internal_revenue_service number release date index numbers ---------------------------------------------- ---------------------------------- ------------------------------------------------------------ ------------------------------ ----------------------------------------------- ----------------------- 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 b3 plr-150288-13 date date x ------------------------------------------------------------------------------------------------- ---------------------------- legend country -------- date -------------------- dear ------------- this letter responds to a letter dated date submitted on behalf of x by x’s authorized representatives requesting a ruling under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations that x be granted an extension of time to file an election under sec_301_7701-3 facts according to the information submitted x was formed on date under the laws of country x desires to be treated as other than its default classification however x inadvertently failed to timely file a form_8832 entity classification election plr-150288-13 law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as either as association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that unless it elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides that for purposes of sec_301_7701-3 a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides in part that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides that an election made under sec_301 c i will be effective on the date specified by the entity on form_8832 or on the date filed if no date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed if an election specifies an effective date more than days prior to the date on which the election is filed it will be effective days prior to the date it was filed sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 plr-150288-13 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to make an entity classification election by filing a form_8832 effective date with the appropriate service_center a copy of this letter should be attached to the election a copy of this letter is attached for this purpose this ruling is contingent on the owner s of x filing within days from the date of this letter all required federal_income_tax and information returns including amended returns consistent with the requested relief being effective date the owner s ’s filing obligations may include those under sec_6038 and the regulations thereunder a copy of this letter should be attached to any such returns except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representatives plr-150288-13 the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination sincerely associate chief_counsel passthroughs special industries by ______________________________________ james a quinn senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures a copy of this letter a copy for sec_6110 purposes cc


pvgtpcn cid 4gxgpwg cid 5gtxkeg grctvogpv cid qh cid vjg cid 6tgcuwt 9cujkpivqp cid cid cid cid 2gtuqp cid vq cid qpvcev cid 6gngrjqpg cid 0wodgt cid 4ghgt cid 4grn cid vq cid cc te_ge eo2 plr-115368-00 cvg cid date number release date index numbers cid legend authority tribe date x ordinance city dear this is in reply to a letter dated date and subsequent correspondence requesting a ruling that authority is an integral part of tribe for purposes of sec_7701 and sec_7871 of the internal_revenue_code facts tribe is included on the list of tribal entities published by the secretary of the interior in the federal_register see fed reg tribe is also included in the list of indian tribal governments provided in revproc_83_87 1983_2_cb_606 this is a list of indian tribal governments that are to be treated as states for certain federal tax purposes pursuant to sec_7701 and sec_7871 of the code the tribal constitution provides that the business ventures of tribe shall be conducted by tribal businesses established by written charter issued by the tribal legislature by ordinance on date x the tribal legislature chartered authority pursuant to ordinance according to ordinance the purpose of authority is to provide for the means to develop construct conduct and manage a gaming business in city authority is governed by a board_of directors that consists of nine members six of the directors are tribal legislators and three are tribal members who are not legislators under the tribal constitution tribal businesses are established for purposes of management only the constitution directs that the tribal legislature shall not interfere with the business decisions of the management of the tribal businesses however the directors are appointed by the legislature and serve at the pleasure of the legislature the constitution further provides that the legislature may establish uniform rules governing the establishment and operation of tribal businesses finally the constitution provides that the tribal legislature may terminate the charter of authority tribe is the owner of the property on which authority is to construct and manage the gaming facilities tribe represents that it will have the sole proprietary interest in the gaming activities pursuant to the constitution profits from tribal businesses shall be shared with the tribe on an equitable basis according to ordinance the profits authority realizes from the gaming operation shall be disbursed to tribe each month except that authority may retain such sums as are reasonable and necessary for incidental operation expenses for the establishment and maintenance of reserve accounts as the board deems reasonably necessary the constitution requires that regular reports on the financial status of the tribal businesses shall be made to the tribal legislature and to the tribal members ordinance provides that the tribal legislature shall choose an independent public accounting firm to establish an accounting system for authority and carry out an annual audit of authority law analysis in 308_fsupp_761 d md rev’d on other grounds 400_us_4 mssic the state of maryland formed a corporation to insure the customer accounts of state chartered savings and loan associations under mssic’s charter the full faith and credit of the state was not pledged for mssic’s obligations only three of eleven directors were selected by state officials the district_court rejected mssic’s claim of intergovernmental tax immunity because the state made no financial contribution to mssic and had no present_interest in the income of mssic thus the imposition of an income_tax on mssic would not burden the state of maryland although the supreme court reversed the lower court on other grounds it agreed with the lower court’s analysis about the treatment of state created enterprises in state of michigan and 40_f3d_817 th cir rev’g 802_fsupp_120 w d mich the court held that the investment_income of the michigan education trust met was not subject_to current taxation under sec_11 the court’s opinion is internally inconsistent because it concludes that met qualifies as a political_subdivision of the state of michigan id pincite that met is in a broad sense a municipal corporation id pincite and that met is in any event an integral part of the state of michigan id pincite moreover the court’s reliance on the factors listed in revrul_57_128 1957_1_cb_311 to reach its conclusion is misplaced the revenue_ruling applies to entities that are separate from the state the factors in the revenue_ruling do not determine whether an enterprise is considered to be a separate_entity or an integral part of the state sec_301_7701-1 et seq of the procedure and administration regulations the so-called check-the-box_regulations support the position that an entity that is recognized as separate from a state or political_subdivision for local law purposes may still be an integral part of that state political_subdivision sec_301_7701-1 provides in part that an entity formed under local law is not always recognized as a separate_entity for federal tax purposes for example an organization wholly owned by a state is not recognized as a separate_entity for federal tax purposes if it is an integral part of the state in determining whether an enterprise is an integral part of the state it is necessary to consider all of the facts and circumstances including the state’s degree of control_over the enterprise and the state’s financial commitment to the enterprise the control tribe exercises over authority is substantial according to the tribal constitution authority’s board_of directors serves at the pleasure of the tribal legislature the legislature appoints all nine members of the board_of directors six of the appointed directors are required to be members of the tribal legislature the tribal legislature created authority for the purpose of managing a tribal business on tribally owned property the tribal legislature is empowered by the tribal constitution to enact uniform rules to govern tribal businesses such as authority finally the tribal legislature has the power to terminate authority’s charter the financial commitment tribe has made to authority is also substantial tribe will purchase the land to be used for the gaming enterprise tribe will hold the sole proprietary interest in the gaming activities profits from the gaming business are turned over to the tribe by authority every month authority must provide regular financial reports to tribe authority’s accounting system was set up by and its annual audits are carried out by an independent accounting firm chosen by tribe conclusion accordingly after considering the financial commitment that tribe has made to authority and the degree of control exercised over authority by tribe we conclude that authority is an integral part of tribe no opinion is expressed on the federal tax consequences of any particular transaction no opinion is expressed as to whether tribe may be treated as a state for purposes of sec_7871 relating to excise_taxes or sec_7871 relating to tax-exempt_bonds or whether tribe satisfies the specific requirements of sec_7871 or sec_7871 of any particular transaction specifically this ruling does not conclusively establish that tribe qualifies for a particular federal income or excise_tax benefit this ruling is directed only to the taxpayer who requested it sec_6110 provides that this ruling may not be used or cited as precedent in accordance with a power_of_attorney on file we are sending a copy of this letter to your representative sincerely elizabeth purcell chief exempt_organizations branch division counsel associate chief tax exempt and government counsel entities enclosures copy of this letter copy for sec_6110 purposes


department of the treasury tax_exempt_and_government_entities_division number release date uil internal_revenue_service te_ge eo examinations commerce street dallas tx date date person to contact identification_number contact telephone number in reply refer to te_ge review staff ein last date for filing a petition with the tax_court certified mail - return receipt requested dear this is a final adverse determination_letter as to your exempt status under sec_501 ofthe internal_revenue_code your exemption from federal_income_tax under sec_501 of the code is hereby revoked effective january 20xx our adverse determination was made for the following reasons you have not demonstrated that you are operated exclusively for charitable educational or other exempt purposes within the meaning of sec_501 you have failed to produce documents or otherwise establish that you are operated exclusively for exempt purposes and that no part of your net_earnings inures to the benefit of private shareholders or individuals you failed to keep adequate books_and_records as required by sec_6001 sec_6033 and revrul_59_95 1959_1_cb_627 contributions to your organization are no longer deductible under sec_170 of the internal_revenue_code you are required to file federal_income_tax returns on form_1120 these returns should be filed with the appropriate service_center for the year ending december 20xx and for all years thereafter processing of income_tax returns and assessment of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination in court you must initiate a suit for declaratory_judgment in the united_states tax_court the united_states claim court or the district_court of the united_states for the district of columbia before the st day after the date this determination was mailed to you contact the clerk of the appropriate court for the rules for initiating suits for declaratory_judgment you also have the right to contact the office_of_the_taxpayer_advocate however you should first contact the person whose name and telephone number are shown above since this person can access your tax information and can help you get answers you can call and ask for taxpayer_advocate assistance or you can contact the taxpayer_advocate from the site where the tax_deficiency was determined by calling tel or write 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 we will notify the appropriate state officials of this action as required by sec_61 c of the internal_revenue_code if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours margaret von lienen director eo examinations enclosure publication internal_revenue_service tax_exempt_and_government_entities_division exempt_organizations examinations north mopac expressway austin tx department of the treasury date date taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax manager's name id number manager's contact number response due_date certified mail -return receipt requested dear why you are receiving this letter we propose to revoke your status as an organization described in sec_501 of the internal_revenue_code code enclosed is our report of examination explaining the proposed action what you need to do if you agree if you agree with our proposal please sign the enclosed form_6018 consent to proposed action- sec_7428 and return it to the contact person at the address listed above unless you have already provided us a signed form we'll issue a final revocation letter determining that you aren't an organization described in sec_501 after we issue the final revocation letter we'll announce that your organization is no longer eligible for contributions deductible under sec_170 of the code if we don't hear from you if you don't respond to this proposal within calendar days from the date of this letter we'll issue a final revocation letter failing to respond to this proposal will adversely impact your legal standing to seek a declaratory_judgment because you failed to exhaust your administrative remedies letter rev catalog number 34809f effect of revocation status if you receive a final revocation letter you'll be required to file federal_income_tax returns for the tax_year s shown above as well as for subsequent tax years what you need to do if you disagree with the proposed revocation if you disagree with our proposed revocation you may request a meeting or telephone conference with the supervisor of the irs contact identified in the heading of this letter you also may file a protest with the irs appeals_office by submitting a written request to the contact person at the address listed above within calendar days from the date of this letter the appeals_office is independent of the exempt_organizations division and resolves most disputes informally for your protest to be valid it must contain certain specific information including a statement of the facts the applicable law and arguments in support of your position for specific information needed for a valid protest please refer to page one of the enclosed publication how to appeal an irs decision on tax-exempt status and page six of the enclosed publication the examination process publication also includes information on your rights as a taxpayer and the irs collection process please note that fast track mediation referred to in publication generally doesn't apply after we issue this letter you also may request that we refer this matter for technical_advice as explained in publication please contact the individual identified on the first page of this letter if you are considering requesting technical_advice if we issue a determination_letter to you based on a technical_advice_memorandum issued by the exempt_organizations rulings and agreements office no further irs administrative appeal will be available to you contacting the taxpayer_advocate office is a taxpayer right you have the right to contact the office_of_the_taxpayer_advocate their assistance isn't a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate can't reverse a legally correct_tax determination or extend the time you have fixed by law to file a petition in a united_states court they can however see that a tax matter that hasn't been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at internal_revenue_service office_of_the_taxpayer_advocate for additional information if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you letter rev catalog number 34809f thank you for your cooperation enclosures report of examination form_6018 publication publication barbara l harris acting director eo examinations letter rev catalog number 34809f form 886a i n arne oft axpayer department of the treasury- internal_revenue_service explanation of items schedule no or exhibitr year period ended 20xx issue sec_1 whether should have their exemption revoked for creating private benefit and inurement to the corporate officers of the exempt_organization whether should be revoked due to no exempt_purpose facts originally located at is a corporation granted sec_501 exemption on apri129 19xx hippo therapy facility hippo therapy is a form of physical occupational and speech therapy in which a therapist uses the characteristic movements of a horse to provide carefully graded motor and sensory input family that started the charity was started by the is a is a qualified c that held a mortgage on about acres of land that housed a horse arena and a large barn assets to another exempt_organization during the year ending december 20xx a warranty deed with vendor's lien for dollar_figure organization to the property and facilities to inurement amount identified by this agent isdollar_figure the original mortgage was paid the was issued from the new exempt as per the chart provided below for the above stated property sold the majority of it's sold its interest in an agreement concerning the intent of reverter clause was created between and this agreement states as long as a sec_501 c with a functioning board_of directors and a licensed and or certified therapist uses the facilities for animal assisted therapy hippo therapy the property will not revert back to the property itself can not be used as collateral for future capital or loans the agreement also states filed returns for the following years 20xx 20xx 20xx 20xx and 20xx the 20xx return showed a beginning equity balance of dollar_figure equity balance on the 20xx return shows a balance of zero the return shows no expenses to change the equity balance no returns were filed after the period ending december 20xx would terminate its exemption in february of 20xx the ending the return states in part v line 38a that the organization did not borrow from or make any loans to any officer director trustee or were any such loans made in prior year and still outstanding at the end of the year covered by this return the return also states in part v line 40b that as a sec_501 c organization it did not engage in any sec_4958 excess_benefit_transaction during the year or did not engage in an excess_benefit transactions in the prior years that were not reported on form 886-a rev department of the treasury - internal_revenue_service page -1- form 886a i name oftaxpayer department of the treasury - internal_revenue_service explanation of items schedule no or exhibit r year period ended 20xx any prior form_990 or 990-ez also in line 40c the form states that no amount of tax was self imposed by the organization for sec_4958 transactions schedule states this entity will continue to operate as a tax-exempt_entity involved with dog therapy only schedule also states this tax-exempt_entity sold all of the assets involved with their horse therapy to on october 20xx is a c tax exempt_organization operating within the received a note as part of the price same exempt_purpose as this entity was scheduled be paid over a year this note in the original amount ofdollar_figure period the note referred to on schedule was paid in full on october 20xx the check was a payoff of the loan in full that cleared the bank on october 20xx the return that these statements are included on was filed on july 20xx the return was filed by lor was sent to on march 20xx it asked for all financial records for during the year ending december 20xx idr was sent to records for on april 20xx it also asked for all financial during the year ending december 20xx sent a statement that said the year in question 20xx was completely no activity in the next correspondence from the executive director the following work history was provided from the executive director 20xx thru 20xx worked with to emotionally disturbed students weekly out of were used in these counseling sessions the executive director the following statement was received enclosed is the documents associated with the closing transfer of my business to could not start a new business nor work in horse therapy for years after 20xx some animal assisted therapy following xx using the dog for in the first correspondence received from horse and dog therapy i i did all records provided from information document requests were from the year ending december 20xx the executive director provided no records from the period under exam the executive director of in a hand written note to this agent wrote the year in question 20xx was completely no activity in the next correspondence from the executive director the following form 886-a rev department of the treasury - internal_revenue_service page -2- form 886a i n arne of taxpayer department of the treasury- internal_revenue_service explanation of items the following chart shows the payments received by 20xx december 20xx paymet hs recerveo from mortgage name on check check date of check 12j31120xx 31120xx 2128120xx f2f jxx 120xx 31120xx 30120xx 20xx schedule no or exhibitr year period ended 20xx between january amount total received these checks were cut by note payable to an applicable sec_501 to pay for a for the facilities purchased from law sec_501 c of the code exempts from federal_income_tax organizations organized and operated exclusively for charitable educational and other exempt purposes provided that no part of the organization's net_earnings inures to the benefit of any private_shareholder_or_individual sec_1 c -1 a of the regulations provides that in order to be exempt as an organization described in sec_501 c of the code the organization must be one that is both organized and operated exclusively for one or more of the purposes specified in that section sec_1_501_c_3_-1 of the regulations provides that an organization will not be regarded as operated exclusively for exempt purposes if more than an insubstantial part of its activities is not in furtherance of exempt purposes sec_1 c -1 d ii of the regulations provides that an organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest thus it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests form 886-a rev department of the treasury- internal_revenue_service page -3- form 886a i name oftaxpayer department of the treasury - internal_revenue_service explanation of items schedule no or exhibitr year period ended 20xx sec_1_501_c_3_-1 of the regulations states that an organization is not organized or operated exclusively for exempt purposes unless it serves a public rather than a private interest the regulation places the burden_of_proof on the organization to demonstrate that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests sec_1 c -1 d of the regulations provides that the term charitable is used in sec_501 c of the code in its generally accepted legal sense and includes the promotion of education the presence of a single substantial nonexempt purpose can destroy the exemption regardless of the number or importance of exempt purposes 326_us_279 90_led_67 66_sct_112 am campaign acad v commissioner 92_tc_1053 see also old dominion box co inc v united_states f2d 4th cir cert_denied 413_us_910 operating for the benefit of private parties who are not members of a charitable_class constitutes a substantial nonexempt purpose when an organization operates for the benefit of private interests such as designated individuals the creator or his family or persons directly or indirectly controlled by such private interests the organization by definition does not operate exclusively for exempt purposes am campaign acad v commissioner supra pincite6 in 70_tc_352 the courts ruled the organization did not qualify for exemption under sec_501 c because it was not operated exclusively for charitable educational or scientific purposes in order to be recognized as exempt under sec_501 c the organization is prohibited from permitting its net_earnings to inure to the benefit of private individuals or operating in a way where more than an insubstantial part of its activities further private versus public purpose sec_2 engaging substantially in legislative activity participating or intervening in any political activity sec_1 c -1 c states that an organization is not exclusively operated for one or more exempt purposes if its net_earnings inure in whole or in part to the benefit of private shareholders or individuals sec_1 a -1 c defines a private_shareholder_or_individual as persons having a personal and private interest in the activities of an organization form 886-a rev department of the treasury- internal_revenue_service page -4- form 886a i n arne of taxpayer department of the treasury - internal_revenue_service explanation of items schedule no or exhibit r year period ended xx if the private benefit to an individual or a group of individuals is greater than the public benefit the private benefit is considered substantial a substantial private benefit can result in revocation of exempt status even a small amount of private_inurement is fatal to exemption in 222_fsupp_151 e d wash net profits were found to inure to private individuals where refreshments goods and services amounting to dollar_figure representing some of gross revenues were furnished to members regs c -1 d ii states that the burden_of_proof is upon the organization to establish that it is not organized or operated for the benefit of private interests this requirement applies equally to inurement and private benefit issues while it is difficult to prove a negative the organization is certainly in a better position than the service to know the detailed facts surrounding its formation and operation therefore in an exemption application case the organization is required to furnish the service with the documents setting forth its purposes and rules of operation as well as a detailed explanation of its operations see revproc_84_46 1984_1_cb_541 in john marshall law school and john marshall university v united_states ct_cl u s t c involve classic channeling of an organization's net_earnings to those in control the court sustained the service's revocation of the school's exempt status based on inurement the court found inurement existed when the school provided the following to family members who were its officers interest free loans unsecured loans payments for non-business travel payments for non-business entertainment personal health spa membership in 165_f3d_1173 the appeals court stated the inurement clause of sec_501 c interprets the phrase private individual or shareholder as an insider of the charity the court further said a charity must not improperly pass its earnings to its founder board members their families or anyone else described as an insider who is the equivalent of an owner or manager the insider could be an employee such as an office manager form 886-a rev department of the treasury- internal_revenue_service page -5- form 886a i n arne oft axpayer department of the treasury- internal_revenue_service explanation of items schedule no or exhibitr year period ended xx government's position an organization recognized as exempt under sec_501 c is prohibited from permitting any of its net_earnings to inure to the benefit of any private_shareholder_or_individual sent a statement that said the year in question 20xx was completely no activity in the second correspondence from the executive director the following work history was provided from the executive director 20xx thru 20xx worked with to emotionally disturbed students weekly out of horse and dog therapy were used in these counseling sessions from the executive director the following statement was received enclosed is the documents associated with the closing transfer of my business to could not start a new business nor work in horse therapy for years after 20xx i did some animal assisted therapy following xx using the dog for written statements completely contradict each other the first information received by this agent before the sec_4958 assessment was issued the second correspondence from the executive director after the sec_4958 assessment was issued in the first correspondence received these i regs c -1 d ii states that the burden_of_proof is upon the organization to establish that it is not organized or operated for the benefit of private interests this requirement applies equally to inurement and private benefit issues while it is difficult to prove a negative the organization is certainly in a better position than the service to know the detailed facts surrounding its formation and operation therefore in an exemption application case the organization is required to furnish the service with the documents setting forth its purposes and rules of operation as well as a detailed explanation of its operations see revproc_84_46 g b just like john marshall law school and john marshall university the officers of channeled the funds created from the sale of the facilities owned by the proceeds from the sale were diverted for personal_use just as in 165_f3d_1173 received by barn on the executive directors personal_property the dates provided for this activity were october 20xx to february of 20xx the funds were used by the executive director to build an new the funds were stated that they had not received any revenues on their return during the stated on their 20xx return received on year ending december 20xx july 20xx that the loan was to be paid off over a year period but the loan had already been paid during the 20xx year no revenues were disclosed to the government by government during the exam process two i drs were sent requesting all financial on the form_990 no revenues were disclosed to the form 886-a rev department of the treasury- internal_revenue_service page -6- form 886a i n arne of taxpayer department of the t rcasury - internal_revenue_service explanation of items schedule no or exhibit r year period ended 20xx information for the year 20xx the executive director sent a note stating that absolutely no revenues were received in the year 20xx the executive director indicated that there was no existing bank account for it is the service's position that the private individual's in the case of benefit is substantial and with no exempt_purpose the private benefit to an individual or a group of individuals is greater than the public benefit there was no public benefit presented by performed any exempt_function from the beginning of 20xx to present this instance private benefit is considered the only function presented by the exempt_organization therefore it is the services position that exempt status must be revoked for the year under exam has not it is the government's position that the executive director has not provided any consistency in the information provided in this examination conclusion regs c -1 d ii states that an organization is not organized or operated exclusively for exempt purposes unless it serves a public rather than a private interest the regulation places the burden_of_proof on the organization to demonstrate that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests this agent asked about its revenues and activities during the year ending december 20xx and indicated there were no activities nor was there any revenues received by the exempt_organization would terminate its exemption in february of 20xx based on the foregoing reasons the organization does not qualify for exemption under sec_501 c and its tax exempt status should be revoked as of january 20xx should have their exempt status revoked due to lack of exempt purposes and no activities there were no exempt_activities were performed during the year under exam taxpayer's position position is that they did not do anything wrong form 886-a rev department of the treasury- internal_revenue_service page -7-


internal_revenue_service number release date index number ------------------------------------ -------------------- ------------------------------------- --------------------------- legend department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- ---------------------- telephone number --------------------- refer reply to cc psi b02 plr-134654-07 date date a b c d e ---------------------------------------------------------------- ---------------------------------------------------------------- ---------------------------------------------------------------- ---------------------------------------------------------------- ---------------------------------------------------------------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- ------------------------ trust ---------------------------------------------------------------- trust ---------------------------------------------------------------- ----------------------- ------------------------- ---------------------- ---------------- d1 d2 d3 plr-134654-07 d4 d5 d6 d7 d8 d9 ----------------------- -------------------------- -------------------------- ---------------------- ---------------------- ------------------------- dear --------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of c taxpayer by c’s authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that c made an election to be treated as an s_corporation effective d1 d made an election to be treated as an s_corporation effective d2 and e made an election to be treated as an s_corporation effective d3 on d7 a new corporation b was formed to own the stock of c d and e the shareholders of c d and e transferred their stock to b in exchange for of the stock of b and b made an election to be treated as an s_corporation and elections to treat c d and e as qualified subchapter_s subsidiaries qsubs effective d7 on d8 a new corporation a was formed to own the stock of b the shareholders of b transferred the stock of b to a in exchange for of the stock of a and a made an election to be treated as an s_corporation and elections to treat b c d and e as qsubs effective d8 the shareholders of a are two trusts trust and trust trust acquired shares of c d and e on d6 and attempted to make an election to be treated as an electing_small_business_trust esbt effective d6 trust acquired shares of c d and e on d5 and attempted to make an election to be treated as an esbt effective d4 the trust instruments for both trust and trust included the following provisions the independent trustees have the power to make discretionary distributions to qualified charities defined as organizations described in sec_170 sec_2055 and sec_2522 and the trustees are authorized to make a contribution of all or any portion of the trust to a charitable_remainder_unitrust further trust and trust did not identify all pcbs on their esbt election and trust did not file its election within the plr-134654-07 time requirements of sec_1_1361-1 as a result c’s election to be an s_corporation terminated trust and trust were subsequently reformed to provide that only qualified charities defined as organizations described in sec_1361 may receive distributions from the trusts taxpayer represents that the termination of c’s s_corporation_election was inadvertent and was not motivated by tax_avoidance or retroactive tax planning further at all relevant times taxpayer and taxpayer’s shareholders have continually treated taxpayer as an s_corporation as such all items of income gain loss and deduction recognized by taxpayer have been allocated among the shareholders of taxpayer and the shareholders have reported on their individual income_tax returns for all relevant taxable years their respective share of the income gain loss and deductions of taxpayer taxpayer and its shareholders have agreed to make any adjustments the commissioner may require with respect to all relevant tax periods sec_1361 defines an s_corporation as a small_business_corporation for which an election under sec_1362 is in effect for the taxable_year sec_1361 provides that the term small_business_corporation means a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 c have a nonresident_alien as a shareholder and d no more than one class of stock sec_1361 provides that for purposes of sec_1361 an esbt may be a shareholder of an s_corporation sec_1361 provides that in the case of an esbt each potential_current_beneficiary pcb of such trust shall be treated as a shareholder for purposes of sec_1361 except that if for any period there is no pcb of such trust such trust shall be treated as the shareholder during such period sec_1361 defines an esbt sec_1361 prior to its modification by of the american_jobs_creation_act_of_2004 p l provided that for purposes of sec_1361 the term potential_current_beneficiary meant with respect to any period any person who at any time during such period is entitled to or at the discretion of any person may receive a distribution from the principal or income of the trust this definition applied to taxable years beginning on or before date section of the act amended sec_1361 by providing that in determining an esbt’s pcbs for any period powers of appointment will be disregarded to the extent not exercised by the end of that period plr-134654-07 sec_1361 provides that certain exempt_organizations are permitted as shareholders that is an organization which is a described in sec_401 or sec_501 and b exempt from taxation under sec_501 sec_1_1361-1 of the income_tax regulations provides that if the holder of a power_of_appointment permanently releases the power in a manner that is valid under the applicable local law the persons that would be pcbs solely because of the power will not be pcbs after the effective date of the release sec_1362 provides that if an election under sec_1362 by any corporation was terminated under sec_1362 or the secretary determines that the circumstances resulting in such termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the termination steps were taken so that the corporation is a small_business_corporation and the corporation and each person who was a shareholder of the corporation at any time during the period specified under sec_1362 agrees to make the adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary for that period then notwithstanding the circumstances resulting in such termination the corporation shall be treated as an s_corporation during the period specified by the secretary based on the information submitted and the representations made we conclude that c’s s election terminated on d5 and we further conclude that the invalidity was inadvertent within the meaning of sec_1362 accordingly pursuant to the provisions of sec_1362 c will be treated as an s_corporation from d5 to d7 except as specifically ruled above we express no opinion concerning the federal tax consequences of the transactions described above under any provisions of the code in particular we express no opinion on whether trust and trust otherwise qualify to be esbts and whether c qualifies to be an s_corporation this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent plr-134654-07 pursuant to a power_of_attorney on file with this office a copy of this letter is being forwarded to taxpayer’s authorized representative sincerely bradford r poston senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


t c memo united_states tax_court stacy n davenport petitioner v commissioner of internal revenue respondent docket no filed date stacy n davenport pro_se carrie l kleinjan for respondent memorandum findings_of_fact and opinion foley judge by notice_of_deficiency dated date respondent determined a deficiency in and additions to petitioner’ sec_2002 federal_income_tax the issues for decision are whether petitioner is liable for unreported income and the sec_6654 a and sec_6651 and additions to tax findings_of_fact during petitioner performed services for s mcclain inc mcclain between march and date mcclain issued and sent to petitioner’s home checks payable to ddr truck associates ddr those checks totaled dollar_figure petitioner deposited those checks into and paid his salary from a bank account in the name of ddr over which he had signature_authority mcclain issued petitioner a form 1099-misc miscellaneous income which stated that in mcclain paid petitioner dollar_figure mcclain subsequently issued a corrected form 1099-misc to petitioner ie stating that it paid petitioner zero in and a form 1099-misc to ddr ie stating that it paid ddr dollar_figure in petitioner did not file a return pay tax or make estimated_tax payments relating to on date respondent pursuant to sec_6020 prepared a substitute for return sfr relating to on date respondent sent petitioner a notice of unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure deficiency relating to respondent determined that petitioner was liable for a deficiency and additions to tax for failure_to_file a tax_return pursuant to sec_6651 timely pay tax pursuant to sec_6651 and pay estimated income_tax pursuant to sec_6654 on date petitioner while residing in hamburg pennsylvania filed his petition with the court opinion generally a notice_of_deficiency is presumed correct and the taxpayer bears the burden of proving that the determination is erroneous 290_us_111 respondent provided sufficient predicate evidence connecting petitioner to the unreported income 91_tc_179 thus the notice_of_deficiency is presumed correct and petitioner has the burden_of_proof petitioner contends that the dollar_figure from mcclain is attributable to ddr and that ddr is a separate legal entity from which he received a salary conversely respondent contends that ddr does not exist and that the dollar_figure is attributable to petitioner there is insufficient evidence to establish the sec_7491 is inapplicable because petitioner failed to introduce credible_evidence within the meaning of sec_7491 existence of ddr moreover when petitioner was questioned at trial about how much of the dollar_figure he was paid from ddr he was evasive and responded i don’t have that information petitioner’s testimony was not credible we conclude that he received dollar_figure for the services he rendered to mcclain and we sustain the deficiencies as determined by respondent respondent also determined additions to tax for failure_to_file tax returns pursuant to sec_6651 timely pay tax pursuant to sec_6651 and pay estimated income_tax pursuant to sec_6654 respondent pursuant to sec_7491 has the burden of production relating to the additions to tax respondent established that petitioner failed to file a return relating to in addition respondent at trial proffered an sfr that met the requirements of sec_6020 and established that petitioner failed to timely pay tax relating to see 127_tc_200 petitioner did not establish reasonable_cause for the failure_to_file or timely pay tax relating to sec_6651 and accordingly we sustain the sec_6651 and additions to tax as determined by respondent in order to satisfy his burden of production relating to the sec_6654 addition_to_tax respondent at a minimum must establish that petitioner had a required_annual_payment pursuant to sec_6654 wheeler v commissioner supra pincite the required_annual_payment is generally equal to the lesser_of percent of the tax shown for the subject taxable_year or if no return was filed percent of the tax for such year or percent of the tax shown on the taxpayer’s return for the preceding year sec_6654 and ii wheeler v commissioner supra pincite respondent established that petitioner had a tax_liability relating to ie the subject taxable_year respondent has not produced credible_evidence relating to ie the preceding year respondent contends that his transcript ie a summary of mr davenport’s tax account of all the years opened sic returns filed or not filed demonstrates that petitioner did not file a return relating to the transcript is reproduced in pertinent part below tax period posted return posted none none posted posted posted posted posted none posted none none subst4 at trial respondent’s only witness ms gallagher testified that the transcript as it relates to shows that no return was filed by mr davenport but it shows a substitute for return was prepared by the irs indeed the transcript shows subst4 relating to when ms gallagher was asked whether petitioner filed a return relating to she stated that is not even on this transcript thus no return was filed we do not arrive at the same conclusion the transcript makes reference to of petitioner’s tax years yet there is no reference to moreover the transcript indicates that returns were filed for certain years ie posted and not filed for other years ie none because there is no entry relating to we conclude that the transcript is insufficient to prove that petitioner failed to file a return for that year without credible_evidence relating to we cannot identify the number equal to percent of the tax shown on petitioner’ sec_2001 return ie the preceding year complete the comparison required by sec_6654 or conclude that petitioner had a required_annual_payment relating to wheeler v commissioner supra pincite accordingly respondent has not met his burden of production relating to and petitioner is not liable for the sec_6654 addition_to_tax contentions we have not addressed are irrelevant moot or meritless to reflect the foregoing decision will be entered under rule


department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-139177-09 date september internal_revenue_service number release date index number ---------------------------------- ---------------------------------- --------------------------------- -------------------------------- legend x ------------------------------------------ ----------------------------------- state ---------------- d1 ---------------------- dear ---------------- this responds to a letter dated date submitted on behalf of x by x’s authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated in state on d1 it was intended that x elect s_corporation treatment effective d1 however a form_2553 election by a small_business_corporation was not timely filed for x sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective generally if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made sec_1362 provides that if an s election is made after the first two and one-half months of a corporation's taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made plr-139177-09 sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election for the taxable_year or no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for such taxable_year and sec_1362 shall not apply based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation effective d1 accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective d1 within days following the date of this letter then such election will be treated as timely made for x's taxable_year beginning d1 a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transaction described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes 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 pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely bradford r poston senior counsel branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index no 2601-dollar_figure p o box ben franklin station washington dc person to contact telephone number refer reply to cc psi - plr-139680-01 date july in re legend settlor trust_beneficiary a court state dear this responds to your letter dated date and subsequent correspondence requesting rulings regarding the generation-skipping_transfer gst tax consequences of the proposed modification of certain trusts facts the facts submitted and representations made are as follows over many years settlor has created separate irrevocable trusts for the benefit of each of his grandchildren and great-grandchildren the terms of all the trusts are substantially identical the trust at issue in this ruling_request trust was created after date for the benefit of beneficiary a is currently serving as trustee you represent that trust has an inclusion_ratio of greater than for purposes of the gst tax article five paragraph b of the trust instrument provides as follows the trustee shall accumulate the income of the trust estate and may pay to the beneficiary as much of the accumulated income and principal thereof as the trustee shall determine in the trustee’s discretion to be necessary and plr-139680-01 appropriate for the beneficiary’s support education care and maintenance in accordance with the beneficiary’s accustomed standard of living article five paragraph b provides upon the last to occur of i the attainment of age by the beneficiary or ii the death of all trustees identified in exhibit a hereto as the measuring lives this trust shall terminate and the trust estate shall be distributed free of trust to the beneficiary if the beneficiary dies before becoming entitled to distribution of the trust estate the trust estate shall be distributed free of trust to the beneficiary’s then living issue by right of representation or if there are no such then living issue to such of the issue of the trustees identified in exhibit a hereto as the measuring lives as are then living by right of representation however if any part of the trust would be distributed to a person for whose benefit a_trust is then being administered which is substantially identical to the trust created by this instrument that part shall instead be added to that trust and shall thereafter be administered according to its terms article six paragraph i of trust provides that any other provision of trust notwithstanding income and principal of the trust estate shall not be utilized to discharge the legal_obligation of any person to support a_trust beneficiary the parties desire to facilitate trust’s qualification as a qualified_subchapter_s_trust for purposes of sec_1361 of the internal_revenue_code therefore as permitted under the laws of state the parties propose to petition the court with jurisdiction over trust to obtain an order from the court approving the following proposed modification of article five paragraph b of the trust instrument to read as follows the trustee shall distribute all of the income within the meaning of sec_643 of the internal_revenue_code of the trust estate currently and may pay to the beneficiary as much of the principal thereof as the trustee shall determine in the trustee’s discretion to be necessary and appropriate for the beneficiary’s support education care and maintenance in accordance with the beneficiary’s accustomed standard of living we have been asked to rule that the proposed modification will not constitute an addition to corpus and will not alter the inclusion_ratio of trust for generation-skipping_transfer_tax purposes law and analysis sec_2601 imposes a tax on every generation-skipping_transfer under a of the tax_reform_act_of_1986 gst tax is generally applicable to generation- skipping transfers made after date however under b a of the tax reform act and sec_26_2601-1 of the generation-skipping_transfer_tax plr-139680-01 regulations the tax does not apply to a transfer from a_trust if the trust was irrevocable on date and no addition actual or constructive was made to the trust after that date sec_2602 provides that the amount of the tax imposed by sec_2601 is the taxable_amount multiplied by the applicable_rate sec_2641 provides that the term applicable_rate means with respect to any generation-skipping_transfer the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2642 provides that the inclusion_ratio is the excess if any of over the applicable_fraction determined for the trust from which the transfer is made or in the case of a direct_skip the applicable_fraction determined for the skip the applicable_fraction is a fraction in which the numerator is the generation-skipping_transfer_tax_exemption allocated to the trust or in the case of a direct_skip allocated to the property transferred and the denominator is the value of the property transferred to the trust or transferred in the direct_skip reduced by any federal estate_tax or state death_tax actually recovered from the trust attributable to the property and any charitable deduction allowed under sec_2055 and sec_2522 with respect to the property sec_2631 a provides that for purposes of determining the inclusion_ratio in the case of generation-skipping transfers on or before date every individual is allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 that may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax will not cause the trust to lose its exempt status sec_26_2601-1 provides that a modification will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst transfer or the creation of a new gst transfer no guidance has been issued regarding the gst tax consequences of a modification of a_trust that was created after date or to which contributions have been made after that date however a modification that would not affect the gst tax status of a_trust that is exempt from tax under sec_26_2601-1 or should similarly not affect the gst tax status of a_trust to which contributions have been made after date in this case the proposed modification will not result in a shift of any beneficial_interest in trust to a lower generation beneficiary plr-139680-01 nor will the modification extend the time for vesting of any beneficial_interest in trust accordingly we conclude that the proposed modification of trust will not effect the inclusion_ratio with respect to trust 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 who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours chief branch office of the associate chief_counsel passthroughs and special industries by_________________________ george l masnik enclosure copy for sec_6110 purposes cc


internal_revenue_service number release date index number ------------------------------------------------------------ ------- ------------------------------------------ ------------------------------------------ ------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ------------- telephone number ------------------- refer reply to cc psi b03 plr-140217-08 date date trust grantor private_foundation state legend --------------------------------------------------------------------------------------- ------------------------ --------------------------------------------------------------------------------------- -------------------------- -------------------------------------------- ------ trustees -------------------------------------------------------------------------------- date n -------------------------- -------- dear ----------------- in a letter dated date and subsequent correspondence your representative requested a ruling regarding the income_tax consequences related to the transfer of appreciated securities as annuity payments described in a charitable_lead_annuity_trust clat agreement specifically your representative requested the following ruling that if the annual payment to the private_foundation by the trust is satisfied with appreciated marketable_securities such payment will not trigger a gain_or_loss to grantor or the trust under revrul_55_410 1955_1_cb_297 this letter responds to that request plr-140217-08 facts the facts and representations submitted are summarized as follows on date grantor created the trust under the laws of state and transferred to trust a partial interest in a family owned limited_liability_company the trust was intended to qualify under sec_2522 of the internal_revenue_code as a clat under its terms trust must make a set annuity_payment to the private_foundation each year of n percent of the initial value of its assets for the term of twenty years at this time the trustees wish to disburse directly to the private_foundation appreciated securities rather than disbursing from income the trust contains the following relevant provisions article iii provides that the annuity amount shall be paid in equal annual installments from income and to the extent income is not sufficient from principal if the initial net fair_market_value of the trust assets is incorrectly determined then within a reasonable period after the value is finally determined for federal tax purposes the trustee shall pay to the charitable_organization in the case of an undervaluation or receive from the charitable_organization in the case of an overvaluation an amount equal to the difference between the annuity amount s properly payable and the annuity amount s actually paid article vi provides that no additional contributions shall be made to the trust after the initial contribution article vii provides that the trustee shall not engage in any act of self-dealing within the meaning of sec_4941 as modified by sec_4947 and shall not make any taxable_expenditures within the meaning of sec_4945 as modified by sec_4947 the trustee shall not retain any excess_business_holdings that would subject the trust to tax under sec_4943 as modified by sec_4947 and sec_4947 or retain assets which if acquired by the trustee would subject the trustee to tax under sec_4944 as modified by sec_4947 and sec_4947 article x provides that the trust is irrevocable however the trustee shall have the power acting alone to amend the trust from time to time in any manner required for the sole purpose of ensuring that the annuity interest passing to the charitable_organization is a guaranteed_annuity_interest under sec_170 sec_2055 and sec_2522 and the regulations thereunder article xiv provides that during the donor’s life the donor shall have the right exercisable only in a nonfiduciary capacity and without the consent or approval of any plr-140217-08 person acting in a fiduciary capacity to acquire property held in the trust by substituting other_property of equivalent value statement of the law sec_671 provides in part that where it is found in subpart e part i of subchapter_j chapter subtitle a of the code that the grantor or another person shall be treated as the owner of any portion of a_trust then there shall 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 in chapter in computing taxable_income or credits against the tax of an individual sec_675 found in subpart e provides that the grantor shall be treated as the owner of any portion of a_trust in respect of which a power_of_administration is exercisable in a nonfiduciary capacity by any person without the approval or consent of any person in a fiduciary capacity for purposes of sec_675 the term power_of_administration includes a power to reacquire the trust corpus by substituting other_property of an equivalent value in 114_f2d_217 2d cir the trustees of a testamentary_trust were directed to pay the beneficiary five million dollars upon the beneficiary becoming forty-years-old the trustees had a choice of whether to pay in cash or through securities and chose to pay part in cash and part in securities the court held that the transfer of those securities resulted in a taxable_exchange as the beneficiary had a claim against the trust for an ascertainable value the court noted that the trustee exercising its choice to make a transfer from the corpus instead of selling the stock first realizing gain and then paying the beneficiary should not result in different tax consequences revrul_83_75 1983_1_cb_114 adopted the reasoning in kenan and found that a distribution by a non-grantor irrevocable_trust of appreciated securities in satisfaction of its obligation to pay a fixed annuity to a charitable_organization resulted in a taxable gain to the trust the service noted that although the trustee had the authority to pay the annuity to qualified charities of the trustee’s choice the distribution was a taxable_exchange as it was made to satisfy a right to receive a specified dollar amount revproc_2007_45 2007_2_cb_89 provides guidelines for creating charitable_lead_annuity trusts including sample trust agreements as well as explanations of the various provisions in these sample agreements it also describes some tax consequences to different actions involving these trusts revproc_2007_45 section provides that the donor to a grantor charitable_lead_annuity_trust may claim a federal_income_tax charitable deduction under sec_170 in the year that assets are plr-140217-08 irrevocably transferred to the trust during the charitable_lead_annuity period the donor is taxed on all income earned by the trust and does not receive any charitable deduction under sec_170 for the annuity payments to the charitable_beneficiary as they are made sec_170 provides in part that no deduction shall be allowed under sec_170 for the value of any interest in property other than a remainder_interest transferred in trust unless the interest is in the form of a guaranteed annuity or the trust instrument specifies that the interest is a fixed percentage distributed yearly of the fair_market_value of the trust property to be determined yearly and the grantor is treated as the owner of such interest for purposes of applying sec_671 revproc_2007_45 section states that if the trustee distributes appreciated_property in satisfaction of the required annuity_payment of a grantor charitable_lead_annuity_trust the donor will realize capital_gain on the assets distributed to satisfy part or all of the annuity_payment revrul_55_410 provides that the satisfaction of a mere pledge to a charity with property that has either appreciated or depreciated in value does not give rise to a taxable gain or a deductible loss the service stated that it would be inconsistent to treat such payment or transfer as a contribution or gift and at the same time as a satisfaction of a debt with the tax consequences which would ordinarily follow from the use of appreciated or depreciated_property to pay a debt conclusion based solely on the facts submitted and the representations made we conclude that grantor would recognize gain on the use of appreciated securities by the trustees to make the annuity payments to the private_foundation as required by the terms of the trust revrul_55_410 does not apply to this situation where the transfers are made from a clat to satisfy annuity payments the charity has a claim against the clat’s assets which would be satisfied by the transfer of the appreciated securities see kenan and revrul_83_75 this is contrary to the reasoning in revrul_55_410 which found that a pledge to a charity is not a debt in addition sec_170 permits a charitable deduction upon the establishment and funding of the clat for the present_value of the annuity interest given to the charity even though payments equaling that value will not be made until the future an individual making a pledge to a charity does not receive an income_tax deduction until the pledge is satisfied by the transfer of property to the charity therefore there are no income_tax consequences on the creation of a pledge agreement as there are upon the creation of a clat the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury plr-140217-08 statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely s james a quinn senior counsel branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service commerce st - dal dallas tx number release date date legend org organization name uil xx date address address org address taxpayer_identification_number form tax_year s ended contact id number contact numbers telephone certified mail -- return receipt requested dear this is our final adverse determination_letter as to your exempt status under sec_501 of the internal_revenue_code our adverse determination was made because for the year s of the examination you were not operated as an insurance_company within the meaning of sec_501 of the internal_revenue_code because this case involves exemption under sec_501 you cannot contest the adverse determination in a declaratory_judgment action under sec_7428 you can however contest the revocation of exempt status in the context of any related deficiency case involving adjustments that flow from the loss of exemption thus you may file suit in united_states tax_court the united_states court of federal claims or united_states district_court from any deficiency_notice issued in this case or a related case after satisfying procedural and jurisdictional requirements as described in publication sec_892 you are required to file federal_income_tax returns for the tax period s shown above for all years still open under the statute_of_limitations and for all later years file the federal tax_return for the tax period s shown above with the ogden service_center within days from the date of this letter unless a request for an extension of time is granted file returns for later tax years with the appropriate service_center indicated in the instructions for those returns you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation sincerely vicki l hansen acting director eo examinations enclosure publication internal_revenue_service date date org address department of the treasury te_ge division golden gate avenue stop san francisco ca taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your organization's exempt status is necessary if you do not agree with our position you may appeal your case the enclosed publication the examination process explains how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process if you request a conference we will forward your written_statement of protest to the appeals_office and they will contact you for your convenience an envelope is enclosed if you and appeals do not agree on some or all of the issues after your appeals_conference or if you do not request an appeals_conference you may file suit in united_states tax_court the united_states court of federal claims or united_states district_court after satisfying procedural and jurisdictional requirements as described in publication letter rev catalog number 34801v you may also request that we refer this matter for technical_advice as explained in publication exempt_organization appeal procedures for unagreed issues if a determination_letter is issued to you based on technical_advice no further administrative appeal is available to you within the irs on the issue that was the subject of the technical_advice if you accept our findings please sign and return the enclosed form_6018 consent to proposed adverse action we will then send you a final letter revoking your exempt status if we do not hear from you within days from the date of this letter we will process your case on the basis of the recommendations shown in the report of examination and this letter will become final in that event you will be required to file federal_income_tax returns for the tax period s shown above file these returns with the ogden service_center within days from the date of this letter unless a request for an extension of time is granted file returns for later tax years with the appropriate service_center indicated in the instructions for those returns you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation sincerely marsha a ramirez director eo examinations enclosures publication publication form_6018 report of examination envelope letter rev catalog number 34801v schedule number or exhibit form 886-a explanations of items name of taxpayer rev date 20xx 20xx tax identification_number year period ended org legend org organization name co-2 co-3 co-1 issue xx date city city xyz state ceo ceo companies attorney-1 attorney-2 t g attorney whether org a controlled_foreign_corporation meets the new requirements for tax-exempt status under sec_501 as described in the pension funding equity act of facts org hereinafter org was incorporated on october 20xx in city xyz under the city business corporation ordinance 19xx the primary purposes for which the corporation was formed are to engage in any lawful act or activity for which corporations may be organized under the ordinance without prejudice to the generality of clause hereof to transact all or any kinds of re- insurance_business in any part of the world save and except in the federation of city and city to do all such things as may be deemed incidental or conducive to the attainment of the above objects or either of them including where necessary the application_for all requisite licenses and governmental or other consents under any relevant ordinance or regulations thereunder in force from time to time the purposes of the corporation are to be carried out and conducted mainly outside city in conformance with sec_123 of the ordinance the liability of members is limited the corporation is authorized to issue shares is the sole shareholder of the shares of dollar_figure per share ceo of city xyz and owner of corporation the registered office of the corporation is located in city city city and city xyz the registered agent of the corporation is co-1 ceo the sole shareholder and president of the corporation filed an election under internal_revenue_code sec_953 to be treated as a domestic_corporation for united_states tax purposes in may 20xx internal_revenue_service records reveal that org was granted exemption as a small insurance_company described in sec_501 of the internal_revenue_code on july 20xx commencing january 20xx for all tax years when net written premiums or if greater direct written premiums do not exceed dollar_figure the ruling letter also included the following caveat for tax years beginning after january 20xx you are exempt 9f a your gross_receipts for the taxable_year do not exceed dollar_figure and b more than percent of your gross_receipts for the taxable_year consists of premiums see sec_501 of the code for purposes of these tests amount received by form 886-a cataiog number 20810w page of6____ publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a explanations of items rev date name of taxpayer org tax identification_number year period ended 20xx 20xx entities affiliated with you are taken into account if the entities are members of your controlled_group org is required to file annual information_return form_990 the form_990 return filed for the year ended december 20xx was examined by te_ge san francisco post of duty during the initial inspection of the form_990 for 20xx it was noted that org accurately reported being exempt under sec_501 on line j in the heading of the return since the passage of the pension funding equity act of org filed form_990 returns for tax years ended december 20xx december 20xx and december 20xx on its form_990 returns filed for the years ended december 20xx and december 20xx org reported the following sources of income 20xx 20kx gifts grants and contributions program service revenue membership dues assessments interest on savings dividends gain of sale of assets other income totals -0- -0- -0- _-0-_ during the examination of the 20xx form_990 it was determined that the primary activity of org is to accepted reinsured risk that originated as life accident and health gap and vehicle service_contract coverage policies with protective life_insurance_company as the direct writer and administrator ceo sole shareholder and president of org is also a owner of co-2 located in city xyz the auto dealership is the primary risk that is ultimately reinsured by org in 20xx org ceased accepting new reinsurance business and went into run-off status as a reinsurance company during the year under audit 20xx the sole activity of org is to pay off remaining claims on the various risks reinsured and to make reimbursements for any policies cancelled by the consumer org held liquid_assets cash and securities of approximately dollar_figure to meet this purpose org reimbursed premiums of dollar_figure to consumers in 20xx the reimbursements are reported as negative premium income on the 20xx form_990 additional sources of gross_receipts consisted of interest on its savings and investment accounts dollar_figure and the gain of sale of publicly_traded_securities dollar_figure org’s gross_receipts are less than the dollar_figure limitation imposed by the pension funding equity act of however based on the data reported on the 20xx form_990 premiums did not constitute or more of the corporation’s gross_receipts there is no evidence of any other significant activities conducted by org during 20xx form 886-a catalog number 20810w page 2of6_ publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form b86-a explanations of items rev date tax identification_number name of taxpayer org year period ended 20xx 20xx although org was is run-off status in 20xx the corporation is operated as an insurance_company since more than half of its business during the year involved the insuring or reinsuring of insurance risks however org does not qualify for tax-exempt status under sec_501 for the 20xx tax_year subsequent to the passage of the pension funding equity act of because it failed to meet the new requirements for tax- exempt status law prior_law lr c sec_501 provides that certain entities are exempt from taxation included in these entities are i nsurance companies or associations other than life including interinsurers and reciprocal underwriters if the net written premiums or if greater direct written premiums for the taxable_year do not exceed dollar_figure lr c sec_501 if an entity is a part of a consolidated_group all net written premiums or direct written premiums of the members of the group are aggregated to determine whether the insurance_company meets the requirements of sec_501 the prior_law was effective for tax years beginning after date through date the effective date of the pension funding equity act of ' for tax years beginning after date an organization must meet the following two-part test to qualify for exemption under sec_501 current law gross_receipts for the year may not exceed dollar_figure and premiums must be more than of the organization’s total gross_receipts mutual insurance_companies must meet either the above test or the following alternative test gross_receipts for the year may not exceed dollar_figure and premiums must be more than of the organization’s total gross_receipts the alternative test for a mutual_insurance_company does not apply if an employee of the company or a member of the employee’s family as defined in sec_2032a is an employee of another company exempt from tax or would be exempt under sec_501 ' prior to the direct or net written premium ceiling was limited to dollar_figure the tax_reform_act_of_1986 increased the direct or net written premium ceiling to dollar_figure per year notice_2006_42 i r b date form 886-a catalog number 20810w page of 6__ publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date explanations of items name of taxpayer 20xx 20xx tax identification_number org year period ended if an organization is in a receivership liquidation or similar proceeding under the supervision of a state court on date the new law applies to taxable years beginning after the date such proceeding ends or date whichever is earlier government ’s position internal_revenue_code sec_501 originally referred only to certain mutual insurance_companies or associations other than life or marine the tax_reform_act_of_1986 tra-86 eliminated the distinction between small_mutual insurance_companies and other small insurance_companies and extended exemption under sec_501 to all eligible small insurance_companies whether stock or mutual tra also changed the nature of the ceiling_amount for tax exemption from certain gross_receipts to direct or net written premiums the ceiling_amount was changed from dollar_figure therefore under tra to qualify for exemption as a small insurance_company the direct or net written premiums received by an organization could not exceed dollar_figure for a taxable_year the requirements established under tra posed serious problems for the service because the requirements did not place any limitation of the amount of investment_income small insurance_companies could earn many taxpayers and tax professionals took advantage of the tax-exempt treatment allowed to small insurance_companies by contributing highly appreciated income producing assets to the tax-exempt organizations the assets produced substantial investment_income that was not taxed due to the tax-exempt status of the small insurance_companies congress intended to curb this loophole in the law by including language in section of the pension funding act of which one again changed the requirements for tax-exempt status for small property and casualty insurance_companies on april 20xx president bush signed h_r the pension funding equity act of p l one purpose of the legislation was to tighten the rules for property and casualty insurance_companies to qualify as tax-exempt under sec_501 of the code or to elect to be taxed only on their investment_income the bill contained the following comments from the conference_report the limitation to mutual companies and the limitation on employees are intended to address the conferees’ concern about the inappropriate use of tax-exempt insurance_companies to shelter investment_income including in the case of companies with gross_receipts under dollar_figure the use of small companies with common owners or employees to shelter investment_income for the benefit of such owners or employees it is intended that the provision not permit the new legislation amended sec_501 for tax years beginning after december 20xx the new law replaced the written premiums test with a gross_receipts and percentage of premiums test form 886-a catalog number 20810w page 4of6_ publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date explanations of items name of taxpayer 20xx 20xx tax identification_number year period ended org the new law placed an overall_limitation on the amount of gross_receipts small insurance_companies could earn for each taxable_year therefore for years beginning after december 20xx small insurance_companies could not have gross_receipts in excess of dollar_figure to qualify for tax-exempt status under sec_501 in addition of its total gross_receipts or more must be derived from premium income the facts present in this case clearly demonstrate that org does not meet the new requirements for tax-exempt status under sec_501 in 20xx because its gross_receipts do not consists of adequate premiums to meet the test imposed by the new law during the 20xx tax_year org did not receive premium income on the form_990 return org reported negative premiums of dollar_figure which represented reimbursement of premiums to consumers for cancellation of the insurance policies in addition org also reported negative premiums of dollar_figure for 20xx the amounts were reported on the returns as a negative income item instead of reporting such reimbursements as an expense item for purpose of calculation gross_receipts for 20xx and 20xx the amount of reimbursements was disregarded based on the audit org’s gross_receipts are as follows gifts grants and contributions program service revenue membership dues assessments interest on savings dividends gain of sale of assets other income totals 20xkx 20xx -0- -0- -0- -0- do gross_receipts exceed the dollar_figure limitation no no of gross_receipts premiums received dollar_figure -0- do premiums exceed of gross_receipts no no the principal gross_receipts tests consist of two parts the corporation must satisfy both parts of the dollar_figure gross_receipts_test in this case org does meet part-one of the dollar_figure gross_receipts limitation permitted for small insurance_companies however org does not satisfy part-two of the gross_receipts_test because its premium income does not exceed of gross_receipts for 20xx and 20xx org must satisfy both parts of the dollar_figure gross_receipts_test in order to meet the new requirements for tax-exempt status under sec_501 of the code if org fails to meet either part of the two part test then it fails to qualify for exemption as a small form 886-a catalog number 20810w page 5o0f6____ publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date explanations of items name of taxpayer 20xx 20xx tax identification_number year period ended org insurance_company note as a stock corporation the alternative gross_receipts_test dollar_figure is not available to org based on the above analysis it is determined that org is properly recognized as a tax-exempt small insurance_company for years prior to december 20xx however due to the change in law the corporation no longer qualifies for tax-exempt status for the tax_year ended december 20xx and december 20xx because it fails to comply with the dollar_figure gross_receipts_test imposed by the pension fund equity act of as such it is recommended that org’s tax-exempt status under sec_501 be revoked effective january 20xx taxpayer’s position the proposed revocation issue was discussed with org’s representatives attorneys attorney-1 and attomey- from co-3 during a conference held on december 20xx conclusion a org is an insurance_company pursuant to subchapter_l of the code for the taxable_year 20xx and 20xx b although org is an insurance_company pursuant to subchapter_l of the code it does not qualify as a tax- exempt small insurance_company because its gross_receipts do not consists of adequate premiums to meet the dollar_figure gross_receipts_test as described in the pension funding equity act of required of entities that qualify for exemption under sec_501 of the internal_revenue_code c therefore revocation of org’s tax-exempt under sec_501 is proposed effective january 20xx d org is required to file an income_tax return for calendar_year ended december 20xx and december 20xx form 886-a catalog number 20810w page of6___-- publish no irs gov department of the treasury-internal revenue service