organization will be regarded as it engages primarily in activities operated exclusively for one or more exempt purposes only if which accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_1_501_c_3_-1 of regulations explains the prohibition against private_inurement as follows 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 individuals sec_1_501_c_3_-1 of the regulations states that an organization is not organized or operated exclusively for exempt purposes unless it serves a public rather than a private interest 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 in 325_us_844 the court held that the presence of a single non-exempt purpose if substantial in nature will destroy a claim for exemption regardless of the number or importance of truly exempt_purpose in wendy l parker rehabilitation foundation inc v commissioner tcmemo_1986_348 the tax_court upheld the service's position that a foundation formed to aid coma victims including a family_member of the founders was not entitled to recognition of exemption approximately of the organization's net_income was expected to be distributed to aid the family coma victim the court found that the family coma victim was a substantial beneficiary of the foundation's activities in easter house v united_states cl_ct citing sec_1_501_c_3_-1 of the regulations affd without opinion 846_f2d_78 fed cir that an organization is not operated exclusively for exempt purposes if it serves a private rather than a public interest form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit tax identification_number year period ended explanations of items form 886-a rev date name of taxpayer application of law december 20xx december 20xx sec_501 of the code sets forth two main tests for qualification for exempt status an organization must be both organized and operated exclusively for purposes described in sec_501 the articles of incorporation you provided states that you were formed for the benefit of a private individual as a result you have not satisfied the organizational_test required by sections sec_1_501_c_3_-1 of the regulations in addition you do not meet the requirements of sec_1_501_c_3_-1 of the regulations which requires you to operate exclusively in activities which accomplish one or more exempt purposes your financial records show that substantially_all your funds are paid out for the benefit and you are not of operated exclusively for one or more exempt purposes as set forth in sec_1 c - c and c -1 d ii of the regulations because your net_earnings inure in whole or in part to the benefit of private individuals thus you provide a substantial private benefit to your organization is similar to the organizations listed in revrul_67_367 and wendy l parker rehabilitation foundation inc because your organization is serving the private interests rather the public charitable interests as contemplated under sec_501 c of the code conclusion based on the facts presented above you have failed both the operational_test and the organizational_test required of c organizations your organizational document shows you your operations show that you were created for the substantial private benefit of have operated for the benefit of private individuals since formation rather than for public purposes therefore you have not established that you were operated exclusively for one or more exempt purposes your organization’s exempt status will be revoked from the effective date of exemption of november 20xx no chapter taxes will be assessed organization has signed the form_6018 agreeing to revocation of exemption effective november 20xx final report is being sent with form_4621 in previous correspondence of draft report dated january 20xx the form_4621 was not included in our report am sending out the final report with the form_4621 and asking for you to please resign the form_6018 thank you form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service


office_of_chief_counsel internal_revenue_service memorandum number release date cc corp postf-127191-08 uilc date date third party communication none date of communication not applicable to judith a cody team manager group lmsb communications technology media from richard k passales senior counsel cc corp subject sec_1059 legend parent ------------------------------------------------------------------- ----------------------------------------------------------- ---------------------------------------- sub ------------------------------------------------------------------- ----------------------------------------------------------- ------------------- redeeming corp ------------------------------------------------------------------- ----------------------------------------------------------- --------------------- a date date date -------------------------- ----------------------- -------------------------- -------------------- postf-127191-08 issue in the case of a sec_1059 transaction does a taxpayer reduce only the basis in the redeemed shares by the nontaxed_portion of a non pro_rata redemption distribution or also the basis in the nonredeemed shares conclusion in the case of a sec_1059 redemption to which sec_302 and sec_301 applies the basis of the redeemed shares is reduced but not below zero by the nontaxed_portion of the dividend to the extent the nontaxed_portion of the dividend exceeds basis in the redeemed shares basis in the nonredeemed shares is also reduced facts parent wholly owns sub a member of its consolidated_group sub owns a of the common_stock of redeeming corp pursuant to certain agreements entered into on date and date redeeming corp agreed to buy back sub’s common_stock at various times throughout the years covered by date date and date these redemptions of sub’s shares were not pro-rata as to all shareholders of the redeeming corp and did not qualify for sale_or_exchange treatment under sec_1 sec_302 because the redemptions were not pro_rata as to all redeeming corp shareholders parent applied sec_1059 parent treated the redemption proceeds as the receipt of a dividend under sec_301 and claimed a dividends received deduction under sec_243 the dividends received deduction was the same amount as the nontaxed_portion for purposes of sec_1059 on parent’s original return parent determined sub’s sec_1059 gain by reducing only the basis of the shares redeemed by the nontaxed_portion the amount of the dividends received deduction parent subsequently amended its return after concluding that the basis of sub’s non-redeemed shares was also available for reduction if the redemption was subject_to sec_1059 parent shifted the basis of the redeemed shares to its nonredeemed shares and then reduced the basis of the nonredeemed shares by the nontaxed_portion of the redemption distribution parent is seeking a refund because the shifting of the basis of the redeemed shares to the non-redeemed shares followed by the reduction of the basis by the nontaxed_portion did not result in any gain under sec_1059 unless otherwise noted all references to section are to the internal_revenue_code_of_1986 as amended and all references to are to treasury regulations postf-127191-08 law sec_1059 generally provides that if a corporation receives an extraordinary_dividend with respect to a share of stock and such corporation has not held the stock for more than years before the dividend_announcement_date the basis of the stock will be reduced but not below zero by the non-taxed portion if the non-taxed portion of such dividend exceeds such basis the excess shall be treated as gain from the sale_or_exchange of such stock for the taxable_year in which the extraordinary_dividend was received sec_1059 defines the nontaxed_portion of any dividend as the excess if any of the amount of the distribution over the taxable_portion of the distribution the taxable_portion of any dividend is the portion of such dividend which is included in gross_income reduced by the amount of any deduction allowable with respect to such dividend under sec_243 sec_244 or sec_245 sec_1059 provides that certain redemptions of stock are to be treated as extraordinary dividends sec_1059 provides for redemptions of stock which are not pro_rata as to all shareholders sec_1059 provides for redemptions which would not have been treated in whole or in part as a dividend if- i any options had not been taken into account under sec_318 or ii sec_304 had not applied the flush language to sec_1059 provides that any amount treated as a dividend with respect to such redemption is treated as an extraordinary_dividend to which paragraphs and of subsection a will apply without regard to the period the taxpayer held the stock in the case of a redemption described in clause iii only the basis in the stock redeemed will be taken into account under subsection a sec_302 provides that if a corporation redeems its stock within the meaning of sec_317 the redemption will be treated as an exchange if sec_302 applies for a redemption to be treated as an exchange under sec_302 the redemption must not be substantially_similar to a dividend the redemption is substantially disproportionate the redemption completely terminates a shareholder’s interest in the corporation or the redemption is in connection with a qualifying partial_liquidation sec_302 provides that if a corporation redeems its stock and sec_302 does not apply the redemption will be treated as a distribution_of_property to which sec_301 applies sec_301 provides that a distribution_of_property made by a corporation to its shareholder with respect to its stock is treated in the manner provided in sec_301 sec_301 provides that the amount of the distribution which is a postf-127191-08 dividend as defined in sec_316 is included in gross_income sec_301 provides that the portion of the distribution which is not a dividend is applied against and reduces the adjusted_basis of the stock sec_301 provides that amounts of the distribution in excess of the adjusted_basis are treated as gain from the sale_or_exchange of property sec_243 provides for a dividends received deduction upon the receipt by a corporation of the amount of a dividend received from a domestic_corporation the amount of the deduction is based on the percentages set forth in sec_243 and sec_243 analysis parent properly applied sec_302 and sec_1059 to the redeeming corp’s redemption of sub’s common_stock parent’s initial reduction of sub’s basis in only the redeemed shares by the non-taxed portion of the dividend was in error under sec_1059 a shareholder is required to reduce the basis of the nonredeemed shares to the extent the nontaxed_portion of the dividend exceeds the shareholder’s basis in the redeemed shares the conference_report accompanying the deficit_reduction_act_of_1984 which enacted sec_1059 makes this clear the relevant section provides finally the conferees wish to make clear their intention that if a redemption distribution is treated as a distribution under sec_301 rather than a sale_or_exchange of the redeemed shares under sec_302 the distribution is treated as made pro_rata with respect to the stock of the shareholder which is not redeemed emphasis added this language indicates that a redemption distribution is to be treated consistently with an actual sec_301 distribution which is made pro_rata with respect to all the shares of the class entitled to receive a distribution additionally the flush language of sec_1059 states that in the case of a redemption to which clause iii applies redemptions to which sec_318 or sec_304 apply only the basis in the stock redeemed may be taken into account under subsection a sec_1059 and the last sentence of the flush language were added in and is often referred to as the anti-seagram-dupont h_r rep no 98th cong 2d sess pincite see w taylor 435_f2d_1257 4th cir holding that sec_301 must be applied to reduce the basis of each stock with respect to which a pro_rata distribution was received pub_l_no sec_1011 111_stat_788 pub_l_no sec_1013 111_stat_788 postf-127191-08 rule when adding this additional language the conference_report makes clear that this limitation on basis recovery to only the shares redeemed is a departure from the general application of sec_1059 and a accordingly it is appropriate to read the limitation in the flush language as applicable only to transactions subject_to clause iii conclusion parent correctly reduced the basis of both the redeemed and the nonredeemed shares to the redemption transactions covered by date date and date in its amended_return parent may shift the basis of the redeemed stock to the nonredeemed stock pro_rata and then reduce the basis of the non redeemed shares by the nontaxed_portion of the distribution please call if you have any further questions h_r rep no 105th cong 1st sess pincite h_r rep no 105th cong 1st sess pincite


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc corp -plr-113983-00 date date number release date index number 368-dollar_figure legend acquiring target fund state x state y a dear this letter responds to your representative’s date request for rulings under sec_368 of the internal_revenue_code on behalf of the above-captioned taxpayers additional information was received on november and date the information submitted for consideration is summarized below acquiring is organized under the laws of state x and registered under the investment_company act of the act as a diversified open-end management investment_company acquiring has elected to be taxed as a regulated_investment_company ric under of the internal_revenue_code the code acquiring currently has outstanding four classes of voting common_stock acquiring’s present investment objective is to provide shareholders with a high level of current income and safety of principal by investing at least a of its total assets in adjustable rate securities consisting primarily of mortgage-backed and asset-backed securities issued or guaranteed by united_states government agencies however it has been proposed that acquiring’s investment objectives be amended to providing high current income and low net asset value fluctuation by investing primarily in united_states government securities target fund is organized under the laws of state y and registered under the investment_company act of the act as a diversified open-end management investment_company target fund has elected to be taxed as a regulated_investment_company ric under of the internal_revenue_code the code target fund currently has outstanding four classes of voting common_stock target fund’s investment objective is to provide shareholders with the highest possible current income consistent with the protection of capital by investing primarily in intermediate-term debt securities issued or guaranteed by the united_states government its agencies or instrumentalities acquiring and target fund have entered into an agreement and plan_of_reorganization for what are represented to be valid business reasons pursuant to the agreement the transaction consists of the following steps target fund will transfer all of its assets and liabilities to acquiring in exchange solely for an equal value of newly issued acquired voting common_stock target fund will distribute to its shareholders all of the acquiring stock received in the transaction target fund shareholders will receive shares of acquiring on a pro_rata basis including fractional shares target fund will liquidate and dissolve in accordance with the laws of state y and terminate its registration under the act after the transaction acquiring may sell up to of the assets received in the transaction to unrelated parties and will reinvest the proceeds consistent with its investment objectives and policies the following representations have been made in connection with the proposed transaction a the fair_market_value of the acquiring stock received by target fund shareholders will be approximately equal to the fair_market_value of the target fund stock surrendered in the exchange b there is no plan or intention by target fund shareholders who own percent or more of target fund’s stock and to the best of the knowledge of the management of target fund there is no plan or intention on the part of any other shareholders of target fund to sell exchange or otherwise dispose_of a number of shares of acquiring stock received in the reorganization that would reduce such target fund shareholders’ ownership of acquiring stock to a number of shares having a value as of the date of the reorganization of less than percent of the value of all of the formerly outstanding_stock of the target fund as of the same date for purposes of this representation shares of target fund stock exchanged for cash or other_property or surrendered by dissenters will be treated as outstanding_stock of target fund on the date of the reorganization moreover shares of target fund stock and shares of acquiring stock held by target fund shareholders and otherwise sold redeemed or disposed of prior to or subsequent to the reorganization will be considered in making this representation c acquiring will acquire at least percent of the fair_market_value of the net assets and at least percent of the fair_market_value of the gross assets held by target fund immediately prior to the reorganization for purposes of this representation amounts paid_by target fund to dissenters amounts used by target fund to pay its reorganization expenses amounts paid_by target fund to shareholders who receive cash or other_property and all redemptions and distributions except for redemptions in the ordinary course of target fund’s business as an open-end investment_company as required by sec_22 of the act pursuant to a demand of a shareholder and regular normal dividends made by target fund immediately preceding the transfer will be included as assets of target fund held immediately prior to the transaction d acquiring has no plan or intention to reacquire any of its stock issued in the transaction except in connection with its legal obligations under sec_22 of the act e acquiring has no plan or intention to sell or otherwise dispose_of any of the assets of target fund acquired in the transaction except for dispositions made in the ordinary course of business f target fund will distribute to its shareholders the stock of acquiring received pursuant to the plan_of_reorganization g the liabilities of target fund assumed by acquiring and any liabilities to which the transferred assets of target fund are subject were incurred by target fund in the ordinary course of its business h following the reorganization acquiring will continue the historic_business of target fund or use a significant portion of target fund’s historic_business_assets in the continuing business i target fund acquiring and the shareholders of target fund will pay their respective expenses if any incurred in connection with the reorganization j there is no intercorporate indebtedness existing between target fund and acquiring that was issued acquired or will be settled at a discount k target fund and acquiring each qualify as regulated_investment_companies as defined in sec_368 of the code l the fair_market_value of the assets of target fund transferred to acquiring will equal or exceed the sum of the liabilities assumed by acquiring plus the amount of liabilities if any to which the transferred assets are subject m acquiring does not own directly or indirectly nor has it owned during the past five years directly or indirectly any stock of target fund n target fund is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 o target fund and acquiring have elected to be taxed as rics under sec_851 and for all of their taxable periods including the last short taxable_period ending on the date of reorganization for target fund have qualified for the special tax treatment afforded rics under the code after the reorganization acquiring intends to continue to so qualify p there is no plan or intention for acquiring the issuing_corporation as defined in sec_1_368-1 or any person related as defined in sec_1_368-1 to acquiring to acquire during the five year period beginning on the date of the proposed transaction with consideration other than acquiring stock acquiring stock furnished in exchange for a proprietary interest in a target fund in the proposed transaction either directly or through any transaction agreement or arrangement with any other person q during the five year period ending on the date of the proposed transaction i neither acquiring nor any person related as defined in sec_1_368-1 to acquiring will have acquired target fund stock cid with consideration other than acquiring stock ii neither target fund nor any person related as defined in sec_1_368-1 determined without regard to sec_1_368-1 to target fund will have acquired such target fund’s stock with consideration other than acquiring stock or target fund’s stock except for stock redeemed in the ordinary course of target’s business as an open-end investment_company under sec_22 of the act and iii no distributions will have been made with respect to target fund’s stock other than ordinary normal regular dividend distributions made pursuant to target’s historic dividend paying practice either directly or through any transaction agreement or arrangement with any other person except for a cash paid to dissenters and b distributions described in sec_852 and sec_4982 of the code r the aggregate value of the acquisitions redemptions and distributions discussed in paragraphs q and r above will not exceed percent of the value without giving effect to the acquisitions redemptions and distributions of the proprietary interest in target fund on the effective date of the proposed transaction s the four classes of common voting_stock of acquiring are substantially_similar to the corresponding four classes of common voting_stock of target fund t pursuant to the reorganization target fund shareholders will receive fractional shares of acquiring in exchange for their fractional shares of target fund no cash will be distributed in lieu of fractional shares based solely upon the information and representations set forth above we hold as follows the acquisition by acquiring of substantially_all of the assets of target fund solely for acquiring voting_stock and the assumption by acquiring of the liabilities of target fund followed by the distribution of acquiring voting_stock by target fund as described above will qualify as a reorganization within the meaning of sec_368 and sec_368 of the code substantially_all means at least percent of the fair_market_value of the net assets and at least percent of the fair_market_value of the gross assets of each target fund acquiring and target fund will each be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by target fund upon the transfer of substantially_all its assets to acquiring solely in exchange for acquiring voting common_stock and the assumption by acquiring of the liabilities of target fund sec_357 and sec_361 no gain_or_loss will be recognized by target fund upon the distribution of such acquiring stock to target fund shareholders sec_361 acquiring will not recognize any gain_or_loss on the receipt of the assets of target fund in exchange for voting shares of acquiring sec_1032 the basis of target fund assets in the hands of acquiring will be the same as the basis of those assets in the hands of target fund immediately prior to the reorganization sec_362 acquiring’s holding_period for target fund’s assets acquired will include the period during which such assets were held by target fund sec_1223 no gain_or_loss will be recognized by the shareholders of target fund upon the receipt of voting common_stock of acquiring solely in exchange for their target fund shares as described above sec_354 the basis of the acquiring shares received by target fund shareholders will be the same as the basis of the target fund shares surrendered in exchange therefor sec_358 the holding_period of the acquiring shares received by target fund shareholders in exchange for their target fund shares will include the period during which the exchanged target fund shares were held provided that the target fund shares are held as a capital_asset in the hands of the target fund shareholders on the date of the exchange sec_1223 pursuant to sec_381 of the code and sec_1_381_a_-1 of the income_tax regulations the tax_year of target fund will end on the date of the transfer acquiring will succeed to and take into account the items of target described in sec_381 of the code subject_to the provisions and limitations specified in sec_381 sec_382 sec_383 and sec_384 of the code and the regulations thereunder no opinion is expressed about the federal_income_tax treatment of the proposed transaction under other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the above rulings 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 specifically no opinion was requested and none is expressed about whether acquiring or each target fund qualify as rics that are taxable under subchapter_m part i of the code this ruling is directed only to the taxpayer s 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 a copy of this letter must be attached to any income_tax return to which it is relevant sincerely associate chief_counsel corporate by lewis k brickates assistant to chief branch