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 -------------- -------------- -------------- tax years identification_number form required to be filed employer_identification_number contact person ------------------ contact number ------------------ -------------------------------- ----------------------- number release date date --------------------- ----------------- ----------------------- uniform issue list legend a --------------------------- b ------------------------------------------------ dear ------------- this is our final_determination that you do not qualify for exemption from federal_income_tax as an organization described in sec_501 recently we sent you a letter in response to your application that proposed an adverse determination the letter explained the facts law and rationale and gave you days to file a protest since we did not receive a protest within the requisite days the proposed adverse determination is now final because you do not qualify for exemption as an organization described in code sec_501 donors may not deduct contributions to you under code sec_170 you must file federal_income_tax returns on the form and for the years listed above within days of this letter unless you request an extension of time to file file the returns in accordance with their instructions and do not send them to this office failure_to_file the returns timely may result in a penalty we will make this letter and our proposed adverse determination_letter available for public inspection under code sec_6110 after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in notice if you agree with our deletions you do not need to take any further action in accordance with code sec_6104 we will notify the appropriate state officials of our determination by sending them a copy of this final letter and the proposed adverse letter you should contact your state officials if you have any questions about how this determination may affect your state responsibilities and requirements if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter if you have any questions about your federal_income_tax status and responsibilities please contact irs customer service pincite-829-1040 or the irs customer service number for businesses the irs customer service number for people with hearing impairments is enclosure notice redacted proposed adverse determination_letter redacted final adverse determination_letter lois g lerner director exempt_organizations rulings agreements sincerely 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 department of the treasury internal_revenue_service washington d c date date --------------------------- -------------------------- -------------------------- contact person --------------- identification_number -------------- contact number -------------------- fax number -------------------- employer_identification_number --------------- uniform issue list legend a ---------------------------------- b ---------------------------------------------------------------------- ---------------------------------------------------------------------- dear ------------ we have considered your application_for recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code as an organization described in sec_501 of the code based on the information submitted we have concluded that you do not qualify for exemption under that section the basis for our conclusion is set forth below your application form_1023 and attachments state that you were formed by a declaration of trust pursuant to the laws of the state in which you are located your application states that you were formed to provide financial support to the organizations identified in your trust document the organizations are exempt from federal_income_tax under sec_501 of the code and are recognized as publicly supported organizations described in sec_509 or you are requesting classification as an organization described in sec_509 you represent that you meet the requirements of sec_509 based on your relationship with a you are funded by contributions from your founders a long with interest and investment_income you are governed by five trustees your trustees were appointed by your founders in the future your founders will appoint two of your trustees and representatives of a will appoint two of your trustees the fifth trustee will be appointed by your founders and the trustees appointed by a your application states that your founders contributed dollar_figure----------- to you in dollar_figure--------- in and dollar_figure--------- in pursuant to the terms of a_trust deed note entered into five and one-half months after your creation you loaned dollar_figure----------- to your founders in the form of a mortgage on their home this loan amounted to approximately ------ of the total contributions from your founders during on page of form_1023 you indicate that you were formed to support and benefit a in you distributed no funds to a in and you distributed dollar_figure--------and dollar_figure-- --------- respectively to a your total distributions to a amount to less than ---- of the total contributions from your founders during the year sec_2001 - in the funds you distributed to a were earmarked for furnishing the playground at a’s facility you did not respond to our request for the total budget of a and the portion of the budget dedicated to the playground these figures are necessary to determine whether you met the integral part test with respect to a in in the funds you furnished to a were not earmarked and were placed into a’s general funds you did not respond to our request for the total budget of a information needed to determine whether you met the integral part test in in you distributed dollar_figure----------- to b you made additional contributions of dollar_figure--------- and dollar_figure--------- to b in the years and respectively these contributions were made to satisfy the personal financial obligations of your founders with respect to tithes owed to b you did not respond to our request for information regarding whether you feel these distributions serve as a basis for determining that you meet the integral part test with respect to b c law sec_501 of the code provides in part that organizations described in sec_501 are exempt from federal_income_tax sec_501 describes in part an organization that is organized and operated exclusively for religious charitable or educational_purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 of the income_tax regulations provides that in order for an organization to be exempt under sec_501 of the code it must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational or operational_test it is not exempt sec_1_501_c_3_-1 of the regulations provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more such exempt purposes specified in sec_501 of the code 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 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 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_a_-1 defines the words private_shareholder_or_individual in sec_501 to refer to persons having a personal and private interest in the activities of the organization sec_1_501_c_3_-1 of the regulations provides that an organization must be organized and operated to serve a public rather than a private interest and specifically 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 revrul_67_5 1967_1_cb_123 the service found that an organization controlled by the creator’s family was operated to enable the creator and his family to engage in financial activities that were beneficial to them but detrimental to the organization the organization owned common_stock that paid no dividends of a corporation controlled by the organization’s creator and his family the service held that the foundation was operated for a substantial non-exempt purpose and served the private interest of the creator and therefore was not entitled to exemption under sec_501 of the code the not more than an insubstantial part of its activities standard of sec_1 c - c of the regulations can be understood by reference to better business bureau v united_states 316_us_279 which held that an organization which engaged in some educational activity but pursued nonprofit goals outside the scope of the statute was not exempt under sec_501 of the code the court stated that an organization is not operated exclusively for charitable purposes if it has a single noncharitable purpose that is substantial in nature this is true regardless of the number or importance of the organization's charitable purposes thus the operational_test standard prohibiting a substantial nonexempt purpose is broad enough to include inurement private benefit and operations which further nonprofit goals outside the scope of sec_501 in best lock corporation v commissioner 31_tc_620 the court upheld the denial of recognition of sec_501 status of an organization that loaned funds to members of the founder’s family even though the loans were repaid the court determined that loans to family members and unsecured loans to friends of the founder and his family promoted private rather than charitable purposes in 412_f2d_1197 ct_cl and in 71_tc_102 the courts found that the very existence of a private source of loan credit from an organization’s earnings may itself amount to inurement rationale your founders serve as two of your five trustees your founders and the other two trustees appoint the fifth trustee your founders have the power to veto any recommendations regarding the selection of your fifth trustee your founders through their power to veto any candidate to nominated to serve as the fifth trustee indirectly control your assets and operations your founders’ indirect control_over your operations caused you to act as a mortgagee with respect your founders you provided no data to evidence that the interest rate charged was at fair-market value no financial information was provided evidencing that your founders have the financial resources to make the monthly mortgage payments further you are used by your founders to make distributions to satisfy their personal responsibility for the payment of tithes to b see revrul_67_5 supra regarding an organization controlled by the creator’s family that was operated to enable the creator and his family to engage in financial activities that were beneficial to them but detrimental to the organization in the four years that you have operated ------- of your assets were used to provide a loan in the form of a mortgage to your founders’ and to satisfy their financial obligations to b thus you do not satisfy the not more than an insubstantial part of its activities standard of sec_1_501_c_3_-1 of the regulations you have a noncharitable purpose that is substantial in nature further less than ----- of your assets were used to further your charitable purpose supporting a see better business bureau v united_states supra your founders indirectly control your operations by virtue of their influence over two of your trustees who are their personal friends and their voting power with respect to appointment of your fifth trustee you serve the private interest of your founders through your provision of a loan to them and the payment of tithes to satisfy their financial obligations to b see founding church of scientology v united_states supra and church in boston v commissioner supra where the courts found that the very existence of a private source of loan credit from an organization’s earnings may itself amount to inurement see also best lock corporation v commissioner supra in which the court determined that the fact that a loan has been repaid is not relevant you made a loan to your founders and satisfied your founders’ financial obligations by making payments on their behalf through their voting power your founders can block any decision regarding the appointment of your fifth trustee thus your founders have indirect control of your assets and operations you have failed to show that your founders qualified for the loan that the rate of interest was at fair-market value and whether your founders have made timely payments regarding the loan as indicated in best lock corporation supra loans to family members and to other entities might be considered as being made for the personal purposes of the founder further ------ of your total assets were use to benefit your founders thus your primary purpose results in private benefit and inurement to your founders accordingly you serve a private rather than public purpose an organization must establish that it operates exclusively for charitable purposes and thus will not qualify for exemption under sec_501 if it has a single non- charitable purpose that is substantial in nature this is true regardless of the number or importance of the organization's charitable purposes an organization is not operated exclusively for exempt purposes if its net_earnings inure in whole or in part to the benefit of private individuals based on the information provided in your form_1023 and supporting documentation we conclude that you are not operated exclusively for purposes described in sec_501 of the code you have not shown that your assets do not inure to any private individual in fact your application demonstrates you operate for the benefit of your founders sec_509 law sec_509 of the code defines the term private_foundation as an organization described in sec_501 other than organizations described in sec_509 or sec_509 provides that the term private_foundation does not include an organization that a is organized and operated exclusively for the benefit of to perform the function of or to carry out the purposes of one or more organizations described in sec_509 or b is operated supervised or controlled by or in connection with one or more organizations described in sec_509 or c is not be controlled directly or indirectly by one or more persons who would be disqualified persons as defined in sec_4946 if the organization were a private_foundation other than foundation managers as defined in sec_4946 and organizations described in sec_509 and sec_1_509_a_-4 of the regulations provides that an organization is organized exclusively for one or more purposes specified in sec_509 of the code only if its articles of organizations i limit the purposes of such organization to o ne or more of the purposes set forth in sec_509 ii do not expressly empower the organization to engage in activities which are not in furtherance of purposes set forth in sec_509 iii state the specified publicly supported organizations and iv do not expressly empower the organization to operate to support or benefit any organization other than the specified publicly supported organizations stated in its articles of organization sec_1_509_a_-4 of the regulations provides that a supporting_organization must engage solely in activities that support or benefit the specified publicly supported organizations these activities may include making payments to or for_the_use_of providing services or facilities for individual members of a charitable_class benefited by the publicly supported organizations sec_1_509_a_-4 of the regulations provides that an organization must be operated supervised or controlled by or in connection with one or more publicly supported organizations the requirements for operated in connection type relationship are set forth in sec_1_509_a_-4 sec_1_509_a_-4 provides that an organization must meet both the responsiveness test of sec_1_509_a_-4 and the integral part test of sec_1_509_a_-4 to be operated in connection with one or more specified publicly supported organizations sec_1_509_a_-4 of the regulations provides that the integral part test is considered to have been satisfied if the supporting_organization maintains a significant involvement in the operations of one or more publicly supported organizations and the publicly supported organizations are in turn dependent upon the supporting_organization for the type of support which it provides in order to meet the integral part test either sec_1 i ii or iii must be satisfied sec_1_509_a_-4 of the regulations provides that the activities engaged in for or on behalf of the publicly supported organizations must be activities to perform the functions of or to carry out the purposes of such organizations and but for the involvement of the supporting_organization would normally be engaged in by the publicly supported organizations themselves sec_1_509_a_-4 of the regulations provides that a supporting_organization coming under the operated in connection with status must make payments of substantially_all of its income to or for_the_use_of one or more publicly supported organizations and the amount of support received by one or more of such publicly supported organizations must be sufficient to assure the attentiveness of such organizations to the operations of the supporting organizations in addition a substantial amount of the total support of the supporting_organization must go to those publicly supported organizations that meet the attentiveness requirement of this subdivision with respect to such supporting_organization except as provided in b of this subdivision the amount of support received by a publicly_supported_organization must represent a sufficient part of the organization’s total support so as to assure such attentiveness sec_1_509_a_-4 of the regulations provides that eve n where the amount of support received by a publicly supported beneficiary organization does not represent a sufficient part of the beneficiary’s total support the amount of support received from a supporting_organization may be sufficient to meet the requirements of this subdivision if it can be demonstrated that in order to avoid the interruption of the carrying on of a particular function or activity the beneficiary organization will be sufficiently attentive to the operations of the supporting_organization this may be the case where either the supporting_organization or the beneficiary organization earmarks support received from the supporting_organization for a particular program or activity even if such program or activity is not the beneficiary organization’s primary program or activity so long as such program or activity is a substantial one sec_1_509_a_-4 of the regulations provides that an organization will be considered controlled for purposes of sec_509 if the disqua lified persons by aggregating their votes or positions of authority may require such organization to perform any act which significantly affects its operations or may prevent such organization from performing such act this includes but is not limited to the right of a substantial_contributor or his spouse to designate annually the recipients from among the publicly supported organizations of the income attributable to his contribution to the supporting_organization thus if the governing body of a foundation is composed of five trustees none of whom has veto power over the actions of the foundation and no more than two trustees are at any time disqualified persons such foundation will not be considered controlled directly or indirectly by one o r more disqualified persons by reason of this fact alone however all pertinent facts and circumstances including the nature diversity and income yield of an organization’s holdings the length of time particular stocks securities or other assets are retained and its manner of exercising its voting_right with respect to stocks in which members of the governing body also have some interest will be taken into consideration in determining whether a disqualified_person does in fact indirectly control an organization revrul_80_207 1980_2_cb_193 held that an organization with a 4-person-board consisting of a substantial_contributor and two employees of a corporation owned over percent by the substantial_contributor was indirectly controlled b y disqualified persons and was not a supporting_organization under sec_509 of the code the service stated that because one of the organization’s directors was a disqualified_person and neither the disqualified_person nor any other director had a veto power over the organization’s actions the organization was not directly controlled by a disqualified_person under sec_1_509_a_-4 of the regulations however in determining whether an organization is indirectly controlled by one or more disqualified persons one circumstance to be considered is whether a disqualified_person is in a position to influence the decisions of members of the organization’s governing body who are not themselves disqualified persons rationale operational_test relationship_test in each year of your existence you expended substantial funds to satisfy your founders’ need for a loan and the payment of their financial obligations thus you do not meet the operational_test since you do not engage solely in activities that support or benefit a further in although you had dollar_figure----------- in assets you made no distributions to a the organization you claim to support accordingly you fail to meet the operational_test see sec_1_509_a_-4 of the regulations you claim to satisfy the relationship_test because you are operated in connection with a in order to be described as an operated in connection with sec_509 an organization must satisfy the a responsiveness test and integral part test although requested you failed to furnish financial information needed to determine whether a is dependent upon you for the support you provide and whether the support you provide to a is sufficient to insure the attentiveness of a to your operations accordingly you have not established that you satisfy the integral part test thus you do not satisfy the requirements of sec_1_509_a_-4 with respect to the operated in control test connection with relationship your founders are substantial contributors and disqualified persons as defined by sec_4946 of the code your founders serve as two of your five trustees with respect to the selection of your fifth trustee your founders have the power to veto any nominations made your founders’ veto power with respect to your fifth trustee indicates that you are indirectly controlled by disqualified persons within the meaning of sec_509 of the code based on the following analysis of the information provided in your form_1023 and supporting documentation we conclude that you are not a supporting_organization under sec_509 you fail the requirements for supporting_organization status for a number of reasons you cannot be classified as a supporting_organization because we have determined you are not an organization described in sec_501 even if we had determined that you are described in sec_501 you have not established that you meet the requirements of sec_509 you have not established that you are organized and operated exclusively for the benefit of specified publicly supported organizations you have failed to establish that you have a sufficient relationship with specified publicly supported organizations fina lly you have not established that disqualified persons do not control you conclusion based on our analysis of your activities and in light of the applicable law we have determined you do not qualify for tax exemption as an organization described in sec_501 of the code even if we determined that you were described in sec_501 you would be a private_foundation and not a supporting_organization under sec_509 of the code you must file federal_income_tax returns contributions to you are not deductible under sec_170 of the code you have the right to protest this ruling if you believe it is incorrect to protest you should submit a statement of your views to this office with a full explanation of your reasoning this statement signed by one of your officers must be submitted within days from the date of this letter you also have a right to a conference in this office after your statement is submitted you must request the conference if you want one when you file your protest statement if you are to be represented by someone who is not one of your officers that person will need to file a proper power_of_attorney and otherwise qualify under our conference and practices requirements if you do not protest this ruling in a timely manner it will be considered by the internal_revenue_service as a failure to exhaust available administrative remedies sec_7428 of the code provides in part that a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the united_states court of federal claims or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted administrative remedies available to it within the internal_revenue_service if we do not hear from you within days this ruling will become final and a copy will be forwarded to the ohio tax exempt and government entities te_ge office thereafter any questions about your federal_income_tax status should be directed to that office either by calling a toll free number or sending correspondence to internal_revenue_service te_ge customer service p o box cincinnati oh the appropriate state officials will be notified of this action in accordance with code sec_6104 in the event this ruling becomes final it will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice if you decide to protest this ruling your protest statement should be sent to the address shown below if it is convenient you may fax your reply using the fax number shown in the heading of this letter if you do not intend to protest this ruling and if you agree with our proposed deletions as shown in the letter attached to notice you do not need to take any further action if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter internal_revenue_service te ge------------------------------ constitution ave n w washington d c lois g lerner director exempt_organizations rulings agreements sincerely enclosure notice


t c memo united_states tax_court dane marie smiley and richard dean smiley petitioners vv commissioner of internal revenue respondent docket no filed date dané marie smiley and richard dean smiley pro_se reid m huey for respondent memorandum opinion powell special_trial_judge respondent determined deficiencies in petitioners' and federal income taxes and accuracy-related_penalties under sec_6662' as follows penalty year deficiency sec_6662 a dollar_figure sec_771 big_number unless otherwise indicated section references are to the internal_revenue_code in effect for the years in issue - - the issues are whether petitioners are entitled to deductions for alleged expenses_incurred in the construction of a home for the mother of petitioner richard dean smiley petitioner and whether petitioners are liable for the sec_6662 penalties the facts may be summarized as follows petitioners resided in blaine minnesota at the time the petition was filed before_1984 petitioner had manufactured bedroom furniture in petitioner sold the business and began constructing single unit houses in petitioner quit that business and became a house husband in petitioner entered into an agreement with his mother whereby he agreed to construct a house for her in detroit lakes minnesota according to petitioner his mother owned a lot in detroit lakes that she gquit-claimed to him on date petitioner and his mother entered into a written contract whereby petitioner sold the lot and a house built new to her for dollar_figure the closing date specified was date petitioner commenced construction on the house in date sometime in date the partially built house was severely damaged ina storm petitioner allegedly had insurance on the house the insurance_company however has not paid for the storm damage apparently petitioner continued to work on the house on date petitioner and his mother executed another document called a bid whereby petitioner estimated that the storm damage would cost dollar_figure to repair petitioner has no workups either of the original cost of constructing the house or of the estimated repair expenses petitioner did not have any documentation for the subcontracting work according to petitioner he estimated the following expenses materials dollar_figure employee wages dollar_figure and travel meals_and_lodging dollar_figure petitioner is not licensed as a contractor plumber or electrician it is unclear when the house was completed or if in fact the property had been conveyed to him when petitioner reconveyed the property to his mother petitioner testified that over the years to his mother paid him dollar_figure but he did not know how much or when the payments were made petitioners did not report any of these payments on their federal_income_tax returns for the years in issue on date petitioner filed a mechanic's lien against the property in the amount of dollar_figure petitioner allegedly drove from his home to detroit lakes each week on schedules c filed with the and returns petitioners reported no income and claimed the following expenses car truck expenses dollar_figure dollar_figure legal expenses big_number big_number office expenses repairs maintenance --q- big_number travel big_number big_number meals entertainment big_number big_number utilities -0- other expenses big_number big_number big_number ‘for and petitioner claimed total meal expenses of dollar_figure and dollar_figure respectively and reduced those figures by percent see sec_274 with regard to the car and truck expenses petitioner allegedly drove a chrysler automobile to and from the construction site he computed the mileage between his home and detroit lakes and multiplied that figure by the number of trips he made each year he then added the mileage he estimated was incurred while working in detroit lakes petitioner did not maintain contemporaneous logs or records of his mileage the meal expenses were also estimated and petitioner has no records of these expenses the travel_expenses were presumably for lodging while in detroit lakes petitioner has no receipts canceled checks or other documentation of these expenses the legal expenses allegedly were incurred in seeking advice concerning petitioner's suit against the insurance_company to recover damages from the date storm petitioner has no documentation of these expenses and claims that the attorneys with whom he consulted would not provide corroborating evidence - - with respect to the utility expenses petitioner produced telephone bills in the name of his mother helen smiley for telephone service at detroit lakes from february through date there is no information as to who paid these expenses or when they were paid there is no documentation concerning the other expenses claimed respondent disallowed the expenses for lack of substantiation and also contends that the claimed expenses were not incurred in an activity entered into for profit discussion sec_162 allows deductions for ordinary and necessary expenses paid_or_incurred in carrying_on_a_trade_or_business under sec_274 however a taxpayer may not deduct the use of a passenger_vehicle and lodging and meal expenses unless he or she substantiates the amount of the expense the time and place of the travel and the business_purpose of the travel with adequate_records or sufficient evidence corroborating his or her statement see miner v commissioner tcmemo_1999_358 generally to meet the 'adequate records' requirements of sec_274 a taxpayer shall maintain an account book diary log statement of expense trip sheets or similar record sec_1_274-5t temporary income_tax regs fed reg -- - date petitioner did not maintain any such records’ and he has not otherwise properly substantiated the expenses claimed for car and truck travel and meals with regard to the other schedule c expenses claimed there is also no substantiation as far as the explanation that the attorneys he consulted would not provide receipts etc it is unpersuasive similarly there are no substantiating receipts canceled checks etc with regard to the other expenses claimed respondent's determinations are sustained it also should be noted that generally expenses associated with the building or improvement of a house must be capitalized if incurred in a profit-seeking activity see 795_f2d_832 9th cir affg tcmemo_1984_475 w c a n miller dev co v commissioner c see also sec_263a these expenses if in fact they were incurred by petitioner were directly attributable to the construction of the house since the sale of the house to petitioner's mother did not occur during either of the years before the court even if the claimed expenses had been substantiated they would not be allowable as ordinary and petitioner provided a so-called mileage log that he constructed just before the trial allegedly based on receipts that he did not produce this does not meet the adequate_records requirement - necessary expenses of a trade_or_business during the years in issue in light of the above we find it unnecessary to explore whether or not petitioner's home building activity was entered into for profit we note however that there is a strong suggestion that petitioner's primary motivation seems to have been the building of a house for his mother rather than making a profit respondent also determined that petitioners are liable for accuracy-related_penalties under sec_6662 for and for negligence sec_6662 provides that there shall be added to the tax an amount equal to percent of the portion of the underpayment to which this section applies sec_6662 applies to the portion of any underpayment which is attributable to inter alia negligence or disregard of rules or regulations sec_6662 negligence includes any failure to make a reasonable attempt to comply with the provisions of the internal_revenue_code and the term 'disregard' includes any careless reckless or intentional disregard sec_6662 petitioners argue that they employed a qualified_tax return preparer and any errors were due to the return preparer in some circumstances reliance upon a qualified return preparer may alleviate a taxpayer's liability for penalties see 91_tc_396 affd without - - published opinion 940_f2d_1534 9th cir sec_1 b income_tax regs the taxpayer must advise the preparer of all facts that are relevant to the tax treatment of an item see sec_1_6664-4 income_tax regs see also ellwest stereo theatres inc v commissioner tcmemo_1995_610 the advice must not be based upon unreasonable factual or legal assumptions see sec_1_6664-4 income_tax regs there is nothing in this record indicating that petitioners advised the return preparer of all the facts and circumstances surrounding the expenses claimed moreover petitioner's recordkeeping was nonexistent we sustain respondent's determinations as to the penalties under sec_6662 decision will be entered for respondent


e e sywy9y0-0 internal_revenue_service department of the treasury washington dc contact person’ telephone number in reference to date orp op e- t- legend b c d dear sir or madam this is in response to your letter dated date in which you requested certain rulings with respect to the proposed transfer of all of the net assets of and e to c d b b is exempt under sec_501 of the code and is classified as a private_foundation under sec_509 c is exempt under sec_501 of the code and is classified as a private_foundation under sec_509 d is exempt under section s01 c of the code and is classified as a private_foundation under sec_509 e is exempt under sec_501 of the code and is classified as a private_foundation under section s09 a - c d and e b proposes to transfer its assets to b management administration achievement of owing to divergent charitable interests and investment philosophy of the directors of charitable goals of consistent with the interest of b's founders to have their children involved in charitable activities the charitable purposes of b would be best achieved by the aforementioned proposal proportion charitable organizations d and e are organized to make grants to other b has been increasingly difficult b's assets will be distributed to d and e the c c in equal of f b represents that the transfer to and e will be after without consideration and will not be from current income the transfer b will voluntarily terminate its private_foundation_status and will notify the service of said action to exist after the termination of b will cease its private_foundation_status d c b has not notified the service that it intends to terminate its private_foundation_status nor has b ever received notification that its status as a private_foundation has been terminated acts or failures to act or a willful and flagrant act or failure to act giving rise to a termination pursuant to sec_507 of the code furthermore b has not committed willful repeated sec_507 of the code which provides for the voluntary that except for transfers described in section and involuntary termination of private_foundation_status provides in part b an organization's private_foundation_status will be terminated only if its intent to terminate or repeated acts or failure to act giving rise to liability for tax under chapter or failures to act there has been either wiliful the organization notifies the service of or a willful and flagrant act sec_507 of the code provides that when a private_foundation transfers assets to another private_foundation pursuant to any liquidation merger redemption recapitalization or other adjustment organization or reorganization the transferee foundation shall not be treated as a new organization sec_1_507-1 of the income_tax regulations provides that neither a transfer of all of the assets of foundation nor a significant disposition of assets as defined in sec_1_507-3 by a private_foundation whether or not any portion of such significant disposition of assets is made to another private_foundation shall be deemed to result ina termination of a elects to terminate pursuant to sec_507 a of the code unless the transferor private_foundation the transferor private_foundation under section is applicable a private or section sec_1_507-3 of the regulations provides that except as provided in sec_1_507-3 which only relates to b transfers where all net assets are transferred to one or more controlled private_foundations a private_foundation is required to meet the distribution_requirements of sec_4942 of the code for any taxable_year in which it makes a sec_507 b transfer of net assets to another or part of all its aif private_foundation satisfaction of the requirements to the extent the amount transferred meets the requirements of sec_4942 such transfer shall itself be counted toward sec_1_507-3 of the regulations provides that since a other than an organization described section transfer of assets pursuant to any liquidation merger redemption recapitalization or other adjustment organization or reorganization to an organization not described in sec_501 a sec_4945 be in sec_501 sec_509 under sec_4947 or treated as described in sec_501 c in order for such transfer of assets not to other than an organization described in a taxable_expenditure it must be a taxable_expenditure under or sec_4947 to an organization described is sec_4940 of the code imposes a tax on the net_investment_income of private_foundations sec_4941 of the code imposes a tax on each act of self-dealing between a disqualified_person and a private_foundation amount_involved with respect to the act of self-dealing for each year or part thereof in the taxable_period the rate_of_tax shall be equal to percent of the sec_4945 of the code imposes a tax on the foundation on of the code provides that for purposes of this each taxable_expenditure as defined in sec_4945 sec_4945 d section the term taxable_expenditure means any amount_paid or incurred by a private_foundation as unless a or of sec_509 foundation as defined in sec_4940 or foundation exercises expenditure_responsibility with respect to such grant in accordance with subsection h such organization is described in paragraph a grant to an organization an exempt operating the private or is b sec_4945 of the code provides that expenditure_responsibility referred to private_foundation is responsible to exert all reasonable efforts and to establish adequate procedures to see that the grant is spent solely for the purpose for which made and detailed reports with respect to such expenditures and to make full and detailed reports to the secretary in subsection d means that the to obtain full sec_53_4945-5 i of the foundation and similar excise_taxes regulations provides in part grant to an organization with respect to which expenditure_responsibility must be exercised under this section a private_foundation should conduct a limited inquiry concerning the that before making a potential grantee such inquiry should be complete enough to give a reasonable man assurance that the grantee will use the grant for the proper purposes sec_53_4945-5 i of the regulations refers to the rules relating to the extent to which the expenditure_responsibility_rules contained in sec_4945 this section apply to transfers of assets described in sec_507 b h and and accordingly based on the information furnished we rule as follows the proposed transfer of assets will not affect the continued qualification of sec_501 sec_501 foundation status of private_foundations within the contemplation of sec_507 b as b b that is exempt from federal_income_tax under and will not result in the termination of private but will constitute an adjustment between an organization described in the proposed transfer will not constitute either a notification b's intent to terminate its status as foundation under sec_507 failure to act within the meaning of sec_507 by b therefore b will not be liable for the termination_tax imposed by sec_507 a private or willful repeated acts or the proposed transfer will constitute a significant disposition of assets to one or more foundations will not be treated as newly created organizations and will be treated as possessing the attributes and characteristics of b following the transfer c their required distributions under sec_4942 proportional amounts of b's excess qualifying distributions carryover for prior years d and e may proportionately reduce by their d and e c - the proposed transfer will not constitute a sale or other will not disposition within the meaning of sec_4940 a constitute an act of self-dealing within the meaning of sec_4941 by b or by any disqualified_person and will not constitute a jeopardizing investment within the meaning of sec_4944 by b or by any disqualified_person d or e d or c c e the proposed transfer will not constitute a taxable_expenditure within the meaning of sec_4945 required to exercise expenditure_responsibility under sec_4945 with respect to the assets transferred to d and eb and b will not be c ae the contemplated transaction will not result in any_tax due by b under chapter provided b has no assets b will not be required to file any_tax returns for any taxable years subsequent to that in which all assets are distributed required to file a return required by sec_6043 b upon b's termination b will be we are informing the ep eo key district_office of this action organization's permanent records please keep a copy of this ruling with your this ruling is directed only to the organization that requested it may not be used or cited as precedent sec_6110 of the code provides that it sincerely eve lol v back gerald v chief exempt_organizations sack technical branch o2o22


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc psi plr-117985-00 date date number release date index number legend partnership llc state company b c x d1 country n dear this letter responds to a letter dated date and additional correspondence written on behalf of company and x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations for x to file an election under sec_301_7701-3 to be treated as a disregarded_entity effective d1 facts according to the information submitted on d1 partnership a state limited_partnership acquired through llc its disregarded state limited_liability_company b percent of the common_stock and c percent of the preferred_stock of company a private limited_company formed under the laws of country an election was made plr-117985-00 under sec_301_7701-3 to treat company as a partnership for federal tax purposes company owns n subsidiaries including x all of which are private limited companies formed under the laws of country x is an entity that is eligible to elect under sec_301_7701-3 to be disregarded as an entity separate from its owner however the form_8832 entity classification election was not timely filed so as to treat x as a disregarded_entity effective d1 law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes sec_301_7701-3 provides that unless the entity elects otherwise a foreign eligible_entity is classified as an association if all its members have limited_liability sec_301_7701-3 provides that an eligible_entity may elect to be classified as other than its default classification in sec_301_7701-3 by filing form_8832 with the appropriate service_center sec_301_7701-3 provides that the effective date of an entity classification election can not be more than days prior to the date the election is filed and can not be more than months after the date on which the election is filed under sec_301_7701-3 an election will not be accepted unless all of the information required by the form and instructions including the taxpayer identifying number of the entity is provided on form_8832 see sec_301_6109-1 for rules on applying for and displaying employer identification numbers sec_301_7701-3 provides generally that if an eligible_entity makes an election to change its classification the entity cannot change its classification by election again during the sixty months succeeding the effective date of the election sec_301_7701-3 provides that a foreign eligible entity’s classification is relevant when its classification affects the liability of any person for federal tax or information purposes sec_301_7701-3 provides that if an eligible_entity classified as an association elects to be disregarded as an entity separate from its owner the following is deemed to occur the association distributes all of its assets and liabilities to its single owner in liquidation of the association sec_301_7701-3 provides that when elections for a series of tiered entities are effective on the same date the eligible entities may specify the order of the elections on form_8832 if no order is specified for the elections any transactions that plr-117985-00 are deemed to occur as a result of the classification change will be treated as occurring first for the highest tier entity’s classification change then for the next highest tier entity’s classification change and so forth down the chain of entities until all the transactions have occurred the provisions of sec_301_7701-3 apply to elections filed on or after date taxpayers may apply the provisions of sec_301_7701-3 retroactively to elections filed before date if all taxpayers affected by the deemed transactions file consistently with the provisions of sec_301_7701-3 under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusions based solely on the facts submitted and the representations made we conclude that good cause has been shown and the other requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied consequently x is granted an extension of time for making the sec_301_7701-3 election effective d1 until days following the date of this letter the election should be made by following the procedure set forth in form_8832 a copy of this letter should be attached to the election a copy is enclosed for that purpose except as specifically set forth above no opinion is expressed or implied as to the federal tax consequences of the transaction described above under any other provision of the code specifically no opinion is expressed about the tax consequences of making an election for x to be treated as an entity that is disregarded plr-117985-00 as separate from its owner further no opinion is expressed regarding the election made to treat company as a partnership for federal tax purposes this ruling is directed only to the taxpayer on whose behalf it was requested sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office this letter is being sent to you as the taxpayer’s authorized representative a copy of this letter will also be sent to the taxpayer sincerely yours paul f kugler associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index number in re washington dc person to contact telephone number refer reply to cc psi 9-plr-124720-03 date date legend grantor year year trust foundation dollar_figurea spouse accounting firm a accountant a accountant b accounting firm b plr-124720-03 dear this letter responds to your representative’s 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 a timely allocation of generation- skipping transfer gst_exemption with respect to a transfer made by grantor to an irrevocable_trust the facts and representations submitted are summarized as follows in year grantor created trust for the benefit of grantor’s descendants and transferred dollar_figurea to trust article iii a of trust provides that during grantor’s lifetime the trustees shall pay to such one or more of grantor’s living issue from time to time so much of the net_income and principal of the trust as the independent trustees in their discretion determine article iii a of trust provides that upon grantor’s death the trust shall terminate and the remaining principal shall be paid to grantor’s then living issue per stirpes subject_to lifetime trusts set forth in article iii b of trust article iii b of trust provides that any property payable to a descendant of grantor’s parents will be held in a_trust for such descendant the beneficiary from which the trustees shall pay to such one or more of the beneficiary and the beneficiary’s living issue from time to time so much of the net_income and principal as the independent trustees in their discretion determine article iii b of trust provides that upon the death of a beneficiary the trust will terminate and the remaining principal will be paid as that beneficiary appoints i by exercise of a special_power_of_appointment in favor of one or more of grantor’s issue if any issue of grantor is then living and otherwise in favor of any person except the beneficiary the beneficiary’s estate or the creditors of the beneficiary or the beneficiary’s estate or in favor of any charitable_organization described in sec_2055 of the internal_revenue_code or ii by exercise of a general testamentary_power_of_appointment if any has been conferred upon the beneficiary by the independent trustees of the trust article iii c of trust provides that notwithstanding anything in the trust agreement to the contrary each trust under article iii shall terminate upon the expiration of the longest period that property may be held in trust under the law of the jurisdiction governing such trust article iv of trust provides that if upon the termination of any trust the remaining principal is not effectively disposed of such principal shall be paid to grantor’s parents’ issue determined as though none of grantor’s parents’ children were then living subject_to the trust provisions of article iii b or if no such issue is then living to the then living issue of grantor’s parents other than grantor or if none to foundation if it is then a charitable_organization described in sec_2055 plr-124720-03 in year as well as in the four years previous to year grantor and spouse retained accounting firm a to prepare grantor’s and spouse’s income and gift_tax returns in the period prior to the due_date for filing the year form_709 the united_states gift and generation-skipping_transfer_tax return spouse advised accountant a at accounting firm a of grantor’s transfer to trust in year and of grantor’s intention to allocate a portion of her available gst_exemption to the amount of the transfer sometime thereafter grantor and spouse received a letter from accountant a advising that accountant b would be handling the account of grantor and spouse for year the letter states that accountant a and accountant b will review the tax file of grantor and spouse to ensure the transition is a smooth one accounting firm a prepared a year form_709 that was timely filed by grantor the form_709 did not report the transfer to trust as a gift and did not allocate any of grantor’s gst_exemption to the transfer rather it reported a transfer made to a different trust and allocated a portion of grantor’s available gst_exemption thereto grantor and spouse retained accounting firm b in year accounting firm b discovered the omission of the transfer from grantor’s year form_709 and prepared an amended year form_709 that reported the transfer and allocated a portion of grantor’s gst_exemption thereto the trustees of trust have not distributed any income or principal from trust to date grantor requests an extension of time under sec_301_9100-3 to allocate a portion of her gst_exemption to the amount of the transfer to trust sec_2601 imposes a tax on every gst a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2612 provides generally that the term taxable_termination means the termination by death lapse of time release of power or otherwise of an interest in property held in a_trust where the property passes to a skip_person with respect to the transferor of the property sec_2612 provides that the term taxable_distribution means any distribution from a_trust to a skip_person other than a taxable_termination or a direct_skip sec_2612 provides that a direct_skip is a transfer subject_to federal estate or gift_tax made by a transferor to a skip_person sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_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-124720-03 sec_2632 provides that any allocation by an individual of his gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_2642 provides that except as provided in sec_2642 if the allocation of the gst_exemption to any transfer 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 -- a 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 its value at the time of the close of the estate_tax_inclusion_period and b such allocation shall be effective on and after the date of such transfer 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 such estate_tax_inclusion_period sec_2642 provides generally that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of sec_2642 which was enacted into law on date 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 gst_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 under sec_301_9100-1 the commissioner may grant a reasonable extension of time under the rules set forth in 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 code except subtitles e g h and i plr-124720-03 sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute 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 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore grantor is granted an extension of time of sixty days from the date of this letter to make a retroactive_allocation of her available gst_exemption with respect to the transfer to trust in year the allocation will be effective as of the date of the transfer to the trust in year and the gift_tax value of the transfer will be used in determining the amount of gst_exemption to be allocated to the trust the allocation should be made on a supplemental form_709 filed with the internal_revenue_service center cincinnati ohio a copy of this letter should be attached to the supplemental form_709 a copy is enclosed for this purpose the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as specifically ruled herein we express or imply no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code plr-124720-03 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 power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer’s representative sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter


internal_revenue_service number release date index number ------------------- ---------------------------------------------------- ------------------------- ------------------------- ------------------------- ---------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------- telephone number ------------------- refer reply to cc psi b03 plr-133005-06 date date ---------------------- -------------------------- -------------------------------------------------------- legend x --------------------------------------------------- date country dear ---------- correspondence submitted on behalf of x by x’s authorized representative requesting a ruling under sec_301_9100-3 of the procedure and administration regulations that x be granted an extension of time to make an election to be classified as a partnership eligible to elect to be treated a partnership however x inadvertently failed to timely file a form_8832 entity classification election electing to treat x as a partnership effective date this letter responds to a letter dated date and supplemental x was formed on date under country law x represents that x is a foreign_entity law and analysis facts sec_301_7701-3 provides that except as provided in sec_301_7701-3 provides that an eligible_entity may elect to be sec_301_7701-3 provides that a member of a foreign eligible_entity plr-133005-06 sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 sec_301_7701-3 unless the entity elects otherwise a foreign eligible_entity is a partnership if it has two or more members and at least one member does not have limited_liability an association if all members have limited_liability or disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member classified other than as provided in sec_301_7701-3 by filing a form_8832 with the service_center designated on form_8832 sec_301_7701-3 shall be effective on the date specified by the entity on form_8832 or if no date is specified on the date filed sec_301_7701-3 further provides that the effective date specified on form_8832 cannot be more than days prior to the date on which the election is filed and cannot be more than months after the date on which the election is filed sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register making certain elections determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-2 provides the rules governing automatic extensions of time for sec_301_9100-3 provides the standards the commissioner will use to sec_301_7701-3 provides that an election made under sec_301_9100-3 provides that the requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion this ruling is directed only to the taxpayer requesting it sec_6110 of based on the facts submitted and the representations made we conclude that plr-133005-06 the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect to be treated as a partnership effective date a copy of this letter should be attached to the election a copy is included for that purpose except as specifically set forth herein we express or imply no opinion concerning the federal tax consequences of the facts described above under any other provision of the code the internal_revenue_code provides that it may not be used or cited as precedent letter is being sent to x’s authorized representatives s enclosures william p o’shea associate chief_counsel passthroughs special industries copy of this letter copy for sec_6110 purposes in accordance with the power_of_attorney on file with this office a copy of this sincerely