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 -------------------------- - telephone number --------------------- refer reply to cc intl b05 plr-132877-05 date date ty ------- ty ------- taxpayer --------------------------------------------------- country a -------- date a date b date c date d ----------------- ------------------ ----------------------- ------------------------- date e date f year a year b year c year d sub a sub b --------------------------- --------------------- ------- ------- ------- ------- ---------------------------------------------------- --------------------------------------- sub c sub d sub e amount a ------------------ --------------------------------------------- ---------------------------------------- ---------------------------------------- amount b ------------------ amount c ------------------ plr-132877-05 amount d ----------------- amount e ------------------ amount f ----------------- amount g --------------- amount h ----------------- amount i ----------------- amount j ------------------ amount k ----------------- amount l ----------------- period a ------------------ ------------------------------------- period b period c -------------- -------------- period d dear ------------- this is in response to your letter dated date a in which you request a ruling that taxpayer may use a net_operating_loss nol inherited from a subsidiary as a deduction in computing its u s effectively_connected_income for the year a taxable_year the ruling contained in this letter is predicated upon facts and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by the appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of factual information representations and other data may be required as part of the audit process taxpayer has represented the facts described below facts taxpayer is a life_insurance_company resident in country a that provides insurance asset management and investment advisory services outside the united_states taxpayer is a partner in several domestic partnerships since year b taxpayer represents it has been indirectly engaged_in_a_trade_or_business_within_the_united_states through the activities of its u s partnerships taxpayer files a form 1120-f u s income_tax return of a foreign_corporation to report its share of effectively_connected_income from the partnerships on date b taxpayer created a wholly-owned domestic subsidiary sub a sub a invested in u s real_estate through various partnerships and plr-132877-05 loaned money to the partnerships in year c sub a created two wholly-owned domestic subsidiaries sub b and sub c between period b sub a transferred most of its partnership interests and its interests in the loans to sub b and sub c in return for stock during period a sub b created a wholly-owned domestic subsidiary sub d to hold the partnership interests previously transferred by sub a for the taxable years period c sub a sub b sub c and sub d filed consolidated u s federal_income_tax returns on its year d return the sub a sub b sub c and sub d consolidated_group reported an amount a nol carryforward which was generated during the taxable years period d taxpayer represents that amount b of the nol was attributable to sub a under the consolidated_return rules sub a liquidated on date c at the time of the liquidation sub a held only cash and its interests in sub b and sub c taxpayer represents that sub a sub b sub c and sub d were u s real_property holding corporations usrphc under sec_897 at the time of liquidation and accordingly taxpayer’s stock interest in sub a was a u s real_property interest usrpi under sec_897 at that time for this reason taxpayer represents that sub a was not required to recognize gain_or_loss on the liquidating_distribution in year d under sec_1_367_e_-2 and iii and sec_1_897-5t on the date of liquidation taxpayer represents that it had an adjusted_basis in its sub b stock of amount c and of amount d in its sub c stock on date d sub b and sub c merged with sub b as the surviving domestic entity sub b was renamed sub e taxpayer represents that immediately after the merger sub b and sub c were usrphcs and its stock in sub b and sub c were usrpis taxpayer further represents that these companies remained usrphcs at all times subsequent to the liquidation and that the later merged company sub e has also been a usrphc at all times taxpayer represents that it had an adjusted_basis in sub e of amount e on date e sub e made a distribution of amount f to taxpayer taxpayer represents that amount g of the distribution was a dividend and amount h was a return_of_capital taxpayer represents that its adjusted_basis in sub e was reduced to amount i by the distribution on date f sub e made a distribution of amount j to taxpayer taxpayer represents that amount k of the distribution is a return_of_capital and amount l is gain taxpayer represents that sub e has no accumulated_earnings_and_profits and has a projected loss for the year a taxable_year taxpayer represents that it intends to report the amount l gain as u s effectively_connected_income pursuant to sec_897 to date taxpayer has not utilized the sub a nol taxpayer represents that it continues to own the sub e stock formerly owned by sub a law and analysis plr-132877-05 sec_332 provides that no gain_or_loss shall be recognized on the receipt by a corporation of property distributed in complete_liquidation of another corporation sec_332 and provide in part that a distribution shall be considered in complete_liquidation if the corporation receiving such property was on the date of the adoption of the plan_of_liquidation and has continued to be at all times until the receipt of the property the owner of stock in such other corporation meeting the requirements of sec_1504 and if the distribution is by such other corporation in complete cancellation or redemption of all its stock and the transfer of all the property occurs within the taxable_year taxpayer represents that it has met these requirements sec_381 provides that in the case of the acquisition of assets of a corporation by another corporation in a distribution to which sec_332 applies the acquiring_corporation shall succeed to and take into account as of the close of the day of distribution various tax_attributes of the distributing_corporation as described in sec_381 subject_to various conditions and limitations sec_381 provides that subject_to various conditions and limitations including requirements for the time of utilization and the amount one such tax attribute is the distributing corporation’s net_operating_loss carryovers determined under sec_172 taxpayer represents that it meets the conditions and limitations of sec_381 with respect to the nol received in the liquidation of its sub a stock sec_882 provides that a foreign_corporation engaged_in_a_trade_or_business_within_the_united_states during the taxable_year shall be taxable as provided in sec_11 sec_55 sec_59a or sec_1201 on its taxable_income which is effectively connected with the conduct_of_a_trade_or_business in the united_states sec_897 generally provides that gain_or_loss from the disposition of a united_states_real_property_interest by a foreign_corporation shall be taken into account under sec_882 as if the foreign_corporation were engaged_in_a_trade_or_business_within_the_united_states during the taxable_year and as if the gain_or_loss were effectively connected with such trade_or_business a united_states_real_property_interest includes an interest other than an interest solely as a creditor in any domestic_corporation unless the taxpayer establishes that the corporation was at no time a united_states_real_property_holding_corporation during the shorter of the period after date during which the taxpayer held such interest or the five-year period ending on the date of disposition of the interest sec_301 provides rules regarding the distribution_of_property as defined in sec_317 made by a corporation to a shareholder with respect to its stock sec_301 provides that in the case of distributions to which sec_301 applies the portion of the distribution which is a dividend under sec_316 shall be included in gross_income sec_301 provides that the portion of the distribution which is not a dividend shall be applied against and shall reduce the adjusted_basis of the stock sec_301 provides that except as otherwise provided the portion of the plr-132877-05 distribution which is not a dividend shall be treated as gain from the sale_or_exchange of property on date g year a sub e made a distribution of which taxpayer represents amount l is treated as gain from the sale_or_exchange of property under sec_301 sec_882 provides that in the case of a foreign_corporation deductions shall be allowed only for purposes of a except as otherwise provided only if and to the extent that they are connected with income which is effectively connected with the conduct_of_a_trade_or_business within the united_states under sec_172 net operating losses carry back to each of the two taxable years preceding the taxable_year of the loss and carry forward to each of the twenty taxable years following the taxable_year of the loss sec_1_861-8 provides that a net_operating_loss_deduction allowed under sec_172 shall be allocated and apportioned in the same manner as the deductions giving rise to the net_operating_loss_deduction when taxpayer received the interests in sub b and sub c from sub a in the liquidating_distribution in year d these interests were united_states real_property interests under sec_897 these interests continued to be united_states real_property interests through date g year a had taxpayer disposed of its sub b sub c or later merged sub e stock at any time after the liquidation of sub a the gain_or_loss from the dispositions would have been treated as income effectively connected with a trade_or_business of taxpayer within the united_states taxable under sec_882 additionally the amount l distribution is effectively_connected_income pursuant to sec_897 based solely on the facts and representations submitted the nol attributable to sub a in year d carries over to taxpayer under sec_381 further such nol is treated as allocated and apportioned to taxpayer’s income effectively connected with taxpayer’s u s trade_or_business under sec_1_861-8 in the year of liquidation and may be treated as a deduction against taxpayer’s effectively_connected_income during the period provided by sec_172 subject_to any applicable limitations accordingly such nol may be deducted against taxpayer’s effectively_connected_income including to the extent unutilized the amount l portion of the distribution from sub e treated as gain in year a no opinion is expressed as to whether the nol would be apportioned under sec_1 e to taxpayer’s effectively_connected_income in year a or any other year if the interests in the sub b or sub c stock were not united_states real_property interests at the time of the sub a liquidation in year d plr-132877-05 this letter is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent it is important that a copy of this letter be attached to the federal_income_tax return of the taxpayers involved for the taxable_year in which the determination covered by this letter is made in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer sincerely paul s epstein senior technical advisor branch international


id office uilc cca_2010022611061654 -------------- number release date from -------------------------- sent friday date am to ----------------- cc ----------------- subject cca email parties which must be served with a notice_of_levy with respect to an individual_retirement_account office irs ----------- uilc issue whether any party beyond the custodian of an individual_retirement_account ira must be served with a notice_of_levy in order to effectuate a levy upon a taxpayer’s ira conclusion unless any documents or other pieces of evidence reflect that the ira has more than one custodian no additional parties beyond the ira custodian need to be served with the notice_of_levy background based upon a phone conversation between --------attorney ----------------and ------attorney -------- ------------ we understand the following facts to be present a revenue_officer ro is attempting to levy upon the ira of a particular taxpayer the tp with federal tax or penalty liabilities based upon copies of ira withdrawal requests executed by the tp the ro discovered that the tp owns an ira managed by ------------------------ these same withdrawal requests reflect that ------------------serves as the ira custodian however the actual funds of the ira are maintained in a financial clearinghouse account with --------------------------- ----------------- which is owned by ------------------------ the ro attempted to serve a notice_of_levy upon ------------------in order to effectuate the levy and obtain the ira funds shortly after the ro served the notice_of_levy upon ---------------------- ---------------------------------------------------------------------------------------------------------------- a representative of --------- contacted the ro and requested that a second or amended notice_of_levy be served on it before it would authorize ------------------to liquidate the ira account and honor the levy the ----------representative acknowledged to the ro that if the tp wanted to make a withdrawal from his ira he need only contact ------------------to do so the ro referred the issue to ------------ -------------contacted the ----------representative and requested any and all documents that reflect that --------- is the custodian or co-custodian of the ira the --------- representative replied that no such documents exist the source of ------------- ------------------------------------------------------------------------------------------------------------------ concern appears to be the tp which the ro believes may be contacting financial institutions with respect to his accounts and threatening them with civil lawsuits if they comply with any irs levy analysis because a federal_tax_lien is not self-executing the service must take affirmative measures to collect the delinquent taxes 472_us_713 federal_law provides a provisional remedy to the service for the collection of delinquent taxes which requires no judicial intervention see i r c this remedy is known as an administrative levy and is justified by the need of the government promptly to secure its revenues nat’l bank of commerce u s pincite ten days after notice_and_demand to the taxpayer the service may levy upon all property and rights to property except such property as is exempt under sec_6334 belonging to such person or on which there is a lien for the payment of such tax sec_6331 this includes any property in the custody of a third party 76_f3d_216 8th cir the service begins the levy process by serving a notice_of_levy on any person in possession of or obligated with respect to property or rights to property subject_to levy sec_301_6331-1 the service effectuates a levy upon tangible_property through notice_of_levy and seizing posting or tagging the property see g m leasin429_us_338 the irs effectuates a levy upon intangible_property by the sole act of serving notice_of_levy upon the third party holding the property or rights to the property see g m leasing corp u s pincite an ira is an example of intangible_property ie property which is not subject_to physical seizure posting or tagging see 145_f3d_1218 10th cir taxpayer’s individual_retirement_account is intangible_property in re crosier wl at bankr c d cal taxpayer’s individual_retirement_account is intangible_property upon service of the notice_of_levy the service steps into the shoes of the taxpayer and acquires ‘whatever’ rights to the property the taxpayer possessed 860_f2d_365 10th cir the levy is considered made on the date on which the notice of seizure is given to the property’s owner sec_6502 neither sec_6331 nor the supporting regulations place any additional requirements on the service with respect to service of the notice_of_levy beyond identifying and serving the holder of the property or rights to the property in the case of an ira where one party is the custodian and through this custodian the taxpayer may deposit or withdraw his ira funds the custodian is the holder of the rights to that property the facts in this matter suggest that the ro determined that ------------------is the custodian of the tp’s ira based on copies of the tp’s withdrawal requests which apparently reflect that the tp requested a withdrawal of ira funds from --------------------- and thereafter did receive those funds because levy authorizes the service to step into the shoes of the taxpayer and acquire whatever rights to the property the taxpayer possess es the service should also be able to reach the ira upon service of the notice_of_levy upon --------------- -------- bell credit_union f 2d pincite -------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------ --------- on the other hand acknowledges that it is not the custodian of the funds instead it appears to be merely the financial_institution in which the ira funds reside neither sec_6331 nor the supporting regulations require that the service serve a notice_of_levy upon any parties beyond the taxpayer and a party in possession of or obligated with respect to that account--in this case the ira custodian ----------------- sec_301_6331-1 no evidence suggests that --------- is obligated with respect to the ira funds indeed past records reflect that the tp requests withdrawals from his ira through ----------------- not --------- an analogy to a levy on a taxpayer’s salary provides a good illustration as to why --------- need not be served with the notice_of_levy when a levy on a taxpayer’s salary is made the notice_of_levy is served upon the taxpayer’s employer as the source of earned but unpaid wages sec_6331 unless the taxpayer’s employer is a financial_institution it is unlikely that the employer itself physically maintains the funds used to pay the taxpayer typically the employer has a payroll account with a bank or other financial_institution neither sec_6331 nor the supporting regulations envision that when serving a notice_of_levy on an employer the service must also serve a notice_of_levy on that employer’s bank as the actual physical location of the employer’s payroll account likewise ----------------- which as custodian is the party through which the taxpayer may deposit or withdraw funds from the ira actually maintains the ira funds in a financial_institution such as --------- unless --------- is a co-custodian its role as the ira clearinghouse is similar to that of the financial_institution which keeps the employer’s payroll account in other words it is ----------------- not --------- which is obligated with respect to the tp’s ira funds sec_301_6331-1 --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------


internal_revenue_service number release date index number ------------------------------------ ----------------------------------------------------------- ----------------- -------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- - id no ------------- telephone number -------------------- refer reply to cc psi b2 plr-130339-08 date february legend - trust a b c state d1 d2 d3 court x ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ -- plr-130339-08 dear ---------------- this letter responds to your letter dated date and subsequent correspondence submitted on behalf of trust by trust's authorized representative requesting rulings under sec_664 and sec_4941 of the internal_revenue_code regarding the proposed reformation of trust as a charitable_remainder_unitrust crut the information submitted states that on d1 a and b created trust with the intention that trust qualify as a crut with a fixed percentage unitrust_amount described under sec_664 a is the trustee of trust c the child of a and b is the trust income_beneficiary a and b established trust with the assistance of an attorney however due to a drafting error the attorney failed in trust executed to omit certain net_income charitable_remainder_trust nicrut provisions from an earlier draft of trust consequently trust inadvertently contained certain nicrut provisions the introductory paragraph of trust describes a crut however trust provides that the unitrust_amount payable to c is the lesser_of trust income during the taxable_year as defined in sec_643 and x of the net fair_market_value of the assets of trust valued as of the first day of each taxable_year of trust since the inception of trust the trustee of trust has administered trust as a crut on d2 in order to correct the scrivener's error and because trust is irrevocable a sought an order from court authorizing an amendment ab initio of trust no parties objected to the proposed reformation on d3 court issued an order reforming trust to a crut ab initio subject_to the internal_revenue_service issuing a private_letter_ruling that the reformation of trust will not disqualify trust as a charitable_remainder_trust the drafting attorney has submitted an affidavit stating that he failed to omit certain nicrut provisions from an earlier draft of trust after a and b decided to create a crut c has submitted an affidavit stating that she has not taken and will not take a deduction for any amounts payable to her under the terms of the original or reformed trust you now request the following rulings ruling the judicial reformation of trust does not violate sec_664 and trust qualifies as a charitable_remainder_trust under sec_664 as of d1 ruling the judicial reformation of trust will not constitute an act of self dealing within the meaning of sec_4941 ruling sec_664 provides that for purposes of sec_664 a charitable_remainder_unitrust is plr-130339-08 a_trust -- a from which a fixed percentage which is not less than percent nor more than percent of the net fair_market_value of its assets valued annually is to be paid not less often than annually to one or more persons at least one of which is not an organization described in sec_170 and in the case of individuals only to an individual who is living at the time of the creation of the trust for a term of years not in excess of years or for the life of or lives of such individual or individuals b from which no amount other than the payments described in sec_664 and other than qualified gratuitous transfers described in sec_664 may be paid to or for_the_use_of any person other than an organization described in sec_170 c following the termination of the payments described in sec_664 the remainder_interest in the trust is to be transferred to or for_the_use_of an organization described in sec_170 or is to be retained by the trust for such a use and d with respect to each contribution of property to the trust the value determined under sec_7520 of such remainder_interest in such property is at least percent of the net fair_market_value of such property as of the date such property is contributed to the trust sec_664 provides that notwithstanding the provisions of sec_664 and b the trust instrument may provide that the trustee shall pay the income_beneficiary for any year -- a the amount of the trust income if such amount is less than the amount required to be distributed under sec_664 and b any amount of the trust income which is in excess of the amount required to be distributed under sec_664 to the extent that the aggregate of the amounts paid in prior years was less than the aggregate of such required amounts sec_1_664-3 of the income_tax regulations provides that the trust may not be subject_to a power to invade alter amend or revoke for the beneficial use of a person other than an organization described in sec_170 based solely on the information submitted and representations made we conclude that the judicial reformation of trust as of d1 does not violate sec_664 furthermore assuming that the terms of the reformed trust are otherwise valid under sec_664 the reformed trust will be treated as a valid crut under sec_664 as of d1 ruling sec_4941 imposes an excise_tax on disqualified persons for each act of self- dealing between a disqualified_person as defined in sec_4946 and a private_foundation sec_4941 defines self-dealing as including any direct or indirect transfer to or use by or for the benefit of a disqualified_person of the income or assets of a private_foundation sec_4946 provides that the term disqualified_person with respect to a private_foundation includes a person who is a substantial_contributor to the foundation plr-130339-08 including the creator of a_trust a family_member of a substantial_contributor including children and a foundation_manager including a trustee sec_4947 provides in pertinent part that in the case of a_trust which is not exempt from tax under sec_501 not all of the unexpired interests of which are devoted to charitable purposes and which has amounts in trust for which a charitable deduction was allowed sec_4941 and other provisions apply as if such trust were a private_foundation sec_4947 provides in pertinent part that the provisions of sec_4947 do not apply with respect to the amounts payable under the terms of such split-interest trust to its income beneficiaries sec_53_4947-1 and sec_53_4947-1 example of the regulations indicate in pertinent part that the payments of income under the term of the trust by a charitable_remainder_unitrust to its individual income beneficiaries do not result in any_tax on self-dealing under sec_4941 as a charitable_remainder_unitrust under as of sec_664 trust is a split-interest trust described in sec_4947 by being described in sec_4947 trust is subject_to the provisions of sec_4941 and certain other provisions as if it were a private_foundation a private_foundation is subject_to sec_4941 which imposes an excise_tax on acts of self- dealing a and b settlors are disqualified persons with respect to trust because they are substantial contributors to trust c the income_beneficiary is a disqualified_person because she is the daughter of a and b therefore because the proposed judicial reformation of trust based on a drafting error may have the effect of increasing the annual amount payable to c any such increase could be considered to be a transfer to or use by or for the benefit of a disqualified_person of income or assets of a private_foundation and may be considered to be an act of self-dealing under sec_4941 however under sec_4947 the self-dealing rules of sec_4941 do not apply to any amounts payable under the terms of a split-interest trust to income beneficiaries as long as no deduction was allowed for such income_interest under sec_170 sec_2055 or sec_2522 with respect to the income_interest of any such beneficiary c represents that no deduction under the above code sections was taken by c with respect to any amounts of income payable to her by trust as a result the self-dealing rules of sec_4941 do not apply to c as an income_beneficiary regarding whether a and b as substantial contributors are subject_to the self-dealing rules of sec_4941 the circumstances presented above indicate that there is no act of self- dealing since we are satisfied that the signatory parties to trust never intended to create a nicrut certain facts are indicative of this intent such as the fact that the drafting attorney submitted an affidavit indicating that trust was supposed to be a crut instead of a nicrut as well as trust stating that the signatory parties a and b plr-130339-08 indicated that this was a drafting error and that they never intended to create a nicrut trust also represented that trust was administered as a crut in accordance with its understanding of a and b’s intent the proposed judicial reformation of trust will not be an act of self-dealing under sec_4941 except as specifically set forth above no opinion is expressed as to the federal tax consequences of the above described facts under any other provision of the code specifically no opinion is expressed concerning whether trust is or was a charitable_remainder_trust within the meaning of sec_664 this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to trust's authorized representative sincerely bradford r poston senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service p o box cincinnati oh number release date department of the treasury employer_identification_number contact person - id number date date contact telephone number uil legend c fellowship program d selection committee e news agency f investigative unit g university h nations b award dear we have considered your request for advance approval of your grant-making program under sec_4945 g of the internal_revenue_code dated date our records indicate that you have been recognized as exempt from federal_income_tax under sec_501 of the code and classified as a private_foundation under sec_509 of the code your letter indicates that you will operate a grant-making program called c the purpose of your foundation is to improve human rights and to preserve and protect the environment by making grants in the areas of e e human slavery in africa asia and elsewhere forced and indentured labor in africa asia and elsewhere and environmental projects at home and abroad you have established the c fellowship program the purpose of your fellowship program is to identify and train talented international journalists to enable them to conduct important investigations with an emphasis on human rights in regions that are newsworthy but not adequately covered by investigative journalists the fellowship program offers foreign journalists a unique opportunity to broaden their journalism experience by working with a leading news agency the fellowship to be awarded to these journalists will have a term of six months during the term of the fellowship the recipient will receive coaching and guidance from experienced professional investigative journalists in particular the selected award fellow will be trained at_f the investigative unit of e the fellowship will include a stipend travel_expenses and the costs for completion of any visa application s the stipend and the total amount of the award will be set on a case-by-case basis considering the normal earnings_of the fellow in his her home_country as long as that compensation is reasonable by standards normally employed by the internal_revenue_service the total amount of the award is not expected to exceed dollar_figure per month during the four to six month term of the -dollar_figure fellowship accordingly the fellowship stipend will likely average in the range of dollar_figure the entire term of each fellowship exclusive of travel and visa application expenses -dollar_figure for at present you anticipate that one fellowship will be awarded each year you may award fellowships to additional recipients if you determine that the charitable and educational purpose is best served by making additional awards however it is unlikely that the awards would total more than three or four per year the fellow shall be placed by e in f develop investigative stories concerning the fellow’s home region f shall supervise and train the fellow and shall help the fellow during the terms of the fellowship the fellow shall be subject_to e’s policies and procedures violation of those polices will result in early termination of the fellowship upon notification to you and d at all times e shall maintain complete editorial control_over the fellow’s work and shall be solely responsible for the content of any work produced by the fellow for each fellowship term e and f will submit a proposal and budget covering the fellowship-related costs which you will reimburse significant deviations from the grant budget require prior approval from you you will solicit qualified candidates on your website and other relevant journalist websites including but not limited to the nation globalpost and the columbia journalism review or in other publications or announcements likely to be seen by working investigative journalists d will also identify candidates through its panel of several hundred advisors the panel includes many prior b recipients as well as other reporters notice announcing the award also may be distributed by electronic mail fellowship applications have been received from journalists working in several countries including h the potential candidates for the fellowship award are journalists currently employed by a news organization and with at least five years of experience working as reporters each candidate must receive the endorsement of his or her editor to take a leave of absence during the term of the fellowship he or she should also have experience working on multiple news platforms or should have expressed a desire to do so you will collaborate with d and e in the selection of the award recipients d has selected winners of b which has been described as the top prize in journalism d is made up of educators and communicators including former b award winners who are faculty members or alumni of g d’s members are highly experienced in identifying investigative journalism work that demonstrates originality enterprise and resourcefulness and that brings results f will provide unsurpassed opportunity for the fellows to both hone their craft and reach a national audience you and d together will review potential grantees’ individual qualifications interview qualified candidates and select two to three finalists the primary criteria used in the selection include but are not limited to personal and journalistic achievement relevant experience and an applicant’s potential to make a significant contribution in the field of investigative journalism before awarding the fellowship you will conduct an inquiry concerning the potential grantee the inquiry may include matters such as the identity prior history and experience of the grantee and any information readily available concerning the activities or practices of the grantee you will check fellowship candidates’ names against the ofac list and take steps to reasonably assure that the grantee will comply with grant requirements and will not divert funds for terrorism or non-charitable uses together with d and e you will then vote to confirm the selection of the finalists because e must work closely with the fellow including placing the fellow among its employees for training purposes e may veto a candidate the investigative unit at e will select the fellowship recipient from the finalists while both d and e play an important role in the selection process you have not and will not relinquish control_over the selection process or any other aspect of the program to either organization you have sought to ensure that the same degree of rigor employed during selection of recipients of b will be applied to the selection of the journalist who will receive the c fellowship no fellowship recipients may be selected unless you have approved the applicant or e or your staff who has a family or similar relationship with an applicant may no member of d participate in the decision-making process concerning that applicant no grant may be awarded to your founders officers board members or their families or to any disqualified_person with respect to c or for a purpose that is inconsistent with the purpose set forth in sec_170 of the code c does not discriminate on the basis of race religion creed color sex age physical or mental disabilities sexual orientation or national origin all grants will be awarded on an objective and nondiscriminatory basis e will announce the fellow selected at b’s annual lunch d and e will each submit a final expenditure report within days following the close of the fellowship term the grantees are expected to submit a final report within days following the completion of their fellowship term describing the progress of their particular projects and accounting for the grant funds any unused funds will be transferred back to your foundation the grant agreements reports and correspondence will all be in english you have not made a determination as to whether the grant will be distributed by electronic_fund_transfer or by check or both however there will be no cash distributions to a grantee the foundation will only make grants to enable the grantee to achieve a specific objective produce a report publication or other similar product or improve or enhance a literary teaching or other similar capacity skill or talent of the grantee in accordance with sec_4945 of the code if the grantee submits an unsatisfactory report or fails to submit a required report or if you learn that all or any part of the grant funds awarded have been diverted from the intended purpose you will withhold any further payments to the grantee you will take all reasonable and appropriate steps to recover any grant funds not properly accounted for and or to ensure restoration of the diverted funds to the intended purpose of the grant any grantee deemed to have diverted grant funds shall be eligible to receive further payments only if such grantee voluntarily returns the diverted funds to you gives you his or her written assurances that future diversions shall not occur and agrees to provide additional progress reports on a bi-weekly monthly or quarterly basis as determined appropriate during the duration of the grant period you will comply with treas reg c to retain records pertaining to all grants - including iv all information you secure to evaluate the qualification of potential grantees identification of grantees including any relationship of any grantee to you sufficient to make such grantee a disqualified_person of your foundation specification of the amount and purpose of each grant and the follow-up information the foundation obtains in administering the grant program i ii iii sec_4945 and b of the code impose certain excise_taxes on taxable_expenditures made by a private_foundation sec_4945 of the code provides that the term taxable_expenditure means any amount_paid or incurred by a private_foundation as a grant to an individual for travel study or other similar purposes by such individual unless such grant satisfies the requirements of subsection g sec_4945 of the code provides that sec_4945 shall not apply to individual grants awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance if is demonstrated that it the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 and is to be used for study at an educational_organization described in sec_170 the grant constitutes a prize or award which is subject_to the provisions of sec_74 if the recipient of such prize or award is selected from the general_public or the purpose of the grant is to achieve a specific objective produce a report or similar product or improve or enhance a teaching or other similar capacity skill or talent of the grantee literary artistic musical scientific sec_53_4945-4 of the regulations provides that to secure approval a private_foundation must demonstrate that i its grant procedure includes an objective and nondiscriminatory selection process ii such procedure is reasonably calculated to result in performance by grantees of the activities that the grants are intended to finance and iii the foundation plans to obtain reports to determine whether the grantees performed activities that the grants are intended to finance based on the information submitted and assuming your award programs will be conducted as proposed with a view to provide objectivity and nondiscrimination in making the awards we have determined that your procedures for granting the awards comply with the requirements contained in sec_4945 of the code and that awards granted in accordance with such procedures will not constitute taxable_expenditures within the meaning of sec_4945 in addition we have determined that awards made under your procedures are excludable from the gross_income of the recipients subject_to the limitations provided by sec_117 of the code this determination is conditioned on the understanding that there will be no material_change in the facts upon which it is based it is further conditioned on the premise that no grants will be awarded to foundation managers or members of the selection committee or for a purpose that is inconsistent with the purpose described in sec_170 of the code the approval of your award program procedures herein constitutes a one-time approval of your system standards and procedures designed to result in awards which meet the requirements of sec_4945 of the code this determination only covers the grant programs described above thus approval shall apply to subsequent award programs only as long as the standards and procedures under which they are conducted do not differ materially from those described in your request any funds you distribute to individuals must be made on a true charitable basis in furtherance of the purposes for which you are organized therefore you should maintain adequate_records and case histories so that any or all award distributions can be substantiated upon request by the internal_revenue_service this determination is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as a precedent you must report any future changes in your grant making procedures please keep a copy of this letter in your permanent records we have sent a copy of this letter to your representative as indicated in your power_of_attorney if you have any questions please contact the person whose name and telephone number are shown above sincerely yours robert choi director exempt_organizations rulings and agreements


department of the treasury_department of the treasury internal_revenue_service internal_revenue_service washington d c washington d c date number release date wta-n-104340-00 uilc memorandum for patrice sadowski new jersey district from patricia mcdermott senior technician reviewer cc ebeo br subject classification of attorneys and engineers this is in response to your request for advice on whether compensation paid to professionals such as attorneys and engineers should be reported on form_w-2 rather than on form 1099-misc you describe the situation where a professional receives a form_w-2 for some of the compensation from a particular entity and a form_1099 for other compensation from the same entity the proper form for reporting compensation depends on the worker’s status that is amounts paid to an employee are reported on form_w-2 amounts paid to a worker who is not an employee are reported on form 1099-misc subject_to a dollar_figure threshold see sec_31_6051-1 and sec_1_6041-1 whether a worker is an employee or independent_contractor depends on the facts and circumstances of the particular case see independent_contractor or employee training rev tpds therefore it is not possible to provide an across-the-board answer as to whether compensation should be reported on form_w-2 rather than on form_1099 in the situations you describe in addition it is possible for a worker to have a dual status that is to be an employee with respect to one type of service and the compensation_for that service while being an independent_contractor with respect to another type of service and the compensation_for that service see revrul_58_505 1958_2_cb_728 and page of independent_contractor or employee in summary it is necessary to determine whether compensation paid to a worker is compensation_for service as an employee or compensation_for service as an independent_contractor once that is determined compensation_for service as an employee is reported on form_w-2 and compensation_for service as an independent_contractor is reported on form 1099-misc i hope this information is helpful to you


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc psi plr-117983-00 date date number release date index number legend partnership llc state company b c x d1 country n dear this letter responds to a letter dated date and additional correspondence written on behalf of company and x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations for x to file an election under sec_301_7701-3 to be treated as a disregarded_entity effective d1 facts according to the information submitted on d1 partnership a state limited_partnership acquired through llc its disregarded state limited_liability_company b percent of the common_stock and c percent of the preferred_stock of company a private limited_company formed under the laws of country an election was made under sec_301_7701-3 to treat company as a partnership for federal tax purposes plr-117983-00 company owns n subsidiaries including x all of which are private limited companies formed under the laws of country x is an entity that is eligible to elect under sec_301_7701-3 to be disregarded as an entity separate from its owner however the form_8832 entity classification election was not timely filed so as to treat x as a disregarded_entity effective d1 law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes sec_301_7701-3 provides that unless the entity elects otherwise a foreign eligible_entity is classified as an association if all its members have limited_liability sec_301_7701-3 provides that an eligible_entity may elect to be classified as other than its default classification in sec_301_7701-3 by filing form_8832 with the appropriate service_center sec_301_7701-3 provides that the effective date of an entity classification election can not be more than days prior to the date the election is filed and can not be more than months after the date on which the election is filed under sec_301_7701-3 an election will not be accepted unless all of the information required by the form and instructions including the taxpayer identifying number of the entity is provided on form_8832 see sec_301_6109-1 for rules on applying for and displaying employer identification numbers sec_301_7701-3 provides generally that if an eligible_entity makes an election to change its classification the entity cannot change its classification by election again during the sixty months succeeding the effective date of the election sec_301_7701-3 provides that a foreign eligible entity’s classification is relevant when its classification affects the liability of any person for federal tax or information purposes sec_301_7701-3 provides that if an eligible_entity classified as an association elects to be disregarded as an entity separate from its owner the following is deemed to occur the association distributes all of its assets and liabilities to its single owner in liquidation of the association sec_301_7701-3 provides that when elections for a series of tiered entities are effective on the same date the eligible entities may specify the order of the elections on form_8832 if no order is specified for the elections any transactions that are deemed to occur as a result of the classification change will be treated as occurring plr-117983-00 first for the highest tier entity’s classification change then for the next highest tier entity’s classification change and so forth down the chain of entities until all the transactions have occurred the provisions of sec_301_7701-3 apply to elections filed on or after date taxpayers may apply the provisions of sec_301_7701-3 retroactively to elections filed before date if all taxpayers affected by the deemed transactions file consistently with the provisions of sec_301_7701-3 under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclusions based solely on the facts submitted and the representations made we conclude that good cause has been shown and the other requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied consequently x is granted an extension of time for making the sec_301_7701-3 election effective d1 until days following the date of this letter the election should be made by following the procedure set forth in form_8832 0a copy of this letter should be attached to the election a copy is enclosed for that purpose except as specifically set forth above no opinion is expressed or implied as to the federal tax consequences of the transaction described above under any other provision of the code specifically no opinion is expressed about the tax consequences of making an election for x to be treated as an entity that is disregarded plr-117983-00 as separate from its owner further no opinion is expressed regarding the election made to treat company as a partnership for federal tax purposes this ruling is directed only to the taxpayer on whose behalf it was requested sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office this letter is being sent to you as the taxpayer’s authorized representative a copy of this letter will also be sent to the taxpayer sincerely yours paul f kugler associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi plr-114238-07 date date internal_revenue_service number release date index number ------------------------------------------ ------------------------ ----------------------------------------- in re --------------------------------------------------- -------------- ------------------------ ---------------------------------- x -------------------------------- --------------------- ---------------------- state date dear -------------- -------------------------------------------------------------- this responds to a letter dated date submitted on behalf of x by sec_1362 provides that a small_business_corporation may elect to be an s x’s authorized representative requesting relief under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on date under the laws of state it was intended for x to be an s_corporation effective date however no form_2553 election by a small_business_corporation was timely filed for x corporation sec_1362 provides the rule on when an s election will be effective generally if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made sec_1362 provides that if an s election is made after the first two and one-half months of a corporation's taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made any taxable_year after the date prescribed by sec_1362 for making such election for sec_1362 provides that if an election under sec_1362 is made for plr-114238-07 such taxable_year or no such election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation effective date accordingly provided that x makes an election be an s_corporation by filing a completed form_2533 with the appropriate service_center effective date within days following the date of this letter then such election will be treated as timely made for x’s taxable_year beginning date a copy of this letter should be attached to the form_2553 federal_income_tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code except as specifically set forth above no opinion is expressed concerning the this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely j thomas hines chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


department of the treasury employer_identification_number contact person - id contact telephone number uil internal_revenue_service p o box cincinnati oh number release date date date legend t name of organization name of scholarship program city state grant amount y grant amount dear we have considered your request for advance approval of a grant-making program under sec_4945 g of the internal_revenue_code dated date our records indicate that you t were recagnized as exempt from federal_income_tax under sec_501 of the code and are classified as a private_foundation as defined in sec_509 will operate a grant-making program identified as u your request states that t that will be awarding scholarships to eligible individuals to be used for study at secondary and post-secondary educational_organization as defined in sec_170 of the code including high schools preparatory schools colleges and universities both private and public-supported the purpose of the scholarships shall be to provide financial assistance to eligible individuals who demonstrate financial need the amount of each scholarship will be designed to cover all or a portion of the tuition and fees books supplies room and board and equipment necessary for courses in instruction to ensure that qualified potential applicants receive information concerning the availability of the scholarships t intends to notify designated tepresentatives at v high schools and community organizations offering after- school or mentoring programs for at-risk teen agers in the v community and deliver applications to such designated representatives for distribution to eligible applicants in order to initially be eligible for a scholarship an applicant must i reside in the greater-v area or otherwise establish a substantial connection to the v community for example a student who was born in v and wishes to return to wo attend collage ii be from a low-income family or otherwise establish financial need and iii demonstrate strength of character and initiative in overcoming obstacles and hardships the scholarships awarded by the selection committee on an objective and non-discriminating basis in accordance with the following criteria the applicants shall be evaluated and q il il iv financial need academic achievernent and aptitude community service personal background and interviews with applicant and or facuity members and referral sources and leadership in determining the financial needs of the applicant the selection committee will consider among other things evidence of the applicant's ability to meet the expenses of the selected educational_institution the selection committee may also consider the ability of relatives of the applicant to pay such educational expenses or such other sources of financing as the selection committee may consider appropriate the selection committee may request supplemental information or verification of the financial circumstances describe in the application including without limitation a copy of the federal_income_tax return for the applicant and the applicant's parents for the immediately preceding tax_year an applicant the selection committee will consider among other things evidence of prior academic performance performance on tests of scholastic ability and aptitude and recommendations from previous or current instructors in evaluating the academic abilities of the selection committee shall initially be comprised of five members - two members of the board_of directors of t one staff member of t and two independent committee members in order to qualify to be on the selection committee the person must at a minimum have a college degree and demonstrate an interest in providing educational opportunities to disadvantaged individuals and a commitment to the selection of grant recipients on the basis of objective and nondiscriminatory criteria each of the five members of the selection committee was nominated by a member of the board_of directors of t nomination for a replacement member will be sought from the members of the board_of directors of t and will be considered based upon these same factors no member of the selection committee shall derive any private benefit directly or indirectly if certain potential recipients are selected over others no relative of a member of the selection committee or relative of any officer director trustee or substantial_contributor as defined in sec_507 d a of the code shall be eligible for financial aid from t no scholarship will be awarded to any individual who is considered a disqualified_person as defined in sec_4946 of the code if a vacancy arises in the selection committee the amount of the scholarships will be determined on an annual basis at the discretion of the selection committee t initially plans to award up to ten scholarships in an amount ranging between x and y per year however these amounts may change in future years and are subject_to the discretion of the selection committee in most cases the scholarship funds will be delivered directly to the educational_institution attended by the recipient such funds will be delivered after t receives a bill from the institution establishing that the recipient is attending the institution and is in good academic standing in some cases the scholarship funds may be delivered directly to the recipient such funds will be delivered only after the recipient provides evidence of enrollment a copy of the invoice s to be paid and all other information required fram the recipient by the selection committee in order to be eligible to renew or extend an existing scholarship a recipient must continue to be enrolled in an educational_institution must have furnished all required grade reports to t and must not have been placed on academic probation of suspension by the educational_institution as determined under the academic standards of the specific educational_institution t shall maintain case histories describing scholarship recipients including each recipient's name address the purpose of the award to the recipient the amount of each grant the manner of selection and the recipients’ relationship if any to officers board members or donors to t in addition t will maintain records of all information related to each individual grant including information obtained to evaluate the qualifications of potential grantees and all reports received pursuant to supervision procedures the selection committee will require semester reports detailing the course work each recipient has completed or has in progress from the educational_institution that the recipient is attending and to the extent applicable his or her performance in individual courses as indicated by the final grade in such course if a recipient does not receive a final grade with respect to a particular study eg the recipient is preparing a research paper or writing a doctoral thesis the selection committee will obtain a brief report on the progress of the paper or project on an annual basis which report must be approved by the faculty_member supervising the recipient or by another appropriate university official the selection committee will also require a final report upon the recipient's completion of study at the educationat institution all such reports must be verified by the educational_institution in those cases where the scholarship funds are delivered directly to the individual recipient if the selection committee received information including the submitted reports described above or the failure to submit such reports that all or any part of the scholarship funds are not being used in the furtherance of the scholarship purposes the selection committee shall take reasonable steps to investigate such information during the course of this investigation the selection committee shall withhold all further payments fo that recipient scholarship has been used for improper purposes the selection committee shall take all reasonable steps either to recover the diverted financial aid funds or to ensure the restoration of the diverted funds and the dedication of other scholarship funds held by the recipient for the intended purposes of the scholarship and shall withhold any further payments to the recipient after the selection committee becomes aware that a diversion may have taken if the selection committee determines that any part of a place until the recipient has assured the selection committee that further diversion will not occur and the selection committee has required the tecipient to take extraordinary precautions to prevent further diversions from occurring sec_4945 and b of the code impose certain excise_taxes on taxable_expenditures made by a private_foundation sec_4945 of the code provides that the term taxable_expenditure means any amount_paid or incurred by a private_foundation as a grant to an individual for travel study or other similar purposes by such individual unless such grant satisfies the requirements of subsection g sec_4945 of the code provides that sec_4945 shall not apply to individual grants awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance if it is demonstrated that the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 and is to be used for study at an educational_organization described in sec_170 a ii the grant constitutes a prize or award which is subject_to the provisions of sec_74 if the recipient of such prize or award is selected from the general_public or the purpose of the grant is to achieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar capacity skill or talent of the grantee sec_53_4945-4 of the regulations provides that to secure approval a private_foundation must demonstrate that gi ii its grant procedure includes an objective and nondiscriminatory selection process such procedure is reasonably calculated to result in performance by grantees of the activities that the grants are intended to finance and the foundation plans to obtain reports to determine whether the grantees performed activities that the grants are intended to finance based on the information submitted and assuming your award programs will be conducted as proposed with a view to provide objectivity and nendiscrimination in making the awards we have determined that your procedures for granting the awards comply with the requirements contained in sec_4945 of the code and that awards granted in accordance with such procedures will not constitute taxable_expenditures within the meaning of sec_4945 in addition we have determined that awards made under your procedures are excludable from the gross_income of the recipients subject_to the limitations provided by sec_117 of the cade this determination is conditioned on the understanding that there will be no material_change in the facts upon which it is based it is further conditioned on the premise that no grants will be awarded to foundation managers or members of the selection committee or for a purpose that is inconsistent with the purpose described in sec_170 c b of the code ‘the approval of your award program procedures herein constitutes a one- time approval of your system standards and procedures designed to result in awards which meet the requirements of sec_4945 of the code this determination only covers the grant programs described above thus approval shail apply to subsequent award programs only as long as the standards and procedures under which they are conducted do not differ materially fram those described in your request any funds you distribute to individuals must be made on a true charitable basis in furtherance of the purposes for which you are organized therefore you should maintain adequate_records and case histories so that any or all award distributions can be substantiated upon request by the internal_revenue_service this determination is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as a precedent ‘you must report any future changes in your grant making procedures please keep a copy of this letter in your permanent records we have sent a copy of this ‘etter to your representative as indicated in your power_of_attorney if you have any questions please contact the person whose name and telephone number are shown above sincerely yours robert choi director exempt_organizations rulings and agreements


sot internal_revenue_service department of the treasury uil -4942 washington dc contact person telephone number n reference to op e eo t date nov j998 key district_office ein legend- e b i i t t dear sir or madam this is in response to your letter dated date from your authorized representative requesting a ruling relating to a set_aside under sec_4942 g b i revenue code hereafter code of the internal a was organized as a not-for-profit corporation under the the internal in laws of the state y on october revenue service recognized a’s status as an exempt_organization under sec_501 of the code and its classification as operating_foundation within the meaning of sec_4942 the code incorporation are to receive and administer funds for religious charitable scientific and educational_purposes carry out these purposes a has embarked on a specific program to assist abandoned or under privileged children specific programs related to this purpose a’s purposes as stated in its articles of in order to a has two an of first as to a facility in central america a will acquire and or begin to construct and operate a facility designed to house educate and care for children taking into account the specific needs of each child need full time care because they have been orphaned or abandoned while others may need lesser amounts of assistance will be located in either one of two countries is contemplated that some will the construction the site it qs and or operation of such facility will occur no later than date a‘s initial steps of a working plan for this facility b the employment of an experienced childcare the location and acquisition of a site that is include a specialist administrator to provide guidance in the selection of a site and the development of the specifications for the facility suitable for the construction of the facility that includes suitable existing structures in the target locations construction or remodeling of a suitable facility on the acquired site development of appropriate educational social spiritual cultural and recreational programming to be offered by the facility services either directly or through a third party necessary certifications and guidelines for the selection of the children to be served at this facility the development of a plan to provide basic health g obtain d employment of a full time director h development of appropriate the the e f c in addition to it planned facility in central america a intends to pursue its charitable endeavors in the united_states through the development of a x that it purchased in renovate the existing structures on this tract of land and possibly construct additional buildings educate and provide recreation to underprivileged and disadvantaged children in a day camp setting in the planning stages to acre tract of land in the city of the x facility will a is the primary focus of the x facility will be arts enrichment the day camp and its attendant in a rural natural environment staff will holistically address each child’s individual physical educational spiritual psychological cultural and social needs in underprivileged and disadvantaged children through personalized attention in art enrichment activities and exposure to a nature rich environment the day camp will emphasize the building of self-esteem in order to acquire and or construct the facility in central to renovate and construct x facility a will america as well as be required to make an expenditure of funds well in excess of its annual income letter rulings recognizing that a set-aside of funds in certain amounts met the suitability test of sec_4942 gq b i of the code and sec_53_4942_a_-3 of the foundations and similar excise_tax regulations the regulations in prior years the service had issued private a‘s adjusted_net_income for its fiscal_year ending date will be approximately t anticipate that an expenditure in excess of that amount a’s board_of directors in addition to the amounts set_aside in earlier years will be necessary to acquire the facility in central america plus x facility accomplished through the current accumulations of a's earnings thus the funding of these projects can best be a‘s directors have authorized an additional set_aside of u these funds have been placed in a separate_account ina on a‘s books_and_records for its fiscal_year ending date financial_institution so that these funds will be available when needed for purposes of both of the facilities described in the preceding material the funds set_aside will be expended within months a’s request for this ruling was timely filed - based on the forgoing a has requested the following ruling the set_aside of u on a‘s books_and_records for the purposes of acquiring and construction the facility in central america and or renovating x facility meets the requirements of sec_4942 a -3 b treated as ending september a qualifying_distribution for a’s fiscal_year g b i of the code and section of the regulations and can therefore be sec_4942 of the code defines the term qualifying a distribution in part as of reasonable and necessary administrative expenses paid to accomplish one or more purposes described in sec_170 or directly in carrying out one or more purposes described in sec_170 b other than certain excluded contributions any amount_paid to acquire an asset used or held for use any amount including that portion b b sec_4942 a provides that for all taxable years beginning on or after january for a specific project which comes within one or more purposes described in sec_170 may be treated as distribution if it meets the requirements of subparagraph b an amount set_aside a qualifying sec_4942 b i that an amount set_aside for a specific project shall meet the requirements of this subparagraph if at the time of the set-aside the foundation established to the satisfaction of the secretary that the amount will be paid for the specific project within years and -at the time of the set- aside the private_foundation establishes to the satisfaction of the secretary that the project is one which can better be accomplished by such set-aside than by immediate payment of funds dnc _4- sec_53_4942_a_-3 of the regulations provides in purposes described in sec_170 that an amount set_aside for a specific project that is for part one or more of the b may be treated as which set_aside this paragraph b paragraph b are satisfied if the private_foundation establishes to the satisfaction of the commissioner that the amount set_aside will be paid for the specific project within months after it is set_aside and i test described in subparagraph the set_aside satisfies the suitability if the requirements of sec_4942 and a qualifying_distribution in the year in the requirements of this of this paragraph are satisfied or wection a -3 b provides in part that the specific projects that can be better suitability test is satisfied if the private_foundation establishes to the satisfaction of the commissioner that the specific project for which the amount is set_aside is one that can be better accomplished by the set_aside than by the immediate payment of funds accomplished by the use of a set_aside include but are not limited to projects in which relatively long-term grants or expenditures must be made in order to assure the continuity of particular charitable projects example a plan to erect a building to house the direct charitable educational or other similar exempt activity of the private a museum building in which paintings are to be hung even though the exact location and architectural plans have not been finalized such projects include for foundation such as sec_53_4942_a_-3 provides in part that if an g b i and subparagraph amount is to be set_aside under the suitability test of sec_4942 private_foundation must apply for the commissioner’s approval of the set-aside before the end of the taxable_year in which the amount is set_aside of this paragraph the revrul_74_450 1974_2_cb_388 describes a situation in which the service approved the set_aside of the income of an operating_foundation as meeting the requirements for qualifying_distribution and set-aside under the provisions of the code and regulations the conversion of the foundation’s newly acquired land into an extension of its existing wildlife sanctuary and the remainder into a public park under a four year construction_contract where payments are primarily due in the last two years meets the requirements for a qualifying_distribution a in this case has met the requirements of the code and regulations with respect to both of the facility in central america and the x facility to the facility in central america it picked a specific site for the facility it exempt_purpose facilities with respect nevertheless it has is true that a has not for the foundation to have identified a specific location the site for x facility concrete plans for the facility and has in mind a certain type of site for the facility as noted in sec_53_4942_a_-3 it is not necessary in meeting the requirements of the suitability test or have finalized architectural plans is identified and the land was purchased out the exempt purposes of a and are quite similar to the example provided in the regulations cited in the preceding sentence as well as the facts of rev be paid for the specific project within months after it aside timely filed the amount set_aside will is set the application_for approval by the commissioner was both facilities carry rul accordingly we rule as follows the set_aside of u on a‘s books_and_records for the purposes of acquiring and or constructing the facility in central america and or x facility meets the requirements of sec_4942 g b i of the code and sec_53 a -3 b of the regulations and can therefore be treated as qualifying_distribution for a’s fiscal_year ending date a except as specifically ruled upon above no opinion is expressed concerning the federal_income_tax consequences of the transfers and transactions described above under any other provision of the code pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to a’s authorized representative permanent records you should keep a copy of this letter in your if you have any questions please contact the person whose name and telephone appear at the heading of this letter this ruling is directed only to the organization that requested it internal_revenue_code sec_6110 provides that it may not be used or cited as precedent sincerely yours arnest kenneth j acting chief exempt_organizations technical branch


t c summary opinion united_states tax_court tunji and christina mabinuori petitioners v commissioner of internal revenue respondent docket no 21877-04s filed date tunji and christina mabinuori pro sese wesley f mcnamara for respondent panuthos chief special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time 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 unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure respondent determined a dollar_figure deficiency in petitioners’ federal_income_tax for and a dollar_figure accuracy-related_penalty under sec_6662 after concessions by the parties the issues for decision are whether petitioners’ gross_income includes dollar_figure of wage income from farmers insurance group farmers whether petitioners’ gross_income includes dollar_figure of self-employment_income from metropolitan property and casualty insurance_company metlife and whether petitioners are liable for an accuracy-related_penalty under sec_6662 background some of the facts have been stipulated and they are so found the stipulation of facts and the supplemental stipulation of facts with attached exhibits are incorporated herein by this reference petitioners tunji mabinuori mr mabinuori and christina mabinuori mrs mabinuori are married and resided in springfield oregon when their petition was filed unless otherwise indicated all references to petitioner are to mr mabinuori petitioner’s involvement with farmer sec_1 petitioners concede they received and failed to report a dollar_figure state_income_tax refund petitioners assert in the petition that they are entitled to deductions for business mileage that were not claimed on their joint federal_income_tax return however petitioners did not pursue this argument at trial and we therefore consider the argument abandoned see 117_tc_117 n korchak v commissioner tcmemo_2005_244 n for convenience we address the parties’ additional concessions infra adjustments not addressed herein are computational petitioner sold insurance successfully for many years from date to date petitioner worked for farmers during his employment farmers advanced funds to petitioner to help him establish a business office when his employment ended farmers concluded petitioner was required to repay the advanced funds farmers recorded an account receivable from petitioner on its books and sent him letters demanding repayment of the advances farmers calculated that as of date petitioner owed the company dollar_figure for the taxable_year farmers issued petitioner a form 1099-misc miscellaneous income reporting dollar_figure of nonemployee compensation petitioners did not receive payment however because farmers applied the dollar_figure towards the aforementioned account receivable petitioners did not report the dollar_figure on their tax_return respondent initially determined that the entire amount was includable in petitioners’ gross_income but now concedes all but dollar_figure of this adjustment the parties stipulated that the dollar_figure represents commission income petitioner’s involvement with metlife in or about date petitioner entered into a special_agent auxiliary agreement the agreement with metlife the agreement provided that petitioner would work as an independent_contractor for metlife for a 10-to-14 week training period after that time metlife would either terminate the relationship or offer petitioner permanent employment petitioner completed the training period ahead of schedule and became a metlife employee on date during the training period petitioner received payments totaling dollar_figure from metlife he received an additional payment of dollar_figure in date petitioner acknowledges receiving these payments metlife’s business records indicate the payments represent petitioner’s earnings during the training period for the taxable_year metlife issued petitioner both a form 1099-misc and a form_w-2 wage and tax statement a letter from a metlife attorney explains that the form 1099-misc represents petitioner’s earnings as an independent_contractor during the training period whereas the form_w-2 represents petitioner’s wage income after he became a metlife employee the form 1099-misc reports nonemployee compensation of dollar_figure representing the sum of the dollar_figure and dollar_figure payments the form_w-2 reports wage income of dollar_figure which is not in dispute petitioners did not receive the form 1099-misc or report the dollar_figure as income the form 1099-misc lists an address in salem oregon where petitioners lived during the training period petitioners did receive the form_w-2 which lists an address in springfield oregon where petitioners lived when they filed their tax_return petitioners attached the form_w-2 to their tax_return they also attached forms w-2 from three other payors each of which lists the address in springfield oregon after petitioner received respondent’s notice_of_deficiency he contacted metlife to question the accuracy of the dollar_figure figure petitioner spoke to a number of metlife employees but metlife did not provide a copy of the form 1099-misc or other relevant information until respondent served metlife with a subpoena before trial income from farmers discussion gross_income includes all income from whatever source derived unless excluded by a specific provision of the internal_revenue_code sec_61 a taxpayer generally must report income for the taxable_year when actually or constructively received sec_1_451-1 income_tax regs in general the taxpayer bears the burden of proving the commissioner’s determination is erroneous see sec_7491 rule a when the commissioner determines that a taxpayer received unreported income however the commissioner must establish ‘some evidentiary foundation linking the taxpayer’ to the income-producing activity or introduce substantive evidence ‘demonstrating that the taxpayer received unreported income’ krohn v commissioner tcmemo_2005_145 quoting weimerskirch sec_7491 does not shift the burden_of_proof to respondent because petitioners have neither alleged that sec_7491 is applicable nor established that they complied with the requirements of sec_7491 and b to substantiate items maintain required records and fully cooperate with respondent’s reasonable requests v commissioner 596_f2d_358 9th cir revg 67_tc_672 and 680_f2d_1268 9th cir the commissioner need only provide a minimal showing that the taxpayer failed to report income see 116_f3d_1309 9th cir once the commissioner provides the necessary evidentiary showing the taxpayer bears the burden of proving that the notice_of_deficiency is arbitrary or erroneous see cohen v commissioner tcmemo_2001_249 petitioner formerly worked for farmers although his employment ended in petitioner testified that an insurance salesman can earn commissions in later years based on renewals of policies sold in earlier years at trial petitioner appeared to acknowledge that farmers owed him such commissions we conclude that respondent has established the necessary evidentiary foundation linking petitioner to the income-producing activity petitioner therefore bears the burden of proving that the notice_of_deficiency is erroneous id to attempt to meet this burden petitioner argues the dollar_figure is not includable in gross_income because farmers used that amount to offset the debt he reputedly owed the company income is taxed to the taxpayer who earns it 337_us_733 sparkman v commissioner tcmemo_2005_136 lack of control_over the income earned does not justify its exclusion_from_gross_income if the earnings are used to pay an obligation of the taxpayer see 69_tc_675 chambers v commissioner tcmemo_2000_218 affd 17_fedappx_688 9th cir sec_1_61-12 income_tax regs a third party’s payment of an obligation of the taxpayer is equivalent to the taxpayer’s receipt of the income in the amount_paid see 279_us_716 minor v commissioner tcmemo_1998_237 where the transfer of funds at least partially discharges a legal_obligation of the taxpayer the transfer is equivalent to receipt by the taxpayer see 311_us_112 chambers v commissioner supra the fact that the transfer is involuntary such as by garnishment has no significance chambers v commissioner supra vorwald v commissioner tcmemo_1997_15 thus the dollar_figure is includable in petitioners’ gross_income petitioner appears to argue that the above rule is inapplicable because farmers eventually acknowledged that petitioner did not owe the company any money thus petitioner contends the dollar_figure did not discharge a legal_obligation but instead was wrongfully withheld petitioner did not introduce credible_evidence to support this contention however nor did he otherwise demonstrate the dollar_figure is excludable from gross_income accordingly petitioner has failed to prove that respondent’s determination is erroneous we therefore conclude the dollar_figure is includable in petitioners’ gross_income income from metlife petitioner does not dispute that he received dollar_figure from metlife furthermore he concedes the dollar_figure he received during the training period is self-employment_income with respect to the remaining dollar_figure however he contends this amount does not represent earnings from the training period petitioner believes the dollar_figure was reimbursement for the cost of establishing a business office and therefore is excludable from gross_income in the alternative petitioner appears to contend that even if the dollar_figure is includable in gross_income it is wage income rather than self-employment_income because he received payment after he became an employee under some circumstances an employee’s gross_income does not include amounts received from his employer for reimbursement of business_expenses see eg 118_tc_467 affd 351_f3d_982 9th cir anaheim paper mill supplies inc v commissioner tcmemo_1978_86 sec_1_162-17 and c income_tax regs in this case however petitioner has failed to establish that the dollar_figure was reimbursement for business_expenses to the contrary metlife’s business records indicate the dollar_figure was income that petitioner earned during the training period to refute these documents petitioner offers only his uncorroborated testimony that one or more metlife employees told him the dollar_figure was for office startup expenses his testimony alone however does not overcome the documentary_evidence we therefore conclude that the dollar_figure represents compensation earned during the training period sec_1401 imposes a tax on self-employment_income of every individual for old age survivors and disability insurance and for hospital insurance sec_1401 and b 130_f3d_1388 10th cir affg tcmemo_1996_269 self-employment_income is the net_earnings_from_self-employment derived by an individual during the taxable_year sec_1402 the earnings_of an insurance agent who is an independent_contractor generally are self-employment_income subject_to self-employment_tax schelble v commissioner supra 64_tc_974 erickson v commissioner tcmemo_1992_585 affd without published opinion 1_f3d_1231 1st cir petitioner does not dispute that he was an independent_contractor during his training period with metlife accordingly any income petitioner earned during that time is subject_to self- employment_tax although petitioner did not receive the dollar_figure until after he became an employee of metlife the income was derived from self-employment see sec_1402 accordingly the dollar_figure is subject_to self-employment_tax whether petitioners are liable for an accuracy-related_penalty under sec_6662 respondent asserted an accuracy-related_penalty against petitioners as to each adjustment in the notice_of_deficiency respondent now concedes that petitioners are not liable for the penalty with respect to the dollar_figure from farmers respondent therefore asserts the penalty only with respect to the unreported state_income_tax refund see supra note and the unreported self-employment_income from metlife sec_6662 provides in relevant part that a taxpayer may be liable for a penalty of percent of the portion of an underpayment_of_tax attributable to negligence or disregard of rules or regulations sec_6662 and b the term negligence includes any failure to make a reasonable attempt to comply with the provisions of the internal_revenue_code sec_6662 the term disregard includes any careless reckless or intentional disregard id respondent has the burden of production with respect to the accuracy-related_penalty see sec_7491 an exception to the sec_6662 penalty applies when the taxpayer demonstrates there was reasonable_cause for the underpayment and the taxpayer acted in good_faith with respect to the underpayment sec_6664 whether the taxpayer acted with reasonable_cause and in good_faith is determined by the relevant facts and circumstances on a case-by-case basis see stubblefield v commissioner tcmemo_1996_537 sec_1_6664-4 income_tax regs circumstances that may indicate reasonable_cause and good_faith include an honest misunderstanding of fact or law that is reasonable in light of all the facts and circumstances including the experience knowledge and education of the taxpayer sec_1_6664-4 income_tax regs the most important factor is the extent of the taxpayer’s effort to assess the proper tax_liability stubblefield v commissioner supra sec_1_6664-4 income_tax regs with respect to the unreported state_income_tax refund petitioners acknowledge receipt of this income and that it was mistakenly omitted from their tax_return petitioners did not attempt to explain the reason for the omission we conclude that respondent has met his burden of production and that petitioners have not shown reasonable_cause for their failure to report this item with respect to the self-employment_income petitioners did not receive the form 1099-misc which was sent to their former address we have held that failure to receive a form 1099-misc does not necessarily constitute reasonable_cause for failure to report income see goode v commissioner tcmemo_2006_48 brunsman v commissioner tcmemo_2003_291 taxpayer did not need to receive a form 1099-misc to be alerted to the fact that he received compensation from a third party for his services in this case however we find it significant that petitioners received a form_w-2 from metlife petitioners may not have understood the distinction between wage income and self- employment income ie that they should have received a form 1099-misc for the earnings during the training period thus petitioners could have reasonably concluded the form_w-2 reported the entire earnings from metlife in it is arguable that petitioners should have noticed their gross_income was understated by dollar_figure however petitioners believed that a significant portion of this amount was reimbursement for office expenses and therefore excludable from gross_income the facts present a close question but viewing the record as a whole we conclude that petitioners have demonstrated reasonable_cause for failing to report the self-employment_income and that they acted in good_faith see sec_6664 accordingly they are not liable for the accuracy-related_penalty with respect to this adjustment reviewed and adopted as the report of the small_tax_case division to reflect the foregoing decision will be entered under rule