internal_revenue_service department of the treasury number release date index no washington d c person to contact telephone number refer reply to cc psi -- plr-101867-02 date date legend taxpayer authority bank state city county b c date year dear this letter responds to your letter dated date and subsequent correspondence submitted on behalf of taxpayer requesting a private_letter_ruling regarding the application of sec_42 of the internal_revenue_code to a proposed transfer from taxpayer to the authority of bare_legal_title to certain real_property owned by taxpayer taxpayer represents the following facts facts taxpayer is a state limited_partnership formed to develop own construct rehabilitate and operate a multifamily rental housing development consisting of b residential rental housing units located in city the project the general_partner of plr-101867-02 taxpayer is the authority a public body corporate and politic of state the limited_partner of taxpayer is bank under the applicable state law the project which was placed_in_service on date is subject_to real_estate_taxes levied by county dollar_figurec for year and does not currently qualify for real_estate tax exemption however under the applicable state law if the authority was to own the project the project would not be subject_to real_estate_taxes in county taxpayer has received a written ruling from state’s department of revenue dor that property owned by the authority but leased to taxpayer in which the authority is the sole general_partner should not be subject_to property_tax therefore taxpayer intends to transfer to the authority record title to the real_estate and improvements with respect to the project subject_to existing easements and encumbrances pursuant to a statutory form quitclaim_deed immediately after this transaction taxpayer intends to lease the project from the authority pursuant to a lease agreement taxpayer represents that it will retain all of the benefits_and_burdens_of_ownership of the project therefore there will be no sale_or_exchange of the project for federal or state_income_tax purposes taxpayer has informed the dor of the intended sale-leaseback transaction subject_to review of the transaction documentation the dor has agreed that the project would be exempt from real_estate_taxes after the sale-leaseback ruling requested based on the foregoing which assumes that under these facts the transfer of bare_legal_title to the project from taxpayer to the authority is not a sale_or_exchange for federal or state_income_tax purposes and does not result in a shift in the benefits_and_burdens_of_ownership for federal and state_income_tax purposes taxpayer requests a ruling that the sec_42 recapture provisions do not apply to the proposed transfer of bare_legal_title to the project by taxpayer to the authority law and analysis sec_42 provides a tax_credit for investment in low-income_housing buildings placed_in_service after date for any taxable_year in a 10-year credit_period the amount of credit is equal to the applicable_percentage of the qualified_basis of each qualified_low-income_building in the case of any qualified_low-income_building placed_in_service by the taxpayer after sec_42 provides in part that the term applicable_percentage means the appropriate percentage prescribed by the secretary for the month applicable under sec_42 or ii sec_42 provides that the percentages prescribed by the secretary for any month shall be percentages that will yield over a 10-year period amounts of credit that have a present_value equal to i percent of the qualified_basis of new buildings that are not federally_subsidized for the taxable_year 70-percent plr-101867-02 present_value credit and ii percent of the qualified_basis of existing buildings and of any new buildings that are federally_subsidized for the taxable_year 30-percent present_value credit sec_42 provides that the qualified_basis of any qualified_low-income_building for any taxable_year is an amount equal to the applicable_fraction defined in sec_42 of the eligible_basis of such building in general under sec_42 the eligible_basis of a new_building is its adjusted_basis as of the close of the first taxable_year of the credit_period sec_42 provides rules concerning the recapture of low-income_housing tax_credits sec_42 provides that if as of the close of any taxable_year in the compliance_period the qualified_basis of any building with respect to the taxpayer is less than the amount of qualified_basis as of the close of the preceding_taxable_year the taxpayer’s tax for the taxable_year shall be increased by the credit recapture_amount the credit recapture_amount for a recapture_event occurring during any year in the credit_period as defined in sec_42 is one-third of all credits claimed assuming no prior recapture plus interest at the overpayment rate under sec_6621 beginning with the date the recaptured amount was claimed the legislative_history to sec_42 provides generally that any change in ownership during the compliance_period is a recapture_event and that all dispositions of ownership interests in buildings are treated as transfers for purposes of recapture see h_r conf_rep no 99th cong 2d sess ii-96 and ii-102 vol c b however under sec_42 in the case of a disposition of a low-income building or an interest therein a taxpayer can avoid recapture liability for the disposition if the taxpayer posts a satisfactory bond using form_8693 low-income_housing_credit disposition bond and it is reasonably expected that the building will continue to be operated as a qualified_low-income_building for the remaining compliance_period of the building taxpayer represents in the above facts that the transfer of bare_legal_title from taxpayer to the authority is not a sale_or_exchange for federal or state_income_tax purposes and will not result in a shift of the benefits_and_burdens_of_ownership for federal and state_income_tax purposes from taxpayer to the authority this representation is a material fact in this case therefore the issue being considered in this case is not whether a sale_or_exchange or a transfer of the benefits_and_burdens_of_ownership is for federal_income_tax purposes a recapture_event under sec_42 but whether the transfer of bare_legal_title under the above facts is a disposition or change in ownership contemplated by the sec_42 legislative_history that results in a recapture_event the transfer of bare_legal_title under the above circumstances would not be made for the evasion or avoidance of federal_income_tax further the federal tax treatment of the proposed transaction has been disclosed to dor officials taxpayer represents that all indicia of ownership of the project other than bare_legal_title would plr-101867-02 remain unchanged consequently the transfer of bare_legal_title in this case is not a disposition or change in ownership contemplated by the sec_42 legislative_history to result in a recapture_event accordingly based solely on the representations and the relevant law set forth above we rule that the transfer of bare_legal_title to the project from taxpayer to the authority will not under these facts result in recapture under sec_42 no opinion is expressed or implied regarding the application of any other provision of the code or regulations specifically no opinion is expressed or implied regarding whether the transfer of bare_legal_title to the project from taxpayer to the authority is a sale_or_exchange for federal or state_income_tax purposes or causes a shift in the benefits_and_burdens_of_ownership for federal or state_income_tax purposes nor is any opinion expressed or implied regarding whether the project otherwise qualifies for the low-income_housing tax_credit under sec_42 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 a copy of this letter is being sent to taxpayer sincerely harold e burghart assistant to the chief branch office of assistant chief_counsel passthroughs and special industries enclosure copy


department of the treasury internal_revenue_service washington d c date cc dom fs it a number release date uilc internal_revenue_service national_office advice memorandum for district_counsel from deborah a butler assistant chief_counsel field service cc dom fs subject applicability of sec_131 this advice responds to your memorandum dated date and is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent issues whether operators of foster family homes may exclude from income payments for adult foster care recipients who are placed in the home by a private nonprofit øregional center cid more specifically whether a øregional center cid funded pursuant to california state statutes is øan agency of a state or political_subdivision thereof cid for purposes of the definition of a øqualified foster individual cid in sec_131 whether adults placed in foster homes by a regional center are øqualified foster individuals cid within the meaning of sec_131 conclusion the regional centers in question are private entities and not agencies of the state or a political_subdivision of the state therefore adults placed by regional centers in the homes of foster care providers are not øqualified foster individuals cid within the meaning of sec_131 accordingly foster care providers may not exclude from income payments received for the foster care of these adults facts in the california legislature enacted the lanterman developmental disabilities act cal welf inst code ølanterman act cid or øthe act cid the legislature drafted the lanterman act to meet the lifetime needs of certain disabled persons to prevent or minimize their institutionalization and to enable them to live in a manner approximating that of non-disabled persons the california department of developmental services ødds cid is responsible for executing the laws relating to the care custody and treatment of disabled persons covered by the california code including the provisions of the lanterman act cal welf inst code the act provides that dds øshall contract with appropriate agencies to provide fixed points of contact in the community for persons with developmental disabilities it is the further intent of the legislature that the design and activities of regional centers reflect a strong commitment to the delivery of direct service coordination cid lanterman act a the act further provides expressly b the legislature finds that the service provided to individuals and their families by the regional centers is of such a special and unique nature that it cannot be satisfactorily provided by state agencies therefore private nonprofit community agencies shall be utilized by the state for the purpose of operating regional centers lanterman act b emphasis added regional centers are state-licensed nonprofit_corporations qualifying under sec_501 as exempt from tax under sec_501 99_tc_633 although regional centers receive some funds from third parties they receive their operating budgets from the state and operate under the supervision of the state id pincite as part of their services the regional centers place developmentally disabled individuals in state-licensed foster care facilities and pay the operators of foster care facilities a nonnegotiable legislatively- mandated sum for caring for the foster individuals id operators of licensed foster care facilities contract with regional centers to provide foster care for developmentally disabled adults placed in their homes by the regional center questions have arisen whether amounts received from the regional centers are excludable from foster care providers’ income under sec_131 law and analysis issue whether a regional center is øan agency of a state or political_subdivision thereof cid for purposes of defining a øqualified foster individual cid it appears that the california legislature did not intend that regional centers be agencies of the state the lanterman act expressly states that the legislature øfinds cid that the work to be done regarding developmentally disabled persons cannot be done by state agencies and thus øprivate non-profit community agencies cid shall be used to operate the regional centers lanterman act b further a california attorney general’s opinion states that dds has no authority to control the operations of regional centers ops atty gen cal date also if a regional center is not operating effectively dds has the right to terminate the relationship and contract with a different regional center lanterman act c d therefore regional centers are not agencies of a state although the term øpolitical subdivision cid is not defined in the code it is cited in several code sections including sec_131 in regulations covering state and local bond interest issued under sec_103 the secretary defines a political_subdivision as øany division of any state_or_local_government unit which is a municipal corporation or has been delegated the right to exercise part of the sovereign power of the unit cid sec_1_103-1 emphasis added sovereign powers are generally recognized to be the police power the power to tax and the power of eminent_domain 958_f2d_122 5th cir aff’g 96_tc_686 although the test is not a rigid one an entity must have some sovereign power to be a political_subdivision id pincite it is not sufficient that an entity performs a public service the entity is not a subdivision of the state unless there have been 1in cato the parties stipulated to both the legal status of regional centers and the placement reimbursement mechanism lacking independent verification of the legal status of regional centers we assume the stipulation in cato to be factually accurate delegated to it some functions of local_government 38_tc_247 see also 666_f2d_834 3d cir cert_denied 457_us_1105 university was not a political_subdivision because sovereign power had not been delegated 438_f2d_684 1st cir hospital was not a political_subdivision because inter alia it did not exercise any sovereign power regional centers lack the powers of police taxation and eminent_domain in actuality although dds has oversight responsibility over the regional centers and issues regulations manuals and procedural guidelines for them to follow dds contracts at arm’s length with them furthermore the regional centers receive nearly all their funding from dds thus the regional centers neither belong to the state nor have the ability to obtain funding through taxation in addition the california supreme court has circumscribed the rights and duties of the state regarding the regional centers fearing a budget shortfall dds ordered the regional centers to make sweeping reductions in services without regard to the previously determined needs of individual clients the court found that under california statutes the regional centers not dds had authority to determine the services needed for each client and that under the lanterman act dds had no authority to make determinations regarding the manner in which regional centers provide services association of retarded citizens v department of developmental services cal 3d p 2d cal this case further proves that the regional centers are neither agencies of the state nor political subdivisions thereof the tax_court already has adjudicated a case involving contractual placement of adult foster individuals by a sec_501 entity micorescu v commissioner tcmemo_1998_398 in micorescu a sec_501 agency elderplace contracted with the state of oregon to provide services to certain adult individuals elderplace then contracted with foster care providers to provide the actual care of those adults the tax_court concluded that adults enrolled in the elderplace program were not placed by an agency of a state or political_subdivision thereof we believe that a court will arrive at the same finding in cases involving california’s regional centers issue whether adults placed in foster homes by regional centers are øqualified foster individuals cid within the meaning of sec_131 the internal_revenue_code provides that gross_income shall not include amounts received during the year as øqualified foster_care_payments cid sec_131 qualified_foster_care_payments are defined in pertinent part by the statute as any amount- a which is paid_by a state or political_subdivision thereof or by a placement agency which is described in sec_501 and exempt from tax under sec_501 and b which is- i paid to the foster care provider for caring for a qualified_foster_individual in the foster care provider’s home sec_131 emphasis added the statute further defines a øqualified foster individual cid as any individual who is living in a foster family home in which such individual was placed by- a an agency of a state or political_subdivision thereof or b in the case of an individual who has not attained age an organization which is licensed by a state or political_subdivision thereof as a placement agency and which is described in sec_501 as exempt from tax under sec_501 sec_131 emphasis added the language of sec_131 clearly limits placement of qualified foster individuals by a sec_501 organization to children under the age of thus while a child may be a qualified_foster_individual if the child is placed in a home by either a state_or_local_government agency or a sec_501 agency an adult cannot be a qualified_foster_individual unless the adult is placed by an agency of the state or a political_subdivision thereof therefore qualified foster payments do not include payments for adults placed in foster homes by sec_501 organizations micorescu tcmemo_1998_398 in the situations in question adults are placed in the foster homes by the regional centers because these foster care individuals are adults they must be placed in the foster care providers’ homes by an agency of the state or its political_subdivision thereof in order to be qualified foster individuals under sec_131 the regional centers are not agencies of the state or one of its political subdivisions therefore the foster individuals in the foster care providers’ homes are not qualified foster individuals and the payments for their care are not qualified_foster_care_payments under sec_131 accordingly foster care providers in these instances may not exclude from income payments received for providing foster care for adults placed in their homes by the regional centers please call if you have any further questions by ___________________ clifford m harbourt senior technician reviewer income_tax accounting branch cc


t c summary opinion united_states tax_court gary and cynthia stein petitioners v commissioner of internal revenue respondent docket no 23179-04s filed date gary and cynthia stein pro sese carolyn e moran for respondent goldberg special_trial_judge this case was heard pursuant to the provisions of sec_7463 in effect when the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority this case arises from a petition for judicial review filed in 1unless otherwise indicated subsequent section references are to the internal_revenue_code as amended response to a notice_of_determination concerning collection action s under sec_6320 and or issued for unpaid federal_income_tax liabilities for taxable years and the sole issue for decision is whether respondent abused his discretion in sustaining a notice_of_federal_tax_lien for the following reasons we hold that there was no abuse_of_discretion in this case background some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference petitioners resided in egg harbor city new jersey on the date the petition was filed prior assessments and offer-in-compromise respondent assessed a federal_income_tax liability of dollar_figure against petitioners for taxable_year on date respondent also assessed a federal_income_tax liability of dollar_figure against petitioners for taxable_year on date the total amount assessed for petitioners’ and federal_income_tax liabilities was dollar_figure petitioners made an offer-in-compromise oic for the federal_income_tax liabilities assessed for the and 2petitioners’ liability for the taxable_year has been satisfied and is no longer in issue taxable years the oic provided that petitioners would pay dollar_figure to satisfy these liabilities with dollar_figure to be initially deposited upon respondent’s acceptance of the oic and dollar_figure to be paid months after respondent’s notice of acceptance as part of the oic petitioners were to comply with all provisions of the internal_revenue_code relating to the filing of returns and paying of required taxes for five years from the date irs accepts the offer petitioners signed the oic on date respondent accepted petitioners’ oic by return letter dated date in his acceptance letter respondent provided that the conditions of the offer require petitioners to file and pay all required taxes for five years from the date shown in the upper right corner of this letter to avoid default on the oic petitioners were required to timely file and pay their taxes through date over the next years petitioners either did not timely file and or did not timely pay and or failed to report all of their income on their federal tax returns taxable_year petitioners failed to report all of their income on their federal_income_tax return respondent issued a notice_of_deficiency for taxable_year which petitioners subsequently defaulted as a result of the default respondent assessed an additional tax of dollar_figure the assessment included an accuracy- related penalty pursuant to sec_6662 a failure to pay addition_to_tax pursuant to sec_6651 and interest for taxable_year taxable_year for the taxable_year petitioners timely filed their federal_income_tax return but failed to report all of their income and pay their full tax_liability by the filing due_date respondent issued a notice_of_deficiency for taxable_year which petitioners subsequently defaulted as a result of the default respondent assessed an additional tax of dollar_figure petitioners were also assessed a dishonored_check penalty an accuracy-related_penalty pursuant to sec_6662 a failure to pay addition_to_tax pursuant to sec_6651 and interest petitioners’ tax_liability was ultimately paid on date taxable_year for the taxable_year petitioners failed to timely pay their tax_liability petitioners were assessed a deficiency an addition_to_tax pursuant to sec_6651 and interest for the taxable_year petitioners’ tax_liability was ultimately paid on date taxable_year for the taxable_year petitioners failed to pay their tax_liability by the filing due_date petitioners were liable for a failure to pay addition_to_tax pursuant to sec_6651 a failure to pay estimated_tax addition_to_tax pursuant to sec_6654 and interest for the taxable_year petitioners’ tax_liability was ultimately paid on date taxable_year for the taxable_year petitioners failed to timely file and pay their estimated_tax liability accordingly petitioners were assessed an addition_to_tax pursuant to sec_6651 a failure to pay addition_to_tax pursuant to sec_6651 a failure to pay estimated addition_to_tax pursuant to sec_6654 two dishonored_check penalties and interest in summary petitioners did not comply with the provisions of the internal_revenue_code pertaining to the filing of returns and paying of federal income taxes for and as required by the oic change_of residential address petitioners moved from lynwood new jersey to egg harbor city new jersey in date petitioners’ address was changed in respondent’s records to egg harbor city new jersey sometime in the first week of date collection actions although petitioners paid dollar_figure when respondent accepted the oic petitioners did not make any further payment under the terms of the oic namely the dollar_figure payment due on date the record indicates that the dollar_figure paid was applied to amount of the oic total attributable to taxable_year this application resulted in the settlement of the taxable_year however because petitioners did not remit the remainder of the oic amount a liability for taxable_year remained on date respondent sent petitioners a letter that applied interest on the unpaid portion of their income_tax_liability stemming from taxable_year on date respondent assessed a deficiency of dollar_figure for taxable_year as previously discussed petitioners did not timely file timely pay and or fully report their income for taxable years and although respondent’s collections personnel were in contact with petitioners regarding their outstanding liabilities for these years the personnel did not revisit the unpaid portion of the assessment until early on date and date respectively respondent sent petitioners letters warning them that if they did not become compliant with the unpaid liability for taxable_year the original amount of their income_tax_liability for -dollar_figure--would be reinstated on date respondent sent petitioners a letter of default for the taxable_year respondent filed a notice_of_federal_tax_lien on date showing dollar_figure owed for taxable_year and dollar_figure owed for taxable_year petitioners requested a collection_due_process cdp hearing on date the cdp hearing occurred in baltimore maryland on date at the hearing petitioner husband requested that the terms of the original oic be reinstated he did not recommend or propose an alternative collection means respondent determined that issuance of a notice_of_federal_tax_lien would be justified since petitioners defaulted on the oic when they failed to timely file and pay their federal income taxes for and on date respondent issued petitioners a notice_of_determination concerning collection action s pursuant to sec_6320 and or in which respondent determined the notice_of_federal_tax_lien for taxable years and to be proper and determined that collection of the tax_liabilities for those years should proceed petitioners filed a petition for redetermination of a deficiency3 requesting the elimination of penalties and interest for their tax_liability and concurrent restoration of the terms of the defaulted oic the trial occurred on date discussion before a federal_tax_lien is filed with regard to any property or right to property taxpayers are entitled to notice and opportunity for a hearing before an impartial officer of the respondent’s office of appeals sec_6320 and b b if the taxpayers request a hearing they may raise in that hearing any relevant issue relating to the unpaid tax or the proposed lien including challenges to the appropriateness of the collection action and offers of collection alternatives which may include the posting of a bond the substitution of other assets an installment_agreement or an offer-in- compromise sec_6320 sec_6330 a determination is then made which takes into consideration those issues the verification that the requirements of applicable law and administrative procedures have been met and whether any proposed collection action balances the need for the efficient collection_of_taxes with the legitimate concern of the person 3on the petition petitioners should have placed an x in the box entitled petition for lien or levy action collection action as this is not a deficiency case that any collection action be no more intrusive than necessary sec_6330 at the cdp hearing petitioners did not argue that any portion of their outstanding tax_liability for is uncollectible because petitioners do not dispute the underlying tax_liability we review respondent’s determination for an abuse_of_discretion sec_6330 114_tc_176 an abuse_of_discretion occurs when the commissioner takes action that is arbitrary or capricious lacks a sound basis in law or is not justifiable in light of the facts and circumstances 91_tc_1079 petitioners argue that respondent’s actions amounted to an abuse_of_discretion because petitioners were not notified of their default and respondent’s appeals officer unreasonably denied petitioners’ request at the cdp hearing that the terms of the underlying oic be reinstated for the reasons stated below we find that there was no abuse_of_discretion in this case notice of default petitioners assert that respondent did not provide them with notice of default before a notice_of_federal_tax_lien was issued the oic case history shows that when petitioners failed to pay the dollar_figure due on date the commissioner’s collections personnel contacted petitioners by letter dated date whereby the commissioner applied interest of dollar_figure to the unpaid liability stemming from taxable_year the oic case history shows that while respondent’s collections personnel did not contact petitioners about petitioners’ unpaid liability for taxable_year until early the collections personnel were in contact with petitioners between and regarding their unpaid tax_liabilities stemming from taxable years and regarding the outstanding assessment for respondent attempted to contact petitioners by telephone no less than separate times between and respondent also sent petitioners three letters in two of these letters he warned petitioners of default and in the third he notified petitioners of default the oic case history listing is replete with notations that respondent’s collections employees and managers reviewed petitioners’ record for taxable_year for payments received approval to proceed with collections and attempted contact with petitioners when no payments were received accordingly we conclude that the review undertaken by respondent’s employees in this case was as thorough and complete as possible given petitioners’ noncompliance with the 5-year timely filing and paying requirement imposed by the oic and the inability of respondent’s employees to contact petitioners with respect to the issue of notice before filing of the federal_tax_lien the internal_revenue_manual sec_5 provides that reasonable efforts be made to contact the taxpayer before filing however there are no specific requirements provided in the manual or under the law that the commissioner must send a warning default letter when the taxpayers have not complied with the terms of an underlying oic in this case respondent sent petitioners two letters warning them of default on the oic for the taxable_year petitioners testified that they had not received either of the two default warning letters sent by respondent on date and date or the letter of default dated date all three letters were sent to petitioners’ address in egg harbor city new jersey and petitioners moved to the egg harbor city new jersey address in date petitioners testified that the first time they became aware that they had defaulted on the oic was when respondent issued them a notice_of_federal_tax_lien on date when questioned by the court petitioners admitted that there were warnings that they had defaulted on the oic we find that based on the oic case history the warnings received by petitioners included both the aforementioned letters and phone conversations moreover we find that petitioners not only had warning and notice of their default through three letters and phone conversations but that they were aware from the date they signed the oic that any noncompliance on their part with the year timely filing and payment requirement would immediately result in default of the oic collection_due_process_hearing the only argument set forth in the petition was that all legal and procedural requirements with respect to the cdp hearing were not met sec_6320 requires that the commissioner give notice to taxpayers in writing within days after the filing of the notice_of_federal_tax_lien of the taxpayers’ right to request a hearing with appeals if the request is made during the days following the end of the 5-day notification period in this case respondent sent petitioners the notice_of_federal_tax_lien together with the notice of petitioners’ right to request a hearing on date petitioners requested a hearing on date accordingly we find that all procedural requirements with respect to the notice of the lien and the cdp hearing were timely met at the cdp hearing petitioner husband requested relief from paying the outstanding amount due for taxable_year under the original oic petitioner husband presented no other collection alternatives to this request petitioner husband’s singular argument at the cdp hearing was that he had not received notice of default and that he had no notice until receiving the notice_of_federal_tax_lien that he was in danger of default as previously stated we find that petitioners were in receipt of written and verbal notice of their default moreover we find that petitioners were aware that their repeated noncompliance with the 5-year timely filing requirement placed them in default on the underlying oic we therefore cannot conclude that respondent acted in an arbitrary or capricious manner based on the facts of this case petitioners were well aware of their duty to timely file and pay their taxes for the years following respondent’s acceptance of the underlying oic petitioners not only failed to timely file their federal tax_return they failed to timely file in each and every one of the years of the oic compliance_period moreover respondent attempted on occasions over years to contact petitioners at their egg harbor residence to craft a resolution to petitioners’ outstanding liability stemming from taxable_year in these years respondent attempted to work with petitioners despite their repeated failures to timely file petitioner husband by his own admission testified that petitioners did not respond to these attempts because they lacked the money to pay petitioners then begged this court to consider that they are desperate because they cannot afford to pay the amount now sought by respondent with respect to we find that respondent made repeated efforts to work with petitioners after they had defaulted on the underlying oic we further find that although petitioners were aware that their failure to timely file just once in the 5-year compliance_period would result in default and that they were aware through phone calls and correspondence from respondent about the default they chose to disregard the results of their noncompliance until the time of the cdp hearing we therefore hold that respondent’s determination sustaining the notice_of_federal_tax_lien was not an abuse_of_discretion and that respondent may proceed with collection by federal_tax_lien of petitioners’ liability stemming from taxable_year reviewed and adopted as the report of the small_tax_case division decision will be entered for respondent


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc ebeo 1-plr-105829-99 date date employer plan qualified_plan employee this is in reply to your letter dated date and subsequent correspondence dated date on behalf of the employer the employer has requested a ruling on the federal_income_tax consequences under sec_83 sec_451 and sec_457 of the internal_revenue_code with respect to the plan the employer is represented to be a nonprofit corporation that is exempt from federal_income_tax under sec_501 of the code the employer has represented that the plan is unfunded and has been established primarily for the purposes of providing deferred_compensation for a select group of management or highly compensated employees within the meaning of section of the employee_retirement_income_security_act_of_1974 erisa participation in the plan is limited to the employee the employee is the chief_executive_officer and one of the founders of the employer under the plan a bookkeeping reserve_account the reserve_account shall be established for the employee the reserve_account shall be used solely as a device for the measurement and determination of the amount to be paid to the employee in the future under the terms of the plan neither the reserve_account nor any other plr-105829-99 reserve established on the financial books of the employer to reflect liabilities under the plan shall constitute or be treated as a_trust fund of any kind the employer is not required to set_aside any assets with respect to the plan any assets actually held by the employer with reference to the plan shall be and remain the sole property of the employer and shall be subject_to the claims of the creditors of the employer an initial_amount shall be credited to the employee’s reserve_account after the initial_amount is credited as of date and each august thereafter during the employee’s employment with the employer an amount shall be credited to the reserve_account equal to the difference between the amount that would have been allocated to the employee’s account in the qualified_plan if a such plan were not subject_to the limitations of sec_401 and sec_415 of the code and b the allocation formula under the qualified_plan were of pay instead of the allocation formula contained in the qualified_plan and the actual employer_contribution allocable to the employee’s account under the qualified_plan for such year ending august furthermore as of date and each august thereafter and prior to any distribution under the plan an additional_amount shall be credited to the reserve_account as an investment return equivalent the investment rate positive or negative will be the rate of investment return on the employee’s account under the qualified_plan for the same period of time this rate will be applied to the balance of the reserve_account at the beginning of the year reduced by any distributions during the year the amount in the reserve_account shall be subject_to total forfeiture in the event that the employee’s employment with the employer is terminated prior to the september immediately following the employee’s attainment of age fifty-five amounts in the reserve_account as of the september immediately following the employee’s attainment of age fifty-five and all contributions credited thereafter shall be fully vested however the forfeiture rule shall not apply and the reserve_account shall be fully vested if the employee’s employment is terminated before such date as a result of the employee’s death disability or termination by the employer without cause the terms disability and cause shall have the meaning set forth in the employee’s employment agreement vested benefits shall be paid as follows the employee shall receive a cash payment from the employer on or about the september immediately following hi sec_55th birthday of an amount equal to the employee’s estimated_tax liability as a result of vesting under the plan the balance of the reserve_account shall be paid to the employee as soon as practicable after the august coincidental with or immediately following the employee’s termination of employment with the employer for any reason plr-105829-99 if the employee terminates employment prior to age because of death disability or termination of employment without cause a lump sum cash payment shall be made to the employee or his beneficiary as soon as practicable after the august coincidental with or immediately following the employee’s termination of employment benefits under the plan shall not be subject in any manner to alienation sale transfer assignment pledge attachment garnishment or encumbrance of any kind by will or by inter_vivos instrument any attempt to alienate sell transfer assign pledge or otherwise encumber any such benefit payment shall not recognized by the board any benefit payment due under the plan shall not in any manner be liable for or subject_to the debts or liabilities of the employee or the employee’s beneficiary the plan shall be administered by the board_of directors of the employer the employer by action of the board reserves the right to amend modify terminate or discontinue the plan at any time if the plan or contributions to the plan are terminated benefits under the plan shall remain subject_to the forfeiture rules set forth above sec_457 of the code provides the rules governing the deferral of compensation by an individual participating in a deferred_compensation plan of an eligible_employer under sec_457 a tax-exempt_organization is an eligible_employer covered by sec_457 the employer is a tax-exempt_organization under sec_501 of the code and is therefore an eligible_employer within the meaning of sec_457 sec_457 of the code provides that in the case of a participant in an eligible_deferred_compensation_plan any amount of compensation deferred under the plan and any income attributable to the amounts so deferred is includible in gross_income only for the taxable_year in which the compensation or other income is paid or otherwise made available to the participant or beneficiary sec_457 of the code and sec_1_457-2 of the income_tax regulations the regulations define the term eligible_deferred_compensation_plan one requirement under sec_457 is that the maximum amount which may be deferred under an eligible_deferred_compensation_plan for the taxable_year shall not exceed the lesser_of dollar_figure or percent of the participant's includible income the plan is not an eligible_deferred_compensation_plan within the meaning of these provisions because amounts deferred may exceed this limit under sec_457 of the code if an eligible employer's plan deferring compensation is not an eligible_deferred_compensation_plan the compensation is included in gross_income for the first year in which the participant's right to the compensation is not subject_to a substantial_risk_of_forfeiture sec_457 provides that the rights of a person to compensation are plr-105829-99 subject_to a substantial_risk_of_forfeiture if the person’s rights to the compensation are conditioned upon the future performance of substantial services by any individual sec_83 of the code provides that the excess if any of the fair_market_value of property transferred in_connection_with_the_performance_of_services over the amount_paid if any for the property is includible in the gross_income of the person who performed the services in the first taxable_year in which the property becomes transferable or is not subject_to a substantial_risk_of_forfeiture sec_1_83-3 of the regulations provides that for purposes of sec_83 the term property includes real and personal_property other than either money or an unfunded and unsecured promise to pay money or property in the future property also includes a beneficial_interest in assets including money transferred or set_aside from claims of the transferor’s creditors for example in a_trust or escrow account sec_451 of the code and sec_1_451-1 of the regulations provide that an item_of_gross_income is includible in gross_income in the taxable_year in which it is actually or constructively received by the taxpayer using the cash_receipts_and_disbursements_method of accounting under sec_1_451-2 of the regulations income is constructively received in the taxable_year during which it is credited to a taxpayer’s account set apart or otherwise made available so that the taxpayer may draw on it at any time however income is not constructively received if the taxpayer’s control of its receipt is subject_to substantial limitations or restrictions various revenue rulings have considered the tax consequences of nonqualified_deferred_compensation arrangements revrul_60_31 situations holds that a mere promise to pay not represented by notes or secured in any way does not constitute receipt of income within the meaning of the cash_receipts_and_disbursements_method of accounting see also revrul_69_650 1969_2_cb_106 and revrul_69_649 1969_2_cb_106 provided that the plan is unfunded for purposes of title of erisa and that the plan and the proposed amendments are adopted without further changes and based on the information submitted and representations made we conclude that the plan constitutes an ineligible deferred_compensation plan within the meaning of sec_457 of the code pursuant to sec_457 the amount of deferred_compensation credited to the reserve_account under the plan is includible in the employee’s gross_income or in the case of the employee’ death the gross_income of his beneficiary for the first taxable_year for which the employee’s rights to these amounts are not subject_to a substantial_risk_of_forfeiture this will be the august immediately following the employee’ sec_55th birthday or his death disability or termination of employment without plr-105829-99 cause if earlier the entire amount of the reserve_account on that date is includible in gross_income for that taxable_year even if payment is made at a later date subsequent deferrals shall be includible in the employee’s gross_income when they are credited to the reserve_account pursuant to sec_457 amounts paid or made available under the plan to the employee or his beneficiary are includible in gross_income in accordance with the rules of sec_72 of the code amounts are made available when the individual becomes entitled to receive them under the plan none of the following events shall constitute a transfer of property for purposes of sec_83 of the code or sec_1_83-3 of the regulations a the adoption of the plan b the crediting of contributions to the reserve_account or c the crediting of earnings to the reserve_account under the economic benefit and constructive receipt doctrines of sec_61 and sec_451 of the code neither the creation of the plan nor the crediting of contributions or earnings to the reserve_account will create taxable_income for the employee or his beneficiary under the cash_receipts_and_disbursements_method of accounting except as specifically ruled on above no opinion is expressed as to the federal tax consequences of the above transaction under any other provision of the code this ruling is directed only to the taxpayer who requested it this ruling applies only to the plan as proposed to be amended and only as of the date of this ruling sec_6110 of the code provides that this ruling may not be used or cited as precedent sincerely charles t deliee chief branch office of the associate chief_counsel employee_benefits and exempt_organizations enclosure plr-105829-99 copy for sec_6110 purposes


t c memo united_states tax_court aziz a tokh and susan k tokh petitioners v commissioner of internal revenue respondent docket no filed date aziz a and susan k tokh pro_se jennifer l nuding and william ef bogner for respondent memorandum findings_of_fact and opinion cohen judge for and respondent determined deficiencies in petitioners’ federal_income_tax of dollar_figure and dollar_figure and penalties under sec_6662 of dollar_figure and dollar_figure respectively by amendment to the answer respondent asserts increased penalties under sec_6662 in the amounts of dollar_figure and dollar_figure for and respectively after concessions the issues for decision are whether pursuant to sec_162 petitioners are entitled to deductions in the amounts claimed for unreimbursed employment expenses whether pursuant to sec_212 petitioners are entitled to deductions in the amounts claimed for investment_expenses whether pursuant to sec_170 petitioners are entitled to deductions in the amounts claimed for charitable_contributions whether pursuant to sec_212 petitioners are entitled to a deduction in the amount claimed for expenses attributable to real_property held_for_the_production_of_income whether pursuant to sec_280a petitioners are entitled to deductions for expenses attributable to an office in the home and whether pursuant to sec_6662 petitioners are liable for penalties due to negligence or disregard of rules or regulations unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure findings_of_fact some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference at the time of the filing of the petition petitioners resided in elmhurst illinois aziz a tokh petitioner is an architect at northeast illinois railroad corporation nirc and susan k tokh is a registered nurse at elmhurst memorial hospital petitioners claimed the following miscellaneous deductions for unreimbursed expenses associated with their employment petitioner work equipment tools s sdollar_figure supplies printing safety shoes mud boots susan k tokh uniforms big_number big_number hospital scrubs shoes hosiery big_number big_number laundry services big_number big_number both licenses dues publications books and classes total dollar_figure dollar_figure several of the items claimed as unreimbursed employment expenses were based on estimates made by petitioners specifically petitioners made estimates for employment expenses allegedly incurred by petitioner for work equipment and tools dollar_figure per week for weeks in both years supplies dollar_figure and dollar_figure per week for weeks in and respectively printing dollar_figure per week for weeks in both years safety shoes two pairs at dollar_figure each in and mud boots two pairs at dollar_figure each in petitioners also made estimates for employment expenses allegedly incurred by susan k tokh for uniforms six at dollar_figure each in both years hospital scrubs six sets at dollar_figure each in both years shoes four pairs at dollar_figure each in both years hosiery dollar_figure and dollar_figure per week for weeks in and respectively and laundry services dollar_figure and dollar_figure per week for weeks in and respectively although the remaining claimed deductions for unreimbursed employment expenses were not based on estimates petitioners did not maintain any receipts records or logbooks to prove that these expenses were actually incurred petitioners owned shares of different mutual funds in and different mutual funds in each mutual_fund passed income through to its shareholders on a net_basis ée gross_income minus operating_expenses in annual reports distributed to the shareholders each mutual_fund disclosed the annual operating_expenses incurred by the fund the annual operating_expenses are paid_by the mutual funds and are not expenses of the shareholders petitioners claimed investment_expense deductions for a pro_rata portion of the annual operating_expenses of the mutual funds petitioners also claimed dollar_figure in for individual_retirement_account ira maintenance fees petitioners estimate that they spent dollar_figure per week for weeks on weekend issues of the chicago tribune petitioners also estimate that they sent four letters per year for each different mutual_fund and that they spent dollar_figure per letter for typing and mailing petitioners claimed investment_expense deductions equal to their estimated costs for newspapers and letters in addition petitioners claimed other miscellaneous deductions in of dollar_figure for reader’s digest publications dollar_figure for newsweek publications and dollar_figure for issues of a local newspaper in the notice_of_deficiency respondent allowed total combined deductions for employment investment and other miscellaneous expenses equal to dollar_figure in and dollar_figure in petitioner is a moslem petitioners claimed charitable deductions for cash contributions to an islamic culture center icc and several mosgues equal to dollar_figure in and dollar_figure in petitioners calculated the deduction as an estimate of dollar_figure per week for weeks petitioners also claimed deductions for charitable transportation costs of dollar_figure in both years and cash contributions to other charities equal to dollar_figure in the charitable transportation costs were based on trips between petitioners’ home and the icc and mosques in addition petitioners claimed that they donated over items of used clothing and household devices to the cancer federation and military order of the purple heart petitioners created receipts for these contributions that total dollar_figure for and dollar_figure for the receipts were on forms provided by the charities but the lists of items and values were attached by petitioners petitioners claimed deductions for contributions of used clothing and household_items equal to dollar_figure in and dollar_figure in in the notice_of_deficiency petitioners were allowed a deduction for cash contributions equal to dollar_figure and noncash contributions equal to dollar_figure in in petitioners were allowed a combined deduction for cash and noncash contributions of dollar_figure as beneficiaries of a land trust petitioners owned a condominium that they rented to tenants during petitioners were allowed a deduction for expenses relating to the condominium totaling dollar_figure for repairs advertising legal fees taxes utilities trust fees and association fees petitioners claimed additional deductions associated with the rental of the condominium totaling dollar_figure which include estimates for auto and travel expense cleaning insurance management fees additional repairs supplies and collection fees the amounts claimed for payments to petitioners’ son totaling dollar_figure were claimed twice as management fees and as cleaning expenses as part of his employment at nirc petitioner is provided with an office containing a desk computer and telephone petitioner also maintains an office in the family home where he keeps a drafting table drafting equipment and reference books besides working at the office at nirc and the office in the home petitioner also spends time at various job sites sixty percent of his working hours is spent in the nirc office and percent of his hours is spent working at home or in the field petitioner has 24-hour access to the office at nirc nirc does not require petitioner to maintain an office in the home petitioners did not keep receipts or records for any of their expenses associated with the office in the home and petitioners used an inflated basis in calculating depreciation expenses petitioners claimed deductions for expenses relating to maintaining the office in the home in and on their and federal_income_tax returns petitioners claimed deductions for estimated employment expenses investment_expenses charitable_contributions and office in the home expenses that are similar to those claimed during the years in issue petitioners prepared all of the tax returns themselves without the assistance of a paid tax_return_preparer respondent examined petitioners’ income_tax return and issued a notice_of_deficiency petitioners filed a timely petition with the court and on date a stipulated decision was entered opinion respondent argues that petitioners are not entitled to the deductions claimed on their returns because petitioners did not provide any substantiation for the amounts reported petitioners assert that they are entitled to the claimed deductions however for the most part they offered no books_or_records to prove that they expended the amounts in question only petitioner aziz a tokh appeared at trial for the most part his uncorroborated testimony was inherently unlikely and not credible unreimbursed employment expenses petitioners claim that they are entitled to miscellaneous deductions of dollar_figure in and dollar_figure in for unreimbursed employment expenses for work equipment and tools supplies printing clothing footwear laundry services licenses dues publications books and classes a trade_or_business expense deduction is not allowable to an employee to the extent that the employee is entitled to reimbursement from an employer see 274_f2d_25 7th cir affg tcmemo_1959_31 79_tc_1 the cost of acquisitions and maintenance of clothing and footwear is deductible as a trade_or_business expense if the item is specifically required as a condition_of_employment is not adaptable to general usage and is exclusively worn for employment purposes see 30_tc_757 if taxpayers establish that deductible expenses were incurred but do not establish the amount allowable the court may estimate the amount allowable bearing heavily upon the taxpayers see 39_f2d_540 2d cir other than the testimony of petitioner there is no evidence that the alleged expenses were incurred by petitioners we are not required to accept a taxpayer’s uncorroborated testimony and we decline to do so here see 87_tc_74 furthermore petitioners have failed to show that they were not entitled to reimbursement from their employers for the claimed deductions therefore the record does not sustain a deduction for unreimbursed employment expenses in excess of what respondent has already allowed investment_expenses petitioners claim that they are entitled to investment_expense deductions for their pro_rata share of the annual operating_expenses incurred by the mutual funds in which they owned shares petitioners also claim investment_expense deductions for their alleged ira maintenance newspaper magazine and letter-writing costs sec_212 allows a deduction for all ordinary and necessary expenses paid_or_incurred for management_conservation_or_maintenance_of_property_held_for_the_production_of_income the annual operating_expenses for the mutual funds are expenses of the individual funds and are not expenses of petitioners publicly offered mutual funds pass through income to shareholders on a net_basis e gross_income minus operating_expenses therefore petitioners have already received the benefit of a reduction in income for these costs and are not allowed to deduct the operating_expenses as investment_expenses -- - with regard to the alleged newspaper magazine letter-writing and ira maintenance_costs there is no credible_evidence that these costs were incurred furthermore although newspapers and magazines could have been useful in connection with petitioners’ employment or investment activities petitioners have not shown that these publications were principally used for employment or investment activities rather than for personal activities see 31_tc_1249 they are not entitled to deductions claimed for these items charitable_contributions petitioners argue that they are entitled to charitable deductions for alleged cash contributions made to several religious organizations and for used clothing contributions to other local charities in addition petitioners claim that they are entitled to deduct their transportation_expenses for trips between their home and the religious organizations sec_170 allows a deduction for charitable_contributions made for religious purposes for monetary contributions taxpayers must maintain canceled checks receipts from the donee organizations showing the date and amount of the contributions or other reliable written records showing the name of the donee date and amount of the contribution see sec_1_170a-13 income_tax regs petitioner testified that a fundamental principle of the moslem faith is to make charitable_contributions each year equal to percent of an individual’s possessions petitioners argue that the amounts claimed are roughly equal to percent of their possessions petitioners have failed to meet the substantiation requirements of sec_1_170a-13 income_tax regs because they did not produce any records that would identify the recipient or prove that the contributions were actually made therefore petitioners are not entitled to deductions for monetary contributions in excess of the amounts already allowed by respondent neither are petitioners entitled to deduct their travel_expenses of commuting between their home and the icc or mosques travel_expenses related to attending religious functions are personal in nature and are not deductible as charitable_contributions see churukian v commissioner tcmemo_1980_205 where a charitable_contribution is made in property other than money a deduction is allowed for the fair_market_value of the property at the time of contribution see sec_1 170a- l c income_tax regs petitioners attached receipts to their federal_income_tax returns that included descriptions and estimated fair market values for over items donated to the cancer federation and the military order of the purple heart the receipts were contemporaneously created by petitioners on forms provided by the charities without specification of the items donated at the time that the donations were made respondent argues that these receipts are inadequate because they do not show the original cost age or condition of the donated items petitioner was unable to cure any defects in the documentation by his testimony petitioners’ claimed deductions of dollar_figure in and dollar_figure in for the donated items however the lists of items for total only dollar_figure we conclude that the self-generated receipts are unreliable petitioners are not entitled to deductions for noncash charitable_contributions in excess of the amounts already allowed by respondent rental property expenses petitioners claimed deductions in excess of the amount allowed by respondent for expenses attributable to the condominium that they held for rental purposes in respondent conceded that petitioners are entitled to deductions equal to dollar_figure for rental property expenses for the remainder of the alleged expenses petitioners either failed to produce receipts and records to substantiate their claims or petitioners produced receipts that appear to relate to petitioners’ private residence rather than to the condominium sec_212 provides a deduction for all ordinary and necessary expenses paid_or_incurred with respect to management conservation and maintenance_of_property_held_for_the_production_of_income including real_property rental see also sec_1 h income_tax regs however because the record is void of adequate receipts or records that would substantiate petitioners’ claimed expenses petitioners are not entitled to deductions in excess of the amount already conceded by respondent office in the home expenses petitioners claim that they are entitled to a deduction for maintaining an office in their home sec_280a prohibits deductions with respect to the use of a dwelling_unit which is used by the taxpayer during the taxable_year as a residence nonetheless taxpayers may deduct expenses attributable to the business use of their home if they qualify under one of the exceptions to this prohibition sec_280a provides sec_280a disallowance of certain expenses in connection with business use of home rental of vacation homes etc certain business use --subsection a shall not apply to any item to the extent such item is allocable to a portion of the dwelling_unit which is exclusively used on a regular basis-- a as the principal_place_of_business for any trade_or_business of the taxpayer in the case of an employee the preceding sentence shall apply only if the exclusive use referred to in the preceding sentence is for the convenience of his employer in deciding whether a residence is the principal_place_of_business it must be compared to all of the other places where business is transacted see 506_us_168 superseded in part by statute on another issue for tax years beginning after a deduction is allowed only when the residence is the most important or significant place for the business the two primary considerations are the relative importance of the activities performed at each business location and the time spent at each place see id pincite the relative importance of business activities engaged in at the office in the home may be substantially outweighed by business activities engaged in at another location see 113_tc_106 for an architect drafting is an important function of the taxpayer’s trade_or_business petitioner uses the office in his residence to perform most of the drafting required by his employment however petitioner testified that he spends percent of his working hours in the office at nirc and the remainder of his time is split between working in the field or in the office in the home the record does not show what functions were performed by petitioner at the other locations because a -- - comparison of the functions performed at the other locations yields no definitive answer and because petitioner spends a small amount of time in the office in the home relative to the remainder of his working hours the office in the home is not the principal_place_of_business therefore petitioners fail to meet the requirements of sec_280a a furthermore because nirc does not require petitioner to maintain an office in the home and because the nirc office building is available for petitioner to use hours a day petitioner does not maintain the office in the home for the convenience of his employer thus petitioners are not entitled to deductions for the alleged expenses of maintaining the office in the home penalties sec_6662 and b imposes a penalty equal to percent of the portion of the underpayment that is attributable to negligence or disregard of rules or regulations negligence is defined as a lack of due care or failure to do what a reasonable or ordinarily prudent person would do under similar circumstances see 85_tc_934 negligence also includes any failure by the taxpayer to keep adeguate books_and_records or to substantiate items properly see sec_1_6662-3 income_tax regs the deductions for unsubstantiated estimated expenses duplicate deductions of amounts paid to their son and deductions -- - not authorized by law such as transportation for charitable purposes show a pattern of negligence and disregard of the applicable rules or regulations petitioners were put on notice during the audit of their income_tax return that they were not entitled to deductions for estimated expenses or for expenses that were not substantiated by receipts and records petitioners are well-educated individuals who knew or should have known that proper record keeping is essential to their entitlement to deductions petitioner testified at trial that he was aware of the record keeping obligations that he was too busy to comply with them and that he would not change his methodology with respect to the claimed investment deductions for expenses of the mutual funds petitioners ignored information in their annual reports that showed that income was reported on a net_basis and that they were not entitled to a deduction for the operating_expenses petitioners claimed the deductions mentioned above without consulting an accountant or attorney their actions are not the actions of reasonable and ordinarily prudent persons thus petitioners are liable for penalties under sec_6662 a for both years in issue we have considered all remaining arguments made by petitioners for a result contrary to that expressed herein and to the extent not discussed above they are irrelevant or without merit to reflect the foregoing and the concessions of the parties decision will be entered under rule


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 fip b03 plr-106600-17 date date legend reit reit reit partnership retail center state a state b city city utility state initiative a b c ----------------------------- --------------------------- ----------------------------- --------------------------- ----------------------------- --------------------------- ------------------------------------------ ------------------------------- -------------- -------------- ------------------ -------------------------------------------------------------- ---------------------------------- ------------ ------ ------ plr-106600-17 dear --------------- this letter responds to your letter dated date and a subsequent submission requesting a ruling on behalf of reit taxpayer that pursuant to sec_856 of the internal_revenue_code code taxpayer’s income from the base solar incentive amount as defined below will be considered qualifying_income for purposes of sec_856 and c facts taxpayer is a state a limited_liability_company that has elected to be taxed as a real_estate_investment_trust reit under sec_856 through of the code collectively taxpayer reit and reit wholly own partnership a state a limited_liability_company treated as a partnership for u s federal_income_tax purposes partnership owns an a square foot mixed-use shopping center retail center and the land on which such shopping center is located partnership leases space at retail center to tenants for use as retail outlets retail center features anchor stores boutique specialty shops personal services restaurants and other retail outlets typically found in a mixed-use regional shopping center along with associated common spaces parking and landscaping taxpayer represents that retail center is a building within the meaning of sec_1_856-10 of the income_tax regulations and is therefore real_property within the meaning of sec_1_856-10 taxpayer also represents that the rental income that is generated from leasing space at retail center is qualifying_income for purposes of sec_856 and c the state initiative mandates that all state b electric utilities implement a solar incentive program in accordance with the state initiative the city utility has established a solar incentive program solar incentive program that offers an estimated performance-based incentive solar incentive to city utility customers who purchase or lease and install solar pv systems and who meet certain other eligibility requirements including a requirement that the solar pv system must be owned or leased by the building owner who is also the owner of the roof space or a city utility customer who demonstrates their rights to the roof space for the duration of the incentivized period the solar incentive consists of a one-time lump sum upfront payment that is the lesser_of the amount calculated by a formula that estimates the expected performance of the customer’s solar pv system incentive formula or the net installed cost of the system after any_tax benefits or other outside funding sources are subtracted from the gross cost of the system thus in no case will the amount of the solar incentive exceed the net installed cost of the solar pv system the incentive formula is based on the capacity of the solar pv system adjusted to consider inverter and module losses and a design factor that compares the plr-106600-17 estimated output of the solar pv system to the simulated output of an optimal reference system these factors are multiplied by one of two incentive rates depending on whether or not a participant in the solar incentive program retains ownership of renewable energy credits recs or transfers the recs to city utility the incentive rate for a city utility customer that transfers its recs to city utility is dollar_figureb per watt rec incentive rate the incentive rate for a customer that retains ownership of its recs is dollar_figurec per watt base incentive rate taxpayer represents that partnership intends to purchase or lease and permanently install a solar pv system on the roof of retail center taxpayer represents that the solar pv system will be designed and intended to produce electricity only to serve retail center and that partnership will not sell any electricity generated by the solar pv system to third parties taxpayer also represents that the solar pv system will be a structural_component within the meaning of sec_1_856-10 taxpayer intends for the solar pv system to comply with the terms of the solar incentive program and allow partnership to apply for and receive a solar incentive from city utility taxpayer represents that partnership intends to transfer any recs that it receives in connection with the solar pv system and would therefore qualify for the rec incentive rate taxpayer is not seeking a ruling with respect to its receipt of any portion of the solar incentive that is attributable to the transfer of recs to city utility solar incentive rec component and taxpayer intends to treat such an amount as non-qualifying income for purposes of sec_856 and c the portion of the solar incentive that is not attributable to the transfer of recs to city utility is the base solar incentive amount thus taxpayer intends to treat the difference between the solar incentive calculated using the rec incentive rate and the solar incentive calculated using the base incentive rate as non-qualifying income for purposes of sec_856 and c taxpayer is seeking a ruling under sec_856 that the base solar incentive amount will be considered qualifying_income for purposes of sec_856 and c law and analysis sec_856 provides that in order for a corporation to qualify as a reit at least percent of the corporation's gross_income excluding gross_income from prohibited_transactions must be derived from sources that include dividends interest rents_from_real_property gain from the sale_or_other_disposition of stock securities and real_property other than sec_1221 property abatements and refunds of taxes on real_property income and gain derived from foreclosure_property commitment_fees and gain from certain_sales or other dispositions of real_estate_assets sec_856 provides that in order for a corporation to qualify as a reit at least percent of the corporation's gross_income excluding gross_income from prohibited_transactions must be derived from rents_from_real_property interest on obligations secured_by mortgages on real_property or interests_in_real_property gain plr-106600-17 from the sale_or_other_disposition of real_property other than sec_1221 property dividends from reit stock and gain from the sale of reit stock abatements and refunds of taxes on real_property income and gain derived from foreclosure_property commitment_fees to make loans secured_by mortgages on real_property or to purchase or lease real_property gain from certain_sales or other dispositions of real_estate_assets and qualified_temporary_investment_income sec_856 provides that to the extent necessary to carry out the purposes of part ii of subchapter_m of the code the secretary is authorized to determine solely for purposes of such part whether any item_of_income or gain which i does not otherwise qualify under sec_856 or c may be considered as not constituting gross_income for purposes of sec_856 or c or ii otherwise constitutes gross_income not qualifying under sec_856 or c may be considered as gross_income which qualifies under sec_856 or c the legislative_history underlying the tax treatment of reits indicates that a central concern behind the gross_income restrictions is that a reit's gross_income should largely be composed of passive_income for example h_r rep no 86th cong 2d sess pincite 1960_2_cb_819 pincite states o ne of the principal purposes of your committee in imposing restrictions on types of income of a qualifying real_estate_investment_trust is to be sure the bulk of its income is from passive_income sources and not from the active_conduct_of_a_trade_or_business under sec_1_856-3 a reit that is a partner in a partnership is deemed to own its proportionate share of each of the assets of the partnership and to be entitled to the income of the partnership attributable to that share for purposes of sec_856 the interest of a partner in the partnership's assets is determined in accordance with the partner's capital interest in the partnership the character of the various assets in the hands of the partnership and items of gross_income of the partnership retain the same character in the hands of the partners for all purposes of sec_856 income attributable to the receipt of the base solar incentive amount constitutes gross_income not listed as qualifying_income under sec_856 or c taxpayer will earn the base solar incentive amount for purchasing or leasing and installing a solar pv system on the roof of retail center in accordance with the state solar initiative in order to be eligible for the solar incentive program a solar pv system must be owned or leased by the building owner who is also the owner of the roof space or a party who demonstrates its rights to the roof space for the duration of the incentivized period taxpayer represents that partnership intends to permanently install a solar pv system on the roof of retail center taxpayer also represents that the solar pv system once completed will be a structural_component within the meaning of sec_1_856-10 that it will therefore be real_property within the meaning of sec_1_856-10 and that substantially_all of the other income taxpayer derives from retail center will be qualifying_income for purposes of sec_856 and c plr-106600-17 under these circumstances treating income from the base solar incentive amount as qualifying_income does not interfere with or impede the objectives of congress in enacting sec_856 and c accordingly pursuant to sec_856 the base solar incentive amount is treated as qualifying_income for purposes of sec_856 and c conclusion based on the fact submitted and representations made by taxpayer we hereby rule that pursuant to sec_856 taxpayer’s income from the base solar incentive amount is considered qualifying_income for purposes of sec_856 and c this ruling’s application is limited to the facts representations code sections and regulations cited herein except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular no opinion is expressed with regard to whether taxpayer otherwise qualifies as a reit under subchapter_m of the code additionally no opinion is expressed regarding whether any credits or offsets earned in connection with the solar incentive program constitute gross_income whether such income is qualifying_income for purposes of sec_856 and c and whether any credit or offset qualifies as real_property for purposes of sec_856 this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the provisions of a power_of_attorney on file we are sending a copy of this ruling letter to your authorized representatives the rulings contained in this letter are based upon information and representations submitted by the taxpayers and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely _________________________________ julanne allen assistant branch chief branch office of the associate chief_counsel financial institutions products enclosure copy for sec_6110 purposes


department of the treasury employer_identification_number contact person - id number contact telephone number uil internal_revenue_service p o box cincinnati oh release number release date date date legend t scholarship name u school district v high school we city state x principal y trust officer z individual dear you asked for advance approval of your scholarship grant procedures under internal_revenue_code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax you requested approval of your scholarship program to fund the education of certain qualifying students our determination we approved your procedures for awarding scholarships based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding scholarships meet the requirements of code sec_4945 as a result expenditures you make under these procedures won't be taxable also awards made under these procedures are scholarship or fellowship grants and are not taxable to the recipients if they use them for qualified_tuition_and_related_expenses subject_to the limitations provide in code sec_117 description of your request your letter indicates you will operate a scholarship program called t the purpose of t is to enable young men and or women who have attended u or its successor to obtain undergraduate or graduate college education letter catalog number 58263t the dollar amount of each scholarship award will vary depending on your income during the year and the required_distribution amount per irs regulations you will award two scholarships per year the availability of scholarships will be made known to the guidance counselor at v or its successor additionally available scholarships are listed on v website scholarship recipients must be a resident of w a graduate or future graduate of u or its successor and pursuing undergraduate or graduate college education scholarship applicants will be evaluated based on the following e e e the ability of applicants to pursue and successfully complete a four year degree course or postgraduate degree course as shown primarily by nationally recognized text scores and secondarily by grades obtained in high school or college prior to the application the ability to gain admission to selective universities as shown by national recognition and ratio of admissions granted to applications submitted the likelihood that the recipient is entering upon a course of study that would be of benefit to the citizens of w and the likelihood that the recipient might return to after graduation students must reapply each year such assistance and relief to any one student during the remainder of his or her education may be continued if the applicant continues to give evidence of the qualification which made the applicant worthy of assistance in the first place members of the selection committee shall be compromised of x or their designee y or its designee and z if a vacancy occurs by death resignation or refusal to serve the vacancy shall be filled by the two remaining advisory committee members and if they cannot agree within thirty days you shall break the tie relatives of members of the selection committee or of your officers directors or substantial contributors are not eligible for awards made under your program scholarships are paid directly to an educational_institution recipients will annually furnish the selection committee proof of full-time_student status and proof of continuing enrollment if enrollment is not maintained the scholarship will be returned recipients provide grade reports to the selection committee you will obtain reports on the use of funds and progress made by the scholarship recipient toward achieving the scholarship purpose you will maintain case histories showing recipients of your scholarships fellowships educational loans or other educational grants including names addresses purposes of awards amount of each grant manner of selection and relationship if any to officers trustees or donors of funds to you letter catalog number 58263t you will arrange to receive and review grantee reports annually and upon completion of the purpose for which the grant was awarded investigate diversions of funds from their intended purposes and take all reasonable and appropriate stops to recover diverted funds ensure other grant funds held by a grantee are used for their intended purposes and withhold further payments to grantees until you obtain grantees’ assurances that future diversions will not occur and that grantees will take extraordinary precautions to prevent future diversions from occurring you will maintain all records relating to individual grants including information obtained to evaluate grantees identify whether a grantee is a disqualified_person establish the amount and purpose of each grant and establish that you undertook the supervision and investigation of grants basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure e e e e the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is a scholarship or fellowship subject_to the provisions of code sec_117 the grant is to be used for study at an educational_organization described in code sec_170 other conditions that apply to this determination e e e this determination only covers the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don’t differ significantly from those described in your original request this determination applies only to you it may not be cited as a precedent you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes to your program to the cincinnati office of exempt_organizations at internal_revenue_service exempt_organizations determinations p o box cincinnati oh e you cannot award grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives letter catalog number 58263t e e all funds distributed to individuals must be made on a charitable basis and further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary please keep a copy of this letter in your records if you have questions please contact the person listed at the top of this letter sincerely jeffrey cooper director exempt_organizations rulings and agreements catalog number 58263t letter