internal_revenue_service number release date index number ---------------------------------- ----------------------------- ---------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------------- id no ------------- ----------------- telephone number --------------------- refer reply to cc psi plr-110269-14 date date legend date grantor_trust child child child child individual individual ------------------------- ------------------------------------------------------------------------------------ ---------------------------------------------------- ------------------------------------------------------------------------------------ -------------------------------------------------------------- ------------------------------------------------------------------------------------ -------------------------------------------- ------------------------------------------------------------------------------------ ---------------------------------------------- ------------------------------------------------------------------------------------ -------------------------------------------- ------------------------------------------------------------------------------------ --------------------------------------------------------------------- ------------------------------------------------------------------------------------ ------------------------------------------------------- ------------------------------------------------------------------------------------ ------------------------------------- individual --------------------------------- plr-110269-14 ----------- ------------------------------------------------------------------------------------ ----------- ------------------------------------------------------------------------------------ --------------------------------------------- ------------------------------------------------------------------------------------ ---------------------------------------------- state co-trustees guardian guardian dear --------------- this responds to a letter dated date and subsequent correspondence requesting rulings under sec_671 sec_2041 sec_2501 and sec_2514 of the internal_revenue_code facts the information and representations submitted state that on date grantor created trust an irrevocable_trust for the benefit of himself his issue his spouse spouse individual individual and individual grantor will transfer property to trust the trust agreement refers to grantor’s issue individual individual and individual as beneficiaries trust is sited in state and pursuant to the trust agreement is governed by the laws of state trust provides that during grantor’s lifetime co-trustees must distribute such amounts of net_income and principal as directed by the power_of_appointment committee committee and or grantor as follows at any time the co-trustees pursuant to the direction of the majority of the committee members with the written consent of grantor shall distribute to grantor or beneficiaries such amounts of the net_income or principal as directed by committee grantor’s consent power at any time co-trustees pursuant to the direction of all of the committee members other than the grantor shall distribute to grantor or beneficiaries such amounts of the net_income or principal as directed by the committee unanimous consent power and plr-110269-14 grantor has the power in a nonfiduciary capacity at any time to appoint to any one or more of beneficiaries such amounts of the principal including the whole thereof as grantor deems advisable to provide for such beneficiary’s health maintenance support and education grantor’s sole power further upon grantor’s death the remaining balance of trust shall be distributed to such person or persons or entity or entities other than grantor his estate his creditors or the creditors of his estate as grantor may appoint by will grantor’s testamentary_power_of_appointment in default of the exercise of this limited_power_of_appointment the balance of trust will be divided into as many equal parts as are necessary to satisfy certain dispositions either outright or in trust for grantor’s then living issue individual individual and individual trust provides that committee may direct that distributions be made equally or unequally and to or for the benefit of any one or more of beneficiaries to the exclusion of others any net_income not distributed by the co-trustees will be accumulated and added to principal the members of the committee serve and act in a non-fiduciary capacity committee is initially composed of grantor child child individual individual guardian and guardian if at any time committee consists of at least three or more members other than grantor all the members of committee including grantor may by unanimous vote add one or more members to committee provided that such members are beneficiaries if at any time committee does not include at least one member other than grantor committee shall immediately cease to exist in any event committee shall cease to exist upon grantor’s death you requested the following rulings so long as the power_of_appointment committee is serving no portion of the items of income deductions and credits against tax of trust shall be included in computing under sec_671 the taxable_income deductions and credits of grantor or any members of the power_of_appointment committee the contribution of property to trust by grantor will not be a completed_gift for federal gift_tax purposes any distribution_of_property by committee from trust to grantor will not be a completed_gift subject_to federal gift_tax by any member of committee any distribution_of_property by committee from trust to any beneficiary other than grantor will not be a completed_gift subject_to federal gift_tax by any member of committee other than grantor and plr-110269-14 committee members do not possess a general_power_of_appointment within the meaning of sec_2041 and accordingly trust will not be includible in any committee member’s gross_estate under sec_2041 ruling law and analysis sec_671 provides that where it is specified in subpart e of part i of subchapter_j that the grantor or another person shall be treated as the owner of any portion of a_trust there shall then be included in computing the taxable_income and credits of the grantor or the other person those items of income deductions and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under chapter in computing taxable_income or credits against the tax of an individual sec_672 provides for purposes of subpart e the term adverse_party means any person having a substantial_beneficial_interest in the trust which would be adversely affected by the exercise or nonexercise of the power which he possesses respecting the trust sec_673 through specify the circumstances under which the grantor is treated as the owner of a portion of a_trust sec_673 provides that the grantor shall be treated as the owner of any portion of a_trust in which the grantor has a reversionary_interest in either the corpus or the income therefrom if as of the inception of that portion of the trust the value of such interest exceeds five percent of the value of such portion sec_674 provides in general that the grantor shall be treated as the owner of any portion of a_trust in respect of which the beneficial_enjoyment of the corpus or the income therefrom is subject_to a power of disposition exercisable by the grantor or a nonadverse_party or both without the approval or consent of any adverse_party sec_674 provides that sec_674 shall not apply to a power exercisable only by will other than a power in the grantor to appoint by will the income of the trust where the income is accumulated for such disposition by the grantor or may be so accumulated in the discretion of the grantor or a nonadverse_party or both without the approval or consent of any adverse_party under sec_675 and applicable regulations the grantor is treated as the owner of any portion of a_trust if under the terms of the trust agreement or circumstances plr-110269-14 attendant on its operation administrative control is exercisable primarily for the benefit of the grantor rather than the beneficiary of the trust sec_676 provides that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under any other provision of part i subchapter_j chapter where at any time the power to revest in the grantor title to such portion is exercisable by the grantor or a nonadverse_party or both sec_677 provides in general that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under sec_674 whose income without the approval or consent of any adverse_party is or in the discretion of the grantor or a nonadverse_party or both may be distributed to the grantor or the grantor’s spouse held or accumulated for future distribution to the grantor or the grantor’s spouse or applied to the payment of premiums on policies of insurance on the life of the grantor or the grantor’s spouse sec_678 provides a general_rule that a person other than a grantor shall be treated as the owner of any portion of a_trust with respect to which such person has a power exercisable solely by himself to vest the corpus or the income therefrom in himself based solely on the facts and representations submitted we conclude an examination of trust reveals none of the circumstances that would cause grantor or any other person to be treated as the owner of any portion of trust under sec_673 sec_674 sec_676 sec_677 or sec_678 we further conclude that an examination of trust reveals none of the circumstances that would cause administrative controls to be considered exercisable primarily for the benefit of grantor or any other person under sec_675 thus the circumstances attendant on the operation of trust will determine whether grantor or any other person will be treated as the owner of any portion of trust under sec_675 this is a question of fact the determination of which must be deferred until the federal_income_tax returns of the parties involved have been examined by the office with responsibility for such examination ruling sec_2 and sec_2501 provides for the imposition of a gift_tax on the transfer of property by gift sec_2511 provides that the gift_tax applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or person tangible or intangible sec_25_2511-2 of the gift_tax regulations provides that a gift is complete as to any property or part thereof or interest therein of which the donor has so parted plr-110269-14 with dominion and control as to leave the donor with no power to change the disposition of the property whether for the donor’s own benefit or for the benefit of another but if upon a transfer or property whether in trust or otherwise the donor reserves any power over its disposition the gift may be wholly incomplete or may be partially complete and partially incomplete depending upon all the facts in the particular case accordingly in every case of a transfer of property subject_to a reserved power the terms of the power must be examined and its scope determined sec_25_2511-2 provides an example of where the donor transfers property to another in trust to pay the income to the donor or accumulate it in the discretion of the trustee and the donor retains a testamentary power to appoint the remainder among the donor’s descendants the regulation concludes that no portion of the transfer is a completed_gift however if the donor had not retained testamentary_power_of_appointment but had instead provided that the remainder should go to x or his heirs the entire transfer would be a completed_gift sec_25_2511-2 provides that a gift is incomplete in every instance in which a donor reserves the power to revest the beneficial title in himself or herself a gift is also incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries as between themselves unless the power is a fiduciary power limited by a fixed_or_ascertainable_standard under sec_25_2511-2 a donor is considered as himself having a power if it is exercisable by the donor in conjunction with any person not having a substantial adverse_interest in the disposition of the transferred property or the income therefrom sec_25_2511-2 provides that the relinquishment or termination of a power to change the beneficiaries of transferred property occurring otherwise than by death of the donor is regarded as the event which completes the gift and causes the gift_tax to apply sec_25_2511-2 provides that if a donor transfers property to himself as trustee or to himself and some other person not possessing a substantial adverse_interest as trustees and retains no beneficial_interest in the trust property and no power over it except fiduciary powers the exercise or nonexercise of which is limited by a fixed_or_ascertainable_standard to change the beneficiaries of the transferred property the donor has made a completed_gift and the entire value of the transferred property is subject_to the gift_tax sec_25_2511-2 does not define substantial adverse_interest sec_25_2514-3 provides in part that a taker in default of appointment under a power has an interest that is adverse to an exercise of the power sec_25_2514-3 also provides that a co-holder of a power is considered as having an adverse_interest plr-110269-14 where he may possess the power after the possessor’s death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate in 308_us_39 the taxpayer created a_trust for the benefit of named beneficiaries and reserved the power_to_revoke the trust in whole or in part and to designate new beneficiaries other than himself six years later in the taxpayer relinquished the power_to_revoke the trust but retained the right to change the beneficiaries in the taxpayer relinquished the right to change the beneficiaries the court stated that the taxpayer’s gift is not complete for purposes of the gift_tax when the donor has reserved the power to determine those others who would ultimately receive the property accordingly the court held that the taxpayer’s gift was complete in when he relinquished his right to change the beneficiaries of the trust the retention of a power to change the beneficial interests in a_trust causes the transfer to the trust to be incomplete for gift_tax purposes even though the power may be defeated by the actions of third parties 37_tc_897 see also 51_tc_352 in this case grantor retained the grantor’s consent power over the income and principal of trust under sec_25_2511-2 a donor is considered as himself having a power if it is exercisable by him in conjunction with any person not having a substantial adverse_interest in the disposition of the transferred property or the income therefrom the committee members are not takers in default for purposes of sec_25_2514-3 they are merely co-holders of the power the committee ceases to exist upon the death of grantor under sec_25_2514-3 a co-holder of a power is only considered as having an adverse_interest where he may possess the power after the possessor’s death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate in this case committee ceases to exist upon grantor’s death accordingly the committee members do not have interests adverse to grantor under sec_25_2514-3 and for purposes of sec_25_2511-2 therefore grantor is considered as possessing the power to distribute income and principal to any beneficiary himself because he retained the grantor’s consent power the retention of this power causes the transfer of property to trust to be wholly incomplete for federal gift_tax purposes grantor also retained the grantor’s sole power over the principal of trust under sec_25_2511-2 a gift is incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries in this case the grantor’s sole power gives grantor the power to change the interests of the beneficiaries accordingly the retention of the grantor’s sole power causes the transfer of property to trust to be wholly incomplete for federal gift_tax purposes further grantor retained grantor’s testamentary power to appoint the property in trust to any person or persons or entity or entities other than grantor’s estate plr-110269-14 grantor’s creditors or the creditors of grantor’s estate under sec_25_2511-2 the retention of a testamentary power to appoint the remainder of a_trust is considered a retention of dominion and control_over the remainder accordingly the retention of this power causes the transfer of property to trust to be incomplete with respect to the remainder in trust for federal tax purposes finally committee possesses the unanimous member power over income and principal this power is not a condition_precedent to grantor’s powers grantor’s powers over the income and principal are presently exercisable and not subject_to a condition_precedent grantor retains dominion and control_over the income and principal of trust until the committee members exercise their unanimous member power accordingly this power does not cause the transfer of property to be complete for federal gift_tax purposes see 37_tc_897 estate of goelet v commissioner t c accordingly based on the facts submitted and the representations made we conclude that the contribution of property to trust by grantor is not a completed_gift subject_to federal gift_tax any distribution from trust to grantor is merely a return of grantor’s property therefore we conclude that any distribution_of_property by the committee from trust to grantor will not be a completed_gift subject_to federal gift_tax by any member of the committee further upon grantor’s death the fair_market_value of the property in trust is includible in grantor’s gross_estate for federal estate_tax purposes ruling sec_4 and sec_2514 provides that the exercise or release of a general_power_of_appointment created after date shall be deemed a transfer of property by the individual possessing such power sec_2514 provides that the term general_power_of_appointment means a power which is exercisable in favor of the individual possessing the power possessor the possessor’s estate the possessor’s creditors or the creditors of the individual’s estate sec_25_2514-1 provides in part that a power_of_appointment is not a general power if by its terms it is exercisable only in favor of one or more designated persons or classes other than the possessor or his creditors or the possessor’s estate or the creditors of the estate sec_2514 provides that in the case of a power_of_appointment created after date if the power is exercisable by the possessor only in conjunction with the creator of the power such power is not deemed a general_power_of_appointment plr-110269-14 sec_2514 provides that in the case of a power_of_appointment created after date if the power is not exercisable by the possessor except in conjunction with a person having a substantial interest in the property subject_to the power which is adverse to the exercise of the power in favor of the possessor such power shall not be deemed a general_power_of_appointment for purposes of sec_2514 a person who after the death of the possessor may be possessed of a power_of_appointment with respect to the property subject_to the possessor’s power which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the possessor’s power sec_25_2514-3 provides in part that a co-holder of a power_of_appointment has no adverse_interest merely because of his joint possession of the power nor merely because he is a permissible appointee under a power however a co-holder of a power is considered as having an adverse_interest where he may possess the power after the possessor’s death and may exercise it at that time in favor of himself his estate his creditor or the creditors of his estate thus for example if x y and z held a power jointly to appoint among a group of persons which includes themselves and if on the death of x the power will pass to y and z jointly then y and z are considered to have interests adverse to the exercise of the power in favor of x similarly if on y’s death the power will pass to z z is considered to have an interest adverse to the exercise of the power in favor of y sec_2041 provides that the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released such a power by a disposition which is of such nature that if it were a transfer or property owned by the decedent such property would be includible in the decedent’s gross_estate under sec_2035 to inclusive under sec_2041 the term general_power_of_appointment is defined in relevant part to mean a power which is exercisable in favor of the decedent his estate his creditors or the creditors of his estate sec_2041 provides however that in the case of a power_of_appointment created after date which is exercisable by the decedent only in conjunction with another person if the power is not exercisable by the decedent except in conjunction with a person having a substantial interest in the property subject_to the power which is adverse to the exercise of the power in favor of the decedent - such power shall not be deemed a general_power_of_appointment for purposes of sec_2041 a person who after the death of the decedent may be possessed of a power_of_appointment with respect to the property subject_to the decedent’s power plr-110269-14 which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the decedent’s power sec_20_2041-3 of the estate_tax regulations provides in part that a co-holder of a power_of_appointment has no adverse_interest merely because of his joint possession of the power nor merely because he is a permissible appointee under a power however a co-holder of a power is considered as having an adverse_interest where he may possess the power after the decedent’s death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate thus for example if x y and z held a power jointly to appoint among a group of persons which includes themselves and if on the death of x the power will pass to y and z jointly then y and z are considered to have interests adverse to the exercise of the power in favor of x similarly if on y’s death the power will pass to z z is considered to have an interest adverse to the exercise of the power in favor of y the powers held by the committee members under the grantor’s consent power are powers that are exercisable only in conjunction with the creator grantor accordingly under sec_2514 and sec_2041 the committee members do not possess general powers of appointment by virtue of possessing this power further the powers held by the committee members under the unanimous member powers are not general powers of appointment for purposes of sec_2514 and sec_2041 as in the examples in sec_25_2514-3 and sec_20_2041-3 the committee members have substantial adverse interests in the property subject_to this power accordingly any distribution made from trust to a beneficiary other than grantor pursuant to the exercise of these powers the grantor’s consent power and the unanimous member powers are not gifts by the committee members instead such distributions are gifts by grantor based upon the facts submitted and representations made we conclude that any distribution_of_property by the committee from trust to any beneficiary of trust other than grantor will not be a completed_gift subject_to federal gift_tax by any member of the committee further we conclude that any distribution_of_property from trust to a beneficiary other than grantor will be a completed_gift by grantor finally we conclude that the powers held by the committee members are not general powers of appointment for purposes of sec_2041 and accordingly the possession of these powers by the committee members will not cause trust property to be includible in any committee member’s gross_estate under sec_2041 plr-110269-14 except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office copies of this letter are being sent to the taxpayer’s authorized representative sincerely joy c spies joy c spies senior technician reviewer branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


department of the treasury internal_revenue_service washington d c i tax_exempt_and_government_entities_division aug ep ea ld u i l xxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxx legend taxpayer a xxxxxxxxxxxxxxxxx ira x xxxxxxxxxxxxxxxxx amount d xxxxxxxxxxxxxxxxx bank b xxxxxxxxxxxxxxxxx dear xxxxxxxxxxxx this letter is in response to your request dated date as supplemented by correspondence dated date submitted on your behalf by your authorized representative in which you request a waiver of the day rollover requirement contained in sec_408 of the internal_revenue_code the code’ the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a represents that she received a distribution on october ira x totaling amount d taxpayer a asserts that her failure to accomplish a rollover within the 60-day period prescribed by sec_408 of the code was due to her hospitalization and recuperation during the day rollover period taxpayer a further represents that amount d has not been used for any other purpose __ from taxpayer a represents that she received a distribution of amount d from ira x on october same day deposited the funds into her checking account with bank b __ when the certificate of deposit in ira x matured and on the taxpayer a further represents that on december the emergency room at the hospital when her daughter discovered her in a total state of dementia on december taxpayer a underwent surgery for a brain tumor taxpayer a remained hospitalized until december and was transferred to a rehabilitation center where she remained until december due to her slow recuperation her doctor stipulated that taxpayer a remain in her daughter’s home and care until january __ she was transported to taxpayer a states that while recuperating at her daughter's home on january day rollover period and contacted her accountant for advice she remembered that she had not rolled over amount d within the based upon the facts and representations you request a ruling that the internal_revenue_service waive the 60-day rollover requirement contained in sec_408 of the code with respect to the distribution of amount d sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shail be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if- i ii the entire amount received including money and any other_property i is paid into an ira for the benefit of such individual not later than the day after the day on which the individual received the payment or distribution or the entire amount received including money and any other_property is paid into an eligible_retirement_plan o other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be’ paid into such plan may not exceed the portion of the ’ amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not included in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity and good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occur after date are eligible for the waiver under sec_408 of the code revproc_2003_16 i r b provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer a consistent with her assertion that her failure to accomplish a timely rollover was due to her hospitalization and recuperation during the day rollover period is therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount d provided all other requirements of code sec_408 except the 60-day requirement are met with respect to such contribution the contribution of amount d will be considered a rollover_contribution within the meaning of sec_408 of the code distributed by sec_401 of the code this ruling does not authorize the rollover of amounts that are required to be no opinion is expressed as to the tax treatment of the transactions described herein under the provisions of any other section of either the code or regulations which may be applicable thereto a copy of this letter is being sent to your authorized representative pursuant to a power_of_attorney on file in this office this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent if you have any questions concerning this ruling please contact xxxxxxxxxxxxx at xxxxxxxxxxxxxx any correspondence should be addressed to se t ep ra t3 sincerely yours li ele laura b warshawsky manager employee_plans technical group enclosures deleted copy of letter_ruling notice cc xxxxxxxxxxxxx


department of the treasury internal_revenue_service washington d c date number release date cc dom p si wta-n-111063-99 uil memorandum for district_counsel district from subject senior technician reviewer branch cc dom p si application of sec_168 of the internal_revenue_code to certain mobile assets this written technical assistance responds to your inquiry dated date this technical assistance is advisory only is not binding on district_counsel examination or appeals is not to be furnished or cited to taxpayers or their representatives and is not to serve as the basis for closing a case also the substance of this memorandum will not be recommended for publication as a revenue_ruling or revenue_procedure this document is not to be cited as precedent issues whether rolling_stock or other mobile assets hereafter collectively referred to as mobile assets that are used both on and off an indian_reservation satisfy the requirements of sec_168 and ii if a taxpayer mistakenly used a recovery_period in sec_168 for qualified_indian_reservation_property on two or more consecutively filed federal tax returns may the taxpayer file amended returns to change from that recovery_period to the applicable_recovery_period in sec_168 conclusions to meet the requirements of sec_168 and ii mobile assets must i be used by the taxpayer more than percent of the time during the taxable_year in the active_conduct_of_a_trade_or_business within an indian_reservation and ii not wta-n-111063-99 be used or located outside the indian_reservation on more than an occasional or incidental basis during the taxable_year the determination of whether mobile assets that are used both on and off an indian_reservation satisfy the requirements of sec_168 and ii for the taxable_year is made in light of all the facts and circumstances and is made on an asset-by-asset basis if a taxpayer mistakenly used a recovery_period in sec_168 for qualified_indian_reservation_property on two or more consecutively filed federal tax returns a change from that recovery_period to the applicable_recovery_period in sec_168 is a change in method_of_accounting that requires the consent of the commissioner of internal revenue to obtain this consent the taxpayer must file form_3115 application_for change in accounting_method accordingly the taxpayer may not file amended returns to make this change in recovery_period facts on original or amended federal tax returns taxpayers are treating mobile assets that are used both on and off an indian_reservation as qualified_indian_reservation_property for purposes of sec_168 mobile assets include trucks cars airplanes buses and mobile heavy equipment such as oil_and_gas drilling equipment cranes and grain combines in some cases these mobile assets may be used outside the indian_reservation from percent to more than percent of the asset’s usage during a taxable_year further the administrative offices of the taxpayer’s business may be located outside the indian_reservation law and analysis issue section of the omnibus_budget_reconciliation_act_of_1993 1993_3_cb_3 added new sec_168 to the code sec_168 provides that for purposes of sec_168 the applicable_recovery_period for qualified_indian_reservation_property is determined in accordance with the table contained in sec_168 in lieu of the table contained in sec_168 the table in sec_168 provides recovery periods that are shorter than the recovery periods provided under the table in sec_168 sec_168 is effective for property placed_in_service after date only qualified_indian_reservation_property is eligible to use the recovery periods provided in sec_168 to be treated as qualified_indian_reservation_property wta-n-111063-99 sec_168 generally requires the property to be i used by the taxpayer predominantly in the active_conduct_of_a_trade_or_business within an indian_reservation ii not used or located outside the indian_reservation on a regular basis iii not acquired directly or indirectly by the taxpayer from a person who is related to the taxpayer within the meaning of sec_465 and iv not property or any position thereof placed_in_service for purposes of conducting or housing class i ii or iii gaming as defined in sec_4 of the indian regulatory act u s c special rules apply to certain infrastructure property located outside an indian_reservation if the purpose of such property is to connect to infrastructure property located within the indian_reservation see sec_168 the term indian_reservation is defined in sec_168 as meaning a reservation as defined in either sec_3 of the indian financing act of u s c d or sec_4 of the indian child welfare act of u s c sec_3 of the indian financing act of defines reservation to include former_indian_reservations_in_oklahoma flush language in sec_168 specifically provides how sec_3 of the indian financing act shall be applied in its treatment of the term former_indian_reservations_in_oklahoma see notice_98_45 1998_35_irb_7 for discussion of the definition of former_indian_reservations_in_oklahoma for purposes of sec_168 based on the language on sec_168 the conditions imposed by sec_168 are applied each taxable_year on an asset-by-asset basis to determine whether each mobile asset in question meets the definition of qualified_indian_reservation_property under sec_168 further qualified_indian_reservation_property is subject_to the general rules of sec_168 for example if a mobile asset meets the definition of qualified_indian_reservation_property in year but does not meet such definition in year while it continues to be held by the same person there is a change in use of the mobile asset and sec_168 applies in determining depreciation of the mobile asset in year to meet the requirements for qualified_indian_reservation_property sec_168 and ii impose two key conditions first sec_168 requires the property to be used predominantly in the active_conduct_of_a_trade_or_business within an indian_reservation second sec_168 prohibits using or locating the property outside the indian_reservation on a regular basis wta-n-111063-99 accordingly a close nexus between the indian_reservation and the property is required to apply sec_168 we must define the term predominantly and determine what congress envisioned by requiring that an asset be used predominantly in the active_conduct_of_a_trade_or_business within an indian_reservation neither sec_168 nor the legislative_history defines the term predominantly for purposes of sec_168 however the term predominantly is used in sec_168 this section provides that the alternative_depreciation_system of sec_168 applies to any tangible_property that during the taxable_year is used predominantly outside the united_states revrul_90_9 1990_1_cb_46 interprets used predominantly outside the united_states as meaning located outside the united_states during more than percent of the taxable_year see also 104_tc_13 interpreted the phrase used predominantly outside the united_states for purposes of the investment_credit and depreciation under former sec_168 acrs as meaning physically located outside the united_states more than percent of the time during the taxable_year we believe that a different threshold should not be imposed with respect to sec_168 accordingly our view is that the term predominantly for purposes of sec_168 means more than percent of the time during the taxable_year in applying this more than percent test under sec_168 it is necessary to determine the appropriate nexus that the standard used predominantly in the active_conduct_of_a_trade_or_business within an indian_reservation of sec_168 requires because of the existence of sec_168 it is unlikely that the standard addresses the percentage of time the property is used or located within an indian_reservation instead our view is that the standard requires a connection between the trade_or_business operated within an indian_reservation and the use of the property in carrying on that trade_or_business for example a car that is used_in_the_trade_or_business of providing taxi service only within an indian_reservation and is also used for personal purposes must be used more than percent of the time during the taxable_year in that taxi service to satisfy the requirement of sec_168 further for example we believe that in those instances where a corporate taxpayer’s headquarters are located off an indian_reservation but the taxpayer operates a manufacturing plant within the indian_reservation the standard of sec_168 is satisfied the legislative_history states that rental of real_property located within an indian_reservation is treated as an active trade_or_business h_r conf_rep no 103d cong 1st sess 1993_3_cb_393 fn85 see sec_168 of the code wta-n-111063-99 with respect to the condition in sec_168 neither the statute nor the legislative_history defines the phrase used or located outside the indian_reservation on a regular basis however in interpreting similar language in sec_280a the tax_court in 76_tc_696 determined that to establish business use on a regular basis business use must be more than occasional or incidental we believe this interpretation comports with the ordinary meaning of regular basis the determination of whether a mobile asset is used or located outside the indian_reservation on more than an occasional or incidental basis during the taxable_year is made in light of all the facts and circumstances because of the factual nature of this determination we are reluctant to adopt any bright line test for example a percentage of usage outside of the indian_reservation in summary to meet the requirements of sec_168 and ii mobile assets must i be used by the taxpayer more than percent of the time during the taxable_year in the active_conduct_of_a_trade_or_business within an indian_reservation and ii not be used or located outside the indian_reservation on more than an occasional or incidental basis during the taxable_year the determination of whether mobile assets that are used both on and off an indian_reservation satisfy the requirements of sec_168 and ii for the taxable_year is made in light of all the facts and circumstances and is made on an asset-by-asset basis issue sec_1_167_e_-1 of the income_tax regulations provides that any change in the method of computing the depreciation allowances with respect to a particular account is a change in method_of_accounting and such a change will be permitted only with the consent of the commissioner the regulation further provides that any request for a change in method_of_depreciation shall be made in accordance with sec_446 and the regulations thereunder sec_446 provides that except as otherwise expressly provided in chapter of the code a taxpayer who changes the method_of_accounting on the basis of which the taxpayer regularly computes income in keeping the taxpayer’s books shall before computing taxable_income under the new method secure the consent of the for example we believe that consideration should be given to certain aberrations of usage by a mobile asset for example a one-time large amount of usage outside of the reservation in determining whether the mobile asset has been used outside of the indian_reservation on a regular basis wta-n-111063-99 secretary sec_1_446-1 provides that consent must be secured whether or not such method is proper or is permitted under the code or the regulations thereunder sec_1_446-1 provides that a change in method_of_accounting includes a change in the treatment of any material_item and defines the term material_item as meaning any item that involves the proper time for the inclusion of the item in income or the taking of the item as a deduction in determining whether a taxpayer’s practice for an item involves timing sec_2 of revproc_97_27 1997_1_cb_680 provides that the relevant question generally is whether the practice permanently changes the amount of taxpayer’s lifetime income if the practice does not permanently affect the taxpayer’s lifetime income but does or could change the taxable_year in which income is reported the practice involves timing and thus is a change in method_of_accounting although a method_of_accounting may exist under this definition without the necessity of a pattern of consistent treatment of an item sec_1_446-1 further provides that in most instances a method_of_accounting is not established for an item without consistent treatment for purposes of this regulation the erroneous treatment of a material_item in the same way in two or more consecutively filed tax returns represents consistent treatment of that item see revrul_90_38 1990_1_cb_57 sec_2 of revproc_97_27 c b pincite sec_1_446-1 provides that a change in method_of_accounting does not include an adjustment in the useful_life of a depreciable asset the regulation further provides that a change in method_of_accounting does not include a change in treatment resulting from a change in underlying facts a change from a taxpayer’s impermissible method_of_accounting for depreciation under which the taxpayer did not claim the depreciation allowable to a permissible method_of_accounting for depreciation under which the taxpayer will claim the depreciation allowable is a change in method_of_accounting for which the consent of the commissioner is required see sec_1_167_e_-1 and sec_1_446-1 while under sec_1_446-1 a change in useful_life of property is not a change in method_of_accounting a change in the recovery_period of property generally is a change in method_of_accounting the terms recovery_period and useful_life are not synonymous terms pursuant to sec_1_167_a_-1 the estimated_useful_life of property is the period over which the property may reasonably expected to be useful to a taxpayer in its trade_or_business or in the production of its income in contrast the recovery_period of property is a prescribed period that is assigned to each class of property under sec_168 and consequently may or may not reflect the period over which the property may be useful to the taxpayer in its trade_or_business or in the production of its income because a change in recovery_period affects the timing of depreciation_deductions wta-n-111063-99 a change in recovery_period that does not result from a change in underlying facts for example a change in use of the property is a change in method_of_accounting if a taxpayer mistakenly used a recovery_period in sec_168 for qualified_indian_reservation_property on two or more consecutively filed federal tax returns the taxpayer has established a method_of_accounting for depreciating this property see sec_1_446-1 and revrul_90_38 whether or not this method_of_accounting is permissible the taxpayer may not change its method_of_accounting without first obtaining the commissioner’s consent in this case a change from the recovery_period in sec_168 to the applicable_recovery_period in sec_168 does not result from any change in underlying facts and accordingly this change in recovery_period is a change in method_of_accounting to obtain the commissioner’s consent to make this change in method_of_accounting sec_1_446-1 requires the taxpayer to file form_3115 application_for change in accounting_method with the commissioner during the taxable_year in which the taxpayer desires to make the change in accounting_method see also section dollar_figure of revproc_97_27 c b pincite however if the taxpayer and the property are within the scope of revproc_98_60 1998_51_irb_16 including its appendix see section dollar_figure of this revenue_procedure for the requirements for filing the form_3115 we hope that the above information is helpful to you if you have any questions on these matters please call kathleen reed kathleen reed senior technician reviewer branch office of assistant chief_counsel passthroughs and special industries


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc tege eoeg et1-plr-105096-03 date jun key firm worker dear this is in reply to a request for a ruling to determine the federal employment_tax status of the above-named worker with respect to services provided for a federal_agency firm from august through september the federal employment_taxes are those imposed by the federal_insurance_contributions_act fica the federal_unemployment_tax_act futa and the collection of income_tax at source on wages this ruling is based on the information furnished by both the worker and the firm the worker provided services as an accounting technician the worker was hired as a contract employee under a personal services contract the worker was provided on- the-job training by the firm the worker performed on the firm’s premises and it provided all the supplies equipment and materials needed in the performance of the services the worker was required to provide the services personally and was paid on an hourly rate basis the worker did not perform these services for others and could not incur or realize an economic loss or financial risk beyond the normal loss of salary the firm represented the worker to its clients as an employee the worker was required to contact the firm’s business office manager in case of problems or plr-105096-03 complaints who was responsible for their resolution the relationship could be terminated by either party without incurring liability or penalty the worker received work assignments from a supervisor who determined the methods by which the services were performed the worker was required to attend monthly staff meetings and could not hire substitutes or helpers the worker was required to submit monthly narratives of activities and the worker had to have the firm’s approval before accepting other jobs the information provided indicates that the services provided by the worker were the same as those provided by the firm’s employees and that the worker was considered a part of the office’s staff the information provided also indicates that the firm evaluated the worker’s performance under its employee performance appraisal system sec_3121 of the internal_revenue_code the code defines employee as any individual who under the usual common_law rules applicable in determining the employer-employee relationship has the status of an employee the question of whether an individual is an employee under the common_law rules or an independent_contractor is one of fact to be determined upon consideration of the facts and the application of the law and regulations in a particular case guidance for determining the existence of that status is found in two substantially_similar sections of the applicable employment_tax regulations sec_31_3121_d_-1 relating to the federal_insurance_contributions_act fica and sec_31_3401_c_-1 relating to federal_income_tax withholding sec_31_3121_d_-1 of the regulations provides that generally the relationship of employer-employee exists when the person for whom the services are performed has the right to direct and control the individual who performs the services not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished it is not necessary that the employer actually direct or control the manner in which the services are performed it is sufficient if he or she has the right to do so sec_31_3121_d_-1 of the regulations provides that if the relationship of an employer and employee exists the designation or description of the relationship by the parties as anything other than that of employer and employee is immaterial thus if an employer-employee relationship exists it is of no consequence that the employee is designated as partner coadventurer agent or independent_contractor or the like in determining whether an individual is an employee or an independent_contractor under the common_law all evidence of both control and lack of control or autonomy must be considered in doing so one must examine the relationship of the worker and the business relevant facts generally fall into three categories behavioral controls financial controls and the relationship of the parties plr-105096-03 behavioral controls are evidenced by facts which illustrate whether the service_recipient has a right to direct or control how the worker performs the specific tasks for which he or she is hired facts which illustrate whether there is a right to control how a worker performs a task include the provision of training or instruction financial controls are evidenced by facts which illustrate whether the service_recipient has a right to direct or control the financial aspects of the worker’s activities these factors include whether a worker has made a significant investment has unreimbursed expenses and makes services available to the relevant market the method of payment and the opportunity for profit or loss the relationship of the parties is generally evidenced by the parties’ agreements and actions with respect to each other including facts which show not only how they perceive their own relationship but also how they represent their relationship to others facts which illustrate how the parties perceive their relationship include the intent of the parties as expressed in written contracts the provision of or lack of employee_benefits the right of the parties to terminate the relationship the permanency of the relationship and whether the services performed are part of the service recipient’s regular business activities based on the information submitted it is determined that the services performed by the worker were sufficiently subject_to the direction and control by the firm to establish an employer-employee relationship accordingly it is held that the worker was an employee of the firm and amounts paid for services provided were wages subject_to federal employment_taxes and income_tax_withholding sec_3306 of the code pertaining to the futa provides that service performed in the employ of the united_states government are excepted from the definition of employment this ruling is applicable to any individuals engaged by the firm under similar circumstances the firm is responsible for advising all of the affected workers of the results of this ruling plr-105096-03 this ruling is directed only to the taxpayer s to whom it is addressed sec_6110 of the code provides that it may not be used or cited as precedent sincerely will e mcleod chief employment_tax branch division counsel associate chief_counsel tax exempt and government entities enclosure copy of ruling letter for purposes


department of the treasury internal_revenue_service commerce street stop dal dallas texas tax_exempt_and_government_entities_division number release date legend org organization name xx date address address date date uil org address certified mail dear person to contact contact telephone number last date for filing a petition with the tax_court this is a final adverse determination that you do not qualify for exemption from income_tax under sec_501 of the internal_revenue_code irc as an organization described in sec_501 internal_revenue_service recognition of your status as an organization described in sec_501 is revoked effective december 20xx our adverse determination is made for the following reason s you no longer demonstrate that you meet the operational_test under sec_501 and sec_1_501_c_3_-1 of the income_tax regulations you have not demonstrated that you are currently operating exclusively for an exempt_purpose specific facts that contributed to this determination included the following we have determined that you have not established that you are operating exclusively for religious charitable or educational_purposes in addition your net_earnings inured to the benefit of private shareholders or individuals in contravention of the requirements for exemption under sec_501 of the internal_revenue_code finally you have not demonstrated that you are not operated for the private benefit of your founders as required by treas reg sub sec_1 c -1 d ii as a result of this revocation of tax-exempt status your organization may be required to file form_1120 annually with the appropriate campus identified in the instructions for the current and all subsequent years until corporate status is formally terminated with the state the processing of subsequent income_tax returns and assessment of any taxes due will not be delayed because a petition for declaratory_judgment has been filed under r c sec_7428 however if you decide to contest this determination in court you must initiate a suit for declaratory_judgment in the united_states tax_court the united_states claims_court or the district_court of the united_states for the district of columbia before the day after the date this determination was mailed to you contact the clerk of the appropriate court for rules for initiating suits for declaratory_judgment you may write to the tax_court at the following address you also have the right to contact the office_of_the_taxpayer_advocate however you should first contact the person whose name and telephone number are shown above since this person can access your tax information and can help you get answers you can call and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate taxpayer_advocate assistance cannot be used as a substitute for established irs procedures formal appeals processes etc the taxpayer_advocate is not able to reverse legal or technically correct_tax determinations nor extend the time fixed by law that you have to file a petition in the united_states tax_court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling this is a final revocation letter if you have any questions please contact the person whose name and telephone number are shown above sincerely marsha a ramirez director exempt_organizations examinations form_886 a name of taxpayer explanation of items department of the treasury - internal_revenue_service org schedule no or exhibit year period ended 20xx12 20xk12 20xx12 20xx12 legend org organization name founder co-1 company xx date founders co-2 company xyz state city city address address issues should the c tax exempt status of org be revoked because it is not operated exclusively for tax exempt purposes has the organization met the burden_of_proof incumbent on the organization that it is primarily engaged in exempt activity and that it is in fact a church facts org was incorporated as church in the state of xyz on xx incorporators are founder-1 his brother founder-2 his daughter founder-3 and his wife founder-4 on 20xx org purchased the old co-1 building at address city xyz org converted the building into a retreat and conference center org began renting the facility to the general_public in march of 20xx this activity was regularly carried on org conducted this business under the name co- per org’s written business plan this was a business_enterprise operated to make a profit org’s business plan states the following this summary includes a concise but complete description of the market the market’s need how we propose to satisfy that need and the projected financial rewards with our square foot building and all of its different amenities org feels that its offering will be readily accepted by the market and we will quickly gain a large portion of the market share our seat auditorium and our fourteen other available breakout rooms surpasses anything offered in the industry if someone is looking for a retreat that offers many recreational opportunities org is unsurpassed in that area none of our competitors provide to their clients what org has under one roof we have hosted four retreats as of early april 20xx and have realized a profit margin on these booking nine months after the commercial enterprise known as org retreat and conference began org applied for c exempt status as a church org’s application was received by the service on 20xx the trustees of this organization are founder-1 his brother founder-2 his daughter founder-3 and his wife founder-4 the church had the same address as the co-2 in the application org states its purpose as form 886-acrev department of the treasury - internal_revenue_service page -1- form 886a name of taxpayer explanation of items department of the treasury - internal_revenue_service org schedule no or exhibit year period ended 20xx12 20x12 20xx12 20xx12 legend org organization name founder co-1 company xx date founders co-2 company xyz state city city address address a to establish one or more places of public worship services and to promote continue and encourage the assembly of persons on regular basis divine worship and other religious and charitable benevolent observances and practices b to provide a vehicle and institution for the preaching and teaching of the belief and faith in god c to provide a curriculum for theological studies d to provide classes for the preparation of ministers e to ordain to license to commission and consecrate individuals who posses the qualifications for advancement to teach the principles found in the bible given by our lord and savior jesus christ f g to develop a complete and active christian education department to conduct regular sunday school classes bible study seminars workshops crisis intervention sessions family counseling to minister to the whole person provided for all who desire to receive instructions on how to live good christian lives h the corporation shall conduct any and all lawful activities that may or may not be mentioned above for the furtherance or accomplishment of the foregoing purposes provide that such activities would not endanger the corporation’s not-for-profit status under sec_501 of the internal_revenue_code or corresponding section of any future federal tax code the corporation is not a private_foundation as described in sec_507 and sec_4940 the corporation is a publicly_supported_organization as described in sec_509 a b a vi i j the application further stated that org was a membership_organization it had active members an average worship service attendance of a formal code of doctrine and discipline for its members and a written creed and statement of faith on schedule a of the application the applicant is asked to provide a brief history of the organization’s development and the reason for formation the applicant states org was established by god through founder-1 to provide spiritual guidance through the teachings of the holy bible to all people to spread the word of god to all people form 886-a cev department of the treasury - internal_revenue_service page -2- form_8 a name of taxpayer explanation of items department of the treasury - internal_revenue_service org schedule no or exhibit year period ended 20x x12 20xx12 20xx12 20xx12 legend org organization name founder co-1 15t company xx date founders co-2 company xyz state city city address address org further asserts on schedule a the following n n w f it has a school for the religious instruction of the young the organization has an established place of worship the organization ordains ministers no funds or property of the organization will be used by any officer director employee minister or pastor for his or her personal needs or convenience that the sources of financial support are to be derived from donations contributions etc the prospective balance_sheet submitted with the application indicates that dollar_figure will come from gifts grants and contributions it further indicates that there will be no unrelated_business_income or revenue from the furnishing of facilities in any activity that is not an unrelated business within the meaning of sec_513 nowhere in the application was it indicated that org was engaged in a commercial activity org was recognized as a 501_c_3_organization on 20xx it also was recognized as an organization described in a and b a i on 20xx org was notified of an examination the accompanying idr requested the books_and_records of org and information regarding its activities the examination was scheduled for 20xx the agent conducting the examination communicated to founder-1 on 20xx that the examination would take place at org the agent arrived at org to conduct the examination founder-1 did not appear nor did any other officer or board member as a result the agent conducting the examination issued summonses to founder-1 his brother founder-2 and his daughter founder-3 third parties were also summonsed to provide information these included the accounting firm employed by org and financial institutions utilized by org on 20xx the agent conducting the examination traveled to city xyz to conduct the interview with founder-3 much of the requested documentation was not provided no documentation supporting the conducting of exempt activity was provided see question of document request attachment to summons issued to founder-3 no documentation was provided regarding the source of funds used to purchase and rehabilitate address see question no documentation was provided regarding the conducting of religious services see form 886-a crev department of the treasury - internal_revenue_service page -3- form_886 a name of taxpayer explanation of items department of the treasury - internal_revenue_service org schedule no or exhibit year period ended 20xx12 20xx12 20x x12 20xx12 legend org organization name founder co-1 company xx date co-2 company founders xyz state city city address address questions no documentation was provided regarding the number of retreats conducted see question founder-3 provided no clarification regarding transactions that appeared to represent inurement several interview questions contradicted information provided on the application_for exemption per founder-3 org does not have a congregation does not have a sunday school does not have a hierarchy there is no authority structure collections are not taken and there is payment of personal expenses see interview questions and answers of april 20xx founder-1 was summonsed to appear at the city irs office on 20xx he did not appear founder-2 was summonsed to appear at the city irs on 20xx he appeared along with counsel founder-2 could not or would not answer many questions he indicated that he either did not know or had no knowledge of many questions relating to the questionable financial transactions of org see questions and responses to interview of xx these questions also related to transactions that appeared to represent inurement founder-2 was requested to provide documentation relating to church activities exempt functions financial transactions funding etc in the document request attachment to summons issued to founder-2 none was provided however he stated that this information would be gathered and provided this was never done his counsel was contacted regarding this submission of information on 20xx counsel stated that no additional information had been provided since its inception in january 20xx org has been engaged in the activity of hosting retreats and conferences this activity entails the rental of the facility located at address per org’s marketing material the building is equipped with all amenities this includes an olympic size indoor pool basketball courts a huge game room that includes pool tables and arcade games multiple conference rooms fully equipped gymnasiums racquetball courts rock climbing wall a by bent grass putting course computer lab a seat auditorium seat movie theater and big screen tv viewing room lodging includes professionally catered meals and facilities to sleep rooms are advertised as dollar_figure per person for a private sleeping room with queen size bed dollar_figure per person per day for private dorm room and dollar_figure per person per day for group sleeping the facility is actively marketed by way of a website and brochures these materials highlight skiing packages golf getaways easy access to shopping and other day trips these marketing materials lack any mention of a church located at the same address form 886-a cev department of the treasury - internal_revenue_service page -4- form 886a name of taxpayer explanation of items department of the treasury - internal_revenue_service org schedule no or exhibit year period ended 20xx12 20xx12 20xx12 20x x12 legend org organization name founder co-1 company xx date founder sec_374 co-2 company xyz state city city address address a review of the general ledger summonsed from org’s accounting firm indicates that retreat income is the sole source of revenue for this organization there is a complete lack of support from donations or grants retreat revenue for org for 20xx - 20xx is stated below retreat income donations grants etc dollar_figuredollar_figuredollar_figure dollar_figure dollar_figure dollar_figure 20xx 20xx through org has provided little documentation regarding the source of funding for its operation it has never been determined where the funding came from to purchase and establish the retreat and conference center an analysis of the general ledger for the period xx - xx indicates that org has access to funding in excess of its known resources see below period xx-8 xx inflows of cash dollar_figure out flows of cash listed expenses closing cost co-1 n p unaccounted for funding the source of funding for the purchase and rehabilitation of address is still in question founder-1 the founder has not made himself available to explain or clarify the sources of funding information provided by his daughter founder-3 and his brother founder-2 have not shed any light on this issue questions regarding inurement have never been answered law should org be modified to a private_foundation the term private_foundation is defined in sec_509 as any foreign or domestic organization described in sec_501 that is not a public charity or an organization that tests for public safety churches that qualify as public_charities are described in sec_170q form 886-a rev department of the treasury - internal_revenue_service page -5- form_8 a name of taxpayer org department of the treasury - internal_revenue_service explanation of items schedule no or exhibit year period ended 20xx12 20xx12 20xx12 20xx12 legend org organization name founder co-1 18t company xx date co-2 company founders xyz state city city address address the current sec_170 regulations do not define church the service considers all facts and circumstances in determining whether an organization is a church including whether the organization has the following characteristics n w r k a n s a distinct legal existence a recognized creed and form of worship a definite and distinct ecclesiastical government a formal code of doctrine and discipline a distinct religious history a membership not associated with any other church or denomination ordained ministers ministering to its congregations ordained ministers selected after completing prescribed studies a literature of its own establish places of worship regular congregation sec_12 regular religious services sunday schools_for religious instruction of the young schools_for the preparation of ministers in 490_fsupp_304 d d c affirmed in an unpublished opinion d c cir the court set forth the following conclusions e e e e ataminimum a church includes a body of believers that assemble regularly in order to worship it must also be reasonably available to the public in its conduct of worship in its educational instruction and in its promulgation of doctrine superficially responsive documentation purporting to show that the criteria have been satisfied is not sufficient to establish church status an sec_501 religious_organization comprised of a few family members who attend worship services at a relative’s apartment and made no real effort to extend its membership beyond the family was not a church for purposes of sec_170q form 886-acrev department of the treasury - internal_revenue_service page -6- form_8 a name of taxpayer explanation of items department of the treasury - internal_revenue_service org schedule no or exhibit yeat period ended 20xx12 20xx12 20xx12 20xx12 legend org organization name founder co-1 t company xx date founder sec_374 co-2 company xyz state city city address address in first church of in theo 56_tcm_1045 dec big_number m tcmemo_1989_16 an exempt religious_organization which published religious materials was a private_foundation because it failed to qualify as a church the organization did not qualify as a church because it failed to establish a recognizable creed or formal discipline and it failed to satisfy the threshold criteria of communal activity necessary for a church burden_of_proof the burden_of_proof regarding exempt status as a church is on the church not the service as noted by the court in church of spiritual technology v united_states cl_ct which upheld denial of an organization’s application_for recognition of exemption in demonstrating their entitlement to exemption church and other religious organizations are subject_to the same burden_of_proof requirements as other organizations the court cited a long line of authority holding that the applicant bears the burden of showing it is entitled to exemption in harding hospital inc v united_states f 6o court stated that income_tax exemption must be strictly construed with any doubts to be resolved in favor of the taxing entity consequently determinations of the commissioner are presumed correct similarly the court cited welch v helvering 190_us_111 and modern cases following its stricture that plaintiff thus bears the burden of proving its entitlement to an exemption commissioner 670_f2d_104 og states 588_fsupp_693 d d c see also bubbling well church of universal love inc v cir freedom church of revelation v united cir the other significant rulings are as follows in 76_tc_380 an organization operating a religious retreat facility did not qualify for exemption under c because it failed to show that the retreat facility was operated exclusively for religious purposes although the organization’s mountain lodge offered guests religious recreational and social activities none were regularly scheduled or required the court concluded that the organization had not met the burden_of_proof to show that the lodge was operated primarily for an exempt religious purpose and that the recreational and social activities at the lodge were only incidental to a religious purpose in retreat in motion inc 48_tcm_334 dec big_number m tcmemo_1984_315 a religious_organization that existed to provide fun experiences through bus trips to florida disneyworld and washington d c in connection with its bus ministry failed to qualify as a tax-exempt form 886-a crev department of the treasury - internal_revenue_service page -7- form_886 a name of taxpayer explanation of items department of the treasury - internal_revenue_service org schedule no or exhibit year period ended 20xx12 20xx12 20x x12 20xx12 legend org organization name founder co-1 company xx date founder sec_2 company co-2 xyz state city city address address organization the recreational aspects of the trips involving secular sightseeing beach-going mountain climbing etc were not shown by the taxpayer to be insubstantial in nature and merely incidental to religious activities in the basic unit ministry of alma karl schurig ca-d c ustc dollar_figure 670_f2d_1210 the taxpayer failed to demonstrate that it qualified as a tax-exempt religious_organization since it failed to establish that no part of its earnings inured to the benefit of any private individual the taxpayer did not provide sufficient evidence of the nature of its charitable disbursements or the extent of the maintenance and support of its members and the evidence indicated that it was operated for the private benefit of and a substantial portion of its net_earnings inured to the members of the group in 670_f2d_104 a church was not entitled to tax-exempt status because it failed to show that no part of its net_income inured to the benefit of private individuals there was no proof in the record of any regular or substantial church activities accordingly the payments parsonage and minister's living allowances and travel_expenses made to the minister and his family who were the sole employees and sole voting directors of the church constituted unreasonable benefits because few employee tasks were performed in return in 640_fsupp_96 the irs properly revoked a religious organization's tax-exempt status retroactively from the date the organization was founded because it failed to establish its entitlement to such status and to deductible contributions in order to qualify for tax-exempt status the church was required to maintain records sufficient to show its items of gross_income and its disbursements and to show that it met requirements for exemption the church failed to keep records indicating the full nature of its operations it also failed to show that its operations did not inure in part to the private benefit of its officers in the 86_tc_916 dec big_number an organization was not a church because it did not serve the necessary associational role in the accomplishment of any religious purpose it also did not qualify as an exempt_organization because a large part of its assets were used for the private benefit of its minister in 83_tc_20 dec big_number an organization was not entitled to tax exempt status as a religious_organization where it was not engaged in any activities religious or otherwise was controlled by a self-perpetuating board_of directors one of whom participates in form 886-acev department of the treasury - internal_revenue_service page -8- form_8 a name of taxpayer explanation of items department of the treasury - internal_revenue_service org schedule no or exhibit year period ended 20xx12 20xx12 20xx12 20xx12 legend org organization name founder co-1 15t company xx date co-2 founder sec_2 company xyz state city city address address the promotion of the organization of mail-order churches and failed to show that it is organized and operated or will be operated exclusively for public benefit in 83_tc_292 dec big_number a church failed to qualify for exempt status having failed to show that it had a place for regular worship services conducted regular services or performed religious functions church funds were used to benefit the pastor in united libertarian fellowship 65_tcm_2178 dec big_number m tcmemo_1993_116 a religious organization's exempt status was revoked when it failed to satisfy the irs's requests for additional information regarding the organization's operations finances and property ownership what little information the organization did provide was extremely vague and simply an attempt to avoid disclosing the requested information in l e hardy 60_tcm_1110 dec big_number m tcmemo_1990_557 aff'd ca-3 unpublished opinion an organization was not a church absent evidence that it was organized exclusively for an exempt_purpose and that it was operated exclusively for tax-exempt purposes further the entity was not organized in the proper form and church funds were used for the benefit of the taxpayer and his family in good friendship temple 55_tcm_1310 dec big_number m tc memo an unincorporated nonprofit religious_organization failed to qualify as a tax-exempt_organization the trustee-president who formed the organization did not prove that it served public rather than private interests and he failed to rebut the determination that it was operated to serve his private interests in universal church of jesus christ inc 55_tcm_144 dec m tcmemo_1988_65 the tax-exempt status of an organization that was incorporated for religious purposes was properly revoked the organization's commercial activities were far more than incidental to its exempt_activities and the organization failed to prove that none of its income inured to the benefit of private individuals in universal bible church inc 51_tcm_936 dec big_number m tcmemo_1986_170 an exempt religious_organization that had as its purpose the promotion of bible story reading and dissemination of the word of god through the media did not qualify as a private_foundation the organization failed to satisfy its burden of proving that it was a church within the meaning of the code the evidence did not establish that the organization included a body of believers form 886-acrev department of the treasury - internal_revenue_service page -9- form_886 a name of taxpayer explanation of items department of the treasury - internal_revenue_service org schedule no or exhibit year period ended 20xx12 20xx12 20xx12 20x x12 legend org organization name founder co-1 18t company xx date co-2 founder sec_2 company xyz state city city address address who assembled regularly to worship and it was uncertain that the organization was fully operational in good friendship temple 55_tcm_1310 dec big_number m tc memo an unincorporated nonprofit religious_organization failed to qualify as a tax-exempt_organization the trustee-president who formed the organization did not prove that it served public rather than private interests and he failed to rebut the determination that it was operated to serve his private interests primary activity irc code sec_501 requires an organization to be organized and operated exclusively for exempt purposes in order to qualify for tax-exempt status under that provision in this context the term operated exclusively for exempt purposes is interpreted as engaged primarily in activities in furtherance of one or more of the organization's exempt purposes reg sec_1_501_c_3_-1 this is known as the primary purpose doctrine final-reg tax-regs sec_1_501_c_3_-1 organizations organized and operated for religious charitable scientific testing for public safety literary or educational_purposes or for the prevention of cruelty to children or animals a organizational and operational tests in order to be exempt as an organization described in sec_501 an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt c operational_test primary activities -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 form 886-aev department of the treasury - internal_revenue_service page -10- form_8 a name of taxpayer explanation of items department of the treasury - internal_revenue_service org schedule no or exhibit year period ended 20xx12 20xx12 20xx12 20x x12 legend org organization name founder co-1 t company xx date founder sec_2 company co-2 xyz state city city address address sec_1_513-1 of the regulations provides that trade_or_business is related to exempt purposes in the relevant sense only where the conduct of the business activities has causal relationship to the achievement of exempt purposes and is substantially related for purposes of sec_513 of the code only if the causal relationship is a substantial one thus for the conduct of trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of those purposes where the production or distribution of the goods or the performance of the services does not contribute importantly to the accomplishment of the exempt purposes of an organization the income from the sale of the goods or the performance of the services does not derive from the conduct of related trade_or_business whether activities productive of gross_income contribute importantly to the accomplishment of any purpose for which an organization is granted exemption depends in each case upon the facts and circumstances involved sec_1_513-1 of the regulations provides that in general any activity of an exempt_organization which is carried on for the production_of_income and which otherwise possesses the characteristics required to constitute trade_or_business within the meaning of sec_162 of the code is a trade_or_business for purposes of sections further the term trade_or_business generally includes any activity carried on for the production_of_income from the sale_of_goods or performance of services in 76_tc_380 an organization operating a religious retreat facility did not qualify for exemption under c because it failed to show that the retreat facility was operated exclusively for religious purposes although the organization’s mountain lodge offered guests religious recreational and social activities none were regularly scheduled or required the court concluded that the organization had not met the burden_of_proof to show that the lodge was operated primarily for an exempt religious purpose and that the recreational and social activities at the lodge were only incidental to a religious purpose in retreat in motion inc 48_tcm_334 dec big_number m tc memo a religious_organization that existed to provide fun experiences through bus trips to florida disneyworld and washington d c in connection with its bus ministry failed to qualify as a tax-exempt_organization the recreational aspects of the trips involving secular sightseeing beach-going mountain climbing etc were not shown by the taxpayer to be insubstantial in nature and merely incidental to religious activities form 886-aev department of the treasury - internal_revenue_service page -11- form_886 a name of taxpayer explanation of items department of the treasury - internal_revenue_service org schedule no or exhibit year period ended 20xx12 20xx12 20xx12 20xx12 legend org organization name founder co-1 18t company xx date co-2 founder sec_274 company xyz state city city address address in 283_fsupp2d_58 an organization that operated its conference center in a manner consistent with that of a commercial business did not qualify for tax-exempt status the taxpayer brought a declaratory_judgment action against the irs seeking reinstatement of its exempt status based on the argument that its conference activities were undertaken principally to advance educational and charitable purposes however the totality of the circumstances established that it furthered a substantial nonexempt purpose in christ's church of golden rule p l 244_f2d_220 cert_denied 355_us_839 a religious_organization whose primary activity was the operation of a commercial restaurant was not exempt in the 326_us_279 66_sct_112 the us supreme court has declared that the presence of a single nonexempt purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes in 950_f2d_365 a not-for-profit corporation that operated vegetarian restaurants and health food stores did not operate exclusively for exempt purposes and accordingly did not qualify as a tax-exempt_organization although the restaurants and health food stores were operated to further the dietary goals of the seventh day adventist church the purpose of the restaurants and health food stores was substantially commercial in new faith inc 64_tcm_1050 dec big_number m tcmemo_1992_601 a nonprofit public benefit corporation that obtained most of its revenues from providing food to the general_public from lunch trucks in exchange for donations was not operated exclusively for a tax-exempt purpose the commercial activity accounted for nearly all of its gross revenues and there was no evidence that any food items were offered at below-cost prices to needy persons in make a joyful noise inc 56_tcm_1003 dec big_number m tcmemo_1989_4 an organization did not satisfy its burden of proving that the irs' revocation of its tax-exempt status under code sec_501 was erroneous the organization was not regarded as operated exclusively for one or more exempt purposes because it did not engage primarily in activities in order to accomplish its exempt_purpose its primary activity was the management and operation of bingo_games for other exempt_organizations -a trade_or_business activity that did not qualify as an exempt activity under code sec_501 form 886-a crev department of the treasury - internal_revenue_service page -12- form_8 a name of taxpayer explanation of items department of the treasury - internal_revenue_service org schedule no or exhibit year period ended 20xx12 20xx12 20xx12 20xx12 legend org organization name founder co-1 company xx date co-2 company founders xyz state city city address address in senior citizens of missouri inc 56_tcm_480 dec big_number m tcmemo_1988_493 a taxpayer that was organized for aiding handicapped and elderly citizens was denied tax-exempt status because it did not prove that it operated exclusively for such tax-exempt purpose in 49_f3d_1395 a housing corporation that was organized to provide affordable housing for low-income and disabled people did not qualify for tax-exempt status as a charitable_organization because it was not operated exclusively for exempt purposes the organization became a co-general partner in two for-profit limited_partnerships in order to take advantage of a state california property_tax reduction for low- income rentals by receiving a portion of the tax_credits with which to pursue its charitable purposes in 625_f2d_804 8th cir aff g 72_tc_687 the appellate court held that a nonprofit pharmaceutical service was not exempt as a charitable_organization because it was operated for the substantial commercial purpose of providing pharmacy services to the general_public although it provided special discount rates for handicapped and senior citizens in its area it was not committed to providing any drugs below cost or free to indigent persons therefore although its services did improve health in the area it was primarily a commercial venture operated in competition with other area pharmacies in 602_f2d_711 sth cir an organization whose stated purpose was to provide training jobs and recreation for senior citizens by operating retail stores did not qualify for exemption under sec_501 although it incidentally served the needs of senior citizens the evidence indicated that the retail sales operation was an end in itself proceeds from the business were used almost exclusively for its perpetuation thus the organization’s primary activity was the operation of the retail store which was not devoted exclusively to charitable purposes the service’s position on the operational_test and primary activities is consistent with the above case law taxpayer position the taxpayer position is unknown numerous attempts were made to contact the taxpayer but without success the taxpayer’s counsel was contacted and informed the service of his non- representation of the taxpayer form 886-acrev department of the treasury - internal_revenue_service page -13- form_886 a name of taxpayer explanation of items department of the treasury - internal_revenue_service org schedule no or exhibit year period ended 20xx12 20xx12 20xx12 20x x12 legend org organization name founder co-1 15t company xx date 4t founder sec_2 company co-2 xyz state city city address address service position the service’s position is that this organization lacks any public support since its inception org has received no grants or donations all revenue has been from non exempt activity as such the organization’s foundation status should be modified to that of a private_foundation secondly this organization fails the operational_test all revenue has been generated through the operation of a commercial non exempt enterprise this retreat activity is not exempt activity this organization is not operated primarily for exempt purposes as such org’s status as a 501_c_3_organization should be revoked org’s status as a church is irrelevant before an organization can qualify for church status it must first be organized and operated primarily for an exempt_purpose this is not the case also org has not met the burden_of_proof that it is in fact a church there have been many opportunities for org to make its case to the service that the organization is in fact a church this has never been done conclusion org does not qualify for its current foundation status org has not demonstrated that it qualifies as a 501_c_3_organization org’s exempt status should be revoked form 886-a crev department of the treasury - internal_revenue_service page -14-