department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division release number release date date date uil code contact person identification_number contact number employer_identification_number form required to be filed tax years all years dear this is our final_determination that you do not qualify for exemption from federal_income_tax as an organization described in internal_revenue_code sec_501 recently we sent you a letter in response to your application that proposed an adverse determination the letter explained 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 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 accordance 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 should contact your state officials if you have any questions about how this determination may affect your state responsibilities and requirements letter cg catalog number 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 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 if you have any questions about your sincerely robert s choi director exempt_organizations rulings agreements enclosure notice redacted proposed adverse determination_letter redacted final adverse determination_letter letter cg catalog number department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division date date legend a name of organization b state c name of supported_organization d name of person e name of person f name of person g name of person z date dear contact person identification_number contact number fax number employer_identification_number uil nos we have considered your application_for recognition of exemption from federal_income_tax under internal_revenue_code sec_501 based on the information provided we have concluded that you do not qualify for exemption under code sec_501 and further that you are not a supporting_organization as defined in sec_509 of the code the basis for our conclusion is set forth below issues does a who is not operational and cannot identify any disqualified persons or non- marketable assets to be received qualify for exemption under sec_501 of the code if ais exempt is it a supporting_organization as described in sec_509 of the code facts form_1023 application_for recognition of exemption under sec_501 of the internal_revenue_code was submitted date information submitted with the application indicates that a was incorporated in the state of b on z letter cg name of organization employer_identification_number a is requesting exemption as a public charity under sec_509 of the code schedule d of form_1023 states a will be supervised operated and controlled by one or more publicly supported organizations described in sec_509 or sec_509 the supported_organization is c article third of the articles of incorporation states the corporation is organized and shall be operated exclusively for charitable purposes by conducting or supporting activities exclusively for the benefit of to perform the functions of or to carry out the charitable purposes of c which include without limitation making grants and distributions to c or other qualified organizations as herein defined the articles of incorporation go on to define qualified organizations as an organization described in sec_501 and sec_509 or of the code article sec_1 of the code of regulations states there shall be two classes of members known as the public member and the donor members the public member shall be c the initial donor member shall be f sec_5 of article provides that for purposes of any vote or action of members the public director shall have one vote more than the number of donor members and each donor member shall have one vote article i sec_1 states the public director class shall consist of two or more directors each of whom shall be a director or officer of c or persons whom c determines will be appropriate representatives the public directors the donor director class shall consist of one or more directors the donor directors the number of directors shall be three two of the public director class and one of the donor director class unless fixed at a higher number however the number of public directors shall at all times be greater than the number of donor directors by at least one the public member shall be entitled to elect the public directors and the donor members as a class shall be entitled to elect the donor directors the public directors are d and e the donor director is f additionally g is identified as an officer the secretary treasurer g also serves as the executive director of c in addition to her role as public director d is also identified as the president the present donor director f is the treasurer of c successor donor member who is likely to be a disqualified_person with respect to the organization after the organization receives a substantial charitable_contribution f will not make any contributions to the organization but will appoint a the application form_1023 states that a will perform the functions of c by making grants which are consistent with and which carry out the purposes of c as expressed in c’s articles of incorporation grants will be made to c and to other organizations that are tax-exempt under sec_501 of the internal_revenue_code and described in code sec_509 or for charitable scientific educational or religious programs which benefit perform the functions of or carry out the purposes of c c is a public charity described in code sec_509 and operates as a community_foundation which seeks to serve a broad range of charitable needs in its local area letter cg name of organization employer_identification_number d a t the application form_1023 states the organization currently has no assets and that after the receipt of initial contributions the organization will hold its assets primarily as an endowment fund distributing only income from the assets a will accept contributions of real_property conservation easements closely held securities intellectual_property works of music or art licenses royalties automobiles boats planes or other vehicles collectibles and other types of gifts each in accordance with internal_revenue_service rules and regulations regarding the acceptance of such gifts the organization has not received any such contribution to date the financial data provided with form_1023 shows that the organization did not expect to receive any revenue or incur any expenses during the years each year as well as dollar_figure were dollar_figure in contributions gifts grants etc paid each year indicated the organization expected to receive dollar_figure per year in gross_investment_income the only expenses reflected tax_year the proposed budgets for in contributions and the application also states that c may manage the fundraising and grant making activities of the organization per additional information submitted in response to our correspondence you indicate your organization will utilize the gift acceptance policies and procedures of c you also indicate that you have submitted another application very similar to this organization which the service approved and that you may submit more applications using this structure you indicate you anticipate that a will be funded by a substantial contribution of non-marketable assets from a single donor who will become the donor director you also indicate you do not anticipate multiple donors a expects to begin soliciting for contributions accepting contributions and thereafter making disbursements to c upon receiving a favorable determination_letter from the internal_revenue_service recognizing it as a supporting_organization described in sec_509 issue - sec_501 law sec_501 of the code provides in part that organizations described in sec_501 are exempt from federal_income_tax sec_501 of the code describes in part an organization which is organized and operated exclusively for religious charitable scientific testing for public safety literary or educational purpose no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_501 of the code provides in part for the exemption from federal_income_tax of organizations organized and operated exclusively for charitable religious or educational_purposes no part of the net_earnings of which inures to the benefit of any private shareholder or letter cg name of organization employer_identification_number individual sec_1_501_c_3_-1 of the income_tax regulations states that in order to qualify under sec_501 of the code an organization must be both organized and operated exclusively for one or more of the purposes specified in such section meet either the organizational or operational_test it is not exempt if an organization fails to sec_1_501_c_3_-1 of the regulations states the term exempt_purpose or purposes means any purpose or purposes specified in sec_501 of the code sec_1_501_c_3_-1 of the regulations states that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more such exempt purposes specified in sec_501 of the code an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_1 c -1 c of the regulations provides that an organization is not operated exclusively for one or more exempt purposes if its net earning inure in whole or in part to the benefit of private shareholders or individuals sec_1_501_c_3_-1 of the regulations states that an organization is not operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest created it it must not be operated for the benefit of designated individuals or the persons who section dollar_figure of revproc_90_27 reads in part exempt status will be recognized in advance of operations if proposed operations can be described in sufficient detail to permit a conclusion that the organization will clearly meet the particular requirements of the section under which exemption is claimed a mere restatement of purposes or a statement that proposed activities will be in furtherance of such purposes will not satisfy this requirement the organization must fully describe the activities in which it expects to engage including the standards criteria procedures or other means adopted or planned for carrying out the activities the anticipated sources of receipts and the nature of contemplated expenditures sec_4 of revproc_2008_09 provides in pertinent part dollar_figure exempt status may be recognized in advance of the organization’s operations if the proposed activities are described in sufficient detail to permit a conclusion that the organization will clearly meet the particular requirements for exemption pursuant to the section of the internal_revenue_code under which exemption is claimed amere restatement of exempt purposes or a statement that proposed activities will be in furtherance of such purposes will not satisfy this requirement the organization must fully describe all of the activities in which it expects to engage letter cg name of organization employer_identification_number including the standards criteria procedures or other means adopted or planned for carrying out the activities the anticipated sources of receipts and the nature of contemplated expenditures where the organization cannot demonstrate to the satisfaction of the service that it qualifies for exemption pursuant to the section of the internal_revenue_code under which exemption is claimed the service will generally issue a proposed adverse determination_letter or ruling see also section dollar_figure even though an application is substantially complete the service may request additional information before issuing a determination_letter or ruling if the application involves an issue where contrary authorities exist an applicant's failure to disclose and distinguish contrary authorities may result in requests for additional information which could delay final action on the application application sec_501 of the code and sec_1_501_c_3_-1 of the regulations sets forth two requirements for qualification for exempt status an organization must be organized and operated exclusively for purposes described in sec_501 of the code because a’s articles of incorporation state purposes described in sec_501 of the code and upon dissolution all assets will go to organizations that are exempt under sec_501 of the code a passes the organizational_test a must however satisfy the operational_test the key requirement is that an organization be operated exclusively for one or more purposes describe in sec_501 of the code ais not operational as a conducts no activities and is not operating it is not operated exclusively for exempt purposes therefore a fails the operational_test reg c -1 c clarifies that an organization is not operated exclusively for exempt purposes if its net_earnings inure to the benefit of private individuals as you cannot identify the disqualified persons or non-marketable assets to be contributed to the organization we cannot determine that a will be operated for exclusively exempt purposes and that the disqualified_person will not inure or privately benefit through their relationship with the organization accordingly you do not qualify for tax exemption under sec_501 applicant's position your letter dated date indicates your organization respectfully disagrees with our position and that you believe the information already submitted is sufficient to recognize a as a supporting_organization described in sec_509 of the internal_revenue_code_of_1986 you state that as a type supporting_organization a is controlled by c therefore by definition a cannot be operated for the benefit of any donor or other disqualified_person moreover because a has the required relationship with c is controlled by c and has submitted letter cg name of organization employer_identification_number information sufficient to describe its organization and operation specific identification of donors and or assets to be contributed to a is not required you point out that it is common for organizations to seek recognition of tax-exempt status in advance of receiving assets knowing the source of such assets commencing operations and determining disqualified persons and state section dollar_figure of revproc_90_27 contemplates receiving exemption applications from such organizations specifically you cite section dollar_figure of revproc_90_27 as providing e xempt status will be recognized in advance of operations if proposed operations can be described in sufficient detail to permit a conclusion that the organization will clearly meet the particular requirements of the section under which exemption is claimed the organization must fully describe the activities in which it expects to engage including the standards criteria procedures or other means adopted or planned for carrying out the activities the anticipated sources of receipts and the nature of contemplated expenditures emphasis added you state that a provided in its exemption application and subsequent correspondence sufficient detail to permit a conclusion that it will clearly meet the particular requirements of code sec_509 for a type supporting_organization and that the information shows that ais organized and will be operated exclusively for the benefit of to perform the functions of or to carry out the purposes of c additionally you state such information demonstrates that a cannot be controlled by or operated for the benefit of any disqualified_person no matter what assets are contributed in addition to explaining why a meets the organizational_test of sec_501 you also explain why you believe you meet the operational_test specifically you state the articles of incorporation of a and the exemption application submitted specify that a will engage solely in activities that support or benefit c and that revproc_90_27 indicates that notwithstanding such activities will take place in the future a can still satisfy the operational_test our position that the inability to identify the donor donor directors disqualified persons the appropriateness of the assets contributed and any issues that may be related to the contribution revenues and expenses etc precludes a favorable determination you state that the organization and intended operations of a as a type supporting_organization as summarized in your response do not require such specific identification and that such specific identification is not required by revproc_90_27 in regards to you state that as a supporting_organization a cannot be controlled directly or indirectly by one or more disqualified persons other than foundation managers and one or more publicly supported organizations and that you meet this requirement because c elects a majority of the directors of a therefore c has full control of the investment policy grant making and other uses of the income or assets of a and no donor or disqualified_person can or will have such control letter cg name of organization employer_identification_number you further state that satisfying the structural requirement of sec_509 means that a can only be operated for the benefit of c and that as long as a satisfies that requirement specific identification of disqualified persons and or assets is not required therefore you maintain that specific identification of disqualified persons and or assets to be contributed is not required for a to receive a favorable determination from the service service’s position we hold that you do not meet the requirements for tax exemption under sec_501 revproc_2008_09 which superseded revproc_90_27 section dollar_figure states that exempt status may be recognized in advance of the organization’s operations if the information provided describes the proposed activities in sufficient detail to permit a conclusion that the organization will clearly meet the particular requirements for exemption under the section of the irc which they claim included among the requirements is a full description of the anticipated sources of receipts this section further states that where the organization cannot demonstrate to the satisfaction of the service that it qualifies under the section of the irc under which it claims exemption the service will generally issue a proposed adverse determination_letter or ruling as you have stated in your correspondence it is not known at this time who the donor member of a will be although you only expect a single donor or what type s of nonmarketable assets will be contributed in fact you indicate that a doesn’t expect to begin soliciting for contributions accepting contributions and thereafter making disbursements to c until after you have received a favorable determination_letter from the service your organization is not operational in effect you are attempting to create organizations that are exempt under sec_501 and then going out to hopefully find a donor to contribute substantial non-marketable assets to it as such there is no way to realistically determine when you would begin to meet the organizational_test requirements of sec_501 therefore you do not meet the requirements of sec_1_501_c_3_-1 of the income_tax regulations you have stated that the specific identification of the donor donor directors disqualified persons the appropriateness of the assets contributed and any issues that may be related to the contribution revenues and expenses etc is not required by revproc_90_27 you also state that sufficient information has been provided to make a determination as stated in revproc_2008_09 even though an application is substantially complete the service may request additional information before issuing a determination_letter or ruling simply providing all of the basic materials required in the revenue_procedure for a completed application is not a guarantee of a favorable determination it is up to the service to determine what specific information it will need during the determination process in order for it to make an informed and correct determination the information you have provided primarily deals with the structure and operation of a however determinations are fact based and fact driven your failure to provide letter cg name of organization employer_identification_number the necessary specific information regarding disqualified persons and non-marketable contributions prevents the service from making an informed determination additionally the fact you have no idea what will be contributed means the financial data provided ie proposed budgets are totally worthless while you state that a cannot be controlled by or operated for the benefit of any disqualified_person no matter what assets are contributed we disagree with this position the service has found numerous instances of donors controlling assets after they have been contributed to charitable entities particularly among organizations applying for exemption as supporting organizations this issue has been identified particularly when the contributions are non- marketable assets such as interests in partnerships interests in closely held corporations or securities intellectual_property etc there are many ways for the donors to retain control including through owning the controlling interests in partnerships or closely held entities through existing agreements or leases attached to the donated property please note these are just examples and not meant to be all-inclusive often these transactions have resulted in inurement or a private benefit to the donor or entities with which they are associated in effect you seem to be trying to create a prototype application package in which you can receive favorable determinations for the entities prior to identifying or even finding the donor and determining the non-marketable assets as you have stated you submitted two substantially_similar applications and may establish similar organizations in the future from the information provided these individual applications could be virtually identical with only a name change to differentiate the entities this would enable these entities and any others that adopted this or a similar prototype to gain exemption without identifying disqualified persons and what assets they have contributed as well as preventing the service from asking appropriate questions to determine any issues relevant to the donors and their contributions from the viewpoint of the service the issuance of a determination_letter or ruling under these conditions is not in the interest of sound tax_administration additionally the application packages of approved charities are by law open for inspection by the general_public this is an important tool available to the public for informational and transparency purposes your application would fail to provide the information the public in general would consider relevant any review would fail to identify disqualified persons assets received and any proposed budgets of revenues and expenses provided would be useless since you would not have any idea what was being contributed or the income that would be received from ownership of the assets determination based on the information provided in your form_1023 and supporting documentation we conclude that you are not operated exclusively for purposes described in sec_501 of the code you have not met the operational_test of sec_501 as you are not operating additionally you have not shown that your assets do not or will not inure to any private individuals therefore your organization does not qualify for exemption under sec_501 of the code because you are not operated exclusively for c purposes letter cg name of organization employer_identification_number issue - sec_509 introduction we have also considered your application_for supporting_organization status non-private foundation status under sec_509 of the code in the event that you would qualify for exemption under sec_501 our conclusion regarding your private_foundation classification under sec_509 of the code is based on a number of factors discussed in the following material sec_509 of the code provides that the term private_foundation does not include an organization which a is organized and at all times thereafter is operated exclusively for the benefit of to perform the functions of or to carry out the purposes of one or more specified organizations described in sec_509 or b is operated supervised or controlled by or in connection with one or more organizations described in sec_509 or and c is not controlled directly or indirectly by one or more disqualified persons as defined in sec_4946 other than foundation managers and other than one or more organizations described in sec_509 or sec_509 in effect describes as a public charity an organization which is organized and at all times thereafter is operated exclusively for the benefit of to perform the functions of or carry out the purposes of one or more specified organizations described in sec_509 or sec_509 in our discussion of these issues we are cognizant of the fact that at all times you are asserting qualification under sec_509 under the operated supervised or controlled by relationship provided in sec_1_509_a_-4 of the income_tax regulations for an organization to qualify as a supporting_organization it must pass the organizational and operational_test a a relationship_test a b and a control test a c your organization does not pass the operational_test the relationship_test and control test operational_test sec_509 of the code provides that in order to qualify under sec_509 an organization at all times thereafter is operated exclusively for the benefit of to perform the functions of or to carry out the purposes of one or more specified organizations described in sec_509 or letter cg name of organization employer_identification_number reg a -4 b provides that in order to qualify as a supporting_organization an organization must be both organized and operated exclusively for the benefit of to perform the functions of or to carry out the purposes of one of more specified publicly supported organizations if it fails to meet either the organizational_test or operational_test it cannot qualify as a supporting_organization reg a -4 e provides that a supported_organization will be regarded as operated exclusively to support one or more specified public supported_organization only if it engages solely in activities which support or benefit the specified publicly supported organizations reg a -4 e provides that a supporting_organization is not required to pay over its income to the publicly_supported_organization in order to meet the operational_test it may satisfy the test by using its income to carry on an independent activity or program which supports or benefits the specified publicly_supported_organization application of operational_test you are not operated exclusively for the benefit of specified publicly supported organizations as required by sec_509 this is due to the fact you are not operational at all additionally you cannot demonstrate that you will not also operate in a manner that benefits disqualified persons since you cannot identify the disqualified_person s or the nonmarketable assets they will contribute since you have no assets provide no support to c and do not conduct any activities you do not pass the operational_test conclusion even though your organization meets the organizational_test your organization fails the operational_test reg a -4 e lays out generally the permissible activities of a supporting_organization your organization has not engaged in such activities therefore you are not organized and operated for the benefit of c relationship_test sec_509 of the code provides that in order to qualify under sec_509 an organization must be operated supervised or controlled by supervised or controlled in connection with or operated in connection with one or more publicly supported organizations reg a -4 f i provides that the supporting_organization will be responsive to the needs or demands of one or more publicly supported organizations and ii the supporting_organization will constitute an integral part of or maintain a significant involvement in the operations of one or more publicly supported organizations letter cg name of organization employer_identification_number reg a -4 g provides that each of the items operated by supervised by and controlled by as used in sec_509 presupposes a substantial degree of direction over the policies programs and activities of the supporting_organization by one or more publicly supported organizations the relationship required under any one of these terms is comparable to that of a parent and subsidiary where the subsidiary is under the direction of and accountable or responsible to the parent organization this relationship is established by the fact that a majority of the officers directors or trustees of the supporting organizations are appointed or elected by the governing body members of the governing body officers acting in their official capacity or the membership of one or more publicly support organization application of relationship_test on schedule d of form_1023 you indicated that you are a type supporting_organization which is operated supervised controlled by the relationship is comparable to a parent subsidiary the code of regulations states there shall be two classes of members known as the public member and the donor members the public member shall be c the initial donor member shall be f sec_5 of article provides that for purposes of any vote or action of members the public director shall have one vote more than the number of donor members and each donor member shall have one vote the code of regulations also state the public director class shall consist of two or more directors each of whom shall be a director or officer of c or persons whom c determines will be appropriate representatives the public directors the donor director class shall consist of one or more directors the donor directors the number of directors shall be three two of the public director class and one of the donor director class unless fixed at a higher number however the number of public directors shall at all times be greater than the number of donor directors by at least one the public member shall be entitled to elect the public directors and the donor members as a class shall be entitled to elect the donor directors conclusion based on the facts you do meet the relationship_test of sec_509 control test sec_509 in effect provides that public charity status under sec_509 is precluded for an organization that is controlled directly or indirectly by one or more disqualified persons as defined in sec_4946 other than foundation managers and other than one or more organizations described in paragraph and sec_4946 of the code defines a disqualified_person as a substantial_contributor to the letter cg name of organization employer_identification_number foundation sec_507 includes in its definition of a substantial_contributor the creator of the trust sec_1_509_a_-4 of the regulations provides that if a person who is a disqualified_person with respect to a supporting_organization such as a substantial_contributor to the supporting_organization is appointed or designated as a foundation_manager of the supporting_organization by a publicly supported beneficiary organization to serve as the representative of such publicly_supported_organization then for purposes of this paragraph such person will be regarded as a disqualified_person rather than as a representative of the publicly_supported_organization an organization will be considered controlled for purposes of sec_509 if the disqualified persons by aggregating their votes or positions of authority may require such organization to perform any act which significantly affects its operations or may prevent such organization from performing such act this includes but is not limited to the right of a substantial_contributor or his spouse to designate annually the recipients from among the publicly supported organizations of the income attributable to his contribution to the supporting_organization application of the control test sec_509 in effect provides that public charity status under sec_509 is precluded for an organization that is controlled directly or indirectly by one or more disqualified persons as defined in sec_4946 other than foundation managers and other than one or more organizations described in paragraph and even if the organization appears not to be controlled by disqualified persons all pertinent facts and circumstances will be taken into consideration in determining whether a disqualified_person does in fact control the supporting_organization since the potential disqualified_person the donor member in unknown there is no way to determine any outside relationships this individual may have with other directors or any direct or indirect influence they may have over these individuals additionally there is no way for the service to determine these relationships further there is no way to determine if the disqualified_person can control the organization through direct or indirect control of the asset s since the organization has not solicited or obtained any assets therefore the organization has not met it burden to demonstrate it is not controlled directly or indirectly by disqualified persons applicant’s position you state that as a type supporting_organization a is controlled by c therefore by definition a cannot be operated for the benefit of any donor or other disqualified_person letter cg name of organization employer_identification_number moreover because a has the required relationship with c is controlled by c and has submitted information sufficient to describe its organization and operation specific identification of donors and or assets to be contributed to a is not required you state that a provided in its exemption application and subsequent correspondence sufficient detail to permit a conclusion that it will clearly meet the particular requirements of code sec_509 for a type supporting_organization and that the information shows that a is organized and will be operated exclusively for the benefit of to perform the functions of or to carry out the purposes of c additionally you state such information demonstrates that a cannot be controlled by or operated for the benefit of any disqualified_person no matter what assets are contributed in addition to explaining why a meets the organizational_test of sec_501 you also explain why you believe you meet the operational_test specifically you state the articles of incorporation of a and the exemption application submitted specify that a will engage solely in activities that support or benefit c and that revproc_90_27 indicates that notwithstanding such activities will take place in the future a can still satisfy the operational_test our position that the inability to identify the donor donor directors disqualified persons the appropriateness of the assets contributed and any issues that may be related to the contribution revenues and expenses etc precludes a favorable determination you state that the organization and intended operations of a as a type supporting_organization as summarized in your response do not require such specific identification and that such specific identification is not required by revproc_90_27 in regards to you state that as a supporting_organization a cannot be controlled directly or indirectly by one or more disqualified persons other than foundation managers and one or more publicly supported organizations and that you meet this requirement because c elects a majority of the directors of a therefore c has full control of the investment policy grant making and other uses of the income or assets of a and no donor or disqualified_person can or will have such control you further state that satisfying the structural requirement of sec_509 means that a can only be operated for the benefit of c and that as long as a satisfies that requirement specific identification of disqualified persons and or assets is not required therefore you maintain that specific identification of disqualified persons and or assets to be contributed is not required for a to receive a favorable determination from the service service’s position the applicant makes the argument that since they are structured in a manner that would meet the requirements of sec_509 it is therefore impossible for them to operate for the benefit of any other individual or entity therefore they take the position that the identification of disqualified persons and assets in unnecessary and not required simply correctly structuring letter cg name of organization employer_identification_number your organization to meet the relationship_test of sec_509 does not automatically qualify the organization for exemption under this section determinations are based on the unique facts of each application and are fact driven as stated in revproc_2007_52 even though an application is substantially complete the service may request additional information before issuing a determination_letter or ruling this is due to the unique facts of each application as previously stated in this letter there are a variety of ways that disqualified persons can continue to control assets they have contributed to an organization particularly when these are non-marketable assets as previously stated your organization fails to satisfy the operational_test since it is not operational since you are not operating you cannot be said to be operating exclusively for the benefit of your supported_organization you point out that rev_proc provides that exempt status may be recognized in advance of the organization's operations if the proposed activities are described in sufficient detail to permit a conclusion that the organization will clearly meet the particular requirements for exemption pursuant to the section of the internal_revenue_code under which exemption is claimed as you have no donors or assets you are not operational therefore you have not met your burden to show that you are operated exclusively for the benefit of c while you have structured the organization in a manner consistent with a type entity under sec_509 your failure to identify disqualified persons and assets received prevents the service from determining that your organization will not be controlled directly or indirectly by disqualified persons conclusion you have not shown that you are not operating under the direct or indirect control of or for the benefit of disqualified persons determination - issue under the totality of the fact and circumstances you fail to satisfy the requirements of sec_509 and sec_509 of the code based on the administrative record we have determined that you fail to qualify as a supporting_organization under sec_509 of the code summary based on our analysis of your activities and in light of the applicable law we have determined you do not qualify for tax exemption as an organization described in sec_501 of the code even if we determined that you were described in sec_501 you would be a private_foundation and not a supporting_organization under sec_509 of the code you must file federal_income_tax returns letter cg name of organization employer_identification_number you have the right to file a protest if you believe this determination is incorrect to protest you must submit a statement of your views and fully explain your reasoning you must submit the statement signed by one of your officers within days from the date of this letter we will consider your statement and decide if the information affects our determination f your statement does not provide a basis to reconsider our determination we will forward your case to our appeals_office you can find more information about the role of the appeals_office in publication exempt_organization appeal procedures for unagreed issues types of information that should be included in your appeal can be found on page of publication under the heading regional_office appeal must be declared true under penalties of perjury following signed declaration this may be done by adding to the appeal the the statement of facts item under penalties of perjury declare that have examined the statement of facts presented in this appeal and in any accompanying schedules and statements and to the best of my knowledge and belief they are true correct and complete your appeal will be considered incomplete without this statement if an organization’s representative submits the appeal a substitute declaration must be included stating that the representative prepared the appeal and accompanying documents and whether the representative knows personally that the statements of facts contained in the appeal and accompanying documents are true and correct an attorney certified_public_accountant or an individual enrolled to practice before the internal_revenue_service may represent you during the appeal process if you want representation during 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 you can find more information about representation in 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 file a protest within days you will not be able to file a suit for declaratory_judgment in court because the internal_revenue_service irs will consider the failure to appeal as a failure to exhaust available administrative remedies code sec_7428 provides in part that a declaratory_judgment or decree shall not be issued in any proceeding unless the tax_court the united_states court of federal claims or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted all of the administrative remedies available to it within the irs lf 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 that letter will provide information about filing tax returns and other matters letter cg name of organization employer_identification_number please send your protest statement form_2848 and any supporting documents to the applicable address mail to deliver to internal_revenue_service eo determinations quality assurance room p o box cincinnati oh internal_revenue_service eo determinations quality assurance main street room cincinnati oh if you fax you may fax your statement using the fax number shown in the heading of this letter your statement please call the person identified in the heading of this letter to confirm that he or she received your fax we have sent a copy of this letter to your representative as indicated in your power_of_attorney lf you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely robert choi director exempt_organizations rulings agreements letter cg


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi br - plr-120913-03 date july legend x state d1 dear this responds to your representative’s letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x was formed under state law on d1 the owner of x intended that x elect to be treated as an s_corporation effective d1 however the election to be treated as an s_corporation was not timely filed law and analysis sec_1362 provides that a small_business_corporation can elect to be treated as an s_corporation sec_1362 provides when an s election becomes effective if an s election is made within the first two and one-half months of a corporation’s taxable_year then that corporation will be treated as an s_corporation for the year in which the election was made if an election is made after the first two and one-half months of a corporation’s taxable_year then the corporation will generally not be treated as an s_corporation until the following taxable_year plr-120913-03 however sec_1362 provides that if no election is made pursuant to sec_1362 or if the election is made after the date prescribed for making such an election and the secretary determines reasonable_cause existed for the failure to timely make the election then the secretary can treat such an election as timely made for that taxable_year and effective as of the first day of that taxable_year in the present case x failed to timely elect s_corporation treatment effective d1 however x has established reasonable_cause for not making a timely election and is thus entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective d1 within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the relevant service_center except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer’s authorized representative sincerely dianna k miosi chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number info release date uil date cc dom p si cor-116452-00 this responds to correspondence submitted on your behalf by requesting late s_corporation relief under sec_1362 of the internal_revenue_code seeking an election effective date of date in revproc_97_48 copy attached the internal_revenue_service provides special procedures that permit taxpayers in certain situations to obtain automatic late s_corporation relief instead of applying for a private_letter_ruling the facts presented in your situation appear to be covered by section dollar_figure of revproc_97_48 to receive relief under the provisions of this revenue_procedure normally one must follow the procedural requirements described in sec_4 however we have intervened on your behalf and asked the service_center to update your records to reflect the effective date requested if you fail to receive a confirmation letter from the service_center within the next days you may call our office please keep this letter with your tax records and provide a copy of it to your authorized representative named above we hope that this information proves helpful s dianna k miosi sincerely yours dianna k miosi chief branch office of the assistant chief_counsel passthroughs and special industries attachment revproc_97_48


internal_revenue_service number release date index number ------------------------------------- ---------------------------- --------------------------------- --------------------- ------------------------------ - department of the treasury washington dc person to contact ------------------ id no ------------- telephone number --------------------- refer reply to cc psi b04 - plr-102202-04 date april legend deceased ------------------------ spouse ------------------------ trust -------------------------------------- date ------------------------- date ---------------- date ----------------------- amount ------------- amount --------------- amount ---------- amount ---------- amount ----------- amount ----------------- amount --------------- dear ---------------- on your behalf in which you request rulings under sec_2056 of the internal_revenue_code decedent had created a revocable_trust trust and executed his will on date sec_2 of decedent’s will provides for the payment of all debts taxes and administration_expenses sec_3 provides this is in response to a letter from your authorized representative dated january you represent the facts to be as follows decedent died testate on date plr-102202-04 i give the remainder of my estate to the trustee then acting under a_trust executed by me today to be administered and distributed upon the terms of that agreement as it now exists or is later amended sec_4 paragraph of decedent’s will gives the personal representative of decedent’s estate the following power to make tax elections appropriate for my estate_planning objectives and to reduce taxes including but not limited to b electing to have all or a portion of any transfer for my wife’s benefit qualify for the marital_deduction section paragraph b of trust provides as follows after my death this trust shall continue for the benefit of my wife if she survives me and my children as provided in the family_trust paragraph d however if my estate exceeds the amount which would be exempt from federal estate_tax and if my wife survives me and some marital_deduction is needed to eliminate the federal estate_tax or reduce it to the lowest possible amount then this trust shall divide into a marital trust paragraph c and the family_trust i intend that the family_trust be the amount that is exempt from federal estate_tax and the remaining assets be allocated to the marital trust to use the marital_deduction to eliminate or minimize the federal estate_tax therefore if my wife survives me the trustee shall allocate to the family_trust the largest pecuniary amount possible which will not increase the federal estate_tax taking into consideration the credit_for_state_death_taxes only if this does not increase the state_death_taxes this amount may be satisfied in cash or in specific assets shall have a value on the date or dates of distribution equal to the amount determined by this paragraph and shall include all assets which do not qualify for the marital_deduction the remaining assets shall be allocated to the marital trust the executor for decedent’s estate filed form_706 united_states estate and generation-skipping_transfer_tax return on date decedent’s lifetime taxable_gifts exceeded the estate_tax exemption equivalent and thus no family_trust was created on schedule m of decedent’s form_706 the executor made a qualified terminal interest property qtip_election by listing the following schedule a schedule b schedule c schedule d schedule e schedule f schedule i amount amount amount amount amount amount amount you have requested the following rulings subsequent to the filing of decedent’s form_706 additional assets were plr-102202-04 the assets listed on schedule m comprise with the exception of schedule e for jointly- owned property of the gross value of the assets listed on these schedules discovered the additional assets should have been reported on schedule b of the form_706 in addition subsequent to the audit of decedent’s estate_tax_return an adjustment was made that increased the value of assets reported on schedules b and f whether under sec_2056 executor made a timely qualified_terminable_interest_property election for of the value of the assets reported on schedules b and f of decedent’s estate_tax_return whether the qualified_terminable_interest_property election fraction applies to all assets reported on schedule b and schedule f of decedent’s estate_tax_return regardless of whether the assets were originally reported on decedent’s estate_tax_return or whether the amount or value of the assets on schedules b and f were subsequently increased as a result of an audit law and analysis decedent who is a citizen or resident_of_the_united_states sec_2056 provides that except as limited by sec_2056 the value of the taxable_estate is to be determined by deducting from the value of the gross_estate an amount equal to the value of any interest in property that passes or has passed_from_the_decedent to the surviving souse but only to the extent that such interest is included in determining the value of the gross_estate sec_2056 denies a marital_deduction for an interest passing to the surviving_spouse that is a terminable_interest an interest is a terminable_interest if the interest passing to the surviving_spouse will terminate or fail on the lapse of time or on the occurrence of an event or contingency or on the failure of an event or contingency to occur and on termination an interest in the property passes to someone other than the surviving_spouse case of qualified_terminable_interest_property for purposes of sec_2056 qualified_terminable_interest_property is treated as passing to the surviving souse and for purposes of sec_2056 no part of such property is treated as passing to any person other than the surviving_spouse under sec_2056 qualified_terminable_interest_property is property which passes from the decedent in which the surviving_spouse has a qualifying_income_interest_for_life and to which an election under sec_2056 applies sec_2056 provides an exception to this terminable_interest_rule in the sec_2001 imposes a tax on the transfer of the taxable_estate of every in the instant case the trust instrument directed that if spouse survived sec_20_2056_b_-7 provides that an election may be revoked or sec_2056 provides that the election to treat property as qtip sec_20_2056_b_-7 of the estate_tax regulations provides that the plr-102202-04 under sec_2056 is made by the executor on the return of tax imposed by sec_2001 the election once made is irrevocable term return of tax imposed by sec_2001 means the last estate_tax_return filed by the executor on or before the due_date of the return including extensions or if a timely return is not filed the first estate_tax_return filed by the executor after the due_date modified on a subsequent return filed on or before the due_date of the return including extensions actually granted if an executor appointed under local laws has made an election on the return of tax imposed by sec_2001 with respect to one or more properties no subsequent election may be made with respect to other properties included in the gross_estate after the return of tax imposed by sec_2001 is filed decedent trust was to be divided based on a formula into the family_trust and the marital trust as discussed above based on this formula under the terms of trust all of the assets in decedent’s gross_estate other than jointly-owned property passed to the martial trust consistent with decedent’s intent as set forth in decedent’s will and the trust instrument the executor made a qtip_election under sec_2056 on decedent’s timely filed estate_tax_return the assets for which the election was made were described by listing on schedule m the following schedule a with amount schedule b with amount schedule c with amount schedule d with amount schedule e with amount schedule f with amount and schedule i with amount with the exception of schedule e for jointly-owned property schedule m reflected of the gross value of the assets listed on these schedules and of the projected marital trust value at the time the form_706 was filed the qtip_election was therefore made with respect to of the amount passing to the marital trust under the terms of the trust instrument neither the omission of an asset nor the increase in the value of the gross_estate pursuant to an audit affects the portion with respect to which the qtip_election is made in this case instead these changes affect the amount but not the percentage election on the original estate_tax_return therefore based on the facts submitted and the representations made we conclude that the executor of decedent’s estate made a timely qtip_election with respect to of the value of the assets reported on schedules b and f of decedent’s estate_tax_return and the qtip_election applies to all assets reported on schedule b and schedule f of decedent’s estate_tax_return including those assets not originally reported on decedent’s estate_tax_return and including the amount or value of the assets on schedules b and f which were subsequently increased as a result of the audit of decedent’s estate_tax_return except as specifically ruled herein we express or imply no opinion on the federal this ruling is directed only to the taxpayer who requested it sec_6110 in accordance with the power_of_attorney on filed with this office a copy of this plr-102202-04 tax consequences of the transaction under the cited provisions or under any other provisions of the code provides that it may not be used or cited as precedent letter is being sent to your authorized representatives enclosure copy for purposes cc lorraine gardner senior counsel branch office of the associate chief_counsel passthroughs and special industries sincerely


department of the treasury internal_revenue_service washington d c t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n contact person telephone number identification_number employer_identification_number release number release date date date uil legend m n o p r s m p q r s t u v w x y z dear applicants supplemented by letters dated date date date and date from the authorized representative of m and n in which m and n requested rulings that the proposed transaction will not affect their exempt status under sec_501 of the internal_revenue_code this letter is in reference to the request dated date as amended and m is an organization recognized as exempt from federal_income_tax under sec_501 of the code m was organized to address the m industry’s need for a self-regulatory organization that would have authority to promulgate and enforce business conduct and certain other ethical rules m’s primary responsibilities have included conducting examinations of its member firms investigating possible violations of applicable federal laws and regulations and of its own rules conducting disciplinary proceedings and administering qualifications testing m states that over time its scope of authority has expanded to cover transactions in u s government and municipal m as well as corporate m every m firm in the united_states that is transacting business with the public is currently required to be a member of a registered m association and m is the only such registered association m currently has approximately p members and each member is entitled to vote directly on all but one of the non-staff seats on m’s board_of directors federal_income_tax under sec_501 of the code and is a subsidiary of m n has conducted most of m’s regulatory operations n is recognized as exempt from o a federal_agency that supervises the m industry provides close oversight of the regulatory functions performed by both m and n m and n provided information which shows that o has expressed policy concerns regarding what it perceives as inherent conflicts in the existing self-regulatory system in the m industry and the inefficiencies of overlapping self- regulatory schemes m and n have provided information which shows that o has published reports stating that those inherent conflicts can arise both in circumstances where a self- regulatory organization is subject_to influence by the members it is supposed to regulate and also where the regulator is owned by a for-profit entity o has also identified inefficiencies where regulators have co-extensive regulatory mandates including conflicting rules duplicative infrastructure and multiplied compliance costs o has indicated that reform of the self-regulatory system to alleviate such conflicts and inefficiencies is important if the m industry in the united_states is to remain competitive globally p is a for-profit publicly traded corporation that is the corporate parent of r and s_r is a limited_liability_company that maintains an auction-based market for the sale and purchase of m s a not-for-profit corporation is responsible for promulgating and enforcing business conduct and certain other rules applicable to the m business activities conducted through r s’s activities are generally divided into its regulation of firms authorized to do business through r regulation of entities whose m are available through r surveillance of activity carried out through r and enforcement activities p r and s are not recognized by the service as exempt from federal_income_tax o provides oversight of p r and s m and n have represented that o encouraged discussions between m and p to combine the member regulatory activities currently performed by n and s with the participation of o m and p negotiated at arm’s-length the terms of a proposed consolidation in the proposed transaction s would transfer certain of its member regulatory functions including both regulatory assets and related personnel to m and n while retaining its non-member regulatory assets and employees both m and n expect that the consolidation will result in an expansion of their member regulatory operations in furtherance of their exempt purposes m has represented that o has encouraged and publicly supported the proposed transaction and the benefits it is expected to produce m has represented that p and s have stated that they would not proceed with the proposed transaction unless m changed its one-member one-vote governance structure m has represented that the governance reforms required by p and s are intended to minimize member conflict issues presented by the disproportionate concentration of voting power in m presently held by small firms defined in m rules as firms with fewer than a certain number of representatives m represents that as a result of changes in the m industry over recent decades small firms today account in the aggregate for only of registered m representatives and only of m’s member firm gross revenue but they hold more than of the voting power in m accordingly m’s board_of governors has asked its member firms to relinquish their existing ability to vote directly on non-staff seats on m’s member board a new structure would be implemented to provide for class voting for specific board seats this change in the voting structure will require an affirmative vote of the members to amend m’s bylaws m represents that it believes that the member vote required to change its governance structure and by-laws and proceed with the proposed transaction will not succeed if members do not perceive that the reduction of their collective voting power - and the transaction as a whole - is in their best interests and the interests of a well-functioning well-regulated m industry in order to improve the chances of a favorable outcome in the member vote and thereby achieve the public benefits that o m and n believe will accrue from the combination of member regulatory activities a pro-rata payment will be made to all of m’s members if the proposed transaction is consummated therefore m believes that it is necessary to make the payment in order to achieve the proposed governance reforms and effect the transaction with p accordingly m represents that if the proposed transaction is consummated a payment will be paid to each firm that is a member of m regardless of whether or how the firm votes the payment will be made in compliance with the corporate law of the state in which m is incorporated and will give rise to taxable ordinary_income in the hands of the recipient members m expects the payment to its members as well as other costs it expects to incur in connection with the proposed transaction will be supported entirely by the expected value of the incremental cash flows that will be produced by the proposed transaction with the remaining surplus to be used to expand its regulatory functions and reduce regulatory costs in support of its exempt purposes m has received an opinion of an independent valuation firm determining that the expected value of the proposed consolidation which is attributable to projected cost savings is in the range of dollar_figureq to dollar_figurer this is in addition to the assets s would transfer to m at their net_book_value an amount m believes reflects the fair_market_value of those assets and the final amount of which will be subject_to an independent fairness opinion m represents that it and p have agreed to structure the proposed transaction so as to leave the parties in a financially neutral position accordingly m will pay p dollar_figures of the projected cost savings an amount negotiated at arm’s-length to make the proposed transaction financially neutral to p’s public shareholders m states that it will effectively act in a manner similar to a constructive trustee to the remaining dollar_figuret to dollar_figureu in transaction value in connection with the change in m’s member voting rights and to achieve the governance reform required by p and s as a condition to the proposed transaction a one-time payment is proposed to be made to each member of m in the amount of dollar_figurev or approximately dollar_figurew to dollar_figurex in the aggregate depending on the size of m’s membership immediately before the closing of the proposed transaction m issued a proxy statement to its members describing the proposed transaction including the proposed member payment subsequently m’s membership voted on and approved the governance reforms described in the proxy statement the governance reforms - and indirectly the proposed transaction - remain subject_to approval by o following a public comment period m believes that the payment to members is supported by the transaction value p has sec_501 of the code provides for the exemption from federal_income_tax of forgone in agreeing to a financially neutral transaction and the remaining transaction value of dollar_figuret to dollar_figureu exceeds the expected payment to the members in addition the independent valuation states that if the parties did not agree to a financially neutral transaction p would have received an additional dollar_figurey to dollar_figurez by agreeing to enter into the proposed transaction on a financially neutral basis p has forgone any share in the remaining transaction value business_leagues chambers_of_commerce real-estate boards or boards_of_trade not organized for profit and no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual shareholder or individual in sec_501 of the code refer to persons having a personal and private interest in the activities of the organization sec_1_501_a_-1 of the income_tax regulations states that the words private sec_1_501_c_6_-1 of the regulations provides that a business league is an association of persons having some common business_interest the purpose of which is to promote such common interest and not to engage in a regular business of a kind ordinarily carried on for profit it is an organization of the same general class as a chamber of commerce or board_of trade thus its activities should be directed to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons revrul_67_251 1967_2_cb_196 holds that the net_earnings of an organization exempt under sec_501 of the code are inuring to the benefit of private individuals through furnishing financial aid and welfare services to its members this position holds even though the organization’s financial aid to members is minor in relation to its other activities which are directed to improvement of business conditions in a line_of_business an organization is not exempt under sec_501 of the code if any part of the organization’s net_earnings inure to the benefit of any private_shareholder_or_individual an organization exempt under sec_501 may not be operated for the profit of its individual members but members may nevertheless receive some kinds of benefits from the organization a finding of inurement is generally based on a payment being made by the sec_501 organization sec_1_501_a_-1 of the regulations defines a private_shareholder_or_individual as a person having a personal and private interest in the activities of the organization with regard to the payment to m’s members if p made an arm’s-length payment to m’s members out of p’s own assets that payment would not constitute inurement of m’s earnings although in form the proposed payment to members will be made by m the payment is being made to satisfy a condition to the transaction imposed by p and s the payment to m’s members is supported by the value forgone by p by its agreeing to participate in the proposed transaction on a financial neutral basis the independent valuation shows a transaction value after making the dollar_figures payment to p in the range of dollar_figuret to dollar_figureu which m has stated that it will hold effectively in a manner similar to a constructive trust for use in achieving the purposes of the proposed transaction this remaining value exceeds the amount that would be paid to m’s members the payment to m’s members has the same practical effect as payment from p to the members in exchange for their agreement to the governance reform the effect of the proposed transaction will further m’s exempt_purpose by producing benefits for both the m industry and by extension for the public that relies on m and n to ensure fairness in the industry m’s exempt_purpose is to address the m industry’s need for self- regulation and the promulgation and enforcement of business conduct and certain other ethical rules within the m industry therefore we find that the effect of the transaction as a whole furthers m’s exempt_purpose under sec_501 of the code therefore based on the facts submitted by m and n we do not find that there was a payment from a sec_501 organization to a shareholder or individual and thus there can be no inurement this is based on our understanding that the payment to m’s members will be made from value created by the transference of the regulatory functions from s to m p could have retained this value but chose to have it distributed to m’s members m has indicated that while it will receive the value part of the value m holds is in a manner similar to a constructive trustee for the benefit of m’s members and to make the payment from p that is necessary to effectuate the transference of the regulatory functions accordingly based on the facts and circumstances concerning the proposed transaction we rule that the proposed transaction will not affect m’s or n’s tax-exempt status under sec_501 of the code this ruling will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice this ruling is based on the facts as they were presented and on the understanding that there will be no material changes in these facts any such change should be reported to the ohio tax exempt and government entities te_ge customer service office because it could help resolve questions concerning your federal_income_tax status this ruling should be kept in your permanent records pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to m’s and n’s authorized representative except as we have specifically ruled herein we express no opinion as to the consequences of this transaction under the cited provisions or under any other provision of the code this ruling is directed only to the organizations that requested it sec_6110 of the if there are any questions about this ruling please contact the person whose name and code provides that it may not be used or cited as precedent telephone number are shown in the heading of this letter sincerely yours debra j kawecki manager exempt_organizations technical group


internal_revenue_service index no number release date cc dom p si - plr-106950-99 date x a date year dear this is in reply to your letter dated date submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was formed on date a as x's president represents that it was a’s intent that x elect to be an s_corporation effective for year x's first taxable_year this intent is evidenced in x’s board_of directors consent to certain resolutions however a form_2553 election by a small_business_corporation was not timely filed for that year by x because a believed that the attorney incorporating x would handle the election x filed a form_1120s for year sec_1362 of the code provides that if -- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x's first taxable_year accordingly provided x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x’s year taxable_year a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely yours j thomas hines senior technician reviewer branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ----------------------------------- ------------------------------ --------------------------------------- ------------------------------------------ ty ----------------------- 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 corp b02 plr-101456-19 date date legend s_corporation llc shareholder purchaser de state a date date date ------------------------------------------------------------------------------------- --------------------------------------- ------------------------------------------------------------------------------------- --------------------------- ------------------------------------------------------------------------------------- -------------------------- ------------------------------------------------------------------------------------- ---------------------------- ------------------------------------------- ------- ---------------------- ---------------------- -------------------- company official ------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------- ------------------------------------------ tax professional ------------------------------------------------------------------------------------- ------------------ plr-101456-19 dear -------------------- this letter responds to a letter dated date submitted on behalf of llc as successor of s_corporation shareholder and purchaser collectively the parties requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election the parties are requesting an extension of time to file the election statement under sec_1_336-2 election statement with respect to purchaser’s acquisition of all the stock of s_corporation from shareholder on date the material information submitted is summarized below s_corporation was a state a corporation that elected to be treated as an s_corporation for federal_income_tax purposes s_corporation was wholly owned by an individual shareholder purchaser is a limited_liability_company that is classified as a partnership for federal_income_tax purposes on date purchaser through de a disregarded_entity for federal_income_tax purposes acquired all of the stock of s_corporation from shareholder in exchange for cash the disposition it has been represented that the disposition qualified as a qualified_stock_disposition as defined in sec_1_336-1 on date s_corporation converted to a limited_liability_company under the laws of state a llc llc is a disregarded_entity for federal_income_tax purposes whose sole owner for federal_income_tax purposes is purchaser prior to date the due_date for s corporation’s tax_return for the taxable_year that included date s_corporation and shareholder entered into a written binding agreement providing that a sec_336 election would be made with respect to the disposition however for various reasons the election statement was not timely filed subsequently a request was submitted under sec_301_9100-3 of the procedural and administration regulations for an extension of time to file the election statement the parties each represented that they are not seeking to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 regulations promulgated under sec_336 permit certain_sales exchanges or distributions of stock of a corporation to be treated as asset dispositions if the disposition is a qualified_stock_disposition as defined in sec_1_336-1 and a sec_336 election is made sec_1_336-2 provides that a sec_336 election for an s_corporation target is made by i all of the s_corporation shareholders including those who do not dispose_of any stock in the qualified_stock_disposition and the s_corporation target entering into a written binding agreement on or before the due_date including extensions of the federal_income_tax return of the s_corporation target for the taxable_year that includes the disposition date to make a sec_336 election ii the s_corporation target retaining a copy of the written_agreement and iii the s_corporation target attaching the sec_336 election statement described in sec_1_336-2 and plr-101456-19 to its timely filed including extensions federal_income_tax return for the taxable_year that includes the disposition date under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides 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 the time for filing the election statement is fixed by the regulations ie sec_1 h iii therefore the commissioner has discretionary authority under sec_301 to grant an extension of time to file the election statement provided the parties acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by the parties company official and tax professional explain the circumstances that resulted in the failure to timely file the election statement the information establishes that the parties reasonably relied on a qualified_tax professional who failed to timely file or to advise them to timely file the election statement and the request for relief was filed before the failure_to_file the election statement was discovered by the internal_revenue_service see sec_301 b i and v based on the facts and information submitted including the representations made we conclude that the parties have acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-3 until days from the date on this letter to file the election statement within days of the date on this letter llc as successor of s_corporation must file the election statement in accordance with sec_1_336-2 the election statement must be attached to s corporation’s tax_return for the taxable_year including date in addition a copy of this letter must be attached to s corporation’s tax_return for the taxable_year including date alternatively if s_corporation files its return electronically it may satisfy the requirement of attaching a copy of this letter to the return by attaching a statement to its return that provides the date and control number plr-101456-19 of this letter_ruling plr-101456-19 within days of the date on this letter all relevant parties must file or amend as applicable all returns and amended returns if any necessary to report the transaction consistently with the making of a sec_336 election for the taxable_year in which the transaction was consummated and for any other affected_taxable_year the above extension of time is conditioned on the parties’ tax_liabilities if any being not lower in the aggregate for all years to which the sec_336 election applies than it would have been if the election statement had been timely filed taking into account the time_value_of_money no opinion is expressed as to the taxpayers’ tax_liabilities for the years involved a determination thereof will be made by the applicable director’s office upon audit of the federal_income_tax returns involved we express no opinion as to whether the disposition qualifies as a qualified_stock_disposition or any other tax consequences arising from the sec_336 election in addition we express no opinion as to the tax consequences of filing the return or making the sec_336 election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the sec_336 late that are not specifically set forth in the above ruling for purposes of granting relief under we have relied on certain statements and representations made by the parties company official and tax professional however the director should verify all essential facts in addition notwithstanding that an extension is granted under to file the sec_336 election penalties and interest that would otherwise be applicable if any continue to apply this ruling is directed only to the taxpayers requesting it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office copies of this letter are being sent to your authorized representatives sincerely ken cohen senior technician reviewer branch office of associate chief_counsel corporate


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 corp plr-130976-15 date december legend purchaser ------------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------- -------------------------------------------------------------------- ------------------------------ subco ------------------------------ ---------------------------------------------------------------------------- target ---------------------------------------------- ----------------------------------- ---------------------------------------------------------------------------- target affiliates --------------------------------------------------------------------------- ----------------------------------------------------------------- --------------------------------------------------------------------------------------- --------------------------------------------------------------------------- date date ------------------- ----------------------------- company officials ---------------------------------------------------------------------- ----------------------------------------------------- ---------------------------------------------------------------------- -------------------------------------------------------- plr-130976-15 tax professionals ------------------------------------------------------------------------- --------------------------------- -------------------------------------------------------------------------- ---------------------------------------- state a ------------- dear ---------------- this letter responds to a letter dated date submitted on behalf of purchaser a u s_corporation requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file elections purchaser is requesting an extension of time to file sec_338 elections under sec_338 with respect to purchaser’s acquisition of the stock of target and the deemed acquisitions of the stock of target affiliates sometimes hereinafter referred to as the elections on date additional information was submitted on date and date the material information submitted for consideration is summarized below purchaser a state a corporation is the common parent of a consolidated_group target directly and or indirectly held all the outstanding_stock in the target affiliates prior to the acquisition described herein target was a publicly held company neither target nor any of the target affiliates is a u_s_person purchaser formed subco and transferred cash common_stock and common_stock warrants of purchaser to subco for the purpose of acquiring the stock of target on date purchaser acquired all of the stock of target in exchange for cash common_stock and common_stock warrants of purchaser by amalgamating subco with target with target surviving and thus purchaser also indirectly acquired all the outstanding_stock in target affiliates purchaser has represented that the acquisition of target constituted a qualified_stock_purchase within the meaning of sec_338 purchaser has also represented that it is not seeking to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time purchaser requested relief purchaser intended to file the elections the elections were due on date but for various reasons the elections were not filed after the due_date for the elections it was discovered that the elections had not been filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file the elections the period of limitations on assessment under sec_6501 has not expired for purchaser’s consolidated_group target or target affiliates for the taxable years in which the acquisition occurred the taxable years in which the elections should have been filed or any taxable years that would have been affected by the elections if they had been timely filed plr-130976-15 sec_338 permits certain stock purchases to be treated as asset acquisitions if the purchasing_corporation makes or is treated as having made a sec_338 election and the acquisition is a qualified_stock_purchase under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election see sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides 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 information affidavits and representations submitted by purchaser tax professionals and company officials explain the circumstances that resulted in the failure to timely file the valid elections the information establishes that the request for relief was filed before the failure to make the elections was discovered by the internal_revenue_service see sec_301_9100-3 based on the facts and information submitted including the representations made we conclude that purchaser has shown it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-3 until days from the date on this letter for purchaser to file the elections with respect to the acquisition of the stock of target and the deemed acquisition of the stock of the target affiliates within days of the date on this letter purchaser must file the elections on form_8023 in accordance with sec_1_338-2 and e and the instructions to the form a copy of this letter must be attached to form_8023 within days of the date on this letter all relevant parties must file or amend as applicable all returns and amended returns if any necessary to report the transactions as sec_338 transactions for the taxable_year in which the transactions were consummated and for any other affected_taxable_year a copy of this letter and a copy of form_8883 must be attached to any_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy the requirements of attaching a copy of this letter by attaching a statement to their return that provides the date and control number of the letter_ruling plr-130976-15 purchaser must also deliver written notice of the elections and a copy of form sec_8023 and their attachments and instructions to u s persons selling or holding stock in target or the target affiliates see sec_1_338-2 the above extension of time is conditioned on the taxpayers’ tax_liability if any being not lower in the aggregate for all years to which the elections apply than it would have been if the elections had been timely made taking into account the time_value_of_money we express no opinion as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the applicable director’s office upon audit of the federal_income_tax returns involved we express no opinion as to whether the acquisition of the stock of target and the deemed acquisition of the stock of target affiliates qualifies as a qualified_stock_purchase under sec_338 or any other tax consequences arising from the elections in addition we express no opinion as to the tax consequences of filing the elections late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the elections late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by the taxpayers however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the elections penalties and interest that would otherwise be applicable if any continue to apply 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 a copy of this letter is being sent to your authorized representative sincerely ______________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate


o f f i c e o f t h e c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date number release date conex-129670-11 uil the honorable benjamin l cardin united_states senator tower i suite south charles street baltimore maryland attention --------------------- dear senator cardin i am responding to your date inquiry on behalf of your constituent ---------------- --------------- in his ------------------- letter ---------------------states that he spent ------------in an attempt to obtain a japanese patent he was unable to obtain the patent and he asks how to treat the ------------expenditure for federal tax purposes the amounts a taxpayer spends to obtain property for example a patent are capital expenditures sec_165 of the internal_revenue_code the code permits a taxpayer to deduct a loss incurred in a transaction entered into for profit such as the attempted acquisition of a patent a taxpayer who incurs expenses in an attempt to obtain property and then is unable to obtain that property may deduct the expenses as an ordinary_loss ---------------------appears to have spent u s dollars to pursue his japanese patent application though he may have converted the dollars into japanese yen the amount of his deduction is the amount of u s dollars he actually spent conex-129670-11 i hope this information is helpful if you have any questions please contact me or -------------------------- at -------------------- sincerely george j blaine associate chief_counsel income_tax accounting