internal_revenue_service p o box cincinnati oh release number release date date m original application date s name of state dear department of the treasury employer_identification_number contact person - id number contact telephone number uil we have considered your request dated date for advance approval of your amended grant-making program under sec_4945 of the internal_revenue_code our records indicate that you applied for exemption under sec_501 of the code on m and that you were recognized as exempt from federal_income_tax under sec_501 of the code and that you were classified as a private_foundation as defined in sec_509 in your application dated m you had indicated that you may also make as a small portion of your purposes scholarship grants to students at colleges and universities you indicate now that you have amended your scholarship provisions as follows you may offer grants for scholarships to needy students who need financial assistance in order to complete school scholarships will be granted to enable individuals to obtain an education grants will be limited to students who are attending educational institutions as defined in code sec_170 the scholarship program will be administered so as to be objective and nondiscriminatory while you have made no loans to date you may do so in the future repayment of the loans would be with reduced interest similar in amount to student loans provided under federal government programs and would be made over such period of time as was appropriate based on the financial ability and potential of the applicant decisions on the length of the loan would be made by your trustees on a case by case basis candidates may be nominated by your trustees friends or acquaintances of persons affiliated with you students schools or organization dealing with scholarship funds for students you will also through your board_of trustees disseminate the availability of such funds by word of mouth board members and their families are prohibited from receiving scholarship awards there are no restrictions or limitations on the class of individuals who are eligible for an award there are and will be no restrictions based on race or employment status of the m m recipient or the recipient’s relatives neither members of the selection committee nor their families may be recipients the recipients to be selected for the scholarships will be selected by your board_of trustees based on the application submitted by the student and a determination of those students with need applicants for scholarship assistance will need to fill out and submit an application when applying for financial aid your trustees will use the information contained in the application to select recipients you will retain the application documentation and other documentation regarding each grant in the permanent files of the foundation recipients will be selected based on the following criteria prior academic performance performance on test designed to measure ability and aptitude for college work recommendations from instructors financial need including other sources of funds available to the student conclusions which your trustees draw from a personal interview as to the student’s motivation character ability potential and likelihood of success in achieving the educational goals described by the candidate personal history cost of the programs to be pursued no award of a grant shall be made as a quid pro quo for a contribution to you awards shall not be granted to individuals or their relatives that have made contributions or promises of contributions in the event a candidate is a contributor to you or a relative of a contributor to you and otherwise meets the criteria listed above in order to avoid a conflict of interest your trustees shall select three or more individuals from a group of educators in the area in which you operate and who are independent from you your trustees and contributors and those educators selected shall determine whether that candidate should be granted an award in no event shall the grant be in consideration in any nature for a contribution to you and the educators selected shall be granted access to your records including records of contributors to assure compliance with this requirement to receive an award the recipient will be required to execute a scholarship grant agreement which outlines the terms and conditions of the award no grants will be made to spouses children descendents children’s descendents spouses of descendents or other persons related to any of your officers directors or trustees the scholarship program is extremely limited and will not be publicized except to the extent of word of mouth from your trustees in addition your trustees may if the need arises notify various educational institutions of the availability of funds however the availability of funds at the present time is minimal and your trustees will presently disseminate only information relating to the scholarships by word of mouth the chairman of the board_of trustees was a years he has contacts within s which include administrators and professors at various universities and colleges in s and other states the board_of trustees consists of members who have lived within and outside s board members therefore have national for approximately and worldwide contacts the large number of trustees provides a wide and divergent group of persons to whom the scholarship program is communicated and from whom referrals can be received the trustees communicate the existence of the program to educators and business persons as a means of disseminating the program to potential candidates grant funds for payment of tuition books and supplies will be payable either i directly to the college or university or educational_institution or ii directly to the recipient payments for room and board and living_expenses will be made either to the provider or the recipient for any funds to be paid directly to a recipient the recipient will be required to execute a scholarship grant agreement which will require among other things the recipient to submit a projected budget prior to receipt of funds and thereafter provide proof of expenditures by receipts etc the recipient must provide you with a report listing the courses taken and the grades received at least annually containing documents from the educational_institution attended verifying this information further disbursements under the award are dependent upon your determination that successful progress is being made toward the recipient’s degree upon completion of the study at the educational_institution a final report must also be made to you in the event it comes to your attention that any of your funds have been misused you will attempt to recover the funds from the recipient and will terminate any further distributions of funds to the reciepient ifthe infraction is based on a failure to make reports by the recipient you will not make additional payments under the grant until the report is received you agree to maintain records that include the following i information used to evaluate the qualification of potential grantees ii identification of the grantees including any relationship of any grantee to the private_foundation iii the amount and purpose of each grant and iv all grantee reports and other follow-up data obtained in administering the private foundation’s grant program sec_4945 and b of the code impose certain excise_taxes on taxable_expenditures made by a private_foundation sec_4945 of the code provides that the term taxable_expenditure means any amount_paid or incurred by a private_foundation as a grant to an individual for travel study or other similar purposes by such individual unless such grant satisfies the requirements of subsection g sec_4945 of the code provides that sec_4945 shall not apply to individual grants awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance if it is demonstrated that the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 and is to be used for study at an educational_organization described in sec_170 the grant constitutes a prize or award which is subject_to the provisions of sec_74 if the recipient of such prize or award is selected from the general_public or the purpose of the grant is to achieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar capacity skill or talent of the grantee sec_53_4945-4 of the regulations provides that to secure approval a private_foundation must demonstrate that its grant procedure includes an objective and nondiscriminatory selection process ii such procedure is reasonably calculated to result in performance by grantees of the activities that the grants are intended to finance and iii the foundation plans to obtain reports to determine whether the grantees performed activities that the grants are intended to finance based on the information submitted and assuming your award programs will be conducted as proposed with a view to provide objectivity and nondiscrimination in making the awards we have determined that your procedures for granting the awards comply with the requirements contained in sec_4945 of the code and that awards granted in accordance with such procedures will not constitute taxable_expenditures within the meaning of sec_4945 in addition we have determined that awards made under your procedures are excludable from the gross_income of the recipients subject_to the limitations provided by sec_117 of the code this determination is conditioned on the understanding that there will be no material_change in the facts upon which it is based it is further conditioned on the premise that no grants will be awarded to foundation managers or members of the selection committee or for a purpose that is inconsistent with the purpose described in sec_170 of the code the approval of your award program procedures herein constitutes a one-time approval of your system standards and procedures designed to result in awards which meet the requirements of sec_4945 of the code this determination only covers the grant programs described above thus approval shall apply to subsequent award programs only as long as the standards and procedures under which they are conducted do not differ materially from those described in your request any funds you distribute to individuals must be made on a true charitable basis in furtherance of the purposes for which you are organized therefore you should maintain adequate_records and case histories so that any or all award distributions can be substantiated upon request by the internal_revenue_service this determination is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as a precedent you must report any future changes in your grant making procedures please keep a copy of this letter in your permanent records we have sent a copy of this letter to your representative as indicated in your power_of_attorney if you have any questions please contact the person whose name and telephone number are shown above sincerely yours robert choi director exempt_organizations rulings and agreements


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 b03 plr-128815-09 date date legend x --------------------------------------------------------------------------------------------------- -------------------------------------------- country --------------------------- date ---------------------- dear -------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x by x’s authorized representative requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be classified as a disregarded_entity for federal tax purposes facts x was formed under country law on date x represents that it is a foreign_entity eligible to elect to be classified as a disregarded_entity for federal tax purposes x intended that it be classified as a disregarded_entity effective date however due to inadvertence a valid form_8832 entity classification election to treat x as a disregarded_entity effective date was not timely filed plr-128815-09 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 a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that unless the entity elects otherwise a 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 an eligible_entity may elect to be classified other than as provided in 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_7701-3 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 sec_301_9100-1 provides that the commissioner may 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 the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that 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 plr-128815-09 conclusion based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of sixty days from the date of this letter to elect to be classified as a disregarded_entity for federal tax purposes effective date the election should be made by filing form_8832 with the appropriate service_center a copy of this letter should be attached to the election except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter 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 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 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 curt g wilson associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number --------------------------------------------------- ------------------------------------------- ---------------------------------------- ----------------------------------- - department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ---------------------------- id no -------------- --------------------------------------------------- telephone number -------------------- refer reply to cc psi b04 plr-145134-04 date date ---------------------------- ---------------- --------------------- ------------------ -------------------------------------------------------------- ---------------------- -------------------------------------- --------------------- --------------------------- ------------------------------------------------------------------------------ re --------------------------------------- legend decedent date date date trust trust trustee property property charity -------------------------------------------------------------------------------------------------------- charity child grandchild grandchild business w x y z court --------------------------------------------------------------------------------------------------------- -------------------------------------------------- ------------------------------- --------------------- ------------------ ------------ --- -- --- --- ------------------------------------------------------------------------------ plr-145134-04 family trusts ---------------------------------- -------------------------------------------- --------------------------------------------------------------------------- ---------------------------------------------------------------------------- dear ------------- generation-skipping_transfer gst tax gift_tax and income_tax consequences of a proposed transaction this is in response to a correspondence requesting rulings regarding the the facts submitted and representations made are as follows decedent’s will was executed on date decedent died on date decedent’s will provides that the residue of her estate will be placed in trust trust trustee is the trustee of trust the residue included sections of property and property trust provides that property may not be sold traded or otherwise alienated trust provides that trustee is required to pay x of trust s income to charity and x of trust ’s income to charity trust provides that trustee is required to pay the remaining y of trust’s income in equal z portions to decedent’s child child and to each of decedent’s grandchildren grandchild and grandchild child died on date upon child’s death her share of trust ’s income passed to grandchild and grandchild in equal portions therefore grandchild and grandchild each receive w of trust ’s income upon grandchild 1’s death her share of trust’s income will pass to her descendants per stirpes currently grandchild has six children seventeen grandchildren and nine great-grandchildren upon grandchild 2’s death her share of trust’s income will pass to her descendants per stirpes currently grandchild has four children seven grandchildren and two great-grandchildren trust provides that if a child of grandchild or grandchild dies during the existence of trust the income that such deceased child would have received passes to his or her issue per stirpes if the deceased child has no issue then such income passes to the surviving brothers and sisters of the deceased child per capita trust provides that principal can be paid out for the benefit of a_trust beneficiary if an emergency or unforeseen calamity befalls a_trust beneficiary and if a_trust beneficiary incurs reasonable expenses for education maintenance or support any such amounts paid must be charged to the trust share of the beneficiary for whose benefit the amount was paid grandchild of decedent living at the time of decedent’s death therefore trust will terminate upon the death of the last child of grandchild and grandchild that was alive on the date that decedent died five of grandchild 1’s children and all of trust provides that trust will terminate on the death of the last surviving great- decedent’s will provides that as soon as trustee comes into possession of the originally property was owned by its founder over the years property was plr-145134-04 grandchild 2’s children were living at that time upon termination trust’s corpus will pass to the then living descendants of decedent trust estate it is my desire and i so direct that the trustee shall separate the accounts of each of the beneficiaries hereunder so as to constitute a separate trust as to each beneficiary and to accomplish this result may assign undivided interests in the trust property both land and personal_property to each account so that as to each beneficiary there shall be a separate trust trustee did not partition trust because it believed that administering a separate trust for each trust_beneficiary would require separate_accounting and separate trust statements and maintenance of separate trusts would increase the cost of administering trust to the detriment of its beneficiaries in addition trustee believed that decedent’s will required trustee to retain its sections of property until trust is terminated and to continue business operations of property in order to preserve its sections of property for the remainder beneficiaries of trust partitioned into sections through various transfers currently trust owns sections of property four trusts family trusts for the benefit of each of grandchild 2’s children each own an undivided_interest in sections of property grandchild owns the remaining sections of property indirectly through a partnership trust also holds property livestock equipment other tangible_personal_property and cash and cash equivalents trust trustee proposes to do so in a manner consistent with the decedent’s intent to preserve trust’s sections of property for her descendants currently sections of property held in trust abut sections of property held by family trusts further sections of property held in trust are not adjacent to sections of property held by grandchild 1’s partnership because sections of property held by family trusts are interposed between trust’s sections of property and grandchild 1’s partnership sections of property accordingly trustee has consulted with grandchild and grandchild regarding a plan to first transfer sections of property held by family trusts to trust and transfer sections of property and property held by trust to family trusts exchange after the exchange trustee will partition trust partition in the partition trust will retain certain sections of property and property in trust for the benefit of grandchild and her descendants and transfer the balance to trust a newly-created trust to benefit grandchild and her descendants after the exchange and partition sections of property held by trust will be adjacent to sections of property owned by grandchild 1’s partnership and sections of property held by trust will be commonly owned by family trusts as tenants in common and will be adjacent to sections of property held by family trusts in addition in the partition the personalty of trust will be divided into portions of equal value with one portion retained in trust and the other portion transferred to trust no separate subtrusts will trustee now believes it must carry out the instructions in the will to partition you have requested the following rulings plr-145134-04 be created for charity or charity rather trust and trust will each be required to pay x of their annual income to each of charity and charity the exchange will not cause trust to become subject_to the generation-skipping_transfer gst tax under sec_26_2601-1 of the generation-skipping_transfer_tax regulations sections of property owned by family_trust and transferred into trust pursuant to the exchange will not be deemed an addition to trust within the meaning of sec_26_2601-1 the exchange will qualify as a nonrecognition_transaction within the meaning of sec_1031 of the internal_revenue_code and the basis of the property transferred from the family trusts to trust in the exchange will be the same as the combined basis of the property transferred by trust in the exchange pursuant to sec_1031 the exchange will not result in a transfer subject_to gift_tax under sec_2501 by any of the beneficiaries of trust and trust the partition will not cause trust or trust to become subject_to any provision of the gst tax the partition will not cause trust or trust or any beneficiary thereof to realize gain_or_loss under sec_61 or sec_1001 the partition will not be viewed as a distribution or termination under ' nor as a distribution for purposes of ' a -2 f and therefore will not result in the realization by trust or trust or by any beneficiary of trust or trust of any income gain_or_loss the partition will not result in a transfer subject_to gift_tax under sec_2501 by any of the beneficiaries of trust or trust ruling sec_1 sec_2601 imposes a tax on each generation skipping transfer under a of the tax_reform_act_of_1986 act gst tax is generally applicable to generation-skipping transfers made after date however under plr-145134-04 b a of the act and sec_26_2601-1 of the 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_26_2601-1 contains rules relating to the exception in b b of the act sec_26_2601-1 provides that the gst tax provisions will not apply to any gst under a will or revocable_trust executed before date provided that a the document that was in existence on date was not amended at any time after date in any respect that results in the creation of or an increase in the amount of a gst b in the case of a revocable_trust no addition was made to the revocable_trust after date that results in the creation of or an increase in the amount of a gst and c the decedent died before date 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 the distribution of trust principal from an exempt trust to a new trust or retention of trust principal in a continuing trust will not cause the new or continuing trust to be subject_to the gst provisions if the terms of the governing instrument of the exempt trust authorize distribution to a new trust or the retention of trust principal in a continuing trust without the consent or approval of any beneficiary or court sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust 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 that does not result in an increase in the amount of a gst transfer or the creation of a new gst transfer will not cause the trust to lose its exempt status sec_26_2601-1 example involves an irrevocable_trust that was established in the trustee has the discretion to distribute income and principal to a b and their issue in such amounts as the trustee deems appropriate on the death of the last to die of a and b the trust principal is to be distributed to the living issue of a and b per stirpes in the appropriate local court approved the division of the trust into two equal trusts one for the benefit of a and a's issue and one for the benefit of b and b's issue the trust for a and a's issue provides that the trustee has the discretion to distribute trust income and principal to a and a's issue in such amounts as the trustee deems appropriate on a's death the trust is to terminate and the principal distributed to a's issue per stirpes the terms of the trust for b and b's issue are identical except for the beneficiaries the example concludes that the division of the trust into two trusts does not shift any beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in sec_2651 than the person or persons who held the plr-145134-04 beneficial_interest prior to the division in addition the division does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust therefore the two partitioned trusts resulting from the division will not be subject_to the provisions of chapter trustee will seek court approval of the exchange and partition trustee will join all living beneficiaries of trust in the proposed court_proceeding a guardian ad litem will be appointed to represent the interests of the minor unborn and unascertained trust beneficiaries in this case decedent’s will was executed before date was not amended after date and decedent died prior to date therefore trust is currently exempt from gst tax the exchange will be made pursuant to court order and agreed upon by the beneficiaries of trust the exchange will not shift a beneficial_interest in 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 exchange further the exchange does not extend the time for vesting of any beneficial_interest in trust beyond the period provided for in the original trust trustee is authorized under decedent’s will to carry out the partition without court approval or the consent of trust beneficiaries the partition will not shift a beneficial_interest in 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 partition further the partition does not extend the time for vesting of any beneficial_interest in trust beyond the period provided for in the original trust based on the facts submitted and the representations made we conclude that the exchange will not cause trust to become subject_to the gst tax and the transfer of property to trust pursuant to the exchange will not be deemed an addition to trust for purposes of sec_26_2601-1 further we conclude that the partition will not cause trust or trust to become subject_to any provision of the gst tax ruling sec_4 sec_2501 imposes a tax for each calendar_year on the transfer of property by gift by an individual sec_2511 provides that the tax imposed by sec_2501 applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2512 provides that if a gift is made in property the value thereof at the date of the gift shall be considered the amount_of_the_gift in this case each beneficiary of trust and trust will have the same beneficial_interest as he or she had under trust because the beneficial interests of the beneficiaries are substantially the same both before and after the exchange and plr-145134-04 partition no transfer of property will be deemed to occur as a result of the exchange and the partition based upon the facts submitted and representations made we conclude that the exchange will not result in a transfer subject_to gift_tax under sec_2501 by any of the beneficiaries of trust and the partition will not result in a transfer subject_to gift_tax under sec_2501 by any of the beneficiaries of trust or trust ruling sec_1031 provides that no gain_or_loss shall be recognized on the exchange of property held for productive use in a trade_or_business or for investment if such property is exchanged solely for property of like_kind which is to be held either for productive use in a trade_or_business or for investment the exchange contemplated is a simultaneous exchange of real_property for real_property for gain_or_loss to be deferred as a like-kind_exchange sec_1031 establishes the following requirements the transaction must be an exchange of property for property rather than a sale of property for money the property relinquished or transferred by the taxpayer and the property that the taxpayer receives in the exchange must be held for productive use in a trade_or_business or for investment and the relinquished and the replacement properties must be of like_kind sec_1031 provides in part that if property was acquired on an exchange described in this section then the basis shall be the same as that of the property exchanged decreased in the amount of any money received by the taxpayer and increased in the amount of gain or decreased in the amount of loss to the taxpayer that was recognized on such exchange generally the replacement_property received in an exchange for which gain_or_loss is deferred under sec_1031 is the same as the property relinquished in the exchange however as provided in sec_1031 this transferred_basis must undergo certain adjustments depending on the facts and circumstances of the transaction sec_1031 also requires that the transferred_basis be decreased by the amount of any money received by the taxpayer in the exchange then increased by the amount of the gain to the taxpayer that was recognized or decreased by the amount of any loss that was recognized in the exchange if there is no money received by the taxpayer in the exchange and if the taxpayer does not recognize any gain_or_loss in the transaction so that no adjustments to the basis are required then the basis of the replacement_property will be the same as the old basis of the property relinquished in the exchange plr-145134-04 under the facts presented real_property will be exchanged for real_property thus the first and third requirement will be satisfied the transaction will be an exchange rather than a sale and the property to be exchanged is of like_kind in addition the second requirement is satisfied because the relinquished_property was held by trust for productive use in business and the replacement_property will be retained by trust for the benefit of grandchild 1’s family for productive use in business based upon the facts submitted and representations made we conclude the exchange qualifies as a tax deferred_exchange under sec_1031 and the basis of the property received by trust in the exchange will be the same as the combined basis of the property transferred by trust under sec_1031 ruling sec_61 provides that except as otherwise provided in subtitle a pertaining to income taxes gross_income includes gains derived from dealings in property sec_102 provides that gross_income does not include the value of property acquired by gift bequest or devise or inheritance sec_1001 provides that the gain from the sale_or_other_disposition of property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis provided in such section for determining loss over the amount_realized sec_1001 provides in part that the amount_realized from the sale_or_other_disposition of property shall be the sum of any money received plus the fair_market_value of the property other than money received sec_1001 provides that except as otherwise provided in subtitle a the entire amount of the gain_or_loss determined under this section on the sale_or_exchange of property shall be recognized sec_1_1001-1 of the income_tax regulations provides that the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or as loss sustained while not specifically defined in the code or regulations for most purposes the term income is generally defined as an undeniable accession to wealth over which the taxpayer has complete control or dominion 348_us_426 trust recognized no gain_or_loss from the exchange of property because the exchange was within the coverage of sec_1031 as explained also trust plr-145134-04 had no gain or income from the transfer of property to trust because it did not receive anything in return for this transfer there was no accession to wealth similarly neither trust nor any of the beneficiaries of trust or of trust will have income as a result of the transfer of property to trust because this transfer will be made pursuant to the specific requirements set forth in decedent’s will trust and the beneficiaries will receive neither more nor less than what they were entitled to receive under the will revrul_69_486 1969_2_cb_159 holds that where the trustee was not authorized to make a non-pro rata distribution_of_property in_kind but did so as a result of the mutual agreement between the beneficiaries the non-pro rata distribution is equivalent to a distribution to the beneficiaries of all types of trust property by the trustee followed by a taxable_exchange between the beneficiaries of one type of trust property for another by negative inference when the trustee is authorized to make non-pro rata distribution the non-pro rata distribution is not taxable to the beneficiaries in her will decedent stated that it is my desire and i so direct that the trustee shall separate the accounts of each of the beneficiaries hereunder so as to constitute a separate trust as to each beneficiary and to accomplish this result may assign undivided interests in the trust property both land and personal_property to each account emphasis added therefore a distribution of a tract of land to trust for the benefit of some but not all the beneficiaries of trust would not be a taxable_event to trust trust or any of the beneficiaries based upon the facts submitted and representations made we conclude that the partition will not cause trust or trust or any beneficiary thereof to realize gain_or_loss under sec_61 or sec_1001 ruling sec_661 provides that in any taxable_year a deduction is allowed in computing the taxable_income of a_trust other than a_trust to which subpart b applies for the sum of the amount of income for such taxable_year required to be distributed currently and any other_amounts_properly_paid_or_credited_or_required_to_be_distributed for such taxable_year but such deduction shall not exceed the distributable_net_income dni of the estate_or_trust sec_1_661_a_-2 of the income_tax regulations provides that gain_or_loss is realized by the trust or estate or the other beneficiaries by reason of a distribution_of_property in_kind if the distribution is in satisfaction of a right to receive a distribution of a specific dollar amount of specific property other than that distributed or of income as defined under sec_643 and the applicable regulations if income is required to be distributed currently sec_662 provides that there shall be included in the gross_income of a beneficiary to whom an amount specified in ' a is paid credited or required to be plr-145134-04 distributed by an estate_or_trust described in ' the sum of the following amounts the amount of income_for_the_taxable_year_required_to_be_distributed_currently to such beneficiary whether distributed or not and all other_amounts properly paid credited or required to be distributed to such beneficiary for the taxable_year based solely on the facts submitted and the representations made we conclude that the partition will not be viewed as a distribution or termination under ' nor as a distribution for purposes of ' a -2 f and therefore will not result in the realization by trust or trust or by any beneficiary of trust or trust of any income gain_or_loss 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 the rulings contained in this letter are 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 request for rulings it is subject_to verification on examination this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent enclosure copy for purposes sincerely yours lorraine e gardner senior counsel branch office of associate chief_counsel passthroughs and special industries


t c memo united_states tax_court thomas a johnson petitioner v commissioner of internal revenue respondent docket no filed date thomas a johnson pro_se stephen c best for respondent memorandum opinion clapp judge respondent determined the following deficiencies in petitioner's federal income taxes additions to tax and penalty additions to tax penalty sec sec sec sec year deficiency a a a dollar_figure dollar_figure dollar_figure dollar_figure -- -- -- dollar_figure after concessions by the parties the issues for decision are whether petitioner had gross_receipts during the taxable_year from a business known as ticketline we hold that he did whether petitioner has substantiated cost_of_goods_sold for ticketline for the taxable_year we hold that petitioner has substantiated cost_of_goods_sold in the amount of dollar_figure whether petitioner is liable for self-employment_tax for the taxable_year from his activities with ticketline we hold that he is whether the costs associated with petitioner's nutritional information system are deductible pursuant to sec_174 we hold that they are not whether petitioner is liable for the addition_to_tax pursuant to sec_6651 for failure_to_file timely federal_income_tax returns for the taxable years and we hold that he is whether petitioner is liable for the addition_to_tax pursuant to sec_6653 for negligence for the taxable_year we hold that he is whether petitioner is liable for the addition_to_tax pursuant to sec_6661 for a substantial_understatement of tax for the taxable_year we hold that he is whether petitioner is liable for an accuracy-related_penalty pursuant to sec_6662 for the taxable_year we hold that he is all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated we have combined our findings_of_fact and opinion some of the facts are stipulated and are so found we incorporate by reference the stipulation of facts and attached exhibits prior to trial respondent filed a motion for leave to file amendment to answer respondent sought to amend the answer to plead collateral_estoppel pursuant to this court's opinion in johnson v commissioner tcmemo_1993_564 affd without published opinion 50_f3d_2 2d cir johnson i which addressed the taxable_year respondent argues that collateral_estoppel precludes petitioner from relitigating whether he received gross_receipts from ticketline whether he is entitled to deduct expenses associated with his nutritional information system pursuant to sec_174 and whether he is liable for self-employment_tax we denied respondent's motion the doctrine_of collateral_estoppel is used to preclude a party from relitigating issues actually and necessarily litigated and decided in a final prior judgment by a court of competent jurisdiction 91_tc_273 it applies to issues of fact issues of law and mixed issues of fact and law id pincite the taxable_year was at issue in johnson i and that opinion was based in part on petitioner's failure to meet his burden_of_proof we have concluded that the issues now before the court were not necessarily litigated in johnson i petitioner in this proceeding could prove different facts or changed circumstances sufficient to distinguish this case from johnson i and to carry his burden_of_proof for the years at issue petitioner resided in vernon connecticut at the time he filed the petition he has a bachelor's degree in mathematics and a master's degree in psychology petitioner received training as an actuary and has consulted as a stock analyst petitioner did not receive salary or wages in petitioner has prepared his own income_tax returns since and he reported his income and deductions for the taxable years and on the cash_receipts_and_disbursements_method of accounting ticketline in petitioner began purchasing concert tickets from robert finnimore finnimore through a business known as ticketline finnimore purchased tickets to concerts plays and other events and then resold the tickets at a premium finnimore needed cash to purchase tickets so petitioner agreed to advance money to finnimore with the understanding that petitioner would get the two best seats available for any concert or show that he wanted to attend petitioner expected the advances to be returned but this did not happen with regularity to gain some control_over the payment process petitioner made the necessary arrangements so that customers could use a credit card to pay finnimore for tickets petitioner controlled the credit card receipts and also set up a bank account in the name of ticketline ticketline account to hold those receipts this arrangement made the money accessible to petitioner rather than having it go through finnimore who otherwise might have kept a fair amount of it petitioner had sole signatory authority on the ticketline account credit card receipts were deposited directly to the ticketline account and petitioner made periodic deposits into that account of any money sent to him by finnimore he regularly advanced moneys from this account to finnimore for the purchase of tickets during petitioner had signatory authority over three other accounts the todge trust account the universal life church inc ulc account and an equity line of credit petitioner occasionally advanced moneys from these accounts for the purchase of tickets by finnimore finnimore did not execute promissory notes for the funds he received from petitioner petitioner reported no interest_income for related to the funds advanced to finnimore the parties agree that during petitioner made deposits to the ticketline account of approximately dollar_figure respondent using the bank_deposits and cash_expenditures_method determined this amount to be unreported income respondent concedes that this figure should be reduced to dollar_figure in the notice_of_deficiency respondent did not allow for the cost of tickets sold but respondent concedes that petitioner must have had some cost_of_goods_sold respondent calculated cost_of_goods_sold of dollar_figure and is willing to concede this amount respondent calculated this amount using the ratio of cost_of_goods_sold to gross_receipts for the taxable_year as set forth in johnson i where a taxpayer has failed to maintain adequate_records of the amount and source of his income and the commissioner has determined that the deposits are income the taxpayer must show that the commissioner's determination is incorrect 64_tc_651 affd 566_f2d_2 6th cir in the absence of adequate books_and_records the commissioner may reconstruct a taxpayer's income by any reasonable method_of_accounting which clearly reflects income sec_446 348_us_121 the bank_deposits method has long been approved by the courts as a method for computing income estate of mason v commissioner supra pincite bank_deposits are prima facie evidence of income 87_tc_74 estate of mason v commissioner supra pincite petitioner argues that the advances from the various accounts were loans to finnimore and that the deposits to the ticketline account were repayments on the loans the existence of a loan is a question of fact to be decided on the basis of all the facts 55_tc_85 some of the relevant factors are whether the parties were dealing at arm's length whether the loan was in writing whether the loan provided for interest whether repayments were made whether there was a business_purpose for making the loan and whether payments are not contingent on profits see beaver v commissioner supra 48_tc_640 petitioner had no promissory note or repayment schedule for the alleged loans petitioner submitted a document that he claimed was a loan ledger the document does not mention loans to or repayments from finnimore and does not establish that petitioner made loans to finnimore petitioner claims that he began charging finnimore interest in but petitioner reported no interest_income from the alleged loans petitioner knew that he would not be repaid if finnimore did not resell the tickets and we find that ticket sales were the only source of repayment from finnimore we find that the deposits to the ticketline account were income to petitioner and were not loan repayments from finnimore see 57_tc_32 petitioner argues in the alternative that if the dollar_figure is income from the sale of tickets he is entitled to reduce the income by the cost of the tickets sold petitioner did not keep adequate_records of the moneys he advanced to finnimore petitioner therefore looks to numerous canceled checks and cash withdrawals which he maintains were advances to finnimore petitioner argues that checks payable to cash in even amounts of dollar_figure or more were moneys he advanced to finnimore for the purchase of tickets petitioner concedes that some small portion of those checks was retained by him for personal purposes but argues that the balance went to finnimore for the purchase of tickets the amounts set forth in the appendix reflect the amounts advanced to finnimore after allowing for petitioner's concessions we find that petitioner advanced to finnimore for the purchase of tickets dollar_figure from the ticketline account dollar_figure from the todge trust account dollar_figure from the equity credit line and dollar_figure from the ulc account these payments are detailed in the appendix petitioner paid dollar_figure for tickets using his credit card and this amount is allowable as cost_of_goods_sold petitioner contends that he purchased tickets directly from a ticket agent with check no in the amount of dollar_figure and from a second ticket agent with check no in the amount of dollar_figure we agree and we find that the dollar_figure is allowable as cost_of_goods_sold petitioner estimated that he purchased tickets for ticketline with dollar_figure of automatic teller machine atm withdrawals from the todge trust account the dollar_figure of atm withdrawals from the todge trust account consists of approximately withdrawals none of which exceeds dollar_figure petitioner has not shown that the dollar_figure in atm withdrawals was for the purchase of tickets and not for personal expenditures petitioner argues that several items labeled debit memo on his bank statements represent either deductible expenses or cash withdrawals used for the purchase of tickets the record does not support petitioner's argument petitioner provided the bank statements showing the debit memo notations on brief petitioner has attempted to explain the debit memo items but factual representations on brief are not evidence we sustain respondent's determination as to these items based on the above findings we conclude that petitioner has substantiated cost_of_goods_sold for the ticketline business in the amount of dollar_figure which consists of dollar_figure from the ticketline account dollar_figure from the todge trust account dollar_figure from the equity credit line dollar_figure from the ulc account dollar_figure of credit card purchases and dollar_figure of purchases directly from ticket agents respondent concedes a dollar_figure deduction for credit card service fees and a dollar_figure deduction for bank fees and we find that petitioner paid dollar_figure for ticketline advertising expenses in petitioner argues that he paid dollar_figure of other ticketline expenses these expenditures related to finnimore's obligations for items such as office lease payments car payments car insurance and rent on finnimore's apartment these expenditures were not ordinary and necessary expenses of ticketline and we sustain respondent's determination as to these items self-employment_tax sec_1401 imposes a tax on net_earnings of dollar_figure or more from self-employment_income defined as gross_income derived from carrying_on_a_trade_or_business less allowable deductions sec_1402 and b the parties agree that petitioner is liable for self-employment taxes if we find that he had unreported income in we have so found thus petitioner is liable for self- employment_taxes under sec_1401 nutritional information system around petitioner began developing a nutritional information system that he called the food store petitioner envisioned nutritional information stored in a computer to help grocery shoppers select food based on its nutritional value initially petitioner intended to feature the nutritional information system in his own natural foods store petitioner abandoned the idea of opening his own store and instead focused on the nutritional information system petitioner paid the firm of nordli wilson to help him locate compatible business associates in sharon akabas akabas a nutritionist recommended by nordli wilson helped petitioner develop the nutritional information needed for his system akabas has a doctorate in nutrition and exercise physiology and she served as an adjunct professor at the university of bridgeport connecticut while she consulted with petitioner akabas attempted to simplify nutritional data contained in a database managed by the u s department of agriculture petitioner and akabas attended conferences related to nutrition or nutritional data banks petitioner and akabas had no written contract petitioner also consulted with paul voiland voiland and steve hendricken hendricken during the development of the nutritional system petitioner advertised for a manager in a natural foods store and voiland responded voiland had worked in the natural food business for years with experience in retail wholesale and production he advised petitioner about natural food stores how they are set up and the types of products sold in them voiland also drafted and modified store floor plans for petitioner hendricken helped petitioner prepare a business plan petitioner had no written contract with either voiland or hendricken petitioner compiled a notebook titled the food comparison machine with a copyright date of the notebook explains petitioner's nutritional information system petitioner reported on schedules c of his federal_income_tax returns the following expenses for the food store supplies legal and professional fees dues and publications meals and entertainment travel utilities rent or lease dollar_figure dollar_figure big_number dollar_figure big_number dollar_figure dollar_figure dollar_figure big_number dollar_figure total big_number dollar_figure petitioner reported no gross_receipts or sales for the food store in or petitioner contends that his expenditures related to the nutritional information system are deductible pursuant to sec_174 as computer_software developmental costs petitioner must prove that he is entitled to the claimed deductions rule a 290_us_111 research or experimental expenses for purposes of sec_174 are research and developmental costs in the experimental or laboratory sense 41_tc_582 affd 357_f2d_209 5th cir respondent acknowledges that the cost of developing computer_software may qualify as research and experimental expenses petitioner contends that expenditures_for utilities and rent or lease relate to the business use of his home petitioner's wife testified that one room in their home was petitioner's office we have insufficient evidence regarding the portion of petitioner's home used for business purposes and he offered no evidence regarding the hours spent at his home for business purposes or the business activities performed at his home we find that petitioner has not substantiated the expenditures related to the business use of his home we sustain respondent's determination as to these items petitioner has shown that the remaining expenditures he reported on the schedules c were associated with the food store and we now turn to whether they are deductible pursuant to sec_174 petitioner paid consulting fees to voiland hendricken and akabas voiland testified that he advised petitioner about natural foods stores how they are set up and the types of products sold in them voiland's advice included drawing and modifying floor plans for a natural foods store hendricken helped petitioner prepare a business plan we find that these activities did not relate to the development of computer_software akabas testified that she reviewed the scientific literature on various nutritional issues translated the literature into laypersons' terms decided how to deliver nutritional information to the consumer gathered nutritional information on various food products reviewed several newsletters and journals related to nutrition used her contacts at large corporations to obtain nutritional information on their products reviewed computer magazines and manuals and organized a group of college students to test petitioner's system akabas also attempted to simplify nutritional data contained in a database managed by the u s department of agriculture petitioner and akabas attended conferences related to nutrition or nutritional data banks nothing in the record indicates that akabas' activities were research in the experimental or laboratory sense or constituted the development of computer_software the documents submitted in evidence do not show that petitioner ever developed any computer_software petitioner submitted five letters he received from various grocery executives relating to the nutritional system one letter was written in and four were written in the various executives refer to petitioner's demonstration notebook proposal program and writeup petitioner submitted a notebook titled the food comparison machine which explains petitioner's system we presume the pages in the notebook illustrate what would appear on a computer screen but we find that these illustrations do not qualify as the development of computer_software petitioner submitted a letter from an attorney dated date the topic of which is the patentability of petitioner's system nothing in the letter indicates that petitioner was developing computer_software in or we presume that some of the nutritional information culled by akabas found its way into the notebook titled the food comparison machine nonetheless petitioner provided no evidence coupling the various expenditures to any research or experiment in nutritional science or computer_software in or petitioner repeatedly described his activities as the development of computer_software however the record does not support petitioner's characterization of his activities and his subjective belief is not determinative see mayrath v commissioner supra pincite we conclude that the expenditures are not deductible as research or experimental expenses under sec_174 accordingly it is unnecessary to consider whether they were in connection with a trade_or_business or whether a proper election was made we sustain respondent's determination additions to tax under sec_6651 respondent determined an addition_to_tax under sec_6651 for each year in issue asserting that petitioner failed to file timely a federal_income_tax return petitioner's and federal_income_tax returns were due on date and date respectively petitioner filed his federal_income_tax return on date and he filed his federal_income_tax return on date petitioner presented no evidence to show that the untimely filings were due to reasonable_cause and not due to willful neglect we sustain respondent's determination that petitioner is subject_to an addition_to_tax under sec_6651 in each year negligence addition_to_tax and penalty respondent determined that petitioner is liable for an addition_to_tax under sec_6653 for the taxable_year and that petitioner is liable for a penalty under sec_6662 for the taxable_year sec_6653 imposes an addition_to_tax equal to percent of the underpayment if any part of the underpayment is attributable to negligence sec_6662 imposes a penalty equal to percent of the portion of the underpayment which is attributable to negligence negligence is defined as the lack of due care or the failure to do what a prudent person would do under the circumstances marcello v commissioner 380_f2d_499 5th cir affg in part and remanding in part 43_tc_168 85_tc_934 petitioner must prove that the negligence addition_to_tax and the penalty do not apply 58_tc_757 failure to keep adequate_records is some evidence of negligence marcello v commissioner supra pincite 73_tc_980 petitioner did not maintain adequate_records regarding the funds disbursed to or received from finnimore petitioner argues that he loaned funds to finnimore yet none of the advances carried the indicia of a loan petitioner offered no evidence connecting his nutritional system to computer_software or any other research or experiment petitioner deducted items for the business use of his home but he failed to produce evidence supporting the deductions we conclude that the underpayments for the taxable years and are attributable to negligence addition_to_tax under sec_6661 respondent determined that petitioner is liable for an addition_to_tax under sec_6661 for the taxable_year sec_6661 provides for an addition_to_tax equal to percent of the amount of any underpayment attributable to a substantial_understatement_of_income_tax 90_tc_498 an understatement is substantial if it exceeds the greater of dollar_figure or percent of the tax required to be shown on the return sec_6661 the amount of the understatement may be reduced under sec_6661 for amounts adequately disclosed or supported by substantial_authority respondent's determination of the addition_to_tax is presumed correct and petitioner must prove otherwise rule a hall v commissioner 729_f2d_632 9th cir affg tcmemo_1982_337 bixby v commissioner supra pincite petitioner makes no argument with regard to substantial_authority or adequate_disclosure and we find that no such argument exists if recomputation of petitioner's tax_liability reflects a substantial_understatement petitioner is liable for the addition_to_tax to reflect the foregoing and the concessions by the parties decision will be entered under rule appendix date check number ticket expense ticketline account feb feb mar mar mar mar mar mar apr apr may june june july july aug sept sept dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number total big_number date check number ticket expense todge trust account feb feb june aug sept oct dollar_figure big_number big_number big_number big_number big_number total big_number date check number ticket expense equity credit line july july aug aug aug sept sept nov dec dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number total big_number ulc account date jan check number ticket expense dollar_figure


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division au6 uniform issue list legend taxpayer a employer plan x amount amount amount amount4 amount dear this is in response to your request dated april10 as supplemented by correspondence dated date from your authorized representative in which you page request a waiver of the 60-day rollover requirement contained in sec_402 of the internal_revenue_code the code the following facts and representations have been submitted under penalties of perjury in support of the ruling requested taxpayer a represents that she received a distribution from plan x totaling amount taxpayer a represents that she timely rolled over amount from the distribution but could have rolled over amount in addition to amount taxpayer a asserts that her failure to accomplish a rollover of amount within the 60-day period prescribed by sec_402 of the code was due to plan x's failure to provide the required rollover notice under sec_402 f notice taxpayer a asserts that since she did not have the f notice information she miscalculated the taxable_portion of amount and therefore failed to roll over amount taxpayer a further represents that amount has not been used for other purposes taxpayer a represents that she retired from employment with employer bat the end of date with a monthly annuity under plan x taxpayer a elected the option to be paid a one-third lump sum distribution of her plan x retirement benefit and on date received amount as the one-third lump sum taxpayer a submitted as part of her ruling_request a plan x publication that describes the plan and its retirement benefit provisions the publication states that plan x is a qualified_plan under sec_401 a of the code taxpayer a represents that she did not receive a written notice to recipients of distributions eligible for rollover treatment as required under sec_402 of the code taxpayer a represents that her plan x benefit included both her own and employer b's contributions and thus included some after-tax contributions taxpayer a intended to make a rollover_contribution of the taxable_portion of amount taxpayer a received a letter dated date from plan x informing her that her own contributions to plan x amounted to amount taxpayer a subtracted amount from amount to determine what she thought was the taxable_portion of the distribution she represents that she rolled over a total of amount to two separate individual_retirement_accounts iras within the 60-day rollover period on date taxpayer a received a statement of taxable earnings listing amount the sum of amount and amount as the taxable_portion of her distribution taxpayer a contacted plan x and learned that her calculation of the taxable_portion of the distribution had been in error and that she had not rolled over all of the taxable_portion of the amount as she had intended based on the facts and representations you request a ruling that the internal_revenue_service the service waive the 60-day rollover requirement contained in sec_402 of the code with respect to the distribution of amount page sec_402 of the code provides that if any portion of the balance_to_the_credit of an employee in a qualified_trust is paid to the employee in an eligible_rollover_distribution and the distributee transfers any portion of the property received in such distribution to an eligible_retirement_plan and in the case of a distribution_of_property other than money the amount so transferred consists of the property distributed then such distribution to the extent transferred shall not be includible in gross_income for the taxable_year in which paid sec_402 states that such rollover must be accomplished within days following the day on which the distributee received the property an ira constitutes one form of eligible_retirement_plan sec_402 of the code provides that an eligible_rollover_distribution means any distribution to an employee of all or any portion of the balance_to_the_credit of the employee in a qualified_trust but shall not include any distribution which is one of a series of substantially equal payments not less frequently than annually based on the life or life expectancy of the employee or the joint lives or life expectancies of the employee and beneficiary or for a specified period of years or more a distribution required under sec_401 a of the code or a hardship_distribution sec_402 of the code provides that in the case of any eligible_rollover_distribution the amount transferred may include the portion of such a distribution which is not includible in gross_income determined without regard to a rollover under sec_402 to the extent a such portion is transferred in a direct trustee-to-trustee transfer to a qualified_trust or to an annuity_contract described in sec_403 of the code and such trust or contract provides for separate_accounting for amounts so transferred and earnings thereon including separately accounting for the portion of such distribution which is includible in gross_income and the portion of such distribution which is not so includible or b such portion is transferred to an eligible_retirement_plan described in clause i or ii of sec_402 which includes an ira in the case of a transfer described in sec_402 or b the amount transferred shall be treated as consisting first of the portion of such distribution that is includible in gross_income determined without regard to sec_402 sec_401 a of the code provides the rules for governing direct transfers of eligible rollover distributions sec_1_401_a_31_-1 q a-15 of the income_tax regulations regulations provides in relevant part that an eligible_rollover_distribution that is paid to an eligible_retirement_plan in a direct_rollover is a distribution and rollover and not a transfer of assets and liabilities sec_402 of the code provides for a written explanation to recipients of distributions eligible for rollover treatment sec_402 provides in pertinent part that the plan_administrator of any plan shall within a reasonable period of time before making an eligible_rollover_distribution provide a written explanation to the recipient of page4 the provisions under which the recipient may have the distribution directly transferred to an eligible_retirement_plan and of the provisions under which the distribution will not be subject_to tax if transferred to an eligible_retirement_plan within days after the date on which the recipient received the distribution sec_1_402_f_-1 q a-1 of the regulations provides in part that the sec_402 notice must explain the rules under which the distributee may elect that the distribution be paid in the form of a direct_rollover to an eligible_retirement_plan the rules that require the withholding of tax on the distribution if it is not paid in a direct_rollover the rules under which the distributee may defer tax on the distribution if it is contributed in a rollover to an eligible_retirement_plan within days of the distribution and if applicable certain special rules regarding the taxation of the distribution as described in sec_402 averaging with respect to lump sum distributions and e other rules including treatment of net_unrealized_appreciation notice_2009_68 2009_39_irb_423 date provided a safe_harbor f notice which in part would notify employees about allocating after-tax contributions in the event of a partial_distribution sec_402 of the code provides in relevant part that the secretary may waive the 60-day requirement under sec_402 where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_402 revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_402 of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer a are consistent with her assertion that her failure to accomplish a timely rollover was caused by plan x's failure to provide notice as required by sec_402 of the code taxpayer a represents that she intended to roll over only a portion of the eligible_rollover_distribution to an ira as allowed under sec_402 of the code and that the amount intended to be rolled over was the taxable_portion of the distribution under sec_402 such a partial_rollover is treated as consisting first of the portion of such distribution that is includible in gross_income taxpayer a asserts that the taxable_amount was amount the sum of amount and amount but she did not roll over amount because plan x did not issue her a f notice alerting her to the method for determining the taxable_portion of amount during the 60-day rollover period as a -- - -- -- - - pages result she miscalculated the taxable_portion and failed to roll over the full taxable_amount as she intended therefore pursuant to sec_402 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount from plan x taxpayer a is granted a period of days from the issuance of this ruling letter to contribute amount into an ira provided all other requirements of sec_402 of the code except the 60-day requirement are met with respect to such contribution the contribution of amount will be considered a rollover_contribution within the meaning of sec_402 of the code this ruling does not authorize the rollover of amounts that are required to be distributed by sec_401 a of the code no opinion is expressed as to the tax treatment of the transaction described in this ruling under the provisions of any other section of either the code or regulations which may be applicable this letter 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 pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative if you wish to inquire about this ruling please contact id at se t ep ra t1 please address all correspondence to sincerely yours c tvt1hw a- 1jj o1k nsj carlton a watkins manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose cc


department of the treasury internal_revenue_service te_ge eo examinations commerce street dallas tx tax_exempt_and_government_entities_division date release number release date uil code legend org organization name org address xx date address address uil 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 october 20xx dear a final revocation letter as this is to your exempt status under sec_501 of the internal_revenue_code the internal revenue service’s recognition of your organization as an organization described in sec_501 is hereby revoked effective january 20xx we have made this determination for the following reasons are you operated exclusively not demonstrated that you have for charitable educational or other exempt purposes within the meaning of sec_501 you failed to comply with the conditions of your exemption in that you did not file forms or respond to repeated reasonable requests to allow the internal_revenue_service to examine your books records and activities you have provided no information showing that you conduct a real and substantial charitable program as such you failed to meet the requirements of sec_501 and sec_1_501_c_3_-1 in that you failed to establish that you were operated exclusively for an exempt_purpose contributions to your organization are no longer deductible under sec_170 of the internal_revenue_code _2- you ate 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 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 advocate from the site where the tax_deficiency was determined by calling or write or you can contact the taxpayer 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_6104 of the internal_revenue_code if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours marsha a ramirez director eo examinations schedule number or exhibit ae ea explanations of items name of taxpayer org tax identification_number year period ended legend org motto motto organization name co-1 xx company issue_date xyz state president president whether the organization known as org hereinafter referred to as org has operated exclusively for sec_501 purposes and if not whether their exempt status should be revoked facts the organization org was incorporated in the state of xyz on february 20xx the internal_revenue_service hereinafter referred to as irs or service’ sent org letter dated july 20xx which granted org tax-exempt status as an organization exempt from income_tax under internal_revenue_code hereinafter referred to as irc or code sec_501 as an organization described in sec_501 because org was a newly created organization the irs did not make a final_determination regarding the organization’s foundation status under sec_509 of the code instead they were granted an advance_ruling period in which they would be treated as a publicly_supported_organization under sec_509 further defined under b a vi the advance_ruling period began february 12' 20xx and ended december 20xx contributions to the organization were deductible to the donor as provided under sec_170 of the code during the application_for exemption process org was requested to provide a detailed narrative description of the services they will provide in which they responded as follows we intend to provide the public motto services motto services motto services motto services motto services motto services fostering international amateur sports competition motto services in addition the organization submitted information that stated org is an international non-profit help organization dedicated to providing consumer protection services alternative methods of debt reduction financial situation negotiations fair debt collections practices act fair credit reporting act the organization listed the following our services - advice credit cards credit report bill collections calling bankruptcy alternatives consolidation consumer education financial relief debt reduction negotiating balances this case was transferred from the exempt_organization compliance unit seocu the eocu referred org for field_examination as they were unable to verify the activities of the organization during a compliance check the eocu made contact with president the president of org in an attempt to gather information in order to verify exempt_activities president was sent form requesting information related to their activities and the current operating status of the organization form was completed form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit an explanations of items naine of taxpayer tax identification_number year period ended org and signed by president on march 31‘ 20xx president indicated that the organization was not required to file form_990 as they were inactive and became inactive on january of 20xx in addition president included the following statement organization was under an injunction filed by co-1 as a result we were unable to conduct credit counseling for years i the president maintained the website po box operation sic until 20xx the internal revenue_agent agent was assigned org for field_examination on february 20xx the agent attempted to contact the organization starting april of 20xx telephone numbers listed on the website for the organization were either incorrect or disconnected in addition telephone numbers initially secured_by the eocu were no longer in service on may 20xx the irs sent the organization correspondence letter publication and form_4546 - information_document_request informing the organization of the examination and requesting they contact the agent this correspondence was sent via the united_states postal service usps certified mail - return receipt requested the agent performed additional research in which another address for org different from the address on file with the service was secured the agent sent correspondence to this address on june 11' 20xx both correspondence sent to the organization were returned by the usps on june 20xx as either unclaimed unable to forward or moved - left no address form 4759-post office tracer was submitted to the usps requesting the address of the individual that established the post office box for org the usps provided the name of the post office box applicant as president and his contact information this address agrees with the last address on file with the service for president the irs sent correspondence certified mail to president on august 20xx requesting he contact the agent in charge of the examination the irs received ps form_3811 - domestic return receipt verifying delivery of correspondence sent august 20xx to president address on august 20xx as of september of 20xx the service has not been contacted by president the state of xyz department of as forfeit ending december 20xx since they were granted exemption taxation’s website lists the organizations current status internal irs documents indicate the organization has only filed form_990 for tax period the organization has filed no other federal returns eg 941’s etc law sec_501 exempts from federal_income_tax corporations and any community chest fund or foundation organized and operated exclusively for religious charitable scientific testing for public safety literay or educational_purposes or to foster national or international amateur sports competition but only if no part of its activities involve the provision of athletic_facilities or equipment or for the prevention of cruelty to children or animals no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual no substantial part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation except as otherwise provided in subsection i and which does not participate in or intervene in including the publishing or distributing of statements any political campaign on behalf of any candidate for public_office form 886-a catalog number 10w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit naine of taxpayer tax identification_number year period ended form 886-a rev date org explanations of items the dual test organized and operated sec_501 requires an organization to be both organized and operated exclusively for one or more sec_501 purposes if the organization fails either the organizational_test or the operational_test it is not exempt reg c -1 a the organizational_test concerns the organization’s articles of organization or comparable governing document the operational_test concerns the organization’s activities a deficiency in an organization’s governing document cannot be cured by the organization’s actual operations likewise an organization whose activities are not within the statute will not qualify for exemption by virtue of a well written charter reg c -1 b iv operational_test sec_1_501_c_3_-1g defines appropriate exempt purposes an organization may be exempt as an organization described in sec_501 if it is organized and operated exclusively for one or more of the following purposes religious charitable scientific testing for public safety literary educational fostering national or international sports competition but only if no part of its activities involve the provision of athletic_facilities or equipment prevention of cruelty to children or animals reg c -1 c provide that an organization 1s operated exclusively for charitable purposes only if it engages primarily in activities that accomplish those purposes in above it is not so operated if more than an insubstantial part of its activities do not further those purposes meaning of operated exclusively the meaning of the term ‘exclusively’ as used in the statutes is no longer open to debate in 326_us_279 66_sct_112 90_led_67 the supreme court in giving effect to sec_811 of the social_security act in terms substantially the same as sec_501 of int rev code made this pronouncement tn this instance in order to fall within the claimed exemption an organization must be devoted to educational_purposes exclusively this plainly means that the presence of a single non educational purpose if substantial in nature will destroy the form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit ho explanations of items tax identification_number year period ended name of taxpayer org exemption regardless of the number or importance of truly educational_purposes u s pincite s ct pincite 90_led_67 see also 190_f2d_738 302_f2d_934 cert_denied 372_us_976 83_sct_1109 10_led_141 285_f2d_800 cert_denied the most liberal of constructions does not mean that statutory words and phrases are to be given unusual or tortured meanings unjustified by legislative intent or that express limitations on exemption are to be ignored see 326_us_279 66_sct_112 furthermore sec_1_501_c_3_-1 provides that an organization is not operated exclusively for one or more exempt purposes if its net_earnings inure in whole or in part to the benefit of private shareholders or individuals public v private purposes reg c -1 d ii provide that to meet the operational_test an organization must be engaged in activities furthering public purposes rather than private interests it must not be operated for the benefit of designated individuals or the persons who created it the purposes specified in sec_501 pertaining to this particular organization which are all public purposes are separately analyzed below in order to establish that it meets the first criterion of the operational_test for tax-exempt status e that it is operated exclusively for exempt purposes an organization must prove that it is operated for a public purpose rather than for benefit of private interests such as those of its creator or his family shareholders or designated individuals presence of a single nonexempt purpose if substantial in nature will destroy the exemption 765_f2d_1387 c a charitable organizations reg c -1 d provide that the term charitable is used in sec_501 in its generally accepted legal sense and includes relief of the poor and distressed or of the underprivileged advancement of religion advancement of education or science erection or maintenance of public buildings monuments or works lessening of the burdens of government promotion of social welfare educational purpose sec_1 an organization that is organized and operated exclusively for educationalpurposes qualifies for exemption under sec_501 the regulations under reg c -1 d i define education as form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit ie explanations of items name of taxpayer tax identification_number year period ended org e e the instruction or training of the individual for the purpose of improving or developing his capabilities the instruction of the public on subjects useful to the individual and beneficial to the community burden_of_proof the court in 510_us_870 mem u s cited a long line of authority holding that the applicant bears the burden of showing it is entitled to exemption in 505_f2d_1068 6th cir the court stated that i ncome tax exemption must be strictly construed with any doubts to be resolved in favor of the taxing entity consequently determinations of the commissioner are presumed correct s ct similarly the court cited welch v helvering 190_us_111 and modern cases following its stricture that p laintiff thus bears the burden of proving its entitlement to an exemption see_also v commissioner 670_f2d_104 bubbling well church of universal love inc 9th cir 588_fsupp_693 d d c the tax_court has consistently stated that a statute creating an exemption must be strictly construed and any doubt must be resolved in favor of the taxing power harding hospital inc v united_states of america f2d a f t r 2d ustc taxpayer’s position the taxpayer’s position is unknown as the service has been unable to contact org or any of its officers despite several attempts service position the issue affecting tax exempt status of org is the operational_test exempt status under sec_501 is a privilege as opposed to a right an organization granted tax-exempt status under sec_501 maintains the responsibility for substantiating continued eligibility for recognition thereunder organizations seeking to obtain or maintain tax-exempt status under sec_501 must meet two basic tests such organizations must be both organized and operated for sec_501 purposes the organizational_test is not being questioned at this juncture in st david's health care sy349_f3d_232 c a tex to pass the operational_test for tax-exempt status purported charitable_organization must show that it engages primarily in activities which accomplish its exempt_purpose its net_earnings do not inure to benefit of private shareholders or individuals it does not expend substantial part of its resources attempting to influence legislation or form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service explanations of items schedule number or exhibit ree ese a name of taxpayer org political campaigns and it serves valid purpose and confers public benefit failure to satisfy any one of these requirements will result in denial of tax exemption church of visible intelligence that governs the universe v u s cl_ct cl_ct tax identification_number year period ended according to a written_statement submitted by the president of the organization org became inactive in january of 20xx he further stated the organization was unable to perform credit counseling due to an injunction filed against them by co-1 the written_statement submitted to the eocu provided no details regarding any activities instead it appears the organization was forced to become inactive from 20xx to 20xx due to an injunction filed by co-1 despite several attempts the service has been unable to secure information necessary for the examination no information other then information from a website could be obtained that would evidence or substantiate any exempt_function activities engaged in for the year under examination an organization must carry on exempt_function activities in order to be entitled to continued recognition of tax-exempt status under sec_501 c i-e dormant organizations are not entitled to such exempt status as they cannot meet the operational_test in 144_fsupp_74 the courts found an organization was not exempt due to the following e e the exempt_organization freidland failed to formulate and design a meaningful charitable program one having a definite functional objective ergo the accumulation of profits during this time was deemed unreasonable as no charitable purpose was identified in 316_f2d_151 the third circuit confronted with the same problem affirmed the district court's holding in friedland case supra f_supp pincite and also made the following general pronouncement mindful of these principles we are impelled to conclude that the tax_court here correctly decided that the accumulations were unreasonable within the meaning of the statute several salient facts stand out foundation did not have a concrete or definite charitable program requiring the accumulation of a large percentage of its income under its corporate charter foundation possessed broad charitable powers but the fact remains that it failed to formulate and design a meaningful charitable program one having a definite functional objective revrul_59_95 and cumulative bulletin page prescribes that failure or inability to comply with the provision of sec_6033 of the code and the regulations which implement it may result in the termination of the exempt status of an organization on the grounds that the organization has not established that it is observing the conditions required for the continuation of its exempt status an exemption is an exception to the norm of taxation an organization which seeks to obtain tax exempt status therefore bears a heavy burden to prove that it satisfies all the requirements of the exemption statute form 886-a catalog number 20810w -page_- publish no irs gov department of the treasury-internal revenue service schedule number or extiibit form 886-a rev date explanations of items tax identification_number name of taxpayer org the supreme court repeatedly has said that exemptions from taxation are not granted by implication see eg mescalero apache tribe v jones 93_sct_1267 36_led_114 and authorities therein cited the tax_court has stated consistently that ‘ a statute creating an exemption must be strictly construed and any doubt must be resolved in favor of the taxing power ’ american automobile t c association _v commissioner of cleveland _v commissioner 7_tc_1449 associated industries year period ended u s conclusion organizations seeking to obtain or maintain tax-exempt status under sec_501 must meet two basic tests these organizations must be both organized and operated for sec_501 purposes due to the lack of exempt_function activities we have concluded that the organization known as org has failed the operational_test it is the internal revenue service’s position that exemption under internal_revenue_code sec_501 should be revoked as of january ' 20xx form 886-a catalog number 20810w -page__7 publish no irs gov department of the treasury-internal revenue service ue ea government entities division org address department of the treasury internal_revenue_service tege eo examination hopkins plaza - room baltimore md date 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 exempt status under sec_501 of the internal_revenue_code code is necessary if you accept our findings take no further action we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision your protest should include a statement of the facts the applicable law and arguments in support of your position an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process you may also request that we refer this matter for technical_advice as explained in publication if we issue a determination_letter to you based on technical_advice no further administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice letter catalog number 34809f if we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notify the appropriate state officials of the revocation in accordance with sec_6104 of the code you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter the most convenient time to call if we need to contact you if you write please provide a telephone number and thank you for your cooperation enclosures publication publication report of examination sincerely marsha a ramirez director eo examinations letter catalog number 34809f