department of the treasury internal_revenue_service te_ge eo examination commerce st - dal dallas tx 501-dollar_figure tax_exempt_and_government_entities_division release number release date date date person to contact identification_number ' contact telephone number in reply refer to te_ge review staff ein last date for filing a petition with the tax_court dear this is a final adverse determination as to your exempt status under sec_501 of the internal_revenue_code our adverse determination was made for the following reasons exemption from income_tax is a matter of legislative grace and taxpayers have the burden of establishing their entitlement to exemptions sec_6033 requires organizations exempt from tax to keep such records and render such statements as are required by such rules and regulations as the secretary may prescribe sec_1_6033-2 h requires organizations exempt from tax to submit such additional information as may be required by the internal_revenue_service for the purpose of inquiring into the organization’s exempt status desp te numerous requests to you to provide information about your activities and intormation that you have properly dissolved you have not provided this information you have not provided the requested information to show that you operate for an exclusive exempt_purpose based upon the above we are revoking your organization's exemption from federal_income_tax under sec_501 of the internal_revenue_code effective january contributions to your organization are no longer deductible under sec_170 of the internal_revenue_code you are required to file federal_income_tax returns on form_1120 these returns should be filed with the appropriate service_center for the year ending december and for all years thereafter processing of income_tax returns and assessment of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination in court you must initiate a suit for declaratory_judgment in the united_states tax_court the united_states claim court or the district_court of the united_states for the district of columbia before the day after the date this determination was mailed to you contact the clerk of the appropriate court for the rules for initiating suits for declaratory_judgment you also have the right to contact the office_of_the_taxpayer_advocate however you should first contact the person whose name and telephone number are shown above since this person can access your tax information and can help you get answers you can call and ask for taxpayer_advocate assistance or you can contact the taxpayer_advocate from the site where the tax_deficiency was determined by calling or writing to internal_revenue_service taxpayer advocates office north robert street st paul mn taxpayer_advocate assistance cannot be used as a substitute for established irs procedures formal appeals processes etc the taxpayer_advocate is not able to reverse legal or technically correct_tax determinations nor extend the time fixed by law that you have to file a petition in the united_states tax_court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling we will notify the appropriate state officials of this action as required by sec_6104 of the internal_revenue_code if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours qa lovel- sunita b lough director eo examinations internal_revenue_service date date org address department of the treasury internal_revenue_service commerce street dallas tx _ taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under sec_501 of the internal_revenue_code code is necessary if you accept our findings take no further action we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision your protest should include a statement of the facts the applicable law and arguments in support of your position an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process you may also request that we refer this matter for technical_advice as explained in publication if we issue a determination_letter to you based on technical_advice no further administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice letter rev catalog number 34809f if we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notify the appropriate state officials of the revocation in accordance with sec_6104 of the code you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation sincerely sunita lough director eo examinations enclosures publication publication report of examination letter rev catalog number 34809f form_886 a name of taxpayer explanation of items department of the treasury - internal_revenue_service schedule no or exhibit year period ended december org 20xx legend org - organization name president issue xx - date state - state president - whether org org qualifies for exemption under sec_501 internal_revenue_code of the facts org org filed for exemption on october approval for exempt status under sec_501 code on december 19xx 19xx the organization received it of the internal revenue 19xx the private_foundation advance_ruling period ended december b c a vi and would continued its tax exempt status under section it was determined the organization was classified under section 19xx on may on july address of the officer listed on the form_1023 requesting information on its activities income and expenditures the internal revenue_agent sent a letter to the last known 20xx on july form of the following 20xx a response was received from president president in the e e e 20xxx 20xx form_990 for 20xx12 ie cancelled checks filing form dated july the state of state intent to dissolve the internal revenue_agent sent a letter to president on august requesting additional information regarding the dissolution of org a one-page word document which stated how the assets were disbursed however there was no substantiation provided letter from recipients etc and in addition a the information provided did not suffice the requirement to disclose how assets were distributed upon dissolution in addition it appears the org filed for dissolution with the state after the initial contact for examination on september stating that information a request was made again for information regarding the dissoluti of the organization a second letter dated september 20xx was sent to president requesting the completion of the schedule a in its entirety on august information provided he reported a breach of confidential information and expressed his concern that the irs was wasting government’s time and money in pursuing the examination of his organization a response was received from president with no additional the internal_revenue_service sent a letter to president as of this date we have not received the requested department of the treasury - internal_revenue_service form 886-a rev page -1- 20xx 20xx form_8 a name of taxpayer explanation of items department of the treasury - internal_revenue_service schedule no or exhibit yeat period ended december org 20xx on october 20xx information being provided regarding the dissolution however there was documents provided which stated the organization does not have to file the form_990 if gross_receipts were normally dollar_figure or less a response was received from president with no additional 20xx on january explaining the requirements for completing the form_990 in its entirety it furthered explained that the organization’s gross_receipts for 20xx were dollar_figure a result the form_990 should have been filed as required the internal revenue_agent sent a letter to president as a second letter dated january organization to submit final verification from the state and any related documents regarding the dissolution of the organization 20xx was sent to president requesting the on february infcrmation 20xx a response was received from president with the following e e a reason was provided for not submitting the form_990 timely according to president there was a letter from the irs stating there were no filing_requirements if gross_receipts were dollar_figure or less requirement an explanation that the organization submitted a form and check to the state of state to dissolve organization however the state of state informed the organization to reactivate the organization and then dissolve it under a different section according to president the organization will need to decide if organization active based on this information it makes sense to keep the 20xx on april requested information regarding the dissolution in addition the organization was requested to submit if the organization was currently active if please subr it documentation regarding the organization’s exempt status the internal revenue_agent made a final attempt to secure so then there has-been no response from the organization law _ irc or for the collection thereof shall keep adequate_records as the and subject_to the tax imposed by sec_511 on its unrelated secretary_of_the_treasury or_his_delegate may from time to time prescribe sec_6001 provides that every person liable for any_tax imposed by the sec_1 6001-l a in conjunction with sec_1_6001-1 provides that every organization exempt from tax under irc section 5019a business income must keep such permanent books or accounts or records including inventories as are sufficient to establish the amount of gross_income deduction credits or other matters required to be shown by such person in any return of such tax records as are required to substantiate the information required by irc section 6c73 treas reg sec_1_6001-1 states that the books_or_records required by this section shall be kept at all times available for inspection by authorized internal revenue officers or employees and shall be retained as long as the such organization shall also keep books and department of the treasury - internal_revenue_service form 886-a crev page -2- form_8 a _ schedule no or exhibit year period ended december explanation of items department of the treasury - internal_revenue_service name of taxpayer org 20xx os contents thereof may be material in the administration of any internal revenue law sec_1_6033-1 provides that every organization which has established its right to exemption from tax whether or not it is required to file an annual return of information shall submit such additional information as may be required by the district_director for the purpose of enabling him to inquire further into its exempt status and to administer the provisions of subchapter_f sec_501 and the following chapter sec_6033 of the code and irc rul 1959_1_cb_627 concerns an exempt_organization that was rev requested to produce a financial statement and statement of its operations for a certain year however its records were so incomplete that the organization was unable to furnish such statements inability to file the required information_return or otherwise comply with the provisions of sec_6033 and the regulations which implement it may result in the termination of the exempt status of an organization previously held exempt on the grounds that the organization has not established that it is observing the conditions required for continuation of exempt status the service held that the failure or in accordance with the above cited provisions of the code and regulations under sec_6001 and sec_6033 organizations recognized as exempt from federal_income_tax must meet certain reporting requirements requirements relate to the filing of and the retention of information and other required federal tax forms records sufficient to determine whether such entity is operated for the purposes for which it was granted tax-exempt status and to determine its liability for any unrelated_business_income_tax these a complete and accurate annual conclusion the organization has not provided the requested information on its activities to show that they are exempt_activities or that the organization has properly dissolved it is the irs’s position that the organization failed to meet the requirements under sec_6001 and sec_6033 to be recognized as exempt from federal_income_tax under sec_501 status is revoked effective january accordingly the organization’s exempt 20xx form_1120 returns should be filed for the tax periods ending on or after december 20xx form 886-a crev department of the treasury - internal_revenue_service page -3-


t c summary opinion united_states tax_court alice schneider petitioner v commissioner of internal revenue respondent docket no 2712-10s filed date alice schneider pro_se carmen n presinal-roberts for respondent jacobs judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case unless otherwise indicated all section references are to the internal_revenue_code in effect for the year at issue and all rule references are to the tax_court rules_of_practice and procedure respondent determined a deficiency of dollar_figure in petitioner’s federal_income_tax for the issue for decision is whether petitioner is entitled to the first-time_homebuyer credit as provided in sec_36 background 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 petitioner resided in new york when the petition was filed petitioner’s mother died testate on date in her will petitioner’s mother bequeathed her property to her seven children including petitioner in equal shares share and share alike thus petitioner inherited a one-seventh share of her mother’s estate sometimes referred to as the estate the estate held an ownership_interest in a cooperative apartment in midtown manhattan the co-op on date petitioner entered into a contract to purchase the co-op from the estate for dollar_figure the contract lists petitioner as the purchaser and the estate as the seller of the co-op 1according to petitioner the attorney who represented both her and the estate advised her that it would be cleaner to purchase the co-op from the estate rather than from her siblings one of petitioner’s sisters in her capacity as the executrix of the estate and under the powers granted to her by the mother’s will signed the contract on behalf of the estate clause of the contract provides that petitioner shall be entitled to a credit at closing of a sum equal to one-seventh of the ‘net’ profit to the estate from the sale after all expenses of the estate in the sale taxes estate legal fees etc closing for the sale of the co-op occurred on date at closing petitioner received a credit of dollar_figure towards the purchase_price representing her one-seventh distributive_share of the estate and issued two checks--a dollar_figure certified check and a dollar_figure personal check both payable to the estate petitioner borrowed dollar_figure to pay the remaining amount owed on the purchase of the co-op on date the estate through the executrix issued checks to petitioner’s six siblings representing their respective distributive shares of the estate petitioner timely filed a federal_income_tax return on which she claimed a first-time_homebuyer credit of dollar_figure form_5405 first-time_homebuyer credit was attached to the return 2the record does not reveal the reason for the difference between the dollar_figure sum of the aforementioned credit and payments dollar_figure dollar_figure dollar_figure dollar_figure and the dollar_figure purchase_price discussion sec_36 provides a refundable tax_credit to the first- time homebuyer of a principal_residence in the united_states the amount of the tax_credit is percent of the purchase_price of the residence with a limitation of dollar_figure sec_36 sec_36 defines a first-time_homebuyer as any individual and if married the individual’s spouse having no present ownership_interest in a principal_residence during the year period ending on the date of the purchase of the principal_residence sec_36 provides that the term principal_residence has the same meaning as that used in sec_121 sec_1_121-1 income_tax regs provides that a residence includes a house or apartment that a taxpayer is entitled to occupy as a tenant-stockholder in a cooperative_housing_corporation respondent does not dispute that petitioner qualifies as a first-time_homebuyer further he does not dispute that the co- op petitioner acquired qualifies as a principal_residence within the purview of sec_36 however respondent asserts and we agree that petitioner’s acquisition of the co-op from her 3although referred to as a credit for the tax_year in question ie the first-time_homebuyer credit is essentially a governmental non-interest-bearing loan inasmuch as the recipient taxpayer must repay the credit over a 15-year period sec_36 mother’s estate does not qualify as a purchase for purposes of sec_36 our reasoning in this regard follows sec_36 defines a purchase for purposes of sec_36 sec_36 first-time_homebuyer credit c definitions --for purposes of this section-- purchase -- a in general --the term purchase means any acquisition but only if-- i the property is not acquired from a person related to the person acquiring such property and ii the basis of the property in the hands of the person acquiring such property is not determined-- i in whole or in part by reference to the adjusted_basis of such property in the hands of the person from whom acquired or ii under sec_1014 relating to property_acquired_from_a_decedent related_persons --a person shall be treated as related to another person if the relationship between such persons would result in the disallowance of losses under sec_267 or sec_707 but in applying sec_267 and c for purposes of this section paragraph of sec_267 shall be treated as providing that the family of an individual shall include only his spouse ancestors and lineal_descendants petitioner’s acquisition of the co-op is not a purchase as defined in sec_36 petitioner acquired the co-op from related_persons in contravention of the mandate of sec_36 in that petitioner purchased the co-op from the executrix of her mother’s estate a related_person petitioner maintains that purchasing the co-op from her mother’s estate is the same thing as purchasing the co-op from her siblings and her siblings are not her lineal_descendants thus she posits her acquisition of each of her siblings’ one-seventh interests in the co-op qualifies for the sec_36 tax_credit although petitioner’s siblings ultimately received the proceeds from the sale of the co-op petitioner’s acquisition of the co-op was cast as a purchase from her mother’s estate and it is a well-accepted tax principle that a taxpayer is bound by the form given to the transaction see 429_us_569 senra v commissioner tcmemo_2009_79 in this regard the supreme court has held that a taxpayer must accept the tax consequences of his or her choice and may not enjoy the benefit of some other route he or she might have chosen to follow but did not sec_267 to which we are directed by sec_36 provides that except in the case of a sale_or_exchange in satisfaction of a pecuniary_bequest an executor of an estate and a beneficiary of such estate are related_persons 417_us_134 to conclude we sustain respondent’s disallowance of the dollar_figure first-time_homebuyer credit as claimed on petitioner’s federal_income_tax return to reflect the foregoing decision will be entered for respondent


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 ita b01 plr-110409-11 date august ty ------- legend taxpayer ------------------------------------------------------------------------------- date date firm --------------------- -------------------------- ---------------------------------------- dear ------------------- this is in response to a letter dated date submitted on behalf of taxpayer requesting an extension of time pursuant to sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to file an original form_3115 application_for change in accounting_method as required by section of revproc_2008_52 2008_2_cb_587 for the taxable_year ending date facts on date taxpayer timely filed a signed duplicate of a form_3115 with the national_office pursuant to section of revproc_2008_52 applying for consent to change its method_of_accounting for self-insured employee medical benefits for the year ending on date taxpayer had employed firm to complete its filing for the year ending on date on date firm timely filed taxpayer’s federal_income_tax return for the taxable_year ending date via electronic_filing the return implemented the change in taxpayer’s method_of_accounting for self-insured employee medical benefits pursuant to section dollar_figure of revproc_2008_52 as reflected on the duplicate form_3115 that was filed with the national_office on date the day after filing firm discovered that plr-110409-11 the signed original form_3115 had not been attached to the electronically filed federal_income_tax return for the tax_year ending date law analysis revproc_2008_52 provides the procedures by which a taxpayer may obtain automatic consent to change certain methods_of_accounting a taxpayer complying with all the provisions of that revenue_procedure obtains the consent of the commissioner to change the taxpayer’s method_of_accounting under sec_446 of the internal_revenue_code and the regulations thereunder section a of revproc_2008_52 provides that a taxpayer changing a method_of_accounting pursuant to that revenue_procedure must complete and file a form_3115 in duplicate the original must be attached to the taxpayer’s timely filed including extensions original federal_income_tax return for the year_of_change and a copy with signature of the form_3115 must be filed with the irs national_office no earlier than the first day of the year_of_change and no later than when the original return is filed with the federal_income_tax return for the year_of_change section b of revproc_2008_52 provides in part that a taxpayer under examination must provide a copy of the form_3115 to the director at the same time it files a copy of the application with the national_office of the internal_revenue_service under sec_301_9100-1 the commissioner has discretion to 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 sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government in this instance taxpayer timely filed the duplicate form_3115 with the national_office taxpayer implemented the new method_of_accounting on its tax_return for the year_of_change however in an oversight the tax professional employed by taxpayer that was charged with completing taxpayer’s application failed to attach the original form_3115 to taxpayer’s return as required by section of revproc_2008_52 plr-110409-11 conclusion based solely on the facts and the representations submitted we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been met accordingly taxpayer is granted calendar days from the date of this letter to file the original form_3115 in accordance with section of revproc_2008_52 except as specifically ruled above no opinion is expressed or implied concerning the federal_income_tax consequences of the facts described above specifically no opinion is expressed or implied concerning the propriety of the method_of_accounting that was actually implemented by taxpayer the calculation of any adjustment required by sec_481 or whether taxpayer was otherwise qualified to file the form_3115 for the change in method_of_accounting under revproc_2008_52 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 request for a ruling it is subject_to verification on examination pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer's authorized representatives sincerely tajuana nelson hyde assistant branch chief branch income_tax accounting cc industry director ------------------------------------------------------------------ ------------------------------------------------------------------------------------------ attachment ------------------------------- ein ---------------- ------------------------------------- ein ---------------- ----------------------------- ein ----------------


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc tege eb qp2-plr-146362-01 date legend taxpayer individual a individual b company esop advisors trustee state x dollar_figurey dollar_figurez dollar_figurez1 dollar_figurez2 dear this responds to your letter requesting a ruling on behalf of the above-named taxpayer regarding their substantial compliance with the requirements of sec_1042 of the internal_revenue_code_of_1986 code and the applicable regulations in connection with the sale of qualified_securities of the company to the employee_stock_ownership_plan esop maintained by the company plr-146362-01 the taxpayer is a_trust in state x established on bank and individual a are co-trustees of the taxpayer the taxpayer files its federal_income_tax return on form_1041 on a calendar_year basis the company is a domestic_corporation that has only ever had one class of common_stock outstanding to the esop and at present on the company adopted an esop intended to be qualified under sec_401 and sec_4975 of the code on the taxpayer sold shares of common_stock of the company to the esop for a purchase_price of dollar_figurex pursuant to a letter of direction from individual a at the time of the esop transaction the company had no stock outstanding that was readily_tradable on an established_securities_market the company maintains an esop which is qualified under sec_401 and meets the requirements of sec_4975 of the code the esop has received a favorable determination_letter from the internal_revenue_service regarding the qualification of the plan as a result of the sale the taxpayer realized a gain at the time of the sale the taxpayer’s holding_period for the stock was more than years the taxpayer had received the stock upon the death of individual b on the taxpayer did not receive the stock in a distribution from a plan described in sec_401 or in a transfer pursuant to an option or other right to acquire stock to which sec_83 sec_422 or sec_423 applied after the sale of the stock by taxpayer the esop owned more than of the outstanding_stock of the company when the taxpayer sold its shares of company stock to the esop it intended to make an election under sec_1042 to defer recognition of the entire gain from the esop transaction pursuant to the taxpayer’s plan to acquire qualified_replacement_property qrp as defined in sec_1042 within the qualified replacement_period the bank used funds the taxpayer received in the esop transaction to purchase from through in a series of transactions on behalf of the taxpayer securities of domestic operating companies with an aggregate purchase_price of dollar_figurez the trustees intended that these securities would constitute qualified_replacement_property qrp the trustees were responsible for the investment of the proceeds of the esop transaction into qrp on the company issued a statement of consent consenting to the application of sec_4978 and sec_4979a the trustees were relying on advisors who had structured the esop transaction to advise them regarding the requirements of sec_1042 advisors had been long- time counsel for individuals a and b the company and the taxpayer however advisors did not inform the trustees of the requirement under sec_1 1t of the temporary income_tax regulations that notarized statements of purchase be executed within days of the purchase of the qrp as a result when the trustees began purchasing qrp for the taxpayer they were not aware of this requirement in in connection with the preparation of the taxpayer’s plr-146362-01 income_tax return and before the trustees purchased the remainder of the qrp the trustees became aware of the notarized statement of purchase requirement on after becoming aware of the requirement to execute notarized statements of purchase for the qrp the bank’s trust officers for the taxpayer executed notarized statements of purchase covering the securities purchased between and a_trust officer also executed on a timely notarized statement of purchase for securities purchased in a series of transactions occurring between with an aggregate purchase_price of dollar_figurez1 on a_trust officer executed a timely notarized statement of purchase for securities purchased in a series of transactions occurring between and with an aggregate purchase_price of dollar_figurez2 the taxpayer represents that the purchases of qrp described above were the only purchases of qrp made by the taxpayer during the qualified replacement_period with respect to the sale of employer_securities to the esop the taxpayer filed for an automatic_extension of time until for filing its income_tax return and received an additional extension to on the taxpayer filed its form_1041 for its taxable_year accompanied by a statement of election as described in q a-3 of sec_1_1042-1t of the temporary income_tax regulations notarized statements of purchase with respect to qrp described above and a verified written_statement of the company consenting to the application of sec_4978 and sec_4979a as required in sec_1042 you have requested a ruling based on the specific facts of this case that the taxpayer is in substantial compliance with the requirements for the election of nonrecognition of gain under sec_1042 of the code and that the election will be treated as having satisfied the requirements of sec_1_1042-1t of the temporary income_tax regulations sec_1042 of the code provides that a taxpayer or executor may elect in certain cases not to recognize long-term_capital_gain on the sale of qualified_securities to an esop as defined in sec_4975 or eligible worker owned cooperative if the taxpayer purchases qualified_replacement_property as defined in sec_1042 within the replacement_period of sec_1042 and the requirements of sec_1042 and sec_1_1042-1t of the temporary income_tax regulations are satisfied a sale of qualified_securities meets the requirements of sec_1042 if the qualified_securities are sold to an esop as defined in sec_4975 or an eligible worker owned cooperative the plan or cooperative owns after application of a immediately after the sale at least percent of - a each class of outstanding_stock of the corporation other than stock described in sec_1504 which issued the securities or b the total value of all outstanding_stock of the corporation other than stock described in sec_1504 the taxpayer files with the secretary a verified written_statement of the employer whose employees are covered by the esop or an authorized officer of the cooperative consenting to the application of sec_4978 and sec_4979a with respect to such employer or cooperative plr-146362-01 and the taxpayer’s holding_period with respect to the qualified_securities is at least years determined as of the time of the sale for taxable years beginning after date sec_1042 provides that the term qualified_securities means employer_securities as defined in sec_409 which are issued by a domestic c_corporation that has no stock outstanding that is readily_tradable on an established_securities_market and were not received by the taxpayer in a distribution from a plan described in sec_401 or in a transfer pursuant to an option or other right to acquire stock to which sec_83 sec_422 or sec_423 applied the taxpayer must purchase qualified_replacement_property within the replacement_period which is defined in sec_1042 as the period which begin sec_3 months before the date on which the sale of qualified_securities occurs and end sec_12 months after the date of such sale sec_1042 defines qualified_replacement_property as any security issued by a domestic operating_corporation which did not for the taxable_year preceding the taxable_year in which such security was purchased have passive_investment_income as defined in sec_1362 in excess of percent of the gross_receipts of such corporation for such preceding_taxable_year and is not the corporation which issued the qualified_securities which such security is replacing or a member of the same controlled_group_of_corporations within the meaning of sec_1563 as such corporation sec_1_1042-1t q a-3 of the temporary income_tax regulations states that the election shall be made in a statement of election attached to the taxpayer’s income_tax return filed on or before the due_date including extensions of time for the taxable_year in which the sale occurs sec_1_1042-1t q a-3 of the temporary income_tax regulations states that the statement of election shall provide that the taxpayer elects to treat the sale of securities as a sale of qualified_securities under sec_1042 and shall contain the following information a description of the qualified_securities sold including the type and number of shares the date of the sale of the qualified_securities the adjusted_basis of the qualified_securities the amount_realized upon the sale of the qualified_securities the identity of the esop or worker-owned cooperative to which the qualified_securities were sold and plr-146362-01 if the sale was part of a single interrelated transaction under a prearranged agreement between taxpayers involving other sales of qualified_securities the names and taxpayer identification numbers of the other taxpayers under the agreement and the number of shares sold by the other taxpayers sec_1_1042-1t q a-3 of the temporary income_tax regulations further provides that if the taxpayer has purchased qualified_replacement_property at the time of the election the taxpayer must attach as part of the statement of election a statement of purchase describing the qualified_replacement_property the date of the purchase and the cost of the property and declaring such property to be qualified_replacement_property with respect to the sale of qualified_securities the statement of purchase must be notarized no later than days after the purchase literal compliance with procedural directions in treasury regulations on making elections is not always required see 67_tc_736 acq in result 1979_1_cb_1 regulatory requirements that relate to the substance or the essence of the statute on the other hand must be complied with strictly with respect to the present ruling_request the taxpayer requested relief before the expiration of the time for filing the return on which the election must be made the taxpayer relied on tax professionals to advise it as to the requirements necessary to complete the sec_1042 election in a timely and correct manner promptly upon discovering that the statements of purchase were not notarized in a timely manner and prior to the expiration of the time to file the taxpayer’s income_tax return the taxpayer completed a notarized statement of purchase for qrp purchased from through notarized statements of purchase were executed within days of purchase for qrp purchased between and and between and therefore based on the specific facts of this case and representations made by the taxpayer we conclude that the taxpayer is in substantial compliance with the requirements for the election of nonrecognition of gain under sec_1042 of the code and that the election will be treated as having satisfied the requirements of sec_1_1042-1t of the temporary income_tax regulations 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 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer’s representative the rulings contained in this letter are based upon information and plr-146362-01 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 enclosures copy of this letter copy for purposes sincerely yours robert d patchell acting chief qualified_plans branch division counsel associate chief_counsel tax exempt and government entities


uili department of the treasury internal_revenue_service washington d c date an employer_identification_number contact person identification_number telephone number tt - al dear sir or madam you requested rulings under sec_501 and of the internal_revenue_code this letter responds to your request facts h h is an organization recognized as exempt from federal_income_tax under sec_501 of the code and is described in sec_509 and sec_170 h has over licensed beds and provides a wide range of patient care services including general surgery orthopedic surgery ophthalmology urology obstetrics maternity care pediatrics outpatient surgery and general medical_care p p is a newly formed non-profit corporation recognized as exempt from federal_income_tax under sec_501 of the code and is described in sec_509 upon completion of the proposed transaction transaction p will oversee and coordinate the activities of its affiliates h c and f which together with p are hereafter referred to as system ony e c c is a newly formed non-profit corporation recognized as exempt from federal_income_tax under sec_501 of the code and is described in sec_509 and sec_170 upon completion of the proposed transaction c will operate an outpatient clinic f f is newly formed non-profit corporation recognized as exempt from federal_income_tax under sec_501 of the code and is described in sec_509 upon completion of the proposed transaction f will engage in fundraising on behalf of the system proposed transactions h's board_of directors determined it could better achieve its charitable purposes by integrating focal physicians into its healthcare activities and mission h negotiated the purchase of the practices of physicians previously employed by a a large multi-specialty physician group operating in h’s service area pursuant to the asset purchase agreement h agreed to purchase from a the assets and operations of three freestanding practice sites the transaction also includes the sole membership interest in w a freestanding ambulatory surgery center is currently anticipated the closing of the asset purchase agreement the closing will occur on or before date it h states the negotiations were conducted at arm’s-length with the assistance of legal counsel from various law firms as well as an independent third-party healthcare consultant h also obtained a discounted cash_flow analysis as well as a fairness opinion to verify the proposed purchase_price was reasonable it is anticipated the purchase_price will be in the range of m upon completion of the proposed transaction the composition of the various system boards will be as follows p’s board h’s board voting directors community including h's chair additional h director and f’s chair physicians including c’s president and c’s chair non-voting director system ceo voting directors community at least physicians including chief of medicai staff system ceo non-voting directors h’s president if different from system ceo auxiliary organization president or designee c’s board f’s board voting directors physicians system ceo non-voting directors clinic president clinic administrator up to voting directors up to community auxiliary organization designees system ceo p’s board_of directors will be charged with overall responsibility for the strategic direction and charitable mission of system the boards of the system entities will be subject_to a substantive conflicts of interest policy p's board will hold certain reserved powers with respect to key organizational and operational matters affecting h c and f specifically p's board_of directors will retain the following authority over h c and f review and approve any amendments or restatements of the incorporation or bylaws of the corporation articles of develop and approve the mission and vision statement of the corporation ratify the election of the board_of directors of the corporation and remove any directors so elected for cause i for any act or omission inconsistent with the purposes mission vision and or written policies of the corporation ratify the election of the officers of the corporation and remove any or all officers so elected develop and approve system wide policies including financial transactions approval guidelines and a conflicts of interest policy review and approve ail accounting and treasury systems and functions relating to the corporation review and approve the annual operating and capital budgets of the corporation review and approve the strategic plan s of the corporation and as part thereof review and evaluate existing and proposed services in order to ensure they meet the needs of the corporation's and the system's service area and are consistent with such strategic plan review and approve any borrowings guarantees or other forms of indebtedness to be incurred by the corporation approve the executive compensation policies plans and arrangements including incentive compensation_for executives employed by the corporation in the case of c p also has the authority to approve c’s annual budget for all professional compensation and to approve all compensation policies and plans including incentive compensation_for physicians employed by c review and approve any unbudgeted capital expenditures of the corporation exceeding dollar_figure individually or in the aggregate in any fiscal_year review and approve the plan of dissolution of the corporation review and approve any sale of assets or operations of the corporation exceeding dollar_figure individually or in the aggregate in any fiscal_year approve the merger or consolidation with the acquisition of or by or the affiliation with any hospital clinic or physician group relating to the corporation in the case of h approve the selection of any new site s as recommended by h’s board after the transaction system will continue h’s historic commitment to ensuring broad community access to health care both h and c will provide charitable medical services in response to the needs of indigent and underserved individuals in the community charity care does not refer to care provided to medicare or medicaid patients nor does it include write-offs nor discounted fee-for-service arrangements negotiated with payors in addition h and c will work together for the benefit of the local community through programs seminars workshops and other types of activities directed at ensuring public awareness of matters related to individual physical psychological and emotional health welfare and safety the system entities will also provide financial and other resources among themselves for the achievement of their overall common goal of best serving the health care needs of the community h c f and p will coordinate the methods locations personnel and resources for the direct provision of patient care for example this may mean the consolidation of particular types of health care activities or support functions in particular entities or physical locations best suited to patient care convenience efficiency and cost minimization the system entities will also engage in certain administrative arrangements with each other for example certain management-level employees of h c and f may become p employees in some cases individual employees may have responsibility for muitiple entities under the direction of p’s board and system management various inter-company arrangements likely will be established such inter-organizational arrangements may include billing and collection services information systems laboratory services certain administrative functions materials management care contracting budgeting and finance compliance and the tease of facilities and or personnel any and all of such arrangements will be structured to achieve cost savings and maximize efficiencies in organizations’ resources and facilities for reimbursement on either a cost_basis or at market levels such arrangements may call community marketing managed planning strategic relations and e- in connection with the formation of system h will provide the initial capital to allow p c and f to become operational aside from initial capital needs it is possible other contributions and or loans will be made between the system entities this is consistent with the expectation that all assets and resources of the system will be applied for system needs irrespective of how such assets are titled or where they are located rulings requested you requested the following rulings h’s purchase from a of the assets and activities to be associated with c’s operations will not adversely impact h’s sec_501 tax exempt status h's participation in the formation of the system will not adversely impact h's sec_501 tax exempt status transactions and arrangements between p not result in unrelated_business_taxable_income under sec_511 of the code to p h c and f and will not otherwise adversely impact p's h’s c’s and f’s tax exempt status c and f will h law sec_501 of the code sec_501 of the code provides an exemption from federal_income_tax for organizations described in sec_501 including organizations that are organized and operated exclusively for charitable educational or scientific purposes sec_1_501_c_3_-1 of the income_tax regulations provides that the term charitable is used in sec_501 of the code in its generally accepted legal sense revrul_69_545 c b charitable purpose within the meaning of sec_501 of the code recognizes that the promotion of health is a revrul_78_41 1978_1_cb_148 concludes a_trust created by an exempt hospital for the sole purpose of accumulating and holding funds to be used to satisfy malpractice claims against the hospital is operated exclusively for charitable purposes and is exempt under sec_501 of the code providing management and consultant’s services to other unrelated exempt_organizations for a fee sufficient to produce a small profit does not further an exclusively exempt_purpose see 70_tc_352 dns an organization providing laundry services on a centralized basis to exempt hospitals does not qualify for exemption under sec_501 see hcsc-laundry v united_states u s revrul_77_72 1977_1_cb_157 provides that indebtedness owed to a labor_union by its wholly owned tax-exempt subsidiary is not acquisition_indebtedness within the meaning of sec_514 of the code since the parent and subsidiary relationship shows the indebtedness to be merely a matter of accounting profit from its dealings with in geisinger health pian v united_states f 3rd 3rd cir geisinger the court recognized that an organization may qualify for exemption based on the integral_part_doctrine which arises from an exception to the feeder_organization rule set forth in sec_1_502-1 of the regulations which states if a subsidiary_organization of a tax-exempt_organization would itself be exempt on the ground its activities are an integral part of the exempt_activities of the parent organization its exemption will not be lost because as a matter of accounting between the two organizations the subsidiary derives a the parent organization the court also noted an entity seeking exemption as an integral part of another cannot primarily be engaged in an activity that would generate more than insubstantial unrelated_business_income if engaged in by the other entity in this regard the court followed the reasoning of sec_1_502-1 which contains an example of a subsidiary_organization that is not exempt from tax because it is operated for the primary purpose of carrying_on_a_trade_or_business which would be an unrelated_trade_or_business that is unrelated to exempt_activities if regularly carried on a subsidiary_organization is operated primarily for the purpose of furnishing electric power to consumers other than its parent organization and the parent's tax-exempt subsidiary organizations it is not exempt because such business would be an unrelated_trade_or_business if regularly carried on by the parent organization similarly if the organization is owned by severai unrelated exempt_organizations and is operated for the purpose of furnishing electric power to each of them it is not exempt since such business would be an unrelated_trade_or_business if regularly carried on by any one of the tax-exempt organizations the parent organization the examples state by if accordingly the court in geisinger determined that application of the integral_part_doctrine requires at a minimum that an organization be in a parent and subsidiary relationship and that it not be carrying on an unrelated_trade_or_business that is unrelated to exempt purposes if regularly carried on by the parent analysis based on all the facts and circumstances we conclude h will not adversely affect its tax exempt status under sec_501 of the code by its involvement in the transaction as it will continue to promote health within the meaning of revrul_69_545 supra the sharing of assets personnel and or resources will not adversely affect the sec_501 status of h f c and p because these activities promote health within the meaning of revrul_69_545 supra oe sec_511 through of the code sec_511 of the code imposes a tax on the unrelated_business_taxable_income of organizations described in sec_50i c sec_512 of the code defines the term unrelated_business_taxable_income as the gross_income derived by any organization from any unrelated_trade_or_business regularly carried on by it less certain allowable deductions computed with the modifications listed in sec_512 sec_512 of the code provides generally that rents_from_real_property and its incidental related personal_property are not unrelated_business_income unless the property is debt- financed under sec_514 of the code debt-financed_property does not include any property substantially related to the exercise or performance by such organization of its charitable functions sec_512 of the code requires that notwithstanding paragraphs or the net_income realized with respect to debt-financed_property must be included in unrelated_business_taxable_income sec_512 of the code exempts from the definition of unrelated_business_taxable_income all gains and losses from the sale exchange or other_disposition of non-inventory items and items not held_for_sale in the ordinary course of business sec_512 of the code limits the exclusion of interest annuities royalties and rents provided by sec_512 and where such amounts are derived from a controlled organization sec_1_512_b_-1 of the regulations provides if an exempt_organization has control of another organization the controlling_organization shall include as an item_of_gross_income in computing its unrelated_business_taxable_income the amount of interest annuities royalties and rents derived from the controlled organization determined in accordance with the formula described in sec_512 of the cade and sec_1_512_b_-1 of the regulations sec_513 of the code defines unrelated_trade_or_business as any trade_or_business the conduct of which is not substantially related aside from the need of the organization for income or funds or the use it makes of the profits derived to the exercise of the organization's exempt purposes or functions sec_513 of the code provides that in the case of a hospital the term unrelated_trade_or_business does not include the furnishing of one or more of the services described in sec_501 to one or more hospitals if such services are furnished solely to such hospitals which have facilities to serve not more than inpatients such services if performed on its own behalf by the recipient hospital would constitute activities in exercising or performing the purpose or function constituting the basis for its exemption and such services are provided at a fee or cost which does not exceed the actual cost of providing such services dod sec_1_513-1 of the regulations provides a trade_or_business is related to exempt purposes in the relevant sense only where the conduct of business activities has a causal relationship to the achievement of exempt purposes and it is substantially related only if the causal relationship is a substantial one the regulation states that for the conduct of trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of those purposes sec_514 of the code provides for the taxation under sec_512 of income from debt- financed property sec_514 of the code however provides that the definition of debt-financed_property does not include any property substantially_all the use of which is substantially related to the exercise or performance by such organization of the charitable purposes constituting the basis for its exemption under sec_501 analysis carried on corporate services with respect to unrelated_trade_or_business sec_513 of the code makes it clear if a hospital provides regularly to another unrelated exempt_organization for a fee then such services are unrelated_trade_or_business unless they fall within the exception for certain hospital services provided by sec_513 however if the participating exempt_organizations are in a parent and subsidiary relationship then corporate services provided between them necessary to their being able to accomplish their exempt purposes are treated or business and the financial arrangements between them are viewed as merely a matter of accounting see sec_1 b of the regulations therefore transactions and arrangements between p h c and f will not result in unrelated_business_taxable_income within the meaning of sections of the code unrelated trade other than an as conclusion h's purchase from a of the assets and activities to be associated with c's operations will not adversely impact h's sec_501 tax exempt status h's participation in the formation of the system will not adversely impact h’s sec_501 tax exempt status transactions and arrangements between p not result in unrelated_business_taxable_income under sec_511 of the code to p h c and f and will not otherwise adversely impact p’s h’s c’s and f’s tax exempt status c and f will h these rulings are based on the understanding there will be no material changes in the facts upon which they are based gol these rulings are directed only to the organization that requested them sec_61 k of the code provides they may not be used or cited by others as precedent please keep a copy of this ruling letter in your permanent records a copy of this letter will be furnished to your exempt_organizations area manager if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely signed marvin friedlander marvin friedlander manager exempt_organizations technical group gol


t c summary opinion united_states tax_court victor and lorain cisneros petitioners v commissioner of internal revenue respondent docket no 2128-01s filed date lorain cisneros pro_se douglas s polsky for respondent couvillion special_trial_judge this case was heard pursuant to sec_7463 of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the years at issue all rule references are to the tax_court rules_of_practice and procedure respondent determined deficiencies of dollar_figure and dollar_figure in petitioners' federal income taxes respectively for and and corresponding penalties under sec_6662 in the amounts of dollar_figure and dollar_figure some of the facts were stipulated and those facts with the annexed exhibits are so found and are incorporated herein by reference at the time the petition was filed petitioners' legal residence was albuquergue new mexico for each of the years in guestion petitioners claimed itemized_deductions on a schedule a itemized_deductions of their federal_income_tax return for petitioners claimed itemized_deductions totaling dollar_figure of which dollar_figure was disallowed by respondent for petitioners deducted dollar_figure of which dollar_figure was disallowed by respondent petitioners nevertheless were allowed itemized_deductions for both years since the total of their other claimed and allowed deductions exceeded the standard_deduction under sec_63 for the years at issue the disallowed deductions consisted of charitable_contributions job expenses and other miscellaneous deductions during mrs cisneros won dollar_figure from a lottery that income was not included as income on petitioners' federal_income_tax return respondent determined that the dollar_figure constituted gross_income the issues for decision are whether petitioners are entitled to a deduction for gambling_losses in an amount equal to gambling winnings of dollar_figure whether petitioners are entitled to the disallowed itemized_deductions and whether petitioners are liable for the penalties under sec_6662 in addition the court considers the applicability of sec_6673 to the facts of this case petitioners were both employed during the years in question mr cisneros was a manufacturing technician and mrs cisneros was a transaction specialist for the intel corp they reported combined wages of dollar_figure and dollar_figure respectively for and the record is unclear as to how petitioners prepared and filed their federal_income_tax returns for the years prior to the years at issue for the years in question however petitioners' returns were prepared by robin beltran upon a recommendation of one of mrs cisneros' coworkers at intel corp ’ for the initial year petitioners presented to mr beltran the same type documentation petitioners maintained for earlier years however mr beltran convinced petitioners that such documentation was not necessary and the amounts claimed on the the court notes that this case is one of numerous cases heard by the court involving tax returns prepared by mr beltran which essentially involve the same deductions at issue here returns as mrs cisneros testified represented amounts that mr beltran came up with on his own the disallowed deductions consisted of the following amounts claimed on petitioners' returns charitable_contributions s big_number s big_number unreimbursed employee_expenses and tax preparation fees before the sec_67 limitation big_number big_number mrs cisneros acknowledged at trial that their actual charitable_contributions were considerably less than the amounts claimed on their returns mrs cisneros estimated that petitioners actually contributed to charity during approximately dollar_figure but she made no estimate for petitioners submitted canceled checks at trial for contributions totaling dollar_figure for and dollar_figure for the unreimbursed employee_expenses shown above allegedly represented expenses_incurred by mr cisneros for out-of-town travel in connection with his employment no log or other books_and_records were offered at trial to substantiate the amounts claimed with respect to the first issue mrs cisneros acknowledged having won dollar_figure from a lottery during that amount was not included as income on petitioners' return mrs cisneros contended that this income was offset by thousands of dollars in gambling_losses sustained that year she admitted to other winnings however none of those winnings were included on the tax returns moreover no books_and_records were maintained to reflect the total_amounts spent on gambling and all the winnings or income as well as losses therefrom the law is clear that income from gambling is includable in gross_income sec_61 sec_165 provides that losses from wagering transactions shall be allowed only to the extent of the gains from such transactions sec_1_165-10 income_tax regs this court in rodriguez v commissioner tcmemo_2001_ stated in order to establish entitlement to a deduction for wagering losses in this court the taxpayer must prove that he sustained such losses during the taxable_year see 429_f2d_182 6th cir affg tcmemo_1969_26 322_f2d_78 5th cir affg tcmemo_1962_19 he must also prove that the amount of such wagering losses claimed as a deduction does not exceed the amount of the taxpayer's gains from wagering transactions see sec_165 implicitly this requires the taxpayer to prove both the amount of his losses and the amount of his winnings see 68_tc_867 donovan v commissioner tcmemo_1965_247 affd per curiam 359_f2d_64 lst cir otherwise there can be no way of knowing whether the sum of the losses claimed on the return is greater or less than the taxpayer's winnings petitioners maintained no books_and_records to reflect their winnings and losses from wagering and gambling activities the only evidence presented at trial was a bank statement for month of a checking account in the name of mrs cisneros showing various deposits and withdrawals with the withdrawals purportedly reflecting the losses sustained the court rejects such evidence petitioners have not established any losses to offset the dollar_figure winnings respondent is sustained on this issue with respect to the second issue regarding the disallowed itemized_deductions as noted above respondent disallowed all the charitable_contributions claimed by petitioners for and petitioners presented canceled checks at trial reflecting charitable_contributions totaling dollar_figure for and dollar_figure for on this record the court is satisfied that petitioners are entitled to charitable_contribution deductions of dollar_figure for each year at issue in accordance with this court's discretionary authority under 39_f2d_540 2d cir as to the employee business_expenses that were disallowed the record shows that the amounts claimed on the returns were arbitrarily determined by mr beltran and those amounts cannot be recognized under sec_274 and the regulations thereunder such expenses are subject_to strict substantiation rules that require adequate_records through either an account book diary statement of expense or similar record as well as documentary_evidence to establish each element of an expenditure sec_1_274-5t temporary income_tax regs fed reg date no records were presented at trial to substantiate these expenses consequently respondent is sustained on the disallowance of the employee business_expenses all other expenses petitioners incurred that would be deductible as itemized_deductions such as for example tax preparation fees while allowable would not exceed percent of petitioners' adjusted_gross_income under sec_67 thus none of the itemized_deductions on schedule a itemized_deductions of petitioners' returns for job expenses and most other miscellaneous deductions are deductible respondent therefore is sustained on this issue with respect to the third issue petitioners contend they should be absolved of liability for the sec_6662 penalties because they relied on the representations of their return preparer petitioners knew that the amounts claimed on their tax returns were false the court specifically questioned mrs cisneros why she and her husband would allow tax returns prepared for them that were incorrect she testified the witness well mr beltran wass very convincing he made us feel comfortable with what he told us if we gave him a reason why we thought maybe this was too high or where he came up with it he just reassured us that everything was fine he told us that everybody should be getting money back from the irs if you didn't whoever would prepare them didn't prepare them right your returns he convinced us that everything was fine he told us that there were limits that you could go up to not to get in trouble with not to do anything wrong with he made sure that we were okay that we asked him you know how is this going to come out later on are we going to get in trouble what's going to happen this is you know we weren't sure either we didn't understand it we were confused too and he made sure that everything was right he made sure of it sec_6662 provides for an accuracy-related_penalty egual to percent of any portion of an underpayment_of_tax required to be shown on the return that is attributable to the taxpayer's negligence or disregard of rules or regulations sec_6662 and b negligence consists of any failure to make a reasonable attempt to comply with the provisions of the internal_revenue_code and disregard consists of any careless reckless or intentional disregard sec_6662 the courts have refined the code definition of negligence as a lack of due care or failure to do what a reasonable and prudent person would do under similar circumstances 925_f2d_348 9th cir affg 92_tc_1 sec_1_6662-3 income_tax regs provides that negligence is strongly indicated where a taxpayer fails to make a reasonable attempt to ascertain the correctness of a deduction on a return which would seem to a reasonable and prudent person to be 'too good to be true’ under the circumstances an exception applies when the taxpayer demonstrates there was reasonable_cause for the underpayment and the taxpayer acted in good_faith with respect to the underpayment sec_6664 whether the taxpayer acted with reasonable_cause and in good_faith is determined by the relevant facts and circumstances the most important factor is the extent of the taxpayer's effort to assess the proper tax_liability stubblefield v commissioner tcmemo_1996_537 sec_1 b income_tax regs under sec_1_6664-4 income_tax regs circumstances that may indicate reasonable_cause and good_faith include an honest misunderstanding of fact or law that is reasonable in light of all of the facts and circumstances including the experience knowledge and education of the taxpayer moreover a taxpayer is generally charged with knowledge of the law 99_tc_202 although a taxpayer is not subject_to the addition_to_tax for negligence where the taxpayer makes honest mistakes in complex matters the taxpayer must take reasonable steps to determine the law and to comply with it id under certain circumstances a taxpayer may avoid the accuracy-related_penalty for negligence where the taxpayer reasonably relied on the advice of a competent professional sec_1_6664-4 income_tax regs see sec_6664 89_tc_849 affd 904_f2d_1011 5th cir affd 501_us_868 however reliance on a professional adviser standing alone is not an absolute defense to negligence it is only one factor to be considered in order for reliance on a professional adviser to relieve a taxpayer from the negligence_penalty the taxpayer must establish that the professional adviser on whom he or she relied had the expertise and knowledge of the relevant facts to provide informed advice on the subject matter freytag v commissioner supra pincite petitioners made no effort to ascertain the professional background and qualifications of their return preparer they knew that the items at issue were false and expressed their reservations to mr beltran the answers he gave them should have raised other questions petitioners clearly did not make a reasonable effort to determine whether the representations of mr beltran were correct they did not consult other tax professionals to verify the accuracy of the returns prepared by mr beltran or the representations he made to them regarding their deductions the court is satisfied from the record that mr beltran knew or had reason to know all the relevant facts upon which had he been a qualified professional he could have accurately advised petitioners on the amount of their allowable deductions mr beltran disregarded the documentary_evidence petitioners presented to him and instead listed unrealistic amounts as deductions on the returns the court is further satisfied that petitioners knew they were required under the law to substantiate deductions claimed on their returns the reservations they expressed to mr beltran and the answers he gave them should have prompted them to look beyond and ascertain the accuracy of his representations petitioners therefore made no effort to assess their tax_liability correctly on this record the court sustains respondent on the sec_6662 a accuracy-related_penalties for the years in question sec_6673 authorizes the court to require a taxpayer to pay to the united_states a penalty not exceeding dollar_figure when in the court's judgment proceedings have been instituted or maintained by the taxpayer primarily for delay or where the taxpayer's position in the proceeding is frivolous or groundless the court considers petitioners' claim that they should not be liable for the deficiencies and penalties to be frivolous and groundless petitioners knew or should have known that a substantial portion of the itemized_deductions at issue was false and could not be sustained petitioners knew that they could deduct only amounts that they had actually paid they made no attempt to determine the qualifications of their return preparer and moreover did not seek other professional advice to satisfy the concerns they had over the returns prepared by mr beltran petitioners cited no legal authority to the court that under similar facts would exonerate them from the penalties under sec_6662 the function of this court is to provide a forum to decide issues relating to liability for federal taxes any reasonable and prudent person under the facts presented to the court should have known that petitioners' claimed deductions could not have been sustained and petitioners knew that this court does not and should not countenance the use of this court as a vehicle for disgruntled litigants to proclaim the wrongdoing of another his return preparer as a basis for relief from penalties that were determined by respondent on facts that clearly are not sustainable golub v commissioner tcmemo_1999_288 petitioners therefore have interfered with the court's function to the detriment of other parties having cases with legitimate issues for the court to consider petitioners have caused needless expense and wasted resources not only for the court but for its personnel respondent and respondent's counsel under these circumstances the penalty under sec_6673 is warranted and petitioners will be ordered to pay a penalty of dollar_figure to the united_states under sec_6673 reviewed and adopted as the report of the small_tax_case division decision will be entered under rule


internal_revenue_service number release date index numbers ----------------------------- ---------------------------- ----------------------------- ------------------------------------------------ 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-112073-11 date june x ----------------------------------------------------------------------------------------------------- ----------------------- legend state ---------------- date --------------------- dear --------------- this letter responds to your letter dated date and subsequent correspondence submitted on behalf of x 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 treated as an association_taxable_as_a_corporation for federal tax purposes under sec_301_7701-3 facts x was formed on date as a state limited_liability_company it was intended that x elect to be treated as an association_taxable_as_a_corporation for federal tax purposes effective date however x inadvertently failed to timely file a form_8832 entity classification election law 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 plr-112073-11 elect its classification for federal tax purposes as provided in 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 sec_301_7701-3 provides that except as provided in sec_301_7701-3 unless the entity elects otherwise a domestic eligible_entity is i a partnership if it has two or more members or ii disregarded as an entity separate from its owner if it has a single owner sec_301_7701-3 provides in part that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 an election will not be accepted unless all of the information required by the form and instructions including the taxpayer identifying number of the entity is provided on 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 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed if an election specifies an effective date more than days prior to the date on which the election is filed it will be effective days prior to the date it was filed 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 internal_revenue_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 automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion plr-112073-11 based solely on the facts submitted and representations made we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 accordingly x is granted an extension of time of days from the date of this letter to elect to be treated as an association_taxable_as_a_corporation for federal tax purposes effective date the election should be made by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the election 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 of the code provides that it may not be used or cited as precedent 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 office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


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 ita b01 plr-128597-17 date date ------------------------------------------- ----------------------------------------- --------- taxpayer a b c d e f g h j k l m n date date date date ----------------------------------- ---------------------------------------- ------------ --------- ---------------------------------------------------- ------------------------------------------------- ------------- -------------------------------------------------------- -------------- --------------------------------------------------------- ------------------- ---------------- ---------------------------------------------- ---------------------------- ---------------------------- --------------------------- --------------- ----------------------------- dear ---------------- plr-128597-17 this letter responds to your letter dated date requesting an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to make the safe_harbor election for success-based fees set forth in sec_4 of revproc_2011_29 2011_18_irb_746 sec_4 requires a taxpayer on its original federal_income_tax return for the year of the election to allocate percent of its success-based fees to activities that do not facilitate the transaction at issue and percent to activities that do facilitate the transaction and attach a statement setting forth among other items that the taxpayer is making the election facts taxpayer is a corporation and a member_of_an_affiliated_group that files a consolidated federal_income_tax return taxpayer files its federal_income_tax return on a calendar_year basis and uses an accrual_method as its overall_method_of_accounting taxpayer is wholly owned by a formed under the laws of b and c a is owned by d also formed under the laws of b and c d is owned by e the taxpayer’s parent formed under the laws of f g was formed under the laws of h and was wholly owned by j on date pursuant to a plan of merger e arranged for taxpayer to acquire percent of the stock of g the transaction in the course of investigating and pursuing the transaction taxpayer incurred certain transaction costs some of these costs included taxpayer obtaining the services of k a financial advisor for a cost of l the payment of which was contingent upon the successful closing of the transaction taxpayer paid l to k upon that closing taxpayer hired m to prepare taxpayer’s federal_income_tax return for the period ended date and to advise the taxpayer as to all elections with respect to that return taxpayer was unaware of the success-based_fee therefore the information it provided to prepare its return made no mention of it moreover m did not inquire specifically of the taxpayer whether it had incurred any success based fees as a result the taxpayer timely filed its original federal_income_tax return for its taxable_year ending date without reflecting the split of the success-based fees on the return and without attaching the required statement to that return on date taxpayer engaged n to prepare taxpayer’s federal_income_tax return for the period ended date shortly after that taxpayer was advised that it had incurred a success-based_fee in its taxable_year ending on date n advised taxpayer that the success-based_fee qualified under revproc_2011_29 and advised the taxpayer to file this request for a private_letter_ruling granting an extension of time under sec_301_9100-1 and -3 to make the election plr-128597-17 law sec_263 of the internal_revenue_code and sec_1_263_a_-2 of the income_tax regulations provide that no deduction shall be allowed for any amount_paid out for property having a useful_life substantially beyond the taxable_year in the case of an acquisition or reorganization of a business_entity costs that are incurred in the process of acquisition and that produce significant long-term benefits must be capitalized 503_us_79 112_sct_1039 117_led_226 397_us_572 90_sct_1302 25_led_577 under sec_1_263_a_-5 a taxpayer must capitalize an amount_paid to facilitate the business acquisition or reorganization transactions described in sec_1_263_a_-5 in general an amount is paid to facilitate a transaction described in sec_1_263_a_-5 if the amount is paid in the process of investigating or otherwise pursuing the transaction whether an amount is paid in the process of investigating or otherwise pursuing the transaction is determined based on all of the facts and circumstances see sec_1_263_a_-5 sec_1_263_a_-5 provides that an amount_paid that is contingent on the successful closing of a transaction described in sec_1 a - a ie a success-based_fee is presumed to facilitate the transaction a taxpayer may rebut this presumption by maintaining sufficient documentation to establish that a portion of the fee is allocable to activities that do not facilitate the transaction section dollar_figure of revproc_2011_29 provides a safe_harbor election for taxpayers that pay or incur success-based fees for services performed in the process of investigating or otherwise pursuing a covered transaction described in sec_1_263_a_-5 in lieu of maintaining the documentation required by sec_1_263_a_-5 a taxpayer may elect to allocate a success-based_fee between activities that facilitate the transaction and activities that do not facilitate the transaction by treating percent of the amount of the success-based_fee as an amount that does not facilitate the transaction and by capitalizing the remaining percent as an amount that does facilitate the transaction in addition the taxpayer must attach a statement to its original federal_income_tax return for the taxable_year the success-based_fee is paid_or_incurred stating that the taxpayer is electing the safe_harbor identifying the transaction and stating the success-based_fee amounts that are deducted and capitalized sec_301_9100-1 of the procedural regulations provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make certain regulatory elections sec_301 b defines a regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin plr-128597-17 sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer i ii iii iv v requests relief before the failure to make the regulatory election is discovered by the service failed to make the election because of intervening events beyond the taxpayer’s control failed to make the election because after exercising reasonable diligence taking into account the taxpayer’s experience and the complexity of the return at issue the taxpayer was unaware of the necessity for the election reasonably relied on the written advice of the service or reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election sec_301_9100-3 provides that a taxpayer will not be deemed to have acted reasonably and in good_faith if the taxpayer i ii iii seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested was informed in all material respects of the required election and related tax consequences but chose not to file the election or uses hindsight in requesting relief sec_301_9100-3 provides that an extension of time to make a regulatory election will be granted only when the interests of the government are not prejudiced by the granting of relief the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money sec_301_9100-3 plr-128597-17 the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations under sec_6501 before the taxpayer’s receipt of a ruling granting relief under this section sec_301_9100-3 sec_301_9100-3 provides special rules for accounting_method regulatory elections the interests of the government are deemed to be prejudiced except in unusual and compelling circumstances if the accounting_method regulatory election for which relief is requested i ii iii iv is subject_to the procedure set forth in sec_1_446-1 of this chapter requiring advance written consent of the commissioner requires an adjustment under sec_481 or would require an adjustment under sec_481 if the taxpayer changed to the method_of_accounting for which relief is requested in a taxable_year subsequent to the taxable_year in which the election should have been made would permit a change from an impermissible method_of_accounting that is an issue under consideration by examination an appeals_office or a federal court and the change would provide a more favorable method or more favorable terms and conditions than if the change were made as part of an examination or provides a more favorable method_of_accounting or more favorable terms and conditions if the election is made by a certain date or taxable_year analysis the taxpayer’s election is a regulatory election as defined in sec_301_9100-1 because the due_date of the election is prescribed in the income_tax regulations under sec_1_263_a_-5 the commissioner has the authority under sec_301_9100-1 and sec_301_9100-3 to grant an extension of time to file a late regulatory election the information provided and representations made by the taxpayer establish that the taxpayer acted reasonably and in good_faith the taxpayer reasonably relied on m a qualified_tax professional to prepare its federal_income_tax return for the period ended date the taxpayer is not seeking to alter a return position for which an accuracy related penalty has been or could be imposed under sec_6662 at the time relief is requested the taxpayer did not affirmatively choose not to make the election after having been informed in all material respects of the required election and related tax consequences rather the taxpayer relied on m to advise it as to any relevant elections which m failed to do with respect to this election the taxpayer is not using hindsight in requesting relief plr-128597-17 further based on the information provided and representations made by the taxpayer granting an extension will not prejudice the interests of the government the taxpayer will not have a lower tax_liability in the aggregate for all taxable years to which the election applies at this time than the taxpayer would have had if the election had been timely made in addition the taxable_year in which the regulatory election should have been made and any taxable years that would have been affected by the election had it been timely made will not be closed by the period of limitations on assessment under sec_6501 before the taxpayer’s receipt of the ruling granting an extension of time to make a late election conclusion based solely on the information provided and representations made we conclude that taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government accordingly the requirements of sec_301_9100-1 and sec_301_9100-3 have been met taxpayer is granted an extension of days from the date of this ruling to file an amended_return for its --------taxable year reflecting percent of the amount of the success-based_fee as an amount that does not facilitate the transaction and capitalizing the remaining percent of the success-based_fee as an amount that does facilitate the transaction the taxpayer must also attach the mandatory statement as required by section dollar_figure of revproc_2011_29 the mandatory statement must state that taxpayer is electing the safe_harbor for success-based fees identify the transaction and state the success-based_fee amounts that are deducted and capitalized the ruling contained in this letter is based upon information and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as 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 including whether taxpayer properly included the correct costs as success- based fees subject_to the retroactive election or whether taxpayer’s transactions were within the scope of revproc_2011_29 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 a copy of this ruling should be attached to taxpayer’s federal tax returns for the tax years affected alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling plr-128597-17 in accordance with the provisions of the power_of_attorney currently on file with this office a copy of this letter_ruling is being sent to your two authorized representatives sincerely s ronald j goldstein ronald j goldstein assistant to the branch chief branch office of associate chief_counsel income_tax accounting