department of the treasury internal_revenue_service washington d c 0o4 050l1 contact person identification_number telephone number employer_identification_number tax_exempt_and_government_entities_division pate nov uniform issue list legend m n o m dear applicant this letter is in reply to the letter from m dated date in which m requested certain rulings with respect to its establishment and operation of a wholly-owned for-profit taxable subsidiary m is a trade_association recognized by the internal_revenue_service as exempt from federal_income_tax under sec_501 of the internal_revenue_code m states that it represents firms in the m trade in a two state area and that its primary source_of_income is from membership fees as a benefit to its members m provides a weekly bulletin of m projects insurance services safety services labor relations plan rooms legislation lobbying workforce development national membership standard forms documents membership roster and buying guide and public relations m states that it maintains plan rooms service offices throughout its two state area that includes hundreds of plans and specifications on public and private m projects to minimize the time and expense incurred by m’s members in traveling to m’s plan rooms m contacted n to discuss the offering of plans and specifications via the internet the project n is a for profit organization that is not connected to m members and non-members and that the subscription fees generated by the project could result in substantial income for both m and n related to its trade_or_business and thus subject_to taxation as unrelated_business_income m formed o to serve as the focal point for the majority of the activities related to the project m realized that the project could benefit both its m states that because this income would not be o was incorporated as a for-profit corporation and m owns all of o’s issued and outstanding shares m initially capitalized o with a certain amount of money and has advanced o funds to pay for its initial operating_expenses m states that o will lease office space from m in an amount that reflects the fair_market_value of the space o’s financial_accounting and tax records are separately maintained from m m states that o’s board_of directors includes m’s current president none of o’s other directors are officers directors or employees of m none of o’s officers also serve as m’s officers m states that o will lease its administrative and management employees from m and that these employees will carry out among other things budgeting human resources operations product development and marketing services for o o will pay m a fee to lease these employees which will equal a portion of the salaries and related employee costs they receive from m among other things the fee will take into consideration the percentage of time each employee works for o n and o entered into a partnering agreement pursuant to which n maintains a website housing content consisting of plans for publicly bid m projects in m’s two state area internet plan room the internet plan room can be accessed only by subscribers who sign up with n and pay the appropriate site access fees advertising certain jobs subscription to the internet plan room includes access to the on line bulletin finally under the partnering agreement n will develop and maintain a section of its website housing content consisting of privately bid m projects which can be accessed only by invitation private m office the organization or entity placing the project for bid would pay n a fee for maintaining its private m office m’s members as well as non-members can subscribe to any of the internet services provided by n in addition n maintains on on line bulletin under the partnering agreement o is responsible for harvesting information for the internet plan room and the on line bulletin entering this data into the website software and coordinating with various entities to ship their plans and specifications for scanning o also shares responsibility with n for marketing the website and recruiting subscribers o makes office space available to n’s employees who perform marketing and sales functions for the internet plan room and related components of the website o provides n information related to plans for the internet plan room and on line bulletin o will contract with m to harvest this information because m currently collects similar information for the plan rooms service offices it maintains m will charge o a fee based on the amount it costs m to collect and process this information n and o have entered into a revenue sharing relationship whereby n splits with o a portion of n’s revenue from the internet plan room and private m offices as well as any revenue generated by n from other products that m helped n develop the percentage of revenue shared with o may vary based upon a number of factors including the number of subscribers to the various internet services total revenues and other factors once revenue sharing begins o expects to retain all payments received by n to fund o’s continued operations however in the future it is anticipated that revenues will exceed operational expenses and the excess revenues not required for o’s operation could be paid to m o’s sole shareholder as a dividend m states that it does not anticipate reducing membership fees as a result of the dividend income nor does it expect a decrease in other sources of support related to its exempt purposes m has requested rulings that the formation and operation of o will not jeopardize m’s tax exempt status under sec_501 of the code the earnings_of o will not be attributed to m and considered unrelated_business_income and the dividend income m receives from o will not be unrelated taxable_income subject_to the tax imposed under sec_511 of the code sec_501 of the code provides for the exemption from federal_income_tax of business_leagues chambers_of_commerce real-estate boards or boards_of_trade not organized for profit and no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_511 of the code imposes a tax on the unrelated_business_taxable_income of organizations described in sec_501 sec_512 of the code defines the term unrelated_business_taxable_income as the gross_income derived by any organization from any unrelated_trade_or_business regularly carried on by it less certain allowable deductions and modifications sec_512 of the code provides that the modifications referred to in sec_512 include the exclusion of all dividends sec_513 of the code defines the term unrelated_trade_or_business as any trade_or_business the conduct of which is not substantially related aside from the need of such organization for income or funds or the use it makes of the profits derived to the exercise or performance by such organization of the function constituting the basis of its exemption sec_1_513-1 of the regulations provides that trade_or_business is related to exempt purposes in the relevant sense only where the conduct of the business activities has causal relationship to the achievement of exempt purposes and itis substantially related only if the causal relationship is a substantial one the regulation continues that for the conduct of trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of those purposes for federal_income_tax purposes a parent_corporation and its subsidiary are separate taxable entities so long as the purposes for which the subsidiary is incorporated are the equivalent of business activities or the subsidiary subsequently carries on business activities 319_us_436 431_f2d_227 cir that is where a corporation is organized with the bona_fide intention that it will have some real and substantial business function its existence may not generally be disregarded for tax purposes britt supra pincite however where the parent_corporation so controls the affairs of the subsidiary that it is merely an instrumentality of the parent the corporate entity of the subsidiary may be disregarded krivo industrial supply co v national distillers and chemical corp 438_f2d_1098 cir a the statutes regulations and cases cited above make it clear that a determination of whether the formation of a for-profit subsidiary will jeopardize the exempt status of an organization described in sec_501 of the code is based on the facts and circumstances of the subsidiary’s formation and operations the activities of a separately incorporated subsidiary ordinarily cannot be attributed to its parent organization unless the facts provide clear_and_convincing evidence that the subsidiary is in reality an integral part of the parent the facts in this ruling_request as set forth above show that o is organized for a bona_fide business_purpose and is managed by a board_of directors independent from its parent any dividend income m may receive from o is specifically excluded from the definition of unrelated_business_taxable_income pursuant to sec_512 accordingly based on the facts and circumstances concerning m’s proposed establishment and operation of a wholly-owned for-profit taxable subsidiary as stated above we tule that the formation and operation of o will not jeopardize m's tax exempt status under sec_501 of the code the earnings_of o will not be attributed to m and will not be considered unrelated_business_income to m and the dividend income m receives from o will not be unrelated taxable_income to m or be subject_to the tax imposed under sec_511 of the code this ruling is based on the understanding that there will be no material changes in the facts upon which it is based any such change should be reported to the tax exempt and government entities te_ge customer service office because it could help resolve questions concerning your federal_income_tax status this ruling should be kept in your permanent records a copy of this ruling is being forwarded to the te_ge customer service office except as we have specifically ruled herein we express no opinion as to the consequences of these transactions under the cited provisions or under any other provisions of the code this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as precedent if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter e if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours signed terrell m barkovsky manager exempt_organizations technica group


significant index no department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division mar ann tep ralt ad dear this letter constitutes notice that conditional approval has been granted for your request for a 10-year extension for amortizing the plan’s unfunded liabilities described in sec_412 of the internal_revenue_code code and sec_302 of the employee_retirement_income_security_act_of_1974 erisa the extension is granted for the amortization period for amortizing unfunded liabilities of the plan for the plan_year beginning october date after june the application_for the extension was filed on date a the plan is a multiemployer_plan - the extension of the amortization periods of the unfunded liabilities of the plan have been granted in accordance with sec_412 of the code and sec_304 of erisa sec_412 of the code and sec_304 of erisa authorize the secretary to extend the period of time required to amortize any unfunded_liability described in sec_412 of the code and sec_302b of erisa of a plan for a period of time not in excess of years if the secretary determines that such extension would carry out the purposes of erisa and would provide adequate protection for participants under the plan and their beneficiaries and if the secretary determines that the failure to permit such extension would result in a a substantial risk to the voluntary continuation of the plan or b a substantial curtailment of pension benefit levels or employee compensation and be adverse to the interests of plan participants in the aggregate sec_101 of reorganization plan no of 1979_1_cb_480 transferred the authority for issuing rulings under sec_304 of erisa from the secretary of labor to the secretary_of_the_treasury accordingly the amortization periods for the unfunded liabilities of the plan are extended as described above under sec_412 of the code and sec_304 of erisa subsequent to market_value losses of x and y in the pian’s assets fell below its accrued liability in the contributions to the plan were significantly increased and plan trustees eliminated an early retirement incentive program and a partial lump sum benefit however despite these actions to improve the funded status of the plan projections submitted by the plan trustees indicate that the plan will have a funding deficiency by the end of the plan_year beginning october the plan trustees have represented that an additional increase in employer_contribution rates is unattainable unless employer_contribution rates are increased by plan_year in response plan years the and if however the requested amortization period extension was to be granted projections of the funding_standard_account show no future funding deficiencies accordingly failure to permit the extension would result in a substantial risk to the voluntary - continuation of the plan and would be adverse to the participants in the aggregate ‘however because the prospects for recovery are uncertain we are granting the extension subject_to the conditions listed below acredit balance is maintained in the funding_standard_account that is at least as large as the pseudo credit balance for the plan years beginning october through october for this purpose the pseudo-credit balance means a hypothetical credit balance developed by determining the reduction in the net amortization charge for the extended base each year that is solely due to the difference between the valuation interest rate and the interest rate under sec_6621 of the code and amortizing each such reduction over a period of years using the valuation interest rate the resulting amortization amounts are accumulated with interest at the valuation interest rate to derive the pseudo credit balance at each valuation_date the plan’s funded ratio calculated by dividing the plan’s market_value of assets by its actuarial accrued liability computed using the unit credit method plan assumptions as of october and the _is a b no less than for each valuation_date from october october1 inclusive through for each valuation_date subsequent to october extension remains in effect no less than greater than the floor funded ratio as of the previous valuation_date for example because the floor and while the 2uu724037 i sec_87 the funded ratio must be at least funded ratio as of october as of october and as of october and for each plan_year that the extension remains in effect starting with the plan_year beginning october a copy of the actuarial valuation report for each plan_year will be provided by july of the second following calendar_year to the address listed below internal_revenue_service attn se t ep ra t a2 constitution avenue n w pe washington dc you accepted these conditions in a letter dated date if any one of these conditions is not satisfied the approval to extend the amortization periods for amortizing the unfunded liabilities would be retroactively null and void however the service will consider modifications of these conditions especially in the event that unforeseen circumstances beyond the control of the plan may cause the actual experience of the plan to fail the funded ratio condition an example of such an unforeseen circumstance would be market fluctuations which affect the value of the plan's assets of course any request for a modification would be considered another ruling_request and would be subject_to an additional user_fee your attention is called to sec_412 of the code and sec_304 of erisa as in effect for plan years beginning prior to date which describe the consequences that would result in the event the plan is amended to increase benefits change the rate in the accrual_of_benefits or to change the rate of vesting while the amortization extension remains in place please note that any amendment that increases liabilities for a profit sharing plan or any other retirement_plan whether qualified or unqualified maintained by the trustees for the plan and covering participants of the plan to which this ruling applies would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa similarly the establishment of a new profit sharing plan or any other retirement_plan whether qualified or unqualified maintained by the trustees for the plan and covering participants of the plan to which this ruling applies would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa accordingly in the event the plan is amended to increase benefits change the rate in the accrual_of_benefits or to change the rate of vesting while the amortization extension remains in place the extension of time granted by this letter would not apply to any plan ' sec_412 of the code and sec_302 c of erisa provide similar language for plan years beginning on or after date year ending on or after the date on which the amendment is adopted hereinafter the amendment year’ in particular effective with the valuation_date in the amendment year the balance of each extended amortization base would be redetermined as an amount equal to the balance if any that each extended base would have had if the extension had not been granted hereinafter the redetermined balance on account of f in addition there would be a one-time charge to the funding_standard_account on account of each extended base equal to the excess of a over b where a would be an amount equal to the theoretical balance of the extended base determined using the actual charges to the funding_standard_account on account of such base and using the valuation interest rate and b would be the redetermined balance on account of f furthermore effective with the amendment year the annual amortization charge for each extended base would be redetermined by amortizing the redetermined balance on account of f over the remaining amortization period if any redetermined without-regard to extensions previously granted under sec_412 of the code’ such charges would be redetermined using the plan_valuation interest rate of course if the redetermined balance on account of f of an extended base is dollar_figure there would be no amortization charge with respect to the base for example assume as of date that an amortization extension was granted for hypothetical amortization base h assume that as of that date base h had an unamortized balance of dollar_figure and a remaining amortization period of years before extension and years after extension assume further that the valuation interest rate is for all applicable years the sec_6621 rate i sec_3 for all applicable years and that an amendment is adopted increasing benefits in ie the amendment year is accordingly effective date the redetermined balance on account of f of h would be dollar_figure the remaining amortization period would be years and the annual amortization charge would be dollar_figure in addition there would be a one-time charge to the funding_standard_account on account of h for the plan_year beginning date of dollar_figure thi sec_2 generally this redetermined amortization charge will be equal to the amortization charge of the extended base immediately before the extension was granted if the extension had not been granted the amortization charge with respect to h would have been dollar_figure i e the amortization payment for a year dollar_figure amortization base determined pincite the remaining amortization period would have been years ie the ten year remaining period before the extension was granted as of date less the three years that elapsed between and and thus the redetermined balance on account of f would have been the present_value at of the remaining payments of dollar_figure or dollar_figure under the assumed facts the actual charge to the funding_standard_account on account of h is dollar_figure for each of the and plan years ie the amortization payment on a 20-year base determined pincite and the theoretical balances of h as described in a above would be dollar_figure dollar_figure and dollar_figure at the beginning of the and plan years respectively accordingly the charge as of the beginning of the plan_year on account of h would be dollar_figure less the redetermined balance on account of f of dollar_figure or dollar_figure one-time charge would be as of the beginning of the plan_year and would be assessed interest at the valuation rate of until the end of the pian year your attention is also called to sec_211 of the pension_protection_act of p l ppa generally effective for plan years beginning on or after date which limits the application of the rules of sec_412 of the code and sec_304 of erisa including the use of the rate of interest determined under sec_6621 of the code to extensions granted with respect to applications filed on or before date accordingly because your request for an extension was made after date the balance of each extended amortization base will be redetermined as of date as an amount equal to the balance for each base rolled forward with the valuation rate of interest but reflecting the actual charges to the funding_standard_account hereinafter the redetermined balance on account of ppa thus effective with the plan_year beginning date the amortization charge for each extended base will be determined by amortizing the redetermined balance on account of ppa over the remaining extended period using the valuation rate for example assume that an amortization extension was granted as of date for hypothetical amortization base j assume that as of that date base j had an unamortized balance of dollar_figure determined without regard to ppa and a remaining amortization period of years before extension and years after extension assume in this example that the valuation rate is for all applicable years the sec_6621 rate i sec_4 for all applicable years and that no amendments have been adopted increasing benefits within the meaning of sec_415 of the code accordingly effective date the redetermined balance on account of ppa of j would be dollar_figure the remaining amortization period would be years and the annual amortization charge using the valuation interest rate of would be dollar_figure _ we have sent a copy of this letter to the - and to your authorized representative pursuant to a power_of_attorney on file in this office reflecting the valuation interest rate of and the actual amortization charges determined using the assumed interest rate of under sec_6621 of the code the annual beginning-of-year charge to the funding_standard_account on account of base j before date would be dollar_figure assuming interest on the outstanding balance pincite per year the outstanding balance of base j would be dollar_figure dollar_figure dollar_figure and dollar_figure at the beginning of the and plan years respectively the difference between the redetermined balance on account of ppa and the actual outstanding balance of each base at the end of the plan_year is ’ generally equal to the balance in the accumulated reconciliation account that would otherwise have been reported as of the first day of the pian year if you require further assistance in this matter please contact sincerely yours mollrhf- james e holland jr manager employee_plans technical