t c memo united_states tax_court united circuits inc petitioner v commissioner of internal revenue respondent docket no filed date gino pulito for petitioner john e budde for respondent memorandum findings_of_fact and opinion cohen judge respondent determined deficiencies of dollar_figure and dollar_figure in petitioner's and federal income taxes respectively and accuracy related penalties of dollar_figure and dollar_figure under sec_6662 for and respectively unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure after concessions by the parties the only issues remaining for decision are whether petitioner is liable for the and accuracy related penalties for negligence and for a substantial_understatement_of_income_tax findings_of_fact some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference petitioner had its principal_place_of_business in ohio at the time the petition was filed during the years in issue petitioner was in the business of manufacturing circuit boards united circuits inc uci was owned by frank schubert schubert and gary jump jump schubert the president of uci was primarily responsible for overseeing the manufacturing process and ensuring that the waste produced from the manufacturing process was in compliance with environmental protection agency standards schubert's education and prior work experience were in engineering jump was the vice president and general manager of uci jump had various responsibilities that included reviewing uci financial information making decisions about equipment purchases and working with schubert on manufacturing matters jump received a degree in marketing uci employed davidson audit company dac to perform accounting functions and to prepare uci's financial statements and tax returns eleanor northcutt northcutt an employee of dac was responsible for the uci account northcutt had been employed by dac since and had handled the uci account since uci began business northcutt was a high school and a business school graduate she took to hours of continuing education courses a year that were offered by the international society of public accountants northcutt did not have a public accountant license when northcutt was presented with an accounting issue about which she was uncertain she would research the issue herself and then make a decision as to how she felt the issue should be treated every month jump took uci ledgers and invoices to northcutt northcutt would have her clerk prepare monthly financial statements for uci based on the ledgers and invoices northcutt reviewed the monthly financial statements after the clerk completed them and before they were given to uci because the manufacturing processes used by uci corroded its equipment periodic replacement of the equipment was necessary prior to the years in issue uci purchased equipment outright and depreciated it for tax purposes during jump was contacted by equitable lomas leasing corp lomas a company that offered leases on equipment that jump was interested in purchasing lomas told jump that there were tax advantages of leasing the equipment instead of purchasing it lomas advised jump that if the equipment lease were for a duration of at least year the lease would be legitimate jump contacted northcutt about the equipment acquisitions and they discussed the possibility of leasing the equipment jump specifically asked whether a 1-year lease was a legitimate lease northcutt researched the issue of lease duration and told jump that 1-year leases would not be a problem as long as they had monthly payments and they were set up as leases or intended as leases during and uci acquired the equipment and made payments as follows asset payments payments voss level machine dollar_figure big_number drill etcher big_number big_number filter press air compressor total dollar_figure dollar_figure big_number big_number big_number dollar_figure the document that conveyed the voss level machine equipment to uci consisted of a typed payment schedule on a form that had the preprinted words purchase order on the top of the form the words lease payments as follows were typed below purchase order the agreement required four payments of dollar_figure and eight payments of dollar_figure for a total of dollar_figure with a dollar_figure buy out option the agreement did not contain a provision for the return of the equipment to the lessor the invoice was signed by jump and dated date the drill was conveyed on a lomas form titled master equipment lease agreement the agreement consisted of a deposit and advance_payment of dollar_figure followed by eight monthly payments of dollar_figure for a total of dollar_figure with a dollar_figure buy out option at the end of the months uci exercised the buy out option the lease was signed by schubert and dated date uci was sent an invoice for the etcher by the supplier the terms were percent down and percent net days after shipment uci paid with two dollar_figure checks dated date and date for a total of dollar_figure the invoices did not contain a provision for the return of the equipment to the lessor or a buy out option the checks were signed by jump and the invoice was dated date the filter press was acquired on a series of invoices from jim's plating supply inc there were a total of seven monthly invoices each one requesting a payment of dollar_figure the invoices did not contain a buy out option or a provision to return the equipment to the lessor the invoices were dated june through date the air compressor was acquired on a compu rent lease agreement that required an advance_payment of dollar_figure and monthly payments of dollar_figure the agreement did not contain a buy out provision the agreement was signed by jump and dated date uci recorded the payments for the equipment under lease expense on its ledgers the useful_life of the equipment acquired as described above was substantially greater than the duration of the purported leases northcutt's clerk prepared uci's and tax returns based on the ledgers and invoices provided by uci northcutt did not review the purported lease transactions that were entered into by uci neither northcutt nor her clerk verified the lease expenses as part of uci's return preparation petitioner deducted the payments for the asset acquisitions as lease expense on its and tax returns in the aggregate amounts of dollar_figure and dollar_figure respectively northcutt reviewed and checked the returns before sending them to uci for signature jump and schubert each spent to minutes reviewing the federal_income_tax returns after they were received from northcutt schubert as president of uci signed the returns in both and opinion respondent determined that the lease expenses claimed by petitioner were capital expenses and disallowed the deductions petitioner has conceded the dollar_figure and dollar_figure deficiencies for and respectively petitioner argues however that it is not liable for the accuracy related penalties because there was substantial_authority for its position on its tax returns and because petitioner's reliance on its accountant was reasonable and in good_faith respondent contends that there is no substantial_authority for petitioner's position on its tax returns and that petitioner's accountant was not qualified to render tax_advice petitioner bears the burden of proving that respondent's determination is erroneous rule a 503_us_79 58_tc_757 sec_6662 imposes an accuracy related penalty of percent on any portion of an underpayment_of_tax that is attributable to items set forth in sec_6662 sec_6662 specifies as one of those items any substantial_understatement_of_income_tax an understatement is substantial if it exceeds the greater of percent of the tax required to be shown on the return or dollar_figure sec_6662 and b in calculating understatements under sec_6662 items for which there was substantial_authority are not to be considered sec_6662 to determine whether the treatment of any portion of an understatement is supported by substantial_authority the weight of authorities in support of the taxpayer's position must be substantial in relation to the weight of authorities supporting contrary positions 91_tc_686 affd 893_f2d_656 4th cir sec_1_6662-4 income_tax regs petitioner argues that the weight of authorities supports its position that the equipment was acquired by lease and not acquired in a disguised sale petitioner relies on revrul_55_540 1955_2_cb_39 and 197_f2d_745 5th cir revg a memorandum opinion of this court dated date as authorities to support its position petitioner quotes revrul_55_540 c b pincite as follows whether an agreement which in form is a lease is in substance a conditional sales contract depends upon the intent of the parties as evidenced by the provisions of the agreement read in the light of the facts and circumstances existing at the time the agreement was executed in ascertaining such intent no single test or any special combination of tests is absolutely determinative no general_rule applicable to all cases can be laid down each case must be decided in the light of its particular facts petitioner concludes that because there is no general_rule on how to treat these arrangements there is substantial_authority to treat them as petitioner did on its returns however petitioner's recitation of revrul_55_540 is incomplete the ruling sets forth an economic test and continues as follows however from the decisions cited below it would appear that in the absence of compelling persuasive factors of contrary implication an intent warranting treatment of a transaction for tax purposes as a purchase and sale rather than as a lease or rental agreement may in general be said to exist if for example one or more of the following conditions are present id pincite the conditions following in the ruling that would indicate a sale include facts where the lessee will acquire title upon the payment of a stated amount of rentals which under the contract he is required to make the total amount that the lessee is required to pay for a relatively short_period of use constitutes an inordinately large proportion of the total sum required to be paid to secure the transfer of the title and the property may be acquired under a purchase option at a price that is nominal in relation to the value of the property at the time when the option may be exercised as determined at the time of entering into the original agreement or at a price that is a relatively small amount when compared with the total payments that are required to be made the facts in this case fit squarely within the conditions set forth in the ruling the terms of the leases were substantially less than the life of the equipment and uci owned the equipment outright either after a maximum of payments or after exercising a nominal buy out option rather than supporting petitioner's position revrul_55_540 is contrary to petitioner's position petitioner relies on benton v commissioner supra to support deducting all payments under short-term leases in benton the lease was for the purchase of automobiles to be used as taxicabs the lease required payments of dollar_figure with an option to purchase the automobiles for dollar_figure at the end of the months the court_of_appeals upheld the leases stating that when the intent of the parties to a contract is determined it must be determined in light of the facts and circumstances as they existed at the time the parties entered into the contract at the time the leases in dispute here were entered into uci intended to keep the equipment permanently northcutt testified at trial united circuits was buying some equipment and we jump and northcutt discussed the possibility of a lease against depreciating it emphasis added the documents transferring the equipment either had no provision for the return of the equipment to the lessors at the end of the required_payments or the agreements offered a nominal buy out taking into account all of the relevant facts and circumstances including the intent of the parties to the agreement at the time of the agreements we conclude that agreements have the legal effect of a contract for sale benton is distinguishable and does not represent authority for petitioner's position petitioner has failed to present any authority that supports petitioner's position on its tax returns under either the economic test of the revenue_ruling or the intent test of benton applied to the facts the transactions were sales and not leases accordingly petitioner cannot rely on the substantial_authority exception to the substantial_understatement_penalty to avoid liability petitioner also argues that it reasonably and in good_faith relied on northcutt its accountant to prepare its returns and therefore it should not be liable for the accuracy related penalty the reasonable_cause and good_faith exception in sec_6664 applies to both the substantial_understatement and negligence penalties in sec_6662 and b sec_1_6664-4 income_tax regs states reasonable_cause and good_faith exception to sec_6662 penalties -- a in general no penalty may be imposed under sec_6662 with respect to an portion of an underpayment upon a showing by the taxpayer that there was reasonable_cause for and the taxpayer acted in good_faith with respect to such portion b facts and circumstances taken into account -- in general the determination of whether a taxpayer acted with reasonable_cause and in good_faith is made on a case-by-case basis taking into account all pertinent facts and circumstances the most important factor is the extent of the taxpayer's effort to assess the taxpayer's proper liability reliance on the advice of a professional such as an appraiser attorney or accountant does not necessarily demonstrate reasonable_cause and good_faith similarly reasonable_cause and good_faith is not necessarily indicated by reliance on facts that unknown to the taxpayer are incorrect as a general_rule the responsibility of filing an accurate return cannot be shifted by the taxpayer to a return preparer 88_tc_654 however under certain circumstances the taxpayer has been able to avoid the imposition of a penalty if there was good_faith reliance by the taxpayer on the advice of a competent adviser 86_tc_492 affd 864_f2d_1521 10th cir to show good_faith reliance on the advice of a competent adviser the taxpayer must at least establish that he or she provided the return preparer with complete and accurate information that an incorrect return was a result of the preparer's mistakes and that the taxpayer believed in good_faith that he was relying on the advice of a competent return preparer metra chem corp v commissioner supra petitioner relies on sec_1_6664-4 example l income_tax regs to establish good_faith reliance a an individual calendar_year taxpayer engages b a tax professional to give him advice concerning the deductibility of certain state and local_taxes a provides b with full details concerning the taxes at issue b advises a that the taxes are fully deductible a in preparing his own tax_return claims a deduction for the taxes under these facts a is considered to have demonstrated good_faith by seeking the advice of a tax professional and to have shown reasonable_cause for any underpayment attributable to the deduction claimed for the taxes however if a had sought advice from someone that he knew or should have known lacked knowledge in federal income_taxation a would not be considered to have shown reasonable_cause or to have acted in good_faith petitioner argues that it is not liable for the penalty because the facts in the instant case are the same as the facts in the example petitioner's argument however is contradicted by the evidence jump did not provide northcutt with full details or complete and accurate information concerning the transactions in issue northcutt testified that she did not see the agreements for the equipment acquisitions entered into by uci in addition jump relied on northcutt for accounting advice rather than for tax_advice jump testified q in giving it the question about the leases to her did you anticipate she would render tax_advice a i guess we were looking at it more as accounting advice than strictly tax_advice q so your reliance on ms northcutt for these lease expenses goes to the question of accounting as opposed to tax_return preparation a having never been involved in an audit or anything we're more aware of it now but at the time no we were concerned with accounting and the company we really didn't give much thought to being audited or the irs we do now northcutt’s return preparation consisted of transferring the information in petitioner's ledgers to an income_tax form without verifying the validity of the entries in the ledger jump did not inquire about the tax consequences of the transactions entered into by petitioners and did not receive advice on the tax consequences jump by his own admission did not rely on northcutt to render tax_advice moreover jump did not follow her advice as to the characteristics of a legitimate lease because two of the five purported leases’ payment terms were for a duration of less than year petitioner has failed to establish good_faith reliance on the advice of a competent tax adviser respondent also determined that petitioner was liable for an accuracy related penalty because the understatement was due to negligence petitioner argues that it is not liable for the negligence_penalty because it relied on its accountant for the reasons set forth above we are not persuaded by petitioner's argument petitioner has failed to meet its burden_of_proof to avoid the accuracy related penalties accordingly respondent's determination will be sustained decision will be entered for respondent


department of the treasury i n t e r n a l r e v e n u e s e r v i c e washington d c date cc tege eoeg et2 conex-149959-05 number info release date uil ------------------------- ------------------------ ------------------------------- dear ----------- this letter responds to your letter dated date in which you suggest that the irs revise forms w-2 and to include additional information on deferred_compensation payments the purpose of the revisions you are proposing is to provide the social_security administration ssa with the information needed to distinguish currently earned_income from deferred_compensation distributions in order to correctly apply the ssa earnings test and thus pay the correct amount of benefits benefits paid to a social_security beneficiary who is younger than the full retirement age may be reduced if the beneficiary continues to work under the earnings test if a social_security beneficiary earns more than a specified amount during a year social_security_benefits are reduced proportionately for that year however o nly income earned in the current_year is considered in applying the earnings test special wage payments which are for services performed in a prior year are not to be considered in applying the earnings test as your letter correctly notes in order to properly apply the ssa earnings test the ssa must have the ability to distinguish current_year post-retirement earnings from deferred_compensation earned in a prior year i thought it might be helpful to you to receive the current rules that require this distinction in reporting all of this reporting is the responsibility of the employer a nonqualified_deferred_compensation_plan nqdcp is an arrangement established and maintained by an employer for its employees that provides for the deferral of compensation_generally nonqualified_deferred_compensation is subject_to federal_insurance_contributions_act fica_taxes which are comprised of social_security and medicare taxes when the related_services are performed eve n though the compensation is not included in gross_income until it is actually distributed subsequently when distributions are made from the nqdcp fica_taxes are not withheld after an employee retires and distributions are made from the nqdcp the distributions attributable to services performed in a prior year are reported in box on form_w-2 conex-149959-05 the purpose of box is to provide the ssa with the information necessary to determine if any part of the total compensation reported on the form_w-2 was earned in a prior year in addition employers must complete the ssa form ssa-131 if an employee has both made contributions to a nqdcp and received distributions from the nqdcp in the same year the ssa uses the information from the irs form_w-2 and the ssa form ssa-131 to verify that they have properly applied the social_security earnings test and paid the correct amount of benefits if forms w-2 and ssa-131 are completed and filed according to the respective instructions the ssa should have all the information necessary to correctly apply the ssa earnings test information from irs form_1040 is not used to apply the ssa earning test we have no information on how ssa trains its staff in the use of forms w- and ssa-131 for your information and to help illustrate the matters discussed in the letter we have enclosed copies of irs form_w-2 wage and tax statement instructions for forms w-2 and w-3 and publication reporting back pay and special wage payments to the social_security administration this letter has called your attention to certain general principles of the law it is intended for informational purposes only and does not constitute a ruling see revproc_2005_1 sec_2 2005_1_irb_7 date if you have any additional questions please contact ---------------at -------------------- sincerely catherine e livingston assistant chief_counsel exempt_organizations employment_tax government entities tax exempt government entities enclosure sample irs form_w-2 w-2 instructions publication


id office uilc cca_2010110410241036 ---------------------------- number release date from -------------------- sent thursday november am to ----------------- cc subject sec_6041 requirement - ----------------------- ---------- i attempted to contact you by phone and left a few voicemails please take a look at h_r small_business jobs_act of sect information reporting for rental property expense payments this legislation adds subsection h to sect and is entitled treatment of rental property expense payments this added subsection provides that a person receiving rental income from real_estate shall be engaged in a trade_or_business of renting property subject_to certain exceptions also attached is the joint_committee on taxation's technical explanation relevant pages only for your reference note that the effective date applies to payments made after date


sw id gy sie ee internal_revenue_service department of the treasury ope ‘ed ty washington dc contact person telephone number in reference to date jan dear sir or madam this is in reference to your letter of date requesting advance approval of your grant-making procedures under sec_4945 of the internal_revenue_code you are exempt under sec_501 of the code and have been classified as sec_509 a private_foundation within the meaning of in furtherance of your exempt purposes you have established a scholarship grant program for individuals established an f grant program for individuals you have also your scholarship grant program will provide four different b c or d the code a ii of the educational program at types of grants to students attending high school in who plan to attend college or vocational institutions described in sec_170 recipient will receive between dollar_figure and dollar_figure per year for the term of institution and dollar_figure per year for the term of college and or post graduate institution grant recipient will receive between dollar_figure and dollar_figure per year for the term of vocational institution grade assistance program will receive between dollar_figure and dollar_figure per year for the period between 8th grade and 12th grade inclusive the e grant recipient will receive between dollar_figure the educational program at the recipient of grants in the 8th-12th the educational program at a college or vocational the matching grant the single parent a college or a all scholarship grant award recipients except those in the 8th- 12th grade assistance program must receive their grants in instaliments over the course of their college or vocational be funds associated with a grant will be placed education program in an earmarked bank account for payout directly to the recipient scholar in accordance with the rules of continued participation in order to receive each installment the award recipient must sign an affidavit declaring that he she is not receiving a scholarship from any other source and provide proof of enrollment in a college or vocational institution by august each year of attendance eg provide proof of enrollment gpa requirements etc the sum earmarked for that recipient will be distributed the following year to a new recipient the student fails to complete a course of study a recipient default in the case of fails to of selection of grant recipients will be made by selection committees consisting of members of the community eg educators counselors business- persons non-profit organization leaders and government representatives you will investigate any misuse of funds and seek recovery_of such funds recipients of grants in your f program are teachers and c and d elementary middle and high schools who students in b propose and implement innovative and practical approaches to integrating technology resources in classroom curriculum and instruction methods up to twenty teachers who develop lesson plans for an entire subject of study teacher who stands out in integrating technology in lesson plans and classroom instruction students who contribute significant ideas which advance classroom teaching and learning methods that incorporate the use of technology one grant of dollar_figure will be given to one twenty grants of dollar_figure each will be given to grants of dollar_figure will be given to up to the f grant selection committee will consist of educators and nationally recognized education professionals members of the committee will interview both the teacher or student and appropriate school district personnel necessary to make an independent and unbiased nomination for a grant performance will be required of grant recipients no future sec_4945 of the code provides for the imposition of taxes on each taxable_expenditure of a private_foundation sec_4945 of the code provides that the term taxable_expenditure private_foundation as or other similar purposes by such individual unless such grant satisfies the reqtirements of sec_4945 means any amount_paid or incurred by a a grant to an individual for travel study o sec_4945 of the code provides that section shall not apply to an individual grant awarded on an d objective and nondiscriminatory basis pursuant to a procedure approved in advance by the secretary if is demonstrated to the satisfaction of the secretary that the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 educational_institution described in sec_170 the code and is to be used for study at an a ii of it revrul_77_380 1977_2_cb_419 holds that grants made by a private_foundation primarily in recognition of past achievement with the funds being unrestricted and not earmarked for subsequent travel or study are not taxable_expenditures within the meaning of sec_4945 based upon the information submitted and assuming your program will be conducted as proposed with a view to providing objectivity and nondiscrimination in the awarding of scholarship grants we rule that your procedures for the awarding of scholarship grants comply with the requirements of sec_4945 with these procedures will not constitute taxable_expenditures within the meaning of sec_4945 are eligible for the exclusion from income provided for in sec_117 actually used for qualified_tuition_and_related_expenses within the meaning of sec_117 of the code to the extent that such grants are thus expenditures made in accordance of the code of the code of the code and as such grants in your f program are for past achievement and are rul there are no conditions or requirements to not intended to finance any future activity of the recipient in rev be met subsequent to receiving the awards not grants to individuals for travel study or similar purposes by such individuals achievement are made for purposes other than stated in sec_4945 approval under sec_4945 therefore these grants are not subject_to advance accordingly your awards for past thus the awards are as this ruling is conditioned on the understanding that there no material changes in the facts upon which it is further conditioned on the premise that no grants will be will be it awarded to creators officers directors trustees or members of the selection committee or for a purpose inconsistent with the purposes described in sec_170 b of the code is based please note that this ruling is only applicable to grants awarded under your program as outlined above before you enter into any other scholarship programs you should submit a request for advance approval of that program we are informing the ohio ep eo key district_office of this please keep a copy of this ruling with your permanent action records this ruling is directed only to the organization that requested it may not be used or cited as precedent sec_6110 of the code provides that it sincerely yours btroctol vv sack gerald v sack manager exempt_organizations group


t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s department of the treasury internal_revenue_service washington d c date this is in reference to your letter dated date requesting information d i v i s i o n number info release date se t eo ra t uil dear about benefits provided by a collectively bargained multi-employer welfare_benefit_plan funded by a voluntary employees’ beneficiary association veba described in sec_501 of the internal_revenue_code benefits to the members of such association or their dependents or designated beneficiaries under the applicable income_tax regulations the term other_benefits includes benefits similar to life sick or accident benefits if dependents or earning power the manner permitted by paragraph et seq of sec_302 of the labor management relations act lmra significant benefits allowed under the lmra that are not permissible for non-collectively bargained plans include the provision of educational benefits to members’ dependents and personal legal services benefits for collectively bargained plans specifically dependent burial expenses holiday pay legal services reimbursement of expenses for education and training severance_pay and vacation pay vebas are associations providing for the payment of life sick accident or other it is intended to safeguard or improve the health of a member of a member’s for collectively bargained plans other_benefits include any benefit provided in the benefits enumerated in the final paragraph of your letter are all permitted it protects against a contingenc y that interrupts or impairs a member’s we trust this information will be of assistance to you sincerely robert c harper jr manager exempt_organizations technical group


department of the treasury internal_revenue_service washington d c 2u u may - se thep- rat wih a40 dollar_figure o tax_exempt_and_government_entities_division xxxxxkxkxkxkk xxxxxxxkkkx xxxxxxkxxkkxk legend taxpayer a plan x amount y ira z company m amount n amount o dear kkk akere kkkk kkke kk ak kkk this is in response to your letter dated date supplemented by additional correspondence dated date submitted on your behalf by your authorized representative in which you request a ruling as to whether distributions from your individual_retirement_arrangement ira constitute a series of substantially_equal_periodic_payments that will not be subject_to the percent additional tax imposed on premature distributions under sec_72 of the internal_revenue_code code the following facts and representations were made in support of your ruling_request taxpayer a is forty-seven years old taxpayer a was a participant in plan x taxpayer a represents that plan x is a qualified_plan as described in code sec_401 in date taxpayer a received a qualified lump sum distribution from plan x within the meaning of code sec_402 taxpayer a rolled amount y into ira z with company m in date taxpayer a began taking distributions from ira z using a methodology intended to produce a series of substantially_equal_periodic_payments as described in code sec_72 taxpayer a used the fixed annuitization oe method an account balance of amount o and an interest rate of dollar_figure percent which resulted in a monthly distribution equal to amount n taxpayer a states that the annual distribution amount will be determined each year by dividing the ira z account balance as of december by an annuity factor which is equal to the cost of an annual dollar_figure per year life_annuity beginning at age forty-seven taxpayer a’s age as of the date of the first distribution the annuity factor is derived using the mortality_table in appendix b of revrul_2002_62 and an interest rate equal to percent of the federal_mid-term_rate as of december the annual distribution will be recalculated each year in the same manner for example for each subsequent distribution year the calculation of the annuity factor which will be based on the same mortality_table will be based on taxpayer a’s age in that distribution year and an interest rate equal to percent of the federal_mid-term_rate as of december of the prior year taxpayer a will then calculate the annual payment by dividing the balance of ira z by the annuity factor even though taxpayer a proposes to recalculate the amount of the payment for each succeeding year the method by which the amount of the payment will be determined will remain the same from year to year - based on the foregoing you request a ruling that the method used to determine periodic_payments as described herein results in a series of substantially_equal_periodic_payments under sec_72 of the code sec_408 of the code provides except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_72 of the code provides rules for determining how amounts received as annuities endowments or life_insurance contracts and distributions from qualified_plans are to be taxed sec_72 provides for the imposition of an additional percent tax on early distributions from qualified_plans including iras the additional tax is imposed on that portion of the distribution that is includible in gross_income sec_72 of the code provides that sec_72 shall not apply to distributions that are part of a series of substantially_equal_periodic_payments not less frequently than annually made for the life or life expectancy of the employee or joint lives or joint life expectancies of such employee and his designated_beneficiary sec_72 of the code imposes the additional limitation on distributions excepted from the percent tax by sec_72 that if the series of payments is subsequently modified other than by reason of death or disability before the later of the employee’s attainment of age then the taxpayer's tax for the first taxable_year in which such modification occurs shall be increased by an amount determined under kkk page 90u08206 regulations equal to the tax that would have been imposed except for the sec_72 exception plus interest for the deferral_period sec_1_401_a_9_-9 of the regulations provides tables that are to be used in connection with computations under sec_72 and the regulations thereunder included in this section are tables giving life expectancies for one life q a-1 and joint life and last survivor expectancies for two lives q a-3 notice_89_25 was published on date and provided guidance in the form of questions and answers on certain provisions of the tax_reform_act_of_1986 tra ’86 in the absence of regulations on sec_72 of the code this notice provides guidance with respect to the exception to the tax on premature distributions provided under sec_72 question and answer-12 of notice_89_25 provides three methods of determining substantially_equal_periodic_payments for purposes of sec_72 of the code revrul_2002_62 r b which was published on date modifies q a-12 of notice_89_25 revrul_2002_62 provides among other things that payments are considered to be substantially_equal_periodic_payments within the meaning of sec_72 if they are made in accordance with the required_minimum_distribution method the fixed amortization_method or the fixed annuitization method the three methods described in q a-12 of notice the fixed annuitization method provides that the annual payment for each year is determined by dividing the account balance by an annuity factor that is the present_value of an annuity of one dollar dollar_figure per year beginning at the taxpayer’s age and continuing for the life of the taxpayer or the joint lives of the individual and beneficiary the annuity factor is derived using the mortality_table in appendix b of revrul_2002_62 and using the chosen interest rate under this method the account balance the annuity factor the chosen interest rate and the resulting annual payment are determined once for the first distribution year and the annual payment is the same amount in each succeeding year section dollar_figure of revrul_2002_62 contains rules that apply to each of the three methods of calculating a series of substantially_equal_periodic_payments section dollar_figure provides in general that payments will constitute a series of substantially_equal_periodic_payments if the payments are determined by using a the uniform lifetime table in appendix a of revrul_2002_62 the single life expectancy table in sec_1_401_a_9_-9 q a-1 of the regulations or the joint and last survivor table in sec_1_401_a_9_-9 q a-3 of the regulations b an interest rate that is not more than percent of the federal_mid-term_rate and c a reasonable manner of determining the account balance in this case taxpayer a has determined the annual payments from ira z in accordance with the fixed annuitization method as described in sec_2 c of revrul_2002_62 except that rather than making a fixed annual payment taxpayer a proposes to recalculate the amount of the annual payment each year for subsequent years the om page annual distribution amount will be determined by dividing the ira z account balance as of the end of december of the prior year by an annuity factor which is equal to the cost of an annual dollar_figure per year life_annuity with such annuity factor based on taxpayer a’s age in that distribution year calculated using percent of the mid-term federal rate as of december of the prior year and the mortality_table in appendix b of revrul_2002_62 the mortality_table and interest rate used are such that they do not result in the circumvention of the requirements of sec_72 and sec_72 of the code through the use of an unreasonable high interest rate or an unreasonable high mortality_table accordingly the method as modified of determining periodic_payments results in substantially_equal_periodic_payments within the meaning of sec_72 of the code and such payments will not be subject_to the additional tax of sec_72 unless the requirements of sec_72 are not met this ruling assumes that plan x is qualified under code sec_401 at all times relevant to this transaction and that ira z meets the requirements of code sec_408 at all times relevant to this transaction this ruling further assumes that the distribution taxpayer a received from plan x satisfied the requirements of code sec_402 and sec_402 this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent a copy of this ruling has been sent to your authorized representative pursuant to the provision of a form_2848 power_of_attorney on file in this office if you have any questions please contact se t ep ra t2 sincerely signed joyce x floyd joyce e floyd manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose form_437


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division mar uniform issue list a krkkkkekrekrkerare kk ek kkk rakkkkkkkrkrakkk legend at taxpayer a tee wt ’ - iraa ira b ira c ira d hn aneeitoik - tte kik terete rs irae tie obiik account amount amount amount hadas re oo edeidooick hei financial_institution a dear ‘ krrkkkkkkkkkrer this is in response to your request dated as supplemented by communication dated in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code’ the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a represents that he received a net distribution totaling amount from individual_retirement_accounts ira a through e maintained with financial_institution a taxpayer a asserts that his failure to accomplish a rollover within the 60-day period prescribed by sec_408 was due to an error on the part of taxpayer a’s financial advisor taxpayer a in consultation with his financial advisor transferred amount from iras a through e to account taxpayer a’s financial advisor had been instructed to transfer amount from account to ira e was transferred timely from account to irae however amount the difference between amount sec_1 and remained in account because taxpayer a’s financial advisor was mistaken as to the total amount originally taken from iras a through e and the amount which was to have been returned to the ira taxpayer a's financial advisor has acknowledged his error in writing taxpayer and his financial advisor became aware of this mistake when filing taxpayer a’s returns for the year at issue prior to the expiration of the 60-day period amount based on the above facts and representations you request a ruling that the internal_revenue_service service waive the 60-day rollover requirement with respect to amount contained in sec_408 of the code sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ra if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer a is consistent with his assertion that his failure to accomplish a timely rollover was caused by an error on the part of taxpayer a’s financial advisor therefore pursuant to sec_408 of the code the service hereby waives the day rollover requirement under sec_408 with respect to amount taxpayer a is granted a period of days from the issuance of this ruling letter to contribute amount to a rollover ira provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution amount will be considered a rollover_contribution within the meaning of sec_408 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent if you wish to inquire about this ruling please contact identification_number rrna era riaaaeedy at ialala alah please address all correspondence to rhkikkhaaerias sincerely yours carlton a watkins manager employee_plans technical group


department of the treasury 7i internal_revenue_service p o box irs cincinnati oh number release date uil dear date date employer id number contact person id number contact telephone number form you must file tax years this letter is our final_determination that you don’t qualify for tax-exempt status under sec_501 of the internal_revenue_code the code recently we sent you a proposed adverse determination in response to your application the proposed adverse determination explained the facts law and basis for our conclusion and it gave you days to file a protest because we didn’t receive a protest within the required days the proposed determination is now final you must file federal_income_tax returns for the tax years listed at the top of this letter using the required form also listed at the top of this letter within days of this letter unless you request an extension of time to file we’ll make this final adverse determination_letter and the proposed adverse determination_letter available for public inspection as required under sec_6110 of the code after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in the notice on how to notify us if you agree with our deletions you don’t need to take any further action if you have questions about this letter you can contact the person listed at the top of this letter if you have questions about your federal_income_tax status and responsibilities call our customer service number pincite-829-1040 tty for deaf or hard of hearing or customer service for businesses pincite-829-4933 letter rev catalog number 47635z sincerely stephen a martin director exempt_organizations rulings and agreements enclosures notice redacted letter proposed adverse determination under sec_501 other than c redacted letter final adverse determination under sec_501 other than c - no protest letter rev catalog number 47635z department of the treasury internal_revenue_service cincinnati oh legend b date c state d association dear date date employer id number contact person id number contact telephone number contact fax number uil we considered your application_for recognition of exemption from federal_income_tax under internal_revenue_code irc sec_501 we determined that you don’t qualify for exemption under sec_501 this letter explains the reasons for our conclusion please keep it for your records issues do you qualify for exemption under sec_501 of the code no for the reasons stated below facts you were formed as an unincorporated association on b in c according to your bylaws you operate under the authority of the state association d and are formed for the promotion of the welfare of this by recruiting assisting and encouraging an adequate membership of outstanding men and women to serve officials for the benefit of the school systems and youth of the area which you service as well-trained you also do this by improving the quality efficiency consistency and uniformity of officiating by providing planned training programs study meetings practice sessions and rules interpretations through which new and prospective officials shall be instructed and experienced officials can increase their knowledge and officiating skills you do your bylaws state that in order to be a member an individual must also be a member of d and pay their dues to both you and d no member may or have anyone on their behalf approach any coach school or organization with the intent to solicit officiating assignments for his her personal benefit members are required to maintain availability via your current assigning system your officials are required to dress in full uniform which is designated by d at all contests your members provide officiating services for middle and high school volleyball games your members elect an executive board consisting of a president vice-president secretary treasurer and assigning secretary the assigning secretary based on matches submitted by a school districts assigns matches based on skill level and availability of a member official each school district pays the official for services provided each member directly pays the assigning secretary a set amount per scheduled match your standard operating procedures set forth minimum requirements that members must meet to officiate different levels of matches your procedures also address match cancellations switching transferring assignments leaves of absence and rules examination it also details dues assessments fees and fines if a member does not adhere to your policies you indicated that your revenue sources have changed in the last few years you provided financial data for a prior year showing that other than some incidental amounts such as interest_income your revenue was derived from assigning fees collected membership dues and scrimmage revenue you also provided more recent financial data which indicated that about half of your revenue was from membership dues and the other half from scrimmage fees you indicated that now the school district pays the officials directly rather than using - you as a pass through except for scrimmage days you said depending on the number of members and the number of schools districts conducting scrimmages in any given year your income sources could vary law sec_501 of the code provides for exemption of business_leagues chambers_of_commerce real_estate boards boards_of_trade and professional_football_leagues whether or not administering a pension fund for football players which are not organized for-profit and no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_1_501_c_6_-1 states that a business league is an association of persons having some common business_interest the purpose of which is to promote such common interest and not to engage in a regular business of a kind ordinarily carried on for profit it is an organization of the same general class as a chamber of commerce or board_of trade thus its activities should be directed to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons an organization whose purpose is to engage in a regular business of a kind ordinarily carried on for profit even though the business is conducted on a cooperative basis or produces only sufficient income to be self-sustaining is not a business league revrul_56_65 1956_1_cb_199 holds that a local organization whose principal activity consists of furnishing particular information and specialized individual services to its individual members engaged in a particular industry through publications and other means to effect economies in the operation of their individual businesses is performing particular services for individual persons such organization is not entitled to exemption under sec_501 of the code as a business league even though it performs functions that are of benefit to the particular industry and the public generally revrul_58_224 1958_1_cb_242 held that an organization which operated a trade_show as its sole activity primarily for the purpose of rendering particular services to individual persons was not entitled to exemption as a business league under sec_501 of the code the organization's sole activity consisted of staging an annual merchandise show primarily exhibits by manufacturers under the sponsorship of the chamber of commerce the ruling concluded that the activities of the organization substantially served the exhibitors and retailers as a convenience and economy in the conduct of their businesses by providing selling opportunities for the distributors which was found to be considered rendering particular services for individuals as distinguished from the improvement of business conditions generally revrul_61_170 1961_2_cb_112 describes a nurses’ association which maintained an employment registry primarily for the employment of members is not entitled to exemption as a charitable_organization or as a letter rev catalog number 47628k business league since its primary purpose was the operation of a regular business of a kind ordinarily carried on for profit and it is engaged in rendering particular services for individual persons rather than promoting the general business conditions of the nursing profession revrul_68_264 1968_1_cb_264 defined a particular service for the purpose of sec_501 of the code as including an activity that serves as a convenience or economy to members of the organization in the operation of their own businesses in 136_f2d_435 the court determined that the organization was not exempt from tax as a business league the organization was made up of apartment owners it did not meet the description of a business league because it regularly carried on business of a kind ordinarily conducted for profit it performed particular services for individual persons such as the furnishing of credit information the supplying of an apartment shopping service the making of arrangements for direct purchases by members at discount and similar activities in indiana retail hardware ass’n inc v united_states ct_cl the court held that when conducting particular services for members is a substantial activity of an organization the organization will be precluded from exemption under sec_501 of the code application of law to be exempt under sec_501 of the code your activities must be directed to the improvement of business conditions of one or more lines of business and not benefit any private_shareholder_or_individual as stated in sec_1_501_c_6_-1 the purpose of a business league is to promote a common interest with activities directed to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons you operate primarily to provide a service to your members by arranging employment opportunities which causes impermissible private benefit you are similar to the organizations described in revrul_56_65 and in that you are formed to promote the economic interests of your members by providing them with employment opportunities you coordinate schedule and assign your member officials to volleyball games and tournaments you are similar to the organization in revrul_61_170 because you were formed to provide employment opportunities for your members by providing these employment services you are serving the private interests of your members and do not meet the qualifications for exemption under sec_501 of the code providing employment opportunities for your members provides a convenience that they would otherwise not have without your operation given that your primary activity is directed at providing a particular service to your members you are similar to the situation described in revrul_68_264 and not exempt under sec_501 of the code the organizations in apartment operations ass'n and indiana retail hardware ass’n failed to qualify for exemption under sec_501 of the code because conducting services for their members was a substantial activity because your primary activity is arranging officiating jobs for your members you are not exempt under sec_501 letter rev cataiog number 47628k conclusion based on the information provided we conclude that you are not operated as a business league described in sec_501 of the code your operations provide specific services to members and allow a convenience and private economic benefit therefore you do not qualify for exemption under sec_501 if you agree if you agree with our proposed adverse determination you don’t need to do anything if we don’t hear from you within days we’ll issue a final adverse determination_letter that letter will provide information on your income_tax filing_requirements if you don't agree you have a right to protest if you don’t agree with our proposed adverse determination to do so send us a protest within days of the date of this letter you must include your name address employer_identification_number ein and a daytime phone number a statement of the facts law and arguments supporting your position a statement indicating whether you are requesting an appeals_office conference the signature of an officer director trustee or other official who is authorized to sign for the organization or your authorized representative the following declaration for an officer director trustee or other official who is authorized to sign for the organization under penalties of perjury i declare that i have examined this request or this modification to the request including accompanying documents and to the best of my knowledge and belief the request or the modification contains all relevant facts relating to the request and such facts are true correct and complete your representative attorney certified_public_accountant or other individual enrolled to practice_before_the_irs must file a form_2848 power_of_attorney and declaration of representative with us if they haven’t already done so you can find more information about representation in publication practice_before_the_irs and power_of_attorney we'll review your protest statement and decide if you gave us a basis to reconsider our determination if so we’ll continue to process your case considering the information you provided if you haven’t given us a basis for reconsideration we’ll send your case to the appeals_office and notify you you can find more information in publication how to appeal an irs decision on tax-exempt status if you don’t file a protest within days you can’t seek a declaratory_judgment in court later because the law requires that you use the irc administrative process first sec_7428 letter rev catalog number 47628k where to send your protest send your protest form_2848 if applicable and any supporting documents to the applicable address u s mail street address for delivery service internal_revenue_service eo determinations quality assurance mail stop p o box cincinnati oh internal_revenue_service eo determinations quality assurance main street mail stop cincinnati oh you can also fax your protest and supporting documents to the fax number listed at the top of this letter if you fax your statement please contact the person listed at the top of this letter to confirm that they received it you can get the forms and publications mentioned in this letter by visiting our website at www irs gov forms- pubs or by calling 800-tax-form if you have questions you can contact the person listed at the top of this letter contacting the taxpayer_advocate_service the taxpayer_advocate_service tas is an independent organization within the irs that can help protect your taxpayer rights tas can offer you help if your tax problem is causing a hardship or if you’ve tried but haven't been able to resolve your problem with the irs if you qualify for tas assistance which is always free tas will do everything possible to help you visit www taxpayeradvocate irs gov or call sincerely stephen a martin director exempt_organizations rulings and agreements letter rev catalog number 47628k


department of the treasury int ernal revenue service washington d c january o f f i c e o f c h i e f c o u n s e l number release date cc pa apjp uilc internal_revenue_service national_office field_service_advice memorandum for associate area_counsel small_business self employed cc sb from subject richard goldman chief administrative provisions and judicial procedure branch cc pa apjp whether an officer of a corporation representing the corporation pro_se at trial in the tax_court may also testify at trial this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be used or cited as precedent disclosure statement field_service_advice is chief_counsel_advice and is open to public inspection pursuant to the provisions of sec_6110 the provisions of sec_6110 require the service to remove taxpayer identifying information and provide the taxpayer with notice of intention to disclose before it is made available for public inspection sec_6110 and i sec_6110 also authorizes the service to delete information from field_service_advice that is protected from disclosure under u s c sec_552 b and c before the document is provided to the taxpayer with notice of intention to disclose only the national_office function issuing the field_service_advice is authorized to make such deletions and to make the redacted document available for public inspection accordingly the examination appeals or counsel recipient of this document may not provide a copy of this unredacted document to the taxpayer or their representative the recipient of this document may share this unredacted document only with those persons whose official tax_administration duties with respect to the case and the issues discussed in the document require inspection or disclosure of the field_service_advice legend x y issues whether an officer of a corporation representing the corporation pro_se at trial in the tax_court may also testify at trial conclusions an officer of a corporation representing the corporation pro_se at trial in the tax_court may also testify at trial so long as the interests of the parties are not materially adversely affected by having the officer appear both as advocate and as witness facts in a tax_court case x a corporation appeared pro_se through y an officer of x y is not an attorney y testified at trial the government did not object to y testifying law and analysis proceedings before the tax_court are conducted pursuant to the tax_court rules pursuant to rule b a corporation may be represented by an authorized officer of the corporation we have identified no tax_court rule which addresses the question of whether such an officer may also testify at trial rule provides trials before the court will be conducted in accordance with the rules of evidence applicable in trials without a jury in the united_states district_court for the district of columbia see code sec_7453 to the extent applicable to such trials those rules include the rules of evidence in the federal rules of civil procedure and any rules of evidence generally applicable in the federal courts including the united_states district_court for the district of columbia the federal rules of civil procedure contain no rule addressing this issue nor do the local rules for the united_states district_court for the district of columbia research has located no tax_court opinion nor any district_court opinion addressing this issue individuals representing themselves at trial are generally permitted to testify by analogy we believe that a corporation representing itself through its officer may also testify through its officer further we have found nothing requiring a corporation appearing pro_se to provide one officer as the corporate representative and a different officer as the witness the tax court’s concern in this situation may be based upon the possibility of a conflict of interest arising out of having the taxpayer’s advocate also be a witness rule of the model rules of professional conduct provides a a lawyer shall not act as advocate at a trial in which the lawyer is likely to be a necessary witness except where the testimony relates to an uncontested issue the testimony relates to the nature and value of legal services rendered in the case or disqualification of the lawyer would work substantial hardship on the client b a lawyer may act as advocate in a trial in which another lawyer in the lawyer’s firm is likely to be called as a witness unless precluded from doing so by rule or rule center for professional responsibility american bar association annotated model rules of professional conduct 4th ed hereafter annotated model rules we recognize that the model rules technically do not apply to y here since y is not an attorney however the concern regarding conflicts of interest between the corporation its directors and the corporation’s advocate remain and the model rules provide guidance regarding conflicts of interest between clients and their advocates the commentary to rule indicates that the primary reasons offered for prohibiting counsel from testifying are the possibilities for prejudicing the other party conflict of interest between the counsel-witness and the client and confusing the jury annotated model rules p here the government did not object at the time and no suggestion has since been made that the government was prejudiced therefore we do not perceive that possibility has occurred since tax_court cases have no jury possibility is impossible furthermore to the extent that the judge may be confused s he could question y to clarify matters with respect to possibility as explained below we do not perceive that any material conflict of interest exists between y and x rule b of the model rules provides a lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer’s responsibilities to another client or to a third person or by the lawyer’s own interests unless the lawyer reasonably believes the representation will not be adversely affected and the client consents after consultation annotated model rules p comment to rule states that a lawyer for a corporation or other organization who is also a member of its board_of directors should determine whether the responsibilities of the two roles may conflict the lawyer may be called on to advise the corporation in matters involving actions of the directors consideration should be given to the frequency with which such situations may arise the potential intensity of the conflict the effect of the lawyer’s resignation from the board and the possibility of the corporation’s obtaining legal advice from another lawyer in such situations if there is material risk that the dual role will compromise the lawyer’s independence of professional judgment the lawyer should not serve as a director annotated model rules p the conflict of interest provisions of the model rules focus on ensuring that the client’s best interests are not compromised by the lawyer’s other interests similarly therefore in the instant case we look to whether x’s interests in the tax_court litigation are materially adversely affected by y’s dual role as representative and as witness we do not perceive any adverse effect indeed given y’s responsibility for x’s compliance with the laws and regulations regarding federal taxation it appears that y’s interest in the outcome of this case parallels x’s very closely finally tax_court rule provides no error in either the admission or exclusion of evidence and no error or defect in any ruling or order or in anything done or omitted by the court or by any of the parties is ground for granting a new trial or for vacating modifying or otherwise disturbing a decision or order unless refusal to take such action appears to the court inconsistent with substantial justice the court at every stage of a case will disregard any error or defect which does not affect the substantial rights of the parties thus if the tax_court admits the testimony and it is later determined that y should not have testified at trial the tax court’s decision would only be subject_to modification or other disturbance if the united_states suffered substantial harm due to this testimony we have located nothing suggesting that y was prohibited from testifying at trial lacking any basis for asserting otherwise we believe that y’s testimony is permitted and is admissible evidence the only concern we perceive is whether x’s interests are in conflict with those of y in any material way in the instant case we perceive no such conflict of interest please call if you have any further questions richard goldman chief administrative provisions and judicial practice branch kelly alton acting senior technician reviewer cc pa apjp by


internal_revenue_service number release date index number ------------------------- ----------------------------------- ------------------------------------------------------ ----------------------------- ------------------------ in re ------------------------------ ---------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------- id no ------------------ telephone number ---------------------- refer reply to cc psi b05 plr-109649-14 date september legend taxpayer -------------------------------------------------------------- --------------------------------------------------------- corp corp corp corp corp administrator administrator state state city city ------------------------------------ ------------------------------------------------- ----------------------------------- --------------------------------------------------------- ------------------------ ------------------------------------ -------------------------------------------------------------- -------------- ----------------- -------------------- ------------------------------- agreement ------------------------------------------------------------------- plr-109649-14 agreement right right system -------------------------------------------------------------------- ------------------------------------------------ --------------------------------------- -------------------------------------------------------------------------------- --------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------- year year date date date b c d e g h i j k l m n ------- ------- ------------------ -------------- --------------- ----- ---- ----- ---- ---------------- ----- ---------------- ---------------- ---------------- ---- ----- ---- plr-109649-14 o ---- dear ------------------ this letter responds to a request for a ruling dated date and subsequent correspondence submitted on behalf of taxpayer by your authorized representatives taxpayer requested a ruling that certain payments taxpayer receives from corp are contributions to the capital of taxpayer under sec_118 of the internal_revenue_code the relevant facts as represented in your submission are set forth below taxpayer a state corporation is an electric utility primarily engaged in the transmission and distribution of electric energy in state taxpayer is a wholly owned operating subsidiary of corp taxpayer owns and maintains an electric transmission system in state taxpayer’s system and is a transmission owning member of administrator corp is a corporate municipal instrumentality and political_subdivision of state that owns maintains and operates electric energy generation and transmission facilities in state corp 1’s mission is to provide clean low-cost and reliable energy for its customers and all residents of state corp generates transmits purchases and sells electricity to provide electric service to its numerous customers throughout state in year approximately e of corp 1’s customer sales were to its city --------------------- customers in year corp authorized contract negotiations with corp to meet the growing electric needs of electricity consumers in the city metropolitan area as a result corp entered into an agreement with corp for the development of a b megawatt transmission line connecting the electric transmission grids of ------------ state and city the project which corp agreed to build own and operate corp also agreed to pay for and received the rights to c percent of the transmission capacity of the project or d megawatts the project also establishes a connection between the regional transmission grids administered by administrator and administrator the state connection interties to and is owned and operated by corp a transmission- owning member of administrator the city connection interties to and is owned and operated by corp a transmission-owning member of administrator in order for the regional transmission grid to accommodate the expected increased electric energy flows on taxpayer’s system created by the project administrator required taxpayer to complete a number of upgrades to taxpayer’s system the upgrades pursuant to an agreement among administrator taxpayer and corp corp is liable for reimbursing taxpayer for the costs of the upgrades plr-109649-14 specifically taxpayer entered into agreement with administrator and corp under which taxpayer agreed to construct the upgrades on taxpayer’s system at corp 2’s cost agreement also requires corp to indemnify taxpayer for any taxes associated with the upgrades as of date only a portion of the upgrades were completed and administrator had only awarded l megawatts of right however corp is able to schedule electric energy deliveries from administrator into city over the project up to the maximum electric transmission capability available but may schedule only l megawatts on a firm basis once all upgrades have been completed corp will be able to schedule electric energy deliveries of up to h megawatts of electric energy on a firm basis at all times and the remainder of its d megawatt entitlement on a non-firm basis in order to effectuate the development of the project corp and corp entered into an o-year agreement under which corp agreed to build own and operate the project and corp agreed to pay for and received the rights to c percent or d megawatts of the total transmission capacity of the project corp agreed to make monthly contract payments to corp for the transmission capacity share of the project and to reimburse corp for the full cost of the upgrades although corp is ultimately responsible for the full cost of all upgrades on taxpayer’s system corp only has the rights to c percent of the project’s transmission capacity corp is obligated to make the monthly payments regardless of whether or not it uses its full share of the transmission capacity since the project’s date commencement of operations corp has only used an average of m megawatts per month agreement also provides that when administrator awards right for the project corp will assign the first h megawatts of right and c percent of the right to corp corp retained n percent of the project transmission capacity for its own use as a merchant transmission operator corp has not yet received and does not anticipate receiving any right in connection with the project although in year corp expected to earn revenues from economic electric sales using its portion of the transmission capacity of the project and administrator will award right corp does not anticipate earning sufficient revenue to recover its payments for the upgrades or monthly capacity payments to corp under agreement in year corp estimated that the under-recovery of its costs would range between dollar_figurei and dollar_figurej however corp acknowledges that agreement includes provisions designed to provide more long-term value for and help prevent losses to corp corp acknowledges that the estimated under-recovery amount does not take into consideration yet-to-be negotiated customer agreements with corp 1’s ----------------- plr-109649-14 ------------------- customers in year corp contemplated entering into customer agreements to collect fixed monthly payments from the city -------------------- customers to help defray but not eliminate corp 1’s under-recovery however those negotiations to date have not resulted in any recovery mechanism for the project costs agreement requires corp to reimburse corp for the cost of the upgrades and any associated tax costs corp began that process on date shortly after the commercial operation of the project when it reimbursed corp dollar_figureg for the cost of the upgrades to taxpayer’s system and system excluding associated tax costs corp and corp subsequently arranged for corp to remit such payments directly to administrator in the future also on date corp posted security with administrator for an additional dollar_figurek of remaining upgrade costs and posted security for the associated tax costs meanwhile corp has paid administrator for the costs of the continued upgrade work corp remains contractually liable to taxpayer in the event corp were to fail to reimburse the cost of the upgrades taxpayer represents that the project benefits the public at large in state because the project provides enhanced transmission reliability and security significant economic benefits to electricity consumers increased public safety and increased access to cleaner generation also the project indirectly benefits the general_public in state through improvements to the essential public services provided by the city ---- -------------------- customers in addition the project enhances the performance of corp 3’s entire delivery system therefore all electricity consumers in the metropolitan area of city the vast majority which are not power customers of corp will receive direct benefits from the project additionally because corp is the sole electric supplier to its city --------------------customers numerous essential public services depend on corp for electricity taxpayer represents that city 1’s -------------------- customers will only receive benefits of the project in their capacity as members of the public at large and they will not receive any benefits of the project beyond those received by all electricity consumers in state who are not customers of corp taxpayer requests a ruling that the payments taxpayer receives from corp as reimbursement for the upgrades are contributions to the capital of taxpayer under sec_118 sec_61 and sec_1_61-1 of the income_tax regulations provide that gross_income means all income from whatever source derived unless excluded by law sec_118 provides that in the case of a corporation gross_income does not include any contribution_to_the_capital_of_the_taxpayer sec_118 provides that the term contribution_to_the_capital_of_the_taxpayer does not include any contribution_in_aid_of_construction or any other contribution as a customer or potential customer plr-109649-14 sec_1_118-1 of the income_tax regulations provides that in the case of a corporation sec_118 provides an exclusion_from_gross_income with respect to any contribution of money or property to the capital of the taxpayer thus if a corporation requires additional funds for conducting its business and obtains such funds through voluntary pro_rata payments by its shareholders the amounts so received being credited to its surplus account or to a special account such amounts do not constitute income although there is no increase in the outstanding shares of stock of the corporation in such a case the payments are in the nature of assessments upon and represent an additional price paid for the shares of stock held by the individual shareholders and will be treated as an addition to and as a part of the operating capital of the company sec_118 also applies to contributions to capital made by persons other than shareholders for example the exclusion applies to the value of land or other_property contributed to a corporation by a governmental_unit or by a civic group for the purpose of inducing the corporation to locate its business in a particular community or for the purpose of enabling the corporation to expand its operating facilities the legislative_history of sec_118 provides in part as follows this sec_118 in effect places in the code the court decisions on the subject it deals with cases where a contribution is made to a corporation by a governmental_unit chamber of commerce or other association of individuals having no proprietary interest in the corporation in many such cases because the contributor expects to derive indirect benefits the contribution cannot be called a gift yet the anticipated future_benefits may also be so intangible as to not warrant treating the contribution as a payment for future services s rep no 83rd cong 2d sess in 319_us_98 the court held that payments by prospective customers to an electric utility company to cover the cost of extending the utility’s facilities to their homes were part of the price of service rather than contributions to capital the case concerned customer’s payments to a utility company for the estimated cost of constructing service facilities primary power lines that the utility company otherwise was not obligated to provide the customers intended no contribution to the company’s capital later in 339_us_583 the court held that money and property contributions by community groups to induce a shoe company to locate or expand its factory operations in the contributing communities were nonshareholder contributions to capital the court reasoned that when the motivation of the contributors is to benefit the community at large and the contributors do not plr-109649-14 anticipate any direct benefit from their contributions the contributions are nonshareholder contributions to capital id pincite finally in 412_us_401 the court in determining whether a taxpayer was entitled to depreciate the cost of certain facilities that had been funded by the federal government held that the governmental subsidies were not contributions to the taxpayer’s capital the court recognized that the holding in detroit edison co had been qualified by its decision in brown shoe co the court in chicago burlington quincy railroad co found that the distinguishing characteristic between those two cases was the differing purpose motivating the respective transfers in brown shoe co the only expectation of the contributors was that such contributions might prove advantageous to the community at large thus in brown shoe co since the transfers were made with the purpose not of receiving direct services or recompense but only of obtaining advantage for the general community the result was a contribution_to_capital the court in chicago burlington quincy railroad co also stated that there were other characteristics of a nonshareholder contribution_to_capital implicit in detroit edison co and brown shoe co from these two cases the court distilled some of the characteristics of a nonshareholder contribution_to_capital under both the and codes first the payment must become a permanent part of the transferee’s working_capital structure second it may not be compensation such as a direct payment for a specific quantifiable service provided for the transferor by the transferee third it must be bargained for fourth the asset transferred foreseeably must benefit the transferee in an amount commensurate with its value fifth the asset ordinarily if not always will be employed in or contribute to the production of additional income and its value assured in that respect therefore to determine whether or not corp 1’s payments for the upgrades are contributions to capital under sec_118 we must examine corp 1’s motivation for making the payments while we recognize that the upgrades do benefit the general_public we believe based on the facts submitted that corp was motivated to pay for the cost of the upgrades for the direct benefit of its own customers therefore we rule that the payments taxpayer receives from corp as reimbursement for the upgrades are not contributions to the capital of taxpayer under sec_118 except as specifically set forth above no opinion is expressed or implied concerning the federal_income_tax consequences of the above described facts under any other provision of the code or regulations 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 plr-109649-14 this ruling is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely nicole cimino senior technician reviewer branch office of associate chief_counsel passthroughs and special industries enclosure copy ----------------------------- ----------------------------------------


internal_revenue_service department of the treasury number release date index number u i l no washington dc person to contact telephone number refer reply to cc psi plr-141307-02 date date legend company state shareholders a dear this letter responds to a letter dated date and additional correspondence requesting a ruling on behalf of company under sec_1362 of the internal_revenue_code the information submitted discloses that company was formed on a under the laws of state company has four shareholders shareholders it is represented that company has intended to be an s_corporation since a however company discovered that its s election had not been timely filed company requests a ruling under sec_1362 that its sec_1362 election will be treated as timely made for its taxable_year that began on a plr-141307-02 sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides when an s election will be effective generally if an s election is made within the first two and one half months of a corporation's taxable_year then that corporation will be treated as an s_corporation for the year in which the election is made sec_1362 provides that if an s election is made after the first two and one half months of a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year following the year in which the s election is made sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply based on the facts submitted and representations made we conclude that company has established reasonable_cause for failing to make a timely s election for its taxable_year that began on a and is eligible for relief under sec_1362 accordingly we conclude that company's sec_1362 election will be treated as timely made for its taxable_year that began on a however this ruling is contingent on company filing form_2553 election by a small_business_corporation with an effective date of a with the appropriate service_center within days from the date of this ruling a copy of this letter should be attached to the form_2553 except as specifically set forth above we express or imply no opinion concerning the federal tax consequences of the foregoing facts specifically we express or imply no opinion on whether company otherwise qualifies as an s_corporation pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to company’s authorized representative plr-141307-02 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours s mary beth collins senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index number u i l no washington dc person to contact telephone number refer reply to cc psi plr-119845-01 date date legend company state shareholder a b dear this letter responds to a letter dated date and subsequent correspondence requesting a ruling on behalf of company under sec_1362 of the internal_revenue_code the information submitted discloses that company was incorporated on a in state company has one shareholder shareholder it is represented that company has intended to be an s_corporation since b however company discovered that its s election had not been timely filed company requests a ruling under sec_1362 that its sec_1362 election will be treated as timely made for its taxable_year that began on b sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides when an s election will be effective generally if an s election is made within the first two and one half months of a corporation's taxable_year then that corporation will be treated as an s_corporation for the year in which the election is made sec_1362 provides that if an s election is made after the first two and one half months of a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year following the year in which the s plr-119845-01 election is made sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply based on the facts submitted and representations made we conclude that company has established reasonable_cause for failing to make a timely s election for its taxable_year that began on b accordingly we conclude that company's sec_1362 election will be treated as timely made for its taxable_year that began on b however this ruling is contingent on company filing form_2553 election by a small_business_corporation with an effective date of b with the appropriate service_center within days from the date of this ruling a copy of this letter should be attached to the form_2553 except as specifically set forth above we express or imply no opinion concerning the federal tax consequences of the foregoing facts specifically we express or imply no opinion on whether company otherwise qualifies as an s_corporation pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to company’s authorized representative this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours mary beth collins senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes