internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc corp plr-108116-03- date date legend distributing controlled sub sub sub sub sub sub plr-108116-03 shareholder group a shareholder group b plr-108116-03 business a business b business c date a a b dear this letter responds to your date request for rulings on certain federal_income_tax consequences of a proposed transaction the information submitted in such request and subsequent correspondence is summarized below the rulings contained in this letter are based on facts 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 summary of facts distributing is a holding_company that conducts business a business b and business c though subsidiaries distributing has one class of voting common_stock outstanding shareholder group a owns a percent of distributing stock and shareholder group b owns b percent of distributing stock distributing wholly owns controlled and sub controlled wholly owns sub sub wholly owns sub sub wholly owns sub sub wholly owns sub sub wholly owns sub effective date a distributing elected to be an s_corporation under sec_1362 of the internal_revenue_code and also elected to treat controlled sub sub sub sub sub and sub as qualified subchapter_s subsidiaries qsubs under sec_1361 as a result of the qsub elections the qsubs are not treated as corporations separate from distributing for federal_income_tax purposes sub and sub conduct business a sub conducts business b and holds assets used by sub sub conducts business b and holds assets used by sub financial information has been received indicating that business a conducted by sub and sub each has had gross_receipts and operating_expenses representing the conduct of an active business during each of the past five years plr-108116-03 serious disputes have arisen between shareholder group a and shareholder group b that are having an adverse effect on the day-to-day operations of distributing to eliminate these differences it is proposed that distributing distribute the stock of controlled to shareholder group b in exchange for the distributing stock held by each shareholder in shareholder group b collectively the distribution representations distributing has made the following representations based on the characterization of the exchange of stock above and by ruling below a b c d e f g h the fair_market_value of the controlled stock received by each shareholder of shareholder group b will approximately equal the fair_market_value of the distributing stock surrendered in the distribution no part of the consideration distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than as a distributing shareholder the five years of financial information submitted on behalf of sub and sub 5’s business a represents each corporations’ present operations and with regard to each business there have been no substantial operational changes since the date of the last financial statements submitted following the distribution the gross assets of distributing that are treated as directly conducted by distributing will have a fair_market_value of at least five percent of the total fair_market_value of the gross assets of distributing following the distribution the gross assets of controlled that are treated as directly conducted by controlled will have a fair_market_value of at least five percent of the total fair_market_value of the gross assets of controlled following the distribution distributing and controlled will each continue the active_conduct of its business independently and with its separate employees the total adjusted_basis and the fair_market_value of the assets transferred to controlled by distributing will equal or exceed the liabilities assumed as determined under sec_357 by controlled the liabilities assumed as determined under sec_357 in the transaction and the liabilities to which the transferred assets are subject_to were incurred in the ordinary course of business and are associated with the assets being transferred plr-108116-03 plr-108116-03 i j k l m n o p q the distribution will be carried out for the following corporate business_purpose to end shareholder disputes over the operation of distributing and to resolve management systemic and other problems that have arisen because of irreconcilable differences between shareholder group a and shareholder group b the distribution is motivated in whole or substantial part by this corporate business_purpose there is no plan or intention by the distributing shareholders to sell exchange transfer by gift or otherwise dispose_of any stock in either distributing or controlled after the distribution there is no plan or intention by either distributing or controlled directly or through any subsidiary_corporation to purchase any of its outstanding_stock after the distribution other than through stock purchases meeting the requirements of sec_4 b of revproc_96_30 1996_1_cb_696 there is no plan or intention to liquidate either distributing or controlled to merge either corporation with any other corporation or to sell or otherwise dispose_of the assets of either corporation after the transaction except in the ordinary course of business no intercorporate debt will exist between distributing and controlled at the time of or after the distribution payments made in connection with any continuing transactions if any between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length no two parties to the transaction are investment companies as defined by sec_368 and iv for purposes of sec_355 immediately after the distribution no person determined by applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of the distribution for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of controlled stock entitled to vote or percent or more of the total value of shares of all classes of plr-108116-03 plr-108116-03 controlled stock that was either i acquired by purchase as defined in sec_355 and during the five year period determined after applying sec_355 ending on the date of the distribution or ii attributable to distributions on distributing stock that were acquired by purchase as defined by sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution r s the distribution is not part of a plan or series of related transactions within the meaning of sec_355 pursuant to which one or more persons will acquire directly or indirectly stock possessing percent or more of the total combined voting power of all classes of distributing or controlled stock entitled to vote or stock possessing percent or more of the total value of all classes of distributing or controlled stock distributing is an s_corporation within the meaning of sec_1361 controlled will elect to be an s_corporation pursuant to sec_1362 on the first available date after the distribution and will elect to treat sub and sub as qsubs as of that date there is no plan or intent to revoke or otherwise terminate the s_corporation_election of either distributing or controlled rulings based solely on the information submitted and the representations set forth above we rule as follows the distribution will terminate the qsub election of controlled and any lower-tier qsubs of controlled consequently immediately before the distribution controlled will be treated as a new corporation acquiring all of its assets and assuming all of its liabilities from distributing in exchange for the stock of controlled the contribution sec_1_1361-5 the contribution followed by the distribution will be a reorganization under sec_368 distributing and controlled will each be a_party_to_a_reorganization under sec_368 no gain_or_loss will be recognized by distributing on the contribution sec_361 no gain_or_loss will be recognized by controlled on the contribution sec_1032 the basis of each asset deemed received by controlled in the contribution will equal the basis of that asset in the hands of distributing sec_362 the holding_period of each asset deemed received by controlled will include the plr-108116-03 plr-108116-03 holding_period of that asset in the hands of distributing sec_1223 no gain_or_loss will be recognized by distributing on the distribution sec_361 no gain_or_loss will be recognized by and no amount will otherwise be included in the income of the shareholders of shareholder group b on their receipt of controlled stock in the distribution sec_355 the basis of the controlled stock in the hands of each shareholder of shareholder group b will in each case equal the shareholders’ basis in the distributing stock held immediately before the distribution sec_358 the holding_period of the controlled stock received by each shareholder group b shareholder will in each case include the holding_period of the distributing stock surrendered in exchange therefore provided that the distributing stock is held as a capital_asset on the date of the distribution sec_1223 earnings_and_profits will be allocated between distributing and controlled in accordance with sec_312 and sec_1 a caveats we express no opinion on the federal_income_tax treatment of the proposed transaction under any other provision of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered in the above rulings in particular no opinion is expressed or implied as to whether distributing is a valid s_corporation prior to the distribution whether controlled will be a valid s_corporation after the distribution whether any of controlled’s subsidiaries will be valid qsubs after the transaction or whether the accumulated adjustment account was properly allocated between distributing and controlled procedural information this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office 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 plr-108116-03 plr-108116-03 sincerely corporate richard k passales senior counsel branch office of associate chief_counsel cc


internal_revenue_service number release date index number -------------------------------------------------- ---------------------------------- -------------------- --------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ----------------- telephone number --------------------- refer reply to cc psi b03 plr-144760-12 date date legend ----------------------------------------------------------------------------------------------------------------------- ------ ----------------------------------------------------------------------------------------------------------------------- ----- ------------- ------------------ ------------------- ---------------------- --------------------- x trust state date date date date dear ---------------------- this letter responds to a letter dated date and subsequent correspondence written on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code plr-144760-12 facts according to the information submitted and the representations made x was incorporated under the laws of state on date on date shares of x’s stock were transferred to trust x elected to be an s_corporation effective date x represents that trust was qualified to be an electing_small_business_trust esbt within the meaning of sec_1361 however no election was made under sec_1361 to treat trust as an esbt consequently trust was an ineligible shareholder and as a result x’s s_corporation_election was ineffective x represents that the circumstances resulting in the ineffectiveness of x’s s_corporation_election were inadvertent and not motivated by tax_avoidance or retroactive tax planning x and x’s shareholders agree to make any adjustments consistent with the treatment of x as an s_corporation as may be required by the secretary with respect to the period specified by sec_1362 law and analysis sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 defines a small_business_corporation as a domestic_corporation which is not an ineligible shareholder and which does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than class of stock sec_1361 provides that for purposes of sec_1361 an esbt is a permissible shareholder sec_1361 provides that except as provided in sec_1361 the term electing_small_business_trust means any trust if i such trust does not have as a beneficiary any person other than i an individual ii an estate iii an organization described in sec_170 - or iv an organization described in sec_170 which holds a contingent_interest in such trust and is not a potential_current_beneficiary ii no interest in such trust was acquired by purchase and iii an election under sec_1361 applies to such trust sec_1361 provides that an election under sec_1361 shall be made by the trustee any such election shall apply to the taxable_year of the trust for which made plr-144760-12 and subsequent taxable years of such trust unless revoked with the consent of the secretary sec_1362 provides that an election under sec_1362 shall be terminated whenever at any time on or after the 1st day of the 1st taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides in relevant part that if an election under sec_1362 by any corporation was not effective for the taxable_year which made determined without regard to sec_1361 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents the secretary determines that the circumstances resulting in such termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such termination steps were taken so that the corporation for which the termination occurred is a small_business_corporation and the corporation for which the termination occurred and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make the adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to this period then notwithstanding the circumstances resulting in such ineffectiveness the corporation shall be treated as an s_corporation during the period specified by the secretary sec_1_1362-4 of the income_tax regulations provides that the commissioner may require any adjustments that are appropriate in general the adjustments required should be consistent with the treatment of the corporation as an s_corporation during the period specified by the commissioner conclusion based solely on the facts submitted and representations made we conclude that x’s s_corporation_election effective date was inadvertently invalid because x had an ineligible shareholder pursuant to the provisions of sec_1362 x will be treated as an s_corporation from date and thereafter provided that x’s s_corporation_election is not otherwise terminated under sec_1362 so long as the trustee of trust files an esbt election effective date with the appropriate service_center within days of the date of this letter a copy of this letter should be attached to the esbt election accordingly the shareholders of x must include in their income their pro_rata share of separately_stated and nonseparately computed items of x as provided in sec_1366 and make any adjustments to basis as provided in sec_1367 and take into account any distributions made by x as provided in sec_1368 this ruling is contingent upon x and each of its shareholders filing any amended returns and making such adjustments that plr-144760-12 are necessary to properly reflect the reporting of x’s items of s_corporation income specifically trust must file an amended_return and make adjustments that are necessary to properly reflect the treatment of trust as an esbt 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 if all of the above conditions are not met then this ruling is null and void furthermore if these conditions are not met x must notify the ogden service_center that its s_corporation_election is not valid except for the specific ruling above no opinion is expressed or implied concerning the federal tax consequences of the facts of this case under any other provision of the code specifically no opinion is expressed or implied regarding x’s eligibility to be an s_corporation or trust’s eligibility to be an esbt the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination this ruling is directed only to the taxpayer who requested it according to sec_6110 this ruling may not be used or cited as precedent under a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative sincerely stacy l short senior technician reviewer branch office of associate chief_counsel passthroughs special industries enclosures a copy of this letter a copy for sec_6110 purposes


internal_revenue_service number release date index numbers -------------------------- ---------------------------------------- ------------------------- ----------------------- -------------------- department of the treasury washington dc person to contact --------------------- id no ---------------- telephone number -------------------- refer reply to cc psi b03 - plr-106111-17 date date legend x ---------------------------------------------------------- ---------------------------- fund ----------------------------------------------------------------------------------------- ---------------------------------------------------------- ------------------- ------------------------------------------------------------------------- ---------------------------------------------------------- country d1 ---------------- ------------------ dear ------------------------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be classified as a disregarded_entity for federal tax purposes plr-106111-17 facts the information submitted discloses that x was formed on d1 under the laws of country the fund which holds x intends it to be classified as a disregarded_entity for federal tax purposes effective d1 however x failed to timely file form_8832 entity classification election to be classified as a disregarded_entity for federal tax purposes effective d1 law and analysis sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that except as provided in sec_301 b unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides in part that for purposes of sec_301_7701-3 a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides in part that except as provided in sec_301_7701-3 and v an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides in part that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code code except subtitles e g h and i sec_301_9100-1 provides plr-106111-17 that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based solely on the facts and representations submitted we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 consequently x is granted an extension of time of one hundred twenty days from the date of this letter to elect under sec_301_7701-3 to be classified as a disregarded_entity effective d1 x must file form_8832 within the extension period with the appropriate service_center with a copy of this letter attached except for the specific ruling above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code in addition sec_301_9100-1 provides that the granting of an extension of time for making an election is not a determination that the taxpayer is otherwise eligible to make the election this ruling is directed only to the taxpayer requesting it according to sec_6110 of the code this ruling may not be used or cited as precedent under a power_of_attorney on file with this office we are sending a copy of this letter to x’s authorized representative plr-106111-17 the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination sincerely associate chief_counsel passthroughs special industries by _ s ____________________________ richard t probst senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si plr-116360-98 date date legend trust decedent a b c d e grandson grandson f a b spouse son c son d g granddaughter state h dear sir in a letter dated date you requested rulings concerning the generation-skipping_transfer gst tax consequences relating to the clarification of the trust this letter responds to your request the information submitted and representations made are summarized as follows decedent died testate on a decedent’s will was admitted to probate on b the court issued its judgement settling first and final and supplemental account and report of executor and of final distribution under the will which established the trust currently the trust has assets worth between c and d which yield approximately e in annual net_income the trust provides for various payments of income to decedent’s spouse decedent’s sons and their spouses and decedent’s grandchildren and their spouses paragraph b and of the trust provides that each of grandson and grandson is to receive f percent of the net_income for life on the deaths of grandson and grandson each of their spouses a and b respectively is to receive f percent of the net_income during the period that she is not married all right of either a or b to receive net_income from the trust is to cease and terminate on her remarriage and is not to be revived on the termination of the marriage whether by death divorce or remarriage paragraph g of the trust provides that the trust is to terminate on the death of the last survivor of spouse son his spouse c and his children and son his spouse d and his children on the termination of the trust the corpus and the accumulated income if any are to be distributed g to the descendants of son by right of representation and not per capita and g to the descendants of son by right of representation and not per capita if son has no descendants then living the entire corpus and accumulated income if any is to be distributed to the descendants of son by right of representation and not per capita if son has no descendants then living the entire corpus and accumulated income if any is to be distributed to the descendants of son by right of representation and not per capita if neither son nor son has any living descendants the entire corpus and accumulated income if any is to be distributed to decedent’s heirs at laws determined by the laws of state in effect then spouse son son and d are all deceased son was survived by his spouse c and three children grandson grandson and granddaughter son died without issue thus the trust will terminate on the death of the last survivor of c granddaughter grandson and grandson if grandson and grandson die survived by their respective spouses a and b then a and b each is to receive f percent of the net_income during the period that she is not married taxpayers are concerned that if c granddaughter grandson and grandson all predecease a and b the trust will terminate and thereby prematurely terminate a and b’s income interests prior to their deaths it is represented that state law authorizes the court having jurisdiction to determine the terms of a_trust if all the beneficiaries of an irrevocable_trust consent they can compel the modification and clarification of that trust the court is authorized to modify the administrative or dispositive provisions of a_trust to effectuate the settlor’s intentions all the beneficiaries of the trust have agreed that decedent’s intent was that a and b each would be entitled to a f percent income_interest after the deaths of their husbands as long as they are alive and do not remarry accordingly the beneficiaries wish to clarify the language of the trust to provide that in order to satisfy the requirement of retaining f or a total of h of the trust property in continuing trust in the event that c granddaughter grandson and grandson all predecease a and b the trustee may divide the trust assets in_kind or divide undivided interests in those assets or sell all or any part of those assets and distribute or divide the property in cash in_kind or partly in cash and partly in_kind the shares need not be segregated into separate trusts the continuing trust is to remain subject_to the terms of the trust except that all the net_income is to be paid to a and b on the death or remarriage of either a or b the continuing trust will terminate with respect to her share and be disposed of in accordance with the terms of the trust you have requested a ruling that the proposed clarification of the trust will not cause the trust to become subject_to the gst tax sec_2601 of the internal_revenue_code imposes a tax on every generation- skipping transfer made by the transferor to a skip-person sec_26_2601-1 of the generation-skipping_transfer_tax regulations provides that the tax does not apply to any generation-skipping_transfer under a_trust as defined in sec_2652 that was irrevocable on date the rule_of the preceding sentence does not apply to a pro_rata portion of any generation-skipping_transfer under an irrevocable_trust if additions are made to the trust after date sec_26_2611-1 provides that a generation-skipping_transfer is an event that is either a direct_skip a taxable_distribution or a taxable_termination the determination as to whether an event is a generation-skipping_transfer is made by reference to the most recent transfer subject_to the estate or gift_tax sec_2612 defines the term direct_skip to mean a transfer subject_to a tax imposed by chapter or of an interest in property to a skip_person sec_2613 defines the term skip_person to mean -- a natural_person assigned to a generation that is two or more generations below the generation assignment of the transferor or a_trust -- a if all interests in such trust are held by skip persons or b if -- i there is no person holding an interest in the trust and ii at no time after such transfer may a distribution including distributions on termination be made from such trust to a non-skip_person an amendment to an exempt trust that modifies or otherwise changes the quality value or timing of any of the powers or beneficial interests rights or expectancies originally provided under the terms of the trust will cause the trust to lose is exemption from the gst tax we have examined the proposed clarification of the trust that the parties submitted in the context of relevant case law addressing the issues we believe that the proposed clarification fairly reflects the relative merits of the positions of the respective parties accordingly based on the information submitted and the representations made we conclude that the interests received by the parties under the proposed clarification both with respect to the nature of the interests and their economic value are consistent with the relative merit of the positionsf of the parties therefore we conclude that the proposed clarification does not alter the intended quality value or timing of the interests decedent created in the trust further we conclude that the proposed clarification will not cause the trust or any distributions from the trust to be subject_to the gst tax provided no additions are made to the trust except as ruled above we express or imply no opinion concerning the federal tax consequences of this transaction under the cited provisions of the code or any other provision of the code this ruling is directed only to the taxpayer who requested 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 we are sending a copy of this letter to your authorized representative sincerely yours christine e ellison christine e ellison chief branch office of the assistant chief_counsel passthroughs and special industries


' internal_revenue_service se t eo ma west creek road independence oh release date date november 20xx org address uil certified mail org department of the treasury employer identification no person to contact employee id number tel fax form required to be filed tax years december 20xx and subsequent years last day to file a petition with the united_states tax_court february 20xx this is a final adverse determination as to y internal_revenue_code irc it is determi federal_income_tax under sec_50 c following reason s our exempt status under sec_501 of the d that you are no longer recognized as exempt from effective december 20xx for the you are not organized and operated exclusivel c more than an insubstantial purposes and benefit private interests y for exempt purposes specified under irc section part of your activities are in furtherance of non-exempt contributions to your organization are not deductible under sec_170 you are required to file federal_income_tax returns on the form indicated above you should file these returns within days from the date of this letter unless a request for an extension of time is granted file the returns in accordance with their instructions and do not send them to this office processing of income_tax returns and assessment of any taxes due will not be delayed because you have filed a petition for declaratory_judgment under sec_7428 if you decide to contest this determination under the declaratory_judgment provisions of sec_7428 a petition to the united_states tax_court the united_states court of claims or the district_court of the united_states for the district of columbia must be filed within days from the date this determination_letter was mailed to you contact the clerk of the appropriate court for rules for filing petitions for declaratory_judgment to secure a petition form from the united_states tax_court write to the united_states tax_court second street n w washington d c can access your tax information and can help you get answers you can call and ask for taxpayer_advocate assistance or you can contact your nearest advocate’s office in this case by calling a or writing to taxpayer_advocate assistance cannot be used as a substitute for established irs procedures we will notify the appropriate state officials of this action as required by sec_6104 you should contact your state officials if you have any questions about how this determination may affect your state responsibilities and requirements if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely lois g lerner director exempt_organizations form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org legend org organization name xx date bm1 co-1 co-3 board member company co-2 company managing director managing director company bm2 board member primary charity charity co-4 company attorney attorney founders founders cpa cpa schedule no or exhibit year period ended 20xx primary issue whether the sec_501 tax exempt status of the org should be revoked because it is not organized and operated exclusively for tax exempt purposes facts a declaration of org was entered into on december 20xx by founders the founders or each individually a founder and founders the trustee the name of the trust is the org hereinafter referred to as either the org or the organization the declaration of org provides in relevant part as follows - the org is established for the purpose of establishing an organization which is described in irc s01 c and sec_509 and which is tax exempt under sec_501 the org is organized and at all times thereafter will be operated exclusively to support or benefit as defined by sec_1_509_a_-4 one or more publicly supported organizations and shall comply with all other requirements of sec_509 - the org shall be irrevocable and the founders expressly waive the right and the power to alter amend revoke or terminate the org or any of the terms of the declaration of org the founders also renounce any power to determine or control by alteration amendment revocation termination or otherwise the income or principal of the org estate in addition the founders renounce any interest either vested or contingent including any reversionary_interest or possibility of reverter in the income or principal of the org estate - each year the trustee shall distribute of the net_income of the org to the primary charity hereinafter referred to as the primary charity a charitable_organization qualified under sec_501 in addition each year the trustee shall distribute a minimum of of the net_income of the org to one or more of the organizations listed on a schedule a that is supposed to be attached to the declaration of org or to the primary charity as directed by a majority of the organization’s board_of directors the board in writing provided that each such distribution shall be a distribution which can be made by an organization described in sec_509 - upon winding up and dissolution of the org after paying or adequately providing for the debts and obligations of the org the remaining assets shall be distributed to a non- form 886-acrev department of the treasury - internal_revenue_service page -1- schedule no or exhibit year period ended 20xx form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org legend org organization name xx date bm1 co-1 co-3 bm2 board member 2n company managing director managing director company co-2 company primary charity charity founders founder sec_1 board member cpa cpa co-4 company attorney attorney profit fund foundation or corporation which is organized and operated exclusively for charitable educational religious and or scientific purposes and which has established its tax exempt status under sec_501 - the trustee shall render at least annually an account of income and principal including a statement of all receipts disbursements and capital changes to the board and to the primary charity the declaration of org further provides that the board must have at least three members but no more than five members and that the members of the board are determined as follows e e e charity member of the board one board member shall be appointed by the primary charity or its designated agent family members of the board two board members shall be from the class consisting of founders their children and their descendants the founders’ f amily provided that there are then at least two members of the founders’ family who are willing and able to so act other members of the board the other members of the board shall be bm1 and bm2 control actions and rules the membership of the board shall at all times be such that the original founders or other disqualified persons as defined in sec_4946 do not control the board no schedule a is attached to the declaration of org on march 20xx the organization filed form_1023 an application_for recognition of exemption under sec_501 of the internal_revenue_code the form_1023 states that the purpose of the organization is to distribute substantially_all of its income to and for_the_use_of various public_charities and to help primary charity carry out its purposes and perform its functions in order to do so the form_1023 states that the organization’s board will donate sufficient funds to support activities promoting primary charity’s mission ie to fulfill a heartfelt wish for a child between the ages of who has a life-threatening illness and to offer comfort and joy to the child and the entire family during an otherwise frightening period of their lives in addition the form_1023 makes the following representations each year at least of the net_income of the organization will be distributed to the primary charity the and form 886-acev department of the treasury - internal_revenue_service page -2- oe form_886 a department of the treasury - internal_revenue_service explanation of items name of taxpayer org schedule no or exhibit year period ended 20xx legend org organization name xx date bm1 co-1 co-3 bm2 2n4 company managing director managing director primary charity charity company co-2 company founders founder sec_1 board member board member cpa cpa co-4 company attorney attorney organization’s board which includes a member appointed by the primary charity will work with the governing board_of the primary charity to establish the use of these distributions it is intended that the distributions will be used each year to carry out or fund a substantial and important program or function of the primary charity in addition each year at least of the net_income of the organization will be distributed among designated public_charities listed on schedule a of the organization’s indenture as determined by the organization’s board the form_1023 lists the following officers directors or trustees founders trustee and board member founders board member bm1 board member bm2 board member charity board member - no name given the form_1023 includes the question are any members of the organization’s governing body disqualified persons’ with respect to the organization other than by reason of being a member of the governing body or do any of the members have either a business or family relationship with ‘disqualified persons’ the response given to this question is founders and founders may be disqualified because they are substantial contributors to the organization the form_1023 further includes the statement that the organization has a special relationship with the primary charity since one of its board members is appointed by the primary charity which will have substantial and significant input over the organization moreover the form_1023 indicates that the organization is required to give periodic accounting at least annually to the primary charity the form_1023 also includes a financial statement for the period ending 20xx and proposed budgets for 20xx 20xx and 20xx reflecting the following ty 20xx ty 20xx ty 20xx ty 20xx contributions investment_income total contributions compensation of officers dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure form 886-acrev department of the treasury - internal_revenue_service page -3- 2vuvu810025 sheen 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org legend org organization name xx date bm1 co-1 co-3 company co-2 company board member co-4 founders founders cpa cpa bm2 board member company managing director managing director primary charity charity company attorney attorney schedule no or exhibit year period ended 20xx total excess dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure schedule d of the organization’s form_1023 provides that the primary charity appoints one of the five board members of the organization the board controls the investment policy the making of grants and all other activities of the organization in addition the primary charity is entitled to periodic accounting in response to the request for the total annual income of the supported_organization the form_1023 states that the organization is waiting for the primary charity to obtain the information the schedule d also states that the organization’s governing instrument provides that its board in concert with the governing board_of the primary charity or its representatives put in place a plan by which distributions from the organization to the primary charity will be used to fund a substantial and important program or function that would not be otherwise done by the primary charity further the schedule d indicates that the organization is not controlled directly or indirectly by one or more disqualified persons other than one who is a disqualified_person solely because he or she is a manager or by an organization that is not described in sec_509 or by letter dated april 20xx the organization was recognized as exempt from federal_income_tax as an organization described in sec_501 it was further determined that the organization was not a private_foundation because it was described in sec_509 in a letter dated may 20xx founders provided the following information bm1 listed as bm1 on the form and bm2 are sisters of founders his wife they are consulted during the christmas season when the board members discuss the primary charity in general and if anyone has suggestions for a distribution for the year and founders appoint the trustee and board members founders has stated that he had contacted primary charity to request that it appoint a board member and the primary charity refused the following information has also been submitted e e the organization does not have formal meetings the organization does not distribute publications form 886-arev department of the treasury - internal_revenue_service page -4- 2uu810025 form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org schedule no or exhibit year period ended 20xx legend org organization name xx date bm1 co-1 co-3 bm2 board member company managing director managing director board member company co-2 company primary charity charity founders founders cpa cpa co-4 company attorney attorney e e e e e e the organization has no contracts leases mortgages or promissory notes the organization does not have books of account there were no transactions with foreign charities entities there are no cpa reports there were no financial reports given to any organizations there were no monies returned or loaned to the founders in 20xx in 20xx a check in the amount of dollar_figure was issued to founders the forms for the years 20xx 20xx 20xx and 20xx reflect the following revenue contributions interest total expenses bank charges grants legal fees telephone postage printing pub travel office expense state registration fees utilities total excess deficit ty 20xx ty 20xx ty 20xx ty 20xx dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure form 886-acev department of the treasury - internal_revenue_service page -5- form 886a department of the treasury - internal_revenue_service name of taxpayer explanation of items org legend org organization name xx date bm1 board member co-1 co-3 bm2 company managing director managing director company co-2 company primary charity charity founders founder sec_2 board member cpa cpa co-4 company attorney attorney schedule no or exhibit year period ended 20xx assets savings total liabilities dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure based on the records reviewed the following grants have been made by the organization grants ty 20xx ty 20xx ty 20xx ty 20xx total dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure in response to a request for additional information on the expenses for 20xx the following information was provided legal fees amount per return dollar_figure per the response this should have been reported as accounting fees an undated statement from cpa was submitted showing that for the preparation of the forms for 20xx and 20xx and for conferences he was paid dollar_figure no checks were issued from the organization’s account to cpa telephone expense amount per return dollar_figure founders estimated that of his personal phone bill was used for the organization’s business a bill dated 20xx was submitted showing charges for the month of dollar_figure he used dollar_figure a month x months 20xx and 20xx to come up with the previously he had indicated that each year over the christmas holidays his wife his wife’s two sisters and he would discuss the charitable distributions form 886-a cev department of the treasury - internal_revenue_service page -6- puusluuls form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org legend org organization name xx date bm1 co-1 co-3 company co-2 company board member co-4 founders founders cpa cpa bm2 board member primary charity charity company managing director managing director company attorney attorney schedule no or exhibit year period ended 20xx postage amount per return dollar_figure per the response this expense was to ship items between his two residences xyz and xyz one receipt was submitted for dollar_figure dated 20xx no other receipts are available printing amount per return dollar_figure per the response this was for the purchase of a copier printer fax scanner and supplies a receipt from co-1 in xyz dated xx was submitted for this item the copier cost dollar_figure with other items purchased for a total of dollar_figure there was also a receipt from co-2 date is illegible for various supply items totaling dollar_figure travel_expenses amount per return dollar_figure per the response this represents reimbursements for a portion of travel costs between xyz and xyz also reimbursed were meals with trustees and board members invoices were submitted for hotels and restaurants receipts are dated in 20xx and 20xx no evidence of any records being maintained detailing the business relationship of the meals those who attended etc receipts total dollar_figure office expense amount perreturn per the response this represents office expenses as well as an allocation of office furniture purchased for an office invoices for various office type items total dollar_figure invoices for dollar_figure submitted for what appears to be home furnishings for which has been allocated to the organization utilities amount per return dollar_figure per the response this represents estimates for 20xx and 20xx an expense of dollar_figure per month was reimbursed this was based on dollar_figure for xyz utilities for six months and dollar_figure for six months of utilities for xyz for a total of dollar_figure x 2years k the expenses above total dollar_figure on december 20xx a check was written from the organization’s account to founders in the amount of dollar_figure as reimbursement for expenses founders spend six months a year at their residence in xyz and six months a year at their residence in xyz while in xyz founders runs his xyz business form 886-acev department of the treasury - internal_revenue_service page -7- oo z2uu81 form 886a department of the treasury - internal_revenue_service name of taxpayer explanation of items org schedule no or exhibit year period ended 20xx legend org organization name xx date bm1 co-1 co-3 company bm2 company managing director managing director co-4 board member company co-2 primary charity charity board member founders founders cpa cpa company attorney attorney on july 20xx a report was issued to founders disallowing the dollar_figure charitable_contribution_deduction on their 20xx form_1040 this deduction represented the amount contributed to the organization as a result of this adjustment on november 20xx a notice of tax due on federal tax_return was issued assessing dollar_figure in additional tax and dollar_figure in interest for a total assessment of dollar_figure on november 20xx founders issued a check to the united_states treasury in the amount of dollar_figure on february 20xx a check was drawn on the organization’s bank account payable to founders in the amount of dollar_figure this was the balance in the account on that date law sec_501 exempts from federal_income_tax corporations and any community chest fund or foundation organized and operated exclusively for religious charitable scientific testing for public safety literary or educational_purposes or for the prevention of cruelty to children or animals no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual no substantial part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation and which does not participate in or intervene in including the publishing or distributing of statements any political campaign on behalf of any candidate for public_office regulation sec_1_501_c_3_-1 provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose regulation sec_1_501_c_3_-1 provides that an organization is not operated exclusively for one or more exempt purposes if its net_earnings inure in whole or in part to the benefit of private shareholders or individuals the words private_shareholder_or_individual refer to persons having a personal and private interest in the activities of the organization regulation sec_1_501_c_3_-1 provides an organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest thus to meet the requirement of this subdivision it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests form 886-aciev department of the treasury - internal_revenue_service page -8- form 886a department of the treasury - internal_revenue_service name of taxpayer explanation of items org legend org organization name xx date bm1 co-1 co-3 company company co-2 board member co-4 founders founders ‘ cpa cpa bm2 board member primary charity charity company managing director managing director company attorney attorney schedule no or exhibit year period ended 20xx in revrul_67_5 1967_1_cb_123 it was held that a foundation controlled by the creator’s family was operated to enable the creator and his family to engage in financial activities which were beneficial to them but detrimental to the foundation it was further held that the foundation was operated for a substantial non-exempt purpose and served the private interests of the creator and his family therefore the foundation was not entitled to exemption from federal_income_tax under sec_501 government ’s position the sec_501 tax exempt status of the org the organization should be revoked because it is not organized and operated exclusively for tax exempt purposes the facts show that the organization is not operated exclusively for a tax exempt charitable purpose rather founders have operated the organization for their own personal benefit the founders formed the organization for tax_avoidance purposes fhe documentation reviewed demonstrates that the founders established the organization to obtain tax benefits in the form of claiming charitable_contribution deductions under sec_170 without relinquishing control of the assets that they claimed to have contributed to the organization taxpayer’s position in response to the initial determination of the internal_revenue_service the service dated september 20xx that the org the organization should be reclassified as a private_foundation the founders contend that the organization should be neither a supporting_organization nor a private_foundation since it qualifies as an abusive trust and sham under the doctrine_of substance over form as articulated by the service and the courts the supporting_organization plan was tailored by a managing director of co-3 the founders relied on the knowledge of managing director co-3 attorney the attorney who drafted the trust documents for the organization and co-4 a company affiliated with co-3 according to the service these individuals and entities offered a tax_evasion and tax_avoidance plan that does not meet the technical and factual standards of a supporting_organization in 20xx the founder agreed with this conclusion by conceding the income_tax deduction they claimed in 20xx for their contribution to the organization paying all income taxes relating to the deduction including interest and withdrawing all sums remaining in the organization’s bank account therefore the founder are in agreement with the service that the organization should be disregarded as a sham form 886-acrev department of the treasury - internal_revenue_service page -9- form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org schedule no or exhibit year period ended 20xx legend org organization name xx date bm1 co-1 co-3 bm2 board member company managing director managing director co-4 company company co-2 company primary charity charity founders founder sec_1 board member cpa cpa attorney attorney however the founder also argue that the service’s initial position of reclassifying the organization to a private_foundation is not warranted the service had ample opportunity to evaluate all management procedures prior to issuing the determination_letter stating that the organization qualified as a supporting_organization it is inappropriate to now identify ministerial flaws that were apparent at the inception of the organization finally the founder argue that the contract with co-3 is revocable because co-3 was in breach of contract the founders have exercised their contractual right to void the contract moreover the founder entered into the agreement with co-3 only if the entity formed was a supporting_organization since it is now held that the organization is not a supporting_organization the entire arrangement with co-3 should be treated as if it had no effect conclusion the charitable_contribution_deduction taken on founders’s form_1040 was disallowed the founder have depleted the bank account of the org the organization and the founder have claimed the organization should be disregarded as a sham accordingly the organization’s status as an organization described under sec_501 should be revoked because it is not organized and operated exclusively for exempt purposes this determination is effective december 20xx form 886-a mev department of the treasury - intemmal revenue service page -10- department of the treasury internal_revenue_service eo examinations commerce street dailas tx tax_exempt_and_government_entities_division legend org organization name address address xx date org taxpayer_identification_number form_990 tax_year s ended december 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 an adjustment of your organization's exempt status is necessary in addition under separate cover we will also be sending you a final adverse determination_letter revoking your exempt status if you have any questions please call the contact person at the telephone number shown in the heading of this letter sincerely marsha a ramirez director eo examinations


internal_revenue_service number release date index number - ------------------------------------- --------------------------------------- --------------------------------------------- ---------- --------------------- -------------------------- - department of the treasury washington dc person to contact -------------------- id no -------------- telephone number --------------------- refer reply to cc psi b02 - plr-139930-03 date ---------------------- a -------------------------------------------- b ------------------------------ --------------------------------------- -------------------------- --------- country d1 dear ----------------- ---------------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of b by its authorized representative requesting a ruling that b be given an extension of time to elect under ' c of the procedure and administration regulations to be classified as a disregarded_entity for federal tax purposes the information submitted states that a is a us partnership for federal tax purposes b a limited_company was formed on d1 pursuant to the laws of country b is wholly owned by a b represents that pursuant to ' a b is a foreign eligible_entity that is not required to be classified as a corporation for federal tax purposes b has single owner that has limited_liability as defined in sec_301_7701-3 b intended to disregarded for federal tax purposes effective d1 however b inadvertently failed to timely file a form_8832 entity classification election sec_301_7701-3 provides that a business_entity that is not classified as a corporation under ' b or an eligible_entity can elect its classification for federal tax purposes a business_entity is any entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code sec_301_7701-2 sec_301_7701-3 provides that unless a foreign eligible_entity elects otherwise the entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owners if it has a single owner that does not have limited_liability sec_301_7701-3 provides that for purposes of ' b i a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides that to elect to be classified other than as provided in ' b an eligible_entity must file form_8832 entity classification election with the designated service_center sec_301_7701-3 provides that an election will be effective on the date specified on the form_8832 or on the date filed if no such date is specified the effective date specified on the form_8832 cannot be more than days prior to the date the election is filed under c the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or an announcement published in the internal_revenue_bulletin use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of ' granted when the taxpayer provides evidence to establish that the taxpayer acted sec_301_9100-3 provides that requests for relief under ' will be sec_301_9100-1 and sec_301_9100-3 provide the standards the commissioner will based solely on the facts submitted and representations made we conclude that reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer failed to make the election because after exercising reasonable diligence taking into account the taxpayer's experience and the complexity of the return or issue the taxpayer was unaware of the necessity for the election the requirements of ' have been satisfied as a result b is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect under ' c to be classified as a disregarded_entity for federal tax purposes effective for d1 a copy of this letter should be attached to the form_8832 a copy is included for that purpose federal tax consequences of the facts described above under any other provision of the code the internal_revenue_code provides that it may not be used or cited as precedent sent to b’s authorized representatives except as specifically set forth above no opinion is expressed concerning the pursuant to a power_of_attorney on file with this office a copy of this letter is being this ruling is directed only to the taxpayer who requested it sec_6110 of sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for ' purposes