uil tax_exempt_and_government_entities_division - release number release date department of the treasury internal_revenue_service commerce street ms dal dallas tx date person to contact identification_number contact telephone number in reply refer to ein last date for filing a petition with the tax_court the claims_court or the united_states district_court for the district of columbia date certified mail - return receipt requested dear this is a final adverse determination as to your exempt status under sec_501 of the internal_revenue_code irc our adverse determination was made for the following reasons exemption from income_tax is a matter of legislative grace and taxpayers have the burden of establishing their entitlement to exemption you have not demonstrated that you are operated exclusively for charitable educational or other exempt purposes within the meaning of sec_501 in addition you have maintained very few books_and_records sec_6033 of the irc requires organizations exempt from tax to kcep such records and render such statements as are required by such rules and regulations as the secretary may prescribe sec_1_6033-2 h requires organizations exempt from tax to submit such additional information as may be required by the internal_revenue_service for the purpose of inquiring into the organization’s excinpt status based upon the above we are revoking your organization's exemption from federal_income_tax under sec_501 of the internal revenuc code retroactively to january 20xx you have agreed to this determination by signing forin 6018-a on august 20xx contributions to your organization are no longer deductible under sec_170 of the internal revenue cade uil processing of income_tax returns and assessment of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination in court you must initiate a suit for declaratory_judgment in the united_states tax_court the united_states claims_court or the district_court of the united_states for the district of columbia before the day after the date this determination was mailed to you contact the clerk of the appropriate court for the rules for initiating suits for declaratory_judgment you also have the right to contact the office_of_the_taxpayer_advocate however you should first contact the person whose name and telephone number are shown above since this person can access your tax information and can help you get answers you can call and ask for taxpayer_advocate assistance or you can contact the taxpayer_advocate from the site where the tax_deficiency was detcrmined by calling or writing to internal revenuc service office of taxpayer_advocate taxpayer_advocate assistance cannot be used as a substitute for established irs procedures formal appeals processes etc the taxpayer_advocate is not able to reverse legal or technically correct_tax determinations nor extend the time fixed by law that you have to file a petition in the united_states tax_court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours sumlt lougl- sunita lough director eo examinattons department of the treasury te_ge - eo division mdp broadway room nashville tn internal_revenue_service yee cent entit government entities uil division date taxpayer_identification_number form tax_year s ended december 20xx person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of the report of our findings explaining why we believe revocation of your exempt status under sec_501 of the internal_revenue_code code is necessary if you accept our findings take no further action we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision your protest should include a statement of the facts the applicable law and arguments in support of your position an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process you may also request that we refer this matter for technical_advice as explained in publication if we issue a determination_letter to you based on technical_advice no further administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice letter catalog number 34809f uil if we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notify the appropriate state officials of the revocation in accordance with sec_6104 of the code you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter the most convenient time to call if we need to contact you if you write please provide a telephone number and thank you for your cooperation sincerely sunita b lough director eo examinations enclosures publication publication report of examination form 6018-a letter catalog number 34809f schedule no or exhibit e 886a name of taxpayer department of the treasury - internal_revenue_service explanation of items year period ended december the issue sec_1 whether accomplish its exempt_purpose is actively engaged primarily in activities that july xx whether operated exclusively for exempt purposes within the internal_revenue_code sec_501 c the facts henceforth the organization received income_tax exemption as _ the 20xx for-profit company per interview with the founder he stated described in sec_501 on january 29xx the books_and_records of the organization for the period ending december 20xx were examined on october 20xx the organization also failed to file form_990 return for the period ending december until our examination with the exception of its organizing documents the organization has carried on very little of its exempt_purpose activities and therefore has generated little or no books_and_records to demonstrate its ability to carry on its exempt_purpose activities at the time of our field_examination in 20xx the organization had no bank account of its own or any other financial record to meet its public support_test founder of the organization was the only officer during the audit who also manages that he spends about hours each month running the affairs of the organization the bulk of his time is spent running the for-profit company because as he put it it is the company that pays the bills in its form 990-ez return for the year ending december secured during the field_examination the organization reported dollar_figure and dollar_figure in total expense essentially the organization has carried out very little of its exempt_purpose activities and or has been inactive since it was granted tax exemption as exemplified by lack records for these activities with state of was filed and completed the internal_revenue_service went through a lengthy form_1023 application process and sent at least eight letters requesting additional information from organization in order to clarify several operational employee officer stock nonprofit corporation on february on january 29xx dissolution of the organization was filed with the state of under the same name on december 20xx apparently before the dissolution was first incorporated under the laws of the state of department of the treasury - internal_revenue_service and reincorporated in the state of in total revenue form 886-acrev background as a non- page -- l department of the treasury - internal_revenue_service schedule no or exhibit form 886a year period ended name of taxpayer explanation of items december 20xx compensation as well as activity issues in its application_for exemption and often the organization’s responses were cither incomplete or inadequate resulting in additional correspondence between the irs and organization for example in irs letter dated june xx the organization was asked to provide a copy of its typical dmp customer contract customer referral agreement to other organizations in some of the questions in its response received on july the organization stated when our 501c3 application was initially submitted we had aspirations of becoming a debt management settlement and counseling services organization since that time our organization has changed its mission by deleting those services and reorganizing as a strictly financial education organization in another irs letter dated december oxx item number states the website still refers to the organization as ‘financial literacy credit counseling and debt management firm’ the organization will need to remove the activities the organization is not conducting please provide copies of the corrected web pages item number six of the same letter states also when conducting a search on the internet for the organization the organization is listed as a debt settlement and management organization and debt counseling organization if the organization is not involved in debt management and counseling services provide an explanation as to why the organization is advertized as debt management organization the organization will need to remove this activity if it is not involved in debt management and provide documentation that it is no longer conducting the activities in a determination_letter dated january 20xx was determined to be exempt from federal_income_tax as an organization described in sec_501 at the time of its application_for federal_income_tax exemption was located at the time of our initial contact for our field_examination the organization was located at by the date of our field_examination the organization had moved to website of the secretary of state state of administratively dissolved with certification of administrative dissolution dated august 20xx nearly two months before our field_examination shows current status as research of the organization by the examiner on the was founded by who is also the founder and president of 20x ‘ for-profit company in its response letter received on x to item number the organization stated we refer and receive referral july clients from the following agencies these agencies organizations are selected by continuous referral business to our organization referral activity is on a non-contractual basis the officer listed founded by among others both officers are also listed as board members of founded by form 886-arrev department of the treasury - internal_revenue_service page - form 886a schedule no or exhibit department of the treasury - internal_revenue_service explanation of items name of taxpayer year period ended december 20xx under examination the president is also a founding member of marketing name of a collaboration of seven for-profit business formed together to increase their marketability and profitability activity description in section of its by-laws the organization described its exempt_purpose as follows is organized for charitable and educational_purposes under sec_501 of the internal_revenue_code more specifically to provide relief of the distressed by providing affordable credit counseling debt management and debt settlement services and to educate the public at large particularly in the and surrounding areas about credit- related issues via financial literacy seminars _ in part iv narrative description of your activities of form_1023 application_for exemption the organization provided the following summary of its activities past activities from february 20xx through j une-o we aggressively sought to educate the public about credit-related issues by promoting our tree financial literacy seminars held at local public libraries in on a rotating basis these seminars further our exempt purposes by providing free consumer credit education to those who would not otherwise have such has earned the title of fortune magazine and smr research corp a hackettstown n j based business research firm that studies loan markets and lenders the total personal bankruptcy filing rate of the for more than a decade according to _-adults- almost _ times the national rate was birthed to fill a deep-seeded void in reliable dedicated affordable knowledgeable non-predatory source of personal financial management after serving the community for several years the management team has discovered that many people have great financial woes and simply do not know where to turn unfortunately these people find themselves facing foreclosures bankruptcies and declined credit application therefore and surrounding areas - a sponsors free financial literacy seminars to individual consumers and community organizations educating clients on the essentials of smart financial planning and providing all individuals with a better understanding about the proper use of credit -was0 pero present activities form 886-avrev management currently ‘is meeting the increasing demand for credit counseling and debt ‘offers confidential credit management education debt department of the treasury - internal_revenue_service page -- ‘orm 886a department of the treasury - internal revenuc service schedule no or exhibit name of taxpayer year petiod ended explanation of items december 20xx counseling debt settlement and debt management services to consumers nationwide with a primary focus in the debt and simply need some relief from their distress and a glimpse of hope ' management team works diligently to assist clients for the most affordable rate available for those who have the resources we are able to also negotiate debt with our area the majority our clients are heavy laden with teducing the debt by up to of the original amount owned doing so provides our clients with additional peace of mind from credit calls demanding payment in addition we are continuing our efforts to educate the community about consumer credit via our financial literacy seminars because of our limited funding we are unable to adequately market our services through the local media therefore we are seeking other alternatives to increase public awareness about ' and its services however we are witnessing increased interest in our debt management plan and debt settlement services via word-of-mouth publicity thus we are spending of our time providing credit counseling debt management and debt settlement services thcugh we are pleased with the increased interest in these services we realize the importance of marketing and presenting our financial literacy seminars this is particularly important as our goal is to differentiate ourselves by requiring all clients seeking credit and debt counseling services to first go through financial and credit education classes provided by’ at no cost to the client also as a provider of a personal financial management instructional course we are petitioning approval from the executive office for united_states trustees to be placed on their list of providers for those considering bankruptcy under the bankruptcy reform law such approval as a nonprofit budget and credit counseling agency is being requested as well during the year ended december 29xx - the year under examination the organization had very little activity at the time of the examination the founder stated that the organization has provided few financial education and literacy programs to the community at large in the area of home buying money management credit building investment lectures etc at no cost to the participants to help the community make informed decision on financial matters asked what was the primary source of financial support for the organization the officer stated that he contributes funds as well as solicit donations from participants at the end of their workshop sessions the organization provided little or no records of it activities the organization had no bank account bank statements records it provided a list of about signed-in participants for the year 20xx during the examination interview the officer was asked how many hours does he spend running exempt_organization since he is also involved with hours a month on the exempt_activities mostly responding to online enquiries and contacting people looking for information through the website the organization has for-profit companies the officer stated that he spends about department of the treasury - internal_revenue_service form 886-arev page -- schedule no or exhibit form 886a department of the treasury - internal_revenue_service explanation of items year period ended name of taxpayer december 20xx essentially become web-based as previously stated the organization provided very little records of its activities the organization has no employees only volunteers it provided two one-page board meeting no public support minutes one on february 29xx and the other on september 20xx contributions education and outreach revenue or expenditure bank statement records were provided by the organization upon subsequent discussion and request the organization provided three records of dmp agreements with three clients two of these were entered into in 20xx and one in january of 20xx which shows the organization did not totally stop dmp activities in20xx as previously indicated the law sec_501 of the internal_revenue_code provides that an organization described in sec_501 is exempt from income_tax sec_501 of the code exempts from federal_income_tax corporations organized and operated exclusively for charitable educational and other purposes provided that no part of the net_earnings inure to the benefit of any private_shareholder_or_individual the term charitable includes relief of the poor and distressed sec_1 c -1 d income_tax regulations the term educational includes a instruction or training of the individual for the purpose of improving or developing his capabilities and b instruction of the public on subjects useful to the individual and beneficial to the community sec_1_501_c_3_-1 in other words the two components of education are public education and individual training sec_1_501_c_3_-1 of the regulations provides that in order to be exempt as an organization described in sec_501 an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt sec_1_501_c_3_-1 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 that 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 the existence of a substantial nonexempt purpose regardless of the number or importance of exempt purposes will cause failure of the operational_test 326_us_279 form 886-acev department of the treasury - internal_revenue_service page - department of the treasury - internal_revenue_service schedule no or exhibit form 886a year period ended name of taxpayer explanation of items december 20xx sec_1_501_c_3_-1 educational_purposes include instruction or training of the individual for the purpose of improving or developing his capabilities and instruction of the public on useful and beneficial subjects in 326_us_279 the supreme court held that the presence ofa single non-exempt purposes if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes the court found that the trade_association had an underlying commercial motive that distinguished its educational program from that carried out by a university an organization must establish that it serves a public rather than a private interest and 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 sec_1_501_c_3_-1 interests include those of unrelated third parties as well as insiders 70_tc_1037 92_tc_1053 private benefits include an advantage profit fruit privilege gain or interest 78_tc_280 prohibited private revrul_69_441 1969_2_cb_115 granted c status to an organization with two functions it educated the public on personal money management using films speakers and publications and provided individual counseling to low-income individuals and families as part of its counseling it established budget plans ie debt management plans for some of its clients the debt management services were provided without charge the organization was supported by contributions primarily from creditors by virtue of aiding low income people without charge as well as providing education to the public the organization qualified for sec_501 status in the case of solutions plus inc vs commissioner of internal revenue t c memo on date the tax_court overwhelmingly supported the internal_revenue_service in finding that the credit_counseling_organization was not a c charitable or educational_organization the organization stated its intent to offer and service dmp’s on a national scale the organizations intended goal was to solicit potential clients for dmp’s there would be no other assistance provided to clients who did not qualify for dmp’s the court failed to find a meaningful education program or educational materials that the organization might send to prospective clients it found that the organization’s plans to provide seminars and workshops to high school students on sound financial management skills were an insignificant part of its overall activities it held that the organization’s activities were primarily structured to market determine eligibility for and enroll individuals in dmp’s the court concluded that the sale of form 886-a rev department of the treasury - internal_revenue_service page -- department of the treasury - internal_revenue_service schedule no or exhibit form 886a year period ended name of taxpayer explanation of items december 20xx dmp’s was the organizations primary reason for existence and its charitable and educational_purposes were at best minimal it held that the organization did not qualify for tax-exempt status under sec_501 outside the context of credit counseling individual counseling has in a number of instances been held to be a tax-exempt charitable activity revrul_78_99 1978_1_cb_152 free individual and group counseling of widows revrul_76_205 1976_1_cb_154 free counseling and english instruction for immigrants revrul_73_569 1973_2_cb_179 free counseling to pregnant women revrul_70_590 1970_2_cb_116 clinic to help users of mind-altering drugs revrul_70_640 1970_2_cb_117 free marriage counseling revrul_68_71 c b career planning education through free vocational counseling and publications sold at a nominal charge overwhelmingly the counseling activities described in these rulings were provided free and the organizations were supported by contributions from the public i improving any consumer’s credit record credit history or credit rating or the credit repair organizations act croa u s c et seq effective date imposes restrictions on credit repair organizations including forbidding the making of untrue or misleading statements and forbidding advance_payment before services are fully performed us c 1679b significantly sec_501 organizations are excluded from regulation under the croa a any person who uses any instrumentality of interstate commerce or the mails to sell provide or perform or represent that such person can or will sell provide or perform any service in return for the payment of money or other valuable consideration for the express or implied purpose of- the croa defines a credit repair organization as service described in clause i form 886-acev u s c 1679a the courts have interpreted this definition broadly to apply to credit counseling agencies the federal trade commission’s policy is that if an entity communicates with consumers in any way about the consumers’ credit situation it is providing a service covered by the croa 21_fsupp2d_424 n d n j ii providing advice or assistance to any consumer with regard to any activity or department of the treasury - internal_revenue_service page schedule no or exhibit form 886a department of the ‘i'reasury - internal revenuc service explanation of items year petriod ended name of taxpayer december 20xx businesses are prohibited from cold-calling consumers who have put their phone numbers on the national do-not-call registry which is maintained by the federal trade commission c f_r b iii b c f_r sec_64 c sec_501 organizations are not subject_to this rule against cold-calling because c organizations are exempt from regulation under the croa and the cold-calling restrictions organizations that are involved in credit repair have added incentives to be recognized as sec_501 organizations even if they do not intend to operate primarily for exempt purposes government’s position in order to qualify for exemption under sec_501 an organization must be both organized and operated to achieve a purpose that is described under that code section _ has not demonstrated its ability to operate as public charity organization by its inactivity failure to devote the necessary time to solicit public support in order to raise funds to carry out the public charity activities for which it was granted tax exempt status though the examination uncovered no evidence of private_inurement from the little record provided by the organization it is clear that the founder of the organization spends the bulk of his time managing his for-profit companies and has little or no time to manage the organization or recruit someone to do so in order to grow the exempt_organization the operation of exempt_organization with for-profit company with essentially identical names by the same officers in the same office facility use of the same equipments under the similar trade_or_business raises very serious concern and gives the appearance of private benefit as it is very easy to commingle books_and_records clients revenues expenditure etc and very difficult to tell where exempt_organization ends and for-profit company begins since the organization stopped its dmp activities in20xx available records including the past and present activities listed above show that _ has not really been able to carry out any meaningful exempt_purpose activity taxpayer position the position of government’s position as discussed in this report is unknown at this time will be allowed days to review this report and respond with respect to the issues facts applicable law and conclusion has not demonstrated its ability to operate exclusively for exempt purposes because of its continued inactivity inability to invest the necessary time and resources to solicit public support to firmly establish the organization in the community in 70_tc_352 citing lack of solicitation of contributions and sole support from fees as factors disfavoring exemption federation pharmacy services f 2d pincite the form_886 a rev department of the treasury - internal_revenue_service page -- form 886a name of taxpayer explanation of items year period ended department of the treasury - internal_revenue_service schedule no or exhibit 20xx december absence of contributions or of a plan to solicit contributions which are characteristic of a charitable institution militated against the finding of tax-exempt status it is clear that the organization failed both its operational and public support tests as demonstrated by this examination and should be revoked effective january 20x _ form 886-aciev department of the treasury - internal_revenue_service page --


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si - plr-114935-99 date date x a d1 year dear this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 of year a as x’s president represents that x was intended to be an s_corporation beginning year its first taxable_year the minutes of the organizational meeting of the board_of directors of x evidences this intent a form_2553 election by a small_business_corporation was filled out and signed by one shareholder but the other shareholder’s secretary mistakenly placed the form in a filing cabinet therefore no form_2553 was filed with the internal_revenue_service for year and subsequent years x has filed a form_1120s u s income_tax return for an s_corporation and x’s shareholders have filed individual tax returns consistent with x being an s_corporation sec_1362 of the code provides that if -- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x’s year taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x’s year taxable_year a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely yours branch j thomas hines acting branch chief office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ----------------------------- ---------------------------------------- ------------------------------------- ------------------------------------ ------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------------ telephone number ---------------------- refer reply to cc psi plr-110177-18 date date ----------------------------- x --------------------------------------------------- country date ------------ ------------------- dear ----------------- this letter responds to a letter dated date submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to make an election under sec_301_7701-3 to be classified as a partnership for federal tax purposes facts the information submitted states that x was formed on date under the laws of country x represents that as of date x was a foreign_entity eligible to elect to be classified as a partnership for federal tax purposes however x inadvertently failed to timely file a form_8832 entity classification election electing to be classified as a partnership effective date law and analysis sec_301_7701-3 provides in part 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 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner plr-110177-18 sec_301_7701-3 provides that except as provided in sec_301 b unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides in part that for purposes of sec_301_7701-3 a member of a foreign eligible_entity 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 sec_301_7701-3 provides in part that except as provided in sec_301_7701-3 and v an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides in part that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form 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 may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code 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 the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that a request for relief under sec_301_9100-3 will be granted when the taxpayer provides the 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 plr-110177-18 conclusion based solely on the information submitted and representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect to be classified as a partnership effective date a copy of this letter should be attached to the form_8832 this ruling is contingent on x and its owners filing within days from the date of this letter any required returns including amended returns consistent with the requested relief being effective on date to the extent appropriate these returns or amended returns must include but are not limited to forms information_return of u s persons with respect to certain foreign_partnerships such that these forms reflect the consequences of the relief granted in this letter a copy of this letter should be attached to any such returns or amended returns we express no opinion concerning the assessment of any interest additions to tax additional_amounts or penalties for failure_to_file a timely income_tax or information_return with respect to any taxable_year that may be affected by this ruling for example we express no opinion as to whether a taxpayer is entitled to relief from any penalty on the basis that the taxpayer had reasonable_cause for failure_to_file timely any income_tax or information returns except as expressly provided herein we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter in addition sec_301_9100-1 provides that the granting of an extension of time for making an election is not a determination that the taxpayer is otherwise eligible to make the election this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office we are sending a copy of this letter to x’s authorized representative plr-110177-18 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 ruling_request it is subject_to verification on examination sincerely associate chief_counsel passthroughs and special industries by ______________________________ james a quinn senior counsel branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


t c summary opinion united_states tax_court darrel w wyatt petitioner v commissioner of internal revenue respondent docket no 13215-12s l filed date darrel w wyatt pro_se sean p deneault for respondent summary opinion armen special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case pursuant to sec_6330 petitioner seeks review of respondent’s determination sustaining a proposed levy to collect his self-reported but unpaid federal_income_tax liability for petitioner challenges the existence of such liability to the extent that it arose from income from cancellation of indebtedness petitioner also challenges the existence or amount of his self-reported addition_to_tax for failure to pay estimated_tax finally petitioner challenges the existence or amount of an addition_to_tax for failure to timely pay that respondent assessed after petitioner failed to satisfy his self-reported tax_liability the principal issue for decision is whether the forgiveness of a loan gave rise to income from cancellation of indebtedness the court must also decide whether petitioner is liable for an addition_to_tax for failure to pay estimated_tax and an addition_to_tax for failure to timely pay tax reported on a return unless otherwise indicated all subsequent section references are to the internal_revenue_code as amended and in effect at all relevant times all rule references are to the tax_court rules_of_practice and procedure background some of the facts have been stipulated and they are so found we incorporate by reference the stipulated facts and the related exhibits petitioner resided in the state of florida at the time that the petition was filed petitioner’s profession petitioner is a physician he graduated from the university of arkansas college of medicine at little rock in and is board certified in obstetrics and gynecology recruitment of petitioner by putnam community medical center in petitioner moved to putnam county florida putnam county which is in the interior of the state is rural and among florida’s poorer counties it is also medically underserved when petitioner moved to putnam county he became affiliated with the putnam community medical center hospital in palatka the county seat petitioner’s affiliation with the hospital continued uninterrupted through the date of trial petitioner was recruited to practice in putnam county by the hospital as part of its effort to better serve the community’s health needs in furtherance of that effort petitioner and the hospital entered into a recruiting agreement pertinent provisions of which provided as follows this recruiting agreement is made and entered into st thi sec_1 day of date by and between darrel wyatt m d hereinafter physician and putnam community medical center hereinafter hospital witnesseth whereas physician has agreed to relocate to and commence the private practice of medicine in the geographic area served by the hospital in palatka fl the community and whereas there is a need in the community for the medical services provided by physician and whereas hospital desires to assist physician in establishing his practice now therefore physician and hospital hereby agree as follows physician shall on or before date engage in the full-time private practice of medicine as a gynecologist in the community in order to assist in the establishment of physician’s practice as described herein hospital agrees to provide the assistance described in the following addenda which are executed simultaneously herewith and shall be deemed to be a part of this agreement x net collectable revenue guarantee with repayment forgiveness physician shall maintain active medical staff membership and privileges in good standing and comply fully with hospital’s rules regulations and medical staff bylaws and physician agrees to engage in the private practice of medicine as a gynecologist in the community on a full-time permanent basis for at least months after physician commences said private practice at all times during the term of this agreement physician shall be available for emergency room coverage for patients at hospital’s emergency room at all times during the term of this agreement physician is and shall be an independent_contractor and not a servant agent or employee of hospital as one of the simultaneously executed addenda to the recruiting agreement between petitioner and the hospital an addendum denominated net collectable revenue guarantee with repayment forgiveness hereinafter revenue guarantee repayment forgiveness addendum provided in part as follows this addendum is attached to made a part of and executed simultaneously with that certain recruiting agreement between physician and hospital dated the day of date st hospital hereby agrees to loan physician certain amounts of money which hospital shall advance as a guarantee of gross cash receipts as defined in paragraph hereinafter for physician of thirty-two thousand nine hundred fifty three dollars dollar_figure hereinafter the guarantee amount per month for a period of twelve months hereinafter the guarantee period beginning on the first date physician actively commences the private practice of medicine in the community gross cash receipts and any guarantee amount payments are to be used to cover the expenses of physician’s medical practice and provide income to physician at the end of each calendar month during the guarantee period hospital shall pay to physician the amount by which physician’s gross cash receipts are less than the guarantee amount the amount so paid shall be the guarantee payment as used herein the term gross cash receipts shall mean all cash collected by physician from all phases from the practice of medicine from any and all sources whatsoever regardless of location including but not limited to office calls hospital practice nursing homes and emergency room treatments further if during any month physician’s gross cash receipts exceed the monthly guarantee amount physician shall immediately forward payment to hospital along with physician’s statement of gross cash receipts in an amount equal to one hundred percent of such excess_amount excess for the month up to the amount of total guarantee payments made by hospital to physician pursuant to this agreement if at any time during the term of this agreement physician’s gross cash receipts total dollar_figure the hospital shall have no further obligation to pay physician any amounts hereunder at the end of the guarantee period an audit of physician’s financial records shall be performed by a representative of hospital to determine physician’s total guarantee payments for the guarantee period not otherwise recouped pursuant to any other provision of this addendum as well as other_amounts due from physician to hospital in accordance with the terms of other addenda attached to the recruiting agreement this total amount shall be the loan repayment amount physician’s repayment of the loan repayment amount shall be due and payable immediately unless physician requests a deferred payment plan if the payment plan is to extend longer than six months physician’s obligations shall be evidenced by a promissory note from physician to hospital such note shall bear interest at the fixed rate of prime plus one percent with interest accruing from the end of the guarantee period physician shall also grant hospital a perfected security_interest in physician’s accounts_receivable and or other assets to be determined at hospital’s sole discretion physician shall cooperate fully with hospital’s efforts to obtain repayment notwithstanding the provisions of paragraph of this addendum in recognition of the fact that physician is initiating a start-up initial practice and to induce physician to remain in the community beyond the guarantee period hospital agrees that it will forgive and cancel one thirty-sixth 36th of the loan repayment amount for each full calendar month physician i remains in the full-time practice of medicine in the community after the end of the guarantee period ii maintains active medical staff membership and privileges in good standing at the hospital and iii remains available for emergency room coverage for patients of hospital’s emergency room including without limitation unassigned call coverage on date petitioner and the hospital entered into an additional addendum to the date recruiting agreement this additional addendum was denominated advance on net collectable revenue guarantee hereinafter advance on revenue guarantee addendum and it provided in pertinent part as follows whereas hospital and physician executed that certain net collectible revenue guarantee with repayment forgiveness addendum the guarantee addendum simultaneously with the recruiting agreement for the purpose of loaning certain amounts of money to physician to cover physician’s medical practice expenses and provide income to physician and whereas hospital desires to advance to physician a portion of the guarantee amount now therefore hospital and physician hereby agree as follows upon request of physician hospital shall advance to physician the guarantee amount of thirty-two thousand nine hundred fifty-three and dollars dollar_figure in up to one monthly installment prior to physician’s start date the advancement period physician’s guarantee amount in month twelve will be reduced by the amount advanced to physician during the advancement period during the guarantee period petitioner received net guarantee payments of dollar_figure from the hospital pursuant to the date recruiting agreement and its two relevant addenda ie the revenue guarantee repayment forgiveness addendum and the advance on revenue guarantee addendum since signing the date recruiting agreement and its addenda petitioner has consistent with the terms of paragraph of the revenue guarantee repayment forgiveness addendum continuously remained in the full-time practice of medicine in the geographic area served by the hospital maintained an active medical staff membership and privileges in good standing at the hospital and been available for emergency room coverage for patients at the hospital’s emergency room accordingly because petitioner complied with all of the terms of paragraph of such addendum the hospital ratably forgave and canceled the following amounts of the net guarantee payments of dollar_figure that petitioner had received from the hospital during the guarantee period year proportion of total_payment amount forgiven canceled forgiven canceled dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure as previously stated upon the completion of the guarantee period petitioner remained in the full-time practice of medicine in putnam county maintained his affiliation with the hospital and otherwise complied with all terms and requirements of the date recruiting agreement and its relevant addenda accordingly at the end of the guarantee period petitioner had no reason to and did not formally request a deferred payment plan nor did he execute a promissory note or grant the hospital a perfected security_interest in his accounts_receivable or other assets pursuant to paragraph of the revenue guarantee repayment forgiveness addendum petitioner’s income_tax returns for petitioner filed federal_income_tax returns for through and attached to each return a schedule c profit or loss from business reporting net profit from his practice as a physician in palatka florida petitioner included as other income in part i income of each schedule c the amount forgiven and canceled by the hospital pursuant to paragraph of the revenue guarantee repayment forgiveness addendum petitioner’s reporting of such amounts was consistent with forms 1099-misc miscellaneous income that he received from the hospital for each of the years through which forms in this regard the record includes a letter dated date from the hospital’s chief_executive_officer that states in part as follows dr wyatt remained in the community and complied with all of the terms of the recruiting agreement thereby his personal obligations were met and no promissory note for loan repayment was sought by the hospital based upon dr wyatt’s satisfactory completion of all terms pursuant to the recruiting agreement with the hospital the loan amounts were cancelled and forgiven and thereby no promissory note was required and no collection efforts were made for dr wyatt ’s loan reported the payment of nonemployee compensation in the amounts forgiven and canceled by the hospital pursuant to paragraph of the foregoing addendum for the taxable_year preceding the one in issue petitioner reported total_tax of dollar_figure on his income_tax return additional facts regarding petitioner’s return petitioner’s income_tax return for was prepared by a certified_public_accountant and timely filed pursuant to an extension on his return petitioner listed his filing_status as single and he reported total_tax of dollar_figure which included self-employment_tax from his medical practice petitioner claimed no payments or credits against total_tax specifically petitioner made no estimated_tax payments and he reported an estimated_tax penalty of dollar_figure thereby resulting in a total reported amount due of dollar_figure ie dollar_figure dollar_figure petitioner did not remit with his return payment for any part of the reported amount due respondent assessed the tax and estimated_tax penalty reported by petitioner on his return respondent also assessed an addition_to_tax under sec_6651 for failure to timely pay the tax reported on the return as well as statutory interest collection activity after petitioner failed to pay any part of his tax_liability for respondent issued a final notice_of_intent_to_levy for that year in response petitioner timely filed a form request for a collection_due_process or equivalent_hearing in his form petitioner expressed interest in an offer-in-compromise and during the course of the administrative hearing petitioner submitted a form 656-l offer_in_compromise doubt as to liability seeking to compromise his tax_liabilities for through the four years for which the hospital forgave and canceled amounts pursuant to paragraph of the revenue guarantee repayment forgiveness addendum in contrast petitioner never in his form petitioner referenced three taxable years and the record in the instant case does not include a copy of the final notice that prompted petitioner to file the form nor does the record include a transcript of account for any year other than as discussed infra in the text the offer-in-compromise based on doubt as to liability that petitioner subsequently submitted referenced through ie the four taxable years for which amounts were forgiven and canceled by the hospital however as will be shown infra in the text the notice_of_determination upon which the instant case is based was issued solely in respect of petitioner’s outstanding liability for in short the status of petitioner’s accounts for and is not definitively disclosed in the record in any event those years are not before the court in the instant case see sec_6330 petitioner did not make any other offer during the administrative hearing proposed a collection alternative based on doubt as to collectibility nor did he ever propose an installment_agreement or submit a form 433-a collection information statement for wage earners and self-employed individuals or other financial information regarding his ability to pay in his aforementioned offer-in-compromise based on doubt as to liability petitioner proposed to satisfy outstanding tax_liabilities for through for dollar_figure an amount roughly equaling the sum of the taxes for those four years calculated by him without regard to the amounts forgiven and canceled by the hospital respondent’s settlement personnel considered petitioner’s offer-in- compromise but ultimately rejected it because doubt as to liability was not established during the course of the administrative process petitioner never submitted a form_843 claim_for_refund and request for abatement nor did he otherwise request that interest be abated after respondent issued a notice_of_determination petitioner commenced the instant case as acknowledged in the petition the notice_of_determination as well as the attachment thereto addressed only the taxable_year see supra note the calculations were expressed on amended returns--form sec_1040x amended u s individual income_tax return--submitted by petitioner in conjunction with his offer discussion i administrative hearings under sec_6330 sec_6331 authorizes the commissioner to levy upon property and rights to property of a taxpayer who is liable for taxes and who fails to pay those taxes within days after notice_and_demand for payment is made sec_6331 provides that the levy authorized in sec_6331 may be made only if the commissioner has given notice to the taxpayer no less than days before the day of the levy sec_6330 also provides for notice and in addition confers on the taxpayer the right to request a pre-levy administrative hearing sec_6330 b see 115_tc_35 114_tc_176 if such a hearing is requested the hearing is conducted by the irs office of appeals sec_6330 at an administrative hearing the taxpayer may raise any relevant issue and may make an offer of a collection alternative such as an offer-in-compromise or an installment_agreement sec_6330 a taxpayer may also challenge the existence or amount of the underlying tax_liability but only if the taxpayer did not receive a statutory_notice_of_deficiency with respect to the liability or did not otherwise have an opportunity to dispute it sec_6330 ii judicial review a in general a determination made by the irs office of appeals under sec_6330 to sustain a proposed levy may be reviewed by this court sec_6330 see rules in general upon review of a notice_of_determination sustaining a collection action the court will limit its review to those issues properly raised during the administrative hearing 129_tc_107 118_tc_488 where the underlying tax_liability is properly at issue the court reviews the determination de novo goza v commissioner t c pincite where the underlying tax_liability is not at issue the court reviews the determination for abuse_of_discretion id pincite see also 114_tc_604 b right to challenge the underlying liability respondent concedes that petitioner properly raised the issue of his underlying liability for during the administrative hearing because petitioner never received a statutory_notice_of_deficiency nor otherwise had a prior opportunity to challenge either his self-reported liability or the addition_to_tax under sec_6651 for failure to timely pay as a consequence respondent concedes and the court agrees that petitioner may challenge his underlying liability for see sec_6330 122_tc_1 holding that a taxpayer may challenge self-assessed tax_liability in an administrative hearing if the taxpayer did not have a prior opportunity to challenge such liability accordingly the court proceeds to review petitioner’s underlying tax_liability for de novo see goza v commissioner t c pincite iii petitioner’s underlying liability for a loan amounts received from the hospital the parties agree that the amounts received by petitioner from the hospital pursuant to the revenue guarantee repayment forgiveness addendum represented a bona_fide loan see rosario v commissioner tcmemo_2002_70 holding that a hospital’s income guaranty with repayment forgiveness strikingly similar to the one in the instant case that was offered in exchange for the taxpayer’s agreement to practice medicine in a rural_area for at least three years was a bona_fide loan but see vancouver clinic inc v united_states no cv-05016-rbl wl w d wash date the court proceeds consistent with the parties’ agreed view money received pursuant to a loan is not includable in gross_income at the time that it is lent because there is an obligation to repay it see 461_us_300 however if the obligation to repay is forgiven or canceled by the lender gross_income may arise see a 284_us_1 see also sec_108 in general cancellation of indebtedness produces income in an amount equal to the difference between the amount due on the obligation and the amount_paid for the discharge see 23_f3d_1032 6th cir aff’g tcmemo_1992_673 the rationale for this principle is that cancellation of indebtedness provides the debtor with an economic benefit that is equivalent to income kirby lumber co 284_us_1 see 216_f3d_537 6th cir aff’g tcmemo_1998_196 b whether petitioner received cancellation_of_indebtedness_income although the amount that petitioner received from the hospital pursuant to the revenue guarantee repayment forgiveness addendum represented a bona_fide loan petitioner contends that the loan was a nonrecourse loan ie that he was not personally liable for its repayment and that as a consequence he did not receive income when the loan was forgiven and canceled by the hospital the court disagrees with the premise of petitioner’s argument contrary to what petitioner appears to assume the fact that he never executed a promissory note is not determinative of personal liability thus if petitioner had failed to honor his part of the parties’ bargain there is nothing in the recruiting agreement that would have barred the hospital from suing him to recover the unrepaid loan amount indeed paragraph of the revenue guarantee repayment forgiveness addendum stated that petitioner’s repayment of the loan repayment amount was due and payable immediately upon completion of the guarantee period unless he requested a deferred payment plan petitioner did not formally request a deferred payment plan and the hospital did not choose to demand immediate payment because consistent with the parties’ expectations he remained in the community continued his medical practice and maintained his affiliation with the hospital the possibility that petitioner might have been asked to grant hospital a perfected security_interest if he had not remained in practice in putnam county or had otherwise breached his obligations under the recruiting agreement or had been granted a deferred payment plan is not incompatible with personal liability as personal liability is often a feature of a secured loan in any event there is nothing in the record to suggest that petitioner and the hospital ever entered into a security_agreement indeed as the hospital’s chief_executive_officer stated because petitioner complied with all of the terms of the recruiting agreement the hospital found it unnecessary to pursue any collection remedy against him such as demanding a perfected security_interest in his accounts receivables or other assets in other words the hospital assumed the risk of being and remaining an unsecured creditor presumably because it had faith that petitioner would fulfill his side of the bargain but the assumption of that risk by the hospital did not negate the fact that a loan existed in respect of which petitioner was personally liable further although the court does not accept the premise of petitioner’s contention regarding the nature of the loan it bears mention that just because a taxpayer is not personally liable for a debt does not mean that cancellation of indebtedness cannot give rise to income e g 88_tc_984 holding that the discharge from a portion of the liability for an undersecured nonrecourse obligation through a cash settlement gave rise to cancellation_of_indebtedness_income in sum petitioner paid nothing to the hospital on his loan after the one-year guarantee period thereafter the hospital consistent with paragraph of the revenue guarantee repayment forgiveness addendum forgave the balance of the loan ratably over the course of the next months under these circumstances although informal irs publications are not authoritative sources of federal tax law see 59_tc_456 the court notes that irs publication canceled debts foreclosures repossessions and abandonments for individuals upon which petitioner relies states that forgiveness or cancellation of nonrecourse debt can give rise to income forgiveness and cancellation of the loan gave rise to income see cox v commissioner tcmemo_1996_241 stating that taxpayer was not taxed on the advances when received but he is taxable on the discharge of the obligation to repay them accordingly petitioner received income from cancellation of indebtedness as reported on his return c additions to tax failure_to_pay_tax reported on return sec_6651 provides for an addition_to_tax in the case of a failure to timely pay the amount shown as tax on a return the addition_to_tax does not apply if the taxpayer’s failure to do so was due to reasonable_cause and not due to willful neglect in the instant case the record demonstrates that petitioner filed a return and reported total_tax of dollar_figure for however he did not make any prepayments of tax nor did he remit any payment with his return thus respondent has satisfied his burden of production under sec_7491 and it is incumbent on petitioner to demonstrate that his failure to pay was due to reasonable_cause and not due to willful neglect see rule a 116_tc_438 at trial petitioner testified that he lacked sufficient income to pay his reported liability at the time that he filed his return however petitioner did not describe his overall financial situation and he did suggest that he had resources other than current income upon which he could draw to satisfy his liability in short petitioner did not persuasively demonstrate that paying his reported liability on time would have required the risk of a substantial financial loss such that the addition_to_tax might be excused see merriam v commissioner tcmemo_1995_432 wl at aff’d per order 107_f3d_877 9th cir accordingly the court holds that petitioner is liable for the addition_to_tax under sec_6651 failure to pay estimated_tax with certain exceptions sec_6654 imposes an addition_to_tax in the case of any underpayment of estimated_tax by an individual a taxpayer has an obligation to pay estimated income_tax for a particular taxable_year if the taxpayer has a required_annual_payment for such year 127_tc_200 aff’d 521_f3d_1289 10th cir in the instant case the record demonstrates that petitioner filed a return and reported total_tax of dollar_figure for the taxable_year in issue for the preceding year petitioner filed a return and reported total_tax in an even greater amount under these circumstances petitioner had a required_annual_payment for see sec_6654 sec_6654 sets forth several narrowly defined exceptions to this addition_to_tax however no exception has been shown to apply accordingly petitioner remains liable for the addition_to_tax for failure to pay estimated_tax as self-reported on his return d interest abatement at trial petitioner requested for the first time that interest be abated however the general_rule in this court is that on appeal of a collection determination judicial review is limited to those issues properly raised during the administrative hearing giamelli v commissioner t c pincite magana v commissioner t c pincite in this regard petitioner failed to properly raise the issue of interest abatement at any time during the administrative hearing by either submitting a form_843 or otherwise making a request for interest abatement accordingly such issue may not now be considered in the judicial proceeding see day v commissioner tcmemo_2014_215 at see also in addition it should be recalled that respondent never determined or asserted the addition_to_tax rather petitioner reported it on his return sec_301_6330-1 q a-f3 proced admin regs cf sec_6404 h rules conclusion all of the arguments advanced by petitioner have been considered to the extent not expressly addressed above the court concludes that those arguments are without merit moot or irrelevant to give effect to our disposition of the disputed issues decision will be entered for respondent for example petitioner argues that when debt is canceled the creditor should issue a form 1099-c cancellation of debt and not a form 1099-misc although this may be so the fact of the matter is that a bookkeeping error does not serve to negate income arising from the forgiveness or cancellation of debt see mcallister v commissioner tcmemo_2013_96 at


internal_revenue_service number release date index number --------------------------- -------------------------- ------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------------- id no ----------- ---------------- telephone number -------------------- refer reply to cc psi plr-140953-13 date february grantor individual individual individual individual trust state trustee foundation ----------------------------------------------------------------------------------------- ------------------------------------ ----------------------------------------------------------------------------------------- ---------------------------------- ----------------------------------------------------------------------------------------- ---------------------------------- ----------------------------------------------------------------------------------------- --------------------------------- ----------------------------------------------------------------------------------------- ---------------------------------- ------------------------------------ ---------- ------------------ -------------------------------- dear ------------ this responds to a letter dated date and subsequent correspondence requesting rulings under sec_671 sec_2501 and sec_2514 of the internal_revenue_code the information and representations submitted state that grantor proposes to create an irrevocable_trust trust for the benefit of himself his issue his children’s issue and individual individual individual and individual trustee is a_trust company located in state during grantor’s lifetime the trust beneficiaries are grantor and four adult individuals beneficiaries plr-140953-13 article of trust provides that trustee must make distributions of income and principal as directed by distribution committee and or grantor as follows at any time trustee pursuant to the direction of a majority of distribution committee members with the written consent of grantor shall distribute to or for the benefit of such one or more members of the beneficiaries such amounts of the net_income or principal as directed by the distribution committee until the death of grantor grantor’s consent power at any time trustee pursuant to the direction of all distribution committee members shall distribute to any one or more of the beneficiaries such amounts of the net_income or principal as directed by the distribution committee unanimous member power and at any time grantor in a nonfiduciary capacity may but shall not be required to distribute to any one or more of the beneficiaries other than grantor grantor’s estate grantor’s creditors and the creditors of grantor’s estate such amounts of the principal including the whole thereof as grantor deems advisable to provide for the health education maintenance or support of grantor’s issue grantor’s sole power further trustee shall add all undistributed_net_income to principal at least annually article of trust provides that upon grantor’s death the principal and all income of trust shall be distributed as grantor may appoint by will to or for the benefit of anyone other than grantor’s estate grantor’s creditors or the creditors of grantor’s estate in default of the exercise of this limited power to appoint grantor’s testamentary power the balance of trust will be divided into two equal parts one-half of the trust estate will be distributed in equal shares to the four named beneficiaries who survive him the other half will be divided into a sufficient number of equal shares so that there shall be set_aside one share for each child of grantor who survives grantor and one such share for the collective descendants who are then living of any child of grantor who does not survive grantor to be held in separate trusts if none of grantor’s children or descendants survive grantor then the remaining balance of trust is to be distributed to foundation article of trust provides that at all times the distribution committee must consist of at least two members who are beneficiaries of trust if at any time the distribution committee does not consist of at least two members who are beneficiaries of trust other than grantor a vacancy on the distribution committee must be filled by the eldest then living adult and competent descendant of grantor who is willing and able to act and who is not a member of the distribution committee or if there is no such descendant the distribution committee shall cease to exist the distribution plr-140953-13 committee shall in all events cease to exist on the death of grantor the distribution committee will be initially composed of individual individual individual and individual you requested the following rulings so long as the distribution committee is serving no portion of the items of income deductions and credits against tax of the trust shall be included in computing under sec_671 the taxable_income of grantor or any member of the distribution committee the contribution of property to trust by grantor will not be a completed_gift subject_to federal gift_tax any distribution_of_property by direction of either the distribution committee by unanimous agreement or grantor and a majority of the distribution committee members from trust to grantor will not be a completed_gift subject_to federal gift_tax by any member of the distribution committee any distribution_of_property by distribution committee by either unanimous agreement or grantor and a majority of the members of the distribution committee from trust to any beneficiary of trust other than grantor will not be a completed_gift subject_to federal gift_tax by any member of the distribution committee other than grantor ruling sec_671 provides that where it is specified in subpart e of part i of subchapter_j that the grantor or another person shall be treated as the owner of any portion of a_trust there shall then be included in computing the taxable_income and credits of the grantor or the other person those items of income deductions and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under chapter in computing taxable_income or credits against the tax of an individual sec_672 provides for purposes of subpart e the term adverse_party means any person having a substantial_beneficial_interest in the trust which would be adversely affected by the exercise or nonexercise of the power which he possesses respecting the trust sec_673 through specify the circumstances under which the grantor is treated as the owner of a portion of a_trust plr-140953-13 sec_673 provides that the grantor shall be treated as the owner of any portion of a_trust in which the grantor has a reversionary_interest in either the corpus or the income therefrom if as of the inception of that portion of the trust the value of such interest exceeds five percent of the value of such portion sec_674 provides in general that the grantor shall be treated as the owner of any portion of a_trust in respect of which the beneficial_enjoyment of the corpus or the income therefrom is subject_to a power of disposition exercisable by the grantor or a nonadverse_party or both without the approval or consent of any adverse_party sec_674 provides that sec_674 shall not apply to a power exercisable only by will other than a power in the grantor to appoint by will the income of the trust where the income is accumulated for such disposition by the grantor or may be so accumulated in the discretion of the grantor or a nonadverse_party or both without the approval or consent of any adverse_party under sec_675 and applicable regulations the grantor is treated as the owner of any portion of a_trust if under the terms of the trust agreement or circumstances attendant on its operation administrative control is exercisable primarily for the benefit of the grantor rather than the beneficiary of the trust sec_676 provides that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under any other provision of part i subchapter_j chapter where at any time the power to revest in the grantor title to such portion is exercisable by the grantor or a nonadverse_party or both sec_677 provides in general that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under sec_674 whose income without the approval or consent of any adverse_party is or in the discretion of the grantor or a nonadverse_party or both may be distributed to the grantor or the grantor’s spouse held or accumulated for future distribution to the grantor or the grantor’s spouse or applied to the payment of premiums on policies of insurance on the life of the grantor or the grantor’s spouse sec_678 provides a general_rule that a person other than a grantor shall be treated as the owner of any portion of a_trust with respect to which such person has a power exercisable solely by himself to vest the corpus or the income therefrom in himself based solely on the facts and representations submitted we conclude an examination of trust reveals none of the circumstances that would cause grantor or any other person to be treated as the owner of any portion of trust under sec_673 sec_674 sec_676 sec_677 or sec_678 plr-140953-13 we further conclude that an examination of trust reveals none of the circumstances that would cause administrative controls to be considered exercisable primarily for the benefit of grantor or any other person under sec_675 thus the circumstances attendant on the operation of trust will determine whether grantor or any other person will be treated as the owner of any portion of trust under sec_675 this is a question of fact the determination of which must be deferred until the federal_income_tax returns of the parties involved have been examined by the office with responsibility for such examination ruling sec_2 and sec_2501 provides that a tax is imposed for each calendar_year on the transfer of property by gift during such calendar_year by any individual resident or nonresident sec_2511 provides that the tax imposed by sec_2501 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_25_2511-2 of the gift_tax regulations provides that a gift is complete as to any property or part thereof or interest therein of which the donor has so parted with dominion and control as to leave in the donor no power to change its disposition whether for the donor’s own benefit or for the benefit of another but if upon a transfer of property whether in trust or otherwise the donor reserves any power over its disposition the gift may be wholly incomplete or may be partially complete and partially incomplete depending upon all the facts in the particular case accordingly in every case of a transfer of property subject_to a reserved power the terms of the power must be examined and its scope determined sec_25_2511-2 also provides an example where the donor transfers property to another in trust to pay the income to the donor or accumulate it in the discretion of the trustee and the donor retains a testamentary power to appoint the remainder among the donor’s descendants the regulation concludes that no portion of the transfer is a completed_gift however if the donor had not retained a testamentary_power_of_appointment but instead provided that the remainder should go to x or his heirs the entire transfer would be a completed_gift sec_25_2511-2 provides that a gift is incomplete in every instance in which a donor reserves the power to revest the beneficial title in himself or herself a gift is also incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries as between themselves unless the power is a fiduciary power limited by a fixed_or_ascertainable_standard sec_25_2511-2 provides that a donor is considered as himself having a power if it is exercisable by him in conjunction with any person not having a substantial adverse_interest in the disposition of the transferred property or the income therefrom plr-140953-13 sec_25_2511-2 provides that the relinquishment or termination of a power to change the beneficiaries of transferred property occurring otherwise than by death of the donor is regarded as the event which completes the gift and causes the gift_tax to apply sec_25_2511-2 provides that if a donor transfers property to himself as trustee or to himself and some other person not possessing a substantial adverse_interest as trustees and retains no beneficial_interest in the trust property and no power over it except fiduciary powers the exercise or nonexercise of which is limited by a fixed_or_ascertainable_standard to change the beneficiaries of the transferred property the donor has made a completed_gift and the entire value of the transferred property is subject_to the gift_tax sec_25_2511-2 does not define substantial adverse_interest sec_25_2514-3 provides in part that a taker in default of appointment under a power has an interest that is adverse to an exercise of the power sec_25_2514-3 also provides that a co-holder of a power is considered as having an adverse_interest where he may possess the power after the possessor’s death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate in 308_us_39 the taxpayer created a_trust for the benefit of named beneficiaries and reserved the power_to_revoke the trust in whole or in part and to designate new beneficiaries other than himself six years later in the taxpayer relinquished the power_to_revoke the trust but retained the right to change the beneficiaries in the taxpayer relinquished the right to change the beneficiaries the court stated that the taxpayer’s gift is not complete for purposes of the gift_tax when the donor has reserved the power to determine those others who would ultimately receive the property accordingly the court held that the taxpayer’s gift was complete in when he relinquished his right to change the beneficiaries of the trust a grantor’s retention of a power to change the beneficial interests in a_trust causes the transfer to the trust to be incomplete for gift_tax purposes even though the power may be defeated by the actions of third parties 37_tc_897 see also 51_tc_352 in this case grantor retained the grantor’s consent power over the income and principal of trust under sec_25_2511-2 a donor is considered as himself having a power if it is exercisable by him in conjunction with any person not having a substantial adverse_interest in the disposition of the transferred property or the income therefrom the distribution committee members are not takers in default for purposes of sec_25_2514-3 they are merely co-holders of the power the distribution committee ceases to exist upon the death of grantor under sec_25_2514-3 a co- holder of a power is only considered as having an adverse_interest where he may possess the power after the possessor’s death and may exercise it at that time in favor plr-140953-13 of himself his estate his creditors or the creditors of his estate in this case the distribution committee ceases to exist upon grantor’s death accordingly the distribution committee members do not have interests adverse to grantor under sec_25_2514-3 and for purposes of sec_25_2511-2 therefore grantor is considered as possessing the power to distribute income and principal to any beneficiary himself because he retained the grantor’s consent power the retention of this power causes the transfer of property to trust to be wholly incomplete for federal gift_tax purposes grantor also retained the grantor’s sole power over the principal of trust under sec_25_2511-2 a gift is incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries in this case grantor’s sole power gives grantor the power to change the interests of the beneficiaries accordingly the retention of the grantor’s sole power causes the transfer of property to trust to be wholly incomplete for federal gift_tax purposes further grantor retained grantor’s testamentary power to appoint the property in trust to anyone including trusts other than grantor’s estate grantor’s creditors or the creditors of grantor’s estate under sec_25_2511-2 the retention of a testamentary power to appoint the remainder of a_trust is considered a retention of dominion and control_over the remainder accordingly the retention of this power causes the transfer of property to trust to be incomplete with respect to the remainder in trust for federal gift_tax purposes finally the distribution committee possesses the unanimous member power over income and principal this power is not a condition_precedent to grantor’s powers grantor’s powers over the income and principal are presently exercisable and not subject_to a condition_precedent grantor retains dominion and control_over the income and principal of trust until the distribution committee members exercise their unanimous member power accordingly this power does not cause the transfer of property to be complete for federal gift_tax purposes see 37_tc_897 51_tc_352 accordingly based on the facts submitted and the representations made we conclude that the contribution of property to trust by grantor is not a completed_gift subject_to federal gift_tax any distribution from trust to grantor is merely a return of grantor’s property therefore we conclude that any distribution_of_property by the distribution committee from trust to grantor will not be a completed_gift subject_to federal gift_tax by any member of the distribution committee further upon grantor’s death the fair_market_value of the property in trust is includible in grantor’s gross_estate for federal estate_tax purposes plr-140953-13 ruling sec_2514 provides that the exercise or release of a general_power_of_appointment created after date shall be deemed a transfer of property by the individual possessing such power sec_2514 provides that the term general_power_of_appointment means a power which is exercisable in favor of the individual possessing the power possessor the possessor’s estate the possessor’s creditors or the creditors of the individual’s estate sec_25_2514-1 provides in part that a power_of_appointment is not a general power if by its terms it is exercisable only in favor of one or more designated persons or classes other than the possessor or his creditors or the possessor’s estate or the creditors of the estate sec_2514 provides that in the case of a power_of_appointment created after date if the power is exercisable by the possessor only in conjunction with the creator of the power such power is not deemed a general_power_of_appointment sec_2514 provides that in the case of a power_of_appointment created after date if the power is not exercisable by the possessor except in conjunction with a person having a substantial interest in the property subject_to the power which is adverse to the exercise of the power in favor of the possessor such power shall not be deemed a general_power_of_appointment for purposes of sec_2514 a person who after the death of the possessor may be possessed of a power_of_appointment with respect to the property subject_to the possessor’s power which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the possessor’s power sec_25_2514-3 provides in part that a coholder of a power has no adverse_interest merely because of his joint possession of the power nor merely because he is a permissible appointee under a power however a coholder of a power is considered as having an adverse_interest where he may possess the power after the possessor’s death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate thus for example if x y and z held a power jointly to appoint among a group of persons which includes themselves and if on the death of x the power will pass to y and z jointly then y and z are considered to have interests adverse to the exercise of the power in favor of x similarly if on y’s death the power will pass to z z is considered to have an interest adverse to the exercise of the power in favor of y plr-140953-13 the powers held by the distribution committee members under the grantor’s consent power are powers that are exercisable only in conjunction with the creator grantor accordingly under sec_2514 the distribution committee members do not possess general powers of appointment by virtue of possessing this power further the powers held by the distribution committee members under the unanimous member powers are not general powers of appointment as in the example in sec_25_2514-3 the distribution committee members have substantial adverse interests in the property subject_to this power accordingly any distribution made from trust to a beneficiary other than grantor pursuant to the exercise of these powers the grantor’s consent power and the unanimous member powers are not gifts by the distribution committee members instead such distributions are gifts by grantor based upon the facts submitted and representations made we conclude that any distribution_of_property by the distribution committee from trust to any beneficiary of trust other than grantor will not be a completed_gift subject_to federal gift_tax by any member of the distribution committee further we conclude that any distribution_of_property from trust to a beneficiary other than grantor will be a completed_gift by grantor except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office copies of this letter are being sent to the taxpayer’s authorized representative sincerely bradford r poston senior counsel branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number -------------------------------- -------------------------------------------------------- -------------------------- ------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------------ telephone number ---------------------- refer reply to cc psi plr-120264-18 date december legend x -------------------------------------------------------- --------------------------------------- state ---------- date -------------------- dear ---------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations for x to file an entity classification election to be classified as a corporation for federal tax purposes facts the information submitted states that x is a limited_liability_company formed under the laws of state on date x is not classified as a corporation under sec_301_7701-2 or x intended to be classified as a corporation effective on date however x did not timely file form_8832 entity classification election electing to be treated as a corporation x represents that it acted reasonably and in good_faith and that the interests of the government will not be prejudiced by granting relief x further represents that no hindsight is involved in seeking the relief requested plr-120264-18 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 an eligible_entity with at least two members can elect to be classified as either an association or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that unless the entity elects otherwise a domestic eligible_entity is i a partnership if it has two or more members or ii disregarded as an entity separate from its owner if it has a single owner sec_301_7701-3 provides that to elect to be classified other than as provided in sec_301_7701-3 an eligible_entity must file form_8832 entity classification election with the designated service_center under sec_301_7701-3 this election can be effective up to seventy-five days prior to the date the form is filed or up to twelve months after the date on which the form is filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 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 the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government conclusion plr-120264-18 based solely on the facts submitted and the representations made we conclude that the requirements of 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 make an election to be treated as a corporation for federal tax purposes effective beginning date x must make the election by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the form this ruling is contingent on x and its owner filing within days of the date of this letter all required original or amended information and tax returns for all open years consistent with the requested relief a copy of this letter should be attached to any such returns except as specifically set forth above no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer s requesting 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 x’s authorized representative sincerely associate chief_counsel passthroughs special industries by joy c spies joy c spies senior technician reviewer branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc