department of the treasury employer_identification_number contact person - id number contact telephone number uil internal_revenue_service p o box cincinnati oh number release date date date legend b specialty c science d organization x dollars amount y dollars amount dear you asked for advance approval of your educational grant procedures under internal_revenue_code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax our determination we approved your procedures for awarding educational grants based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding educational grants meet the requirements of code sec_4945 as a result expenditures you make under these procedures won't be taxable description of your request your letter indicates that you will operate an educational grant program your purpose is to support students who study the epidemiology phenomenology and the environmental cultural and clinical contexts of b and to develop a collaboration of students scientists and community members who are passionate about c the purpose of your program is to provide educational research grants to students enrolled in institutions of higher education in the united state in an academic degree program in order to enhance their academic research skills as well as assist them in completing a research study furthermore the grants are designed to directly support the student’s research project in order to produce an academic presentation or report and will fund such items as travel_expenses to conduct the research study incentives to pay participants in the research study office supplies and needed materials and the dissemination of the research project a portion of the grant must also be used to offset travel costs to present their findings at a meeting or conference you will advertise your program through academic listservs social media email distributions and through announcements at other non-profit educational organizations in addition you especially will encourage those students who identify as a member of a diverse sexual ethnic racial gender religious or sexual orientation group to apply as well as encourage applicants whose research studies are designed to address the understanding of ways in which the experience of diversity provides insight into your mission to be eligible to apply the student must be enrolled in a college university in the united_states be involved in the study of epidemiology phenomenology or the environmental cultural or clinical contexts of b have a member of their academic faculty as a supportive mentor have approval of their institution or a faculty committee who is overseeing the project under your grant program all applicants must provide an application package consisting of numerous items including a resume a study proposal a budget and their planned dissemination of findings all applicants must also submit an approval document from the d which shows that their educational_institution has also reviewed and approved the research project on ethical grounds and that the research project follows state and federal laws furthermore even with the approval of the professor and the d at the applicant’s university your application reviewers are also trained extensively in research and academic ethics and will independently determine whether the project is ethically and legally sound prior to awarding a grant moreover various other documents are required which is dependent on whether the applicant is in the proposal stage of the study the active data collection stage the data analysis manuscript writing stage or whether the applicant is seeking funding for a completed study within one year of the application deadline once an application has been submitted the president of your board will review the application to determine completeness each complete application will then be reviewed by no fewer than two individuals with experience in research methodology as well as reviewed by one or more scientists in training each reviewer will then rate and score the application using a standard form ratings are based on the quality and innovation of the study design the merit of the applicant and their academic mentors the research study's relevance to your mission and the likelihood of successful completion of the study ratings will be submitted to your president or their designee once ratings are compiled letter catalog number 58222y the board_of directors will meet to discuss the merits of the highly rated applications and vote on which should be selected for an award and determine the amount of the award furthermore you plan to award approximately x dollars per year in total grants which may vary in future years depending on budgetary conditions the maximum individual grant amount is y dollars therefore the number of awards you give will depend on the applications that you receive and the amounts requested by the applicants in addition the grant amounts may vary in the future depending on your budgetary conditions once recipients are identified you require that they agree in writing to the following e e e e e all funds will be used in accordance with the approved budget and any changes to the budget must be approved by your president progress reports must be submitted every six months after the award notification until the project is completed and future reimbursement of funds is conditional upon timely submission of progress reports the recipient must provide a summary of the findings to you upon completion of the project the recipient must present their findings through either a research conference or scientific meeting peer reviewed publication or editorial publication as well as list you as a funding source the recipient must agree to uphold the ethical obligations of the institution where they are enrolled and from where the project has been approved concerning monitoring the grants you award them on a reimbursement basis meaning that no funds are given to the recipient without evidence of the approved expenditure once a budget is approved for a grant recipient the student can submit a receipt for an item in their budget your representative upon receipt the item will be compared with the approved budget and a check will be drafted and sent to the grant recipient regarding supervising the grant you will obtain a progress report via electronic survey every six months until the project is completed once completed the recipient will complete a final progress report and submit the final product to you you will monitor responses to ongoing progress reports and address any progress issues as they arise furthermore satisfactory completion of progress reports and any other communications with you are required for continued reimbursement for approved expenses if any term of the award is violated then you will withhold future reimbursement of funds moreover you maintain contact information of the faculty mentor with whom the student works and will be able to contact them to resolve any problems with violations of the award agreement you represent that you will complete the following arrange to receive and review grantee reports annually and upon completion of the purpose for which the grant was awarded investigate diversion of funds from their intended purposes and take all reasonable and appropriate steps to recover the diverted funds ensure other grant funds held by a grantee are used for their intended purposes and withhold further payments letter catalog number 58222y to grantees until you obtain grantees’ assurances that future diversions will not occur and that grantees will take extraordinary precautions to prevent future diversion from occurring you represent that you will maintain the following all records relating to individual grants including information obtained to evaluate grantees identify whether a grantee is a disqualified_person establish the amount and purpose of each grant and establish that you undertook the supervision and investigation of grants described above basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure e e e the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is - - - ascholarship or fellowship subject_to sec_117 and is to be used for study at an educational_organization described in sec_170 or aprize or award subject_to the provisions of sec_74 if the recipient of the prize or award is selected from the general_public or to achieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar skill or talent of the recipient to receive approval of its educational grant procedures sec_53_4945-4 requires that a private_foundation show e e e the grant procedure includes an objective and nondiscriminatory selection process the grant procedure results in the recipients performing the activities the grants were intended to finance the foundation plans to obtain reports to determine whether the recipients have performed the activities that the grants were intended to finance other conditions that apply to this determination e this determination covers only the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don't differ significantly from those described in your original request e this determination applies only to you it may not be cited as precedent letter catalog number 58222y e e e e you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes in your program to the cincinnati office of exempt_organizations at internal_revenue_service exempt_organizations determinations p o box cincinnati oh you cannot make grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and must further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary we've sent a copy of this letter to your representative as indicated in your power_of_attorney please keep a copy of this letter in your records if you have any questions please contact the person listed at the top of this letter sincerely stephen a martin director exempt_organizations rulings and agreements letter catalog number 58222y


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division release number release date date date uil code contact person identification_number contact number employer_identification_number form required to be filed tax years dear this is our final_determination that you do not qualify for exemption from federal_income_tax as an organization described in internal_revenue_code sec_501 recently we sent you a letter in response to your application that proposed an adverse determination the letter explained the facts law and rationale and gave you days to file a protest since we did not receive a protest within the requisite days the proposed adverse determination is now final since you do not qualify for exemption as an organization described in code sec_501 donors may not deduct contributions to you under code sec_170 you must file federal_income_tax returns on the form and for the years listed above within days of this letter unless you request an extension of time to file we will make this letter and our proposed adverse determination_letter available for public inspection under code sec_6110 after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions you should follow the instructions in notice if you agree with our deletions you do not need to take any further action in accordance with code sec_6104 we will notify the appropriate state officials of our determination by sending them a copy of this final letter and the proposed adverse letter you should contact your state officials if you have any questions about how this determination may affect your state responsibilities and requirements letter cg catalog number 47632s if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter federal_income_tax status and responsibilities please contact irs customer service pincite-829-1040 or the irs customer service number for businesses the irs customer service number for people with hearing impairments is if you have any questions about your sincerely lois g lerner director exempt_organizations enclosure notice redacted proposed adverse determination_letter redacted final adverse determination_letter letter cg catalog number 47632s department of the treasury internal_revenue_service washington d c contact person identification_number contact number fax number employer_identification_number uil sec_501 tax_exempt_and_government_entities_division date date legend c state d date e program ef program g mentoring program h foundation dear we have considered your application_for recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code code based on the information provided we have concluded that you do not qualify for exemption under sec_501 of the code the basis for our conclusion is set forth below facts you were founded by operators of for-profit businesses engaged in investment rehabbing rental sale and management of foreclosed properties the initial application indicated you are an organization that provides foreclosure and financial counseling services you were incorporated on d as anon-profit corporation under c_law your articles of incorporation and bylaws both state your purpose is i ii iii iv to provide educational_services that foster financial responsibility and accountability to foster descent sic affordable housing for low- and moderate- income persons veterans persons with disabilities the aging and the like to provide services that promote cultural awareness intergenerational interaction fosters independence and promotes a general sense of health and well-being to solicit and receive contributions purchase own and sell real and personal_property to make contracts to invest corporate funds to spend corporate funds for the corporate purposes and to engage in any activity in furtherance of incidental to or connected with any of the other purposes your form_1023 provided a breakdown of your organization's projected activities and indicated the percentage of time spent conducting each as follows housing counseling home owner education and financial literacy group foreclosure workshops environmentally friendly affordable homeownership needed services for foreclosure victims fundraising initially you will concentrate on housing and foreclosure counseling the provision of environmentally friendly affordable homeownership will be a future activity the housing counseling home owner education and financial literacy will consist of helping individuals maintain home ownership by providing financial education budgeting strategies mortgage workout resolutions financial assistance and foreclosure prevention strategies before beginning each counseling session each participant completes an input sheet to document their information personal situation and financial status both telephone consultations and face-to-face counseling will be conducted workshops will be conducted by bank representatives cpa contracted counseling agencies and hud certified counselors at local libraries conference rooms and your local offices on a weekly basis you will use materials from the e_ to educate regarding lender negotiation and workout assistance program focuses on clients in foreclosure or pre-foreclosure the process is as follows v v v v v v v v v v v v v homeowner meets with counselor default case is determined servicer information is requested and reviewed homeowner situation is analyzed a budget is developed home value is determined it is determined if the situation is curable loan mitigation tools and options are determined workout plan is developed loan mitigation package is submitted client is educated regarding servicer negotiation servicer negotiation support is provided workout solutions may include loan modifications forbearances repayment plans short_sales or a deed in lieu you will receive no fees from lenders group foreclosure workshops will be conducted for small groups at local libraries available conference rooms and your office the students will be taught basic financial literacy including financial and credit terms budgeting strategies the importance of tracking and maintaining positive credit rating the foreclosure process and various methods and procedures of foreclosure prevention and financial stability your environmentally friendly affordable homeownership will increase the supply of low-income_housing by upgrading existing homes and or building new ones the housing will target the elderly handicapped veterans and those in service fields firefighters teachers police etc the housing will be made available exclusively to low-income individuals and will comply with the guidelines set forth in revproc_96_32 needed services will assist individuals and families in obtaining needed resources after a foreclosure such as shelter and counseling additional details regarding your services were provided you will utilize f which helps adults enhance their money skills and create positive banking relationships this program will be targeted to low and middle income individuals who are working may be unbanked or underserved and have very little financial knowledge each client will receive an individual counseling plan icp the icp will outline the client's objectives and outline action steps needed for each component of the icp and a timeline for completion of goals with each objective completion a certificate of completion will be issued to the client at the end of your services each client will receive an assessment and follow up services will be provided on a case by case basis housing counseling services will be provided in the following areas v v v v v v v v v pre-purchase homebuyer counseling homebuyer education programs counseling to resolve or prevent mortgage delinquency or default non-delinquency post-purchase counseling on improving mortgage term hud’s home equity conversion mortgage program hecm and home improvement post-purchase education programs counseling and education on locating securing or maintaining residence in rental housing counseling on shelter or services for the homeless marketing and outreach initiatives homeownership voucher counseling your services will be marketed through apartment magazines newsletters television ads and word of mouth all of your programs will be open to the public in the future fees may be charged to clients based on a sliding scale determined by income utilizing the federal poverty guidelines no fee would be charged for household incomes less than of median income ami initially your board_of directors was described as consisting of five individuals two of the five are related father and son two of the five will become certified as housing counselors and will be compensated the financial information submitted with your form_1023 projected all revenue from donations in your first three years of operations expenses were projected to equal revenue the three largest projected expenses were program expenses director officer compensation and other salary and wages your responses to our questions regarding your application provided the following clarifications and substantial changes to your projected operations response you will have only three directors none are related or compensated the individuals projected to receive compensation are identified as co executive directors are not voting board members and are currently not compensated you will not provide housing counseling using e instead you will collaborate with presently hud approved agency ies allowing for better utilization of services mortgage mitigation services will also be in collaboration with a hud approved agency you have not begun operations you have no facility and have not purchased any housing anyone seeking credit repair credit counseling creditor negotiation or bankruptcy counseling will be referred to a local non profit agency the needed services for foreclosure victims’ listed among your activities involve referrals to a non-profit agency that can address their needs an application to h u d for the neighborhood stabilization f found on the web site and verified in the response indicates you will purchase develop and rehabilitate homes for low and moderate income buyers response you explained your collaboration process and identified the existing four non-profits that will receive referrals you revised your projected activities the new breakdown of the activities is as follows housing acquisition and rehab affordable rental housing low-income rent-to-own housing affordable housing ownership fundraising you will not provide credit counseling or foreclosure prevention education if an individual expresses a desire for such counseling or education you will refer them to existing non-profit agencies regarding your housing down payment assistance will be provided response you clarified that each collaborating non-profit is a c entity and no director or relative of a director will be involved in a rehabilitation project you may be involved in a purchase lease back program all such properties will be affordable housing down payment assistance only applies to units owned by you which are none at the present time seller financing may be an option for applicants who may not qualify for traditional mortgages you will assist each client in exploring their options which may include connecting them with a housing finance agency preferred loan officer a listing of individuals in your county who are recommended by c the down payment assistance is awarded based on performance for each month a rental client pays on time they are awarded a credit of of the payment to use as a future down payment also the client can make an additional rent payment a credit of of the payment will be made to their down payment account you again stated that eligibility for your programs will be based on the guidelines established by revproc_96_32 it is planned that the homes sold will be offered slightly below fmv so that the buyer will start with equity in the home response you provided further details regarding your down payment assistance program and indicated you would follow the guidelines established in revrul_2006_27 situation response your first response indicated you would not conduct housing counseling or mortgage mitigation but would collaborate with presently hud approved agencies however a review of your web site indicated you were still offering housing counseling and or mortgage mitigation when asked to explain you stated that you would change your website after the question and answer clarification period with the irs your articles and bylaws state in part that you will prevent foreclosure when asked if you intended to amend your articles in light of the stated changes in your projected activities you stated that the bylaws would be amended however you pointed out that through the services you offer you are in part preventing foreclosure the service provided is the referral referrals are made to the previously described not for profit organizations you clarified that other down payments refer to referrals only no fees or other income will be derived by you for any referral in response to our questions regarding your participation in a consortium with three non-profit organizations you stated that the consortium came together to apply for hud nsp2 funding however you are no longer part of this consortium because it never became a reality as nsp2 funding was not awarded and the consortium is dissolved response this response refused to respond to our additional questions you stated that our frustration grows and we question if there is ever going to be an end to this process you requested exemption be granted based on the information submitted and compliance with our process response you stated that the board member that is a grant writer will not write grants but will assist in the review process and that no board member would be compensated regarding compensation issues the board will follow protocol as outlined in the conflict of interest statement as it has in the past where that member of the voting board is asked to leave the room during a vote that may involve a conflict therefore that member’s vote is not considered you stated that your two directors who have experience rehabbing and selling foreclosed properties for profit are making arrangements to scale back and cease operations in the existing for-profit business once you are operational with the tax exempt status focus will be shifted to developing plans to work on community projects through the non-profit entity you stated that you have no current relationships with for-profit entities you are looking to source all services from local vendors on a competitive bid process and adhere to the conflict of interest policy in place you will not purchase or rehab any properties owned by your directors title to any properties will be held by you as beneficiary and one or more of your board members as the trustee one of your directors has started seven businesses four are no longer owned or operated by this individual one has not conducted business since the other two entities an investment firm dealing mainly in rehab and rental or properties and a management company involved in rehab rental and property management were both scheduled to be dissolved in no evidence was submitted indicating the entities had been dissolved one of your purposes is to refer individuals to the for-profit g you stated that it is a mentoring program that can teach individuals a means to make a living or develop a business through investing in real_estate the program is just an option for those that are interested to get involved in a business opportunity that could later support them and or their family the program will only be presented as an option and not a direction and it is left up to their discretion if they proceed or not’ you may receive grants from h to allow your clients to attend g the wife of the founder of g is a director of h law sec_501 of the code provides that an organization described in sec_501 shall be exempt from taxation sec_501 of the code provides that corporations may be exempted from tax if they are organized and operated exclusively for charitable or educational_purposes and no part of their net_earnings inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 of the regulations provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities that accomplish one or more of such 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 sec_1_501_c_3_-1 of the regulations assigns the burden_of_proof to an applicant organization to show that it serves a public rather than a private interest and specifically 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 provides that the term charitable is used in sec_501 in its generally accepted legal sense and includes the relief of the poor and distressed or of the underprivileged sec_501 of the code provides that organizations which provide credit_counseling_services as a substantial purpose shall not be exempt from taxation under sec_501 unless they are described in sec_501 or sec_501 and they are organized and operated in accordance with the following requirements a the organization-- i provides credit_counseling_services tailored to the specific needs and circumstances of consumers ii makes no loans to debtors other than loans with no fees or interest and does not negotiate the making of loans on behalf of debtors iii provides services for the purpose of improving a consumer's credit record credit history or credit rating only to the extent that such services are incidental to providing credit_counseling_services and iv does not charge any separately_stated fee for services for the purpose of improving any consumer's credit record credit history or credit rating b the organization does not refuse to provide credit_counseling_services to a consumer due to the inability of the consumer to pay the ineligibility of the consumer for debt management plan enrollment or the unwillingness of the consumer to enroll in a debt management plan c the organization establishes and implements a fee policy which-- i requires that any fees charged to a consumer for services are reasonable ii allows for the waiver of fees if the consumer is unable to pay and iii except to the extent allowed by state law prohibits charging any fee based in whole or in part on a percentage of the consumer's debt the consumer's payments to be made pursuant to a debt management plan or the projected or actual savings to the consumer resulting from enrolling in a debt management plan d at all times the organization has a board_of directors or other governing body-- i which is controlled by persons who represent the broad interests of the public such as public officials acting in their capacities as such persons having special knowledge or expertise in credit or financial education and community leaders ii not more than percent of the voting power of which is vested in persons who are employed by the organization or who will benefit financially directly or indirectly from the organization's activities other than through the receipt of reasonable directors’ fees or the repayment of consumer debt to creditors other than the credit_counseling_organization or its affiliates and iii not more than percent of the voting power of which is vested in persons who are employed by the organization or who will benefit financially directly or indirectly from the organization's activities other than through the receipt of reasonable directors’ fees sec_501 of the code defines for purposes of sec_501 the term credit_counseling_services to mean i the providing of educational information to the general_public on budgeting personal finance financial literacy saving and spending practices and the sound use of consumer credit ii the assisting of individuals and families with financial problems by providing them with counseling or iii a combination of the activities described above revrul_61_170 1961_2_cb_112 held that a nurses’ association which maintains an employment registry primarily for the employment of members is not entitled to exemption as a charitable_organization under sec_501 in revrul_69_441 1969_2_cb_115 the service found that a nonprofit organization formed to help reduce personal bankruptcy by informing the public on personal money management and aiding low-income individuals and families with financial problems was exempt under sec_501 of the code its board_of directors was comprised of representatives from religious organizations civic groups labor unions business groups and educational institutions by aiding low-income individuals and families who have financial problems and by providing without charge counseling and a means for the orderly discharge_of_indebtedness the organization was relieving the poor and distressed moreover by providing the public with information on budgeting buying practices and the sound use of consumer credit the organization was instructing the public on subjects useful to the individual and beneficial to the community thus the organization was exempt under sec_501 of the code revrul_2006_27 2006_1_cb_915 considered in part three situations where organizations that otherwise meet the requirements of sec_501 provide down payment assistance to home buyers to determine if they operate exclusively for charitable purposes the revenue_ruling held that in situation sec_1 and the organizations were operated exclusively for sec_501 _ purposes and in situation the organization was not operated exclusively for sec_501 purposes distinguishing factors for disqualification in situation included v v to finance its down payment assistance program the organization relied upon sellers and other real_estate related businesses that could benefit from the transaction the organization’s staff knew the identity of the home seller or other interested_party the payment from the home seller corresponded to the amount of the down payment the organization relied on these payments for most of its funding the analysis concluded that the business_purpose of this service was the primary goal which overshadowed any educational or charitable purpose revproc_96_32 1996_1_cb_717 this revenue_procedure sets forth a safe_harbor under which organizations that provide low-income_housing will be considered charitable as described in sec_501 because they relieve the poor and distressed as described in sec_1 c -1 d of the income_tax regulations this revenue_procedure also describes the facts and circumstances test that will apply to determine whether organizations that fall outside the safe_harbor relieve the poor and distressed such that they will be considered charitable organizations described in sec_501 it also clarifies that housing organizations may rely on other charitable purposes to qualify for recognition of exemption from federal_income_tax as organizations described in sec_501 in 326_us_279 the supreme court held that the presence of a single non-exempt purpose if substantial in nature will destroy a claim for exemption regardless of the number or importance of truly exempt purposes 477_f2d_340 4th cir cert_denied 413_us_910 found that operating for the benefit of private parties constitutes a substantial nonexempt purpose in 70_tc_352 the court found that a corporation formed to provide consulting services did not satisfy the operational_test under sec_501 of the code because its activities constituted the conduct_of_a_trade_or_business that is ordinarily carried on by commercial ventures organized for profit educational or scientific but rather commercial in addition the court found that the organization's financing did not resemble that of typical sec_501 organizations it had not solicited nor had it received voluntary contributions from the public its only source_of_income was from fees from services and those fees were set high enough to recoup all projected costs and to produce a profit moreover while to some extent the fees charged reflected ability to pay it did not appear that the corporation ever planned to charge a fee less than cost and finally the corporation did not limit its clientele to organizations that were sec_501 exempt_organizations its primary purpose was not charitable in consumer credit counseling service of alabama inc v united_states u s t c d d c the court held that an organization that provided free information on budgeting buying practices and the sound use of consumer credit qualified for exemption from income_tax because its activities were charitable and educational the consumer credit counseling service of alabama was an umbrella organization made up of numerous credit counseling service agencies these agencies provided information to the general_public through the use of speakers films and publications on the subjects of budgeting buying practices and the sound use of consumer credit they also provided counseling on budgeting and the appropriate use of consumer credit to debt- distressed individuals and families they did not limit these services to low-income individuals and families but they did provide such services free of charge as an adjunct to the counseling function they offered a debt management plan approximately percent of a professional counselor's time was applied to the debt management plan as opposed to education the agencies charged a nominal fee of up to dollar_figure per month for the debt management plan this fee was waived in instances when payment of the fee would work a financial hardship the professional counselors employed by the organizations spent about percent of their time in activities such as information dissemination and counseling assistance rather than those connected with the debt management programs as such the community and education counseling assistance programs were the agencies’ primary activities the primary sources of revenue for these organizations were provided by government and private_foundation grants contributions and assistance from labor agencies and united way an incidental amount of their revenue was from service fees thus the court concluded that each of the plaintiff consumer credit counseling agencies was an organization described in sec_501 as a charitable and educational_organization see also credit counseling centers of oklahoma inc v united_states u s t c d d c in which the facts were virtually identical and the law was identical to those in consumer credit counseling service of alabama inc v united_states discussed immediately above in 765_f2d_1387 cir affg tcmemo_1984_349 tax_court concluded that the extent of the integration between the operations of a non-profit entity and related for-profit entities controlled by the non-profit directors precluded exemption furthermore the tax_court found it unnecessary to consider the reasonableness of payments made by the applicant to a business owned by its officers the circuit_court of appeals in affirming the tax court's decision stated that the critical inquiry is not whether particular contractual payments to a related for-profit organization are reasonable or excessive but instead whether the entire enterprise is carried on in such a manner that the for-profit organization benefits substantially from the operation of the church in easter house v united_states cl_ct affd 846_f2d_78 fed cir cert_denied 488_us_907 109_sct_257 102_led_246 the court found an organization that operated an adoption agency was not exempt under sec_501 of the code because a substantial purpose of the agency was a nonexempt commercial purpose the court concluded that its primary activity was placing children for adoption in a manner indistinguishable from that of a commercial adoption agency the court found that the health-related services were merely incidental to the organization's operation of an adoption service which in and of itself did not serve an exempt_purpose the organization's sole source of support was the fees it charged adoptive parents rather than contributions from the public the court also found that the organization competed with for-profit adoption agencies engaged in substantial advertising and accumulated substantial profits accordingly the court found that the business_purpose and not the advancement of educational and charitable activities purpose of plaintiff's adoption service is its primary goal and held that the organization was not operated exclusively for purposes described in sec_501 in international postgraduate medical foundation v commissioner tcmemo_1989_36 the court held that an organization that had the substantial nonexempt purpose of benefiting a related for-profit travel agency from which it purchased travel services did not qualify for exemption under sec_501 in 950_f2d_365 7th cir the u s court_of_appeals for the seventh circuit upheld a tax_court decision that an organization operating restaurants and health food stores in a manner consistent with the doctrines of the seventh day adventist church did not qualify for exemption under sec_501 of the code because the organization was operated for a substantial nonexempt commercial purpose the court found that the organization's activities were presumptively commercial because the organization was in competition with other restaurants engaged in marketing and generally operated in a manner similar to commercial businesses in 283_fsupp2d_58 d d c the court relied on the commerciality’ doctrine in applying the operational_test because of the commercial manner in which this organization conducted its activities the court found that it was operated for a nonexempt commercial purpose rather than for an exempt_purpose as the court stated among the major factors courts have considered in assessing commerciality are competition with for profit commercial entities extent and degree of below cost services provided pricing policies and reasonableness of financial reserves additional factors include inter alia whether the organization uses commercial promotional methods eg advertising and the extent to which the organization receives charitable donations in solution plus inc v commissioner tcmemo_2008_21 the tax_court held that a credit_counseling_organization was not exempt under sec_501 because it was not organized and operated exclusively for educational or charitable purposes and impermissibly served private interests the organization was formed by an individual with experience selling debt management plans dmps the founder and his spouse were the only members of the organization's board_of directors the organization did not have any meaningful educational program or materials to provide to people who contacted the organization and its financial education seminars for students constituted an insignificant part of the organization’s overall activities the court held that the organization's purposes were not educational because its activities are primarily structured to market determine eligibility for and enroll individuals in dmps its purposes are not to inform consumers about understanding the cause of and devising personal solutions to consumers’ financial problems or to consider the particular knowledge of individual callers about managing their personal finances the tax_court also held that the organization's purposes were not charitable because its potential customers are not members of a charitable_class that are benefited in a 'non-select manner’ criteria of the participating creditors because they will be turned away unless they meet the the tax_court further held the organization would operate for the private interests of its founder because the founder and his spouse were the only directors the founder was the only officer and employee and his compensation was based in part on the organization’s dmp sales activity levels the organization was a family-controlled business that he personally would run for financial gain using his past professional experience marketing dmps and managing a dmp call center the court further held that the organization’s principal activity of providing dmp services which were only provided if approved by a caller’s creditors furthered the benefit of the private interests of creditors as well analysis sec_501 of the code sets forth two main tests for an organization to be recognized as exempt an organization must be both organized and operated exclusively for purposes described in sec_501 you fail the operational_test you are not operated exclusively for charitable purposes your operations also indicate that you have a substantial non-exempt commercial purpose in addition your operations have the effect of serving private rather than public interests finally as an organization providing financial counseling you are not in compliance with the requirements of sec_501 operational_test to satisfy the sec_501 operational_test an organization must establish that it is operated exclusively for one or more exempt purposes sec_1_501_c_3_-1 of the regulations states that an organization will be regarded as operated exclusively for one or more exempt purposes only if exempt purposes specified in sec_501 of the code as further clarified by the u s tax_court in the b s w group decision under the operational_test the purpose towards which an organization’s activities are directed and not the nature of the activities themselves is ultimately dispositive of the organization’s right to be classified as a sec_501 organization your activities are not directed exclusively toward one or more exempt purposes it engages primarily in activities that accomplish one or more of such your activities demonstrate that you do not operate exclusively for charitable purposes within the meaning of sec_501 of the code initially you stated your primary purpose of activity would involve financial counseling only of your activity would be the provision of housing and the other was fundraising you did not provide evidence that the initial financial counseling served exclusively charitable purposes during the processing of your application you substantially_modified your activities the new breakdown of the activities is as follows housing acquisition and rehab affordable rental housing low-income rent-to-own housing affordable housing ownership fundraising however a review of your web site indicated you were still offering housing counseling and or mortgage mitigation you stated that you would change your website after the question and answer clarification period with the irs however to date no changes have been made furthermore your articles and bylaws state in part that you will prevent foreclosure when asked if you intended to amend your articles in light of the stated changes in your projected activities you stated the bylaws would be amended in the future this reluctance to make changes to your website articles and bylaws calls into question the validity of the revision of your activities you stated that in the future fees may be charged to clients based on a sliding scale determined by income utilizing the federal poverty guidelines therefore your services will not be free and will not be limited to any charitable_class you will help people of all income levels helping people of all incomes does not provide relief to the poor and distressed within the meaning of sec_1_501_c_3_-1 of the regulations or serve any other purpose recognized as charitable accordingly you are unlike the organization described in revrul_69_441 supra which aided low- income individuals and families who have financial problems thereby relieving the poor and distressed since you have indicated that you may charge fees for the majority of services provided you are also unlike the organizations in consumer credit counseling service of alabama although these organizations did not limit services to low income individuals services were provided free of charge rather you are similar to the organization addressed by the solution plus tax_court memo which held that the organization’s purposes were not charitable because the potential customers are not members of a charitable_class that are benefited in a 'non-select manner and that primarily providing services for a fee ordinarily does not further charitable purposes even considering your revised activities you have failed to establish your provision of housing will be exclusively charitable you failed to submit the required housing schedule required by form_1023 or give sufficient details for us to conclude your housing activity was exclusively charitable for example you indicated your housing will target the elderly handicapped veterans and those in service fields firefighters teachers police etc but will be made available exclusively to low- income individuals and will comply with the guidelines set forth in revproc_96_32 elderly and handicapped citizens have specific needs that you failed to prove you will address also you did not make clear how employed firefighters teachers police etc would be considered low-income you have not demonstrated that the provision of these services exclusively furthers charitable purposes within the meaning of sec_501 of the code therefore you also have not met the requirements of sec_1_501_c_3_-1 of the regulations which assigns the burden_of_proof to an applicant organization to demonstrate that it meets the operational_test commerciality - substantial nonexempt purpose sec_1_501_c_3_-1 of the regulations provides an organization does not qualify for exemption if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose a nonexempt purpose may be evidenced by activities that are conducted in a commercial manner or for a commercial purpose indeed in discerning whether an organization has a substantial nonexempt commercial purpose courts focus on a number of factors related to the nature of the activities and how an organization conducts its business including pricing policies funding sources and the organization’s competitiveness with and similarity to other commercial ventures several court decisions have established commerciality as a disqualifying substantial non-exempt purpose eg 70_tc_352 easter house cl_ct 283_fsupp2d_58 d d c 950_f2d_365 7th cir you are similar to the organization described in b s w group inc which did not satisfy the operational_test under sec_501 because its activities constituted the conduct_of_a_trade_or_business that is ordinarily carried on by commercial ventures organized for profit’ you have indicated that after exemption is received your website will be changed to reflect your new activities you also have indicated that related for-profit entities owned by your director that conduct similar housing activity will be dissolved when asked if your two directors who have experience rehabbing and selling foreclosed properties for profit will continue this activity you stated that the directors referenced here are making arrangements to scale back and cease operations in the existing for-profit business once you are operational with the tax exempt status focus will be shifted to developing plans to work on community projects through the non-profit entity’ based on the information you have provided not possible future changes you are not in compliance with sec_1_501_c_3_-1 of the regulations which assigns the burden_of_proof to an applicant organization to show that it serves a public rather than a private interest and specifically 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 the interrelationships and common_control of your organization and the for-profit entities is a substantial non-exempt purpose similar to the operations of the organizations in international postgraduate medical foundation v commissioner and old dominion box co v united_states your existing relationship with the commonly controlled for-profit entities also constitutes a specific non-exempt purpose which precludes exemption consistent with the decision in better business bureau of washington d c inc v united_states it is unnecessary for us to determine that you will make payments to the related for-profit entities or that such payments will be unreasonable as the court indicated in church by mail the critical inquiry is not whether particular contractual payments to a related for-profit organization are reasonable or excessive but instead whether the entire enterprise is carried on in such a manner that the for-profit organization benefits substantially from the operation of the church your entire enterprise is carried on in such a manner as to substantially benefit the related for-profit entities operated by your directors you conduct many of your activities which are normally carried on by commercial enterprises for a profit in the same commercial manner and in direct competition with commercial businesses as the organizations in airlie foundation v commissioner and easter house v united_states as well as living faith v commissioner where courts have found that a substantial non-exempt commercial purpose precluded qualification for tax-exemption under sec_501 the housing activity you plan to provide is in direct competition with for-profit entities that provide similar services in fact your director owns two such for-profit entities based on the facts as described above you will conduct the same activities previously conducted by your directors through their for-profit enterprises and simply shift projects through to you you have not substantiated how the shift to you will vary from commercial operations you have failed to provide evidence that you will ensure charitable goals take precedence over the interests of related and unrelated for-profit entities although you agreed to comply with the guidelines of revproc_96_32 no supporting documentation contracts or other agreements were submitted showing how you plan to implement and oversee compliance you stated that you have no current relationships with for-profit entities you are looking to source all services from local vendors on a competitive bid process and adhere to the conflict of interest policy in place this is evidence you plan to have relationships with for-profit entities but failed to provide details by indicating no current relationships more than an insubstantial part of your activities are in furtherance of a nonexempt commercial purpose in contravention of sec_1_501_c_3_-1 of the regulations therefore you are not operated for an exempt_purpose private benefit as stated in sec_501 and sec_1_501_c_3_-1 of the regulations - an organization is not organized or operated exclusively for exempt purposes unless it serves a public rather than a private interest you are controlled by a board_of directors composed of real_estate professionals without public participation of any kind this is similar to the situation described in revrul_61_170 where the general_public benefit was only incidental your board_of directors is composed primarily of persons who stand to gain financially from your organization’s activities unlike the organization in revrul_69_441 whose board_of directors was comprised of representatives from religious organizations civic groups labor unions business groups and educational institutions two of your directors own for-profit entities that conduct similar operations you have not provided evidence that your non-public board would not use its position to directly benefit the related for- profit entities in addition you have indicated that one of your purposes is to refer to a for-profit mentoring program g individuals desiring to become involved in the real_estate business the referral of your clients is a direct private benefit to the for-profit entity both of these benefits to related for-profit entities are similar to the single non-exempt purpose which precluded exemption for the applicant organization in better business bureau of washington d c inc v united_states therefore you have not demonstrated that your operations serve a public rather than a private interest as required by sec_1_501_c_3_-1 of the regulations sec_501 of the code an organization that provides educational information on financial topics or financial counseling to homeowners who are at risk of foreclosure is providing credit_counseling_services within the meaning of sec_501 of the code an organization that engages in such activities as a substantial purpose must in addition to complying with the requirements of sec_501 comply with the provisions of sec_501 initially your primary activity was financial counseling however after your stated projected activity revisions your primary activity will be housing it is unclear if your revised activities contain a substantial counseling component your bylaws indicate you will prevent foreclosure when asked about this you indicated that in the programs we have described and services we are seeking to offer we promote and provide affordable housing and affordable rents and provide resources to secure appropriate and necessary funding part of providing the housing includes working with the individual to provide the resources and tools that will assist them in attaining home ownership as well as reducing their risk of losing their home - ie foreclosure we are in part preventing foreclosure when we provide the individual with options of whom they can meet with and if asked by said individual we assist in connecting them to a collaborating organization of their choosing while you claim that this is simply a referral process you will work with the individual to provide the resources and tools and inform them of their options this could be considered counseling sec_501 of the code defines for purposes of sec_501 the term credit_counseling_services to mean i the providing of educational information to the general_public on budgeting personal finance financial literacy saving and spending practices and the sound use of consumer credit ii the assisting of individuals and families with financial problems by providing them with counseling or iii a combination of the activities described above therefore whether you primarily provide counseling or housing it appears you will provide credit_counseling_services as defined by sec_501 of the code as provided in sec_501 of the code credit counseling organizations must be governed by a board controlled by persons representing the broad interests of the public rather than by persons who benefit from the organization’s activities you have provided no evidence your board represents the broad interests of the public rather it appears to serve private interests you initially indicated that your two co-executive directors would be compensated currently you have no paid directors or employees in your application and correspondence the individuals projected to receive compensation are identified as co-executive directors although you state that the co-executive directors do not have voting power you have not fully explained the duties and roles of the co-executive directors the presence of director in the title conveys an expectation that the two co-executive directors would be part of the governing body if so this would not comply with sec_501 which states that at all times the organization must have a board_of directors or other governing body not more than percent of the voting power of which is vested in persons who are employed by the organization or who will benefit financially directly or indirectly from the organization's activities other than through the receipt of reasonable directors’ fees or the repayment of consumer debt to creditors other than the credit_counseling_organization or its affiliates accordingly you do not have a board that is controlled by persons who represent the broad interests of the public as required by sec_501 you also appear to fail the requirements of sec_501 and iii which specify that the percentage of voting power that is allowed to be vested in financially interested persons is no more than therefore had you established that you otherwise met the requirements of sec_501 of the code your failure to satisfy the requirements of sec_501 would prevent you from being exempt from taxation under sec_501 conclusion based on the facts and information provided you are not organized or operated exclusively for exempt purposes as required by sec_1_501_c_3_-1 sec_1_501_c_3_-1 and sec_1 c - c of the regulations you are organized and operated for a substantial nonexempt purpose in contravention of sec_1_501_c_3_-1 of the regulations any public purposes for which you may operate are only incidental to your primary nonexempt purpose you do not serve a public rather than a private interest as required by sec_1_501_c_3_-1 of the regulations therefore you are not described in sec_501 of the code in addition you do not meet the requirements of sec_501 accordingly you do not qualify for exemption as an organization described in sec_501 of the code and you must file federal_income_tax returns contributions to you are not deductible under sec_170 appeal rights you have the right to file a protest if you believe this determination is incorrect to protest you must submit a statement of your views and fully explain your reasoning you must submit the statement signed by one of your officers within days from the date of this letter we will consider your statement and decide if the information affects our determination your protest statement should be accompanied by the following declaration under penalties of perjury declare that have examined this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all the relevant facts and such facts are true correct and complete you also have a right to request a conference to discuss your protest this request should be made when you file your protest statement an attorney certified_public_accountant or an individual enrolled to practice before the internal_revenue_service may represent you representation during the conference procedures you must file a proper power_of_attorney form_2848 power_of_attorney and declaration of representative if you have not already done so for more information about representation see publication practice_before_the_irs and power_of_attorney all forms and publications mentioned in this letter can be found at www irs gov forms and publications if you want if you do not file a protest within days you will not be able to file a suit for declaratory_judgment in court because the internal_revenue_service irs will consider the failure to protest as a failure to exhaust available administrative remedies code sec_7428 provides in part that a declaratory_judgment or decree shall not be issued in any proceeding unless the tax_court the united_states court of federal claims or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted all of the administrative remedies available to it within the irs if you do not intend to protest this determination you do not need to take any further action if we do not hear from you within days we will issue a final adverse determination_letter that letter will provide information about filing tax returns and other matters please send your protest statement form_2848 and any supporting documents to this address mail to deliver to internal_revenue_service eo determinations quality assurance room p o box cincinnati oh internal_revenue_service eo determinations quality assurance main street room cincinnati oh you may also fax your statement using the fax number shown in the heading of this letter fax your statement please call the person identified in the heading of this letter to confirm that he or she received your fax if you if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter enclosure pub sincerely lois lerner director exempt_organizations


internal_revenue_service index number department of the treasury washington dc person to contact telephone number refer reply to cc dom corp plr-116429-98 ate date distributing distributing sub business a business b business c asset individual plr-116429-98 l i i u o i o i o l a i d i dear we respond to your date request for rulings on certain federal_income_tax consequences of a proposed transaction summary of facts distributing is the common parent of a consolidated_group and has outstanding class a common_stock class b common_stock together the distributing common_stock and one series of preference stock distributing wholly owns distributing and sub debt’ distributing was created and capitalized through a series of transactions for which private letter rulings from the internal_revenue_service were previously obtained the prior rulings is indebted to distributing and sub the intercompany distributing distributing conducts business a and distributing conducts business b and business c we have received financial information indicating that each of these businesses has had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years business_purpose highly motivated entrepreneurial executives are critical to the success of both business b and business c and distributing has had difficulty hiring and retaining people with these qualifications many of the executives that recently have joined plr-116429-98 distributing were hired with the understanding that they would or could become significant equity owners in their particular business however because business a is much larger than business b and business b is larger than business c equity interests in distributing would primarily reflect the results of businesses other than the employing business distributing has therefore concluded based on the advice of consultants and other information that it must create separate independent companies for business b and business c in order to provide these executives with the equity interests they now expect proposed transaction to accomplish this separation distributing proposes the following series of transactions i distributing will transfer the business c assets to a newly formed of liabilities related to the transferred assets including an appropriate part subsidiary controlled in exchange for controlled stock and the assumption by controlled of the intercompany debt contribution controlled wiil accomplish the assumption of intercompany debt indirectly by borrowing funds from a third party iender the assumption funds and distributing the assumption funds to distributing for use by distributing in repaying part of the intercompany debt ii distributing will borrow funds from a third party lender and use those funds together with the assumption funds to repay all of its debt to sub and part of its debt to distributing iii distributing will distribute the controlled stock to distributing ‘distribution iv distributing will transfer the distributing stock the remaining intercompany debt and the asset to a newly formed corporation ‘controlled in exchange for controlled stock and the assumption by controlled of liabilities related to the transferred assets contribution v controlled and controlled each will issue the first tranche of its stock to certain of its senior executives vi controlled will issue new shares of its stock pro_rata to the distributing shareholders on their distributing common_stock and the controlled shares held by distributing will be cancelled distribution controlled will issue new shares of its stock pro_rata to the distributing shareholders on their distributing common_stock and the controlled shares held by distributing will be cancelled distribution plr-116429-98 together with distribution the distributions vii distributing will redeem the distributing common_stock held by business b or business c employees except individual viii within a months of the of the distributions the b most senior executives of each new company will have purchased stock in their company representing in the aggregate a greater than c percent interest within d months this interest will rise to greater than e percent the total cost to the controlled executives for their controlled stock will be approximately f dollars the total cost to the controlled executives for their controlled stock will be approximately g dollars contribution and distribution representations distributing makes the following representations concerning contribution and distribution a no part of the consideration to be distributed by distributing will be received by distributing as a creditor employee or in any capacity other than that of a distributing shareholder b following distribution distributing and controlled each will continue the active_conduct of its business independently and with its separate employees c the total adjusted_basis and fair_market_value of the assets transferred by distributing to controlled will in each instance equal or exceed the sum of i the liabilities assumed by controlled subject and iii the fair_market_value of any other_property including money distributed to distributing under the plan_of_reorganization or to distributing creditors in connection with the reorganization ii any liabilities to which the transferred assets are d the liabilities assumed by controlled to which the transferred assets are subject were incurred in the ordinary course of business and are associated with the assets being transferred in the transaction and any liabilities e distribution employees to acquire a significant direct equity_interest in controlled is motivated in whole or substantial part by this corporate business_purpose is being carried out as part of a plan to allow business c key distribution f except for indebtedness that may arise in the ordinary course of business following distribution no debt will exist between distributing and controlled time of or after distribution any indebtedness owed by controlled at the to distributing plr-116429-98 will not be stock_or_securities of controlled under sec_355 of the internal_revenue_code g neither distributing nor controlled in sec_368 and iv is an investment_company as defined h the five years of financial information submitted on behalf of distributing for business and business c represents the present operations of each business and with regard to each there have been no substantial operational changes since the date of the last financial statements submitted i there is no plan or intention to liquidate either distributing or controlled to merge either corporation with any other corporation or to sell or otherwise dispose_of the assets of either after distribution except in the ordinary course of business j except for distribution and distribution described below there is no plan or intention by any distributing shareholder to sell exchange transfer by gift or otherwise dispose_of any stock in either distributing or controlled after distribution k except for purchases and sales of stock under buy-sell agreements and employee stock_purchase_plans there is no plan or intention by either distributing or controlled directly or through any subsidiary_corporation to purchase any of its outstanding_stock after the transaction payments made in all continuing transactions between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length contribution and distribution rulings based solely on the information submitted and the representations set forth above we rule as follows on contribution and distribution contribution followed by distribution will be a reorganization under sec_368 distributing and controlled will each be a party toa reorganization under sec_368 no gain_or_loss will be recognized by distributing on contribution sec_361 and sec_357 see revrul_79_258 c b no gain_or_loss will be recognized by controlled on contribution plr-116429-98 sec_1032 the basis of each business c asset received by controlled will equal the basis of that asset in the hands of distributing immediately before its transfer sec_362 the holding_period of each business c asset received by controlled will include the period during which that asset was held by distributing sec_1223 no gain_or_loss will be recognized by distributing on distribution sec_361 no gain_or_loss will be recognized by and no amount will otherwise be included in the income of distributing on its receipt of controlled stock in distribution sec_355 the holding_period of the controlled stock received by distributing will is made sec_1223 include the holding_period of the distributing stock on which distribution provided the stock is held as a capital_asset on the date of distribution as provided in sec_312 proper allocation of earnings_and_profits between distributing and controlled will be made under sec_1_312-10 contribution and distribution representations distributing makes the following representations concerning distribution a no part of the consideration to be distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a distributing shareholder b immediately after distribution at least percent of the fair_market_value of the gross assets of controlled will consist of stock and securities of distributing distributing and distributing each will continue the active_conduct of its business independently and with its separate employees c the total adjusted_basis and fair_market_value of the assets transferred by distributing to controlled will in each instance equal or exceed the sum of i the liabilities assumed by controlled ii any liabilities to which the transferred assets are subject and iii the fair_market_value of any other_property including money distributed to distributing shareholders under the plan_of_reorganization or to distributing creditors in connection with the reorganization plr-116429-98 d the tiabilities assumed by controlled in the transaction and any liabilities to which the transferred assets are subject were incurred in the ordinary course of business and are associated with the assets being transferred e distribution is being carried out as part of a plan to aliow controlled key employees to acquire a significant direct equity_interest in controlled distribution is motivated in whole or substantial part by this corporate business_purpose f except for indebtedness that may arise in the ordinary course of business following distribution no debt will exist between distributing and controlled at the time of or after distribution any indebtedness owed by controlled to distributing after distribution will not be stock_or_securities of controlled under sec_355 g neither distributing nor controlled is an investment_company as defined in sec_368 and iv h the five years of financial information submitted on behalf of distributing for business a and controlled fer business b represent each corporation's present operations and regarding each corporation there have been no substantial operational changes since the date of the last financial statements submitted i there is no plan or intention to liquidate either distributing or controlled to merge either corporation with any other corporation or to sell or otherwise dispose_of the assets of either after distribution except in the ordinary course of business j except for purchases and sales of stock under buy-sell agreements and employee stock_purchase_plans there is no plan or intention by any distributing shareholder to sell exchange transfer by gift or otherwise dispose_of any stock in either distributing or controlled after distribution k except for purchases and sales of stock under buy-sell agreements and employee stock_purchase_plans there is no plan or intention by either distributing 2or controlled directly or through any subsidiary_corporation to purchase any of its outstanding_stock after distribution i payments made in all continuing transactions between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm’s length m immediately before distribution items of income gain loss deduction and credit if any will be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 of the income_tax plr-116429-98 regulations as in effect before the publication of t d 1995_2_cb_147 and as currently in effect sec_1_1502-13 as published by t d any excess_loss_account distributing may have in controlled stock will be included in income immediately before distribution to the extent required by the applicable regulations see sec_1 n distribution is not part of a plan or series of related transactions within the meaning of sec_355 pursuant to which one or more persons will acquire directly or indirectly stock possessing percent or more of the total combined voting power of all classes of stock of either distributing or controlled or stock possessing percent or more of the total value of all classes of stock of either distributing or controlled contribution and distribution rulings based solely on the information submitted and the representations set forth above we rule as follows on contribution and distribution for federal_income_tax purposes distribution will be treated as a distribution by distributing of its controlled stock to the distributing shareholders see revrul_77_191 c b contribution followed by distribution will be a reorganization under sec_368 distributing and controlled will each be a_party_to_a_reorganization under sec_368 no gain_or_loss will be recognized by distributing on contribution sec_361 and sec_357 no gain_or_loss will be recognized by controlled on contribution sec_1032 the basis of each business b asset received by controlled will equal the basis of that asset in the hands of distributing immediately before its transfer sec_362 the holding_period of each business b asset received by controlled will include the period during which that asset was held by distributing sec_1223 no gain_or_loss will be recognized by distributing on distribution sec_361 plr-116429-98 no gain_or_loss will be recognized by and no amount will otherwise be included in the income of the distributing shareholders on their receipt of controlled stock in distribution sec_355 the holding_period of the controlled stock received by distributing shareholders will include the holding_period of the distributing stock on which distribution is made provided the stock is held as a capital_asset on the date of distribution sec_1223 as provided in sec_312 proper allocation of earnings_and_profits between distributing and controlled will be made under sec_1_312-10 distribution representations distributing makes the following representations concerning distribution a no part of the consideration to be distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a distributing shareholder b following distribution distributing and controlled each will continue the active_conduct of its business independently and with its separate employees c distribution is being carried out as part of a plan to allow controlled key employees to acquire a significant direct equity_interest in controlled distribution is motivated in whole or substantial part by this corporate business_purpose d except for indebtedness that may arise in the ordinary course of business at the following distribution no debt will exist between distributing and controlled time of or after distribution any indebtedness owed by controlled to distributing after distribution will not be stock_or_securities of controlled under sec_355 e neither distributing nor controlled is an investment_company as defined in sec_368 and iv f the five years of financial information submitted on behalf of distributing for business a and controlled for business c represent each corporation's present operations and regarding each corporation there have been no substantial operational changes since the date of the last financial statements submitted g there is no plan or intention to liquidate either distributing or controlled to merge either corporation with any other corporation or to sell or otherwise dispose plr-116429-98 of the assets of either after distribution except in the ordinary course of business h except for purchases and sales of stock under buy-sell agreements and employee stock_purchase_plans there is no plan or intention by any distributing shareholder to sell exchange transfer by gift or otherwise dispose_of any stock in either distributing or controlled after distribution i except for purchases and sales of stock under buy-sell agreements and employee stock_purchase_plans there is no plan or intention by either distributing or controlled directly or through any subsidiary_corporation to purchase any of its outstanding_stock after distribution j payments made in all continuing transactions between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by parties bargaining at arm's length k immediately before distribution items of income gain loss deduction and credit if any wil be taken into account as required by the applicable intercompany_transaction regulations see sec_1_1502-13 and sec_1 as in effect before the publication of t d 4995_2_cb_147 and as currently in effect sec_1_1502-13 as published by t d any excess_loss_account distributing may have in controlled stock will be included in income immediately before distribution to the extent required by the applicable regulations see sec_1_1502-19 i distribution is not part of a plan or series of related transactions within the meaning of sec_355 pursuant to which one or more persons will acquire directly or indirectly stock possessing percent or more of the total combined voting power of all classes of stock of either distributing or controlled or stock possessing percent or more of the total value of all classes of stock of either distributing or controlled distribution rulings based solely on the information submitted and the representations set forth above we rule as follows on distribution for federal_income_tax purposes distribution will be treated as a distribution by distributing of the controlled stock to the distributing shareholders rev_rul c b no gain_or_loss will be recognized by distributing on its distribution of the controlled stock in distribution sec_355 plr-116429-98 no gain_or_loss will be recognized by and no amount will otherwise be included in the income of the distributing shareholders on their receipt of the controlled stock in distribution sec_355 the aggregate basis of the distributing controlled and controlled stock in the hands of each distributing shareholder after distribution will equal the shareholder's basis in the distributing stock immediately before distribution allocated in proportion to the fair_market_value of each in accordance with sec_1 a sec_358 and b the holding_period of the controlled stock received by each distributing shareholder will include the holding_period of the distributing stock on which distribution is made provided the stock is held as a capital_asset on the date of distribution sec_1223 as provided in sec_312 proper allocation of earnings_and_profits between distributing and controlled will be made under sec_4 b general ruling the transactions described in this letter will have no adverse effect on any of the prior rutings and each of the prior rulings will retain full force and effect caveats we express no opinion on the tax effects of the transaction under other provisions of the code and regulations or the tax effects of any conditions existing at the time of or effects resulting from the transaction that are not specifically covered by in particular no opinion is given on a the redemptions described the above rulings above in step vii or b any recapitalization of distributing that may occur as part of the proposed transaction temporary or final regulations pertaining to one or more issues addressed in this ruling letter including regulations under sec_358 have yet to be adopted therefore this ruling letter may be revoked or modified if adopted temporary or final regulations are inconsistent with any conclusions reached herein see section dollar_figure of ruling will revproc_98_1 1998_1_irb_7 which addresses in greater detail when a be revoked or modified however when the criteria in section dollar_figure of revproc_98_1 are satisfied a ruling is seldom revoked or modified retroactively except in rare or unusual circumstances plr-116429-98 procedural statements this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent each taxpayer involved in the transaction should attach a copy of this letter to the taxpayer's federal_income_tax return for the taxable_year in which the transaction is completed in accordance with the power_of_attorney on file in this office a copy of this letter is being sent to the taxpayer sincerely assista chief_counsel cérporate bat af ayhe a murray 7p dz seniorvechnician reviewer branch


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si plr-117914-99 date date legend x d1 dear this letter responds to your letter dated october written on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code that x's s_corporation_election will be effective as of the taxable_year beginning d1 according to the information submitted x was incorporated on d1 and it was decided that x would be an s_corporation the form_2553 election by a small_business_corporation however was not timely filed facts x requests a ruling that it will be recognized as an s_corporation effective for the taxable_year beginning d1 under sec_1362 law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides when an s election will be effective if an s election is made within the first two and one half months of a corporation's taxable_year then that corporation will be treated as an s_corporation beginning the year in which the election is made if an s election is made after the first two and one half months of a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if an election under sec_1362 is made for plr-117914-99 any taxable_year after the date prescribed by sec_1362 for making the election or no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for such taxable_year conclusions after applying the law to the facts submitted and the representations made we conclude that x has established reasonable_cause for not making a timely election and is eligible for relief under sec_1362 accordingly if x makes an election to be an s_corporation by filing with the appropriate service_center a completed form_2553 containing an effective date of d1 for the election within days following the date of this letter then such election will be treated as timely made a copy of this letter should be attached to the form_2553 filed with the service_center a copy is enclosed for that purpose except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x is an s_corporation for federal tax purposes this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office we are sending a copy of this letter to x sincerely yours william p o’shea chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c number release date uil cc dom it a spr-118826-99 date memorandum for national director submission processing op fs s p from subject assistant chief_counsel income_tax accounting cc dom it a use of math error procedures to disallow claims involving deceased individuals this responds to your request for advice received in this office via email dated date the request concerned the use of the math error procedures to disallow exemptions or credits based on taxpayer identification numbers issued to persons who according to data provided to the service by the social_security administration are dead conclusion the service may use the math error procedures to disallow a sec_151 exemption or sec_21 sec_24 sec_25a or sec_32 credit on the basis that the taxpayer_identification_number listed in support of the exemption or credit was issued to a person that social_security administration data show died prior to the year for which the exemption or credit was claimed however in view of the potentially sensitive nature of such an action we recommend that steps be taken prior to use of the math error procedure to ensure that taxpayers are given notice of the problem and an opportunity to explain discussion the social_security administration ssa provides national account profile nap data to the service for the purpose of checking for discrepancies between the information that the ssa has with information listed by taxpayers on their tax returns the nap data indicate where appropriate a person’s date of death sec_6213 provides generally that the service must send a taxpayer a notice_of_deficiency and provide a taxpayer an opportunity to petition the tax_court before the service can assess a deficiency against a taxpayer sec_6213 spr-118826-99 provides an exception to the general_rule of sec_6213 where the taxpayer’s deficiency results from a mathematical_or_clerical_error in such a case the service may summarily assess the additional tax due without sending the taxpayer a notice_of_deficiency and giving the taxpayer an opportunity to petition the tax_court if the service uses the summary_assessment procedures the taxpayer must be given an explanation of the asserted error and a period of days to request that the service abate its assessment sec_6213 the service must abate the assessment if the taxpayer so requests any reassessment is subject_to the general deficiency procedures sec_6213 defines mathematical_or_clerical_error to include the following f an omission of a correct taxpayer_identification_number required under sec_32 relating to the earned_income_credit to be included on a return h an omission of a correct tin required under sec_21 relating to expenses for household and dependent care services necessary for gainful employment or sec_151 relating to allowance of deductions for personal exemptions i an omission of a correct tin required under sec_24 relating to child_tax_credit to be included on a return j an omission of a correct tin required under sec_25a relating to higher education tuition and related expenses to be included on a return the flush language of sec_6213 provides that a taxpayer shall be treated as having omitted a correct tin for purposes of the preceding sentence which includes the subparagraphs above if information provided by the taxpayer on the return with respect to the individual whose tin was provided differs from the information the secretary obtains from the person issuing the tin a taxpayer who meets the requirements of sec_151 may claim a dependency_exemption even if the person with respect to whom the exemption was claimed died before the end of the year for which the exemption was claimed similarly a taxpayer who meets the requirements of sec_21 sec_24 sec_25a or sec_32 may claim a credit spr-118826-99 even if the person with respect to whom the credit was claimed died before the end of the year for which the credit was claimed the question then becomes whether when the ssa nap data show that a tin belongs to a person who died prior to the year for which the exemption or credit was claimed the information provided by the taxpayer on the return differs from the information provided to the service by the person issuing the tin within the meaning of the flush language of sec_6213 we think it does first the legislative_history of p l 112_stat_2681 which added the flush language of sec_6213 makes clear that a correct tin is a tin that was assigned by the ssa or in certain limited cases the service to the individual identified on the return h_r conf_rep no 105th cong 2d sess second implicit in the fact that a taxpayer lists a tin in support of an exemption or credit is an assertion that the person to whom the tin belongs was alive for at least some part of the year for which the exemption or credit was claimed if the ssa nap data show that that person died prior to the year for which the exemption or credit was claimed then the information provided by the taxpayer on the return differs from the information provided to the service by the ssa within the meaning of the flush language of sec_6213 this conclusion is supported by the explanation of p l in the conference_report which states that in the application of the mathematical and clerical_error procedure the irs is authorized to determine that the individual identified on the tax_return corresponds in every aspect including name age date of birth and ssn to the individual to whom the tin is issued id emphasis added we read the term including in the parenthetical to indicate that inconsistencies involving individual's name age date of birth and ssn are not the only inconsistencies for which use of the math error procedures are appropriate certainly whether an individual is alive or dead is a significant aspect of the information concerning that individual therefore we conclude that if a tin is listed by a taxpayer in support of a sec_151 exemption or sec_21 sec_24 sec_25a or sec_32 credit and the ssa nap data indicate that the tin corresponds to a person who died prior to the year for which the exemption or credit was claimed then the service has the legal authority to use the math error procedures to disallow that exemption or credit the fact that the service has the legal authority to use the math error procedure in these situations however does not mean that the service in implementing that authority should disregard the potentially sensitive nature of the situation while some taxpayers may be intentionally abusing the system others may be honestly spr-118826-99 mistaken as to the requirements for the exemption or credit in question in the aftermath of a recent bereavement a taxpayer’s affairs may be disorganized in some situations the mistake may have been made by the ssa or by the service given these considerations care should be taken to ensure that an exemption or credit is not denied where the date of death of the individual is in the year for which the exemption or credit is claimed even when the ssa data indicate that the individual died prior to the year for which the exemption or credit was claimed we recommend that prior to making an assessment pursuant to the math error procedures the service correspond with the taxpayer pointing out the inconsistency and inviting the taxpayer to explain the situation if you have any questions or comments regarding this matter please call amy pfalzgraf at assistant chief_counsel income_tax accounting by michael d finley chief branch