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 b02 plr-106871-14 date date legend x -------------------------------------- ------------------------------- country date ------- -------------------------- dear --------------------------- this is in response to a letter dated date and subsequent correspondence submitted on behalf of x by x’s authorized representative requesting that the service grant x an extension of time under sec_301_9100-1 of the procedure and administration regulations to elect to treat x as a partnership for federal tax purposes x was formed on date under the laws of country x is a foreign_entity eligible to be treated as a partnership for u s income_tax purposes however x failed to timely file form_8832 entity classification election electing to treat x as a partnership for federal tax purposes effective date 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 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 plr-106871-14 sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes unless the entity elects otherwise a foreign eligible_entity is treated as an association if all members have limited_liability a foreign eligible_entity is treated as a partnership if it has two or more members and at least one member does not have limited_liability a foreign eligible_entity with more than one owner may elect to be treated as a partnership pursuant to the rules under sec_301_7701-3 sec_301_7701-3 provides than an entity classification election must be filed on form_8832 and can be effective up to days prior to the election filing_date or more than months after the election filing_date 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 six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards by which the commissioner will determine whether to grant an extension of time to make an election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 describes the conditions under which the commissioner will grant requests for relief that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly x is granted an extension 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 effective date a copy of this letter should be attached to the form_8832 this ruling is contingent on x filing within days of this letter all required federal_income_tax and information returns including withholding_tax returns required under chapter_3_of_the_internal_revenue_code consistent with the requested relief being effective on date x’s filing obligations may include those required under sec_6038 and the regulations thereunder x also must provide its partners all the information necessary to file returns including amended returns consistent with this classification a copy of this letter should be attached to any late or amended returns except as expressly provided herein we express or imply no opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced plr-106871-14 in this letter sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination in accordance with the power_of_attorney on file with this office a copy of this letter will be sent to x's authorized representative sincerely associate chief_counsel passthroughs special industries by _______________________________ melissa liquerman branch chief branch office of the associate chief_counsel passthroughs special industries


internal_revenue_service number info release date aug cc psi 1-genin-138353-03 uilc dear we are responding to your correspondence requesting late s_corporation relief in order to establish date as the effective taxable_year for your s_corporation_election your account has been updated to reflect the requested effective date if within the next days you fail to receive a confirmation letter from the ogden service_center acknowledging the new acceptance date please contact our office at the telephone number provided in this letter we would like to introduce you to two free cd-roms developed by the irs to help educate small_business owners introduction to federal taxes for small_business self-employed and a virtual small_business workshop these items can be ordered by calling the website www irs gov smallbiz is also dedicated to providing information to small_business taxpayers please keep this letter with your tax records and feel free to provide a copy of it to your authorized representative we hope that the above information proves helpful sincerely yours s dianna k miosi dianna k miosi chief branch associate chief_counsel passthroughs and special industries


internal_revenue_service number release date index number -------------------------------------- --------------------------- ----------------------------- -------------------------------- in re --------------------------- ----------------------------- -------------------------------- department of the treasury washington dc person to contact ---------------- id no ------------- telephone number --------------------- refer reply to cc psi - plr-156389-03 date jan -------------------------------------------- --------------------------- legend x -------------------------------------------------- y ------------------------------------------------- state date date date date dear -------------- ---------------------- ----------------------- ----------------- ----------------- --------------- this responds to your request dated date on behalf of x requesting that x be given an extension of time under sec_301_9100-1 of the procedures and administration regulations in which to elect to treat its wholly-owned subsidiary y as a qualified_subchapter_s_subsidiary qsub under sec_1361 of the internal_revenue_code facts according to the information submitted x was incorporated under state law on date and elected subchapter_s status effective on date y was incorporated on date and is a wholly-owned subsidiary of x x intended to treat y as a qsub effective date however x inadvertently failed to timely file the proper election x represents that it has acted reasonably and in good_faith that granting relief will not prejudice the interests of the government and that it is not using hindsight in making the election law and analysis sec_1361 defines the term aqualified subchapter_s subsidiary as a domestic_corporation which is not an ineligible_corporation as defined in sec_1361 if an s_corporation holds percent of the stock of the corporation and that s_corporation elects to treat the subsidiary as a qsub section a of the income_tax regulations provides that an s_corporation may elect to treat an eligible subsidiary as a qsub by filing with the appropriate service_center the form prescribed by the internal_revenue_service the election may be effective no more than two months and days prior to the date of the filing provided that the subsidiary otherwise qualifies as a qsub for the entire period for which the retroactive relief is in effect notice_2000_58 2000_2_cb_491 provides that form_8869 qualified_subchapter_s_subsidiary election should be used to elect qsub treatment if a valid qsub election is made the subsidiary is not treated as a separate corporation and all assets liabilities and items of income deduction and credit of the qsub are treated as assets liabilities and items of income deduction and credit of the parent s_corporation 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 code except subtitles e g h and i requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 sec_301_9100-1 defines the term aregulatory election as including as election whose due_date is prescribed by a regulations 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_9100-1 section provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 conclusion based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly x is granted an extension of time of sixty days from the date of this letter to file a form_8869 with the appropriate service_center to elect to treat y as a qsub effective date a copy of this letter should be attached to the election a copy is enclosed for that purpose concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically no opinion is expressed concerning whether x is an s_corporation or whether y is a qsub for federal tax purposes except as expressly provided herein no opinion is expressed or implied this ruling is directed only to the taxpayer s requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter will be sent to the taxpayer_representative sincerely enclosures copy of this letter copy for sec_6110 purposes heather c maloy associate chief_counsel passthroughs and special industries


internal_revenue_service p o box cincinnati oh release number release date date department of the treasury employer_identification_number contact person - id number contact telephone number legend uil x name of organization a amount of grant dear we have considered your request for advance approval of your grant-making program under sec_4945 of the internal_revenue_code dated date our records indicate that the x was recognized as exempt from federal_income_tax under sec_501 of the code and that it is classified as a private_foundation as defined in sec_509 your letter indicates that the x will operate a grant-making program to provide funds to composers for the creation of and performance of new musical works this will enhance the skill and talent of the grantee the grants will be awarded to musicians with post-graduate degrees in the field of composition or other fields relating to music performance and have some experience with creating composition that have been performed publicly the foundation will award approximately one or two grants per year the budget for the projects would generally not be more than a for projects greater than a the recipient must seek other sources of funding to meet the total budget of the project the grant program will be publicized through dissemination of information about the availability of the grants by the foundation’s trustees to individuals involved in the world of music and composition including without limitation professionals at educational institutions such as universities with programs in composition and musical performance and individuals associated with musical organizations such as orchestras who are likely to have knowledge of prospective candidates the participants will not be limited to a particular geographical location the grants or commissions are used for the composers’ general living_expenses and for any expenses related to the compositions duration of projects will be one to three years the selection committee consists of the three trustees of the x they have extensive experience working together in selecting the recipients of foundation grants to c charitable organizations that includes the arts and musical organizations no donor or trustee of the foundation and no family_member of a donor or trustee of the foundation will be eligible to receive any grant offered by the foundation prospective candidates will be required to submit an application to the foundation that includes a brief description of the new work including its instrumentation and duration plans for the premiere performance and a budget including composer’s fee the trustees will consider the relative and absolute merits of the proposals presented if none of the proposals submitted in a particular year meets the criteria established by the trustees no grants may be funded that year generally the terms and conditions of all grants will include the following a an obligation on the grant recipient to acknowledge the grant on the title page of the score of the musical work and all printed copies thereof b within days of the premiere performance of the work to provide the foundation for archival use with a clean copy of the original score any revisions and a cd dvd or similar audio recording and c an agreement by the grant recipient to return the grant amount if the grant recipient does not complete the composition within a date to be specified in the grant agreement as a condition of receiving a grant the grant recipient will be required to have obtained a commitment from a particular performance organization such as an orchestra to perform the commissioned work a portion of the grant will be retained until the grant recipient provides the completed musical score to the performing organization and the organization provides satisfactory evidence of the delivery to the foundation the trustees will periodically contact the grantees to check on the progress of the composing process if the foundation receives any information indicating that the grant has been diverted the foundation will make an investigation and take such reasonable and appropriate steps to recover the funds as may be required by sec_53_4945-4 the foundation agrees that it will maintain indefinitely records that include e e e e the information used to evaluate the qualifications of potential grantees including any recommendations the identification of the grantees including the determination as to whether a potential grantee has any relationship to the private_foundation or is a disqualified_person although a disqualified_individual would not be eligible the amount and purpose of each grant and all requirements imposed on the grantee with respect thereto all grantee reports and other follow-up data obtained in administering the foundation’s grant program sec_4945 and b of the code impose certain excise_taxes on taxable_expenditures made by a private_foundation sec_4945 of the code provides that the term taxable_expenditure means any amount_paid or incurred by a private_foundation as a grant to an individual for travel study or other similar purposes by such individual unless such grant satisfies the requirements of subsection g sec_4945 of the code provides that sec_4945 shall not apply to individual grants awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance if it is demonstrated that the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 and is to be used for study at an educational_organization described in sec_170 the grant constitutes a prize or award which is subject_to the provisions of sec_74 if the recipient of such prize or award is selected from the general_public or the purpose of the grant is to achieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar capacity skill or talent of the grantee sec_53_4945-4 of the regulations provides that to secure approval a private_foundation must demonstrate that i ii its grant procedure includes an objective and nondiscriminatory selection process such procedure is reasonably calculated to result in performance by grantees of the activities that the grants are intended to finance and iii the foundation plans to obtain reports to determine whether the grantees performed activities that the grants are intended to finance based on the information submitted and assuming your award programs will be conducted as proposed with a view to provide objectivity and nondiscrimination in making the awards we have determined that your procedures for granting the awards comply with the requirements contained in sec_4945 of the code and that awards granted in accordance with such procedures will not constitute taxable_expenditures within the meaning of sec_4945 this determination is conditioned on the understanding that there will be no material_change in the facts upon which it is based it is further conditioned on the premise that no grants will be awarded to foundation managers or members of the selection committee or for a purpose that is inconsistent with the purpose described in sec_170 of the code the approval of your award program procedures herein constitutes a one-time approval of your system standards and procedures designed to result in awards which meet the requirements of sec_4945 of the code this determination only covers the grant programs described above thus approval shall apply to subsequent award programs only as long as the standards and procedures under which they are conducted do not differ materially from those described in your request we have not considered whether grants made under your procedures are excludable from the gross_income of recipients under sec_117 of the code any funds you distribute to individuals must be made on a true charitable basis in furtherance of the purposes for which you are organized therefore you should maintain adequate_records and case histories so that any or all award distributions can be substantiated upon request by the internal_revenue_service this determination is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as a precedent you must report any future changes in your grant making procedures please keep a copy of this letter in your permanent records we have sent a copy of this letter to your representative as indicated in your power_of_attorney if you have any questions please contact the person whose name and telephone number are shown above sincerely yours robert choi director exempt_organizations rulings and agreements


t c memo united_states tax_court robert d and ana m shirley petitioners v commissioner of internal revenue respondent docket no filed date jan r pierce for petitioners kelley a blaine for respondent memorandum opinion holmes judge this case is about whether the cost of a motor home bought to be added to a rental fleet is deductible the contested deduction is not allowable if a motor home i sec_1 as early as enterprising americans began attaching small homes to model t chassis to travel the roads in comfort greater than they could have in a car alone these improvised efforts evolved into recreational vehicles or motor homes as they are called by those in the industry used predominantly to furnish lodging but is allowable if a motor home is used primarily as a means of transportation it thus asks an imponderable question--when a vehicle can be simultaneously used for both lodging and transportation how can one tell which use is primary background robert and ana shirley were oregon residents when they filed their petition robert shirley owned motor home rentals a business in central point oregon that both rented and sold motor homes during his rental fleet had a total of motor homes including a new gulfstream motor home that he bought for dollar_figure in august and added to his fleet under the designation mh his usual terms for motor home rentals were much like those for car rentals--a daily or weekly fee a daily mileage_allowance of miles and a mileage charge of dollar_figure for each additional mile in petitioner rented his motor homes to numerous customers in a total of transactions for anywhere between one and days most of his customers used fewer than their miles per day this case arose from notices of deficiency that respondent issued for and concessions and compromises by both parties completely settled the dispute about the shirleys’ deficiency leaving only one issue to decide--whether to allow petitioners a deduction on their return for part of the cost of mh before the case went to trial the parties fully stipulated the facts under rule discussion sec_179 allows a taxpayer a deduction--in one of up to dollar_figure--for property prosaically called sec_179 property used in his trade_or_business that he must otherwise add to his capital_account and depreciate the deduction comes with numerous restrictions one of which is that any property described in sec_50 is ineligible to be sec_179 property sec_179 sec_50 itself defines terms for various tax_credits and deductions granted elsewhere in the code it excludes certain kinds of property from these benefits including property which is used predominantly to furnish lodging or in connection with the furnishing of lodging sec_50 this is then followed by exceptions to the exclusion one of which is property used by a hotel or motel in connection with the trade_or_business of furnishing lodging where the predominant portion of the accommodations is used by transients sec_50 all rule references are to the tax_court rules_of_practice and procedure and all section references are to the internal_revenue_code as in effect for the year at issue these exclusions first became law in the revenue act of publaw_87_834 76_stat_960 as limits on the then-new investment_tax_credit president kennedy expected this incentive continued the parties agree that mh meets all the requirements for being sec_179 property except one respondent argues that motor homes generally and mh in particular are property used predominantly to furnish lodging petitioners disagree with respondent on that point contending that motor homes are primarily used for transportation petitioners also argue that even if mh is predominantly_used for lodging it qualifies for the exception to the exclusion because it is lodging the predominant portion of which is used by transients since most of petitioners’ customers were short-term renters solving this puzzle as the parties have presented it requires answering two preliminary questions the first is whether we should focus on mh alone or on shirley’s motor home business as a whole the second is whether regulations exist that we can look to in analyzing the question neither party squarely addressed the issue of whether we should look at the predominant use of shirley’s fleet of rented motor homes or at the predominant use of mh alone but we do have some usable precedent in van susteren v commissioner tcmemo_1978_310 we decided that a small businessman who continued to stimulate the economy by allowing business owners a credit on their tax bill for purchases of new tangible_personal_property h rept 87th cong 2d sess 1962_3_cb_402 the credit’s purpose was to increase the profitability of productive investment by reducing the net cost of acquiring new equipment id c b pincite bought four mobile homes as additional rooms for his motel was entitled to an investment_tax_credit over the objections of the commissioner in that case we did not separately test each mobile home’s eligibility for the credit it was enough that each trailer did not represent a separate trade_or_business and that the stipulated facts showed that the taxpayer was operating only a single business see also koerner v commissioner tcmemo_1983_588 n same shirley was likewise managing his motor home rental enterprise as a single business he used mh as just one more asset in that business we follow van susteren and koerner and will not look to the use of mh alone instead we look to the use of the fleet of motor homes of which it was a part analyzing whether applicable regulations exist begins with the history of sec_50 that section was added to the code by the omnibus budget reconciliation act of publaw_101_508 obra sec a 104_stat_1388 through obra essentially reenacted old sec_48 and because more than half of the total units at his motel ie those in his motel building plus the mobile homes were used predominantly by transients he qualified for an exception to the general exclusion of lodging investments from the credit it was enacted as part of an extensive effort by congress to simplify the code by amending and deleting numerous provisions that had become obsolete the legislative_history stresses that there was no attempt to simplify by making substantive changes h rept pincite h conf rept pincite as new sec_50 the secretary never issued regulations under sec_50 but the existing treasury regulations under old sec_48 have remained unchanged since the time of their issuance in the definition of sec_179 property largely matches old sec_48’s definition of sec_38 property that was in the code sec_179 old sec_48 defined sec_38 property as tangible_personal_property and old sec_48 excluded from that definition p roperty which is used predominantly to furnish lodging or in connection with the furnishing of lodging current sec_50 is nearly identical to old sec_48 so we will use the regulations under old sec_48 for guidance sec_1_48-1 of those regulations provides that property eligible for the deduction does not include property which is used predominantly to furnish lodging or is used predominantly in connection with the furnishing of lodging during the taxable_year the term lodging_facility includes an apartment house hotel motel dormitory or any other facility or part of a facility where sleeping accommodations are provided and let except that such term does not include a facility used primarily as a means of transportation such as an aircraft vessel or a railroad car even though sleeping accommodations are provided sec_1_48-1 of the regulations then further describes the transient exception to the lodging exclusion compare t d c b part property used by a hotel motel inn or other similar establishment in connection with the trade_or_business of furnishing lodging shall not be considered as property which is used predominantly to furnish lodging or predominantly in connection with the furnishing of lodging provided that the predominant portion of the lodging accommodations in the hotel motel etc is used by transients during the taxable_year for purposes of the preceding sentence the term predominant portion means more than one-half thus if more than one-half of the living quarters of a hotel motel inn or other similar establishment is used during the taxable_year to accommodate tenants on a transient_basis none of the property used by such hotel motel etc in the trade_or_business of furnishing lodging shall be considered as property which is used predominantly to furnish lodging or predominantly in connection with the furnishing of lodging accommodations shall be considered used_on_a_transient_basis if the rental period is normally less than days we adopt as the parties suggest this regulation’s definition of a transient as one who rents for less than days we also note that in 58_tc_1045 n affd 489_f2d_285 5th cir we held that predominant portion means the proportion of accommodations used by transients not the proportion of all renters who are transients finally the parties also agree that sec_1 h i income_tax regs prescribes an all-or-nothing approach under this approach we characterize mixed-used assets according to their predominant use the regulation thus seems to require us to decide whether an asset was used predominantly for lodging or transportation in other sections of the code and regulations that use similar language deciding predominant means defining a common denominator and then measuring relative size for example use of property predominantly outside the united_states is measured by the time that the property is physically in the united_states compared to the time that it is outside sec_1_48-1 income_tax regs deciding whether a real_estate_investment_trust is predominantly held by qualified trusts is measured by the value of trusts’ holdings in the reit compared to the value of others’ holdings sec_856 and use of a bus predominantly in furnishing for compensation passenger land transportation is measured by the miles the bus is used to carry paying passengers compared to the miles it travels without them sec_48_4221-8 manufacturers and retailers excise_tax regs but unlike a bus which cannot simultaneously carry and not carry paying passengers a motor home can certainly be used for both transportation and lodging that is what it is built for the regulation seems to recognize this as well since it makes sleeping accommodations the sine qua non of lodging while recognizing that airplanes ships and railroad cars make some provision for passengers who sleep while on board but the regulation does not tell us what characteristics of airplanes or ships or railroad cars distinguish them from more ordinary lodgings such as apartment buildings or houses the parties disagree about the consequences of this fact petitioner urges us to adopt a bright-line_test under which we would consider a motor home as used predominantly for transportation where it is regularly used in the taxpayer’s business for transportation respondent would have us look to the amount of time spent in the motor homes for transportation versus the time spent in the motor homes for lodging the difficulty with both these positions is that neither explains why in measuring predominant use one type of use should count for more than the other petitioners’ position amounts to an assertion that if motor homes are used for transportation then transportation is their primary use but why this should be so apart from the ease of administering this as a bright-line_test is unclear respondent asserts that we should use time as a common denominator of uses if the time spent in shirley’s motor homes while they were traveling exceeded the time spent in them while people were lodging then and only then would their primary use be transportation as petitioners point out respondent does not suggest how we deal with the problem of simultaneous use--some family members sleeping eating or cooking in the back while one drives nor does respondent suggest how in the real world any businessman could possibly rely on his rental customers to maintain the detailed almost minute-by-minute logs required for this test to work other tests are possible one could conceive of a test that looked to the value of the mobility of the motor home to the renter versus the value of its capacity to be used for lodging or one could try to identify the primary function of a motor home though this would seem to be the same as trying to identify its primary use but none of these tests--including both petitioners’ and respondent’s--suggests a way out of the respondent’s position is weakened by the reality that property undoubtedly used for transportation--cars for example--are at rest in garages and parking lots much longer than they are on the road we do note that in 94_tc_733 the parties stipulated that the taxpayer used a car for business uses percent of the time but we are not sure how to construe it it seems unlikely this meant total time rather than percentage of time in use but it could also have meant percentage of trips or even mileage if the taxpayer in lapoint kept the usual log for those wishing to deduct car-related expenses in any event the key issue in that case was whether the car was used predominantly in connection with the furnishing of lodging id pincite and so it gives limited help in analyzing the question of simultaneous use of motor homes for both lodging and transportation in l l bean inc v commissioner tcmemo_1997_175 affd 145_f3d_53 1st cir we had to decide whether a rack system inside a warehouse which both held merchandise and supported the warehouse’s walls and roof was tangible_personal_property taxpayers proposed a primary function test as opposed to a strict structural function test the court however found that even a primary function test would not favor petitioners because the necessity of the rack system to prevent a collapse of the building did not allow the structural function to be categorized as secondary underlying dilemma of comparing a motor home’s use as lodging to its use as transportation we think a better way to analyze whether mobile homes were predominantly_used for lodging lies in 91_tc_32 in union pacific railroad employees who tested and replaced track in remote locations lived in company-supplied rent-free mobile homes union pacific paid these employees their normal wages and benefits and argued that this meant the housing was just a required part of new track installation the type of productive activity that congress meant to qualify as creditable union pacific thought the distinction was important because the purpose of the investment_tax_credit like the purpose of sec_179 was to stimulate production we have looked to the legislative_history of the investment_tax_credit for help in construing the meaning of its terms in 108_tc_358 we noted that congress expressly said that the phrase tangible_personal_property should not be narrowly defined in union pacific we similarly noted that the legislative_history of the lodging exception showed that investment in ‘ l odging or residential real_estate is excluded on the grounds that this property for the most part is used by consumers rather than in production ’ union pacific v commissioner supra pincite quoting staff of joint comm on taxation general explanation of committee discussion draft of revenue bill of pincite j comm print we nevertheless held that in deciding whether the mobile homes at issue were used predominantly for lodging the key factor was the alternative to company-paid accommodations their inhabitants would likely have bought we reasoned that they are nonetheless used by individuals to replace assets that clearly would not be qualifying property -- if housing were not provided to the employees those employees would be forced to either rent or buy other housing id this substitute housing it was implied could not be qualifying property because it was residential real_estate of course from union pacific’s viewpoint the mobile homes were part of its productive investment even if they were also used for lodging union pacific is thus some guide to the general problem of how to characterize property capable of two simultaneous uses as in union pacific we must ask what shirley’s customers would have had to buy or rent if motor homes were not available if these substitute goods would be allowed as qualifying property under sec_50 then so would motor homes shirley’s customers unlike the railway workers in union pacific would need as substitute goods some combination of both lodging and transportation if a car or truck were rented to customers to provide them with the mobility of a motor home those vehicles would clearly qualify as sec_179 property but what would substitute for the lodging accommodations a motor home provides we know from the stipulated facts that the predominant number of motor home rentals were for less than days this strongly suggests that shirley’s customers would rent hotel or motel rooms campground space or other transient lodging all of these would qualify for the exception to the general exclusion of lodging from the category of sec_179 property because both the substitute transportation and the substi- tute lodging would qualify we conclude that motor homes like shirley’s used by renters mostly for periods of less than days are sec_179 property as we have in other cases of deciding eligibility for the investment_tax_credit we leave grappling with a difficult element of a difficult test for another case in this one petitioners are allowed a deduction under sec_179 for the purchase of mh in to reflect the other concessions and compromises already made by the parties the stipulated evidence shows that of shirley’ sec_27 motor homes were rented to transients more than half the time that those motor homes were rented during see eg tibbs v commissioner tcmemo_1987_515 avoiding decision on whether mobile homes were tangible_personal_property pickren v commissioner tcmemo_1981_52 avoiding decision on whether mobile homes qualified as hotel or motel decision will be entered under rule


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc intl plr-114830-99 date date legend index number number release date taxpayer entity cpa firm individual a date a this replies to a letter dated date in which taxpayer requests an extension of time under sec_301_9100-3 to file the agreement and certifications described in sec_1_1503-2 for the losses_incurred by entity for the tax_year ended on date a additional information was submitted in a letter dated date the information submitted for consideration is substantially as set forth below the ruling contained in this letter is predicated upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as a part of the audit process taxpayer through two wholly owned subsidiaries owned all of entity it is stated that entity is treated as a hybrid_entity_separate_unit under sec_1_1503-2 entity had a net_operating_loss in the taxable_year ending on date a which taxpayer reflected on its federal tax_return individual a is a manager with cpa firm and was responsible for preparing taxpayer’s federal_income_tax return for the tax_year ending on date a including all necessary elections and compliance statements in reviewing the tax_return individual a inadvertently failed to notice the omission of the election and statements required under sec_1 g in re plr sec_301_9100-1 provides that the commissioner may grant a taxpayer a reasonable extension of time to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i under the standards set forth in sec_301_9100-3 sec_301 -1 b defines a regulatory election as an election whose due_date is prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement sec_301_9100-3 provides standards for extensions of time for making regulatory elections sec_301_9100-3 provides that requests for relief subject_to this section 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 in the present situation sec_1_1503-2 fixes the time to file the agreement and certifications therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayer an extension of time provided that taxpayer satisfies the standards set forth in sec_301_9100-3 based on the facts and circumstances of this case we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time until days from the date of this ruling letter to file the agreement and certifications required under sec_1_1503-2 for the losses_incurred by entity for the tax_year ended on date a the granting of an extension of time is not a determination that taxpayer is otherwise eligible to make the election sec_301_9100-1 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent no ruling has been requested and none is expressed as to the application of any other section of the code or regulations to the facts presented pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to your authorized representatives sincerely allen goldstein reviewer office of the associate chief_counsel international


t c memo united_states tax_court estate of webster e kelley deceased john r louden and patricia l louden personal_representatives petitioner v commissioner of internal revenue respondent docket no filed date larry w gibbs for petitioner kathryn f patterson for respondent memorandum findings_of_fact and opinion vasquez judge respondent determined a dollar_figure deficiency in the federal estate_tax of the estate of webster e kelley the estate the sole issue for decision is the fair_market_value of webster e kelley’s decedent 83-percent interest in a family limited_partnership and one-third interest in a limited_liability_company findings_of_fact some of the facts have been stipulated and are so found john r louden and patricia l louden the loudens personal_representatives of the estate resided in plano texas at the time the petition was filed decedent resided in plano texas at the time of his death decedent and his predeceased wife had one child patricia l louden patricia l louden is married to john r louden and they have four children on date decedent patricia l louden and john r louden organized kelley-louden business properties llc klbp llc and kelley-louden ltd a texas limited_partnership kllp between june and date decedent contributed dollar_figure cash and certificates of deposit to kllp on date the loudens contributed dollar_figure cash to kllp at the time of decedent’s death date decedent owned the following interests the values of which are at issue in this case klbp llc kllp dollar_figure percent dollar_figure percent the loudens owned the remaining two-thirds interest in klbp llc the loudens also owned a 17-percent interest in kllp klbp llc owned the remaining 1-percent interest of kllp which is the only asset of klbp llc therefore we are valuing decedent’s interests of dollar_figure percent in kllp and of dollar_figure percent in klbp llc on decedent’s date of death kllp held assets totaling dollar_figure which consisted of dollar_figure cash and dollar_figure in certificates of deposit and had no liabilities in date the estate employed appraisal technologies inc ati to prepare a valuation of decedent’s interests in these closely held entities ati concluded that a 5-percent valuation discount was applicable on date the estate filed a form_706 united_states estate and generation-skipping_transfer_tax return reporting decedent’s 83-percent interest in kllp at a value of dollar_figure and his interest in klbp llc at a value of dollar_figure respondent issued a notice_of_deficiency determining that the discounts claimed by the estate were too high and lower discounts were appropriate respondent contends that the estate is entitled to a 2-percent discount the estate states several times on brief that ati used a 15-percent discount however in calculating the discounts applied by the estate we find that ati used a 5-percent discount the statutory_notice_of_deficiency sets forth numerous alternative arguments including arguments based on sec_2035 sec_2036 sec_2038 and sec_2703 at trial respondent conceded all the alternative arguments opinion i burden_of_proof as a general_rule the notice_of_deficiency is entitled to a presumption of correctness and the taxpayer bears the burden of proving the commissioner’s deficiency determinations incorrect rule a 290_us_111 sec_7491 however provides that if a taxpayer introduces credible_evidence and meets certain other prerequisites the commissioner shall bear the burden_of_proof with respect to factual issues relating to the liability of the taxpayer for a tax imposed under subtitle a or b of the internal_revenue_code code for the burden to shift however the taxpayer must comply with the substantiation and record-keeping requirements as provided in the code and have cooperated with the commissioner see sec_7491 the estate did not claim that sec_7491 applies accordingly the burden remains on the estate unless otherwise indicated all rule references are to the tax_court rules_of_practice and procedure and all section references are to the internal_revenue_code as in effect at the time of decedent’s death the presumption of correctness does not apply when the government’s determination is a ‘naked’ assessment without any foundation whatsoever 428_us_433 the estate argues that the notice_of_deficiency may not be entitled to a presumption of correctness if we conclude that the report of its expert ati had no probative value as we give some probative value to the ati report we conclude that this is not an issue ii fair_market_value of decedent’s interests a introduction general principles property includable in a decedent’s gross_estate generally is to be valued as of the date of the decedent’s death sec_2031 for purposes of the estate_tax property value is determined by finding the price at which the property would change hands between a willing buyer and a willing seller neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts sec b estate_tax regs the willing buyer and willing seller are hypothetical persons 94_tc_193 citing 658_f2d_999 5th cir the hypothetical buyer and seller are presumed to be dedicated to achieving the maximum economic advantage id valuation is a factual determination and the trier of fact must weigh all relevant evidence of value and draw appropriate inferences estate of deputy v commissioner tcmemo_2003_ there are three common approaches to measure the interest in a closely held entity--the income approach the net asset value nav approach and the market approach id value is determined under the income approach by computing a company’s income stream estate of jelke v commissioner tcmemo_2005_ value is determined under the nav approach by computing the aggregate value of the underlying assets as of a fixed point in time id value is computed under the market approach by comparison with arm’s-length transactions involving similar companies id the nav approach is often given the greatest weight in valuing interests in an investment_company see estate of ford v commissioner tcmemo_1993_580 affd 53_f3d_924 8th cir citing revrul_59_60 sec_5 1959_1_cb_237 after determining the nav of kllp and klbp llc it is appropriate to discount decedent’s interest in each entity to reflect lack of control and or lack of marketability see peracchio v commissioner tcmemo_2003_280 expert opinions a in general in deciding valuation cases courts often look to the opinions of expert witnesses each party in this case relies on an expert opinion to determine the values of the properties at issue we evaluate expert opinions in light of all the evidence in the record and we are not bound by the opinion of any expert witness 304_us_282 115_tc_376 affd 283_f3d_1258 11th cir we may reject in whole or in part any expert opinion 110_tc_530 because valuation necessarily involves an approximation the figure at which we arrive need not be directly traceable to specific testimony or a specific expert opinion if it is within the range of values that may be properly derived from consideration of all the evidence estate of true v commissioner tcmemo_2001_167 citing 538_f2d_927 2d cir affg t c memo b the estate’s expert the estate employed ati in december of to prepare a valuation report for transfers decedent made at yearend decedent’s death however converted the federal gift_tax valuation study into a federal estate_tax_valuation study the estate’s communications regarding the valuation were solely with ron lint mr lint the founder and president of ati mr lint has the designation of accredited senior appraiser from the american society of appraisers asa mr lint testified that he assigned the valuation project to jeff mills mr mills a subordinate at ati who also has the designation of accredited senior appraiser from the asa the valuation report was prepared and signed by mr mills but mr lint adopted the report as his own ati used the nav approach and the income approach in determining the proper valuation of decedent’s interests ati gave 80-percent weight to the nav approach and 20-percent weight to the income approach ati appraised decedent’s 83-percent limited_partnership_interest in kllp at a fair_market_value of dollar_figure applying a 5-percent valuation discount to the adjusted nav of kllp and appraised decedent’s one-third interest in klbp llc at dollar_figure also applying a 5-percent valuation discount c respondent’s expert respondent submitted an expert report prepared by raymond f widmer dr widmer dr widmer has a bachelor of arts degree in economics a master of business administration degree with a concentration in economics and quantitative methods and a ph d in economics dr widmer used the nav approach and valued the interests using a 2-percent valuation discount applying this discount dr widmer determined a value of dollar_figure for the 83-percent limited_partner interest in kllp and dollar_figure for the one-third interest in klbp llc at trial the estate’s expert mr lint admitted that the income approach calculation in the ati report was incorrect because among other problems it did not compound the earnings each year b fair_market_value before discounts as determined supra the nav method is generally an appropriate method to apply when computing the value of a nonoperating entity see estate of ford v commissioner supra while more than one method may be used giving appropriate weight as necessary we find that in this case where the interest to be valued is an interest in a family limited_partnership whose assets consist solely of cash and certificates of deposit the income approach should not be afforded more than minor weight the parties agree that the value of kllp’s assets on the valuation_date decedent’s date of death was dollar_figure consisting of dollar_figure cash and dollar_figure in certificates of deposit and no liabilities therefore we use this as the nav c minority interest lack of control discount introduction pursuant to the partnership_agreement a buyer of all or any portion of the transferred interests would have limited control of his investment a hypothetical willing buyer would account for this lack of control by demanding a reduced price ie a price that is below the nav of the pro_rata share of the interest purchased in kllp a minority discount will therefore apply in this case where a partner lacks control see 69_tc_32 determination of the minority interest discount each expert witness determined a minority interest discount or discount for lack of control by reference to general equity closed-end funds in a closed-end fund the assets are brought together for professional management and the shareholders have no control_over the underlying assets the owner of an interest does not have the ability to sell the underlying assets the closed-end funds typically trade at a discount relative to their share of the nav and as the shares enjoy a high degree of marketability the discounts must be attributable to some extent to a minority shareholder’s lack of control_over the investment fund peracchio v commissioner tcmemo_2003_280 therefore it is appropriate to compare the ownership of a partnership_interest in kllp to the ownership of a closed-end fund and apply an appropriate discount for lack of control both experts divided the comparable closed-end funds into quartiles by price to nav ratios the first quartile represents the funds that are in high demand and therefore trade at premiums or low discounts the fourth quartile represents the funds that are in low demand and trade at higher discounts a the estate’s expert in computing the minority discount ati determined that kllp would be most comparable to the closed-end funds in the fourth quartile with price to nav discounts of percent to percent ati considered several factors in making this determination including kllp is smaller in size than a publicly traded fund closed-end funds generally have a staff of analysts and professional managers devoted to the full-time management of the fund investments which reduces risk whereas kllp is not managed in the same manner closed-end funds offer diversification of the portfolio of investments while kllp is not diversified and kllp does not have a performance history whereas most closed-end funds have a performance history of to years once ati determined an appropriate discount range of percent to percent ati then further adjusted the discount based on several factors and restrictions inherent in kllp and using other partnership studies one such study published by partnership profiles inc ppi found that the average discount for publicly registered but nontraded miscellaneous partnerships when the nav of such partnerships was compared to the prices at which investors acquired units in them in the secondary market wa sec_29 percent ati also discussed another study published by ppi which compared the nav of approximately publicly registered but nontraded real_estate partnerships with the prices at which investors acquired units in these partnerships in the secondary market the average discount to nav wa sec_27 percent for the transactions studied therefore ati used a 25-percent minority discount for valuing the interests in kllp b respondent’s expert dr widmer calculated a minority discount of percent by calculating an arithmetic mean of the entire data set for closed- end funds not only the fourth quartile dr widmer determined that it is essential to use the whole array of closed-end funds as this calculation will remove the marketability element in the discounts or premiums conclusion we are not persuaded that ati’s exclusive use of the fourth quartile of closed-end funds is proper while we have utilized small samples in other valuation contexts we have also recognized the basic premise that ‘ a s similarity to the company to be valued decreases the number of required comparables increases’ 120_tc_358 quoting estate of heck v commissioner t c memo see also lappo v commissioner tcmemo_2003_258 we are also not persuaded by ati’s analyses of ppi’s studies regarding minority discounts as ati admits that these discounts contain some element of discount for lack of marketability and therefore these studies result in an overstatement of the minority discount in determining the minority discount for kllp we believe a correct analysis would be to take the arithmetic mean of all of the closed-end funds as shareholders in all closed-end funds lack control in using only the fourth quartile ati combined elements of the lack of marketability discount with the minority discount because the funds in the fourth quartile had the lowest demand and therefore the highest marketability discount as the lack of marketability will be dealt with in the discount for lack of marketability see infra we agree with respondent that ati’s discount for lack of control is too high and that it was incorrect to use solely the fourth quartile funds although we find neither expert particularly persuasive on this issue we will apply a 12-percent discount on the grounds that respondent has effectively conceded that a discount factor of up to percent would be appropriate and petitioner has failed to prove that a figure greater than percent would be appropriate see peracchio v commissioner supra using a 2-percent minority discount factor for the cash and money market funds asset category of a family limited_partnership d marketability discount introduction a discount for lack of marketability is appropriate in valuing the interests in kllp as there is not a ready market for partnership interests in a closely held partnership estate of newhouse v commissioner t c pincite although both experts agree that a lack of marketability discount should be applied to the partnership’s nav after applying the minority interest discount they disagree on the magnitude of that discount see peracchio v commissioner tcmemo_2003_280 see also estate of bailey v commissioner tcmemo_2002_152 indicating that the application of a minority discount and a discount for lack of marketability is multiplicative rather than additive determination of the marketability discount there are several ways to determine a marketability discount two of the most common include the initial_public_offering ipo approach and the restricted_stock approach mccord v commissioner supra pincite ipo studies compare the private-market price of shares sold before a company goes public with the public-market prices obtained in the ipo of the shares or shortly thereafter see id restricted_stock studies compare private-market prices of unregistered restricted shares in public companies with the public-market prices of unrestricted but otherwise identical shares in the same corporations see id a variant of the restricted_stock approach the private_placement approach attempts to isolate the effect that impaired marketability has on the discount determined under the restricted_stock approach see id pincite this court has concluded that the private_placement approach is appropriate where the interest to be valued was part of an investment_company as the assessment and monitoring costs would be relatively low in the case of a sale of an interest in that company id pincite lappo v commissioner supra kllp is an investment_company as percent of its assets consist of cash and certificates of deposit see mccord v commissioner supra a the estate’s expert in determining the marketability discount ati used the restricted_stock approach by drawing an analogy between partnership interests in kllp and the common_stock of a private closely_held_corporation in doing so ati considered several restricted_stock studies and their findings ati also listed as barriers to marketability of a limited_partnership_interest in kllp the following once admitted as a limited_partner one must continue as a limited_partner until all partners unanimously consent to the admission of a substitute limited_partner and to the withdrawal of the transferring partner and the limited_partner must execute legal documents as required by the general_partner who must receive and approve the documents in writing a limited_partner can assign transfer encumber or pledge all or part of his partnership_interest only if such assignment is fully executed by assignor and assignee such assignment is received by the partnership and recorded on the books and the transfer is approved by unanimous vote of all the partners no partner has a property right in any of the partnership property regardless of whether specific property was contributed to the partnership by a given partner limited_partnership interests are fully paid and nonassessable and limited partners do not have the right to withdraw or reduce their capital contributions to the partnership limited partners could be asked to lend additional money to the partnership or increase their capital contributions and may have their partnership interests diluted if they do not increase their contribution and other partners do make additional contributions general partners are not liable personally for the return_of_capital contributions to the partnership and limited partners have no recourse against general partners should their claims to assets remaining after liquidation and discharge of debts and obligations not be satisfied the general_partner has sole discretion to determine whether to make distributions of any type and upon the dissolution of the partnership the general_partner acts as liquidator and has a reasonable amount of time to wind up the partnership assets and therefore the limited_partner may not obtain the final proceeds from an investment for months or longer after considering all of these factors and the results of the restricted_stock studies ati determined that a 38-percent marketability discount is appropriate for an interest in kllp b respondent’s expert using the private_placement approach dr widmer determined a 15-percent discount for lack of marketability on the basis of a study by dr mukesh bajaj bajaj et al firm value and marketability discounts j corp l which found that the private_placement of unregistered shares has an average discount of about dollar_figure percent higher than the average discount on registered placements dr widmer also based this discount on the low risk of the partnership’s portfolio conclusion we are not persuaded by ati’s recommendation of a 38-percent marketability discount as the restricted_stock studies referred to in ati’s expert report examine mostly operating companies and there are fundamental differences between an investment_company holding easily valued and liquid_assets cash and certificates of deposit such as kllp and operating companies see peracchio v commissioner supra moreover ati did not analyze the data from these studies as they related to the transferred interests herein and therefore we cannot accept the premise that this average discount is appropriate see id we are also not persuaded by dr widmer’s recommendation of a 15-percent marketability discount while we agree that the bajaj study is an appropriate tool in determining the lack of marketability discount dr widmer’s conclusion based on the study is not entirely accurate the bajaj study states that the 09-percent discount which dr widmer focused on is not solely a reflection of marketability discount but is also influenced by additional factors which have to be accounted for bajaj et al supra pincite these factors depend on the fraction of total shares offered in the placement business risk financial distress of the firm and total_proceeds from the placement id pincite as we find the parties’ assumptions and analyses concerning the marketability discount only minimally helpful we use our own analysis and judgment relying on the parties’ experts’ assistance where appropriate helvering v natl grocery co u s pincite in mccord v commissioner t c pincite we focused on the bajaj study and found that a 20-percent marketability discount was appropriate for interests in a family limited_partnership classified as an investment_company dr bajaj divided the private placements into three groups according to the level of discounts--the lowest discounts the middle discounts and the highest discounts id pincite the low discount group with a discount of dollar_figure percent is dominated by registered private placements which did not suffer from impaired marketability id the high discount group with a discount of dollar_figure percent is dominated by unregistered private placements which unlike the sale of an interest in an investment_company have relatively high assessment and monitoring costs id as these characteristics do not reflect the characteristics of an investment_company we concluded in mccord as we do here that the partnership is in the middle discount group and a discount of percent rounded from dollar_figure percent is applicable id in mccord we did not refine the 20-percent discount any further to incorporate specific characteristics of the partnership at issue as we were not persuaded that we could refine the figure id pincite in lappo v commissioner tcmemo_2003_258 we found that a 21-percent initial discount was appropriate for an interest in a family limited_partnership consisting of marketable_securities and real_estate subject_to a long-term_lease we then made a further upward adjustment of percent to the marketability discount accounting for characteristics specific to the partnership including the partnership was closely held with no real prospect of becoming publicly held the partnership was relatively small and not well known there did not exist a present market for the partnership interests and the partnership had a right_of_first_refusal to purchase the interests id as these characteristics are similar to the characteristics in kllp we find that a 3-percent upward adjustment is applicable therefore we hold that a 20-percent initial marketability discount is appropriate we further find that an upward adjustment of percent is proper to incorporate characteristics specific to the partnership e conclusion on the basis of all the evidence and using our best judgment we conclude that a 12-percent minority discount and a 23-percent marketability discount are appropriate in valuing the interests in kllp the fair_market_value of the 83-percent limited_partnership_interest is dollar_figure computed as follows dollar_figure total nav as of dollar_figure percent of nav big_number less 12-percent minority interest discount big_number big_number big_number big_number less 23-percent marketability discount fmv of 83-percent interest we conclude that the fair_market_value of the 33-percent interest in klbp llc the sole asset of klbp llc being a percent general_partnership interest in kllp is dollar_figure computed as follows dollar_figure total nav as of dollar_figure percent of percent of nav big_number less 12-percent minority interest discount big_number less 23-percent marketability discount fmv of dollar_figure percent of 1-percent interest big_number to reflect the foregoing decision will be entered under rule


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division dec sec t ep fn-t uniform issue list no keekekekkrerkeerkekereerererrrerererrerrer hhekkkerrerekeeerekrereeerrerereraeker kerekkererkeererereererereerererere atin a rekkerkereeererererererererererererker krkrekrekrerererererer eere eere rrereererrerererer legend church rr kkkeekekekere er rerererreerreerreeerrererere seminary krererkeekekrrerrererrerereeerrerererereererererereer kkrrkeekrkerererererekrerererrer rarer rerrrerererrrerererer kereekekrrerererererererererererererererekrrerererker kkk rerererererererererererererrerekrerererrrererere teachings khekeekkrerrrererererereikereerererererererekrererere krerererekerkreerkrr er rrerrerekrererererererereeereereereerererer krekkerrerrerrererereerkrekekrere rr rererkererererer governing organization kkrereererrerrrerrkereereerererererrereerrerererrererereer khrkekrekrerkeereeerekeererererererererekreke state plan krekeekerereekreerererererrrererererereeeererekrerker we ek keke krekrerekeerrerererererererr ererrrerrererer erk eere krekekrererrekreererererrereererererrererek plan y wen ekkkkekkkekreekerererekeerrrekrerere rrr rereerrrrerereerrereer krekekerekrererererererrerkeek dear krrekkkekek this is in response to a letter dated supplemented by additional correspondence dated and in which your authorized representative requested a private_letter_ruling on your behalf under sec_414 of the internal_revenue_code code in support of your ruling requests you have submitted the following statements and information the seminary is a not-for-profit corporation chartered on under the laws a providing a training institution where candidates for of the state for the purposes of the ministry the mission field and for various other church functions may obtain instruction in the doctrines and practices of the christian faith b awarding the bachelor of divinity degree and such other degrees as may be approved from time to time by the state council of education and c acquiring and holding estate for the above purposes the seminary's by-laws affirm this purpose requiring its board_of trustees to determine and review periodically the purposes and mission of the corporation to insure that they are consistent with the teachings and tenets of the church on the internal_revenue_service service last determined the seminary to be an organization described in code sec_501 that is exempt from tax under sec_501 the seminary is governed by a board_of trustees established pursuant to provisions published in the church's teachings and confirmed in the seminary's corporate by- laws the teachings in this case is a volume that fulfills several church functions it contains an extensive statement and discussion of the church's religious principles and practices organizational documents and charters for major church-affiliated institutions including the seminary and a listing of all church-affiliated organizations including individual churches schools regional organizations and social ministry organizations for the seminary both the teachings and its own corporate by-laws specify that the board_of trustees is made up of at least and not more than individuals at least of the trustees must be church members in good standing sixteen members in good standing of the church are chosen by the church's governing organization to be members of the seminary’s board_of trustees seven additional members from the church are elected by the board_of trustees the remaining two church members of the board_of trustees include the bishop of the church and one seminary alumnus the seminary president is elected by the board_of trustees and also serves as a board member up to additional members of the board_of trustees may be elected from other church organizations holding religious views similar in outlook to those of the church and whose candidates for the ministry may attend the seminary to earn their degrees of the current members of the board_of trustees are ordained church ministers church members thus constitute a majority of the seminary's board_of trustees at all times if one of the members elected by the governing organization or the alumnus member terminates membership in the church his membership on the seminary’s board_of trustees also is immediately terminated the seminary has established and maintains two retirement plans for its faculty and employees and their beneficiaries plan x is described as an employer-funded tax- sheltered annuity arrangement subject_to the nondiscrimination requirements of code sec_403 the seminary contributes percent of compensation on behalf of plan x participants who complete a year_of_service during the plan's calendar_year plan_year all employer contributions to plan x are fully and immediately vested when made plan y is also a tax-sheltered annuity arrangement established under code sec_403 it is funded by participants’ elective_deferrals both plan x and plan y name the institution ie the seminary as having final authority in matters of plan administration however on the seminary's board_of trustees passed a resolution creating a plan administrative committee committee and naming the members thereof also as confirmed in follow-up correspondence dated your authorized representative has written that the seminary’s by-laws and plans x and y will be amended to delegate authority for plan administration to the committee and to provide that the committee's sole and exclusive purpose will be to administer plans x and y the proposed by-laws amendment provides that the committee will be a permanent subcommittee of the the amendments to plans x and y describe the seminary’s finance_committee committee’s administrative authority and you have further represented that committee members will serve at the pleasure of and be directly accountable to the seminary's board_of trustees neither the seminary nor the plan administrative committee has ever made a code a statement has never been filed to thi sec_410 election on behalf of plan x or plan y effect with the service based on the above statements and representations you request a ruling that plan x and plan y are church plans within the meaning of sec_414 of the code the employer or administrator of a plan subject_to the employee_retirement_income_security_act_of_1974 erisa is required to file form_5500 or form 5500c annual return report of employee_benefit_plan church retirement programs and various welfare_benefit plans that are church plans are excused from the filing see announcement 1982_47_irb_53 and sec_1a and sec_2b of the instructions to form_5500 sec_414 of the code generally defines a church_plan as a plan established and maintained for its employees or their beneficiaries by a church or by a convention or association of churches which is exempt from taxation under sec_501 sec_414 of the code provides that a plan will be treated as a church_plan if it is maintained by an organization whether a civil law corporation or otherwise the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits or both for the employees of a church or a convention or association of churches if such organization is controlled by or associated with a church or a convention or association of churches sec_414 of the code defines employee to include a duly ordained commissioned or licensed minister of a church in the exercise of his or her ministry regardless of the source of his or her compensation and an employee of an organization whether a civil law corporation or otherwise which is exempt from tax under sec_501 of the code and which is controlled by or associated with a church or a convention or association of churches sec_414 of the code provides that a church or a convention or association of churches which is exempt from tax under sec_501 shal be deemed the employer of any individual included as an employee under subparagraph b sec_414 of the code provides that an organization whether a civil law corporation or otherwise is associated with a church_or_convention_or_association_of_churches if the organization shares common religious bonds and convictions with that church_or_convention_or_association_of_churches sec_414 of the code provides in pertinent part that if a plan intended to be a church_plan fails to meet one or more of the church_plan requirements and corrects its failure within the correction_period then that plan shall be deemed to meet the requirements of sec_414 for the year in which the correction was made and for all prior years sec_414 provides in pertinent part that the term correction_period means the period ending days after the date of mailing by the secretary of a notice of default with respect to the plan's failure to meet one or more of the church_plan requirements in order for an organization that is not itself a church_or_convention_or_association_of_churches to have a church_plan under sec_414 of the code that organization must establish that its employees are employees or deemed employees of the church_or_convention_or_association_of_churches under sec_414 employees of any organization maintaining a plan are considered to be church employees if the organization is exempt from tax under sec_501 of the code is controlled by or associated with a church_or_convention_or_association_of_churches and provides for administration or funding or both of the plan by an organization described in sec_414 of the code in this case the seminary is a not-for-profit corporation chartered by the state for the purpose of providing an institution where candidates for the ministry mission field and various other functions within the church receive training and may obtain instruction in the doctrines and practices of the christian faith these doctrines and practices are contained in the church's teachings a volume that provides an extensive discussion of the church's religious principles as well as a directory of church-affiliated organi- zations the seminary's by-laws require its board_of trustees to determine and review periodically the purposes and mission of the corporation to insure that they are consistent with the teachings and tenets of the church the seminary’s by-laws further mandate that a majority of its board_of trustees will at all times be members of the church at present of the seminary’s trustees also are ordained church ministers the seminary is also an organization that has been determined by the internal_revenue_service to be an organization described in code sec_501 and exempt from tax under sec_501 it is concluded based on the information provided that the seminary is an organization that shares common religious bonds and convictions with the church and is therefore associated with the church under the rules of code sec_414 it is further concluded that seminary employees are employees of an organization whether a civil law corporation or otherwise which is exempt from tax under sec_501 of the code and which is associated with a church or a convention or association of churches under the rules of code sec_414 seminary employees also are considered to be church employees for purposes of the church_plan rules conversely under the rules of code sec_414 the church is considered to be the employer of any individual who is determined to be a seminary employee under code sec_414 having concluded that seminary employees are church employees under the church_plan rules it remains to be determined whether plan x and plan y satisfy the requirements of code sec_414 in that they are maintained by an organization whether a civil law corporation or otherwise the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits or both for the employees of a church or a convention or association of churches and whether such organization is controlled by or associated with a church or a convention or association of churches in this case despite the recent creation of a committee by the seminary's board_of trustees plans x and y currently provide that the seminary is the organization that has final authority in matters of plan administration however in follow-up correspondence dated your authorized representative has indicated that the seminary’s corporate by-laws and plans x and y will be amended to provide that authority for plan administration will be delegated to the committee that the committee will serve at the pleasure of and be directly accountable to the seminary’s board_of trustees and that the committee's sole and exclusive purpose will be to administer plans x and y it is thus concluded that plan x and plan y as amended will be administered by the committee an organization controlled by or associated with the church the sole purpose or function of which is the provision of retirement benefits for individuals deemed to be church employees amendments contained in the follow-up correspondence dated date to the seminary’s corporate by-laws and to plans x and y will correct a failure to meet one of the church_plan requirements of code sec_414 be deemed to meet the requirements of code sec_414 for the year in which the it is further concluded that the proposed once corrected plans x and y shall correction was made and for all prior years in accordance with code sec_414 accordingly we conclude that plans x and y are church plans within the meaning of code sec_414 as previously discussed this ruling takes effect upon adoption of the plan x plan y and corporate by-laws amendments previously described in this letter this letter expresses no opinion as to whether plan x or plan y satisfies the requirements for tax sheltered annuity arrangements under code sec_403 the seminary may seek a separate ruling from employee_plans rulings and agreements on the issue of whether plan x or plan y meets the code requirements of sec_403 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 by others as precedent copies of this letter and related documents have been sent to your authorized representative in accordance with a power_of_attorney on file in this office any questions pertaining this office by phone if you have to the ruling please contact alee hallatalelaletalelalalelalalalalelalelalelelebiieiebiiebiiebabiiiie for further information a by fax at sincerely abl uit carlton a watkins manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose notice copy of cover letter to authorized representative