internal_revenue_service number release date index number 468a ------------------------ --------------------------------------- ------------------------ ----------------------- ----------------------- - department of the treasury washington dc person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc psi - plr-114653-04 date june -------------------------------------------------- -------------------------------------------------------------------- re -------------------------------------------------------- taxpayer ------------------------ ------------------------------------------------------------------------------------------- parent ------------------------------------------------------------------------------------------- ------------------------ --------------------------------------------- ----------------------------------------------------- ------------------------------------------------ ------------------------------------ ------------------------------------------------------ plant location commission a commission b commission c state x order a order b engineer director dear ---------------- parent on behalf of taxpayer for a revised schedule of ruling amounts in accordance with sec_1_468a-3 of the income_tax regulations taxpayer was previously granted a revised schedule of ruling amounts for commission b on ------------------ the prior schedule this revised schedule has been requested because the prior ------------------ ----------------------------- ----------------------------------- ----------------------------- ----------------------------------------------------------------------------------- this letter responds to the request dated date submitted by plr-114653-04 schedule expired after the taxpayer’s ------- taxable_year information was submitted pursuant to sec_1_468a-3 we understand the facts as presented by taxpayer to be as follows tenant in common taxpayer has a pre-asset exchange interest of -------percent in an asset exchange taxpayer received an additional -------percent ownership_interest in the plant however the decommissioning liability for this additional interest is fully funded and taxpayer will not collect any amounts from ratepayers for decommissioning liability relating to this additional interest taxpayer also holds an -------percent interest in certain common facilities relating to the operation of plant and a second unit taxpayer has no ownership_interest in the second unit the plant is situated in location taxpayer as one of the owners of the plant has a --- percent interest as a taxpayer is under the jurisdiction of commission a which covers --------percent of taxpayer’s total sales and commission b which covers -------percent however -------- percent of taxpayer s operations consists of sales of electricity to a public_utility that is subject_to the jurisdiction of commission c this request for a revised schedule of ruling amounts applies only to ruling amounts under the jurisdiction of commission b taxpayer proposes to decommission the plant using the prompt removal dismantling method taxpayer is under the audit jurisdiction of director in order b commission b authorized taxpayer to include decommissioning costs for the plant in its cost of service on a basis consistent with commission a s determination in order a commission a used an estimated cost of dollar_figure------------------------ ------------------------------------------------------------------------------------------------------- ------- dollars for decommissioning the taxpayer's interest in the plant and the common facilities this estimate was based upon an independent study by engineer which premised this estimate on the prompt removal dismantling method the decommissioning study estimated the base cost to decommission the plant as dollar_figure---------- ------------------- ------- dollars commission a’s method of calculating the amount of decommissioning costs included in cost of service does not include an escalation factor for computing estimated future decommissioning costs instead commission a provided for updating these estimated base costs in future ratemaking proceedings to then-current dollars according to commission b the estimated date on which the plant will no longer be included in taxpayer’s rate base for ratemaking purposes is ------- the estimated date on which the common facilities will no longer be included in taxpayer’s rate base for ratemaking purposes is ------- the estimated taxable_year in which substantial decommissioning costs of the plant will first be incurred is ------ the estimated taxable_year in which substantial plr-114653-04 completion of decommissioning of the plant will occur is ------- the estimated taxable_year in which substantial decommissioning costs of the common facilities will first be incurred is ------ the estimated taxable_year in which substantial completion of decommissioning of the common facilities will occur is ------- the assumed after-tax rate of return to be earned by amounts collected for decommissioning is -----percent the actual after-tax rate of return earned by the assets of the fund during the year ended -------------------------- was ------ percent with respect to commission b the following facts apply the funding_period and the level_funding limitation period for the plant extend from ------- through ------- the funding_period and the level_funding limitation period for the common facilities extend from ------- through ------- the date the plant and common facilities began commercial operations was ------- decommissioning costs for the common facilities were included and will be included in the taxpayer’s cost of service from ------- through ------ the projected annual amounts that were included and will be included in taxpayer’s cost of service are during --------------- dollar_figure-------- and during --------------- dollar_figure----- as determined in the first ratemaking proceeding in which the plant was included in taxpayer’s rate base the estimated_useful_life of the plant is --- years ------ through - ------- and the estimated period for which the portion of the fund relating to the plant will be in effect is --- years ------- through ------- therefore the qualifying percentage for the portion of the fund relating to the plant is --------percent as determined in the first ratemaking proceeding in which the plant was included in taxpayer’s rate base the estimated_useful_life of the common facilities is --- years --- -------- through ------- and the estimated period for which the portion of the fund relating to the plant will be in effect is --- years ------- through ------ therefore the qualifying percentage for the portion of the fund relating to the plant is --------percent purposes was not adjusted by commission b before date but was adjusted by commission b in order b therefore for purposes of determining certain estimated dates relevant to the funding_period the level_funding limitation period and the qualifying percentage the ratemaking assumptions that were used to determine the last rates that were established or approved by order b prior to taxpayer’s filing of this request for a revised schedule of ruling amounts are not identical to the ratemaking assumptions used by commission b in establishing or approving the rates during commission b’s first ratemaking proceeding in which the plant was included in taxpayer’s rate base increase or decrease in the amount of decommissioning costs for the plant included in taxpayer's cost of service for ratemaking purposes there are no proceedings before either commission that may result in an the estimated_useful_life of the plant and of the common facilities for ratemaking sec_468a of the internal_revenue_code provides that a taxpayer may sec_468 provides that a taxpayer that elects application of sec_468a plr-114653-04 elect to deduct the amount of payments made to a qualified nuclear decommissioning fund however sec_468a limits the amount_paid into the fund for any_tax year to the lesser_of the amount of nuclear decommissioning costs allocable to the fund that is included in the taxpayer's cost of service for ratemaking purposes for the tax_year or the ruling_amount applicable to this year sec_468a of the code provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under sec_468a as the amount which the secretary determines to be necessary to fund that portion of nuclear decommissioning costs which bears the same ratio to the nuclear power plant as the period for which the fund is in effect bears to the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate shall establish a qualified_fund with respect to each nuclear power plant to which such election applies sec_468a defines nuclear power plant to include any unit thereof sec_468a of the code provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of the tax_year if the payment is made on account of this tax_year within months after the close of the tax_year sec_1_468a-1 of the regulations provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1 is a taxpayer that has a qualifying interest in a nuclear power plant as defined under sec_1_468a-1 a qualifying interest is among other things a direct ownership_interest including an interest held as a tenant in common or joint tenant cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the lesser_of the cost of service amount applicable to the nuclear decommissioning fund for such tax_year or the ruling_amount applicable to the nuclear decommissioning fund for such tax_year ruling amounts for a nuclear decommissioning fund is a ruling specifying annual sec_1_468a-3 of the regulations provides that in general a schedule of sec_1_468a-2 of the regulations provides that the maximum amount of plr-114653-04 payments that over the tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3 bases the schedule of ruling amounts on the reasonable assumptions and determinations used by the applicable public_utility commission s in establishing or approving the amount of decommissioning costs to be included in the cost of service for ratemaking purposes taking into account amounts that are otherwise required to be included in the taxpayer's income under sec_88 of the code and the regulations thereunder each schedule of ruling amounts shall be based on the public_utility commission's reasonable assumptions concerning i the after-tax rate of return to be earned by the amounts collected for decommissioning ii the total estimated cost of decommissioning the nuclear power plant and iii the frequency of contributions to the nuclear decommissioning fund for a tax_year to provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of this section specified in a schedule of ruling amounts for any_tax year in the level_funding limitation period shall not be less than the ruling_amount specified in such schedule for any earlier tax_year under sec_1_468a-3 the level_funding limitation period begins on the first day of the first tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day of the tax_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer's share of the total estimated cost of decommissioning the nuclear power plant multiplied by the qualifying percentage sec_1_468a-3 of the regulations permits the internal_revenue_service sec_1_468a-3 of the regulations provides that the ruling_amount sec_1_468a-3 of the regulations provides that the amount of sec_1_468a-3 of the regulations provides that in general the total estimated cost of decommissioning a nuclear power plant is the reasonably estimated cost of decommissioning used by the applicable public_utility commission in establishing or approving the amount of these costs to be included in cost of service for ratemaking purposes total estimated cost of decommissioning a nuclear power plant equals the total sec_1_468a-3 of the regulations provides that a taxpayer's share of the sec_1_468a-3 of the regulations provides that if two or more public_utility plr-114653-04 estimated cost of decommissioning such plant multiplied by the taxpayer's qualifying interest in the plant commissions establish or approve rates for electric energy generated by a single nuclear power plant then the schedule of ruling amounts shall be separately determined pursuant to the rules of sec_1_468a-3 through e for each public_utility commission that has determined the amount of decommissioning costs to be included in the cost of service for ratemaking purposes for this plant under sec_1_468a-3 this separate determination shall be based on the reasonable assumptions and determinations used by the relevant public_utility commission and shall take into account only that portion of the total estimated cost of decommissioning that is properly allocable to the ratepayer whose rates are established or approved by the public_utility commission according to sec_1_468a-3 the ruling amounts for any_tax year is the sum of the ruling amounts for such tax_year determined under the separate schedules of ruling amounts service shall not provide a taxpayer with a schedule of ruling amounts for any nuclear decommissioning fund unless the public_utility commission that establishes or approves the rates for electric energy generated by the plant has determined the amount of decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes and has disclosed the after-tax rate of return and any other assumptions and determinations used in establishing or approving the amount sec_1_468a-3 of the regulations provides that a taxpayer is required to request a revised schedule of ruling amounts for a nuclear decommissioning fund if a any public_utility commission that establishes or approves rates for the furnishing or sale of electric energy generated by a nuclear power plant to which the nuclear decommissioning fund relates increases the proposed period over which the decommissioning costs of the nuclear power plant will be included in cost of service for ratemaking purposes adjusts the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes or reduces the amount of decommissioning costs to be included in cost of service for any_tax year and b the taxpayer's most recent request for a schedule of ruling amounts did not provide notice to the service of such action by any public_utility commission sec_1_468a-3 of the regulations provides that the internal revenue section a and c of the energy act eliminated for taxable years beginning after date the investment restrictions contained in sec_468a of the code section b and c of the energy act revised sec_468a by lowering the tax_rate applicable to a nuclear decommissioning fund for taxable years beginning after date plr-114653-04 we have examined the representations and data submitted by the taxpayer in relation to the requirements set forth in the code and the regulations based solely on these representations of the facts we reach the following conclusions taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under sec_1_468a-1 of the regulations commissions a and b have previously determined the amount of decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes as required by sec_1_468a-3 of the regulations the taxpayer as one of the owners of the plant and the common facilities has previously calculated its share of the total decommissioning costs under sec_1_468a-3 of the regulations the taxpayer subject_to the jurisdiction of three public_utility commissions for ratemaking purposes has previously calculated its share of the total decommissioning costs allocable to the commissions as required by sec_1_468a-3 of the regulations the taxpayer has previously proposed a schedule of ruling amounts which meets the requirements of sec_1_468a-3 and of the regulations the annual payments specified in the proposed schedule of ruling amounts are based on the reasonable assumptions and determinations used by the commissions and will result in a projected fund balance at the end of the funding_period equal to or less than the amount of decommissioning costs allocable to the fund the maximum amount of cash payments made or deemed made to the fund during any_tax year is restricted to the lesser amount of the decommissioning costs applicable to such fund or the ruling applicable to this fund as set forth under sec_1 468a- b of the regulations the qualifying percentage under sec_1_468a-3 of the regulations is calculated to be --------percent based on the above determinations we conclude that the taxpayer's proposed schedule of ruling amounts satisfies the requirements of sec_468a of the code plr-114653-04 approved schedule of ruling amounts total commissions a and b tax years ------- through -------1 year a b --------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- limited to a 5-year period for the schedule of ruling amounts for commission b because the commission has not taken into account the statutory changes made to sec_468a of the code by the energy act the elimination of the investment restrictions and the reduction of the tax_rate applicable to income earned by the fund may result in a greater after-tax of return than was estimated prior to the enactment of the energy act by the commission this increased after-tax rate of return could over the life of the fund result in a balance in the fund on the last day of the funding_period that could exceed the amount of decommissioning costs allocable to the fund with agreement of the taxpayer this revised schedule of ruling amounts is thus in order to prevent the excess accumulation in the fund this schedule of approval of the schedule of ruling amounts is contingent on there being no ruling amounts is being limited to a 5-year period approval of a revised schedule of ruling amounts may be granted after a determination by commission b of an after-tax rate of return that accounts for the reduced_tax_rate and unrestricted investments change in the facts and circumstances known or assumed at the time the current ruling is issued if any of the events described in sec_1_468a-3 of the regulations occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or before the deemed payment deadline date for the first tax_year in which the rates reflecting such action became effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline of the 10th tax_year following the close of the tax_year in which the most recent schedule of ruling amounts was received the ruling amounts for commission a were approved in a prior schedule of ruling amounts for purposes of the mandatory review required under sec_1_468a-3 of the regulations the date of that prior ruling shall govern the review period for the jurisdiction of commission a a copy of this letter is being sent to the director pursuant to sec_1_468a-7 the approved schedule of ruling amounts is relevant only to those payments this ruling is directed only to taxpayer who requested it sec_6110 of plr-114653-04 made to the fund payments allocable to any funds other than the fund cannot qualify for purposes of the deduction under the provisions of sec_468a of the code as stated earlier payments made to such fund can qualify only to the extent that they do not exceed the lesser_of the decommissioning costs applicable to such fund or the ruling amounts applicable to this fund in the tax_year the code provides it may not be used or cited as precedent of the regulations a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax return for each tax_year in which the taxpayer claims a deduction for payments made to the fund enclosure copy peter c friedman senior technician reviewer branch office of associate chief_counsel passthroughs and special industries sincerely yours


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-114604-15 date august legend x y u s parent z country date date ----------------------------------------------------------------------------------------- ------------------------------------ ----------------------------------------------------------------------------------------- ------------------------------- ----------------------------------------------------------------------------------------- ---------------------------------- ---------------------------- ----------- ------------------------- ------------------ dear -------------------- this responds to a letter dated date and additional information submitted on behalf of x by its authorized representative requesting a ruling under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations that x be granted an extension of time to file an election to be classified as a disregarded_entity under sec_301_7701-3 facts plr-114604-15 x was formed on date under the laws of country by y which is wholly owned by u s parent by default classification x was an association for federal tax purposes u s parent since acquired by z attempted to file timely a form_8832 entity classification election for x to be classified as a disregarded_entity for federal tax purposes effective date however the entity classification election was not effective law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 under sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that unless an entity elects otherwise a foreign eligible_entity is an association if all members have limited_liability sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided in sec_301_7701-3 or to change its classification by filing a form_8832 with the service_center designated on the form_8832 sec_301_7701-3 provides that an election made under sec_301 c i will be effective on the date specified by the entity on form_8832 or on the date filed if no date is specified on the election form the effective date specified on form_8832 cannot be more than days prior to the date on which the election is filed and cannot be more than months after the date on which the election is filed sec_301_7701-3 provides that if an eligible_entity classified as an association elects to be classified as a disregarded_entity the following is deemed to occur the association distributes all of its assets and liabilities to its single owner in liquidation of the association sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections plr-114604-15 sec_301_9100-3 provides extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides 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 the grant of relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied for an effective date of date as a result x is granted an extension of time of days from the date of this letter to make an election to be treated as a disregarded_entity for federal tax purposes effective date x must make the election by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the form this ruling is contingent on x and the owners of x filing all required federal_income_tax and informational returns including amended returns consistent with the requested relief granted in this letter a copy of this letter should be attached to any such return to the extent appropriate these returns or amended returns must include form_8858 return of u s persons with respect to foreign disregarded entities such that these forms reflect the consequences of the relief granted in this letter copies of this letter should be attached to any such returns or amended returns 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 in addition sec_301_9100-1 provides that the granting of an extension of time for making an election is not a determination that the taxpayer is otherwise eligible to make the election 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 pursuant to a power_of_attorney on file with this office we are sending a copy of this letter to x’s authorized representative plr-114604-15 the ruling contained in this letter is 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 ruling_request it is subject_to verification on examination sincerely associate chief_counsel passthroughs special industries by ___________________________________ james a quinn senior counsel branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number ------------------------------------------------ -------------------------------------- -------------------------------------- --------------------------------------------- -------------------------- in re ------------------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------------ id no ------------ --------- telephone number --------------------- refer reply to cc psi b04 plr-132944-07 date date legend legend decedent daughter trust ------------------------ -------------------------------------------- ---------------------------------------------------------------------------- -------------------------- ---------------- ------------------------------------------------- ------------------------------------------- ------------------------------------------- ------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- -------------------------- state state law state law state law state law state law state law state law date dear ---------------------------------------------------- this is in response to your letter received date and prior correspondence requesting a ruling regarding the generation-skipping_transfer gst tax consequences of a proposed modification of a_trust the facts submitted and the representations made are as follows on a date prior to date decedent established trust an irrevocable_trust for the benefit of daughter paragraph of trust provides that after daughter attains age daughter is to receive trust’s income at least semi-annually for her lifetime at her death in the event daughter is survived by lawful issue the trust estate is to be held in further trust for years during this period the daughter’s children are to receive distributions of trust income to provide for their support and maintenance at the end of the 21-year period plr-132944-07 trust is to terminate and be distributed among daughter’s surviving issue share and share alike under state law the parties interested in a_trust may resolve matters through written agreements in a nonjudicial binding procedure under state law such agreements may be filed with the court having jurisdiction over the trust and upon filing the agreement has the effect of a final court order binding on all persons interested in the trust the trustees and the beneficiaries of trust entered into a nonjudicial binding agreement agreement under which trust will be modified to facilitate the administration and investments of trust pursuant to state law and state law daughter as virtual representative of her issue entered into agreement for her issue agreement becomes effective upon the receipt of a favorable ruling from the internal_revenue_service agreement provides that instead of receiving trust’s income at least semi-annually daughter is to receive a unitrust_amount for her lifetime at least semi-annually state law authorizes the conversion of an interest in income into a unitrust_amount the unitrust_amount is equal to the greater of i the annual income of trust or ii an amount equal to four and one-half percent of the average fair_market_value of trust valued as of the close of the last business_day of the five preceding years or such lesser number of years as are available for the first five years starting on date the unitrust_amount and adjustments thereto are to be calculated without regard to the fair_market_value of certain assets held by trust for which there is no established public market state law defines the term unitrust distribution as equaling four percent and the term payout percentage to mean the net fair_market_value of the trust’s assets averaged over the lesser_of the three preceding years or the period during which the trust has been in existence in this case agreement provides for four and one-half percent and the five preceding years however state law also provides that the trustee or beneficiary of a_trust may petition the court to select a payout percentage different than four percent under state law nothing in state law restricts the application of state law to issues that arise under trusts and may be resolved nonjudicially further under state law the parties to agreement may exercise their rights to agree to a five-year period and to exclude assets for which there is no established market_value it has been represented that no additions have been made to trust since decedent's death which was prior to date trustees are requesting a ruling that the proposed modification to trust as described in agreement will not result in a shift of a beneficial_interest to a lower generation plr-132944-07 beneficiary and therefore will not affect the status of trust as exempt from the gst tax law and analysis sec_2601 imposes a tax on every generation-skipping_transfer section b a of the tax_reform_act_of_1986 and ' b i of the generation-skipping_transfer_tax regulations provide that the gst tax shall not apply to any generation-skipping_transfer under a_trust that was irrevocable on date but only to the extent that such transfer is not made out of corpus added to the trust after date or out of income attributable to corpus so added sec_26_2601-1 provides that any trust in existence on date will be considered an irrevocable_trust except as provided in ' b ii b or c relating to property includible in the grantor's gross_estate under and sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the gst tax under ' b or hereinafter referred to as an exempt trust will not cause the trust to lose its exempt status in general unless specifically provided otherwise the rules contained in ' b are applicable only for purposes of determining whether an exempt trust retains its exempt status for gst tax purposes unless specifically noted the rules do not apply in determining for example whether the transaction results in a gift subject_to gift_tax or may cause the trust to be included in the gross_estate of a beneficiary or may result in the realization of capital_gain for purposes of ' sec_26_2601-1 provides that a modification of the governing instrument of an exempt trust including a trustee distribution settlement or construction that does not satisfy paragraphs b i a b or c of this subsection by judicial reformation or nonjudicial reformation that is valid under applicable state law will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as defined in ' than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust sec_26_2601-1 example considers a situation where a_trust that is otherwise exempt from the gst tax provides that trust income is payable to a for life and upon a's death the remainder is to pass to a's issue per stirpes in the appropriate local court approves a modification to the trust that converts a's income_interest into the right to receive the greater of the entire income of the trust or a fixed plr-132944-07 percentage of the trust assets valued annually unitrust_interest to be paid each year to a for life the example concludes that the modification does not result in a shift in a beneficial_interest to a beneficiary who occupies a lower generation as defined in ' than the person or persons who held the beneficial_interest prior to the modification rather the modification can only operate to increase the amount distributable to a and decrease the amount distributable to a's issue in addition the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust therefore the trust will not be subject_to the provisions of chapter in this case trust is an irrevocable that was established prior to date it is represented that no additions were made to trust after date consequently trust is currently exempt from the gst tax the proposed modification of trust will not result in a shift of any beneficial_interest in trust to any beneficiary who occupies a generation lower than the persons holding the beneficial interests prior to the conversion of the income_interest into a unitrust_interest further the proposed modification will not extend the time for vesting of any beneficial_interest in trust beyond the period provided for in trust prior to the modification accordingly based on the facts submitted and representations made we conclude that the proposed modification of trust will not affect the status of trust as exempt from the gst tax except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative plr-132944-07 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 lorraine gardner lorraine e gardner senior counsel branch passthroughs special industries enclosures copy for ' purposes


department of the treasury employer_identification_number contact person - id number contact telephone number vil internal_revenue_service p o box cincinnati oh release number release date date date legend x y z dear you asked for advance approval of your scholarship grant procedures under internal_revenue_code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax you requested approval of your scholarship program to fund the education of certain qualifying students our determination we approved your procedures for awarding scholarships based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding scholarships meet the requirements of code sec_4945 as a result expenditures you make under these procedures will not be taxable also awards made under these procedures are scholarship or fellowship grants and are not taxable to the recipients if they use them for qualified_tuition_and_related_expenses subject_to the limitations provide in code sec_117 description of your request your purpose is to provide scholarships to individuals attending four-year accredited colleges and universities in x each year you will publicize the availability of scholarships to x high school seniors through letters publications the internet high school counselors or such other means of broad dissemination as you determine appropriate your board_of trustees will be solely responsible for determining the amount of funds available for scholarships each year you receive more than y applications per year and award z scholarships letter catalog number 58263t scholarship candidates must meet the following minimum eligibility requirements candidates must be seniors graduating from high school or for students described below its equivalent such as a home school program that satisfies the requirements of x law candidates must satisfy criteria measuring academic merit and scholastic aptitude eg grade-point average class rank or score on scholastic aptitude tests or college entrance exams as determined by the board_of trustees candidates must either a be classified as citizens or permanent residents of the united_states under united_states immigration laws as of the due_date of the scholarship application or such other date as the board_of trustees may determine and have attended high school or its equivalent in x for their junior and senior year or such other period as the board_of trustees may determine or b have obtained approval under the federal deferred action for childhood arrivals process one month prior to enrollment at the chosen college or university or such other date as the board_of trustees may determine and have attended high school in x for three years immediately preceding their graduation candidates must pursue or plan to pursue an undergraduate education at an educational_institution described in sec_170 of the code ie an institution that normally maintains a regular faculty and curriculum and normally has a regularly organized body of students in attendance at the place where its educational activities are regularly carried on the educational_institution must be a fully accredited four-year public or private college or university in x which is on a list of institutions approved by the board_of trustees and candidates must meet all the scholastic and other college entrance requirements at the chosen college or university disqualified persons as defined in sec_4945 of the code with respect to your organization and members of the selection committee and their respective family members as defined in sec_4945 of the code are not eligible to receive scholarships the selection committee s will receive and review applications for scholarships from persons meeting the minimum eligibility requirements the selection committee will then evaluate the scholarship candidates based on criteria that are reasonably related to the underlying purpose of the scholarship the criteria will include but not be limited to the following prior academic performance letter catalog number 58263t performance on tests designed to measure ability and aptitude for educational work recommendations from instructors counselors principals and others evidence of leadership in and service to the community and the school motivation character ability and potential after evaluation of the candidates under the above criteria the selection committee s will designate one or more such candidates to receive scholarships scholarships awarded under your program will consist of the two following components the first component involves amounts paid to or for the benefit of the scholarship recipient to cover his or her tuition and fees for attendance at certain four-year accredited x colleges and universities his or her fees books supplies and equipment required for courses of instruction at the institution and his or her room and board you may permit a portion of the amounts to be used for opportunities to study abroad provided the student receives academic credit for such study toward his or her degree the second component involves a fixed sum per recipient paid to the university or college for the benefit of the recipient to cover the cost of supplemental activities or programs that may go beyond the student's regular courses of curriculum but that the college or university nevertheless determines would aid the student in the pursuit of his or her studies the college or university will have the discretion to determine the character of expenses to be covered provided the funds are used to aid the scholarship recipients in the pursuit of their studies you will have one or more selection committees to manage different portions of the scholarship program such committees will be comprised of members of your staff and your board_of trustees as well as such non-staff and non-board members as the president or the board_of trustees appoints from time to time a selection committee may also utilize the technical non-voting assistance of professional educators former scholarship recipients and other persons with helpful expertise members of a selection committee shall not be in a position to derive any private benefit directly or indirectly if certain potential recipients are selected for scholarships over others each scholarship recipient will be required to sign a written_agreement setting forth the terms and conditions of the scholarship such as the specific purpose of the scholarship its amount and duration conditions and procedures for renewal the institution to which it will be paid requirements for reports if any including the due dates for such reports and any other expectations of the recipient during the scholarship period if you pay scholarship funds directly to the educational_institution you will secure the institution’s agreement that the scholarship funds will be used to defray the scholarship recipient’s expenses or will be paid to the scholarship recipient only if the recipient is enrolled at such institution and his or her standing at such institution is consistent with the purposes and conditions of the scholarship if you pay scholarship funds directly to a scholarship recipient you will secure from the recipient an agreement that he or she will furnish you with reports of his or her courses letter catalog number 58263t if you obtain information indicating that scholarship funds taken and grades received in each academic period and proper receipts to evidence that the funds have been used by the recipient for the purposes determined under the scholarship the reports must be verified by the educational_institution attended by the recipient and must be furnished at least once a year as well as upon completion of his or her studies at the institution are not being used for the purposes of the scholarship you will investigate the use of such funds while conducting your investigation you will withhold further payments to the recipient until any delinquent reports have been submitted if you determine that scholarship funds have been improperly diverted you will take all reasonable and appropriate steps either to recover the diverted funds or to ensure restoration of the funds and dedication of other scholarship funds held by the recipient to the purposes of the scholarship and withhold further payments to the recipient until you have received the recipient's assurances that future diversions will not occur and you have required the recipient to take extraordinary precautions to prevent future diversions from occurring you will maintain records with respect to all scholarships made to scholarship recipients such records will include all information you obtain to evaluate the qualification of potential scholarship recipients identification of the recipients any information sufficient to establish that they are not disqualified persons specification of the amount and purpose of each scholarship any follow-up information you obtain in connection with your supervision of the scholarships and your investigation and recovery_of diverted scholarship funds basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is a scholarship or fellowship subject_to the provisions of code sec_117 the grant is to be used for study at an educational_organization described in code sec_170 a ii e e other conditions that apply to this determination e this determination only covers the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don't differ significantly from those described in your original request e this determination applies only to you it may not be cited as a precedent letter catalog number 58263t you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes to your program to the cincinnati office of exempt_organizations at internal_revenue_service exempt_organizations determinations p o box cincinnati oh you cannot award grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 b you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary we've sent a copy of this letter to your representative as indicated in your power_of_attorney please keep a copy of this letter in your records if you have questions please contact the person listed at the top of this letter sincerely director exempt_organizations letter catalog number 58263t


t c memo united_states tax_court george and bozenna pohoski petitioners v commissioner of internal revenue respondent docket no filed date philip garrett panitz for petitioners donna f herbert for respondent memorandum findings_of_fact and opinion jacobs judge respondent determined a dollar_figure deficiency in petitioners' federal_income_tax and an accuracy-related_penalty of dollar_figure pursuant to sec_6662 after concessions we must decide whether petitioners materially participated in the rental of their two hawaiian condominiums for purposes of the passive_activity_loss rules pursuant to sec_469 and whether petitioners are liable for the accuracy-related_penalty pursuant to sec_6662 all section references are to the internal_revenue_code as in effect for the year in issue all rule references are to the tax_court rules_of_practice and procedure findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time the petition was filed george and bozenna pohoski husband and wife resided in camarillo california background during mr pohoski was employed as an engineer with the u s department of defense and mrs pohoski was employed as a nurse both petitioners worked an average of hours per week petitioners have two children throughout the year in issue petitioners owned two condominiums in camarillo california the camarillo condominiums and two condominiums in hawaii the camarillo condominiums were generally rented out on a long-term_lease basis petitioners managed the camarillo condominium properties themselves collecting the rents making repairs and maintaining the books_and_records respondent concedes that the rental of the camarillo condominiums was properly reported by petitioners on their joint federal_income_tax return hawaiian condominiums in petitioners purchased a condominium at the valley isle resort on the island of maui hawaii the maui condo in petitioners purchased a condominium at the wavecrest resort on the island of molokai hawaii the molokai condo both of these condominiums were purchased as rentals to vacationers each condominium included one bedroom one bathroom a living room kitchen dining room and lanai a maui condo as owners of the maui condo petitioners were members of the homeowners'_association at the valley isle resort homeowners'_association the homeowners'_association entered into a contract with rainbow reservations inc rainbow reservations to operate the front desk for the valley isle resort condominiums rainbow reservations also provided management services for individual condominium_owners during rainbow reservations entered into management contracts with owners of approximately of the condominium units at the valley isle resort generally rainbow reservations provided a variety of services for the condominium_owners with whom they had management contracts including the rental of the condominium units collection of rents after-hours front desk services maid services repair and maintenance services and redecorating services rainbow a lanai is a hawaiian term for a porch or veranda reservations also provided biennial deep cleans of each condominium for these services rainbow reservations charged a commission of percent of the gross rents as part of its front desk service_contract with the homeowners'_association rainbow reservations checked guests in and out of the condominiums issued parking permits answered questions regarding entertainment or other activities in the area and provided additional services as needed during the front desk's normal business hours were between a m and p m although the front desk stayed open longer between july and early october for a sprinkler refit at the resort the front desk staff consisted of two to four persons at any one time rainbow reservations provided its own advertising for all of the units it managed in hawaii including valley isle resort in general the advertisements were directed toward travel agents although some were directed toward the public petitioners did not enter into the typical management_contract with rainbow reservations instead petitioners and rainbow reservations agreed that petitioners would rent the maui condo themselves and perform the majority of services otherwise provided by rainbow reservations petitioners and rainbow reservations entered into an amendment to rental agreement between owner and rainbow reservations inc the addendum agreement which provided effective date owner will be responsible for renting unit directly in the event rainbow reservations wishes to rent unit to one of its clients rainbow reservations will contact owner and clear the time before committing the unit owner will control the master calendar rainbow reservations agrees to coordinate the maid service and maid company will bill the owner directly unless agreed otherwise owner s agrees to notify rainbow reservations of his guest arrivals and pay all costs associated rainbow reservations will continue to provide front desk counter service for all owner's guests which will include greeting of guests key distribution unless agreed to otherwise coordination of maid service and collection of any due rents if notified by owner the owner will continue to contract for necessary maintenance services and the rental manager is hereby authorized to contact the following for emergency maintenance repairs rental manager will contact owner if said repair exceeds dollar_figure owner agrees to perform all advertising of said premises to institute and prosecute actions to evict tenants and recover possession of premises to sue and recover rents and to settle and release such actions in no event shall rainbow reservations be liable to the owner as long as the owner remains the principal rental agent rainbow reservations agrees to collect any rents due owner upon notification by owner before the arrival of guests the owner shall compensate rainbow reservations for all above mentioned services by guaranteeing commission on all daily rents collected by owner it is agreed that all linen charges maid services and check in supplies shall be paid_by the owner owner will be responsible for paying his own transient tax fees to the state of hawaii in the event the owners sic unit is vacant for days or more owner will compensate rainbow reservations for the front desk services under the addendum agreement rainbow reservations collected the rent from petitioners' tenants and placed the funds into a_trust account rainbow reservations then deducted from the rental proceeds its commission and the costs of maid or other services it provided at the end of each month a check representing the net_proceeds from the rental of the maui condo was forwarded to petitioners as part of this process rainbow reservations maintained records of the rental proceeds for petitioners and issued a form_1099 to petitioners at the end of the year although the addendum agreement provided that rainbow reservations would receive a 20-percent commission rainbow reservations actually received a 25-percent commission during as a result of its performing special services for petitioners additionally rainbow reservations was permitted to rent petitioners' maui condo directly during times when the condo was vacant subject_to petitioners' approval for those bookings which only occurred once or twice during rainbow reservations earned a 40-percent commission as part of its front desk services rainbow reservations issued keys and parking permits to petitioners' tenants unless petitioners made other arrangements the front desk was also available for petitioners' tenants to answer questions obtain additional linens or receive complaints the maui condo was rented for weeks during with an average stay for a tenant of days petitioners' base charge for the maui condo was dollar_figure per night with additional fees for rollaway beds the use of entertainment equipment or daily linen or cleaning services which raised the rate to approximately dollar_figure per night in between each booking the maid service cleaned the maui condo in preparation for the next tenant b molokai condo the front desk at the wavecrest resort was operated by one of the local residents at the resort the front desk service included maid service which was provided at the end of each tenant's stay there were no fixed hours at the front desk and often phone calls were forwarded to an answering machine the front desk lacked authority to make repairs or perform any work at the molokai condo except in the case of emergencies if the molokai condo was not rented for extended periods of time petitioners paid a special front desk fee the wavecrest resort did not advertise its rental units petitioners paid a commission of approximately percent of gross_receipts to the front desk at the wavecrest resort in addition to a reserve_account payment for capital improvements of common areas at the resort during petitioners rented out the molokai condo for approximately weeks the average stay was days and the rental rates were the same as that for the maui condo c petitioners' participation in the hawaiian condos to promote the hawaiian condominiums during petitioners placed two advertisements in hawaii magazine one each for the rentals of the maui and molokai condos the advertisements ran for the entire year and the magazine was released bimonthly the advertisements listed petitioners' home telephone number for information on renting the condominiums petitioners also marketed the hawaiian condominiums through several travel agents during the travel agents referred clients to petitioners and in exchange petitioners referred airline bookings and other travel and entertainment arrangements to the travel agents further mr pohoski set up a worldwide web page on the internet which described petitioners and displayed pictures of the hawaiian condominiums additionally as they traveled to different sites as part of their regular employment mr pohoski traveled to military installations and mrs pohoski traveled to hospitals petitioners posted business cards on bulletin boards advertising the availability of their hawaiian condominiums petitioners received an average of two to three telephone calls per day regarding the rental of their hawaiian condominiums for a total of more than calls during petitioners also often received e-mail messages from prospective tenants telephone calls were usually received during the evenings and weekends when petitioners were home but if they were not home messages were left on their home answering machine the telephone callers usually sought a description of the condominiums and their proximity to beaches restaurants stores entertainment and other major resorts most callers requested brochures and maps which petitioners mailed to the prospective tenants approximately to percent of the time mr pohoski replied in writing to the prospective tenants rather than by telephone because it was less expensive to mail information than speak on the telephone mr pohoski customized his letters to the prospective tenants to address their specific interests and concerns petitioners also made telephone calls to the prospective tenants most of which took place during the evenings and weekends and sometimes during the day from work when a reservation with a tenant was made petitioners recorded the booking information name of tenant arrival and departure times and rate on a master calendar they maintained petitioners then contacted the front desk of the resort in which the tenant was booked and informed the front desk of the rental arrangements and the dates petitioners maintained a database on their home computer of each of their tenants for future marketing purposes petitioners also tracked their income on a monthly basis in another database for weeks during petitioners and their children went to hawaii for a working vacation while there mr pohoski completed various maintenance and repair tasks at the hawaiian condominiums at the maui condo where he worked approximately days during their stay mr pohoski stripped the furniture and transported it for reupholstering repaired the lanai furniture cleaned sink traps performed touchup painting repaired and replaced the molding along the walls installed cable wire for a second television ran a telephone line into the bedroom repaired the sliding screen and closet doors purchased new bedspreads and curtains and installed new shower heads towel bars and shelving units in the bathroom at the molokai condo where he worked approximately days during the working vacation mr pohoski repaired the garbage disposal and sink faucet performed touchup painting reglued moldings along the wall repaired the sliding closet door and replaced the shower head in the bathroom the materials and tools used for the maintenance and repair work at the hawaiian condominiums were mostly purchased in hawaii but many were purchased on the u s mainland and shipped to hawaii because of the high cost of such products in hawaii federal_income_tax returns petitioners filed a joint federal_income_tax return reporting an adjusted_gross_income of dollar_figure on separate schedules c profit or loss from business petitioners reported a net_loss of dollar_figure from the operation of the maui condo and a net_loss of dollar_figure from the operation of the molokai condo on both schedules c petitioners indicated that they materially participated in their rental activities notice_of_deficiency in the notice_of_deficiency respondent disallowed petitioners' losses from the operation of their hawaiian condominiums in the parties' stipulation agreement respondent concedes that the expenses_incurred were ordinary and necessary trade_or_business_expenses respondent also conceded at trial that substantiation is not being challenged the passive_activity_loss rules under sec_469 constitute respondent's sole basis for disallowing petitioners' losses from their hawaiian condominiums issue passive_activity_losses opinion pursuant to sec_469 a passive_activity_loss is generally not allowed as a deduction for the year sustained a passive_activity_loss is defined as the excess of the aggregate petitioners filed a third schedule c profit or loss from business reporting a net_loss of dollar_figure from mrs pohoski's home health care nursing business petitioners also filed a schedule e supplemental income and loss showing a net_loss of dollar_figure from the rental of their condominiums in camarillo california losses from all passive activities for the taxable_year over the aggregate income from all passive activities for that year sec_469 passive activities are those which involve the conduct_of_a_trade_or_business and in which the taxpayer does not materially participate sec_469 rental_activity ordinarily is treated as a passive_activity regardless of whether the taxpayer materially participates sec_469 an exception exists for rental_activity in which the average rental does not exceed days sec_1 1t e ii a temporary income_tax regs fed reg date in the instant case the parties agree that the average rental did not exceed days petitioners contend that they materially participated in the rental of both the maui and molokai condominiums thus making sec_469 inapplicable material_participation in an activity is defined as regular continuous and substantial involvement sec_469 the participation of a spouse is taken into account in determining material_participation sec_469 a establishing participation as a preliminary matter respondent asserts that petitioners failed to substantiate the extent of their participation in the rental of their condominiums in the manner contemplated by sec_1_469-5t temporary income_tax regs fed reg date that regulation provides as follows the extent of an individual's participation in an activity may be established by any reasonable means contemporaneous daily time reports logs or similar documents are not required if the extent of such participation may be established by other reasonable means reasonable means for purposes of this paragraph may include but are not limited to the identification of services performed over a period of time and the approximate number of hours spent performing such services during such period based on appointment books calendars or narrative summaries at trial petitioners introduced a narrative summary of their rental activities with respect to their participation in the hawaiian condominiums in the form of a letter dated date to ms ingrid giammichele an internal_revenue_service irs appeals officer in california the narrative summary details the expenses time and effort put forth by petitioners in operating their hawaiian condominiums respondent claims however that the narrative summary is merely a postevent ballpark guesstimate that is insufficient to prove participation see carlstedt v commissioner tcmemo_1997_331 speer v commissioner tcmemo_1996_323 goshorn v commissioner tcmemo_1993_578 although petitioners' narrative summary is a postevent review of their participation with respect to the hawaiian condominiums we may nonetheless find the summary sufficient to establish petitioners' participation where it is supported by credible testimony and other objective evidence see harrison v commissioner tcmemo_1996_509 our acceptance of the narrative summary however does not require us to accept the accuracy of the amount of time petitioners claim they spent participating in the rental of the condominiums id mr pohoski credibly testified that petitioners maintained contemporaneous_records although such records were not introduced at trial these records included a calendar that indicated the name of the tenant the daily rental rate and the arrival and departure times for the tenants at the condominiums as well as a database listing on petitioners' computer all prospective tenants we believe that these records laid the foundation for petitioners to determine the amount of time they spent with respect to many of their rental activities as provided in the narrative summary further other evidence such as the management_contract between petitioners and rainbow reservations and the testimony of marcia alders the sole shareholder and manager of rainbow reservations supports petitioners' claims of their relative level of participation at the maui condo we thus conclude that petitioners have sustained their initial burden of establishing through reasonable means their participation in the rental of the hawaiian condominiums b material_participation safe_harbor petitioners assert that their rental of the hawaiian condominiums satisfies the safe_harbor requirements for material_participation provided in sec_1_469-5t temporary income_tax regs fed reg date that section provides for material_participation if the individual participates in the activity for more than hours during the taxable_year and such individual's participation in the activity for the taxable_year is not less than the participation in the activity of any other individual including individuals who are not owners of interests in the activity for such year id respondent argues that petitioners did not spend at least hours participating in the rental of each of the hawaiian condominiums and other individuals participated more in the activities than did petitioners we are satisfied that petitioners participated in the rental of their hawaiian condominiums on a regular continuous and substantial basis at trial mr pohoski testified that he spent hours participating in the rental of the two hawaiian condominiums during hours at the maui condo and hours at the molokai condo of those total hours mr pohoski testified that hours in their pretrial memorandum petitioners claimed that they satisfied the safe_harbor requirements of sec_1 5t a temporary income_tax regs fed reg date that section allows a finding of material_participation if the taxpayer participates in the activity for more than hours during the taxable_year at trial mr pohoski testified that he and mrs pohoski spent hours working on the maui condominium however in their posttrial brief petitioners did not address this safe_harbor and conceded that they spent only dollar_figure hours working on the maui condominium of repair and maintenance work was completed during petitioners' week working vacation in hawaii at the maui condo and hours of work was completed at the molokai condo further mr pohoski testified that he spent between and minutes talking with each prospective tenant who called between minutes and hour each week talking with travel agents hours creating a web page for the internet to minutes per day checking his e-mail and hours per month posting business cards when he or mrs pohoski traveled to different sites as part of their employment on brief petitioners reduced their total claimed hours of participation in the hawaiian condominiums to and provided a breakdown of these hours as follows activity hours at maui hours at molokai telephone calls from prospective renter sec_41 travel agent contact web page construction e-mail responses to prospective renters posting x cards at bases in public areas repairs and decorating of hawaii condos total total hour sec_39 - - despite our concluding supra that petitioners satisfied their intitial burden_of_proof we find several problems with petitioners' claim of time spent participating in the rental of their hawaiian condominiums cf harrison v commissioner supra first petitioners' claim of hours of work during their hawaiian working vacation is implausible assuming petitioners actually stayed for days their claim would amount to an average of hours of work per day which was apparently performed only by mr pohoski because no testimony presented ever referred to work performed by mrs pohoski while in hawaii yet there was never any discussion of breaks for meals travel or leisure time with the family--all of which certainly occurred second the breakdown of time spent on telephone calls from prospective tenants travel agent contacts and e-mail responses to prospective tenants is suspicious petitioners allocate the total time evenly between the maui and molokai condos yet they clearly had much more success in renting the maui condo than the molokai condo we find it unlikely that an equal amount of time was spent with regard to each condominium and we find that less time was spent with respect to the molokai condo third we find the time spent with respect to checking and responding to e-mail excessive mr pohoski's testimony suggested many more telephone calls than e-mail responses yet much more time was allocated to checking and responding to his e-mail than calling back or writing prospective tenants additionally it is likely that petitioners received e-mail other than that relating to the renting of their hawaiian condominiums and that such time was included in the hours allocated to checking the e-mail finally we are mindful that petitioners were full-time employees each working hours per week and were the sole managers of their camarillo california condominiums using our best judgment we find that petitioners spent between and hours participating in the rental of their maui condo rather than the hours proposed by petitioners we further find that petitioners spent less than hours participating in the rental of their molokai condo rather than the hours proposed by petitioners however there still remains the question of the amount of time spent by others working on the rental of petitioners' condominiums we first consider the maui condo ms alders testified that the front desk spent approximately to minutes checking in a tenant for petitioners' maui condo mr pohoski estimated that the maid service spent an average of to hours cleaning the maui condo after the departure of a tenant ms alders opined that petitioners spent far more time in operating the maui condo than rainbow reservations no testimony was presented with respect to participation by other individuals at the maui condo nor was testimony given with respect to the molokai condo petitioners claim that ms alders' testimony is sufficient to satisfy the requirement that they spent more time operating the maui condo than any other individual indeed we find that petitioners clearly spent more time than rainbow reservations in marketing renting and repairing the maui condo cf chapin v commissioner tcmemo_1996_56 respondent asserts however that petitioners have failed to take into consideration the front desk contract between rainbow reservations and the homeowners'_association of which petitioners were members under that contract rainbow reservations operated the front desk for all condominiums regardless of whether a management_contract was executed as part of that contract rainbow reservations agreed to check in and out all tenants at the valley isle resort issue parking permits and answer questions or assist tenants during the front desk business hours of between a m and p m as a result the front desk was available hours per day days per week to assist the tenants of each condominium if checking in and out each tenant at the front desk took a total of minutes and maid service took an additional hours each time a tenant departed the total time spent by the front desk and cleaning personnel for the weeks petitioners' maui condo was rented would be hours we do not believe that the front desk's other responsibilities including rent collection and disbursements additional linen or maid service or other special services consumed more than another hours or at least not more than petitioners' participation time at the valley isle resort further mr pohoski admitted under cross-examination that the front desk services were necessary in the operation of the maui condo and it would have been very difficult and inconvenient otherwise respondent argues on brief that all of the hours that the front desk was open and available should be counted as time spent by them in connection with the rental_activity the time spent by the front desk operators should not be divided among the units for which they were responsible as support for this argument respondent directs the court to goshorn v commissioner tcmemo_1993_578 and serenbetz v commissioner tcmemo_1996_510 respondent has misinterpreted these cases in goshorn v commissioner supra the taxpayers owned a foot sailboat which they docked at a marina near dallas texas while they were living in connecticut an arrangement was made for the marina to rent out the sailboat for charters during the year the taxpayers claimed to have spent more time than the marina staff in operating and maintaining the boat in rejecting the taxpayer's claim we reasoned that all of the activity that directly related to the actual rental of the boat was performed by the marina and not by petitioner id emphasis added applying this the front desk operated by rainbow reservations was available to assist petitioners' tenants for hours per day days per week for weeks during the number of weeks the maui condo was rented for a total of big_number hours reasoning to the situation herein before us we examine only the actual services performed by rainbow reservations in support of the maui condo and not services that are not directly related to petitioners' rental in this regard it is evident that the time spent checking tenants in and out the maid services the managing of the rent collection and disbursements and the other few miscellaneous tasks performed by rainbow reservations for petitioners did not exceed hours during and certainly did not exceed the time spent by petitioners we do not believe it appropriate to consider as participation for purposes of determining whether petitioners qualify for the safe_harbor under sec_1_469-5t temporary income_tax regs fed reg date the mere availability of the front desk personnel in serenbetz v commissioner supra the taxpayers owned a vermont condominium which was part of a partnership that rented out the condominiums to third parties the day-to-day operation of the partnership was managed by an on-site staff of nine employees who conducted the marketing and renting of the condominiums and maintained the books_and_records the taxpayers attempted to prove that they spent more time than the on-site staff in operating their rental by dividing the total number of staff hours worked by the number of employees and by the number of condominium units in the partnership we rejected the taxpayers' methodology observing the language of sec_1_469-5t temporary income_tax regs contains nothing which suggests that participation should be computed on a per unit basis see goshorn v commissioner tcmemo_1993_578 id we believe that only the actual time spent on a rental is relevant to determining whether a taxpayer materially participates in that rental in the case herein unlike goshorn and serenbetz petitioners have provided ample evidence of both their level of participation and that of rainbow reservations with respect to the maui condo cf scheiner v commissioner tcmemo_1996_554 as stated previously petitioners' efforts far exceeded that of rainbow reservations personnel at the maui condo thus we hold that petitioners materially participated in the rental of their maui condo during consequently petitioners may deduct the losses sustained therefrom we now turn our attention to the molokai condo in which we have already found that petitioners participated less than hours assuming arguendo that petitioners participated for more than hours in the rental of the molokai condo petitioners offered no evidence of the time spent by other individuals in the rental of that condominium see chapin v commissioner supra petitioners assert that the lack of a fixed front desk service at the wavecrest resort prevents a finding that any individual spent more time than they did in operating the molokai condo petitioners however are required to put forth some indication of the actual time spent by the wavecrest resort staff during including the front desk services during the weeks that petitioners rented out the molokai condo maid service and any other services performed by others see goshorn v commissioner supra petitioners did not do so consequently we are unable to conclude that petitioners' participation in the rental of their molokai condo was greater than others see rule a 290_us_111 thus we hold that petitioners did not materially participate in the rental of their molokai condo to summarize the losses sustained by petitioners during in the operation of their maui condo are deductible and the losses sustained in the operation of their molokai condo are passive_activity_losses and thus nondeductible pursuant to sec_469 issue accuracy-related_penalty sec_6662 imposes an accuracy-related_penalty equal to percent of the portion of the underpayment attributable to a substantial_understatement of tax respondent seeks to impose the penalty with respect to mrs pohoski's claimed schedule c expenses for her work as a nurse and for petitioners' claimed passive for the same reasons petitioners' assertion on brief that they may also come within the safe_harbor provided in sec_1_469-5t temporary income_tax regs fed reg date must fail activity losses with respect to the hawaiian condominiums which as a result of our holding above refers only to the molokai condo petitioners did not address this matter on brief but generally suggested at trial that they had substantial_authority for the reporting of their rental activities a substantial_understatement means an understatement which exceeds the greater of percent of the tax required to be shown on the return or dollar_figure sec_6662 the understatement is reduced by that portion of the understatement for which the taxpayer had substantial_authority sec_6662 the substantial_authority standard requires an objective examination of the law and the application of the law to the relevant facts sec_1_6662-4 income_tax regs there is substantial_authority for the tax treatment of an item only if the weight of the authorities supporting the treatment is substantial in relation to the weight of authorities' supporting contrary treatment sec_1_6662-4 income_tax regs among the authorities a taxpayer may rely upon are irs information or press releases and notices announcements and other administrative pronouncements published in the internal_revenue_bulletin by the irs sec_1_6662-4 income_tax regs mr pohoski testified that he relied upon irs publication passive_activity and at-risk_rules assuming arguendo that publication is authority mr pohoski testified that he only relied upon that publication for the requirements relating to record keeping not for determining whether petitioners' activities qualified as material_participation thus petitioners have failed to prove that they had substantial_authority for reporting material_participation in the hawaii condominiums see swicegood v commissioner tcmemo_1989_467 petitioners offered no testimony with respect to mrs pohoski's schedule c expenses relating to her nursing work rule a thus we hold that petitioners are liable for the accuracy- related penalty pursuant to sec_6662 with respect to the molokai condo and mrs pohoski's nursing activities to reflect the foregoing and the concessions of the parties decision will be entered under rule


department of the treasury employer_identification_number contact person - id number contact telephone number uil internal_revenue_service p o box cincinnati oh number release date date date legend b foundation c llc d project e religion f country g university h dollar amount j dollar amount m dollar amount n dollar amount p dollar amount dear you asked for advance approval of your educational grant procedures under internal_revenue_code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax our determination we approved your procedures for awarding educational grants based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding educational grants meet the requirements of code sec_4945 as a result expenditures you make under these procedures will not be taxable description of your request b a foundation and the sole member of c operates an educational grant program called d the purpose of d is to expose participants to leadership and career opportunities nurture those skills and encourage participants to consider a career as a professional in the e community while b will primarily fund d b may request that other donors enter into their original grant agreement with the recipient in providing additional funding you plan on operating in connection with b to become an additional donor party to the grant agreement in doing so you will provide grants to the original recipient and funds would be administered and monitored under the procedures established by b described below you initially plan to invite anywhere from to college students who have demonstrated an affinity towards playing a leadership role in the e community and anticipate will seriously consider a career as a e communal professional to apply for d the first_phase of the program will involve recruitment during summer some distance learning during the fall semester of the first academic year and a scholarship and other funding for participants to spend the spring semester at a university in f currently anticipated to be g in addition to being a matriculated student program participants will participate in a number of additional educational activities which you expect to provide exclusively during the spring semester in f which may include weekly educational seminars which will expose participants to e educational content leadership skills role models and career guidance educational tours single and multiple day tours of f consistent with the educational theme of the program opportunities to intern at educational institutions not-for-profit_organizations or other social service agencies in f planning sessions for the camp and campus projects the duration of the first_phase of your program will last for approximately two years thereafter you will commit to funding new participants and the participant number will be determined after an assessment regarding the success of the program's first year and available_resources it is anticipated that you will recruit a new cohort each year to participate in phase i of the program in connection with the spring semester in f you will award each participant a stipend to fully subsidize the cost of the tuition to attend their university on a financial needs basis you may also make scholarship funding available at the conclusion of phase i you will invite a number of participants who you believe are likely to pursue careers as e communal professionals either as a rabbi educator social worker or not for-profit manager to apply for a fellowship to graduate school you anticipate awarding a certain number of fellowships to deserving applicants to attend graduate school phase ii will last for the duration of the graduate program in which participants are matriculated students you anticipate focusing your recruiting efforts on the senior staff at certain summer camps that have substantial e educational programming and inviting such individuals to identify potential college age staff members who would be appropriate candidates to apply to your program your staff will then send promotional materials and an application to such senior camp staff and once potential applicants are identified you will send such materials directly to such college students program staff will also visit certain summer camps that have substantial e educational programming to recruit potential program participants and will market the program directly to college age staff at such camps letter catalog number 58222y in the event that your selection process does not yield enough candidates to meet the participant numbers you may broaden your process and recruit college students directly from nominations recommendations and referrals from other sources either by seeking individuals who have a track record of service within the e community or by virtue of the fact that such individuals are already scheduled to spend the spring semester abroad at an university in f you will provide such individuals with recruitment materials and an application that needs to be completed individuals will then interview with your staff while the participants are in f for the spring semester they will receive guidance on the development of an educational project that they will be responsible for implementing during the following summer and on their college campus during the following academic year you will underwrite the cost and will provide a mentor providing guidance on the development of this project you will also underwrite a budget expected on average to equal approximately j dollars to support implementation costs such amount will be dependent upon a budget the participant will submit for approval upon successful implementation during the summer you will pay a m dollars honorarium to the participant during the second year participants in good standing would be invited to an in person multi- day educational conference in the united_states you will underwrite all travel lodging and food expenses to enable participants to attend the conference program participants are also expected to implement an educational program on their college campus or in the local community during the second year of your program in connection with such project you will underwrite the cost of and provide a mentor to provide guidance on the development of this project expected on average to equal approximately h dollars to support implementation costs such amount will be dependent upon a budget that the participant would submit for your approval upon successful completion of this project during the second year of the program you will pay a j dollars honorarium to the participant selection for participation in phase i will be based in connection with the following parameters the level of engagement in e life of the applicant the level of the interest in pursuing a career as a e communal professional aptitudes of the applicant in a career as a communal e professional academic achievements strength of the letter of reference for such applicant interview and interpersonal skills as determined by your staff to obtain a fellowship during phase ii of d the participant must demonstrate to your staff superior leadership abilities a passion to serve and work in a professional capacity in a not-for-profit organization that serves the e community and superb academic capabilities demonstrated in their coursework at their f university and at their domestic college fellowship recipients are eligible for up to three years of support or the duration of the academic program if it is longer than three years fellowship recipients must be accepted into a graduate program and remain in good standing at the academic institution where they are studying in order to continue to receive your financial support letter catalog number 58222y phase ii participants will also participate in certain distance learning and may be asked to mentor future phase i participants phase ii participants may also be invited to an educational conference held in the united_states selection for participation in phase ii will be based on the level of promise and aptitudes that the phase i participants have demonstrated towards fulfilling the program objective - pursuing a successful career as a communal professional either as a rabbi cantor educator social worker or administrator for a not-for-profit organization only individuals who were participants in phase i will be considered for phase ii staff will consider the criteria referenced above including the ability and capacity of the participant to plan and implement a quality program of e content in either a camp or campus setting the n dollars tuition subsidy that each participant will receive is intended to match the tuition cost at their university in f for the spring semester additionally on a needs basis participants are eligible to apply for additional scholarship support if they can demonstrate to you that their families would be unable to afford the costs of attending your program in f the amount of such scholarship would directly relate to the anticipated actual costs of attending spring semester and the demonstrated financial needs of the participant additionally while in f during the spring semester you will pay for the costs of the educational programming and touring that is made available exclusively to program participants you will award certain participants with a fellowship up top dollars annually for up to three years to enable fellows to attend graduate school to study to become a rabbi cantor educator social worker or not-for-profit manager such fellowship awards may cover the costs of tuition housing and living_expenses and will be subject_to your discretion you anticipate staffing an advisory committee to inform shape and advise the development and implementation of the program you will identify knowledgeable educators with expertise and experience in the subject matter that will be the focus of your program your committee may also be tapped to identify alternative locations programs from which you will recruit prospective participants committee members may also have input on the recruitment process and selection criteria your selection committee will be comprised of your staff and an outside expert consultant knowledgeable in program implementation engaged by you to support the development and implementation of your program selection committee members will be individuals with knowledge and expertise in operating educational programs for college students and may or may not comprise members of the advisory committee your selection committee will also be responsible for identifying any relationships between potential applicants and disqualified persons ensuring that individuals with any such relationship s are not invited to participate in your program during phase i officers or other c representatives will regularly communicate with participants in the program to receive feedback on how the grant monies are being spent this will include reports on all aspects of the educational programming in the united letter catalog number 58222y states and f as well as the implementation of the two related projects in connection with phase ii of the project your staff will monitor and remain in regular communication with fellowship recipients and will monitor how grant monies are being spent in connection with phase ii of d c in its sole discretion may take any and all such reasonable and appropriate steps including possible legal action to compel compliance of use of funds for their intended purpose including requiring the return of all or any portion of funds remitted and the withholding of funds not previously remitted in connection with d potential participants who are related to whether by blood or through marriage or have any direct or indirect affiliation with d staff or any of your or c's directors officers or employees will be ineligible to participate no director officer_or_employee of you or c or any other person who is involved in the process of selecting applicants will be in a position to derive a private benefit directly or indirectly if certain participants are selected over others you will pre-screen any and all non-u s applicants using the treasury department's specially designated nationals and blocked persons list son the fbi's most wanted terrorists list the state department's terrorist exclusion list the u s bureau of industry and security's denied persons list unverified list and entity list and similar lists maintained by the united nations basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is - a scholarship or fellowship subject_to sec_117 and is to be used for study at an educational_organization described in sec_170 or - a prize or award subject_to the provisions of sec_74 if the recipient of the prize or award is selected from the general_public or - to achieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar skill or talent of the recipient to receive approval of its educational grant procedures sec_53_4945-4 requires that a private_foundation show the grant procedure includes an objective and nondiscriminatory selection process the grant procedure results in the recipients performing the activities the grants were intended to finance letter catalog number 58222y the foundation plans to obtain reports to determine whether the recipients have performed the activities that the grants were intended to finance other conditions that apply to this determination this determination covers only the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don't differ significantly from those described in your original request this determination applies only to you it may not be cited as precedent you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes in your program to the cincinnati office of exempt_organizations at internal_revenue_service exempt_organizations determinations p o box cincinnati oh you cannot make grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and must further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary we've sent a copy of this letter to your representative as indicated in your power_of_attorney please keep a copy of this letter in your records if you have any questions please contact the person listed at the top of this letter enclosures notice redacted letter sincerely director exempt_organizations letter catalog number 58222y