internal_revenue_service number release date index number -------------------------- ------------------------- ------------------------ -------------------------- - - department of the treasury washington dc person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc psi - plr-127702-04 date date company --------------------------- ----------------------- shareholders ---------------------- ------------------------- ------------------- ------------------------- state a ----------- ---------------------- dear ---------------- this letter responds to your letter dated date as well as subsequent correspondence requesting a ruling under ' b of the internal_revenue_code that company's presumptively late election under ' a to be an s_corporation will be treated as timely made facts company was incorporated under the laws of state on a shareholders intended company to be an s_corporation from inception however form_2553 election by a small_business_corporation was not timely filed with the internal_revenue_service company filed form_1120s u s income_tax return for an s_corporation for its first tax_year and shareholders filed form_1040 u s individual_income_tax_return for the same year consistent with company’s intended status as an s_corporation law and analysis plr-127702-04 sec_1362 provides in general that an election by a small_business_corporation under ' a to be an s_corporation may be made for any_tax yearb a at any time during the preceding tax_year or b at any time during the tax_year and on or before the 15th day of the 3d month of the tax_year sec_1362 provides that if-- a a small_business_corporation makes an election under ' a for any_tax year and b that election is made after the 15th day of the 3d month of the tax_year and on or before the 15th day of the 3d month of the following tax_year then that election shall be treated as made for the following tax_year sec_1362 provides that if-- a an election under ' a is made for any_tax year determined without regard to ' b after the date prescribed by sec_1362 for making the election for that tax_year or no such election is made for any_tax year and b the secretary determines that there was reasonable_cause for the failure to timely make the election the secretary may treat such election as timely made for that tax_year and ' b shall not apply conclusion based on the facts and representations submitted we conclude that there was reasonable_cause for company s failure to make a timely s_corporation_election therefore company's election under ' a is to be treated under ' b as filed timely for its tax_year beginning a this ruling is contingent on company filing form_2553 to be effective on a with the appropriate service_center no later than days from the date of this letter a copy of this letter should be attached to the form_2553 except for the specific ruling above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code specifically we express or imply no opinion on whether company otherwise is eligible to be an s_corporation however an officer of a corporation who performs more plr-127702-04 than minor services and who either receives or is entitled to receive any remuneration directly or indirectly is an employee of the corporation and payments by an s_corporation to a corporate officer must be treated as wages for federal employment_tax purposes to the extent the amounts are reasonable_compensation for services to the corporation under a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative this ruling is directed only to the taxpayer on whose behalf it was requested according to ' k this ruling may not be used or cited as precedent enclosures copy of this letter copy for ' purposes cc sincerely s james a quinn senior counsel branch office of associate chief_counsel passthroughs and special industries


office_of_chief_counsel internal_revenue_service memorandum number release date cc tege eoeg et1 postn-165898-04 uilc date date to director submission processing cincinnati oh attn entity unit from office of division counsel associate chief_counsel tax exempt government entities --------------------- subject railroad_retirement_tax_act status in accordance with the coordination procedure established between the service and the railroad retirement board rrb the rrb has provided us with its opinion that the following business ceased to be an employer under the railroad retirement act and the railroad unemployment insurance act effective -------------------------- ------------------------------------------------------------------------------------ ------------------------------------------------------------- -------------------------------------------------- ------------------------------------------------------------------- we have reviewed the opinion of the rrb and based upon the information submitted to the rrb we also conclude that ------------------ceased to be an employer under the railroad_retirement_tax_act effective -------------------------- please take the appropriate action regarding this business ---------------------------------------- --------------------------------------------------------------------- joseph w spires


internal_revenue_service department of the treasury index number number release date washington dc person to contact telephone number refer reply to cc intl br1-plr-118089-99 date date legend taxpayer dear this responds to your letter dated date as supplemented by your letter dated date in which you requested a ruling and closing_agreement that premiums received by taxpayer on policies of insurance or reinsurance of united_states_risks are exempt from the insurance excise_tax imposed by sec_4371 of the internal_revenue_code pursuant to the income_tax convention between the united_states and the federal republic of germany the convention the ruling contained in this letter is based upon information and representations submitted by taxpayer and accompanied by penalty of perjury statements executed by an appropriate party while this office has not verified any of the material submitted in support of the request_for_ruling it is subject_to verification on examination taxpayer a property and casualty insurance_company that is a resident of the federal republic of germany represents that it is engaged in an active trade_or_business in germany and that the premium income it receives from u s insureds is derived in connection with or is incidental to that trade_or_business therefore taxpayer contends that it qualifies for benefits under article c of the convention section dollar_figure of revproc_92_39 1992_1_cb_360 provides that the internal_revenue_service will consider premiums received by a foreign_insurer_or_reinsurer to be derived in connection with or incidental to the active_conduct_of_a_trade_or_business in germany if for the company’s preceding_taxable_year the average of the following three ratios exceed sec_25 percent and each ratio is equal to at least percent the ratio of the average value that the assets of the insurer or reinsurer used or held for use in the active_conduct_of_a_trade_or_business in germany during the taxable_year bears to the value of all of its assets for taxpayer represents that the average value of assets the taxpayer held in germany for use in the active_conduct_of_a_trade_or_business was dollar_figure and that the average value of assets held worldwide was dollar_figure therefore the ratio of assets held for use in germany to assets worldwide was percent this ratio is based on the most conservative representations made by taxpayer the ratio that gross premiums received by the insurer or reinsurer for policies on risks situated in germany bear to total gross premiums received by the insurer or reinsurer for taxpayer represents that gross premiums received by the taxpayer on risks in germany was dollar_figure and that gross premiums received on worldwide risks was dollar_figure therefore the ratio of gross premiums on risks in germany to total gross premiums was percent the ratio that the insurer or reinsurer’s payroll and commission expenses paid to employees and agents for services performed in germany bears to the insurer or reinsurer’s worldwide payroll and commission expenses for taxpayer represents that the taxpayer’s payroll and commission expense for services performed in germany was dollar_figure and that worldwide payroll and commission expenses was dollar_figure therefore the ratio of payroll and commission expense for services performed in germany to payroll and commission expense for worldwide services was percent the average of the three ratios is percent accordingly the taxpayer satisfies the requirements of article c of the convention pursuant to paragraph a of the enclosed agreement taxpayer’s liability for federal excise_tax as agreed upon including liability resulting from reinsurance of u s risks with persons not entitled to exemption under the convention or another convention will commence on date the letter_of_credit required by paragraph a of the enclosed agreement in the amount of dollar_figure must be in effect within days of the date the agreement is finally signed on the commissioner’s behalf any person otherwise required to remit the federal excise_tax on foreign insurance or reinsurance policies issued by taxpayer pursuant to sec_46_4371-1 of the excise_tax regulations may rely upon a copy of this letter and or a copy of the approved closing_agreement as authority that they may consider premiums_paid to taxpayer on and after date as exempt under the convention from the united_states federal excise_tax 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 by any other taxpayer furthermore this ruling does not address the issue of whether taxpayer is an insurance_company or whether premiums_paid to taxpayer are deductible under sec_162 of the code 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 ________________________________ m grace fleeman assistant to the branch chief branch office of associate chief_counsel international enclosure cc closing_agreement of final_determination covering specific matters under sec_7121 of the internal_revenue_code tin and the commissioner of internal revenue make the following closing_agreement whereas the business profits article article of the united states-germany income_tax convention the convention exempts insurance or reinsurance premiums_paid to a resident of germany from the federal excise_tax imposed by sec_4371 et seq of the internal_revenue_code_of_1986 as amended the code only to the extent that the german insurer or reinsurer does not reinsure such risks with a person not entitled to exemption from such tax under the convention or another convention article l a of the convention and only if the insurer or reinsurer qualifies under article of the convention whereas section dollar_figure of revproc_92_39 provides that the person required to remit the tax may consider the premium exempt if prior to filing the return for the taxable_period such person has knowledge that the german insurer or reinsurer has in effect a closing_agreement to be liable as a united_states taxpayer for federal excise_tax due under sec_4371 et seq of the code on premiums from policies reinsured with reinsurers that are not entitled to exemption from the excise_tax under the convention or any other convention and on premiums_paid or accrued when the german insurer or reinsurer did not qualify under the convention for exemption from the excise_tax imposed by sec_4371 et seq of the code whereas the german insurer or reinsurer represents that it is and will continue to be eligible for benefits under the convention and whereas the german insurer or reinsurer hereinafter referred to as the taxpayer wishes to have its policies of insurance or reinsurance considered exempt from tax under the convention it is hereby determined and agreed that taxpayer shall for purposes of this closing_agreement be liable as a united_states taxpayer for the federal excise_tax due under sec_4371 et seq of the code on premiums from policies reinsured with reinsurers that are not entitled to exemption from the excise_tax under the convention or any other convention and from policies issued or outstanding when taxpayer did not qualify under the convention for exemption from the excise_tax imposed by sec_4371 et seq of the code a returns of federal excise_tax due under and pursuant to this closing_agreement and sec_4371 et seq of the code shall be made by taxpayer or by taxpayer’s authorized representative on taxpayer’s behalf by filing form_720 quarterly federal excise_tax return for each return_period covered by this closing_agreement b if taxpayer reinsures in whole or in part a policy of insurance or reinsurance with any person s not entitled to exemption from the excise_tax under the convention or any other convention or if taxpayer issues or has outstanding a policy or policies when the taxpayer did not qualify under the convention for exemption from the excise_tax imposed by sec_4371 et seq of the code the tax reportable on the return form_720 shall be computed on the basis of the percentage of such policy reinsured or on the basis of the premium accrued or received during the time period when taxpayer did not qualify for exemption under the convention for purposes of the preceding sentence taxpayer may consider a reinsurer to be entitled to exemption from the excise_tax under the convention or another convention if the reinsurer is a party to a closing_agreement with the internal_revenue_service under this convention or another convention or the reinsurer provides evidence that it is a resident_of_the_united_states or of a country with which the united_states has in effect a convention that waives the excise_tax without an explicit anti-conduit clause c forms shall be filed with the director internal_revenue_service center philadelphia pennsylvania u s a d taxpayer or taxpayer’s authorized representative shall make the required federal tax deposits of the federal excise_tax in such manner and at such times as are prescribed by regulations and explained in the instructions for form_720 taxpayer agrees that for purposes of determining its federal excise_tax liability pursuant to this closing_agreement and for purposes of verifying taxpayer’s entitlement to benefits under the convention taxpayer will maintain for a period of years from the end of each taxable_period to which this closing_agreement applies accounts and records of items of insurance and reinsurance that will be made available upon written request by the internal_revenue_service at the place mutually agreed upon by the service and taxpayer taxpayer will also maintain for years and make available for inspection records to establish eligibility for convention benefits taxpayer will be allowed days or other period of time determined as reasonable by the assistant_commissioner international within which to make available its accounts and records if it is determined that there is an underpayment in respect of any excise_tax determined to be due pursuant to this closing_agreement and sec_4371 et seq of the code the internal_revenue_service shall issue a statement of notice_and_demand for the tax due plus any interest and applicable penalties notice of any underpayment shall be sent to the taxpayer at the name and address shown on the form_720 if a form_720 was filed for the period for which an underpayment is determined by the internal_revenue_service or otherwise to the taxpayer’s registered address in germany payment of all additional_amounts due shall be made in accordance with the terms specified in the statement of notice_and_demand collection of such amounts not paid per notice_and_demand shall be in accordance with paragraph hereof a as security for payment of tax taxpayer shall cause an irrevocable letter_of_credit to be issued by a united_states bank that is a member of the federal reserve system or by a united states branch or agency of a foreign bank that is on the national association of insurance commissioners list of banks from which letters of credit may be accepted in favor of the internal_revenue_service in the amount of dollar_figure or such amount as may from time to time be mutually agreed upon by taxpayer and the service such letter_of_credit must be in effect within days of the date that the closing_agreement is signed for the commissioner of internal revenue b the service may issue a statement of notice_and_demand with respect to i any_tax shown on a form_720 original amended or substitute for return that is not paid with such return or ii any proposed additional excise_tax liability sustained by the internal_revenue_service regional_director_of_appeals having jurisdiction over such matter if the time for filing a protest of such proposed liability has expired provided that the statement of notice_and_demand has been issued as provided in paragraph hereof c if after the conditions in paragraph b hereof have been met the tax interest and any applicable penalties are not paid in accordance with the terms of the statement of notice_and_demand collection of such amounts will be made by resorting to such letter_of_credit to the extent thereof before any levy or proceeding in court for collection is instituted against taxpayer d if such letter_of_credit is drawn upon it must be reinstated to dollar_figure within days after the date drawn upon a solely by reason of the execution by taxpayer and the commissioner of this closing_agreement any person otherwise required to remit the federal excise_tax on foreign insurance or reinsurance premiums pursuant to sec_46_4374-1 of the excise_tax regulations may consider premiums_paid to taxpayer after the effective date of this agreement as exempt under the convention from the federal excise_tax b taxpayer agrees that the commissioner or his or her authorized delegate may disclose taxpayer’s name as an insurer or reinsurer that qualifies for exemption from the excise_tax under the convention by publication or otherwise a this closing_agreement shall include as an attachment hereto a statement from the local_tax office finanzamt with which the insurer or reinsurer files its german tax returns with an english translation certifying that taxpayer is a resident of germany as defined in the convention and a statement from taxpayer with an english translation that taxpayer is not disqualified from receiving benefits under the convention by reason of article of the convention taxpayer shall submit such information in its statement as will establish its entitlement to benefits under the convention b the statement from the finanzamt shall be effective for a period of calendar years beginning with the year of receipt taxpayer agrees to renew the certificate of residency every three years and its own certification of eligibility for benefits under the convention every year on or before the expiration date of the original certificate taxpayer agrees to provide an original and one copy of the recertification along with a photocopy of this closing_agreement to internal_revenue_service constitution avenue n w washington d c u s a attn cc intl taxpayer also agrees to promptly notify the competent_authority of germany and the internal_revenue_service of any change that may result in its disqualification from receiving treaty benefits a this closing_agreement shall be effective as of date this agreement shall thereafter continue in effect unless terminated as provided in subparagraph b of this paragraph b this agreement may be terminated by either taxpayer or the commissioner by giving the other written notice of the notifying party’s intent to terminate the decision to terminate is solely at the discretion of the party giving such notice this agreement shall be terminated on the last day of the return_period immediately following the return_period within which the written notice of termination is given c taxpayer hereby agrees to file a return form_720 marked final return for the taxable_period within which this agreement terminates pursuant to paragraph b hereof and to furnish a duplicate of such final return to internal_revenue_service constitution avenue n w washington d c u s a attn cc intl d taxpayer agrees that the letter_of_credit issued pursuant to paragraph hereof shall remain in effect for a period of not less than days after the final return has been filed in accordance with subparagraph c hereof or until the examination of taxpayer's returns is completed and any additional tax due has been paid whichever is later whereas the determinations set forth above are hereby agreed to by said taxpayer now this closing_agreement witnesseth that the said taxpayer and said commissioner of internal revenue hereby mutually agree that the determinations set forth shall be final and conclusive subject however to reopening in the event of fraud malfeasance or misrepresentation of material fact and provided that any change or modification of applicable statutes or tax conventions will render this agreement ineffective to the extent that it is dependent upon such statutes or tax conventions in witness whereof the above parties have subscribed their names to these presents in triplicate signed this day of by title by title commissioner of internal revenue by associate chief_counsel international date by assistant_commissioner international ________________________________ date


internal_revenue_service number release date index number ------------------------------------------------ ----------------------------------- --------------------------------------------- ------------------------------------------------------------ ---------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-121592-08 date date legend x y z a b country d1 d2 d3 dear -------------- ----------------------------------- ------------------------ ----------------------------------- ------------------------ ---------------------------- ------------------------ --------------- ----------------------- ------------------------------------------- ----------------------------- ------------------------- -------------------------- ----------------------- --------------------------------- plr-121592-08 this is in response to a letter dated date and subsequent correspondence submitted on behalf of x by its authorized representative requesting a ruling under sec_301_7701-3 and sec_301_9100-3 of the procedure and administration regulations specifically x has requested the service's consent to change its classification from a disregarded_entity to an association_taxable_as_a_corporation effective d3 facts x a country eligible_entity formed on d1 elected to be classified as a disregarded_entity for federal_income_tax purposes effective d2 at the time of the election x was wholly owned by y which in turn was wholly owned by z y and z were both foreign_corporations on d3 a purchased all of the outstanding shares of z through its wholly owned subsidiary b upon a’s purchase of z and all of its underlying entities it was intended that x would be treated as an association_taxable_as_a_corporation effective d3 neither a nor b had any direct indirect or constructive_ownership interests in x y or z prior to the purchase because an entity classification was made within months prior to d3 x requests the service's consent under sec_301_7701-3 to change its classification due to inadvertence x failed to file a timely form_8832 entity classification election electing to treat x as an association_taxable_as_a_corporation effective d3 law and analysis sec_301_7701-2 generally provides that a business_entity is any entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code sec_301_7701-3 provides that so long as a business_entity is not classified as a corporation under sec_301_7701-2 or an eligible_entity it may elect its classification for federal tax purposes sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise if the foreign eligible_entity has only one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 by filing a form_8832 with the appropriate service_center under sec_301_7701-3 this election 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 date specified on form_8832 cannot be more than days prior plr-121592-08 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_7701-3 provides in part that if an eligible_entity makes an election under sec_301_7701-3 to change its classification the entity cannot change its classification by election again during the sixty months succeeding the effective date of the election however the commissioner may permit the entity to change its classification by election within the sixty months if more than fifty percent of the ownership interests in the entity as of the effective date of the subsequent election are owned by persons that did not own any interests in the entity on the filing_date or the effective date of the entity's prior election 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 six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election with a deadline prescribed by a regulation 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 an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that request for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusion based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly x is granted an extension of sixty days from the date of this letter to elect to be classified as an association_taxable_as_a_corporation for federal tax purposes effective d3 the election should be made by filing form_8832 with the appropriate service_center a copy of this letter should be attached to the election except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter plr-121592-08 this ruling is directed only to the taxpayer s requesting it sec_6110 of the internal_revenue_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 will be sent to x’s authorized representatives sincerely curt g wilson deputy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number 468a cc psi 6--plr-106707-00 in re date revised schedule of ruling amounts for legend taxpayer plant location commission interim order district dear this letter responds to the request dated and supplemental information submitted by taxpayer’s authorized representative on behalf of taxpayer for a revised schedule of ruling amounts in accordance with sec_1_468a-3 of the income_tax regulations taxpayer was previously granted a revised schedule of ruling amounts on information was submitted pursuant to sec_1_468a-3 taxpayer represents the facts relating to the request for a revised schedule of ruling amounts to be as follows taxpayer is sponsored by several utility companies which are its sole stockholders taxpayer is the sole owner of the plant which is situated in location the rates for wholesale electric energy sold by taxpayer are established solely by the commission the plant began commercial operations in and its operating license expires in the energy output of the plant was sold to the sponsors under identical power contracts as amended to terminate in however taxpayer ceased generating electricity at the plant on the proposed method of decommissioning the plant is prompt removal dismantlement taxpayer is subject_to the audit jurisdiction of the district_director of district on taxpayer submitted a rate filing with a revised cost estimate to the commission resulting in a new plr-106707-00 cost of service amount the commission in the interim order issued in response to the rate filing provided for decommissioning costs for the plant of dollar_figure per year to be included in the taxpayer’s cost of service the total estimated cost of decommissioning the plant as approved by the commission is dollar_figure this decommissioning cost escalated at percent annually results in a present decommissioning cost of dollar_figure and a future decommissioning cost of dollar_figure the estimated after-tax rate of return to be earned on the assets of the nuclear decommissioning fund fund is percent the estimated date on which the plant will no longer be included in the taxpayer's rate base for ratemaking purposes under the interim order is however under the first ratemaking proceeding before the commission this date was the level_funding limitation period and the funding_period extend from the estimated period for which the fund will be in effect is the estimated_useful_life of the plant is as determined in a previous schedule of ruling amounts taxpayer has elected to calculate the qualifying percentage in accordance with sec_1_468a-8 accordingly the qualifying percentage continues to be percent sec_468a of the internal_revenue_code provides that a taxpayer may elect to deduct for any taxable_year the amount of payments made by the taxpayer to a qualified decommissioning fund during the taxable_year pursuant to sec_1_468a-1 of the regulations this deduction is available only to an eligible_taxpayer an eligible_taxpayer as defined in sec_1 468a- b is any taxpayer that has a qualifying interest in a nuclear power plant sec_1_468a-1 of the regulations defines the term qualifying interest as among other things a direct ownership_interest a direct ownership_interest includes an interest held as a tenant in common or joint tenant but does not include stock in a corporation that owns a nuclear power plant or an interest in a partnership that owns a nuclear power plant under sec_468a of the code the amount that a taxpayer may pay into a nuclear decommissioning fund for any taxable_year is limited to the lesser_of the amount of nuclear decommissioning costs allocable to the nuclear decommissioning fund that is included in the taxpayer's cost of service for ratemaking purposes for the taxable_year or the plr-106707-00 ruling_amount applicable to the nuclear decommissioning fund for the taxable_year sec_468a of the code provides that no deduction shall be allowed for any payment to a nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts sec_468a of the code defines the term ruling_amount as the amount that the secretary determines to be necessary to fund a portion of the decommissioning costs this amount is that portion which bears the same ratio to the total nuclear decommissioning costs for the nuclear power plant as the period for which a nuclear decommissioning fund is in effect bears to the estimated_useful_life of the nuclear power plant the ruling_amount is further restricted under sec_468a to the amount necessary to prevent any excessive funding of decommissioning costs or the funding of these costs at a rate more rapid than level_funding taking into account the discount rates as the secretary deems appropriate sec_1_468a-3 of the regulations requires the schedule of ruling amounts for a nuclear decommissioning fund to specify the annual payments that over the taxable years remaining in the funding_period will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event greater than the amount of decommissioning costs allocable to the nuclear decommissioning fund the projected fund balance is calculated by taking into account the fair_market_value of the fund assets as of the first day of the first taxable_year to which the schedule of ruling amounts applies and the estimated rate of return to be earned by the fund assets after payment of administrative costs and incidental_expenses to be incurred by the fund including all federal state_and_local_income_taxes to be incurred by the fund the after-tax rate of return sec_1_468a-3 of the regulations provides that to the extent consistent with the principles and provisions of sec_1_468a-3 each schedule of ruling amounts shall be based on the reasonable assumptions and determinations used by the applicable public_utility commission in establishing or approving the amount of decommissioning costs to be included in cost of service for ratemaking purposes taking into account amounts that are otherwise required to be included in the taxpayer’s income under sec_88 of the code and the regulations thereunder thus for example each schedule of ruling amounts shall be based on the public_utility commission’s reasonable assumptions concerning i the after-tax rate of return to be earned by the amounts collected for decommissioning ii the total estimated plr-106707-00 cost of decommissioning the nuclear power plant and iii the frequency of contributions to a nuclear decommissioning fund for a taxable_year under sec_1_468a-3 of the regulations the internal_revenue_service shall provide a schedule of ruling amounts that is identical to the schedule proposed by the taxpayer but no schedule of ruling amounts shall be provided unless the taxpayer’s proposed schedule is consistent with the principles and provisions of sec_1_468a-3 sec_1_468a-3 of the regulations provides that the ruling_amount specified in a schedule of ruling amounts for any taxable_year in the level_funding limitation period shall not be less than the ruling_amount specified in the schedule for any earlier taxable_year the amount of decommissioning costs allocable to a nuclear decommissioning fund is determined under sec_1_468a-3 of the regulations pursuant to sec_1_468a-3 this amount is the taxpayer’s share of the total estimated cost of decommissioning the nuclear power plant multiplied by the qualifying percentage under sec_1_468a-3 of the regulations the total estimated cost of decommissioning a nuclear power plant generally is the reasonably estimated cost of decommissioning used by the applicable public_utility commission in establishing or approving the amount of decommissioning costs to be included in cost of service for ratemaking purposes sec_1_468a-3 of the regulations provides that the taxpayer’s share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning the plant multiplied by the taxpayer’s qualifying interest in the plant for a nuclear power plant that began commercial operations on or before date and whose estimated_useful_life for ratemaking purposes was adjusted by a public_utility commission before date a taxpayer may elect in its request to compute the qualifying percentage under sec_1 468a- b iii of the regulations pursuant to this section the qualifying percentage equals the percentage of original depreciation costs determined without regard to capitalized decommissioning costs for the nuclear power plant that remains to be recovered for ratemaking purposes as of the first day of the first taxable_year for which a deductible payment is made to the nuclear decommissioning fund under sec_1 468a- b iii c original depreciation costs for a nuclear power plr-106707-00 plant include only those costs that were taken into account in determining the amount of depreciation for the plant in the first ratemaking proceeding in which the depreciation was treated as a cost of service sec_1_468a-3 of the regulations provides that the service shall not provide a taxpayer with a schedule of ruling amounts for any nuclear decommissioning fund unless the public_utility commission that establishes or approves rates for electric energy generated by a nuclear power plant to which the nuclear decommissioning fund relates has determined the amount of decommissioning costs to be included in the taxpayer’s cost of service for ratemaking purposes and has disclosed the after-tax rate of return and any other assumptions and determinations used in establishing or approving the amount sec_1_468a-3 of the regulations requires a taxpayer to request a revised schedule of ruling amounts for a nuclear decommissioning fund if a any public_utility commission that establishes or approves rates for the furnishing or sale of electric energy generated by the nuclear power plant to which the fund relates increases the proposed period over which the decommissioning costs will be included in cost of service for ratemaking purposes adjusts the estimated date on which the nuclear power plant will no longer be included in rate base for ratemaking purposes or reduces the amount of decommissioning costs to be included in cost of service for ratemaking purposes for any taxable_year and b the taxpayer’s most recent request for a schedule of ruling amounts did not provide notice to the service of the action by the public_utility commission sec_1_468a-3 of the regulations provides that any taxpayer that has obtained a schedule of ruling amounts pursuant to sec_1_468a-3 can request a revised schedule of ruling amounts this request must be made in accordance with the rules in sec_1_468a-3 thus the service shall not provide a revised ruling_amount applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date for the taxable_year under sec_1_468a-7 of the regulations an eligible_taxpayer generally is allowed a deduction for the taxable_year in which the taxpayer makes a cash payment or is deemed to make a cash payment to a nuclear decommissioning fund only if the taxpayer elects the application of sec_468a of the code a plr-106707-00 separate election is required for each nuclear decommissioning fund and for each taxable_year for which payments are to be deducted under sec_468a in the case of an affiliated_group_of_corporations that join in filing a consolidated_return for a taxable_year the common parent must make a separate election on behalf of each member whose payments to a nuclear decommissioning fund during each taxable_year are to be deducted under sec_468a the election under sec_468a for any taxable_year is irrevocable and must be made by attaching a statement election statement and a copy of the schedule of ruling amounts provided pursuant to the rules of sec_1_468a-3 to the taxpayer’s federal_income_tax return or in the case of an affiliated_group_of_corporations that join in filing a consolidated_return the consolidated_return for such taxable_year the return to which the election statement and a copy of the schedule of ruling amounts is attached must be filed on or before the time prescribed by law including extensions for filing the return for the taxable_year for which payments are to be deducted under sec_468a we have examined the representations submitted by the taxpayer based solely upon these representations we reach the following conclusions the taxpayer has a qualifying interest in the plant and therefore is an eligible_taxpayer under sec_1_468a-1 and of the regulations the commission has determined the amount of decommissioning costs to be included in the taxpayer’s cost of service for ratemaking purposes as required by sec_1_468a-3 of the regulations pursuant to the taxpayer’s election under sec_1_468a-8 of the regulations the taxpayer has calculated its qualifying percentage to be percent the taxpayer has proposed a schedule of ruling amounts that meets the requirements of sec_1_468a-3 and of the regulations the annual payments specified in the proposed schedule are based on the reasonable assumptions and determinations used by the commission and will result in a projected fund balance at the end of the funding_period that is equal to or less than the amount of decommissioning costs allocable to the fund plr-106707-00 pursuant to sec_468a of the code the maximum amount of cash payments made or deemed made to the fund during any taxable_year is restricted to the lesser amount of the decommissioning costs included in the taxpayer’s cost of service for the taxable_year or the ruling_amount applicable to the fund for the taxable_year the taxpayer’s proposed schedule of ruling amounts complies with the level_funding requirements of sec_1_468a-3 of the regulations no payment specified in the proposed schedule for any taxable_year is less than the specified_payment for any earlier taxable_year based on the above determinations we conclude that the taxpayer’s proposed schedule of ruling amounts satisfies the requirements of sec_468a of the code and the regulations thereunder therefore the schedule of ruling amounts requested by the taxpayer under the provisions of sec_468a is approved as follows approved schedule of ruling amounts taxable years through year dollar_figure dollar_figure approval of this schedule of ruling amounts is contingent on there being no change in the facts and circumstances known or assumed at the time the current ruling is issued if any of the events described in sec_1_468a-3 of the regulations occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts under sec_1_468a-3 the taxpayer is required to file such a request on or before the deemed payment deadline for the first taxable_year in which the rates reflecting such action become effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline of the 10th tax_year following the close of the tax_year in which the most recent schedule of ruling amounts was received the approved schedule of ruling amounts applies only to those payments made to the fund payments allocable to any funds other than the fund cannot qualify for the deduction under plr-106707-00 sec_468a of the code as stated above payments made to the fund can qualify only to the extent that they do not exceed the lesser_of the decommissioning costs included in the taxpayer’s cost of service for the taxable_year or the ruling amounts applicable to the fund for the taxable_year except as specifically set forth above no opinion is expressed concerning the federal_income_tax consequences of the above described facts under any other provision of the code or regulations this letter_ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that this ruling may not be used or cited as precedent pursuant to sec_1_468a-7 of the regulations a copy of this letter must be attached with the required election statement to the taxpayer’s federal_income_tax return for each taxable_year in which the taxpayer claims a deduction for payments made to the fund in accordance with the power_of_attorney a copy of this letter_ruling is being sent to your authorized representative we also are sending a copy of this letter_ruling to the district_director of the district sincerely yours peter c friedman assistant to the branch chief branch office of associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


number release date id office uilc cca_2010081211580250 -------------- from ----------------------- sent thursday date am to -------------------- cc subject re questions the regulations under sec_6694 specifically discuss this situation for purposes of determining whether an understatement_of_liability exists sec_1_6694-1 provides that the net payable in a taxable_year with respect to the return for which the preparer engaged in conduct proscribed by sec_6694 is not reduced by any carryback also the small_business and work opportunity tax act of increased the first-tier penalty under sec_6694 from dollar_figure to the greater of dollar_figure or percent of the income derived or to be derived by the preparer from the preparation of a return with respect to which the penalty was imposed the amendments made by the act were effective for tax returns prepared after the date of enactment_date


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 1-plr-104701-03 date march legend x state d1 dear this letter responds to your letter dated date submitted on behalf of x requesting a ruling that x be granted an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as an association_taxable_as_a_corporation for federal tax purposes facts according to the information submitted x was converted from a corporation to a limited_partnership on d1 under the law of state x intended to elect to be treated as an association_taxable_as_a_corporation effective d1 however x inadvertently failed to timely file the proper election law and analysis sec_301_7701-3 provides guidance on the classification of a domestic eligible_entity for federal tax purposes generally a domestic eligible_entity is treated as a partnership if it has two or more members unless the entity makes an election to be classified otherwise a domestic eligible_entity with two or more members may elect to be classified as an association_taxable_as_a_corporation pursuant to the rules under sec_301_7701-3 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date on which the form is filed plr-104701-03 under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose deadline is prescribed by a regulation published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 conclusion 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 sixty days from the date of this letter to make an election to be treated as an association_taxable_as_a_corporation for federal tax purposes effective d1 x should 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 except as specifically provided herein no opinion is expressed or implied concerning the federal tax consequences of the facts described above under any other provision of the code this ruling is directed only to the taxpayer requesting it sec_6110 of the internal_revenue_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 the letter is being sent to x’s authorized representative sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service te_ge eo examinations commerce street m c dal dallas tx tax_exempt_and_government_entities_division release number ese ef on ode o3- date date ein person to contact identification_number ‘telephone number in reply refer to te_ge review staff last date for filing a petition with the tax_court date certified mail - return receipt requested dear this is a final adverse determination_letter that your exempt status under sec_501 of the internal_revenue_code irc is revoked recognition of your exemption under sec_501 is revoked effective january 20xx our adverse determination was made for the following reason s you have not established that you are operated exclusively for an exempt_purpose or that you have been engaged primarily in activities that accomplish one or more exempt purposes within the meaning of sec_501 contributions to your organization are not deductible under sec_170 of the internal_revenue_code you are required to file federal_income_tax returns on form_1120 ‘these returns should be filed with the appropriate service_center for the year ending december 20xx and for all years thereafter processing of income_tax returns and assessment of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code as you were a private_foundation as of the effective date of the revocation you are a taxable ptivate foundation until you terminate your private_foundation_status under sec_507 of the internal_revenue_code in addition to your income_tax return you must also continue to file form_990-pf by the day of the fifth month after the end of your annual_accounting_period if you decide to contest this determination in court you must initiate a suit for declaratory_judgment in the united_states tax_court the united_states claim court or the district_court of the united_states for the district of columbia before the day after the date this determination was mailed to you contact the clerk of the appropriate court for the rules for initiating suits for declaratory_judgment the taxpayer_advocate_service i'as is an independent organization within the irs that can help protect your taxpayer rights we can offer you help if your tax problem is causing a hardship or you’ve tried but haven’t been able to resolve yout problem with the irs if you qualify for our assistance which is always free we will do everything possible to help you visit taxpayeradvocate irs gov or call we will notify the appropriate state officials of this action as requited by sec_6104 of the internal_revenue_code if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours mh v0 llr aaria hooke director exempt_organizations examinations enclosute publication department of the treasury internal_revenue_service tax_exempt_and_government_entities_division exempt_organizations examination irs date taxpayer id number form_990-pf tax periods ended december 20xx person to contact employee id number telephone number fax address manager’s contact information employee id number telephone number response due_date date certified mail - return receipt requested dear why you’re receiving this letter if you agree if you haven’t already please sign the enclosed form_6018 consent to proposed action and return it to the contact person shown at the top of this letter we'll issue a final adverse letter determining that you aren't an organization described in sec_501 for the periods above if you disagree request a meeting or telephone conference with the manager shown at the top of this letter send any information you want us to consider file a protest with the irs appeals_office if you request a meeting with the manager or send additional information as stated in and above you’ll still be able to file a protest with irs appeals_office after the meeting or after we consider the information the irs appeals_office is independent of the exempt_organizations division and resolves most disputes informally if you file a protest the auditing agent may ask you to sign a consent to extend the period of limitations for assessing tax this is to allow the irs appeals_office enough time to consider your case for your protest to be valid it must contain certain specific information including a statement of the facts applicable law and arguments in support of your position for specific information needed for a valid protest refer to publication how to appeal an irs determination on tax-exempt status fast track mediation ftm referred to in publication the examination process generally doesn’t apply now that we’ ve issued this letter letter rev catalog number 34809f request technical_advice from the office of associate chief_counsel tax exempt government entities if you feel the issue hasn’t been addressed in published precedent or has been treated inconsistently by the irs if you’re considering requesting technical_advice contact the person shown at the top of this letter if you disagree with the technical_advice decision you will be able to appeal to the irs appeals_office as explained above a decision made in a technical_advice_memorandum however generally is final and binding on appeals if we don't hear from you if you don't respond to this proposal within calendar days from the date of this letter we'll issue a final adverse determination_letter contacting the taxpayer_advocate office is a taxpayer right the taxpayer_advocate_service tas is an independent organization within the irs that can help protect your taxpayer rights tas can offer you help if your tax problem is causing a hardship or you've tried but haven't been able to resolve your problem with the irs if you qualify for tas assistance which is always free tas will do everything possible to help you visit www taxpayeradvocate irs gov or call additional information you can get any of the forms and publications mentioned in this letter by visiting our website at www irs gov forms-pubs or by calling 800-tax-form if you have questions you can contact the person shown at the top of this letter sincerely russell t renwicks for maria hooke director exempt_organizations examinations enclosures forms 886-a form_6018 publication sec_892 and letter rev catalog number 34809f schedule number or exhibit form 886-a rev date name of taxpayer year period ended 20xx tax identification_number explanations of items issue whether qualifies for exemption as a sec_501 organization when a substantial portion of its overall activities is providing management services for an automobile repair shop and real_estate holdings facts since 20xx has been a private_foundation under sec_501 of the internal_revenue_code is the founder and only director of per its articles of incorporation the purpose of is to engage in charitable and educational activities for the primary purpose of providing assistance to underprivileged children identified to by other charitable or governmental organizations since 20xx retain all rental income for its management services and residential rentals issue is owned by has managed a portfolio of real_estate under an arrangement in which is entitled to manages properties consisting of commercial does not own any real or personal_property however the leased property at as an individual in 20xx spent approximately sixteen hours per month on foundation activities approximately six hours per month facilitating the collection of rent revenue and an insignificant amount of time managing an automobile repair shop with respect to facilitating the collection of rent revenue by performs bookkeeping and accounting services with assistance of others with respect to managing the properties performs all functions of a property manager these functions include overseeing the tenant population arranging for repairs and maintenance assuring collection of rents and similar duties on their form_990-pf for the year ending december 20xx in dividends and dollar_figure in gross rents there were no other sources of income reported the auto repair shop income of dollar_figure and dollar_figure net_operating_loss from the auto repair shop is reported on their 20xx form 990-t also distributed dollar_figure in contributions to charities in calendar_year 20xx reported income of dollar_figure in interest dollar_figure law sec_501 exempts from federal_income_tax any organization which meets the requirements set forth in sec_501 and sec_501 provides that an organization must satisfy three requirements if it seeks to qualify as an exempt_organization under such section specifically the organization must be organized and operated exclusively for exempt purposes no part of its net_earnings may inure to the benefit of any private_shareholder_or_individual and no substantial part of its activities may be devoted to political or lobbying_activities the first requirement specifically the operational_test is the only one at issue in this case and the taxpayer bears the burden of proving that it meets such requirement 73_tc_650 69_tc_488 sec_1_501_c_3_-1 income_tax regulations defines the term charitable and provides in part the term charitable is used in sec_501 in its generally accepted legal sense and is therefore not to be construed as limited by the separate enumeration in sec_501 of other tax-exempt purposes which may fall within the broad outlines of charity as developed by judicial decisions such term includes organizations designed i to lessen neighborhood tensions ii to eliminate prejudice and form 886-a department of the treasury-internal revenue service catalog number 20810w - page_1 publish no irs gov schedule number or exhibit form 886-a rev date name of taxpayer year period ended 20xx tax identification_number explanations of items law continued discrimination iii to defend human and civil rights secured_by law or iv to combat community deterioration and juvenile delinquency a taxpayer satisfies the operational_test only if it engages primarily in activities which accomplish one or more exempt purposes sec_1_501_c_3_-1 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_1_501_c_3_-1 326_us_279 70_tc_352 the regulations and the cases contemplate that a single activity may be carried on for more than one purpose however the tax_court has held that a single substantial non- exempt_purpose will disqualify an organization under sec_501 regardless of the number of truly exempt purposes served copyright clearance center inc v commissioner t c 72_tc_687 affd 625_f2d_804 8th cir 71_tc_1067 affd without pub opinion 647_f2d_170 9th cir if there is no substantial non-exempt purpose the income from a trade_or_business may be exempt where the activity is carried out in furtherance of an exempt_purpose see eg 73_tc_96 72_tc_42 sec_1_501_c_3_-1 income_tax regulations provides in part an organization may meet the requirements of sec_501 although it operates a trade_or_business as a substantial part of its activities if the operation of such trade_or_business is in furtherance of the organization's exempt_purpose or purposes see 74_tc_1324 affd per curiam 675_f2d_244 9th cir 71_tc_202 in determining whether an organization is exempt the focus is on the purpose for engaging in the activity not the nature of such activity 77_tc_1087 77_tc_189 the pertinent inquiry is whether an organization's exempt_purpose transcends the profit_motive rather than the other way around 412_f2d_121 1st cir in 70_tc_352 the tax_court found that the provision of consulting services in the area of rural-related policy and program development to tax-exempt and not-for-profit clients several of the taxpayer's planned service areas such as alternative housing financing solid_waste management and environmental impact programs were of the sort ordinarily carried on for profit by commercial businesses such as banks personnel agencies and trash disposal firms furthermore the taxpayer's financing was not typical of a sec_501 organization the taxpayer did not provide any free or below-cost services and the taxpayer's clientele was not limited to sec_501 exempt_organizations as such the tax_court agreed with the commissioner that the taxpayer did not meet the operational_test under sec_501 because it was primarily engaged in an activity which was characteristic of a trade_or_business similarly in interneighborhood housing corp v commissioner t c memo the tax_court found that the taxpayer failed to prove that it is organized and operated exclusively for charitable purposes when a major part of their activity was the management of eight multiple family dwellings for a fee revproc_2018_5 sec_12 states that the revocation or modification of a determination_letter may be retroactive if there has been a change in the applicable law the organization omitted or misstated material information a misstatement of material information includes an incorrect representation or attestation as to the organization’s organizational documents the organization’s exempt_purpose the organization’s conduct of prohibited and restricted activities or the organization’s eligibility to file form 1023-ez or the organization operated in a manner materially different from that originally represented in an application_for recognition of exemption form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date explanations of items name of taxpayer tax identification_number year period ended 20xx taxpayer’s position unknown government’s position overall amount of operational time is dedicated to charitable purposes while a larger portion of spends a substantial amount of time on its management activities based on the facts presented these activities are of a sort ordinarily carried on for profit by commercial businesses such management firms see 70_tc_352 interneighborhood housing corp v commissioner t c memo as such and therefore does not qualify for exemption under sec_501 is operated for a substantial non-exempt purpose mentions fundraising via solicitations part viii - item 4a and grant on their form_1023 application distributions part viii - item as their only activities their purpose as stated in article il - part a of their articles of incorporation is to engage in charitable and educational activities for the primary purpose of providing assistance to underprivileged children identified to the foundation by charitable organizations exempt under usc sec_501 or governmental or similar organizations there is no mention of managing property or an auto repair shop on their form_1023 application or in their articles of incorporation in accordance with revproc_2018_5 sec_12 the revocation of their determination_letter would be retroactive to january 20xx since operated in a manner materially different from that originally represented in their form_1023 application_for recognition of exemption conclusion is operated for a substantial non-exempt purpose and therefore does not qualify for exemption under sec_501 january 20xx tax exempt status under sec_501 has been revoked retroactively to if the revocation of their tax-exempt status is not sustained then the rental income for its management services will be treated as unrelated_business_income see issue form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service


department of the treasury internal_revenue_service washington d c date sca tl-n-5970-97wli uilc memorandum for associate district_counsel salt lake city cc wr rmd slc attn mark h howard from assistant chief_counsel cc dom it a subject significant service_center advice this responds to your request for significant advice dated september in connection with a question posed by the examination function of the tax protestor unit of the ogden service_center disclosure statement unless specifically marked acknowledged significant advice may be disseminated above this memorandum is not to be circulated or disseminated except as provided in ccdm d and e this document may contain confidential information subject_to the attorney-client and deliberative_process privileges therefore this document shall not be disclosed beyond the office or individual s who originated the question discussed herein and are working the matter with the requisite need to know in no event shall it be disclosed to taxpayers or their representatives issue is a complete form_1040 or 1040a hereinafter collectively referred to as form_1040 with an addition to an otherwise effective penalties of perjury statement1 hereinafter addition considered a return for tax purposes 1the use of the phrase otherwise effective penalties of perjury statement means the taxpayer signed the statement and did not make a change to it altered jurats tl-n-5970-97 conclusion if an addition to a complete form_1040 negate sec_2 the penalties of perjury statement for example by denying liability for tax the form is a nullity if the addition does not negate the statement but merely makes a protest against taxes or other matters the form is a sufficient return for tax purposes facts service centers often receive a complete form_1040 containing text that the service does not require ie an addition to the form_1040 generally the addition appears on the form itself immediately above or below the penalties of perjury statement ie jurat sometimes the addition takes the form of an attachment to the form_1040 your date memorandum contains two exhibits with specific examples of additions to the penalties of perjury statement one service_center pointed out to you the difficulty in determining the purpose of an addition particularly if it contains numerous pages and assertions specifically the concern involves the legal status of returns that contain an addition you addressed this concern in your date memorandum to the service_center however subsequently the service_center became aware of other procedures being used by other service centers because of this you asked for our post review of this advice within the context of a significant service_center advice discussion sec_6001 of the internal_revenue_code requires every person liable for tax to make a return and comply with the rules and regulations issued by the internal_revenue_service hereinafter service sec_6011 of the code requires every person liable for any_tax imposed by title_26 to make a return according to the forms and regulations prescribed by the service sec_6065 of the code and sec_1_6065-1 of the income_tax regulations require any return made under any provision of the internal revenue laws or regulations to contain or be verified by a written declaration that it is made under penalties of perjury as used in this memorandum the word negate means that an addition nullified the underlying tax purpose for the penalties of perjury statement page of altered jurats tl-n-5970-97 if a taxpayer fails to comply with sec_6065 of the code by submitting a return without the executed penalties of perjury statement that return is a nullity lucus v pilliod lumber co 281_us_245 50_sct_297 74_led_829 for example in hettig v u s 845_f2d_974 8th cir the court found a failure to submit a return under penalties of perjury because the taxpayers struck the words under penalties of perjury a taxpayer can also negate the penalties of perjury statement with an addition in 140_br_571 bankr w d okl the taxpayers filed a return with the following statement at the end of the penalties of perjury statement signed under duress see statement attached in the attachment the taxpayers denied liability for tax on wages the service argued that the statement added to the return qualified the penalties of perjury statement making it ineffective and the return a nullity in agreeing with the service the court pointed out that the voluntary nature of our tax system causes the service to rely on a taxpayer's self-assessment and on a taxpayer's assurance that the figures supplied are true to the best of his or her knowledge accordingly the penalties of perjury statement has significant importance in the administration of our tax system the statement connects the taxpayer's attestation of tax_liability with the service's statutory ability to summarily assess the tax similarly in 53_f3d_799 7th cir the taxpayers submitted a return containing the words denial disclaimer attached as part of this form above their signatures in the attachment the taxpayers denied liability for any individual income_tax in determining the effect of the addition on the penalties of perjury statement the court reasoned that it is a close question whether the addition negates the penalties of perjury statement or not the addition according to the court could be read just to mean that the taxpayers reserve their right to renew their constitutional challenge to the federal_income_tax however the court held that the service should be entitled to construe an addition against the taxpayers in cases of doubt in both schmidt and sloan the court questioned the purpose of the addition in both the court found the addition to deny tax_liability according this effect rendered the purported returns invalid note however that in 32_tc_653 aff’d 277_f2d_16 3d cir the taxpayer filed an otherwise facially complete return showing a tax due the taxpayer attached a letter to the return denying that it owed the tax claiming the applicable taxing statute as unconstitutional according to the court page of altered jurats tl-n-5970-97 many of the additions to returns create a tension between a taxpayer’s exercise of first amendment constitutional rights and a taxpayer’s statutory obligation to file a tax_return under penalties of perjury if the addition both exercises a constitutionally protected right to protest and negates the penalties of perjury statement most courts have held that the statutory duty to file a tax_return outweighs the small infringement if any on a taxpayer’s first amendment right to protest on the other hand most courts have acknowledged those additions asserting constitutionally protected rights without negating the penalties of perjury statement in these cases the additions had no effect on the returns for example in mccormick v comm’r u s t c big_number e d n y the taxpayer timely filed a complete return and signed it under penalties of perjury immediately below the penalties of perjury statement the taxpayer added the statement under protest this addition caused the service to treat the return as a nullity however the court in mccormick considered the return effective reasoning as follows while the law requires a return to be filed under penalties of perjury it also protects the right of a person to protest to any branch of the government specifically the first amendment to the constitution provides congress shall make no law respecting the right of the people to petition the government for a redress of grievances according to the court w hat is prohibited to congress is forbidden to the tax bureaucracy a protest is an expression of grievance seeking redress that the internal_revenue_service may not throttle or mute id the purpose of the addition in mccormick was to lodge a protest rather than to deny tax_liability according to the court with the protest language the taxpayer simultaneously exercised his first amendment right to protest to the service and satisfied his statutory obligation to file a return as another example in 849_f2d_365 congress expects a return to reflect a taxpayer’s self-assessment of the amount the taxpayer intends to pay without any_action by the service in line with this statutory background the court sought to construe the taxpayer’s return as valid it did so by finding the return as merely reflecting that the taxpayer legally owed no tax and had no intent to remit the tax due as shown on the return in other words the court cast the return as a no tax_return rather than as a nullity in our view penn is distinguishable from schmidt and sloan in penn the taxpayer challenged a specific but not every statute imposing a tax page of altered jurats tl-n-5970-97 9th cir the taxpayer filed a complete return containing an executed penalties of perjury statement immediately below the statement the taxpayer added the words s igned involuntarily under penalty of statutory punishment the service imposed a frivolous_return penalty under sec_6702 of the code the taxpayer filed suit in district_court contending that the imposition of the penalty violated her constitutional rights in the process of the litigation the government stipulated to the improper assessment of the penalty against the taxpayer because the taxpayer had provided a complete and accurate return id pincite in essence with the addition the taxpayer merely made a protest but not a denial of her tax_liability and satisfied the statutory obligation to file her return simultaneously in mccormick and todd the courts analyzed the purpose of the addition to determine whether it denied tax_liability in each of these cases the court found otherwise applying the purpose test whenever an addition appears on a tax_return retards efficient processing of returns administering the test requires human intervention moreover the test may not readily produce an answer for additions with ambiguous language therefore when the code and editing function at a service_center receives any form_1040 with an addition on the form itself or reflected in an attachment to the form that function should promptly send the form to the examination function with respect to the examination function we agree with your recommendations thus if the examination function determines that a taxpayer’s addition has negated an otherwise effective penalties of perjury statement the form is not a return if the examination function determines that the addition to the otherwise effective penalties of perjury statement merely reflects the taxpayer’s exercise of a constitutionally protected right the form is a return in the latter case of course the addition must neither deny liability for tax nor otherwise negate the penalties of perjury statement the examination function should contact district_counsel regarding the disposition of forms containing ambiguous or doubtful additions moreover for processing purposes only the examination function should consider all forms containing additions to an otherwise effective penalties of perjury statement regardless of their effect as valid returns accordingly after conducting an in-depth audit of the return the examination function should issue a notice_of_deficiency for the taxes due to the taxpayer filing that return as you state in your page of altered jurats tl-n-5970-97 memorandum these procedures will ensure the collection of tax with respect to a return classified erroneously as a nullity if you have any questions please contact ms renay france an attorney of my staff on jody j brewster by s judith m wall chief branch treating all form sec_1040 with additions as returns regardless of their effect will protect assessment of the tax if the service mistakenly decides the form is a nullity with this treatment the service will issue a statutory_notice_of_deficiency for the tax due therefore the assessment of tax will not be barred by the statute_of_limitations if for example a court were to subsequently decide that the form is a return page of


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division uil date ct ag contact person -tt o br identification_number telephone number employer_identification_number m dear sir or madam this is in response to a letter dated date and subsequent correspondence submitted by m’s authorized representatives requesting a ruling that a proposed contractual relationship will not generate unrelated_business_taxable_income under sec_512 of the internal_revenue_code the code to m m is exempt under sec_501 of the code as an organization described in sec_501 and has been classified as an educational_organization under sec_509 and sec_170 m is the trustee of a number of charitable_remainder trusts and charitable lead trusts collectively the trusts and as trustee m is the legal owner of the trusts’ assets in addition m has either a remainder or a lead_interest in each of the trusts the charitable_remainder trusts distribute to individual beneficiaries either a unitrust_amount equal to a percentage of the market_value of trust assets or an annuity amount with the remainder_interest distributed in either case to m after a term of years or upon the death of the life beneficiaries the charitable lead trusts pay out a unitrust or annuity interest to charitable distributees with the remainder_interest distributed to individual beneficiaries after a term of years or upon the death of designated individuals as a result of its relationship with the trusts as both trustee and beneficiary m has a substantial interest in the value of each trust moreover the donors to the trusts in each case have funded the trusts with the intention that m benefit substantially from the assets of the trusts and that the assets will be managed to achieve the greatest possible return on investment in this regard donors often express their desire for the return on the assets to match the return on m’s endowment or for the assets to participate in the return on the endowment donors have expressed their concern when the investment return of a_trust has been lower than the return on m’s endowment the endowment is invested in a widely diverse manner including substantial investments in public equities bonds private equity and real_estate real_estate and certain other venture investments are undertaken primarily through partnership structures much of the income earned by the portfolio consists of passive dividends interest and long and short term capital_gains but some income is debt-financed or otherwise treated as unrelated_business_taxable_income m has provided information showing that the endowment has significantly outperformed the trusts on an annualized return basis over the last three five and ten years m would like to achieve greater economies of scale in the management of the trusts a potentially higher investment return for the trusts and increased diversification of the trusts’ investments m seeks to accomplish these goals by enabling the trusts to participate albeit indirectly in the return on m’s endowment m proposes to create a contractual obligation pursuant to which it would issue a contract right to each of the trusts for so-called units the value of the units would be nominally tied to the value of the endowment the contract right would entitle the trusts to receive periodic_payments based on the number of units owned the trusts would thereby be able to receive an investment return equal to that of the endowment m states that it uses a unit concept internally with respect to the endowments of the various departments and schools that comprise m each department or school owns a certain number of units of the endowment the value of which is based on the value of the underlying endowment investments m determines a payout rate on the endowment each year based in part on the endowment’s investment performance each department is entitled to a payout in an amount equal to the payout rate times the number of units it holds m sets the value of the endowment units on a monthly basis and they may be redeemed for value m seeks to enable the trusts to invest in the unit in a manner similar to a department or school of m a_trust would acquire units from m’s endowment which would give the trusts a contractual right against m but no interest whatsoever in the underlying investment_assets of the endowment the contract between m and the trusts would provide that the price of the units would equal their value at the time of acquisition the value of the units would be based on the value of all the underlying investment_assets held by the endowment and would have the same unit value that m uses for internal accounting purposes the contract would provide that each trust would receive payments on the units held by it equal to the payout rate m establishes for the endowment with payouts made quarterly a_trust could choose either to reinvest part of the payout or redeem additional units depending on its cash requirements the trusts will treat payouts as ordinary_income regardless of the character of the underlying income of the endowment whether capital_gain ordinary_income or return_of_capital the trusts will treat redemptions of units as generating long or short term capital_gain or loss depending on the holding_period of the unit under the contract the trusts would not have any ownership_interest in the underlying assets of the endowment or any contract rights with respect to the other trusts the trusts would have no power or right of any kind to control direct supervise recommend or review m’s business activities operations or decisions with respect to the endowment except the right to review the payout computation they would not have the right to veto or opt_out of any of the underlying endowment investments the contract would provide that with respect to the issuance of units m is neither a partner nor an agent of the trusts that the trusts would never be or become liable for any cost expense or payment incurred or due by m or for which m is liable or responsible relating to the endowment or the underlying endowment assets and m would indemnify and hold the trusts harmless from and against any liability arising out of any_action or inaction by m with respect to the endowment or the underlying endowment assets in a letter dated date m’s representative stated that m determines the payout rate on the endowment based upon the endowment’s investment performance and other factors described hereafter payout from the endowment is set by m’s governing board each year m has an endowment spending policy that aims to maintain the purchasing power of the endowment while providing a reliable stream of income for operations accordingly m seeks to distribute a certain percentage of the endowment’s market_value annually m follows a guideline for setting each year’s distribution the guideline is made up of the following factors greatest weight is given to a combination of the prior year’s return plus the increase over the past year in the inflation rate and a lesser weight is given to a fixed percent distribution m’s governing body has the final authority to fix each year’s distribution the payout distribution rate over the last ten years has not been tied to performance on investment m believes that a relatively steady and predictable distribution is preferable to one that changes in any substantial way from year to year m currently does not charge a fee for its management services of the endowment fund and it does not manage funds for any third parties other than entities related to m m chooses to retain the protection provided by the philanthropy protection act of and therefore does not intend to manage funds for any private individual m does not manage funds for any charitable_organization other than entities affiliated with m except when a charity is an incidental beneficiary as described above m has followed the practice of not imposing any investment management fee m also represented that it will not generate income from the investment management of the trusts even if there is a spread between the greater amount of earnings generated by m’s endowment compared to a lesser amount of annual payout declared by m on the endowment over the years any return over and above the endowment payout rate is credited to the principal_amount of the endowment and is reflected in an increase in the unit value m neither reserves nor segregates any part of its endowment earnings from inclusion in the value of the units a number of the trusts have a second charitable recipient in addition to m in a letter dated date m’s representative stated that any of the trusts that have a charitable_beneficiary in addition to m would not be allowed to purchase units or participate in the unit -90035201 program based upon the value of m's endowment participating trusts will be those trusts that have no charitable_beneficiary other than m you have requested the following ruling the issuance of units from m to the trusts the making or receipt of payments with respect to the units and the holding or redemption of the units will not generate unrelated_business_taxable_income to m sec_511 of the code in part imposes a tax on the unrelated_business_taxable_income of organizations described in sec_501 sec_512 of the code defines the term unrelated_business_taxable_income as the gross_income derived by any organization from any unrelated_trade_or_business regularly carried on by it less the allowable deductions which are directly connected with the carrying on of such trade_or_business both computed with the modifications provided in sec_512 sec_512 of the code sets forth so-called modifications which are excluded from the computation of unrelated_business_taxable_income these modifications include dividends interest royalties rent from real_property and gain from the sale of property sec_513 of the code defines the term unrelated_trade_or_business as any trade_or_business the conduct of which is not substantially related aside from the need of such organization for income or funds or the use it makes of the profits derived to the exercise or performance by such organization of its exempt_purpose or function sec_513 of the code provides that the term trade_or_business includes any activity which is carried on for the production_of_income from the sale_of_goods or the performance of services sec_1_513-1 of the income_tax regulations provides that gross_income of an exempt_organization subject_to the tax imposed by sec_511 of the code is includible in the computation of unrelated_business_taxable_income if it is income from a trade_or_business such trade_or_business is regularly carried on by the organization and the conduct of such trade_or_business is not substantially related other than through the production of funds to the organization's performance of its exempt functions sec_1_513-1 of the regulations provides that for purposes of sec_513 of the code the term trade_or_business has the same meaning it has in sec_162 and generally includes any activity carried on for the production_of_income from the sale_of_goods or performance of services sec_1_513-1 of the regulations provides that in determining whether trade_or_business from which a particular amount of gross_income derives is regularly carried on within the meaning of sec_512 of the code regard must be had to the frequency and continuity with which the activities productive of the income are conducted and the manner in which they are pursued for example specific business activities of an exempt_organization will ordinarily be deemed to be regularly carried on if they manifest a frequency and continuity and are pursued in a manner generally similar to comparable commercial activities of non-exempt organizations sec_1_513-1 of the regulations provides that in general gross_income derives from unrelated_trade_or_business within the meaning of sec_513 of the code if the conduct of the trade_or_business which produces the income is not substantially related other than through the production of funds to the purposes for which exemption is granted the presence of this requirement necessitates an examination of the relationship between the business activities which generate the particular income in question -- the activities that is of producing or distributing the goods or performing the services involved -- and the accomplishment of the organization's exempt purposes sec_1_513-1 of the regulations provides that trade_or_business is related to exempt purposes in the relevant sense only where the conduct of the business activities has a causal relationship to the achievement of exempt purposes and is substantially related for purposes of sec_513 of the code only if the causal relationship is a substantial one thus for the conduct of trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of those purposes where the production or distribution of the goods or the performance of the services does not contribute importantly to the accomplishment of the exempt purposes of an organization the income from the sale of the goods or the performance of the services does not derive from the conduct of related trade_or_business whether activities productive of gross_income contribute importantly to the accomplishment of any purpose for which an organization is granted exemption depends in each case upon the facts and circumstances involved revrul_69_528 1969_2_cb_127 describes an organization that was formed to provide investment services on a fee basis exclusively to organizations exempt under sec_501 of the code it receives funds from the participating exempt_organizations invests in common stocks reinvests income and realized appreciation and upon request liquidates a participant's interest and distributes the proceeds to the participant the rev_rul states that providing investment services on a regular basis for a fee is a trade_or_business ordinarily carried on for profit if the services were regularly provided by one tax-exempt_organization for other tax-exempt organizations such activity would constitute unrelated_trade_or_business the rev_rul holds that the organization is not exempt under sec_501 as noted previously organizations described in sec_501 of the code are subject_to tax on their unrelated_business_income under sec_511 in order for such an organization's income to be subject_to the unrelated_business_income_tax three requirements must be met the income must be from a trade_or_business the trade_or_business must be regularly carried on and the conduct of the trade_or_business must not be substantially related to the organization's exempt_purpose or function see sec_1_513-1 of the regulations here m proposes to enter into a contractual relationship with certain trusts that are either charitable_remainder trusts or charitable lead trusts in which m has an interest as a beneficiary and serves as trustee of the trust under such a contractual relationship each trust would receive payments on the units held by it equal to the payout rate m establishes for its endowment with payouts made quarterly a_trust would acquire units from the m endowment which would give the trusts a contractual right against m but no interest whatsoever in the underlying investment_assets of the endowment the contract between m and the trusts would provide that the price of the units would equal their value at the time of acquisition the value of the units would be based on the value of the underlying investment_assets held by the endowment and would have the same unit value that m uses for internal accounting purposes a_trust could choose either to reinvest part of the payout or redeem additional units depending on its cash requirements thus under the contractual relationship with m the trusts would have a right to the payout declared by m plus the right to redeem the units at the value that m uses for internal accounting purposes generally an organization that otherwise qualifies for recognition of exemption under sec_501 of the code and provides investment services on a regular basis for a fee to other exempt or nonexempt organizations would be engaged in an unrelated_trade_or_business under sec_513 see revrul_69_258 supra such an activity would constitute a trade_or_business under sec_513 and sec_1_513-1 of the regulations and would be regularly carried on under sec_512 and sec_1_513-1 thus if m charged a fee for investment management services provided to organizations unrelated to m or generated income from the management of the funds invested by such organizations these activities could result in unrelated_business_taxable_income under sec_512 here however m is not charging a fee for its services and not otherwise receiving income from the services it provides to the trusts thus under these circumstances m will not receive unrelated_business_taxable_income under sec_512 the fact that m will engage in the investment activity for the benefit of individuals who are co-beneficiaries of the trusts income or remainder depending on which kind of trust is being considered at the same time that it engages in investment activity for its own benefit as the income or remainder beneficiary again depending on the kind of the trust limits the scope of the service provided to others and distinguishes it from a commercial venture in view of the foregoing we rule as follows the issuance of units from m to the trusts the making or receipt of payments with respect to the units and the holding or redemption of the units will not generate unrelated_business_taxable_income to m this ruling is based on the understanding that there will be no material changes in the facts upon which it is based we express no opinion as to the tax consequences of the proposed transaction under any other section of the code pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to m’s authorized representatives a copy of this letter should be kept in m's permanent records this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent if there are any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter this letter supersedes our letter dated date sincerely signed robert c harper jr_ robert c harper jr manager exempt_organizations technical group