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 ita b07 plr-101533-11 date date re request for extension of time to make the election to use general asset accounts legend parent subsidiary subsidiary subsidiary subsidiary a b c d year x date date --------------------------------------------------- ------------------------------------------------------------- -------------------------------------------------------------- ------------------------------------------------------ ------------------------------------------------------------------- ---------------------------------------------------- --------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------ -------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------- -------- ------- --------------------------- --------------------------- plr-101533-11 advisor --------------------------- lb_i ----------------------------------------- dear -------------- - this letter responds to a letter dated date submitted by parent on behalf of parent subsidiary subsidiary subsidiary and subsidiary hereinafter collectively referred to as taxpayer requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election under sec_1_168_i_-1 of the income_tax regulations to account for assets using general asset accounts parent represents that the facts are as follows facts taxpayer uses an accrual basis of accounting and is engaged in a number of business activities including a b and c taxpayer’s business activities involve a considerable number of items of identical or nearly identical tangible depreciable_property subsidiary subsidiary subsidiary and subsidiary are wholly-owned subsidiaries of parent parent is the common parent of an affiliated_group_of_corporations including subsidiary subsidiary subsidiary and subsidiary that files its consolidated federal_income_tax return on a calendar_year basis for the year x taxable_year taxpayer placed_in_service a large number of d assets these assets are subject_to the depreciation deduction under sec_168 of the internal_revenue_code during the preparation of taxpayer’s return for the year x taxable_year advisor suggested that taxpayer consider using general asset accounts rules under sec_168 to simplify accounting for taxpayer’s d assets when taxpayer electronically filed the year x return on date it accounted for its d assets placed_in_service during the taxable_year using general asset accounts however taxpayer inadvertently failed to mark the appropriate box on its form_4562 depreciation and amortization or to include any statement indicating that it was making an election pursuant to sec_1_168_i_-1 to utilize general asset accounts for its d assets in a meeting with advisor on date taxpayer became aware that it had not properly made the election under sec_1_168_i_-1 to account for its d assets using general asset accounts ruling requested plr-101533-11 taxpayer requests an extension of time pursuant to sec_301_9100-3 to make the election under sec_1_168_i_-1 for parent subsidiary subsidiary subsidiary and subsidiary to utilize general asset accounts pursuant to sec_168 for its d assets that were placed_in_service during the year x taxable_year law and analysis sec_167 provides the general_rule that there shall be allowed as a deduction a reasonable allowance for the exhaustion wear_and_tear of property used in a trade_or_business or of property_held_for_the_production_of_income sec_168 provides that generally the depreciation deduction provided by sec_167 for any tangible_property is determined using the applicable_depreciation_method the applicable_recovery_period and the applicable convention sec_168 provides that under regulations a taxpayer may maintain one or more general asset accounts for any property to which sec_168 applies sec_1_168_i_-1 provides rules for general asset accounts under sec_168 the applicable rules provided under sec_1_168_i_-1 apply only to assets for which an election has been made under sec_1_168_i_-1 sec_1_168_i_-1 provides that if a taxpayer makes an election under sec_1_168_i_-1 the taxpayer consents to and agrees to apply all of the provisions of sec_1_168_i_-1 to the assets included in a general_asset_account except as provided in sec_1_168_i_-1 special rules for assets generating foreign_source_income e special rules applicable to dispositions of assets included in a general_asset_account g assets subject_to recapture or h changes in use an election made under sec_1_168_i_-1 is irrevocable and will be binding on the taxpayer for computing taxable_income for the taxable_year for which the election is made and for all subsequent taxable years an election under sec_1_168_i_-1 is made separately by each person owning an asset to which sec_1_168_i_-1 applies for example by each member of a consolidated_group sec_1_168_i_-1 provides that the election to apply sec_1_168_i_-1 shall be made on the taxpayer’s timely filed including extensions federal_income_tax return for the taxable_year in which the assets included in the general assets account are placed_in_service by the taxpayer sec_1_168_i_-1 provides that a taxpayer makes the election under sec_1_168_i_-1 by typing or legibly printing at the top of the form_4562 general_asset_account election made under sec_168 or in the manner provided for on form_4562 and its instructions plr-101533-11 under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election 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 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based solely on the facts and representations submitted we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied accordingly taxpayer is granted calendar days from the date of this letter to make the election under sec_1_168_i_-1 to utilize general asset accounts pursuant to sec_168 for its d property placed_in_service during the year x taxable_year this election must be made by parent filing an amended consolidated federal_income_tax return amended form sec_4562 for parent subsidiary subsidiary subsidiary and subsidiary and a copy of this letter_ruling with the irs service_center where taxpayer filed its original federal tax_return for the year x taxable_year the amended form sec_4562 should reflect in the manner prescribed by sec_1_168_i_-1 that parent subsidiary subsidiary subsidiary and subsidiary are electing to account for the d assets using general asset accounts pursuant to sec_168 except as specifically set forth above we express no opinion concerning the federal_income_tax consequences of the facts described above under any other provisions of the code in accordance with the power_of_attorney we are sending copies of this letter to taxpayers’ authorized representative we are also sending a copy of this letter to the appropriate industry director lb_i plr-101533-11 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely yours willie e armstrong jr senior technician reviewer branch office of associate chief_counsel income_tax accounting enclosures copy of this letter copy for sec_6110 purposes cc -


internal_revenue_service number release date index number ------------------------ -------------------------------------------------- ------------------------------ -------------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ----------------- telephone number --------------------- refer reply to cc psi b01 plr-139474-12 date date legend x ----------------------------------------------------------------- --------------------------------------------------- -------------------------- a --------------------------------------------------- ------------------------------------------ m ----------------------------------------------------- ----------------------------- n ----------------------------------------------------- -------------------------------- state q d1 d2 d3 d4 ---------- -------------------------------- ----------------------- ---------------------- ------------------------- ------------------- plr-139474-12 dear ------------ this letter responds to a letter dated date and subsequent correspondence on behalf of x from x's authorized representative requesting inadvertent termination relief under sec_1362 of the internal_revenue_code facts according to the information submitted x was incorporated under the laws of state on d1 and elected to be treated as an s_corporation effective d2 on d3 the sole shareholder of x transferred all of the shareholder’s shares of x stock to a a was a q an ineligible shareholder pursuant to sec_1361 as such x’s status as an s_corporation terminated the former shareholder of x and the owners of a did not intend to terminate x’s status as an s_corporation x represents that the transfer of shares to a was not motivated by tax_avoidance and neither x nor the owners of a intended to obtain nor did obtain a tax_benefit by having a as a shareholder on d4 a distributed all the shares of x that it held in equal part to the owners of a m and n between d3 and d4 the income gain loss deductions and credits from x that a allocated to m and n were equal to the income gain loss deductions and credits that would have been allocated to m and n if they had been the shareholders of x during that time x and each person that was a shareholder of x subsequent to d3 filed their united_states income_tax returns in a manner consistent with the treatment of x as an s_corporation x m and n each agree to make any adjustments consistent with the treatment of x as an s_corporation that the secretary may require x requests a ruling that the termination of its s_corporation_election was inadvertent within the meaning of sec_1362 law and analysis sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 provides in part that the term small_business_corporation means a domestic_corporation which is not an ineligible_corporation and which does not have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual plr-139474-12 sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect to be an s_corporation sec_1362 provides that an election under sec_1362 shall be terminated whenever at any time on or after the 1st day of the 1st taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation and that any termination under sec_1362 shall be effective on and after the date of cessation sec_1362 provides in part that if -- an election under sec_1362 by any corporation was terminated under sec_1362 the secretary determines that the circumstances resulting in such termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such termination steps were taken so that the corporation for which the termination occurred is a small_business_corporation or to acquire the required shareholder consents and the corporation for which the termination occurred and each person who was a shareholder in such corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of such corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such termination such corporation shall be treated as an s_corporation during the period specified by the secretary conclusion based solely on the facts submitted and representations made we conclude that x's s_corporation_election was terminated on d3 because a was an ineligible shareholder of x we further conclude that the termination of x's s_corporation_election constituted an inadvertent termination within the meaning of sec_1362 under the provisions of sec_1362 x will be treated as an s_corporation from d3 and thereafter provided that apart from the inadvertent termination described above x's s_corporation_election was otherwise valid and has not otherwise terminated under sec_1362 except as specifically ruled above we express or imply no opinion concerning the federal tax consequences of the transactions described above under any other provision of the code specifically except as specifically ruled above we express or imply no opinion regarding x‘s eligibility to be an s_corporation plr-139474-12 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 sincerely david r haglund david r haglund chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court the nationalist foundation a mississippi non-profit corporation petitioner v commissioner of internal revenue respondent docket no 14871-98xx filed date richard barrett for petitioner joan ronder domike for respondent memorandum opinion cohen judge respondent determined that the nationalist foundation petitioner does not gualify as a sec_501 c charitable_organization and therefore is not exempt from federal taxation under sec_501 pursuant to sec_7428 and title xxi of the tax_court rules_of_practice and procedure petitioner seeks a declaratory_judgment that it is a qualified_organization under sec_501 the issues for decision are whether petitioner operates exclusively for charitable and or educational_purposes and whether the commissioner treated petitioner differently from other similarly situated organizations in violation of petitioner’s due process and equal protection rights under the 5th and 14th amendments to the constitution unless otherwise indicated all section references are to the internal_revenue_code in effect at the time the petition was filed and all rule references are to the tax_court rules_of_practice and procedure background the administrative record which includes all of the facts upon which the commissioner made the final adverse determination was submitted to the court under rule b and is incorporated herein by this reference petitioner is a nonprofit mississippi corporation with its principal office in jackson mississippi petitioner’s articles of incorporation filed on date list vince thornton and dan daniels as incorporators and richard barrett barrett as registered agent barrett is also serving as counsel to petitioner in this action wendell garner replaced barrett as registered agent on or around date on form_1023 application_for recognition of exemption under sec_501 of the internal_revenue_code petitioner stated that its principal activities are conducting forums to discuss constitutional rights’ issues stressing the first amendment conducting public access cable television and internet programs featuring guests interviews and documentaries on current issues stressing the use of lawful peaceful and positive means to achieve democratic ends conducting litigation or amicus curiae to lessen the burdens of government under the private attorney_general method to secure and advance civil constitutional and first amendment rights according to petitioner private attorney_general means that citizens assist in enforcement of the laws saving the government time and expense of doing so such as by private litigation petitioner’s constitution states that it shall be a nonprofit charitable and educational_organization dedicated to advancing american freedom american democracy and american nationality petitioner seeks to become the legal and educational arm of rightist and promajority americans petitioner states ina letter soliciting donations from the public that it will use the courts to bring terrorists who attack promajority demonstrators to justice the letter cites two examples of events where petitioner would bring litigation using the private attorney_general technique in simi valley self-described communists advertised in the newspaper that they would kill patriots assembled to thank the jury that acquitted officers koon and powell police officers accused of beating rodney king in new hampshire avowed homosexuals advertised that they would attack patriots calling for abolishing the martin luther king jr holiday it took massive intervention by riot police to back them off both of these events were assemblies organized by barrett in which promajority demonstrators were attacked by counterdemonstrators petitioner also plans to file amicus curiae briefs in cases involving the first amendment rights of promajority-minded americans and to use u s c sec e as an antiblockbusting law to save neighborhoods by suing incoming minorities petitioner will use the internet to conduct seminars for teaching skills for more effective social action the administrative record contains a transcript from only one seminar which was conducted date the seminar recounted on the website of petitioner gives students instruction on how to advocate peacefully without violating laws pertaining to hate crimes housing violations harassment and racketeering petitioner’s home page also contains links to other articles entitled constitutional protection educational outreach nationalist ideology private attorney-general pro-democracy methodology relief for the poor and using the first amendment as democracy’s shield and sword the administrative record however does not contain copies of these articles despite attempts by the commissioner to obtain them from petitioner petitioner allocates its time in the following manner internet seminars and preparation researching legal and educational issues website setup and maintenance administration correspondence record keeping meetings and conferences the actions of petitioner are designed to counteract the work of organizations such as the naacp legal defense fund inc and the american civil liberties union petitioner characterizes these groups as the leftist threat to our liberties petitioner’s donation solicitation material contains several distortions of fact petitioner’s statement in its solicitation letter that avowed homosexuals advertised that they would attack patriots was fabricated from a newspaper article that reads members of the national peoples campaign plan to shadow barrett outside the state house beginning pincite a m to oppose his ultra-conservative views and they are looking for all the picketers they can get emphasis added the same solicitation letter also claims that petitioner has in its possession actual photos of the terrorists in the act of attacking the anti-king rally at the state capitol petitioner however has only one photograph of three individuals holding a banner which opposes the views of petitioner the individuals depicted in the photograph are not engaged in any kind of attack on barrett or his fellow demonstrators on date petitioner submitted its form_1023 application_for recognition of exemption under sec_501 c of the internal_revenue_code respondent issued an initial adverse determination on date petitioner appealed to the internal_revenue_service office of appeals which gave a final adverse determination on date denying tax-exempt status to petitioner under sec_501 the commissioner’s reasons for denial stemmed from the determination that petitioner has failed to establish that it is operated exclusively for exempt purposes that net_earnings will not inure to the benefit of private individuals and that petitioner will not serve private interests petitioner challenges that determination in this action for declaratory_judgment discussion petitioner bears the burden of proving that it is a sec_501 organization see rule c a in order for petitioner to meet this burden the administrative record upon which this case is to be decided must contain enough evidence to support a finding contrary to the grounds set forth in the notice_of_determination see 102_tc_558 affd 37_f3d_216 5th cir 71_tc_102 during the administrative_proceeding petitioner attempted to countermand and withdraw several of its comments practices and activities after the commissioner determined that these items would preclude petitioner from qualifying as a sec_501 c organization however we review the administrative record in its entirety sec_501 provides tax-exempt status for organizations described in sec_501 sec_501 includes the following organizations c corporations and any community chest fund or foundation organized and operated exclusively for religious charitable scientific testing for public safety literary or educational_purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual no substantial part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation and which does not participate in or intervene in any political campaign on behalf of or in opposition to any candidate for public_office contributions to organizations described in sec_501 are generally deductible to donors see sec_170 to come within the terms of sec_501 an organization must be both organized and operated exclusively for tax-exempt purposes sec_1 c -1 a income_tax regs the presence of a single substantial nonexempt purpose precludes exempt status for the organization regardless of the number or importance of exempt purposes see 326_us_279 the actual purposes of the organization not necessarily limited to those purposes stated in the organizing documents are the appropriate focus see 92_tc_1053 as stated in the regulations the operational_test is as follows an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_1 c -1 c income_tax regs of the exempt purposes listed in sec_501 petitioner maintains that it operates for charitable and educational_purposes the term charitable is used in sec_501 in its generally accepted legal sense and includes but is not limited to relief of the poor and distressed or of the underprivileged advancement of religion advancement of education or science erection or maintenance of public buildings monuments or works lessening of the burdens of government and promotion of social welfare by organizations designed to accomplish any of the above purposes or to lessen neighborhood tensions to eliminate prejudice and discrimination to defend human and civil rights secured_by law or iv to combat community deterioration and juvenile delinquency sec_1 c -1 d income_tax regs the term educational as used in sec_501 is defined as the instruction or training of the individual for the purpose of improving or developing his capabilities or the instruction of the public on subjects useful to the individual and beneficial to the community an organization may be educational even though it advocates a particular position or viewpoint see sec_1 c -1 d income_tax regs petitioner argues that its activities which promote free speech and create forums for the exchange of ideas and information are charitable and educational by nature the rationale of petitioner is that freedom of speech is the highest national priority and if freedom is extended to even one group or individual all americans benefit respondent claims that petitioner has failed to prove that its activities are charitable and educational within the meaning of sec_501 in order to gain sec_501 status a taxpayer must openly and candidly disclose all facts bearing upon the organization its operations and its finances so that the court may be assured that it is not sanctioning an abuse of the revenue laws by granting a claimed exemption where such a disclosure is not made the logical inference is that the facts if disclosed would show that the taxpayer fails to meet the regquirements of sec_501 see 74_tc_531 affd 670_f2d_104 9th cir -- - the record is vague and inconsistent concerning the purported activities of petitioner petitioner has produced only one transcript of a seminar conducted from its website the home page of petitioner has links to articles entitled constitutional protection educational outreach nationalist ideology private attorney-general pro-democracy methodology relief for the poor and using the first amendment as democracy’s shield and sword which petitioner has refused to place in the administrative record also petitioner has attempted to countermand and withdraw much of the administrative record such that only a skeletal description of its activities would remain for the court to examine if we were to allow petitioner to modify the administrative record the reasonable inference from the record is that petitioner does not meet the requirements of sec_501 the few activities of petitioner that have been disclosed fall outside of the definitions of charitable and educational under sec_501 sec_1 c -1 d income_tax regs specifically states that examples of charitable activities are ones designed to lessen neighborhood tension and to eliminate prejudice and discrimination petitioner’s actions serve the purpose of increasing social activism of promajority and rightist beliefs and are antithetical to these examples in addition some of petitioner’s materials contain distortions of fact distortion of facts is the second negative factor of the methodology test of revproc_86_43 1986_2_cb_729 applied by the commissioner during the administrative process the methodology test is applied to resolve whether a taxpayer 1s operated exclusively for educational_purposes and includes whether or not the presentation of viewpoints unsupported by a relevant factual basis constitutes a significant portion of the organization’s communications to the extent viewpoints purport to be supported by a factual basis are the facts distorted whether or not the organization makes substantial use of particularly inflammatory and disparaging terms expressing conclusions based on strong emotional feelings rather than objective factual evaluations whether or not the approach to a subject matter is aimed at developing an understanding on the part of the addressees by reflecting consideration of the extent to which they have prior background or training in 102_tc_558 affd 37_f3d_216 5th cir this court addressed the issue of whether revproc_86_43 supra is constitutional which is raised by petitioner in this case the taxpayer in nationalist movement was an organization whose activities are very similar to the activities of petitioner barrett served as the taxpayer’s chairman treasurer and attorney in that case this court held that revproc_86_43 supra is not overbroad and does not violate the lst and 14th amendments to the constitution see id pincite citing the 5th and 14th amendments to the constitution petitioner argues that respondent has treated it differently from other organizations similarly situated thereby violating its due process and equal protection rights the 14th amendment provides that no state shall deny to any person the equal protection of the laws the fifth_amendment as applicable to the federal government has no equal protection clause but its due process guarantees incorporate similar principles see 461_us_540 n 347_us_497 petitioner moved to compel discovery relating to these constitutional arguments after the parties had filed the administrative record with the court only in very unusual circumstances and upon good cause shown will the court permit either party to supplement the administrative record see rule 2z21 a 37_f3d_216 5th cir affg tcmemo_1992_698 in response to petitioner’s motion this court concluded that good cause had not been shown for submission of evidence in addition to the administrative record and therefore the motion was denied what is contained in the administrative record in terms of petitioner’s factual foundation is wholly unpersuassive using as a source an irs publication cumulative list of organizations described in sec_170 of the internal_revenue_code_of_1986 revised to date petitioner points out that there are many listed organizations whose names begin with words of apparent ethnic racial or sexual partiality such as black hispanic jewish and gay an important disparity according to petitioner is the conspicuous absence of white organizations this issue has already been addressed by this court in nationalist movement v commissioner t c pincite in which we held that there was no evidence of a constitutional violation petitioner’s arguments are identical to those of the taxpayer in nationalist movement therefore there is no reason to change the analysis or the result reached in that opinion for the reasons stated we conclude that petitioner is not operated as a sec_501 organization we have considered the remaining arguments of petitioner and they are either irrelevant or otherwise lack merit decision will be entered upholding respondent’s determination


internal_revenue_service department of the treasury index no number info release date washington dc person to contact john t sapienza jr id no telephone number refer reply to cc dom it a - cor-110337-00 date date dear mr commissioner rossotti asked me to respond to your letter of date concerning obesity and weight-loss programs you asked the internal_revenue_service to issue a revenue_ruling allowing obese individuals to deduct the costs of weight-loss programs as medical_care expenses under sec_213 of the internal_revenue_code the current irs position on weight-loss programs is stated in revrul_79_151 1979_1_cb_116 this ruling holds that if participation in the program was to improve the participant’s appearance general health and sense of well-being the expenses of the program are not for medical_care and therefore are not deductible of course the expenses of a weight-loss program prescribed to treat a specific disease are for medical_care and are deductible we appreciate your suggestion and the references you provided to studies on obesity each year the irs and the department of the treasury review the many suggestions for revenue rulings and other forms of guidance to be published the projects selected are announced in the annual priority guidance plan input such as you have provided is helpful to us in selecting projects for the priority guidance plan i hope this information is helpful please call john t sapienza jr at the number above if you have any questions sincerely deputy assistant chief_counsel income_tax accounting by robert a berkovsky chief branch


t c summary opinion united_states tax_court select steel inc petitioner v commissioner of internal revenue respondent docket no 12881-06s filed date craig appleby an officer for petitioner karen nicholson sommers for respondent cohen judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case unless otherwise indicated all section references are to the internal_revenue_code as amended and all rule references are to the tax_court rules_of_practice and procedure respondent determined that petitioner was not entitled to an abatement of interest on its federal_income_tax liability for its taxable_year ended date fiscal_year and upheld respondent’s notice of lien filing related to petitioner’s liability for the unpaid interest after concessions the sole issue for decision is whether respondent’s decision not to abate interest with respect to petitioner’s income_tax_liability for the fiscal_year was an abuse_of_discretion background some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference petitioner is a corporation organized under the laws of and with its principal_place_of_business in the state of california petitioner is engaged in business as a steel contracting firm petitioner timely filed its federal_income_tax return for the fiscal_year and calculated its tax_liability for that year using the cash_method_of_accounting in date the internal_revenue_service irs initiated an examination of petitioner’s federal_income_tax return for the fiscal_year the principal issue during the examination was whether petitioner was required to convert to the accrual_method of accounting between date and date petitioner and the irs executed four agreements that collectively extended the period of limitations on assessment of tax approximately years computational errors by the examining agent were common throughout the examination of petitioner’s return and such errors resulted in multiple recalculations that were the primary cause of the lengthiness of the examination process on date petitioner’s accountant sent a letter to the tax examiner acknowledging his receipt of her audit report and addressing several computational errors in the report although petitioner fundamentally disagreed with the irs regarding the necessity that it convert to the accrual_method of accounting petitioner relented on this issue at least by date however the examiner did not close the examination of petitioner’s fiscal_year until the end of date on september and the examiner sent letters to both petitioner and its accountant summarizing the conclusion of petitioner’s examination which resulted in petitioner’s changing its method_of_accounting the examiner acknowledged in the letters that the examination was lengthy and that the irs assigned to petitioner’s examination four different audit managers each of whom gave petitioner different advice and information at different times in the audit process the examiner explained in the letter to petitioner that the fourth and final irs audit manager notified petitioner in date that it could not choose the year it changed methods_of_accounting although petitioner had been told otherwise by an earlier audit manager she also summarized that the primary result of the examination was to convert petitioner from the cash_method_of_accounting to the accrual_method however the examiner did not explain fully in the letters why petitioner’s examination was not completed for years upon receipt of a final_determination regarding the interest applicable to the liability for its fiscal_year petitioner submitted on date a form_656 offer_in_compromise oic to the irs explaining its challenge to the interest assessed and including a dollar_figure check in an attempt to settle its dispute with the irs the irs cashed the check on date and applied dollar_figure to petitioner’s account as an overpaid credit however the irs did not respond to petitioner until approximately months later on date when petitioner was notified that only the first page of the 30-page oic was received the irs directed petitioner to the appropriate form for requesting only abatement of interest form_843 claim_for_refund and request for abatement petitioner promptly completed form_843 attached the documents it had submitted with form_656 and submitted the request for abatement on date on date approximately year after the original document was submitted the irs notified petitioner that it had found the original 30-page oic on date respondent mailed to petitioner a notice of lien notifying petitioner of the collection action taken with regard to the unpaid tax_liability for interest related to the fiscal_year on date in response to the notice of lien petitioner mailed to the irs form request for a collection_due_process_hearing on date the irs mailed a letter to petitioner denying its request for abatement of interest petitioner’s request for a collection_due_process_hearing and its request for abatement of interest were assigned to different appeals officers at the irs who coordinated with each other in their review of petitioner’s requests the appeals officers considered almost exclusively the letters and documents petitioner submitted when requesting abatement of interest and challenging the tax_lien because the irs could not find its own case file regarding petitioner’s examination the appeals officer reviewing petitioner’s request for abatement of interest denied the request in full because she found that petitioner did not raise qualifying ministerial arguments in its request petitioner’s letter requesting abatement of interest stated in part i am pleading for you to carefully review all the facts regarding this audit for the tax period ending not as indicated in your letter the amount of the claim was not dollar_figure as stated in your letter but for all interest on this tax amount except for the dollar_figure which i sent to the irs in good_faith with an offer_in_compromise the offer_in_compromise was prepared and sent at the suggestion of the laguna nigel sic irs office only to be rejected because i was later informed that an offer_in_compromise could not apply to interest only taxes during the three and one half years it took for the irs to complete the audit there were ministerial acts involved which consisted of completed audit forms given to our accountant which contained calculation errors and where in carelessness the auditor omitted deductions which resulted in select steel paying our accountant to correct these with months and months of delays accumulating during this time the entire audit was a sad comedy of errors and we relied on the advice of our auditor that due to the numerous irs delays during the audit that the interest would be waived i am requesting an appeal based on such i am again enclosing copies of paperwork i have sent in the past with this letter your files should show the delays which took place in this audit which resulted in the excessive interest charges there should be copies of the incorrectly calculated audit forms prepared by the irs in your files along with the final form please remember that select steel paid the taxes in full promptly and the taxes were due to a new ruling that businesses such as ours should be on an accrual basis instead of cash_basis there were no penalties assessed just the exorbitant interest for the three and one half years that it took for the irs to complete the audit please call me if you have any questions i sincerely hope that you can locate all the past audit records and that the ministerial acts will become apparent to you we have acted in good_faith throughout this process and have been spent sic countless hours trying to resolve this in spite of errors and incorrect information supplied by the irs emphasis added the documents attached to petitioner’s letter included the date letters from the examiner and petitioner’s date oic attempting to settle the interest charge for dollar_figure in the date letter disallowing in full petitioner’s request for abatement of interest the irs provided petitioner with the following cursory denial this letter is your legal notice that your claim is fully disallowed for the following reason there was no error or unreasonable delay relating to the performance of a ministerial_act by an employee or officer of the internal_revenue_service in the final_determination letter denying the request for abatement of interest dated date petitioner received another cursory denial of its request for abatement of interest the delays cited in your claim are attributable to the exercise of judgment or to managerial acts not to ministerial acts qualifying for abatement under sec_6404 as applicable for the tax period at issue also on date the irs mailed a notice_of_determination concerning collection action s under sec_6320 and or holding that the tax_lien filed was an appropriate collection action petitioner responded by filing the petition discussion if as part of a sec_6330 proceeding a taxpayer makes a request for abatement of interest the court has jurisdiction over the request for abatement of interest that is the subject of the commissioner’s collection activities 115_tc_329 under sec_6404 as in effect for petitioner’s fiscal_year the commissioner may abate part or all of an assessment of interest on any deficiency or payment of income taxes to the extent that the deficiency in payment is attributable in whole or in part to any error or delay by an officer_or_employee of the irs in performing a ministerial_act although congress amended sec_6404 in to permit the commissioner to abate interest with respect to unreasonable error or delay resulting from managerial or ministerial acts the amendment applies only to interest accruing with respect to deficiencies for taxable years beginning after date and is inapplicable to the instant case see taxpayer bill of right sec_2 publaw_104_168 110_stat_1457 the term ministerial_act means a procedural or mechanical act that does not involve the exercise of judgment or discretion and occurs during the processing of a taxpayer’s case after all the prerequisites to the act such as conferences and review by supervisors have taken place 123_tc_202 a decision concerning the proper application of federal tax law is not a ministerial_act id an error or delay in performing a ministerial_act is taken into account only if it is in no significant aspect attributable to the taxpayer and only if it occurs after the irs has contacted the taxpayer in writing with respect to the deficiency or payment sec_6404 sec_6404 is intended to apply only in instances where failure to abate interest would be widely perceived as grossly unfair h rept pincite 1986_3_cb_1 sec_6404 authorizes the court to decide whether the commissioner’s failure to abate interest was an abuse_of_discretion and if so to order an abatement see jones v commissioner tcmemo_2008_56 generally the taxpayer must prove that the commissioner’s discretion was exercised arbitrarily capriciously or without sound basis in fact or law 113_tc_145 112_tc_19 however the commissioner is in the best position to know what actions were taken by irs officers and employees during the period for which petitioners’ abatement request was made and during any subsequent inquiry based upon that request jacobs v commissioner tcmemo_2000_123 petitioner argues that the delay in full payment of its federal tax_liability for is attributable not to its own actions in any way but rather to substantial delays during the irs audit petitioner was able to present a few documents at trial indicating both ministerial and managerial errors and delays on the part of the irs as well as disagreement between the parties regarding the proper application of federal tax law petitioner also maintained at trial that it would not have consented to the extensions of the period of limitations if it had known that interest during the extension periods would continue to accrue on any deficiency in tax ultimately assessed petitioner’s officers assert that they were assured by an examiner that interest would be waived but they did not provide specific details or corroboration of this claim respondent contends that on the basis of the available evidence petitioner’s request for abatement of interest was properly disallowed because petitioner failed to show error or delay by irs employees in performing a ministerial_act however the available evidence is scant primarily because of respondent’s destruction or loss of petitioner’s case file the few documents in evidence have been supplied by petitioner whose access to the information and documents most pertinent to resolution of this case is severely limited there are no documents explaining what was happening from date until the end of date when the examiner sent the letters to petitioner and its accountant at the close of the examination respondent argues on brief that petitioner’s agreements to extend the period of limitations demonstrate that the delays in the examination process were not solely attributable to respondent we disagree even where a taxpayer agrees to extend the period of limitations there may be instances where actions or inactions of irs employees may result in ministerial errors or delays see jacobs v commissioner supra where neither the taxpayer nor the court is given a rational explanation for the commissioner’s discretionary decision we may find an abuse_of_discretion see dadian v commissioner tcmemo_2004_121 jacobs v commissioner supra petitioner’s claims in its letter requesting abatement of interest that extensive ministerial errors and delays occurred during its examination including calculation errors and omissions in the audit reports prepared by the examiner were neither addressed nor denied during the appeals process or at trial such errors and delays are ministerial because they do not involve the exercise of judgment or discretion the supervisors’ reviews had already taken place apparently several times and computational errors do not involve the application of federal tax law see jones v commissioner supra furthermore the appeals_office knew from petitioner’s letter requesting abatement of interest that petitioner was reasonably relying on the appeals officer to review the irs case file for specific examples of the calculation errors and related ministerial delays alleged the appeals officer did not however inform petitioner that its case file was missing until after petitioner had petitioned the court challenging the determinations although petitioner received categorical denials that any ministerial errors or delays had occurred contributing to the accrual of interest on its account petitioner was not aware until shortly before trial that respondent was not able to find its case file at the time petitioner submitted the documents accompanying its letter requesting abatement of interest petitioner directed attention to the evidence of ministerial errors and delays in its case file and reasonably believed that the irs would consult the case file in reviewing petitioner’s request because respondent has offered no explanation of the denial of petitioner’s claims for abatement of interest due to ministerial calculation errors we hold that it was an abuse_of_discretion for respondent to disallow in full petitioner’s request for abatement of interest see dadian v commissioner supra see also jacobs v commissioner supra for the period from the beginning of petitioner’s examination until date the first date in the record when petitioner’s accountant notified the irs of several calculation errors in the examiner’s audit report petitioner’s request for abatement of interest was properly denied until date petitioner and the examiner were engaged in disagreements regarding the proper application of federal tax law specifically whether petitioner was required to convert to the accrual_method of accounting as of at least date however petitioner had conceded the substantive tax law challenge because respondent has failed to produce petitioner’s case file the record is void of any documentation of events that occurred between date and date when the examiner acknowledged that the fourth and final irs audit manager had notified petitioner in date that it could not pick the year that it changed methods_of_accounting as petitioner had been advised by a previous audit manager this change was due to a prior incorrect statement of federal tax law by the previous audit manager and thus the delay following this notification was not due to a ministerial error therefore for the period between july and date the denial of petitioner’s request for abatement of interest was appropriate for the remaining period from date through the end of date we hold that respondent’s denial of abatement of interest was an abuse_of_discretion following petitioner’s notification to the examiner of calculation errors in the audit report the examination continued for approximately additional years during that time all prerequisites to the act of recalculating petitioner’s tax_liability had occurred see corson v commissioner t c pincite respondent has presented no explanation or evidence regarding what occurred during this lengthy period petitioner alleged multiple calculation errors throughout the audit process that respondent has failed to address such errors are ministerial because they do not involve managerial discretion and do not involve opinions regarding the proper application of federal tax law the record does not show that any significant portion of the delay during this period was attributable to petitioner who has demonstrated timeliness in its communications with the irs and who paid the tax_deficiency found by the examiner immediately upon the conclusion of the examination respondent is in the best position to know what actions irs officers and employees took during the period for which petitioners’ abatement request was made yet respondent has provided no such information to petitioner or to the court see jacobs v commissioner supra because respondent has failed to address petitioner’s claims of delays due to computational ministerial errors adequately and because the appeals_office did not base the decision to deny petitioner’s request for abatement of interest upon a full review of petitioner’s case we hold that respondent’s denial for the period for which there is no documentation or information regarding how the examination was conducted was arbitrary without sound basis in fact or law and an abuse_of_discretion see lee v commissioner t c pincite woodral v commissioner t c pincite petitioner’s situation is one where failure to abate interest would be widely perceived as grossly unfair see h rept supra pincite c b vol pincite we conclude that the determination to uphold the filing of the tax_lien as an appropriate collection action was an abuse_of_discretion petitioner has promptly paid all undisputed amounts and has proceeded diligently to resolve disputes there is no basis for concluding that the lien is necessary to protect the government’s interest in reaching our decision we have considered all arguments made and to the extent not mentioned we conclude that they are irrelevant moot or without merit decision will be entered under rule


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 corp b04 plr-108175-12 date may legend parent date date date x ------------------------------------------------------------- ------------------------------- ------------------------ ----------------------- ----------------------- ------------------ -- company official ---------------- --------------------------------- ------------------------------------- tax professional ----------------------------------- -------------------------------------------------------------------------- ------ ---------------- plr-108175-12 dear --------------- this letter responds to a letter dated february submitted on behalf of parent requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election in particular parent is requesting an extension of time for the consolidated_group of which parent is the common parent to elect an extended carryback period the election for a consolidated_net_operating_loss cnol the material information submitted for consideration is summarized below parent is the common parent of a consolidated_group the parent group parent group incurred a cnol in the taxable_year ending date the year cnol parent seeks to carry back the year cnol x years to its taxable_year ending on date under sec_172 of the internal_revenue_code parent was required to file the election in order to carry back the year cnol to its taxable_year ending on date and to obtain the benefit of sec_56 the election was due on date parent intended to file the election but for various reasons a valid election was not filed after the due_date for the election it was discovered that the election had not been filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file the election the period of limitations on assessment under sec_6501 has not expired for the parent group’s consolidated_income_tax_return for the taxable_year in which the year cnol was incurred or any subsequent taxable_year parent has represented that it is not seeking to alter a return position for which an accuracy related penalty has been or could be imposed under sec_6662 at the time the taxpayer requested relief sec_172 generally permits a taxpayer to carry back a net_operating_loss nol to each of the taxable years preceding the taxable_year of the nol sec_172 permits a taxpayer to elect to carry back an applicable net_operating_loss applicable nol to each of the or taxable years preceding the taxable_year of the applicable nol in lieu of the 2-year period provided by sec_172 sec_172 provides that the term applicable nol means the taxpayer’s nol for a taxable_year ending after date and beginning before date sec_172 provides that the election under sec_172 shall be made by the due_date including extension of time for filing the return for the taxpayer’s last taxable_year beginning in the election is irrevocable and in general may be made only with respect to one taxable_year plr-108175-12 sec_1502 provides that the secretary shall prescribe such regulations as he may deem necessary in order that the tax_liability of any affiliated_group_of_corporations making a consolidated_return and of each corporation in the group both during and after the period of affiliation may be returned determined computed assessed collected and adjusted in such manner as clearly to reflect the income_tax_liability and the various factors necessary for the determination of such liability and in order to prevent avoidance of such tax_liability in carrying out the preceding sentence the secretary may prescribe rules that are different from the provisions of chapter that would apply if such corporations filed separate returns sec_1_1502-21 of the income_tax regulations provides that losses taken into account in determining a cnol may be carried to other taxable years whether consolidated or separate only under paragraph b of sec_1_1502-21 sec_1_1502-21 provides that nol carryovers and carrybacks to a taxable_year are determined under the principles of sec_172 and sec_1_1502-21 sec_1_1502-21t provides that a consolidated_group can elect an extended carryback period pursuant to sec_172 with regard to a cnol arising in a taxable_year ending after date and beginning before date revproc_2009_52 2009_49_irb_744 provides when and how a taxpayer may make an election under sec_172 sec_4 of revproc_2009_52 provides that the common parent of a consolidated_group makes the election for the group sec_4 and of revproc_2009_52 permit the election to be made for consolidated taxpayers by attaching a statement to the original or amended consolidated_return for the taxable_year of the applicable cnol by attaching a statement to the taxpayer’s amended consolidated_return applying the applicable cnol to the carryback_year or by attaching a statement to a claim for a tentative_carryback_adjustment on form_1139 corporation application_for tentative refund sec_4 b and b of revproc_2009_52 require the election regardless of the manner in which made to be filed no later than the due_date including extensions for filing the return for the taxpayer’s last taxable_year beginning in under sec_301_9100-1 the commissioner has discretion to 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 internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the plr-108175-12 commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 the election by a consolidated_group to extend the carryback period under sec_172 for a cnol is a regulatory election therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for parent to file the election provided parent establishes to the satisfaction of the commissioner that it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by parent company official and tax professional explain the circumstances that resulted in the failure to timely file a valid election the information establishes that parent reasonably relied on a qualified_tax professional who failed to make or advise parent to make a valid election see sec_301_9100-3 based on the facts and information submitted including the affidavits submitted and the representations made we conclude that parent has shown it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly provided the parent group qualifies substantively to file the election we grant an extension of time under sec_301_9100-3 until sixty days from the date on this letter for parent to file the election parent may file the election under sec_172 to carry back the year cnol to its taxable_year ending on date on form 1120x amended u s_corporation income_tax return for the taxable_year ending either date or date according to the procedures set forth in revproc_2009_52 a copy of this letter must be attached to the form 1120x if parent files form 1120x electronically parent may satisfy the requirement of attaching a copy of this letter by attaching a statement to the parent group’s amended_return that provides the date and control number plr-108175-12 of this letter_ruling the above extension of time is conditioned on the parent group’s tax_liability if any not being lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money we express no opinion as to the parent group’s tax_liability for the years involved a determination thereof will be made by the director’s office upon audit of the income_tax returns involved except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any item discussed or referenced in this letter in particular we express no opinion with respect to whether parent qualifies substantively plr-108175-12 to make the election in addition we express no opinion as to the tax effects or consequences of filing the election late under the provisions of any other section of the internal_revenue_code or regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in this letter for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made under penalty of perjury by parent company official and tax professional the director however should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election any penalties and interest that would otherwise be applicable continue to apply this letter_ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely __________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc


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 fip plr-110768-11 date date legend taxpayer ------------------------ ----------------------- operating lessee --------------------------------------------------- operating business lessee ------------------------------ owner entity x property building site a site b state a state b state c ----------------------------------------------------- ----------------------------- ---------------------------------------------- ----------------------------- --------------------- ------------------------ ----------------- ------------ ------------- plr-110768-11 type w entity type x entity type y entity appraiser ---------------------------------- ---------------- ---------------------------------- ------------------------------------ ---------------------- --------------------- ----- ------------------ -- ---- ---- ------------------- -------------- ------------- ---------------- date date v w x y z city area concession a concession b dear --------------- this is in response to your letters dated date and date regarding i the treatment of rental income that taxpayer will receive from its taxable real_estate_investment_trust subsidiary trs for the lease of property under sec_856 of the internal_revenue_code_of_1986 the code ii the treatment of amounts that taxpayer will receive under license agreements with vendors who operate certain concession stands under sec_856 and iii the treatment of amounts that taxpayer will receive from third-party licensees for_the_use_of space on a rooftop broadcasting tower under sec_856 plr-110768-11 i description of taxpayer facts taxpayer is a corporation organized under the laws of state b and will elect to be taxed as a real_estate_investment_trust reit under sec_856 taxpayer will file federal_income_tax returns and use an accrual_method of accounting on a calendar_year basis for federal_income_tax purposes taxpayer will hold substantially_all of its assets and conduct substantially_all of its activities through an interest in a to-be-formed type y entity operating partnership organized under the laws of state c through and after a series of transactions expected to be undertaken to effect certain acquisitions described below as the roll-up transaction operating partnership will be treated as a type x entity owner is a type w entity organized under the laws of state a that is treated as a type x entity for federal_income_tax purposes operating lessee is type w entity organized under the laws of state a that is treated as a type x entity for federal_income_tax purposes operating business lessee is a state a type w entity which commenced business on date operating business lessee is currently owned percent by operating lessee and percent by entity x following the roll-up transaction operating business lessee intends to elect to be treated as a corporation and to jointly elect with taxpayer to be treated as a trs of taxpayer ii description of current operations owner currently owns building and the land thereunder building is a v-story class a multi-tenant office property containing approximately w rentable square feet located in area owner subleases building to operating lessee which in turn subleases space in building to various tenants the tenants of operating lessee other than operating business lessee are third parties that are unrelated to operating lessee or owner for purposes of sec_856 a rental income from the lease property consists of site a ------------------------------of building site b and interior space ------------------------------of building operating lessee currently leases leased property space a portion of property that excludes vendor space defined below to operating business lessee under a lease entered into as of date the lease operating lessee also licenses space to vendors who operate concession stands at property vendor space operating business lessee grants the general_public entrance to property for an admission fee the lease has a term of x years under the lease operating business lessee pays operating lessee an amount of fixed_base rent per annum plus an allowance for plr-110768-11 amortized improvements in addition operating business lessee pays additional annual rent that is equal to certain percentages of operating business lessee’s gross_receipts from the operation of property percentage rent in subsequent years after the first lease_term percentage rent will be increased by a specified cost-of-living percentage the lease requires operating business lessee to pay its proportionate share of certain of operating lessee’s operating_expenses and real_property_taxes and to pay a charge for submetered electricity provided by operating lessee under the lease operating business lessee has the right to exclusive possession of leased property space operating business lessee is responsible for the cost of the day-to-day maintenance of the leased property space excluding certain capital expenditures operating business lessee also bears other costs related to the operation of property as a result operating business lessee experiences the benefits and burdens of any decreases or increases in the cost of operating property taxpayer represents that the fair_market_value of any personal_property leased to operating business lessee under the lease constitutes less than percent of the fair_market_value of all property leased to operating business lessee under the lease site a and site b which form the principal parts of property are unique spaces within building tenants of building other than operating business lessee generally use their leased space as office space taxpayer represents that property is specially designed for its current use and it would not be appropriate for use as an office --------- --------------------------------------------------------------------------------------------------------------- ----- ------------ ------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- --------------------------------------- the location of property in building makes property -- --- -----------------------------------------difficult to compare to other businesses either in the city metropolitan area or throughout the united_states b concession license income operating lessee has entered into certain license agreements the concession licenses with two unrelated third parties the concession a licensee and the concession b licensee together the concession licensees granting concession licensees the right to operate concession stands within vendor space concession licensees operate shops on certain floors of building and a concession b business each concession license also grants to concession a licensee use of certain storage spaces in other parts of building each concession license has a term of at least z years under the concession licenses concession licensees are required to operate their respective concessions in areas designated in their licenses however operating lessee has the right in the case of concession b licensee to relocate the concession areas in connection with renovating or refurbishing property under the concession licenses concession plr-110768-11 licensees are required to pay operating lessee fixed annual license fees plus additional license fees based upon gross_sales by the concession licensee or the number of tickets sold to visitors to property concession b licensee is also a tenant of building under a separate lease under which it leases office space within building from operating lessee c broadcast license income building includes an antenna supporting structure erected ------------------------------ -------------------on the top of building the tower the tower is an extension of building that is permanently attached to building ----------------------------------- operating lessee has entered into a number of license agreements the tower broadcast licenses granting tenants the tower broadcast licensees the use of the tower to carry on broadcast transmitting and receiving activity for similar telecommunications and microwave communications activities ----------------------------------------------------------------- ------------------------------------------------------------- operating lessee generally enters into a tower broadcast license in connection with the lease of additional space within the building which the tower broadcast licensees generally use as a transmitter room to transmit the signal that will be broadcast the leases of the transmitter room space generally have the same terms as the leases of office space within building the tower broadcast licensees are required to install in the transmitter rooms any broadcasting equipment that they require and they retain ownership of any such equipment the tower broadcast licenses generally grant the tower broadcast licensees the right to use the space on the tower to erect antennae and similar equipment generally for a term of y years under each tower broadcast license the tower broadcast licensee is required to install and remove its antennae equipment and to perform all related work the tower broadcast licenses similarly provide that the antennae and other equipment installed by the tower broadcast licensee remain the property of the tower broadcast licensee during and after the term of the expiration of the tower broadcast license except as discussed below the tower broadcast licensees’ equipment is subject_to inspection by operating lessee and its agents the tower broadcast licenses generally specify the broadcasting channels that can be used by the tower broadcast licensees and the tower broadcast licensees are also generally subject_to certain restrictions relating to interference with other tower broadcast licensees under each tower broadcast license the tower broadcast licensee generally is required to pay fixed annual license fees for the right to use space on the tower increased by annual cost-of-living adjustments generally operating lessee is responsible under the tower broadcast licenses only for furnishing to the tower broadcast licensees elevator services trash removal and similar customary services operating lessee may also perform certain other activities such as maintenance and repairs of the tower operating lessee also provides power to the tower broadcast licensees on a submetered basis and the tower broadcast licensees are required to make additional payments for such power additionally operating lessee has plr-110768-11 established a monitoring system and certain other procedures to comply with federal communications commission fcc regulations regarding radio frequency radiation rf monitoring in connection with rf monitoring operating lessee has established a monitoring station that monitors the level of radio frequency radiation emitted by the antennae on the tower and has designated areas of building that maintain safe or unsafe levels of radio frequency radiation operating lessee has also adopted a procedure under which its employees shut down antennae under certain circumstances operating lessee maintains the rf monitoring primarily for its own benefit to comply with fcc regulations and to maintain the safety of property and other spaces in building the tower broadcast licensees maintain similar radio frequency monitoring stations and procedures with respect to their respective antennae in addition to the tower broadcast licenses operating lessee has entered into certain additional licenses the antennae broadcast licenses with respect to the tower the antennae broadcast licenses are similar to the tower broadcast licenses described above except that in addition to granting the licensees the antennae broadcast licensees the right to use space on the tower each antennae broadcast license allows the antennae broadcast licensee to use two master fm broadcasting antennae on the tower and certain combiner equipment in a combiner room in building together the antennae several years ago certain of the antennae broadcast licensees entered into an agreement the antennae agreement with each other and with operating lessee to install the antennae on building operating lessee acting jointly with the antennae broadcast licensees under the antennae agreement hired engineers to build and install the antennae under the antennae agreement the antennae broadcast licensees bore the cost of the acquisition and installation of the antennae new antennae broadcast licensees are required to compensate other antennae broadcast licensees for a portion of the cost the antennae broadcast licensees are required to install additional transmitting equipment and other equipment in order to broadcast over the antennae such equipment will remain the property of the antennae broadcast licensees under the antennae agreement operating lessee owns the antennae maintains insurance on the antennae and is responsible for maintaining the antennae operating lessee entered into the antennae agreement in order to accommodate the antennae broadcast licensees’ desire to pool resources and share equipment operating lessee preferred to hold title to the antennae in order to maintain control_over the parties that licensed the use of the tower in connection with the antennae the license fees payable by the antennae broadcast licensees under the antennae broadcast licenses are primarily for the ability to broadcast from the tower rather than the use of the antennae the license fees payable under the antennae broadcast licenses are generally comparable to the license fees payable by the tower broadcast licensees for_the_use_of comparable space on the tower the antennae is old and may need to be replaced in the foreseeable future and operating lessee does not intend to bear the cost of replacing the antennae other than any differences described plr-110768-11 above the antennae broadcast licenses have essentially the same terms as the tower broadcast licenses taxpayer represents that the fair_market_value of the use of any personal_property licensed to the tower broadcast licensees and the antennae broadcast licensees together the broadcast licensees under each tower broadcast license and antennae broadcast license together broadcast licenses including the antennae licensed to the antennae broadcast licensees under the antennae broadcast licenses constitutes in each case less than percent of the fair_market_value of all property including the right to space on the tower licensed to the relevant broadcast licensee under such broadcast license within the meaning of sec_856 certain of the tower broadcasting licensees have entered into an agreement similar to the antennae agreement for the installation and maintenance of other shared antennae and shared combiner rooms and combiner equipment although the antennae and equipment installed under these agreements remain the joint property of the tower broadcasting licensees other tower broadcast licensees install their own antennae and equipment and do not share the use of such property with any other parties under certain of the tower broadcasting licenses operating lessee has the right to obtain certain of the shared antennae and related equipment additional antennae at the end of the term of the licenses or at certain other times and it is intended that if operating lessee acquires the additional antennae it will license use of it to the current owners of the additional antennae under an arrangement similar to the antennae agreement iii description of the transaction as a result of the roll-up transaction taxpayer contemplates that operating partnership will acquire i all of the assets of owner and operating lessee ii all of the membership interests in operating business lessee iii all of the assets of taxpayer and certain affiliated entities and iv several other real_property assets located in and around city the properties following the roll-up transaction operating partnership directly or through one or more entities that are disregarded as separate entities from operating partnership for federal_income_tax purposes will for federal_income_tax purposes own title to building lease building directly to the current lessees of operating lessee and succeed to the lease the concession licenses and the broadcast licenses in connection with the roll-up transaction taxpayer represents that it intends to make an initial_public_offering of its stock and to contribute the cash received in the offering to operating partnership in exchange for an interest in operating partnership following the roll-up transaction and the initial_public_offering taxpayer represents that it intends to operate as a publicly-traded reit taxpayer contemplates the roll-up transaction for a number of business reasons including that i it will facilitate the initial_public_offering of taxpayer while plr-110768-11 reorganizing owner operating lessee and the other entities holding the properties so that the public can own interests in building and the properties through a reit ii taxpayer believes that the roll-up transaction is the best way for investors to achieve liquidity and maximize the value of their investment in the existing entities holding the properties iii taxpayer believes that the roll-up transaction will likely result in higher values for investors than if the properties were sold individually and the proceeds distributed to investors because taxpayer will have greater access to capital greater risk diversification operational economies of scale and similar benefits compared to the existing entities holding the properties and iv the roll-up transaction will facilitate future acquisitions by the operating partnership a rental income from the lease taxpayer contemplates that following the roll-up transaction operating business lessee will elect to be treated as a corporation for federal_income_tax purposes and effective as of the same date will jointly elect with taxpayer to be treated as a trs of taxpayer under sec_856 operating partnership directly or through one or more entities that are disregarded as separate entities from operating partnership for federal_income_tax purposes will lease the leased property space to operating business lessee under the lease and operating business lessee will operate property in a manner that is substantially_similar to its current operation as described above following the roll-up transaction operating partnership will rent more than percent of the leased space in building to persons other than operating business lessee that are neither trss of taxpayer nor persons related to taxpayer within the meaning of sec_856 operating lessee and operating business lessee determined the rental terms of the lease by reference to an appraisal of the fair_market_value of property the appraisal prepared by appraiser dated date in the opinion of appraiser the rental formula in the lease described above reflects the fair market rental value of property to arrive at this conclusion the appraisal discusses the history nature and business performance of property and a number of comparable businesses and assets the appraisal first discusses whether there could be any direct comparables to property the appraisal concludes that there were no satisfactory direct comparables ---------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- ----- plr-110768-11 --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ---------------------------------------------- the appraisal also discusses companies that managed hotels and senior living facilities and it indicates that these companies would be useful comparables because these businesses involve the operation and management of real_property that have a capacity to generate stable revenues without significant overhead and they require limited expertise to operate thus the appraisal discusses that profit margins derived by certain hotel management and senior living facility management companies are comparable to what should be the expected profit of operating business lessee under the lease based on its analysis the appraisal concludes that the terms of the lease reflect the fair market rental value of property b concession license income following the roll-up transaction operating partnership directly through one or more entities that are disregarded as separate entities from operating partnership for federal_income_tax purposes will succeed to the concession licenses with the concession licensees the terms of the concession licenses will be identical to those described above c broadcast license income following the roll-up transaction operating partnership directly through one or more entities that are disregarded as separate entities from operating partnership for federal_income_tax purposes will succeed to the broadcast licenses and will continue to license space on the tower to the broadcast licensees for broadcasting and other telecommunication uses under substantially the same terms as the current broadcast licenses law and analysis sec_856 provides that to qualify as a reit a corporation must derive at least percent of its gross_income excluding gross_income from prohibited_transactions from sources listed in sec_856 which includes dividends interest rents_from_real_property and certain other items and derive at least percent of its gross_income excluding gross_income from prohibited_transactions from sources listed in sec_856 which includes rents_from_real_property and certain other items sec_856 provides that rents_from_real_property subject_to exclusions under sec_856 include a rents from interests_in_real_property b charges for plr-110768-11 services customarily furnished or rendered in connection with the rental of real_property whether or not such charges are separately_stated and c rent attributable to certain leased personal_property sec_1_856-4 of the income_tax regulations provides that subject_to the exceptions in sec_856 and sec_1_856-4 the term rents_from_real_property means generally the gross amounts received for_the_use_of or the right to use real_property of the reit sec_1_856-4 provides that the term rents_from_real_property includes charges for services customarily furnished or rendered in connection with the rental of real_property whether or not the charges are separately_stated services furnished to tenants of a particular building will be considered as customary if in the geographic market in which the building is located tenants in buildings of similar class are customarily provided with the service where it is customary in a particular geographic marketing area to furnish electricity or other utilities to tenants in buildings of a particular class the submetering of utilities to tenants in such buildings will be considered a customary service the service must be furnished through an independent_contractor from whom the reit does not derive or receive any income sec_856 further provides that rents_from_real_property include rent attributable to personal_property which is leased under or in connection with a lease of real_property but only if the rent attributable to such personal_property for the taxable_year does not exceed percent of the total rent for the taxable_year attributable to both the real and personal_property leased under or in connection with such lease with respect to each lease of real_property_rent attributable to personal_property for the taxable_year is that amount which bears the same ratio to total rent for the taxable_year as the average of the fair market values of the personal_property at the beginning and at the end of the taxable_year bears to the average of the aggregate fair market values of both the real_property and the personal_property at the beginning and at the end of such taxable_year sec_856 provides that the term rents_from_real_property does not include any amount received or accrued directly or indirectly with respect to any real or personal_property if the determination of such amount depends in whole or in part on the income or profits derived by any person from such property except that any amount so received or accrued shall not be excluded from the term rents_from_real_property solely by reason of being based on a fixed percentage or percentages of receipts or sales sec_856 provides except as provided for in sec_856 that the term rents_from_real_property does not include any amount received or accrued directly or indirectly from any person if the reit owns directly or indirectly i in the case of any person which is a corporation stock of such person possessing percent or more of the total combined voting power of all classes of stock entitled to vote or percent or more of the total value of shares of all classes of stock of such person or ii plr-110768-11 in the case of any person which is not a corporation an interest of percent or more in the assets or net profits of such person sec_856 provides that for purposes of sec_856 the rules prescribed by sec_318 apply for determining the ownership of stock assets or net profits of any person except as modified by sec_856 and b sec_856 provides that amounts paid to a reit by a trs of the reit shall not be excluded from rents_from_real_property by reason of sec_856 if at least percent of the leased space of the property is rented to persons other than the trss of the reit and other than related parties described in sec_856 but only to the extent that the amounts paid to the reit as rents_from_real_property are substantially comparable to such rents paid_by the other tenants of the reit’s property for comparable space sec_856 excludes from the term rents_from_real_property any impermissible_tenant_service_income sec_856 provides that the term impermissible_tenant_service_income includes with respect to any real or personal_property any amount received or accrued directly or indirectly by the reit for i services furnished or rendered by the trust to the tenants of such property or ii managing or operating such property sec_856 provides that de_minimis amounts of impermissible_tenant_service_income ie amounts less than one percent of all amounts received or accrued by the reit with respect to a particular property during the taxable_year will not prevent otherwise qualifying amounts from being treated as rents_from_real_property sec_856 excludes from the definition of impermissible_tenant_service_income amounts received for services furnished or rendered or management or operation provided through an independent_contractor from whom the trust itself does not derive or receive any income or through a trs and excludes any amount which would be excluded from unrelated_business_taxable_income under sec_512 if received by an organization described in sec_511 sec_1_856-3 of the income_tax regulations provides that a reit which is a partner in a partnership will be deemed to own its proportionate share of each of the assets of the partnership and will be deemed to be entitled to the income of the partnership attributable to such share for purposes of sec_856 the interest of a partner in the partnership’s assets shall be determined in accordance with its capital interest in the partnership sec_1_512_b_-1 provides that payments for the use or occupancy of rooms and other space where services are also rendered to the occupant do not constitute rent from real_property generally services are considered rendered to the occupant if they are primarily for his convenience and are other than those usually or customarily rendered in connection with the rental of rooms or other space for occupancy only the supplying of maid service for example constitutes such service whereas the furnishing of heat and light the cleaning of public entrances exits plr-110768-11 stairways and lobbies and the collection of trash are not considered to be services rendered to the occupant payments for the use or occupancy of entire private residences or living quarters in duplex or multiple housing units of offices in any office building are generally rent from real_property in order to meet the limited rental exception of sec_856 amounts paid to a reit as rents_from_real_property must be substantially comparable to rents paid_by the other tenants of the reit’s property for comparable space in this case there is no comparable space at building at any other_property of taxpayer or at any other_property in the geographic area as building on which to base the comparable rent standard under sec_856 for rent paid_by operating business lessee to operating partnership the fair_market_value of property has been determined by the appraisal and the value in the appraisal reflects the unique features of property provided that operating business lessee pays an arm’s length fair_market_value rental rate for the space leased by it the rent is comparable to the rent paid_by third-party tenants in building taking into account differences between property and the space leased by third-party tenants therefore in this case such rent paid to operating partnership satisfies the comparable rent standard if such rent reflects the fair_market_value of property as determined by appraiser the license fees received by operating partnership from the concession licenses are payments for the right to use designated space within building concession licenses primarily will grant concession licensees the right to use particular spaces within building and within property as designated in schedules to the concession licenses despite operating partnership’s right to relocate concession b licensee’s area under certain circumstances operating partnership is still required to allow concession licensees to use a portion of property in accordance with the concession licenses therefore the license fees received by operating business lessee should be treated as rents_from_real_property under sec_856 furthermore taxpayer has represented that the aggregate fair_market_value of the concession stands and other personal_property licensed to the concession licensees under each concession license is less than percent of the aggregate fair_market_value of all property provided to the relevant concession licensee under each concession license therefore because less than percent of the license fees should be treated as attributable to personal_property under sec_856 the entire license fee should be treated as rents_from_real_property within the meaning of sec_856 the license fees received by operating partnership with respect to the broadcast licenses are payments for the right to use space on the tower the broadcast licensees are granted the right to use certain spaces on the tower by installing the broadcast licensee’s own antennae and other telecommunication equipment in the licensed space generally operating partnership will be responsible under the broadcast licenses only for furnishing electricity elevator services trash removal and plr-110768-11 similar customary services to the broadcast licensees operating partnership may perform certain activities such as maintenance and repairs of the tower and the rf monitoring which are not rendered primarily for the convenience of broadcast licensees under sec_1 c thus the amounts received by operating partnership under the broadcast licenses for use of space on the tower constitute rents_from_real_property for purposes of sec_856 the license fees payable under the antennae broadcast licenses are generally comparable to the license fees payable by the tower broadcast licensees for use of comparable space on the tower the antennae broadcast licenses grant the antennae broadcast licensees the ability to broadcast over the antennae the primary value that is provided to the antennae broadcast licensees under the licenses is the ability to broadcast from the tower and the use of space on the tower rather than the use of the antennae in the event that the antennae is treated as personal_property rather than real_property taxpayer has represented that the fair_market_value of the right to use the antennae and any other personal_property conveyed under the broadcast licenses is less than percent of the fair_market_value of all property rights conveyed under the broadcast licenses thus the provision for use of the antennae to the antennae broadcast licensees will not prevent the license fees paid under the antennae broadcast licenses from being treated as rents_from_real_property for purposes of sec_856 and c in this case the licenses granted by operating business lessee to the concession licensees the tower broadcast licensees and the antennae broadcast licensees are equivalent to leaseholds the licenses grant to each licensee the right to use specified real_estate portions of property like a leasehold each licensee is required to make specified periodic_payments to operating business lessee in return for the rights granted with respect to the property under each license the periodic license payments are equivalent to rent payments that would be required under a lease conclusion on the basis of the facts presented and representations made we conclude that amounts received by operating partnership from operating business lessee under the lease for the rental of leased property space that are allocated to taxpayer under sec_1_856-3 will qualify for the limited rental exception exclusion of sec_856 as long as the rent paid_by operating business lessee reflects the fair market rental value of property amounts received by operating partnership from the concession licensees under the concession licenses will constitute rents_from_real_property for purposes of sec_856 and c and amounts received by operating partnership from broadcast licensees under broadcast licenses will constitute rents_from_real_property for purposes of sec_856 and c plr-110768-11 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular no opinion is expressed whether taxpayer otherwise qualifies as a reit under part ii of subchapter_m of chapter of the code and no opinion is expressed regarding the tax treatment of the roll-up transaction this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely jonathan d silver jonathan d silver assistant to the branch chief branch office of associate chief_counsel 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