department of the treasury internal_revenue_service te_ge eo examinations fulton street room brooklyn ny tax_exempt_and_government_entities_division date number release date legend org organization name fnd org address certified mail dear xxx date address address fdn-1 fdn-2 fdn-3 taxpayer_identification_number person to contact identification_number contact telephone number this is a final adverse determination regarding your exempt status under sec_501 of the internal_revenue_code the code our favorable determination_letter to you dated january 20xx is hereby revoked and you are no longer exempt under sec_501 of the code effective january 19xx the revocation of your exempt status was made for the following reason s you are not operating exclusively for any charitable purpose educational purpose or any other exempt_purpose our examination reveals that you are not engaged primarily in activities which accomplish charitable educational or other exempt purposes as required by sec_1_501_c_3_-1 your activities including your financial transactions more than insubstantially furthered non-exempt purposes moreover you failed to establish that you were not operated for the benefit of private interest of your founders fdn-1 and fdn-2 trustee fdn-3 their family and related business entities as required for continued recognition of exemption pursuant to sec_1 c - d ii your income inured to the benefit of private shareholders and individuals contributions to your organization are no longer deductible under sec_170 after january 19xx you are required to file income_tax returns on form_1041 these returns should be filed with the appropriate service_center for the tax_year ended december 20xx and for all tax years thereafter in accordance with the instructions of the return processing of income_tax returns and assessments of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination under the declaratory_judgment provisions of sec_7428 of the code a petition to the united_states tax_court the united_states claims_court or the district_court of the united_states for the district of columbia must be filed before the day after the date this determination was mailed to you please contact the clerk of the appropriate court for rules regarding filing petitions for declaratory judgments by referring to the enclosed publication you may write to these courts at the following addresses you also have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at we will notify the appropriate state officials of this action as required by code sec_6104 you should contact your state officials if you have any questions about how this final_determination may affect your state responsibilities and requirements if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely nanette m downing director eo examinations publication enclosure tax_exempt_and_government_entities_division org address department of the treasury internal_revenue_service capital av ste stop 4710oma omaha ne date taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under sec_501 of the internal_revenue_code code is necessary if you accept our findings take no further action we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision your protest should include a statement of the facts the applicable law and arguments in support of your position an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process you may also request that we refer this matter for technical_advice as explained in if we issue a determination_letter to you based on technical_advice no publication further administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice letter catalog number 34809f lf we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notify the appropriate state officials of the revocation in accordance with sec_6104 of the code you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter the most convenient time to call if we need to contact you if you write please provide a telephone number and thank you for your cooperation sincerely sunita lough director eo examinations enclosures publication publication report of examination letter catalog number 34809f form_886 a name of taxpayer explanation of items year period ended department of the treasury - internal_revenue_service schedule no or exhibit org december 20xkx december 20xx december 20xx ein ein _ org organization name city city directors ra-5 ra-6 ra-7 fdn-1 fdn-2 fdn-3 bm-1 bm-2 brp 2h xx date org-1 org state state 4th founders dir-1 dir-2 bm oo ra-1 ra-2 ra-3 ra- 6g ra co-1 thru co-22 thru companies issue whether the sec_501 tax exempt status of org should be revoked because it is not operated exclusively for tax exempt purposes facts org the organization was created with a declaration of trust the declaration by fdn-1 and fdn-2 each being a founder and fdn-1 trustee on may 19xx the declaration provides that the trust was created for the purpose of establishing an organization which is described in sec_501 and sec_509 the declaration provides that the founders renounce any power to determine or control by alteration amendment revocation termination or otherwise the income or principal of the trust estate and that the founders renounce any interest either vested or contingent including any reversionary_interest or possibility of reverter in the income or principal of the trust estate the declaration further requires that each year the trustee shall distribute of the net_income of the trust to the co-1 the named primary charity in addition to this distribution each year the trustee shall distribute a total of of the net_income to one or more organizations listed on schedule a if the organization’s board_of directors the board has not directed the trustee as to which organizations should receive grants within days prior to april of the year after the income is earned the trustee shall determine the grant recipients there are organizations listed on schedule a and some of them state and affiliated organizations such as co-7 and affiliated organizations the declaration provides that the board shall be the governing body of the trust and that the members of the board shall be determined as follows - - one board member shall be appointed by the co-1 or its designated agent two board members shall be from the class consisting of fdn-1 fdn-2 and fdn-3 and the descendants of fdn-3 the other members of the board shall be appointed by a majority vote of the board the initial board members under this category shall be bm-1 and bm-2 - on june 19xx the declaration was amended to add the following organizations to schedule a co-2 co-3 co-4 and co-5 moreover on december 20xx the declaration was again amended to change the name of the organization from org-1 to org form 886-a cev department of the treasury - internal_revenue_service page -1- form_886 a name of taxpayer explanation of items year period ended department of the treasury - internal_revenue_service schedule no or exhibit org ein ein december 20xx december 20xx december 20xx the declaration provides that upon winding up and dissolution of the trust the assets shall be distributed to a non-profit fund foundation or corporation which is organized and operated exclusively for charitable educational religious and or scientific purposes and which has established its tax exempt status under sec_501 the declaration also provides that if the trustee determines the trust fund is too small to economically administer the trustee shall distribute the trust fund in its entirety outright and free of trust to such organizations described in sec_170 as the trustee shall determine the declaration further states that in the event that the trust does not obtain tax exempt status under sec_501 and sec_509 of the internal_revenue_code the assets of the trust shall go to the ferrin family as a contingent_remainder by letter dated january 20xx the organization was recognized by the internal_revenue_service the service as exempt from federal_income_tax under sec_501 as an organization described in sec_501 and classified as a supporting_organization described in sec_509 the service’s determination_letter was based on the organization’s representations concerning its proposed operation and the supporting documents it submitted during the application process however the organization did not disclose during the application process that it had or intended in the future to lend virtually all of its assets to the founders members of their family and related business entities income and grants the following income and grants were reported on the organization’s forms 20xx_ sg 20xx 20xx 20xx o i o i o i o i 20xx 20xx 20xx 20xx income_interest contributions total grants co-6 co-7 co-4 co-2 co-7 coo-8 co-3 form 886-arev department of the treasury - internal_revenue_service page -2- form_886 a name of taxpayer explanation of items year period ended department of the treasury - internal_revenue_service schedule no or exhibit org ein ein december 20xx december 20xx december 20xx co-10 co-11 co-13 co-12 co-14 co-15 co-16 total it is noted that no grants were made to the primary charity during any of these years balance_sheet end of year the following are the organization’s assets per its forms 20xx 20xx 20xx 20xx dollar_figuredollar_figure dollar_figuredollar_figure dollar_figure dollar_figuredollar_figure dollar_figure dollar_figure dollar_figuredollar_figure dollar_figuredollar_figure cash other notes and loans receivable loans the organization made loans to the founders their family and or related business entities from inception through the time of examination the organization’s forms reported all the loans per the forms the organization made the following six loans all of which are evidenced by promissory notes a loan dated 4-2-xx to fdn-1 and fdn-2 trustees of the co-17 in the amount of dollar_figuredollar_figure this note was secured_by land and filed with co-18 in state the terms called for monthly interest payments of dollar_figuredollar_figure commencing 5-2-xx and on the day of each month thereafter until april 20xx at which time all unpaid principal and interest is to be paid in full the interest rate was the prime rate of interest the prime rate was dollar_figure at the time the loan was made this loan was paid off prior to 20xx a loan dated 5-8-xx to ra-1 in the amount of dollar_figuredollar_figure pincite interest this loan was due 19xx and was secured_by his 19xx jeep cherokee at the time the loan was made the prime rate was the loan was paid off in 20xx ra-1 is fdn-1’s brother a loan dated 10-18-xx to ra-2 and ra-3 in the amount of dollar_figuredollar_figure pincite interest monthly form 886-a crev department of the treasury - internal_revenue_service page -3- form_8 a name of taxpayer explanation of items year petriod ended department of the treasury - internal_revenue_service schedule no or exhibit org ein ein december 20xx december 20xx december 20xx principal and interest of dollar_figuredollar_figure were to be made commencing 11-1-xx and on the first day of the month until paid in full for a term of approximately years the loan was secured_by land and filed in city state the prime rate when the loan was made was the loan was paid off in 20xx ra-2 is the fdn-1 nephew a loan dated 8-15-xx to ra-4 and ra-s in the amount of dollar_figuredollar_figure pincite interest this loan was due 9-15-xx the note was secured_by the borrowers’ 19xx audi quattro vehicle when the loan was made the prime rate was the loan was paid off prior to 20xx ra-s is the fdn-1 daughter a loan dated 12-7-xx to ra-6 and ra-7 in the amount of dollar_figuredollar_figure pincite the loan was due 12-7-20xx this loan was guaranteed by fdn-1 at the time the loan was made the prime rate was the loan was paid off in 20xx ra-6 and ra-7 are fdn-1’s parents a loan dated 12-30-xx to co-19 in the amount of dollar_figuredollar_figure pincite interest this note is secured_by a interest in co-20 a proposed ski resort the loan is due by 12-28-xx the balance at the end of 20xx was dollar_figuredollar_figure the prime rate wa sec_4 when this loan was made the organization also made the following undocumented loans which are reported on the organization’s forms a loan sometime in 19xx to co-21 co-21 in the amount of dollar_figure fdn-1 dir-1 and dir-2 are listed as the directors of co-21 these same individuals are or have been on the board_of the organization the average prime rate in 19xx was this loan was written off in 20xx according to correspondence provided by the organization dated july 20xx co-21 ceased to exist in 20xx and the investment could not be repaid a loan sometime in 20xx to fdn-1 associates in the amount of dollar_figuredollar_figure the organization’s form_990 for 20xx shows an ending balance of dollar_figuredollar_figure for this loan the average prime rate in 20xx was a loan sometime in 20xx to fdn-1 and fdn-2 in the amount of dollar_figuredollar_figure the organization also lent fdn-1 and fdn-2 another dollar_figuredollar_figure in 20xx the organization’s form_990 for 20xx shows an ending balance of dollar_figuredollar_figure for this loan of which dollar_figuredollar_figure was apparently accrued interest the average prime rate in 20xx was a loan sometime in 20xx to co-22 in the amount of dollar_figuredollar_figure which was still the amount owed at the end of 20xx according to the organization’s form_990 for 20xx co-22’ registered agent is fdn-1 a loan sometime in 20xx to ra-2 and ra-3 in the amount of dollar_figuredollar_figure this loan was paid off form 886-acrev department of the treasury - internal_revenue_service page -4- form_886 a name of taxpayer explanation of items year period ended department of the treasury - internal_revenue_service schedule no or exhibit org ein ein december 20xx december 20xx december 20xx in 20xx ra-2 is the fdn-1 nephew as indicated above all of these eleven loans were made by the organization between 19xx and 20xx at least four of these loans were made prior to the service issuing the organization the january 20xx determination_letter that recognized it as an exempt_organization moreover the loans were all made to the organization’s founders members of their family and or related business entities five of the loans at issue were not memorialized in any written documentation other than the organization’s forms of those five undocumented loans three were outstanding at the end of 20xx and one was written off out of the remaining six loans that are supported by promissory notes the largest of these loans had an outstanding balance of dollar_figuredollar_figure at the end of 20xx according to the organization no payments have been made on any of these outstanding loans since december 20xx because there is no promissory note for three of the unpaid loans their maturity dates and other relevant loan factors are unknown the total of all the outstanding loans as of december 20xx is dollar_figuredollar_figure these unpaid loans were made to the founders their family and entities that they control the organization has not taken any enforcement actions with regard to these loans the only asset listed on the organization’s form_1023 application_for recognition of exemption was cash although at least four of the loans at issue were made prior to the issuance of the organization’s determination_letter the organization did not disclose any of these loans to the service moreover the organization’s form_1023 also fails to disclose the founders’ intentions of making other loans to themselves their family and related business entities minutes the organization provided the service with copies of its minutes the minutes for 20xx and 20xx state that the board reviewed the outstanding loans payment history and the financial status of the organization moreover all of the minutes indicate that they were agreed to unanimously by the board however the minutes do not tell who was present at the meetings and they are signed only by fdn-1 law sec_501 exempts from federal_income_tax corporations and any community chest fund or foundation organized and operated exclusively for religious charitable scientific testing for public safety literary or educational_purposes or for the prevention of cruelty to children or animals no part of the net_earnings of which inures to the benefit of any private form 886-a rev department of the treasury - internal_revenue_service page -5- form_886 a name of taxpayer explanation of items year period ended department of the treasury - internal_revenue_service schedule no ot exhibit org ein ein december 20xx december 20xx december 20xx shareholder or individual no substantial part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation and which does not participate in or intervene in including the publishing or distributing of statements any political campaign on behalf of any candidate for public_office regulation sec_1_501_c_3_-1 provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose regulation sec_1_501_c_3_-1 provides that an organization is not operated exclusively for one or more exempt purposes if its net_earnings inure in whole or in part to the benefit of private shareholders or individuals the term private_shareholder_or_individual is defined in regulation sec_1_501_a_-1 as persons having a personal and private interest in the activities of an organization regulation sec_1_501_c_3_-1 provides an organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest thus to meet the requirement of this subdivision it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests in revrul_67_5 1967_1_cb_123 it was held that a foundation controlled by the creator’s family was operated to enable the creator and his family to engage in financial activities which were beneficial to them but detrimental to the foundation it was further held that the foundation was operated for a substantial non-exempt purpose and served the private interests of the creator and his family therefore the foundation was not entitled to exemption from federal_income_tax under sec_501 in 326_us_279 the united_states supreme court held that regardless of the number of truly exempt purposes the presence of a single substantial non-exempt purpose will preclude exemption under sec_501 in 412_f2d_1197 ct_cl the court stated that loans to an organization’s founder or substantial_contributor can constitute inurement that is prohibited under sec_501 in that case the church made loans to its founder and his family and failed to produce documentation that demonstrated that the loans were advantageous to the church the church also failed to produce documentation to show that the loans were form 886-acrev department of the treasury - internal_revenue_service page -6- schedule no or exhibit form_886 a name of taxpayer year period ended department of the treasury - internal_revenue_service explanation of items org ein ein december 20xx december 20xx december 20xx repaid significantly the court stated that the very existence of private source of loan credit from an organization’s earnings may itself amount to inurement of benefit facts that show a charity’s investments are decided in part by the needs of private interests indicate the charity may not be operated exclusively for exempt purposes 73_tc_196 the very presence of a private source of loan credit may amount to inurement 412_f2d_1197 ct_cl 71_tc_102 loans to disqualified persons promote private rather than charitable purposes 31_tc_1217 government ’s position the sec_501 tax exempt status of org the organization should be revoked because it is not operated exclusively for tax exempt charitable purposes more than an insubstantial purpose of the organization is to serve the financial needs of its founders fdn-1 and fdn-2 the founders their family and related business entities additionally the net_earnings of the organization have inured to the benefit of these insiders fdn-1 has operated the organization for the benefit of his and his family’s personal and business interests there is no indication that the terms of the loans at issue were reviewed by anyone acting in the interests of organization there is no evidence that the organization made any attempts at collection after payments stopped on the loans by december 20xx in addition there is no evidence that the board_of directors the board attempted in any manner to ensure that the organization received repayment of the loans based on the information provided it appears that the organization entered into a business investment with co-20 that was not viable and that the organization was left with investment dollars that were then converted into the december 20xx loan to co-19 according to the organization’s power_of_attorney the investment was negatively effected after the terrorist attacks of september 20xx the organization is controlled by fdn-1 and his wife fdn-2 the form_1023 filed with the internal_revenue_service indicated that fdn-1 and fdn-2 may be disqualified persons since they may be substantial contributors as indicated by the following chart most of the assets of the organization are receivables from business interests of fdn-1 and fdn-2 and members of their family form 886-acrev department of the treasury - internal_revenue_service page -7- form_886 a name of taxpayer explanation of items year period ended department of the treasury - internal_revenue_service schedule no or exhibit org ein ein december 20xx december 20x x december 20xx loans at issue total assets loans as a percent of assets charitable grants charitable grants as a percent of assets 20xx dollar_figure 20xx dollar_figure 20xx dollar_figure 20xx dollar_figure 20xx 20xx 20xx 20xx the organization which is controlled by fdn-1 as the trustee the trustee has been primarily operated to enable him his wife his family and their business interests to engage in financial activities beneficial to them and or entities with whom they are transacting business but detrimental to the organization while the organization has distributed dollar_figuredollar_figure to charitable organizations during the years 20xx through 20xx none of which was contributed to the primary charity listed in its declaration of trust the organization lent over dollar_figuredollar_figure of its funds to its founders their family and or to entities they control many of these loans were not repaid and the loan terms were not complied with accordingly the organization is operated for a substantial non-exempt purpose see revrul_67_5 the facts show that fdn-1 and fdn-2 their family and related business entities are able to use the organization’s funds as if the funds were their own borrowing from the organization and repaying without observing the terms of the loans accordingly the organization’s net_earnings have inured to the benefit of these insiders an organization is described in sec_501 only if no part of its net_earnings inures to the benefit of any private shareholder the inurement prohibition is designed to insure that charitable assets are dedicated to exclusively furthering public purposes an organization is not operated exclusively for exempt purposes if its net_earnings inure to the benefit of private shareholders or individuals in addition a charity’s assets are required to be irrevocably dedicated to charitable purposes sec_1_501_c_3_-1 the inurement prohibition serves to prevent the individuals who operate the charity from siphoning off any of a charity’s income or assets for personal_use by lending its assets back to the founders their family and related business entities as loans that do not require payments for a substantial period of time and or loans the terms of which are not form 886-a crev department of the treasury - internal_revenue_service page -8- form_886 a name of taxpayer explanation of items year period ended department of the treasury - internal_revenue_service schedule no or exhibit org ein ein december 20xx december 20xx december 20xx enforced the organization breached the dedication requirement and its net_earnings have inured to the benefit of these private individuals persons although the inurement prohibition is stated in terms of net_earnings it applies to any of a charity’s assets that serve the interests of its private shareholders 505_f2d_1068 cir the transfer of funds directly to an organization’s insiders and or to their businesses serves the financial interests of the insiders and or their businesses facts that show a charity’s investments are decided in part by the needs of private interests indicate the charity may not be operated exclusively for exempt purposes 73_tc_196 aff'd 631_f2d_736 cir even if the transaction is characterized as an investment when a charity’s investments are decided in part by the needs of private interests the charity is not operating exclusively for exempt purposes 73_tc_196 aff'd 631_f2d_736 cir inurement can take the form of questionable transactions that have no causal relationship to the organization's exempt purposes but result in some benefit to an insider the insider is in a position to exercise control_over the organization's net_earnings as if the earnings were his her own by using the earnings at will rather than within the limitations of a fiduciary capacity in effect the insider is using the public's net_earnings for his her own benefit the organization’s net_earnings have inured to the benefit of the founders their family and related business enterprises sec_1_501_a_-1 ginsburg v commissioner 46_tc_47 the very presence of a private source of loan credit may amount to inurement 412_f2d_1197 ct_cl 71_tc_102 loans to such insider persons promote private rather than charitable purposes 31_tc_1217 accordingly the organization’s status as an organization described in sec_501 should be revoked effective january 19xx because it did not operated exclusively for exempt purposes and its form_1023 omitted any information regarding the four loans made during or prior to the time its application_for exemption was pending taxpayer’s position taxpayer has indicated to the agent who conducted this examination that it is in agreement with the government’s position conclusion form 886-a rev department of the treasury - internal_revenue_service page -9- form_886 a name of taxpayer explanation of items year period ended department of the treasury - internal_revenue_service schedule no or exhibit org ein ein december 20xx december 20xx december 20xx the status of org the organization as an organization described under sec_501 should be revoked effective january 19xx because it did not operate exclusively for exempt purposes its assets have inured to and it served the private interests of its creators and other related_persons the organization transferred most of its assets to its founders fdn-1 and fdn- starting on april 19xx therefore the organization failed to operate exclusively for exempt purposes when its net_earnings inured to the benefit of these insiders beginning in 19xx in addition the organization’s operations were materially different from the representations that it made in its application_for exemption because its application omitted material facts concerning loans to its founders their family and related business entities form_1041 u s income_tax return for estates and trusts should be filed for tax years ending december 20xx 20xx 20xx 20xx and 20xx subsequent returns are due no later than the day of the month following the close of the organization’s accounting_period returns for the periods ending december 20xx 20xx 20xx 20xx and 20xx should be sent to the following mailing address department of the treasury - internal_revenue_service form 886-a rev page -10-


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to op e ep t date oct kee sin b legend church c city m i t city n t order a city m regional community order a city n regional community order b order c health corporation p w n health corporation f i hospital h plan x committee w f i directory m page ladies and gentlemen this is in response to a ruling_request dated date as supplemented by additional correspondence dated date in which your authorized representative requests a ruling on your behalf concerning whether plan x qualifies as a church_plan under sec_414 of the internal_revenue_code the following facts and representations have been submitted on your behalf hospital h is sponsored by order a city m regional city n regional community order b and the orders the orders are church c religious commmunity order a order c congregations of women listed in directory m which is the official directory of church c which the orders sponsor hospital h include health corporation q which is the parent of hospital h and health corporation p which is the parent of health corporation q the civil law entities through is the orders designate the individuals who serve as the sole members of health corporation p health corporation p corporate a church c healthcare members health corporation p organization and as such embraces and is subject_to the traditions teaching and law of church c and the spirit and tradition of the orders health corporation p operates in accordance with the ethical and religious directives for church c health care services the orders through the health corporation p corporate members approve any change in the philosophy and mission of health corporation p elect the trustees of health corporation p and remove them with or without cause and approve amendments to the articles of incorporation and bylaws of health corporation p health corporation p is the sole member of health corporaton as sole member it has retained the power to approve any q change in the philosophy and mission of health corporation q establish model articles of incorporation and bylaws used by health corporation q and to remove its trustees health corporation q retains the power to approve any change in the philosophy and mission of hospital h and remove its trustees in turn the sole member of hospital h and is to plan x is a defined_benefit_plan established by hospital h is administered the principal purpose and function of committee w for the benefit of its eligible employees plan x by committee w is the administration of plan x appointed by the hospital h board_of trustees through the president of hospital h any member of committee w may be removed at will by the board_of trustees of hospital h qualified under sec_401 of the code the members of committee w are plan x is page health corporation p and health corporation q are listed in in a letter dated september directory m officially advised by church c authorities that it will he included in the next publication of directory m the september establishes hospital h's exemption from federal_income_tax under sec_501 the next edition of directory m letter also provides that the subject letter of the code in the interim until publication of hospital h was based on the foregoing facts and representations a ruling is requested that plan x qualifies as meaning of sec_414 of the code a church_plan within the sec_414 of the code defines a church_plan as plan established and maintained for its employees or their beneficiaries by a church or by a convention or association of churches which is exempt from taxation under secton of the code a sec_414 a of the code provides that a plan established and maintained for its employees or their beneficiaries by a church or by a convention or association of churches includes a plan maintained by an organization whether a civil law corporation or otherwise the principal purpose or function of which is the administration or funding of program for the provision of retirement benefits or welfare benefits or both or association of churches if such organization is controlled by or associated with a church or a convention or association of churches a church or a convention for the employees of a plan or sec_414 e b of the code defines employee to include a duly ordained commissioned or licensed minister of church in the exercise of his or her ministry regardless of source of his or her compensation and an employee of organization whether a civil law corporation or otherwise which is exempt from tax under sec_501 or associated with a church or a convention or association of churches and which is controlled by a the an sec_414 c of the code provides that a church or a convention or association of churches which is exempt from tax under sec_501 shall be deemed the employer of any individual included as an employee under subparagraph b sec_414 d of the code provides that an organization whether a civil law corporation or otherwise is associated with a church or a convention or association of churches if that church_or_convention_or_association_of_churches it shares common religious bonds and convictions with page in order for an organization to have a qualified church it must establish that its employees are employees or plan deemed employees of the church_or_convention_or_association_of_churches under sec_414 b organization’s affiliation with the church_or_convention_or_association_of_churches and that the plan will be administered by an organization of the type described in sec_414 e a of the code by virtue of the the orders health corporation p health corporation q and hospital h are all listed or will be listed in directory m which is the official directory of church c the internal_revenue_service has determined that any organization listed in directory of the code m is an organization described in sec_501 c that is exempt from tax under sec_501 also any organization that is listed in directory m shares common religious bonds and convictions with church c and is deemed associated with church c within the meaning of sec_414 e d of the code accordingly hospital h is exempt from taxation under sec_501 pursuant to sec_414 e b of hospital h are deemed to be employees of church c and church c is deemed to be the employer of such employees for purposes of the church_plan rules and is also associated with church c therefore of the code employees and c however an organization must also establish that its plan is established and maintained by a church or a convention or association of churches or by an organization described in sec_414 a e a principal purpose the administration of the plan and must also be controlled by or associated with a church or a convention or association of churches of the code to be described in section an organization must have as of the code its the members of committee w are appointed by the hospital h board_of trustees through the president of hospital h and any member of committee w may be removed at will by the board_of trustees of hospital h thus committee w hospital h since committee w indirectly associated with church c further since as represented above administration of plan x committee w constitutes an organization the principal purpose or function of which is the administration of plans or programs for the provision of retirement benefits or welfare benefits or both employees of hospital h therefore committee w qualifies as organization described in sec_414 a is controlled by is controlled by hospital h the principal purpose of committee w of the code for the is the it an is page accordingly in regard to your ruling_request we conclude that plan x qualifies as a church_plan within the meaning of sec_414 of the code this letter expresses no opinion as to whether plan xx satisfies the requirements for qualification under sec_401 a of the code the determination as to whether a plan is qualified under sec_401 appropriate key district director’s office of the internal_revenue_service is within the jurisdiction of the in accordance with a power_of_attorney on file in this office a copy of this ruling is being sent to you and the original ruling and another copy of the ruling are being sent to your authorized representatives sincerely yours frances v sloan chief employee_plans technical branch enclosures deleted copy of letter notice


internal_revenue_service number release date index number ------------------------------ ---------------------------- --------------------- --------------------------------------------------------- -------------- ---------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ----------------- telephone number --------------------- refer reply to cc fip branch plr-116921-13 date date legend issuer ----------------------------------------------------- advance refunding bonds ---------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------- ----------------------------------------------------------------------- proposed tax-exempt current refunding bonds ------------------------------------------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- ------------------------------------------------------------------------ ------------------------------------------------------- date a b c dear -------------- ------------------- -- -- -- this is in response to your request for a ruling that none of the proceeds of the advance refunding bonds in the defeasance escrow described below will become transferred proceeds under sec_1_148-9 of the income_tax regulations of the proposed tax- exempt bonds the proceeds of which are to be used to currently refund a specified portion of the advance refunding bonds plr-116921-13 facts and representations issuer makes the following factual representations issuer owns operates and maintains a combined water and sewer utility system the utility system issuer financed the construction and improvement of the utility system with a number of issues of bonds as part of an effort to obtain relief from certain requirements relating to the use of the utility system revenues issuer issued the advance refunding bonds on date to defease a issues of revenue bonds the prior issues certain of the advance refunding bonds were issued as non-callable bonds the proceeds of the advance refunding bonds and the proceeds of a bona_fide debt service fund allocable to the outstanding prior issues were deposited in a defeasance escrow fund the escrow and used to purchase investments to repay the prior issues issuer has fully redeemed b of the a prior issues the discharged prior issues using a portion of the escrow issuer expects to use the unspent proceeds of the advance refunding bonds in the escrow the unspent proceeds to pay the debt service on the outstanding bonds of the remaining c prior issues the outstanding prior issues prior to the issuance of the proposed bonds described below issuer proposes to use the multipurpose allocation rules of sec_1_148-9 to allocate the bonds proceeds and investments of the advance refunding bonds into a separate issues the purpose of each of which is to refund one of the prior issues issuer represents it will allocate the bonds of the advance refunding bonds ratably to those separate issues and allocate the sales proceeds based on the present_value of the refunded debt service on the prior issues in accordance with sec_1_148-9 and ii it will allocate the investments in the escrow purchased with proceeds of the advance refunding bonds based on the maturities and amounts of the investments to the separate issues in accordance with the debt service payments of the prior issues that the respective investments are expected to pay issuer intends to issue bonds to refund the callable portion of the advance refunding bonds issuer proposes to issue the proposed tax-exempt current refunding bonds to currently refund the callable advance refunding bonds it will have allocated to the separate issues the purposes of which are to refund the respective discharged prior issues and issue taxable bonds the proposed taxable bonds to refund the callable advance refunding bonds it will have allocated to the separate issues the purposes of which are to refund the respective outstanding prior issues law and analysis sec_148 of the internal_revenue_code code provides that for purposes of sec_103 the term arbitrage_bond means any bond issued as part of an issue any portion of the proceeds of which are reasonably expected at the time of issuance of the bond to be used directly or indirectly to acquire higher_yielding_investments or to replace plr-116921-13 funds which were used directly or indirectly to acquire higher_yielding_investments for purposes of sec_148 a bond shall be treated as an arbitrage_bond if the issuer intentionally uses any portion of the proceeds of the issue of which such bond is a part in a manner described above sec_1_148-0 provides that sec_1_148-1 through apply generally for purposes of the arbitrage restrictions on state and local bonds under sec_148 sec_1_148-9 provides that when proceeds of the refunding_issue discharge any of the outstanding principal_amount of the prior issue proceeds of the prior issue become transferred proceeds of the refunding_issue and cease to be proceeds of the prior issue the amount of proceeds of the prior issue that becomes transferred proceeds of the refunding_issue is an amount equal to the proceeds of the prior issue on the date of that discharge multiplied by a fraction the numerator of which is the principal_amount of the prior issue discharged with proceeds of the refunding_issue on the date of that discharge and the denominator of which is the total outstanding principal_amount of the prior issue on the date immediately before the date of the discharge principal_amount means in reference to a plain_par_bond its stated principal_amount and in reference to any other bond its present_value sec_1_148-9 provides that when proceeds of a prior issue become transferred proceeds of a refunding_issue investments and the related payments and receipts of proceeds of the prior issue that are held in a refunding escrow for another issue are allocated to the transferred proceeds under the ratable allocation method described in sec_1_148-9 sec_1_148-9 provides that under the ratable allocation method a ratable portion of each nonpurpose and purpose_investment of proceeds of the prior issue is allocated to transferred proceeds of the refunding_issue sec_1_148-9 provides that the portion of the bonds of a multipurpose issue reasonably allocated to any separate purpose under sec_1_148-9 is treated as a separate issue for all purposes of sec_148 except for certain arbitrage purposes listed therein such exceptions include determining the yield on a multipurpose issue and the yield on investments for purposes of the arbitrage yield restrictions of sec_148 and the arbitrage rebate requirements of sec_148 sec_1_148-1 defines a multipurpose issue as an issue the proceeds of which are used for two or more separate purposes determined in accordance with sec_1_148-9 sec_1_148-9 provides in part that separate purposes of a multipurpose issue include refunding a separate prior issue financing a separate purpose_investment financing a construction_issue as defined in sec_1_148-7 and any clearly discrete governmental purpose reasonably expected to be financed by the issue plr-116921-13 sec_1_148-9 provides that sec_1_148-9 applies to allocations of multipurpose issues including allocations involving the refunding purposes of the issue except as otherwise provided in sec_1_148-9 proceeds investments and bonds of a multipurpose issue may be allocated among the various separate purposes of the issue using any reasonable consistently applied allocation method an allocation is not reasonable if it achieves more favorable results under sec_148 or sec_149 than could be achieved with actual separate issues allocations under sec_1_148-9 may be made at any time but once made may not be changed sec_1_148-9 provides that after reasonable adjustment of the issue_price to account for common costs the portion of the bonds of a multipurpose issue allocated to a separate purpose must have an issue_price that bears the same ratio to the aggregate issue_price of the multipurpose issue as the portion of the sale proceeds of the multipurpose issue used for that separate purpose bears to the aggregate sale proceeds of the multipurpose issue for a refunding_issue used to refund two or more prior issues the portion of the sales proceeds allocated to the refunding of a separate prior issue is based on the present_value of the refunded debt service on that prior issue using the yield on investments in the refunding escrow allocable to the entire refunding_issue as the discount rate sec_1_148-9 provides that the use of the relative amount of sales proceeds used for each separate purpose to ratably allocate each bond or a ratable number of substantially identical whole bonds is a reasonable method for allocating bonds of a multipurpose issue sec_1_148-9 provides in part that for each portion of a multipurpose issue that is used to refund a separate prior issue a method of allocating bonds of that issue is reasonable under sec_1_148-9 if in addition to the requirements of sec_1_148-9 and the portion of the bonds allocated to the refunding of that prior issue results from a pro_rata allocation under sec_1_148-9 sec_1_148-9 provides that for purposes of sec_1_148-9 the separate purposes of a prior issue include the refunded and unrefunded portions of the prior issue thus the refunded and unrefunded portions are treated as separate issues under sec_1_148-9 those separate issues must satisfy the requirements of sec_1_148-9 and i the refunded portion of the bonds of a prior issue is based on the fraction the numerator of which is the principal_amount of the prior issue to be paid with the proceeds of the refunding_issue and the denominator of which is the outstanding principal_amount of the bonds of the prior issue each determined as of the issue_date of the refunding_issue sec_1_148-9 provides that as of the issue_date of a partial refunding_issue under sec_1_148-9 unspent proceeds of the prior issue are allocated ratably between the refunded and unrefunded portions of the prior issue and the investments allocable to plr-116921-13 those unspent proceeds are allocated in the manner required for the allocation of investments to transferred proceeds under sec_1_148-9 sec_1_148-9 provides that if the refunded and unrefunded portions of a prior issue are treated as separate issues under sec_1_148-9 then except to the extent that the context clearly requires otherwise eg references to the aggregate prior issue in the mixed escrow rule in sec_1_148-9 all references in sec_1_148-9 to prior issue refer only the refunded portion of that prior issue when proceeds of a refunding_issue discharge any of the outstanding principal of a prior issue unspent proceeds of the prior issue become transferred proceeds of the refunding_issue and investments allocated to unspent proceeds of the prior issue are allocated to those transferred proceeds for none of the unspent proceeds and allocable investments in the escrow to become transferred proceeds and investments of the proposed tax-exempt current refunding bonds the unspent proceeds and investments must have been allocated to an issue other than one to be refunded by the proposed tax-exempt current refunding bonds to achieve this result issuer proposes to apply the multipurpose issue allocation rules to separate the advance refunding bonds into separate issues this requires first that the advance refunding bonds be a multipurpose issue that is an issue the proceeds of which are used for two or more separate purposes under h under sec_1_148-9 separate purposes of a multipurpose issue include refunding of a separate prior issue the advance refunding bonds refunded a separate prior issues ie the prior issues accordingly the advance refunding bonds issue is a multipurpose issue second the issuer must allocate the bonds proceeds and investments of the advance refunding bonds among the separate purposes using a reasonable consistently applied method issuer represents that it will allocate the bonds and sale proceeds of the advance refunding bonds among the separate purposes of refunding the respective prior issues in accordance with sec_1_148-9 and ii as stated in these provisions and sec_1_148-9 applicable to refunding bonds these allocations are reasonable further issuer will apply these methods consistently to all the bonds and sale proceeds because the present_value of the debt service on the discharged prior issues is zero as of the date of the multipurpose allocation no unspent proceeds will be allocated to the b separate issues of the advance refunding bonds the purposes of which are to refund the respective discharged prior issues issuer will allocate the investments of the advance refunding bonds among the separate purposes according to the debt service payments of the prior issues that the respective investments are expected to pay issuer expects to use all of the investments remaining in the escrow to pay debt service on the c outstanding prior issues and thus issuer will allocate all of the investments among the c separate issues the purposes of which are to refund the respective outstanding prior issues all investments allocable to the debt service of the b discharged prior issues have been plr-116921-13 liquidated and the proceeds spent to fully repay the discharged prior issues this allocation of investments does not achieve more favorable results under sec_148 or sec_149 than could be achieved with actual separate issues to refund the respective prior issues thus we conclude that issuer’s method of allocating the investments to the separate purposes is a reasonable consistently applied method because issuer’s methods of allocating the bonds proceeds and investments of the advance refunding bonds among the separate purposes of that issue are reasonable consistently applied methods the bonds allocated to the refunding of each of the prior issues may be treated as separate issues under sec_1_148-9 as a result all of the unspent proceeds and allocable investments in the escrow will be allocated among the separate issues of the advance refunding bonds the respective purposes of which are to refund one of the outstanding prior issues and no unspent proceeds or investments will be allocated among the separate issues of the advance refunding bonds the respective purposes of which are to refund one of the discharged prior issues finally the proposed tax-exempt current refunding bonds and the proposed taxable bonds will not refund the non-callable bonds of the advance refunding bonds in allocating all of the advance refunding bonds ratably among the a separate purposes issuer will allocate the non-callable bonds ratably among those purposes thus each of the a separate issues will include non-callable bonds that will not be refunded pursuant to sec_1_148-9 the refunded and unrefunded portions of a prior issue are separate purposes of the prior issue and treated as separate issues further unspent proceeds of the prior issue and allocable investments held in a refunding escrow are to be allocated ratably between the refunded and unrefunded portions accordingly each of the separate issues within the advance refunding bonds will be further divided into its refunded and unrefunded portions thus the unspent proceeds and allocable investments to be allocated to each of the separate issues the purpose of which is to refund one of the outstanding prior issues will be further allocated ratably between the refunded and unrefunded portions of each of those separate issues of the advance refunding bonds because no unspent proceeds or investments will be allocated to the separate issues of the advance refunding bonds the respective purposes of which are to refund one of the discharged prior issues no unspent proceeds or investments will be allocated to the refunded or unrefunded portions of those separate issues accordingly when proceeds of the proposed tax-exempt current refunding bonds refund portions of those separate issues of the advance refunding bonds no unspent proceeds or investments of the advance refunding bonds will become transferred proceeds of the proposed tax-exempt current refunding bonds conclusion plr-116921-13 accordingly we conclude that under the facts and circumstances described above none of the unspent proceeds or allocable investments of the advance refunding bonds will become transferred proceeds or investments of the proposed tax-exempt current refunding bonds under sec_1_148-9 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any return to which it is relevant the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely associate chief_counsel financial institutions products s by ______________________ johanna som de cerff senior technician reviewer branch


t c summary opinion united_states tax_court pamela annette whitley petitioner and jack g woods intervenor v commissioner of internal revenue respondent docket no 24236-09s filed date pamela annette whitley pro_se jack g woods pro_se amber n becton for respondent ruwe judge this case was heard pursuant to the provisions of section of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to 1unless otherwise indicated all section references are to the internal_revenue_code as amended be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case the only issue is whether petitioner is entitled to spousal relief under sec_6015 regarding her joint tax_liabilities for and background some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time the petition was filed petitioner resided in tennessee petitioner and intervenor herein sometimes referred to as the taxpayers timely filed joint federal_income_tax returns for taxable years and petitioner prepared the returns for both years for taxable_year the taxpayers filed a schedule c profit or loss from business for petitioner on which they reported income of dollar_figure and claimed expenses of dollar_figure resulting in a net_loss of dollar_figure the taxpayers also filed a schedule c-ez net profit from business for intervenor on which they reported income of dollar_figure and claimed no expenses petitioner and intervenor also reported early distributions from their qualified_retirement_plans of dollar_figure and dollar_figure respectively for with their return the taxpayers filed a schedule c for petitioner on which they claimed expenses of dollar_figure and a net_loss of dollar_figure respondent audited the taxpayers’ and returns and issued them a statutory_notice_of_deficiency with respect to their income_tax liabilities for those years in the notice_of_deficiency respondent disallowed part of the schedule c expenses exemptions and itemized_deductions the taxpayers claimed for and the disallowed deductions for both years were attributable to petitioner’s schedules c respondent also determined that the taxpayers were liable for the accuracy- related penalty under sec_6662 for the and taxable years as well as additional tax on early distributions from qualified_retirement_plans under sec_72 for petitioner and intervenor did not file a petition to the court in response to the notice_of_deficiency subsequently on date following her bankruptcy attorney’s advice petitioner informed the internal_revenue_service irs that she was going to file for bankruptcy and requested that the irs place a lien on her residence in knoxville tennessee which she owned jointly with intervenor petitioner believed that if a lien were placed on the home before she filed for bankruptcy any eventual sale would lead to the satisfaction of her income_tax liabilities for and on date petitioner filed a chapter bankruptcy petition on date the irs filed a proof_of_claim listing dollar_figure in unsecured priority claims for tax_year sec_2002 and and dollar_figure in unsecured general claims for penalties as part of petitioner’s bankruptcy proceeding the jointly owned residence was sold the residence was the only significant asset in the bankruptcy_estate after the outstanding mortgage on the property and the administrative expenses associated with the sale were paid the proceeds were divided equally between petitioner’s bankruptcy_estate and intervenor the irs was to receive dollar_figure for its unsecured priority claim as a distribution from the bankruptcy trustee on date an order of discharge was entered in petitioner’s bankruptcy case petitioner and intervenor divorced in date on date petitioner submitted to respondent a form_8857 request for innocent spouse relief in which she requested relief from joint tax_liabilities for and respondent issued petitioner a preliminary determination dated date that she was not entitled to relief from the joint liabilities as an innocent spouse in response to respondent’s preliminary determination petitioner filed a statement of disagreement with respondent on date respondent issued a final appeals determination denying petitioner’s request for relief on date petitioner filed a petition with this court discussion petitioner’s only argument is that she in entitled to equitable relief under sec_6015 because the irs should have filed a lien against her residence before she filed for bankruptcy she alleges that had that been done all or most of her unpaid tax_liabilities would have been satisfied petitioner contends that respondent made affirmative misrepresentations to her regarding the existence of a tax_lien on her home before its sale in bankruptcy and that those misrepresentations led to her home being sold by the bankruptcy trustee without her tax_liabilities being fully satisfied petitioner argues that she is entitled to equitable relief because she requested that the irs place a lien on her home before it was sold in bankruptcy and the irs incorrectly assured her that one had been put in place before the sale petitioner contends that as a result of respondent’s misrepresentations her tax_liabilities were not satisfied by the sale and therefore respondent should be equitably estopped from collecting the liabilities we must decide whether petitioner i sec_2at trial and on brief petitioner did not contend that she meets the requirements to qualify as an innocent spouse under sec_6015 or c or make any other argument for equitable relief relieved from liability for the understatements of tax by equitable_estoppel equitable_estoppel is a judicial doctrine that precludes a party from denying his or her own acts or representations which induced another to act to his or her detriment 98_tc_695 74_tc_743 affd 673_f2d_784 5th cir it is well settled that the government may not be estopped on the same terms as any other litigant 496_us_414 467_us_51 equitable_estoppel should be applied against the government with utmost caution and restraint 312_f2d_311 9th cir affg in part and revg in part 32_tc_998 any successful attempt to invoke equitable_estoppel against the commissioner must outweigh the policy consideration in favor of an efficient collection of the public revenue id in order to invoke the doctrine_of equitable_estoppel against the government petitioner must satisfy the following conditions a false representation or wrongful misleading silence by the party against whom the opposing party seeks to invoke the doctrine an error in a statement of fact and not in an opinion or statement of law ignorance of the true facts reasonable reliance on the acts or statements of the one against whom estoppel is claimed and adverse effects of the acts or statement of the one against whom estoppel is claimed 104_tc_13 affd 140_f3d_240 4th cir see also miller v commissioner tcmemo_2001_55 in addition estoppel requires at least a minimum showing of some affirmative misconduct by a government agent united_states v guy 978_f2d_934 6th cir to establish affirmative misconduct the party claiming equitable_estoppel against the government must establish ‘more than mere negligence delay inaction or failure to follow an internal agency guideline’ 249_f3d_433 6th cir quoting 976_f2d_934 5th cir even if the court were to accept petitioner’s testimony as to respondent’s misrepresentations regarding the status of the lien we conclude that petitioner has not established the elements necessary for estoppel because she failed to show that respondent’s misrepresentations amounted to affirmative misconduct it is well settled that a government agent’s providing inaccurate information does not constitute affirmative misconduct see 272_f3d_1176 9th cir negligently providing misinformation or incorrect advice is not affirmative misconduct 787_f2d_431 8th cir on the basis of the foregoing we hold that the doctrine_of equitable_estoppel cannot be invoked to relieve petitioner from liability for the understatements of tax for the years at issue to reflect the foregoing decision will be entered for respondent


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi plr-113795-00 date date company corp a corp b corp c corp d corp e partnership w partnership x partnership y partnership z partner m plr-113795-00 partner n manager contractor property property state a b c d e f g h dear this letter responds to your letter dated date as well as subsequent correspondence requesting a ruling that the rental income received by company from properties will not be passive_investment_income under sec_1362 of the internal_revenue_code company represents the following facts facts company a state corporation intends to elect under sec_1362 to be an s_corporation effective a effective that same date company intends to elect under sec_1361 to treat certain of its subsidiaries corps a b c d and e as qualified subchapter_s subsidiaries qsubs plr-113795-00 company is the common parent of an affiliated_group_of_corporations company owns corp a which in turn owns corps b and c corp b owns corp d and corp c owns corp e corps d and e have ownership interests in propertie sec_1 and properties through their interests in partnerships w x y and z partnership w is owned by corp d as general_partner and by corp e and partnership x as limited partners partnership x is owned by corp e as general_partner and by employees of company as limited partners see the legend for ownership percentages property is owned by partnership y which in turn is owned by partnership w and partner m as general partners property is owned by partnership z which in turn is owned by partnership w and partner n as general partners partners m and n serve as the managing partners for partnerships y and z respectively see the legend for ownership percentages partnerships y and z use an unrelated management company manager to perform certain management leasing and construction supervision services for properties and they use an unrelated service contractor contractor to provide building maintenance services for properties on behalf of partnership w b employees of company work with manager and partners m and n to oversee the operation and management of properties the parties above along with independent contractors provide various services to properties these services include regular property inspection cleaning of common areas janitorial services window washing maintenance and repair of building structural_components including foundations roofs and exterior walls and windows maintenance and repair of building systems including plumbing electrical heating and air conditioning and elevators testing and maintenance of fire alarms and sprinklers landscaping and grounds maintenance utilities trash and snow removal pest control security assistance with and supervision of tenant improvements and handling of tenant problems and requests for service properties generated a total of approximately c in rents and a total of approximately d in relevant expenses for e the comparable figures for f are g and h the distributive shares for corps d and e of the income and expenses of properties are determined by their ownership interests as reflected in the legend law and analysis except as provided in sec_1362 sec_1362 provides that a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation plr-113795-00 sec_1362 provides that an election under sec_1362 terminates whenever the corporation i has accumulated_earnings_and_profits at the close of each of three consecutive tax years and ii has gross_receipts for each of such tax years more than percent of which are passive_investment_income except as otherwise provided in sec_1362 sec_1362 provides that the term passive_investment_income means gross_receipts derived from royalties rents dividends interest annuities and sales or exchanges of stock_or_securities sec_1_1362-2 of the income_tax regulations provides that rents means amounts received for_the_use_of or the right to use property whether real or personal of the corporation sec_1_1362-2 provides that rents does not include rents derived in the active trade_or_business of renting property rents received by a corporation are derived in an active trade_or_business of renting property only if based on all the facts and circumstances the corporation provides significant services or incurs substantial costs in the rental business generally significant services are not rendered and substantial costs are not incurred in connection with net leases whether significant services are performed or substantial costs are incurred in the rental business is determined based upon all the facts and circumstances including the number of persons employed to provide the services and the types and amounts of costs and expenses_incurred other than depreciation sec_1361 provides that except as provided in regulations i a corporation which is a qsub shall not be treated as a separate corporation and ii all assets liabilities and items of income deduction and credit of a qsub shall be treated as assets liabilities and such items as the case may be of the s_corporation sec_1_1361-4 states that the separate existence of a qsub is ignored for federal tax purposes thus a corporation which is a qsub shall not be treated as a separate corporation and all assets liabilities and items of income deduction and credit of a qsub shall be treated as assets liabilities and items of income deduction and credit of the s_corporation after the qsub elections company will hold direct general_partnership interests in partnerships w and x based solely on the facts as represented by company in this ruling_request we conclude that after the qsub elections the rents company receives from properties as part of its distributive_share of partnership income will not constitute passive_investment_income under sec_1362 plr-113795-00 the ruling in this letter is based on information and representations submitted by the company and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request_for_ruling it is subject_to verification on examination except for the specific ruling above no opinion is expressed or implied concerning the federal_income_tax consequences of the facts of this case under any other provision of the code specifically no opinion is expressed regarding company’s s_corporation and qsub elections further the passive_investment_income rules of sec_1362 are completely independent of the passive_activity rules of sec_469 unless an exception under sec_469 applies the rental_activity remains passive for purposes of sec_469 under a power_of_attorney on file with this office we are sending a copy of this letter to company this ruling is directed only to the taxpayer who requested it according to sec_6110 this ruling may not be used or cited as precedent sincerely mary beth collins assistant to the chief branch office of associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


t c memo united_states tax_court sydell l miller petitioner v commissioner of internal revenue respondent docket no filed date david j fischer hewitt b shaw jr and kenneth j kies for petitioner dennis m kelly for respondent memorandum opinion kroupa judge this partner-level matter is before the court on respondent’s motion to dismiss for lack of jurisdiction and involves the validity of a deficiency_notice under the partnership provisions of the tax equity and fiscal responsibility act of tefra publaw_97_248 96_stat_648 respondent issued petitioner a deficiency_notice for and years at issue on the same day he issued a notice of final_partnership_administrative_adjustment fpaa to slm ltd of ohio the partnership for in the deficiency_notice respondent determined a dollar_figure deficiency in petitioner’s federal_income_tax for a dollar_figure deficiency for and a dollar_figure deficiency for respondent also determined accuracy-related_penalties under section of dollar_figure for dollar_figure for and dollar_figure for the deficiencies and penalties stem from adjustments to petitioner’s capital_gain income and itemized_deduction sec_2 for the years at issue the alleged capital_gain income is attributable to cash distributions from the sydell miller charitable_remainder_annuity_trust miller crat a limited_partner of the partnership the sole issue for decision is whether we lack jurisdiction to redetermine the deficiencies and penalties at issue because the deficiency_notice is invalid we hold that the notice is invalid because it adjusts affected items that cannot be 1all section references are to the internal_revenue_code in effect for the years at issue unless otherwise indicated 2the adjustments to itemized_deductions are purely computational and depend on the primary_adjustment to petitioner’s capital_gain income litigated until the conclusion of the ongoing partnership-level proceeding accordingly we shall grant respondent’s motion background the facts we recite are uncontested facts admitted in the petition respondent’s motion petitioner’s objection to respondent’s motion or the exhibits attached to these documents petitioner resided in florida at the time she filed the petition petitioner owned three million shares of bristol-myers squibb stock bmy stock directly or indirectly through her wholly owned s_corporation nevadamax inc nevadamax petitioner transferred her bmy stock to the partnership in exchange for a 99-percent limited_partnership_interest and a percent general_partnership interest nevadamax in turn transferred its bmy stock to the partnership for a 4-percent limited_partnership_interest petitioner formed the miller crat four days later and contributed her 99-percent limited_partnership_interest to the miller crat petitioner was the term beneficiary of the miller crat and was entitled to monthly distributions crat distributions until the crat terminated in the day after transferring her limited_partnership_interest to the miller crat petitioner caused the partnership and bear stearns international ltd bear stearns to enter into a variable forward purchase contract concerning the bmy stock the confirmations of this agreement set forth the terms of the bmy stock sale including a purchase date of date bear stearns paid the partnership dollar_figure million in however under the agreement the partnership made cash distributions to the miller crat during the years at issue these distributions were calculated to meet the miller crat’s monthly distribution obligations to petitioner the primary source of these distributions was the dollar_figure million payment from bear stearns the miller crat made crat distributions in excess of dollar_figure million to petitioner from date through date petitioner treated the crat distributions as nontaxable returns of corpus under sec_664 on her tax returns for the years at issue respondent challenged petitioner’s reporting position under two alternative theories respondent’s first theory is presented in the fpaa respondent determined in the fpaa among other things that the partnership made a closed and completed sale of the bmy stock when it executed the variable_prepaid_forward_contract and therefore had approximately dollar_figure million in capital_gain income for partnership gain issue respondent determined the dollar_figure million gain by subtracting the partnership’s basis in the bmy stock from the consideration the partnership received from bear stearns dollar_figure million in cash plus the contingent right to future appreciation according to respondent petitioner caused nevadamax the partnership’s tax_matters_partner to timely file a petition with this court the partnership-level case is pending at docket no respondent’s second theory is included in the deficiency_notice in which respondent challenges petitioner’s tax treatment of the crat distributions under sec_1_643_a_-8 income_tax regs the crat anti-abuse regulation essentially respondent determined that the miller crat is treated as having sold a pro_rata portion of the bmy stock in the years at issue and therefore the crat distributions are properly treated as capital_gains rather than a return of corpus under the crat anti-abuse regulation petitioner timely filed a petition with this court and respondent filed a motion to dismiss for lack of jurisdiction before filing an answer it is this motion that we address discussion we must decide whether the deficiency_notice is invalid because it adjusts affected items and was issued before the conclusion of the related partnership-level proceeding we first discuss the tax treatment of distributions from charitable_remainder annuity trusts generally we then turn to respondent’s treatment of the crat distributions in the deficiency_notice finally we examine respondent’s determinations in the deficiency_notice under the tefra partnership provisions to decide we do not have jurisdiction i distributions from charitable_remainder annuity trusts the tax treatment of distributions from a charitable_remainder_annuity_trust to its beneficiary is determined under a four-tier system see sec_664 first all amounts distributed to the beneficiary are characterized and taxed as ordinary_income to the extent that the trust has ordinary_income for the year and undistributed ordinary_income for past years sec_664 if the payment exceeds the total of ordinary_income for the current_year and undistributed ordinary_income for past years capital_gain income is distributed to the extent of the trust capital_gain income for the current_year and undistributed_capital_gain income from prior years sec_664 if the payment exceeds the total of current and accumulated ordinary_income and capital_gain income for the year of distribution then other income generally tax-exempt_income is distributed to the extent of the trust’s other income for the year and other income that is undistributed for prior years sec_664 finally if any portion of the payment in a given year exceeds the sum of current and accumulated income and gains the balance is treated as a return of trust corpus sec_664 each year the trustee must completely distribute all of the historical value of income in one category before distributing any from the next category the four-tier system causes a beneficiary to treat distributions from a charitable_remainder_annuity_trust as being pulled first from sources with the highest income_tax rate tax planners began to look for ways around the four-tier system to avoid higher tax_rates for their clients the secretary issued the crat anti-abuse regulation in date to address inappropriate manipulation of the four-tier system for tax_avoidance see t d 2001_1_cb_492 the crat anti- abuse regulation disregards all transactions that circumvent the regulation’s purpose of preventing taxable capital_gain from being characterized as nontaxable return of corpus sec_1_643_a_-8 and b income_tax regs the charitable_remainder_annuity_trust is then treated as having sold a pro_rata portion of its assets for years in which it makes a distribution sec_1_643_a_-8 income_tax regs respondent challenges petitioner’s tax treatment of the crat distributions under the crat anti-abuse regulation respondent ultimately concludes that the crat anti-abuse regulation applies and petitioner erroneously treated the crat distributions as return of corpus rather than capital_gain for the years at issue the regulation applies only however to the extent that the crat distributions would otherwise be characterized in the hands of petitioner as distributions of trust corpus see sec_1_643_a_-8 income_tax regs accordingly the crat anti- abuse regulation cannot apply if the partnership gain issue is upheld in the partnership-level proceeding the distributions would then be characterized as gain under sec_664 rather than as returns of corpus under sec_664 with this understanding of respondent’s determinations in the deficiency_notice we now turn to the jurisdictional issue in this case ii our jurisdiction under tefra the tax_court is a court of limited jurisdiction and we may exercise our jurisdiction only to the extent provided by congress see sec_7442 see also 114_tc_519 we have jurisdiction to redetermine a deficiency if a valid notice_of_deficiency is issued by the commissioner and a timely petition is filed by the taxpayer gaf corp subs v commissioner supra pincite we 3in doing so respondent determined that the miller crat’s participation in the partnership is disregarded for purposes of determining the tax treatment of the distributions respondent therefore treated the miller crat as having sold a pro_rata portion of the bmy stock during the years at issue and recognizing capital_gain to the extent the crat distributions exceeded the stock’s allocable basis have jurisdiction in this case only if the notice_of_deficiency sent to petitioner is valid petitioner argues that the deficiency_notice is valid because it adjusts items that are unrelated to the determinations in the fpaa respondent counters that the deficiency_notice is invalid because it adjusts items that depend on the outcome of the partnership gain issue in the partnership-level proceeding we agree with respondent partnership items are determined in partnership-level proceedings under tefra while nonpartnership_items are determined at the individual partner level sec_6221 97_tc_575 a partnership_item is any item required to be taken into account for the partnership’s taxable_year to the extent regulations specify it is an item more appropriately determined at the partnership level than the partner level sec_6231 we agree with the parties that the partnership gain issue both its timing and amount and each partner’s distributive_share of any partnership gains are partnership items see sec_301_6231_a_3_-1 b proced admin 4partnership items include the partnership aggregate and each partner’s share of items of income gain loss deduction or credit of the partnership sec_301 a - a proced admin regs partnership items also include the accounting practices and the legal and factual determinations that underlie the determination of the amount timing and characterization of items of income credit gain continued regs these partnership items are in dispute in the partnership- level proceeding and will be finally determined there partnership-level determinations also impact certain items of individual partners these are referred to as affected items and their resolution depends on partnership-level determinations see sec_6231 87_tc_783 in general the commissioner has no authority to assess a deficiency attributable to any partnership_item until the partnership-level proceeding is completed sec_6225 see gaf corp subs v commissioner supra pincite accordingly a deficiency_notice adjusting affected items is generally invalid if it is issued before the conclusion of the partnership-level proceeding and we therefore have no jurisdiction see gaf corp subs v commissioner supra pincite soward v commissioner tcmemo_2006_262 we now turn to whether the adjustments in the deficiency_notice are attributable to affected items that flow from the partnership gain issue so that we lack jurisdiction over them here petitioner argues that respondent’s recharacterization of the crat distributions under the crat anti-abuse regulation and continued loss deduction etc sec_301_6231_a_3_-1 proced admin regs the related penalties are not affected items we disagree both items are in fact affected items that must await a determination of the partnership gain issue at the partnership level an affected_item is any item to the extent such item is affected by a partnership_item see sec_6231 further any item whose existence or amount is dependent on a partnership_item is an affected_item see maxwell v commissioner supra pincite recharacterization of the crat distributions whether under sec_664 b or the crat anti-abuse regulation depends upon a final_determination of the partnership gain issue we must await the conclusion of the partnership-level proceeding to know the timing and amount of the partnership gain issue we may then determine the character of the crat distributions either as gain or return of corpus under sec_664 we must know the character of the crat distributions under sec_664 to determine whether the crat anti-abuse regulation applies at all 5although petitioner’s argument is not entirely clear she appears to contend that the operation of the crat anti-abuse regulation would be an affected_item only if it had a bearing on the taxable_amount of the crat distributions arising from the partnership gain issue we reject this argument an affected_item is any item to the extent such item is affected by a partnership_item see sec_6231 an affected_item is not required to have an impact on any other item however 6the parties agree that the tax treatment of the crat distributions under sec_664 is an affected_item to recharacterize a return of corpus as capital_gain income accordingly we hold that the operation of the crat anti-abuse regulation is an affected_item in addition respondent determined that petitioner is liable for accuracy-related_penalties under sec_6662 for the years at issue the penalties do not arise from the adjustments in the fpaa instead these penalties depend upon operation of the crat anti-abuse regulation accordingly the penalties are affected items that must await determinations at the partnership level see meruelo v commissioner t c __ __ slip op pincite 7this is true even if respondent is required to make computational adjustments only for any portion of the crat distributions properly characterized as capital_gain income under sec_664 8petitioner argues that this proceeding provides her only opportunity to challenge the validity of the crat anti-abuse regulation we disagree the recharacterization of the crat distributions under the crat anti-abuse regulation requires various partner-level determinations including but not limited to the values and bases of the miller crat’s assets see sec_1_643_a_-8 and income_tax regs see also sec a a i 110_tc_172 partner-level determination under sec_469 passive_loss_rules is an affected_item supplemented by 110_tc_440 102_tc_550 characterization of a guaranteed_payment as a lump-sum payment under sec_104 is an affected_item accordingly petitioner may have the opportunity to challenge the regulation’s validity if necessary in an affected items deficiency proceeding after the conclusion of the partnership-level proceeding iii conclusion we conclude that respondent improperly issued the deficiency_notice recharacterizing the crat distributions before the decision of this court has become final in the ongoing partnership-level proceeding accordingly we hold that the deficiency_notice is invalid and there is no jurisdictional basis upon which this court may consider the adjustments we have considered all the arguments of the parties and to the extent we have not addressed them we find them to be irrelevant moot or meritless to reflect the foregoing an appropriate order of dismissal for lack of jurisdiction will be entered


internal_revenue_service national_office technical_advice_memorandum number release date index number control number tam-114836-99 cc dom p si b8 district_director taxpayer’s name taxpayer’s address taxpayer’s identification no period involved no conference held issue is taxpayer eligible for a refund under sec_6427 of the internal_revenue_code with respect to the tax imposed on kerosene that taxpayer packages in one gallon containers and sells to retailers for resale to consumers for nontaxable uses conclusion taxpayer is not eligible for a refund under sec_6427 with respect to the tax imposed on kerosene that taxpayer packages in one gallon containers and sells to retailers for resale to consumers for nontaxable uses facts taxpayer is a chemical company that buys large quantities of taxed kerosene at a tax- included price the kerosene is delivered into storage tanks at taxpayer’s repackaging facility taxpayer then puts the kerosene into one gallon containers and sells it to hardware stores and other retailers at a tax-excluded price these stores then sell the kerosene to consumers for use in paint removal wood refinishing home heating and other non-highway uses tam-114836-99 applicable law sec_4081 as amended by the taxpayer_relief_act_of_1997 act imposes a tax certain removals entries and sales of kerosene sec_6427 provides that if kerosene on which tax has been imposed by sec_4081 is used by any person in a nontaxable_use then a refund is allowable to the ultimate_purchaser of such fuel in an amount equal to the amount of tax imposed on the fuel under sec_4081 nontaxable_use includes use for paint removal wood refinishing home heating and other uses that are not use as a fuel in a diesel-powered highway vehicle sec_48_6427-10t a provides that for purposes of sec_48_6427-8 diesel_fuel includes kerosene sec_48_6427-8 provides that a claim for a refund with respect to diesel_fuel under sec_6427 is allowable if among other conditions the claimant produced or bought the fuel and did not resell it in the united_states rationale although the kerosene in question was ultimately used in a nontaxable_use taxpayer cannot claim a refund with respect to the kerosene because taxpayer was not the ultimate_purchaser taxpayer did not consume the kerosene or use it to make a different product rather taxpayer sold the kerosene in the united_states for resale to consumers taxpayer’s purchase_price and selling_price are not factors in determining whether taxpayer is the ultimate_purchaser of kerosene taxpayer suggests that the congress added the tax on kerosene to reduce opportunities for fuel tax_evasion but that the congress did not intend to impose the tax on kerosene used for nonhighway purposes it is true that congress sought to exempt from tax kerosene that is used for nonhighway purposes in some cases however this exemption is realized through a credit or refund here a refund relating to the kerosene tax is available only to the ultimate_purchaser of the kerosene because taxpayer is not the ultimate_purchaser of the kerosene in question taxpayer is not eligible for a refund tam-114836-99 caveat a copy of this technical_advice_memorandum is to be given to the taxpayer sec_6110 provides that it may not be used or cited as precedent under sec_6110 names addresses and identifying numbers have been deleted


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi - plr-106604-00 date september x a d1 year dear this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 in year a as the president of x represents that x was intended to be an s_corporation beginning year its first taxable_year the consent in lieu of the organizational meeting of x evidences this intent a represents that a form_2553 election by a small_business_corporation had been timely signed and mailed to the internal_revenue_service however x’s service_center has no record of a form_2553 for x for year and all subsequent years x filed a form_1120s u s income_tax return for an s_corporation and the shareholders have filed individual tax returns consistent with x being an s_corporation sec_1362 of the code provides that if -- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x’s year taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x’s year taxable_year a copy of this letter should be attached to the form_2553 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 including whether x was or is a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely yours branch j thomas hines acting branch chief office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes