department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division unihersy ltd bi of- 7p ygyl o30 gf yeh daie dec contact person identification_number telephone number t ba employer_identification_number - o i o e z o v o d n e w o t u o t x dear sir or madam we have considered m’s ruling_request dated date wherein m seeks approval of a proposed set-aside of funds in the amount of dollar_figurex to be treated as qualifying distributions under sec_4942 of the internal_revenue_code for its taxable_year ending date m is exempt from federal_income_tax as an organization described in sec_501 of the code it has also been classified as a private_foundation within the meaning of sec_509 m has approved a dollar_figurex challenge grant grant’ to n the largest private_institution of n serves over 20x students through a wide variety of higher education in the city of o p educational programs and services at both the graduate and undergraduate levels the matching funds in the set-aside request are a specific component of a larger multi-year grant in excess of dollar_figurex containing both the endowment challenge and program support m has a long history of developing challenge grants and strategic support initiatives for educationa programs under its educational support m has established a focus on entrepreneurship beginning in m established a series of entrepreneurship chairholders and professorships at five q colleges and universities the number of m funded education positions has grown to twelve m has also provided single and multi-year program support grants on a national level to colleges universities and a national educators organization dedicated to developing and promoting entrepreneurship education program development has extended beyond campus programs now also actively involve community business owners positively impacting economic development within some of o's underserved communities m has been providing program endowment and specialized scholarship support to n for over years to effect progressive growth particularly in the entrepreneurship program initial grants focused on raising student awareness which led to the establishment of an endowed chair of entrepreneurship in and the development and expansion of specialized curricula subsequent grants focused on specific projects additional curriculum development faculty and student conference support as well as educational support programs for community small_business owners other grants endowed need-based academic scholarships for hispanic undergraduate students and provided capital support for the bookstore the grant which is the subject of the set-aside request is the largest and most comprehensive grant made by m to n these funds will establish r an academic center devoted to entrepreneurship in an identified college of n m's objective is to launch r and to help raise an additional dollar_figurex for an endowment to sustain r’s programs r represents a new phase in the entrepreneurship program of n by going beyond the academic program to offer mentoring consultation and direct practice experience for students alumni and community business owners the grant is a five-year grant containing both program and matching support to create and launch the r programs and to establish an endowment that will enable r to be self-sustaining at the end of the grant period the grant provides funds in two parallel distributions that work in tandem to create the program and the endowment the operating portion not a part of this set-aside request provides working funds for launch and program delivery during the initial five years of r operations during that period m will provide annual operating funds m views the two grant components as strategically linked and has completed this agreement with n on that basis the set-aside request focuses on the endowment portion of the grant which will seed the needed dollar_figurex endowment by providing a dollar-for-dollar challenge of up to dollar_figurex these funds will be distributed as matched by other funds secured_by r the agreement requires that m distribute these matching funds only on the basis of actual new donations received and not as pledged support this will assure that actual hard-dollar support is available the president of m states his intention to complete the grant to n within the prescribed five-year set-aside period and to hopefully encourage the completion in less time m's trustees believe that a set-aside will boost n’s promotional efforts and the challenge value of the grant help assure the availability of funds and provide the flexibility to accelerate payouts during the program period sec_4942 of the code imposes on the undistributed_income_of_a_private_foundation for any taxable_year which has not been distributed before the first day of the second or any succeeding taxable_year following such taxable_year if such first day falls within the taxable_period a tax equal to percent of the amount of such income remaining undistributed at the beginning of such second or succeeding taxable_year sec_4942 defines the term ndistributed income as the amount by which the distrioutable amount for such taxable_year exceeds the qualifying distributions made before such time out of such distributable_amount sec_4942 of the code provides that the term distributable_amount means with respect to any foundation for any taxable_year an amount equal to the sum of the minimum_investment_return plus the amounts described in subsection f c reduced by the sum of the taxes imposed on such private_foundation for the taxable_year under subtitle a and sec_4940 sec_4942 of the code defines a qualifying_distribution as a any amount_paid to accomplish one or more purposes described in sec_170 other than any contribution to i an organization controlled by the foundation or one or more disqualified persons or ii a private_foundation which is not an operating_foundation except as otherwise provided or b any amount_paid to acquire an asset used directly in carrying out one or more purposes described in sec_170 sec_4942 of the code provides that for all taxable years beginning on or after date an amount set_aside for a specific project which comes within one or more purposes described in sec_170 may be treated as a qualifying_distribution if the requirements of subparagraph b of sec_4942 it meets sec_4942 of the code provides that an amount set_aside for a specific project may be treated as a qualifying_distribution if at the time of the set-aside the foundation establishes to the satisfaction of the secretary that the amount will be paid for the specific project within five years and the project is one which can be better accomplished by such set- aside rather than by immediate payment of funds the suitability test’ sec_53_4942_a_-3 of the foundation and similar excise_taxes regulations provides that an amount set_aside for a specific project that is for one or more of the purposes described in sec_170 or b of the code may be treated as a qualifying_distribution in the year in which set_aside if the requirements of that section and sec_4942 are satisfied the foundation must establish that the amount set_aside will be paid for the specific project within months after it is set_aside and the set-aside satisfies the suitability test or the foundation satisfies the cash distribution test sec_53_4942_a_-3 of the regulations provides that the suitability test is satisfied if the foundation establishes that the specific project is one in which relatively long-term grants or expenditures must be made in order to assure the continuity of particular charitable projects or program-related investments matching grant programs are specifically mentioned the proposed set-aside for m's taxable_year ending date is in furtherance of m's charitable purposes itis a continuation of m’s earlier funding of educational programs but particularly in the field of entrepreneurship the grant described above is the largest one which m has furnished to n and will help establish r an academic center devoted to the promotion of business entrepreneurship it is characterized as an endowment the challenge nature of the grant should serve to enhance n’s promotional efforts the set-aside will also complement the furnishing by m of substantial operating funds to help get r off the ground finally the president of m states his intention to hopefully complete the payout of set-aside funds in less than the prescribed five-year period based on the foregoing we rule that the set-aside of big_number dollars on m’s books_and_records for its taxable_year ending date satisfies the requirements of sec_4942 of the code and sec_53_4942_a_-3 of the regulations the suitability accordingly the proposed set-aside may be treated as qualifying distributions for m's test’ taxable_year ending date we direct your attention to sec_53_4942_a_-3 of the regulations entitled evidence of set-aside this section provides that a set-aside approved by the internal_revenue_service shall be evidenced by the entry of a dollar amount on the books_and_records of a private_foundation as a pledge or obligation to be paid at a future date or dates further any amount which is set_aside shall be taken into account for purposes of determining the foundation’s minimum_investment_return see sec_53_4942_a_-2 and any income attributable to such set-aside shall be taken into account in computing adjusted_net_income see sec_53_4942_a_-2 this ruling is based on the understanding that there will be no material changes in the facts upon which itis based any changes that may have a bearing upon your tax status should tax exempt and government entities te_ge customer service office be reported to the which deals with exempt_organizations matters the mailing address is internal_revenue_service te_ge customer service p o box we are sending a copy of this ruling to the help resolve any questions about your tax status you should keep it with your permanent records te_ge office because this letter could if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this jetter this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as precedent thank you for your cooperation sincerely got cl leto joseph chasin acting manager exempt_organizations technical group


tax_exempt_and_government_entities_division number release date uil department of the treasury internal_revenue_service tege eo examinations mail stop dal commerce st dallas texas date date taxpayer_identification_number person to contact employee identification_number employee telephone number certified mail - return receipt dear this is a final adverse determination regarding your exempt status under sec_501 of the internal_revenue_code our favorable determination_letter to you dated july 20xx is hereby revoked and you are no longer exempt under sec_501 of the code effective january 20xx the revocation of your exempt status was made for the following reason s organizations described in sec_501 and exempt under sec_501 must be both organized and operated exclusively for exempt purposes your activities consist of activities that generally promote social welfare and recreational purposes these activities are not inherently educational or charitable by themselves under sec_501 an organization cannot be recognized as exempt under sec_501 unless it shows that it is both organized and operated exclusively for charitable educational or other exempt purposes thus you failed to meet the operational_test of sec_501 contributions to your organization are no longer deductible under sec_170 after january 20xx you are required to file income_tax returns on form_1120 these returns should be filed with the appropriate service_center for the tax_year ending december 20xx and for all tax years thereafter in accordance with the instructions of the return processing of income_tax returns and assessments 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 under the declaratory_judgment provisions of sec_7428 of the code a petition to the united_states tax_court the united_states claims_court or the district_court of the united_states for the district of columbia must be filed before the day after the date this determination was mailed to you please contact the clerk of the appropriate court for rules regarding filing petitions for declaratory judgments by referring to the enclosed publication you may write to the united_states tax_court at the following address united_states tax_court second street nw washington dc you also have the right to contact the office_of_the_taxpayer_advocate the taxpayer_advocate_service tas is an independent organization within the irs that can help protect your taxpayer rights tas can offer you help if your tax problem is causing a hardship or you've tried but haven't been able to resolve your problem with the irs if you qualify for tas assistance which is always free tas will do everything possible to help you visit taxpayeradvocate irs gov or call if you prefer you may contact your local taxpayer_advocate at internal_revenue_service office_of_the_taxpayer_advocate if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely mary a epps acting director eo examinations enclosures publication i department of the treasury internal_revenue_service irs tax exempt and government entities exempt_organizations examinations nt taxpayer identification ification number number form tax_year s ended person to contact id number contact numbers telephone fax manager's name id number manager's contact number response due_date certified mail - return receipt requested dear why you are receiving this letter we propose to revoke your status as an organization described in sec_501 of the internal_revenue_code code enclosed is our report of examination explaining the proposed action what you need to do if you agree if you agree with our proposal please sign the enclosed form_6018 consent to proposed action - sec_7428 and return it to the contact person at the address listed above unless you have already provided us a signed form we'll issue a final revocation letter determining that you aren't an organization described in sec_501 after we issue the final revocation letter we'll announce that your organization is no longer eligible for contributions deductible under sec_170 of the code if we don't hear from you if you don’t respond to this proposal within calendar days from the date of this letter we'll issue a final revocation letter failing to respond to this proposal will adversely impact your legal standing to seek a declaratory_judgment because you failed to exhaust your administrative remedies effect of revocation status if you receive a final revocation letter you'll be required to file federal_income_tax returns for the tax_year s shown above as well as for subsequent tax years what you need to do if you disagree with the proposed revocation letter rev catalog number 34809f if you disagree with our proposed revocation you may request a meeting or telephone conference with the supervisor of the irs contact identified in the heading of this letter you also may file a protest with the irs appeals_office by submitting a written request to the contact person at the address listed above within calendar days from the date of this letter the appeals_office is independent of the exempt_organizations division and resolves most disputes informally for your protest to be valid it must contain certain specific information including a statement of the facts the applicable law and arguments in support of your position for specific information needed for a valid protest please refer to page one of the enclosed publication how to appeal an irs decision on tax-exempt status and page six of the enclosed publication the examination process publication also includes information on your rights as a taxpayer and the irs collection process please note that fast track mediation referred to in publication generally doesn’t apply after we issue this letter you also may request that we refer this matter for technical_advice as explained in publication please contact the individual identified on the first page of this letter if you are considering requesting technical_advice if we issue a determination_letter to you based on a technical_advice_memorandum issued by the exempt_organizations rulings and agreements office no further irs administrative appeal will be available to you contacting the taxpayer_advocate office is a taxpayer right you have the right to contact the office_of_the_taxpayer_advocate their assistance isn't a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate can't reverse a legally correct_tax determination or extend the time you have fixed by law to file a petition in a united_states court they can however see that a tax matter that hasn't been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at internal_revenue_service office_of_the_taxpayer_advocate letter rev catalog number 34809f for additional information if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation sincerely margaret von lienen director eo examinations enclosures report of examination form_6018 publication publication letter rev catalog number 34809f schedule number or exhibit form 886-a rev date name of taxpayer 20xx tax identification_number year period ended explanations of items issues does exemption under sec_501 if it’s articles of incorporation does not meet the organizational_test required by sec_1 c -1 a organization continue to qualify for does the organization continue to qualify for exemption under sec_501 if it has failed to demonstrate that it’ sec_501 activities are substantial in comparison to other activities facts the organization was incorporated as a non-stock corporation in the state of 19xx the purposes stated in the articles of incorporation include the following on march the organization submitted form_1023 application_for recognition of exemption under sec_501 of the intemal revenue code to the irs on june 20xx the application was signed in part ill question of the form_1023 the organization checked the by the treasurer box confirming that the organizing document meets the sec_501 requirement of stating exempt purposes such as charitable religious educational and or scientific purposes in part ill question 2c the organization checked the box indicating reliance on operation of state law for the required dissolution provision the organization was subsequently recognized as an organization exempt from federal_income_tax under sec_501 and sec_509 the attachment to the form_1023 states the organization’s mission and responsibility to the community is to improve the quality of life for citizen and business owners through its role in economic development fostering a sense of community and culture educational advancement in a letter dated may 20xx the organization was notified by the service that it was selected for audit for the filing period ended december 20xx the information_document_request form_4564 idr requested the organization to provide a description of activities conducted during the year under examination an explanation of how the activities furthered their exempt_purpose and the percentage of time and resources spent of each activity the idr also advised the organization the language in the organizing document does not sufficiently limit the purposes to those specifically described in sec_501 nor permanently dedicate the assets to purposes described in sec_501 as required for tax exemption as an organization described under sec_501 the idr stated the organizing document must be amended and requested amendments including proof of filing form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date name of taxpayer tax identification_number 20xx year period ended explanations of items the service received a response from the organization on august 20xx in the response the organization described several community activities that the organization participated in during 20xx including the following e e e e sponsorship of the annual co-sponsorship of an amateur bbq competition various multi-business marketing and promotional campaigns networking and community service opportunities for members two day event the organization stated although it does not maintain a formal tracking mechanism it is estimated that the time are resources are utilized as follows e other promotion and networking activities barbeque event xx xx xx the response did not contain an explanation of how the activities furthered c purposes the response also did not contain a certified copy of an amendment to the articles of incorporation law sec_501 provides tax exemption for corporation and foundation that are operated literary or educational exclusively for religious charitable scientific testing for public safety purpose no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual an treasury regulation section organization described in sec_501 an organization must be organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational or the operational_test it is not exempt c -1 a states that be exempt as order to in sec_1_501_c_3_-1 states in part that an organization is not organized exclusively for one or more exempt purposes unless its assets are dedicated to an exempt_purpose an organization’s assets will be considered dedicated to an exempt_purpose for example if upon dissolution such assets would by reason of a provision in the organization's articles or by operation of law be distributed for one or more exempt purposes or to the federal government or to a state_or_local_government for a public purpose or would be distributed by a court to another organization to be used in such manner as in the judgment of the court will best accomplish the general purposes for which the dissolved organization was organized however an organization does not meet the organizational_test if its articles or the law of the state in which form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date explanations of items tax identification_number year period ended name of taxpayer it was created provide that its assets would upon dissolution be distributed to its members or shareholders 20xx sec_1_501_c_3_-1 states that an organization will be regarded as it engages primarily in activities operated exclusively for one or more exempt purposes only if an which accomplish one or more such exempt purposes specified in sec_501 organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_53_4942_b_-1 states that for the purposes of this section the term substantially_all shall mean or more regulations sec_1_501_c_3_-1 defines the term educational as the instruction or the training of the individual for the purpose of improving or developing his capabilities or the instruction of the public on subjects useful to the individual and beneficial to the community a examples of educational organizations are primary or secondary school professional or trade school which has a regularly scheduled curriculum a regular faculty and a regularly enrolled body of students in attendance at a place where the educational activities are regularly carried on college or a in spanish american cultural association of bergenfield v commissioner tcmemo_1994_510 wl555882 the u s tax_court held that the spanish american cultural association of bergenfield did not qualify as an organization described in code sec_501 because its charitable activities were insubstantial compared to its social activities taxpayer's position mission after further review and discussion we are in agreement that based on the and community based operations it may be better suited qualifying for exemption from income_tax under a different section of the internal_revenue_code other than c government's position issue the organization does not meet the organizational_test since the articles of incorporation does not limit the purposes to those described in sec_501 and does not contain an express provision permanently dedicating the assets to purposes specifically described in sec_501 form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date name of taxpayer tax identification_number 20xx year period ended explanations of items issue as stated in sec_1_501_c_3_-1 an organization will be regarded as it engages primarily in activities operated exclusively for one or more exempt purposes only if the which accomplish one or more such exempt purposes specified in sec_501 organization's primary activities consist of activities that generally promote social welfare and recreational purposes these activities are not inherently educational or charitable by itself under c of the code an organization cannot be recognized as exempt under sec_501 is both organized and operated exclusively for charitable educational or unless it shows that it thus the organization failed to meet the operational_test of section other exempt purposes c -1 a and sec_1_501_c_3_-1 of the regulations conclusion based on our review of all facts and circumstances referenced above it is the government's position that the organization’s exempt status should be revoked due it’s failure to meet the organizational and operational tests required by sec_501 accordingly the organization’s exempt status should be revoked effective january 20xx form_1120 us corporation income_tax return should be filed for the tax periods ending on and after january 20xx form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service


internal_revenue_service number release date index number ----------------------------- ------------- --------------------------------------- ---------------------- ---------------- ------------------------- in re --------------------------------------- ---------------------- 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 b05 plr-103887-11 date date legend taxpayer a b dear ---------------- -------------------------------------------------------------- -------------------------- ------- ------- this letter responds to taxpayer’s letter requesting an extension of time under sec_301_9100-1 of the procedure and administration regulations to make an election to be treated as a homeowners_association under sec_528 of the internal_revenue_code for its taxable years a through b the information submitted and the representations made are as follows taxpayer is a homeowners_association because the officers of taxpayer were not aware of the income_tax filing_requirements for a homeowners_association no income_tax returns were filed for taxable years a through b upon becoming aware of the income_tax filing_requirements for homeowners associations taxpayer submitted this request for a letter_ruling sec_528 and sec_1_528-1 of the income_tax regulations generally provide that homeowners associations meeting the requirements of sec_528 may be treated as tax- exempt_organizations but only to the extent of their exempt_function_income plr-103887-11 sec_528 provides in part that the term homeowners_association means an organization that elects at such time and in such manner as the secretary of treasury by regulations prescribes to have sec_528 apply for the taxable_year sec_1_528-8 provides that a separate election to be treated as a homeowners_association under sec_528 must be made for each taxable_year this election must be made by filing a properly completed form 1120-h or such other form as the secretary of treasury may prescribe sec_1_528-8 provides that for taxable years ending after date the election must be made not later than the time including extensions for filing an income_tax return for the year in which the election is to apply sec_301_9100-1 provides that the commissioner of internal revenue in an exercise of discretion 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 not more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-2 and sec_301_9100-3 provide the standards the commissioner of internal revenue will use to determine whether to grant an extension of time to make the election under sec_301_9100-1 in addition sec_301_9100-2 provides automatic extensions of time for making certain elections and sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government based on the facts and representations submitted with taxpayer’s request we have determined that the requirements of sec_301_9100-3 have been satisfied with respect to taxable years a through b therefore an extension of time is granted until days from the date of this ruling for making the elections required on forms 1120-h for taxpayer to be treated as a homeowners_association under sec_528 with respect to its taxable years a through b we note however that the burden is upon taxpayer to produce upon request any records necessary to establish to the satisfaction of the internal_revenue_service that taxpayer meets all of the requirements of sec_528 except as expressly ruled 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 or under any other provisions of the code specifically we express no opinion concerning the assessment of interest additions to tax additional_amounts or penalties plr-103887-11 for failure_to_file an income_tax return with respect to any year in addition we express or imply no opinion on whether taxpayer qualifies as a homeowners_association under sec_528 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent a copy of this letter should be attached to taxpayer’s form 1120-h for each year covered by this letter the rulings contained in this letter are based upon information and representations submitted by 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 sincerely associate chief_counsel passthroughs special industries by _______________________ nicole r cimino senior technician reviewer branch office of 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 none date of communication not applicable_person to contact ----------------------- id no ------------- telephone number --------------------- refer reply to cc psi b03 plr-108638-07 date date a b legend x ------------------------------------------------------------------------------------------------------ ------------------------- --------------------------- ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ --------------------------- ----------------------- ---------------------- state ---------------- d1 d2 dear ------------- we received the letter dated date and subsequent correspondence submitted on behalf of x by x’s authorized representative requesting a ruling under sec_1362 of the internal_revenue_code this letter responds to your request facts x was incorporated under the laws of state on d1 on d1 x had two shareholders a and b a became x’s sole shareholder on d2 x represents that it was plr-108638-07 the intent of a and b for x to be an s_corporation as of d1 however x’s form_2553 election by a small_business_corporation was not filed timely x represents that since d1 x its current shareholder a and its former shareholder b have reported their income consistent with x’s intended status as an s_corporation x requests a ruling that it will be recognized as an s_corporation effective d1 law and analysis sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1362 provides that an election under sec_1362 may be made by a small_business_corporation for any taxable_year a at any time during the preceding_taxable_year or b at any time during the taxable_year and on or before the 15th day of the third month of the taxable_year sec_1362 provides that if a a small_business_corporation makes an election under sec_1362 for any taxable_year and b the election is made after the 15th day of the third month of the taxable_year and on or before the 15th day of the third month of the following taxable_year then the election shall be treated as made for the following taxable_year sec_1362 provides that if a an election under sec_1362 is made for any taxable_year determined without regard to sec_1362 after the date prescribed by sec_1362 for making the election for the taxable_year or no sec_1362 election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make the election the secretary may treat the election as timely made for the taxable_year and sec_1362 shall not apply conclusion based solely on the facts submitted and representations made we conclude that x has established reasonable_cause for failing to make a timely s_corporation_election thus we conclude that x is eligible for relief under sec_1362 accordingly if x makes an election to be an s_corporation by filing with the appropriate service_center a completed form_2553 effective d1 within days following the date of this letter we rule that the election shall be treated as timely made a copy of this letter should be attached to form_2553 plr-108638-07 except as expressly provided herein we express or imply no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter under a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent 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 sincerely s christine ellison branch chief branch office of the associate chief_counsel passthroughs special industries enclosures a copy of this letter a copy for sec_6110 purposes cc


internal_revenue_service number release date index number ----------------------- --------------------- ------------------------------------------- -------------------------------- --------------------------------- ---------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------------- --------------------------------------------------- telephone number ---------------------- refer reply to cc corp b03 plr-118150-16 date date legend parent ------------------------------------------------------------- ---------------------------------- old parent sub sub sub date date date -------------------------- -------------------------- -------------- ----------------------------------------------------- ------------------------ --------------------------- ---------------------------- -------------------- company official ------------------------------------------------------------------ ------------------------------------------------------------------------------------------- ---------- tax professional ---------------------------------------------------------------------------------- ----------------------------- dear ------------- plr-118150-16 this letter responds to a letter dated date submitted on behalf of parent requesting an extension of time under sec_301_9100-1 through of the procedure and administration regulations to make an election the extension is being requested for parent to make an election under sec_1_1502-21 to relinquish the entire carryback period for the parent consolidated group's parent group consolidated_net_operating_loss cnol for the tax_year ending date the election additional information was submitted in letters dated date and date the material information submitted for consideration is summarized below on date parent purchased old parent the parent of another consolidated_group that included sub sub and sub old parent group parent group sustained a cnol in the tax_year ending on date an election to relinquish the carryback period for its consolidated group's cnol for the tax_year ending date was due on date all returns for parent group and old parent group were filed consistent with a valid election having been made however for various reasons a valid election was not filed after date the date that the election was due it was discovered that a valid election was not filed subsequently this request was submitted for an extension of time to file a valid election parent has represented parent group has not and will not carry any portion of the cnol for the tax_year ending date to a prior consolidated_return_year of parent group no member of the consolidated_group of which parent was the common parent for the tax_year ending date other that old parent sub sub and sub had a separate_return_year within the meaning of sec_1_1502-1 at any time during the carryback period all of old parent sub sub and sub 3’s separate_return years in the carryback period were years in which they were members of the old parent group and none of the cnol for the tax_year ending date was attributable to old parent sub or sub old parent has represented that none of the cnol for the tax_year ending date attributable to sub has been carried back or will be carried back to a separate_return_year within the meaning of sec_1_1502-1 of sub parent and old parent represent that they have filed and will file all returns consistent with the election to relinquish the entire carryback period of the cnol parent has further represented that parent is not seeking to alter a return position for which an accuracy-related_penalty has been or could have been imposed under sec_6662 sec_1_1502-21 provides that a consolidated_group may make an irrevocable election under sec_172 to relinquish the entire carryback period with respect to a cnol for any consolidated_return_year the election is made in a separate statement entitled this is an election under sec_1_1502-21 to waive the entire carryback period pursuant to sec_172 for the insert consolidated_return_year cnols of the consolidated_group of which insert name and employer_identification_number of common parent is the common plr-118150-16 parent sec_1_1502-21 also provides that the statement must be filed with the group's income_tax return for the consolidated_return_year in which the loss arises under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1 b i therefore the commissioner has discretionary authority under sec_301 to grant an extension of time for parent to file the election provided parent establishes it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by parent company official and tax professional explain the circumstances that resulted in the failure to timely file a valid election the information establishes that the request for relief was filed before the failure to timely make the election was discovered by the internal_revenue_service see sec_301_9100-3 based on the facts and information submitted including the representations made we conclude that parent has shown it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-1 until days from the date on this letter for parent to file the election with respect to the relinquishment of the entire carryback period for the cnol for the tax_year ending date as described above the above extension of time is conditioned on the taxpayers' parent group’s and old parent group’s tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the plr-118150-16 taxpayers' tax_liability for the years involved a determination thereof will be made by the director's office upon audit of the federal_income_tax returns involved parent must file the election in accordance with sec_1_1502-21 parent group's return for the tax_year ending date having been filed consistent with a valid election having been made must be amended to attach the election statement required by sec_1_1502-21 a copy of this letter must be attached to the election statement alternatively if the parent group files its returns electronically parent may satisfy this requirement by attaching a statement to its return that provides the date and control number of this letter_ruling we express no opinion as to the tax effects or consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by parent company official tax professional however the director should verify all essential facts moreover notwithstanding that an extension is granted under sec_301_9100-3 to file the election penalties and interest that would otherwise be applicable if any continue to apply this letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file in the office copies of this letter are being sent to your authorized representatives sincerely _ken cohen_____________________ ken cohen chief branch office of associate chief_counsel corporate


tcmemo_2011_28 united_states tax_court estate of axel o adler deceased anna axina adlerbert administrator petitioner v commissioner of internal revenue respondent docket no filed date benjamin crispin sanchez and martin j tierney for petitioner trent d usitalo and nicholas d doukas for respondent memorandum opinion morrison judge in a notice dated date the respondent the irs determined a deficiency in the federal estate_tax of the estate of axel o adler the estate the estate and the irs agreed to submit this case for decision under rule the parties executed a stipulation of settled issues leaving one issue to be resolved the issue is whether the value of approximately big_number acres of land included in the value of the gross_estate is subject_to fractional-interest discounts we find that it is not background we adopt the stipulation of facts as our findings_of_fact the decedent axel o adler adler died on date at the time of his death adler resided pincite6 oliver road carmel california anna axina adlerbert is the administrator of the estate of axel o adler at the time she filed the petition anna axina adlerbert resided at jarkholmsvarden hovas sweden before date adler owned property on palo colorado road in carmel california that property known as the rancho aguila property consisted of approximately big_number acres at the date of his death on date adler executed a grant deed transferring undivided one-fifth interest sec_2 in the rancho aguila 1unless otherwise indicated all rule references are to the tax_court rules_of_practice and procedure and all section references are to the internal_revenue_code code as in effect for the date of axel o adler's death 2the owner of an undivided_interest does not have a claim on a specific_portion of the property property to his five children--inna maria adler lena kristina bidegard dag ivar adler ruth erikka adlerbert and axel jerker adlerbert--as tenants in common the deed however expressly stated that adler reserved unto himself the full use control income and possession of the rancho aguila property and every part thereof for and during his natural life the transfer was gratuitous adler received no consideration after the transfer adler continued to use the rancho aguila property none of his children resided there nor did the children interfere with his use possession or enjoyment of the property adler paid all expenses associated with the property including taxes upkeep and maintenance adler was not required to--and did not--pay rent to the children adler was not required to--and did not--seek the children's permission to alter or improve the property on date daughter inna executed a quitclaim deed3 transferring her interest back to adler but neither she nor adler recorded the deed adler died on date the parties have stipulated that on that date the fair_market_value 3it is unclear whether daughter inna received consideration for the transfer the quitclaim_deed states that the transfer was for a valuable consideration in the petition the estate claimed that the conveyance was in exchange for the cancellation of daughter inna's debt to adler of big_number swedish kronor in the answer the irs denied this for lack of sufficient knowledge the stipulation of facts does not address whether the transfer was gratuitous or for consideration of a fee simple interest in the entire rancho aguila property was dollar_figure because adler and daughter inna never recorded the quitclaim_deed litigation over her interest occurred during the probate of adler's estate as a result daughter inna executed a grant deed transferring her interest in the rancho aguila property to the estate in date at issue is whether the value to include in the value of the gross_estate is i the undiscounted value of a fee simple interest in the rancho aguila property or ii the value of several fractional interests in the rancho aguila property which must be valued separately with appropriate fractional-interest discounts as explained below we find that no discount is appropriate discussion sec_2001 imposes the estate_tax on the transfer of the taxable_estate of a decedent sec_2051 defines the value of the taxable_estate as the value of the gross_estate minus the estate-tax deductions the value of the gross_estate is determined by including to the extent provided for in sec_2031 through the value at the time of the decedent's death of all property real or personal tangible or intangible wherever situated sec_2031 sec_2033 includes the value of all property to the extent of the interest therein of the decedent at the time of his death in the value of the gross_estate thus sec_2033 includes the value of the decedent's interest in property at the time of death if a decedent owned a life_estate sec_2033 would not include its value in the value of the gross_estate a life_estate has no value at the time of death but if the decedent gratuitously transferred a remainder_interest in property and retained a life_estate the value of the property would be included in the value of the gross_estate by sec_2036 sec_2036 provides the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death-- the possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom 4we use the term life_estate here to refer to only a life_estate measured by the life of the decedent we do not include a life_estate for the life of another in the term life_estate sec_2036 thus includes the value of transferred property in the value of the gross_estate if three condition sec_5 are met i the decedent transferred an interest in the property during life ii the transfer was not a sale and iii the decedent retained possession or enjoyment of the property for life sec_20_2036-1 estate_tax regs see also 124_tc_95 if a decedent gratuitously transferred a remainder_interest in property and retained a life_estate the decedent transferred the property while retaining possession or enjoyment for life and thus sec_2036 would apply the general purpose of sec_2036 is to include the value of property in the value of the gross_estate where the decedent transfers the property during life and the transfer is essentially testamentary in nature 395_us_316 discussing statutory predecessor of sec_2036 a testamentary transfer is a transfer made in a will black's law dictionary 9th ed transfers included under sec_2036 are essentially testamentary in nature because the transferor controls the disposition of the 5see also sec_2036 limiting application of sec_2036 for transfers made before date and for transfers made after date but before date sec_2036 also applies to other situations not relevant here property at death but possesses and enjoys the property during life if sec_2033 or sec_2036 includes the value of property in the value of the gross_estate the amount included is the property's fair_market_value at the time of death or on the alternate_valuation_date if the executor so elects sec_20_2031-1 estate_tax regs fair_market_value in the context of the estate_tax is the price at which the property would change hands between a willing buyer and a willing seller neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts id the standard is an objective standard which determines fair_market_value by neither a forced sale price nor a price in a market other than that in which the type of property is most commonly sold to the public id see also 125_tc_227 discussing fair_market_value the owner of a fractional interest in property7 often lacks the ability to control the property or to sell the interest freely see eg estate of amlie v commissioner t c memo 7a fractional interest in property is also known as an undivided_interest see black's law dictionary 9th ed an undivided_interest is commonly understood to be an interest held under the same title by two or more persons and includes interests held as tenants in common id pincite applying fractional-interest discounts estate of pillsbury v commissioner tcmemo_1992_425 same to reflect the decrease in value the estate claims was caused by the fractional ownership of the rancho aguila property the estate applied minority-interest and marketability discounts a minority-interest discount is due to lack of control a marketability discount is due to lack of liquidity when a person dies holding a fractional interest in property it is often appropriate to discount the value of the interest because the lack of control and the lack of liquidity decrease the property's value whether property should be valued as a whole or as separate fractional interests--with appropriate discounts for split ownership--depends on when the interests are separated if ownership is split during the decedent's lifetime the interest the decedent retained is valued separately if the split occurs only at death the property is valued as a whole-- without a discount for split ownership suppose for example 8on form_706 united_states estate and generation-skipping_transfer_tax return schedule a real_estate the estate reported a one-fifth interest in the rancho aguila property subject_to a marketability discount and a minority- interest discount exhibit 2-j pincite on form_706 schedule g transfers during decedent's life the estate reported four separate one-fifth interests in the rancho aguila property each subject_to a marketability discount and a minority- interest discount id pincite form_706 schedule a lists real_property owned by the decedent including property to which sec_2033 applies form_706 schedule g lists certain inter_vivos transfers including transfers to which sec_2036 applies that an owner of land gives a one-half interest in the land to a child when the owner dies holding the remaining one-half interest that interest should be valued separately from the child's the interests were separated during the owner's life see 680_f2d_1248 9th cir before he died the husband held a one-half community-property interest in land and his wife held the other one-half interest the husband's interest at death was valued separately from the wife's interest on the other hand suppose that an owner of land continued to own the land until death and at his death pursuant to his will the land was transferred to his two children because the owner owned the land at death no discount would be recognized to account for the fact that the land later had multiple owners see 674_f2d_761 9th cir in valuing the assets of an estate the property valued is not the property received and thus no discount is made for the fact that the asset will come to rest in several hands rather than one to do so would invite abuse for these purposes the ownership of the rancho aguila property should be considered to have been split up at adler's death in adler transferred a one-fifth remainder_interest to each of his five children he retained a life_estate in the property thus it was as if adler had retained the entire_interest in the land during his life and transferred the property to his children at death the two transactions are not identical but their similarity led congress to enact sec_2036 which treats the inter_vivos transfer of a remainder_interest with a retained_life_estate as a testamentary transfer of the entire property sec_2036 is significant because it is the code section that primarily includes the value of the property in the value of the gross_estate it is consistent with sec_2036 to value the rancho aguila property as if the children's interests were transferred only at adler's death a property interest transferred to separate owners at death is not valued separately for estate_tax purposes of the cases the estate cites for the idea that we must value multiple interests in the rancho aguila property separately the closest to being on point is 112_tc_26 in estate of mellinger a wife and husband owned a block of stock as community_property id pincite the husband died first and left his interest to a qualified_terminable_interest_property trust for the lifetime 9the estate argues that it is sec 2033--not sec 2036--that includes the value of the one-fifth interest that was transferred from adler to daughter inna in and that daughter inna transferred or attempted to transfer back to adler in even if this is true the other four interests should be considered to have been split from the remaining interest only at adler's death and therefore no discount to the value of the remaining interest should be made to account for separate ownership of the other four interests benefit of his wife id when the wife died she still owned her one-half interest in the stock the value of which was included in the value of her gross_estate under sec_2033 the value of the husband's interest was also included in the value of the gross_estate under sec_2044 we held that the interests must be valued separately and that discounts were appropriate one reason the interests were valued separately was that at no time did the wife possess control or have any power of disposition over the interest held in the trust id pincite unlike the wife in estate of mellinger adler controlled the rancho aguila propertydollar_figure he transferred remainder interests in the property in and he retained a life_estate in the property from until his death in 10in 118_tc_318 we declined to interpret 112_tc_26 to require separate valuation of two interests in property where the decedent controlled both interests in estate of fontana v commissioner supra pincite the estate sought to value two blocks of stock separately the decedent owned one block outright and the other was subject_to the decedent's testamentary general_power_of_appointment the value of both blocks of stock was included in the value of the gross_estate id pincite the value of the stock the decedent owned outright was included under sec_2033 id and the value of the stock that was subject_to the decedent's power_of_appointment was included under sec_2041 id because the decedent in estate of fontana controlled the disposition of the stock that was subject_to the general_power_of_appointment unlike the property in the qualified_terminable_interest_property trust in estate of mellinger we aggregated it with the stock the decedent owned outright for valuation purposes id pincite the parties agree that the value of the entire rancho aguila property is included in the value of the gross_estate the parties stipulated that the fair_market_value of the rancho aguila property on the date adler died was dollar_figure as discussed above we find that no discount is appropriate because adler controlled the disposition of the entire rancho aguila property and to apply a discount in this situation would value the property according to the number of recipients thus the value included in the value of the gross_estate is dollar_figure the rancho aguila property's fair_market_value as of date the date adler died to reflect the foregoing decision will be entered under rule


significant index no department of the treasury washington d c tax_exempt_and_government_entities_division aug in re dear this letter constitutes notice that with respect to the above-named defined benefit pension_plan we have granted a conditional waiver of the minimum_funding_standard for the plan_year ended september this waiver for the plan_year ended september accordance with sec_412 of the internal_revenue_code and sec_303 of the employee_retirement_income_security_act_of_1974 erisa the waived amount is the contribution which would otherwise be required to reduce the balance in the funding_standard_account to zero as of the end of the plan_year for which this conditional waiver has been granted _- _ has been granted in the company has a fiscal_year that ends on the saturday closest to the last dav of december the company's revenues have steadily declined from the company has embarked on a program to reduce expenses this includes reductions in production and corporate personnel and other operating and overhead expenses to - _ the value of the assets of the plan was equal to of the as of october plan's current_liability because the prospects for recovery are uncertain and the plan is-under-funded we are granting this waiver subject_to the condition that the contributions required to satisfy the minimum_funding_standard for the plan years are to be timely made as defined in section ending october c of the code without a waiver being granted for such years and if this condition is not satisfied the waiver is retroactively null and void you agreed to these conditions in a letter dated august your attention is called to sec_412 of the code and sec_304 of erisa which describe the consequences that would result in the event the plan is amended to increase benefits change the rate in the accrual_of_benefits or to change the rate of vesting while any portion of the waived_funding_deficiency remains unamortized please note that any amendment to other retirement plans maintained by the company or to the company’s profit sharing plan to increase the liabilities of those plans would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent when filing form_5500 for the plan_year ended september the date of this letter should be entered on schedule b actuarial information a copy of this letter is being sent to the manager employee_plans classification in a copy of this letter should be furnished to the enrolled_actuary for the plan if you have any questions on this ruling letter please contact sincerely a norman greenberg manager actuarial group


internal_revenue_service number release date date cc el gl br3 gl-605895-98 uil memorandum for district_counsel kentucky-tennessee from chief branch general litigation subject chapter trustee refund orders where taxpayer makes election under sec_6402 this constitutes our formal response to your request for an opinion on several issues pertaining to the interrelationship of sec_6402 and the bankruptcy code this document is not to be cited as precedent issues to what extent is an election to credit the amount of a tax overpayment for a taxable_year preceding the date of a bankruptcy petition to a liability for the subsequent year pursuant to sec_6402 valid in the context of a chapter bankruptcy can a chapter trustee’s refund order override a taxpayer’s sec_6402 election if so how is this consistent either with the service’s position on the irrevocable nature of a sec_6402 election or with sec_6513 which essentially precludes a refund claim for an amount which the taxpayer has already elected to receive as a credit pursuant to sec_6402 does it make a difference whether a the chapter plan specifically provides that all refunds are property of the bankruptcy_estate b the trustee’s order was issued before or after the date the sec_6402 election was made conclusion if the election is made prepetition the overpayment amount is not part of the bankruptcy_estate and accordingly is not subject_to the trustee’s refund order if the election is made post-petition for a prepetition tax_year and if it is made before the trustee issues a refund order the election is effective even though the overpayment amount is property of the bankruptcy_estate once the plan is confirmed whether the amount is subject_to the refund order is determined by the terms of the plan although in a chapter case property normally revests in the debtor upon confirmation of the plan unless the terms of the plan otherwise indicate in a situation where a refund order exists we would expect the refund order to require that refunds be used to fund the plan gl-605895-98 facts the facts are as follows a taxpayer files a chapter bankruptcy during the bankruptcy the chapter trustee issues an order that all refunds owed to the taxpayer are to be paid to the trustee at some point in time the taxpayer makes an election pursuant to sec_6402 to apply an overpayment on his previous year’s taxes to his estimated_tax liability for the following year normally the service’s policy as discussed below is that this election is irrevocable by either the service or the taxpayer himself the questions you present all involve the validity of this election in light of its juxtaposition with the occurrence and the timing of various events in bankruptcy law and analysis the answers to your questions turn in part on the relative timing of the taxpayer’s election and the filing of his bankruptcy petition some of the potential scenarios which could occur depending on when the relevant events occur are discussed separately following a brief background discussion below a background sec_6402 is entitled credits against estimated_tax and affords the secretary_of_the_treasury authority to prescribe regulations for crediting against the estimated income_tax for any taxable_year of the amount determined by the taxpayer or the secretary to be an overpayment of the income_tax for a preceding_taxable_year sec_301_6402-3 of the regulations in turn states in pertinent part that a return or amended_return shall constitute a claim_for_refund_or_credit if it contains a statement setting forth the amount determined as an overpayment and advising whether such amount shall be refunded to the taxpayer or shall be applied as a credit against the taxpayer’s estimated income_tax for the taxable_year immediately succeeding the taxable_year for which such return or amended_return is filed if the taxpayer indicates on its return or amended_return that all or part of the overpayment shown by its return or amended_return is to be applied to its estimated income_tax for its succeeding taxable_year such indication shall constitute an election to so apply such overpayment and such amount shall be applied as a payment on account of the estimated income_tax for such year or the installments thereof sec_301_6402-3 emphasis supplied we have been told that in your district plans normally specify that if a tax_refund is less than dollar_figure it need not be given to the trustee therefore for purposes of this opinion we assume any refund at issue is in the amount of at least dollar_figure gl-605895-98 furthermore the internal_revenue_code provides that where an overpayment_of_tax is claimed as a credit against the next year’s estimated_tax liability pursuant to sec_6402 such amount shall be considered as a payment of the income_tax for the succeeding taxable_year and no claim for credit or refund of such overpayment shall be allowed for the taxable_year in which the overpayment arises sec_6513 based on these provisions of the code and regulations the service generally considers a sec_6402 election to be binding on both itself and the taxpayer and does not generally permit revocation of the election see generally revrul_77_339 1977_2_cb_475 service cannot offset overpayment which taxpayer previously elected would be applied to succeeding year’s estimated_tax liability against additional liability for year of overpayment 916_f2d_1520 11th cir taxpayer once having made election under sec_6402 may not opt to receive overpayment in form of refund thus at least outside of bankruptcy a taxpayer’s valid election pursuant to sec_6402 to credit one year’s overpayment against the next year’s estimated_tax liability is generally viewed as irrevocable - and the character of the overpayment once the election has been made is generally viewed as unchangeable b election occurring prepetition if a taxpayer makes a sec_6402 election and subsequently files a chapter bankruptcy petition does the trustee’s refund order affect the validity of the election it is our position that the trustee’s refund order is not effective to revoke the election in this context since the election is valid as long as it was made before the bankruptcy petition was filed the reason is that in this scenario the right to a refund no longer belongs to the debtor as of the time the bankruptcy petition is filed and it therefore never becomes property of the bankruptcy_estate subject_to the administration of the chapter trustee the relevant authorities appear to be unanimous in indicating that at least where bankruptcy is not a complicating factor once a taxpayer makes an election under sec_6402 his decision is irrevocable ie his overpayment for the initial tax_year irretrievably becomes an advance_payment for the next in other words before the election is made the taxpayer may recover his overpayment either in the form of a refund or the form of a credit the decision is his once he makes the election under sec_6402 however his decision is final this means in our view that where the election occurs prepetition the overpaid amount is at the time the bankruptcy petition gl-605895-98 is filed not property with respect to which the taxpayer has any rights accordingly the amount of the overpayment does not constitute a legal or equitable interest of the debtor in property as of the commencement of the case ie the amount is not property of the bankruptcy_estate see b c sec_541 see also in re block 141_br_609 n d tex moreover the interests of the bankruptcy_estate and by extension those accessible to the trustee generally cannot be greater than those of the taxpayer see eg in re halle 132_br_186 bankr d colo thus since the bankruptcy_estate has no interest in the amount the taxpayer has elected be credited to a future tax_liability any order issued by the trustee cannot reach that amount as a result neither the event of the bankruptcy filing nor the subsequent issuance of the trustee’s refund order would have any effect on the earlier election made under sec_6402 we recognize that our analysis in this regard conflicts with at least one judicial decision in re russell 927_f2d_413 8th cir in russell the eighth circuit held that a bankruptcy trustee’s powers essentially supersede a taxpayer’s ability to make pre- and post-petition elections to carry forward net operating losses nols which - like the type of election here under discussion - are specifically authorized by the internal_revenue_code we believe that russell is incorrect in several respects including its holding pertaining to the authority of a bankruptcy trustee to nullify a prepetition election generally viewed as irrevocable moreover we think that an election under sec_6402 which generally affords a taxpayer a dollar-for-dollar credit for an amount he would otherwise be entitled to receive in the form of a refund is materially different from an nol which may or may not afford a taxpayer a benefit depending on the liability against which it is set off for these reasons we do not think the analysis set forth in russell necessarily ends the inquiry with respect to the issue of the validity of sec_6402 elections in chapter bankruptcies of note is that we have been unable to locate any legal authority which indicates that the sec_6402 election once properly made somehow can be invalidated by events occurring in bankruptcy accordingly we do not believe russell requires that prepetition elections necessarily be viewed as voidable where a chapter trustee has issued a refund order similarly our position is that the overpaid credited amount is not properly the subject of a turnover action initiated by the trustee under b c sec_542 or an action based on prepetition fraudulent transfer under b c as was noted previously the taxpayer did not hold any interest in the amount once he made his election and the amount therefore was never estate property and accordingly is not subject_to turnover under b c sec_542 see in re block supra in re 124_br_606 bankr m d fla chapter trustee cannot recover amount which before bankruptcy was subject of sec_6402 election simply because it originated prepetition moreover although an argument could be made that the trustee’s issuance of a refund order could be viewed as an attempt on his part to revoke the prepetition election under b c section would seem to be inapplicable here as it requires as an gl-605895-98 element of a fraudulent transfer action that the transferor either have made the transfer with actual intent to defraud creditors or have received less than a reasonably equivalent value in exchange for the amount transferred b c a here no indication exists that the taxpayer made his sec_6402 election with the intent of adversely affecting any creditors and here the taxpayer is clearly receiving dollar-for- dollar value namely a dollar-for-dollar reduction of his future tax_liability as a result of his election to credit the overpayment accordingly the prerequisites for an action under b c would not appear to be satisfied see simmons supra c post-petition election if a taxpayer makes his sec_6402 election for a prepetition tax_year after filing his bankruptcy petition then as of the commencement of the bankruptcy he would have possessed a right to a tax_refund as the right to a refund constitutes a prepetition interest existing as of the petition date it would constitute property of the estate as of the time the bankruptcy petition was filed see eg 417_us_642 94_sct_2431 382_us_375 86_sct_511 the real question here is whether irrespective of the fact that the interest in the overpayment is estate property as of the petition date the interest is subject_to the trustee’s refund order notwithstanding the fact that the debtor’s right to a refund is property of the chapter estate it is our view that the debtor has the right to make a sec_6402 election before confirmation of the plan and before the trustee has issued a refund order b c b provides that the debtor shall remain in possession of all property of the estate except as otherwise provided in the confirmed plan or the order confirming the plan moreover b c a contains a mandatory requirement for chapter plans that all or such portion of the debtor’s future earnings or income shall be submitted to the trustee as is necessary for the execution of the plan these provisions indicate that the debtor may remain in possession or control of any property interest not needed to fund the chapter plan in addition b c provides that the debtor shall have the rights and powers of a trustee under subsections b d e f and l of sec_363 and these provisions allow the trustee subject_to certain conditions to use sell or lease property of the estate accordingly we believe the debtor may exercise his election under sec_6402 and a subsequent refund order by the trustee would not be effective to overturn this election if the election is for a post-petition tax_year the trustee’s refund order normally would precede the election accordingly the overpayment amount would be subject_to the order if the amount is estate property in a chapter bankruptcy property acquired post-petition can be included in estate property b c a gl-605895-98 however once the trustee issues his refund order it would appear that the trustee intends to use the refunds to execute the provisions of the plan hence any attempt by the debtor to exert control_over the overpayment by attempting to apply it directly to the following year’s tax_liability might be viewed as an action to use property of the estate contrary to the terms of the plan and as undermining the ability of the trustee to execute and consummate the plan accordingly we believe that an attempt by the debtor to make an election under sec_6402 after the trustee issues a refund order would be ineffective we assume that the plan confirmed by the court would incorporate the trustee’s refund order and that the refunds would be necessary under the terms of the plan to make the required distributions to creditors if for some reason a plan is confirmed indicating that refunds are not necessary to fund the plan a debtor may want to request that the trustee revoke his order so that the debtor may exercise his sec_6402 election thank you for soliciting our opinion on this matter if you have further questions please call cc office of assistant chief_counsel field service attn senior technician reviewer procedural branch


department of the treasury internal_revenue_service p o box irs cincinnati oh number release date uil dear date date employer id number contact person id number contact telephone number form you must file tax years this letter is our final_determination that you don’t qualify for tax-exempt status under sec_501 of the internal_revenue_code the code recently we sent you a proposed adverse determination in response to your application the proposed adverse determination explained the facts law and basis for our conclusion and it gave you days to file a protest because we didn’t receive a protest within the required days the proposed determination is now final you must file federal_income_tax returns for the tax years listed at the top of this letter using the required form also listed at the top of this letter within days of this letter unless you request an extension of time to file we’ll make this final adverse determination_letter and the proposed adverse determination_letter available for public inspection as required under sec_6110 of the code after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in the notice on how to notify us if you agree with our deletions you don’t need to take any further action if you have questions about this letter you can contact the person listed at the top of this letter if you have questions about your federal_income_tax status and responsibilities call our customer service number pincite-829-1040 tty for deaf or hard of hearing or customer service for businesses pincite-829-4933 letter rev catalog number sincerely stephen a martin director exempt_organizations rulings and agreements enclosures notice redacted letter proposed adverse determination under sec_501 other t han c redacted letter final adverse determination under sec_501 other than c - no protest letter rev catalog number 47635z department of the treasury internal_revenue_service cincinnati oh legend b date c state d number e name dear date date employer id number contact person id number contact telephone number contact fax number uil we considered your application_for recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code the code based on the information provided we determined that you don’t qualify for exemption under sec_501 of the code this letter explains the basis for our conclusion please keep it for your records issues do you qualify for exemption under sec_501 of the code no for the reasons stated below facts you were incorporated on b in the state of c as a nonprofit corporation the purpose in your articles of incorporation states you are organized to provide for maintenance preservation and control of lots and common areas within e your primary activity is providing for maintenance for common areas owned individually by your members in a geographical area which you described as a commercial shopping center with no personal residences these common areas enable access to private parking lots from public streets and include landscape areas and asphalt areas directly adjacent to public streets or the associated drive area besides maintaining landscape and asphalt areas you indicated that you provide maintenance for other common area and building exteriors in and around property located at e you have d members consisting of individual businesses further ownership of a lot within e is the sole qualification for membership your source of revenue are members’ assessments disbursements are for property maintenance such as landscaping in addition each member’s assessment is determined by allocating expenses among your members based on their individual usage divided by the total usage for all members you collect these funds quarterly and generally use all funds collected for the maintenance of e finally you indicated e all assets are earmarked for maintenance repairs on common areas there are no surplus funds to distribute e e e you exist to perform common area maintenance on the d member lots at e according to your bylaws members are owners of lots located on the real_property within e and membership terminates upon a member ceasing to be an owner of a lot your declaration of protected covenants conditions and restrictions regarding development and use of land in general provides that no portion of the property was to be developed or used for residential purposes except for incidental to use for watchmen and guards to protect the property you pay a management company who is responsible for providing the maintenance to the common areas you have you have annual meeting for members board members _ law sec_501 of the code provides for the exemption from federal_income_tax of civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare or legal associations of employees the membership of which is limited to the employees of the designated person or persons in a particular municipality and the net_earnings of which are devoted exclusively to charitable educational or recreational purposes sec_1_501_c_4_-1 states a civic_league_or_organization may be exempt as an organization described in sec_501 of the code if it is not organized or operated for profit and it is operated exclusively for the promotion of social welfare sec_1_501_c_4_-1 provides that an organization is operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in some way the common good and general welfare of the people of the community an organization embraced within this section is one which is operated primarily for the purpose of bringing about civic betterments and social improvements revrul_54_394 1954_2_cb_131 describes an organization that did not qualify under sec_501 of the code its only activity was to provide television reception on a cooperative basis to its members it was held the organization was operating for the benefit of its members rather than for the promotion of the welfare of mankind revrul_74_99 1974_1_cb_131 describes the circumstances in which an otherwise qualifying home owner’s association organization may qualify for exemption under sec_501 of the code revrul_75_286 1975_2_cb_210 describes an organization that qualified under sec_501 of the code because its activities promoted social welfare by beautifying and preserving public property in cooperation with the local_government the organization’s membership was limited to the residents and business operators within a city block and its financial support was from receipts from block parties and voluntary contributions from members although these activities were limited to a particular block the community as a whole benefited from them application of law you are not as described in sec_501 of the code and sec_1_501_c_4_-1 because your activities do not primarily promote civic betterment or social welfare you are primarily operating for the convenience of your members letter rev catalog number 47628k moreover you do not meet the provisions of sec_1_501_c_4_-1g for example you collect assessments from members based on their usage percentage to maintain their individually owned property which enables access to private parking lots from public streets and include landscape areas and asphalt areas directly adjacent to public streets or the associated drive area you also provide maintenance for other common area and building exteriors in and around property located at e this illustrates you do not primarily operate to promote civic betterment or social welfare within the meaning of sec_501 of the code you are similar to the organization described in revrul_54_394 because your activities are directed toward providing services to your d member business owners consisting of maintenance of individually owned common areas in exchange for assessments this shows you are primarily operating for the economic benefit or convenience of the member business property owners rather than for the benefit of social welfare which precludes exemption under sec_501 of the code you do not meet the criteria to qualify as a homeowner’s association under sec_501 of the code as explained in revrul_74_99 because your membership is comprised of businesses you are not like the qualifying_organization described in revrul_75_286 for example you are providing for maintenance for private property which you describe as a commercial shopping center with no personal residences furthermore members’ assessments finance your activities while the organization in the revenue_ruling receives voluntary contributions from members and revenue from block parties this shows your activities are not benefitting the community as a whole but are primarily benefiting your members conclusion accordingly since the benefits from your maintenance activities are primarily for the economic benefit of your d members and there is little or no benefit to the community you do not qualify for exemption from federal_income_tax under sec_501 of the code if you don’t agree you have a right to file a protest if you don’t agree with our proposed adverse determination to do so you must send a statement to us within days of the date of this letter the statement must include e e e e e your name address employer_identification_number ein and a daytime phone number acopy of this letter highlighting the findings you disagree with anexplanation of why you disagree including any supporting documents the law or authority if any you are relying on the signature of an officer director trustee or other official who is authorized to sign for the organization or your authorized representative e one of the following declarations letter rev catalog number 47628k for an officer director trustee or other official who is authorized to sign for the organization under penalties of perjury i declare that i examined this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete for authorized representatives under penalties of perjury i declare that i prepared this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete your representative attorney certified_public_accountant or other individual enrolled to practice_before_the_irs must file a form_2848 power_of_attorney and declaration of representative with us if he or she hasn’t already done so you can find more information about representation in publication practice_before_the_irs and power_of_attorney we’ll review your protest statement and decide if you provided a basis for us to reconsider our determination if so we'll continue to process your case considering the information you provided if you haven’t provided a basis for reconsideration we’ll forward your case to the office of appeals and notify you you can find more information about the role of the appeals_office in publication how to appeal an irs decision on tax- exempt status if you don’t file a protest within days you can’t seek a declaratory_judgment in court at a later date because the law requires that you use the irs administrative process first sec_7428 of the code where to send your protest please send your protest statement form_2848 if needed and any supporting documents to the applicable address u s mail street address for delivery service internal_revenue_service eo determinations quality assurance room p o box cincinnati oh internal_revenue_service eo determinations quality assurance main street room cincinnati oh you can also fax your statement and supporting documents to the fax number listed at the top of this letter if you fax your statement please contact the person listed at the top of this letter to confirm that he or she received it if you agree if you agree with our proposed adverse determination you don’t need to do anything if we don’t hear from you within days we’ll issue a final adverse determination_letter that letter will provide information on your income_tax filing_requirements letter rev catalog number 47628k you can find all forms and publications mentioned in this letter on our website at www irs gov formspubs if you have questions you can contact the person listed at the top of this letter sincerely stephen a martin director exempt_organizations rulings and agreements enclosure publication letter rev catalog number 47628k