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 b04 - plr-139029-03 date april re ---------------------------------------------------------------------------------------------- ------------------------------------------------------------------------- legend grandparent a ------------------------ grandparent b ----------------- child a -------------------- child b ------------------------ grandchild a -------------------------- grandchild b ---------------------------- grandchild c ---------------------- great-grandchild a ------------------ great-grandchild b ----------------------- great-grandchild c ------------------------ great-grandchild d ---------------------- great-grandchild e -------------------------- great-grandchild f -------------------- great-grandchild g ------------------------------ great-grandchild h -------------------- great-grandchild i ---------------------------- trust a ------------------------------------------------------- grandchild a’s trust a ------------------------------------------------------------------ ------------------------------- grandchild b’s trust a ------------------------------------------------------------------- ------------------------------- grandchild c’s trust a ------------------------------------------------------------- ------------------------------- trust b ------------------------------------------------------------- grandchild a’s trust b ------------------------------------------------------------------ ------------------------------- plr-139029-03 grandchild b’s trust b ------------------------------------------------------------------- ------------------------------- grandchild c’s trust b ------------------------------------------------------------- ------------------------------- corporate trustee ----------------------------------------- individual trustee a ---------------------- individual trustee b -------------------------- bank ---------------------------------------- fund ------------------------------------------- date ------------------------ date ---------------------------- date ------------------------ date -------------------- date ------------------------- state --------- statute -------------------------------------------------------------------------------- court ------------------------------------------------ dear -------------- this responds to a letter from your authorized representative dated date and prior correspondence requesting rulings regarding the federal income and generation-skipping_transfer gst tax consequences of a proposed severance of certain trusts facts grandparent a died on date survived by his spouse grandparent b who subsequently died on date grandparent a and grandparent b had two children child a and child b child a had three children grandchild a grandchild b and grandchild c child a died on date child b never married and never had children date date and date are prior to date paragraph a_trust a was to be held for the benefit of grandparent b during her life pursuant to article iii paragraph b on grandparent b’s death trust a was divided into equal shares for the benefit of each child of child a then living therefore following the death of grandparent b on date trust a was divided into grandchild a’s trust a grandchild b’s trust a and grandchild c’s trust a each share has been administered as a separate trust grandparent a’s will provided for the creation of trust a under article iii the facts submitted and representations made are as follows under article iii paragraph e of trust a the trustees may distribute such under article iii paragraph d until the complete distribution of a grandchild’s plr-139029-03 trust or until the grandchild’s prior death so much of the net_income is to be distributed to that grandchild as the trustees in their absolute discretion deem reasonably necessary for the grandchild’s comfortable support education and welfare the remaining income may be distributed to any one or more of grandparent a’s descendants except child a and child b and their spouses as the trustees in their absolute discretion deem advisable any remaining income is to be added to the principal of the share principal of a grandchild’s trust only to that grandchild in their absolute discretion as the trustees deem advisable each grandchild has a limited testamentary_power_of_appointment under paragraph e to direct distribution of that grandchild’s trust share among the grandchild’s lawful descendants in such proportions and subject_to such trusts and conditions as such grandchild directs in default thereof upon a grandchild’s death the trustee is directed to distribute the grandchild’s share per stirpes to grandparent a’s lawful descendants with a special provision for the widow of either grandchild a and grandchild b who should die without leaving a lawful descendant who survives such grandchild paragraph h of article iii contains a provision mandating the termination and distribution of each grandchild’s trust no later than years after the death of the last survivor of a listed class of individuals living at the death of grandparent a and in what proportions any receipts or disbursements shall be credited charged to or apportioned between income and principal date under trust b a separate trust was created for each grandchild of grandparent b grandchild a’s trust b grandchild b’s trust b and grandchild c’s trust b pursuant to paragraph c of article i of trust b until the death of the grandchild the trustee may distribute so much of the net_income to that grandchild as the trustee in its absolute discretion deems advisable for the grandchild’s comfortable support education welfare and happiness the trustee may either accumulate the remaining net_income or distribute so much of it to any one or more of grandparent b’s lawful descendants and their spouses in such proportions as the trustee deems advisable paragraph c also provides that the trustee may only distribute principal to the grandchild of such share under paragraph d the trustee may add undistributed_net_income to principal or may retain such income in an accumulated income account for possible future distribution to beneficiaries from time to time eligible to receive current distributions of net_income grandparent b created trust b an irrevocable_trust on date date is prior to paragraph n of article iii authorizes the trustee inter alia to determine whether pursuant to the terms of trust b each grandchild has a limited testamentary paragraph g of article i contains a provision mandating the termination and paragraph l of article i provides that the trustee shall have the power inter alia plr-139029-03 power_of_appointment under paragraph e of article i to direct distribution of such grandchild’s trust among grandparent b’s lawful descendants in such proportions and subject_to such trusts and conditions as such grandchild directs in default of appointment upon the grandchild’s death the trustee is directed to distribute the trust per stirpes to the primary beneficiary’s lawful descendants or if none per stirpes to grandchild b’s lawful descendants with a special provision for the widow of either of grandchild a and grandchild b who should die without leaving a lawful descendant who survives such grandchild provided however that if the trustee deems any descendants of grandparent b to be incapable of using to good advantage the share otherwise to be so received the trustee may allocate such trust among any of the other descendants of grandparent b in such proportions as the trustee deems proper distributions of each trust under trust b no later than years after the death of the last survivor of a listed class of individuals living at the date of execution of the agreement creating trust b to determine whether and in what proportions any receipts or disbursements shall be credited charged or apportioned between income and principal trust b a significant portion of the assets of each of the current trusts consists of interests in common trust funds ctfs as defined in sec_584 maintained by bank rulings concluding that the entry by court of an order authorizing the trustee to allocate capital_gain receipts to income and charge certain income expenses to corpus and the trustees’ exercise of discretion in accordance with that court order will not adversely affect the status of grandchild a’s trust a grandchild a’s trust b grandchild b’s trust a grandchild b’s trust b grandchild c’s trust a and grandchild c’s trust b as exempt from gst tax each grandchild has three children the great-grandchildren of grandparent a and grandparent b the parties propose to divide each grandchild’s separate trust under trust a and trust b into three equal separate new trusts collectively known as the new trusts the parties propose to name each of the nine new trusts for one of the nine great-grandchildren specifically the trusts will be severed as follows the trustees of trust a are bank and two individuals bank is the sole trustee of on date the internal_revenue_service issued private letter rulings the prior grandchild a’s trust a will be divided into three equal trusts one each for great-grandchild a great-grandchild b and great-grandchild c grandchild a’s trust b will also be divided into three equal trusts one each for great-grandchild a great-grandchild b and great-grandchild c plr-139029-03 grandchild b’s trust a will be divided into three equal trusts one each for great-grandchild d great-grandchild e and great-grandchild f grandchild b’s trust b will also be divided into three equal trusts one each for great-grandchild d great-grandchild e and great-grandchild f grandchild c’s trust a will be divided into three equal trusts one each for great-grandchild g great-grandchild h and great-grandchild i grandchild c’s trust b will also be divided into three equal trusts one each for great-grandchild g great-grandchild h and great-grandchild i the trustees represent that each new trust will be separately managed and all of the trust provisions of each new trust will remain identical to the terms of the original trust from which it was derived prior to the severance the primary beneficiary of each new trust will still be the grandchild who was the original primary beneficiary prior to severance and who will also be the only eligible recipient of principal during that grandchild’s life the trustees’ discretionary powers with respect to undistributed_income will be unchanged including the permissible beneficiaries the trust term and the provisions regarding disposition of trust assets at termination will also be the same administered the assets of each new trust will be invested separately and titled solely in the name of that trust the new trusts will each file separate_income tax returns separately track state law accounting_income and keep separate trust records the trustees represent that the principal purposes of severing the trusts are to accommodate the differing income distribution needs and differing investment objectives of the descendants of the grandchildren and that there is no tax_avoidance purpose to the proposed severance to make the discretionary income distributions only to the grandchild and to the great- grandchild for whom the new trust is named and that great-grandchild’s family you represent that there have been no additions to trust a or trust b since date the trusts are governed by the laws of state you also represent that statute of state law gives the trustees the power to sever the trusts as proposed rulings requested into the new trusts under state law will not adversely affect the trusts’ status as exempt from the gst tax under chapter and each new trust created as a result of the severance will remain exempt from the gst tax the exercise of the trustee’s power to sever each trust on a fractional basis into the new trusts in accordance with state law will not cause the original trusts the the trustee subject_to asset availability and fiduciary duties intends to continue the exercise of the trustee’s power to sever each trust on a fractional basi sec_3 the exercise of the trustee’s power to sever each trust and transfer the trusts’ plr-139029-03 new trusts or their beneficiaries to realize gain_or_loss from the sale_or_other_disposition of property under sec_1001 units of participation in fund on a fractional in-kind basis into the new trusts in accordance with state law will not cause the current trusts the new trusts or their beneficiaries to realize gain_or_loss from the sale_or_exchange of a participating interest in a common_trust_fund under sec_584 as a result of such severance or transfer_tax purposes exercise of fiduciary discretion by the trustee of a new trust to credit realized capital_gains of that trust to income and to charge income expenses of that trust to principal in a manner consistent with the prior rulings will not adversely affect that trust’s status as exempt from the gst tax under chapter ruling_request no - gst tax the holding of the prior rulings will apply to each of the new trusts and the each of the new trusts will be treated as a separate trust for federal income sec_2601 imposes a tax on every generation-skipping_transfer under ' a of the tax_reform_act_of_1986 act the gst tax is generally applicable to generation-skipping transfers made after date however under ' b a of the act and ' b i of the generation-skipping_transfer_tax regulations the tax does not apply to any generation-skipping_transfer from a_trust if the trust was irrevocable on date and no addition actual or constructive was made to the trust after that date under ' b ii any trust in existence on date will be considered irrevocable unless the settlor had a power that would have caused inclusion of the trust in his or her gross_estate under ' or sec_2042 if the settlor had died on date under sec_2602 the amount of tax imposed under sec_2601 is determined by multiplying the taxable_amount by the applicable_rate the taxable_amount of a taxable_distribution is the amount received by the transferee sec_2621 of a taxable_termination is the amount of property with respect to which there was a termination sec_2622 and of a direct_skip is the amount received by the transferee sec_2623 under sec_2641 the term applicable_rate means the product of the maximum_federal_estate_tax_rate in the year that the generation-skipping_transfer occurs and the inclusion_ratio under sec_2642 the inclusion_ratio with respect to any property transferred in a generation-skipping_transfer i sec_1 minus the applicable_fraction under sec_2642 in general the numerator of the applicable_fraction is the gst_exemption amount plr-139029-03 allocated to the property transferred and the denominator is the value of the property transferred under sec_2631 every individual is allowed a gst_exemption amount which may be allocated by the individual or the individual’s executor to any property with respect to which the individual is the transferor sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax will not cause the trust to lose its exempt status sec_26_2601-1 provides that a modification will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in ' than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust a modification of an exempt trust will result in a shift in beneficial_interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a gst transfer or the creation of a new gst transfer sec_26_2601-1 example illustrates a situation where a_trust that is otherwise exempt from the gst tax authorizes the trustee to distribute income and principal at the trustee s discretion for the benefit of a and b and their respective issue on the death of the last to die of a and b the corpus is to be distributed to the issue of a and b per stirpes pursuant to a court order the trust is divided equally into two trusts one for the benefit of a and a s issue and one for the benefit of b and b s issue the example concludes that under the facts presented the division of the trust into two trusts does not shift any beneficial_interest in the trust to a beneficiary who occupies a lower generation as defined in ' than the person or persons who held the beneficial_interest prior to the division and the division does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust accordingly the two partitioned trusts will not be subject_to the provisions of chapter trust created under trust a and trust b into three equal separate new trusts with one trust named for each great-grandchild all of the trust provisions of each new trust will remain identical to the terms of the original trust from which it was derived prior to the severance the primary beneficiary of each new trust will still be a grandchild for whom the original trust was established and that grandchild will also be the only eligible recipient of principal during that grandchild’s life the trustees’ discretionary powers with respect to undistributed_income will be unchanged including the permissible beneficiaries the trust term and the provisions regarding disposition of trust assets at termination will also be the same therefore the proposed division will not shift a in the present case the parties propose to divide each grandchild’s separate sec_1001 provides that the gain from the sale_or_other_disposition of accordingly based on the facts submitted and the representations made we sec_61 provides that gross_income includes gains derived from dealings plr-139029-03 beneficial_interest in the trusts to any beneficiary who occupies a lower generation than the person or persons who held the beneficial_interest prior to the division in addition the division does not extend the time for vesting of any beneficial_interest beyond the period provided for in the original trusts conclude that the exercise of the trustee’s power to sever the trusts on a fractional basis into the new trusts under state law will not adversely affect the trusts’ status as exempt from the gst tax under chapter and each new trust created as a result of the severance will remain exempt from the gst tax ruling_request no -gain or loss in property and under sec_61 from an interest in trust property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis provided in such section for determining loss over the amount_realized of property shall be the sum of any money received plus the fair_market_value of the property other than money received under c except as otherwise provided in subtitle a the entire amount of the gain_or_loss determined under sec_1001 on the sale_or_exchange of property shall be recognized sec_1_1001-1 of the income_tax regulations provides that the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or as loss sustained a partition of jointly owned property is not a sale_or_other_disposition of property where the co-owners of the joint property sever their joint_interests but do not acquire a new or additional interest as a result of the transaction thus neither gain nor loss is realized on a partition see revrul_56_437 1956_2_cb_507 issue of when a sale_or_exchange has taken place that results in a realization of gain_or_loss under sec_1001 in cottage savings a financial_institution exchanged its interest in one group of residential mortgage loans for another lender’s interests in a different group of residential mortgage loans the two groups of mortgages were considered substantially identical by the agency that regulated the financial_institution sec_1001 states that the amount_realized from the sale_or_other_disposition 499_us_554 concerns the under state law the trustee has the power to sever any trust estate on a in cottage savings u s pincite the court concluded that sec_1_1001-1 it is consistent with the supreme court’s opinion in cottage savings to find that plr-139029-03 reasonably interprets sec_1001 and stated that an exchange of property gives rise to a realization event under sec_1001 if the properties exchanged are materially different in defining what constitutes a material difference for purposes of sec_1001 the court stated that properties are different in the sense that is material to the code so long as their respective possessors enjoy legal entitlements that are different in_kind or extent cottage savings u s pincite the court held that mortgage loans made to different obligors and secured_by different homes did embody distinct legal entitlements and that the taxpayer realized losses when it exchanged interests in the loans cottage savings u s pincite fractional basis into or more separate trusts for any reason a separate_account or trust created by severance or segregation shall be treated as a separate trust for all purposes from and after the date on which the severance or segregation is effective and shall be held on terms and conditions that are substantially equivalent to the terms of the trust from which it was severed or segregated so that the aggregate interests of each beneficiary in the severed trusts are substantially equivalent to the beneficiary’s interests in the trust before severance see statute the interests of the beneficiaries of the new trusts will not differ materially from their interests in the original grandchild trusts in the proposed transaction the original trusts will be severed in accordance with state law on a pro_rata basis except for the changes described above all other provisions of the new trusts will remain unchanged accordingly the proposed transaction will not result in a material difference in_kind or extent of the legal entitlements enjoyed by the beneficiaries and no gain_or_loss is recognized on the partition of the trusts for purposes of sec_1001 ruling_request no - common_trust_fund trust fund ctf means a fund maintained by a bank exclusively for the collective investment and reinvestment of moneys contributed thereto by the bank in its capacity as a trustee executor administrator or guardian admission or withdrawal of a participant the admission of a participant shall be treated with respect to the participant as the purchase of or an exchange for the participating interest the withdrawal of any participating interest by a participant shall be treated as a sale_or_exchange of such interest by the participant in a ctf from one trust of which the taxpayer is the sole beneficiary to another trust of which the taxpayer is also the sole beneficiary does not constitute a withdrawal of a sec_584 provides that for purposes of subtitle a the term common revrul_60_256 1960_2_cb_193 holds that a transfer of units of participation sec_584 provides that no gain_or_loss shall be realized by the ctf by the based solely on the facts and representations submitted we conclude that the sec_643 provides that under regulations prescribed by the secretary two the primary purposes of establishing the new trusts are represented as being to plr-139029-03 participating interest within the meaning of sec_584 provided that no funds change hands there is no surrender of indicia of ownership nothing is received by the taxpayer and the trustee of the two trusts is the same under such circumstances the basis of the participating units in the hands of the transferee trust is the same as it was in the hands of the transferor trust on the date of transfer transfer of the ctf participating interests from the current trusts to the new trusts does not constitute a withdrawal therefore no gain_or_loss will be realized by the ctf the current trusts the new trusts or any trust_beneficiary under sec_584 ruling_request no - sec_643 or more trusts shall be treated as one trust if such trusts have substantially the same grantor or grantors and substantially the same primary beneficiary or beneficiaries and a principal purpose of such trusts is the avoidance of federal_income_tax accommodate the differing income distribution needs and investment objectives of the descendants of the grandchildren it is further represented that there is no tax_avoidance purpose in the establishment of the new trusts within the meaning of sec_643 determining whether avoidance of income_tax is a primary purpose of the establishment of the new trusts is a question of fact the determination of which must be deferred until the federal_income_tax returns of the parties involved have been examined by the office having examination jurisdiction over those income_tax returns administered and it is determined that tax_avoidance is not a primary purpose of the establishment of the new trusts each of the new trusts will be treated as a separate trust for federal_income_tax purposes ruling_request no - prior rulings sec_6110 provides that a taxpayer may not rely on a private_letter_ruling issued to another taxpayer see also dollar_figure of revproc_2004_1 2004_1_cb_1 in this case after the severance all trust provisions will remain identical to the terms of the original trust from which it was derived prior to the severance including paragraph n of article iii of trust a and paragraph l of article i of trust b the provisions subject_to the court order considered in the prior rulings accordingly based on the facts and representations we conclude that the holdings in the prior rulings will apply to each of the new trusts therefore the exercise of fiduciary discretion by the trustee of a new trust to credit realized capital_gains of that trust to income and to charge income expenses of that trust to principal in a manner consistent therefore provided that the new trusts are separately managed and plr-139029-03 with the prior rulings and the court orders upon which those rulings were based will not adversely affect that trust’s status as exempt from the gst tax under chapter except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions 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 pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely yours by_________________________ george l masnik branch chief branch office of the associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes cc


department of the treasury internal_revenue_service te_ge eo examination fulton street room brooklyn ny tax_exempt_and_government_entities_division release number release date uil date date taxpayer_identification_number person to contact identification_number contact telephone number last date for filing a pleading with the tax_court the claims_court or the united_states district_court for the district columbia dear this is a final adverse determination_letter as to o’s exempt status under sec_501 of the internal_revenue_code recognition of your exemption from federal_income_tax as an organization described in internal_revenue_code sec_501 is retroactively revoked effective date for the following reasons you have not demonstrated that you are operated exclusively for charitable educational or other exempt purposes you operate for the benefit of private interests and your net_earnings inured to the benefit of private shareholders or individuals contributions to your organization are no longer deductible under sec_170 of the internal_revenue_code you are required to file federal_income_tax returns on form_1120 these returns should be filed with the appropriate service_center for the year ending date and for all years thereafter processing of income_tax returns and assessment of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination in court you must file a pleading seeking a declaratory_judgment in the united_states tax_court the united_states court of federal claims or the united_states district_court for the district of columbia before the day after the date this final_determination was mailed to you please contact the clerk of the appropriate court for rules regarding filing pleadings for declaratory judgments and refer to the enclosed publication you may write to these courts at the following addresses united_states tax_court second street nw washington d c united_states court of federal claims madison place nw washington d c united_states district_court for the district of columbia constitution avenue nw washington d c 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 your tax information and can help you get answers you can call and ask for taxpayer_advocate assistance or you can contact the taxpayer_advocate from the site where the tax_deficiency was determined by calling or writing to internal_revenue_service taxpayer_advocate assistance cannot be used as a substitute for established irs procedures formal appeals processes etc the taxpayer_advocate is not able to reverse legal or technically correct_tax determinations nor extend the time fixed by law that you have to file a petition in the united_states tax_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 we will notify the appropriate state officials of this action as required by sec_6104 of the internal_revenue_code if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours marsha a ramirez director eo examinations enclosure publication department of the treasury internal_revenue_service tege eo examinations tax_exempt_and_government_entities_division 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 sincerely r c johnson director eo examinations enclosures publication publication report of examination letter catalog number 34809f 886-a f rev january explanation of items tax identification_number year period ended name of taxpayer facts the o was incorporated in the state of s on organized and operated exclusively for charitable and educational_purposes within the meaning of sec_501 of the internal_revenue_code the corporation shall instruct individuals primarily minority youth to develop and improve their capabilities in the game golf through clinics workshops lessons and seminars using sites at schools playgrounds municipal golf courses parks or other recreation areas the corporation shall also provide worthy or needy minority youth with such resources as are available to develop or enhance their opportunities for education and improvement through scholarships or otherwise using grants loans or other subsidies the organization was the o received exemption from income_tax on date organization was not a private_foundation because it was an organization described in sec_509 and sec_170 it was determined that the the organization signed an agreement with the c1 to become a chapter of p on p is a division of c1 and social strata particularly young people who otherwise may not have an opportunity to learn and play the game by creating facilities and programs at selected sites nationally and internationally p is a program to make golf more accessible to people of all diversities d is the president of the organization downs g g isa located in s target greens telephone acres of land at the g to the organization on x1 __-- received grants from the range distance signs are numbered so that they can be read from both d donated the c1 and c2 to build a driving range practice putting green and chipping green on this __ acres he donated the driving range has sand traps poles for lighting the contract to build the driving range target green putting green and chipping green was signed on x2 the construction was started in x3 and completed in x4 directions the golf course customers and on the south end there are hitting stations the pavilion was built on golf course property with the organization’s funds the hitting stations are metal dividers where one can stand and hit practice balls on the range the south end is used for children’s activities the dividers are portable when arrived for the audit there was no hitting stations on the south end the golf course workers set them up while was touring the facilities on the north end of the range he built a pavilion and hitting stations for use of in the application_for exemption he stated that the ghada__ commercial driving range and club house not have a driving range driving range the golf course does d stated the golf course patrons drive bails on the foundations no payments are made to the organization for_the_use_of the driving range hole golf course and a form 886-a rev department of the treasury -- internal_revenue_service page of form 886-a rev january explanation of items name of taxpayer tax identification_number year period ended practice putting green or chipping green g billed the organization dollar_figure expenses see attached for access to facilities instruction fees and tournament bank transfers were made to g and a for dollar_figure see attached documents g issued statements to the organization for access to g facilities from through this was before g’s facilities were built wv in the application_for exemption d said his g would not use the organization's equipment or capital improvements unless a fail rental value has been established and paid payments were ever made for the use o’s facilities instead his g billed the organization for access expenses none of these expenses could be substantiated g also billed the organization for access instruction fees and tournament no when applying for exemption d stated that there will be no zero fees charged to the exempt_organization for_the_use_of g to carry on these activities he also stated g is an 18-hole golf course with commercial driving range and club house set up for a profit making company he stated there are not any leases or agreements between the two organizations because there are not any fees or other charges between the two organizations participants in the program are charge an annual registration fee of dollar_figure that they started charging the fees in he stated that the kids use the driving range and the golf course for free and dollar_figure if kids come out on their own to play they have to pay dollar_figure per year d stated holes holes for for b stated that the golf course was only open for3 weeks in were burned due to greens keeper error -_-_-s of because the greens d purchased property insurance from insurance_companies for his for profit company under the name of o see attached documentation d was commingling funds of the organization with his for-profit businesses a and g transferred workpapers attached to g _ to his personal account and dollar_figure ‘tothe a in see d law sec_501 of the code provides for the exemption from federal_income_tax of organizations organized and operated exclusively for charitable purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual form 886-a rev department of the treasury -- internal_revenue_service page of form 886-a rev january name of taxpayer tax identification_number year period ended explanation of items sec_1_501_c_3_-1 distribution of earnings an organization is not operated exclusively for one or more exempt purposes of its net_earnings inure in whole or in part to the benefit of private shareholders or individuals sec_1_501_a_-1 private_shareholder_or_individual defined the words private_shareholder_or_individual in sec_501 refer to persons having a personal and private interest in the activities of the organization sec_1_501_c_3_-1 states that an organization is not organized or operated exclusively for exempt purposes unless it serves a public rather than a private interest in a h nittler and dorothy l nittler et al v commissioner 39_tcm_422 the court upheld the denial of tax exempt status to both a corporation and a_trust which were found to have served the business and private interest of their creators rather than any public interest specified in code sec_501 in john marshall law school and john marshall university v the united_states u s t c ct c1 the court found that the commissioner acted properly in revoking exemption under sec_501 on the grounds of inurement to the controlling officers and their families in 73_tc_196 the court held that although separate requirements the private_inurement test and the operated exclusively for exempt purposes test often overlap substantially in 74_tc_507 it was held that the prohibition against inurement or private benefit is absolute the amount or extent not being determinative governments position is the founder and president of the _ - - -- - is also the owner of received a benefit from the use of the organizations property and income wow taxpayers position b indicated that they will agree to the revocation of the exempt status conclusions form 886-a rev department of the treasury -- internal_revenue_service page of form 886-a rev january explanation of items name of taxpayer year period ended tax identification_number o no longer qualifies for exemption under sec_501 of the code therefore your exempt status under sec_501 of the internal_revenue_code should be revoked effective date we offered you an informal conference with the case manager however you declined to hold this conference should this revocation be upheld you are required to file form_1120 for the tax periods after date whether or not you have taxable_income form 886-a rev department of the treasury -- internal_revenue_service page of form 886-a rev january tax identification_number year period ended name of taxpayer explanation of items form 886-a rev department of the treasury -- internal_revenue_service page of