internal_revenue_service number release date index number --------------------------------------------------------- -------------------------- --------------------------------- ----------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-146117-06 date date trust ------------------------------------------------------------------------------------------------------ ------------------------ ------------------------------------------------------------------------------------------------------ ------------------------ ------------------------------------------------------------------------------------------------------ ------------------------ ----------------------- --------------------------- -------------------------- ------------------------------------------------------------------------------------------------------ ------------- x state dear-------------------------------------------- this responds to a letter dated date submitted on behalf of trust by trust’s authorized representative requesting rulings concerning the proposed division of trust into two separate trusts trust a and trust b a and b created trust on d1 trust was funded with community_property trust was drafted to qualify as a charitable_remainder_unitrust under sec_664 trust is irrevocable and governed by the laws of state a community_property_state a b d1 d2 d3 plr-146117-06 trust provides that a and b receive in equal monthly installments an amount equal to the smaller of i trust income for the year and ii x of the net fair_market_value of trust assets valued as of the first business_day of the tax_year in the event that the trust income for the year exceeds the fixed percentage amount then an additional payment of such excess income shall be made to a and b provided however that said additional payment does not exceed the difference between i the aggregate of the fixed percentage amounts for all prior years and ii the aggregate of the unitrust payments made by the trust in all prior years any trust income that exceeds the sum of the fixed percentage amount for such year and any deficiency payable shall be added to principal payments from the trust are to continue as long as a or b is alive upon the death of the second spouse to die trust corpus is to be distributed to specified charities a and b reserve the power to change the charitable_remainder beneficiary so long as said beneficiary is a charitable_organization on d3 court entered a judgment dissolving the marriage of a and b prior to the marital dissolution on d2 a and b entered into a stipulation and order regarding bifurcation and severance of joint tenancies stipulation relative to their marital and property rights by the terms of the stipulation jurisdiction was reserved by the court to oversee the division of property between a and b pursuant to the terms of the stipulation the parties propose to divide trust into two separate trusts trust a and trust b each of which is intended to qualify as a charitable_remainder_unitrust under sec_664 as proposed there will be a pro_rata division of all the assets in the trust with of each asset being transferred into each of trust a and trust b a will be the sole trustee and income_beneficiary of trust a and b will be the sole trustee and income_beneficiary of trust b payments will be made to the beneficiaries from each trust in an amount equal to the lesser_of i the income of the trust for the year or ii x of the net fair_market_value of trust assets measured as of the first day of the tax_year in the event that there is any excess income in any year in trust a or trust b then an additional payment of such excess income shall be made to the beneficiary provided however that said additional payment does not exceed the difference between i the aggregate of the fixed percentage amounts for all prior years allocable to the beneficiary and ii the aggregate of the unitrust payments made by trust and the new trust in all prior years to the beneficiary after the division a and b will receive the same amounts in the aggregate they would have received before the division trusts a and b will make payments to their respective income_beneficiary for each beneficiary’s lifetime neither a nor b will retain a survivorship interest in the other’s trust on termination of each trust on the death of the income_beneficiary the trustee shall distribute the remaining principal and income to the designated charitable_remainder beneficiaries a and b reserve the power to change the charitable_remainder beneficiary of their respective trusts plr-146117-06 ruling sec_664 provides generally that a charitable_remainder_unitrust shall be exempt from federal_income_tax sec_664 provides that a charitable_remainder_unitrust is a_trust a from which a fixed percentage which is not less than percent nor more than percent of the net fair_market_value of its assets valued annually is to be paid not less often than annually to one or more persons at least one of which is not an organization described in sec_170 and in the case of individuals only to an individual who is living at the time of the creation of the trust for a term of years not in excess of years or for the life or lives of such individual or individuals b from which no amount other than the payments described in sec_664 and other than qualified gratuitous transfers described in sec_664 may be paid to or for_the_use_of any person other than an organization described in sec_170 c following the termination of payments described in sec_664 the remainder_interest in the trust is to be transferred to or for_the_use_of an organization described in sec_170 or is to be retained by the trust for such a use or to the extent the remainder_interest is in qualified_employer_securities as defined in sec_664 all or part of such securities are to be transferred to an employee_stock_ownership_plan as defined by sec_664 and d with respect to each contribution of property to the trust the value determined under sec_7520 of such remainder_interest in such property is at least percent of the net fair_market_value of such property as of the date such property is contributed to the trust based solely on the facts and representations submitted we conclude that the division of trust into trust a and trust b will not cause either trust trust a or trust b to fail to qualify as charitable_remainder trusts under sec_664 ruling sec_2501 imposes a gift_tax for each calendar_year on the transfer of property by gift during the calendar_year sec_2511 provides that the gift_tax applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2512 provides that where property is transferred for less than an adequate_and_full_consideration in money_or_money's_worth the amount by which the value of the property exceeded the value of the consideration shall be deemed a gift sec_2516 provides that where a husband and wife enter into a written_agreement relative to their marital and property rights and divorce occurs within the 3-year period beginning on the date year before such agreement is entered into whether or not plr-146117-06 such agreement is approved by the divorce decree any transfers of property or interests in property made pursuant to such agreement to either spouse in settlement of his or her marital or property rights or to provide a reasonable allowance for the support of issue of the marriage during minority shall be deemed to be transfers made for a full_and_adequate_consideration_in_money_or_money's_worth in the present case on d2 a and b entered into stipulation relative to their marital and property rights on d3 a and b’s divorce became final under a judgment of dissolution the divorce occurred within a 3-year period beginning on the date year before the stipulation was entered into accordingly based on the facts submitted and the representations made we conclude that the transfer of property interests in trust upon its division into trust a and trust b made pursuant to the stipulation will be deemed to be transfers made for full and adequate_consideration in money or money’s worth and therefore will not be subject_to gift_tax as to a or b ruling sec_61 provides that gross_income includes gains derived from dealings in property sec_1001 provides that the gain from the sale_or_other_disposition of property is the excess of the amount_realized over the adjusted_basis provided in sec_1011 for determining gain and the loss is the excess of the adjusted_basis provided in sec_1011 for determining loss over the amount_realized under sec_1001 the entire amount of gain_or_loss must be recognized except as otherwise provided sec_1_1001-1 of the income_tax regulations provides that except as otherwise provided in subtitle a of the code the gain_or_loss realized from the exchange of property for other_property differing materially either in_kind or extent is treated as income or as loss sustained an exchange of property results in the realization of gain_or_loss under sec_1001 if the properties exchanged are materially different 499_us_554 a material difference exists when the exchanged properties embody legal entitlements different in_kind or extent or if they confer different rights and powers id pincite the pro_rata division or partition of an asset is a nontaxable event for purposes of sec_61 and sec_1001 for instance a partition of jointly owned property is not a sale_or_other_disposition of property where the co-owners of the joint property sever their joint_interests but do not acquire a new or additional interest as a result of the transaction thus neither gain nor loss is realized on a partition see revrul_56_437 1956_2_cb_507 plr-146117-06 here a and b together currently receive annual trust payments equal to x of the net fair_market_value of the trust assets under the facts of this case the trust will be divided pro_rata into two equal charitable_remainder unitrusts trust a and trust b with of each asset going to trust a and of each asset going to trust b a will be the sole income_beneficiary and trustee of trust a and b will be the sole income_beneficiary and trustee of trust b a and b each will receive payments of x of the net fair_market_value of his or her respective trust accordingly it is our conclusion that the division of the assets in the trust and the distribution of those assets to trust a and trust b will be equal in_kind and not give rise to gain_or_loss under sec_61 and sec_1001 thus the division of the trust will not result in taxable_income to a or b ruling sec_4 through under sec_4947 sec_507 applies to certain split interest trusts trusts with both charitable and non-charitable beneficiaries as if they were private_foundations accordingly since trust trust a and trust b are split-interest_trusts they are subject_to the rules of sec_507 sec_4941 and sec_4945 sec_507 provides that except as provided in sec_507 a private_foundation may terminate its private_foundation_status only under the specific rules set forth in sec_507 sec_507 imposes a termination_tax equal to certain defined amounts which are generally the lower_of the aggregate tax_benefit resulting from the tax-exempt status or the fair_market_value of the assets sec_507 provides that in the case of the transfer of assets of any private_foundation 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 newly created organization sec_1_507-3 provides in part that as used in sec_507 the term other adjustment organization or reorganization shall include any partial_liquidation or any other significant disposition of assets to one or more private_foundations sec_1_507-3 provides that the term significant disposition of assets means the transfer of percent or more of the net assets of the foundation at the beginning of the year which disposition may be made in a single year or in a series of related dispositions over more than one year sec_1_507-3 and i provides in substance that in the transfer of assets from one private_foundation to one or more private_foundations in a sec_507 transfer each transferee private_foundation shall not be treated as a newly created organization but shall succeed to the transferor’s aggregate tax_benefit within the meaning of sec_507 in proportion to the assets transferred to each plr-146117-06 sec_1_507-3 provides that if a private_foundation incurs liability for one or more of the taxes imposed under chapter or any penalty resulting therefrom prior to or as a result of making a transfer of assets described in sec_507 to one or more private_foundations in any case where transferee_liability applies each transferee foundation shall be treated as receiving the transferred assets subject_to such liability to the extent that the transferor foundation does not satisfy such liability under sec_1_507-3 if a private_foundation transfers all of its assets to one or more private_foundations effectively controlled by the same persons that effectively control the transferor the transferee foundations are treated as though they were the transferor for purposes of sec_4945 sec_4941 imposes an excise_tax on each act of self-dealing between a disqualified_person and a private_foundation sec_4941 provides that the term self dealing means any direct or indirect transfer to or for the use by or for the benefit of a disqualified_person of the income or assets of a private_foundation sec_4945 imposes an excise_tax on a private foundation’s making of any taxable_expenditure under sec_4945 under sec_4945 the term taxable_expenditure includes a grant to a private_foundation unless the grantor exercises expenditure_responsibility in accordance with sec_4945 sec_4946 provides the term disqualified_person with respect to a private_foundation includes a substantial_contributor to the foundation including the creator of a_trust the foundation_manager including a trustee and the members of the family of those individuals sec_53_4945-6 of the foundation and similar excise_taxes regulations provides that expenditures_for unreasonable administrative expenses including compensation consultant fees and other fees for services rendered will ordinarily be taxable_expenditures under sec_4945 unless the foundation can demonstrate that such expenses were paid in the good_faith belief that they were reasonable and that the payment or incurrence of such expenses in such amounts was consistent with ordinary business care and prudence revrul_2002_28 2002_1_cb_941 provides that when a private_foundation transfers all of its assets to other foundations in a sec_507 transfer there are no expenditure_responsibility requirements under sec_4945 or h with respect to the transfers because the transferee foundations are treated as the transferor plr-146117-06 trust is a split-interest trust described in sec_4947 and therefore treated generally as if it were a private_foundation and subject_to sec_507 termination rules the proposed transfer of percent of trust’s assets under the prevailing divorce proceedings to trust a and trust b will qualify as transfers meeting the requirements of sec_1_507-3 and ii accordingly under sec_1_507-3 trust a and trust b will not be treated as newly created private_foundations further these trusts shall under sec_1_507-3 succeed to the aggregate tax_benefit of the transferor organization trust on a pro_rata basis determined by the fair_market_value of the assets under sec_1_507-3 the assets will be subject_to any liability that trust may have under chapter a and b are disqualified persons with respect to trust the only interest that either a or b had in trust was the payment of the unitrust_amount under the provisions of sec_664 a and b have exchanged a unitrust and a contingent survivor’s unitrust_interest payment in trust for a full unitrust payment in a_trust having fewer assets namely percent of the assets of trust prior to its division thus they are in the aggregate likely to receive the same unitrust payment as before therefore no self- dealing transaction occurs under sec_4941 since the transferee trusts are treated as the transferor trust rather than recipients of expenditure_responsibility grants there are no expenditure_responsibility requirements that must be exercised by trust under sec_4945 or h with respect to the transfers see revrul_2002_28 under sec_53_4945-6 legal and other expenses_incurred by trust to implement the division of its assets assuming such expenses are incurred in the good_faith belief that they are reasonable and consistent with ordinary care and prudence will not constitute taxable_expenditures under sec_4945 therefore if reasonable in amount payment from trust’s assets of legal fees and other expenditures incurred by trust to effectuate the division of trust will nor constitute an act of self-dealing under sec_4941 nor will it constitute taxable_expenditures under sec_4945 accordingly we rule as follows the proposed division of trust into trust a and trust b will not terminate trust’s status as a_trust described in and subject_to the private_foundation provisions of sec_4947 and will not result in the imposition of an excise_tax under sec_507 trust a and trust b will not be treated as newly created organizations the aggregate tax benefits of trust under sec_507 will carry over to trust a and trust b in proportion to the amount of trust assets transferred to trust a and trust b subject_to any liability the trust has under chapter of the code to the extent not already satisfied by trust plr-146117-06 the proposed division of trust into trust a and trust b will not be an act of self- dealing under sec_4941 the proposed division of trust into trust a and trust b will not be a taxable_expenditure under sec_4945 there is no expenditure_responsibility requirements that must be exercised by trust under sec_4945 or h with respect to the transfers to trust a or trust b if reasonable in amount payment of the legal and other expenditures incurred by trust to effect the proposed division out of the assets of trust will not constitute an act of self-dealing under sec_4941 or constitute a taxable_expenditure under sec_4945 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts of the transaction described above under any other provision of the code in particular sec_61 we express no opinion on whether trust otherwise qualifies as a charitable_remainder_trust under sec_664 or whether the separate trusts each will otherwise qualify as charitable_remainder trusts under sec_664 this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to trust’s authorized representative sincerely bradford r poston senior counsel branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


tcmemo_2013_31 united_states tax_court samuel i olekanma petitioner v commissioner of internal revenue respondent docket no filed date samuel i olekanma pro_se william john gregg for respondent memorandum opinion carluzzo special_trial_judge in a notice_of_deficiency dated date notice respondent determined a dollar_figure deficiency in petitioner’s federal_income_tax and imposed a dollar_figure sec_6662 a accuracy-related_penalty the issues for decision are whether petitioner understated gross_receipts on two schedules c profit or loss from business included with his federal_income_tax return return whether petitioner is entitled to certain trade_or_business expense deductions in excess of amounts allowed by respondent and whether petitioner is liable for a sec_6662 accuracy-related_penalty background at the time the petition was filed petitioner resided in maryland petitioner’s return was prepared by a paid federal_income_tax return preparer the return includes two schedules c one for sankara motors sankara and the other for samez group investments corp samez both businesses involve the sale of used automobiles 1unless otherwise indicated section references are to the internal_revenue_code_of_1986 as amended and in effect for the year in issue rule references are to the tax_court rules_of_practice and procedure 2the business form of samez is unclear petitioner’s return suggests that samez is a sole_proprietorship up until trial nothing submitted by either party suggested otherwise in an interrogatory propounded upon petitioner by respondent petitioner was asked to explain the differences between sankara and samez apparently petitioner failed to respond to the interrogatory at trial petitioner took the position that samez is a corporation and therefore the income and deductions of samez should not have been reported on a schedule c given the timing of petitioner’s claim we will not consider it we proceed as though samez is properly continued the sankara schedule c shows the following income and deductions income gross_receipts dollar_figure cost_of_goods_sold big_number gross_income big_number expenses car and truck big_number legal and professional service sec_102 rent or lease of other business property big_number other1 big_number total big_number net profit 1this deduction includes dollar_figure for auction fees dollar_figure for tags and dollar_figure for towing the samez schedule c shows the following income and deductions income gross_receipts dollar_figure cost_of_goods_sold -0- gross_income big_number continued treated as a sole_proprietorship expenses car and truck big_number depreciation and sec_179 legal and professional services big_number office big_number rent or lease of other business property big_number repairs and maintenance big_number supplies travel deductible meals and entertainment other1 big_number total big_number net profit 1this deduction includes dollar_figure for license fees and dollar_figure for towing petitioner did not maintain separate books of account with respect to either business he did however maintain a separate checking account for each and apparently he retained various receipts for certain business-related expenditures petitioner did not keep any sort of contemporaneous log or journal in which he recorded vehicle or travel_expenses it would appear that petitioner was less than cooperative with respondent’s revenue_agent during the examination of the return he refused to provide the agent with his bank records and those records were obtained through the use of an 3no receipts showing an expenditure that relates to any of the deductions here in dispute are in evidence administrative_summons those records show deposits into the sankara and samez accounts that total dollar_figure and dollar_figure respectively in comparing the items shown on the return with the information shown in the summoned bank records the revenue_agent using what is commonly referred to as the bank_deposits indirect method of income determination concluded that petitioner had understated the gross_receipts and the cost_of_goods_sold reported on the schedules c the revenue_agent also concluded that petitioner was not entitled to some or some portions of the deductions claimed on the schedules c the revenue agent’s conclusions are reflected in the adjustments made in the notice the adjustments for gross_receipts or sales and cost_of_goods_sold result from the bank_deposits analysis omitted income adjustments many of the adjustments made in the notice relate to deductions claimed on the schedules c according to the notice some or all of the deductions claimed on 4the bank_deposits method is one of the indirect methods of income determination relied upon by the commissioner if a taxpayer fails to keep books_and_records or a taxpayer’s records do not clearly reflect the taxpayer’s income see sec_446 92_tc_661 the use of the bank_deposits method for computing income has long been sanctioned by the courts 64_tc_651 aff’d 566_f2d_2 6th cir 5actually the net effect of these adjustments is a reduction in petitioner’s gross_income a point apparently lost on petitioner the schedules c were disallowed because petitioner has not established that the deduction s were incurred paid or expended for the designated purpose other adjustment made in the notice are computational and will not be discussed except for the computational adjustments all of the adjustments made in the notice including the imposition of a sec_6662 penalty are in dispute discussion generally the commissioner’s determinations are presumed correct and the taxpayer bears the burden of proving that those determinations are erroneous rule a see 503_us_79 290_us_111 omitted income adjustments respondent now concedes that the adjustments that increase the gross_receipts reported on the schedules c are overstated according to petitioner respondent’s concession along with other improper assumptions not related to respondent’s concession made by the revenue_agent render the analysis flawed and therefore the adjustments that flow from the bank_deposits analysis must be rejected we disagree with petitioner regarding the consequences of respondent’s concession we do however have concerns with some of the revenue agent’s 6the provisions of sec_7491 are not applicable here assumptions even though we recognize that the agent made certain assumptions because petitioner failed or refused to provide requested information under the circumstances we see no need to discuss our concerns in a point- by-point critique of the revenue agent’s application of the bank_deposits method petitioner challenges the validity of the adjustments resulting from the bank_deposits method and even if for different reasons we are willing to go along with his challenge the adjustments to gross_receipts and cost_of_goods_sold as shown in the notice are not to be taken into account in the computation of the deficiency in petitioner’s federal_income_tax adjustments reducing claimed trade_or_business expense deductions as we have observed in countless opinions deductions are a matter of legislative grace and the taxpayer bears the burden_of_proof to establish entitlement to any claimed deduction rule a indopco inc v commissioner u s pincite 292_us_435 this burden requires the taxpayer to substantiate deductions claimed by keeping and producing adequate_records that enable the commissioner 7eliminating these adjustments from the computation of the deficiency as determined in the notice results in an increased deficiency because respondent has not asserted an increased deficiency however the deficiency cannot exceed the amount determined in the notice see sec_6214 to determine the taxpayer’s correct_tax liability sec_6001 65_tc_87 aff’d per curiam 540_f2d_821 5th cir 43_tc_824 in general a trade_or_business expense if properly substantiated is allowed as a deduction see sec_162 petitioner has presented to the court no substantiating documents for any of the deductions here in dispute we recognize that in the absence of substantiating records trade_or_business expense deductions may be estimated 39_f2d_540 2d cir however the court must have a reasonable basis on which to make an estimate 85_tc_731 petitioner identified various expenses such as towing inspection and repairs reasonably expected to be incurred by a taxpayer in the used car business but his generalized testimony provides no basis for us to estimate the amounts of these expenses that he might have incurred during the year in issue accordingly petitioner is not entitled to deductions in excess of the amounts respondent already allowed 8certain trade_or_business expense deductions such as deductions for vehicle expenses and travel_expenses are subject_to strict substantiation requirements and may not be estimated see sec_274 sec_280f the accuracy-related_penalty sec_6662 imposes a penalty of of the portion of the underpayment_of_tax attributable to among other things a substantial_understatement_of_income_tax sec_6662 an understatement of income_tax is substantial within the meaning of sec_6662 if as relevant here the understatement exceeds dollar_figure see sec_6662 sec_1_6662-4 income_tax regs respondent bears the burden of production with respect to the imposition of the penalty here in dispute see sec_7491 and that burden has been satisfied because the understatement of income_tax which equals the deficiency exceeds dollar_figure see sec_6211 sec_6662 sec_6664 that being so it is petitioner’s burden to establish that the imposition of the penalty is not appropriate see 116_tc_438 see also rule a welch v helvering u s pincite according to petitioner he is unsophisticated in matters of federal income_taxation and the penalty is not applicable because he relied upon his paid income_tax_return_preparer to compute the federal_income_tax liability shown on his return sec_6664 provides an exception to the imposition of the accuracy-related_penalty if the taxpayer establishes that there was reasonable_cause for and the taxpayer acted in good_faith with respect to the underpayment sec_1_6664-4 income_tax regs the determination of whether the taxpayer acted with reasonable_cause and in good_faith is made on a case-by-case basis taking into account the pertinent facts and circumstances sec_1_6664-4 income_tax regs under certain circumstances a taxpayer’s reliance upon professional advice may establish the taxpayer’s reasonable_cause and good_faith with respect to an underpayment_of_tax if the taxpayer establishes that the professional was provided with complete and accurate information an incorrect return was a result of the preparer’s mistakes and the taxpayer demonstrates good_faith reliance on a competent professional see 112_tc_317 aff’d without published opinion sub nom schutter v commissioner 242_f3d_390 10th cir see also 115_tc_43 aff’d 299_f3d_221 3d cir although his return was prepared by a paid income_tax_return_preparer petitioner has failed to establish that he provided his return preparer with complete and accurate information or that he reasonably relied upon any advice the return preparer might have provided accordingly petitioner failed to establish that he acted in good_faith with respect to any portion of the underpayment_of_tax or that any portion of the underpayment is due to reasonable_cause petitioner is liable for a sec_6662 accuracy-related_penalty and respondent’s imposition of that penalty is sustained to reflect the foregoing decision will be entered under rule


department of the treasury internal_revenue_service washington d c significant index nos date f jt sec_3 contact person id number telephone number employer_identification_number dear sir or madam this is in reference to a ruling_request submitted by counsel for x regarding the federal_income_tax consequences of certain proposed transactions the transactions x is a not-for profit organization organized in x has been determined to be a charitable_organization described in sec_501 of the internal_revenue_code and has been classified as an organization described in sec_170 of the code and not as a private_foundation as defined in sec_509 y was organized by x in as a limited_liability_company llc and since formation has been wholly owned by x its sole member y was formed by x for the sole purpose of carrying out the transactions and the subsequent activities contemplated by the transactions x intends that for federal_income_tax purposes y will be treated as a division of x and will not be treated as a separate taxable entity x was formed through the collaboration of the city local community civic and business leaders to transform one the older downtown sections of the city into a center of industry commerce housing transportation governmental services and cultural and higher educational opportunities the downtown serves over half-a-million people most of whom are members of minority or immigrant populations the downtown is located next to the area's most distressed low-income minority community in the 1960's z a sec_501 organization that works to improve the quality of life in the metropolitan area produced a report that identified the community-wide benefits that could be achieved by revitalizing and rebuilding the downtown in response to this report the then mayor of the city offered to establish an office to help combat the degenerative social and economic climate that had taken hold in the community in response to the mayor's initiative x was formed to work with the newly-formed mayor's office in x and the mayor's office began their collaborative efforts by jointly producing development plans for the downtown and a neighboring area x and the mayor's office worked together to plan and facilitate a multitude of projects in the downtown area including such projects as the designation by the city of a 10-acre site for acquisition under the city's urban renewal powers for clearance and redevelopment the launching of an art center in a vacant building owned by the city and the implementation of small capital improvements for certain public streets including the securing of federal funding for the improvements and the supervision of their construction currently x's activities fall into three broad categories i planning and development which involves strategic planning for commercial growth in the downtown including forming alliances with local business people and constituents of the area ii business services which involves providing resources to local small businesses including a loan program funded by the united_states economic development agency and being designated by the treasury department's community development financial_institution program and iii quality of life issues which involves the development and support of cultural and artistic activities in the area and the formation of special assessment districts for other neighborhood groups to operate the downtown has a significant parking shortage due to the completion of several major development projects the majority of which have resulted in the loss of spaces available for public parking these projects have also created new demand for parking from employees patrons and visitors who travel to these facilities and thereby have had a doubly adverse impact on the downtown's parking shortage because in some instances these projects failed to account properly for even the needs of their own employees additionally the current parking shortage in the downtown will be exacerbated by the anticipated completion of two major developments in the core of downtown having previously become concerned about the looming parking shortage in the downtown x had commissioned a preliminary parking study in by an independent consultant the study predicted parking shortages in several sections of the downtown particularly where a new courthouse was being constructed and where the city planned to put a new_building as part of its planning and development activities x organized y in order to address the need for available affordable parking in the downtown as a means of sustaining an upward trend in the downtown's economic growth x through and in conjunction with y intends to undertake the following transactions the financing m a corporate governmental agency will issue revenue bonds to assist y in the acquisition of one parking garage and two parking iots the parking facilities from n a not-for profit locat development_corporation organized and controlled by the city n will have acquired title to the parking facilities from the city as part of the transactions y will lease the parking facilities to m for a nominal payment m will then lease the parking facilities back to y pursuant to a lease requiring rental payments equal to the principal and interest due under the bonds the acquisition prior to beginning contractual negotiations with y m on behalf of the city submitted the proposed disposition of the parking facilities to two public review procedures as mandated by law and in accordance with those procedures the sale was approved the purchase_price represents a significant concession by the city to promote the transactions the concession consists of the city having forgone establishing the price at competitive auction and having given a credit of of the projected amount of the costs for renovating the parking facilities the renovation the parking garage is an aging structure in need of extensive capital repairs including structural strengthening and repair and lighting improvements the majority of the improvements to the parking lots relate to the replacement of parking meters with a computerized pay-as-you go system and certain structural improvements the operation of the facilities y is negotiating a management_contract with o a commercial parking lot owner and manager the parking lots will be serviced by attendants all parking facilities will be open to all members of the general_public on the same terms disregarded entitities in announcement i r b the internal_revenue_service expressed its intention to modify the instructions to forms 990-ez and 990-pf to clarify the reporting requirements of tax-exempt owners of entities disregarded for federal tax purposes under regulation et seg according to this announcement when an entity wholly-owned by an organization exempt from tax under sec_501 is disregarded its operations are treated as a branch or division of its owner x has represented that y will treated as a disregarded_entity for federal tax purposes therefore the activities of y will be treated as the activities of a branch or division of x for purposes of sec_501 of the code effect of the transactions on x's' exempt status sec_501 of the code provides in part for an exemption from federal_income_tax for corporations organized and operated exclusively for charitable scientific or educational_purposes provided no part of the corporation's net_earnings 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 to be exempt as an organization described in sec_501 an organization must be organized and operated exclusively for one or more of the purposes specified in that section if an organization fails to meet either the organizationai or the 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 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 the regulations provides that an organization will be regarded as ue 2c0124022 operated exclusively for one or more exempt purposes only if it engages primarily in activities 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 the regulations provides that the term charitable is used in sec_501 in its generally accepted legal sense and is therefore not to be construed as limited by the separate enumeration in sec_501 of other tax-exempt purposes which may fall within the broad outlines of charity as developed by judicial decisions such term includes relief of the poor and distressed or of the underprivileged advancement of religion advancement of education or science erection or maintenance of public buildings monuments or works lessening of the burdens of government and promotion of social welfare by organizations designed to accomplish any of the above purposes or i to lessen neighborhood tensions ii to eliminate prejudice and discrimination iii to defend human and civil rights secured_by law or iv to combat community deterioration and juvenile delinquency in revrul_85_2 1985_1_cb_178 the service determined that an organization that provided legal assistance to guardians ad litem who represent abused and neglected children before a juvenile court that requires their appointment lessens the burdens of government and therefore qualifies for exemption under sec_501 of the code as part of its analysis the service examined whether the organization's activities are activities that a governmental_unit considers to be its burdens and whether such activities actually lessen such governmental burden the ruling notes that a favorable working relationship between the government and the organization is strong evidence that the organization is actually lessening the burdens of the government the city and the other governmental entities involved in the transactions have objectively manifested that they consider the provision of parking in the downtown as a means of combating community deterioration to be their burden the city has had a continuous close and cooperative relationship with x moreover the city has granted concessions to x to encourage the transactions the parking facilities are necessary to serve the needs of several federal and city offices and cultural institutions as well as businesses accordingly the ownership and operation of the parking facilities by y will qualify as charitabie activities since y is a disregarded_entity wholly owned by x operation of the parking facilities will be regarded as a charitable activity of x unrelated_business_income sec_511 of the code imposes a tax on the unrelated_business_taxable_income of organizations exempt from federal_income_tax under sec_501 under sec_512 of the code the term unrelated_business_taxable_income means the gross_income derived by any organization from any unrelated_trade_or_business as defined in sec_513 regularly carried on by it fess allowable deductions directly connected with the carrying on of such trade_or_business both computed with the modifications provided in subsection b sec_513 of the code defines the term unrelated trade business as any trade_or_business the conduct of which is not substantially related aside from the need of the organization for income or funds or the use it makes of the profits derived to the exercise or performance by an organization of the purpose or function constituting the basis for its exemption - us sec_1_513-1 of the income_tax regulations provides that a trade_or_business is related to exempt purposes only where the conduct of the business activity has a causal relationship to the achievement of any exempt_purpose and is substantially related for purposes of sec_513 only if the causal relationship is a substantial one thus for the conduct_of_a_trade_or_business from which a particular amount of gross_income derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of the services for which the gross_income is derived must contribute importantly to the accomplishment of those purposes sec_512 of the code provides that in the case of debt-financed real_property there shall be included as an item_of_gross_income derived from unrelated_trade_or_business the amount ascertained under sec_514 relating to the percentage of the income from debt-financed_property that is taken into account in computing tax under sec_511 sec_514 of the code defines the term debt-financed_property to mean any property which is held to produce income and with respect to which there is an acquisition_indebtedness as defined in sec_514 sec_514 a provides that the term acquisition_indebtedness means with respect to any debt-financed_property the unpaid amount of the indebtedness incurred by the organization in securing or improving such property sec_514 a i of the code provides that any property substantially_all the use of which is substantially related aside from the need of the organization for income or funds to the exercise or performance by such organization of its charitable educational or other purpose of function constituting the basis for exemption under sec_501 will not be included in the term debt-financed_property revrul_69_269 1969_1_cb_160 holds that the operation of a parking lot for patients and visitors only by a sec_501 hospital does not constitute unrelated_trade_or_business under sec_513 of the code in revrul_69_269 the hospital's charitable purposes were furthered by the operation of a parking facility in its analysis the rev_rul notes that one of the hospital's stated purposes was the provision of health care for members of the community the service then reasoned that since i the visitation of patients assists in patient treatment and encourages their recovery and ii that the absence of adequate parking facilities may discourage visitation thereby impeding the maximum effectiveness in achieving one of the hospital's purposes that the hospital's provision of parking was substantially related to the hospital's exempt_purpose similarly in the instant circumstances y's ownership and operation of the parking facilities is substantially related to x's exempt purposes many individuals who travel to downtown do so by private automobile an absence of adequate parking facilities downtown will likely preclude or discourage individuais frorn traveling to this area thereby impeding the downtown's continued economic recovery and preventing x from achieving maximum effectiveness in accomplishing its purposes accordingly x's ownership and operation of the parking facilities will be substantially related to its exempt-purpose although the parking facilities will be financed by the issuance of debt since as discussed above x's use of the parking facilities is substantially related to its exempt_purpose the parking facilities will not be treated as debt-financed_property accordingly we conclude as follows the separate legal existence of y will be disregarded for federal_income_tax purposes and as a consequence the acquisition financing renovation operation and use of the parking facilities by y will be treated for federal_income_tax purposes as the acquisition financing renovation operation and use of the parking facilities by x the acquisition financing renovation operation and use of the parking facilities by y will not adversely affect x's exempt status under sec_501 as a publicly supported charitable_organization described in sec_501 the operation of the parking facilities by y will be substantially related to x's charitable exempt purposes under sec_501 and will lessen the burdens of government within the meaning of sec_1 c - d of the income_tax regulations the operation of the parking facilities by y will not constitute an unrelated_trade_or_business of x within the meaning of sec_513 the parking facilities will not be considered to be debt-financed_property under sec_514 the income generated by the parking facilities will not constitute unrelated_business_taxable_income within the meaning of sec_512 and will not be subject_to tax under sec_511 this ruling is based on the understanding that there will be no material changes in the facts upon which it is based also this ruling is directed only to the organization that requested it sec_61 k of the code provides that this ruling may not be used or cited by others as precedent if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely robert c harper jr manager exempt_organizations technical group f a7


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc psi - plr-113077-03 date october number release date index numbers re legend decedent trust trustee daughter son granddaughter grandson date date year year year year year year year year year year a dollars b dollars c dollars d dollars e dollars f dollars g dollars - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - plr-113077-03 attorney cpa firm h dollars i dollars j dollars k dollars l dollars m dollars n dollars o dollars p dollars q dollars r dollars s dollars t dollars dear this is in response to your letter dated date and subsequent correspondence requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to make allocations of generation-skipping_transfer gst_exemption to a_trust the facts and representations submitted are summarized as follows on date decedent established trust an irrevocable_trust for the benefit of her daughter and daughter’s children granddaughter and grandson the trustee of trust is trustee pursuant to article fifth paragraph during each calendar_year in which a contribution is made to trust each beneficiary shall have the right to make withdrawals from trust article fifth paragraph a provides in part that the beneficiaries having the right to withdraw under this section shall be granddaughter grandson and daughter each beneficiary may withdraw an amount determined by dividing the amount of the contribution by the number of such beneficiaries provided however that the aggregate amount of such withdrawals by a beneficiary entitled to withdraw during any one calendar_year shall not exceed the amount of the united_states gift_tax annual exclusion as allowed under the united_states internal_revenue_code plr-113077-03 article fifth paragraph provides that on the death of decedent the trustee shall divide the trust into two equal shares one such equal share shall be held in a separate trust for each of the following of decedent’s grandchildren granddaughter and grandson article fifth paragraph provides that each trust for a living grandchild of decedent shall be divided into two parts one to which a gst_exemption is allocated called the exempt trust and the balance to which a gst_exemption is not allocated called the non-exempt trust article fifth paragraph a provides that the trustee shall pay to or apply for the benefit of the grandchild as much of the net_income and principal of the grandchild’s non-exempt and exempt trusts as the trustee in the trustee’s discretion deems necessary for the grandchild’s proper support care maintenance and education after taking into consideration to the extent the trustee deems advisable any other income or resources of the grandchild known to the trustee in addition the trustee may if the trustee deems advisable apply net_income and principal of the trusts for the support of the issue of any deceased grandchild any net_income not distributed shall be accumulated and added to principal in exercising the discretions conferred by this subparagraph the trustee may pay more to or apply more for some beneficiaries than others and may make payments to or applications of benefits for one or more beneficiaries to the exclusion of others if the trustee deems this necessary or appropriate in light of the circumstances the size of the trust estate and the probable future needs of the beneficiaries any payment or application of benefits pursuant to this subparagraph shall be charged against the trust as a whole rather than against the ultimate distributive_share of a beneficiary to whom or for whose benefit the payment is made pursuant to article fifth paragraph b the trustee shall distribute one- third one-half and the balance of the principal of the non-exempt trust when a beneficiary reache sec_25 sec_30 and sec_35 respectively on the death of the grandchild the trustee shall distribute the undistributed balance of the grandchild’s trust to such one or more persons and entities including the grandchild’s own estate and on such terms and conditions either outright or in trust and in such proportion as the grandchild shall appoint by a will specifically referring to and exercising this power_of_appointment if or to the extent that the grandchild shall have failed to exercise the power_of_appointment conferred upon the grandchild under this paragraph or an attempted exercise by the grandchild of this power shall have been invalid or ineffective for any reason or the grandchild shall have released or renounced this power the property subject_to it shall be distributed or retained in trust in accordance with the share allocated to the benefit of the issue of the deceased grandchild article fifth paragraph c provides that the exempt trust shall be retained by the trustee to be administered as follows plr-113077-03 on the death of the grandchild the undistributed balance of the grandchild’s trust shall be distributed to such one or more of the group consisting of the grandchild’s issue and on such terms and conditions either outright or in trust as the grandchild shall appoint by a will specifically referring to and exercising this power_of_appointment if or to the extent that the grandchild shall have failed to exercise the power_of_appointment conferred upon the grandchild under this paragraph or an attempted exercise by the grandchild of this power shall have been invalid or ineffective for any reason or the grandchild shall have released or renounced this power the property subject_to it shall be distributed or retained in trust as hereafter provided on the death of the grandchild if no child of decedent’s deceased grandchild is living who is under age thirty the balance shall thereupon be distributed free of trust to decedent’s deceased grandchild’s issue then living by right of representation article ninth paragraph a provides that the executor shall notify the trustee in writing if the executor intends to allocate any part of the generation-skipping_transfer_tax_exemption that is available to decedent under sec_2631 of the internal_revenue_code to some but not all of the property in any trust to which this paragraph applies upon written notification the trustee shall divide that trust into two separate trusts to be designated as the exempt trust and the non-exempt trust the exempt trust shall contain the share of the property of that trust equal in value to the amount of the generation-skipping_transfer_tax_exemption that the executor intends to allocate to the trust and shall have an inclusion_ratio of zero for federal generation- skipping transfer_tax purposes the non-exempt trust shall contain the balance of the property of that trust and shall have an inclusion_ratio of one for federal generation- skipping transfer_tax purposes the executor shall then actually allocate the generation-skipping_transfer_tax_exemption to the exempt trust and not to the non- exempt trust the trustee shall not be liable for relying on the written instructions of the executor when acting in accordance with the provisions of this subparagraph article ninth paragraph b provides that regardless of whether or not subparagraph a of this paragraph applies if the amount of trustor’s generation- skipping transfer_tax exemption actually allocated to a_trust to which this paragraph applies by the executor is equal to the value of the property of that trust so that the entire trust has an inclusion_ratio of zero for federal generation-skipping_transfer_tax purposes the entire trust shall be referred to as the exempt trust on the other hand if no part of decedent’s generation-skipping_transfer_tax_exemption is actually allocated to the trust by the executor or if decedent is not the transferor of that trust for generation-skipping_transfer_tax purposes so that the entire trust has an inclusion_ratio plr-113077-03 of one for federal generation-skipping_transfer_tax purposes the entire trust shall be referred to as the non-exempt trust article ninth paragraph provides that if at any time the trustee in the trustee’s discretion deems the best interest of an income_beneficiary to be best served by distribution to him or her of the entire principal of the share or subshare then held for him or her due to the small size thereof or for any other reason the trustee may convey transfer and pay over the same to such beneficiary absolutely and free of trust article ninth paragraph provides that unless sooner terminated in accordance with other provisions of this instrument all trusts created under this instrument shall terminate twenty-one years after the death of the last survivor of decedent and decedent’s issue living on the date that this trust is executed the principal and undistributed_income of a terminated trust shall be distributed to the then income beneficiaries of that trust in the same proportion that the beneficiaries are entitled to receive income when the trust terminates if at any time of such termination the rights to income are not fixed by terms of the trust distribution under this clause shall be made by right of representation to the persons who are entitled or authorized in the trustee’s discretion to receive trust payments in year trustee purchased a life_insurance_policy on the life of decedent with a face value of a dollars it is represented that at the time of decedent’s death decedent possessed no incidents_of_ownership in the policy decedent made the following transfers to trust for year sec_1 through b dollars in year c dollars in year d dollars in year sec_3 and e dollars in year f dollars in years and g dollars in year of the amounts decedent transferred to trust in year sec_1 through daughter is the transferor of the following amounts h dollars in year i dollars in year j dollars in year sec_3 and k dollars in year l dollars in years and m dollars in year see sec_26_2652-1 ex of the generation skipping transfer_tax regulations granddaughter and grandson are not transferors of any amount transferred by decedent accordingly the portion of each transfer made to trust for which decedent remains the transferor for gst tax purposes is as follows n dollars in year o dollars in year p dollars in year sec_3 and q dollars in year r dollars in years and s dollars in year in year decedent’s attorney who drafted trust prepared decedent’s year form_709 united_states gift and generation-skipping_transfer_tax return and incorrectly reported dollar_figuret as the amount transferred to trust attorney also allocated dollar_figuret of decedent’s gst_exemption to the transfer to trust attorney failed to consider the plr-113077-03 portion of the transfer dollar_figureh to which daughter was the transferor see a ex it is represented that the correct amount transferred to trust in year is dollar_figureb decedent terminated the attorney-client relationship with attorney in year and retained cpa firm which had handled decedent’s spouse’s business affairs to handle decedent’s tax matters including gift_tax matters cpa firm failed to file a year gift_tax_return for decedent and did not report the year transfer to trust or allocate decedent’s gst_exemption to that transfer cpa firm prepared and filed decedent’s year sec_3 and gift_tax returns but failed to report the transfers to trust and thereby did not allocate any portion of decedent’s gst_exemption to the year sec_3 and transfers to trust cpa firm failed to file gift_tax returns reporting decedent’s year sec_5 through transfers to trust and failed to allocate a portion of decedent’s gst_exemption to the transfers it is represented that decedent’s annual gifts did not exceed the dollar_figure annual exclusion amount in effect at the relevant times to any one donee which would have required that a gift_tax_return be filed for those years decedent died on date in year daughter and son are the personal_representatives of decedent’s estate during the preparation of decedent’s form_706 united_states estate and generation-skipping_transfer_tax return cpa firm discovered the failure to report the transfers to trust for year sec_2 through and the failure to allocate portions of decedent’s gst_exemption to those transfers however dollar_figures dollars of decedent’s gst_exemption was automatically allocated to the transfer to trust in year under sec_2632 no election has been made to elect out of an automatic allocation in respect to the transfers to trust in year the over allocation of dollar_figureh is void under sec_26_2632-1 it is represented that decedent intended that her gst_exemption be allocated to trust so that trust would have a zero inclusion_ratio to the extent possible and to minimize her gst tax_liability you have requested the following rulings that decedent’s estate be allowed an extension of time under sec_301_9100-3 and sec_2642 to allocate decedent’s gst_exemption to decedent’s transfers to trust for year sec_2 though with respect to the amounts of which decedent is treated as transferor under sec_2652 and that such allocations are to be made based upon the value of the property transferred to trust as of the dates of the original transfers sec_2601 imposes a tax on every generation-skipping_transfer gst a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip plr-113077-03 sec_2602 provides that the amount of the tax is the taxable_amount multiplied by the applicable_rate sec_2641 defines applicable_rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer under sec_2642 the inclusion_ratio with respect to any property transferred in a generation-skipping_transfer is defined as the excess of over the applicable_fraction the applicable_fraction as defined in sec_2642 is a fraction the numerator of which is the amount of gst_exemption allocated to the trust or to property transferred in a direct_skip and the denominator of which is the value of the property transferred to the trust or involved in the direct_skip reduced by the sum of certain federal estate_tax or state death_tax and charitable deductions 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 sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that any allocation by an individual of his or her 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_26_2632-1 of the generation-skipping_transfer_tax regulations provides that an allocation of gst_exemption to property transferred during the transferor’s lifetime other than in a direct_skip is made on form_709 sec_2642 provides that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 or c the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period its value at the time of the close of the estate_tax_inclusion_period 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 plr-113077-03 date of the enactment of sec_2642 which was enacted into law on date sec_2642 provides that in determining whether to grant relief under this paragraph 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 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 gst_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 sec_2652 provides that generally except as provided in this subsection or sec_2653 the term transferor means in the case of any property subject_to the tax imposed by chapter the decedent and in the case of any property subject_to the tax imposed by chapter the donor sec_26_2652-1 provides in part that generally the individual with respect to whom property was most recently subject_to federal estate or gift_tax is the transferor of that property for purposes of chapter an individual is treated as transferring any property with respect to which the individual is the transferor thus an individual may be the transferor even though there is no transfer of property under local law at the time the federal estate and gift_tax applies sec_26_2652-1 provides that a transfer is subject_to federal gift_tax if a gift_tax is imposed under sec_2501 without regard to exemptions exclusions deductions and credits a transfer is subject_to federal estate_tax if the value of the property is includible in the decedent’s gross_estate as determined under sec_2031 or sec_2103 sec_26_2652-1 example provides that t transfers dollar_figure to a new trust providing that the trust income is to be paid to t's child c for c's life and on the death of c the trust principal is to be paid to t's grandchild gc the trustee has discretion to distribute principal for gc's benefit during c's lifetime c has a right to withdraw dollar_figure from the trust for a 60-day period following the transfer thereafter the power lapses c does not exercise the withdrawal right the transfer by t is subject_to federal gift_tax because a gift_tax is imposed under sec_2501 without regard to exemptions exclusions deductions and credits and thus t is treated as having transferred the entire dollar_figure to the trust on the lapse of the withdrawal right c becomes a transferor to the extent c is treated as having made a completed_transfer plr-113077-03 for purposes of chapter therefore except to the extent that the amount with respect to which the power_of_withdrawal lapses exceeds the greater of dollar_figure or of the value of the trust property t remains the transferor of the trust property for purposes of chapter sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides 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 decedent’s estate is granted an extension of time of days from the date of this letter to allocate decedent’s available gst_exemption to decedent’s transfers to trust in year sec_2 though the allocation will be effective as of the dates of the transfers to trust and the value of the transfers to trust for gift_tax purposes will be used in determining the amount of gst_exemption to be allocated to trust the allocations should be made on form sec_709 and supplemental form sec_709 filed with the internal_revenue_service center cincinnati ohio a copy of this letter should be attached to the form sec_709 a copy is enclosed for this purpose 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 plr-113077-03 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 any aspect of any transaction or item discussed or referenced in this letter under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter cc


significant index number department of the treasury internal_revenue_service washington d c oct tax_exempt_and_government_entities_division qe tier rack taxpayer dear this letter constitutes notice that approval has been granted for your request for a 5-year automatic_extension for amortizing the unfunded liabilities as of date for the above-named plan which are described in sec_431 and sec_431 of the internal_revenue_code code and sections b b and b of the employee_retirement_income_security_act_of_1974 erisa’ this extension is effective with the plan_year beginning date this extension applies to the amortization charge bases as identified in your application submission established as of date with a total outstanding balance of dollar_figure as of that date the extension of the amortization periods of the unfunded liabilities of the plan was granted in accordance with sec_431 of the code sec_431 of the code requires the secretary to extend the period of time required to amortize any unfunded_liability of a plan for a period of time not in excess of years if the plan submits an application meeting the criteria stated in sec_431 the plan has submitted the required information to meet the criteria in sec_431 including a certification from the plan’s actuary that i absent the extension under subparagraph a the plan would have an accumulated_funding_deficiency in the current plan_year or any of the succeeding plan years ii the plan_sponsor has adopted a plan to improve the plan's funding status iii the plan is projected to have sufficient assets to timely pay expected benefits and anticipated expenditures -over the amortization period as extended and iv the notice required under paragraph a has been provided we have sent a copy of this letter to the authorized representative pursuant to a power_of_attorney on file in this office and to your this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited by others as precedent if you require further assistance in this matter please contact sincerely yours david m ziegler manager ep actuarial group


department of the treasury employer_identification_number contact person - id number contact telephone number uil internal_revenue_service p o box cincinnati oh release number release date date date legend b foundation c llc d project e religion f country g university h dollar amount j dollar amount m dollar amount n dollar amount p dollar amount dear you asked for advance approval of your educational grant procedures under internal reveriue code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax our determination we approved your procedures for awarding educational grants based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding educational grants meet the requirements of code sec_4945 as a result expenditures you make under these procedures will not be taxable description of your request b a foundation and the sole member of c operates an educational grant program called d the purpose of d is to expose participants to leadership and career opportunities nurture those skills and encourage participants to consider a career as a professional in the e cornmunity while b will primarily fund d b may request that other donors enter into their original grant agreement with the recipient in providing additional funding you plan on operating in connection with b to become an additional donor party to the grant agreement in doing so you will provide grants to the original recipient and funds would be administered and monitored under the procedures established by b described below you initially plan to invite anywhere from to college students who have demonstrated an affinity towards playing a leadership role in the e community and anticipate will seriously consider a career as a e communal professional to apply for d the first_phase of the program will involve recruitment during summer some distance learning during the fall semester of the first academic year and a scholarship and other funding for participants to spend the spring semester at a university in f currently anticipated to be g in addition to being a matriculated student program participants will participate in a number of additional educational activities which you expect to provide exclusively during the spring semester in f which may include e weekly educational seminars which will expose participants to e educational content leadership skills role models and career guidance educational tours single and multiple day tours of f consistent with the educational theme of the program opportunities to intern at educational institutions not-for-profit_organizations or other social service agencies in f planning sessions for the camp and campus projects e e e the duration of the first_phase of your program will last for approximately two years thereafter you will commit to funding new participants and the participant number will be determined after an assessment regarding the success of the program's first year and available_resources it is anticipated that you will recruit a new cohort each year to participate in phase of the program in connection with the spring semester in f you will award each participant a stipend to fully subsidize the cost of the tuition to attend their university on a financial needs basis you may also make scholarship funding available at the conclusion of phase i you will invite a number of participants who you believe are likely to pursue careers as e communal professionals either as a rabbi educator social worker or not- for-profit manager to apply for a fellowship to graduate school you anticipate awarding a certain number of fellowships to deserving applicants to attend graduate school phase ii will last for the duration of the graduate program in which participants are matriculated students you anticipate focusing your recruiting efforts on the senior staff at certain summer camps that have substantial e educational programming and inviting such individuals to identify potential college age staff members who would be appropriate candidates to apply to your program your staff will then send promotional materials and an application to such senior camp staff and once potential applicants are identified you will send such materials directly to such college students program staff will also visit certain summer camps that have substantial e educational programming to recruit potential program participants and will market the program directly to college age staff at such camps letter catalog number 58222y in the event that your selection process does not yield enough candidates to meet the participant numbers you may broaden your process and recruit college students directly from nominations recommendations and referrals from other sources either by seeking individuals who have a track record of service within the e community or by virtue of the fact that such individuals are already scheduled to spend the spring semester abroad at an university in f you will provide such individuals with recruitment materials and an application that needs to be completed individuals will then interview with your staff while the participants are in f for the spring semester they will receive guidance on the development of an educational project that they will be responsible for implementing during the following summer and on their college campus during the following academic year you will underwrite the cost and will provide a mentor providing guidance on the development of this project you will also underwrite a budget expected on average to equal approximately j dollars to support implementation costs such amount will be dependent upon a budget the participant will submit for approval upon successful implementation during the summer you will pay a m dollars honorarium to the participant during the second year participants in good standing would be invited to an in person multi- day educational conference in the united_states you will underwrite all travel lodging and food expenses to enable participants to attend the conference program participants are also expected to implement an educational program on their college campus or in the local community during the second year of your program in connection with such project you will underwrite the cost of and provide a mentor to provide guidance on the development of this project expected on average to equal approximately h dollars to support implementation costs such amount will be dependent upon a budget that the participant would submit for your approval upon successful completion of this project during the second year of the program you will pay aj dollars honorarium to the participant selection for participation in phase will be based in connection with the following parameters the level of engagement in e the level of the interest in pursuing a career as a e communal professional aptitudes of the applicant in a career as a communal e professional academic achievements strength of the letter of reference for such applicant interview and interpersonal skills as determined by your staff life of the applicant to obtain a fellowship during phase ii of d the participant must demonstrate to your staff superior leadership abilities a passion to serve and work in a professional capacity in a not-for-profit organization that serves the e community and superb academic capabilities demonstrated in their coursework at their f university and at their domestic college fellowship recipients are eligible for up to three years of support or the duration of the academic program if it is longer than three years fellowship recipients must be accepted into a graduate program and remain in good standing at the academic institution where they are studying in order to continue to receive your financial support letter catalog number 58222y phase ii participants will also participate in certain distance learning and may be asked to mentor future phase participants phase ii participants may also be invited to an educational conference held in the united_states selection for participation in phase ii will be based on the level of promise and aptitudes that the phase participants have demonstrated towards fulfilling the program objective - pursuing a successful career as a communal professional either as a rabbi cantor educator social worker or administrator for a not-for-profit organization only individuals who were participants in phase will be considered for phase ii staff will consider the criteria referenced above including the ability and capacity of the participant to plan and implement a quality program of e content in either a camp or campus setting the n dollars tuition subsidy that each participant will receive is intended to match the tuition cost at their university in f for the spring semester additionally on a needs basis participants are eligible to apply for additional scholarship support if they can demonstrate to you that their families would be unable to afford the costs of attending your program in f the amount of such scholarship would directly relate to the anticipated actual costs of attending spring semester and the demonstrated financial needs of the participant additionally while in f during the spring semester you will pay for the costs of the educational programming and touring that is made available exclusively to program participants you will award certain participants with a fellowship up to p dollars annually for up to three years to enable fellows to attend graduate school to study to become a rabbi cantor educator social worker or not-for-profit manager such fellowship awards may cover the costs of tuition housing and living_expenses and will be subject_to your discretion you anticipate staffing an advisory committee to inform shape and advise the development and implementation of the program you will identify knowledgeable educators with expertise and experience in the subject matter that will be the focus of your program your committee may also be tapped to identify alternative locations programs from which you will recruit prospective participants committee members may also have input on the recruitment process and selection criteria your selection committee will be comprised of your staff and an outside expert consultant knowledgeable in program implementation engaged by you to support the development and implementation of your program selection committee members will be individuals with knowledge and expertise in operating educational programs for college students and may or may not comprise members of the advisory committee your selection committee will also be responsible for identifying any relationships between potential applicants and disqualified persons ensuring that individuals with any such relationship s are not invited to participate in your program during phase i officers or other c representatives will regularly communicate with participants in the program to receive feedback on how the grant monies are being spent this will include reports on all aspects of the educational programming in the united letter catalog number 58222y states and f as well as the implementation of the two related projects in connection with phase ii of the project your staff will monitor and remain in regular communication with fellowship recipients and will monitor how grant monies are being spent in connection with phase ii of d c in its sole discretion may take any and all such reasonable and appropriate steps including possible legal action to compel compliance of use of funds for their intended purpose including requiring the return of all or any portion of funds remitted and the withholding of funds not previously remitted in connection with d potential participants who are related to whether by blood or through marriage or have any direct or indirect affiliation with d staff or any of your or c’s directors officers or employees will be ineligible to participate no director officer_or_employee of you or c or any other person who is involved in the process of selecting applicants will be in a position to derive a private benefit directly or indirectly if certain participants are selected over others you will pre-screen any and all non-u s applicants using the treasury department’s specially designated nationals and blocked persons list sdn the fbi’s most wanted terrorists list the state department’s terrorist exclusion list the u s bureau of industry and security's denied persons list unverified list and entity list and similar lists maintained by the united nations basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure e e e the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is - - - ascholarship or fellowship subject_to sec_117 and is to be used for study at an educational_organization described in sec_170 or aprize or award subject_to the provisions of sec_74 if the recipient of the prize or award is selected from the general_public or to achieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar skill or talent of the recipient to receive approval of its educational grant procedures sec_53_4945-4 requires that a private_foundation show e e the grant procedure includes an objective and nondiscriminatory selection process the grant procedure results in the recipients performing the activities the grants were intended to finance letter catalog number 58222y the foundation plans to obtain reports to determine whether the recipients have performed the activities that the grants were intended to finance other conditions that apply to this determination this determination covers only the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don't differ significantly from those described in your original request this determination applies only to you it may not be cited as precedent you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes in your program to the cincinnati office of exempt_organizations at internal_revenue_service exempt_organizations determinations p o box cincinnati oh you cannot make grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and must further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 b you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary we've sent a copy of this letter to your representative as indicated in your power_of_attorney please keep a copy of this letter in your records if you have any questions please contact the person listed at the top of this letter enclosures notice redacted letter sincerely director exempt_organizations letter catalog number 58222y