department of the treasury internal_revenue_service washington d c contact person id number telephone number in reply refer to op e e0 t date nov uh sle d0-0 e i n legend g dear sir madam you requested a ruling that the reorganization of h will not adversely affect h’s g’s or s’s tax exempt and public charity status nor generate for h g or s any unrelated_business_taxable_income under sections of the internal_revenue_code facts g is a not-for-profit hospital g is exempt from federai income_tax under sec_501 of the code and is classified as a public charity under sec_509 a and b a iti h is a non-profit corporation on date h was recognized as exempt under sec_501 of the code and received a sec_509 advanced ruling own and operate a therapy center however h now plans to own and operate medical clinics and physician practices thus after the reorganization h expects to qualify as a sec_509 and sec_170 a iii public charity h was formed to - s is exempt under sec_501 of the code and is other than private_foundation under sis the sole member of g and h sec_509 resource allocation supervision oversight and coordination of health care activities of the affitiated system perform the following acts with respect to each of its subsidiaries s has the following reserved powers and reserves the right and authority to sis responsible for strategic planning amend the articles of incorporation or bylaws of the corporation adopt any operating budget or capital budget or strategic plan of the corporation acquire sell transfer or otherwise dispose_of any assets of the corporation in any transaction or group of related transactions excluding transactions occurring in the ys ordinary course of business and transactions previously approved as part of the corporation's budget or strategic plan adopt marketing and business strategies for or policies governing operational functions of the corporation reorganize merge or consolidate the corporation with any other corporation or entity liquidate or dissolve the corporation or voluntarily file any petition in bankruptcy with respect to the corporation approve the acquisition or control by the corporation of or the affiliation of the corporation with any other entity or distribute the assets of the corporation to any entity other than s upon dissolution c was incorporated as a taxable corporation on date c provides management services to both affiliated and unrelated physician practices the sole shareholder of c is v a taxable corporation the sole shareholder of v is s proposed transaction g created primary care clinics to provide care to the indigent and the needy in its service these clinics provided a lower cost alternative than having the patients come to the community hospital’s emergency room however recently development of a primary care network was necessitated by the prevalent use of primary care physicians as gatekeepers by managed care health_plans thus in c was formed and the clinics owned by g were moved to c in order to facilitate managed care contracting the formation of c as a taxable corporation also enabied it to manage physician practices that were not owned by g or c currently c owns and operates seventeen primary care clinics of the seventeen eight of the practices were acquired from the local county hospital authority five practices were started up by c the remaining four practices were purchased by c directly from physicians the submission provides details on which practices were purchased the physician s involved in the practice the purchase_price the amount of goodwill purchased and a copy of an independent fair market valuation dated before the purchase c now wants to transfer the medical practices to h c will distribute the assets both tangible wiil then transfer and intangible to v as a dividend distribution the management of these practices and the services provided to other nonaffiliated the assets to h physicians and medical groups will continue to be conducted by c the employment contracts with h will physicians will be assigned to h from s subject_to a management agreement between c and h enter into an agreement with c for c to manage the physician practices and medical clinics the agreement will be structured on a cost plus fair_market_value markup basis v will transfer the assets to s sdollar_figure you state that sufficient cash to provide working_capital will be transferred by s to h at the following the initial transfer you anticipated that there may consummation of the reorganization further these entities may share some assets be further cash transfers among h g and s _ personnel and services in an effort to reduce through economies of scale the overall cost of providing health care services you state h will provide care for individuals who are unable to pay for medical services as well as individuals covered under medicare and medicaid programs all of h’s clinics will provide treatment to individuals in need of immediate medical treatment regardiess of the individual's ability to pay physicians or they will be referred to the appropriate care provider within the s for follow-up or continuing care patients will continue to be treated by h you state h’s board_of directors will be representative of the community the board_of s no physician having a financial interest in h or any will have the authority to appoint h’s board_of its affitiates will be a member of the board rulings requested after the amendment of h’s articles of incorporation and bylaws and the proposed change in activities h will continue to be exempt from income_tax under sec_501 of the code after the proposed reorganization h will qualify as an organization described in sec_509 and sec_170 a iil of the code the proposed transfers of cash and other assets and the sharing of personnel services facilities and expenses by and among h g and s will not a jeopardize the continued tax-exempt status of h g and s b adversely affect h’s g's or s’s status as public_charities under sec_509 and sec_509 or c give rise to unrelated_business_taxable_income under sections to h g or s law and rationale sec_501 of the code provides an exemption from federal_income_tax for organizations described in sec_501 including organizations that are organized and operated exclusively for charitable educational or scientific purposes sec_1_501_c_3_-1 d of the income_tax regulations provides that the term charitable is used in sec_501 of the code in its generally accepted legal sense revrul_69_545 1969_2_cb_117 recognizes that the promotion of health is a charitable purpose within the meaning of sec_501 of the code revrul_78_41 c concludes that a_trust created by an exempt hospital for the sole purpose of accumulating and holding funds to be used to satisfy malpractice claims against the hospital is operated exclusively for charitable purposes and is exempt under sec_501 of the code sec_509 of the code provides that the term private_foundation means a domestic or foreign organization described in sec_501 of the code other than an organization described in sec_170 other than in clauses vil and vili organizations described in sec_170 of the code include organizations whose principal purpose is the provision of medical or hospital care sec_1_170a-9 of the income_tax regulations states that an outpatient clinic may qualify as a hospital if its principal purpose is the provision of hospital or medical_care af sec_509 of the code provides that the term private_foundation means an organization described in sec_501 other than one described in sec_509 or sec_509 a of the code excludes from the definition of a private_foundation an organization which is operated supervised or controlled by or in connection with one or more organizations described in sec_509 or sec_509 sec_509 of the code describes an organization which is organized and 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 sec_509 the supporting_organization must also be operated supervised or controlled by the supported_organization supervised or controlled in connection with the supported_organization or operated in connection with the supported_organization in order to be classified as a public charity under sec_509 sec_1_509_a_-4 of the regulations describes in general terms the various tests which a supporting_organization must meet in order to be classified as an organization described in sec_509 of the code sec_511 of the code imposes a tax on the unrelated_business_taxable_income of organizations described in sec_50i c sec_512 of the code defines the term unrelated_business_taxable_income as the gross_income derived by any organization from any unrelated_trade_or_business regularly carried on by it less certain allowable deductions computed with the modifications listed in sec_512 sec_512 of the code provides generally that rents_from_real_property and its incidental related personal_property are not unrelated_business_income unless the property is debt-financed under sec_514 of the code property substantially related to the exercise or performance by such organization of its charitable functions debt-financed_property does not include any sec_512 of the code requires that notwithstanding paragraphs or the net_income realized with respect to debt-financed_property must be included in unrelated_business_taxable_income sec_512 of the code exempts from the definition of unrelated_business_taxable_income all gains and losses from the sale exchange or other_disposition of noninventory items and items not held_for_sale in the ordinary course of business sec_512 of the code limits the exclusion of interest annuities royalties and rents provided by sec_512 and where such amounts are derived from a controlled organization sec_1_512_b_-1 of the regulations provides that if an exempt_organization has control of another organization the controlling_organization shall include as an item_of_gross_income in computing its unrelated_business_taxable_income the amount of interest annuities royalties and rents derived from the controlled organization determined in accordance with the formula described in sec_512 of the code and sec_1_512_b_-1 of the regulations s- sec_513 of the code defines unrelated_trade_or_business as any trade_or_business the conduct of which is not substantially related aside from the need of the organization for income or funds or the use it makes of the profits derived to the exercise of the organization's exempt purposes or functions sec_1 513-i d of the regulations provides that a trade_or_business is related to exempt purposes in the relevant sense only where the conduct of business activities has a causal relationship to the achievement of exempt purposes and it is substantially related only if the causal relationship is a substantial one the regulation states that for the conduct of trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of those purposes sec_514 of the code provides for the taxation under sec_512 of income from debt- financed property sec_514 of the code however provides that the definition of debt-financed_property does not include any property substantially_all the use of which is substantially related to the exercise or performance by such organization of the charitable purposes constituting the basis for its exemption under sec_501 analysis the purpose of h will not change as a result of the proposed reorganization and the corresponding amendments to its articles of incorporation and bylaws although h was intended to accomplish charitable purposes by operating a therapeutic center it now proposes to operate outpatient medical services in a charitable manner since the proposed activities will accomplish charitable purposes h continues to be exempt under section of c of the code further the reorganization transfer and related transactions will not adversely affect g's or s’s exempt status because the transferred assets will be put to a charitable use because g will continue to receive support from the same sources after the reorganization the reorganization will not adversely affect its classification as a nonprivate foundation under sec_509 and sec_170 a iil of the code however the nature of h’s support will change as a result of the reorganization provision of outpatient medical services thus it will be reclassified as an organization described in sec_501 and sec_170 of the code based on its relationship with g and h s will continue to qualify as a supporting_organization described in sec_509 of the code h will now receive its support from the as a parent s will provide guidance and direction to h and g its affiliated tax-exempt s will also serve as a mechanism for coordinating the activities of h and g in organizations support of their charitable purposes s will be considered an integral part of h and g within the meaning of revrul_78_41 be applicable to the transactions among h g and s because sec_513 of the code excludes from the definition of unrelated_trade_or_business any trade_or_business which contributes importantly to the accomplishment of an organization's exempt_purpose the proposed asset transfers and provisions of services among h g and s will contribute to their mission of health care in the community result in unrelated_business_income under sec_511 through of the code for h g or s therefore the reorganization and transactions described above will not therefore the sec_511 tax on unrelated_business_income will not - conclusion accordingly based on all the facts and circumstances described above we rule as follows after the amendment of h’s articles of incorporation and bylaws and the proposed change in activities h will continue to be exempt from income_tax under sec_501 of the code after the proposed reorganization h will qualify as an organization described in sec_509 and sec_170 a iil of the code the proposed transfers of cash and other assets and the sharing of personnel services facilities and expenses by and among h g and s will not a jeopardize the continued tax-exempt status of h g or s b adversely affect h’s g's and s's status as public_charities under sec_509 and sec_509 or c give rise to unrelated_business_taxable_income under sections to h g or s these rulings do not address the applicability of any section of the code or regulations to the facts submitted other than with respect to the sections described these rulings are directed only to the organizations that requested them j of the code provides that they may not be used or cited as precedent section these rulings are based on the understanding that there will be no material_change in the facts upon which they are based any changes that may have a bearing on your tax status should be reported to the service we are informing your key district_director of these rulings keep this ruling letter in your permanent records please sincerely yours marvin friefander marvin friedtander chief exempt_organizations technical branch


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 cc intl b03 genin-102229-14 number release date uil the honorable mari tere gonzález lópez senadora distrito mayagüez-aquadilla el capitolio po box san juan puerto rico re puerto rico's excise_tax dear senator gonzález lópez this general information_letter is in response to your letter of date inquiring about the creditability of the puerto rican excise_tax as you know on date the treasury_department and the irs issued notice_2011_29 irb that notice provides interim guidance on the creditability of the excise_tax and states that pending the determination of a number of legal and factual issues the irs will not challenge a taxpayer's position that the excise_tax is a creditable tax in lieu of an income_tax under sec_903 the notice also states that any change in the foreign_tax_credit treatment of the excise_tax after resolution of the pending issues will be prospective and will not apply to excise_tax paid_or_accrued before the date that further guidance is issued this letter is intended for informational purposes only and does not constitute a ruling see revproc_2014_1 sec_2 2014_1_irb_7 date if you have additional questions please contact ------------------------- --------------------- of our office at sincerely barbara a felker branch chief branch office of associate chief_counsel international cc


internal_revenue_service department of the treasury number release date index number u i l no washington dc person to contact telephone number refer reply to cc psi plr-112585-00 date date legend company state shareholder a dear this letter responds to a letter dated date and subsequent correspondence requesting a ruling on behalf of company under sec_1362 of the internal_revenue_code the information submitted discloses that company was incorporated on a in state company has one shareholder shareholder it is represented that company has intended to be an s_corporation since its incorporation however company discovered that its s election had not been timely filed company requests a ruling that its sec_1362 election will be treated as timely made for its taxable_year that begins on a sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 explains when an s election will be effective generally if an s election is made within the first two and one half months of a corporation's taxable_year then that corporation will be treated as an s_corporation for the year in which the election is made sec_1362 provides that if an s election is made after the first two and one half months of a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year following the year in which the s election is made sec_1362 provides that if no sec_1362 election is made for any taxable plr-112585-00 year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply applying the relevant law to the facts submitted and representations made we rule that company's sec_1362 election will be treated as timely made for its taxable_year that begins on a however this ruling is contingent on company filing form_2553 election by a small_business_corporation with an effective date of a with the appropriate service_center within days from the date of this ruling a copy of this letter should be attached to the form_2553 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as specifically set forth above we express no opinion concerning the federal tax consequences of the foregoing facts specifically we express no opinion on whether company otherwise qualifies as an s_corporation pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer’s authorized representative this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours robert honigman acting assistant to the chief branch office of the associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


internal_revenue_service number release date index number ------------------------------ ------------------------------------------ --------------------------- ----------------------------- in re ---------------------------------------------------- ------------------------------------------------------------ - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------------ telephone number ---------------------- refer reply to cc tege eb qp1 plr-119024-17 date date ----------------------------------------------------------------------- legend plan taxpayer ------------------------------ state x date date date year year ----------- ------------------------ ---------------------- ------------------------ ------- ------- dear -------------- this letter is written in response to your request dated date for a ruling on the effect of an amendment changing the interest rate lookback month with respect to pre- conversion benefits under sec_411 of the internal_revenue_code_of_1986 code and the regulations thereunder following the conversion of a defined benefit pension_plan qualified under sec_401 to a cash_balance_plan that is intended to be a statutory_hybrid_plan under sec_411 in support of your request you have submitted the following facts and representations including a copy of the plan document under penalties of perjury you have represented that the taxpayer is a tax-exempt_organization under sec_501 that operates a health system in state x the plan is a defined_benefit_plan maintained by the taxpayer in accordance with sec_401 and the plan’s plan_year is the calendar_year the plan is a single employer plan but covers employees of multiple related entities that are parties to various collective bargaining agreements the plan has received multiple favorable determination letters the most recent of which was issued on date plr-119024-17 the plan was converted from a traditional defined benefit pension_plan to a cash balance pension_plan generally effective as of date prior to date the plan contained numerous benefit formulas for employees of the different entities the plan provides that most active participants have a cash balance effective date of date although employees participating in the plan pursuant to one particular collective bargaining agreement have a cash balance effective date of date vested terminated participants do not have a cash balance effective date unless they are later rehired in covered employment in which case their cash balance effective date is their date of rehire the plan provides that effective on and after a participant’s cash balance effective date the participant’s normal_retirement_benefit shall equal the balance of the participant’s cash balance account which equals the sum of the participant’s conversion account and the ongoing account with respect to a participant’s conversion account the plan provides that on an eligible participant's cash balance effective date the participant’s accrued_benefit is converted to a single sum that is allocated to the participant’s conversion account the plan further provides that the amount of the benefit payable from a participant's conversion account at an annuity_starting_date in any form of benefit available under the plan may not be less than the benefit under that form of benefit with respect to service before the participant’s cash balance effective date determined as of that annuity_starting_date under the terms of the plan as in effect immediately before the cash balance effective date your letter refers to this as the protected_benefit under the terms of the plan prior to date present_value determinations were based on interest rates for the lookback month that is the first full calendar month preceding the plan_year in which the annuity_starting_date occurs under the plan terms made effective on date the plan provides a for any distribution with an annuity_starting_date after year and before year the look-back month shall be the first full calendar month preceding the plan_year in which the annuity_starting_date occurs b for any distribution with an annuity_starting_date in year the look-back month shall be whichever of the following months results in the larger distribution i the first full calendar month preceding the plan_year in which the annuity_starting_date occurs or plr-119024-17 ii the month of september in the plan_year preceding the plan_year in which the annuity_starting_date occurs and c for any distribution with an annuity_starting_date after year the look-back month shall be the month of september in the plan_year preceding the plan_year in which the annuity_starting_date occurs you represent that for annuity starting dates in year referenced in paragraph b above the september lookback results in the larger distribution with respect to determining the present_value of a participant’s protected_benefit for participants with a cash balance effective date of date the interest rate lookback month is the first full calendar month preceding the plan_year in which the annuity_starting_date occurs however for employees with a cash balance effective date that is date and for rehired vested terminated participants who have an annuity_starting_date in or after year the interest rate lookback month for purposes of determining the present_value of the protected_benefit is the month of september in the plan_year preceding the plan_year in which the annuity_starting_date occurs you represent that the taxpayer would like to amend the plan so that an interest rate lookback month of september is used for all present_value determinations for all participants including present_value determinations with respect to the protected_benefit for participants whose cash balance effective date is date you represent that this change would simplify plan administration and enable the plan to provide benefit estimates and benefit distribution paperwork more timely for an annuity_starting_date of january based on the above facts and representations you have requested the following ruling the taxpayer may amend the plan to provide that the interest rate lookback month for present_value determinations with respect to protected benefits of participants with a date cash balance effective date will be as follows a prior to the effective date of such amendment which will be on or after the date such amendment is adopted the first full calendar month preceding the plan_year in which the annuity_starting_date occurs b for the one year period commencing on the effective date of the amendment whichever of the following months results in the larger distribution the first full calendar month preceding the plan_year in which the annuity_starting_date occurs or the month of september in the plan_year preceding the plan_year in which the annuity_starting_date occurs and c following the one year period commencing on the effective date of the amendment the month of september in the plan_year preceding the plan_year in which the annuity_starting_date occurs plr-119024-17 under sec_411 if an amendment to a defined_benefit_plan is adopted after date that has the effect of converting the plan to a cash_balance_plan then the plan is treated as failing to meet the prohibition against age discrimination under sec_411 unless the requirements of sec_411 of the code and sec_1_411_b_5_-1 of the income_tax regulations are met with respect to each individual who was a participant in the plan immediately before the adoption of the amendment sec_411 provides that the accrued_benefit of a participant under the terms of the plan as in effect after the amendment may not be less than the sum of i the participant’s accrued_benefit for years_of_service before the effective date of the amendment determined under the terms of the plan as in effect before the amendment plus ii the participant’s accrued_benefit for years_of_service after the effective date of the amendment determined under the terms of the plan as in effect after the amendment sec_1_411_b_5_-1 provides that in the case of an individual who was a participant in the plan immediately before the date of adoption of a conversion amendment the participant’s benefit at any subsequent annuity_starting_date may not be less than the sum of a the participant’s sec_411 protected_benefit as defined in sec_1_411_d_-3 with respect to service before the effective date of the conversion amendment determined under the terms of the plan as in effect immediately before the effective date of the conversion amendment and b the participant’s sec_411 protected_benefit with respect to service on and after the effective date of the conversion amendment determined under the terms of the plan as in effect after the effective date of the conversion amendment sec_1_411_b_5_-1 provides in pertinent part that except to the extent permitted under sec_1_411_d_-3 or sec_1_411_d_-4 or other applicable law each optional form of payment provided under the terms of the plan with respect to a participant’s sec_411 protected_benefit as in effect before the conversion amendment must be available thereafter to the extent of the plan’s benefits for service prior to the effective date of the conversion amendment sec_1_411_b_5_-1 provides that if a plan protects benefits attributable to service before the effective date of the conversion amendment by establishing an opening account balance then with respect to an optional form of benefit payable at an annuity_starting_date the plan must provide that the amount of the benefit payable in that optional form under the lump sum-based benefit formula that is attributable to the opening hypothetical account balance is not less than the benefit under the comparable optional form of benefit attributable to the pre-conversion formula thus the participant must receive a benefit equal to not less than the sum of the benefit attributable to plr-119024-17 post-conversion service and the greater of i the benefit attributable to the opening account balance and ii the pre-conversion benefit sec_411 and sec_1_411_d_-3 provide generally that except for exceptions that are not relevant here a plan is not a qualified_plan if a plan amendment decreases the accrued_benefit of any plan participant sec_411 provides that a plan amendment that has the effect of reducing or eliminating an early_retirement_benefit or a retirement-type subsidy or eliminating an optional form of benefit with respect to benefits attributable to service before the amendment is treated as reducing accrued_benefits under sec_1_411_d_-3 an optional form of benefit is a distribution alternative that is available under the plan different optional forms of benefit exist if a distribution alternative is not payable on substantially the same terms as another distribution alternative the relevant terms include all terms affecting the value of the optional form such as the method of benefit calculation and the actuarial factors or assumptions used to determine the amount distributed sec_417 provides that the applicable_interest_rate for purposes of determining the minimum present_value of a participant’s accrued_benefit is the adjusted first second and third segment rates applied under rules similar to the rules applied in sec_430 for the month before the date of the distribution or such other time as prescribed by regulations the lookback month sec_1_417_e_-1 provides that for a defined_benefit_plan the minimum present_value rules apply to determination of the present_value of any accrued_benefit and the amount of any distribution in addition the present_value of any optional form of benefit cannot be less than the present_value of the normal_retirement_benefit determined in accordance with the minimum present_value rules under sec_1_417_e_-1 the applicable_interest_rate to be used for a distribution is the rate determined for the applicable lookback month the applicable lookback month for a distribution is the lookback month for the month or other longer stability period that contains the annuity_starting_date for the distribution the time and method for determining the applicable_interest_rate for each participant’s distribution must be determined in a consistent manner that is applied uniformly to all participants in the plan sec_1_417_e_-1 requires a plan to specify the period for which the applicable_interest_rate remains constant this stability period may be one calendar month one plan quarter one calendar_quarter one plan_year or one calendar_year plr-119024-17 sec_1_417_e_-1 requires a plan to specify the lookback month that is used to determine the applicable_interest_rate the lookback month may be the first second third fourth or fifth full calendar month preceding the first day of the stability period sec_1_417_e_-1 provides that plan amendments changing the applicable_interest_rate or the time for determining the interest rate are subject_to the prohibitions against the reduction or elimination of protected benefits under sec_411 including optional forms of benefits sec_1_417_e_-1 however provides an exception to the general_rule under sec_1_417_e_-1 for a plan amendment to be eligible for this exception if the amendment is effective on or after the adoption date then any distribution for which the annuity_starting_date occurs in the one-year period commencing at the time the amendment is effective must be determined using the interest rate provided under the plan determined at either the date for determining the interest rate before the amendment or the date for determining the interest rate after the amendment whichever results in the larger distribution the taxpayer’s proposed amendment would modify the interest rate lookback month with respect to present_value calculations of protected benefits for participants with a cash balance effective date of date and therefore such calculations would no longer be determined under the terms of the plan as in effect immediately before the cash balance effective date as required by b -1 c i a participant’s sec_411 protected_benefit with respect to service before the effective date of the conversion amendment must be determined under the terms of the plan as in effect immediately before the effective date of the conversion amendment in addition sec_1_411_b_5_-1 provides that each optional form of payment provided under the terms of the plan with respect to a participant’s sec_411 protected_benefit as in effect before the conversion amendment must be available thereafter to the extent of the plan’s benefits for service prior to the effective date of the conversion amendment except to the extent elimination or reduction of the benefit is permitted under sec_1_411_d_-3 or sec_1_411_d_-4 or other applicable law pursuant to sec_1_411_d_-3 amending the lookback month is a modification of the actuarial factors for determining the present_value of a participant’s benefit that would impermissibly eliminate a previously available optional form of benefit in violation of sec_411 unless an exception applies sec_1_417_e_-1 provides such an exception under sec_1_417_e_-1 amendments changing from one permitted lookback month to another permitted lookback month do not violate sec_411 or sec_417 provided the participants receive the benefit of either the pre-amendment month or the post-amendment month for a one-year period plr-119024-17 commencing on the effective date of the amendment whichever results in the larger distribution sec_1_417_e_-1 states that paragraph d specifically applies to the purposes in paragraph d namely determination of the present_value of any accrued_benefit and the amount of any distribution as well as the determination of whether the present_value of any optional form of benefit is not less than the present_value of the normal_retirement_benefit the determination of the present_value of a participant’s protected_benefit is a determination of the present_value of an optional form of benefit and therefore is covered by sec_1_417_e_-1 because other applicable law for purposes of b -1 c ii includes the rules governing the determination of present_value under sec_417 and sec_1_417_e_-1 the terms of the plan amendment as represented by the taxpayer are consistent with the requirements of sec_1_411_b_5_-1 accordingly we conclude that the proposed amendment as described above to the plan’s interest rate lookback month for present_value determinations with respect to protected benefits of participants whose cash balance effective date is date will not cause the plan to violate the requirements of sec_411 or iii the ruling contained in this letter is based upon information and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party as specified in revproc_2017_1 b this office has not verified any of the material submitted in support of the request_for_ruling and such material is subject_to verification on examination the associate office will revoke or modify a letter_ruling and apply the revocation retroactively if there has been a misstatement or omission of controlling facts the facts at the time of the transaction are materially different from the controlling facts on which the ruling was based or in the case of a transaction involving a continuing action or series of actions the controlling facts change during the course of the transaction see revproc_2017_1 sec_11 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 requesting it sec_6110 provides that it may not be used or cited as precedent plr-119024-17 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 laura b warshawsky chief qualified_plans branch office of the associate chief_counsel tax exempt government entities cc


internal_revenue_service p o box cincinnati oh release number release date date date department of the treasury employer_identification_number contact person - id number contact telephone number legend uil x name y name b dollars amount dear you asked for advance approval of your scholarship grant procedures under internal_revenue_code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax you requested approval of your scholarship program to fund the education of certain qualifying students our determination we approved your procedures for awarding scholarships based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding scholarships meet the requirements of code sec_4945 as a result expenditures you make under these _ procedures won't be taxable also awards made under these procedures are scholarship or fellowship grants and are not taxable to the recipients if they use them for qualified_tuition_and_related_expenses subject_to the limitations in code sec_117 description of your request your letter indicates you will operate a scholarship program for college bound high school students you are committed to encouraging math and science high school students to study computer science at the college level and to become professional web developers you will award one scholarship per year for b dollars which was determined by your current income and assets along with your other programs the scholarship is non- renewable ie it can only be awarded for one year to any scholarship recipient letter catalog number 58263t you reserve the right to increase the number and the dollar amount of the scholarships awarded each year should the assets and income support these adjustments the final_determination on whether to increase the number of scholarships and the amount awarded in a single year shall rest with your board_of directors adjustments in the dollar amount of the scholarship will be made before applications are accepted for consideration for the next scholarship award year the scholarship amount awarded will not be increased until the recipient has been selected your program will be publicized nationwide through your webpage press releases blog posts and social media platforms such as facebook twitter and google in addition you will reach out directly to high school guidance counselors via x and through the y organization any high school senior in the united_states who intends to study computer science at an accredited college or university described in b a ii within the united_states and meets the scholarship criteria may apply for the scholarship the criteria include e e e cumulative high school g p a of or better an intent to study computer science acceptance at an accredited college or university within the united_states applicants must provide official high school transcript resume describing any extracurricular activities and employment experience two letters of recommendation one of which should be from a math or science teacher familiar with the student completed application form copy of official college university acceptance letter one-page essay describing how the student hopes to participate in the professional software development industry description of y organization involvement if any e a grant committee consisting of your board_of directors will judge and select the recipient vacancies on the committee will be filled by your board_of directors each committee member will use a scholarship judging form to assign a score to each application and the scores will be averaged for that scholarship application the criteria used to award points are active in school related_organizations elected leadership position in school or community related clubs or organizations demonstrates community involvement sat and or act score grade point average gpa requirements references catalog number 58263t letter essay participation in y students who have participated in y will be given extra consideration and assigned extra points in the evaluation process even though this is not a requirement for scholarship consideration the top scoring application will be awarded the scholarship should multiple applications have the same top score the committee will deliberate among those applications to determine the scholarship recipient for that year the scholarship award will be made in two equal payments directly to the student's college or university at the beginning of each semester the scholarship recipient must maintain a minimum gpa during the first semester to receive the second payment the scholarship recipient's school must provide proof of the student's gpa after the first semester proof that the student is in good standing and is enrolled for the upcoming semester as well as receipts for each check received from you on the student's behalf high school and college transcripts will provide proof of the necessary gpa payments to the college directly along with receipts signed by the college will prevent misappropriation or improper use of funds you represent that you will complete the following arrange to receive and review grantee reports annually and upon completion of the purpose for which the grant was awarded investigate diversion of funds from their intended purposes and take all reasonable and appropriate steps to recover the diverted funds ensure other grant funds held by a grantee are used for their intended purposes and withhold further payments to grantees until you obtain grantees’ assurances that future diversions will not occur and that grantees will take extraordinary precautions to prevent future diversion from occurring you represent that you will maintain the following all records relating to individual grants including information obtained to evaluate grantees identify a grantee is a disqualified_person establish the amount and purpose of each grant and establish that you undertook the supervision and investigation of grants described above basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure e e e the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is a scholarship or fellowship subject_to the provisions of code sec_117 the grant is to be used for study at an educational_organization described in code sec_170 letter catalog number 58263t other conditions that apply to this determination e this determination only covers the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don’t differ significantly from those described in your original request this determination applies only to you it may not be cited as a precedent you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you may report any significant changes to your program by completing form_8940 and sending it to the cincinnati office of exempt_organizations at internal_revenue_service exempt_organizations determinations p o box cincinnati oh you cannot award grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary we've sent a copy of this letter to your representative as indicated in your power_of_attorney please keep a copy of this letter in your records if you have questions please contact the person listed at the top of this letter sincerely director exempt_organizations letter catalog number 58263t


department of the treasury internal_revenue_service washington d c number release date cc intl br6 wta-n-100589-00 uilc date internal_revenue_service national_office technical assistance memorandum for michael r picariello ifasp specialist office of the assistant_commissioner international from anne p shelburne assistant to the branch chief office of associate chief_counsel international branch subject revocation of sec_936 election this memorandum responds to your request for technical assistance dated date requesting guidance district directors may consider in determining whether to consent to requests to revoke possessions corporations’ elections under internal_revenue_code code sec_936 taxpayers seeking to revoke a sec_936 election that has been in effect for less that ten years must request permission under sec_1_936-7 such requests must be addressed to the district_director having jurisdiction over the taxpayer’s return technical assistance does not relate to a specific case and is not binding on examination or appeals this document is not to be used or cited as precedent discussion a sec_936 election generally sec_936 and e provide for an election for a corporation meeting certain criteria to be treated as a possessions_corporation under sec_936 sec_936 provides a credit against u s income_tax in an amount equal to tax attributed to non-u s source taxable_income from the active_conduct_of_a_trade_or_business within a u s possession provided the_domestic_corporation derives at least of its gross_income for a preceding three-year period from sources within wta-n-100589-00 a u s possession and at least of such gross_income is derived from the active_conduct_of_a_trade_or_business in a u s possession sec_936 in congress enacted the small_business and job protection act of which phases out the sec_936 credit over a ten-year period eliminating it entirely for some taxpayers for taxable years beginning after date and others for tax years beginning before date sec_936 sec_936 states that except as otherwise provided in sec_936 the sec_936 possession_tax_credit does not apply to any_tax year beginning after date sec_936 however provides that existing credit claimants may continue to elect the credit under sec_936 or sec_30a under limited conditions sec_936 provides that an election for possession_tax_credit shall be made in accordance with regulations prescribed by the secretary sec_936 such an election shall apply to the first taxable_year for which the_domestic_corporation meets the requirements of code sec_936 and for each taxable_year thereafter until the election is revoked by the_domestic_corporation sec_936 a sec_936 election may be revoked only with the consent of the secretary for any taxable_year beginning before the expiration of the ninth taxable_year following the taxable_year for which the election first applies sec_936 a sec_936 election may be revoked without the consent of the secretary for any taxable_year beginning after the expiration of the ninth taxable_year for which the election first applies sec_936 sec_1_936-7 governs requests for revocation of sec_936 elections and delegates authority to the district_director having jurisdiction over the taxpayer’s tax_return to consent to requests for revocation sec_1_936-7 provides the following an election under internal_revenue_code sec_936 may be revoked during the first ten years of sec_936 status only with the consent of the commissioner and without the commissioner’s consent after that time the commissioner hereby consents to all requests for revocation that are made with respect to the taxpayer’s first taxable_year beginning after date provided that the sec_936 election was in effect for the corporation’s last taxable_year beginning before date if the taxpayer agrees not to re-elect sec_936 prior to its first taxable_year beginning after date a taxpayer that wishes to revoke a sec_936 election under the terms of the blanket revocation must attach a statement of revocation - sec_936 to the taxpayer’s timely filed return including extensions and must state that in revoking the election the taxpayer agrees not to re-elect sec_936 prior to its first taxable_year beginning after date other requests wta-n-100589-00 to revoke not covered by the commissioner’s blanket consent should be addressed to the district_director having jurisdiction over the taxpayer’s tax_return sec_1_936-7 emphasis added whereas the code and corresponding treasury regulations provide guidance on revoking a sec_936 election that has been in effect for at least ten years neither the code nor regulations set forth criteria to consider when the district director’s consent is required to revoke a sec_936 possessions_corporation election that has been in effect for less than ten years therefore in providing guidance to district directors who may consider whether to consent to a taxpayer’s request to revoke a sec_936 election we rely on legislative_history of the sec_936 possession_tax_credit for clarification of congressional intent and judicial precedent as well b legislative_history in congress adopted sec_936 as a substitute for trade and investment tax benefits that were permitted previously pursuant to sec_931 tax reform act of sec_1051 sec_936 sec_931 benefits which congress intended as inducement s to u s corporate investment in active trades and businesses in puerto rico and the possessions placed limits on the operations of possessions companies while at the same time providing significant benefits specifically corporations operating a trade_or_business in a u s possession were entitled to exclude from gross_income all income_from_sources_without_the_united_states including foreign_source_income earned outside the possession provided the_domestic_corporation derived at least of its gross_income for a preceding three-year period from sources within a u s possession and at least of such gross_income was derived from the active_conduct_of_a_trade_or_business in a u s possession s rep no 94th cong 2d sess 1976_3_cb_319 in effect under sec_931 no u s tax was paid on foreign_source_income earned by the possessions_corporation unless it paid dividends to its u s parent_corporation because no current u s tax was imposed unless a sec_931 possessions corporation’s earnings were repatriated sec_931 corporations invested income in foreign countries thus avoiding u s tax on the earnings from business conducted in a possession and on income obtained from reinvesting business earnings in foreign countries s rep no 94th cong 2d sess c b vol in enacting sec_936 in congress addressed the concern over non-repatriation of dividends by permitting a dividends-received_deduction for dividends from a sec_936 possessions_corporation to its u s parent_corporation s rep no 94th cong 2d sess c b vol wta-n-100589-00 in enacting sec_936 congress also expressed concern over the relationship of possessions_corporation provisions to other code provisions regarding consolidated tax returns noting that an affiliated_group with a possessions_corporation could gain a double benefit where the losses of a possessions_corporation were claimed on a consolidated_return congress focused on the use of losses in response to the united_states tax court’s decision in burke concrete accessories inc and discussed the problem of possessions_corporations offsetting possession-based losses against income of affiliated domestic corporations by filing consolidated tax returns see s rep no 94th cong 2d sess 1976_3_cb_317 citing 56_tc_588 in burke concrete the tax_court held that a corporation with a net_operating_loss which qualified as both a sec_931 possessions_corporation and a sec_921 western_hemisphere_trade_corporation properly joined in a consolidated_return filed by its affiliated_group 56_tc_588 the tax_court focused on whether the possessions_corporation was an includible_corporation defined in code sec_1504 as any corporation except c orporations entitled to the benefits of sec_931 by reason of receiving a large percentage of their income from sources within possessions of the united_states in applying a literal definition of benefit the tax_court determined that since the possessions_corporation incurred operating losses it could not benefit from the credit provisions of sec_931 as it had no income to which the credit applied regardless of the fact the corporation met the requirements of sec_931 and was excluded from the definition of includible_corporation under sec_1504 t c pincite in response to the tax court’s ruling in burke concrete congress expressed its concern that possessions_corporations entitled to tax-free_income should not derive an additional tax_benefit by being permitted to offset their losses against taxable earnings_of affiliated corporations a corporation which is entitled to the benefits of the special possessions_corporation exclusion may not participate in the filing of a consolidated_return however the courts have determined that possessions_corporations may join in filing consolidated_returns in years in which they incur losses footnote omitted as a result these corporations can in effect gain a double benefit not only is the the language of code sec_1504 cited by the tax_court in burke concrete was amended in by p l to read the following i ncludible corporation means any corporation except - corporations with respect to which an election under sec_936 relating to possession_tax_credit is in effect for the taxable_year tax reform act of pub_l_no sec_803 90_stat_1520 wta-n-100589-00 possessions and other foreign_source_income of these corporations excluded from u s taxable_income but losses of possessions_corporations can by filing a consolidated_return reduce u s tax on the u s income of related corporations in the consolidated_group s rep no pincite c b pincite citing 56_tc_588 t c acq 1973_2_cb_1 in response to the tax court’s ruling in burke concrete congress curtailed the ability of a possessions_corporation to join in a consolidated_return once it had elected the u s tax_credit under sec_936 the senate finance c ommittee believes that it is appropriate to allow the losses of a possessions_corporation to reduce u s tax on other income by filing a consolidated_return only in the case of initial or start-up losses of sic possessions_corporation just beginning its possession operations moreover even in the case of start-up losses the committee believes that these losses should be recaptured if in a later year foreign_source_income is derived accordingly the committee’s amendment provides that a possessions_corporation must make an election to obtain the benefits of possessions_corporation status and that after this election the corporation is ineligible to join in filing a consolidated_return for a period of ten years footnote omitted s rep no pincite emphasis added c b pincite to further restrict the potential for double benefits congress explicitly limited a sec_936 possessions corporation’s ability to revoke its election within the first ten years except in cases of substantial hardship where no tax_avoidance could result in order to receive the benefits of the sec_936 tax_credit a corporation must make an election at the time and in the manner as the secretary prescribes by regulations once the election is made the_domestic_corporation cannot join in a consolidated_return with other related_taxpayers the election is to remain in effect for nine taxable years after the first year for which the election was effective although the service ultimately acquiesced in the burke concrete holding and reversed its position through revrul_73_498 1973_2_cb_316 both the burke concrete holding and the subsequent revenue_ruling have been superseded by the enactment of sec_936 by the tax reform act of which deleted reference to western hemisphere trade corporations under code sec_921 for taxable years beginning after wta-n-100589-00 and for which the_domestic_corporation satisfied the percent possession source income and percent active trade_or_business income requirements however the election may be revoked before the expiration of the 10-year period with the consent of the secretary it is contemplated that consent will be given only in cases of substantial hardship where no tax_avoidance can result from the revocation of the election in determining whether there would be substantial hardship the secretary is to take into account changes in business conditions the election shall remain in effect after the year period unless such domestic_corporation revokes such election s rep no pincite emphasis added c b pincite additionally we note that the united_states claims_court has recognized congress’ legislative response to the burke concrete decision in limiting the ability of affiliated companies on a consolidated_return to benefit from losses_incurred by a sec_931 possessions_corporation see general elec co v united_states cl_ct stating the firm legislative response to burke concrete suggests that congress intended corporations to offset losses only against their own income and not to use those losses to reduce the tax burden of related entities conclusion the legislative_history discussed above expresses congress’ concerns regarding abuses when taxpayers accumulate tax_attributes within the first ten years of a sec_936 election and by revoking the sec_936 election then seek to apply such tax_attributes to produce a double benefit on a u s tax_return taxpayers could even under current law then reelect sec_936 possessions treatment in a subsequent year in situations where congress’ concerns are evident the district_director generally should refuse to consent to a revocation request such situations may include for example instances where a sec_936 possessions_corporation has accrued tax_attributes or expenses including but not limited to accumulated losses current operating losses built-in losses or deductions during the period for which its sec_936 election was in effect however in certain cases it is within the district director’s discretion to consider whether revocation may be otherwise appropriate in such cases where tax_attributes or expenses are present and the district_director determines that consent to revoke may be appropriate the district_director may consider entering into an agreement with the taxpayer whereby for example tax_attributes or expenses accrued during the period for which it sec_936 election was in effect are eliminated and are ineligible for use on any_tax return wta-n-100589-00 if you have additional questions please call by _______________________ anne p shelburne assistant to the branch chief branch associate chief_counsel international


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi plr-161789-01 date date legend cooperative state a city b city c d country e a b c dear this is in response to your request dated date and subsequent correspondence requesting a ruling that the cooperative will be operating_on_a_cooperative_basis within the meaning of sec_1381 of the internal_revenue_code you have provided the following representations the cooperative is a state a corporation the books_and_records of the cooperative will be kept on the accrual_method of accounting the cooperative’s principal office is located in city b and its returns will be filed with the internal_revenue_service center in city c the cooperative has adopted a fiscal_year ending in the month of d the cooperative has a members who are non-resident country e corporations not doing business within the united_states all a members are resident corporations for purposes of country e taxation the purpose of the cooperative is to market b products in the united_states pursuant to the by-laws of the cooperative each member of the cooperative shall be entitled to one vote without regard to the amount of shares the member owns in addition each member will designate an individual to serve on the cooperative’s board_of directors the cooperative is obligated to account on a patronage basis to all member patrons on an annual basis for all amounts received from business conducted with members the patronage_dividend will be such that all amounts of net profit before tax earned by the cooperative in the form of patronage income in any fiscal_year shall be distributed to the members of the cooperative in proportion to the patronage of each such member in that fiscal_year calculated according to a weighting of c by volume and c by value of produce shipped to or through the cooperative by the member all patronage_dividends distributed shall be distributed to the members in cash or qualified written notices of allocation as permitted by sec_1382 of the code pursuant to the bylaws of the cooperative the amount of capital if any furnished by each member shall at the end of each fiscal_year be clearly reflected and properly credited in the appropriate record to the capital_account of each member the cooperative shall within ½ months after the close of each fiscal_year notify each member of the capital so credited to the member’s account the notice shall be in the form of a written_notice_of_allocation or per-unit_retain_certificate when a member patron discontinues participation in the cooperative any unredeemed patronage allocations will be retained by the cooperative until the allocation instrument is due for redemption by its terms based on the discretion of the board_of directors and based on the financial condition of the cooperative a withdrawing member may have its retained patronage allocation redeemed for amounts agreeable to the cooperative and the withdrawing member in full satisfaction of the claim any discount would be includable in the cooperative’s non-patronage income pursuant to the tax_benefit_rule pursuant to the by-laws the cooperative upon dissolution after all debts and liabilities of the cooperative shall have been paid all shares of any stock redeemed and all capital furnished through patronage shall have been retired without priority on a pro_rata basis distribution of any remaining assets shall be distributed on a patronage basis to all member patrons on the basis of their amount of patronage conducted by them to the extent practicable pursuant to the by-laws any entity which applies for and is accepted to membership of the cooperative by such act alone will consent that the amount of any distributions with respect to the member’s patronage occurring after acceptance for membership status which are made in written notices of allocation as defined in sec_1388 of the code will be taken into account by the member at the stated dollar amount in the manner provided in sec_1385 of the code in the taxable_year in which such written notices are received by the member sec_1381 of the code provides that subchapter_t shall apply to any corporation operating_on_a_cooperative_basis with certain exceptions not here relevant sec_1_1381-1 of the income_tax regulations states that subchapter_t of the code applies to any corporation operating_on_a_cooperative_basis and allocating amounts to patrons on the basis of business done with or for patrons in 44_tc_305 acq 1966_ 1_cb_3 three principles are described as fundamental to cooperative operation subordination of capital democratic control by the members and operation at cost the vesting in and allocation among the members of all fruits and increases arising from their cooperative endeavor subordination of capital requires that control of the cooperative and ownership of the pecuniary benefits arising from the cooperative’s business remain in the hands of the member patrons of the cooperative rather than with nonpatron equity investors in the cooperative the purpose of this limitation is to insure that the gains that accrue to the cooperative from the business that it transacts with its patrons will largely or completely inure to the benefit of those patrons rather than to its stockholders to be operating_on_a_cooperative_basis a cooperative must limit the financial return with respect to its equity_capital puget sound t c pincite stated differently a cooperative may not be operated for the purpose of paying a return on equity investments democratic control of the cooperative as envisioned in puget sound pincite is typically achieved by voting on a one-member one-vote basis the principal of democratic control was further discussed in 462_f2d_259 5th cir in which the court noted that sec_521 regarding exempt_cooperatives contemplates that the stock will be owned by the patrons of the cooperative that section envision s the exempt association organized according to a model of a widely-based participatory democracy in which all the members are able to exercise a franchise of equal strength each member must have a single vote regardless of the size of its investment or the amount of business it does with the corporation the requirement of operation at cost is met if the cooperative’s net_earnings or savings are distributed to the cooperative’s patrons in proportion to the amount of business conducted with them this requirement relates to the proportionate vesting in and allocation among the worker-members of all fruits and increases from their cooperative endeavor is achieved through statutes bylaws and contractual arrangements between the association and its members whereby the elected officers of the association are required to make periodic allocations of the same among the members in proportion to their active_participation as workers puget sound pincite revrul_70_481 1970_2_cb_170 holds that a corporation supplying services to its members at cost and making distributions to each member based on the value of business done with each member was operating_on_a_cooperative_basis within the meaning of sec_1381 of the code revrul_72_36 1972_1_cb_151 states that in accordance with fundamental cooperative principles the rights and interests of the members in the savings of a cooperative should be determined in proportion to their business with the cooperative with respect to liquidating distributions the service has stated that the cooperative principle of operation at cost requires that a cooperative’s articles of incorporation or bylaws obligate the cooperative to distribute its remaining assets upon liquidation to both its current and former members in proportion to the value or quantity of business that each did with the cooperative over some reasonable number of years sec_1382 of the code provides in part that in determining the taxable_income of a cooperative there shall not be taken into account amounts paid during the payment period for the taxable_year as patronage_dividends to the extent paid in money qualified written notices of allocation or other_property with respect to patronage occurring during such taxable_year sec_1382 of the code and sec_1_1381-2 of the regulations provide in pertinent part that there is allowed as a deduction from the gross_income of any cooperative to which part i of subchapter_t applies amounts paid to patrons during the payment period for the taxable_year as patronage_dividends to the extent that such amounts are paid in money qualified written notices of allocation or other_property other than nonqualified written notices of allocation sec_1388 of the code defines the term nonqualified written notices of allocation as meaning a written_notice_of_allocation that is not cashed on or before the day after the close of the payment period for the taxable_year sec_1382 of the code provides in part that the payment for any taxable_year is the period beginning with the first day of such taxable_year and ending with the fifteenth day of the ninth month following the close of such year sec_1388 of the code provides that the term patronage_dividend means an amount_paid to a patron by a cooperative on the basis of the quantity or value of business done with or done for such patron sec_1388 provides that a patronage_dividend is an amount_paid under an obligation that must have existed before the cooperative received the amount so paid sec_1388 of the code provides that patronage_dividend means an amount_paid to a patron that is determined by reference to the net_earnings of the corporation from business done with or for its patrons that section further provides that patronage_dividend does not include any amount_paid to a patron to the extent that such amount is out of earnings other than from business done with or for patrons sec_1_1382-3 of the regulations states that income derived from sources other than patronage means incidental income derived from sources not directly related to the marketing purchasing or service activities of the cooperative association concerning the requirement of subordination of capital we note that the cooperative does not have any nonpatron investors nor do they plan to accept any nonpatron investors the bylaws mandate that the cooperative operate on a cooperative basis for the benefit of its members further the bylaws mandate that each of the members shall have one and only one vote with majority rule controlling in addition we note that after dissolution distribution of remaining assets shall be distributed to all member patrons on the basis of their amount of patronage with the cooperative concerning the requirement of democratic control we note the cooperative’s bylaws provide that each member shall be entitled to a single vote majority rule is also in effect concerning the requirement of operation at cost we note that net_earnings are distributed to the patrons in proportion to the quantity and value of business conducted with them thereby ensuring that it is operated at cost based solely on the representations provided we conclude that the cooperative will be operating_on_a_cooperative_basis within the meaning of sec_1381 of the code no opinion is expressed or implied on any other provision of law this letter is addressed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent branch sincerely walter woo senior technician reviewer office of the associate chief_counsel passthroughs and special industries attachments copy for sec_6110 purposes


ygyzdollar_figure -os department of the treasury oo internal_revenue_service washington d c government entities date aug contact person identification_number telephone number employer_identification_number legend dear sir or madam this is in response to a letter dated date requesting a ruling as to the consequences under chapter of the internal_revenue_code of the construction and lease of facilities to be used by the lessee for religious educational and charitable purposes statement of facts b is exempt from federal_income_tax under sec_501 of the internal_revenue_code and is a private_foundation described in sec_509 b's articles of incorporation state that it is organized to make charitable grants to organizations that have established their tax-exempt status under sec_501 b was formed to centralize the charitable activities of mr and mrs c appropriate b has provided support for the programs of tax-exempt nonprofit_organizations in arts and culture religion education health and other charitable purposes b makes grants out of income and out of its principal as the directors determine is the four buildings consist of a - b holds legal_title to four buildings which it constructed situated on a purchased in ' from teaeral income_tax under sec_501 of the code for a fee of dollar_figurex per month dis tesponsible for paying all taxes maintenance insurance and other costs associated with the building under the lease agreement the lease agreement also provides that d is obligated to b leased the fand and the buildings to d a church exempt acre tract of land anda _ use the premises exclusively for the accomplishment of its exempt purposes and should the church fail to do so the lease agreement will terminate upon termination of the lease the land and buildings will revert back to b if the land and building revert to b b intends to either lease the land and buildings for nominal consideration to another sec_501 organization or b will utilize the land and buildings itself for a direct charitable activity b intends to construct build-outs to the gymnasium b intends to lease the build-outs to d under the same terms as the land and the four buildings for nominal rent and that d will use the build-outs exclusively for its exempt purposes the build-outs will consist of classrooms and a b's board_of directors passed a resolution that in furtherance of b's tax-exempt purpose b intends to lease the build-outs to d for nominal or no consideration ruling requested based upon the facts set forth above and the assumption that the transaction will be carried out as previously described b requests the following rulings the construction of the build-outs for the use directly in carrying out purposes described in sec_170 via a lease of such build-outs will constitute a qualifying_distribution within the meaning of sec_4942 the build-outs acquired for lease to a church for use directly in carrying out of purposes described in sec_170 will constitute assets used or held for use in carrying out b's exempt_purpose and are thereby excluded in determining b’s minimum_investment_return within the meaning of sec_4942 the date on which the cost of constructing the build-outs for lease to a church for use directly in carrying out purposes described in sec_170 will be treated as a qualifying_distribution and the amounts expended excluded from the determination of minimum_investment_return will be the date b’s expends the funds to construct the build- outs the acquisition of the build-outs to be leased for purposes described in sec_170 will constitute a program related investment within the meaning of section c law and analysis sec_170 of the code describes in part purposes of an organization as being organized and operated exclusively for religious charitable scientific literary or educational_purposes sec_4942 of the code imposes a tax on the undistributed_income_of_a_private_foundation for any taxable_year which has not been distributed before the first day of the second or any succeeding taxable_year following such taxable_year if such first day falls within the taxable_period sec_4942 of the code provides that the term undistributed incomen means with respect to any private_foundation for any taxable_year as of any time the amount by which- the e distributable_amount for such taxable_year exceeds the qualifying distributions made before such time out of such distributable_amount sec_4942 of the code provides that the term distributable_amount means with respect to any foundation for any taxable_year any amount equal to- the sum of the minimum_investment_return plus the amounts described in subsection f c reduced by the sum of the taxes imposed on such private_foundation for the taxable_year under subtitle a and sec_4940 sec_4942 of the code provides that the minimum_investment_return for any private_foundation for any taxable_year i sec_5 percent of the excess of- a the aggregate fair_market_value of all assets of the foundation other than those which are used or held for use directly in carrying out the foundation's exempt_purpose over b the acquisition_indebtedness with respect to such assets determined under sec_514 without regard to the taxable_year in which the indebtedness was incurred sec_4942 of the code provides that the term qualifying_distribution means a any amount including that portion of reasonable and necessary administrative expenses paid to accomplish one or more purposes described in sec_170 other than any contribution to i an organization controlled directly or indirectly by the foundation or one or more disqualified persons as defined in sec_4946 with respect to the foundation except as provided in paragraph or ii a private_foundation which is not an operating_foundation as defined in subsection except as provided in paragraph or b any amount_paid to acquire an asset used or held for use directly in carrying out one or more purposes described in sec_170 sec_53_4942_a_-2 of the foundation and similar excise_taxes regulations provides in part that an asset is used or held for use directly in carrying out a foundation's exempt_purpose only if the asset is actually used by the foundation in carrying out the charitable educational or other similar purpose which gives rise to the exempt status of the foundation sec_53_4942_b_-1 of the regulations provides that amounts paid to acquire or maintain assets which are used directly in the conduct of the foundation's exempt_activities such as the operating_assets of a museum public park or historic site are considered direct expenditures_for the active_conduct of the foundation's exempt_activities sec_4944 of the code provides that if a private_foundation invests any amount in such manner as to jeopardize the carrying out of any of its exempt purposes there is hereby imposed on the making of such investment a tax equal to percent of the amount so invested for each year or part thereof in the taxable_period sec_4944 of the code provides that for purposes of this section investments the primary purpose of which is to accomplish one or more of the purposes described in sec_170 and no significant purpose of which is the production_of_income or the appreciation of property shall not be considered as investments which jeopardize the carrying out of exempt purposes sec_53_4944-3 of the regulations provides in part that for purposes of sec_4944 a program-related_investment shall not be classified as an investment which jeopardizes the carrying out of the exempt purposes of a private_foundation a program-related investment’ is an investment which possesses the following characteristics i the primary purpose of the investment is to accomplish one or more of the purposes described in sec_170 ii no significant purpose of the investment is the production_of_income or the appreciation of property and iii no purpose of the investment is to accomplish one or more of the purposes described in sec_170 sec_53_4944-3 of the regulations provides in part that an investment shall be considered as made primarily to accomplish one or more of the purposes described in sec_170 if it significantly furthers the accomplishment of the private foundation's exempt_activities and if the investment would not have been made but for such relationship between the investment and the accomplishment of the foundation's exempt_activities revrul_72_369 1972_2_cb_245 held that an organization formed to provide managerial and consulting services at cost to unrelated exempt_organizations does not qualify for exemption under sec_501 of the code revrul_71_529 distinguished revrul_69_572 1969_2_cb_119 held that a nonprofit organization created to construct and maintain a building for the exclusive purpose of housing and serving exempt member agencies of a community chest may be exempt under sec_501 of the code revrul_71_529 1971_2_cb_234 held that a nonprofit organization that provides assistance in the management of participating colleges’ and universities' endowment or investment funds for a charge substantially below cost qualifies for exemption under sec_501 of the code revrul_78_102 1978_1_cb_379 held that the correct conversion date of real_property converted by a private_operating_foundation from nonexempt to exempt uses for purposes of treating the conversion as a qualifying_distribution under sec_53_4942_a_-3 of the regulations is the date the foundation adopts and immediately proceeds to implement a plan for the exempt use of the property even though the actual conversion is not completed until the following year it owns to d for nominal rent for the b currently leases several buildings including a purpose of assisting d in its exempt_activities providing such assistance is one of b's exempt purposes b proposes to construct build-outs additions to the and lease the build-outs to d for the same purposes and essentially the same terms as the existing buildings b’s expenditures_for the construction of the build-outs will accomplish the purposes described in sec_170 of the code and will therefore constitute a qualified_distribution under sec_4942 additionally to the extent that b's assets are expended during the construction process they are effectively remove from the value of the assets used to determine b’s minimum_investment_return because b will lease the build-outs to d for a nominal rate it is clear that this action is for the furtherance of b's exempt purposes and that no significant purpose of the constructing and leasing of the build-outs to d will be for the production_of_income or the appreciation of property therefore the build-outs are program-related investments within the meaning of sec_53_4944-3 and of the regulations for purposes of sections and ruling accordingly based on the facts as presented and stated above we have concluded that the construction of the build-outs for the use directly in carrying out purposes described in sec_170 via a lease of such build-outs will constitute a qualifying_distribution within the meaning of sec_4942 the build-outs acquired for lease to a for use directly in carrying out of purposes described in sec_170 will constitute assets used or held for use in carrying out b's exempt_purpose and are thereby excluded in determining b's minimum_investment_return within the meaning of sec_4942 the date on which the cost of constructing the build-outs for lease to a for use directly in carrying out purposes described in sec_170 will be treated as a qualifying_distribution and the amounts expended excluded from the determination of minimum_investment_return will be the date b’s expends the funds to construct the build- outs the acquisition of the build-outs to be leased for purposes described in sec_170 will constitute a program related investment within the meaning of section c except as specifically ruled upon above no opinion is expressed concerning the federal tax treatment of the transaction described above under any other provision of the code pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative you should keep a copy of this letter in your permanent records this letter is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely bieta v srcke gerald v sack manager exempt_organizations technical group


internal_revenue_service number release date index number ---------------------- ---------------------------------------------------- ------------------------- ---------------------------------------- in re ------------------------------------- ------------------------- ---------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------------- id no ------------- telephone number ----------------------------------- refer reply to cc ita b04 plr-128489-07 date date --------------------------------------------- ---------------------------------------------- ---------------- -------------------------------------------------- ----------------- legend taxpayer ein exempt_organization ein state city general_partner llc project lp ---------------------------------- year year ----------------------------------------------------------------------- buildings ------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------- dear --------------- ------------------------ ----------------- ------- ------- plr-128489-07 this letter responds to your private_letter_ruling request dated date regarding an extension of time to make an election under sec_168 of the internal_revenue_code code specifically you requested an extension of time to make an election under sec_168 for taxpayer a tax-exempt_controlled_entity seeking not to be treated as a tax-exempt_entity a tax-exempt_controlled_entity that elects not to be treated as a tax-exempt_entity can avoid limitations on the rehabilitation_credit that otherwise would be imposed by sec_47 facts taxpayer is organized under the laws of state and is a subchapter_c_corporation for federal_income_tax purposes taxpayer uses the accrual_method of accounting and the calendar_year as its taxable_year taxpayer is wholly owned by exempt_organization which has received a determination that it is a tax-exempt_organization described in sec_501 because exempt_organization owns more than percent in value of the stock of taxpayer taxpayer is a tax-exempt_controlled_entity within the meaning of sec_168 prior to february of year exempt_organization held a dollar_figure percent interest in and was a managing member of general_partner llc general_partner llc in turn owns an percent interest in a limited_partnership known as project lp project lp a partnership is the owner of buildings located in city state the buildings are historic structures and project lp is engaged in the activity of owning and rehabilitating the buildings the other partners in project lp are taxable investors in february of year exempt_organization assigned its interest in general_partner llc to taxpayer taxpayer thus became an percent partner in project lp taxpayer filed a timely federal_income_tax return for year the year in which buildings were placed_in_service but failed to make the sec_168 election on that return however from the affidavit and other materials submitted it is clear that taxpayer at all times intended to make the sec_168 election upon discovering its failure taxpayer promptly sought an extension of time in which to file the election applicable law sec_47 of the code provides a rehabilitation_credit for percent of the qualified_rehabilitation_expenditures with respect to any certified_historic_structure sec_168 provides that for purposes of sec_168 if any property which is not tax-exempt-use property is owned by a partnership which has both a tax-exempt_entity and a nontax-exempt entity as partners and any allocation to the tax-exempt_entity is not a qualified_allocation then an amount equal to such tax-exempt entity’s proportionate share of such property shall be treated as tax-exempt_use_property plr-128489-07 under sec_47 expenditures allocable to the portion that is tax-exempt_use_property within the meaning of sec_168 are not qualified_rehabilitation_expenditures sec_168 provides generally that any tax-exempt_controlled_entity shall be treated as a tax-exempt_entity however under sec_168 a tax-exempt_controlled_entity can elect not to treated as a tax-exempt_entity such an election is irrevocable and will bind all tax-exempt entities holding an interest in the tax-exempt_controlled_entity sec_301_9100-1 of the procedure and administration regulations defines the term regulatory election as including any election the due_date for which is prescribed by a regulation sec_301_9100-7t requires an election under sec_168 to be made by the due_date of the tax_return for the first taxable_year for which the election is to be effective thus the sec_168 election is a regulatory election sec_301 c provides that the commissioner of internal revenue has discretion to grant a reasonable extension of time to make a regulatory election sec_301_9100-1 though sec_301_9100-3 provides the standards that the service will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-3 provides that requests for extensions of time for regulatory elections other than automatic changes covered in sec_301_9100-2 will be granted when the taxpayer provides evidence including affidavits to establish that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer will be deemed to have acted reasonably and in good_faith if the taxpayer-- requests relief before the failure to make the regulatory election is discovered by the service failed to make the election because of intervening events beyond the taxpayer's control failed to make the election because after exercising due diligence the taxpayer was unaware of the necessity for the election reasonably relied on the written advice of the service or i ii iii iv plr-128489-07 v reasonably relied on a qualified_tax professional and the tax professional failed to make or advise the taxpayer to make the election under sec_301_9100-3 a taxpayer will not be considered to have acted reasonably and in good_faith if the taxpayer-- i seeks to alter a return position for which an accuracy-related_penalty could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires a regulatory election for which relief is requested ii was fully informed of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief if specific facts have changed since the original deadline that make the election advantageous to a taxpayer the service will not ordinarily grant relief sec_301_9100-3 provides that the service will grant a reasonable extension of time only when the interests of the government will not be prejudiced by the granting of relief the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made analysis based on the facts as represented we have determined that taxpayer intended from the outset to make the sec_168 election that its failure to make the election on its original return was inadvertent and that taxpayer is not using hindsight in requesting relief moreover taxpayer requested relief before the failure to make the election was discovered by the service we also have determined that taxpayer acted reasonably and in good_faith and that the interests of the government will not be prejudiced by the granting of relief conclusion based solely on the facts as represented and the applicable law we conclude that the request for relief under sec_301_9100-3 should be granted accordingly taxpayer is granted an extension of time of days from the date of this letter_ruling to file an amended_return making the election under sec_168 taxpayer should attach this letter to its amended_return plr-128489-07 although this office has not verified any of the material submitted or facts assumed in support of the request_for_ruling it is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular this letter does not rule on whether taxpayer is entitled to claim the rehabilitation_credit under sec_47 enclosed is a copy of the letter showing the deletions proposed to be made when it is disclosed under sec_6110 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 sincerely income_tax accounting enclosure michael j montemurro branch chief associate chief_counsel copy for sec_6110 purposes