department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division date feb be contact person s h s07 employer_identification_number identification_number telephone number 0-by dear sir or madam this is in response to your letter dated date in which you requested certain rulings with respect to a proposed transfer of all of the assets of b to c d and e b c d and e are exempt under sec_501 of the internal_revenue_code and are classified as private_foundations under sec_509 b is currently managed and controlled by trustees who are members of three branches of f with the passage of time the trustees have developed divergent charitable interests and investment philosophies making it increasingly difficult to manage b therefore the trustees have decided that the charitable goals of b would best be carried out by the transfer of b’s assets to three new foundations c d and e the distribution of assets to c d and e will allow the three branches of f to pursue their respective independent charitable interests and objectives there will be no consideration for the proposed transfer of assets and the transfer will not be from current income as b intends to make a substantial gift to g immediately prior to the transfer b will cease to exist after the transfer of assets b has not notified the service that it intends to terminate its private_foundation_status nor has b ever received notification that its status as a private_foundation has been terminated furthermore b has stated that it has not committed willful repeated acts or failures to act ora willful and flagrant act or failure to act giving rise to liability for tax under chapter sec_507 of the code states in part that except for transfers described in sec_507 an organization’s private_foundation_status will be terminated only if the organization notifies the service of its intent to terminate or there have been either willful repeated acts or failures to act or a willful and flagrant act or failure to act giving rise to liability for tax under chapter sec_507 of the code provides that when a private_foundation transfers assets to another private_foundation pursuant to any liquidation merger redemption recapitalization or other adjustment organization or reorganization the transferee foundation shall not be treated as a new organization sec_507 of the code imposes a tax on an organization that terminates its private_foundation_status under sec_507 of the code sec_1_507-3 of the income_tax regulations provides that a transferor private_foundation is required to meet its charitable distribution_requirements under sec_4942 of the code for any taxable_year in which it makes a transfer of all or part of its assets to another private_foundation such transfer shall itself be counted toward satisfaction of such requirements to the extent the amount transferred meets the requirements of sec_4942 of the code however where the transferor has disposed of all of its assets the record-keeping requirements of sec_4942 of the code shall not apply during any period in which it has no assets sec_1_507-1 of the regulations provides that if a private_foundation transfers all or part of its assets to one or more other private_foundations pursuant to a transfer described in sec_507 of the code such transferor foundation will not have terminated its foundation status under sec_507 sec_1_507-1 of the regulations provides that neither a transfer of all of the assets of a private_foundation nor a significant disposition of assets as defined in sec_1_507-3 by a private_foundation whether or not any portion of such disposition of assets is made to another private_foundation shall be deemed to result in a termination of the transferor private_foundation under sec_507 of the code unless the transferor private_foundation elects to terminate pursuant to sec_507 or sec_507 is applicable sec_1_507-3 of the regulations provides that in the case of a significant disposition of assets to one or more private_foundations within the meaning of paragraph c of this subsection the transferee organization shall not be treated as a newly created organization sec_1_507-3 i of the regulations provides that a transferee organization in the case of a transfer described in sec_507 of the code shall succeed to the aggregate tax benefit of the transferor organization in an amount equal to the amount of such aggregate tax_benefit of the transferor organization multiplied by a fraction the numerator of which is the fair_market_value of the assets less encumbrances transferred to such transferee and the denominator of which is the fair_market_value of the assets of the transferor less encumbrances immediately before the transfer transfer fair_market_value is determined at the time of sec_1_507-3 and ii of the regulations provides that in a sec_507 transfer the provisions enumerated in subparagraphs a through g thereof apply to the transferee foundation with respect to the assets transferred to the same extent and in the same manner that they would have applied to the transferor foundation had the transfer described in sec_507 not been effected sec_1_507-3 of the regulations provides that if a transferor private_foundation transfers assets to a private_foundation which is effectively controlled within the meaning of sec_1_482-1a directly or indirectly by the same person or persons who effectively control the transferor private_foundation the transferee foundation will be treated as if it were the transferor foundation for purposes of sec_4940 through and sec_507 through of the code the transferee is treated as the transferor in the proportion which the fair_market_value of the transferor’s assets that were transferred bears to the fair_market_value of all of the assets of the transferor immediately before the transfer sec_1_507-3 of the regulations provides that in order for a transfer of assets pursuant to any liquidation merger redemption recapitalization or other adjustment organization or reorganization not to be a taxable_expenditure it must be to an organization described in sec_501 other than an organization described in sec_509 or treated as described in sec_501 under sec_4947 sec_1_507-3 of the regulations provides that unless a private_foundation gives notice under sec_507 of the code a transfer of assets described in sec_507 of the code will not constitute a termination of the transferor's private_foundation_status sec_1_507-4 of the regulations provides that the tax on termination of private_foundation_status under sec_507 of the code does not apply to a transfer of assets pursuant to sec_507 of the code unless the provisions of a become applicable sec_4940 of the code imposes a tax on the net_investment_income of private_foundations sec_4941 of the code imposes a tax on each act of self-dealing between a disqualified_person and a private_foundation sec_4942 of the code requires a private_foundation to make specified distributions of income for each taxable_year including the year in which it transfers substantial assets to another private_foundation under sec_507 sec_4942 of the code defines a qualifying_distribution as any amount including that portion of reasonable and necessary administrative expenses paid to accomplish one or more purposes described in sec_170 b other than any contribution to i an organization controlled by the foundation or one or more disqualified persons or ii a private_foundation which is not an operating_foundation except as otherwise provided or b any amount_paid to acquire an asset used directly in carrying out one or more purposes described in sec_170 sec_4942 of the code requires that a grantor private_foundation in order to have a qualifying_distribution for its grant to another private_foundation which is not an operating_foundation under sec_4942 of the code must have adequate_records as required by sec_4942 of the code to show that the grantee private_foundation in fact subsequently made qualifying distributions that were equal to the amount of the grant and that were paid out of the grantee’s own corpus within the meaning of sec_4942 of the code such grantee foundation’s qualifying distributions out of corpus must be expended before the close of the grantee’s first tax_year after its tax_year in which it received the grant sec_4944 of the code imposes tax upon a private_foundation which invests any amount in such a manner as to jeopardize the carrying out of any of its exempt purposes sec_4945 of the code imposes tax upon a private foundation’s making of any taxable_expenditure under sec_4945 sec_4945 of the code defines the term taxable_expenditure to include any amount_paid or incurred by a private_foundation as a grant to an organization unless a the organization is described in subparagraphs or of sec_509 of the code or is an exempt_operating_foundation as defined in sec_4940 of the code or b the private_foundation exercises expenditure_responsibility with regard to such grant in accordance with sec_4945 of the code the exercise of expenditure_responsibility requires the foundation that makes the transfer to keep detailed records of the way the payment is spent by the recipient foundation sec_4945 of the code provides that expenditure_responsibility referred to in subsection d means that the private_foundation is responsible to exert all reasonable efforts and to establish adequate procedures to see that the grant is spent solely for the purpose for which made to obtain full and detailed reports with respect to such expenditures and to make full and detailed reports to the secretary sec_4946 of the code defines the term disqualified_person as a person who is a substantial_contributor to a private_foundation a foundation_manager an owner of more than of a corporation or partnership which is a substantial_contributor to the private_foundation a family_member of persons described above or a corporation partnership trust or estate of which persons described above own more than of the combined voting power sec_53_4945-5 of the foundation and similar excise_taxes regulations refers to the rules relating to the extent to which the expenditure_responsibility_rules contained in o sec_4945 and h and this section apply to transfers of assets described in sec_507 sec_53_4945-6 of the regulations provides that a transfer of assets of a private_foundation under sec_507 of the code is not a taxable_expenditure if such transfer is to an organization described in sec_501 other than an organization described in sec_509 or treated as so described under sec_4947 sec_53_4946-1 of the regulations provides that for purposes of sec_4941 the term disqualified_person does not include any organization described in sec_501 other than an organization described in sec_509 based on the above facts the transfer of all of b’s assets to c d and e will allow c d and e to continue the charitable activities previously conducted by b therefore the transfer of assets from b to c d and e will not endanger the tax exempt status of b under sec_507 of the code in the case of a transfer of assets of any private_foundation to another private_foundation pursuant to any liquidation merger redemption recapitalization or other adjustment organization or reorganization the transferee foundation shall not be treated as newly created organization the transfer by b to c d and e will constitute in the aggregate an adjustment organization or reorganization within the meaning of sec_507 accordingly the transfer by b to c d and e will not be treated as a transfer to a newly created organization because b is not terminating its existence and assuming there has been no willful repeated or flagrant act giving rise to liability under chapter no tax will be imposed on b under sec_507 as a result of the transfer of assets from b to c d and e because b c d and e are effectively controlied by the same persons c d and e will be treated as if they were b for purposes of sec_507 through and chapter of the code therefore the rulings requested under sec_4940 sec_4941 sec_4942 and sec_4944 would be provided because these rulings are consistent with the approach in sec_1_507-3 of the regulations which is in effect to disregard the change in form of the organization for purposes of chapter because b is transferring all of its assets to c d and e pursuant to a merger and b c d and e are controlled by the same persons c d and e will be treated as b the transfer will be treated as not having taken place for expenditure_responsibility purposes under sec_4945 of the code thus the transfer will not be a taxable_expenditure under sec_4945 therefore b need not exercise expenditure_responsibility with regard to the merger subsequent to the merger c d and e will be treated as if they were b therefore c d and e will succeed to b’s duty to exercise expenditure_responsibility with respect to any outstanding grants for which expenditure_responsibility is required and b would be relieved of any duty to exercise expenditure_responsibility after the merger as a result of the merger c d and e will be treated as b for purposes of chapter therefore the distribution_requirements of sec_4942 for the year of transfer should be regarded as satisfied by b c d and e if treating b c d and e as a single organization the aggregate qualifying distributions for such year by b c d and e would satisfy its distribution requirement because c d and e are treated as taking over b’s obligations as of the date of merger it follows that as of that date b will no longer have any such obligations because b c d and e are controlled by the same persons for purposes of chapter of the code and sec_507 through of the code c d and e will be treated subsequent to the transfer of all of b’s assets as if they were b in proportion which the fair_market_value of the assets less encumbrances transferred bears to the fair_market_value of b ‘s assets less encumbrances immediately before the transfer thus c d and e can succeed to b’s excess qualifying distributions carryover for purposes of sec_4942 of the code and in proportions determined in accordance with sec_1_507-3 of the regulations consistent with succeeding to b’s tax_attributes under sec_1_507-3 i of the regulations c d and e will be treated as if they were b for purposes of chapter including sec_4940 accordingly c d and e would be allowed to report all of the net_income subject_to tax under sec_4940 during the year of merger whether earned by b c d or e and pay all of the sec_4940 taxes on such income for that year because b as an organization described in sec_501 of the code is nota disqualified_person with respect to c d or e the transfer of assets to c d and e will not constitute an act of self-dealing within the meaning of sec_4941 of the code because b c d and e are exempt under sec_501 and are organized for purposes described in sec_170 and the reason for the transfer is to carry out more efficiently such exempt purposes the transfer would not be a jeopardizing investment under sec_4944 under sec_4940 of the code capital_gains_and_losses are defined as gains and losses from the sale_or_other_disposition of certain property because the asset transfer from b to c d and e will lack consideration no sale_or_other_disposition will have occurred thus there will be no gain and the assets transfer will not give rise to tax under sec_4940 of the code further because the transfer of assets to c d and e is disregarded because in turn c d and e are treated as if they were b for purposes of chapter c’s d’s and e’s basis in the assets transferred to them pursuant to the merger should be the same as the basis of b because b will dispose_of all of its assets the recordkeeping requirements of sec_4942 will not apply during any period in which it has no assets therefore b’s recordkeeping under sec_4942 will not apply after the merger since b will have disposed of all of its assets accordingly based on the information furnished we rule as follows the proposed transfer of assets will not affect the continued qualification of b as an organization described in sec_501 of the code that is exempt from federal_income_tax under sec_501 of the code and will not result in the termination of private_foundation_status of b but will constitute an adjustment between private_foundations within the contemplation of sec_507 of the code the proposed transfer will not constitute either a notification of b’s intent to terminate its status as a private_foundation under sec_507 of the code or willful repeated acts or failures to act within the meaning of sec_507 of the code by b therefore b will not be liable for the termination_tax imposed by sec_507 of the code the proposed transfer will constitute a significant disposition of assets to one or more foundations and c d and e will not be treated as newly created organizations and will be treated as possessing the attributes and characteristics of b following the transfer c d and e may proportionately reduce their required distributions under sec_4942 of the code by their proportional amounts of b’s excess qualifying distributions carryover for prior years the proposed transfer will not constitute a sale_or_other_disposition within the meaning of sec_4940 of the code will not constitute an act of self-dealing within the meaning of sec_4941 of the code by b c d and e or by any disqualified_person and will not constitute a jeopardizing investment within the meaning of sec_4944 of the code by b c d or e or by any disqualified_person the proposed transfer will not constitute a taxable_expenditure within the meaning of sec_4945 of the code and b will not be required to exercise expenditure_responsibility under sec_4945 of the code with respect to the assets transferred to c d and e the contemplated transaction will not result in any_tax due by b under chapter of the code after distributing all of its assets in the transaction described above b will not be required to file any_tax returns for any taxable years subsequent to that in which ail assets are distributed upon b's termination it will be required to file a return required by sec_6043 of the code we are informing the ohio te_ge office of this action please keep a copy of this ruling in your organization’s permanent records this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as precedent b if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely bevetav dac gerald v sack manager exempt_organizations technical group


internal_revenue_service number release date uil ------------------------ ------------- ---------------------------------- in re ---------------------------------- -------------------------- ------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ telephone number -------------------- refer reply to cc intl b06 plr-106130-08 date august date taxpayer state a sister corporation legend ----------------------- ---------------------------------- ----------- ---------------------------------- products -------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------- ------------------------------------------------------------------------ accounting firm year law firm date date date ---------------------------- ------- --------------------------------------------- -------------------------- --------------------------- ----------------------- plr-106130-08 dear ----------------- this responds to your letter dated date requesting a ruling that grants taxpayer an extension of time under sec_301_9100-1 and sec_301_9100-3 to file form 4876-a including the shareholder consent statements in accordance with temp sec_1_921-1t and sec_1_992-2 thereby allowing taxpayer to file a form 4876-a that will be treated as timely filed within days after the beginning of its first taxable_year the rulings given in this letter are based on facts and representations submitted by taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the materials 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 facts taxpayer is a state a corporation taxpayer intended to be treated as an interest charge domestic_international_sales_corporation ic-disc since its inception acting as an ic-disc on a commission basis with sister corporation sister corporation is incorporated in state a and manufactures products the ownership of taxpayer and sister corporation is identical taxpayer uses a taxable_year accounting_period ending december and uses the accrual_method of accounting to maintain its books_and_records accounting firm has served as sister corporation’s primary tax advisor and accounting firm for four years during year accounting firm recommended forming an ic-disc accounting firm furnished sister corporation and its shareholders information addressing the basic ic-disc tax structure and related tax aspects in addition accounting firm represented that its professionals were well versed in the technical tax considerations associated with the establishment and operation of an ic-disc sister corporation and its shareholders concluded that it would be appropriate to establish an ic-disc and engaged accounting firm to perform all tasks necessary to qualify taxpayer as an ic-disc for federal tax purposes law firm was then hired to incorporate taxpayer law firm drafted and reviewed all documents with respect to taxpayer’s formation and incorporation law firm formed taxpayer as a state a corporation and ensured that taxpayer was properly capitalized and had only one class of stock with the proper par_value and voting rights accounting firm recommended that taxpayer maintain a separate bank account and that taxpayer and sister corporation enter into an ic-disc commission agreement once this agreement was executed and the bank account was established taxpayer began as explained below although taxpayer acted as an ic-disc it was not in fact an ic-disc plr-106130-08 operating as an ic-disc neither accounting firm nor law firm prepared or timely filed form 4876-a on taxpayer’s behalf sister corporation and its shareholders were not familiar with the procedural requirements for making a valid ic-disc election they relied on accounting firm and law firm with respect to establishing taxpayer as an ic-disc at all times taxpayer sister corporation and its shareholders believed accounting firm employed qualified_tax professionals competent to qualify taxpayer as an ic-disc for federal tax purposes taxpayer’s first taxable_year ended on date taxpayer timely filed a tax_return for its first taxable_year before the due_date including extensions of date taxpayer received a notice dated date from the internal_revenue_service the service requesting a copy of the originally filed form 4876-a or a copy of the acceptance letter taxpayer contacted accounting firm to request a copy of the form 4876-a after accounting firm reviewed the taxpayer’s file it was determined that the form 4876-a was never filed with the service consequently taxpayer did not satisfy the requirements to be treated as an ic-disc the period of limitations on assessment under sec_6501 has not expired for taxpayer’s taxable years for which the election is being made or any taxable years that would have been affected by the election had taxpayer made a timely election taxpayer has requested a ruling that grants an extension of time to file form 4876-a within days from the issuance of a favorable ruling letter so that the form will be treated as timely filed within days after the beginning of its first taxable_year law and analysis sec_992 provides that an election by a corporation to be treated as a disc shall be made by such corporation for a taxable_year at any time during the 90-day period immediately preceding the beginning of the taxable_year except that the secretary may give his consent to the making of an election at such other times as he may designate sec_992 provides that such election shall be made in such manner as the secretary shall prescribe and shall be valid only if all persons who are shareholders in such corporation on such first day of the first taxable_year for which such election is effective consent to such election temp sec_1_921-1t provides in part that a corporation electing ic- disc status must file form 4876-a a corporation electing to be treated as an ic-disc for its first taxable_year shall make its election within days after the beginning of that year the rules contained in sec_1_992-2 b and b shall apply plr-106130-08 to the manner of making the election and the manner and form of representing shareholder consent to the election sec_1_992-2 provides that except as otherwise provided in paragraphs b and c of that section the election to be treated as a domestic_international_sales_corporation shall be valid only if the consent of every person who is a shareholder of the corporation as of the beginning of the first taxable_year for which such election is effective is on or attached to the form 4876-a when filed with the service_center sec_301_9100-1 provides in part that the commissioner in exercising the commissioner’s discretion 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 under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that a regulatory election is 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 for this purpose an election includes an application_for relief in respect of tax sec_301_9100-3 provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions must be made under the rules of sec_301_9100-3 requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that the grant of relief will not prejudice the interest of the government in the present situation the election described in temp sec_1_921-1t is a regulatory election as defined in sec_301_9100-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayer an extension of time provided that taxpayer satisfies the standards for relief set forth in sec_301_9100-3 based on the facts and representations submitted with taxpayer’s ruling_request we concluded that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time of days from the date of this ruling letter to file form 4876-a and the shareholder consent statements required by temp sec_1_921-1t and sec_1_992-2 such filing will be treated as a timely election to be treated as an ic-disc for taxpayer’s first taxable_year the granting of an extension in this ruling letter is not a determination that taxpayer is otherwise eligible to make the election to submit shareholder consent statements or to plr-106130-08 claim ic-disc status or benefits see sec_301_9100-1 a copy of this letter_ruling should be filed with the form 4876-a and shareholder consent statements this ruling is directed only to the taxpayer that requested it sec_6110 provides that written determinations may not be used or cited as precedent except as expressly provided herein this ruling neither expresses nor implies any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this ruling letter pursuant to a power_of_attorney on file in this office a copy of this ruling letter is being furnished to your authorized representative sincerely _______________________ christopher j bello chief branch office of associate chief_counsel international cc


department of the treasury internal_revenue_service washington d c date au sec_2001 contact person ererekeerererere ek d number krerekeeererrereer telephone number hrrrkirrerr re iraerr t eo b4 employer_identification_number legend the trust the association the foundation dear sir or madam this is in response to the trust’s letter dated date as amended date which requests a ruling that the termination of the trust and the transfer of excess_assets from the trust to the foundation will not result in the imposition of the excise_tax under sec_4976 of the internal_revenue_code the trust was established in to provide various health and welfare benefits to employees who are covered under a collective bargaining agreement between the association and a an affiliate of b in the trust received a determination_letter from the internal_revenue_service that it qualified as a tax- exempt voluntary employees’ beneficiary association veba within the meaning of sec_501 of the code section of the trust agreement as amended provides that in the event of termination and payment of benefits any remaining funds shall be paid over into the foundation in the foundation received a determination_letter from the internal_revenue_service that it was an exempt_organization as described in sec_501 of the code the purposes of the foundation include providing assistance in housing to people or organizations with special shelter needs and educational_assistance to individuals and organizations to further the objective of bettering the community participating employers contributed funds to the trust for each employee covered by the agreement which purchased group medical benefits for these employees due to recent changes in the collective bargaining agreements participating employers make contributions to plan c which provides health coverage to the employees who were formerly covered by the trust individuals are currently eligible for benefits under the trust and none will be eligible in the foreseeable future no participating employer contributions were made to the trust effective date no the association proposes to terminate the trust and contribute the surplus assets to the foundation these assets represent contributions by participating employers that exceed the amounts required to purchase health benefits for each eligible_employee of participating employers sec_501 of the code provides that a voluntary employee_benefit_plan veba that provides for the payment of life sick accident or other_benefits to the members of such association or their dependents or designated beneficiaries shall be exempt from taxation sec_1_501_c_9_-1 of the income_tax regulations provides that to be described in sec_501 of the code an organization must be an employees’ organization sec_1_501_c_9_-4 of the regulations provides that no part of the net earings of any employees’ association may inure to the benefit of any private_shareholder_or_individual other than through the payment of benefits sec_1_501_c_9_-4 of the regulations states that the distribution of assets remaining in a terminated veba after satisfaction of all liabilities to plan beneficiaries will not constitute prohibited inurement where they are used to purchase life_insurance or health benefits for the members or directly distributed to them so long as amounts are based on objective and reasonable standards and do not result in disproportionate payments to officers shareholders or highly compensated employees of an employer contributing to or otherwise funding the employees association cpl zo01lec sec_39 sec_4976 of the code provides that if an employer maintains a welfare_benefit_fund and there is a disqualified_benefit provided during any taxabie year a tax is imposed on such employer equal to of such disqualified_benefit sec_4976 of the code states that that for the purposes of sec_4976 any portion of a welfare_benefit_fund that reverts to the benefit of the employer is a disqualified_benefit sec_501 of the code provides for the exemption from federal_income_tax of organizations that are operated exclusively for educational or charitable purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 of the regulations states in part that an organization is not operated for one or more exempt purposes if its net_earnings may inure in whole or in part to the benefit of private shareholders or individuals sec_1_501_c_3_-1 of the regulations provides in part that an organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest thus 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 or her family shareholders of the organization or persons controlled directly or indirectly by such private interests the transfer of excess_assets from the trust to the foundation will ensure that none of its funds revert to the employers or any other private individual because no employers or any other private individuals will receive a distribution of funds from the trust the transfer of assets to the foundation will not be a disqualified_benefit as defined by sec_4976 c of the code accordingly we rule that based upon the information submitted the termination of the trust and the transfer of excess_assets from the trust to the foundation will not result in the imposition of the excise_tax under sec_4976 a of the code this ruling is based on the understanding that there will be no material changes in the facts upon which it is based any changes that may have bearing on your tax status should be reported to the service we are sending a copy of this ruling to the ohio te_ge office because this letter could help resolve any questions about your exempt status you should keep it with your permanent records ‘ if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours serato v crock gerald v sack manager exempt_organizations technical group


significant index number department of the treasury internal_revenue_service washington d c mar sevier e aia p a 2a ay x ge ne a tax fxem ao eee an ee eee lavisiotw re taxpayer dear this letter constitutes notice that approval has been granted for your request for a 5-year automatic_extension for amortizing the unfunded liabilities as of date for the above-named plan which are described in sec_431 and sec_431 of the internal_revenue_code code and sec_304 and sec_304 of the employee_retirement_income_security_act_of_1974 erisa this extension is effective with the plan_year beginning date this extension applies to the eligible amortization charge bases as identified in your application submission established as of date the extension of the amortization periods of the unfunded liabilities of the plan was granted in accordance with sec_431 of the code sec_431 of the code requires the secretary to extend the period of time required to amortize any unfunded_liability of a plan for a period of time not in excess of years if the plan submits an application meeting the criteria stated in sec_431 the plan has submitted the required information to meet the criteria in sec_431 including a certification from the plan's actuary that i absent the extension under subparagraph a the plan would have an accumulated_funding_deficiency in the current plan_year or any of the succeeding plan years ii the plan_sponsor has adopted a plan to improve the plan's funding status iii the plan is projected to have sufficient assets to timely pay expected benefits and anticipated expenditures over the amortization period as extended and iv the notice required under paragraph a has been provided we have sent a copy of this letter to the to the i and to your authorized representative pursuant to a power_of_attorney on file in this office this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited by others as precedent if you require further assistance in this matter please contact sincerely yours ey david m ziegler manager ep actuarial group


department of the treasury internal_revenue_service washington d c contact person identification_number telephone number tax exempt and government entities oivision release number release date date date employer_identification_number uniform tssue list legend e t dear this is in response to n’s request for a ruling that certain proposed contractual relationships will not generate unrelated_business_taxable_income under sec_512 of the internal_revenue_code the code’ mis exempt under sec_501 of the code as an organization described in sec_501 and has been classified as an educational_organization under sec_509 and sec_170 mis the trustee of a number of charitable_remainder trusts collectively the trusts’ and as trustee mis the legal owner of the trusts’ assets in addition m has a remainder_interest in each of the trusts n is one such charitable_remainder_trust in which mis trustee and remainder beneficiary as a result of the relationship with the trusts as both trustee and beneficiary mhas a substantial interest in the value of each trust moreover the donors to the trusts have funded the trusts with the intention that m benefit substantially from the assets of the trusts and that the assets will be managed to achieve the greatest possible return on investment _ m's endowment is invested in traditional publicly traded assets and private investments m's private investments include real_estate and certain other venture investments undertaken primdfily through partnership structures much of the income earned by the portfolio consists of passive dividends interest rents and long and short-term_capital_gains but some income is debt-financed or otherwise treated as unrelated_business_taxable_income ’ mproposes to create a contractual obligation pursuant to which it would issue a contract right to each of the trusts for a proportionate share of ms endowment the cumulative value of the shares would be the dollar value of the assets held by the individual trusts combined with the shares of the endowment held by the various of departments and schools making up m's institution the contract right would entitle the trusts to receive periodic_payments based on the shares owned by each of the trusts the trusts would thereby be able to receive an investment return equal to that of the endowment mdetermines a payout rate on the endowment each year based in part on the endowment’s investment performance through a custodian bank m calculates the market_value of each endowment share on a monthly basis the market_value of each endowment share initially equals the value_of_the_gift or contribution to the endowment and is subsequently adjusted in accordance with the market_value of the endowment each department and division is entitled to an amount equal to the payout rate times the number of shares it holds m seeks to enable the trusts to invest in the endowment in a manner identical to ms departments or schools a_trust would acquire a share in the endowment which would give the trusts a contractual right against the university but no interest whatsoever in the underlying investment_assets of the endowment the shares would have the same value that m uses for internal accounting purposes the contract would provide that each trust would receive payments on the shares held by it equal to the payout rate m has established for the endowment with payouts made at least annually or more frequently as appropriate a_trust could choose either to reinvest part of the payout or redeem additional shares depending on its cash requirements the trusts will treat payouts as ordinary_income regardless of the character of the underlying income of the endowment whether capital_gain ordinary_income or return_of_capital and regardless of whether the payout is made entirely by distributions of income or in part by redemption of shares the trusts will treat redemptions of shares over and above receipt of the payout rate as generating long or short-term_capital_gain or loss depending on the holding_period of the redeemed shares under the contract the trusts would not have any ownership_interest in the underlying assets of the endowment or any contract rights with respect to the other trusts the trusts would have no power or right of any kind to control direct supervise recommend or review m's business activities operations or decisions with respect to the endowment except the right to review the payout computations they would not have the right to veto or opt_out of any of the underlying endowment investments the contract would provide that with respect to the issuance of shares mis neither a partner nor an agent of the trusts that the trusts would never be or become liable for any cost expense or payment incurred or due by m or for which mis liable or responsible relating to the endowment or the underlying endowment assets and mwould indemnify and hold the trusts harmless from and against any liability arising out of any_action or inaction by m with respect to the endowment or the underlying endowment assets n has requested the following ruling the issuance of shares by m to the trusts the making or receipt of payments with respect to the shares and the holding or redemption of the shares will not generate unrelated_business_taxable_income to n law sec_512 of the code defines the term unrelated_business_taxable_income as the gross_income derived by any organization from any unrelated_trade_or_business regularly carried on by it less the allowable deductions which are directly connected with the carrying on of such trade_or_business both computed with the modifications provided in sec_512 sec_512 of the code sets forth so-called modifications which are excluded from the computation of unrelated_business_taxable_income these modifications include dividends interest royalties rent from real_property and gain from the sale of property sec_513 of the code defines the term unrelated_trade_or_business as any trade_or_business the conduct of which is not substantially related aside from the need of such organization for income or funds or the use it makes of the profits derived to the exercise or performance by such organization of its exempt_purpose or function sec_513 of the code provides that the term trade_or_business includes any activity which is carried on for the production_of_income from the sale_of_goods or the performance of services sec_1_513-1 of the income_tax regulations provides that gross_income of an exempt_organization subject_to the tax imposed by sec_511 of the code is includible in the computation of unrelated_business_taxable_income if it is income from a trade_or_business such trade_or_business is regularly carried on by the organization and the conduct of such trade_or_business is not substantially related other than through the production of funds to the organization's performance of its exempt functions sec_1_513-1 of the regulations provides that for purposes of sec_513 the term trade_or_business has the same meaning it has in sec_162 and generally includes any activity carried on for the production_of_income from the sale_of_goods or performance of services sec_1_513-1 of the regulations provides that in determining whether trade_or_business from which a particular amount of gross_income derives is regularly carried on within the meaning of sec_512 of the code regard must be had to the frequency and continuity with which the activities productive of the income are conducted and the manner in which they are pursued for example specific business activities of an exempt_organization will ordinarily be deemed to be regularly carried on if they manifest a frequency and continuity and are pursued in a manner generally similar to comparable commercial activities of non-exempt organizations sec_1_513-1 of the regulations provides that in general gross_income derives from unrelated_trade_or_business within the meaning of sec_513 of the code if the conduct of the trade_or_business which produces the income is not substantially related other than through the production of funds to the purposes for which exemption is granted the presence of this requirement necessitates an examination of the relationship between the business activities which generate the particular income in question -- the activities that is of producing or distributing the goods or performing the services involved -- and the accomplishment of the organization's exempt purposes sec_1_513-1 of the regulations provides that trade_or_business is related to exempt purposes in the relevant sense only where the conduct of the business activities has a causal relationship to the achievement of exempt purposes and is substantially related for purposes of sec_513 of the code only if the causal relationship is a substantial one thus for the conduct of trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of those purposes where the production or distribution of the goods or the performance of the services does not contribute importantly to the accomplishment of the exempt purposes of an organization the income from the sale of the goods or the performance of the services does not derive from the conduct of related trade_or_business whether activities productive of gross_income contribute importantly to the accomplishment of any purpose for which an organization is granted exemption depends in each case upon the facts and circumstances involved revrul_69_528 1969_2_cb_127 describes an organization that was formed to provide investment services on a fee basis exclusively to organizations exempt under sec_501 of the code it receives funds from the participating exempt_organizations invests in common stocks reinvests income and realized appreciation and upon request liquidates a participant's interest and distributes the proceeds to the participant the rev_rul states that providing investment-services on a regular basis for a fee is a trade_or_business ordinarily carried on for profit tax-exempt organizations such activity would constitute unrelated_trade_or_business the rev_rul holds that the organization is not exempt under sec_501 if the services were regularly provided by one tax-exempt_organization for other as noted previously organizations described in sec_501 of the code are subject_to tax on their unrelated_business_income under sec_511 in order for such an organization's income to be subject_to the unrelated_business_income_tax three requirement must be met the income must be from a trade_or_business the trade_or_business must be regularly carried on and the conduct of the trade_or_business must not be substantially related to the organization’s exempt_purpose or function see sec_1_513-1 of the regulations analysis m proposes to enter into a contractual relationship with certain trusts that are charitable_remainder trusts in which m has an interest as a beneficiary and serves as trustee of the trust under such a contractual relationship each trust would receive payments on the shares held by it equal to the payout rate m establishes for its endowment with payouts made in accordance with the trust instruments a_trust would acquire shares from m’s endowment which would give the trusts a contractual right against m but no interest whatsoever in the underlying investment_assets of the endowment the contract between m and the trusts would provide that the price of the shares would equal their value at the time of acquisition the shares would have the same value that m uses for internal accounting purposes consequently a_trust could choose either to reinvest part of the payout or redeem a portion of the shares depending on its cash requirements thus under the contractual relationship with m the trusts would have a right to the payout declared by m plus the right to redeem the shares at the value that m uses for internal accounting purposes generally an organization that otherwise qualifies for recognition of exemption under sec_501 of the code and provides investment services on a regular basis for a fee to other exempt or nonexempt organizations would be engaged in an unrelated_trade_or_business under sec_513 see revrul_69_528 supra such an activity would constitute a trade_or_business under sec_513 and sec_1_513-1 of the regulations and would be regularly carried on under sec_512 and sec_1_513-1 thus if m charged a fee for investment management services provided to organizations unrelated to m or generated income from the management of the funds invested by such organizations these activities could result in unrelated_business_taxable_income under sec_512 here however m is not charging a fee for its services and not otherwise receiving income from the services it provides to the trusts thus under these circumstances m will not receive unrelated_business_taxable_income under sec_512 the fact that m will engage in the investment activity for the benefit of individuals who are co-beneficiaries of the trusts at the same time that it engages-in investment activity for its own benefit as the remainder beneficiary limits the scope of the service provided to others and distinguishes it from a commercial venture as stated above under the contract the trusts would not have any ownership_interest in the underlying assets of the endowment nor any contract rights with respect to the other trusts the trusts would have no power or right of any kind to control direct supervise recommend or review m's business activities operations or decisions with respect to the endowment except the right to review the payout computations they would not have any right to veto or opt_out of any of the underlying endowment investments the contract would provide that with respect to the issuance of the shares mis neither a partner nor an agent of the trusts that the trusts would never be or become liable for any cost expense or payment incurred or due by m or for which mis liable or responsible relating to the endowment or the underlying endowment assets and m would indemnify and hold the trusts harmless from and against any liability arising out ofa any_action or inaction by m with respect to the endowment or the underlying endowment assets the trusts do not have a position of ownership in the underlying assets of m's endowment since the contractual relationship between m and the trusts is not in the nature of a partnership or agency the income earned by the trusts from the payout m establishes for the shares reflects ordinary_income and does not take on the character of the income of the underlying assets or debt-financed or unrelated_business_taxable_income m would pay any_tax owed on ubti earned by the endowment portfolio with no deduction taken against ubti for any payments made to the trusts - in view of the foregoing we rule as follows the issuance of shares from m to the trusts the making or receipt of payments with respect to the shares and the holding or redemption of the shares will not generate unrelated_business_taxable_income to n a charitable_remainder_trust this ruling is based on the understanding that there will be no material changes in the facts upon which it is based we express no opinion as to the tax consequences of the proposed transaction under any other section of the code pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to n's authorized representatives a copy of this letter should be kept in its permanent records this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent if there are any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely robert c harper jr manager exempt_organizations technical group enclosure notice


office_of_chief_counsel internal_revenue_service memorandum cc dom it a tl-n-6727-98 uil 6050p date date number release date to district_counsel pennsylvania district philadelphia cc ner pen phi from assistant chief_counsel income_tax accounting cc dom it a subject significant service_center advice request underreporter assessments this responds to your request for significant advice dated date concerning the allocation of income resulting from a discharge_of_indebtedness disclosure statement unless specifically marked acknowledged significant advice may be disseminated above this memorandum is not to be circulated or disseminated except as provided in ccdm d and e this document may contain confidential information subject_to the attorney-client and deliberative_process privileges therefore this document shall not be disclosed beyond the office or individual s who originated the question discussed herein and are working the matter with the requisite need to know in no event shall it be disclosed to taxpayers or their representatives issue to whom should income from discharge of the joint indebtedness of husband and wife be allocated on separately filed returns for the year in which the debt was discharged conclusion both co-obligors husband and wife received income in the total amount of the debt discharged however a determination should be made as to the appropriate amount of discharged debt allocable to each taxpayer that is jointly and severally liable taking into account all the facts and circumstances facts two taxpayers husband and wife created a debt in for which they were jointly and severally liable the debt was discharged tl-n-6727-98 in the debt_discharge was reported to the service on a form 1099c on which both taxpayers and the husband’s social_security_number were listed the taxpayers filed separately for discussion sec_6050p of the internal_revenue_code requires certain entities to report discharges of indebtedness final regulations issued under sec_6050p address the treatment of joint obligors in general a reporting entity must report discharges of indebtedness for each debtor discharged from such indebtedness sec_1_6050p-1 only one report is required in the case of husband and wife co-obligors living at the same address when the indebtedness was incurred provided that the reporting entity does not have reason to know that such circumstances have changed at the date of the discharge id in addition in the case of multiple debtors that are jointly and severally liable on an indebtedness the amount of discharged indebtedness required to be reported with respect to each debtor is the total amount of the indebtedness discharged sec_1_6050p-1 when the reporting requirement of sec_6050p was enacted congress indicated in the legislative_history that it did not expect the reporting institutions to determine whether the debtor has income from the discharge_of_indebtedness h_r conf_rep no d cong 1st sess accordingly multiple reporting of the discharged debt is consistent with sec_6050p which requires reporting for each person whose indebtedness was discharged a joint_and_several obligation creates a legal relationship between the creditor and the co-obligors under which the creditor may sue one or more of the parties to the liability separately or all of them together at the creditor’s option black’s law dictionary 5th ed at common_law an obligor who is required to satisfy more than that obligor’s proportionate share of a common obligation generally is entitled under state law to seek pro_rata contribution from each of the other co-obligors restatement of restitution sec_81 sec_85 however the right of contribution is an equitable doctrine and depends upon a determination of the facts and circumstances including whether the co-obligors equally enjoyed the use of the proceeds of the indebtedness relevant factors may include for example which of the co-obligors received the debt proceeds was allocated the basis attributable to property purchased with the debt and claimed interest deductions arising from the debt state property law also may indicate how an allocation is to be made see eg brickman v commissioner tcmemo_1998_340 holding that because partnership_interest was community_property one- half of the discharge_of_indebtedness income received by the partner-spouse in a community_property_state must be allocated to the nonpartner spouse such an analysis is analogous to that tl-n-6727-98 made in determining a spouse’s share of a joint net_operating_loss sec_1_172-3 of the income_tax regulations states that a spouse’s share of the joint net_operating_loss is that portion of the joint net_operating_loss attributable to that spouse’s gross_income and deductions to the extent taken into account in computing the joint net_operating_loss because a taxpayer has a pro_rata right of contribution from each of the co-obligors under certain circumstances discharge of all of the co-obligors of the full amount of a joint_and_several obligation by a creditor should not be treated as income to each co-obligor in the full amount of the discharged obligation under sec_61 see kahle v commissioner tcmemo_1997_91 suggesting that the amount of cancellation_of_indebtedness_income to a debtor in bankruptcy that gives rise to attribute reduction may be reduced because certain of the discharged debts were joint liabilities bressi v commissioner tcmemo_1991_651 finding that the amount of discharge_of_indebtedness income for two taxpayers with joint_and_several_liability for indebtedness was equal to the total amount of indebtedness discharged revrul_92_97 1992_2_cb_124 determining that the amount of discharge_of_indebtedness income for a partnership and two jointly and severally liable partners is equal to the total amount of indebtedness discharged rather an appropriate allocation of the discharged indebtedness should be made between the co-obligors based on all the facts and circumstances accordingly if the allocation can be made with certainty we recommend issuing a notice or notices of deficiency in accordance with the allocation in a case in which it is not possible to make an appropriate allocation we recommend issuing notices of deficiency to both spouses for the full amount of the discharged liability if you have any questions or comments regarding this matter please call amy pfalzgraf at assistant chief_counsel income_tax accounting by christopher f kane assistant to the branch chief branch


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc corp b05-plr-142298-01 date date legend company minerals state x date date a dear this letter responds to your date request for a ruling on behalf of company regarding the proper treatment of income recognized from the sale of certain minerals during the 10-year recognition_period under sec_1374 of the internal_revenue_code_of_1986 as amended code additional information was received in a letter dated date the material information is summarized below company a c_corporation organized on date under the laws of state x owns a quarry in fee simple company’s business operations consist of mining and processing crushed minerals from its quarry company is not in the business of selling its unmined property to customers to extract and process minerals company computes its federal_income_tax liability using an accrual_method of accounting and files its federal_income_tax returns on a calendar_year basis company has one class of stock and less than shareholders company proposes to make an plr-142298-01 election to be taxed as an s_corporation within the meaning of sec_1361 election effective for tax years beginning on date on the effective date of company’s election conversion date approximately a of the quarry will still contain unmined minerals company requests a ruling that income from dispositions of crushed minerals that are mined and processed after the conversion date during the recognition_period will not constitute recognized_built-in_gain within the meaning of sec_1374 of the code sec_1374 imposes a corporate-level tax on an s corporation's net_recognized_built-in_gain during the recognition_period generally years following a a c corporation's conversion to s_corporation status or b an s corporation’s acquisition of assets in a transaction in which the s corporation’s basis in the acquired assets is determined by reference to the basis of such assets in the hands of a c_corporation sec_1374 provides that an s corporation's net_recognized_built-in_gain for any_tax year is generally its taxable_income for the year computed as if it was a c_corporation but taking into account only items treated as recognized_built-in_gain or recognized_built-in_loss sec_1374 provides that recognized_built-in_gain includes any gain recognized on the disposition of an asset during the recognition_period except to the extent the s_corporation shows that a it did not hold the asset on the conversion date or b the gain recognized was greater than the excess of the asset's fair_market_value over its adjusted_basis on the conversion date sec_1_1374-4 of the income_tax regulations provides that sec_1374 applies to any gain_or_loss recognized during the recognition_period in a transaction that is treated as a sale_or_exchange for federal tax purposes in example of sec_1_1374-4 x is a c_corporation that converts to an s_corporation effective date on the conversion date x owns a working_interest in an oil_and_gas property on which production of oil has not yet begun and the fair_market_value of the working_interest exceeds x's adjusted_basis in the working_interest by dollar_figure during the recognition_period x produces and sells oil from the working_interest and includes dollar_figure in income on the sale x's dollar_figure of income is not recognized_built-in_gain because as of the beginning of the recognition_period x held only a working_interest in the oil_and_gas property and not the oil itself since the oil had not yet been extracted from the ground revrul_2001_50 2001_43_irb_343 date provides that if an s_corporation that holds timber property on the conversion date cuts the timber and sells the resulting wood products during the recognition_period in a transaction to which plr-142298-01 sec_631 does not apply the tax consequences to the s_corporation under sec_1374 are determined using the same analysis contained in example of sec_1_1374-4 under revrul_2001_50 such wood products sold as inventory during the recognition_period do not constitute separate assets held by an s_corporation on the conversion date and thus their production and sale do not constitute a partial_disposition of the timber property accordingly the s corporation’s income on the sale of the resulting wood products during the recognition_period is not recognized_built-in_gain within the meaning of sec_1374 based solely on the information submitted and on the authority set forth above we rule that income from dispositions by company of crushed minerals that are mined and processed after the conversion date during the recognition_period will not constitute recognized_built-in_gain within the meaning of sec_1374 of the code no opinion is expressed about the tax treatment of the proposed transaction under other provisions of the code and 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 ruling in particular no opinion is expressed about the tax treatment of income that may be realized by company during the recognition_period under sec_1374 of the code other than income from the disposition of crushed minerals mined after the conversion date this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to company’s federal_income_tax returns for company’s final tax_year as a c_corporation and for each recognition_period year in which a disposition of crushed minerals occurs pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to the second representative listed on that power_of_attorney and to the taxpayer sincerely john p moriarty assistant to the branch chief branch office of associate chief_counsel corporate


internal_revenue_service number release date index number ------------------ ------------------------------ ----------------------------------- --------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc psi b03 plr-145305-08 date april legend x y z --------------------------------------------------------------------------------------------- ----------------------- --------------------------------------------------------------------------------------------- ----------------------- --------------------------------------------------------------------------------------------- ----------------------- state ------------ d1 d2 d3 d4 d5 d6 d7 ------------------ -------------------- -------------------------- ---------------------- ------------------------- ------------------------- ------------------ year ------- plr-145305-08 trust trust trust trust trust --------------------------------------------------------------------------------------------- ----------------------- --------------------------------------------------------------------------------------------- ----------------------- --------------------------------------------------------------------------------------------- ----------------------- --------------------------------------------------------------------------------------------- ----------------------- --------------------------------------------------------------------------------------------- -------------- shareholder --------------------------------------------------------------------------------------------- ------------------------- a b --------- ------------ dear ---------- this letter responds to your letter dated date and subsequent correspondence submitted on behalf of x by x’s authorized representative requesting a ruling under sec_1362 of the internal_revenue_code facts x was incorporated under the laws of state on d1 and elected to be an s_corporation effective d2 y and z are wholly-owned subsidiaries of x y and z were incorporated under the laws of state on d3 and d4 respectively x filed valid elections to treat y and z as qualified subchapter_s subsidiaries qsubs effective as of the date of x’s s election d2 on d5 shareholder transferred a shares of x stock to trust the taxpayer represents trust is a permissible s_corporation shareholder under sec_1361 trust terminated on d6 whereupon b shares of x stock were transferred to trust and trust the taxpayer represents that trust and trust are each eligible to be an electing_small_business_trust esbt within the meaning of sec_1361 however no election was made under sec_1361 to treat trust or trust as an esbt the plr-145305-08 primary beneficiaries of trust and trust also have withdrawal powers over their respective trusts that would cause them to be the owners of a portion of their respective trusts under sec_671 and sec_678 consequently trust and trust were ineligible shareholders and as a result x's s_corporation_election terminated on d6 upon learning that x may not qualify as an s_corporation x took steps to ensure that x qualified as an s_corporation on d7 trust transferred all of its shares of x stock to trust and trust transferred all of its shares of x stock to trust x represents trust and trust are permissible shareholders under sec_1361 x represents the termination of x’s s_corporation_election was inadvertent and not motivated by tax_avoidance or retroactive tax planning x represents that x and all of its shareholders have filed returns consistent with x's status as an s_corporation since d1 in addition x and its shareholders agree to make any adjustments consistent with the treatment of x as an s_corporation as may be required by the secretary with respect to the period specified by sec_1362 law and analysis sec_678 provides that a person other than the grantor shall be treated as the owner of any portion of a_trust with respect to which the person has a power exercisable solely by himself to vest the corpus or the income therefrom in himself sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 defines a small_business_corporation as a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock sec_1361 provides that for purposes of sec_1361 a_trust all of which is treated under subpart e of part i of subchapter_j of this chapter as owned by an individual who is a citizen or resident_of_the_united_states may be a shareholder sec_1361 provides that for purposes of sec_1361 an esbt is a permissible shareholder sec_1361 provides that except as provided in sec_1362 an esbt means any trust if i such trust does not have as a beneficiary any person other than i an individual ii an estate iii an organization described in sec_170 plr-145305-08 or or iv an organization described in sec_170 which holds a contingent_interest in such trust and is not a potential_current_beneficiary ii no interest in such trust was acquired by purchase and iii an election under sec_1361 applies to the trust sec_1361 provides that an election under sec_1361 shall be made by the trustee any such election shall apply to the taxable_year of the trust for which made and all subsequent taxable years of such trust unless revoked with the consent of the secretary sec_1_1361-1 of the income_tax regulations provides that the trustee of an esbt must make the esbt election by signing and filing with the service_center where the s_corporation files its income_tax return a statement that meets the requirements of sec_1_1361-1 sec_1362 provides that a in general an election under sec_1362 shall be terminated whenever at any time on or after the first day of the first taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation and b any termination under sec_1362 shall be effective on and after the date of cessation sec_1362 provides in relevant part that if an election under sec_1362 by any corporation was terminated under sec_1362 or the secretary determines that the circumstances resulting in the ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in the ineffectiveness or termination the corporation will be treated as an s_corporation during the period specified by the secretary sec_1_1362-4 provides that for purposes of sec_1_1362-4 the determination of whether a termination was inadvertent is made by the commissioner the corporation has the burden of establishing that under the relevant facts and circumstances the commissioner should determine that the termination was inadvertent the fact that the terminating event was not reasonably within the control of the corporation and was not part of a plan to terminate the election or the fact that the event took place without the knowledge of the corporation notwithstanding its due diligence to safeguard itself against such an event tends to establish that the termination was inadvertent plr-145305-08 sec_1_1362-4 provides that the commissioner may require any adjustments that are appropriate in general the adjustments required should be consistent with the treatment of the corporation as an s_corporation during the period specified by the commissioner conclusion based solely on the facts submitted and the representations made we conclude that x's election to be treated as an s_corporation terminated on d6 when stock in x was transferred to impermissible shareholders we further conclude that the termination was inadvertent within the meaning of sec_1362 pursuant to the provisions of sec_1362 x will be treated as continuing to be an s_corporation on and after d6 and y and z will be treated as qsubs on and after d6 unless x’s s_corporation_election is otherwise terminated under sec_1362 and the qsub elections for y and z are otherwise valid and not terminated under sec_1361 trust and trust will be treated as esbts from d6 until d7 accordingly x's shareholders in determining their respective income_tax liabilities during the termination period and thereafter must include their pro_rata share of the separately_stated items of income including tax- exempt_income loss deduction or credit and nonseparately computed items of income or loss of x as provided in sec_1366 make any adjustments to basis as provided in sec_1367 and take into account any distributions made by x as provided by sec_1368 this ruling is conditioned upon the trustee of trust and trust filing appropriately completed esbt elections with the appropriate service_center effective d6 the esbt elections must be filed within days following the date of this letter and a copy of this letter should be attached to the elections this ruling is additionally conditioned on trust trust and their beneficiaries filing within days following the date of this letter amended returns for year and subsequent taxable years consistent with the treatment of trust and trust as esbts and the beneficiaries as the owners of their respective portions of trust and trust under sec_671 and sec_678 a copy of this letter should be attached to each amended_return if x or its shareholders fail to treat themselves as described above this ruling is null and void except as specifically provided herein no opinion is expressed or implied as to the federal tax consequences of the facts described above under any other provision of the code in particular no opinion is expressed as to whether x is otherwise eligible to be an s_corporation whether y or z are otherwise eligible to be qsubs whether trust or trust are otherwise eligible to be esbts and whether trust trust or trust are otherwise permissible shareholders of x this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent plr-145305-08 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative 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 sincerely s leslie h finlow senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures a copy of this letter a copy for sec_6110 purposes cc


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi plr-138001-01 date date legend x a b d1 state dear this letter responds to a letter dated date submitted by your authorized representative on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code facts x was incorporated under state law on d1 and it was decided that x would be an s_corporation a and b the shareholders of x relied on a tax advisor to file x's form_2553 election by a small_business_corporation with an effective date of d1 the form_2553 however was not filed timely x requests a ruling that it will be recognized as an s_corporation effective for the taxable_year beginning d1 under sec_1362 law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made if an s election is made after the first two and one-half months of a plr-138001-01 corporation’s taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election or no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for such taxable_year conclusion based solely on the facts submitted and representations made we conclude that x has established reasonable_cause for its failing to make a timely election and that x is eligible for relief under sec_1362 accordingly if x makes an election to be an s_corporation by filing with the appropriate service_center a completed form_2553 containing an effective date of d1 for the election within days following the date of this letter then such election will be treated as timely made a copy of this letter should be attached to the form_2553 filed with the service_center a copy is enclosed for that purpose except as expressly provided herein we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion concerning whether x is an s_corporation for federal tax purposes this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent sincerely jeanne sullivan senior technician reviewer branch office of associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service attn mandatory review mc dal tax_exempt_and_government_entities_division commerce st dallas tx date date number release date uil dear employer_identification_number person to contact id number contact numbers this is a final adverse determination regarding your exempt status under sec_501 c of the internal_revenue_code the code our favorable determination_letter to you dated october 20xx is hereby revoked and you are no longer exempt under sec_501 of the code effective november 20xx the revocation of your exempt status was made for the following reason s based on your activities and financial records you do not qualify for exemption from federal_income_tax under sec_501 of the code since you are engaged in business with the general_public by regularly providing your facilities and services to the public for use upon payment of established fees these fees are over the limit as provided in revproc_71_17 as amended by public law and the income from these sources is inuring to the benefit of your president you are required to file form_1120 u s_corporation income_tax return for years ended june 20xx and june 20xx with the ogden service_center in addition for future periods you are required to file form_1120 with the appropriate service_center indicated in the instructions for the return processing of income_tax returns and assessments of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination under the declaratory_judgment provisions of sec_7428 of the code a petition to the united_states tax_court the united_states claims_court or the district_court of the united_states for the district of columbia must be filed before the st day after the date this determination was mailed to you please contact the clerk of the appropriate court for rules regarding filing petitions for declaratory judgments by referring to the enclosed publication you may write to these courts at the following addresses united_states tax_court second street nw washington d c united_states court of federal claims madison place nw washington d c united_states district_court for the district of columbia constitution avenue nw washington d c the taxpayer_advocate_service tas is an independent organization within the irs that can help protect your taxpayer rights tas can offer you help if your tax problem is causing a hardship or you've tried but haven't been able to resolve your problem with the irs if you qualify for tas assistance which is always free tas will do everything possible to help you visit taxpayeradvocate irs gov or call1-877-777-4778 if you have any questions please contact the person whose name and telephone number are shown at the beginning of this letter thank you for your cooperation sincerely margaret von lienen director eo examinations enclosure publication fj irs department of the treasury internal_revenue_service tax exempt and government entities exempt_organizations examinations date taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax manager's name id number manager's contact number response due_date certified mail - return receipt requested dear why you are receiving this letter we propose to revoke your status as an organization described in sec_501 c of the internal_revenue_code code enclosed is our report of examination explaining the proposed action what you need to do if you agree if you agree with our proposal please sign the enclosed form_6018 consent to proposed action- sec_7428 and return it to the contact person at the address listed above unless you have already provided us a signed form we'll issue a final revocation letter determining that you aren't an organization described in sec_501 c if we don't hear from you if you don't respond to this proposal within calendar days from the date of this letter we'll issue a final revocation letter failing to respond to this proposal will adversely impact your legal standing to seek a declaratory_judgment because you failed to exhaust your administrative remedies effect of revocation status if you receive a final revocation letter you'll be required to file federal_income_tax returns for the tax_year s shown above as well as for subsequent tax years what you need to do if you disagree with the proposed revocation if you disagree with our proposed revocation you may request a meeting or telephone conference with the supervisor of the irs contact identified in the heading of this letter you also letter rev catalog number 34809f may file a protest with the irs appeals_office by submitting a written request to the contact person at the address listed above within calendar days from the date of this letter the appeals_office is independent of the exempt_organizations division and resolves most disputes informally for your protest to be valid it must contain certain specific information including a statement of the facts the applicable law and arguments in support of your position for specific information needed for a valid protest please refer to page one of the enclosed publication how to appeal an irs decision on tax-exempt status and page six of the enclosed publication the examination process publication also includes information on your rights as a taxpayer and the irs collection process please note that fast track mediation referred to in publication generally doesn't apply after we issue this letter you also may request that we refer this matter for technical_advice as explained in publication please contact the individual identified on the first page of this letter if you are considering requesting technical_advice if we issue a determination_letter to you based on a technical_advice_memorandum issued by the exempt_organizations rulings and agreements office no further irs administrative appeal will be available to you contacting the taxpayer_advocate office is a taxpayer right you have the right to contact the office_of_the_taxpayer_advocate their assistance isn't a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate can't reverse a legally correct_tax determination or extend the time you have fixed by law to file a petition in a united_states court they can however see that a tax matter that hasn't been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at internal_revenue_service office_of_the_taxpayer_advocate for additional information if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation enclosures report of examination form_6018 publication publication sincerely paul a marmolejo acting director eo examinations letter rev catalog number 34809f department of the treasury internal_revenue_service tax_exempt_and_government_entities_division exempt_organizations examinations date date taxpayer id number form tax periods ended person to contact id number contact numbers telephone fax dear on date congress enacted the protecting americans from tax hikes act of2015 path act of2015 p l sec_406 ofthe path act extends declaratory_judgment rights under sec_7428 of the internal_revenue_code from c organizations to all c organizations these rights apply to adverse determinations of tax-exempt status including revocations and disqualifications of tax-exempt status this section ofthe path act of2015 applies to all revocations and disqualifications issued on or after date we issued you a final revocation or disqualification letter during this time period we are now reissuing a revocation letter because you are entitled to file a declaratory_judgment action with respect to the loss of your tax-exempt status your reissued letter is attached the basis for the loss of your exempt status has not changed if you have any questions you can call me at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation sincerely reviewer attachment 90-day final adverse determination_letter form 886a i name oftaxpayer department of the treasury- internal_revenue_service explanation of items schedule no or exhibit year period ended june 20xx issue a so-called organized as a application_for membership or a system of approval no initiation fees or dues no board_of directors or meeting of the members membership cards were used but there was no formal operated for profit furnished to comply with state to its patrons the was and that qualifies as a qualify under sec_50l c as a tax exempt social_club state law for the purpose of obtaining a under does this state facts filed articles oflncorporation with the secretary of state's office articles oflncorporation were amended on april 20xx with on january 20xx the secretary of state of addition a registration of fictitious name was filed with the secretary of state of 20xx registering changing the name of the corporation to for in on april4 form_1024 application_for recognition of exemption under sec_50l a was filed with the internal_revenue_service on february 20xx revenue code by letter dated october 20xx with the effective date of exemption of november 20xx was granted exemption from federal_income_tax under sec_501 ofthe internal the privileges of members consist in the right to have access to the and to partake of its no meetings of the members of are held members have no voice in the selection of members and members have no voting rights members have no control of the operation of the members have no share in the profits membership is open to the general_public and their families without specific qualification allows entrance to its establishment without verification as to membership does not charge a membership fee there are no membership dues or assessments and membership cards are issued for life the selection of walks through the door is granted membership members is entirely in the hands of the one stockholder anyone who was organized as a private club to comply with state liquor laws is a one-person enterprise owned by the stockholder law argument and rationale sec_501 exemption from taxation an organization described in subsection c or d or sec_401 shall be exempt from taxation under this subtitle unless such exemption is denied under sec_502 or sec_503 sec_501 c clubs organized for pleasure recreation and other non-profitable purposes substantially_all of the activities of which are for such purposes and no part of the net_earnings of which inures to the benefit of any private shareholder club ramon inc appellee v united_states o america appellant 1962_2_cb_356 irb lexis a so called dinner club operated for profit furnished food and entertainment to its patrons the club was organized as a fonn 886-a rev department of the treasury- internal_revenue_service page form 886a i n arne of taxpayer department of the treasury- internal_revenue_service explanation of items schedule no or exhibit year period ended june 20xx private club to comply with state liquor laws membership cards were used but there was no formal application_for membership or a system of approval no initiation fees or dues no board_of directors or meeting of the members the court held that in view of all the circumstances the club was so clearly a public place within the meaning of section e of the code that it was subject_to the cabaret tax and a directed verdict for the united_states should have been granted in the district_court the certificate of incorporation of club ramon inc a one-man enterprise owned by raymond mattee states that the purpose of the corporation is to operate a private dinner and supper club for the service of food and beverages the by-laws of the corporation provide that the club shall be operated as a private club for_the_use_of its members and their guests and that the board_of directors shall prescribe the requirements for membership and issue appropriate identification to the members no such regulations however have been passed and no attempt has been made to organize a private club in the ordinary meaning of that term the selection of members has been entirely in the hands of mattee and the evidence of membership is a membership card issued by mattee bearing the member's name the privileges of members consist in the right to have access to the club and to partake of its entertainment for a price but no meetings of the members are held and the members have no voice in the selection of members no control of the operation of the club and no share in the profits in view of all these circumstances we conclude that the club ramon is so clearly a public place within the meaning of the federal statute that a verdict for the united_states should have been directed the pretense set up in the charter and in the by-laws of the corporation that the organization is a private club has no foundation in fact and is not now urged in support of the judgment of the district_court hence the question is whether a restaurant which is operated by its owner for profit and for this purpose is open to such members of the general_public and their families without specific qualification as the proprietor may deem it safe and prudent to admit to a place where violations of the state law are carried on must properly be described as a public place within the meaning of the statute we think that the answer must be in the affirmative when as in this case the sale of the privileges of the place was the lifeblood of the business and a large section of the general_public was served actually the restrictions involved in the card-carrying practice were no more severe than those imposed by other public places of entertainment from which for one purpose or another certain classes of the general_public are customarily excluded what we hold here is that the facts in this case establish beyond reasonable dispute that the club ramon inc in its organization and operation is no more private than the ordinary discriminating restaurant and that it is therefore liable for the taxes imposed the judgment of the district_court is reversed with direction to dismiss the complaint conclusion the club ramon inc court case stated above and the facts of the are also similar in both instances and to partake of its entertainment the privileges of members consist in the right to have access to for a price no meetings of the members are held members have no voice in the selection of members members have no control of the operation of members have no share in the profits membership is open to the general_public and their families without specific qualification the selection of members is entirely in the hands ofthe one stockholder the the the enterprise is similar to the business organization commonly known as a webster's new collegiate dictionary as was organized as a private club to comply with state liquor laws a one-person enterprise owned by the stockholder which is defined in form 886-a rev department of the treasury- internal_revenue_service page form 886a n arne oft axpayer department of the treasury- internal_revenue_service ex lanation of items schedule no or exhibit year period ended june 20xx the conclusion reached in the club ramon inc court case is that the club is a public establishment and not a private club for federal tax laws therefore given that in its organization and operation is no more private than the case it can be concluded that ordinary discriminating and that it therefore does not quality for exemption from federal_income_tax and the 50l c classification should be revoked effective november 20xx the effective date of exemption carries the same or similar facts as this court in addition ending after november 20xx is liable for filing federal_income_tax form_1120 for all taxable periods form 886-a rev department of the treasury- internal_revenue_service page