tax_exempt_and_government_entities_division department of the treasury internal_revenue_service attn mandatory review mc dal commerce st dallas tx date date number release date legend org name of organization address name of address year xx org address employer_identification_number person to contact id number contact numbers voice fax uil certified mail - return receipt requested dear in a determination_letter dated date you were held to be exempt from federal_income_tax under sec_501 of the internal_revenue_code the code based on recent information received we have determined you have not operated in accordance with the provisions of sec_501 of the code accordingly your exemption from federal_income_tax is revoked effective date this is a final adverse determination_letter with regard to your status under sec_501 of the code we previously provided you a report of examination explaining why we believe revocation of your exempt status is necessary at that time we informed you of your right to contact the taxpayer_advocate as well as your appeal rights on you signed form 6018-a consent to proposed action agreeing june to the revocation of your exempt status under sec_501 of the code you have filed a taxable return on form 1120-pc u s property and casualty insurance_company income_tax return for the year ended december with us for future periods you are required to file form 1120-pc with the appropriate service_center indicated in the instructions for the return you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at taxpayer_advocate_service if you have any questions please contact the person whose name and telephone number are shown at the beginning of this letter sincerely sunita lough director eo examinations department of the treasury internal_revenue_service ee tax_exempt_and_government_entities_division commerce street dallas tx date legend org name of organization address address of org year xx taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax dear we have enclosed a copy of our report of examination explaining why we believe an adjustment of your organization’s exempt status is necessary we have also enclosed publication exempt_organization appeal procedures for unagreed issues and publication the examination process publications include information on your rights as a taxpayer including administrative appeal procedures within the internal_revenue_service these if you request a conference with appeals we will forward your written_statement of for your convenience an protest to the appeals_office and they will contact you envelope is enclosed if you and appeals do not agree on some or all of the issues after your appeals_conference the appeals_office will advise you of its final_decision if you elect not to request appeals consideration but instead accept our findings please sign and return the enclosed form 6018-a consent to proposed adverse action we will then send you a final letter modifying or revoking your exempt status under sec_501 if we do not hear from you within days from the date of this letter we will process your case on the basis of the recommendations shown in the report of examination and send a final letter advising of our determination later years file the federal tax_return for the tax period s shown above with this agent in either situation outlined in the paragraph above execution of form 6018-a or failure to respond within days you are required to file federal_income_tax returns for the tax period s shown above for all years still open under the statute_of_limitations and for all within days from the date of this letter unless a request for an extension of time is granted file returns for later tax years with the appropriate service_center indicated in the instructions for those returns you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you have any questions please call the contact person at the telephone number shown in the heading of this letter the most convenient time to call if we need to contact you if you write please provide a telephone number and thank you for your cooperation sincerely sunita lough sunita lough director eo examinations enclosures publication publication form 6018-a report of examination envelope form_886 a department of the treasury - internal_revenue_service name of taxpayer org 20xx explanation of items schedule no or exhibit year period ended legend org name of organization state name of state year xx issue sec_1 does org qualify for tax exempt status under internal_revenue_code irc sec_501 for the years beginning january 20xx if org does not qualify for tax exempt status for years beginning january 20xx what are the tax consequences if the tax exempt status is revoked how will it affect future years facts org was formed in the state on january 19xx and follows the state laws of a mutual_insurance_company org petitioned for the formation of the association with the court the petition stated that mrs founder and mr founder petitioned the order of the court authorizing the establishment of this organization the petition was signed on january 19xx by a circuit judge the articles of association was filed on january 19xx the organization was the writing and insurance of burial protection certificates for the payment of funeral and burial expenses of its members as set out in the bylaws the principal office of the organization was to be in state would not have any capital stock it also stated that to organization it stated that the purpose of the by-laws also dated january 19xx stated the following e the objects and purposes for which this association is formed and the purposes for which it has been organized shall be to provide a plan for each member of this association for the payment of all or part of the funeral_expenses of such member or a plan for the furnishing or undertaking to furnish merchandise supplies and services or any other character of burial benefits to such member or a plan for the issuance of a certificate which provides for the payment of form 886-a rev department of the treasury - internal_revenue_service page -1- form_886 a name of taxpayer org explanation of items schedule no or exhibit year period ended department of the treasury - internal_revenue_service 20xx e funeral benefits to such member in merchandise services or supplies including the services of funeral directors and embalmers any person who is in good health and not under the treatment of any physician nor confined in any institution for the treatment of a chronic disease may become a member of this association application form_1024 application_for recognition of exemption under sec_501 was the application stated that the date incorporated for the filed on november 19xx organization was january 19xx the purpose as stated in the application was the application org association collection of dues to provide fixed burial benefits also stated that of dues collected are paid to org for management services and that it is authorized by the state burial board on august 19xx the service issued a determination_letter to org granting tax exempt status under sec_501 there have been no other types of insurance and there has been no reinsurance the only type of insurance provided has been the burial certificates with a value of dollar_figure activity conducted by org payment of benefits are towards funeral_expenses at time of death at the end of 20xx org had certificates outstanding form_990 was filed for the 20xx tax_year the following is a breakdown of the gross_receipts received by org for the year ending december 20xx based on the form_990 and annual_statement provided to the state burial board and the percentage of gross premiums to gross_receipts for the same year per notice_2006_42 form 886-a rev department of the treasury - internal_revenue_service page -2- form_8 a name of taxpayer org explanation of items schedule no or exhibit year period ended department of the treasury - internal_revenue_service 20xx org burial 20xx membership fees total membership fees dollar_figure dollar_figure dollar_figure interest dividend income total gross_receipts percentage- gross premium reinsurance income to gross_receipts dollar_figure an election under sec_831 has never been filed as of the writing of this report there has never been a filing of the election either with the filing of the forms or separately org was not involved in any court ordered liquidation or receivership during or 20xx form 886-arev department of the treasury - internal_revenue_service page -3- form_8 a department of the treasury - internal_revenue_service explanation of items name of taxpayer org 20xx schedule no or exhibit year period ended law and analysi sec_1 qualify for tax exempt status under internal does org revenue code irc sec_501 for the years beginning january 20xx internal_revenue_code sec_501 exempts from federal_income_tax insurance_companies as defined in sec_816 other than life including interinsurers and reciprocal underwriters if- i i the gross_receipts for the taxable_year do not exceed dollar_figure and il more than percent of such gross_receipts consist of premiums or ii in the case of a mutual insurance company- i the gross_receipts of which for the taxable_year do not exceed dollar_figure and more than percent of such gross_receipts consist of premiums clause ii shall not apply to a company if any employee of the company or a member of the employee's family as defined in sec_2032 is an employee of another company exempt from taxation by reason of this paragraph or would be so exempt but for this sentence sec clarification of exemption from tax for small property and casualty insurance_companies of the pension funding equity act of p l amended sec_501 to change the definition of small property and casualty insurance_companies insurance_companies other than life_insurance_companies exempt from income taxes to a company whose gross_receipts for the taxable_year do not exceed dollar_figure and over half such gross_receipts consist of premiums currently whose net written premiums or if greater direct written premiums for the taxable_year do not exceed dollar_figure or a mutual_insurance_company a whose gross_receipts for the taxable_year do not exceed dollar_figure and more than percent of which consist of premiums and b none of whose employees or member of the employee’s family is an employee of another company exempt from tax under sec_501 these changes were applicable after date notice_2006_42 irb provides guidance as to the meaning of gross_receipts for purposes of sec_501 of the internal_revenue_code this notice advises taxpayers that the service will include amounts received from the following sources during the taxable_year in gross_receipts for purposes of sec_501 form 886-a cev department of the treasury - internal_revenue_service page -4- form_886 a name of taxpayer org schedule no or exhibit year period ended explanation of items department of the treasury - internal_revenue_service 20xx a premiums including deposits and assessments without reduction for return_premiums or premiums_paid for reinsurance b items described in sec_834 gross_investment_income of a non-life insurance_company and c other items that are properly included in the taxpayer’s gross_income under subchapter_b of chapter subtitle a of the code thus gross_receipts include both tax-free interest and the gain but not the entire amount_realized from the sale_or_exchange of capital assets because those items are described in sec_834 gross_receipts do not however include amounts other than premium income or gross_investment_income unless those amounts are otherwise included in gross_income accordingly the term gross_receipts does not include contributions to capital excluded from gross_income under sec_118 or salvage or reinsurance recovered accounted for as offsets to losses_incurred under sec_832 sec_834 of the internal_revenue_code includes under gross_receipts the gains from the sale or exchanges of capital assets to the extent provided in subchapter_p sec_1201 and following relating to capital_gains_and_losses sec_834 of the internal_revenue_code allows a deduction for capital losses to the extent provided in subchapter_p sec_1201 and following plus losses from capital assets sold or exchanged in order to obtain funds to meet abnormal insurance losses and to provide for the payment of dividends_and_similar_distributions to policyholders based on the changes in the limitations under internal_revenue_code irc sec_501 and the operation of org during 20xx it was determined from the chart above that org did not qualify for tax exempt status for the years beginning january 20xx org did have gross_receipts of under dollar_figure and dollar_figure but was unable to meet either the or requirement section e of the pension funding act of p l provides the effective date of the new requirements for exemption under sec_501 it states effective date- in general- except as provided in paragraph the amendments made by this section shall apply to taxable years beginning after date transition rule for companies in receivership or liquidation- in the case of a company or association which-- form 886-a crev department of the treasury - internal_revenue_service page -5- form_8 a name of taxpayer org explanation of items schedule no or exhibit year period ended department of the treasury - internal_revenue_service 20xx a for the taxable_year which includes date meets the requirements of sec_501 of the internal_revenue_code_of_1986 as in effect for the last taxable_year beginning before date and b on date is in a receivership liquidation or similar proceeding under the supervision of a state court the amendments made by this section shall apply to taxable years beginning after the earlier of the date such proceeding ends or date org was not involved in a court ordered liquidation or receivership during 20xx therefore section e does not apply to this organization therefore for the years beginning january 20xx org did not qualify for tax exempt status under sec_501 if org beginning january 20xx what are the tax consequences does not qualify for tax exempt status for years since org did not qualify for tax exempt status under sec_501 for the years beginning january 20xx org’s tax exempt status should be revoked for years org’s filing of the form_990 for 20xx was incorrect org beginning january 20xx should have filed form 1120-pc for years beginning january 20xx sec_831 discusses tax on insurance_companies other than life_insurance_companies sec_831 states as a general_rule taxes computed as provided in sec_11 shall be imposed for each taxable_year on the taxable_income of every insurance_company other than a life_insurance_company sec_831 provides an alternative_tax for certain small companies it states in sec_831 that in general in lieu of the tax otherwise applicable under subsection a there is hereby imposed for each taxable_year on the income of every insurance_company to which this subsection applies a tax computed by multiplying the taxable_investment_income of such company for such taxable_year by the rates provided in sec_11 sec_831 discusses the companies to which this subsection applies - form 886-acrev department of the treasury - internal_revenue_service page -6- form_8 a name of taxpayer org explanation of items schedule no or exhibit year period ended department of the treasury - internal_revenue_service 20xx a in general this subsection shall apply to every insurance_company other than life including interinsurers and reciprocal underwriters if- i ii the net written premiums or if greater direct written premiums for the taxable_year do not exceed dollar_figure and such company elects the application of this subsection for such taxable_year the election under clause ii shall apply to the taxable_year for which made and for all subsequent taxable years for which the requirements of clause are met such election once made may be revoked only with the consent of the secretary regulations regs a discusses the time for making elections under i described in paragraph a of this section must be made by the later of- it states in general that except as otherwise provided in this section the elections a the due_date taking into account any extensions of time to file obtained by the taxpayer of the tax_return for the first taxable_year for which the election is effective or b date in which case the election generally must be made by amended_return regs a mentioned above includes sec_831 regs a describes the manner of making elections it states except otherwise provided in this section the elections described in paragraph a of this section must be made by attaching a statement to the tax_return for the first taxable_year for which the election is to be effective based on the code and regulation sections above org is not entitled to the relief under b for years under examination and for any future year until they decide to file the election the election has never been filed either with the form_990 or separately the election was filed and all subsequent years the election can not be made retroactive any election filed now or in the future would only be effective for the year if the tax exempt status is revoked how will it affect future years the tax exempt status should be revoked for the years beginning january 20xx form 1120-pc is required for each year and all future years where org does not qualify for exemption if org meets the requirements under sec_501 in future years it may be allowed to file the form_990 for each year they qualify as a self- declared entity otherwise form 1120-pc would be required any year in the future form 886-acrev department of the treasury - internal_revenue_service page -7- form_886 a name of taxpayer org explanation of items schedule no or exhibit year period ended department of the treasury - internal_revenue_service 20xx that the form 1120-pc is required org is allowed to make an election under sec_831 once the election is made it is effective for the year the election was made and for all future years that the form 1120-pc is required the election can not be made retroactive taxpayer’s position unknown at the time of this writing summary it is the governments position based on the above facts law and analysis that the tax exemption status of org for the years beginning january 20xx should be revoked based on not meeting the qualifications for exemption under sec_501 form 1120-pc would be required to be filed for any year where org does not qualify for exemption under sec_501 department of the treasury - internal_revenue_service form 886-a ceev page -8-


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 3-plr-145784-01 date date legend parent subsidiary subsidiary foreign_country date date dear this letter responds to a letter dated date and subsequent correspondence presented on behalf of subsidiary requesting a ruling under sec_301_9100-3 of the procedure and administration regulations that would result in an extension of time pursuant to sec_301_9100-1 to file an election for subsidiary to be treated as a corporation for federal tax purposes pursuant to sec_301_7701-3 retroactive to date the following description represents the facts as provided by subsidiary facts plr-145784-01 subsidiary is a wholly owned subsidiary of parent subsidiary a wholly owned subsidiary of subsidiary was formed on date subsidiary was formed for the sole purpose of providing on-shore financing in foreign_country for parent subsidiary believed that subsidiary was a corporation for us federal tax purposes and filed a form_5471 information_return of u s persons with respect to certain foreign_corporations for subsidiary for its first year in existence on or about date a date more than days after subsidiary was formed an executive of subsidiary during a routine review of tax forms discovered that a form_8832 entity classification election inadvertently had not been filed for subsidiary law and application sec_301_7701-2 generally provides that a business_entity is any entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code sec_301_7701-3 further provides that a business_entity with only one owner is classified as a corporation or is disregarded if it is disregarded then the entity’s activities are treated in the same manner as a sole_proprietorship branch or division of the owner sec_301_7701-3 provides that so long as a business_entity is not classified as a corporation under sec_301_7701-2 or it has an opportunity to elect its classification for federal tax purposes generally sec_301_7701-3 provides that if a foreign eligible_entity with a single owner that has unlimited liability fails to elect its treatment for federal tax purposes then the entity will be disregarded as an entity separate from its owner subsidiary is a business_entity that is eligible to elect its classification for federal tax purposes pursuant to sec_301_7701-3 subsidiary is a foreign eligible_entity with subsidiary as its single owner subsidiary pursuant to sec_301_7701-3 is considered to have unlimited liability therefore unless a timely election otherwise has been filed or an exception is created subsidiary will be treated in the same manner as a sole_proprietorship branch or division of subsidiary sec_301_9100-1 permits the commissioner to grant a reasonable extension of time for making certain elections sec_301_9100-3 provides that an extension of time to file certain elections will be granted if the taxpayer is able to establish that it acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government plr-145784-01 conclusion based solely on the facts and representations submitted we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied accordingly subsidiary is granted an extension of time of days from the date of this letter to file on behalf of subsidiary form_8832 effective on date with the appropriate service_center a copy of this letter should be attached to the election a copy is enclosed for this purpose except for the specific ruling above no opinion is expressed or implied concerning the federal_income_tax consequences of the facts of this case under any other provision of the internal_revenue_code pursuant to your request we are sending a copy of this letter by facsimile transmission 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 sincerely s william p o’shea acting associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


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 tege eoeg teb presp-148245-06 date date dear ------------- this letter is in response to your application_for an allocation of authority for dollar_figure-------------- ----------------- in clean renewable energy bonds crebs under sec_54 of the internal_revenue_code the code sec_54 of the code imposes a limitation of dollar_figure on the amount of crebs which may be issued to finance qualified projects the limitation sec_54 provides that the limitation is to be allocated by the secretary of treasury in such manner as the secretary deems appropriate except that no more than dollar_figure of the limitation may be allocated to finance qualified projects of qualified borrowers which are governmental bodies section of notice_2005_98 2005_52_irb_1211 provides that the limitation will be allocated among qualified projects for which a share of such limitation has been requested beginning with the project s requesting the smallest share in dollar amount and continuing with the project s requesting the next-smallest share until the total limitation has been exhausted however in the event that dollar_figure has been allocated to qualified projects of qualified borrowers that are governmental bodies the remaining shares of the limitation will be allocated under the methodology described in the previous sentence only to qualified projects of qualified borrowers that are not governmental bodies for purposes of allocating the limitation among projects all qualified projects located at the same site and owned by the same qualified_borrower are treated as a single project and each project is treated as requesting a single allocation an allocation of shares of the limitation cannot be made with respect to the project owned by the borrower listed in appendix a because such borrower is a governmental body and dollar_figure has already been allocated to applications requesting a smaller presp-148245-06 share of the limitation to finance qualified projects owned by qualified borrowers that are governmental bodies we appreciate your submission of the application_for our consideration and encourage you to continue to pursue your plans for constructing a clean renewable energy project sincerely assistant chief_counsel exempt_organizations employment_tax government entities tax exempt government entities by timothy l jones senior counsel tax-exempt_bonds branch presp-148245-06 borrower name appendix a project type project location -------------------------------- -------------------------------- -------------------------------- ----------------- ------------------------------- ------------------------ wind facility ---------------------------------- ------------------------------------------------ ------------------------------------------------- -------------------------- -------------------------------------------- --------------------------- amount requested dollar_figure--------------


tax_exempt_and_government_entities_division date apr department of the treasury washington d c internal_revenue_service sin - no third party contacts q contact person identification_number contact number tco b38 employer_identification_number legend partnership partnership t u o m t g o f x i f ' a - i z j d u o w w y c i i y d i x d u h e k n i o o a this refers to a ruling_request dated date that the proposed transaction will not constitute an act of self-dealing under sec_4941 of the internal_revenue_code the code pear fact x is exempt under sec_501 of the code and is a private_foundation x is primarily engaged in distributing grants to charitable organizations x was formed by the estate of a which contributed the interests in two partnerships -- partnership and partnership to date the estate of a is the only contributor to x x's primary assets consist of a u interest in partnership a v interest in partnership and various publicly traded stocks and bonds none of which represent a significant holding in the issuer the u and v interests are insubstantial in respect to partnership sec_1 and the income from these assets are the only sources of income for x the officers of x are e f and h who serve as president vice president and secretary respectively e f and h also serve as members of its board_of trustees x has no employees x intends to sell its u interest in partnership for dollar_figurez an amount that is equal to fair_market_value x states the sale will enable x to restructure its assets and to provide greater liquidity to more effectively meet its charitable goals and purposes the sale was approved by x's board and no brokerage fees are being paid with respect to the sale the purchasers are l and m x represents that the material terms of the sale are as follows x will transfer its interest in partnership free and clear of all liens and executions each of the purchasers will assume the obligations of a partner in partnership the sale is subject_to the condition that the seller will obtain the following a a private_letter_ruling from the internal_revenue_service that no excise or other taxes will be imposed on the seller based on any relationship of any parties to the transaction and b an approval letter or statement of no objection to the transaction by the state attorney_general charities bureau partnership was established upon settlement of the estate of b b was the husband of aand son of c partnership owns industrial and commercial rental real_estate it does not engage in activities unrelated to real_estate in addition to x the other partners in partnership are y w interest and e x interest there are no limited partners in partnership is exempt under sec_501 of the code and is a private_foundation y is primarily engaged in distributing grants to charitable organizations y's primary assets consist of a w interest in partnership a y interest in partnership various mortgages and various publicly traded stocks and bonds none of which represent a significant holding in the issuer the income from these assets are the only sources of income for y y was formed by b and c b's parents c and d contributed a w interest in partnership and a small amount of cash to y there are no other contributors to y the officers of y are e who serves as president and k vice president secretary and treasurer the two are also the members of y's board_of trustees that include i and e's children f and g has no employees kis the father of l and m k l and m are not related within the meaning of sec_4946 of the code to a b c d e f g hor kis not a foundation_manager of x page the business and properties of partnership are managed by z a general_partnership equally owned by k and his wife z also manages other properties in managing partnership z is authorized to collect receipts and pay all expenses of day to day operations and is required to account to the partners for ail such receipts and expenses z may act alone as to all phases of day to day operations but is required to consult with the partners separately advise them in writing and obtain their prior written approval on sales leasing or mortgaging of the property including forectosures deeds in lieu of foreclosure and failure to pay mortgage interest or real_property_taxes z is required to confer on a regular basis with the partners and distribute interim annual financial statements to them it is also required to distribute a status report of any material events or transactions at least quarterly finally it must make quarterly distributions to the partners of the net_income from the properties less a reasonable reserve the precise timing of distributions and information is determined by the partners after conferring with z x is only requesting a ruling that the sale of its interest in partnership to l and m shall not constitute an act of self-dealing under sec_4941 of the code applicable law sec_4941 of the code imposes a tax on each act of self-dealing between a disqualified_person and a private_foundation sec_4941 d a of the code defines the term self-dealing to mean any direct or indirect sale_or_exchange or leasing of property between a private_foundation and a disqualified_person a of the code defines the term disqualified_person to mean with respect toa private_foundation a person who is-- a a substantial_contributor to the foundation b a foundation_manager within the meaning of subsection b c an owner of more than percent of- i the total combined voting power of a corporation ii the profits interest of a partnership or iii the beneficial_interest of a_trust or unincorporated enterprise which is a substantial_contributor to the foundation d a member_of_the_family as defined in subsection d of any individual described in subparagraph a b or c e a corporation of which persons described in subparagraph a b c or d own more than percent of the total combined voting power page f a partnership in which persons described in subparagraph a b c or d own more than percent of the profits interest g a_trust or estate in which persons described in subparagraph a b c or d hold more than percent of the beneficial_interest sec_4946 of the code provides that the term substantial_contributor means a sec_507 of the code provides in person who is described in code sec_507 relevant part that the term substantial_contributor means any person who contributed or bequeathed an aggregate amount of more than dollar_figure to the private_foundation if such amount is more than percent of the total contributions and bequests received by the foundation before the close of the taxable_year of the foundation in which the contribution or bequest is received by the foundation from such person sec_4946 of the code defines the term foundation_manager to mean with respect fo any private foundation- an officer director or trustee of a foundation or an individual having powers or responsibilities similar to those of officers directors or trustees of the foundation and with respect to any act or failure to act the employees of the foundation having authority or responsibility with respect to such act or failure to act sec_4946 of the code provides that for purposes of code sec_4946 the family of any individual shall include only his spouse ancestors children grandchildren great grandchildren and the spouses of children grandchildren and great grandchildren analysis pursuant to the provisions of sec_4941 of the code x's sale of its u interest in partnership to l and m would be an act of self-dealing if any of the purchasers is a disqualified_person with respect to x the submitted facts indicate that l and m are not substantial contributors to or foundation managers of x also l and m are not owners of a corporation partnership trust or an unincorporated enterprise that is a substantial_contributor to x therefore neither l nor m is a disqualified_person under sec_4946 b or c we have also considered whether l and m are disqualified persons with respect to x under sec_4946 of the code as members of the family of k while k is an officer and thus a foundation_manager in y and he manages partnership through his ownership of z he is not an officer or a foundation_manager in x therefore k is not a disqualified_person with respect to x and the same is true with l and m who are members of his family conclusion based on the facts and representations we rule that x's sale of its interest in partnership to l and m would not constitute an act of self-dealing under sec_4941 of the code this ruling is based on the assumption that there is no material_change in the submitted facts also this ruling only addresses sec_4941 of the code to the issue presented in regard to x and neither expresses nor implies any opinion as to the federal tax consequences of the page transactions under any other provisions of the code this ruling is directed only to the organization that requested it sec_61 k of the code provides that it may not be used or cited as precedent please keep this in your permanent records if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely signed robert c harper 3s robert c harper jr manager exempt_organizations technical group


internal_revenue_service number release date index number ------------------------ ----------------------------------- ---------------------------- ------------------------------------------- -------------------------------------- department of the treasury washington dc person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc psi - plr-140864-06 date date -------------------------------------------------------------------------------- ------------------------------- ---------------------------------------- legend a --------------------------------------------------------------------------- ----------------------------------------------------------- b ------------------------------------------------------------------------ ----------------------------------------------------------- c --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------- ----------------------------------------------------------- subsidiary ------------------------------------------------------------------------- de --------------------------------------------------------------------------------------- company ------------------------------------------------------------------------- ----------------------------------------------------------- x y ----------------------------------------------- ----------------------------------------- -------------------------- ---------------------- ------------------ ------------------ this letter responds to a letter dated date submitted on behalf of a the information submitted discloses that a b and c are foreign entities owned plr-140864-06 z dear ------------------- requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations for a to file an election to be classified as a disregarded_entity for federal tax purposes facts directly or indirectly by company a and b are owned by subsidiary through its disregarded_entity de and subsidiary is owned by company c is owned directly by company a was organized on x b was organized on y and c was organized on z the owners of a b and c intended them to be disregarded entities for federal tax purposes and have consistently treated them as such since their respective dates of formation however a b and c each inadvertently failed to timely file a 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 an eligible_entity with a single owner can elect to be classified as an association and thus a corporation under sec_301_7701-2 or to be disregarded as an entity separate from its owner b unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owners if it has a single owner that does not have limited_liability for purposes of sec_301_7701-3 sec_301_7701-3 provides that a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides in general that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides that except as provided in sec_301 sec_301_9100-1 through provide the standards the sec_301_7701-3 provides that an election made under sec_301 under sec_301_9100-1 the commissioner may grant a reasonable extension of plr-140864-06 c i 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 time under the rules set forth in sec_301_7701-2 and sec_301_7701-3 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 the term regulatory election as 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 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 making elections that do not meet the requirements of sec_301_9100-2 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 conclusion requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied consequently a is granted an extension of time of days from the date of this letter for electing under sec_301_7701-3 to be treated as a disregarded_entity effective x a 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 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 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 based on the facts and representations submitted a has established that the this ruling is directed only to the taxpayer requesting it according to plr-140864-06 sec_6110 of the internal_revenue_code this ruling may not be used or cited as precedent being forwarded to taxpayer’s authorized representative pursuant to a power_of_attorney on file with this office a copy of this letter is sincerely s william p o’shea associate chief_counsel passthroughs special industries copy for sec_6110 purposes enclosures copies of this letter cc -


t c summary opinion united_states tax_court julius lee harrington and mary lou ziter petitioners v commissioner of internal revenue respondent docket no 5679-o00s filed date julius lee harrington and mary lou ziter pro sese anne w durning for respondent beghe judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure - respondent determined deficiencies in petitioners’ federal income taxes for the calendar years and of dollar_figure dollar_figure and dollar_figure respectively after concessions by the parties the sole issue in dispute is whether petitioners are entitled to compute their taxable_income by deducting losses of their horse-breeding activity for and in the amounts of dollar_figure dollar_figure and dollar_figure respectively respondent determined that petitioners’ horse-breeding activity was not an activity engaged in for profit within the meaning of sec_183 we uphold respondent’s determination background some of the facts have been stipulated and are so found when petitioners filed their petition they resided in algodones new mexico during the years in issue petitioner julius harrington dr harrington was employed full time as a professor at new mexico highlands university school of social work he holds an undergraduate degree in sociology two master’s degrees in social work and a doctorate in social work education petitioner mary lou ziter dr ziter holds a doctorate in social work and during was self-employed part time as a family therapist during and dr ziter was retired during the years in issue in addition to teaching full time dr harrington spent substantial time engaging in the breeding of appaloosa horses although dr ziter may have had an ownership_interest in some horses she did not participate in the horse activity dr harrington has no significant formal training in horse breeding however dr harrington grew up with horses and knows a lot about them dr harrington was raised on a farm in rural mississippi and owned and used a horse for transportation from the time he wa sec_4 years old his childhood horse named dan was a cross between an appaloosa and a tennessee walking horse dr harrington participated in future farmers of america in high school and would ride his horse on visits to his family’s farm during breaks from college and university in petitioners bought a farm in minnesota and shortly thereafter purchased their first appaloosa horse in addition to riding horses petitioners began showing their horses at the flying w appaloosa horse club in the late 1980s dr harrington began investigating the breeding of appaloosa horses among other things he spoke to long-time breeders of appaloosa horses at sheldak ranch who told him it would be difficult to breed palomino appaloosas successfully nevertheless in after searching for a stallion for several years dr harrington purchased a 4-month old colt named provoking for dollar_figure to use as his stallion in attempting to breed palomino appaloosa horses q4e- although dr harrington recognized that it was risky to rely on an untested foal he believed that provoking had the right color and bloodlines to sire appaloosa horses that would have valuable palomino and appaloosa characteristics in petitioners moved from minnesota to new mexico they brought with them the stallion provoking and one brood mare petitioners purchased a acre property in algodones where they lived and kept their horses the house had a vineyard that occupied one-half acre and the remaining acreage became available for the horse activity during through petitioners suffered net losses totaling dollar_figure from dr harrington’s horse-breeding activity claimed on schedule f profit or loss from farming the losses were consistent and sustained from year to year ranging from dollar_figure to dollar_figure per year during this 9-year period petitioners received total gross_receipts of only dollar_figure from the horse-breeding activity petitioners claimed losses of dollar_figure dollar_figure and dollar_figure on gross_receipts of dollar_figure dollar_figure and dollar_figure for and respectively petitioners did not claim federal_income_tax deductions for the expenses of the horse activity in with such small acreage dr harrington had to buy hay to feed the horses dr harrington in sold two mares and two foals for dollar_figure but kept the stallion anda year old and year old that he is still trying to sell - dr harrington had no formal plan for making a profit from the horse-breeding activities dr harrington’s goal was to produce foals with appaloosa characteristics a foal with appaloosa characteristics is worth as much as dollar_figure while a foal without appaloosa characteristics is worth only about dollar_figure at a sale barn where the animals are auctioned off for about cents per pound dr harrington bred provoking the single stallion to only one or two mares a year therefore even if dr harrington’s horse activity had been able to generate two foals with appaloosa characteristics per year and he had been able to sell them for the maximum price of dollar_figure each the horse operation would have generated revenues of only about dollar_figure per year--less than one- half of the annual expenses from the horse-breeding activity despite dr harrington’s efforts petitioners were unable to produce two foals per year with appaloosa characteristics during the years between and petitioners produced a total of six foals with appaloosa characteristics of those one died and another was injured dr harrington testified that he expected a foal with appaloosa characteristics approximately percent of the time dr harrington made no attempt to expand the horse operation to have the potential of earning a profit because he did not believe he could find suitable brood mares at a price he could - - afford as a result dr harrington could not have made a profit from the horse-breeding activity even if he had been able to achieve a 100-percent success rate in producing foals with appaloosa characteristics discussion sec_183 provides generally that if an activity is not engaged in for profit then no deduction attributable to the activity shall be allowed except as provided in sec_183 sec_183 allows a deduction for expenses that are deductible without regard to whether the activity is engaged in for profit such as real_estate_taxes sec_183 allows a further deduction for expenses that would be deductible if the activity were engaged in for profit but only to the extent that gross_receipts from the activity exceed deductions allowed by sec_183 an activity_not_engaged_in_for_profit 1s any activity other than one for which deductions are allowable under sec_162 or under paragraphs or of sec_212 deductions are allowed under sec_162 or sec_212 only when the facts and circumstances show that the taxpayer engaged in the activity with an actual and honest but not necessarily reasonable objective of making a profit 91_tc_371 dominant hope and intent of realizing a profit 85_tc_557 actual and honest objective of making a profit in resolving the factual guestion greater weight is given to the objective facts than to the taxpayer’s self-serving statements of intention 84_tc_1244 affd 792_f2d_1256 4th cir sec_7491 provides that the burden_of_proof is placed on the commissioner as to any factual issue on which the taxpayer offers credible_evidence relevant to his income_tax_liability if certain conditions have been satisfied including the commencement of the commissioner’s examination after date the parties have not addressed the applicability of sec_7491 to this proceeding even though it seems likely that the examination was commenced after that date at least as to the last taxable_year in issue we nevertheless conclude that the burden_of_proof is not in issue in this case inasmuch as we decide the matter without regard to the allocation of the burden_of_proof our findings and decision are supported by a preponderance_of_the_evidence sec_1_183-2 income_tax regs sets forth a nonexclusive list of nine factors that bear on whether an activity 1s engaged in for profit the regulation specifically provides that no single factor or number of factors is controlling and the factors need not be given equal weight see 52_f3d_23 2d cir the - - assessment of the objective factors must be informed by ‘the insight gained from a lifetime of experience as well as an understanding of the statutory scheme’ quoting 700_f2d_402 revg t c memo revg tcmemo_1993_536 in 72_tc_411 affd without published opinion 647_f2d_170 9th cir we recognized that although no one factor is determinative of the taxpayer's intention to make a profit a record of substantial losses over many years and the unlikelihood of achieving a profitable operation are important factors bearing on the taxpayer's true intention the first factor considers whether the taxpayer engaged in the activity in a businesslike manner sec_1_183-2 income_tax regs in deciding whether the taxpayer has conducted the activity in a businesslike manner this court has considered ‘whether accurate books are kept whether the activity is conducted in a manner similar to other comparable businesses and whether changes have been attempted in order to make a profit ’ dodge _v commissioner tcmemo_1998_89 quoting ballich v commissioner t c memo affd without published opinion 188_f3d_507 6th cir in the case at hand petitioners failed to develop a budget or a formal or informal business plan to determine whether and --- - if so how the activity could be operated profitably or to make informed business decisions on a periodic basis during his investigation of horse breeding dr harrington was told by professional breeders that it would be difficult to make a profit from breeding appaloosa horses the economics of petitioners’ operation showed that they could not make a profit from their horse-breeding activity petitioners consistently incurred expenses of more than dollar_figure per year breeding their stallion only two or three times per year would yield at best only two or three foals per year horses have an 11-month gestation period worth at most dollar_figure in the unlikely event that all three foals had appaloosa characteristics petitioners’ horse-breeding activity was a money-losing proposition without hope of success citing 72_tc_659 petitioners argue that because dr harrington did most of the work himself and that much of this work was not pleasurable he should be deemed to have engaged in the activity ina businesslike way we disagree in engdahl after dr engdahl’s retirement as an orthodontist the engdahls purchased a ranch to breed american saddle-bred horses after receiving professional advice on operating the ranch profitably due to unexpected adverse market conditions the ranch was not profitable the court found that the engdahls operated their business in the same -- - manner as other profit-making horse-breeding operations made changes in their method of operations to increase profitability and attempted to diversify their activities to make a profit petitioners’ situation is distinguishable from the taxpayers in engdahl petitioners offered no evidence to show that their horse-breeding activity was unprofitable due to unexpected adverse market conditions nor did they show that the activity was similar to other profit-making horse-breeding operations petitioners did not make changes to their operation in an attempt to make it profitable ’ indeed dr harrington testified that he was unwilling to expand the operation because it was not cost effective to do so finally dr harrington made no attempt to diversify the operation in order to earn a profit dr harrington’s continuation of the inherently money-losing operation belies petitioners’ contention that petitioners engaged in the activity to make a profit ‘petitioners argued on brief that they made several changes to improve profitability first they claim they switched to a well-known appaloosa foundation bloodline in fact the only stallion that they have ever used was provoking we do not understand what they mean by a switch second they claim that they identified a special niche market of producing palomino appaloosas and attempted to expand to meet market demand in fact petitioners did not attempt to expand and have not been able to sell their two best foals calling into question the level of demand finally petitioners point out that dr harrington has developed farrier veterinarian training and marketing skills while he may have developed or improved his skills these were not significant changes made to improve profitability and did not have the effect of improving profitability finally we do not accept petitioners’ argument that dr harrington did not receive pleasure from the activity to be sure caring for horses is hard work but dr harrington clearly loves the animals and derives much pleasure and pride from them petitioners also appear to enjoy being in the circle of other appaloosa horse breeders we cannot discount the pleasure that dr harrington derived from the horse-breeding activity merely because some of the daily chores are labor-intensive indeed these labor-intensive chores provided what must have been a welcome break from dr harrington’s regular activities as a college professor the second factor is the expertise of dr harrington and his advisers preparation for an activity by extensive study of its accepted business economic and scientific practices may indicate a profit_motive sec_1_183-2 income_tax regs the focus is on learning applicable to generating an overall profit from the activity see golanty v commissioner supra pincite petitioners offered no evidence to show that dr harrington’s new skills were helpful in making their horse- breeding business profitable dr harrington may have improved extended and refined his skills in caring for horses but petitioners failed to explain how his new and improved skills would lead to a profitable horse-breeding business the third factor is the time and effort expended by the taxpayer the fact that a taxpayer devotes much of his personal time to an activity may indicate an intention to derive a profit particularly if there are no substantial personal or recreational aspects to the activity sec_1_183-2 income_tax regs dr harrington did devote substantial time to the horse- breeding activity however we believe there were substantial personal and recreational aspects to the activity moreover dr harrington did not give up his regular job as a social work professor to pursue making a living from the horse-breeding activity this was a pleasurable sideline for dr harrington not a source of his livelihood the time and effort dr harrington devoted to the activity or hours per day caring for the horses was not inconsistent with the time one might expect to devote to a hobby of this kind the fourth factor is the expectation that assets used in the activity may appreciate in value sec_1_183-2 income_tax regs petitioners argue that their land has appreciated in value due mostly to the general increase in land values in the area but also to some undefined extent due to improvements petitioners made to the land petitioners argue that the increase in the value of their land should be taken into account in determining whether their horse-breeding activity was profitable sec_1_183-1 income_tax regs provides if the taxpayer engages in two or more separate activities deductions and income from each separate activity are not aggregated either in determining whether a particular activity is engaged in for profit or in applying sec_183 where land is purchased or held primarily with the intent to profit from increase in its value and the taxpayer also engages in farming on such land the farming and the holding of the land will ordinarily be considered a single activity only if the farming activity reduces the net cost of carrying the land for its appreciation in value thus the farming and holding of land will be considered a single activity only if the income derived from farming exceeds the deductions attributable to the farming activity which are not directly attributable to the holding of the land that is deductions other than those directly attributable to the holding of the land such as interest on a mortgage secured_by the land annual property taxes attributable to the land and improvements and depreciation of improvements to the land in the case at hand there is no evidence in the record that the horse-breeding activity contributed marginal profits to help reduce the cost of holding the land even excluding the items attributable to the land the horse-breeding operation incurred substantial losses therefore the holding of petitioners’ land is a separate activity from the horse-breeding activity the improvements petitioners claim to have made to the land may increase their tax_cost_basis in the land and thus reduce the taxable gain they will realize upon sale of the land sec_1001 the increase in the value of petitioners’ land does not support petitioners’ argument that dr harrington engaged in their horse-breeding activities with the intent of making a profit the fifth factor is petitioners’ success in carrying on other similar or dissimilar activities the regulations indicate that a taxpayer who was able to convert an unprofitable enterprise to a profitable one in the past may be able to do the same thing with the current activity sec_1_183-2 income_tax regs petitioners do not argue that dr harrington had prior success turning an unprofitable business into a profitable one instead petitioners argue that dr harrington’s academic success in the field of social work supports their argument that they engaged in the horse-breeding activity to make a profit we see no direct correlation between success as a social work academician and educator and financial success as a breeder of horses petitioners did not offer evidence to show that dr harrington achieved success in business generally or in breeding farm animals specifically petitioners’ academic success does show that they are highly intelligent people who were fully capable of doing the simple arithmetic necessary to realize that the horse-breeding operation was not and as operated could not be profitable their continuing the operation during the years in issue without a prospect or plan to achieve profitability indicates a lack of profit_motive -- - the sixth factor is the taxpayer’s history of income and losses with respect to the activity sec_1_183-2 income_tax regs petitioners have had straight years of substantial sustained losses during these years petitioners had gross_receipts of only dollar_figure while incurring expenses of dollar_figure there was no material decrease in their losses over time petitioners argue that they are still in the 15-year startup phase of the activity and that losses are expected during the startup phase losses during the startup phase of an activity are not currently deductible sec_195 the losses must be capitalized and an election made to amortize the losses over a period of not less than months after the startup phase ends sec_195 therefore even if petitioners were able to establish that their horse-activity losses were incurred during the startup phase of the activity they would not be entitled to deductions for the years in issue see mckelvey v commissioner tcmemo_2002_63 moreover we do not accept petitioners’ argument that these losses were incurred in the startup phase of the activity petitioners made no significant change to their operations during the 9-year period of operations they did not expand have not sought to expand and do not intend to expand their business ina material way nothing about their horse-breeding operation requires a prolonged startup_period by their own testimony -- - their breeding stock was mature and in its prime during the taxable years in issue petitioners offered no evidence to justify their long history of sustained losses our words in golanty v commissioner t c pincite quoting 45_tc_261 affd 379_f3d_252 2d cir apply to the case at hand as well the petitioner has learned a good deal about the breeding of horses and she has devoted energy and time to the activity nevertheless when we strip away all the talk dig out the hard facts and apply cold logic to them we are convinced that the petitioner did not truly expect to make a profit from her horse-breeding venture and that such activity was not potentially profitable and could not recoup the losses which have meanwhile been sustained in the intervening years the seventh factor is the amount of occasional profits earned from the activity a substantial profit though only occasional would generally indicate that an activity is engaged in for profit sec_1_183-2 income_tax regs petitioners earned no profits of any size at any time from their horse- breeding activity the eighth factor is the financial status of the taxpayer substantial income from other sources particularly when the losses from the activity generate tax benefits may indicate that the activity 1s not engaged in for profit especially when personal or recreational aspects are present sec_1 b income_tax regs petitioners’ tax returns indicate that both had success in their careers and in their investments and that the losses claimed from the horse-breeding activity if allowed would provide them with significant tax benefits reducing the after-tax cost of carrying on this money-losing activity the final factor is whether petitioners derived pleasure or recreation from the activity sec_1_183-2 income_tax regs petitioners argue that the horse-breeding activity required a lot of difficult work including cleaning and brushing the horses trimming their hooves mucking out their stalls and corral watering and feeding the horses hauling hay and feed spreading manure on the pasture branding burning brush cleaning irrigation ditches and so forth petitioners state the petitioners fail to see how backbreaking activity of this nature in addition to full-time employment can be considered pleasurable a proposition for which they might have cited and gquoted doyle v commissioner tcmemo_1982_694 they did virtually all the hard work themselves in the interest of saving money they maintained the horses mucked out the stalls drove to the shows cultivated the alfalfa field and dug their own well activities of this nature are difficult to call pleasurable we have arrived at the contrary conclusion in a multitude of cases in novak v commissioner tcmemo_2000_234 we - - rejected the taxpayer’s argument that the hard work involved in breeding horses establishes that the activity was engaged in for profit petitioner argues that his substantial time commitment and hard work eliminate any elements of pleasure or recreation we recognize that the level of work or effort may indicate a profit objective and that caring for horses and maintaining a horse farm are hard work however the fact that an activity involves hard work does not standing alone establish that an activity was engaged in primarily for profit petitioner’s introduction into horse-breeding was precipitated by his love of horses and he enjoyed his horse-related activity id see also surridge v commissioner tcmemo_1998_304 the fact that running the horse farm was hard work does not negate the pleasure petitioners received from engaging in the horse activity yates v commissioner tcmemo_1996_499 while we do not reject petitioners’ contention that maintenance of horses demand a large measure of laborious and unpleasant work x we also believe that petitioners were partially motivated by personal reasons in engaging in the horse-breeding activities affd without published opinion 163_f3d_609 9th cir bischoff v commissioner tcmemo_1995_34 while we agree that the training and breeding of horses is hard physical work it is clear from the facts in this case that petitioner enjoyed this activity and lifestyle borsody v commissioner tcmemo_1993_534 we cannot conclude that the virtues of farm life and the show ring do not provide an adequate and sufficient explanation for the hard work and losses undertaken by petitioners king v commissioner tcmemo_1993_237 moreover the fact that running the horse farm was hard work does not negate the pleasure petitioner received from owning the horses feldman v commissioner tcmemo_1986_287 like businesses recreational pursuits are at times tedious and unpleasant petitioners and their family enjoyed activities involving horses and we believe that they were willing to muck stalls and perform other unappealing tasks as the price for their enjoyment inasmuch as petitioners had no possibility of earning a financial profit from their horse-breeding activity in the manner they conducted it we see no reason for them to have engaged in the activity except for pleasure of some kind one person may find pleasure in what another considers to be unpleasant physical labor even if petitioners found certain aspects of the activity to be unpleasant the pleasurable aspects of raising horses must for petitioners have outweighed the unpleasant backbreaking work otherwise petitioners would not have engaged in the activity in the first place and would have discontinued the activity long ago we need not try to engage in parlor psychoanalysis to explain their motivation for engaging in the horse-breeding activity when the facts show that they were not motivated primarily by profits - - finally petitioners argue that we should lean in favor of allowing them to deduct their losses in order to encourage risk- taking and innovation to help the american economy thrive the short answer is that sec_183 denies the deduction of losses from activities not engaged in for profit we therefore uphold respondent’s determination that petitioners’ horse-breeding activity was not engaged in for profit within the meaning of sec_183 to reflect the foregoing and the stipulations of the parties on other issues decision will be entered under rule


t c summary opinion united_states tax_court chuks anthony mbanu petitioner v commissioner of internal revenue respondent docket no 12132-02s filed date chuks anthony mbanu pro_se thomas yang for respondent dean special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time that the petition was filed unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority respondent determined for taxable_year a deficiency in petitioner's federal_income_tax of dollar_figure before trial respondent conceded that petitioner is entitled to one dependency_exemption in addition to one exemption for himself for taxable_year the remaining issues are whether petitioner is entitled to head_of_household filing_status and whether petitioner is entitled to the earned_income_credit background some of the facts have been stipulated and are so found the stipulation of facts and the exhibits received into evidence are incorporated herein by reference at the time the petition in this case was filed petitioner resided in chicago illinois throughout taxable_year petitioner was legally married to charity mbanu they are the parents of two children from january through mid-june of petitioner and his wife lived apart from mid-june of through the end of the year petitioner his wife and their children lived together petitioner and his wife did not file a joint income_tax return for petitioner timely filed an individual_income_tax_return for as a head_of_household respondent issued a notice_of_deficiency determining that petitioner is not entitled to head_of_household filing_status or the earned_income_credit for because he failed to substantiate his claims discussion deductions are a matter of legislative grace and taxpayers must maintain adequate_records to substantiate the amounts of any deductions or credits claimed sec_6001 503_us_79 sec_1_6001-1 income_tax regs taxpayers generally bear the burden of proving that the commissioner's determinations are incorrect rule a 290_us_111 the court decides this case without regard to the burden_of_proof accordingly the court need not decide whether sec_7491 is applicable in this case see 116_tc_438 head_of_household filing_status sec_1 imposes a special tax_rate on an individual filing as a head_of_household as relevant herein sec_2 defines a head_of_household as an unmarried individual who maintains as his home a household that for more than one-half of the taxable_year constitutes the principal_place_of_abode of an unmarried child of the individual sec_2 petitioner's eligibility for head_of_household filing_status depends on whether he is treated as unmarried sec_7703 provides that an individual's marital status shall be determined at the end of the taxable_year and an individual legally_separated from his spouse under a decree of divorce or of separate_maintenance shall not be considered as married sec_7703 petitioner does not meet this requirement sec_7703 provides in pertinent part that if an individual who is married and who files a separate_return maintains as his home a household which constitutes for more than one-half of the taxable_year the principal_place_of_abode of a child with respect to whom such individual is entitled to a deduction for the taxable_year under sec_151 such individual furnishes over one-half of the cost of maintaining such household during the taxable_year and during the last months of the taxable_year such individual's spouse is not a member of such household such individual shall not be considered as married these requirements are stated in the conjunctive and the requirements of each paragraph must be satisfied petitioner concedes that he was married during and that his wife lived with him from mid-june through the end of the year the court sustains respondent's determination that petitioner is not entitled to head_of_household filing_status earned_income_credit sec_32 allows an eligible_individual an earned_income_credit against the individual's income_tax_liability sec_32 in pertinent part defines an eligible_individual as any individual who has a qualifying_child for the taxable_year a qualifying_child includes a son or daughter of the taxpayer who has the same principal_place_of_abode as the taxpayer for more than one-half of such taxable_year sec_32 and b i i sec_32 provides however in the case of an individual who is married within the meaning of sec_7703 this section shall apply only if a joint_return is filed for the taxable_year under sec_6013 as discussed supra the court finds that petitioner was married during and since he and his wife did not file a joint_return concludes that he is not entitled to claim an earned_income_credit reviewed and adopted as the report of the small_tax_case division decision will be entered under rule


department of the treasury internal_revenue_service washington d c chief_counsel number info release date uil date cc tege eoeg et2 genin-104275-03 dear reference income as wages or royalty payments this letter responds to your correspondence dated date requesting that we rescind our previous memorandum and provide a taxpayer conference prior to any further action being taken on your case a revenue_agent conducting an examination in your case requested advice regarding various employment_tax issues our memorandum to the revenue_agent was not a private_letter_ruling or a technical_advice_memorandum but instead was an internal legal opinion which we refer to as chief_counsel_advice chief_counsel_advice is required to be publicly disclosed see sec_6110 you received a notice of intention to disclose this provided you the opportunity to ensure the internal_revenue_service did not disclose any taxpayer specific information prior to public release of the memorandum it did not seek or require a taxpayer response based on the legal merits of the memorandum the memorandum was not a final_decision the memorandum was informal legal advice to a revenue_agent the memorandum was based on our understanding of the facts if you have a disagreement with the facts or the legal analysis we encourage you to bring it to the attention of the revenue_agent or appeals officer conducting the examination if you have any questions please call sincerely lynne camillo chief employment_tax branch office of the assistant chief_counsel exempt_organizations employment_tax government entities


internal_revenue_service number release date index number ------------------------------ ---------------------------------------------- ------------------------- - department of the treasury washington dc person to contact -------------------------- id ------------- telephone number --------------------- refer reply to cc psi b9 - plr-144356-03 date date irrevocable_trust date taxpayer legend dollar_figurex state year spouse date dollar_figurey year year year year accounting firm ------------------ ----------------- -------------------------- -------------------------------- ---------- ------- --------------------- -------------------------- --------------- ---------------------- ------------------- ----------- ------- ------- ------- ------- ------- ------- dollar_figurez year year ----------- this is in response to your authorized representative’s letter dated date the facts and representations submitted are summarized as follows on date plr-144356-03 dear ---------------- ------ requesting an extension of time pursuant to sec_2642 of the internal_revenue_code and sec_301_9100-3 of the procedure and administration regulations to make allocations of your generation-skipping_transfer gst tax exemptions taxpayer created irrevocable_trust for the benefit of taxpayer’s present and future descendants sec_5 of irrevocable_trust provides in part that taxpayer’s descendants whether now living or later born shall have the unrestricted right in each calendar_year to demand and immediately receive a share of the property placed in the trust estate as a gift this power_of_withdrawal is non-cumulative and must be exercised separately for each calendar_year in which any such gift is made to the trust estate each beneficiary shall exercise the power_of_withdrawal by written notice to the trustee within the time limits set forth in sec_5 after receipt of any property placed in the trust as a gift give written notice to the beneficiaries of the nature and amount of the property received and that the beneficiaries have a withdrawal right with respect to the gift if a beneficiary wishes to exercise his or her withdrawal right the beneficiary must notify the trustee in writing within a period of thirty days from the date the beneficiary received written notice from the trustee of the gift to the trust estate section provides in part that the trustee is to pay to or apply for the benefit of any one or more of taxpayer’s children and their issue so much of the net_income and principal of the trust estate as the trustee in the exercise of discretion determines to be necessary or appropriate for their health education comfortable support and maintenance taking into consideration the beneficiaries’ other assets and reasonable ability to provide for their own support and welfare sec_5 provides in part that the trustee shall within a reasonable period section provides that irrevocable_trust shall terminate at the end of the plr-144356-03 longest period of time in which a nonvested property interest in real or personal_property must vest under the state uniform rule_against_perpetuities upon termination the undistributed_income of the trust estate shall be distributed outright in equal shares to taxpayer’s then living issue per stirpes subject_to the provisions set forth in section section provides that in the event a portion of the trust estate is set apart for a surviving issue of taxpayer pursuant to section and the issue is under the age of thirty-five years at the time the trust portion is required to be distributed to the issue the trustee in the exercise of discretion may retain the share for the issue as a separate trust until the issue attains the age of thirty-five years in that event and during that time the trustee shall pay to or apply to for the benefit of the issue so much of the income and or principal of the issue’s separate trust as the trustee in the exercise of the trustee’s discretion shall deem necessary or appropriate to provide for the health education comfortable support and maintenance of the issue any income from a separate trust not distributed shall be added to the principal of that trust at the end of each fiscal_year at the time the issue attains the age of twenty-five years the trustee shall distribute outright to the issue one-third of the remaining balance of the principal and undistributed_income of the issue’s separate trust at the time the issue attains the age of thirty years the trustee shall distribute outright to the issue one-half of the remaining balance of principal and undistributed_income of the issue’s separate trust at the time the issue attains the age of thirty-five years the trustee shall distribute outright to the issue all of the remaining balance of principal and undistributed_income of the issue’s separate trust if the issue dies prior to receiving a complete distribution of his or her separate trust then the issue’s separate trust shall terminate and the remaining principal and any undistributed_income shall be distributed to the issue’s estate trustee be partially exempt from generation-skipping tax the trustee in the trustee’s discretion may divide the trust into separate trusts of equal or unequal value to permit allocation of any available gst_exemption solely to one trust which would be entirely exempt from generation-skipping tax if a_trust is entirely exempt or non-exempt from generation-skipping tax the trustee in the trustee’s discretion may hold that property as a separate trust in lieu of making the addition reported value of dollar_figurex as of the date of the transfer taxpayer and spouse retained accounting firm to prepare their form sec_709 united_states gift and generation- skipping transfer_tax returns for year both returns reflected taxpayer’s and spouse’s intention to treat the transfer made to irrevocable_trust on date as being in year taxpayer and spouse transferred to irrevocable_trust property with a section provides in part that if the trust would in the determination of the on date taxpayer and spouse transferred an additional dollar_figurey of assets to in year taxpayer and spouse discovered that no gst_exemption had been plr-144356-03 made one-half by each pursuant to sec_2513 although the gift_tax returns reported the date transfer to irrevocable_trust the returns failed to allocate any of taxpayer’s or spouse’s gst_exemption to that transfer irrevocable_trust taxpayer and spouse again retained accounting firm to prepare their form sec_709 for year both returns reflected taxpayer’s and spouse’s intention to treat the transfer made to irrevocable_trust on date as being made one-half by each pursuant to sec_2513 although the gift_tax returns reported the date transfer to irrevocable_trust the returns failed to allocate any of taxpayer’s or spouse’s gst_exemption to that transfer allocated to irrevocable_trust accordingly taxpayer and spouse allocated their available gst exemptions to irrevocable_trust on their gift_tax returns using the fair_market_value of the trust assets on the date of allocation at that time the fair_market_value of the trust assets was in excess of the amount of taxpayer’s and spouse’s combined available gst exemptions consequently pursuant to section of irrevocable_trust the trust was severed into two parts taxpayer and spouse then allocated their combined dollar_figure exemption fully to one part the exempt trust the remaining assets were held in a second part the non-exempt trust assets valued at dollar_figurez to the non-exempt trust taxpayer and spouse each filed gift_tax returns for year year year and year reporting the transfers of assets to irrevocable_trust however the returns did not allocate any of taxpayer’s or spouse’s gst_exemption to the transfers because no portion of taxpayer’s or spouse’s gst exemptions remained after their year gst allocations to irrevocable_trust under sec_2642 and sec_301_9100-3 to make allocations of their respective gst exemptions with respect to the date and date transfers to irrevocable_trust effective as of the date of the original transfers the late allocations made by taxpayer and spouse on their year gift_tax returns be deemed invalid and an extension of time be granted under sec_2642 and sec_301_9100-3 to make allocations of their respective gst exemptions with respect to the year year year and year transfers to the non-exempt trust effective as of the dates of the original transfers skipping transfer is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2601 imposes a tax on every generation-skipping_transfer a generation- in year year year and year taxpayer and spouse each contributed taxpayer and spouse now request that an extension of time be granted sec_2631 provides that for purposes of determining the inclusion_ratio sec_26_2632-1 of the generation-skipping_transfer_tax regulations sec_2632 provides that any allocation by an individual of his or her gst sec_2602 provides that the amount of the tax is the taxable_amount multiplied plr-144356-03 by the applicable_rate sec_2641 defines applicable_rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2642 provides the method for determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 that may be allocated by such individual or his executor to any property with respect to which such individual is the transferor exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual's estate determined with regard to extensions regardless of whether such a return is required to be filed provides that an allocation of gst_exemption to property transferred during the transferor’s lifetime other than in a direct_skip is made on form_709 united_states gift and generation-skipping_transfer_tax return an allocation of gst_exemption to a_trust is void to the extent the amount allocation exceeds the amount necessary to obtain a zero inclusion_ratio with respect to the trust sec_2642 provides that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 or c the value of such property for purposes of determining the inclusion ration shall be its value for purposes of chapter within the meaning of sec_2001 and such allocation shall be effective on and after the date of such transfer prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of sec_2642 which was enacted into law on date secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief the time sec_2642 provides generally that the secretary shall by regulation sec_2642 provides that in determining whether to grant relief the plr-144356-03 for making the allocation shall be treated as if not expressly prescribed by statute notice_2001_50 2001_34_irb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a generation-skipping_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 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 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_9100-3 provides the standards used 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 under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 provides the 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 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 transfers made by taxpayer and spouse to irrevocable_trust on date and date we conclude that the requirements of sec_301_9100-3 have been satisfied therefore we grant an extension of time of days from the date of this letter for taxpayer and spouse to make allocations of their respective gst exemptions to the transfers to irrevocable_trust in year and year the allocations will be effective as of the dates of the transfers to irrevocable_trust and the gift_tax values of the transfers will be used in determining the amount of gst_exemption to be allocated to each transfer based on the facts submitted and the representations made with respect to the sec_301_9100-3 provides that a taxpayer is deemed to have acted requests for relief under sec_301_9100-3 will be granted when the taxpayer the severance of irrevocable_trust into the exempt trust and the non-exempt with respect to the transfers made by taxpayer and spouse in year year plr-144356-03 trust in year that was made pursuant to section of the trust instrument complies with state law assuming that taxpayer and spouse allocate a portion of their gst exemptions to their date and date transfers to irrevocable_trust pursuant to the relief granted herein those allocations will be deemed timely and will result in irrevocable_trust having a zero inclusion_ratio immediately prior to the severance similarly because the exempt trust and non-exempt trust will each have a zero inclusion_ratio immediately after the severance under b i the late allocations of taxpayer’s and spouse’s gst exemptions made on their respective year gift_tax returns are invalid year and year to the non-exempt trust we conclude that the requirements of sec_301_9100-3 have been satisfied we therefore grant an extension of time of days from the date of this letter for taxpayer and spouse to make allocations of their respective gst exemptions to their year year year and year transfers to non-exempt trust the allocations will be effective as of the dates of the transfers and the gift_tax values of the transfers will be used in determining the amount of gst_exemption to be allocated to each transfer all allocations of taxpayer’s and spouse’s gst exemptions should be made on supplemental form sec_709 and filed with the internal_revenue_service center cincinnati oh a copy of this letter should be attached to each supplemental form_709 copies are enclosed for this purpose tax consequences of the transaction under the cited provisions or under any other provisions of the code in addition we express or imply no opinion regarding the value of the property transferred to irrevocable_trust letter is being sent to your authorized representative provides that it may not be used or cited as precedent except as specifically ruled herein we express or imply no opinion on the federal in accordance with the power_of_attorney on file with this office a copy of this this ruling is directed only to the taxpayers requesting it sec_6110 the rulings contained in this letter are based upon information and plr-144356-03 representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely heather c maloy heather c maloy associate chief_counsel passthroughs and special industries copies of letter enclosures


significant index no department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division ‘jung z01f -t ep rk az re dear trustees company a this letter constitutes notice that the trustees’ request for a waiver of the minimum_funding_standard for the plan for the plan_year ending date has been granted this waiver has been granted in accordance with sec_412 of the internal_revenue_code code and sec_302 of employee_retirement_income_security_act_of_1974 erisa the amount for which this waiver has been granted is equal to the contributions that would otherwise be required to reduce the balance in the funding_standard_account of the plan to zero as of date the plan established in covers employees of employers in the baking industry for the plan_year ending covered by the plan the bankruptcy of company a which prior to its partition from the plan by the pension_benefit_guaranty_corporation pbgc was the largest employer in the plan is the major reason for the underfunding issues in the plan as a result of its bankruptcy filing company a ceased making contributions and withdrew from the plan effective date however the plan retained the liability for company a’s pensioners throughout the plan_year ending seven employers had employees _ the plan was recently the subject of federal litigation concerning the characterization of employer contributions to the plan specifically company a sought action against the pbgc to reverse the pbgc’s determination dated date that the plan was a multiple-employer plan this determination superseded the pbgc’s previous determination dated date that the plan constituted an aggregate of separate single-employer pension plans while the federal court granted summary_judgment to the pbgc an amended court order dated date stated that the pbgc’s date determination that the plan was a multiple-employer plan had prospective effect only after the conclusion of the federal litigation the pbgc partitioned the portion of the plan related to company a effective date the transfer of company a’s liabilities to the pbgc resulted in the plan being more than funded for the plan_year ending in fact the plan is expected to show a surplus of approximately dollar_figure million consequently the financial hardship that resulted in the plan’s underfunding for the plan_year ending date is temporary consequently the trustees’ request for a waiver of the minimum_funding_standard for the plan for the plan_year ending has been granted this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent we have sent a copy of this letter to the tothe - oo - ‘and to your authorized representative pursuant to a power_of_attorney on file in this office we suggest that you furnish a copy of this letter to the enrolled_actuary who is responsible for the completion of the schedule b if you require further assistance in this matter please contact ’ sincerely yours im ft bs yi fer andrew e zuckerman director employee_plans rulings agreements