department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division release number release date date date uniform issue list contact person identification_number telephone number employer_identification_number legend supporting fund b area z x i l u u o w b u w n u o w dear we have considered your ruling_request dated date and as amended on date concerning the federal income and excise_tax consequences under certain sections of the internal_revenue_code code facts you have been recognized as an organization exempt from federal_income_tax under sec_501 of the code and are classified as other than a private_foundation pursuant to sec_509 and sec_170 you were established to provide vital care to the residents of area z your charitable activities have included providing social work and related_services to clients of all ages and backgrounds job placement and career counseling outpatient support for those struggling with substance abuse geriatric care to the elderly and frail and other forms of community- building and sustaining assistance too many segments of the population the supporting fund was created in year and funded with assets previously held by you ina donor_advised_fund the supporting fund is recognized as exempt from federal_income_tax under sec_501 of the code and is classified as a sec_509 type supporting_organization by virtue of its relationship with you you are the sole public member of the supporting fund the supporting fund was formed as a means to continuously support the efforts of and work together with you in providing humanitarian educational and cultural services and programs since that time the supporting fund has provided significant financial support to you and also engaged directly in funding local and international programs consistent with your overall goals you appoint a majority of the seven supporting fund directors serving at any given time all actions and activities of the supporting fund are decided by at least a majority vote of the supporting fund’s board_of directors the supporting fund wishes to forgo its status as a public charity and supporting_organization to become a private_foundation as described in sec_509 of the code following this proposed conversion from supporting_organization status to private_foundation_status the supporting fund will no longer be required to support you the conversion will be accomplished through a series of interrelated steps you and the supporting fund entered into a written_agreement ‘ agreement in year pursuant to which the supporting fund pledged to make the following payments e e e e adollar_figure x payment to your capital campaign payable by the end of calendar_year adollar_figure x payment to the capital campaign payable within thirty days following the effective date of the conversion adollar_figure x payment to the capital campaign payable over a three year period following the effective date to be completed on or before november of year and fifteen annual payments of dollar_figure first calendar_year following the effective date x each to your annual campaign commencing with the pursuant to the terms of the agreement the supporting fund is thus scheduled to make a series of payments to you that in aggregate exceed of the supporting fund’s total assets the grants made by the supporting fund to you will not be designated or used for lobbying influencing the outcome of elections for grants to individuals or for non-charitable purposes in consideration of these payments you have agreed to relinquish your rights as the public member of the supporting fund under amended articles of incorporation the supporting fund will no longer be organized as a membership_organization and you will retain no rights to appoint any directors of the supporting fund the supporting fund’s corporate purposes will reflect an expanded charitable mission and contain no requirement that the supporting fund support you all current supporting fund directors previously appointed by you will resign and only members of the b will serve as directors of the supporting fund the supporting fund will likewise adopt amended and restated bylaws that will govern its operations consistent with its changed organizational structure as a condition of the agreement in addition to this private_letter_ruling request the supporting fund has also requested and obtained written approval of the conversion from the attorney_general of its state of incorporation the supporting fund does not wish to terminate its private_foundation_status in tandem with its grants to you and has not indicated any contrary intent to the secretary x grant already paid no additional payments by the with the exception of the initial dollar_figure supporting fund to you as mandated in the agreement will occur prior to the effective date the agreement defines the effective date as the later to occur of i the date on which both the attorney_general of the state of incorporation and the internal_revenue_service approve the conversion or ii the date upon which the supporting fund files the amended articles with appropriate state office steps have been completed in this manner the conversion will not become effective until all related you have represented that the conversion will benefit the supporting fund by allowing it to support a wider range of charitable causes and may reduce certain regulatory burdens the conversion will benefit you by providing dollar_figure x in guaranteed payments and by generating very large matching_contribution commitments from an unrelated charity moreover you will still be able to apply to the supporting fund for discretionary grants rulings requested you have requested the following rulings the conversion and the transactions described herein do not negatively affect your exempt status under sec_501 of the code or your public charity status under sec_509 and sec_170 the conversion and the transactions described herein will not give rise to excise_taxes under sec_4958 of the code to you or any of your directors officers or employees who were involved in the planning or the execution of the conversion of the supporting fund to a private_foundation law sec_170 of the code provides that the term charitable_contribution means contribution or gift to or for_the_use_of a corporation trust or community chest fund or foundation organized and operated exclusively for religious charitable scientific literary 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 sec_501 of the code provides for the exemption from federal_income_tax of nonprofit_organizations that are organized and operated exclusively for charitable and or other exempt purposes described within the section sec_4958 of the code imposes on each excess_benefit_transaction a tax equal to percent of the excess_benefit the first_tier_tax this tax must be paid_by any disqualified_person with respect to such transaction sec_4958 of the code provides that if a tax is imposed by sec_4958 of the code and there is knowing participation in the excess_benefit_transaction by an organization_manager there shal be imposed on such manager an excise_tax equal to percent of the excess_benefit unless such participation is not willful and is due to reasonable_cause sec_4958 of the code provides that where an initial tax is imposed but the excess_benefit involved in such transaction is not corrected within the taxable_period a tax equal to percent of the excess_benefit involved is imposed and must be paid_by any disqualified_person with respect to such transaction the second tier tax’ sec_4958 of the code in part defines excess_benefit_transaction as any transaction in which an economic benefit is provided by an applicable_tax-exempt_organization directly or indirectly to or for_the_use_of any disqualified_person if the value of the economic benefit provided exceeds the value of the consideration including the performance of services received for providing such benefit sec_4958 of the code defines applicable_tax-exempt_organization as an organization described in either sec_501 or sec_501 of the code or an organization which was so described at any time during the five-year period ending on the date of the excess_benefit_transaction such term shall not include a private_foundation as defined in sec_509 sec_4958 of the code defines disqualified_person as a any person who was at any time during the five-year period ending on the date of such transaction in a position to exercise substantial influence over the affairs of the organization b a member_of_the_family of a disqualified_person and c a 35-percent_controlled_entity sec_1_501_c_3_-1 of the income_tax regulations regulations provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 of the code an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_53_4958-1 of the foundation and similar excise_taxes regulations foundation regulations provides that except as otherwise provided an excess_benefit_transaction occurs on the date on which the disqualified_person receives the economic benefit for federal_income_tax purposes section a of the foundation regulations defines a disqualified_person as any person who was in a position to exercise substantial influence over the affairs of an applicable_tax-exempt_organization at any time during the five-year period ending on the date of the transaction section d of the foundation regulations provides that a person is deemed not to be in a position to exercise substantial influence over the affairs of an applicable_tax-exempt_organization if the organization is described in sec_501 of the code and exempt form tax under sec_501 sec_53_4958-4 of the foundation regulations provides that an excess_benefit_transaction is any transaction in which an economic benefit is provided by an applicable tax- exempt_organization directly or indirectly to any disqualified_person to determine whether an excess_benefit_transaction has occurred all consideration and benefits exchanged between a disqualified_person and the applicable_tax-exempt_organization and all entities it controls are taken into account analysis the information you submitted indicates that following the conversion you will continue pursuing your historic charitable mission of helping those in need and preserving and enhancing life in both in your local community and around the world therefore you will continue to be organized and operated exclusively for charitable purposes within the meaning of sec_1_501_c_3_-1 of the regulations xin guaranteed payments from in addition the fact that you have chosen to accept dollar_figure supporting fund with a resulting increase in matching_contributions and an opportunity to receive discretionary contributions from supporting fund in the future in return for giving up contro of supporting fund is a reasonable means of achieving your charitable purposes the agreement will not confer any impermissible economic benefit on any insiders or private individuals rather you will be able to continue using your assets in furtherance of charitable purposes purposes within the meaning of sec_1_501_c_3_-1 of the regulations any money conveyed by the supporting fund to you pursuant to the terms of the conversion will be utilized exclusively for the charitable purposes underlying your tax-exempt status after the conversion you will continue to operate exclusively for charitable under sec_4958 of the code and sec_53_4958-4 of the foundation regulations an excess_benefit_transaction occurs when a charity provides an economic benefit directly or indirectly to or for_the_use_of any disqualified_person if the value of the benefit exceeds the value of the consideration received by the charity you have been recognized as an organization exempt from federal_income_tax under sec_501 and described in sec_501 as such you are not a disqualified_person within the meaning of sec_53 a and d the conversion does not involve the transfer of funds to a disqualified_person therefore the conversion will not give rise to any excise_tax liability under sec_4958 rulings based on the information submitted we rule as follows the conversion and the transactions described herein do not negatively affect your exempt status under sec_501 of the code or your public charity status under sec_509 or sec_170 provided that you continue to meet the public support requirement the conversion and the transactions described herein will not give rise to excise_taxes under sec_4958 of the code to you or any of your directors officers or employees who were involved in the planning or the execution of the conversion of the supporting fund to a private_foundation this ruling will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice 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 by others as precedent this ruling is based on the understanding there will be no material changes in the facts upon which it is based any changes that may have a bearing upon your tax status should be reported to the service this ruling does not address the applicability of any section of the code or regulations to the facts submitted other than with respect to the sections described because this letter could help resolve any future questions about tax consequences of your activities you should keep a copy of this ruling in your permanent records if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter in accordance with the power_of_attorney and declaration of representative currently on file with the service we are sending a copy of this letter to your authorized representative sincerely ronald j shoemaker manager exempt_organizations technical group enclosure notice


department of the treasury internal_revenue_service washington d c date uil number release date memorandum for sandra west quality assurance coordinator richmond from george blaine chief branch1 cc dom it a subject dependency_exemption for foster_child this memorandum is a response to an e-mail from jeryl crawford that raises the question why the service deleted the following language from publication however if a state one of its political subdivisions or a tax-exempt child placing agency makes payments to you as a foster parent you may not take an exemption for the child this office recommended the deletion of this language because under certain circumstances a foster parent may be able to claim a foster_child as a dependent despite receiving payments from a tax-exempt child placing agency or a state or one its political subdivisions sec_151 of the internal_revenue_code states the general_rule that allows an exemption for a dependent a whose gross_income for the calendar_year is less than the exemption_amount or b who is a child of the taxpayer and who has not attained the age of at the close of the calendar_year or who is a student who has not attained the age of at the close of the calendar_year sec_152 of the code defines the term dependent to include a son or daughter of the taxpayer if the taxpayer provides over half of the child’s support for the calendar_year or is treated as providing over half of the child’s support under subsection c or e of sec_152 sec_152 provides that a foster_child of a taxpayer shall be treated as a natural child of the taxpayer if the foster_child meets the requirements of sec_152 that is for the entire taxable_year of the taxpayer the foster_child has the taxpayer’s home as his principal_place_of_abode and is a member of the taxpayer’s household the receipt of foster_care_payments is relevant to whether the foster parent provides over half of the foster child’s support as required by sec_152 the receipt of foster_care_payments does not in itself preclude a foster parent from claiming a dependency_exemption for the foster_child as the deleted language in publication implied the receipt of foster_care_payments is not relevant to the member_of_the_household or relationship_test under sec_152 in calculating support under sec_152 payments that a foster parent receives from a tax-exempt child placing agency or a state or one of its political subdivisions would count as part of the foster child’s total support but would not count as support provided by the foster parent similarly a foster parent’s unreimbursed out-of-pocket expenses deducted under sec_170 would count as part of the foster child’s total support but would not count as support provided by the foster parent if the foster parent nevertheless provides over one-half of the foster child’s total support then the foster parent meets the support_test under sec_152 if you have any questions please call victoria driscoll at


norman hinerfeld petitioner v commissioner of internal revenue respondent docket no 20946-08l filed date r issued to p a final notice_of_intent_to_levy with regard to p’s unpaid trust fund recovery penalties totaling dollar_figure p timely requested a collection_due_process cdp hearing with the office of appeals appeals and submitted to appeals an offer-in-compromise oic of dollar_figure followed by an amended oic of dollar_figure the settlement officer assigned to the case recommended that the amended oic be accepted and sub- mitted the matter to r’s area_counsel for review in accord- ance with sec_7122 upon review area_counsel discovered that p and his wife were named as defendants in a lawsuit alleging that p had fraudulently conveyed assets to his wife area_counsel recommended that p’s amended oic be rejected and the appeals team manager agreed appeals issued to p a final notice_of_determination rejecting his amended oic and determining that it was appropriate to pro- ceed with the proposed levy p filed a timely petition for review with the court held although the matter was raised for the first time in p’s posttrial briefs the court will consider p’s argument that appeals and area_counsel engaged in prohibited ex_parte communications during the cdp hearing held further appeals and area_counsel were obliged to communicate with regard to p’s amended oic in accordance with sec_7122 and consequently their communica- tions were not prohibited ex_parte communications within the meaning of revproc_2000_43 2000_2_cb_404 held fur- ther appeals did not abuse its discretion in deciding to accept area counsel’s recommendation to reject p’s amended oic or in determining to proceed with the proposed levy richard stephen kestenbaum for petitioner donald alan glasel for respondent gale judge pursuant to sec_6330 sec_1 norman hinerfeld petitioner seeks review of respondent’s deter- mination to proceed with a levy to collect petitioner’s unpaid trust fund recovery penalties trust fund penalties assessed pursuant to sec_6672 for the quarterly periods ended september and date march september and date and date the issues for decision are whether respondent’s office of appeals appeals and area_counsel in the small_business self all section references are to the internal_revenue_code_of_1986 as amended verdate nov jun jkt po frm fmt sfmt v files bound vol without crop marks b v hiner sep jamie united_states tax_court reports employed division of the office_of_chief_counsel area_counsel engaged in prohibited ex_parte communications during petitioner’s collection_due_process cdp hearing and whether appeals abused its discretion in rejecting peti- tioner’s amended offer-in-compromise findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incor- porated herein by this reference the parties agree that all of the stipulated exhibits are part of the administrative record of the proposed collection action at issue at the time the petition was filed petitioner resided in new york on date respondent sent to petitioner by cer- tified mail a final notice_of_intent_to_levy and notice of your right to a hearing with respect to unpaid trust fund penalties totaling dollar_figure petitioner submitted to appeals a timely form request for a collection_due_process or equivalent_hearing indicating that he was preparing an offer-in-compromise oic petitioner does not dispute that he is liable for the trust fund penalties at issue as a responsible_person of thermacon industries inc thermacon on date petitioner submitted to appeals an oic of dollar_figure based on doubt as to collectibility and a form 433-a collection information statement for wage earners and self-employed individuals on date settlement officer carol berger so berger notified petitioner that his case had recently been transferred to her and she requested that he update his form 433-a on date petitioner submitted to so berger a revised form 433-a so berger subsequently deter- mined that petitioner’s reasonable collection potential was dollar_figure in early date petitioner amended his oic to dollar_figure amended oic on date so berger recommended that the internal_revenue_service irs accept petitioner’s amended oic and she requested area counsel’s verification and review upon review of the matter area_counsel discovered at the time of petitioner’s hearing reasonable collection potential was defined as the amount that could be collected from a taxpayer from all available means see internal_revenue_manual irm pt date that definition currently appears at irm pt date verdate nov jun jkt po frm fmt sfmt v files bound vol without crop marks b v hiner sep jamie hinerfeld v commissioner that petitioner and his wife ruth hinerfeld were named as codefendants along with other alleged business associates in a lawsuit filed in the u s district_court for the district of new jersey on date the pending lawsuit styled multi-glass atlantic inc v alnor assocs llc no 07-cv-04760 d n j filed date multi-glass law- suit concerned the sale of substantially_all of thermacon’s assets pursuant to an asset purchase agreement petitioner signed on thermacon’s behalf on date to reelan industries inc reelan a corporation wholly owned by petitioner’s children and rjtl inc a corporation wholly owned by ruth hinerfeld and petitioner’s children the asset purchase agreement valued the assets at dollar_figure million multi-glass claimed that petitioner and the other defend- ants fraudulently conveyed substantially_all of thermacon’s assets to reelan purposefully leaving thermacon unable to satisfy obligations to its creditors including multi-glass which had obtained a dollar_figure canadian dollars default judgment against thermacon in earlier litigation multi- glass claimed an interest in the assets that thermacon had transferred to reelan under the asset purchase agreement after area_counsel brought the multi-glass lawsuit to so berger’s attention she sent a letter to petitioner dated date posing to thermacon following questions related the an amended complaint of the above action multi-glass lawsuit filed names you as an officer of thermacon industries inc and thermacon penetec systems inc are you currently an officer owner share- holder of either of these entities if not when did your association cease who did you sell to and what was the sale price provide verification skip to question if you were not an officer owner of thermacon or thermacon penetec systems inc under the complaint in the plaintiff ’s proposed discovery plan filed they allege thermacon transferred all of its assets to reelan industries inc who were are the officer owners of reelan industries inc by letter dated date petitioner responded to so berger’s questions as follows i terminated my employment with the thermacon and penetec compa- nies in since that date i have not been an officer or shareholder of either entity all of the assets of of sic thermacon and penetec were liened by the lasalle bank supporting a dollar_figure million loan to thermacon verdate nov jun jkt po frm fmt sfmt v files bound vol without crop marks b v hiner sep jamie united_states tax_court reports in my wife purchased the lasalle lien which covered all of the thermacon and penetec assets for dollar_figure million the net assets of thermacon and penetec totaled dollar_figure million at that time immediately after assuming the lien why sic wife sold the thermacon and penetec assets to the reelan corporation for dollar_figure million in the form of notes and preferred_stock reelan never paid the cash notes portion of the purchase_price and the preferred_stock is worthless since reelan was liquidated in sic with no net assets n a petitioner’s responses conflicted with information in area counsel’s possession in response to question petitioner claimed that he had not been an officer or shareholder of thermacon since and that his wife sold the thermacon assets however in his answer to the amended complaint in the multi-glass lawsuit which is part of the administrative record petitioner specifically admitted that he signed the asset purchase agreement on behalf of thermacon on or about date further even though petitioner admitted in the multi-glass lawsuit that he had acted on behalf of thermacon in the asset sale to reelan he treated question concerning reelan’s ownership as inappli- cable to him on the grounds that he had no role in thermacon’s affairs in area_counsel reviewed petitioner’s responses to so berger’s date letter and concluded that it would be premature to accept his amended oic because the resolution of the multi-glass lawsuit might show that petitioner had participated in a fraudulent transfer of thermacon’s assets exposing ruth hinerfeld as petitioner’s nominee and pro- viding a new source for the irs to collect petitioner’s unpaid trust fund penalties the disposition of petitioner’s oic which was first sub- mitted to appeals on date was subject_to the month time restriction prescribed by sec_7122 in thi sec_3 respondent suggested at trial and on brief that petitioner’s transfer of a residence to his wife was a fraudulent transfer when this issue was considered in petitioner’s cdp hearing appeals concluded that it was not a fraudulent transfer and area_counsel agreed the transfer of the residence accordingly played no role in the determination to reject petitioner’s offer-in-com- promise and we decline to consider the issue further sec_7122 was added to the internal_revenue_code as part of the tax_increase_prevention_and_reconciliation_act_of_2005 tipra pub_l_no sec_509 sec_120 stat pincite and provides that an oic shall be deemed accepted by the secretary if the oic is not rejected by the secretary before the date which i sec_24 months after the date of submission of the oic sec_7122 is effective for oics submitted on or after date tipra sec_509 verdate nov jun jkt po frm fmt sfmt v files bound vol without crop marks b v hiner sep jamie hinerfeld v commissioner regard so berger conducted a telephone conference with petitioner’s counsel on date and informed him that her supervisor appeals team manager john o’dea atm o’dea agreed with area counsel’s recommendation to reject petitioner’s amended oic during this same telephone con- ference so berger informed petitioner’s counsel that appeals was amenable to designating petitioner’s liability currently not collectible petitioner rejected the proposal to place his account in currently not collectible status by letter dated date atm o’dea informed petitioner that his amended oic had been rejected on date appeals sent petitioner a notice_of_determination concerning collection action s under sec_6320 and or notice_of_determination rejecting the amended oic and sustaining the proposed levy the notice_of_determination stated in relevant part the amended oic was investigated and recommended for approval by appeals but area_counsel determined that there might be additional collection potential once a pending lawsuit was resolved and appeals offered to designate petitioner’s account currently not collectible as a less intrusive alternative to the proposed levy petitioner filed a timely petition with the court contesting respondent’s determination to proceed with the proposed levy petitioner alleged that respondent erred in failing to agree to refrain from the proposed levy and in con- cluding that designating petitioner’s account currently not collectible was an appropriate collection alternative petitioner alleged in paragraph of the petition that although an offer_in_compromise was submitted and was recommended for approval by the appeals officer area_counsel determined that there may be additional collection potential based upon the possible resolution of an unrelated litigation petitioner did not expressly challenge the pro- priety of the communications between appeals and area_counsel in the petition or at any time before or during the trial of this case petitioner argued for the first time in hi sec_5 so berger disagreed with area counsel’s opinion that petitioner’s amended oic should be rejected however authority to accept petitioner’s oic resided with atm o’dea see 136_tc_475 and authorities thereat cited see also delegation_order rev irm pt date see irm pt date verdate nov jun jkt po frm fmt sfmt v files bound vol without crop marks b v hiner sep jamie united_states tax_court reports posttrial briefs that appeals had engaged in prohibited ex_parte communications with area_counsel i collection procedures opinion sec_6331 authorizes the secretary to levy upon all property and rights to property belonging to a taxpayer liable for taxes who fails to pay those taxes within days of notice_and_demand for payment the levy authorized in sec_6331 may be made only if the secretary has given written notice to the taxpayer at least days before the day of the levy identifying the amount of the unpaid tax and informing the taxpayer of his right to a cdp hearing with appeals sec_6331 sec_6330 if the taxpayer submits a timely request for a cdp hearing sec_6330 requires appeals to obtain verification from the secretary that the requirements of any applicable law or administrative procedure have been met in addition the taxpayer may raise at the cdp hearing any relevant issue relating to the unpaid tax or the proposed levy including offers of collection alternatives such as oics or in certain circumstances a challenge to the underlying liability sec_6330 and b at the conclusion of the cdp hearing appeals must determine whether to proceed with the collec- tion action and shall take into account the required verification issues raised by the taxpayer and whether any proposed collection action balances the need for the efficient collection_of_taxes with the legitimate concern of the taxpayer that any collection action be no more intrusive than nec- essary sec_6330 this court has jurisdiction to review appeals’ administra- tive determinations sec_6330 because petitioner does not dispute his liability for the trust fund penalties we review appeals’ determination for abuse_of_discretion see 114_tc_604 114_tc_176 in reviewing a cdp determination for abuse_of_discretion generally we consider only issues raised in the cdp hearing see giamelli v verdate nov jun jkt po frm fmt sfmt v files bound vol without crop marks b v hiner sep jamie hinerfeld v commissioner commissioner 129_tc_107 see also sec_301_6330-1 q a-f3 proced admin regs ii ex_parte communications as a preliminary matter we consider whether petitioner should be permitted to raise the issue of whether appeals and area_counsel engaged in prohibited ex_parte commu- nications respondent asserts that petitioner’s argument regarding the communications is a new issue and that the court should decline to consider it now because it was not raised in the pleadings or at trial the principle that a party may not raise a new issue on brief is not absolute rather it is founded upon the exercise of judicial discretion and frequently turns on a determination whether the opposing party will be prejudiced in having to respond to a belated issue which precludes or limits that party’s opportunity to present pertinent evidence see 92_tc_1267 aff ’d 906_f2d_62 2d cir see also toyota town inc v commis- sioner tcmemo_2000_40 aff ’d sub nom 268_f3d_1156 9th cir petitioner’s argument regarding impermissible ex_parte contacts inconsistent with the pleadings and respondent does not contend that he would suffer any mean- ingful prejudice if the court considered the argument indeed the record includes all the information the court needs to resolve what is in essence a legal issue accordingly we will consider petitioner’s argument notwithstanding that it was raised for the first time in his posttrial briefs is not congress directed the commissioner to develop a plan to restrict ex_parte communications between appeals employees and other irs employees as part of the internal_revenue_service restructuring and reform act of rra pub_l_no sec_1001 sec_112 stat pincite rra sec_1001 provides as follows effective for cdp hearing requests made on or after date the applicable version of the regulations is sec_301_6330-1 q a-f3 proced admin regs see t d 2006_2_cb_887 verdate nov jun jkt po frm fmt sfmt v files bound vol without crop marks b v hiner sep jamie united_states tax_court reports sec_1001 reorganization of the internal_revenue_service a in general -the commissioner of internal revenue shall develop and implement a plan to reorganize the internal_revenue_service the plan shall- ensure an independent appeals function within the internal_revenue_service including the prohibition in the plan of ex_parte communications between appeals officers and other internal_revenue_service employees to the extent that such communications appear to compromise the independ- ence of the appeals officers in accordance with this congressional mandate the commis- sioner issued revproc_2000_43 2000_2_cb_404 which provides guidelines in question and answer format that are designed to distinguish prohibited and permissible ex_parte communications between appeals and other irs employees during an administrative appeal in so doing the review procedure does not adopt formal ex_parte procedures that would apply in a judicial proceeding but instead attempts to ensure the independence of the appeals organization while preserving the role of appeals as a flexible administrative settlement authority operating within the internal revenue service’s overall framework of tax_administration responsibil- ities id sec_2 citing revproc_2000_43 supra and certain other administrative guidance petitioner argues that the discus- sions wherein area_counsel alerted so berger to the multi- glass lawsuit and the possibility of a fraudulent conveyance and recommended rejection of petitioner’s oic constituted prohibited ex_parte communications which compromised the independence of appeals consequently petitioner contends the case must be remanded for a supplemental hearing respondent contends that the discussions between area_counsel and appeals were not prohibited ex_parte contacts we agree with respondent revproc_2000_43 q a-11 c b pincite specifi- cally addresses communications between appeals and the office_of_chief_counsel acknowledging the need for appeals employees to obtain legal advice from the office_of_chief_counsel a-11 provides three limitations on communications revproc_2000_43 2000_2_cb_404 has been superseded by revproc_2012_18 2012_10_irb_455 effective for communications after date verdate nov jun jkt po frm fmt sfmt v files bound vol without crop marks b v hiner sep jamie hinerfeld v commissioner between appeals employees and office_of_chief_counsel attorneys appeals employees must not communicate with chief_counsel attorneys who have previously provided advice to the irs employees who made the determination appeals is reviewing requests for legal advice where the answer is uncertain should be referred to the chief counsel’s national_office and handled as requests for field_service_advice or technical_advice and although appeals employees may obtain legal advice from the office_of_chief_counsel they remain responsible for making independent evaluations and judgments concerning the cases appealed to them and counsel attorneys are prohibited from offering advice that includes settlement ranges for any issue in an appealed case there is no evidence that the area_counsel attorneys with whom appeals conferred in this case had previously advised any employee who made the determination under appeals review that is any employee of the collection_division who made the determination to levy on petitioner’s property in addition the administrative record establishes that while so berger disagreed with area counsel’s recommendation to reject petitioner’s amended oic the decision to reject the oic was made by atm o’dea who rather than so berger had the authority to do so unlike so berger atm o’dea agreed with area counsel’s recommendation to reject given the substantial evidence that area_counsel had marshaled to support the conclusion that petitioner had made a fraudulent conveyance we are satisfied that atm o’dea exercised independent judgment as contemplated in revproc_2000_43 supra when he agreed with area counsel’s recommenda- tion thus the communications between appeals and area see supra note in deciding this case we are not required to and do not determine whether petitioner en- gaged in any fraudulent conveyance it is sufficient for our purposes that area_counsel had un- covered substantial evidence of such a conveyance the evaluation of whether appeals com- mitted an abuse_of_discretion turns in large part upon information available to it when a deter- mination is made in this regard we note that the administrative record indicates that peti- tioner’s answers to appeals’ queries concerning the sale of thermacon’s assets were on their face inconsistent with the position he took in his pleadings in the multi-glass lawsuit and he made no effort to address those inconsistencies in the proceedings before appeals or this court petitioner makes much of the fact that so berger rather obviously disagreed with area counsel’s recommendation to reject petitioner’s amended oic contending that this fact dem- onstrates that so berger was unaware of her authority to reject area counsel’s advice and of her obligation to reach an independent determination as provided in revproc_2000_43 supra the short answer to petitioner’s argument is that so berger did not make the decision to reject the oic she lacked authority to do so the decision on behalf of appeals was made by atm continued verdate nov jun jkt po frm fmt sfmt v files bound vol without crop marks b v hiner sep jamie united_states tax_court reports counsel in this case do not fall within the limitations pre- scribed in revproc_2000_43 supra moreover review by area_counsel here was mandated by statute sec_7122 permits the secretary to compromise any civil case arising under the internal revenue laws sec- tion d provides that the secretary shall prescribe guidelines for irs officers and employees to determine whether an oic is adequate and should be accepted to resolve a dispute sec_7122 however provides that if the sec- retary makes a compromise in a civil case in which the unpaid amount of the tax assessed is dollar_figure or more an opinion of the general counsel for the department of the treasury or_his_delegate shall be placed on file in the office of the secretary see also sec_301_7122-1 proced admin regs internal_revenue_manual irm pt date petitioner submitted his oic to appeals on the basis of doubt as to collectibility a concept that is defined in sec_301_7122-1 proced admin regs as any case where the taxpayer’s assets and income are less than the full amount of the liability sec_301_7122-1 proced admin regs provides special rules for evaluating oics based on doubt as to collectibility subdivision ii a of that provision states in relevant part ii nonliable spouses - a in general -where a taxpayer is offering to compromise a liability for which the taxpayer’s spouse has no liability the assets and income of the nonliable spouse will not be considered in deter- mining the amount of an adequate offer the assets and income of a non- liable spouse may be considered however to the extent property has been transferred by the taxpayer to the nonliable spouse under circumstances that would permit the irs to effect collection of the taxpayer’s liability from such property eg property that was conveyed in fraud of creditors general counsel for the treasury has delegated responsi- bility for the legal review of oics under sec_7122 to the office_of_chief_counsel with the concomitant authority to re- delegate such responsibility general counsel order no rev date irm pt the office_of_chief_counsel redelegated this authority to irs division counsel in the small_business self employed division irm pt o’dea after what we are satisfied was an exercise of independent judgment verdate nov jun jkt po frm fmt sfmt v files bound vol without crop marks b v hiner sep jamie hinerfeld v commissioner the small_business self employed division in turn redelegated this authority to area_counsel and asso- ciate area_counsel irm pt d date irm pt date states that when counsel review is required under sec_7122 counsel must determine whether the legal requirements for com- promise have been met and if so counsel shall review the proposed acceptance for consistent application of the irs’ poli- cies regarding whether the proposed compromise amount is acceptable irm pt iii date states that when a taxpayer has submitted an oic based on doubt as to collectibility counsel’s review should include a deter- mination of whether fraudulent_conveyances and or trans- feree liability issues have been properly resolved irm pt cautions however that in making its determina- tions concerning acceptance of all oics ie those based upon doubt as to collectibility as well as doubt as to liability and effective tax_administration counsel must rely upon fac- tual determinations made by the service these determina- tions should ordinarily not be reexamined by counsel unless patently erroneous in sum area counsel’s review of and negative rec- ommendation concerning petitioner’s amended oic premised on its findings concerning the possibility of a fraudulent conveyance was mandated by the statute the regulations and applicable administrative procedures revproc_2000_43 supra does not directly address ex_parte communications that occur between appeals and the office_of_chief_counsel area_counsel obviously investigated and developed new facts not considered by appeals with respect to petitioner’s possible fraudulent conveyance while the irm provision noted above covering all oics states that ordinarily counsel should not reexamine factual determinations made by the service unless patently erroneous we are satisfied that the irm provision specifi- cally addressed to oics based on doubt as to collectibility which directs counsel to determine whether fraudulent conveyance issues have been properly resolved contemplates investiga- tions like those undertaken by area_counsel in this case and constitutes an exception to the general requirement that counsel ordinarily defer with respect to factual determinations we further note that the prohibition on appeals employees’ communications concerning the accuracy of the facts presented by the taxpayer and the relative importance of the facts to the determination appears in q a-5 of revproc_2000_43 supra concerning communications be- tween appeals employees and employees of the originating function ie the function where the determination was made that appeals is reviewing the prohibition is not stated in q a- concerning communications between appeals employees and employees of the office_of_chief_counsel thus to the extent communications between appeals and counsel concerning the facts of a case are restricted those restrictions are found in the irm rather than revproc_2000_43 supra the irm nonetheless contemplates reexamination of facts by chief_counsel employ- ees in certain circumstances including in connection with review of fraudulent conveyance issues verdate nov jun jkt po frm fmt sfmt v files bound vol without crop marks b v hiner sep jamie united_states tax_court reports pursuant to a statutory mandate such as sec_7122 however revproc_2000_43 supra covers a comparable scenario in q a-16 concerning communications between appeals and the commissioner or other service officials who have overall supervisory responsibility for irs operations noting the commissioner’s supervisory responsibilities under sec_7803 a-16 states that ex_parte communications about specific cases are permissible between appeals and the commissioner and other irs officials with overall supervisory responsibility thus a-16 exempts ex_parte communications that occur pursuant to the statutory responsibilities of irs employees who communicate with appeals employees in fulfillment of those responsibilities we conclude that the same principle applies to appeals employees’ communications with office_of_chief_counsel employees in fulfillment of their responsibilities under sec_7122 in reaching this conclusion we also apply the principle of statutory construction that where two statutes potentially conflict a court should ‘read the statutes to give effect to each if we can do so while preserving their sense and pur- pose ’ 91_tc_926 quoting 451_us_259 we should attempt to interpret or reconcile them in a manner which will not cause an arbitrary or unreasonable result id the predecessor of sec_7122 was first enacted in see act of july ch sec_102 sec_15 stat pincite and a dollar_figure threshold for review was added as part of the internal_revenue_code of ch sec_7122 sec_68a stat pincite the threshold in sec_7122 for com- promised liabilities requiring general counsel review was more recently raised to dollar_figure from dollar_figure in see tax- payer bill of right sec_2 pub_l_no sec_503 sec_110 stat pincite two years later in rra sec_1001 congress directed the commissioner to develop a plan restricting ex_parte communications between appeals employees and other irs employees nothing in the legisla- tive history of rra sec_1001 suggests that con- gress intended that directive to circumscribe the review of an oic by the general counsel or_his_delegate mandated in sec_7122 where the oic is the subject of appeals consideration revproc_2000_43 supra can be readily interpreted to permit full review by the office of chief verdate nov jun jkt po frm fmt sfmt v files bound vol without crop marks b v hiner sep jamie hinerfeld v commissioner counsel of an oic based on doubt as to collectibility including nondeferential factual determinations incident to the issue of a fraudulent conveyance the applicable irm guidelines buttress that interpretation we reject petitioner’s arguments to the contrary which contend that area coun- sel’s investigation and development of the facts concerning a possible fraudulent conveyance and negative recommenda- tion to appeals concerning the oic as a result constitute prohibited ex_parte communications contemplated by con- gress and proscribed by revproc_2000_43 supra for the foregoing reasons we hold that communications between employees of the office_of_chief_counsel and appeals to facilitate compliance with sec_7122 are not prohibited ex_parte communications for purposes of rra sec_1001 or revproc_2000_43 supra iii abuse_of_discretion aside from his ex_parte communications argument peti- tioner contends that an abuse_of_discretion occurred because area_counsel exercised undue influence over what should have been an independent review of his amended oic by appeals and so berger did not understand she need not accept area counsel’s negative recommendation as pre- viously discussed area counsel’s review and recommenda- tion concerning petitioner’s oic was mandated by statute and complied with applicable regulations and administrative procedures so berger lacked authority to accept the oic and we are satisfied atm o’dea who had such authority exercised independent judgment in accepting area counsel’s recommendation when he did so atm o’dea had before him substantial evidence that petitioner had effected a fraudulent conveyance of the thermacon assets and petitioner’s incon- sistent representations regarding when he ceased to control those assets generally a doubt as to collectibility oic may be accepted only when it equals or exceeds the taxpayer’s reasonable collection potential irm pt date see also revproc_2003_71 sec_4 2003_2_cb_517 amounts includible in a taxpayer’s reasonable collection potential include amounts collectible from third parties through judicial action such as a suit to set_aside a fraudu- verdate nov jun jkt po frm fmt sfmt v files bound vol without crop marks b v hiner sep jamie united_states tax_court reports lent conveyance irm pt date the thermacon assets for which there was substantial evidence of a fraudulent conveyance and about which petitioner appeared to be dissembling were conceded by him to be worth dollar_figure million at the time of transfer in view of the time constraints imposed by sec_7122 and the apparently protracted nature of the multi-glass lawsuit petitioner was offered the collection alternative of placing his account in currently not collectible status which he rejected in these circumstances atm o’dea’s decision to reject an oic to settle trust fund penalties totaling dollar_figure for dollar_figure was not an abuse_of_discretion if anything this case illustrates not an abuse_of_discretion by irs employees but instead the wisdom of requiring the office of chief counsel’s review of fraudulent conveyance issues iv conclusion petitioner did not challenge the existence or amount of his liability for the trust fund penalties that respondent seeks to collect nor did he raise any other challenges to the appro- priateness of the collection action because we have found that there were no prohibited ex_parte communications and that there was no abuse_of_discretion in rejecting petitioner’s amended oic we conclude that respondent correctly deter- mined to proceed with the proposed levy to reflect the foregoing decision will be entered for respondent f verdate nov jun jkt po frm fmt sfmt v files bound vol without crop marks b v hiner sep jamie


internal_revenue_service number release date index number ------------------- -------------------------------------------- ------------------ -------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------- id no ----------------- telephone number --------------------- refer reply to cc psi b01 plr-117646-11 date august legend legend ---------------------- x -------------------------------------------------- state d1 ------ --------------------- a ----------------------- ---------------------------------------------------- b -------------------------- ---------------------------------------------------- d2 -------------------------- trust ----------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- -- --------------------------------------------------------- -------------------------------------------------- ----------------------------------------------------------------------------------------- trust ------ --------------------------------------------------------- -------------------------------------------------- dear -------------- plr-117646-11 this responds to the letter dated date and related correspondence submitted on behalf of x requesting relief under ' f of the internal_revenue_code acode for an inadvertent termination of s election facts the information submitted states that x was organized under the laws of state on d1 x elected to be treated as an s_corporation effective d1 x had two individual shareholders a and b on d2 a transferred a portion of a’s stock in x to trust also on d2 b transferred a portion of b’s stock in x to trust x and its shareholders were unaware of the fact that trust and trust were ineligible shareholders and did not intend the s election of x to terminate further x and its shareholders were not aware of the necessity of qualified_subchapter_s_trust qsst elections and therefore the beneficiaries of trust and trust did not file qsst elections on behalf of trust and trust immediately after the discovery of the error x and its shareholders took remedial action additionally x and its shareholders agree to make any adjustments required by the commissioner consistent with the treatment of x as an s_corporation law and analysis sec_1361 defines an s_corporation as a small_business_corporation for which an election under sec_1362 is in effect for the taxable_year sec_1361 provides that a small_business_corporation cannot have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1362 provides that a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1361 provides that a_trust all of which is treated under subpart e of part i of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states may be an s_corporation shareholder sec_1361 provides in part that a qsst whose beneficiary makes an election under ' d will be treated as a_trust described in ' c a i thereby an eligible shareholder of an s_corporation and the qsst s beneficiary will be plr-117646-11 treated as the owner for purposes of ' a of that portion of the qsst s s_corporation stock to which the election under ' d applies under sec_1361 a beneficiary of a qsst or his legal_representative may elect to have sec_1361 apply under sec_1361 this section will be effective up to days and months before the date of the election sec_1361 defines the term aqualified subchapter_s_trust as a_trust - a the terms of which require that i during the life of the current income_beneficiary there shall be only income_beneficiary of the trust ii any corpus distributed during the life of the current income_beneficiary may be distributed only to such beneficiary iii the income_interest of the current income_beneficiary in the trust shall terminate on the earlier of such beneficiary s death or the termination of the trust and iv upon the termination of the trust during the life of the current beneficiary the trust shall distribute all its assets to such beneficiary and b all of the income within the meaning of ' b of which is distributed or required to be distributed currently to individual who is a citizen or resident_of_the_united_states sec_1362 provides that an election under ' a shall be terminated whenever at any time on or after the first day of the taxable_year for which the corporation is an s_corporation the corporation ceases to be a small_business_corporation the termination is effective on and after the day of cessation ' d b sec_1362 provides in part that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the ineffectiveness or termination steps were taken - a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified plr-117646-11 pursuant to this subsection agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness or termination such corporation shall be treated as an s_corporation during the period specified by the secretary sec_1_1361-1 of the income_tax regulations provides that the current income_beneficiary of the trust or his legal_representative must make the qsst election by signing and filing with the service_center with which the corporation files its income_tax the applicable form or a statement including the information listed in sec_1_1361-1 sec_1_1361-1 provides that if s_corporation stock is transferred to a_trust the qsst election must be made within the 16-day-and-2-month period beginning on the day that the stock is transferred to the trust sec_1_1361-1 provides that the income_beneficiary who makes the qsst election and is treated for purposes of sec_678 as the owner of that portion of the trust that consists of s_corporation stock is treated as the shareholder for purposes of sec_1361 sec_1366 sec_1367 and sec_1368 sec_1_1362-4 provides that the commissioner may require any adjustments that are appropriate in general the adjustments required should be consistent with the treatment of the corporation as an s_corporation during the period specified by the commissioner conclusion based solely upon the facts submitted and the representations made we conclude that x’s s election terminated on d2 we further conclude that the termination of x’s s election constituted an inadvertent termination within the meaning of sec_1362 under sec_1362 x will be treated as an s_corporation from d2 and thereafter provided that x’s s election was otherwise valid and has not otherwise terminated under sec_1362 this ruling is contingent upon x and all its shareholders treating x as having been an s_corporation and trust and trust as qssts for the period beginning d2 and thereafter within days from the date of this letter the beneficiaries or their legal representatives of trust and trust must respectively elect to treat trust and trust as qssts effective d2 with the appropriate campus copies of this letter should be attached to the elections if these conditions are not met then this ruling is null and void plr-117646-11 except as specifically set forth above no opinion is expressed or implied concerning the federal tax consequences of the above-described facts under any other provision of the code including whether x was otherwise eligible to be an s_corporation or whether trust and trust were otherwise eligible to be qssts this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office copies of this letter_ruling will be sent to your authorized representatives sincerely laura c fields laura c fields acting senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for ' purpose-s


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 plr-153894-08 date date legend parent ------------------------------------------------------------------------------------- ----------------------------------------------------------------------------- ----------------------------------- sub ------------------------------------------------------------------------------------- ----------------------------------------------------------------------------- ------------------------------------- sub ------------------------------------------------------------------------------------- ----------------------------------------------------------------------------- ------------------------------------- sub ------------------------------------------------------------------------------------------ ----------------------------------------------------------------------------- ----------------------------------------- sub ------------------------------------------------------------------------------------- ----------------------------------------------------------------------------- ---------------------------------- sub ------------------------------------------------------------------------------------------ ----------------------------------------------------------------------------- ---------------------- state a date ------------- -------------------------- plr-153894-08 year ------- company official ------------------------------------------------------------------------------------ ----------------------------------------------------------------------------------------- ------------------ tax professional ------------------------------------------------------------------------ ---------------------------------------------------------------------------------- ---------------------------- dear ------------- time under sec_301_9100-3 of this letter responds to a letter dated date submitted on behalf of parent requesting an extension of the procedure and administration regulations to file an election the extension is being requested for parent and its includible subsidiaries to make an election to file a consolidated federal_income_tax return with parent as the common parent under sec_1_1502-75 of the income_tax regulations the election effective for the taxable_year ended date1 additional information was received in letters dated date and date the material information is summarized below parent a calendar_year taxpayer is a corporation under the laws of state a parent as of the end of year wholly owned sub and sub1 wholly owned sub sub sub and sub an election under sec_1_1502-75 for the parent affiliated_group to file a consolidated_return for year was due no later than the last day prescribed by law including extensions of time for filing parent’s return however for various reasons a valid election was not timely filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file the election the period of limitations on assessment under sec_6501 of the internal_revenue_code code has not expired for parent's or its subsidiaries' taxable years for which they desire to make the election or for any taxable_year that would be affected by the election sec_1_1502-75 provides that a group which did not file a consolidated_return for the immediately preceding_taxable_year may file a consolidated_return in lieu of separate returns for the taxable_year provided that each corporation which has been a member of the group during any part of the taxable_year for which the consolidated_return is to be filed consents to the regulations under sec_1502 if a group wishes to exercise its privilege of filing a consolidated_return such consolidated_return must be filed not later than the last day prescribed by law including extensions of time for filing the common parent's return plr-153894-08 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 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 it is established 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 a therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for parent and its subsidiaries to file the election provided parent and its subsidiaries 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 representations and affidavits submitted by parent company official and tax professional explain the circumstances that resulted in the failure to timely file the election the information establishes that parent reasonably relied on a qualified_tax professional who failed to make or advise parent to make the election see sec_301_9100-3 based on the facts and information submitted including the affidavits submitted and representations that have been made we conclude that parent and its subsidiaries have shown they 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_9100-3 until days from the date on this letter for parent and its subsidiaries to file the election by filing a consolidated_return with parent as the common parent and attaching a form_1122 for each of the subsidiaries for the year taxable_year the above extension of time is conditioned on the taxpayers' parent's and its subsidiaries' 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 made timely taking into account the time_value_of_money no opinion is expressed as to the taxpayers' tax_liability for the years involved a determination thereof will be made by the director's office upon audit of the federal plr-153894-08 income_tax returns involved in addition no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers' tax_liability is lower sec_301_9100-3 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 further we express no opinion as to the tax 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 specifically no opinion is provided as to whether in fact parent and its subsidiaries qualify substantively to file a consolidated_return for purposes of granting relief under sec_301_9100-3 we relied on certain information and affidavits provided by parent company official and tax professional under penalties of perjury however facts moreover notwithstanding that the extension is granted under sec_301_9100-3 to file the election any penalties and interest that would otherwise be applicable still apply the director should verify all essential 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 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely ken cohen acting chief branch office of associate chief_counsel corporate cc


internal_revenue_service number release date index number ---------------- --------------------- --------------------------------- ------------------------------------- ------------------------------------------------ -------------------------------------- legend department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------------- --------------------------------------------------- telephone number ---------------------- refer reply to cc fip b01 plr-107391-15 date january taxpayer --------------------------------------------------------------------- ----------------------------------- partnership state a state b city month a year a a b c d e --------------------------------- -------------- -------------- ------------------ --------- ------- ---------- ------------ -------- ---------------- ---- plr-107391-15 dear -------------- this letter is in reply to a letter dated date in which taxpayer requests certain rulings in connection with its status as a real_estate_investment_trust reit under sec_856 of the internal_revenue_code specifically taxpayer has asked for the following rulings taxpayer’s right to receive its share of the total annual payment as defined below constitutes a receivable that arises in the ordinary course of taxpayer’s operations as owner and lessor of real_property within the meaning of sec_1_856-2 of the income_tax regulations and therefore is a receivable for purposes of sec_856 taxpayer’s income attributable to its share of the annual rebate amount as defined below represents a refund of real_property_taxes under sec_856 and e and therefore is qualifying_income under sec_856 and and pursuant to sec_856 taxpayer’s income attributable to the receipt of its share of the annual refund amount as defined below is considered qualifying_income for purposes of sec_856 and facts taxpayer is a state a limited_liability_company that has elected to be taxed as a reit under sec_856 through taxpayer is in the business of owning and renting commercial real_estate taxpayer owns a percent of the interests in partnership a state b limited_liability_company treated as a partnership for u s federal_income_tax purposes partnership owns directly and through a disregarded_entity land upon which it is developing a new b square foot mixed-use shopping center that will include an anchor retailer a fueling station restaurants a community center and other retail and service businesses typically found in a mixed-use shopping center along with associated common spaces parking and landscaping the project the land on which the project is being developed is a c net acre site located in city taxpayer represents that upon completion the project will be real_property within the meaning of sec_856 that taxpayer owns and leases to third party tenants and personal_property leased in connection with the real_property for the purpose of generating qualifying rents_from_real_property under sec_856 and in month a of year a partnership entered into an agreement with city regarding the project the agreement city determined that the development of the project on a long-vacant site in the community would be of public benefit and would contribute to the general welfare of its citizens eliminating a source of economic and physical blight and plr-107391-15 creating construction jobs and permanent operational jobs in addition city determined that the project would increase city’s tax_base to better fund municipal facilities and services and to provide other public benefits given the anticipated benefits to city partnership and city sought to expedite the construction of the project in order to facilitate the project’s construction city determined that it would provide up to d dollars to partnership to partially offset the cost of the project the total_payment city’s policy for reinvestment of site specific tax revenues provides that no more than e percent of the net new tax revenues collected by city as a result of a project may be reinvested for purposes of offsetting project costs city considers net new tax revenues to be tax revenues including property taxes and any sales or use taxes actually paid to and received by city subsequent to the completion of a specific project that are directly attributable to the development and operation of such project and are in excess of certain specified revenues already received by city as a result the agreement provides that city will establish a special fund into which city will deposit from its general funds on a yearly basis an amount equal to e percent of net new tax revenues generated by the development of the project and will remit to partnership on a yearly basis out of amounts so deposited into the special fund annual payments each comprising i a rebate of city’s share of property taxes paid_by partnership the annual rebate amount and ii to the extent e percent of net new tax revenues is in excess of annual rebate amount an additional_amount the annual refund amount the total amount due to partnership pursuant to the agreement in a single year is referred to as the total annual payment partnership will be entitled to the total annual payment each year until the earliest of i the twenty- fifth anniversary of the completion of the project ii the date on which partnership has received the total_payment or iii the termination of the agreement partnership will record each year unpaid claims for the year’s total annual payment as a receivable for generally_accepted_accounting_principles gaap purposes taxpayer represents that the rental income that the project will generate will be qualifying_income for purposes of sec_856 and taxpayer expects that substantially_all of the income derived from the project other than amounts received under the agreement will be qualifying_income for purposes of sec_856 and law and analysis asset test sec_856 provides that in order for a corporation to qualify as a reit for a taxable_year at the close of each quarter of a taxable_year at least percent of plr-107391-15 the value of the corporation's total assets must be represented by real_estate_assets cash and cash items including receivables and government securities sec_1_856-2 of the income_tax regulations defines the term receivables for purposes of sec_856 to mean only those receivables that arise in the ordinary course of a reit's operation excluding receivables purchased from another person sec_1_856-2 provides that in determining the investment status of a reit the term total assets means the gross assets of the reit determined in accordance with gaap under sec_1_856-3 a reit that is a partner in a partnership is deemed to own its proportionate share of each of the assets of the partnership and to be entitled to the income of the partnership attributable to that share for purposes of sec_856 the interest of a partner in the partnership's assets is determined in accordance with the partner's capital interest in the partnership the character of the various assets in the hands of the partnership and items of gross_income of the partnership retain the same character in the hands of the partners for all purposes of sec_856 the right of taxpayer to receive taxpayer’s share of the total annual payment through its interest in partnership arises from the development of real_property on land in connection with the leasing business of partnership and taxpayer to the extent that taxpayer’s right to receive taxpayer’s share of the total annual payment is an asset under gaap such right is a receivable that arises in the ordinary course of taxpayer’s operations within the meaning of sec_1_856-2 and therefore qualifies as a receivable for purposes of sec_856 income tests sec_856 provides that in order for a corporation to qualify as a reit for a taxable_year at least percent of the corporation's gross_income excluding gross_income from prohibited_transactions must be derived from certain enumerated sources which include dividends interest rents_from_real_property gain from the sale_or_other_disposition of stock securities and real_property other than property in which the corporation is a dealer abatements and refunds of taxes on real_property income and gain derived from foreclosure_property and certain commitment_fees sec_856 provides that in order for a corporation to qualify as a reit for a taxable_year at least percent of the corporation's gross_income excluding gross_income from prohibited_transactions must be derived from certain enumerated sources which include rents_from_real_property interest on obligations secured_by real_property gain from the sale_or_other_disposition of real_property other than property in which the corporation is a dealer distributions on and gain from the sale of reit stock plr-107391-15 abatements and refunds of taxes on real_property income and gain derived from foreclosure_property certain commitment_fees and qualified_temporary_investment_income sec_856 provides that to the extent necessary to carry out the purposes of part ii of subchapter_m of the code the secretary is authorized to determine solely for purposes of such part whether any item_of_income or gain i that does not otherwise qualify under sec_856 or may be considered as not constituting gross_income for purposes of sec_856 or or ii that otherwise constitutes gross_income not qualifying under sec_856 or may be considered as gross_income that qualifies under sec_856 or the legislative_history underlying the tax treatment of reits indicates that a central concern behind the gross_income restrictions is that a reit’s gross_income should largely be composed of passive_income for example h_r rep no 86th cong 2d sess pincite 1960_2_cb_819 pincite states o ne of the principal purposes of your committee in imposing restrictions on types of income of a qualifying real_estate_investment_trust is to be sure the bulk of its income is from passive_income sources and not from the active_conduct_of_a_trade_or_business the annual rebate amount is tied to the payment of real_property_taxes by taxpayer because the basis for the annual rebate amount is the actual payment of real_property_taxes previously paid_by partnership therefore taxpayer’s gross_income attributable to the receipt or accrual of taxpayer’s share of the annual rebate amount is gross_income derived from a refund of taxes on real_property under sec_856 and e taxpayer’s gross_income attributable to the receipt or accrual of taxpayer’s share of the annual refund amount is not tied to the payment of taxes on real_property and is not derived from any other source enumerated in sec_856 or under sec_856 the secretary is authorized to determine that gross_income attributable to taxpayer’s share of the annual refund amount be considered as qualifying gross_income under sec_856 and on the basis of all of the facts and circumstances including taxpayer’s representation that the rental income generated by the project will be qualifying_income under sec_856 and treating taxpayer’s share of the annual refund amount as qualifying_income does not interfere with or impede the objectives of congress in enacting sec_856 and conclusion we hereby rule as follows plr-107391-15 taxpayer’s right to receive taxpayer’s share of the total annual payment to the extent such right is an asset under gaap is a receivable that arises in the ordinary course of taxpayer’s operations as owner and lessor of real_property within the meaning of sec_1_856-2 and is therefore a receivable for purposes of sec_856 the annual rebate amount represents a refund of real_property_taxes described in sec_856 and e and therefore taxpayer’s gross_income from the receipt or accrual of taxpayer’s share of the annual rebate amount is qualifying_income under sec_856 and and pursuant to sec_856 taxpayer’s gross_income from the receipt or accrual of taxpayer’s share of the annual refund amount is considered qualifying_income for purposes of sec_856 and this ruling's application is limited to the facts representations code sections and regulations cited herein except as specifically ruled upon above no opinion is expressed concerning any federal_income_tax consequences related to the facts herein under any other provisions of the code specifically we do not rule whether taxpayer qualifies as a reit under part ii of subchapter_m of chapter of the code this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the provisions of a power_of_attorney on file we are sending a copy of this ruling letter to your authorized representatives 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 although 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 steven harrison chief branch office of associate chief_counsel financial institutions products


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 b04 plr-126559-16 date date internal_revenue_service number release date index number --------------------------- ---------------------------- ----------------------------------------- re e re ----------------------------------- legend decedent ---------------------- ----------------------------------------------------------- spouse ---------------------- date ----------------------- date ----------------------------- dear -------------- this letter responds to your representative’s letter of date and other correspondence requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the portability election under sec_2010 of the internal_revenue_code code to allow a decedent's surviving_spouse to take into account that decedent's deceased spousal unused exclusion dsue amount the facts and representations submitted are as follows decedent died on date survived by spouse date is a date after the effective date of the amendment to sec_2010 which provides for portability of a dsue amount to a surviving_spouse to obtain the benefit of portability of decedent's dsue amount to spouse decedent's_estate was required to file form_706 united_states estate and generation-skipping_transfer_tax return on or before the date that is months after decedent's date of death or the last day of the period covered by an extension decedent's form_706 was due on date but the estate did not file a form_706 to make the portability election the failure to elect portability was discovered after the due_date for making the election spouse as the executor of decedent's_estate represents that the value of decedent's plr-126559-16 gross_estate is less than the basic exclusion amount in the year of decedent's death and that during her lifetime decedent made no taxable_gifts as executor spouse requests an extension of time pursuant to sec_301_9100-3 to elect portability of decedent's dsue amount pursuant to sec_2010 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2010 provides that a credit of the applicable credit_amount shall be allowed to the estate of every decedent against the tax imposed by sec_2001 sec_2010 provides that the applicable credit_amount is the amount of the tentative_tax that would be determined under sec_2001 if the amount with respect to which such tentative_tax is to be computed were equal to the applicable_exclusion_amount on date congress amended sec_2010 effective for estates of decedents dying and gifts made after date to allow portability of a decedent’s unused applicable_exclusion_amount between spouses tax relief unemployment insurance reauthorization and job creation act of pub_l_no sec_303 124_stat_3296 sec_2010 provides that the applicable_exclusion_amount is the sum of the basic exclusion amount and in the case of a surviving_spouse the dsue amount sec_2010 generally provides that the basic exclusion amount is dollar_figure to be adjusted for inflation annually after calendar_year sec_2010 defines the dsue amount to mean the lesser_of a the basic exclusion amount or b the excess of -- i the applicable_exclusion_amount of the last deceased spouse of the surviving_spouse over ii the amount with respect to which the tentative_tax is determined under sec_2001 on the estate of such deceased spouse sec_2010 provides that a dsue amount may not be taken into account by a surviving_spouse under sec_2010 unless the executor of the estate of the deceased spouse files an estate_tax_return on which such amount is computed and makes an election on such return that such amount may be so taken into account the election once made shall be irrevocable no election may be made if such return is filed after the time prescribed by law including extensions for filing such return plr-126559-16 sec_2010 provides that the secretary shall prescribe regulations as may be necessary or appropriate to implement sec_2010 sec_20_2010-2t a of the estate_tax regulations as in effect on date provides that to allow a decedent’s surviving_spouse to take into account that decedent’s dsue amount the executor of the decedent’s estate must elect portability of the dsue amount on a timely filed form_706 under sec_20_2010-2t a the due_date of an estate_tax_return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been granted under sec_20_2010-2t a the portability election is made by timely filing a complete and properly prepared estate_tax_return unless the executor satisfies the requirements for the election not to apply in sec_20_2010-2t a i 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 taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that the term statutory election means an election whose due_date is prescribed by statute the term regulatory election means an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute a request 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 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election the due_date for the portability election is prescribed by statute in the case of an estate required to file an estate_tax_return under sec_6018 see sec_2010 sec_6075 and sec_6018 in the case of an estate that is not required to file an estate_tax_return plr-126559-16 under sec_6018 the due_date is prescribed by regulation see sec_20_2010-2t a see also sec_20_2010-2 and revproc_2014_18 2014_7_irb_513 sec_2 accordingly in the latter case a taxpayer may seek an extension of time to elect portability under the provisions of sec_301_9100-3 sec_6018 requires the filing of an estate_tax_return in all cases where the gross_estate exceeds the basic exclusion amount in effect under sec_2010 for the calendar_year which includes the date of death for purposes of this determination under sec_6018 the basic exclusion amount is reduced but not below zero by the sum of -- a the amount of the adjusted_taxable_gifts within the meaning of sec_2001 made by the decedent after date plus b the aggregate amount allowed as a specific exemption under sec_2521 as in effect before its repeal by the tax reform act of with respect to gifts made by the decedent after date as executor spouse represents that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is not required to file an estate_tax_return under sec_6018 under these facts the commissioner has discretionary authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly we grant an extension of time of days from the date of this letter in which to elect portability under sec_2010 the election should be made by filing a complete and properly prepared form_706 and a copy of this letter within days from the date of this letter to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center stop cincinnati oh for purposes of electing portability a form_706 filed by decedent’s estate within days from the date of this letter will be considered to be timely filed 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 if it is later determined that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is required to file an estate_tax_return pursuant to sec_6018 the commissioner is without authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-126559-16 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 associate chief_counsel passthroughs and special industries by karlene lesho karlene lesho senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries enclosure copy of letter for sec_6110 purposes cc