department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division date jan number release date contact person identification_number contact number employer_identification_number form required to be filed tax years uil de i this is our final_determination that you do not qualify for exemption from federal_income_tax as an drganization described in sec_501 recently we sent you a lett r in response to your application that proposed an adverse determination the letter expfained the facts law and rationale and gave you days to file a protest since we did not receive a protest within the requisite days the proposed adverse determination is now final since you do not qualify for exemption as an organization described in code sec_501 c donors may not deduct contributions to you under code sec_170 you must file federal_income_tax returns on the form and for the years listed above within days of this letter unless you request an extension of time to file we will make this letter and our proposed adverse determination_letter available for public inspection under code sec_6110 after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions you should follow the instructions in notice if you agree with our deletions you do not need to take any further action ' in abcordance with code sec_6104 we will notify the appropriate state officials of our determination by sending them a copy of this final letter and the proposed adverse letter you shotjid contact your state officials if you have any questions about how this determination may affect your state responsibilities and requirements letter cg catalog number ------ i if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter if you have any questions about your federal_income_tax status and responsibilities please contact irs customer service pincite-829-1040 or the irs customer service number for businesses the irs customer service number for people with hearing impairments is sincerely r a lois g lerner director exempt_organizations rulings agreements enclosure notice redacted proposed adverse determination_letter redacted final adverse determination_letter letter cg catalog number a - tax_exempt_and_government_entities_division department of the treasury internal_revenue_service washington d c contact person identification_number contact number fax number employer_identification_number uil nos date date legend m organization state state of incorporation date date of incorporation director director c director r 'educational institution lending institution dear we have considered your application_for recognition of exemption from federal_income_tax under sec_501 based on the information provided we have concluded that you do not qualify for exemption under code sec_501 c the basis for our conclusion is set forth below you m are a state nonprofit organization formed on date your articles of incorporation state that you are organized exclusively for charitable and educational_purposes including for such purposes the making of distributions to organizations that qualify as exempt_organizations under sec_501 c of the internal_revenue_code or the corresponding section of any future federal tax code furthermore you state that you will act and operate as a charitable_organization in lessening the burdens of government providing relief of the poor and distressed or under-privileged and promoting social welfare by reducing unemployment your articles of incorporation provide that upon dissolution of the organization the assets shall be distributed to another organization organized and operating for the same purposes for which the corporation is organized and operating or to one or more corporations funds or foundations organized and operating exclusively for religious charitable scientific literary or educational_purposes provided however that any such recipient organization or organizations shall at the time qualify as exempt from taxation under the provisions of sec_501 a of the internal_revenue_code_of_1986 as an organization described in section c of the internal_revenue_code_of_1986 your application form_1023 states that you were formed primarily to provide home-ownership to low and moderate income families and first-time homebuyers who qualify for mortgages backed by the federal housing administration and other government entities you state that you will conduct the following programs gift funds program in this program you will advance as a gift to the homebuyer an amount equal to the down-payment required to purchase the home this is typically of the purchase_price you will in tum seek sellers who are willing to advance of the purchase_price of the home to you all monies received from the sellers will be used to advance down payments to the homebuyers and to administer the program you anticipate substantial donations from the general_public and from government agencies in addition to those funds that will emanate from participating sellers the funds will be gifted to low to moderate income families as those terms are used and defined in applicable hud regulations and will not require the payment of any funds by the homebuyer to you secondary financing program in this program you will make low-interest loans to low to moderate income families that require more funds than are available through the gift funds program you state you do not anticipate providing this program during the first two years of operations you do not provide any additional details regarding this program nor do you indicate how the interest rate will be calculated you' state that your principal activity will be the provision of down payments for qualified pur hasers of residential premises you will also provide assistance to purchasers of residential prer 'lises and you will provide assistance to purchasers in preparing documents related to obtaining financing for purchase of a residence you will identify buyers and sellers for your program by conducting seminars and advertising you state that there are no income limits to participate in your program and that you will not require participants to use any particular loan program your only requirement is that the loan program pursued by the home buyer must allow the down payment to come from you and not from the borrower appropriate real_estate prices will be determined through consultation with appraisers real_estate brokers mortgagors and other professionals having expert knowledge of home values in the community participants in the program are chosen on a first-come first-served basis and the only requirement is that they qualify for a mortgage under hud guidelines for credit and debt-to income ratios you state that you have not yet prepared any application forms or other such materials you have not prepared any brochures or other informational material which set forth matters pertaining to your procedures or policy guidelines in your application you state that you will advance to the homebuyer an amount equal to the down payment required to purchase the home you state that this is typically of the purchase_price of the home you also state that you will seek sellers who are willing to advance of the purchase_price of the home to you this money will be used to advance down payments to the home buyers and administer the program although this information implies that you will charge a fee to the seller of the home your response dated date states that in addition to a contribution equal to of the home sale price each home seller will be required to pay a fee to the company in the amount of dollar_figure to reasonably compensate the company for the services which it provides in your response dated date you state that you expect to receive donations from the seller upon conclusions of each house sale transaction you have implied that the seller's contribution will always be contingent upon the conclusion of the sale of the seller's home to the buyer who will be the beneficiary of your financial assistance program that the seller's contribution will be paid at the time of sale closing and that the contribution will be refunded to the seller if the sale is rescinded prior to during and following the closing of the sale your representatives will remain available to assist and provide relevant information to prospective home purchasers although you state that you will identify participants in the program through seminars you state that you do not provide seminars or home ownership classes of your own instead you refer individuals to r a state non-profit corporation you state that all participants in your program are eligible to attend r's home ownership counseling classes you also state that you do not plan to require home owners to participate in classes or other counseling you state that there will be directors for the organization two of the directors and l l will be paid dollar_figure annually each and the third director will be paid dollar_figure annually this will be paid in the capacity of officers of the organization based on the financial information pro' ided on form_1023 you anticipate paying compensation to officers directors and trustees dollar_figure for the first two years of operations you also state that the officers expect to devote to of their work time to the organization's home assistance programs you state that is an associate broker for a real_estate company you state that this real_estate company may serve as a broker in home sales involved in your home assistance program ii is a l nding clerk closer and is the spouse of a member and co-owner of a private mortgage lem fer licensed to engage in the business of residential real_estate financing in state you state that may be one of the lending institutions which participates in your home assistance program you state that you will be operated exclusively for charitable purposes as that term is used and defihed in internal_revenue_code irc sec_501 c specifically you state that you provide home ownership opportunities to the working poor or to other persons who are either und rprivileged or distressed while your activities will benefit and aid moderate-income families you will conduct your activities in compliance with the safe-harbor provisions of rev nue procedure c b you indicate that the company's activities will also lessen the burdens of government as they relate to providing homes for the working poor or to persons who are either underprivileged distressed or otherwise unable to afford to own a ho le you state that the department of housing and urban development hud has specifically and objdctively set forth and manifested in its mission statement that its mission is to provide a decent safe and sanitary home and suitable living environment for every american it also set forth in the same statement goals such as increasing affordable housing and home ownership in its letter dated date hud described organizations that participate in the activities set forth in its rules and regulations as its active partners with the federal housing authority in developing affordable housing additionally you quote the house of representative committee report stating the congress hereby declares that the general welfare and security of the nation and the health and living standards of its people require housing and production and related community development sufficient to remedy the serious housing shortage the elimination of substandard and other inadequate housing through the clearance of slums and blighted areas and the realization as soon as feasible of the goal of a decent home and suitable living environment for every american you also state that the organization will operate in accordance with the safe-harbor provisions set forth in revproc_96_32 you anticipate income from gifts grants and contributions of dollar_figure and dollar_figure for the first and second years of operations respectively you anticipate income from gross_receipts from admissions sales of merchandise or services of dollar_figure and dollar_figure for the first and second years of operations respectively based on these figures of your annual income will be from donations and will be from services provided in the form of down payment assistance fees you anticipate contributions paid out in the form of your gift fund program to be dollar_figure and dollar_figure for the first and second years of operations respectively you have not submitted any information regarding fundraising or how you will go about getting donations you have not submitted any solicitation materials the' manner in which you operate is referred to as seller-funded downpayment assistance in the final report an examination of downpayment gift programs administered by non-profit organizations commissioned by office of housing united_states department of housing and urb n development hud contract no c-opc-22550 m0001 date the report concludes that seller-funded down payment assistance for mortgage down payments has led to underwriting problems that require immediate attention furthennore the report concludes that the effective cost of homeownership is increased even more by the processing fees charged by the seller-funded down payment assistance providers which get passed through to borrowers in higher property prices a copy of the report is enclosed with this determination_letter f law sec_501 of the code provides for the exemption from federal_income_tax of corp orations organized and operated exclusively for charitable or educational_purposes pro ided no part of the net_earnings inures to the benefit of any private_shareholder_or_individual sec_1 c -1 b of the income_tax regulations states that an organization is not orgt nized exclusively for one or more exempt purposes unless its assets are dedicated to an exetnpt purpose an organization's assets will be considered dedicated to an exempt_purpose for example if upon dissolution such assets would by reason of a provision in the organization's articles or by operation of law be distributed for one or more exempt purposes or to a state_or_local_government for a public purpose or to the federal government or to a state_or_local_government for a public purpose or would be distributed by a court to another organization to be used in such manner as in the judgment of the court will best accomplish the general purposes for which the dissolved organization was organized sec_1 c -1 c of the income_tax regulations provides that an organization operates exclusively for exempt purposes if it engages primarily in activities that accomplish exempt purposes specified in sec_501 of the code an organization must not engage in substantial activities that fail to further an exempt_purpose sec_1 c -1 d ii of the regulations provides that an organization is not organized and operated exclusively for exempt purposes unless it serves a public rather than a private interest to meet this requirement it is necessary for an organization to establish that it is not organized and operated for the benefit of private interests sec_1 c -1 d of the regulations defines the term charitable as used in sec_501 c of the code as including the relief of the poor and distressed or of the underprivileged the term charitable also includes the advancement of education sec_1 c -1 d i of the regulations provides in part that the term educationar as used in sec_501 of the code relates to the instruction of the public on subjects useful to the individual and beneficial to the community se ion c -1 e of the regulations provides that an organization that operates a trade or busl ness as a substantial part of its activities may meet the requirements of sec_501 c of the code if the trade_or_business furthers an exempt_purpose and provided the organization's pri lary purpose does not consist of carrying on an unrelated_trade_or_business in 326_us_279 the supreme court held that the presence of a single nonexempt purpose if substantial in nature will destroy the exemption regardless of the number of importance of truly exempt purposes in easter house v u s cl_ct aff'd 846_f2d_78 fed cir cert_denied 488_us_907 the court found an organization that operated an adoption agency was not exe pt under sec_501 c of the code because a substantial purpose of the agency was a non xempt commercial purpose the court concluded that the organization did not qualify for exe ption under sec_501 c because its primary activity was placing children for adoption in a manner indistinguishable from that of a commercial adoption agency the court rejected the brganization's argument that the adoption services merely complemented the health related_services to unwed mothers and their children rather the court found that the health-related serv ices were merely incident to the organization's operation of an adoption service which in and of itself did not serve an exempt_purpose the organization's sole source of support was the fees it charged adoptive parents rather than contributions from the public the court also fourtd that the organization competed with for-profit adoption agencies engaged in substantial advertising and accumulated substantial profits accordingly the court found that the business pur ose and not the advancement of educational and charitable activities purpose of plaintiff's adoption service is its primary goal and held that the organization was not operated exclusively for p urposes described in sec_501 easter house cl_ct pincite l in 92_tc_1053 the court held that an organization that operated a school to train individuals for careers as political campaign professionals but that could not establish that it operated on a nonpartisan basis did not exclusively serve purposes described in sec_501 c of the code because it also served private interests more than incidentally the court found that the organization was created and funded by persons affiliated with republican party entities and that most of the organization's graduates worked in campaigns for republican candidates consequently the court concluded that the organization conducted its educational activities with the objective of benefiting republican candidates and entities although the candidates and entities benefited were not organization insiders the court stated that the conferral of benefits on disinterested persons who are not members of a charitable_class may cause an organization to serve a private interest within the meaning of sec_1 c -1 d ii of the regulations the court concluded by stating that even if the republican candidates and entities did comprise a charitable_class the organization would bear the burden of proving that its activities benefited members of the class in a non-select manner in 71_tc_202 the court held an organization that marketed handicrafts made by disadvantaged artisans through museums and other non-profit organizations and shops be operated for exclusively charitable purposes within the meaning of sec_501 c of the code the organization in cooperation with national craft agencies selected the handicrafts it would market from craft cooperatives in communities identified as disadvantaged based on objective evidence the bureau of indian affairs or other government agehcies the organization marketed only handicrafts it purchased in bulk from these co munities of craftsmen it did not select individual craftsmen based on the needs of the purchasers the court concluded that the overall purpose of the activity was to benefit disadvantaged communities the method it used to achieve its purpose did not cause it to serv e primarily private interests because the disadvantaged artisans directly benefited by the actiyity constituted a charitable_class and the organization showed no selectivity with regard to benefiting specific artisans therefore the court held that the organization operated exclusively for exempt purposes in a rlie foundation v commissioner 283_fsupp2d_58 d o c the court relied on the co'timerciality doctrine in applying the operational_test because of the commercial manner in whidh this organization conducted its activities the court found that it was operated for a non exempt commercial purpose rather than for a tax-exempt purpose among the major factors courts have considered in assessing commerciality are competition with for profit commercial entities extent and degree of below cost services provided pricing policies and reasonableness of financial reserves additional factors include inter alia whether the org nization uses commercial promotional methods eg advertising and the extent to which the brganization receives charitable donations university medical resident services p c et al v commissioner t c memo states in part' that an organization lessens the burdens of government if the activities undertaken are those that government considers to be its burden and those activities actually lessen such burden rev_rul 1985_1_cb_177 states that in order to determine whether an activity is a burden of government the question to be answered is whether there is an objective manifestation by the government that it considers such activity to be part of its burden a favorable working relationship between the government and the organization is strong evidence that the organization is actually lessening the burdens of government revrul_85_2 1985_1_cb_178 states that the interrelationship between the governmental_unit and the organization may provide evidence that the governmental_unit considers the activity to be its burden the ruling states that the fact the government agency can augment its activities shows that an organization is lessening the burdens of government revrul_67_138 1967_1_cb_129 holds that helping low income persons obtain adequate and affordable housing is charitable because it relieves the poor and distressed or underprivileged the organization carried on several activities directed to assisting low-income families obtain improved housing including coordinating and supervising joint construction projects purchasing building sites for resale at cost and lending aid in obtaining home construction loans revrul_70_585 1970_2_cb_115 discusses four examples of organizations providing housing and whether each qualified as charitable within the meaning of sec_501 c of the code situation describes an organization formed to construct new homes and renovate existing hoit es for sale to low-income families who could not obtain financing through conventional chahnels the organization also provides financial aid to eligible families who do not have the ne ssary down payment when possible the organization recovered the cost of the homes through very small periodic_payments but its operating funds were obtained from federal loans and1contributions from the general_public the revenue_ruling holds that by providing homes for low-income families who otherwise could not afford them the organization relieved the poor and distressed situation describes an organization formed to ameliorate the housing needs of minority groups by tjuilding housing units for sale to persons of low and moderate income on an open occupancy basis the housing is made available to members of minority groups who are unable to obtain adequate housing because of local discrimination the housing units are located to help reduce racial and ethnic imbalances in the community as the activities were designed to eliminate prejudice and discrimination and to lessen neighborhood tensions the revenue_ruling holds that the organization was engaged in charitable activities within the me ning of sec_501 c of the code situation describes an organization formed to formulate plans for the renewal and rehabilitation of a particular area in a city as a residential community the median income level in tne area was lower than in other sections of the city and the housing in the area was gen rally old and badly deteriorated the organization developed an overall plan for the reh bilitation of the area it sponsored a renewal project and involved residents in the area renewal plan the organization also purchased apartment buildings that it rehabilitated and rent d at cost to low and moderate income families with a preference given to residents of the area the revenue_ruling holds that the organization is described in sec_501 c of the code because its purposes and activities combated community deterioration situation describes an organization formed to alleviate a shortage of housing for moderate income families in a particular community the organization planned to build housing to be rented at cost to moderate-income families the service held that the organization failed to qualify for exemption under sec_501 of the code because the organization's program did not provide relief to the poor or further any other charitable purpose within the meaning of sec_501 and the regulations revrul_2006_27 2006_21_irb_915 discusses whether organizations that otherwise meet the requirements of sec_501 of the internal_revenue_code and are described in the situations below operate exclusively for charitable purposes situation describes a non-profit corporation that helps low-income individuals and families purchase decent safe and sanitary homes throughout the metropolitan area in which x is located as a substantial part of its activities x makes assistance available exclusively to low income individuals and families to provide part or all of the funds they need to make a down payment on the purchase of a home x uses standards set by federal housing statutes and administered by the department of housing and urban development to determine who is a low income individual individuals are eligible to receive assistance from x's program if they are low income individuals have the employment history and financial history necessary to qualify for a mortgage and would so qualify but for the lack of a down payment x also offers financial counseling seminars and conducts other educational activities 'to help prepare potential low inca me home buyers for the responsibility of home ownership ' x will consider applications for assistance in connection with an applicanrs purchase of any home that meets x's standards for habitability before making a grant of down payment assi'stance x requires a home inspection report for the property that the applicant intends to buy to ensure that the house will be habitable to fund its down payment assistance program and other activities x conducts a broad based fundraising program that attracts gifts grants and contributions from several foundations businesses and the general_public x's grantmaking process is structured to ensure that x's staff awarding grants on behalf of x doe not know the identity of the party selling the home to the grant applicant or the identities of any'other parties such as real_estate agents or developers who may receive a financial benefit from the sale the staff also does not know whether any of the interested parties to the transaction have been solicited for contributions to x or have made pledges or actual contributions to x further x does not accept any contributions contingent on the sale of a particular property or properties situf ition describes a nonprofit corporation that is like x in all respects as set forth in situation e cept as follows under y's grantmaking procedures y's staff considering a particu ar applicant's application knows the identity of the party selling the home to the grant applicant and may also know the identities of other parties such as real_estate agents and developers who - - - - - - may receive a financial benefit from the sale moreover in substantially_all of the cases in which y provides down payment assistance to a home buyer y receives a payment from the home seller further there is a direct correlation between the amount of the down payment assistance provided by y in connection with each of these transactions and the amount of the home seller's payment to y finally y does not conduct a broad based fundralsing campaign to attract financial support rather most of y's support comes from home sellers and real estate-related businesses that may benefit from the sale of homes to buyers who receive y's down payment assistance situation describes a nonprofit corporation formed to combat community deterioration in an economically depressed area that has suffered a major loss of population and jobs studies have shown that the average income in the area is below the median level for the state z cooperates with government agencies and community groups to develop an overall plan to attract new businesses to the area and to provide stable sources of decent safe and sanitary housing for the area residents without relocating them outside the area as part of the renewal project z receives funding from government agencies to build affordable housing units for sale to low and moderate-income families as a substantial part of its activities z makes down payment assistance available to eligible home buyers who wish to purchase the newly constructed units from z z also offers financial counseling seminars and conducts other educational activities to help prepare potential low and moderate-income home buyers for the responsibility of home ownership to f jnd its down payment assistance program and other activities z conducts a broad based funqraising program that attracts gifts grants and contributions from several foundations bus esses and the general_public in situation x's purposes and activities relieve the poor distressed and underprivileged by enabling low-income individuals and families to obtain decent safe and sanitary homes the way x conducts its down payment assistance program establishes that x's primary purpose is to addtess the needs of its low-income grantees by 4ontrast in situation y does not qualify as an organization described in sec_501 c to finapce its down payment assistance activities y relies on sellers and other real-estate related bus esses that stand to benefit from the transactions y facilitates furthermore in deciding whe ther to provide assistance to a low-income applicant y's grantmaking staff knows the identity of the home seller and may also know the identities of other interested parties and is abl to take into account whether the home seller or another interested_party is willing to make a pay ent toy y's receipt of a payment from the home seller corresponding to the amount of the dow n payment assistance in substantially_all of the transactions and y's reliance on these payty'lents for most of its funding indicate that the benefit to the home seller is a critical aspect of y's bperations in this respect y is like the organization considered in easter house which receiived all of its support from fees charged to adoptive parents so that the business_purpose of the adoption service became its primary goal and overshadowed any educational or charitable purpose like the organization considered in american campaign academy y is struptured and operated to assist private parties who are affiliated with its funders like he organizations considered in american campaign academy easter house and columbia park recreation association y also serves an exempt_purpose but because y is not operated excb jsively for exempt purposes y does not qualify for exemption from federal_income_tax as an organization described in sec_501 c in situation although z does not limit its down payment assistance program to low-income recipients z's down payment assistance program still serves a charitable purpose described in sec_501 c because it combats community deterioration in a specific economically depressed area that has suffered a major loss of population and jobs through a combination of counseling and financial assistance z helps low and moderate-income families in that area to acquire decent safe and sanitary housing and to prepare for the responsibilities of home ownership in this respect z is like the organization described in situation of revrul_70_585 because z is operated exclusively for charitable purposes z qualifies for exemption from federal taxation as an organization described in sec_501 revproc_96_32 date sets forth a safe_harbor under which organizations that provide low-income_housing will be considered charitable as described in sec_501 c of the internal_revenue_code because they relieve the poor and distressed as described in c -l d of the income_tax regulations this revenue_procedure also describes the facts_and_circumstances_test that will apply to determine whether organizations that fall outside the safe_harbor relieve the poor and distressed such that they will be considered charitable organizations described in c it also clarifies that housing organizations may rely on other charitable purposes to qualify for recognition of exemption from federal_income_tax as organizations described in sec_501 c these other charitable purposes are described in sec_1 s01 c -l d this revenue_procedure supersedes the application referral described in notibe 1993_1_cb_290 thi revenue_procedure does not alter the standards that have long been applied to determine wh her low-income_housing organizations qualify for tax-exempt status under c rat er it is intended to expedite the consideration of applications for tax-exempt status filed by such organizations by providing a safe_harbor and by accumulating relevant information on the existing standards for exemption in a single document low-income_housing organizations that have ruling or determination letters and have not materially changed their organizations or operations from how they were described in their applications can continue to rely on those lettdrs l rationale and conclusion bas d on the information you provided in your application and supporting documentation we con lude that you are not organized or operated for exempt purposes under sec_501 of the code an organization cannot be recognized as exempt under sec_501 c unless it shows that it is both organized and operated exclusively for charitable education or other exer npt purposes am ng other things the application and supporting documentation must demonstrate conblusively that the organization meets the organizational_test of sec_1 c -1 b of the regulations your organizing document states that in the event of the dissolution of the organization any organization that is the recipient of your assets must qualify as an organization described in section c of the code because this section of the code does not exist you have not met the organizational_test the application and supporting documents must also demonstrate conclusively that the organization meets the operational_test of sec_1_501_c_3_-1 of the regulations your information indicates that your primary purpose is to operate a down payment assistance program that does not exclusively serve a purpose described in sec_501 c charitable purposes include relief of the poor and distressed see sec_1 c -1 d of the regulations and revrul_67_138 however you do not conduct your down payment assistance program in a manner that establishes that your primary purpose is to address the needs of low-income grantees by enabling low-income individuals and families to obtain decent safe housing see revrul_70_585 situation your down payment assistance program does not serve exclusively low-income persons instead your program is open to low and moderate income individuals and to first time home owners in accordance with the safe-harbor guidelines of revproc_96_32 this revenue_procedure specifically states that up to of the residents of a housing project can be moderate income you have not demonstrated that your down payment assistance program exclusively serves any other exempt_purpose such as combating community deterioration and lessening racial tensions you have not shown that your program is designed to attract a mixed in e group of homeowners to a specifically defined geographical area that has a history of racial problems see revrul_70_585 situation sec_2 and you have failed to establish that your operations will be charitable through the relief of the poor and distressed while your program may be open to low and moderate-income persons you have not established that you will meet the safe_harbor of revproc_96_32 for dealing with low-income persons ' your information indicates that you do not limit your assistance to certain geographic areas or target those areas experiencing deterioration or racial tensions see revrul_70_585 situation you have indicated that your activities will initially be conducted in the state of state but that you'hope to extend your program to all homebuyers in the united_states arranging the pur6hase of homes in a broadly defined metropolitan area does not combat community det rioration within the meaning of sec_501 c of the code furthermore you do not directly engage in any activity to ensure that the house will be habitable or that the buyer will be able to afford to maintain the house over time you rely solely on the mo gage lender insurance agency home inspector or other third party to conduct such review you1rely on reputable mortgage lenders to ensure that homebuyers meet your criteria and you rely on appraisers to ensure that the seller does not inflate the sales_price of their home other than recommending that the buyer attend a homebuyer education class you do not provide ovetsight or directly conduct any educational program or other activity to ensure that buyers are purchasing properties that are safe decent sanitary and affordable you state that you will provide educational materials to the homebuyers but that this information has not yet been prepared sec_1 c -1 d i states that the term educational relates to the instruction of the public on subjects useful to the individual and beneficial to the community you do not provide any type of instruction to the public only an insubstantial portion of the activity of an exempt_organization may further a nonexempt purpose as the supreme court held in better business bureau of washington d c inc v united_states supra the presence of a single non-exempt purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes you conduct your operations in a manner that is consistent with a commercial firm seeking to maximize sales of services rather than in a manner that would be consistent with a charitable or educational_organization seeking to serve a charitable_class or the public at large the manner in which you operate your down payment assistance program indicates that you facilitate the sales of homes in a manner that is indistinguishable from an ordinary trade_or_business you operate as a business that provides services to home sellers for which you charge a market rate fee it is clear that the contributions and fees received from the home seller are connected to the sale of their home because you indicate that you will receive the donation from the seller upon the conclusion of each house sale transaction in this respect you are similar to an organization which was denied exemption because it operated a conference center for a commercial purpose see 283_fsupp2d_58 d d c likewise operating a trade_or_business of facilitating home sales is not an inherently charitable activity thus a substantial part of your activities further a nonexempt purpose you are similar to situation in revrul_2006_27 based on the facts that you rely on sell rs and other real-estate related businesses that stand to benefit from the transactions that you facilitate specifically you state that the real_estate company that works for and may both be involved in your operations furthermore in deciding whether to provide assistance to a low-income applicant it is clear that you know the identity of the home seller and may also know the identities of other interested parties and are able to take into account whether the honje seller or another interested_party is willing to make a payment to you your receipt of a paytylent from the home seller corresponding to the amount of the down payment assistance is pre ent in substantially_all of the transactions and your reliance on these payments for a substantial amount of your funding indicates that the benefit to the home seller is a critical asp ct of your operations ano her indication of your substantial nonexempt purpose is your apparent lack of public support although you state that you will receive of your revenues from donations you have not provided any details regarding proposed fundraising plans there is no indication that you will be supported by contributions from the general_public government or private_foundation grants primarily all of your revenue is expected to come from the sellers you serve that your prin1ary activity is to promote and to further your private business interests is reflected in the finahcing structure of your down payment assistance program in this respect you are similar to the brganization described in easter house supra which derived most of its support from fees it chafged for its adoption services in this case the court stated that the substantial fees were not incidental to the organization's exempt_purpose because they were designed to make a proijt facilitating home sales like running an adoption service is not an inherently charitable acti ity and receiving support primarily from fees charged to home sellers is indicative of your c0 11mercial purpose l sec_1_501_c_3_-1 e states that an organization may operate a trade_or_business provided the organization's primary purpose does not consist of carrying on an unrelated_trade_or_business your primary purpose is the facilitation of home sales this primary purpose is considered operations of a trade_or_business even if your program would be directed to exclusively low-income individuals your reliance entirely on home sellers or other real-estate related businesses that stand to benefit from the transactions to finance your down payment assistance activities demonstrates that you are operated for the purpose of benefiting private parties you have not yet developed specific policies or grant making procedures you state that you will receive donations from the home sellers only upon the conclusion of the home sale transaction however this only implies that gift funds are only provided to the buyer if a seller has paid a service fee the sellers will make the payments to you and indirectly to the home buyer to facilitate the sale of their homes upon the closing of the sale the sellers service fee to you is returned to the seller as part of the proceeds the seller receives from the sale of the home your information clearly indicates that you take into account whether there is a home seller willing to make a payment to cover the down payment assistance an applicant has requested that you receive a payment from the home seller corresponding to the amount of the down payment assistance plus the service fee indicates that the benefit to the home seller is not a me accident but rather an intended outcome of your operations in this respect you are like easter house supra which provided health care to indigent pregnant women but only when a family willing to adopt a woman's child sponsored the care financially similar to american campaign academy supra you are structured and operated to directly benefit the home sellers who pay for your services therefore a substantial part of your activities serve a private rather than a public interest i althbugh you have provided information that hud and other governmental agencies are contemed with the provision of safe decent and affordable housing you have not proven that any 1government agency considers the provision of down payment assistance to homebuyers to be their burden in university medical resident services p c et al v commissioner t c memo it states that an organization lessens the burdens of government if the activities und rtaken are those that government considers to be its burden and those activities actl ially lessen such burden revrul_85_2 1985_1_cb_178 states that a favorable working rela ionship between the government and the organization is strong evidence that the organization is actually lessening the burdens of government revrul_85_1 1985_1_cb_177 stat s that the interrelationship between the governmental_unit and the organization may prm ide evidence that the governmental_unit considers the activity to be its burden you have not provided any facts or other evidence of an objective manifestation by any government age lcy that it considers the provision of down payment assistance to be part of their burden hud's mission statement states that its mission is to provide a decent safe and sanitary home and suitable living environment for every american and that their goals include increasing affotdable housing and home ownership however there is no indication of any specific activities they are recognizing as their burden or whether such activities were intended to be pe rmed on a normal commercial basis or by a limited group of non-profit organizations as ---- - - ----- sucm it cannot be assumed that hud considers the provision of down payment assistance to homebuyers as their burden in addition you have not met many of the other factors that are to be considered when determining whether an organization is lessening the burdens of government specifically you have not shown that you are acting on the government's behalf by freeing up assets that the government would otherwise devote to this activity you do not have an interrelationship with a government unit you are not conducting an activity that was previously conducted by a government unit you do not defray the expenses of a government unit or pay the debts of a government unit and you do not receive funding from the government unit you claim to be assisting because you have not shown that the provision of down payment assistance to homebuyers is a burden of the government you also have not shown that you are lessening the burdens of government irrespective of whether an organization's activities lessen the burden of government an organization must still demonstrate that its activities serve a public rather than a private interest sec_1 c -1 d ii states that an organization must establish that it is not organized and operated for the benefit of private interests even if it were determined that your activities were lessening the burdens of government your reliance entirely on home sellers or other real_estate related businesses that stand to benefit from the transactions to finance your down payment assistance activities demonstrates that you are operated for the purpose of benefiting private parties this is specifically demonstrated by the fact that you have stated that you may use the services of both the real_estate company that a serves as a broker for and the lending inst ution that is involved with bas d on the facts and information submitted you are not operated exclusively for exempt purp oses you have not established that you activities exclusively serve a charitable_class or any other purpose defined in sec_501 your proposed operations further a substantial non xempt business_purpose and will further the private interests of home sellers and other priv te parties in addition you have not established that your net_earnings will not inure to the benefit of private shareholders or individuals therefore you are not described in sec_501 of the code accbrdingly you do not qualify for exemption as an organization described in sec_501 c of ttie code and you must file federal_income_tax returns corltributions to you are not deductible under sec_170 of the code ' you have the right to file a protest if you believe this determination is incorrect to protest you mu t submit a statement of your views and fully explain your reasoning you must submit the stat ment signed by one of your officers within days from the date of this letter we will consider your statement and decide if that information affects our determination if your statement does not provide a basis to reconsider our determination we will forward you case to our fo ppeals office you can find more information about the role of the appeals_office 1n publication exempt_organization appeal procedures for unagreed issues an ttorney certified_public_accountant or an individual enrolled to practice before the l ternal revenue service may represent you during the appeal process to be represented dunng the appeal process you must file a proper power_of_attorney form_2848 power_of_attorney and declaration of representative if you have not already done so for more information about representation see publication practice_before_the_irs and power_of_attorney all forms and publications mentioned in this letter can be found at www irs gov forms and publications if you do not intend to protest this determination you do not need to take any further action if we do not hear from you within days we will issue a final adverse determination_letter to you that letter will provide information about filing tax returns and other matters please send your protest statement form_2848 and any supporting documents to the applicable address us mail internal_revenue_service exempt_organizations p box cincinnati oh street address internal_revenue_service exempt_organizations main st federal bldg cincinnati oh you may also fax your statement using the fax number shown in the heading of this letter if you jax your statement please call the person identified in the heading of this letter to confirm thathe or she received your fax if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely f lois g lerner director exempt_organizations rulings agreements f


internal_revenue_service number release date uil ---------------------------------- ----------------------------------- ------------------------------ in re --------------------------------------------- --------------------------------------------- ---------------------------------------- ------------------------------------------------- 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 b04 plr-122197-07 date april legend ---------------------------------------------- ------------------- --------------------------- -------------------------- ---------------------- ----------------------------------------- ----------------------------------------- --------------------------------------------------------- --------------------------------------------------------- ----------------------------------------------------- ----------------------------------------------------- grantor spouse child a child b child c trust trust trust ---------------------------------------------------- trust ----------------------------------------------------- trust ----------------------------------------------------- trust ----------------------------------------------------- corporation trustees accountant attorney date date ---------------------------------------------- ------------------------------------------------ ------------------------ ------------------------------- ----------------------- ---------------------- plr-122197-07 year year ------- ------- dear --------------- this is in response to a letter from your authorized representative dated date requesting an extension of time under sec_301 of the procedure and administration regulations to make an allocation of generation-skipping_transfer gst_exemption facts the facts and representations submitted are summarized as follow grantor executed two irrevocable_trust instruments trust and trust on date in year each trust instrument created one trust for the benefit of her three children child a child b and child c and their descendants for a total of six trusts trust 1a trust 1b trust 1c trust 2a trust 2b and trust 2c trust and trust were funded with shares of stock in corporation no additional transfers have been made to trust sec_1 and both trusts contain basically identical provisions article v provides that trustees may divide trust and trust in equal or unequal shares to create trusts with a zero inclusion_ratio attorney drafted the trust agreement accountant prepared the form 709s united_states gift and generation-skipping_transfer_tax returns for year accountant had a professional relationship with grantor in previous years and understood that he was to elect gift-splitting and allocate grantor’s and spouse’s gst_exemption grantor’s and spouse’s year form sec_709 reflect the gift-splitting treatment and a portion of their gst exemptions was allocated to trust 1a and trust 2a for the benefit of child a however accountant did not allocate grantor’s and spouse’s gst_exemption to the trusts for the benefit of child b and child c the error was discovered in year grantor and spouse have divorced as a result on date trustees severed the trusts for the benefit of child b and child c so that one set of trusts contains assets attributable to grantor’s contributions to trusts for the benefit of child b_trust and trust and one set of trusts contains assets attributable to spouse’s contributions to trusts for the benefit of child c trust and trust it is represented that no taxable_distributions or taxable terminations have occurred with respect to these trusts grantor signed an affidavit stating that she was advised by attorney to gift-split and allocate gst_exemption to trust sec_1 and grantor also stated in the affidavit that she advised accountant to split the gifts and allocate gst_exemption to trust sec_1 and plr-122197-07 on grantor’s form_709 accountant signed an affidavit stating that he signed the form sec_709 and believed the intention of grantor had been accurately addressed on the forms a later review by accountant discovered the omission of that allocation to the trusts for the benefit of child b and child c you have requested an extension of time to allow grantor to allocate gst_exemption to the transfers she made to trust sec_3 and law and analysis sec_2601 of the internal_revenue_code imposes a tax on every generation- skipping transfer a generation-skipping_transfer is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2631 as in effect for the tax years at issue provided that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that an allocation of gst_exemption to property transferred during the transferor’s lifetime other than in a direct_skip is made on form_709 sec_2642 provides that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 sec_2642 provides that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph sec_2642 provides that in determining whether to grant relief under this paragraph the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief under this paragraph the time for making the allocation or election shall be treated as if not expressly prescribed by statute plr-122197-07 notice_2001_50 2001_2_cb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers is to be treated as if not expressly prescribed by statute and taxpayers may seek an extension of time to make an allocation described in sec_2642 or b under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose date is prescribed by a regulation and not expressly provided by statute in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore grantor is granted an extension of time of days from the date of this letter to make an allocation of her available gst_exemption with respect to her transfers to trust sec_3 and for the benefit of child b and child c the allocation will be effective as of the respective date of the transfers to the trusts and the value of the transfers to the trusts as determined for federal gift_tax purposes will be used in determining the amount of grantor’s exemption to be allocated to the trusts this allocation should be made on a supplemental form_709 and filed with the cincinnati service_center at the following address internal_revenue_service cincinnati service_center - stop cincinnati oh a copy of this letter should be attached to the supplemental form_709 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination plr-122197-07 except as specifically ruled herein we express or imply no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely william p o’shea associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter cc


date cc ita b04 ------------ conex-107976-05 internal_revenue_service number info release date uil the honorable rick santorum united_states senate washington dc dear senator santorum i am responding to your letter dated date to mark everson commissioner of internal revenue you asked us to reverse the position taken in our date memorandum that taxpayers who receive grants to improve property under the flood mitigation assistance program fma the pre-disaster mitigation program pdm and the hazard mitigation grant program hmgp must include the grants in gross_income i assure you that we have thoroughly reviewed our position in the memorandum because of its importance to taxpayers who wish to participate in the mitigation programs we concluded that our position is consistent with current law and that the mitigation grants do not qualify for existing statutory or administrative exceptions that would exclude them from income_tax under current law gross_income generally includes all income from whatever source derived under specific existing statutory and administrative exceptions gross_income excludes certain governmental payments made to individuals in response to need resulting from particular disaster damage that already has occurred for example post- disaster relief such as fema grants that help individuals meet necessary expenses or serious needs for medical dental housing personal_property transportation or funeral_expenses is excluded from gross_income the nontaxability of those payments remains unaffected by the date memorandum however grants under the fma pdm and hmgp are made to communities businesses and individuals to reduce the risks to hazard-prone properties from future events for this and other reasons mitigation grants under these programs generally do not qualify for existing statutory or administrative exceptions the administration shares your concerns however and believes that the internal_revenue_code should be amended to achieve the policy objective of reducing damages from future disasters in date then-treasury deputy secretary bodman wrote to house ways_and_means_committee chairman william thomas and senate_finance_committee chairman charles grassley to urge enactment of appropriate legislation in addition the president in his recent budget recommendations for fiscal_year recommended that the congress amend the code to explicitly exclude fema mitigation grants from income see department of the treasury general explanations of the administration’s fiscal_year revenue proposals date you also wrote that taxpayers who received fema mitigation assistance in may be unaware that such grants would be taxable as for prior payments i understand that recognition of the history with respect to particular taxpayers will certainly be taken into account as to whether any enforcement activity by the irs in this regard is warranted i hope this information is helpful if you have any questions please contact me at -------- -------------- sincerely robert m brown associate chief_counsel income_tax accounting


t c memo united_states tax_court tom reed petitioner v commissioner of internal revenue respondent docket no 27604-11l filed date george w connelly jr heather m pesikoff and renesha n fountain for petitioner david baudillo mora and gordon p sanz for respondent supplemental memorandum opinion kroupa judge this matter is before the court on petitioner’s motion for reconsideration of our findings and opinion in reed v commissioner t c __ this opinion supplements our prior opinion reed v commissioner t c __ date date reed i see rule we held in reed i that we had jurisdiction to determine whether respondent abused his discretion in sustaining a final notice_of_intent_to_levy proposed collection action we further held that respondent could not be required to reopen an offer-in-compromise oic based on doubt as to collectibility that respondent had returned to petitioner years before a collection_due_process_hearing collection hearing commenced additionally we held that it was not an abuse_of_discretion for respondent to sustain the proposed collection action petitioner now asks us to reconsider the latter two holdings of reed i we will deny his motion background we adopt the findings_of_fact we made in reed i we summarize the factual and procedural background briefly here and make additional findings as required for our ruling on the motion for reconsideration petitioner failed to file federal_income_tax returns timely for years through years at issue petitioner eventually filed returns for the years at issue delinquent returns but did not fully satisfy his liabilities for the taxes penalties and interest arising from the delinquent returns outstanding tax rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated liabilities petitioner submitted two separate oics to settle his outstanding tax_liabilities only one of these oics is now relevant a the offer petitioner submitted an oic to respondent’s houston offer_in_compromise unit offer unit in offer petitioner proposed settling the outstanding tax_liabilities of almost one-half million dollars for dollar_figure based on doubt as to collectibility the offer unit determined that petitioner had failed to demonstrate he was in compliance with his federal_income_tax obligations at the time he submitted the offer the offer unit returned the offer because it had determined that petitioner was not current with his estimated_tax payments for petitioner then exchanged several letters with the offer unit petitioner attempted through the letter exchange to have the offer unit reconsider its returning the offer to this end petitioner argued that he was in fact in compliance with his federal_income_tax obligations at the time he submitted the offer petitioner also argued in the letter exchange that he should be given the opportunity to comply if in fact he was not in compliance at the time he submitted the offer petitioner continued to make payments during the letter exchange consistent with the offer the letter exchange ultimately failed to convince the offer unit to alter its decision to return the offer to petitioner b the collection_due_process_hearing respondent subsequently issued a final notice_of_intent_to_levy for the years at issue petitioner timely requested a collection hearing settlement officer liana a white so white at houston appeals was assigned to conduct the collection hearing petitioner challenged the manner in which respondent had handled the offer so white issued the determination notice in late sustaining the proposed collection action discussion petitioner again urges us to find that respondent abused his discretion so that petitioner can effectively extinguish his outstanding tax_liabilities we begin with this court’s standard for deciding whether to grant a motion for reconsideration we then address petitioner’s contentions i standard under rule sec_161 we now discuss our standard for deciding whether to grant a motion for reconsideration of our findings or opinion see rule the decision rests within the discretion of the court 79_tc_1054 aff’d 755_f2d_790 11th cir it is the court’s policy to try all issues raised in a case in one proceeding to avoid piecemeal and protracted litigation id accordingly we generally do not exercise our discretion to grant such a motion without a showing of substantial error or unusual circumstances haft trust v commissioner 62_tc_145 aff’d on this ground 510_f2d_43 n 1st cir a motion for reconsideration is not the appropriate forum for rehashing previously rejected legal arguments or tendering new legal theories to reach the end result the moving party desires 110_tc_440 ii the motion for reconsideration we now focus on the motion for reconsideration petitioner asks us to find that respondent abused his discretion by sustaining the proposed collection action petitioner wants us to direct the internal_revenue_service irs appeals_office to either consider the offer or to return it to the offer unit for consideration petitioner asks us to do this however by simply rehashing the arguments he made during the initial proceeding we heard and considered these arguments once and find it inappropriate to reconsider reed i simply because petitioner has raised these arguments for a second time see estate of quick v commissioner t c pincite dynadeck rotary sys ltd v commissioner tcmemo_2001_ we briefly address petitioner’s tax compliance arguments however because doing so will allow us to provide additional details of our reasoning in reed i petitioner first reiterates his argument that he was in compliance with his federal_income_tax obligations for when he submitted the offer the offer unit determined otherwise at trial so white explained that she reviewed the relevant files and concluded that petitioner was not in compliance for because he had failed to timely submit an estimated_tax payment for she further explained that the addition_to_tax assessed against petitioner for failing to timely pay his estimated_tax payments supported her conclusion so white’s determination was not arbitrary capricious or without a sound basis in fact or law accordingly petitioner’s argument lacks merit petitioner next repeats his contention that he should have been given more of an opportunity to get in compliance with his federal_income_tax obligations if he was not in compliance at the time he submitted the offer petitioner again draws our attention to some frequently asked questions faqs posted to the irs’ web site and certain internal_revenue_manual irm provisions he claims that the offer unit failed to give him the opportunity described in the faqs and the our role is not to substitute our own judgment for that of so white see 125_tc_301 aff’d 469_f3d_27 1st cir we do not decide independently whether we believe the levy should be withdrawn see id irm provisions petitioner contends that so white abused her discretion when she sustained the proposed collection action anyway it is not an abuse_of_discretion for the commissioner to return an oic because of a taxpayer’s failure to meet current tax obligations 461_f3d_610 5th cir further informal guidance such as the faqs posted to the irs’ web site is not an authoritative source of federal tax law see nelson v commissioner tcmemo_2013_259 citing zimmerman v commissioner 71_tc_367 aff’d without published opinion 614_f2d_1294 2d cir moreover the irm does not have the force of law and does not confer enforceable rights on taxpayers 447_f3d_706 9th cir holding that the irm does not require the commissioner to negotiate with a taxpayer aff’g tcmemo_2004_13 in any event the record reflects that the offer unit sent petitioner a letter notifying him that he had to be in compliance with his estimated_tax payment obligations before the offer unit would consider the offer the record further petitioner argued in the initial proceeding and again argues in the motion for reconsideration that the offer was improperly returned on the basis of tax noncompliance we note that petitioner has not argued that respondent’s returning the offer was a de_facto rejection of the offer rather than a return of the offer reflects that petitioner did not request additional time to comply petitioner was on notice that he had to be in compliance with his federal_income_tax obligations before the offer unit would consider his offer petitioner was not in compliance and the offer unit returned the offer to him thus petitioner’s argument lacks merit iii conclusion petitioner has provided no valid basis for us to reconsider our findings or opinion in reed i accordingly we will deny his motions we have considered all remaining arguments the parties made and to the extent not addressed we find them to be irrelevant moot or meritless to reflect the foregoing an appropriate order will be issued


aa ast noy tax_exempt_and_government_entities_division department of the treasury internal_revenue_service washington d c oct se tier rat uniform issue list legend taxpayer a ira account b ira account c financial_institution d date e year f financial_institution g financial_institution h financial_institution amount amount amount amount amount 201vuu03038 dear this letter is in response to a request for a letter_ruling dated date from your authorized representative in which you have applied for a waiver of the 60-day rollover requirement contained in sec_408 d of the internal_revenue_code the code regarding the distribution of amount sec_1 and totaling amount from your individual_retirement_accounts ira accounts b and c respectively maintained with financial_institution d the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a age at the time of the distribution of amount sec_1 and from ira accounts b and c asserts that her failure to accomplish a rollover within the day period prescribed by sec_408 of the code was due to her deteriorating mental condition which impaired her ability to make financial decisions and prevented her from understanding the nature of her actions taxpayer a further represents that amount is now in an account with financial_institution and has not been used for any purpose taxpayer a held two individual_retirement_accounts ira accounts b and c at financial_institution d taxpayer a withdrew the funds totaling amount from both iras to establish two certificates of deposit at financial_institution g on date e one was a certificate of deposit for amount the other was a flexible cd certificate for amount neither of the two new_accounts was an ira taxpayer a asserts that she was not aware that the funds held at financial_institution d were in retirement accounts was not aware of the 60-day rollover requirement and was not advised of the 60-day rollover requirement by anyone at financial_institution d upon the maturity of the cds at financial_institution g taxpayer a opened a new cd at financial_institution h using amount from the larger cd taxpayer a deposited the interest accrued on amount plus the interest and principal from amount into her checking account for her own personal_use taxpayer a subsequently closed the financial_institution h account in year f and deposited amount plus interest accrued into an account at financial_institution where it currently remains documentation submitted with taxpayer a's request reflects that taxpayer a has been treated for medical conditions which have left taxpayer a with cognitive problems she has been experiencing memory loss for years and has sustained several serious accidents requiring medical attention 201uu3031 based on the above facts and representations taxpayer a has requested a ruling that the internal_revenue_service service waive the 60-day rollover requirement contained in sec_408 of the code with respect to the entire distribution amount she received on date e sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not tater than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408i from an ira which was not includible in gross_income because of the application of sec_408 d sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer a is consistent with her assertion that her failure to accomplish a rollover of amount within the 60-day rollover period authorized by sec_408 of the code was due to medical conditions which impaired her cognitive ability to accomplish a timely rollover or understand complex financial matters therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount from ira accounts b and c taxpayer a the issuance of this letter_ruling to contribute amount into a rollover ira provided all other requirements of sec_408 except the 60-day requirement are met with respect to such contribution amount will be considered a rollover_contribution within the meaning of sec_408 is granted a period of days from no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations that may be applicable thereto this ruling does not authorize the rollover of amounts that are required to be distributed by sec_401 of the code this ruling letter 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 copies of this letter and related documents have been sent to your authorized representative in accordance with a power_of_attorney on file in this office if you wish to inquire about this ruling please contact id number - by phone at - or by fax at - _ please address all correspondence to se t ep ra t1 sincerely oll g-waller cariton a watkins manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose copy of cover letter to authorized representative cc


internal_revenue_service number release date index number ------------------- ------------------------------------------------ ---------------------------------- -------------------------- ----------- -------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------ id no ----------------- telephone number --------------------- refer reply to cc tege eb hw plr-105690-09 date date legend taxpayer ---------------------------------------------------------- ----------------------------------------- trust ----------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------- -------------------------------------------------------------------------------- plan ---------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------- state board state board -------- ------------------------------ -------------------------------------------- regional authority ---------------------------------------------------- authority act ------------------------------------------------------ --------------------------------------------------- trust act -------------------------------------------------------------- ---------------------------------------- dear ------------- plr-105690-09 this is in reply to your letter dated date and subsequent correspondence in which you request various rulings on behalf of taxpayer with respect to plan and trust facts taxpayer is a state municipal corporation created pursuant to the authority act taxpayer is governed by the board which is appointed by a state and a local_government official an incompetent neglectful or malfeasant board member may be removed by the government_official who appointed him pursuant to state statute the regional authority controls and allocates state or federal funds for taxpayer’s finances and operating costs the regional authority also uses local operating assistance to pay the ongoing costs associated with taxpayer’s operation and management the trust act required the establishment of trust trustees are appointed in accordance with the procedures of the trust act the trustees adopted trust agreement creating trust in order to provide eligible retirees of taxpayer and their spouses and dependents retiree medical benefits in accordance with the trust act and the terms of taxpayer’s underlying health benefits program plan in accordance with the trust act trust shall become solely responsible for such benefits no private interests participate in or benefit from the operation of trust other than for the payment of reasonable costs as providers of goods and services trust assets include all contributions received by trust on behalf of any of taxpayer’s employees including the net_proceeds of certain bonds and notes and employee and plan participant contributions together with the income and earnings from such contributions the assets are only available to pay post-employment medical benefits of employees of taxpayer and their spouses and dependents the trustees may invest trust assets in any of the investments that are permitted_investments for the investment of money held in one or more of the pension or retirement systems of state any unit of local_government or school district or any agency_or_instrumentality thereof alternatively the trustees may vote to transfer trust asset investment responsibility to the state board trust’s assets are held in trust for the exclusive purpose of providing post-employment medical benefits to the employees of taxpayer their spouses and dependents and defraying the reasonable expenses associated with providing these benefits and cannot be used for or diverted to any other purpose no amendment of the trust agreement by the trustees shall divert the corpus or income of trust to a purpose other than providing post-employment medical benefits in accordance with the terms of the trust act trust proposes to amend its bylaws to clarify that in no case shall there be a distribution by trust to an entity that is not a state a political_subdivision of a state or an entity the plr-105690-09 income of which is excluded from gross_income under sec_115 of the internal_revenue_code the code in the event trust is to be dissolved and any assets remain in trust at that time those assets shall be used for the exclusive benefit of retirees spouses and dependents in accordance with trust act and plan trust act requires the trustees to establish plan to provide retiree medical benefits for the retirees of taxpayer and their spouses and dependents an individual who terminates employment with taxpayer on or after the effective date of trust act will be an eligible retiree for purposes of plan if on the employment termination_date the individual a is at least age b retires with at least years of continuous service with taxpayer and c satisfies other rules in trust act and meets the requirements of any rules or regulation promulgated by the trustees trust is funded by the net_proceeds of bonds and notes issued by taxpayer pursuant to trust act funding also consists of employee and participant contributions specifically the trust act requires employees to contribute three percent of their compensation to the trust employees may not choose among cash benefits and making the contribution rather the three percent of compensation contributions are mandatory plan participant contributions may not exceed of the total cost of their benefits under plan the medical benefits offered to plan participants consist solely of insured group accident and health_plans law and analysis sec_115 of the code provides that gross_income does not include income derived from any public_utility or the exercise of any essential government function and accruing to a state or any political_subdivision thereof in revrul_77_261 1977_2_cb_45 income from an investment fund established under a written declaration of trust by a state for the temporary investment of cash balances of the state and its participating political subdivisions was excludable from gross_income for federal_income_tax purposes under sec_115 the ruling indicated that the statutory exclusion was intended to extend not to the income of a state or municipality resulting from its own participation in activities but rather to the income of a corporation or other entity engaged in the operation of a public_utility or the performance of some governmental function that accrued to either a state or municipality the ruling points out that it may be assumed that congress did not desire in any way to restrict a state’s participation in enterprises that might be useful in carrying out projects that are desirable from the standpoint of a state government and which are within the ambit of a sovereign to properly conduct in addition pursuant to sec_6012 and the underlying regulations the investment fund being classified as a plr-105690-09 corporation that is subject_to taxation under subtitle a of the code was required to file a federal_income_tax return each year in revrul_90_74 1990_2_cb_34 the service determined that the income of an organization formed funded and operated by political subdivisions to pool various risks casualty public liability workers’ compensation and employees’ health was excludable from gross_income under sec_115 of the code in revrul_90_74 private interests neither materially participate in the organization nor benefit more than incidentally from the organization trust provides medical benefits to retired employees of taxpayer their spouses and dependents taxpayer is a municipal corporation of state providing medical benefits to former public employees constitutes the performance of an essential government function based upon revrul_90_74 and revrul_77_261 trust performs an essential_governmental_function within the meaning of sec_115 of the code the income of trust accrues to taxpayer no private interests participate in or benefit from the operation of trust other than as providers of goods or services the trust’s dedication of its corpus or income exclusively for the benefit of the retirees their spouses and dependents satisfies an obligation taxpayer has assumed or been assigned with respect to providing health benefits to its employees the benefit to taxpayer’s participating employees their spouses and dependents is incidental to the public benefit see revrul_90_74 sec_61 of the code and sec_1_61-21 of the income_tax regulations provide that except as otherwise provided in subtitle a of the code gross_income includes compensation_for services including fees commissions fringe_benefits and similar items however sec_106 of the code provides that gross_income of an employee does not include employer-provided coverage under an accident_or_health_plan sec_1_106-1 of the regulations provides that the gross_income of an employee does not include contributions which his employer makes to an accident_or_health_plan for compensation through insurance or otherwise to the employee for personal injuries or sickness incurred by him his spouse or his dependents as defined in sec_152 the employer may contribute to an accident_or_health_plan either by paying the premium or a portion of the premium on a policy of accident_or_health_insurance covering one or more of his employees or by contributing to a separate trust or fund including a fund referred to in sec_105 which provides accident and health benefits directly or through insurance to one or more of his employees however if the insurance_policy trust or fund provides other_benefits in addition to accident or health sec_106 applies only to the portion of the contributions allocable to accident or health benefits plr-105690-09 coverage provided under an accident_and_health_plan to former employees and their spouses and dependents is excludable from gross_income under sec_106 see revrul_62_199 1962_2_cb_32 revrul_82_196 1982_2_cb_53 but employer-provided coverage under an accident_or_health_plan for personal injuries or sickness incurred by individuals other than the employee his or her spouse or his or her dependents as defined in sec_152 is not excludable from the employee’s gross_income under sec_106 sec_3402 requires employers paying wages to deduct and withhold income_tax on wages for income_tax_withholding purposes sec_3402 provides that the term wages with certain exceptions means all remuneration for services performed by an employee for an employer however revrul_56_632 1956_2_cb_101 holds that when premiums_paid by an employer under policies providing hospital and surgical services are excludable from the employees’ gross_income under sec_106 the amounts paid_by the employer are not subject_to federal_income_tax withholding under sec_3111 and sec_3301 federal_insurance_contribution_act fica tax and federal_unemployment_tax_act futa_tax respectively excise_taxes are imposed on the employer in an amount equal to a percentage of the wages paid under sec_3101 fica tax is also imposed on the employee under sec_3121 and sec_3306 the term wages for fica and futa_tax purposes means with certain exceptions all remuneration for employment however sec_3121 and sec_3306 provide that the term wages does not include any payment including any amount_paid by an employer for insurance made to or on behalf of an employee or any of his dependents for medical or hospitalization expenses based on the information submitted and representations made we conclude as follows provided the amendment to the trust bylaws described above is adopted and as of the date the amendment is adopted the income of trust will be derived from the exercise of an essential_governmental_function and will accrue to a state or a political_subdivision thereof for purposes of sec_115 accordingly trust’s income will be excludable from gross_income under sec_115 of the code contributions paid to plan including mandatory employee contributions which are used exclusively to pay for the accident or health coverage of retired employees their spouses and dependents as defined in sec_152 are excludable from gross_income under sec_106 however to the extent individuals are covered under plan who do not qualify as a spouse or dependent under sec_152 of the employee the plan will in accordance with applicable tax law include in the gross_income of those employees the fair_market_value of the coverage for the nonspouse or nondependent plr-105690-09 contributions paid to plan including mandatory employee contributions which are used exclusively to pay for the accident or health coverage of retired employees their spouses and dependents as defined in sec_152 are not subject_to the withholding requirements and taxes under sec_3402 sec_3111 sec_3101 and sec_3301 no opinion is expressed on the classification of trust as a_trust or corporation for federal tax purposes further no opinion is expressed concerning the federal tax consequences of plan or trust under any other provision of the code other than those specifically stated herein 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 in accordance with the power_of_attorney on file with this office copies of this letter are being sent to your authorized representatives sincerely harry beker branch chief health and welfare branch office of associate chief_counsel division counsel tax exempt and government entities