t c memo united_states tax_court donald carl barker petitioner v commissioner of internal revenue respondent docket no filed date juan f vasquez jr and tamara g woods for petitioner adam p sweet for respondent memorandum findings_of_fact and opinion goeke judge respondent determined a deficiency in petitioner’s federal_income_tax of dollar_figure for the taxable_year the deficiency arose from respondent’s disallowance of certain deductions totaling dollar_figure claimed by petitioner on his schedule c profit or loss from business the issue for decision is whether petitioner may deduct dollar_figure in expenditures under sec_162 a as ordinary and necessary business_expenses for the reasons stated herein we find that petitioner is not entitled to deduct those expenditures findings_of_fact petitioner resided in texas when his petition was filed at the time of trial petitioner had a double bachelor of science degree from colorado state university in physics and psychology a master’s degree in physics psychology and math from the university of houston clear lake and a master’s degree in space architecture from the university of houston and was halfway through his ph d in geology at the university of houston after graduating from colorado state university in petitioner moved houston texas to begin a job with the national aeronautics and space administration nasa in the space shuttle mathematicians in residence mir program about five years later he transferred to the space station program and has been working there ever since in a variety of positions including space station 1unless otherwise indicated all section references are to the internal_revenue_code code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure guidance navigation control and propulsion and station operations planning and most recently as a systems manager for the robotics system on the space station i the history of mars advanced exploration development inc in petitioner started mars advanced exploration development inc maxd to obtain funding for the development of various technologies relating to exploring the planet mars on date petitioner submitted a funding proposal to one of nasa’s small_business research initiative programs the proposal sought dollar_figure for a six-month period to further develop an external audio communication system for space suits to be used on mars the mars audio system the mars audio system was field tested in at the mars society’s desert research facility in utah included in the proposal among other things 2in most of these positions petitioner was actually working for contractors and subcontractors of nasa 3petitioner testified that it was not possible to obtain funding as an individual one had to pursue funding via an entity 4the mars audio system was being developed for integration into the martian surface suit the hardware which has been derived from mars polar lander flight hardware incorporates low power low cost off-the-shelf components that include an intelligent sound processing chip hearing-aid style electric microphones and miniaturized speakers 5the facility was basically a large replica of what would be a mars lander two-story six-person habitat the facility had simulation space suits and simulation extravehicular activities petitioner was able to mount his mars audio continued were a summary budget outlining labor overhead and other direct costs for the project a work plan section detailing the steps that would be taken in further developing the mars audio system and a section explaining the potential commercial applications of the mars audio system in early petitioner was notified that he did not win the grant on date maxd in conjunction with other researchers submitted a research document entitled martian resource locations identification and optimization to science direct petitioner explained that the document explored ways to actually live off the land once people have arrived on mars as opposed to taking all supplies along on the flight maxd submitted a white paper to the projects procurement office at nasa on date the white paper focused on maxd’s mars audio system outlining the identification and significance of the difference in surface exploration of mars the technical objectives of the mars audio system and the related research_and_development of the mars audio system continued system on the space suits and communicate using it 6science direct advertises itself to be the world’s leading full-text scientific database science direct accepted the research document on date petitioner’s stated objective in sending the white paper was to further familiarize nasa with his project to increase his chances of receiving funding when the next round of research grants became available petitioner in his capacity as president of maxd applied for a patent for the mars audio system with the u s patent and trademark office on date according to petitioner the patent would bolster his credibility for his next funding application he was informed in late or early that his patent application had been denied because of a similar competing patent granted a year or so before his application was submitted petitioner testified that he did not dispute the patent office’s determination because he did not believe he had the resources to finance the legal costs ii maxd in during petitioner was working on his space architecture degree at the university of houston in august petitioner attended the 9th annual international mars society conference in washington d c the four-day conference included the latest details on nasa’s vision for space exploration and results from the spirit opportunity mars express and mars reconnaissance 7petitioner estimates that he attends two to three conferences a year presenting at one or more orbiter missions now exploring the red planet petitioner produced no documents substantiating any expenses relating to this trip stating that several boxes of his records were destroyed in from water damage relating to hurricane ike two months later petitioner attended the fourth international conference on mars polar science and exploration in davos switzerland the purpose of the five-day conference was to assess the current state of mars polar and climate research discuss what might be learned from investigations of terrestrial analogs and the data returned from current and future missions and identify the potential science objectives platform options and instrument suites for robotic missions to the martian poles within the next decade the meeting was also intended to advance such missions and to serve as an important resource for those scientists wishing to develop instruments propose spacecraft or participate as members of a science team in response to any future announcement of opportunity 8petitioner produced a picture of the damaged boxes at trial furthermore he testified that because he had had many credit cards over the years he was unable to determine which credit card was used for the washington d c trip petitioner did not file an insurance claim for the destroyed boxes because he did not believe they could be valued iii maxd’s demise in petitioner published a design study entitled solar system longboats a holistic and robust mars exploration architecture design study he presented his findings at the aaia space conference and exposition in san diego california the design study explores a conceptual mission with a two vehicle architecture for the exploration and settlement of mars and planetary surfaces petitioner believes several ideas in his study could be patented however in maxd became dormant after the formal rejection of his patent application maxd has never reported any income iv the notice_of_deficiency petitioner timely filed his form_1040 u s individual_income_tax_return for his taxable_year he prepared his return using turbotax deducting on his schedule c travel_expenses of dollar_figure meals and entertainment_expenses of dollar_figure and other expenses of dollar_figure--which included dollar_figure for degree enhancement continued education and dollar_figure for printing and copies the 9petitioner also deducted dollar_figure for tuition and fees on line of his form_1040 while it is unclear whether the tuition and fees and the degree enhancement expenses were inadvertently deducted twice petitioner testified that the dollar_figure deduction was related to the program i was working on with architecture i was getting auto cad software so i could design the stuff i’d been working on and the dollar_figure of tuition and fees was paid to the university of houston for his degree schedule c listed his principal business as research technical and reported no business gross_receipts or income in the notice_of_deficiency issued to petitioner on date respondent disallowed deductions for the expenditures_for travel meals and entertainment and other expenses petitioner timely filed a petition with this court and a trial was held on date opinion at trial and on brief respondent argued that petitioner was precluded from claiming schedule c deductions on his federal_income_tax return because petitioner was not engaged in an active trade_or_business during and even if petitioner was engaged in an active trade_or_business during he failed to substantiate his schedule c expenses because we hold that petitioner was not engaged in an active trade_or_business during we need not decide whether petitioner’s schedule c expenses were substantiated i burden_of_proof in general the commissioner’s determinations set forth in a notice_of_deficiency are presumed correct and the taxpayer bears the burden of showing that the determinations are erroneous rule a 290_us_111 furthermore deductions are a matter of legislative grace and taxpayers must maintain adequate_records to substantiate the amounts of their income and entitlement to any deductions or credits claimed sec_6001 rule a 503_us_79 292_us_435 sec_1_6001-1 income_tax regs however under sec_7491 if the taxpayer produces credible_evidence with respect to any factual issue relevant to ascertaining the taxpayer’s liability for tax and meets other requirements the burden_of_proof shifts from the taxpayer to the commissioner as to that factual issue ‘credible evidence is the quality of evidence which after critical analysis the court would find sufficient to base a decision on the issue if no contrary evidence were submitted ’ 122_tc_143 quoting 116_tc_438 sec_7491 applies only if the taxpayer complies with substantiation requirements maintains all required records and cooperates with reasonable requests by the commissioner for witnesses information documents meetings and interviews sec_7491 because we decide whether petitioner was engaged in an active trade_or_business during on the preponderance_of_the_evidence we need not decide whether sec_7491 applies ii whether petitioner was engaged in an active trade_or_business pursuant to sec_162 a taxpayer is entitled to deduct all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business such expenses must be directly connected with or pertain to the taxpayer’s trade_or_business sec_1_162-1 income_tax regs an expense is ordinary if it is normal usual or customary within a particular trade business or industry or arises from a transaction of common or frequent occurrence in the type of business involved 308_us_488 an expense is necessary if it is appropriate and helpful for the development of the business 320_us_467 in contrast except where specifically enumerated in the code no deductions are allowed for personal living or family_expenses sec_262 the determination of whether an expenditure satisfies the requirements of sec_162 is a question of fact commissioner v heininger u s pincite whether a taxpayer is engaged in a trade_or_business is determined using a facts_and_circumstances_test under which courts have focused on the following three factors that indicate the existence of a trade_or_business whether the taxpayer undertook the activity intending to earn a profit whether the taxpayer is regularly and actively involved in the activity and whether the taxpayer’s activity has actually commenced see 480_us_23 mcmanus v commissioner tcmemo_1987_457 aff’d without published opinion 865_f2d_255 4th cir a whether petitioner undertook the activity intending to earn a profit although a taxpayer need not have a reasonable expectation of earning a profit from a particular enterprise a business consists of a course of activities engaged in for profit sutherland v commissioner tcmemo_1966_155 citing 40_tc_578 a taxpayer must initiate or operate an enterprise with the good-faith intention of making a profit or producing income commissioner v groetzinger u s pincite sutherland v commissioner tcmemo_1966_155 the determination of whether the primary purpose of the activity is to earn income or profit requires an examination of the facts of each case commissioner v groetzinger u s pincite the business need not realize an immediate profit nor do the activities need to produce a profit for the year involved but the activities must be entered into and carried out in good_faith for the purpose of making a profit 399_f2d_326 5th cir aff’g tcmemo_1967_137 cherry v commissioner tcmemo_1967_123 moreover although sec_183 is actually an allowance provision not a disallowance provision the regulations promulgated under that section have historically been employed to facilitate the determination of the existence of a profit_motive mack v commissioner tcmemo_1988_187 aff’d without published opinion f 2d 9th cir petitioner argues that application of the factors in sec_1_183-2 income_tax regs shows that he had an actual and honest profit objective from the outset which was not unreasonable sec_1_183-2 income_tax regs sets forth the following nine factors for determining a profit objective the manner in which the taxpayer carries on an activity the expertise of the taxpayer or his advisors the time and effort expended by the taxpayer in carrying on the activity the expectation that the assets used in the activity may appreciate in value the success of the taxpayer in carrying on other similar or dissimilar activities the taxpayer’s history of income and losses with respect to the activity the amount of occasional profits if any which are earned the financial status of the taxpayer and elements of personal pleasure or recreation no single factor is controlling 72_tc_411 aff’d without published opinion 647_f2d_170 9th cir sec_1_183-2 income_tax regs and more weight is accorded to proven objective facts than to mere statements of intent 85_tc_557 78_tc_659 factor manner of carrying on the activity the fact that the taxpayer carries on the activity in a businesslike manner and maintains complete and accurate books_and_records may indicate that the activity is engaged in for profit sec_1_183-2 income_tax regs petitioner contends that he conducted maxd in a businesslike manner because he kept complete and accurate records although they were all destroyed by a flood acquired_business research and computer equipment marketed himself and his company applied for patents made continual improvements to prototypes and actively applied for competitive grants awarded by nasa to small businesses we are not able to determine whether petitioner maintained complete and accurate books_and_records because any records he maintained were destroyed in a flood moreover petitioner’s contentions are not supported by the record petitioner did not actively apply for patents and grants in rather maxd applied for only one research grant in and one patent in which were both denied around and respectively petitioner did produce a research paper in submitted a white paper to nasa in and published a design study in the research paper and the design study focused on traveling to mars and living off its resources rather than on marketing any product of maxd conversely the white paper was sent to nasa in as a means to market the mars audio system however only the design study could have been worked on during over the history of maxd’s existence maxd has not sought funding from anyone other than through one application_for a research grant from nasa in there is no evidence that petitioner engaged in any marketing or applied for any grants in there is only evidence that he attended two mars conferences while we do not doubt that petitioner spent some time working on his mars audio system the evidence in the record does not support a finding that maxd was conducted in a businesslike manner during factor expertise of the taxpayer preparation for the activity by extensive study of its accepted business economic and scientific practices may indicate that the taxpayer has a profit_motive where the taxpayer carries on the activity in accordance with such practices sec_1_183-2 income_tax regs we do not question petitioner’s expertise in engineering or knowledge of space exploration technology he holds multiple advanced degrees including a master’s in physics and a master’s in space architecture and has spent his career working with nasa and nasa subcontractors therefore we find that petitioner’s expertise in space exploration technology supports a profit_motive factor time and effort expended on the activity the fact that the taxpayer devotes much of his personal time and effort to carrying on an activity may indicate an intention to derive a profit sec_1 b income_tax regs there is insufficient evidence in the record to establish the amount of time petitioner spent working for maxd in any year especially during petitioner had multiple jobs and was working on his space architecture degree at the university of houston the only evidence regarding petitioner’s activities relates to trips to washington d c and davos switzerland petitioner was not a presenter at either event but attended them only for informational purposes while we do not doubt that petitioner spent some time working on his mars audio system in this factor does not support a finding that petitioner had a profit_motive factor expectation that assets may increase in value the term profit encompasses appreciation in assets used in the activity sec_1_183-2 income_tax regs even if no profit is generated from current operations a taxpayer may intend to derive an overall profit when appreciation of the asset is realized id petitioner testified that the purpose of maxd was to obtain funding for the development of various technologies relating to exploring the planet mars it is clear that petitioner wanted to obtain funding to further his research and hoped that his research would one day serve as a gateway for future involvement with nasa’s potential mars space exploration program however it is unclear whether petitioner believed that the mars audio system would appreciate so that he could obtain an overall profit while we could speculate whether petitioner intended to earn an overall profit from the appreciation of the mars audio system we do not believe this factor supports a finding that petitioner had a profit_motive factor success in other activities the fact that the taxpayer has engaged in other activities and converted them from unprofitable to profitable enterprises may indicate that he is engaged in the present activity for profit even though the activity is presently unprofitable sec_1_183-2 income_tax regs while petitioner’s 18-year employment at nasa demonstrates a successful career in the space exploration industry we do not believe a successful career as an employee evidences petitioner’s ability to convert an unprofitable business to a profitable business therefore this factor does not support a finding of a profit_motive factor history of income or loss from the activity a series of losses during the initial stage of an activity may not necessarily be an indication that the activity is not engaged in for profit sec_1_183-2 income_tax regs however when losses are continually sustained beyond a period which is customarily necessary to bring the operation to profitable status such losses may be indicative that the activity is not being engaged in for profit id a series of years in which net_income was realized would of course be strong evidence that the activity is engaged in for profit id maxd has never reported any sales yet alone income since its beginning in moreover since its patent denial in maxd has become dormant while we do not determine the customary period necessary to bring an operation like maxd to a profitable status maxd’s history from start to finish consisted only of losses and not a single dollar of sales therefore maxd’s history of losses cannot favor a finding of a profit_motive factor amount of occasional profit earned the amount of profits in relation to the amount of losses_incurred and in relation to the amount of the taxpayer’s investment and the value of the assets used in the activity may provide useful criteria in determining the taxpayer’s intent sec_1_183-2 income_tax regs moreover an opportunity to earn a substantial ultimate profit in a highly speculative venture is ordinarily sufficient to indicate that the activity is engaged in for profit even though losses or only occasional small profits are actually generated id as mentioned maxd has never reported any sales yet alone profits while maxd has spent approximately dollar_figure from through approximately of those expenditures include dollar_figure for travel dollar_figure for continued education and dollar_figure for car and truck expenses maxd has not sought any funding or sales contracts except for one grant proposal to nasa in while simultaneously allocating most of its expenses for petitioner’s personal education and travel finally even if nasa had decided to fund petitioner’s research this fact alone would not support a finding that the mars audio system could have produced a substantial ultimate profit therefore this factor does not support a finding of a profit_motive factor financial status of the taxpayer the fact that the taxpayer does not have substantial income or capital from sources other than the activity may indicate that an activity is engaged in for profit sec_1_183-2 income_tax regs substantial income from sources other than the activity particularly if the losses from the activity generate substantial tax benefits may indicate that the activity is not engaged in for profit especially if there are personal or recreational elements involved id most of petitioner’s income is from wages from his jobs with nasa and nasa subcontractors from to petitioner’s average income from wages was approximately dollar_figure dollar_figure in over that same period petitioner has used the losses from maxd to offset his wage income moreover as previously mentioned most of maxd’s expenses relate to travel and personal education therefore this factor does not support a finding of a profit_motive factor elements of personal pleasure or recreation the presence of personal motives in carrying on an activity may indicate that the activity is not engaged in for profit sec_1_183-2 income_tax regs however it is not necessary that an activity be engaged in with the exclusive intention of deriving a profit id the fact that the taxpayer derives personal pleasure from engaging in the activity is not sufficient to cause the activity to be classified as not engaged in for profit if other factors evidence that the activity is in fact engaged in for profit id we do not fault petitioner’s strong passion for mars exploration and its related technology we believe he pursues a noble cause that one day could provide benefits to all humanity however passion is not synonymous with a profit_motive in the absence of other factors supporting his passion we do not believe this factor supports a finding of a profit_motive on the basis of our analysis of the factors in sec_1_183-2 income_tax regs we find that maxd did not operate in with the intention of earning a profit b whether petitioner was regularly and actively involved in the activity to prove regular and active involvement in a trade_or_business the taxpayer must show extensive business activity over a substantial period as opposed to a one- time venture or investment stanton v commissioner f 2d pincite mcmanus v commissioner tcmemo_1987_457 a taxpayer may have more than one trade_or_business 31_tc_1264 aff’d 274_f2d_883 6th cir to be engaged in a trade_or_business the taxpayer must be involved in the activity with continuity and regularity commissioner v groetzinger u s pincite a sporadic activity a hobby or an amusement diversion does not qualify id t he fact that the taxpayer devoted time to another job must be considered hawkins v commissioner tcmemo_1979_101 aff’d without published opinion 652_f2d_62 9th cir see also trans v commissioner tcmemo_1999_233 taxpayer’s wages from full-time employment strongly suggested that he was regularly and actively involved in his full-time employment rather than his claimed computer consulting trade_or_business as previously addressed there is insufficient evidence in the record of the amount of time petitioner spent working for maxd in any year especially during petitioner had multiple jobs and was working on his space architecture degree at the university of houston the only evidence regarding petitioner’s maxd activities relates to two trips taken to washington d c and davos switzerland petitioner was not a presenter at either event but attended the conferences for information we find that there is insufficient evidence in the record showing that petitioner was actively and regularly involved with maxd during c whether petitioner’s activity had actually commenced a taxpayer is not engaged in a trade_or_business until such time as the business has begun to function as a going concern and performed those activities for which it was organized 345_f2d_901 4th cir vacated and remanded on other grounds 382_us_68 an enterprise need not have generated sales or other revenue to have begun to carry on a business 63_f3d_614 7th cir aff’g in part rev’g in part and remanding tcmemo_1994_316 864_f2d_1521 10th cir aff’g 86_tc_492 however mere research into or investigation of a potential business is insufficient to demonstrate that a taxpayer is engaged in a trade_or_business 56_tc_895 expenditures made before the actual commencement of a trade_or_business generally must be capitalized jackson v commissioner t c pincite these capitalized expenses may generally be depreciated or amortized over their useful_life after the trade_or_business to which they are related actually commences sec_167 jackson v commissioner t c pincite because we find that maxd’s activities were not engaged in for profit and that petitioner has not produced evidence that he was regularly and actively involved in maxd’s activities in we need not decide whether maxd had commenced its activities in iii conclusion we conclude that petitioner was not engaged in an active trade_or_business during the tax_year therefore petitioner is not entitled to deduct the dollar_figure of schedule c expenditures reported on his federal_income_tax return to reflect the foregoing decision will be entered under rule


internal_revenue_service number release date index number ----------------------------- -------------------------- ---------------------------------------------------- ------------------------------------ ------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------ id no ---------------- telephone number ---------------------- refer reply to cc psi plr-121037-18 date february x ----------------------------- ------------------------- country ------------ d1 --------------------------- dear ----------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting a ruling under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations that x be granted an extension of time to file an election to be classified as a partnership under sec_301_7701-3 effective d1 facts x is an entity formed under the laws of country x is not classified as a corporation under sec_301_7701-2 or x intended that it be treated as a partnership for u s federal tax purposes effective d1 however due to inadvertence x failed to file a timely form_8832 entity classification election law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 sec_301_7701-3 provides that unless it elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does plr-121037-18 not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided in sec_301_7701-3 by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no date is specified on the election form the effective date specified on form_8832 cannot be more than days prior to the date on which the election is filed and cannot be more than months after the date on which the election is filed sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 sets forth the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government conclusion based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file form_8832 with the appropriate service_center to elect to be classified as a partnership for federal tax purposes effective d1 a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose this ruling is contingent on x and its owners filing within days from the date of this letter any required returns including amended returns consistent with the requested plr-121037-18 relief being effective on d1 to the extent appropriate these returns or amended returns must include but are not limited to forms information_return of u s persons with respect to certain foreign_partnerships such that these forms reflect the consequences of the relief granted in this letter if this condition is not met then this ruling is null and void a copy of this letter should be attached to any such returns except as expressly set forth above we express or imply no opinion concerning the federal tax consequences of the facts discussed above under any other provision of the code this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office we are sending a copy of this letter to x's authorized representative sincerely by joy spies joy spies senior technical reviewer branch passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------- telephone number -------------------- refer reply to cc psi b02 plr-104685-08 date date internal_revenue_service number release date index number ---------------------------------- ---------------------------------------------- ---------------------- ------------------------------ legend x ---------------------------------------------- -------------------------------- country ------------------------- date ------------------ dear --------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations for x to elect to be treated as a partnership for federal tax purposes under sec_301_7701-3 the information submitted states that x was formed under the laws of country on date x represents that x is a foreign_entity eligible to elect to be treated as a partnership however x inadvertently failed to timely file a form_8832 entity classification election electing to treat x as a partnership effective date sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise if the foreign eligible_entity has more than one owner it may elect to be treated as a partnership pursuant to the rules in sec_301_7701-3 plr-104685-08 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to seventy-five days prior to the date the form is filed or up to twelve months after the date on which the form is filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make the election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect to be treated as a partnership effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the internal_revenue_code and the regulations thereunder 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 plr-104685-08 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely william p o’shea associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc ------------------------------------------ ------------------- --------------------------------- ---------------------------------- ------------- ---------------------------- -------------------- ------------------------------ ---------------------------------- ------------------------------ ------------------- ------------- ------------------------ -------------------------- ------------- ----------- ------------------------------ ---------------------------------------


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division release number release date date date xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxkxxxxxkk xxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxkx attn xxxxxxxxxxxxxxx employer_identification_number xxxxxxxxxx uniform issue list contact person xxxxxxxxxx identification_number xxxxxxxxxx telephone number xxxxxxxxxxxxx this is in response to your request that we confirm that you are eligible to receive tax- deductible charitable_contributions under sec_170 of the internal_revenue_code you are a federal_agency of the united_states government established pursuant to the m et seg you receive an annual appropriation from the united_states congress n you are authorized to solicit accept and receive gifts bequests or devises of money and other_property or services in the name of the united_states o as a federal_agency of the united_states government you are eligible to receive charitable_contributions that are tax-deductible to contributors under sec_170 of the code if made for exclusively public purposes this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent if there are any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely robert c harper jr manager exempt_organizations technical group enclosure notice


tax_exempt_and_government_entities_division release number release date date date uil code department of the treasury internal_revenue_service washington d c contact person c identification_number contact number employer_identification_number tp gs form required to be filed tax years dear this is our fiiial determination that you do not qualify for exemption from federal_income_tax as an organization described in internal_revenue_code sec_501 recently we sent you a letter in response to your application that proposed an adverse determination the letter explained the facts law and rationale and gave you days to file a protest since we did not receive a protest within the requisite days the proposed adverse determination is now final because you do not qualify for exemption as an organization described in code sec_501 donors may not deduct contributions to you under code sec_170 you must file federal_income_tax returns on the form and for the years listed above within days of this letter unless you request an extension of time to file instructions and do not send them to this office failure_to_file the returns timely may result in a penalty file the returns in accordance with their we will make this letter and our proposed adverse determination_letter available for public inspection under code sec_6110 after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in notice if you agree with our deletions you do not need to take any further action if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter federal_income_tax status and responsibilities please contact irs customer service at if you have any questions about your or the irs customer service number for businesses the irs customer service number for people with hearing impairments is sincerely karen schiller acting director exempt_organizations rulings and agreements enclosure notice redacted proposed adverse determination_letter redacted final adverse determination_letter department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division date date contact person identification_number contact number fax number employer_identification_number uil legend state date date resources providers trustee trustee trustee trustee company x y dear we have considered your application_for recognition of exemption from federal_income_tax under internal_revenue_code sec_501 based on the information provided we have concluded that you do not qualify for exemption under sec_501 the basis for our conclusion is set forth below facts you were organized under the laws of state on date you filed form_1023 application_for recognition of exemption under sec_501 of the internal_revenue_code on date your certificate of incorporation certificate states that you are organized and operated exclusively for charitable and educational_purposes within the meaning of sec_501 specifically you organized to facilitate organizing resources for consumption by teachers and students to reduce spending on textbooks and provide improved learning opportunities resources are educational materials such as textbooks seminars lectures and on-line courses available to the public under a creative commons open source license you state that your goal is to serve as the primary purveyor curator and provider of resources and information you state that you intend to accomplish this goal by performing the following activities e building courses using resources and curating materials on the company website that will engage students in the learning process and excite teachers about the new possibilities in the resources world engaging resources providers in conversation about the best way to deliver resources to both students and teachers alike establishing a website that helps to keep the resources community informed of developments including news copyright decisions conferences professional development opportunities and new research in the field supporting and encouraging excellent middle and high school teachers who would be willing to record their lectures and publish their ancillary materials to the company website developing relationships with the general_public private_foundations and public_charities and governmental entities and raising funds from those persons and organizations whom would be willing to help support the organization and the proliferation of resources providing seminars webinars and other special events targeting the educational and resources communities and encouraging participation from individuals corporations and governmental entities in fostering promoting and expanding the drive for more resources your primary activity is organizing resources into sets of course materials and collections that are freely downloadable using company’s website and tablet applications the first step in this process is for your researchers to find and collect the highest-quality resources in digital form from reputable not-for-profits colleges and universities and government websites resources providers include providers next your researchers use these materials to construct your courses your researchers either have expertise in or have been former educators in their particular subject area you state that your courses can cover a full year of a single subject or can simply be a compilation of related materials some courses specifically address common core standards for math and english language arts the common core standards is an initiative sponsored by the national governors association and the council of chief state school officers to standardize state educational curricula you offer more than forty courses in middle- and high-school mathematics science history language arts and literature you also offer numerous reader collections each of which contains four to five works of famous authors most popular works in both pdf and audio format you state that neither you nor company charge for_the_use_of your courses and collections because the materials used to create these resources is published under a creative commons license that does not allow commercial redistribution next schools and teachers use your courses as a template in developing their specific course content finally students download the tailored courses on their computers or tablets for use in and out of the classroom you state that you spend approximately percent of your total time and resources creating your courses could be distributed through other means but that the free company portal continues to you distribute your course through the company website using company’s website and tablet applications the applications are available to the public for free you state that your courses provide you with the most effective way to reach hundreds of educators and schools and to carry out your mission of organizing and promoting the use of resources you have a licensing agreement with company that permits you to use company's website and tablet applications royalty free for your charitable and educational_purposes this agreement and creative commons license prohibits company from charging the public to download your courses accordingly all of your courses are available for free through company's website and tablet applications company provides consulting services to help schools use the company website to improve their education content delivery company services include creation of baseline course content specifically mapped to the school’s curriculum discounted access to copyrighted content onsite and webinar trainings and online e-mail and telephone support you state that company charges above cost for these services company has provided its services to at least two schools in one contract company charged a fixed contract_price of dollar_figurex per student for the first year_of_service and dollar_figurex per student for each subsequent year in another contract company charged a flat fee of dollar_figurey you do not state whether company restricts its consulting services to sec_501 organizations your board_of trustees manages your affairs currently your board_of trustees consists of four trustees-trustee trustee trustee and trustee trustee and trustee are the only shareholders of company a for-profit subchapter_s_corporation accordingly trustee and trustee control company trustee and trustee are also your and company's sole contributors you and company share the same address trustee and trustee formed company after the introduction of tablet computers to create software to help organize and publish resources during company's pilot project company discovered that the teachers needed assistance in finding and organizing educational material from the internet accordingly trustee and trustee incorporated you as a management vehicle for this work you state that your formation as a non-profit entity made sense because you cannot charge for resources under the creative commons license you explain that you felt two separate entities a for-profit focused on the software systems and a non-profit focused on helping educators use resources was the most appropriate model you have adopted a conflict of interest policy however you state that trustee and trustee did not abstain from the decision to select company as the distribution vehicle for your courses additionally you state that you did not solicit competitive bids from companies other than company to produce software to distribute your programs rather you state that at the time there were no other viable alternative options available for you to distribute your courses and content you further state that e ven today no other system has the capability of company law sec_501 exempts from federal income_taxation any corporation organized and operated exclusively for religious charitable scientific testing for public safety literary or educational_purposes or to foster national or international amateur sports competition or for the prevention of cruelty to children or animals provided no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 provides that in order to be described in sec_501 an organization must be both organized and operated exclusively for one or more of the purposes specified in that section if an organization fails to meet either the organizational or operational_test it is not exempt 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 r c 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 sec_1_501_c_3_-1 provides that an organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest to meet the requirement of this subsection the burden_of_proof is on the organization to show that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests sec_1_501_c_3_-1 provides that the term charitable is used in r c sec_501 in its generally accepted legal sense and includes among other things lessening the burdens of government relief of the poor and distressed or of the underprivileged advancement of education or science erection or maintenance of public buildings monuments or works and promotion of social welfare by organizations designed to accomplish any of the above purposes or in part to defend human and civil rights secured_by law rev_rul 1966_01_cb_137 determined that an organization formed to survey scientific and medical literature published throughout the world and to prepare and distribute abstracts of that literature free of charge qualified for recognition under sec_501 the organization employed technical personnel with expertise in the fields of medicine chemistry and biology to survey and write abstracts about the scientific and medical literature the organization compiled the abstracts in monthly publications that it distributed free of charge to anyone having particular interest in the subject matter the ruling held that reviewing medical and scientific publications and preparing and disseminating free abstracts of meaningful and accurate reference materials based on articles appearing in such publication were programs that advance education and science educational information about such disorders by the publication of a journal containing current revrul_67_4 1967_1_cb_121 determined that an organization formed for the purpose of encouraging basic_research in specific types of physical and mental disorders to improve educational procedures for teaching those afflicted with such disorders and to disseminate technical literature relating to these disorders qualified for recognition under sec_501 the organization's staff consisted of leading pathologists other medical specialists and teachers most of whom donated their services the organization published a journal which was sold to the public below cost containing abstracts of current information from the world’s medical and scientific publications the ruling held that the methods used for preparing and presenting the abstracts conformed to methods traditionally accepted as educational in nature furthermore the organization distributed the abstracts in a charitable manner in the sense that there is a public benefit derived from the distribution and charges for the publication only covered a portion of the costs revrul_70_129 1970_1_cb_128 determined that an organization formed for educational and scientific purposes to support research in anthropology by manufacturing high quality cast reproductions of anthropological specimens qualified for recognition under sec_501 qualified scientific personnel oversaw the manufacture of these reproductions the organization sold the reproductions to scholars and educational institutions in a noncommercial manner to recoup costs and expenses the organization solicited contributions to defray any operating deficits the ruling determined that examination of anthropological specimens was an important step in anthropological education and research furthermore the manufacture and sale of accurate reproductions provided an effective means for making these important research and study aids generally available therefore the ruling held that the distribution of these reproductions accomplished the dissemination of important educational and scientific information the charging of fees for the reproductions did not preclude recognition under sec_501 because distribution was distinguishable from ordinary commercial practices in 326_us_279 the supreme court held that the presence of private benefit if substantial in nature will destroy an organization’s tax-exempt status regardless of the organization’s other charitable purposes or activities in 765_f2d_1387 9th cir the united_states court_of_appeals for the ninth circuit determined that a church operated for the substantial non-exempt purpose of providing a market for a related for-profit organization’s services additionally the court found it unnecessary to consider the reasonableness of payments made by the church to the for-profit business instead the court stated that t he critical inquiry is not whether particular contractual payments to a related for-profit organization are reasonable or excessive but instead whether the entire enterprise is carried on in such a manner that the for-profit organization benefits substantially from the operation of the church in 71_tc_1067 the tax_court determine that two related for-profit organizations benefitted from petitioner’s operation in short the court determined that petitioner’s only function is to present to the public for a fee ideas that are owned by a related for-profit organization with materials and trainers that are supplied and controlled by another related for-profit organization furthermore the court stated that compensation need not be unreasonable or exceed fair_market_value for private benefit to exist in p l l scholarshi82_tc_196 the tax_court found that an organization that operated charitable bingo on the premises of a bar allowed the bar to increase its sales of food’and drinks by its operation in the bar thereby benefitting the bar in more than an insubstantial way the organization and bar were controlled by some of the same persons the court held that the operations of the organization and bar were so interrelated as to be functionally inseparable the effect of which was that any economic benefit the bar received was not incidental in 92_tc_1053 the tax_court determined that the american campaign academy a training program for political campaign professionals operated for the private benefit of the republican party because its tailored its curriculum to republican interests its graduates worked for republican candidates and incumbents and republican sources financed it the tax_court defined private benefit as nonincidental benefits conferred on disinterested persons that serve private interests private benefits included advantage profit fruit privilege gain or interest in international postgraduate medical foundation v commissioner 56_tcm_1140 an organization that conducted continuing medical education tours abroad exclusively used a for-profit travel agency to arrange its travel tours the same individuals controlled both the organization and the for-profit travel agency and the organization did not solicit bids from any other travel agency furthermore both entities shared the same office as both entities were interrelated the court held that the organization was operated for the benefit of the for- profit travel agency rationale an organization seeking tax-exempt status under sec_501 must be organized-and operated exclusively for charitable or other exempt purposes with no part of its net_earnings inuring to the benefit of any private_shareholder_or_individual see sec_1_501_c_3_-1 an organization is operated exclusively for one or more exempt_purpose only if it engages primarily in activities that accomplish one or more of such exempt purposes specified in sec_501 sec_1_501_c_3_-1 the presence of a single substantial non-exempt purpose will destroy the exemption regardless of the number or importance of any truly exempt purposes 326_us_279 the materials you submitted state that you are seeking recognition of tax-exempt status under sec_501 as a charitable_organization advancing education based on a review of your activities you are not described in sec_501 because you operate for one or more substantial non-exempt purposes sec_501 uses the term charitable in its generally accepted legal sense sec_1_501_c_3_-1 the term charitable includes advancement of education id for example publishing abstracts of scientific and medical articles advances education by providing an effective means for the increased dissemination and application of such knowledge revrul_67_4 revrul_66_147 additionally disseminating reproductions of anthropological specimens advances education by making these important research and study aids generally available revrul_70_129 here your primary activity is finding and organizing resources into courses the researchers compiling these courses either have particular expertise in or have experierice as former educators in their particular subject some courses specifically address common core standards for math and english you publish these courses without charge for teachers to use in teaching particular subjects or topics or in developing their own course content accordingly your activities advance education because you make resources generally available to the public and because your courses provide an effective means for the increased dissemination of resources however in order to qualify for tax-exempt status under sec_501 you must also establish that you are not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests sec_1_501_c_3_-1 a private benefit occurs when a tax-exempt_organization operates for the benefit of a related for-profit entity 765_f2d_1387 9th cir 82_tc_196 71_tc_1067 international postgraduate medical foundation v commissioner 56_tcm_1140 such benefit need not be strictly monetary for example in american campaign academy v commissioner the tax_court determined that the american campaign academy a training program for political campaign professionals operated for the substantial private interest of the republican party because its tailored its curriculum to republican interests its graduates worked for republican candidates and incumbents and republican sources financed it 92_tc_1053 you operate for the substantial private benefit of company a for-profit organization trustee and trustee two of your four trustees are the sole shareholders of company as such trustee and trustee control company additionally you and company share the same address you did not solicit competitive bids from companies other than company to produce software for the distribution of your courses instead you were formed for the sole purpose of finding and organizing courses for use on company’s website and tablet applications incidental private benefit is permissible when it is an unintentional and unavoidable consequence of charitable activity however this is not the case here the benefit that company receives is significant and not incidental because you provide all the content for company’s website and tablet applications therefore you operate for the substantial private benefit of company and through company trustee and trustee company does not charge for use of its website or tablet applications furthermore under the licensing agreement company may not charge for your courses however company offers consulting services to schools to help implement its website and tablet applications in the classroom you state that company charges above cost rates for these services company has provided its consulting services to at least two schools under one contract company charged dollar_figurex per student for the first year_of_service and dollar_figurex per student for each subsequent year under another contract company charged a flat fee of dollar_figurey company does not limit its services to sec_501 organizations therefore company derives a benefit from your activities your views and fully explain your reasoning you must submit the statement signed by one of based on the above we have determined that you fail to meet the requirements necessary to be recognized as a tax-exempt_organization under sec_501 you have the right to file a protest if you believe this determination is incorrect to protest you must submit a statement of conclusion your officers within days from the date of this letter we will consider your statement and decide if the information affects our determination your protest statement should be accompanied by the following declaration under penalties of perjury declare that have examined this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all the relevant facts and such facts are true correct and complete this declaration must be signed by an elected officer a member of the board_of directors or a trustee rather than an attorney or accountant you also have a right to request a conference to discuss your protest this request should be made when you file your protest statement an attorney certified_public_accountant or an individual enrolled to practice before the internal_revenue_service may represent you want representation during the conference procedures you must file a proper power_of_attorney form_2848 power_of_attorney and declaration of representative if you have not already done so for more information about representation see publication practice_before_the_irs and power_of_attorney all forms and publications mentioned in this letter can be found at www irs gov forms and publications if you internal_revenue_service te_ge se t eo ra t3 please send your protest statement form_2848 and any supporting documents to this address if you do not file a protest within days you will not be able to file a suit for declaratory_judgment in court because the internal_revenue_service irs will consider the failure to protest as a failure to exhaust available administrative remedies sec_7428 provides in part that a declaratory_judgment or decree shall not be issued in any proceeding unless the tax_court the united_states court of federal claims or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted all of the administrative remedies available to it within the irs if you do not intend to protest this determination you do not need to take any further action if we do not hear from you within days we will issue a final adverse determination_letter that letter will provide information about filing tax returns and other matters that he or she received your fax you may also fax your statement using the fax number shown in the heading of this letter if you fax your statement please call the person identified in the heading of this letter to confirm if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely karen schiller acting director exempt_organizations rulings and agreements


internal_revenue_service number info release date uil xxxx xxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxx dear xxxxx t eo ra t date this letter is in response to your request for information on behalf of a tax-exempt_organization formed to assist the victims of the terrorist attacks that occurred on date the organization plans to purchase annuities for the children that would be paid out over the four years that correspond to the years the will be you ask whether the entire amount of the annuity payments to the children would be excluded from their gross_income under sec_139 of the internal_revenue_code our understanding of the facts is as follows the organization is a tax-exempt public charity it was formed to assist the in new york city no employer monies fund this organization and there is no employer control of the organization the general_public funds the charity we assume that grants paid in the form of annuities will be distributed in a charitable manner as explained in irs publication disaster relief providing assistance through charitable organizations under code sec_61 gross_income means all income from whatever source derived including compensation_for services other code sections specifically exclude certain payments from gross_income the three exclusion sections that are most pertinent to your situation are code sec_102 pertaining to gifts code sec_117 pertaining to qualified scholarships and code sec_139 pertaining to qualified_disaster relief payments sec_72 pertains to the taxation of annuities code sec_102 provides that gross_income does not include the value of property acquired by gift the most critical factor in determining whether a payment is a gift is the transferor’s intent in making the payment 363_us_278 in duberstein the supreme court stated that a gift proceeds from a detached and disinterested generosity and is made out of affection respect admiration charity or like impulses if the payment proceeds primarily from any moral or legal duty or from the incentive of anticipated benefit of an economic nature it is not a gift further where the payment is in return for services rendered it is irrelevant that the donor derives no economic benefit from it thus under duberstein a factual analysis of the circumstances surrounding the transfer in each particular case is necessary to determine the dominant reason for the transfer and whether the circumstances support a finding of donative_intent insight into a transferor’s intention can be gained by examining the factors such as the economic need of the recipient that the transferor considered in deciding whether to make the transfer and the form of assistance see 363_us_299 if the annuity payments are unrestricted as to use they may be excludable from a recipient’s gross_income as a gift under sec_102 if the transfers are motivated primarily by charitable or similar impulses and not by moral or legal obligations or anticipation of economic benefit and are not in return for services if however the annuity payments are restricted for education expenses the gift exclusion under sec_102 will not apply however the payments may be excludable from the recipient’s gross_income under sec_117 sec_117 provides that gross_income does not include any amount received as a qualified_scholarship by an individual who is a candidate_for_a_degree at an educational_organization that is a school with a regular faculty and enrolled students that attend the school a qualified_scholarship means an amount received as a scholarship or fellowship_grant to the extent the amount was used for qualified_tuition_and_related_expenses such as tuition and fees books supplies and equipment required for courses amounts received for room board and travel are not related expenses scholarship or fellowship_grant receipts that exceed expenses for tuition fees books supplies and certain equipment are not excludable from a recipient’s gross_income as a qualified_scholarship under sec_117 under sec_1_117-3 of the income_tax regulations a scholarship is an amount_paid or allowed to or for the benefit of a student whether an undergraduate or a graduate to aid such individual in pursuing his studies a fellowship_grant generally is an amount_paid or allowed to or for the benefit of an individual to aid him in the pursuit of study or research a scholarship or fellowship_grant may also be in the form of a reduction in the amount owed by the recipient to an educational_organization for tuition room and board or any other fee the provisions of sec_117 override those of sec_102 in enacting sec_117 congress intended to subject_to income_taxation scholarship and fellowship grants to the extent they exceed the limitations on the exclusion provided in that section notwithstanding sec_102 thus a scholarship or fellowship_grant that exceeds the limitations of sec_117 is includible in gross_income even though it may otherwise qualify as a gift under code sec_102 see sec_1_117-1 sec_139 excludes from gross_income any amount received by an individual as a qualified_disaster_relief_payment sec_139 provides that the term qualified_disaster_relief_payment means any amount_paid to or for the benefit of an individual to reimburse or pay reasonable and necessary personal family living or funeral_expenses incurred as a result of a qualified_disaster therefore the applicability of sec_139 depends on whether annuity payments would defray such reasonable and necessary personal family living or funeral_expenses incurred as a result of a qualified_disaster the taxation of the annuity payments may also depend on whether the tax-exempt_organization or the child has the actual or constructive receipt or the economic benefit of the annuity_contract if the tax-exempt_organization purchases the annuity and transfers it to the child only the amount equal to the fair_market_value of the annuity at the time of the transfer could qualify for any applicable_exclusion from income under sec_102 or sec_117 in such a case the income on the annuity would not be excludable from gross_income see revrul_65_29 1965_1_cb_59 and revrul_76_133 1976_1_cb_34 if the tax-exempt_organization owns the annuity and pays the proceeds of the annuity to the child the child would not have actual or constructive receipt of the annuity_contract accordingly all of the annuity payments would be excludable from the gross_income of the child to the extent such payments qualified for exclusion under sec_102 or sec_117 see eg revrul_79_220 1979_2_cb_74 and revrul_79_313 1979_2_cb_75 in general the cost of an annuity can be recovered tax-free over the period that an annuitant is to receive the payments the amount of each payment that is more than the part that represents the annuitant’s cost is taxable sec_72 of the code addresses the taxation of annuities we hope you will find this discussion helpful however in accordance with section dollar_figure of revproc_2002_4 i r b pincite this information_letter is advisory only and has no binding effect on the internal_revenue_service the information provided herein cannot be relied upon as a ruling on the matters discussed if you have any questions regarding this discussion or we can be of further assistance please feel free to call me at xxx-xxx- xxxx or xxxxxxxxxxxxxxxx at xxx-xxx-xxxx sincerely xxxxxxx xxxxxxxxxxx manager exempt_organizations technical group x


internal_revenue_service number release date index number ----------------------------------------------- ------------------------------------- -------------------------- ------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no ---------------- ----------------- telephone number ---------------------- refer reply to cc psi b04 plr-137630-16 date june legend decedent spouse date date --------------------------------------------------- --------------------------- ------------------------ ------------------- dear ----------------- this letter responds to your personal representative’s letter of date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make the election under sec_2010 of the internal_revenue_code portability election to allow a decedent’s surviving_spouse to take into account that decedent’s deceased spousal unused exclusion dsue amount the facts and representations are as follows decedent died on date survived by spouse date is a date after the effective date of the amendment to sec_2010 which provides for portability of a dsue amount to a surviving_spouse to obtain the benefit of portability of decedent’s dsue amount to spouse decedent’s estate was required to file form_706 united_states estate and generation-skipping_transfer_tax return on or before the date that is nine months after decedent’s date of death or the last day of the period covered by an extension decedent’s form_706 was due on date but the estate did not file a form_706 to make the portability election the estate discovered its failure to elect portability after the due_date for making the election it is represented that the value of decedent’s gross_estate is less than the basic exclusion amount in the year of decedent’s death including any taxable_gifts made during her lifetime plr-137630-16 you request an extension of time pursuant to sec_301_9100-3 to elect portability of decedent’s dsue amount pursuant to sec_2010 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2010 provides that a credit of the applicable credit_amount shall be allowed to the estate of every decedent against the tax imposed by sec_2001 sec_2010 provides that the applicable credit_amount is the amount of the tentative_tax that would be determined under sec_2001 if the amount with respect to which such tentative_tax is to be computed were equal to the applicable_exclusion_amount on date congress amended sec_2010 effective for estates of decedents dying and gifts made after date to allow portability of a decedent’s unused applicable_exclusion_amount between spouses tax relief unemployment insurance reauthorization and job creation act of pub_l_no sec_303 124_stat_3296 sec_2010 provides that the applicable_exclusion_amount is the sum of the basic exclusion amount and in the case of a surviving_spouse the dsue amount sec_2010 generally provides that the basic exclusion amount is dollar_figure to be adjusted for inflation annually after calendar_year sec_2010 defines the dsue amount to mean the lesser_of a the basic exclusion amount or b the excess of -- i the applicable_exclusion_amount of the last deceased spouse of the surviving_spouse over ii the amount with respect to which the tentative_tax is determined under sec_2001 on the estate of such deceased spouse sec_2010 provides that a dsue amount may not be taken into account by a surviving_spouse under sec_2010 unless the executor of the estate of the deceased spouse files an estate_tax_return on which such amount is computed and makes an election on such return that such amount may be so taken into account the election once made shall be irrevocable no election may be made if such return is filed after the time prescribed by law including extensions for filing such return sec_2010 provides that the secretary shall prescribe regulations as may be necessary or appropriate to implement sec_2010 plr-137630-16 sec_20_2010-2t a of the estate_tax regulations as in effect on date provides that to allow a decedent’s surviving_spouse to take into account that decedent’s dsue amount the executor of the decedent’s estate must elect portability of the dsue amount on a timely-filed form_706 under sec_20_2010-2t a the due_date of an estate_tax_return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been granted under sec_20_2010-2t a the portability election is made by timely filing a complete and properly prepared estate_tax_return unless the executor satisfies the requirements for the election not to apply in sec_20_2010-2t a i sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that the term statutory election means an election whose due_date is prescribed by statute the term regulatory election means an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute a request for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election the due_date for the portability election is prescribed by statute in the case of an estate required to file an estate_tax_return under sec_6018 see sec_2010 sec_6075 and sec_6018 in the case of an estate that is not required to file an estate_tax_return under sec_6018 the due_date is prescribed by regulation see sec_20_2010-2t a see also sec_20_2010-2 and revproc_2014_18 2014_7_irb_513 sec_2 accordingly in the latter case a taxpayer may seek an extension of time to elect portability under the provisions of sec_301_9100-3 plr-137630-16 sec_6018 requires the filing of an estate_tax_return in all cases where the gross_estate exceeds the basic exclusion amount in effect under sec_2010 for the calendar_year which includes the date of death for purposes of this determination under sec_6018 the basic exclusion amount is reduced but not below zero by the sum of a the amount of the adjusted_taxable_gifts within the meaning of sec_2001 made by the decedent after date plus b the aggregate amount allowed as a specific exemption under sec_2521 as in effect before its repeal by the tax reform act of with respect to gifts made by the decedent after date it is represented that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is not required to file an estate_tax_return under sec_6018 under these facts the commissioner has discretionary authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly we grant an extension of time of days from the date of this letter in which to elect portability under sec_2010 the election should be made by filing a complete and properly-prepared form_706 and a copy of this letter within days from the date of this letter to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center stop cincinnati oh for purposes of electing portability a form_706 filed by decedent’s estate within days from the date of this letter will be considered to be timely filed 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 if it is later determined that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is required to file an estate_tax_return pursuant to sec_6018 the commissioner is without authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-137630-16 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely associate chief_counsel passthroughs special industries leslie finlow by _______________________________ leslie finlow senior technician reviewer branch office of associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index numbers -------------------------- ------------------------------------------------ ------------------------------------------------------ ------------------------------------ department of the treasury washington dc person to contact ----------------------- id no -------------- telephone number ---------------------- refer reply to cc psi b03 - plr-127531-12 date november legend x ------------------------------------------------------------ ---------------------------------------- y ------------------------------------------------------------ --------------------------------------- state a -------------- -------------------------- dear -------------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be classified as an association for federal tax purposes facts the information submitted discloses that x was formed on a as a limited_liability_company under the laws of state x’s ultimate owner is y the common parent_corporation of an affiliated_group that files a consolidated_return x failed to file timely a form_8832 entity classification election to be classified as an association for federal tax purposes effective a law and analysis plr-127531-12 sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that except as provided in sec_301 b unless the entity elects otherwise a domestic eligible_entity is i a partnership if it has two or more members or ii disregarded as an entity separate from its owner if it has a single owner sec_301_7701-3 provides in part that except as provided in sec_301_7701-3 and v an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 entity classification election with the service_center designated on form_8832 sec_301_7701-3 provides in part that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code code except subtitles e g h and i sec_301_9100-1 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government plr-127531-12 conclusion based on the facts and representations submitted x has established that the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied consequently x is granted an extension of time of one hundred twenty days from the date of this letter to elect under sec_301_7701-3 to be treated as an association effective a x must file form_8832 within the extension period with the appropriate service_center with a copy of this letter attached except for the specific ruling above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code in addition sec_301_9100-1 provides that the granting of an extension of time for making an election is not a determination that the taxpayer is otherwise eligible to make the election this ruling is directed only to the taxpayer requesting it according to sec_6110 of the code this ruling may not be used or cited as precedent under a power_of_attorney on file with this office we are sending a copy of this letter to x’s authorized representatives sincerely associate chief_counsel passthroughs special industries by s james a quinn senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------- telephone number -------------------- refer reply to cc psi b01 plr-110317-08 date september internal_revenue_service number release date index number ------------------------------- ------------------------------------ ------------------- -------------------------------- ----------------------------- legend x ------------------- ----------------------------------------------------------- state date date year year year ---------- ------------------ ---------------------- ------- ------- ------- dear ------------------ this letter is in response to your request on behalf of x dated date and supplemental materials dated date for a letter_ruling that x’s disproportionate distributions did not cause x to have more than one class of stock within the meaning of sec_1361 of the internal_revenue_code facts based on the materials submitted and representations contained within subsequent correspondence we understand the relevant facts to be as follows x is a plr-110317-08 corporation formed on date in accordance with the laws of state on date x elected to be treated as an s_corporation for federal_income_tax purposes in year year and year x made disproportionate distributions to its shareholders to defray income taxes attributable to the income of x x discovered this in year and has rectified the situation by making the necessary adjustments for year however x has yet to make the necessary adjustments to rectify the matter for year and year but represents that x will do so law and analysis sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for the year sec_1361 provides that for purposes of subchapter_s the term small_business_corporation means a domestic_corporation that is not an ineligible_corporation and that does not among other things have more than one class of stock sec_1_1361-1 of the income_tax regulations provides that a corporation is generally treated as having only one class of stock if all outstanding shares of stock of the corporation confer identical rights to distribution and liquidation proceeds sec_1_1361-1 provides that the determination of whether all outstanding shares of stock confer identical rights to distribution and liquidation proceeds is made based on the corporate charter articles of incorporation bylaws applicable state law and binding agreements relating to distribution and liquidation proceeds collectively the governing provisions a commercial contractual agreement such as a lease employment agreement or loan agreement is not a binding agreement relating to distribution and liquidation proceeds and thus is not a governing provision unless a principal purpose of the agreement is to circumvent the one class of stock requirement although a corporation is not treated as having more than one class of stock so long as the governing provisions provide for identical distribution and liquidation rights any distributions including actual constructive or deemed distributions that differ in timing or amount are to be given appropriate tax effect in accordance with the facts and circumstances sec_1362 provides that an election under sec_1362 will be terminated whenever at any time on or after the 1st day of the 1st taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides that the termination shall be effective on and after the date of cessation sec_1362 provides that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined plr-110317-08 without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person who was a shareholder in the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness or termination such corporation shall be treated as an s_corporation during the period specified by the secretary conclusion based on the information submitted and the representations made we conclude that x’s s_corporation_election may have terminated because x may have had more than one class of stock however we conclude that if x’s s election was terminated such a termination was inadvertent within the meaning of sec_1362 of the code further we conclude that the corrective action taken by x and the shareholders for year does not create a second class of stock under sec_1361 furthermore we also conclude that any corrective action taken as described in the materials submitted for year and year will also not create a second class of stock under sec_1361 consequently we rule that x will be treated as continuing to be an s_corporation from date and thereafter provided that x’s s election otherwise is not terminated under sec_1362 provided the necessary adjustments are made concerning year year and year as represented by x except as specifically ruled upon above no opinion is expressed as to the federal_income_tax consequences of the facts described above under any other provision of the code in particular no opinion is expressed or implied as to whether x otherwise qualifies as a subchapter_s_corporations under sec_1361 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and are accompanied by a perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of this request it is subject_to verification on examination this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent plr-110317-08 in accordance with the power_of_attorney on file with this office a copy of this letter_ruling will be sent to the taxpayer representatives sincerely dianna k miosi dianna k miosi chief branch passthroughs special industries enclosures copy of this letter copy of this letter for sec_6110 purposes cc