department of the treasury internal_revenue_service commerce street dallas tx date date tax_exempt_and_government_entities_division number release date vil legend org organization name xx date address address org address certified mail dear person to contact badge number contact telephone number contact address employer_identification_number deadline to petition_tax_court july 20xx this is a final notice of adverse determination that your exempt status under sec_501 of the internal_revenue_code is revoked recognition of your exemption under internal_revenue_code sec_501 is retroactively revoked to april 20xx for the following reason s you have not been operated exclusively for an exempt_purpose as required by internal_revenue_code sec_501 you have not demonstrated that you primarily engage in activities which accomplish one or more of such exempt purposes specified in sec_501 as required by sec_1_501_c_3_-1 contributions to your organization are no longer deductible effective april 20xx since your exempt status has been revoked you are required to file form_1120 u s_corporation income_tax return for all years beginning on or after july 20xx income_tax returns for subsequent years are to be filed with the appropriate service_center identified in the instructions for those returns _ it is further determined that your failure_to_file a written appeal constitutes a failure to exhaust your available administrative remedies however if you decide to contest this determination in court you must initiate a suit for declaratory_judgment in the united_states tax_court the united_states claims_court or the district_court of the united_states for the district of columbia before the ninety-first 91st day after the date that this determination was mailed to you contact the clerk of the appropriate court for rules for initiating suits for declaratory_judgment to secure a petition form write to the following address please understand that filing a petition for a declaratory_judgment under sec_7428 will not delay the processing of subsequent income_tax returns and assessment of any taxes due the last day for filing a petition for declaratory_judgment is june 20xx you also have the right to contact the office_of_the_taxpayer_advocate however you should first contact the person whose name and telephone number are shown above since this person can access you tax information and can help you get answers you can call and ask for the taxpayer_advocate assistance or you can contact the advocate from the site where this issue was determined by writing to taxpayer_advocate assistance cannot be used as substitute for established irs procedures formal appeals processes etc the taxpayer_advocate is not able to reverse legal or technically correct_tax determination nor extend the time fixed by law that you have to file a petition in - court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling this letter should be kept within your permanent records if you have any questions please contact the person whose name and telephone number are shown above sincerely marsha a ramirez director eo examinations enclosures publication tax_exempt_and_government_entities_division org address department of the treasury internal_revenue_service ms dal kt commerce street dallas tx date taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under sec_501 of the internal_revenue_code code is necessary if you accept our findings take no further action we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision your protest should include a statement of the facts the applicable law and arguments in support of your position an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process you may also request that we refer this matter for technical_advice as explained in publication if we issue a determination_letter to you based on technical_advice no further administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice letter catalog number 34809f if we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notify the appropriate state officials of the revocation in accordance with sec_6104 of the code you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter the most convenient time to call if we need to contact you if you write please provide a telephone number and thank you for your cooperation enclosures publication publication report of examination sincerely marsha a ramirez director eo examinations letter catalog number 34809f form_8 a name of taxpayer org schedule no or exhibit year period ended march 20xx explanation of items department of the treasury - internal_revenue_service legend org organization name non profit organization operating like a commercial business issue whether org is operated exclusively for exempt purposes described within internal_revenue_code sec_501 whether org is engaged primarily in activities that accomplish an exempt_purpose whether more than an insubstantial part of org’s activities are in furtherance of a non-exempt purpose whether org was operated for the purpose of serving a private benefit rather than public interest whether org conducted commercial activities in such a manner that these activities became its primary purposes facts org hereinafter org was incorporated on march 19xx in the xyz org applied for exemption on june 19xx the activities and operational information as described in the form_1023 were to educate consumers on the proper use of credit types of credit facilities available for different purposes and to provide guidance on a monthly basis by way of cash_flow analysis and budget planning so that creditors can be paid and at the same time reduced the incidences of bankruptcy so thousands of dollars can be kept in circulation to arouse the awareness of consumers to their rights as debtors in accordance with the fair debt collection practices as outlined by the federal trade commission to work alongside consumers and the credit-granting community to provide consumers nationwide who are financially distressed with a free debt repayment program which will enable them to meet their financial obligations while at the same time allowing them to cope with their monthly living_expenses in the final_determination letter dated september 19xx org was recognized as an organization exempt from federal_income_tax as described in sec_501 org was recognized as not a private_foundation within the meaning of sec_509 and b a vi the main issue of contention is whether the current mode of operation by the exempt_organization will preclude the tax exempt status of the organization the total org’s revenue for year ending march 20xx the year under audit is dollar_figure this includes dollar_figure as fair-share payments from the creditors and dollar_figure as payments from clients who enrolled in the organization’s debt management plans dmp there is no contribution from the general_public or other governmental agencies came from the fair-share payments from the creditors and of the gross revenue came from the client payments under dmp at present in the year 20xx the org operation is on a much smaller scale compared to the year under audit the organization has four employees but only one employee is a credit counselor form 886-a rev department of the treasury - internal_revenue_service page -1- form_886 a name of taxpayer org schedule no or exhibit year period ended march 20xx explanation of items department of the treasury - internal_revenue_service legend org organization name who receives a flat hourly rate based on conversations with both the president and poa besides providing services in the form of debt management programs this organization does little else the board_of directors does not represent a cross-section of the community served it comprises of six people including the president his sister and his mother his sister is also the internal auditor of the organization his mother is also the chief finance officer the other three board members are inactive they only attend the board meeting one a year law sec_501 of the internal_revenue_code provides that an organization described in sec_501 is exempt from income_tax sec_501 of the code exempts from federal_income_tax corporations organized and operated exclusively for charitable educational and other purposes provided that no part of the net_earnings inure to the benefit of any private_shareholder_or_individual the term charitable includes relief of the poor and distressed see sec_1 c -1 d income_tax regulations the term educational includes a instruction or training of the individual for the purpose of improving or developing his capabilities and b instruction of the public on subjects useful to the individual and beneficial to the community sec_1_501_c_3_-1 in other words the two components of education are public education and individual training sec_1_501_c_3_-1 of the regulations provides that in order to be exempt as an organization described in sec_501 an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt sec_1_501_c_3_-1 of the regulations provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities that accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose the existence of a substantial nonexempt purpose regardless of the number or importance of exempt purposes will cause failure of the operational_test 326_us_279 sec_1_501_c_3_-1 of the regulations provides that an organization may meet the requirements of sec_501 although it operates a trade_or_business as a substantial part of its activities if the operation of such trade_or_business is in furtherance of the organization’s exempt_purpose or purposes and if the organization is not organized or operated for the primary purposes of carrying on an unrelated_trade_or_business in 326_us_279 the supreme court held that the presence of a single non-exempt purposes if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes the court found that the trade_association had an underlying commercial motive that distinguished its educational program from that carried out by a university form 886-a rev department of the treasury - internal_revenue_service page -2- form_886 a name of taxpayer org schedule no or exhibit year period ended march 20xx explanation of items department of the treasury - internal_revenue_service legend org organization name in 302_f2d_934 ct_cl the court considered the status of an organization that provided analyses of securities and industries and of the economic climate in general the organization sold subscriptions to various periodicals and services providing advice for purchases of individual securities although the court noted that education is a broad concept and assumed for the sake of argument that the organization had an educational purpose it held that the organization had a significant non- exempt commercial purpose that was not incidental to the educational purpose and was not entitled to be regarded as exempt an organization must establish that it serves a public rather than a private interest and that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests sec_1_501_c_3_-1 _ interests include those of unrelated third parties as well as insiders 70_tc_1037 92_tc_1053 private benefits include an advantage profit fruit privilege gain or interest 78_tc_280 prohibited private in 70_tc_352 the court found that a corporation formed to provide consulting services was not exempt under sec_501 because its activities constituted the conduct_of_a_trade_or_business that is ordinarily carried on by commercial ventures organized for profit its primary purpose was not charitable educational nor scientific but rather commercial the court found that the corporation had completely failed to demonstrate that its services were not in competition with commercial businesses the court found that the organization’s financing did not resemble that of the typical 501_c_3_organization it had not solicited nor had it received voluntary contributions from the public its only source_of_income was from fees from services and those fees were set high enough to recoup all projected costs and to produce a profit moreover it did not appear that the corporation ever planned to charge a fee less than cost and finally the corporation had failed to limit its clientele to organizations that were sec_501 exempt_organizations an organization formed to educate people in hawaii in the theory and practice of est was determined by the tax_court to a part of a franchise system which is operated for private benefit and therefore should not be recognized as exempt under sec_501 of the code 71_tc_1067 although the organization was not formally controlled by the same individuals who controlled the for-profit entity that owned the license to the est body of knowledge publications and methods the for-profit entity exerted considerable control_over the applicant’s activities by setting pricing the number and frequency of different kinds of seminars and training and providing the trainers and management personnel who are responsible to it in addition to setting price for the training the court stated that the fact that the organization’s rights were dependent upon its tax-exempt status showed the likelihood that the for-profit entities were trading on that status the question for the court was not whether the payments made to the for-profit were excessive but whether the for-profit entity benefited substantially from the operation of the organization the court determined that there was a form 886-a rev department of the treasury - internal_revenue_service page -3- form_8 a name of taxpayer org schedule no or exhibit year period ended march 20xx explanation of items department of the treasury - internal_revenue_service legend org organization name substantial private benefit because the organization was simply the instrument to subsidize the for-profit corporations and not vice versa and had no life independent of those corporations sec_1_513-1 of the regulations recognizes that in certain cases activities carried on by an organization in the performance of exempt functions may generate good will or other intangibles which may be exploited in commercial endeavors where an organization exploits such an intangible in commercial activities the mere fact that the resultant income depends in part upon an exempt_function of the organization does not make it gross_income from related trade_or_business in such cases unless the commercial activities themselves contribute importantly to the accomplishment of an exempt_purpose the income which they produce is gross_income from the conduct of unrelated_trade_or_business example of this section describes advertising by business firms in an exempt organization’s journal that promotes only products that are within the general area_of_interest of the organization’s members the example indicates that the advertising is not an educational activity of the kind contemplated by the exemption statute and that therefore the organization’s publication of advertising does not contribute importantly to the accomplishment of its exempt purposes the service has issued two rulings holding credit counseling organizations to be tax exempt revrul_65_299 1965_2_cb_165 granted exemption to a c organization whose purpose was to assist families and individuals with financial problems and to help reduce the incidence of personal bankruptcy its primary activity appears to have been meeting with people in financial difficulties to analyze the specific problems involved and counsel on the payment of their debts the organization also advised applicants on proration and payment of debts negotiated with creditors and set up debt repayment plans it did not restrict its services to the needy it made no charge for the counseling services indicating they were separate from the debt repayment arrangements it made a nominal charge for monthly prorating services to cover postage and supplies for financial support it relied upon voluntary contributions from local businesses lending agencies and labor unions in revrul_69_441 1969_2_cb_115 the service found that a nonprofit organization formed to help reduce personal bankruptcy by informing the public on personal money management and aiding low-income individuals and families with financial problems was exempt under sec_501 of the code its board_of directors was comprised of representatives from religious organizations civic groups labor unions business groups and educational institutions the organization provided information to the public on budgeting buying practices and the sound use of consumer credit through the use of films speakers and publications it aided low- income individuals and families who have financial problems by providing them with individual counseling and if necessary by establishing budget plans under the budget plan the debtor voluntarily made fixed payments to the organization holding the funds in a_trust account and disbursing the funds on a partial payment basis to the creditors the organization did not charge fees for counseling services or proration services the debtor received full credit against his debts for all amounts paid the organization did not make loans to debtors or negotiate loans on their behalf finally the organization relied upon contributions primarily from the creditors participating in the organization’s budget plans for its support form 886-a rev department of the treasury - internal_revenue_service page -4- fotm a name of taxpayer org schedule no or exhibit year period ended march 20xx explanation of items department of the treasury - internal_revenue_service legend org organization name the service found that by aiding low-income individuals and families who have financial problems and by providing without charge counseling and a means for the orderly discharge_of_indebtedness the organization was relieving the poor and distressed moreover by providing the public with information on budgeting buying practices and the sound use of consumer credit the organization was instructing the public on subjects useful to the individual and beneficial to the community thus the organization was exempt from federal_income_tax under sec_501 of the code in the case of consumer credit counseling service of alabama inc v u s a f t r 2d d d c the district_court for the district of columbia held that a credit_counseling_organization qualified as charitable and educational under sec_501 it fulfilled charitable purposes by educating the public on subjects useful to the individual and beneficial to the community sec_1_501_c_3_-1 _ for this it charged no fee the court found that the counseling programs were also educational and charitable the debt management and creditor intercession activities were an integral part of the agencies’ counseling function and thus were charitable and educational even if this were not the case the court viewed the debt management and creditor intercession activities as incidental to the agencies’ principal functions as only approximately percent of the counselors’ time was applied to debt management programs and the charge for the service was nominal the court also considered the facts that the agency was publicly supported and that it had a board dominated by members of the general_public as factors indicating a charitable operation see also credit counseling centers of oklahoma inc v united_states u s t c d d c in which the facts and legal analysis were virtually identical to those in consumer credit counseling centers of alabama inc v united_states discussed immediately above the organizations included in the above decision waived the monthly fees when the payments would work a financial hardship the professional counselors employed by the organizations spent about percent of their time in activities such as information dissemination and counseling assistance rather than those connected with the debt management programs the participants in the dmp received full credit against their debts for the amounts paid moreover the agencies charged a nominal fee of up to dollar_figure per month for the dmp this fee was waived in instances when payment of the fee would work a financial hardship the primary sources of revenue for these organizations were provided by government and private_foundation grants contributions and assistance from labor agencies and united way outside the context of credit counseling individual counseling has in a number of instances been held to be a tax-exempt charitable activity revrul_78_99 1978_1_cb_152 free individual and group counseling of widows revrul_76_205 1976_1_cb_154 free counseling and english instruction for immigrants revrul_73_569 1973_2_cb_179 free counseling to pregnant women revrul_70_590 1970_2_cb_116 clinic to help users of mind-altering drugs revrul_70_640 1970_2_cb_117 free marriage counseling revrul_68_71 c b career planning education through free vocational counseling and publications sold at a nominal charge overwhelmingly the counseling activities described in these rulings were provided free and the organizations were supported by contributions from the public form 886-a rev department of the treasury - internal_revenue_service page -5- form 886a name of taxpayer org schedule no or exhibit year period ended march 20xx explanation of items department of the treasury - internal_revenue_service legend org organization name internal_revenue_code sec_501 specifies that an exempt_organization described therein is one in which no part of the net_earnings inures to the benefit of any private_shareholder_or_individual the words private_shareholder_or_individual in sec_501 to refer to persons having a personal and private interest in the activities of the organization sec_1 a - c the inurement prohibition provision is designed to prevent the siphoning of charitable receipts to insiders of the charity 165_f3d_1173 cir 19xx college v commissioner 276_f2d_476 cir reasonable_compensation does not constitute inurement birmingham business that such loans were made showed that the companies controlled by the private where an organization provided a source of credit to companies of which a private shareholder was either an employee or an owner the court found that a portion of the organization’s net_earnings inured to the benefit of that private shareholder easter house v united_states cl_ct shareholder had a source of loan credit in the organization in easter house v united_states 846_f2d_78 fed cir affp'g cl_ct the court found an organization that operated an adoption agency was not exempt under sec_501 of the code because a substantial purpose of the adoption activity was a non-exempt commercial purpose it found that the adoption services did not further the exempt purposes of providing educational and charitable services to the unwed mothers and children rather the services for unwed mothers and children were merely provided incident to the organization’s adoption service business moreover the court found that adoption services do not in and of themselves constitute an exempt_purpose the court also agreed with the irs’ determination that the agency operated in a manner not distinguishable from a commercial adoption agency because it lacked the following traditional attributes of a charity first the agency’s operation made substantial profits and there was a substantial accumulation of capital surplus in comparison to direct expenditures by the agency for charitable and educational_purposes second the agency’s operation was funded completely by substantial fixed fees charged adoptive parents it relied entirely on those fees and sought no funds from federal state or local sources nor engaged in fund raising programs nor did it solicit contributions in fact the agency had no plans nor intention to seek contributions government grants or engage in fund raising relative to its operations third the fixed fees the agency charged adoptive parents were not subject_to downward adjustment to meet potential adoptive parents’ income or ability to pay fourth the agency’s single life member had near total control of the operations of the agency and fifth the agency functioned by means of a paid staff of to persons with no volunteer help in addition to furthering a substantial non-exempt purpose the court found that a portion of the organization’s net_earnings inured to the benefit of a private_shareholder_or_individual as defined by sec_1_501_c_3_-1 and sec_1_501_a_-1 of the regulations the organization provided a source of credit ie loans to companies in which the private shareholder was either employed by or owned the fact that the loans were made showed that the companies controlled by the private shareholder had a source of loan credit in the organization in p l l scholarshi82_tc_196 an organization operated bingo at a bar for the avowed purpose of raising money for scholarships the board included the bar owners the bar’s accountant also a director of the bar as well as two players the board was form 886-a rev department of the treasury - internal_revenue_service page -6- form_886 a name of taxpayer org schedule no or exhibit year period ended march 20xx _ explanation of items department of the treasury - internal_revenue_service legend org organization name self-perpetuating the court reasoned that because the bar owners controlled the organization and appointed the organization’s directors the activities of the organization could be used to the advantage of the bar owners the organization claimed that it was independent because there was separate_accounting and no payments were going to the bar the court was not persuaded a realistic look at the operations of these two entities however shows that the activities of the taxpayer and the pastime lounge were so interrelated as to be functionally inseparable separate accountings of receipts and disbursements do not change that fact the court went on to conclude that because the record did not show that the organization was operated for exempt purposes but rather indicates that it benefited private interests exemption was properly denied in church by mail inc v commissioner t c memo aff'd 765_f2d_1387 cir the tax_court found that a church was operated with a substantial purpose of providing a market for an advertising and mailing company owned by the same people who controlled the church the church argued that the contracts between the two were reasonable but the court_of_appeals pointed out that the critical inquiry is not whether particular contractual payments to a related for-profit organization are reasonable or excessive but instead whether the entire enterprise is carried on in such a manner that the for-profit organization benefits substantially from the operation of the church the credit repair organizations act croa u s c et seq effective april 19xx imposes restrictions on credit repair organizations including forbidding the making of untrue or misleading statements and forbidding advance_payment before services are fully performed u s c 1679b significantly sec_501 organizations are excluded from regulation under the croa the croa defines a credit repair organization as any person who uses any instrumentality of interstate commerce or the mails to sell provide or perform or represent that such person can or will sell provide or perform any service in return for the payment of money or other valuable consideration for the express or implied purpose of- i improving any consumer’s credit record credit history or credit rating or ii providing advice or assistance to any consumer with regard to any activity or service described in clause i u s c 1679a the courts have interpreted this definition broadly to apply to credit counseling agencies the federal trade commission’s policy is that if an entity communicates with consumers in any way about the consumers’ credit situation it is providing a service covered by the croa 21_fsupp2d_424 n d n j 19xx businesses are prohibited from cold-calling consumers who have put their phone numbers on the national do-not-call registry which is maintained by the federal trade commission c f_r b iii b c f_r sec_64 c sec_501 organizations are not form 886-a rev department of the treasury - internal_revenue_service page -7- department of the treasury - internal_revenue_service form 886a name of taxpayer org schedule no or exhibit year period ended march 20xx explanation of items legend org organization name subject_to this rule against cold-calling because c organizations are exempt from regulation under the croa and the cold-calling restrictions organizations that are involved in credit repair have added incentives to be recognized as sec_501 organizations even if they do not intend to operate primarily for exempt purposes taxpayer’s position the organization consents to the proposed revocation government ’s position does not meet the operational_test because more than an insubstantial part of its activities are commercial in nature by definition sec_501organizations will only qualify for tax exempt status if it is organized and operated exclusively for charitable purposes thus to meet the requirement it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests not an exempt activity described under internal_revenue_code sec_501 the entire revenue stream is from debt management plan and fair share payments from creditors no charity payment from general_public or any governmental agencies the board_of directors of the organization is not represented by the community the board is a small_group of individuals including the president of the organization his mother and his sister is operating in a commercial manner which is the current operation of the organization appears to be nothing more than the maintenance of the client base on the debt management plan and collecting the regular monthly fee this is activity is not in furtherance of the educational_purposes within the meaning of sec_501 conclusion in the case of org it is held that where the primary purpose or activity of the credit counseling agency is the maintenance of debt management plans for customers it is not entitled to exemption from federal_income_tax as an organization described in sec_501 of the code ruling and determination letters which have been issued granting exemption from income_tax under sec_501 of the code to such organization should be revoked effective april 20xx form 886-a rev department of the treasury - internal_revenue_service page -8-


internal_revenue_service number release date index number ------------------------------- ------------ --------------------------------------------- ---------------------------------------------- --------------------- ------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------------ id no ---------------- telephone number -------------------- refer reply to cc ita b02 plr-123146-14 date december legend taxpayer state city authority authority ------------------------------------------------------------------------ ------------- ------------- ------------------------------------------------------------------------------------------ -------------------------------------------------------------------------- ------------------------------------------------------------------------------------------ -------- ---------------------------------------------------------- ------------------------------------------------- building condominium act act affordability plan ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ---------------------------------------------------------- ------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------ ------------------- --------------------------------------------- ----------------------- -------------------------- --------------------------- -------------------------- ------------------------------------------------------------------------------------------ ----------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------ ----------------------------- ---------------------- ----------------------------- corporation date date date date ground lease land project_area property revenue plr-123146-14 allocation agreement ----------------------------------------------------------------------------------------- ------------------------------------------------------------ sponsor tenant- shareholder ----------------------------------------------------------------------------------------- --------------------------------------- ------------------------------------------------------------- tep agreement --------------------------------------------------------------------- ------------------------------------------------------------------------ unit holder ------------------------------------------------------------------------------------------ x y ----------------------------------------------------------------------------------------- --------------------------------------------- -------------------------------------------------------------------- ------------------------------------------------ z dear ------------ this responds to letter dated date in the letter you request a letter_ruling under sec_164 of the internal_revenue_code that payments in_lieu_of_taxes here known as tax equivalency payments tep made by the taxpayer to authority are real_property_taxes for purposes of such section and that such tep will be deductible by each tenant-shareholder of the taxpayer as real_estate_taxes under sec_216 of the code under the circumstances described below facts --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ----------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ---------------------------- plr-123146-14 --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------- authority information authority was created by act as a public benefit corporation for the purpose of developing housing and economic development in the state act exempts authority from taxation as follows exemption from taxation the exercise of the powers granted by this act will be in all respects for the benefit of the people of this state for the increase of their commerce welfare and prosperity and for the improvement of their health and living conditions and will constitute the performance of an essential_governmental_function and the corporation and its subsidiaries shall not be required to pay any taxes other than assessments for local improvements upon or in respect of a project or of any property or moneys of the corporation or any of its subsidiaries levied by any municipality or political_subdivision of the state nor shall the corporation or its subsidiaries be required to pay state taxes of any kind and the corporation its subsidiaries projects property and moneys and except for estate_and_gift_taxes and taxes on transfers any bonds or notes issued under the provisions of this act and the income therefrom shall at all times be free from taxation of every kind by the state and by the municipalities and all other political subdivisions of the state act also provides that authority 1’s powers include in part to enter into agreements to pay annual sums in_lieu_of_taxes to any municipality or political_subdivision of the state in respect of any real_property which is owned by the corporation or any subsidiary thereof and is located in such municipality or political_subdivision authority is a subsidiary of authority and was created by act as public benefit corporation for the purpose of operating the project_area act contemplated that among other things ----------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------- the act provides in part t he creation of the authority and the carrying out of its purposes is in all respects for the benefit of the people of the state and is a public purpose and that the authority will be performing an essential_governmental_function in the plr-123146-14 exercise of the powers conferred upon it by this act the authority and its operations property and moneys shall be free and exempt from taxation of every kind by the city and the state and any subdivision thereof except as hereinabove provided and except as may otherwise specifically be provided nothing contained in this act shall confer exemption from any_tax assessment or fee upon any person firm corporation or other entity or upon the obligations of any of them --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------- the -------------------provides that the tax equivalent for conventionally financed housing is city ’s then current real_estate tax_rate times city ’s then current assessed valuation of land and buildings for each improvement or part of an improvement consisting of completed units of conventionally financed housing after adjustment such then current assessed valuation for rent and buildings shall from time to time be assessed and reassessed by city in the manner and subject_to the limitations then currently imposed upon assessments of like properties by all laws and regulations applicable thereto the -------------------provides that both y and city agree that the tep’s are in lieu of all local and municipal taxes including real_estate_taxes on land and buildings other than local assessments the ------------------provides that y may sublease any portion of project_area in order to carry out the development of the project_area thereafter y subleased the property to x and provided in the ------------------ that the lessee is required to make the same payments in lieu of real_estate_taxes as y is obligated to pay to city which are referred to as tep in the ------------------ --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- plr-123146-14 --------------------------------------------------------------------------------------------------------------------- --------------------------------------already paid in respect thereof ------------------background --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------- tep the affordability plan established certain restrictions on rent increases and sales prices during the affordability plan period which is ------------from the affordability plan effective date of --------------------------- at the end of the affordability plan period the tep would be calculated for all units on the same basis as that for market apartments as noted above pursuant to act act the affordability plan the assignment and assumption_agreement dated as of the assignment date between authority and authority and the revenue allocation agreement authority and authority are exempt from taxation on property including real_property but pursuant to the ------------------ authority is obligated to pay tep to city under act the unit holder would not be exempt from payment of the tep to authority except as hereinabove provided and except as may otherwise specifically be provided nothing contained in this act shall confer exemption from any_tax assessment or fee upon any person firm corporation or other entity or upon the obligations of any of them act sec_5 of act the ------------------ the affordability plan and the tep agreement collectively provide the authority and mechanism for the payment and plr-123146-14 collection of tep the tep is calculated in the same manner as conventional real_estate_taxes for the market apartments conventionally financed and after the year affordability plan period affordable apartments subsidized middle income the computation of the tep also reflects all real_estate tax deductions and exemptions for which the qualified tenants in such apartments were eligible such as star and veterans abatements senior citizen and disabled rent increase exemptions and for market apartments the cooperative and condominium real_estate tax abatement pursuant to sec_4 b i of the second amendment to the ------------------ the tep is deemed payable only on the building and not on the land under the terms of the bylaws of the corporation each tenant-shareholder shall make his tep payment to the corporation as part of ---------------------------- which are allocated among all tenant-shareholders on a -------------------- the taxpayer will pay authority an annual sum payable in monthly installments ie the tep sec_164 of the code allows as a deduction the state local and foreign real_property_taxes paid_or_accrued in the taxable_year sec_1_164-3 of the treasury regulations defines real_property_taxes as taxes imposed on interests_in_real_property that are levied for the general_public welfare assessments for local benefits are not treated as real_property_taxes see sec_1_164-2 and sec_1_164-4 whether a particular charge is a tax within the meaning of sec_164 of the code depends on its true nature as determined under federal_law the word taxes as used in the statute is nowhere defined in the code and it must be given its ordinary and commonly accepted meaning as established by judicial decisions see 25_bta_1382 aff’d fed 2d ct_d c b xii-2 the designation given by local law is not determinative and if it is in the nature of a tax it is not material that it is called by a different name a charge will constitute a tax if it is an enforced contribution exacted pursuant to legislative authority in the exercise of taxing power and imposed and collected for the purpose of raising revenues to be used for public or governmental purposes see revrul_71_49 1971_1_cb_103 revrul_61_152 1961_2_cb_42 sec_216 of the code provides that a tenant-stockholder in a cooperative_housing_corporation shall be allowed a deduction for amounts paid_or_accrued to the corporation within his taxable_year representing his proportionate share of real_estate_taxes paid_or_incurred by the corporation to be proportionately deductible by the tenant- stockholders such taxes must be allowable as a deduction to the corporation under sec_164 ordinarily when amounts are paid into a specific fund they are treated as imposed as a regulatory measure such as licensing fees or as a charge for a privilege or service rendered the tep in the instant case cannot be so treated they are not exacted for plr-123146-14 the purpose of regulating or restraining an occupation deemed dangerous to the public nor are they imposed as a charge for a privilege or service rendered they are charges imposed on the building by authority and authority under the authority provided in act and act to provide for a public purpose the payments are made in lieu of real_estate_taxes in the manner provided for in the regular taxing statutes whether for subsidized or conventionally financed properties in order to provide revenue to authority and authority both public benefit corporations of state for an expressed public purpose this is evident from the definition of tep which describes a formula that mirrors the computation of traditional city real_estate_taxes accordingly the tep payments do not constitute local_benefit_assessments which are expressly excluded from the definition of tep in the lease the teps are measured by and are equal to the amounts imposed by the regular taxing statutes and are themselves are imposed by city and then state even though the vehicle of the leasing agreement is utilized although the proceeds from these payments are paid directly to authority and shared with authority as subsidiaries or units of state these payments would be deemed as part of state’s general revenue fund and they are designated for a public purpose rather than for some privilege service or regulatory function or for some other local benefit tending to increase the value of the property upon which the payments are made rulings requested tep exacted from the taxpayer as owner of the ----------------------pursuant to act and act and imposed through the instrument of the -------------------with authority and authority is a tax for the purposes of sec_164 of the code tenant-shareholders of the taxpayer are entitled to deduct their proportionate share of tep as real_estate_taxes paid_by the taxpayer attributable to the ---------------------- -------------------------- a taxpayer may not rely on a private_letter_ruling that has been issued to another taxpayer section dollar_figure of revproc_2014_1 2014_1_irb_1 therefore a private_letter_ruling addresses only the tax_liability of taxpayers who are party to the ruling_request however taxpayer will be the owner of units in the condominium until the units are sold and as such will be liable for pilot until the units are sold we consider taxpayer’s second ruling_request in that context law and analysis sec_164 of the code allows as a deduction the state local and foreign real_property_taxes paid_or_accrued in the taxable_year sec_1_164-3 of the treasury regulations defines real_property_taxes as taxes imposed on interests_in_real_property plr-123146-14 that are levied for the general_public welfare assessments for local benefits are not treated as real_property_taxes see sec_1_164-2 and sec_1_164-4 whether a particular charge is a tax within the meaning of sec_164 depends on its true nature as determined under federal_law the designation given by local law is not determinative a charge will constitute a tax if it is an enforced contribution exacted pursuant to legislative authority in the exercise of taxing power and imposed and collected for the purpose of raising revenues to be used for public or governmental purposes see revrul_71_49 1971_1_cb_103 revrul_61_152 1961_2_cb_42 revrul_71_49 involved tax equivalency payments to the new york city educational construction fund a public benefit corporation by a cooperative_housing_corporation the payments were applied to debt service on obligations funding public school construction the ruling holds that the cooperative_housing_corporation may deduct the payments as real_property_taxes under sec_164 because the payments are measured by and are equal to the amounts imposed by the regular taxing statutes the payments are imposed by a specific state statute even though the vehicle of a lease agreement is used and the proceeds are designated for a public purpose rather than for some privilege service or regulatory function or for some other local benefit tending to increase the value of the property upon which the payments are made accordingly each tenant-stockholder of the cooperative_housing_corporation may deduct the payments in the amount of the stockholder’s proportionate share sec_216 provides that a tenant-stockholder in a cooperative_housing_corporation shall be allowed a deduction for amounts paid_or_accrued to the corporation within his taxable_year representing his proportionate share of real_estate_taxes paid_or_incurred by the corporation to be proportionately deductible by the tenant-stockholders such taxes must be allowable as a deduction to the corporation under sec_164 the tep obligations in this case satisfy the three-prong test of revrul_71_49 because they are imposed at the same general rate at which real_property_taxes are imposed are imposed pursuant to the affordability plan and may only be used for public purposes accordingly we hold as follows tep exacted from the taxpayer as owner of the ----------------------pursuant to act and act and imposed through the instrument of the -------------------with authority and authority is a tax for the purposes of sec_164 of the code tenant-shareholders of the taxpayer are entitled to deduct their proportionate share of tep as real_estate_taxes paid_by the taxpayer attributable to the --------- ------------------------------------------------- plr-123146-14 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely _____________________________ thomas d moffitt chief branch associate chief_counsel income_tax accounting cc


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom fi p -plr-114774-99 date date fund fund year a year b year c year d state dear this is in reply to a letter dated date seeking the secretary’s consent to revoke for year a and subsequent calendar years thereafter an election previously made by fund and fund fund or funds under sec_4982 of the internal_revenue_code_of_1986 as amended the code the funds also request that the calculation of their required distributions for the plr-114774-99 calendar_year ending december year a the capital_gain_net_income and net gain_or_loss from foreign_currency_transactions included in ordinary_income of the funds be determined on the basis of capital_gains_and_losses and foreign_currency gains and losses respectively realized and recognized during the ten-month period from january through october of year a additionally the funds request that calendar_year a be the first taxable_year of the funds in which the election under sec_4982 of the code will not apply for purposes of determining the post-october losses as applied to the funds’ computation of investment_company_taxable_income and net capital_gains under sec_852 and sec_852 of the code as well as sec_1_852-11 of the treasury regulations the determination of the funds’ earnings_and_profits under sec_852 of the code and sec_1_852-11 of the regulations and for purposes of designating capital_gain dividends under sec_852 and sec_1_852-11 of the regulations each fund is organized as a state corporation and is registered with the securities_and_exchange_commission under the investment_company act of u s c 80a-1 et seq each is treated as a separate corporation under sec_851 of the code and has elected to be treated and has qualified as a regulated_investment_company ric under subchapter_m of the code both funds use the accrual_method of accounting for tax and financial_accounting reporting purposes for the tax_year ending december year b each fund elected pursuant to sec_4982 to use its tax_year of december in lieu of the one-year period ending on october for purposes of the required_distribution amount under sec_4982 sec_4982 and sec_4982 each fund assumed that the election under sec_4982 would minimize the complexity of tax_accounting and enhance the accuracy of related distribution calculations the funds' experience has been that the election has created significant difficulties resulting primarily from the time constraints in determining the ordinary_income and capital_gain_net_income distributions required to avoid the excise_tax imposed by sec_4982 the determination of the ordinary_income and capital_gain distributions necessary for declaring the required excise_tax distribution must generally be made in late december however waiting until december to make this determination creates enormous administrative difficulties for the funds further the promulgation of treasury regulations coordinating the excise_tax and subchapter_m provisions has greatly reduced the administrative burden of having a tax_year different from the period used for determining its required_distribution under sec_4982 accordingly each fund seeks consent to revoke its election to use its taxable_year the calendar_year for purposes of sec_4982 sec_4982 and sec_4982 each fund represents that plr-114774-99 the desire to revoke its election is due to administrative and non-tax related financial burdens caused by the election it is not seeking to revoke its election for the purpose of preserving or securing a tax benefit it will neither benefit through hindsight nor prejudice the interests of the government as a result of being permitted to revoke its election it will not make a subsequent election under sec_4982 for a period of five calendar years following the year of the grant of revocation law and analysis sec_4982 of the code which was enacted as part of the tax_reform_act_of_1986 and is effective for tax years beginning after date imposes an excise_tax on every ric for each calendar_year equal to percent of the excess if any of the required_distribution for the calendar_year over the distributed_amount for the calendar_year sec_4982 defines the term required_distribution to mean with respect to any calendar_year the sum of percent of the ric's ordinary_income for such calendar_year plus percent of its capital_gain income for the 1-year period ending on october of such calendar_year sec_4982 provides that the amount determined under sec_4982 for any calendar_year shall be increased by the excess if any of the grossed up required_distribution for the preceding calendar_year over the distributed_amount for such preceding year sec_4982 defines grossed up required_distribution for any calendar_year to mean the required_distribution for such year determined by applying sec_4982 to such year but substituting percent for each percentage set forth in sec_4982 sec_4982 provides that if the tax_year of a ric ends with the month of november or december the ric may elect to have its capital_gain_net_income for its tax_year applied in lieu of the 1-year period ending on october of the calendar_year for purposes of satisfying the required_distribution defined in sec_4982 sec_4982 provides that once made such election may be revoked only with the consent of the secretary sec_4982 provides that any foreign_currency_gain_or_loss attributable to a sec_988 transaction and which is properly taken into account for the portion of the calendar plr-114774-99 year after october shall not be taken into account when determining the amount of the ordinary_income of the ric for such calendar_year but shall be taken into account in determining the ric’s ordinary_income in the following calendar_year however if a ric has made a e a election the preceding sentence shall be applied by substituting the last day of the company’s taxable_year for october for purposes of determining the amount that a ric may designate as a capital_gain dividend for a tax_year sec_852 and sec_1_852-11 of the treasury regulations provided special rules that exclude post-october losses from the computation sec_852 states that to the extent provided in the regulations the taxable_income of a ric other than a company that has made a e a election shall be computed without regard to any net foreign_currency_loss attributable to transactions arising after october of such year and any such net foreign_currency_loss shall be treated as arising on the first day of the following tax_year sec_1_852-11 provides that a ric may elect in accordance with procedures in sec_1_852-11 to compute its taxable_income for a tax_year without regard to part or all of any post-october foreign_currency_loss for that year c and g provide that earnings_and_profits of a ric for a tax_year are determined without regard to any post-october_capital_loss or post-october foreign_currency_loss for that year however sec_1_852-11 provides that the regulations under sec_1_852-11 shall not apply to any post-october_capital_loss or post-october foreign_currency_loss of a ric attributable to a tax_year for which an election is in effect under sec_4982 with respect to the ric consequently for purposes of the aforementioned rules it is necessary to determine the first tax_year for which the election under sec_4982 will not apply similarly sections based on the information submitted and the representations made we conclude that each fund's desire to revoke its election under sec_4982 is due to administrative burdens and not because of any federal tax-related financial burden caused by the election neither fund seeks to revoke its election for the purpose of preserving or securing a federal tax_benefit nor will the funds benefit through hindsight or prejudice the interests of the government as a result of being permitted to revoke the election conclusion accordingly pursuant to sec_4982 the secretary consents to the revocation of the election made by each fund under sec_4982 effective calendar_year a and subsequent years in calculating the required_distribution for calendar_year a for purposes of sec_4982 and the capital_gain_net_income will be determined on the basis of the capital_gains_and_losses taken into account during the 10-month period from january year a through october year a the net gain_or_loss from foreign_currency_transactions included in the ordinary_income of each fund may also be calculated during the 10-month period from january through october of year a plr-114774-99 in addition year a will be the first taxable_year of the funds in which the election under sec_4982 of the code will not apply for purposes of determining the post- october losses as applied to the funds’ computation of investment_company_taxable_income and net capital_gains under sec_852 and sec_852 of the code as well as sec_1_852-11 of the treasury regulations the determination of the funds’ earnings_and_profits under sec_852 of the code and sec_1_852-11 of the regulations and for purposes of designating capital_gain dividends under sec_852 and sec_1 e of the regulations as a condition to the secretary's consent to the revocation pursuant to sec_4982 each fund may not make a subsequent election under sec_4982 for a period of calendar years following the year to which the grant of revocation applies that is year c through year d except as specifically ruled upon above no opinion is expressed or implied as to the federal excise or income_tax consequences regarding the funds this ruling is directed only to the taxpayers requesting it sec_6110 of the code provides that it may not be used or cited as precedent it is important that a copy of this letter be attached to the federal income and excise_tax return filed by each fund for the first year to which this ruling applies sincerely assistant chief_counsel financial institutions products by william e coppersmith chief branch enclosure copy of this letter copy for sec_6110 purposes


number release date id office uilc cca-411043-09 -------------- from ---------------- sent wednesday date am to -------------------- cc subject lien question whether the nftls attach to the llc interest depends on who had rights in the llc as of the time the liens arose the time of assessment this is determined under state law 363_us_509 80_sct_1277 it appears that under governing state law that of kentucky an llc member ceases to lose his membership in the llc as of the time of death ky rev stat ann sec_275 f therefore as of the time of death and accordingly as of the time of the assessment the decedent had no interest in the llc to which the ftls could attach see revrul_54_154 once taxpayer's interest in property terminates federal tax lien's attachment to that interest also terminates therefore i would think that the discharge request is unnecessary i spoke to ------------------------ about this while you were out she told me that under the llc's operating_agreement the decedent or his estate is entitled to compensation equaling the fair_market_value as of the time of death of his former interest i'm not sure whether the ftl would attach to this amount -- my guess is that the amount would go into the estate since it is the estate and not the taxpayer that has had an interest in the amount since the interest in contrast to the interest in the llc did not arise until the taxpayer's death i'm not sure why the irm was changed but based on my research i would think that it is the current version that is correct while the lien will not usually attach to property already in the decedent's_estate it may if state law permits i'm not clear from your e-mail how this would play out under kentucky law i hope this is helpful if you'd like to discuss this feel free to e-mail or call me