release number reteess date uil gede internal_revenue_service national_office technical_advice_memorandum date internal_revenue_service attn eo mandatory review mc dal commerce street dallas tx taxpayer's name taxpayer's address taxpayer's identification_number years involved conference held - r g m i m a f o o a t r t w e i o o n o s q s j s_r r e e o n i o l o o l e e e o o o a w f - i o o i e l o n - i y e e t e d i o i f f s i r d i o l ' m i issues whether foundation’s tax-exempt status under sec_501 of the internal_revenue_code code should be revoked whether foundation is entitled to relief pursuant to sec_7805 of the code facts in state1 foundation applied to the internal _ foundation was incorporated on date revenue service irs for exemption from federal_income_tax under sec_501 of the code and was granted tax-exempt status in a letter dated date a examination was conducted for foundation’s year form_990-pf and the irs determined that foundation continued to qualify for exemption in a no_change_letter dated date foundation’s year form_990-pf was examined after which the examining agent concluded that foundation's tax-exempt status should be revoked thereafter the area manager requested a technical_advice_memorandum field according to foundation's certificate of incorporation foundation was established to promote and improve the health safety recreation and well-being of the residents of b by building and maintaining a public recreational path on b to enhance and foster a sense of community by increasing access to and improving the awareness of portions of b that are undeveloped and inaccessible by automobile travel and to improve and conserve the b environment by encouraging hiking and bicycling as an alternative means of transportation in its form_1023 foundation stated that its funding sources were voluntary contributions and investment_income foundation cited several safety-related reasons for constructing the path foundation noted that b has only one principal road that is the exclusive road to many parts of b and that the road is used by automobiles pedestrians joggers and bicyclists foundation explained that the narrowness of the road and lack of an adequate shoulder made it dangerous for pedestrians joggers and bicyclists to use the road next to automobiles particularly when the automobiles exceed the speed limit foundation noted that according to safety experts widening the road was not feasible because it would likely increase speeding by motorists thus making the road more dangerous foundation also cited as contributing safety concerns the limited line of sight of motorists on the road due to the road’s numerous curves and the bushes and trees that line the road foundation also stated that construction of the path would enhance and foster a sense of community by increasing access to and improving awareness of portions of b that were undeveloped and otherwise inaccessible by automobile travel foundation noted that the path would help improve and conserve the environment of b by encouraging hiking and bicycling as alternative means of transportation which would in turn reduce traffic on the road foundation’s form_1023 originally stated that foundation would admit residents of b and their guests to the path after further development however foundation stated that all residents of c including residents of b would have access to the path foundation also stated that users would be asked to pay a nominal fee to access the path during the year examination foundation stated that the path would be open to all residents and guests of residents of c including those of b rather than limiting access only to residents of b as first stated on foundation’s form_1023 b is an island in state1 and is a part of the municipality of c c comprises part of the island of d as well as b and several other nearby islands c as a whole has a population of more than h in addition to safety considerations foundation has cited infrastructure limitations that affect the capacity of b to accommodate visitors as a reason for restricting access to the path to residents of c and b and their guests foundation notes that there are approximately homes on b many of which are rented for periods of one week to one month otherwise b has very few other public accommodations b has one restaurant one deli and one grocery store toilet facilities are very limited as the public facilities in public buildings are open only certain hours of the day and there are no public toilets on large portions of b b has no sidewalks in many parts and all pedestrian and bicycle traffic must therefore share the public road for more than a mile from the most populous section of b to the private section relevant to both infrastructure and public safety considerations is the fact b has only two policemen b is made up of a public and a private portion the public portion comprises approximately a of the land of b the year-round population of b is approximately b but the summer population increases approximately ten-fold to about because many of the homes are rented or shared by extended families the total number of visitors to the island is likely much larger the majority of the summer population resides in the private portion of b though approximately p of the o homes are located in the private portion of b the majority of the year-round population resides in the public portion of b the public portion has a public school post office museum and church the private portion is mostly owned and maintained by e a private corporation e owns the roads and some vacant lots a golf course and yacht club e maintains the roads and rents the land to the golf course and yacht club of foundation’s r directors s ie fewer than percent are also directors of e e and foundation do not share expenses with regard to the path foundation alone is responsible for the expenses associated with constructing maintaining operating and insuring the path the path begins by the road at the point where the public section of b meets the private section of b the path heads east crossing the road at various points and ends at the golf course where it meets less-heavily used local roads that extend beyond the golf course potential users of the path are required to stop at a guard house to verify that they are residents of c or b or guests thereof prior to using the path foundation stated that it does not charge a fee for use of the path contrary to foundation’s earlier intention to charge a nominal fee for use of the path their bicycles to indicate that they are residents of c or b bicyclists are issued stickers for the path meets nature trails that run through woods around streams and lakes and onto beaches thus the path allows users from c and b to access areas of b including beaches and nature trails to which no safe access or no access at all was previously available by residents of that part of c which is located on dis provided by a ferry a access to b ferry can be taken from d to f in state2 a second ferry can then be taken from f to b the ferries brought q passengers to b during year because traveling from d to f requires only one ferry access by ferry to b and to the path is more convenient for residents of f than for residents of c on d residents of state2 and thus residents of f are not allowed to use the path for the various reasons cited by foundation because of these safety considerations and infrastructure limitations foundation says that it can not open the path to everyone and foundation has therefore limited use of the path to residents of c and their guests including residents of b is also possible via small aircraft or alternative access to b by residents of c on d various types of boats there are approximately d water taxi services that serve b approximately e of which are available for trips between d and b the trip between d and b is approximately f miles such a trip takes approximately the same amount of time as does a ferry trip from f to b which is about g miles government officials from cc regularly make the trip from d to b and many use the water taxi services the trip from d to b can also be made in an outboard motorboat weather permitting residents of b benefit from the path through increased safety on the road and through it is in dispute as to whether property values of parcels recreational use of the path abutting the path will be enhanced foundation notes however that foundation met significant opposition regarding the path from owners of properties adjacent to the path who thought the values of their properties would be negatively affected foundation counted the traffic on the path at the gate house near the beginning of the path from date through date only traffic headed toward the golf course from the public section through the private section was counted traffic originating and ending within the private section was not counted during this period of time a total of j path users were counted including k bicyclists and m walkers and joggers stickers were issued for n different bicycles foundation’s year form_990-pf reflects that it was exclusively financed by contributions and investment_income in soliciting funds foundation sent out letters and newsletters to residents of b to solicit contributions for the path foundation did not request funds from residents of c outside of b foundation notified those residents of c who live outside of b of the availability of the path for use once the path was completed and opened on date there is no suggestion in the file however that foundation has an active program to remind residents of c outside of b of the existence or availability of the path nor any suggestion that such a program is anticipated for the future accordingly for purposes of the following analysis the residents of c that do not reside on b will be disregarded and only the residents of b will be considered issue one whether foundation’s tax-exempt status under sec_501 should be revoked law sec_501 of the code provides in part for the exemption from federal_income_tax of organizations that are organized and operated exclusively for charitable scientific or educational_purposes provided no part of their net_earnings inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 of the income_tax regulations regulations states that to be described in sec_501 of the code an organization must be both organized and operated exclusively for purposes specified in the regulations if an organization fails to meet either test it is not exempt sec_1_501_c_3_-1 of the regulations states that an organization will be regarded as operated exclusively for exempt purposes only if which accomplish one or more of the exempt purposes specified in sec_501 of the code an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose it engages primarily in activities sec_1_501_c_3_-1 of the regulations provides that an organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest thus to meet this requirement it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests sec_1_501_c_3_-1 of the regulations defines the term charitable as including the erection or maintenance of public works promotion of social welfare by organizations designed to erect or maintain public works combating community deterioration and charitable in its generally accepted legal sense isabel 21_tc_55 acq 1959_2_cb_146 held that an organization whose purpose was to furnish public swimming facilities for residents of cold spring harbor school district number furthered charitable purposes the boundaries of the district defining eligible residents who could use the pool were approximately coterminous with those of cold spring harbor school district number and a portion of district in the same county the boundaries of the school district were chosen solely for convenience in drawing a line to determine who would be eligible for admission to the beach the population of the village of cold spring harbor was approximately big_number the bulk of the population of cold spring harbor lived in the school district the organization was funded by public contributions and its facilities were open to contributors and non-contributors alike there was no restriction or discrimination in the use of facilities other than the restriction to the residents of the district the organization was held to be charitable on the basis that it promoted social welfare benedict ginsberg and adele w 46_tc_47 held that an organization that paid to dredge waterways was organized and operated primarily for the benefit of persons owning property adjacent to the waterways such that charitable_contributions to the organization were not deductible a membership agreement was signed by of owners of property bordering the waterways to be dredged payments expected of each property owner were based on a formula imposing the burden proportionally according to the benefit that a property owner would receive the tax_court concluded that the purpose of the organization was to dredge the waterways for the benefit of persons owning property on the shores and that any objective benefit to the general_public was secondary 88_tc_1 held that an organization incorporated to develop and operate utilities systems services and facilities for the good of the people of columbia a large private development was not exempt under sec_501 of the code though the development had a population of more than big_number residents the tax_court held that the organization lacked a sufficient public element because it was essentially an aggregation of homeowners and tenants bound together in a structural unit formed as an integral part of a real_estate development plan the organization did not solicit voluntary public contributions but relied on liens and assessments on real_property owned by the members it served the tax_court noted that the people financing the operation of the organization had rights based on property ownership to receive the benefits offered by the organization the court stated that such quid pro quo does not exist in an organization operating primarily for a public purpose and concluded that the organization was operated in furtherance of a substantial non-exempt purpose because it served private interests 113_tc_47 held that a nonprofit corporation’s ceding of control_over the operation of a hospital to private parties conferred an impermissible private benefit therefore the corporation was not operated exclusively for exempt purposes within the meaning of sec_501 c of the code revrul_59_310 1959_2_cb_6 held that an organization organized to establish maintain and operate a public swimming pool and recreational facilities for children and other residents of a particular community was exempt under sec_501 of the code the organization raised funds by soliciting public contributions and charging a nominal admission fee at the pool because the organization’s property and its uses were dedicated to members of the general_public of the community it was held to be exempt the ruling discussed 21_tc_55 and noted that the irs acquiesced in peters recognizing that it was a charitable purpose to establish equip maintain and operate a public beach playground and bathing facilities revrul_66_358 1966_2_cb_218 held that establishing and maintaining a public park may qualify as a charitable activity specifically the ruling held that a corporation’s contribution of funds and real_property to a sec_501 of the code organization would not jeopardize the tax-exempt status of the exempt_organization where the organization used the funds and realty to establish a public park for_the_use_of the general_public the ruling noted that the benefits flowed principally to the general_public through access to and use of the park even though the donor corporation retained the right to continue using a picture of a certain symbol that was a picture of a scenic view in the park the ruling distinguished the organization's situation with that of the organization in 46_tc_47 in which the organization used its funds primarily to foster private interests and the benefit to the general_public was only incidental revrul_67_6 1967_1_cb_135 held that in order for an organization to be exempt on the basis that it combats community deterioration there must be a benefit to the general_public and not merely to a community for the benefit solely of the residents of the community revrul_67_6 was modified by revrul_76_147 1976_1_cb_151 on this issue revrul_67_325 1967_2_cb_113 held that an organization providing recreational facilities of a township was not organized and operated for charitable purposes because it restricted access to the facilities based on race the ruling observed that 21_tc_55 and revrul_59_310 are consistent with the general law of charity supporting the idea that community recreational facilities may be classified as charitable if they are provided for_the_use_of the general_public of the community the ruling further stated that no sound basis has been found for concluding that there would be an adequate charitable purpose if some part of the whole community is excluded from benefiting except where the exclusion is required by the nature or size of the facility revrul_68_14 1968_1_cb_243 held that an organization organized and operated to preserve and develop the beauty of a city may be exempt under sec_501 of the code the ruling determined that the activities of the organization lessened the burdens of government through providing educational activities and combating community deterioration revrul_70_186 1970_1_cb_129 held that an organization formed to preserve a lake as a public recreational facility and to improve the condition of the water in the lake to enhance its recreational features was exempt under sec_501 of the code the organization was financed by contributions from lakefront property owners members of the community adjacent to the lake and municipalities that bordered the lake the ruling held that the benefits derived from the organization's activities flowed principally to the general_public and that any private benefits derived by the lakefront property owners do not lessen such public benefits furthermore the ruling stated it would be impossible for the organization to accomplish its purposes without providing benefits to the lakefront property owners revrul_75_196 1975_1_cb_155 held that a law library that limited access and use to members of a local bar association qualified for exemption under sec_501 of the code important to the conclusion of the ruling were the library's reasons for the restrictions which included the size of the library and the library’s interest in maintaining order and preserving its books also important was the fact that the library was open to a significant number of people the fact that the members derived personal benefit was incidental to and a logical by-product of the educational purpose of the library revrul_75_286 1975_2_cb_210 held that an organization formed to preserve and beautify the public areas within a city block with membership limited to residents and business operators within that block was not exempt under sec_501 of the code the organization enhanced the value of the roadway sections abutted by property of its members thereby enhancing the value of its members’ property rights the ruling noted the restricted membership and the limited area of improvements indicated that the organization was organized and operated to serve the private interests of its members the ruling distinguished revrul_68_14 on the basis that the organization in that ruling had a broad program to beautify the city rather than one restricted to improving the area adjacent to the residences of its own members revrul_76_147 1976_1_cb_151 held that an organization formed to improve conditions in an area of a city where the income level was higher and housing better than in other areas of the city was exempt under sec_501 the ruling modified revrul_67_6 to remove any implication that preserving or improving a community does not benefit a sufficiently broad segment of the public to be charitable so long as the community interests served are truly public in scope and not merely the private interests of a class of persons not themselves comprising a charitable_class then such activities may be deemed to confer a public benefit that the law regards as charitable revrul_78_85 1978_1_cb_150 held that an organization with open membership that was formed to preserve beautify and maintain a public park and was supported by membership dues and contributions from the general_public was exempt under sec_501 of the code the park and its facilities were open to the general_public and were commonly used by citizens of the entire city analysis sec_1_501_c_3_-1 of the regulations includes in the definition of charitable erecting or maintaining public works promoting social welfare through various purposes combating community deterioration and being charitable’ in its generally accepted legal sense a number of cases and revenue rulings have recognized the provision of recreational facilities as a charitable purpose where it promotes the social welfare of a community and the facilities are made readily available to the community 21_tc_55 held that an organization that operated public swimming facilities open to those residing in a particular school district was charitable as an organization that promoted social welfare the operation of a swimming pool and other recreational facilities was also recognized as a charitable purpose in revrul_59_310 numerous other rulings have held the operation of recreational facilities available to the public to be a charitable purpose within the meaning of sec_501 of the code where it promotes the social welfare of a community and the facilities are made readily available to the community see rev rus and foundation was organized and is operated to build and maintain a recreational path which is a kind of recreational facility the operation of recreational facilities should be it promotes the social welfare of a community and recognized as a charitable purpose if the facilities are made readily available to that community in addition to having a charitable purpose sec_1_501_c_3_-1 of the regulations requires that an organization serve a public rather than private interest in order to be organized and operated exclusively for one or more exempt purposes for example the benefits derived from a corporation’s gift to an organization exempt under sec_501 of the code used for the establishment of a park flowed principally to the general_public even though the donor retained the right to use the picture of a scenic view in the park as its brand symbol revrul_66_358 therefore maintaining the public park served a public rather than a private interest revrul_78_85 held that an organization that maintained and improved a public park conferred benefits principally to the public and that any private benefits did not lessen the public benefits such private benefits were only incidental to the achievement of the organization's exempt purposes when an organization operates for the benefit of private interests the organization by definition does not operate exclusively for exempt purposes prohibited private benefits may include an advantage profit fruit privilege gain or interest occasional economic benefits flowing to persons as an incidental consequence of an organization pursuing exempt charitable purposes will not generally constitute prohibited private benefits thus should an organization be shown to benefit private interests it will be deemed to further a nonexempt purpose under sec_1_501_c_3_-1 of the regulations redlands surgical services v commissioner t c pincite for example in 46_tc_47 the tax_court held that an organization that paid to have waterways dredged was organized and operated for the benefit of persons owning property adjacent to the waterways dredged the organization raised funds according to a formula from its members who had signed a subscription agreement and the payment expected from each member was based on the benefit to be received by the donor the tax_court found that such a fixed formula showed that the principal purpose of the organization was to dredge the waterways for the benefit of the property owners and that any objective benefit to the general_public was secondary the organization in 88_tc_1 similarly had a quid pro quo arrangement whereby residents had rights to benefits from the organization based on their ownership of property ginsberg and columbia park exemplify the kind of exchange between an organization and its beneficiaries that indicates the organization serves a private interest two revenue rulings regarding organizations with similar purposes illustrate the difference between serving a public as opposed to a private interest the organizations in both rulings are dedicated to beautification of a city or particular area thereof the scope of the focus of each however results in disparate outcomes for each organization in revrul_68_14 an organization organized and operated to preserve and develop the beauty of a city whose income was derived from contributions was allowed exemption under sec_501 of the code to the contrary revrul_75_286 held that an organization that had membership limited to residents and businesses within a city block and was formed to preserve and beautify that block did not qualify for exemption under sec_501 of the code because the organization was enhancing its members’ property rights and because its membership and the area it improved was so limited the ruling held that it was organized and operated to serve the private interests of its members within the meaning of sec_1_501_c_3_-1 of the regulations the benefits of foundation’s recreational path run to the actual and potential users of its path residents of c including residents of b however even if only the residents of b are considered these residents receive a benefit in the form of a recreational opportunity it is disputed as to whether the residents of the private portion of and enhanced safety b whose properties abut the path will receive any economic benefit the opposition of some such property owners based on concerns about decreased property values would refute the assertion that owners of adjacent properties stood to benefit from the creation of the path even if there were some economic benefit in the form of increased property value however such a benefit would be an incidental consequence of foundation’s furtherance of charitable purposes see 113_tc_47 and revrul_70_186 foundation is not a membership_organization and is supported solely by voluntary contributions and investment_income as discussed above there does not appear to be an economic benefit to residents of b furthermore there is no evidence of any payment by any donor of contributions based on the benefit s such a donor receives economic or otherwise the absence of such an arrangement weighs against finding that foundation furthers a private interest see redlands t c pincite and 88_tc_1 in revrul_75_286 the organization had membership limited to a city block and its benefits ran to the small_group of members foundation as noted earlier is not a membership_organization b is further distinguishable from the area served by the organization in revrul_75_286 a city block as b is geographically larger and particularly during the summer season much more populous than a city block if the benefits of an organization's activities flow to an entire community such benefits are sufficient to meet the public benefit standard and the benefits therefore need not run beyond the scope of the community revrul_76_147 clarified that an organization whose purpose is to preserve or improve a community benefits a sufficiently broad segment of the public to be charitable so long as the community interests are truly public in scope and not merely the private interests of a class of persons not themselves comprising a charitable_class then such activities may be deemed to confer a public benefit that the law regards as charitable the ruling modified rey rul which held that benefiting a community as opposed to the general_public was not sufficient for the organization in question to be charitable the subsequent ruling specifically clarified that a community was in fact a sufficiently broad segment of the public to be charitable therefore the proper inquiry is not necessarily rather the question whether the benefit of an organization runs to the general_public need only be whether an organization benefits a community so long as the interests of the community are truly public in scope b is an island all of the residents of b are permitted to use the recreational path regardless of whether they have contributed to foundation foundation operates recreational facilities primarily for the benefit of the residents of b and their guests foundation is therefore similar to the organization in revrul_59_310 as it provides a benefit for the residents of a particular community the entire island b foundation does not exclude any part of the community as did the organization in rev -ll- rul foundation excludes people only on the basis of their not being a resident of b or c of which b is a part or a guest of such a resident foundation has used the lines of the municipality of c which includes all of b as a way to determine who may be admitted or excluded based on their status as residents or non-residents as did the organization in 21_tc_55 foundation's provision of benefits to all residents of b is similar to the use of the school district lines in peters and therefore foundation’s use of residency status for determining who it excludes from the path should not prevent foundation from qualifying as an organization described in sec_501 of the code even if the entire population of b is not large enough to constitute a community technically foundation’s activities benefit all residents of c by virtue of such residents’ privilege of free use of the path although residents of b have quicker and easier access to the path also given the number of path users counted by foundation and the number of stickers issued for bicycles a significant portion of the residents of c or their guests other than residents of b or their guests may be using the path even though the j path users in the four-month period from date to date would include repeat users the number of users is nonetheless significantly large furthermore the fact that n stickers were issued for n unique bicycles also indicates that a significant number of the residents of c or guests thereof other than residents of b or their guests may be using the path all of the residents of c benefit as potential users of the path based on their eligibility as residents the facts also indicate that a significant number of such residents may in fact be using the path foundation therefore benefits the entire community of c provided that c a municipality constitutes a community for the purpose of defining charitable purposes see revrul_76_147 several cases and rulings have addressed what may qualify as a community as it pertains to the interests served by charitable organizations in 21_tc_55 an organization's operation of public swimming facilities for residents of a school district with a population of approximately big_number which is more than the number of full- time residents of b but many fewer than the number of seasonal residents of b during which time the path is most heavily used was found to provide a sufficiently broad benefit such that the organization qualified as exempt under sec_501 of the code the tax_court held the organization to be exempt despite the fact that it excluded from its facilities any non-residents thus the school district in peters can be said to constitute a community for purposes of sec_501 of the code in revrul_76_147 a city qualified as a community in a case in which the organization served the entire city and the organization was held to be exempt under sec_501 of the code segments of the population that have been held to be insufficient to constitute a community include a membership group of residents and business owners within a city block and a group of lakefront property owners see revrul_75_286 and 46_tc_47 whether a purported community is a sufficiently broad segment of the population is not determined solely based on size size was not determinative for the organization in 88_tc_1 which was organized to develop and operate utilities systems services and facilities for the good of the people of columbia a large private development the tax_court found the organization not to be exempt because even i f though the development had more than big_number residents it lacked a sufficient public element columbia was essentially an aggregation of homeowners and tenants bound together in a structural unit formed as an integral part of a real_estate development plan the nature of the segment of the population was determinative despite the significant size of the development in columbia park therefore in determining whether a particular segment of the general_public is sufficiently broad to constitute a community the most important consideration is whether the purported community is public in nature because of the physical location of b the fact that it is an island and its limited accessibility especially to the non-b residents of c it may be considered at least for purposes of analysis that a large part more than a majority of the use of the path will be by residents of b or their guests thus if b constitutes a community then foundation is serving a community even if one were to assume that all of the benefits provided by the availability of the path were to be enjoyed only by the residents of the island and their guests b especially during the summer months is larger than many municipalities and may be considered to be a community in its own right without regard to the larger community of the municipality of c of which b is a part moreover even if one were to conclude that the population of the entire island of b is not sufficient to constitute a community_foundation asserts that c constitutes a community that is a sufficiently broad segment of the population to allow foundation to qualify as an organization exempt under sec_501 of the code c with a population of h is significantly larger than the school district in 21_tc_55 the school district in peters nonetheless was a sufficiently broad segment of the general population for the organization in question to qualify as charitable c is also much larger geographically and presumably in population than the city block discussed in revrul_75_286 also c is much larger than the group of homeowners in 46_tc_47 furthermore c is a municipality as was the community in question in revrul_76_147 c is a municipality and foundation serves the residents of c as a municipality c possesses the sufficient public element that was lacking in the private development in 88_tc_1 few if any entities could be considered more public than a municipality the organization in columbia park and the development itself were each found by the tax_court to be an integral part of a real_estate development plan c as a municipality is clearly not an integral part of a real_estate development plan and neither is foundation e is a private developer and e was involved in the formation of foundation e owns much of the land on the private portion of b control of foundation however is in the hands of the board_of directors of foundation and foundation’s board is not controlled by e foundation provides benefits to residents of c especially those who also are residents of b based on residency in the municipality and not on the ownership of property or payment of assessments or the like as did the organization in columbia park investment_income foundation is solely responsible for the costs associated with the path and there are no related expenses shared between foundation and e foundation serves a municipality receives its funding from voluntary contributions and is independent from e all of which weigh against finding that foundation is in integral part in fact foundation is funded solely by voluntary contributions and of a development plan or that it serves a private interest foundation is therefore distinguishable from the organization in columbia park exclusion of some part of the community by an organization exempt under sec_501 of the code may be permissible in some instances a recreational facility may qualify as furthering charitable purposes under sec_501 even if it excludes some members of the community provided that the exclusion is required by the nature law library that admitted only members of a or size of the facility revrul_59_310 a local bar association whose membership constituted substantially_all of the members of the legal profession in the municipality may qualify for exemption under sec_501 even though it excludes non-members revrul_75_196 the exclusion was permissible because of the practical limitation based on the law library’s limited size book collection the library's interest in maintaining order and its interest preserving its valuable books also notwithstanding the exclusion of much of the public the fibrary benefited a broad enough class to serve a public interest foundation serves the entire community of b and their guests therefore foundation does not exclude any part of the community it serves so long as the community is defined by reference to b foundation also makes the path available to the residents of for the reasons discussed above b other islands who live within the municipality of c is a sufficiently broad segment of the population to constitute a community such that foundation’s exemption under sec_501 of the code should not be revoked on the basis that foundation does not provide a public benefit conclude that the residents of b are too small a group to constitute a community the residents of the municipality of c of which b is a part must certainly constitute a community large enough to support foundation’s tax exemption further even if one were to issue whether foundation is entitled to relief pursuant to sec_7805 of the code because foundation continues to be exempt sec_7805 of the code is inapplicable and it is therefore unnecessary to analyze whether foundation is entitled to relief under sec_7805 conclusions based on the foregoing facts we find that foundation’s tax-exempt status under sec_501 should not be revoked itis unnecessary to analyze whether foundation is entitled to relief pursuant to sec_7805 of the code because foundation continues to be exempt a copy of this technical_advice_memorandum is to be given to foundation sec_6110 of the code provides that it may not be used or cited as precedent - end -


internal_revenue_service department of the treasury number release date index nos washington dc person to contact telephone number refer reply to cc ita plr-166526-02 date date dear this is in reference to a form_1128 application to adopt change or retain a tax_year submitted on behalf of the above-named taxpayer tin requesting permission to change its accounting_period for federal_income_tax purposes from a taxable_year ending may to a taxable_year ending june effective the taxpayer has requested that the form_1128 be considered timely filed under the authority contained in sec_301_9100-3 of the procedure and administration regulations section of revproc_2002_39 2002_22_irb_1046 provides that a taxpayer must file a form_1128 no earlier than the day following the end of the first effective year and no later than the due_date not including extensions of the federal_income_tax return for the first effective tax_year thus the taxpayer's form_1128 requesting a change in accounting_period to a tax_year ending june was due before the information furnished indicates that the application_for the change in accounting_period was filed late because of an error or misunderstanding sec_301_9100-3 provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions such as the situation you present must be made under the rules of sec_301_9100-3 requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government based on the facts and information submitted and the representations made it is held that the taxpayer has acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government accordingly the requirements of the regulations for the granting of relief have been satisfied in this case and the taxpayer's late filed form_1128 requesting permission to change to a tax_year ending june effective for the short_period of is considered timely filed pursuant to appendix a of revproc_2003_1 2003_1_irb_1 an additional user_fee is required in order to process the form_1128 the user_fee will be requested in a separate correspondence we will begin processing the taxpayer's application after the plr-166526-02 user_fee is received the ruling contained in this letter is based upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as part of an examination process this ruling addresses the granting of sec_301_9100-3 relief only no opinion is expressed or implied concerning the tax consequences of any other matter specifically no opinion is expressed as to whether the taxpayer is permitted under the code and applicable regulations to change to the tax_year requested in the subject form_1128 enclosed is a copy of the letter_ruling showing the deletions proposed to be made in the letter when it is disclosed under sec_6110 of the internal_revenue_code this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent sincerely robert a berkovsky branch chief office of associate chief_counsel income_tax and accounting enclosure


department of the treasury ra internal_revenue_service washington d c tax exempt and division se apr tier aat uniform issue list khkekkkerekeeekekerkekek kkkkkekrererkerekekek hkrekrekrkekekkkker kekkkkerekkekeeerreeekr krkekkereekerkrerekeeeeekerkke legend company pian krerekkekkekkrereeer kkakkkekhkkkkiikkekererekkerkek dear kkkerkkekkekkk kk this is in response to your letter dated date in which you request a ruling that the minimum distribution_requirements of sec_401 of the internal_revenue_code code would not be violated if the company amended the pian to - offer a lump sum payment option during a limited window period to the plan’s participants beneficiaries and alternate payees for whom annuity payments have already begun the following facts and representations have been submitted under penalty of perjury in support of the ruling requested facts company is in the entertainment industry and has operations in the united_states and other countries it sponsors the plan which is intended to be a tax-qualified defined_benefit_plan the plan is in receipt of a favorable determination_letter and currently has page an on-cycle determination_letter request for the plan pending the ruling requested in your date letter is not part of that determination_letter request the plan has been amended to freeze benefit accruals as of date the normal form of benefit for a single participant in the plan is a single_life_annuity and the normal form of benefit for a married participant is a joint_and_survivor_annuity optional forms of benefit in the plan include and joint and survivor annuities social_security leveling options life and period certain annuities and lump sum the optional forms of benefit available to a particular participant depend on the terms of the plan the company proposes to amend the plan to offer during a limited period of time a lump sum payment option to certain participants beneficiaries and alternate payees of the plan who are in pay status the covered individuals ' under the amendment the covered individuals would have a specified limited window period of no less than days and no more than days the window’ during which they could elect to receive the actuarial present_value of their remaining benefits under the plan at the time of such election in the form of a single lump sum payment each covered individual receiving benefit payments would be able to elect to receive in lieu of his or her current annuity the actuarial present_value of his or her remaining accrued_benefits either in a single_life_annuity qualified_joint_and_survivor_annuity if applicable qualified_optional_survivor_annuity if applicable or an immediate lump sum payment elections by covered individuals to receive a new distribution option will be subject_to applicable spousal consent which will include to the extent required_by_law both the current spouse and a former spouse if the covered individual has remarried since the annuity_starting_date covered individuals that elect a new distribution option will be considered to have a new annuity_starting_date as of the first day of the month in which their new benefit is payable company represents the plan’s aftap exceeds and the plan’s actuary has confirmed that the lump sum window program will not trigger benefit restrictions described in sec_436 or the internal_revenue_code as amended code additionally the amendment will not change the ability of covered individuals to elect during the window to receive qualified joint and survivor annuities in accordance with sec_401 and sec_417 of the code based solely on the facts and representations stated above company requests a ruling that the minimum distribution_requirements of sec_401 of the code would not be violated if the company amended the plan to offer a lump sum payment option during a limited window period of no less than days and no more than days to the under the proposed amendment it is possible that terminated participants beneficiaries and alternate payees with a vested benefit who have not commenced payment will be able to participate in the window program and elect a lump sum payment but the ruling_request addresses only those covered individuals who have begun receiving payments page plan’s participants beneficiaries and alternate payees for whom annuity payments have already begun applicable law sec_401 of the code and the regulations thereunder regulations provide rules relating to required minimum distributions from qualified_plans sec_401 of the code was enacted to ensure that the amounts contributed to qualified_retirement_plans were used for retirement by requiring that retirement payments begin no later than a certain date with no less than a certain amount being distributed each year of retirement the legislative_history of the original version of sec_401 of the code in stated that its purpose is in preventing lifetime accumulations which might escape income_taxation altogether cong rec statement of sen smathers in general sec_401 of the code states that a_trust shall not constitute a qualified_trust under this subsection unless the plan provides that the entire_interest of each employee - i will be distributed to such employee not later than the required_beginning_date or ii will be distributed beginning not later than the required_beginning_date in accordance with regulations over the life of such employee or over the lives of such employee and a designated_beneficiary or over a period not extending beyond the life expectancy of such employee or the life expectancy of such employee and a designated_beneficiary sec_401 of the code generally provides that a defined_benefit_plan will not be considered a qualified_plan unless vested benefits with respect to a married participant who dies before the annuity_starting_date are payable in the form of a qualified_preretirement_survivor_annuity and with respect to a married participant who dies after the annuity_starting_date a qualified_joint_and_survivor_annuity sec_415 of the code provides that a_trust which is a part of a pension_plan will not constitute a qualified_trust if the pension_plan provides for the payment of benefits which exceed the limitation of sec_415 sec_415 of the code generally provides that if the benefit under a defined_benefit_plan is payable in any form other than a straight life_annuity the determination as to whether the sec_415 limit has been satisfied shall be made by adjusting the benefit so that it is equivalent to a straight life_annuity sec_417 of the code provides that a plan meets the requirements of sec_401 if among other requirements each participant may elect during the applicable_election_period to waive the qualified_joint_and_survivor_annuity form of benefit page or the qualified_preretirement_survivor_annuity form of benefit or both sec_417 of the code defines the applicable_election_period as meaning in part in the case of an election to waive the qualified_joint_and_survivor_annuity form of benefit the 180-day period ending on the annuity_starting_date sec_1_401_a_9_-6 q a-1 a in pertinent part states that in order to satisfy sec_401 of the code distributions of the employee's entire_interest under a defined benefit pension_plan must be paid in the form of periodic annuity payments for the employee's life or the joint lives of the employee and beneficiary or over a period certain that does not exceed the maximum length of the period certain determined in accordance with a-3 of this section once payments have commenced over a period the period may only be changed in accordance with a-13 or a-14 of this section except as otherwise provided in this section such as permitted increases described in a-14 of this section all payments whether paid over an employee's life joint lives ora period certain also must be nonincreasing sec_1_401_a_9_-6 q a-13 a states that an annuity_payment period may be changed in accordance with the provisions set forth in paragraph b of this a-13 or in association with an annuity_payment increase described in a-14 of this section sec_1_401_a_9_-6 q a-14 a states that except as otherwise provided in this section all annuity payments whether paid over an employee's life joint lives or a period certain must be non-increasing or increase only in accordance with one or more of the following - with an annual percentage increase that does not exceed the percentage increase in an eligible cost-of-living index as defined in paragraph b of this a-14 for a 12-month_period ending in the year during which the increase occurs or the prior year with a percentage increase that occurs at specified times eg at specified ages and does not exceed the cumulative total of annual percentage increases in an eligible cost-of-living index as defined in paragraph b of this a-14 since the annuity_starting_date or if later the date of the most recent percentage increase however in cases providing such a cumulative increase an actuarial increase may not be provided to reflect the fact that increases were not provided in the interim years to the extent of the reduction in the amount of the employee's payments to provide for a survivor benefit but only if there is no longer a survivor benefit because the beneficiary whose life was being used to determine the period described in sec_401 over which payments were being made dies or is no longer the employee's beneficiary pursuant to a qualified_domestic_relations_order within the meaning of sec_414 to pay increased benefits that result from a plan amendment paged5 to allow a beneficiary to convert the survivor portion of a joint_and_survivor_annuity into a single sum distribution upon the employee's death or to the extent increases are permitted in accordance with paragraph c or d of this a-14 sec_1 b - b iii provides that if a participant will have distributions commencing at more than one annuity_starting_date the limitations of sec_415 of the code must be satisfied as of each of the annuity starting dates taking into account the benefits that have been provided at all of the annuity starting dates analysis sec_401 of the code provides a tax_deferral for retirement benefits accumulated in a qualified_pension plan sec_401 of the code and the regulations ensure that these tax-deferred accumulations are in fact used during retirement and do not escape taxation sec_1_401_a_9_-6 sets forth the rules governing required distributions from defined benefit plans and annuity_contracts sec_1_401_a_9_-6 q a-13 a states that an annuity_payment period may be changed in association with an annuity_payment increase described in a-14 of this section sec_1_401_a_9_-6 q a- a provides that annuity payments from a qualified_plan may increase if the payment of increased benefits results from a plan amendment the company’s proposed amendment to the plan would add a lump sum option for the covered individuals under which they will have the opportunity to elect within a window period of no less than days and no more than days to receive in lieu of their current annuities either an available annuity form of benefit including a single_life_annuity qualified_joint_and_survivor_annuity for married participants or a lump sum payment elections by covered individuals to receive a new distribution option will be subject_to applicable spousal consent the proposed amendment will result in a change in the annuity_payment period the annuity_payment period will be changed in association with the payment of increased benefits as a result of the addition of the lump sum option in addition covered individuals who wish to change their distribution option will be considered to have a new annuity_starting_date as of the first date of the month in which the new benefit is payable because the ability to select a lump sum option will only be available during a limited window the increased benefit payments will result from the proposed plan amendment and as such is a permitted_benefit increase under sec_1_401_a_9_-6 qe a- a spousal consent must include where the law requires both the current spouse and a former spouse if the annuitant has remarried page in order for a plan to remain qualified under sec_401 of the code the calculation of the value of the benefit elected under the lump sum window option must comply with the requirements of sec_417 and the regulations thereunder under section dollar_figure of revproc_2014_4 subject_to certain exceptions the irs generally does not issue letter rulings on matters involving qualification issues under sec_401 through of the code qualification matters are generally handled by the employee_plans determination_letter program as provided in revproc_2014_6 accordingly we have not considered among other matters whether the lump sum window benefits comply with the requirements of sec_417 and the regulations thereunder with respect to the amount of the distribution and minimum present_value requirement that is applied based on the present_value of the normal_retirement_benefit instead this letter_ruling is based on your representation that the lump sum window option satisfies sec_417 of the code and sec_1_417_e_-1 of the regulations ruling therefore in this circumstance that the minimum distribution_requirements of sec_401 of the code would not be violated if the company amended the plan to offer a lump sum window option during a limited window period of no less than days and no more than days to the plan’s participants beneficiaries and alternate payees for whom annuity payments have already begun except as specifically ruled above no opinion is expressed as to the federal tax consequences of the transaction described above under any other provision of the code including sec_401 sec_411 sec_415 sec_417 and sec_436 or of title of erisa in addition no opinion is expressed regarding the qualification of the plan in addition no opinion is expressed on whether the method for valuing benefits under the limited window period option satisfies the requirements of sec_417 and the regulations thereunder this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent lo page if you wish to inquire about this ruling please contact at ee eee please address all correspondence to se t ep ra t2 sincerely bwite kh whe william b hulteng manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose cc hkkkkekekeerekke kkkkerekekkkeekrekeereekk hrkekekrekrererererkeereeeererereke kkkekkrekereekekererkeeeere


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc intl br1-plr-108839-98 date date legend dear this is in response to a letter dated date as supplemented by letters dated date date date date and date submitted by a’s authorized representative requesting a ruling under sec_877 of the internal_revenue_code_of_1986 code that a’s loss of u s citizenship did not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code the information submitted for consideration is substantially as set forth below the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by penalty of perjury statements 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 a was born in and became a citizen_of_the_united_states on date b a became a citizen of country c on date d a’s wife and mother were both born in country c a formally renounced his united_states citizenship on date e by making an oath of renunciation at the united_states consulate in country c on the date of a’s expatriation his net_worth exceeded the sec_877 statutory threshold for eligibility to submit a ruling_request plr-108839-98 sec_877 generally provides that a citizen who loses u s citizenship or a u s long-term_resident who ceases to be taxed as a lawful permanent resident individuals who expatriate within the 10-year period immediately preceding the close of the taxable_year will be taxed under sec_877 and the special rules of sec_877 for such taxable_year unless such loss did not have for one of its principal purposes the avoidance of u s taxes sec_2107 and sec_2501 provide special estate and gift_tax regimes respectively for individuals who expatriate with a principal purpose to avoid u s taxes a former citizen or former long term-resident will be treated as having expatriated with a principal purpose to avoid u s taxes for purposes of sec_877 sec_2107 and sec_2501 if the individual’s average income_tax_liability or the individual’s net_worth on the date of expatriation exceed certain thresholds see sec_877 sec_2107 and sec_2501 a former u s citizen whose net_worth or average tax_liability exceeds these thresholds however will not be presumed to have a principal purpose of tax_avoidance if that former citizen is described within certain statutory categories and submits a request for a ruling within one year of the date of loss of u s citizenship for the secretary’s determination as to whether such loss had for one of its principal purposes the avoidance of u s taxes see sec_877 sec_2107 and sec_2501 under notice_98_34 1998_27_irb_30 a former long-term_resident whose net_worth or average tax_liability exceeds the applicable thresholds will also not be presumed to have a principal purpose of tax_avoidance if that former resident is described within certain categories and submits a complete and good_faith request for a ruling as to whether such loss had for one of its principal purposes the avoidance of u s taxes notice_98_34 requires that certain information be submitted with a request for a ruling that an individual’s expatriation did not have for one of its principal purposes the avoidance of u s taxes a is eligible to request a ruling pursuant to notice_98_34 because he is described in the categories of individuals eligible to submit ruling requests on the date of a’s expatriation a was and continues to be a citizen of country c the country where his spouse and his mother were born a submitted all the information required by notice_98_34 including any additional information requested by the service after review of the submission accordingly based solely on the information submitted and the representations made it is held that a has made a complete and good_faith submission in accordance plr-108839-98 with sec_877 and notice_98_34 and therefore a will not be presumed to have expatriated with a principal purposes of tax_avoidance however because the information submitted does not clearly establish the existence or lack of a principal purpose to avoid taxes under subtitle a or b of the code no opinion is expressed as to whether a’s expatriation had for one of its principal purposes the avoidance of such taxes while this ruling rebuts the presumption of tax_avoidance under sec_877 it is not conclusive as to whether a subsequently may be found to have a principal purpose of tax_avoidance under sec_877 sec_2107 and sec_2501 based on all the facts and circumstances see sec_877 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in addition no opinion is expressed as to a’s u s tax_liability for taxable periods prior to his loss of u s citizenship or for taxable periods after his loss of u s citizenship under sections of the code other than sec_877 sec_2107 and sec_2501 a copy of this letter must be attached to a’s u s income_tax return for the year in which a obtained the ruling whether or not a is otherwise required to file a return 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 your authorized representative sincerely edwards williams senior technical reviewer cc assistant_commissioner international international district operations op in d


internal_revenue_service number release date index number ------------------------------------- ----------------------------------------------- ----------------------------------------- ----------------------------------------- legend department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------- id no ----------------- telephone number --------------------- refer reply to cc psi b01 plr-145598-10 date december x ------------------------------------------ -------------------------------------- d ---------------------- state ------------ dear ------------- this responds to a letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts according to the information submitted x was incorporated on d under the laws of state x intended to be treated as an s_corporation for federal tax purposes effective d but the proper election was not timely filed law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides in relevant part that if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made under sec_1362 if the election is made after the first two and one-half months of a corporation's taxable_year plr-145598-10 then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if no election is made pursuant to sec_1362 or if made the election is made after the date prescribed for making such an election and the secretary determines there was reasonable_cause for the failure to timely make the election then the secretary may treat such election as timely made for such taxable_year and effective as of the first day of that year x did not file a timely election to be treated as an s_corporation under sec_1362 effective d x has however established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective d if within days from the date of this letter x submits a properly completed form_2553 with a copy of this letter attached to the appropriate service_center 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 specifically no opinion is expressed or implied concerning whether x otherwise qualifies as an s_corporation for federal tax purposes this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer’s authorized representative sincerely barbara j campbell barbara j campbell senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy of this letter for sec_6110 purposes


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-133371-07 date date ------------------------------------------------------------------------------------------ ----------------------- ----------------------------------- ------------------------------------- ------------------------------------- legend legend trust -------------------------------------------------- trustee company -------------------------------------------------- sub business ------------------------------------------------------------------------------------------------------- state a b c d e f ---------------------- ------------- ------------- ------------- ------------- ----------- ----------- ------- ----------------------- company is engaged in the business of business_company wholly owns sub this letter responds to a letter dated date submitted on behalf of trust plr-133371-07 g h dear --------------- requesting rulings under sec_331 sec_336 and sec_1361 of the internal_revenue_code facts according to the facts submitted trust owns all of the stock in company an s_corporation trust was formerly a revocable grantor_trust but became an irrevocable_trust upon the death of the grantor on a accordingly trust represents that it is an eligible s_corporation shareholder pursuant to sec_1361 which holds certain real properties discussed below because sub is a qualified_subchapter_s_subsidiary pursuant to sec_1361 it is disregarded as an entity separate from its owner for federal tax purposes thus any references to company include sub and its properties company’s principal real_property assets held by sub consist of two separate commercial properties properties a and b and one residential property property c company’s adjusted_basis in property a is approximately dollar_figureb and the property’s value is approximately dollar_figurec company’s adjusted_basis in property b a business park is approximately dollar_figured property b’s value while not established is estimated to be not less than dollar_figuree company has a negligible basis in property c which is undeveloped land that has been zoned residential it is estimated that company would recognize a gain of not less than dollar_figuref upon the sale of property c pursuant to a formal plan of complete_liquidation company will sell properties a and b and then distribute its assets including property c in complete_liquidation to trust to the extent the sale of property b has not closed prior to company’s complete_liquidation company will make a liquidating_distribution of property b to trust trust represents that its trustee will elect to treat all assets of trust as qualified terminal interest property qtip pursuant to sec_2056 further trust represents that any capital_gains or losses recognized by trust from the sale of qtip property would be attributable to trust principal under state law law and analysis company intends to completely liquidate and dissolve during g but after h plr-133371-07 sec_331 provides that amounts received by a shareholder in a distribution in complete_liquidation of a corporation shall be treated as in full payment in exchange for the stock sec_331 provides that the amount of gain_or_loss recognized is determined under sec_1001 sec_336 provides that except as otherwise provided in sec_336 or sec_337 gain_or_loss shall be recognized to a liquidating corporation on the distribution_of_property in complete_liquidation as if such property were sold to the distributee at its fair_market_value sec_1361 provides in part that for purposes of sec_1361 the following trusts may be shareholders i a_trust all of which is treated under subpart e of part of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states ii a_trust that was described in sec_1361 immediately before the death of the deemed owner and that continues in existence after such death but only for the 2-year period beginning on the day of the deemed owner’s death sec_1_1361-1 of the income_tax regulations provides that in general a_trust is not a permitted small_business_corporation shareholder however except as provided in sec_1_1361-1 a_trust that was a qualified_subpart_e_trust immediately before the death of the deemed owner and that continues in existence after the death of the deemed owner is a permitted shareholder but only for the two-year period beginning on the day of the deemed owner’s death former qualified_subpart_e_trust a_trust is considered to continue in existence if the trust continues to hold the stock pursuant to the terms of the will or the trust agreement or if the trust continues to hold the stock during a period reasonably necessary to wind up the affairs of the trust see sec_1_641_b_-3 for rules concerning the termination of trusts for federal_income_tax purposes sec_1_1361-1 provides in part that for purposes of sec_1_1361-1 qualification as a small_business_corporation and except as provided in sec_1 h ii for purposes of sec_1366 relating to the pass-through of items of income loss deduction or credit relating to adjustments to the basis of shareholder’s stock and relating to distributions the shareholder of s_corporation stock held by a_trust that is a permitted shareholder under sec_1_1361-1 is as follows b if stock is held by a_trust defined in sec_1_1361-1 the estate of the deemed owner is generally treated as the shareholder as of the day of the deemed owner’s death however if stock is held by such a_trust in a community_property_state the decedent’s estate is the shareholder only of the portion of the trust included in the decedent’s gross_estate and the surviving_spouse continues to be the shareholder of the portion of the trust owned by that spouse under the applicable state’s community_property law the estate ordinarily will cease to be treated as the shareholder upon the earlier of the transfer of the stock by the trust or the expiration of the 2-year period beginning on the day of the deemed owner’s death if the trust qualifies and becomes an electing qsst plr-133371-07 the beneficiary and not the estate is treated as the shareholder as of the effective date of the qsst election and the rules provided in sec_1_1361-1 apply if the trust qualifies and becomes an esbt the shareholders are determined under h i f and h ii as of the effective date of the esbt election and the rules provided in sec_1_1361-1 apply sec_1_1361-1 provides in part that solely for purposes of sec_1366 based on the facts submitted and representations made and during the time and the shareholder of s_corporation stock held by a_trust is determined as follows a if stock is held by a_trust as defined in sec_1_1361-1 other than an electing qsst or an esbt the trust is treated as the shareholder if the trust continues to own the stock after the expiration of the 2-year period the corporation’s s election will terminate unless the trust is otherwise a permitted shareholder conclusions trust as a former qualified_subpart_e_trust is an eligible shareholder of company we conclude as follows because trust is treated under sec_1_1361-1 as the shareholder of company for purposes of sec_1366 any gains recognized by company on the sales of property a and b to the extent property b is sold will pass through to trust pursuant to sec_336 company will recognize gain on the liquidating_distribution of property c and any unsold portion of property b that is distributed as if such property were sold to trust at its fair_market_value any gains recognized by company on such distributions of property a and any unsold portion of property b will pass through to trust because trust is treated under sec_1_1361-1 as the shareholder of company for purposes of sec_1367 trust’s basis in company stock will be increased under sec_1367 by any gains in ruling sec_1 and above that pass through to trust and under sec_331 amounts received by trust on the liquidating_distribution of company will be treated as in full payment in exchange for company stock provided company stock is a capital_asset in the hands of trust at the time of the liquidation_trust will realize a capital_loss on the complete_liquidation of company pursuant to sec_331 to the extent that trust’s basis in company stock exceeds the fair_market_value of the liquidating_distribution the loss will be treated as a long-term or short-term_capital_loss pursuant to the rules under sec_1222 the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion regarding whether except as expressly provided herein we express or imply no opinion concerning plr-133371-07 trust qualifies as a_trust described in sec_1_1361-1 a former qualified_subpart_e_trust is being sent to your authorized representative of the code provides that it may not be used or cited as precedent this ruling is directed only to the taxpayer who requested it sec_6110 in accordance with a power_of_attorney on file with this office a copy of this letter sincerely s mary beth collins senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures a copy of this letter a copy for sec_6110 purposes


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 plr-140433-09 date date in re -------------------------------------------------------- legend act ------------------------------------------------------------------------------------------- agency --------------------------------------------------- agreement ---------------------------------------- b --------------------------------------- court ------------------------------------------------------------------------------ department ---------------------------------------------------------------------------- entity1 -------------------------------------------------------- entity2 ----------------------------------- entity2 claimants --------------------- incident ------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- t ---------------------------------------- z ------------------------------------------------ plr-140433-09 c ------------- date -------------------- date ---------------------- year ------- year ------- year ------- f ---------------------- dollar_figureq dollar_figure--------------- dollar_figurer dollar_figure--------------- dollar_figuret dollar_figure--------------------- dollar_figurev dollar_figure------------------- w ----- dollar_figurey dollar_figure--------------- dear ---------------- this is in reply to your request for a ruling that any payment you receive from department for the wrongful death of b your c is excludable from your gross_income under sec_104 of the internal_revenue_code facts b your c was one of w individuals killed in incident in year the estates of those killed and their survivors including you entered into a joint prosecution agreement jpa to pursue claims for damages against entity1 and its officials who were responsible for incident the jpa sets forth how the plaintiffs will divide any amounts they recover in litigation or settlement of their claims initial litigation the estates of those killed and their survivors initially sued entity1 in court in year the causes of action included claims for wrongful death and intentional plr-140433-09 infliction of emotional distress you sought recovery for wrongful death and intentional infliction of emotional distress caused by the death of b your c in year court granted summary_judgment for plaintiffs on the issue of liability in year court awarded the plaintiffs an aggregate recovery_of dollar_figurev for compensatory_damages prejudgment_interest and punitive_damages you were awarded an aggregate of dollar_figurey dollar_figurer against t and dollar_figureq against z legislative settlement subsequently on date entity2 passed the act to provide fair compensation to all entity2 claimants who have f claims for wrongful death and physical injury including claims for emotional distress against entity1 through a comprehensive settlement of those claims upon entity1’s payment to entity2 the act voided all prior court proceedings and judgments for f claims by entity2 claimants against entity1 or its officials and permanently precluded entity2 claimants from asserting f claims against entity1 or its officials on date entity1 and entity2 entered into the agreement to resolve all f claims against entity1 entity1 then transferred dollar_figuret to entity2 which will be paid to claimants covered by the agreement thus pursuant to the act court award of damages to the plaintiffs was voided and has been vacated agency has established procedures to compensate victims pursuant to the agreement you must file a claim with department to recover damages for claims of wrongful death based on the death of b your c law and analysis sec_104 provides that except in the case of amounts attributable to and not in excess of deductions allowed under sec_213 relating to medical etc expenses for any prior taxable_year gross_income does not include the amount of any damages received whether by suit or agreement on account of personal physical injuries or physical sickness sec_1_104-1 of the income_tax regulations provides that the term damages received whether by suit or agreement means an amount received through prosecution of a legal suit or action based upon tort or tort type rights or through a settlement agreement entered into in lieu of such prosecution section of the small_business job protection act of limits the exclusion_from_gross_income provided by sec_104 to amounts received on account of personal physical injuries or physical sickness subject_to one exception in h_r conf_rep no pincite congress expressed its intent concerning the treatment of wrongful death damages and emotional distress damages attributable to a physical injury d amages other than punitive_damages received on account of a claim of wrongful death continue to be excludable from taxable_income as under present plr-140433-09 law because all damages received on account of physical injury or physical sickness are excludable from gross_income the exclusion_from_gross_income applies to any damages received based on a claim of emotional distress that is attributable to physical injury or physical sickness the action you brought in court and the claim you file with department each seek recovery_of damages for wrongful death and intentional infliction of emotional distress attributable to a personal physical injury these claims are based in tort under sec_1 c under the act any recovery_of compensatory_damages that department awards you is for the wrongful death of b your c this wrongful death recovery as adjusted by the jpa is received on account of a personal physical injury under sec_104 conclusions based strictly on the information submitted and the representations made we conclude that the amount you receive from department as adjusted by the jpa for the wrongful death of b your c is excludable from your gross_income under sec_104 except for any amounts attributable to medical_expenses that you in fact deducted on a prior year s ’ federal_income_tax return we do not express or imply an opinion on the federal tax consequences of any aspect of these transactions other than those expressed in the conclusion above this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent the rulings contained in this letter are based upon information and representations that you submitted under penalties of perjury 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 you must attach to any income_tax return to which it is relevant a copy of this letter or if you file your returns electronically a statement providing the date and control number of this letter_ruling plr-140433-09 in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative sincerely michael j montemurro branch chief office of associate chief_counsel income_tax accounting cc