department of the treasury mwasnieton oe tax_exempt_and_government_entities_division significant index no tiepi rata dec - 2g lue legend decedent trust a instrument b co-trustee c co-trustee d co-trustee e state f ira x ira y dear this is in response to your request for a private_letter_ruling dated date as supplemented by correspondence dated date in support of your request you have submitted the following facts and representations on date decedent executed trust a in which co-trustee c co- trustee d and co-trustee e were named as successor co-trustees trust a was page amended by instrument b dated march which named co-trustee c as a current trustee of trust a along with the decedent who was then also a current trustee instrument b also amended trust a to provide that co-trustee d and co-trustee e were to serve upon the resignation of both current trustees decedent and co-trustee c in the event however of the resignation of only the decedent co-trustee c could appoint either or both co-trustee d and co-trustee e to serve as successor co- trustee s article c of trust a provides that upon the death of the decedent the trustee of trust a shall pay from the principal of the trust estate the expenses of the last illness and the funeral and burial expenses of the decedent the remaining balance of trust a would then be paid to the issue of the decedent namely co-trustee c co-trustee d and co-trustee e co-trustee d is the oldest of the named beneficiaries whose date of birth is date prior to her death decedent established ira x and ira y by a beneficiary designation dated date with respect to ira x and date with respect to ira y the decedent named trust a as beneficiary of ira x and ira y decedent did not change her beneficiary designations prior to her death also prior to her death decedent had received minimum distributions from ira x and ira y as required by sec_408 of the internal_revenue_code code and was over the age of the age at which required minimum distributions must begin for purposes of sec_401 of code you represent that decedent was receiving distributions from ra x and ira y over her recalculated single life expectancy decedent was born on date and died on date at the age of on the date of her death decedent was a resident of state f the decedent's_estate incurred burial and funeral_expenses in the amount of dollar_figure under state f law assets in an ira are exempt from all claims of creditors of the beneficiary or participant by state f law the ira account balances could not be used to pay the funeral_expenses payment of the funeral_expenses came from a prepaid funeral account of decedent and the family of decedent who received reimbursement from a jointly owned bank account maintained by decedent and co-trustee c and not trust a under the law of state f trust a became irrevocable upon the death of decedent you represent that trust a is a valid state f trust under the laws of that state the beneficiaries of trust a namely co-trustee c co-trustee d and co- trustee e are identifiable from article c of trust a as required by proposed income_tax regulation proposed regulation sec_1_401_a_9_-1 q a d-7 prior to the expiration of nine months from decedent's death on date a certification of decedent's death which identified the beneficiaries of trust a dated date was mailed to the custodian of ira x and on date a similar certification dated date was mailed to the custodian of ira y page based on the above you request the following letter rulings that trust a is treated as the beneficiary of ira x and ira y as of the date of the decedent's death and the beneficiaries thereof may be considered designated beneficiaries for purposes of determining the distribution period for payment of benefits from ira x and ira y under code sec_401 that distributions made from ira x and ira y to trust a shall a begin no later than date shall b be treated as paid to the beneficiaries of trust a who shall be treated as having been designated as beneficiaries of the decedent and shall c be made over the life expectancy of co-trustee d sec_408 of the code generally provides that under regulations prescribed by the secretary_of_the_treasury rules similar to the rules of sec_401 of the code and the incidental death_benefit requirements of sec_401 shall apply to the distribution of the entire_interest of an individual for whose benefit the trust is maintained sec_401 of the code generally provides that a plan will not be qualified under sec_401 unless that plan provides that the entire_interest of each employee i will be distributed to such employee not later than the required_beginning_date or ii will be distributed beginning not later than the required_beginning_date in accordance with regulations over the life of such employee or over the joint lives of such employee and a designated_beneficiary or over a period not extending beyond the life expectancy of such employee or the joint life expectancies of such employee and a designated_beneficiary sec_401c of the code provides in relevant part that for purposes of this paragraph the term required_beginning_date means april of the calendar_year following the calendar_year in which the employee ira holder attains age code sec_401 provides that where distributions have begun over life expectancies in accordance with subparagraph a ii a_trust shall not constitute a qualified_trust under this section unless the plan provides that if the employee dies before his her entire_interest has been distributed to him her the remaining portion of such interest will be distributed at least as rapidly as under the method of distribution being used under subparagraph a ii as of the date of death sec_401 -1 of the proposed income_tax regulations q a d-3 provides that for purposes of calculating the distribution period for distributions that begin prior to death the designated_beneficiary will be determined as of the plan participant's ira holder's required_beginning_date page sec_1_401_a_9_-1 of the proposed_regulations q a d-2 a provides in in general it provides that an individual may be pertinent part that designated beneficiaries are only individuals who are designated as beneficiaries under the pian designated as a beneficiary under the plan either by the terms of the plan or if the plan provides by an affirmative election by the employee or the employee's surviving_spouse specifying the beneficiary a beneficiary designated as such under the plan is an individual who is entitled to a portion of an employee's benefit contingent on the employee's death or another specified event sec_1_401_a_9_-1 of the proposed_regulations q a d-5 provides in part a a pursuant to d-2a of this section only an individual may be a designated_beneficiary for purposes of determining the distribution period under sec_401 ax a iii consequently a_trust itself may not be the designated_beneficiary even though the trust is named as a beneficiary however if the requirements of paragraph b of this d-5a are met distributions made to the trust will be treated as paid to the beneficiaries of the trust with respect to the trust's interest in the employee's benefit and the beneficiaries of the employee_trust will be treated as having been designated as beneficiaries of the employee under the plan for purposes of determining the distribution period under sec_401 if as of any date on or after the employee's required_beginning_date a_trust is named as a beneficiary of the employee and the requirements in paragraph b of this d-5a are not met the employee will be treated as not having a designated_beneficiary under the plan for purposes of sec_401 consequently for calendar years beginning after that date distribution must be made over the employee's life or over the period which would have been the employee's remaining life expectancy determined as if no beneficiary had been designated as of the employee's required_beginning_date b the requirements of this paragraph b are met if as of the later of the date on which the trust is named as a beneficiary of the employee or the employee's required_beginning_date and as of all subsequent periods during which the trust is named as a beneficiary the following requirements are met the trust is a valid trust under state law or would be but for the fact there is no corpus the trust is irrevocable or will by its terms become irrevocable upon the death of the employee the beneficiaries of the trust who are beneficiaries with respect to the trust's interest in the employee's benefit are identifiable from the trust instrument within the meaning of d-2 of this section page the documentation described in d-7 of this section has been provided to the plan_administrator c in the case of payments to a_trust having more than one beneficiary see e-5 of this section for the rules for determining the designated_beneficiary whose life expectancy will be used to determine the distribution period sec_1_401_a_9_-1 of the proposed_regulations q a d-6 provides in part that in the case in which a_trust is named as the beneficiary of an employee all beneficiaries of the trust with respect to the trust's interest in the employee's benefit are treated as designated beneficiaries of the employee under the plan for purposes of determining the distribution period under sec_401 and iv if the requirements in paragraph a of d-5 above are satisfied as of the date of the employee's death or in the case of the documentation described in d-7 of this section by the end of the ninth month beginning after the employee's death with respect to your first ruling_request decedent prior to her code sec_401 required_beginning_date named trust a as the beneficiary of her ira x and ira y as noted above decedent did not change her beneficiary designation prior to her death trust a is a valid trust under state f law which became irrevocable at decedent's death by the terms of the trust agreement you have represented that in accordance with statutory requirements of state f neither the ira x nor ira y account balance could be used to pay decedent's funeral_expenses it is represented that these expenses were paid from a prepaid funeral account of the decedent and the family of the decedent and not from trust a furthermore co-trustee c co-trustee d and co- trustee e were referenced and identifiable in trust a as the beneficiaries thereof finally a certification of decedent's death which identified the beneficiaries of trust a was given to the custodian of ira x and the custodian of ra y within nine months after decedent's death in accordance with sec_1_401_a_9_-1 q a d-7 b of the proposed_regulations based on the above we conclude with respect to ruling_request number one that trust a is a see-through trust described in sec_1_401_a_9_-1 of the proposed_regulations q a d-5 and d-6 as discussed above and is a named beneficiary of ira x and ira y as of the date of decedent's death and that co-trustee c co-trustee d and co-trustee e the beneficiaries of trust a may be considered designated beneficiaries for purposes of determining the distribution period for payment of benefits from ira x and ira y under code sec_401 with respect to your second ruling_request sec_1_401_a_9_-1 of the proposed_regulations q a e-5 provides in pertinent part that if more than one individual is designated as a beneficiary with respect to an employee as of the applicable_date for page ’ determining the designated_beneficiary the designated_beneficiary with the shortest life expectancy will be the designated_beneficiary for purposes of determining the distribution period sec_1_401_a_9_-1 of the proposed_regulations q a f-3a provides in part that with respect to individual_account_plans from which distributions have commenced prior to the employee's death post death distributions will comply with the at least as rapidly as under the method of distribution being used under sec_401 a ii rule if said distributions are made in accordance with q a f-1 sec_401 of the code permits an employee and his her spouse to recalculate their life expectancies annually sec_1_401_a_9_-1 of the proposed_regulations q a e-8 a provides guidance on how an employee's life expectancy is recalculated and provides that upon the death of the employee the recalculated life expectancy of the employee or the employee's spouse will be reduced to zero in the calendar_year following the calendar_year of death in any calendar_year in which the last applicable life expectancy is reduced to zero the plan must distribute the remaining interest prior to the last day of such year in order to satisfy sec_401 sec_1_401_a_9_-1 of the proposed_regulations q a e-8 b provides guidance on caiculating the applicable life expectancy when the employee's life is being recaiculated and the life expectancy of his her designated_beneficiary is not recaiculated it provides in relevant part that if the designated_beneficiary is not the employee's spouse and the life expectancy of the employee is being recalculated annually the applicable life expectancy for determining the minimum distribution for each distribution calendar_year will be determined by recalculating the employee's life expectancy but not recalculating the beneficiaries life expectancy such applicable life expectancy is the joint and last survivor expectancy using the employee's attained age as of the employee's birthday in the distribution calendar_year and an adjusted age of the designated_beneficiary the adjusted age of the designated_beneficiary is determined as follows the beneficiary's applicable life expectancy is calculated based on the beneficiary's attained age as of the beneficiary's birthday in the calendar_year described in e-1 reduced by one for each calendar_year which has elapsed since that calendar_year the age rounded if necessary to the higher age in table v of sec_1_72-9 is then located which corresponds to the designated beneficiary's applicable life expectancy such age is the adjusted age of the designated_beneficiary as provided in paragraph a upon the death of the employee the life expectancy of the employee is reduced to zero in the calendar_year following the calendar_year of the employee's death thus for determining the minimum distribution for such calendar_year and subsequent calendar years the applicable life expectancy is the applicable life expectancy of the designated_beneficiary determined under this paragraph page sec_1_401_a_9_-1 of the proposed_regulations q a e-1 a provides generally that for required distributions under sec_401 of the code life expectancies are calculated using the employee's and the designated beneficiary's attained age as of the employee's birthday and the designated beneficiary's birthday in the calendar_year in which the employee attains sec_1_401_a_9_-1 of the proposed_regulations q a f-5 provides generally that in the case of an individual_account the benefit used in determining the minimum distribution for a distribution calendar_year is the account balance as of the last valuation_date in the calendar_year immediately preceding any distribution calendar_year sec_1_408-8 of the proposed_regulations q a a-5 provides that for purposes of determining the minimum distribution required to be made from an jra in any calendar_year the account balance of the ira as of the december of the calendar_year immediately preceding the calendar_year for which distributions are being made will be substituted in sec_1_401_a_9_-1 f-1 for the benefit of the employee the account balance as of the december of such calendar_year is the value of the ira upon close of business on such december however for purposes of determining the minimum distribution for the second distribution calendar_year for an individual the account balance as of december of such calendar_year must be teduced by any distribution as described in sec_1_401_a_9_-1 f-5 c made to satisfy the minimum distribution_requirements for the individual's first distribution calendar_year after such date because decedent's life expectancy was being recalculated upon her death in accordance with q a e-8 a of sec_1_401_a_9_-1 of the proposed_regulations her life expectancy will be reduced to zero as of the end the calendar_year following the calendar_year of her death although her benefit was paid in the form of a single life expectancy upon her death her life expectancy was not the last applicable life expectancy because she timely designated her beneficiary by her required_beginning_date in accordance with q a d-3 a of the proposed_regulations therefore pursuant to q a e-8 b of sec_1_401_a_9_-1 of the proposed_regulations for purposes of determining the minimum distribution in the calendar_year after the death of decedent the applicable life expectancy is the life expectancy of the designated_beneficiary as determined under that section decedent died on date therefore the calendar_year after the death of decedent namely the calendar_year ending date is the date by which distributions must begin to be made from ira x and ira y to the beneficiaries thereof using the life expectancy of her designated_beneficiary page because decedent named trust a as her beneficiary of ira x and ira y and is a_trust that meets the requirements of q a d-5a b of the proposed because trust a regulations the distributions from ira x and ira y made to trust a will be treated as having been paid to the beneficiaries of trust a and as stated above the beneficiaries of trust a will be treated as having been designated as beneficiaries of ira x and ira y for purposes of determining the distribution period under sec_401 of the code since more than one individual was designated as a beneficiary with respect to ira x and ira y pursuant to sec_1_401_a_9_-1 of the proposed_regulations q a e-5 a the beneficiary who is the oldest and who has the shortest life expectancy will be the designated_beneficiary for purposes of determining the distribution period under ira x and ira y co-trustee d had the shortest life expectancy of the three designated beneficiaries on decedent's required_beginning_date therefore co-trustee d is the designated_beneficiary whose life expectancy will be used when determining the minimum distribution period under ira x and ira y for the calendar_year commencing after the year of decedent's death and for all subsequent years thereafter thus with respect to your second ruling_request we conclude that a distributions made from ira x and ira y to trust a must begin no later than date b that for purposes of code sec_401 such distributions shall be treated as paid to the beneficiaries of trust a who shall be treated as having been designated as beneficiaries of decedent and c such distributions shall be made over the life expectancy of co-trustee d these rulings are based upon the assumption that the ira x and ira y otherwise meet the requirements of sec_408 of the code page this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited by others as precedent in accordance with a power_of_attorney on file in this office a copy of this ruling is being sent to your authorized representative if additional information is needed please contact t ep ra t2 at sincerely yours talgnat b plots sore joyce e floyd manager employee_plans technical group tax_exempt_and_government_entities_division enclosures deleted copy of letter_ruling notice of intention to disclose cc cc


t c memo united_states tax_court capital gymnastics booster club inc petitioner v commissioner of internal revenue respondent docket no 5819-09x filed date p is a gymnastics booster club in date the irs granted p’s request to be recognized as exempt from federal_income_tax under sec_501 as an organization fostering amateur sports competition in its fiscal_year ending date p’s members were parents of young athletes from approximately families the athletes were all on teams from one local private gym to which each family individually paid tuition and other fees these teams competed in meets which required substantial additional funds that p collected and administered membership in p was mandatory for the parents of athletes who wanted to participate on the teams that were operated out of that private gym and each family paid to p an annual assessment to cover the athlete’s entry fees to compete in the meets and to offset the estimated expenditures_for the coaches’ travel the assessment ranged from dollar_figure to dollar_figure per athlete for fy depending on the athlete’s competitive level a family could satisfy its athlete’s assessment either by paying cash or by participating in p’s fundraising program the amount that an athlete’s family raised was credited against his assessment about of the families engaged in fundraising in fy this fundraising generated a net profit of dollar_figure p used of that profit to reduce the assessment on average by to for the families that fundraised p did not credit any of this profit against the assessments of the athletes whose families did not fundraise r examined p’s operations for fy and determined that it was not operated exclusively for tax-exempt purposes under sec_501 p petitioned for a declaratory_judgment under sec_7428 held r’s final adverse determination is sustained because p was not operated exclusively for exempt purposes within the meaning of sec_501 p’s net_earnings inured to the benefit of its fundraising parent members and it conferred substantial private benefit on children of those fundraising families david b friedel for petitioner robin williams denick and joseph w spires for respondent memorandum findings_of_fact and opinion gustafson judge on date the internal_revenue_service irs issued to capital gymnastics booster club inc capital gymnastics a final adverse determination_letter which determined that for tax years ending date and all subsequent years capital gymnastics was no longer exempt from federal_income_tax under sec_501 capital gymnastics challenged the determination by timely petitioning this court for declaratory_judgment pursuant to sec_7428 the issue to be decided is whether capital gymnastics satisfied the requirements of sec_501 and therefore qualified for exemption from tax under sec_501 for the reasons explained below we find that capital gymnastics’ earnings inured to the benefit of some of its athletes’ parents in violation of sec_501 and that capital gymnastics had the substantial non-exempt purpose of furthering the private interests of those athletes we therefore deny capital gymnastics’ request for a declaratory_judgment and sustain the irs’s final adverse determination capital gymnastics findings_of_fact in date capital gymnastics was organized in virginia as a nonstock corporation for the purpose of fostering national and international sports unless otherwise indicated all section references are to the internal_revenue_code the code u s c as in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure competition within the meaning of sec_501 in date the irs granted capital gymnastics’ request for recognition of tax-exempt status by the fiscal_year ended date fy capital gymnastics had approximately member families however capital gymnastics is a booster club not a training facility and it owns no facilities or equipment as of date its only asset was a bank account with a dollar_figure balance by the number of local clubs that offered competitive gymnastics teams had dwindled to two or three with the largest remaining boys program being offered at the capital gymnastics national training center the training center --an entity that has a name similar to petitioner’s but that is distinct from petitioner the training center2 the training center is a private for-profit corporation in virginia in fy the training center trained amateur athletes from ages through in gymnastics and tumbling and placed them on teams according to age ability and sex all of capital gymnastics’ athletes trained at the training center and the training center’s status is not at issue in this case and the commissioner does not contend that capital gymnastics operated for the benefit of the for-profit training center in a manner that affects capital gymnastics’ entitlement to tax-exempt status membership in capital gymnastics was mandatory for the parents of athletes who trained for competition at the training center tuition fees and expenses each athlete’s family paid tuition directly to the training center ranging in fy from dollar_figure per month for the youngest age groups to dollar_figure per month for the oldest age groups the families also paid to third parties not to the training center or capital gymnastics other expenses such as national dues a registration fee of dollar_figure the cost of specialized equipment such as grips and official gym uniforms and the expenses of travel to gymnastics meets including airline tickets hotels and restaurants for the athletes and for their parents if they chose to attend the meets these amounts however did not cover the cost of competitions themselves and capital gymnastics was operated to address those separate costs capital gymnastics dues and assessments parents were responsible for two separate fees payable directly to capital gymnastics an annual dues payment of dollar_figure to offset capital gymnastics’ nominal operating_expenses such as annual corporate fees insurance premiums and production_costs for the organization’s annual handbook and an assessment of dollar_figure to dollar_figure per year per child to pay each athlete’s competition costs this assessment covered the athlete’s estimated meet entry fees and the coaches’ travel costs including transportation lodging and meals participation in competitions varied by interest age and skill with meets held locally in nearby states nationally and internationally capital gymnastics computed the assessment at the beginning of each season by consulting with meet sponsors capital gymnastics did not allow athletes to compete unless their assessment was paid in full including any late fees the record shows no conferring of scholarships nor any other relaxation of this requirement capital gymnastics’ fundraising the parties have stipulated that capital gymnastics’ primary function was to raise funds a parent could simply pay his child’s assessment in cash but capital gymnastics acknowledges the possibility that some of the booster club’s members might attempt to deduct their dues or assessment payments arguing those are payments to a tax-exempt_organization but we see nothing in the record to suggest that capital gymnastics facilitated such deductions eg by issuing donation receipts or to contradict capital gymnastics’ assertion that we have consistently maintained that members should not deduct those payments and that is the clear and consistent position we have stated whenever asked however while it is true that a parent-member who pays his assessment in cash apparently does so out of after-tax_dollars it is also true that a fundraising parent- member earns points on which he pays no tax and then satisfies his assessment with those before-tax earnings it could therefore be said that capital gymnastics distributes money that escapes taxation but since the commissioner did not raise this issue we do not base our decision on it capital gymnastics also gave member-parents the option to voluntarily fundraise to offset the assessment amount capital gymnastics’ fundraisers included selling wrapping paper discount cards cookie dough candles ornaments and scrip explained below scrip as used by capital gymnastics involved a merchant who wanted to support capital gymnastics and would allow the organization to purchase at a discount certificates that bore the merchant’s name and that the merchant would honor for purchases for example capital gymnastics might purchase from a grocery store a number of dollar_figure certificates for dollar_figure each the capital required for this scrip program was thus considerable apparently amounting to more than dollar_figure in fy members would then buy the certificates from capital gymnastics at the full face value dollar_figure and could redeem the certificate at the store to purchase dollar_figure worth of groceries a member’s purchase of scrip therefore generated a fundraising profit equal to the merchant’s discount dollar_figure in this example a member who purchased scrip of dollar_figure and who would otherwise have purchased dollar_figure worth of groceries without scrip thus generated dollar_figure for capital the parties stipulate that families engaged in fundraising and that p arents and athletes are collectively referred to as ‘families ’ however they also stipulate that the assessment that might be satisfied by fundraising was the responsibility of the parent-member not the child-athlete gymnastics at no real cost to himself more than one-fourth of capital gymnastics’ fundraising profit in fy arose from sales of scrip and virtually all of those scrip sales were to capital gymnastics members merchants were willing to grant these discounts and support capital gymnastics only if it was a tax-exempt charitable_organization a portion of capital gymnastics’ other fundraising activities occurred on sidewalks in front of grocery stores and other retail establishments the fundraisers displayed capital gymnastics signs and banners at the fundraising events the families gained permission to fundraise from the merchants or property managers by presenting documentation of capital gymnastics’ tax- exempt status for the families that chose to fundraise capital gymnastics awarded points in proportion to the fundraising profit that each family generated each point was worth dollar_figure the chairperson of each fundraiser also received a small number of points as an incentive to manage the fundraisers parents could earn additional points by filling certain board positions on capital gymnastics capital gymnastics’ financial manager periodically tallied the points for each family and reduced the family’s unpaid assessment in dollars according to the number of points that the family had earned if a balance due remained for any family who had fundraised the family paid the balance of their assessment by writing a check payable to capital gymnastics if a fundraising family generated more points than they needed for the year then they carried over the excess to be applied to the following year’s assessment if a family discontinued membership the family forfeited any excess points and capital gymnastics applied the excess dollars to the organization’s general fund parents who did not participate in the fundraising--slightly more than half of the families--did not receive a benefit from the fundraising activities of the other parents rather families who did not fundraise wrote checks to capital gymnastics for their full assessment amount this allocation of fundraising benefit solely to fundraising families was conscious and deliberate since capital gymnastics explicitly prevented those it called freeloaders or moochers from benefiting from the fundraising activity of others fy financial results for fy about families ie approximately of the member families participated in fundraising the fundraising yielded a net profit dollar_figure capital gymnastics awarded dollar_figure of the net profit or approximately to families that participated in the fundraising or who filled board positions leaving dollar_figure or of the fundraising profit for use by the entire organization families who fundraised were able to offset on average to of their assessment for the year besides the fundraising profit of dollar_figure capital gymnastics’ only other source_of_income for fy was dollar_figure from membership dues and assessments that the fundraising did not offset accordingly capital gymnastics’ total net revenue for fy was dollar_figure capital gymnastics incurred total expenses of dollar_figure for fy consisting of dollar_figure in competition-related expenses and dollar_figure in operating_expenses consequently for fy capital gymnastics generated a loss of dollar_figure which the organization funded by reducing its bank account balance to dollar_figure by fiscal yearend irs action beginning in the irs examined capital gymnastics’ returns for its fy to determine whether capital gymnastics operated in the manner stated in its application_for recognition of tax exemption after completing the examination the irs sent to capital gymnastics a letter dated date stating the agency’s determination to revoke its recognition of the organization’s tax-exempt status capital gymnastics appealed that determination within the irs the irs office of appeals issued to capital gymnastics a final adverse determination_letter dated date the letter stated that capital gymnastics had failed to establish that its income did not inure to the benefit of private individuals and shareholders which is prohibited by sec_501 you are operated for a substantial private purpose which is prohibited by internal_revenue_code sec_501 as a result the irs revoked its recognition of the organization’s tax-exempt status under sec_501 beginning with fy capital gymnastics timely petitioned this court seeking a declaratory_judgment under sec_7428 that would reverse the irs’s final adverse determination at the time it filed its petition capital gymnastics maintained its principal_place_of_business in virginia opinion i general legal principles a tax exemption sec_501 provides in pertinent part that an organization shall be exempt from taxation if the organization is of a type that sec_501 describes sec_501 in turn lists types of organizations that are exempt from tax including those described in sec_501 failure to satisfy any of the requirements of sec_501 disqualifies an organization from being tax exempt under that section 88_tc_1 aff’d without published opinion 838_f2d_465 4th cir tax-exempt purposes sec_501 confers tax exemption on organizations with certain specified charitable purposes corporations and any community chest fund or foundation organized and operated exclusively for religious charitable scientific testing for public safety literary or education purposes or to foster national or international amateur sports competition but only if no part of its activities involve the provision of athletic_facilities or equipment or for the prevention of cruelty to children or animals no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual no substantial part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation except as otherwise provided in subsection h and which does not participate in or intervene in including the publishing or distributing of statements any political campaign on behalf of or in opposition to any candidate for public_office emphasis added the purposes that qualify for tax-exempt status under sec_501 thus include as quoted above foster ing national or international amateur sports competition organized and operated in order to be described in sec_501 an organization must be both organized and operated exclusively for certain specified exempt purposes the commissioner does not dispute that capital gymnastics is organized exclusively for exempt purposes since its organizing documents do not fail to so state see sec_1_501_c_3_-1 income_tax regs but instead maintains that capital gymnastics failed to operate exclusively for exempt purposes a requirement that calls for an examination of its actual operations private_inurement and private benefit sec_501 provides that in order for an organization to qualify as tax-exempt no part of the net_earnings of the organization may inure sec_1_501_c_3_-1 income_tax regs provides an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose emphasis added that is under the statute the exempt purposes must be exclusive but the regulation provides that an organization may be tax exempt even if its operations include activities in furtherance of non- exempt purposes provided that those activities are insubstantial capital gymnastics’ fundraising was its admitted primary function and its non-exempt purposes furthered by that function are very substantial capital gymnastics correctly states that prohibited inurement may include excessive_compensation thereby perhaps suggesting that reasonable continued to the benefit of any private_shareholder_or_individual this prohibition looks to benefits conferred on a private_shareholder_or_individual generally understood to mean an insider of the organization such as a member or an officer see 113_tc_47 aff’d 242_f3d_904 9th cir however the question whether an organization is operated for tax-exempt purposes also requires an examination of the benefits conferred on non-insiders since-- a n organization is not organized or operated exclusively for one or more of the tax-exempt purposes unless it serves a public rather than a private interest thus to meet the requirement of this subdivision it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests emphasis added sec_1_501_c_3_-1 impermissible benefit to private interests thus encompasses not only benefit to insiders but also benefits that an organization may confer on unrelated or even disinterested persons ie outsiders am campaign acad v commissioner 92_tc_1053 continued compensation does not constitute inurement however capital gymnastics has not contended that points conferred on its members are reasonable_compensation for their fundraising activities and that contention would appear to be problematic on this record so we do not address the concept of reasonable_compensation if the organization engages in either inurement or private benefit then the organization is furthering a non-exempt purpose id sec_1_501_c_3_-1 -1 d ii the prohibition against inurement like the prohibition of private benefit ensures that the exempt_organization is serving a public and not a private interest 83_tc_381 aff’d 823_f2d_1310 9th cir and the two prohibitions thus have a common purpose and because private benefit encompasses but is broader in scope than inurement am campaign acad v commissioner t c pincite9 they overlap we therefore discuss the issues in tandem below b declaratory_judgment under sec_7428 as an exception to the general principle that action by the tax collector may not be enjoined see sec_7421 congress enacted sec_7428 to provide an organization with an opportunity to challenge a determination by the secretary with respect to the continuing qualification of an organization as an organization described in sec_501 sec_7428 before an organization may receive consideration for a sec_7428 declaratory_judgment the organization must first exhaust all administrative remedies within the irs sec_7428 and the irs does not dispute that capital gymnastics fully exhausted those remedies c burden_of_proof generally the burden_of_proof rests on the petitioner to demonstrate that the irs’s determination is incorrect rule a rameses sch of san antonio tex v commissioner tcmemo_2007_85 capital gymnastics acknowledges in its brief that it bears that burden tax exemption is a matter of legislative grace and the organization seeking exemption must show that it comes squarely within the terms of the law conferring the benefit sought fla hosp trust fund v commissioner 103_tc_140 aff’d 71_f3d_808 11th cir capital gymnastics has the burden to overcome the irs’s determination that because of the manner in which capital gymnastics credited fundraising points part of its net_earnings inured to the benefit of private individuals ie parent- members and it operated in that substantial respect not for the benefit of the public but for the benefit of designated private individuals ie the children of fundraising families our jurisdiction is limited to a case of actual controversy sec_7428 consequently we examine only the reasons that the irs offers either in its final adverse determination or at trial as its basis for revoking capital gymnastics’ exempt status id see also am campaign acad v commissioner 92_tc_1053 continued ii the parties’ contentions capital gymnastics stipulated and the record shows that parent-members were insiders for purposes of sec_501 meaning that the parents exerted direct or indirect control_over the organization capital gymnastics insists nonetheless that it operated exclusively for an exempt_purpose capital gymnastics claims that its method of unequal sharing of fundraising profits did not give rise to a constructive distribution because the organization never pays money to any of its members and instead spends its funds exclusively on competition-related expenses of the athletes capital gymnastics therefore contends that the true recipient of its generosity was not the parents but instead a well-defined charitable_class of school age children competing on the training continued h_r rept no pincite 1976_3_cb_695 the court is to base its determination upon the reasons provided by the internal_revenue_service in its notice to the party making the request for a determination or based upon any new argument which the service may wish to introduce at the time of the trial we therefore do not consider such issues as whether capital gymnastics facilitated improper claims of tax deductions by members see supra note or whether capital gymnastics was operated for the private benefit of the training center see supra note capital gymnastics lays great stress on the fact that its child athletes were all members of a charitable_class a fact that the commissioner does not deny we cannot tell whether capital gymnastics means to contend that this fact resolves the organization’s tax-exempt status if it does so intend then the continued center’s amateur gymnastics and power tumbling teams its witness testified that a number of the parents chose to fundraise because they needed the money but no evidence was offered to back up this statement and it appears to have been speculation capital gymnastics points to situations where exempt groups raise funds without losing their exempt status including church youth groups cub scouts or public school athletic booster clubs that have kids jumping up and down at the corner gas station exhorting you to get your car washed capital gymnastics maintains that it seems inconceivable that congress could have intended such an absurd result as to prohibit booster clubs from spending any part of their earnings for the benefit of the children who are on an athletic team in the end capital gymnastics seeks the court’s endorsement that its method for allocating fundraising profits is not only permissible and continued contention fails even if all the activities of an organization redound to the benefit of members of a charitable_class nonetheless in order to be tax exempt the organization must still comply with all the requirements of sec_501 including refraining from inurement and from substantially benefiting private interests thus even when we determine that the beneficiaries of an organization comprise a charitable_class we nonetheless proceed to assure that there is no selectivity with regard to the identities of the individual s to be benefited 71_tc_202 emphasis added --ie to assure that there is no impermissible private benefit lawful but it should be recognized as a ‘best practice’ for similar organizations to follow the commissioner does not quarrel that capital gymnastics’ mission of fostering amateur sports competition is a qualifying purpose within the meaning of sec_501 or that the amateur athletes associated with capital gymnastics are members of a charitable_class the commissioner also accepts that fundraising by a booster club is a permissible activity under sec_501 the commissioner objects however that almost all of petitioner’s fundraised proceeds are earmarked to benefit those individuals who fundraised the commissioner contends that this dollar-for-dollar arrangement constitutes inurement and private benefit in violation of sec_501 because the methodology furthers private interests rather than the team or the organization as a whole iii application of the law to capital gymnastics applying the law to capital gymnastics’ facts and circumstances we find that in violation of sec_501 capital gymnastics allowed substantial private_inurement to the parent-member-insiders who fundraised by providing to those insiders relief from an economic burden in the form of points applied to their assessments and thereby conferred an impermissible substantial private benefit on the child-athletes of those parents only as opposed to its child- athletes generally capital gymnastics authorized parent-members to raise funds for their own benefit but under the name of capital gymnastics and trading on its tax-exemption ruling capital gymnastics rigorously assured that its fundraising did not generally benefit all the child-athletes in its programs but rather benefited only the children of parents who did the fundraising moreover this is not a circumstance like say a school band’s sale of candy or a church youth group’s carwash for a once-a-year event in which the fundraising is a tiny fraction of the organization’s overall function here the fundraising is instead the admitted primary function of the organization this is not a circumstance in which the individual’s contribution of his share of the cost is optional or where scholarships are made available for those who cannot afford the cost nor is this a circumstance in which every member is required to perform fundraising and no one can buy his way out rather the fundraising was an option chosen by those who wanted to earn their assessments the assessments at issue were not arguably de_minimis charges that might be covered by a child’s paper route or babysitting but rather were serious parental obligations of as much as dollar_figure per year on top of already considerable tuition of up to dollar_figure per month plus national dues registration fees equipment expenses and travel_expenses capital gymnastics’ fundraising method is in contrast to the operations of organizations that have been held to comply with sec_501 and to which capital gymnastics attempts to liken itself for example in 75_tc_337 an organization that promoted the appreciation of art had two art galleries that displayed artwork from more than artists these galleries were held not to yield inurement or private benefit even though the works were available for sale because a jury independent of the organization decided which works to display and only two of the art pieces were from members of the organization id pincite that is the financial benefits resulting from the organization’s activities were neither deliberately focused on its members nor as here self-selected by its members similarly in 71_tc_202 an organization that sold for a profit handicrafts from developing societies of the world was held to operate for a public purpose and not for individual private gain because the organization benefited a charitable_class disadvantaged communities the organization selected the handicrafts after researching the socioeconomic structure of the localities without regard to the identities of the individual artisans eg anonymous disadvantaged women living in a small village in haiti the organization retained none of the profit and the handicrafts were not from members of the organization conversely capital gymnastics’ improper methodology is similar to operations that have been held not to comply with sec_501 for example in wendy l parker rehab found inc v commissioner tcmemo_1986_348 the organization selected the founders’ daughter who had suffered a coma as a substantial beneficiary of the foundation’s funds so that t hirty percent of petitioner’s income is expected to be expended for the benefit of wendy l parker the organization thus relieved the family of the economic burden of providing medical_care and thereby caused its net_earnings to inure to the private benefit of insiders in n am sequential sweepstakes v commissioner 77_tc_1087 an organization promoted amateur athletic competition in the new sport of sequential relative skydiving but when it paid its creators’ expenses for competing in skydiving events it impermissibly promoted their private benefit even if an organization benefits an individual who is an undisputed member of a charitable_class such as the comatose patient in parker or the athletes in this case the organization may as in parker fall afoul of sec_501 if its net capital gymnastics acknowledges the unfavorable precedent that these and other cases have on its litigating position in response capital gymnastics offers hypothetical changes to the facts in a number of these cases that it says were closer to capital gymnastics’ facts and may have resulted in favorable outcomes capital gymnastics also spent a significant part of its arguments discussing two alternate hypothetical fundraising methods that it never adopted we decline to decide hypothetical cases that are not before us earnings inure to the benefit of the child’s parents capital gymnastics made no showing that the parent-members who received its fundraising points ie the parents who did fundraising were actually poor disadvantaged in financial distress or otherwise members of any charitable_class when an organization benefits members without regard to their being in a charitable_class it fails to further an exempt_purpose see 78_tc_280 two-thirds of the organization’s pensioner- members were not poor or in financial distress see also 802_fsupp_120 w d mich and cases cited thereat rev’d on other grounds 40_f3d_817 6th cir capital gymnastics seems to contend that its method of unequal sharing of fundraising profits did not give rise to a constructive distribution because the parents did not receive actual cash rather capital gymnastics disbursed the checks directly to the meet sponsors and thereby bypassed the parents it cannot be denied however that the fundraising parents received a benefit in the form of a reduction in the amount of cash they were required to pay for their children’s participation in gymnastics competitions the points were as good as dollars capital gymnastics used those points to allocate dollars to the benefit of the fundraising parent-members and the parent-members were to that extent excused from mandatory cash assessments they would otherwise have been required to pay to cover their share of competition costs for purposes of sec_501 ‘benefit’ is a broad term and can include ‘ a dvantage profit fruit privilege gain or interest’ retired teachers legal def fund inc v commissioner t c pincite quoting black’s law dictionary 5th ed in fact the benefit received by the parents in this case is analogous to the disqualifying benefit received by the parents in wendy l parker rehab found inc where the court concluded that inurement occurred where the organization did not give cash to the parents but instead paid a portion of medical_expenses that the parents would otherwise have borne the benefit that capital gymnastics conferred on fundraising families was hardly insubstantial unlike the qualifying organizations in aid to artisans inc and goldsboro art league inc whose insiders received respectively zero and less than artists out of more than artists of the benefits capital gymnastics’ members received of the fundraising profits capital gymnastics’ figures are substantial both in absolute terms and in relative terms by comparison in wendy l parker rehab found inc a smaller amount of inurement--ie of that foundation’s dollar_figure in income--was still large enough to constitute substantial inurement in holding that capital gymnastics’ fundraising constituted a substantial non-exempt purpose we do not overlook its non-fundraising activity as the commissioner admitted i n addition to its fundraising activities petitioner disseminates information to its members holds a few spirit events and acts as a conduit or clearinghouse to collect and pay over the competition costs this administrative activity of assembling funds in a centralized place petitioner’s bank account forwarding the meet entry fees to the meet sponsors and paying the coaches’ expenses so that they could accompany the athletes benefited all the athletes equally it facilitated the ability of the teams and the athletes to participate in competitions these administrative-type activities appear to be specifically contemplated by congress when amending sec_501 of the code to include exempt_organizations which foster amateur athletic competition but this administrative activity was not petitioner’s primary activity the primary activity was fundraising which benefited private interests more than incidentally we agree the issue here is not whether capital gymnastics had any charitable purpose but whether as the statute requires it was operated exclusively for charitable purposes we hold it was not in so holding we do not criticize except in the tax-exemption context capital gymnastics’ point system parents who make a serious financial investment in the development of their children’s athletic abilities should be free to arrange that activity in the manner they choose the arrangement that capital gymnastics developed may well be a rational wholesome just and efficient fundraising method a proposition as to which we have no jurisdiction to make a declaratory_judgment but even if so it does not further a tax-exempt purpose capital gymnastics’ arrangement reflects instead the purpose of promoting the financial interests of its fundraising members iv conclusion for all of the above reasons capital gymnastics operated in a manner that allowed substantial private_inurement and promoted private non-public interests therefore the organization did not operate exclusively for an exempt_purpose we conclude that capital gymnastics did not satisfy the requirements of sec_501 and consequently did not qualify for exemption from tax under sec_501 we therefore sustain the irs’s final adverse determination to reflect the foregoing decision will be entered for respondent


of f i c e of c h i ef c ou n sel department of the treasury i n t e r n al r e v e n u e s e r v i c e w ashington d c date cc intl b01 genin-135453-08 number info release date uil ------------------------------- ---------------------------------- ----------------------------------------------- dear ------------- this letter responds to your request for information dated august in your letter you requested information regarding the application of paragraph b of article pensions social_security annuities alimony and child_support of the u s -u k income_tax treaty treaty to distributions from a pension scheme that would satisfy all the requirements of sec_401 of the internal_revenue_code code but for the fact that the trust was not created or organized in the united_states and therefore is not exempt under sec_501 of the code paragraph o of article general definitions of the treaty states emphasis added the term pension scheme means any plan scheme fund trust or other arrangement established in a contracting state which is i generally exempt from income_taxation in that state and ii operated principally to administer or provide pension or retirement benefits or to earn income for the benefit of one or more such arrangements for the purposes of this convention unless the context otherwise requires the exchange of notes regarding the u s -u k income_tax treaty between paul o'neill secretary_of_the_treasury and gordon brown chancellor of the exchequer dated date provides with reference to sub-paragraph o of paragraph of article general definitions genin-135453-08 it is understood that pension schemes shall include the following and any identical or substantially_similar schemes which are established pursuant to legislation introduced after the date of signature of the convention under the law of the united_states qualified_plans under sec_401 of b the internal_revenue_code individual retirement plans including individual retirement plans that are part of a simplified_employee_pension plan that satisfies sec_408 individual_retirement_accounts individual retirement annuities sec_408 accounts and roth iras under sec_408a sec_403 qualified annuity_plans and sec_403 plans paragraph a of article of the treaty provides generally that pensions and other similar remuneration beneficially owned by a resident of a contracting state shall be taxable only in that state paragraph b of article provides that notwithstanding paragraph a the amount of any such pension or remuneration paid from a pension scheme established in the other contracting state that would be exempt in that other state if the beneficial_owner were a resident thereof shall be exempt from taxation in the first-mentioned state however paragraph b of article applies only to amounts paid from a pension scheme as defined in paragraph o of article including the requirement that the income of the arrangement be generally exempt from income_taxation this letter has called your attention to certain general principles of the law it is intended for informational purposes only and does not constitute a ruling if you would like a determination concerning your particular set of facts you may submit a request for a private_letter_ruling by following the instructions in revproc_2008_1 sec_2 2008_1_irb_1 date which is available on the internet at http www irs gov irb 2008-01_irb ar06 html if you have any additional questions please contact -------------------------at ------------------- ------- sincerely ______________________________ m grace fleeman senior technical reviewer branch international


internal_revenue_service department of the treasury index no number info release date washington dc person to contact john t sapienza jr id no telephone number refer reply to cc dom it a - cor-111377-00 date date dear commissioner rossotti asked me to respond to your letter concerning obesity and weight-loss programs you asked the internal_revenue_service to issue a revenue_ruling allowing obese individuals to deduct the costs of weight-loss programs as medical_care expenses under sec_213 of the internal_revenue_code the current irs position on weight-loss programs is stated in revrul_79_151 1979_1_cb_116 this ruling holds that if participation in the program was to improve the participant’s appearance general health and sense of well-being the expenses of the program are not for medical_care and therefore are not deductible of course the expenses of a weight-loss program prescribed to treat a specific disease are for medical_care and are deductible we appreciate your suggestion and the references you provided to studies on obesity each year the irs and the department of the treasury review the many suggestions for revenue rulings and other forms of guidance to be published the projects selected are announced in the annual priority guidance plan input such as you have provided is helpful to us in selecting projects for the priority guidance plan i hope this information is helpful please call john t sapienza jr at the number above if you have any questions sincerely deputy assistant chief_counsel income_tax accounting by robert a berkovsky chief branch


internal_revenue_service number release date index number -------------------------------------------------------- --------------------------------------- ---------------------------- --------------------- ---------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-140947-05 date date ---------------------------------------- legend x --------------------------------------------- y ---------------------- --------------------------------------------- z country d1 d2 dear ----------------- ---------------------------------------------------------------------- ---------------------- -------------------------- ---------------------- this letter responds to the letter dated date submitted on behalf of x requesting a ruling that x be granted an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as a partnership for federal tax purposes facts according to the information submitted x was formed on d1 under the laws of country x remained inactive until d2 y and z the owners of x have limited_liability with respect to their ownership interests in x x intended to elect to be treated as a partnership for federal tax purposes effective d2 however x inadvertently failed to timely file the proper election law and analysis plr-140947-05 sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association if all members have limited_liability unless the entity makes an election to be treated otherwise a foreign eligible_entity with at least two members may elect to be treated as a partnership pursuant to the rules under ' c sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date on which the form is filed under ' c the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term aregulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under ' will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301 a conclusion based solely on the facts submitted and the representations made we conclude that the requirements of ' have been satisfied as a result x is granted an extension of time of days from the date of this letter to make an election to be treated as a partnership for federal tax purposes effective d2 x should make the election by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the form except as specifically provided herein no opinion is expressed or implied concerning the federal tax consequences of the facts described above under any other provision of the code the code provides that it may not be used or cited as precedent this ruling is directed only to the taxpayer requesting it sec_6110 of pursuant to the power_of_attorney on file with this office a copy of the letter is sincerely heather c maloy heather c maloy associate chief_counsel passthroughs and special industries plr-140947-05 being sent to your authorized representative enclosures cc copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number ----------------------------------------------- ----------------------------- ---------------------------------- re ----------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------- id no ------------------ telephone number ---------------------- refer reply to cc psi plr-127506-16 date date ------------------------------ ------------------ ------------------------ ----------------------------------- ------------------ ------------------- legend decedent date spouse date dear ----- ----------- this letter responds to your authorized representative’s letter of date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election under sec_2010 of the internal_revenue_code code to allow a decedent’s surviving_spouse to take into account that decedent’s deceased spousal unused exclusion dsue amount the facts and representations submitted are as follows decedent died on date survived by spouse date is a date after the effective date of the amendment to sec_2010 which provides for portability of a dsue amount to a surviving_spouse to obtain the benefit of portability of decedent’s dsue amount to spouse decedent’s estate was required to file form_706 united_states estate and generation-skipping_transfer_tax return on or before the date that is nine months after decedent’s date of death or the last day of the period covered by an extension decedent’s form_706 was due on date but the estate did not file a timely form_706 to make the portability election the estate discovered its failure to elect portability after the due_date for making the election plr-127506-16 it is represented that the value of decedent’s gross_estate is less than the basic exclusion amount in the year of decedent’s death including any taxable_gifts made during her lifetime you request an extension of time pursuant to sec_301_9100-3 to elect portability of decedent’s dsue amount pursuant to sec_2010 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2010 provides that a credit of the applicable credit_amount shall be allowed to the estate of every decedent against the tax imposed by sec_2001 sec_2010 provides that the applicable credit_amount is the amount of the tentative_tax that would be determined under sec_2001 if the amount with respect to which such tentative_tax is to be computed were equal to the applicable_exclusion_amount on date congress amended sec_2010 effective for estates of decedents dying and gifts made after date to allow portability of a decedent’s unused applicable_exclusion_amount between spouses tax relief unemployment insurance reauthorization and job creation act of pub_l_no sec_303 124_stat_3296 sec_2010 provides that the applicable_exclusion_amount is the sum of the basic exclusion amount and in the case of a surviving_spouse the dsue amount sec_2010 generally provides that the basic exclusion amount is dollar_figure to be adjusted for inflation annually after calendar_year sec_2010 defines the dsue amount to mean the lesser_of a the basic exclusion amount or b the excess of -- i the applicable_exclusion_amount of the last deceased spouse of the surviving_spouse over ii the amount with respect to which the tentative_tax is determined under sec_2001 on the estate of such deceased spouse sec_2010 provides that a dsue amount may not be taken into account by a surviving_spouse under sec_2010 unless the executor of the estate of the deceased spouse files an estate_tax_return on which such amount is computed and makes an election on such return that such amount may be so taken into account the election once made shall be irrevocable no election may be made if such return is filed after the time prescribed by law including extensions for filing such return plr-127506-16 sec_2010 provides that the secretary shall prescribe regulations as may be necessary or appropriate to implement sec_2010 sec_20_2010-2t a of the estate_tax regulations as in effect on date provides that to allow a decedent’s surviving_spouse to take into account that decedent’s dsue amount the executor of the decedent’s estate must elect portability of the dsue amount on a timely filed form_706 under sec_20_2010-2t a the due_date of an estate_tax_return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been granted under sec_20_2010-2t a the portability election is made by timely filing a complete and properly prepared estate_tax_return unless the executor satisfies the requirements for the election not to apply in sec_20_2010-2t a i sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that the term statutory election means an election whose due_date is prescribed by statute the term regulatory election means an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute a request for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election the due_date for the portability election is prescribed by statute in the case of an estate required to file an estate_tax_return under sec_6018 see sec_2010 sec_6075 and sec_6018 in the case of an estate that is not required to file an estate_tax_return under sec_6018 the due_date is prescribed by regulation see sec_20_2010-2t a plr-127506-16 see also sec_20_2010-2 and revproc_2014_18 2014_7_irb_513 sec_2 accordingly in the latter case a taxpayer may seek an extension of time to elect portability under the provisions of sec_301_9100-3 sec_6018 requires the filing of an estate_tax_return in all cases where the gross_estate exceeds the basic exclusion amount in effect under sec_2010 for the calendar_year which includes the date of death for purposes of this determination under sec_6018 the basic exclusion amount is reduced but not below zero by the sum of -- a the amount of the adjusted_taxable_gifts within the meaning of sec_2001 made by the decedent after date plus b the aggregate amount allowed as a specific exemption under sec_2521 as in effect before its repeal by the tax reform act of with respect to gifts made by the decedent after date it is represented that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is not required to file an estate_tax_return under sec_6018 under these facts the commissioner has discretionary authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly we grant an extension of time of days from the date of this letter in which to elect portability under sec_2010 the election should be made by filing a complete and properly prepared form_706 and a copy of this letter within days from the date of this letter to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center stop cincinnati oh for purposes of electing portability a form_706 filed by decedent’s estate within days from the date of this letter will be considered to be timely filed 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 if it is later determined that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is required to file an estate_tax_return pursuant to sec_6018 the commissioner is without authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void plr-127506-16 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely associate chief_counsel passthroughs special industries by lorraine e gardner lorraine e gardner senior counsel branch passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter


department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc corp b04 plr-150190-06 date date internal_revenue_service number release date index number --------------------------- --------------------------------------- ---------------------- -------------------------------- ------------------------------------- ----------------------------- legend legend ----------------------------------------------- sub ------------------------------------------------------------------- ----------------------------------------------------------- sub ------------------------------------------------------------------- -------------------------------------------------- ------------------------------------------- lp ------------------------------------------------------------------------------------------ ----------------------------------------------------------- b acquisitions -------------------------------------------------- --------------------------------------------------- ----------------------------------------------------------------------- ----------------------------------- p q r s state a ---------------- -------------- ------------- ------------- ------------- plr-150190-06 dear ---------------- this letter responds to your date request that we supplement our letter_ruling dated date plr-120508-06 the original letter_ruling the information submitted in your date letter is summarized below capitalized terms not defined in this ruling have the meanings assigned to them in the original letter_ruling 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 this office has not verified any of the material submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process moreover no information provided by the taxpayer has been reviewed and no determination has been made regarding whether the proposed transaction i satisfies the business_purpose requirement of sec_1_355-2 of the income_tax regulations ii is used principally as a device for the distribution of any earnings_and_profits of the distributing_corporation or the controlled_corporation or both see sec_355 of the internal_revenue_code the code and sec_1_355-2 and iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a 50-percent_or_greater_interest in the distributing_corporation or the controlled_corporation see sec_355 and sec_1_355-7 summary of facts the original letter_ruling addressed certain federal_income_tax consequences of a transfer by distributing of the stock of subsidiaries conducting business a to controlled solely in exchange for controlled common_stock cash in the form of a special dividend and controlled securities the contribution followed by the pro_rata distribution of all the shares of controlled common_stock to holders of distributing common_stock the external distribution and the subsequent merger of controlled with and into merger partner the merger the original letter_ruling held that the contribution followed by the external distribution qualified as a reorganization under sec_355 and sec_368 of the code and that the merger qualified as a reorganization under sec_368 of the code distributing now expects that the special dividend will equal approximately dollar_figurep and that the controlled securities will have a face_amount of approximately dollar_figureq as described in the original letter_ruling distributing has commercial paper and notes outstanding none of which were issued in anticipation of the external distribution the amount of notes outstanding is dollar_figurer and not dollar_figureb as set forth in the request for the original letter_ruling distributing intends to transfer all of the controlled securities to the investment banks in exchange for commercial paper and notes that the investment banks acting as principals for their own accounts will have acquired in the marketplace at least days prior to the external distribution distributing previously expected the investment banks to acquire approximately dollar_figurej of commercial paper and plr-150190-06 notes with a face_amount of approximately dollar_figurek less the face_amount of commercial paper so acquired in order to add flexibility with respect to the debt exchange distributing now expects the investment banks to acquire some combination of commercial paper and notes such that the commercial paper may represent anywhere from zero to dollar_figurea with the balance of debt to be exchanged in the debt exchange consisting of notes finally while distributing had expected the controlled securities to bear interest at a rate designed to render the securities worth their face_amount distributing now anticipates due to current market conditions that the controlled securities may be worth less than their face_amount when they are issued although any such discount is not expected to exceed a de_minimis amount within the meaning of sec_1273 and sec_1278 proposed transaction distributing intends to engage in certain pre-distribution restructuring steps before the contribution the external distribution and the merger the steps of the pre- distribution restructuring as modified the proposed transaction are as follows i ii distributing will contribute certain business a assets to sub distributing will contribute all of the stock of sub to sub iii sub will contribute all of the stock of sub to sub iv sub will sell certain business b assets to sub which will contribute such assets to a newly formed partnership all of the interests in which will be owned by sub and one of its subsidiaries v sub and sub each inactive corporations will liquidate in transactions intended to qualify as liquidations under sec_332 and sec_337 vi sub will transfer all of its interest in lp and certain real_estate to sub for no consideration for federal_income_tax purposes distributing will treat the transfer as a distribution of such assets from sub to sub followed by successive contributions of such assets by sub to sub and by sub to sub vii sub will distribute all of the stock of sub to distributing in a transaction intended to qualify as a distribution under sec_355 internal distribution viii distributing will contribute all of the stock of sub to sub ix sub will contribute certain business a assets to a newly formed wholly owned subsidiary sub in a transaction intended to qualify as a reorganization under sec_368 contribution and will distribute all of the stock of sub to distributing in a transaction intended to qualify as a distribution under sec_355 internal distribution plr-150190-06 x distributing will contribute all of the stock of sub to sub and immediately thereafter sub will cause sub to convert into a state a limited_liability_company that will be disregarded as an entity separate from its owner for federal_income_tax purposes under sec_301_7701-3 xi sub will contribute all of its interest in lp to its direct wholly owned subsidiary sub which owns the remaining interests in lp2 and lp will liquidate under state law sub will distribute the stock of sub and another subsidiary to sub these steps will be disregarded for federal_income_tax purposes and sub will merge with and into sub xii as part of the contribution distributing will transfer to controlled the existing accounts_receivable and payable between distributing and various subsidiaries conducting business a which accounts have generally arisen in the ordinary course of business representations in connection with its request for a supplemental ruling distributing affirms the statements and representations made in the original letter_ruling as amended as follows c distributing will elect not to apply the transitional rule_of sec_355 therefore distributing and controlled will treat all members of its respective separate_affiliated_group as defined in sec_355 hereafter sag as one corporation in determining whether it meets the requirements of sec_355 regarding the active_conduct_of_a_trade_or_business d the five years of financial information submitted on behalf of the business conducted by sub a member of the distributing sag is representative of the present business operations of sub and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted other than the b acquisitions e the five years of financial information submitted on behalf of the business conducted by sub a member of the controlled sag is representative of the present business operations of sub and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted representations f and g are deleted h following the distribution the distributing sag and the controlled sag will continue the active_conduct of their respective businesses independently and with their separate employees plr-150190-06 distributing makes the following additional representations with respect to internal distribution a any indebtedness owed by sub to sub after internal distribution will not constitute stock_or_securities b no part of the consideration to be distributed by sub with respect to its stock will be received by distributing as a creditor employee or in any capacity other than that of a shareholder of sub c sub will elect not to apply the transitional rule_of sec_355 therefore sub and sub will treat all members of its respective sag as one corporation in determining whether it meets the requirements of sec_355 regarding the active_conduct_of_a_trade_or_business d the five years of financial information submitted on behalf of the business conducted by sub a member of the sub sag is representative of the present business operations of sub and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted e the five years of financial information submitted on behalf of the business conducted by sub a member of the sub sag is representative of the present business operations of sub and with regard to such business there have been no substantial operational changes since the date of the last financial statements submitted f following internal distribution the sub sag and the sub sag will continue the active_conduct of their respective businesses independently and with their separate employees g internal distribution is being carried out for the corporate business_purpose of facilitating the external distribution internal distribution is motivated in whole or substantial part by this corporate business_purpose h internal distribution is not used principally as a device for the distribution of the earnings_and_profits of sub or sub or both i no indebtedness between sub and its subsidiaries and sub and its subsidiaries has been or will be cancelled in connection with internal distribution other than the settlement of open intercompany account balances attributable to the normal business operations of distributing and its subsidiaries prior to internal distribution j no intercorporate debt will exist between sub and its subsidiaries and sub and its subsidiaries at the time of or subsequent to internal distribution plr-150190-06 except for payables arising under the transitional agreements or in the ordinary course of business k payments made in connection with any continuing transactions between sub and its subsidiaries and sub and its subsidiaries following internal distribution will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm's length l no two parties to internal distribution are investment companies as defined in sec_368 and iv m for purposes of sec_355 immediately after internal distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of sub stock entitled to vote or percent or more of the total value of shares of all classes of sub stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of internal distribution n for purposes of sec_355 immediately after internal distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of sub stock entitled to vote or percent or more of the total value of shares of all classes of sub stock that was either acquired by purchase as defined in sec_355 and during the five- year period determined after applying sec_355 ending on the date of internal distribution or attributable to distributions on sub stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of internal distribution o the merger may be part of a plan or series of related transactions within the meaning of sec_1_355-7 that includes internal distribution taking the merger into account internal distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a percent or greater interest within the meaning of sec_355 in sub or sub including any predecessor or successor of any such corporation distributing makes the following additional representations with respect to contribution and internal distribution p any indebtedness owed by sub to sub after internal distribution will not constitute stock_or_securities q no part of the consideration to be distributed by sub with respect to its stock will be received by distributing as a creditor employee or in any capacity other than that of a shareholder of sub plr-150190-06 r the total adjusted_basis and the fair_market_value of the assets contributed to sub by sub each will equal or exceed the sum of i any liabilities assumed within the meaning of sec_357 by sub and ii the total of any money and the fair_market_value of any other_property within the meaning of sec_361 received by sub s any liabilities assumed within the meaning of sec_357 by sub were incurred in the ordinary course of business and are associated with the assets being transferred t the five years of financial information submitted on behalf of sub is representative of the present operations of that corporation and with regard to such corporation there have been no substantial operational changes since the date of the last financial statements submitted other than the acquisition of assets in connection with the b acquisitions u the five years of financial information submitted on behalf of sub is representative of the present operations of that corporation and with regard to such corporation there have been no substantial operational changes since the date of the last financial statements submitted v following internal distribution sub and sub will continue the active_conduct of their respective businesses independently and with their separate employees w internal distribution is being carried out for the corporate business_purpose of facilitating the external distribution internal distribution is motivated in whole or substantial part by this corporate business_purpose x internal distribution is not used principally as a device for the distribution of the earnings_and_profits of sub or sub or both y no indebtedness between sub and its subsidiaries and sub and its subsidiaries has been or will be cancelled in connection with internal distribution z no intercorporate debt will exist between sub and its subsidiaries and sub and its subsidiaries at the time of or subsequent to internal distribution except for payables arising under the transitional agreements or in the ordinary course of business aa no property will be transferred by sub to sub for which an investment_credit allowed under sec_47 will be claimed bb payments made in connection with any continuing transactions between sub and its subsidiaries and sub and its subsidiaries following internal plr-150190-06 distribution will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm's length cc no two parties to internal distribution are investment companies as defined in sec_368 and iv dd for purposes of sec_355 immediately after internal distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of sub stock entitled to vote or percent or more of the total value of shares of all classes of sub stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of internal distribution ee for purposes of sec_355 immediately after internal distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of sub stock entitled to vote or percent or more of the total value of shares of all classes of sub stock that was either acquired by purchase as defined in sec_355 and during the five- year period determined after sec_355 ending on the date of internal distribution or attributable to distributions on sub stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of internal distribution ff the merger may be part of a plan or series of related transactions within the meaning of sec_1_355-7 that includes internal distribution taking the merger into account internal distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a percent or greater interest within the meaning of sec_355 in sub or sub including any predecessor or successor of any such corporation gg the total fair_market_value of the assets transferred in contribution will equal or exceed the aggregate adjusted_basis of those assets rulings based solely on the information and representations submitted with the original and supplemental requests we reaffirm the rulings set forth in the original letter_ruling and rule as follows on internal distribution1 sec_355 amount in income upon receipt of the stock of sub sec_355 distributing will not recognize any gain_or_loss and will not include any sub will not recognize any gain_or_loss on internal distribution contribution followed by internal distribution will qualify as a earnings_and_profits will be allocated between sub and sub in the holding_period of the sub stock will include the holding_period of the aggregate basis of the sub and sub stock held by distributing based solely on the information submitted and the representations made we rule plr-150190-06 after internal distribution will be the same as the basis in the sub stock held by distributing immediately prior to the distribution allocated in proportion to the fair market values of sub and sub stock in accordance with sec_1_358-2 and sec_358 the sub stock with respect to which the distribution of the sub stock is made provided that the sub stock is held as a capital_asset on the date of internal distribution sec_1223 accordance with sec_312 as follows on contribution and internal distribution reorganization within the meaning of sec_368 and sub and sub will each be a_party_to_a_reorganization within the meaning of sec_368 in income on contribution sec_361 and sec_357 in income on contribution sec_1032 in income on internal distribution sec_361 amount in income upon its receipt of the stock of sub sec_355 distributing after internal distribution will be the same as the basis in the sub stock held by distributing immediately prior to the distribution allocated in proportion to the fair market values of the sub and sub stock in accordance with sec_1_358-2 and sec_358 the sub stock with respect to which the distribution of the sub stock is made provided that the sub stock is held as a capital_asset on the date of internal distribution sec_1223 sub 19’s basis in each asset received from sub will equal the basis of that asset in the hands of sub immediately before contribution sec_362 and e the holding_period of the sub stock will include the holding_period of distributing will not recognize any gain_or_loss and will not include any sub will not recognize any gain_or_loss and will not include any amount sub will not recognize any gain_or_loss and will not include any amount sub will not recognize any gain_or_loss and will not include any amount the aggregate basis of the sub and the sub stock held by sub 19’s holding_period in each asset received from sub in contribution plr-150190-06 will include the period during which sub1 held that asset sec_1223 accordance with sec_312 earnings_and_profits will be allocated between sub and sub in caveats no opinion is expressed about the tax treatment of the proposed transaction under other provisions of the code or the regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the above rulings in particular no opinion is expressed regarding whether internal distribution or internal distribution satisfies the business_purpose requirement of sec_1_355-2 ii whether the proposed transaction is used principally as a device for the distribution of earnings_and_profits of any distributing_corporation or any controlled_corporation see sec_355 and sec_1_355-2 and iii whether the distributions and an acquisition or acquisitions are part of a plan or series of related transactions under sec_355 procedural statements in accordance with the power_of_attorney on file with this office a copy of this this supplemental ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent a copy of the original letter_ruling and this supplemental ruling must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their returns that provides the date and control number of the letter rulings supplemental ruling will be sent to your authorized representative __________________________ richard k passales senior counsel branch office of associate chief_counsel corporate sincerely