number release date internal_revenue_service 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 eo1 plr-100117-16 date march legend foundation -------------------------------------------------- company disc x y ---------------------------------------------- --------------------------------------- ---------------- ---------------- dear ---------------------- this letter responds to disc’s date request for a ruling that a corporate redemption will not be self-dealing under sec_4941 facts disc is a closely-held corporation owned by members of the x family and various related entities foundation is a private_foundation under sec_501 and sec_509 and it is a shareholder of disc foundation was funded by certain x family members who are current or former shareholders of disc and it is managed by certain x family members who are current shareholders of disc disc is a domestic_international_sales_corporation formed to export products the shareholders of disc are identical to the shareholders of company except company is also a shareholder of disc the shareholders of disc entered into a shareholder agreement which requires any transfer of company stock to be accompanied by a transfer of an equal amount of disc stock plr-100117-16 disc represents that company and disc are disqualified persons with respect to foundation company has one class of voting common_stock and one class of nonvoting common_stock disc has only one class of voting common_stock foundation owns nonvoting common_stock in company and voting common_stock in disc the board_of directors for company and the board_of directors for disc have each authorized contingent on obtaining a favorable letter_ruling a redemption regarding certain stock from any shareholder the proposed redemptions involve company’s nonvoting common_stock and disc’s voting common_stock any shareholder that participates in the redemption with company must also participate in the redemption with disc in accordance with the disc shareholder agreement foundation intends to participate in the proposed redemptions for various reasons including liquidity to facilitate its charitable endeavors disc represents that the redemption price in both proposed redemptions will be equal to the fair_market_value of the stock on the redemption date payable in cash the fair_market_value of the stock on the redemption date will be determined by an independent_appraiser who is not a disqualified_person with respect to foundation and who is competent to conduct the appraisal the appraiser will not derive a benefit economic or otherwise from the value assigned to the stock the proposed company redemption will be subject_to a maximum aggregate redemption price of dollar_figurey if multiple shareholders participate in the redemption and if the total fair_market_value of the stock offered for redemption by the shareholders on the redemption date exceeds dollar_figurey the number of shares redeemed from each participating shareholder will equal the number of shares offered by the shareholder multiplied by a fraction containing a numerator equal to the maximum number of shares to be redeemed and a denominator equal to the total number of shares offered by all participating shareholders such that the total redemption price will not exceed dollar_figurey reductions in the number of shares redeemed by company result in equivalent reductions in the number of shares redeemed by disc under the disc shareholder agreement no shareholder will receive any preferential treatment compared to any other shareholder regarding any aspect of either proposed redemption ruling requested disc requests a ruling that its proposed redemption of voting common_stock will not constitute an act of self-dealing under sec_4941 plr-100117-16 law sec_4941 imposes an excise_tax on each act of self-dealing between a disqualified_person and a private_foundation paid_by the disqualified_person that participates in the act of self-dealing sec_4941 defines an act of self-dealing as including a sale_or_exchange of property between a private_foundation and a disqualified_person sec_4941 provides that a transaction between a private_foundation and a corporation which is a disqualified_person as defined in sec_4946 pursuant to a redemption shall not be an act of self-dealing if all of the securities of the same class as that held by the foundation are subject_to the same terms and such terms provide for receipt by the foundation of no less than fair_market_value sec_4946 defines the term disqualified_person as including among other things a substantial_contributor to the foundation and corporations where certain disqualified persons own more than percent of the total combined voting power of such corporation sec_53_4941_d_-3 of the foundation and similar excise_taxes regulations provides that under sec_4941 any transaction between a private_foundation and a corporation that is a disqualified_person will not be an act of self- dealing if such transaction is engaged in pursuant to a redemption so long as all the securities of the same class as that held prior to the transaction by the foundation are subject_to the same terms and such terms provide for receipt by the foundation of no less than fair_market_value the regulation further provides that the securities will not be subject_to the same terms unless pursuant to such transaction the corporation makes a bona_fide offer on a uniform basis to the foundation and every other person who holds such securities the regulation explains that it will be evidence that such offer was not made on a uniform basis if a private_foundation receives property such as debentures while all other persons holding securities of the same class receive cash for their interests sec_53_4941_d_-3 of the foundation and similar excise_taxes regulations illustrates the redemption exception in sec_4941 with two examples not repeated here analysis under the proposed redemption by disc all voting common_stock is subject_to the same terms and such terms provide for receipt by foundation as a shareholder of no less than fair_market_value disc will make a bona_fide offer on a uniform basis to all shareholders of voting common_stock including foundation all shareholders plr-100117-16 participating in the redemption will receive cash for their interests the fact that the redemption offer by company is limited to a fixed dollar amount and the fact that the redemption offer by disc is in tandem with an equivalent offer by company does not detract from the uniform nature of the offer by disc under the facts presented ruling based solely on the facts and representations submitted by disc we rule that the proposed redemption of shares of voting common_stock of disc will not constitute an act of self-dealing under sec_4941 the rulings contained in this letter are based upon information and representations submitted by or on behalf of disc accompanied by a penalty of perjury statement executed by an individual with authority to bind disc and upon the understanding that there will be no material changes in the facts this office has not verified any of the material submitted in support of the request for rulings and such material is subject_to verification on examination this ruling does not address the applicability of any section of the code or regulations to the facts submitted other than with respect to the sections specifically described and except as expressly provided in this letter no opinion is expressed or implied concerning the federal_income_tax consequences of any aspects of any transaction or item_of_income set forth above because it could help resolve questions concerning federal_income_tax status this ruling should be kept in disc’s permanent records disc must attach a copy of this letter to any_tax return to which it is relevant alternatively if disc files its return electronically this requirement may be satisfied by attaching a statement to the return that provides the date and control number of this letter this ruling will be made available for public inspection under sec_6110 after certain deletions of identifying information are made for details see the enclosed notice notice of intention to disclose a copy of this ruling showing the deletions that we intend to make on the version that will be made available to the public is attached to the notice if disc disagrees with our proposed deletions it should follow the instructions in the notice in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to each of disc’s authorized representatives plr-100117-16 this letter is directed only to disc sec_6110 provides that it may not be used or cited as precedent by anyone else including foundation company and any disqualified_person other than disc 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 kenneth m griffin chief exempt_organizations branch tax exempt government entities cc


t c memo united_states tax_court wilmington partners l p wilmington management corp tax_matters_partner petitioner v commissioner of internal revenue respondent docket no filed date roger j jones kim marie k boylan andrew r roberson and sarah s sandusky for petitioner daniel a rosen for respondent memorandum opinion kroupa judge this case is a partnership-level proceeding subject_to the tax equity and fiscal responsibility act of tefra publaw_97_248 96_stat_648 the partnership at issue is wilmington partners l p wilmington the years at issue are two short taxable years that wilmington reported for respectively and respondent issued wilmington a notice of final_partnership_administrative_adjustment fpaa for the subject years the fpaa determined that the basis of a note reset note that wilmington received as a contribution in was zero rather than dollar_figure million as wilmington reported for each subject year the fpaa determined no other adjustment for the fpaa determined other adjustments for the court previously decided in an unpublished order that respondent may not assess as to any income_tax related to wilmington because the applicable limitations_period had expired the court stated that bakersfield energy partners lp v commissioner 128_tc_203 affd 568_f3d_767 9th cir controlled our decision and the court rejected the commissioner’s invitation to overrule bakersfield petitioner now moves to dismiss this case for lack of jurisdiction petitioner argues that the basis_adjustment cannot be made in either year because respondent has not issued wilmington an fpaa for ie the year in which the reset note was contributed to wilmington petitioner concludes that the fpaa is invalid and the court lacks jurisdiction because all 1the relevant portions of the fpaa are contained in an appendix adjustments in the fpaa stem from the basis_adjustment petitioner argues alternatively that the court lacks jurisdiction over because the fpaa does not adjust any partnership_item that subtitle a required wilmington to take into account for we disagree we hold that the fpaa is valid and that we have jurisdiction over each year we shall deny petitioner’s motion to dismiss i preface background we derive the facts set forth in this background section from the pleadings and from the parties’ motion papers we treat the facts as true solely for purposes of deciding petitioner’s motion not as findings_of_fact for this case cf samueli v commissioner t c date slip op pincite 106_tc_441 n affd without published opinion 139_f3d_907 9th cir ii transactions wilmington was formed as a limited_partnership in as part of a financing_transaction that created an influx of capital for bausch and lomb inc wilmington’s partners included b l 2subtitle and section references are to the internal_revenue_code unless otherwise indicated international holdings corp blihc among various related and unrelated partners blihc contributed the reset note to wilmington in and wilmington treated the reset note as an asset with a basis and fair_market_value of dollar_figure million wilmington’s basis in the reset note was not affected by any event that occurred after its contribution to wilmington until the start of iii audit respondent audited wilmington’s taxable_year the audit closed seven years later with respondent’s issuance of a no adjustments letter the letter stated that respondent was making no adjustments to wilmington’s taxable_year and would not issue wilmington an fpaa for that year respondent has not issued an fpaa to wilmington for iv transactions wilmington treated certain restructuring transactions occurring on date as a partnership_termination under sec_708 wilmington accordingly reported that it had two short taxable years during the first short taxable_year ended date the second short taxable_year ended date wilmington filed a separate federal partnership return partnership return for each short taxable_year the june restructuring transactions included one partner in wilmington bobcat partners l p selling its partnership_interest and ceasing to be a partner in addition wilmington transferred the assets of an operating business to blihc to retire a portion of blihc’s partnership_interest in wilmington wilmington reported the reset note had a dollar_figure million value as of the beginning and the end of blihc sold a portion of its remaining partnership_interest in wilmington in wilmington exchanged the reset note for two replacement notes with a collective dollar_figure million face_amount wilmington transferred one replacement note and cash to charles river partners l p in complete_liquidation of its interest in wilmington and wilmington made a sec_754 election as to the transaction later in wilmington sold one of its active businesses and allocated portions of the sales_price to goodwill and to other intangibles wilmington reported the reset note had a dollar_figure million value as of the beginning of wilmington also reported the values of the replacement notes as of the applicable dates v fpaa the fpaa determined that the value of the reset note was zero for each year and adjusted the reset note’s basis accordingly the fpaa made no other adjustment for the fpaa made three other adjustments for the adjustments reflected respondent’s determination that wilmington had lower than reported bases in certain property subject_to wilmington’s sec_754 election that wilmington sold during respondent in the fpaa also determined accuracy-related_penalties under sec_6662 vi wilmington’s petition to the court wilmington’s petition to the court challenged each of respondent’s adjustments in the fpaa including the accuracy-related_penalties wilmington’s mailing address and principal_place_of_business were in rochester new york when it filed the petition i overview discussion petitioner moves to dismiss this case for lack of jurisdiction petitioner makes two arguments the second of which relates solely to as an alternative to the first argument we discuss each argument in turn we first discuss however the general rules of this court’s jurisdiction over a tefra proceeding ii jurisdiction of the court we begin our analysis with a discussion of the court’s jurisdiction over a tefra proceeding the court is a court of limited jurisdiction and we may exercise our jurisdiction only to the extent provided by congress see sec_7442 114_tc_519 the court’s jurisdiction includes the right to decide whether the court has jurisdiction over the subject matter of a case see 108_tc_1 69_tc_999 the court’s jurisdiction is fundamental and may be challenged at any time see 127_tc_109 sec_6226 sets the scope of the court’s jurisdiction in a tefra partnership-level proceeding the court has authority to determine all partnership items for a partnership taxable_year to which the fpaa relates the proper allocation of partnership items among the partnership’s partners and the application of any penalty addition_to_tax or additional_amount that relates to an adjustment to a partnership_item see id a partnership_item includes any item_of_income gain loss deduction or credit that subtitle a requires the partnership to take into account for the taxable_year to the extent that regulations provide that the item is more appropriately determined at the partnership level than at the partner level see sec_6231 see also sec_301_6231_a_3_-1 proced admin regs the court’s jurisdiction over a tefra partnership-level 3a partnership’s basis in contributed_property including any necessary preliminary determination is an example of a partnership_item that must be addressed at the partnership level see 129_tc_30 see also sec_301_6231_a_3_-1 c iv proced admin regs proceeding is invoked upon the commissioner’s issuance of a valid fpaa and the proper filing of a petition_for_readjustment of partnership items for the year or years to which the fpaa pertains see 123_tc_64 an fpaa need not contain a partnership_item adjustment to be valid see id see also 97_tc_278 iii petitioner’s primary argument petitioner argues that the court lacks jurisdiction as to both years because respondent had to but did not adjust wilmington’s initial basis in the reset note in an fpaa for petitioner asserts that wilmington’s initial basis in the reset note is a partnership_item only for and that the fpaa does not allow the court to consider events outside the subject years to adjust items for the subject years petitioner contends that events occurring in a year here may be considered only if an fpaa is issued for that year petitioner also contends that a partnership_item is deemed to be reported correctly for all years if it is not timely adjusted in an fpaa related to the year in which the item is reported we conclude that the court’s jurisdiction over the subject years does not rest on whether respondent issued an fpaa for the fpaa reflects respondent’s determination that wilmington incorrectly reported its basis in the reset note on its partnership returns for and the fpaa adjusts wilmington’s reported basis for each year the fpaa does not purport to adjust wilmington’s partnership return for we read nothing in tefra that prohibits us from considering events in a nondocketed or closed_year here to make proper adjustments for a docketed year here or the fpaa reflects respondent’s determination that the facts and circumstances underlying the reset note’s contribution to wilmington in establish that the initial basis of the reset note was zero and that the basis remained at zero throughout each subject year the court must decide the correctness of that determination given the parties’ dispute of it we do not read the tefra provisions narrowly to preclude the court from considering the events in to decide the dispute for the subject years nor do we read the tefra provisions to provide that the initial basis of the reset note was a partnership_item only at the time of the note’s contribution the initial basis of the reset note while it may have been a partnership_item in was a partnership_item in each subject year petitioner focuses on a statement in the fpaa that the reset note had a basis of zero at the time of its contribution emphasis added and concludes this means that respondent adjusted wilmington’s basis in the reset note for we read the language in the fpaa differently the fpaa did not adjust the basis of the reset note for the fpaa considered the events in to make an adjustment for the subject years respondent was not required to adjust wilmington’s basis in the reset note in an fpaa that relates to the parties have not identified nor are we aware of anything that happened in that would have caused respondent to adjust the reset note’s initial basis in an fpaa that could lead to an assessment of any_tax for a reporting of basis may typically lead to an adjustment only when something else happens that implicates that basis here for example that something else occurred during the subject years petitioner asserts that section a authorizes the court to look to nondocketed or closed years to make adjustments in a docketed year petitioner concludes that the 4the parties discuss respondent’s right to issue an fpaa for at any time and his preclusion from assessing tax for after the limitations_period see 128_tc_192 114_tc_533 we do not understand that right to mean that respondent must issue an fpaa for as a prerequisite to our consideration of relevant events occurring in such is especially so given our conclusion that nothing happened in that would have caused respondent to adjust the reset note’s initial basis in an fpaa that could lead to an assessment of any_tax for inclusion of such a provision in section a but not in sec_6226 means that congress intentionally declined to include a similar provision in the latter section we disagree a tax_matters_partner is allowed to file a request for an administrative adjustment aar on behalf of a partnership and the commissioner may or may not allow that request see sec_6227 c d see also sec_6231 providing rules on who is a tax_matters_partner the tax_matters_partner is entitled to petition this court the appropriate u s district_court or the u s court of federal claims to adjust the partnership items related to the aar if the commissioner does not allow the aar in full see sec a section a empowers the court in which the petition is filed to decide the requested partnership items that were not allowed by the commissioner section a also empowers that court to decide any additional items that the commissioner asserts offset the items requested by the tax_matters_partner we read nothing in section a that provides more specifically than sec_6226 that the referenced court may or may not consider adjustments in a nondocketed or closed_year to make an adjustment in a docketed year nor do we draw such an inference from our comparison of section a to sec_6226 we are not unmindful of sec_6214 that section provides that the court in an income or gift_tax deficiency case shall consider facts occurring in a nondocketed year insofar as necessary to determine the amount of the deficiency for a docketed year tefra includes no corresponding provision the u s court of federal claims in 84_fedclaims_369 considered whether the absence of such a corresponding provision in tefra meant that congress intended that a court in a tefra partnership-level proceeding not consider facts from nondocketed or closed years there events in established the tax basis of stock the taxpayers sold in through the government argued that the taxpayers artificially inflated the tax basis of the stock through the events the taxpayers argued that the commissioner was time-barred from recalculating or considering partnership items reported on the partnership returns in assessing tax for through the court disagreed the court noted that a basis_adjustment alone cannot trigger an assessment of tax for the year of the adjustment the court noted further that the law was well settled that courts in a nonpartnership proceeding may adjust items including basis in a nondocketed or closed_year to assess tax in a docketed year the court held that the settled law applied just as strongly in a tefra proceeding we agree accord 128_tc_186 nothing in tefra or in its legislative_history precludes us in tefra proceedings from considering events in a nondocketed or closed_year to make proper adjustments in a docketed year nor do we read 94_tc_853 and its progeny to establish that a partnership_item as reported on a partnership return is deemed to be correctly reported for all years if the item is not adjusted within the limitations_period for that return such an unchallenged item may be deemed binding for the year of reporting because the applicable limitations_period has expired as to the return we recently noted as much in meruelo v commissioner t c n slip op pincite citing roberts v commissioner supra pincite it does not naturally follow however that the item is deemed correct or binding for all years we conclude that respondent’s issuance of an fpaa for wilmington’s taxable_year is not a prerequisite for adjusting wilmington’s basis in the reset note to assess tax for each subject year events in that nondocketed or closed_year may be considered to make proper adjustments in the docketed years thus the fpaa is valid despite petitioner’s primary argument 5in the absence of a valid fpaa for however no partnership_item may be adjusted to assess tax for that year see 87_tc_783 6two other matters deserve mention the first matter concerns whether respondent’s issuance of the no adjustments continued iv petitioner’s alternative argument we turn to petitioner’s alternative argument petitioner argues that the court lacks jurisdiction over because the fpaa did not adjust a partnership_item that wilmington was required by subtitle a to take into account for that taxable_year petitioner asserts that respondent made no adjustment to wilmington’s income gain loss or credit for petitioner asserts that wilmington was not required to take the reset note’s basis into account for we conclude that the court’s jurisdiction over does not rest on whether the fpaa includes a partnership_item adjustment we previously held as much in 123_tc_64 there a partner brought a tefra partnership-level proceeding to challenge continued letter for precludes respondent from determining in the fpaa that wilmington’s basis in the reset note was different from that reported for the second matter concerns whether respondent is precluded from advancing certain arguments that are inconsistent with respondent’s litigating position in other cases we discuss neither matter in detail because the matters do not relate to our jurisdiction over the years they are instead affirmative defenses to respondent’s adjustments for those years see 93_tc_562 see also 127_tc_75 holding that the court had jurisdiction over the year in question but that the limitations_period precluded the commissioner from assessing any_tax as to that year 7petitioner apparently agrees with this conclusion petitioner’s moving papers state specifically that judicial review may be sought of an fpaa that proposes no adjustment an fpaa for that contained no changes to the partnership’s return for that year the court noted that the fpaa determined that the partnership return for was correct as filed the court held that we had jurisdiction because the commissioner issued the fpaa and the partner filed a timely petition to readjust partnership items for the court stressed that the court had jurisdiction even though the fpaa contained no adjustment by the commissioner id pincite we conclude likewise that the court has jurisdiction over and we hold that the fpaa is valid despite petitioner’s alternative argument 8we would still have jurisdiction over even if the fpaa had to include a partnership_item adjustment the reset note’s basis in was such an adjustment in that wilmington had to account for its basis in the note for purposes of its books_and_records or for purposes of furnishing information to a partner as the court explained in bausch lomb inc v commissioner tcmemo_2009_112 a partner-level proceeding with the same setting as here partnership items are defined to include a partner’s basis in contributed_property when a partnership must account for the partnership’s basis in the contributed_property for purposes of its books_and_records or for purposes of furnishing information to a partner sec_301_6231_a_3_-1 proced admin regs see also nussdorf v commissioner t c pincite accordingly the necessary facts are available only at the partnership level to determine whether the partnership was required to make a determination with respect to blihc’s basis in the reset note for these purposes fn ref omitted v conclusions the fpaa is valid and the court has jurisdiction over each subject year any assessment as to is time-barred as set forth in our unpublished order we await direction from the parties regarding how to proceed as to we have considered all arguments made and we have rejected those arguments as without merit to the extent not discussed above accordingly to reflect the foregoing an appropriate order will be issued appendix exhibit a - explanation of items wilmington partners l p ein final_partnership_administrative_adjustment letter tax years ending date date a b basis in reset note contributed by b l international holdings corp it is determined that the note contributed by bausch lomb international holdings corporation to wilmington partners l p on or about date in the amount of dollar_figure had a basis of zero at the time of its contribution further it has not been established that the distribution of this note from bausch lomb international inc to bausch lomb international holdings corporation had economic_substance and was accomplished for reasons other than the creation of tax benefits further it has not been established that the note was evidence of an actual corporate distribution under sec_301 accordingly the note contributed by bausch lomb international holdings corporation has no basis for the tax years ended date and date sec_734 adjustment for the taxable_year ended date it is determined that wilmington partners l p has failed to establish the character or adjusted bases of the assets distributed by them sic to charles river partners l p wilmington partners l p has likewise failed to establish that there was any increase to the basis of any partnership property pursuant to sec_754 and sec_734 furthermore it has been determined that there was a decrease to the basis of certain partnership property pursuant to sec_754 and sec_734 it is consequently determined that wilmington partners l p has not established a basis in certain partnership property in an amount greater than dollar_figurezero dollar_figure it is determined that the basis of charles river division assets was dollar_figurezero dollar_figure for purposes of determining gain_or_loss from the sale of such assets accordingly the ordinary_income from the sale of charles river division assets reported by wilmington partners l p for the taxable_year ended date is increased by dollar_figure it is determined that the basis of patents intangibles was dollar_figurezero dollar_figure for purposes of determining gain_or_loss from the sale of such assets accordingly the ordinary_income from the sale of patents intangibles reported by wilmington partners l p for the taxable_year ended date is increased by dollar_figure it is determined that the basis of the goodwill in cr division of wplp is dollar_figurezero dollar_figure for purposes of determining gain_or_loss from the sale of such asset accordingly the long-term_capital_gain from the sale of the goodwill in cr division of wplp reported by wilmington partners l p for the taxable_year ended date is increased by dollar_figure c penalties apply to all adjustments it is determined that a percent penalty shall be imposed on the portion of any underpayment attributable to the gross_valuation_misstatement as provided by sec_6662 sec_6662 sec_6662 and sec_6662 there has not been a showing by the partnership or any of its partners that there was reasonable_cause for any of the resulting underpayments that the partnership or any of its partners acted in good_faith or that any other exceptions to the penalty apply alternatively it is determined that a penalty applies pursuant to sec_6662 to all of the partnership adjustments on the following grounds negligence or disregard of the rules and regulations substantial_understatement_of_income_tax and substantial_valuation_misstatement there has not been a showing by the partnership or any of its partners that there was reasonable_cause for any of the resulting underpayments that the partnership or any of its partners acted in good_faith or that any other exceptions to the penalty apply


department of the treasury internal_revenue_service tege eo examinations mail stop dal commerce st dallas texas tax_exempt_and_government_entities_division release number tax_year s ending date date release date uil code june 20xx taxpayer_identification_number person to contact employee identification_number employee telephone number certified mail - return receipt dear this is a final_determination that you do not qualify for exemption from federal_income_tax under internal_revenue_code the code sec_501 as an organization described in code sec_501 for the tax period s above your determination_letter dated april 19xx is revoked our adverse determination as to your exempt status was made for the following reason s you have exceeded the gross_receipts limitation on income from non-member sources per public law this letter isn’t a determination of your exempt status under sec_501 for any periods other than the tax period s listed above organizations that are not exempt under sec_501 generally are required to file federal_income_tax returns and pay tax where applicable for further instructions forms and information please visit www irs gov if you decide to contest this determination you may file an action for declaratory_judgment under the provisions of sec_7428 of the code in one of the following three venues united_states tax_court the united_states court of federal claims or the united_states district_court for the district of columbia a petition or complaint in one of these three courts must be filed within days from the date this determination_letter was mailed to you please contact the clerk of the appropriate court for rules and the appropriate forms for filing petitions for declaratory_judgment by referring to the enclosed publication you may write to the courts at the following addresses united_states tax_court second street n w washington d c u s court of federal claims madison place n w washington d c u s district_court for the district of columbia constitution ave n w washington d c processing of income_tax returns and assessments of any taxes due will not be delayed if you file a petition for declaratory_judgment under sec_7428 of the internal_revenue_code you may also be eligible for help from the taxpayer_advocate_service tas tas is an independent organization within the irs that can help protect your taxpayer rights tas can offer you help if your tax problem is causing a hardship or you've tried but haven't been able to resolve your problem with the irs if you qualify for tas assistance which is always free tas will do everything possible to help you visit www taxpayeradvocate irs gov or call if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter sincerely maria hooke director eo examinations enclosures publication fi department of the treasury internal_revenue_service tax exempt and government entities exempt_organizations examinations pe vember taxpayer_identification_number te form_990 return tax_year s ended june 20xx person to contact employee id telephone fax manager's contact information employee id telephone response due_date date certified mail - return receipt requested dear why you’re receiving this letter we enclosed a copy of our audit report form 886-a explanation of items explaining that we propose to revoke your tax-exempt status as an organization described in internal_revenue_code irc sec_501 if you agree if you haven't already please sign the enclosed form_6018 consent to proposed action and return it to the contact person shown at the top of this letter we'll issue a final adverse letter determining that you aren't an organization described in sec_501 for the periods above after we issue the final adverse determination_letter we'll announce that your organization is no longer eligible to receive tax deductible contributions under sec_170 if you disagree request a meeting or telephone conference with the manager shown at the top of this letter send any information you want us to consider file a protest with the irs appeals_office send additional information as stated in with irs appeals_office after the meeting or after we consider the information if you request a meeting with the manager or and above you'll still be able to file a protest the irs appeals_office is independent of the exempt_organizations division and resolves most disputes informally sign a consent to extend the period of limitations for assessing tax this is to allow the if you file a protest the auditing agent may ask you to letter rev catalog number 34809f irs appeals_office enough time to consider your case for your protest to be valid it must contain certain specific information including a statement of the facts applicable law and arguments in support of your position valid protest refer to publication how to appeal an irs determination on tax- exempt status for specific information needed for a fast track mediation ftm referred to in publication the examination process generally doesn’t apply now that we’ve issued this letter request technical_advice from the office of associate chief_counsel tax exempt government entities if you feel the issue hasn’t been addressed in published precedent or has been treated inconsistently by the irs if you’re considering requesting technical_advice contact the person shown at the top of this letter if you disagree with the technical_advice decision you will be able to appeal to the irs appeals_office as explained above a decision made in a technical_advice_memorandum however generally is final and binding on appeals if we don't hear from you if you don't respond to this proposal within calendar days from the date of this letter we'll issue a final adverse determination_letter contacting the taxpayer_advocate office is a taxpayer right the taxpayer_advocate_service tas is an independent organization within the irs that can help protect your taxpayer rights tas can offer you help if your tax problem is causing a hardship or you've tried but haven't been abie to resolve your problem with the irs if you qualify for tas assistance which is always free tas will do everything possible to help you visit www taxpayeradvocate irs gov or call for additional information you can get any of the forms and publications mentioned in this letter by visiting our website at www irs gov forms-pubs or by calling 800-tax-form if you have questions you can contact the person shown at the top of this letter sincerely maria hooke director exempt_organizations examinations enclosures form 886-a form 4621-a form_6018 letter rev catalog number 34809f form 886-a date name of taxpayer schedule number department of the treasury - internal_revenue_service or exhibit tax identification_number last digits year period ended 20xx explanations of items issue whether code irc sec_501 facts qualifies for exemption under internal revenue eo is exempt from federal_income_tax under the sec_501 of the internal_revenue_code as a social and recreation club the eo was incorporated on january 19xx in the state of stated in its original certificate of incorporation are to promote singing cultivate the language and to maintain and promote social intercourse among its members the corporation's restated certificate of incorporation was filed on september 19xx in the state of the nature of the activities to be conducted or the purposes to be promoted or carried out by the corporation were stated as follows to encourage support and foster sports the arts education and encourage social and civic activities for members especially those relative to the background of the corporation the purposes of the corporation the form_990 return indicated that the eo is a social organization that promotes culture the eo derives income from membership dues other contributions investment_income and net gain loss from sale of securities the following is a percentage of investment_income to total income as reported on the organization’s form 990s the investment_income for the period ending june 20xx as of the eo’s total revenue for the period ending june 20xx was of the eo’s total revenue and for the period ending june 20xx was of the eo’s total revenue law sec_501 provides exemption from income taxes for clubs organized for pleasure recreation and other nonprofitable purposes substantially_all of the activities of which are for such purposes and no part of the net_earnings of which inures to the benefit of any private shareholder public law provides that social clubs are permitted to receive up to of their gross_receipts from sources outside of their membership without losing their tax-exempt status and that within that not more than of gross_receipts should be derived from the use of a social club’s facilities or services by the general_public the committee reports for public law senate report no 2d session c b further states a within the percent amount not more than percent of the gross_receipts should be derived from the use of a social club’s facilities or services by the general_public this means that www irs gov form 886-a rev catalog number 20810w page eorm 886-a - date name of taxpayer schedule number department of the treasury - interna revenue service explanations of items tax identification_number last digits year period ended an exempt social_club may receive up to percent of its gross_receipts from a combination of investment_income and receipts from non-members so long as the latter do not represent more than percent of total receipts 20xx or exhibit ibi b thus a social_club may receive investment_income up to the full percent of its gross_receipts if no income is derived from non-members’ use of club facilities c in addition the committee report states that where a club receives unusual amounts of income such as from the sale of its clubhouse or similar facilities that income is not to be included in the percent formula revrul_66_149 holds a social_club as not exempt as an organization described in sec_501 where it derives a substantial part of its income from non-member sources rom sources outside of their membership without losing their tax-exempt status and that within that not more than of gross_receipts should be derived from the use of a social club’s facilities or services by the general_public taxpayer’s position the taxpayer has not yet been presented with this formal report but has communicated that it prefers to be tax-exempt however the taxpayer has been made aware of the government's position regarding the law of the investment_income limits as it relates to a sec_501 organization government’s position a sec_501 organization may receive up to of its gross_receipts including investment_income from sources outside of its membership without losing its tax-exempt status of the up to of the gross_receipts may be derived from the use of the club's facilities or services by the general_public or from other activities not furthering social or recreational purposes for members in the event that an organization has outside income that is more than these limits all the facts and circumstances will be taken into account in determining whether the organization qualifies for exempt status based on the examination the organization does not qualify for exemption as a social_club described in sec_501 which provides that in general this exemption extends to social and recreation clubs which are supported solely by membership fees dues and assessments during the last three years the eo receives more than the insubstantial part of its gross_receipts allowed by the code from outside its membership the amount of investment_income received is considerably higher than the allowed under p l page www irs gov form 886-a rev catalog number 20810w schedule number department of the treasury - internal_revenue_service explanations of items tax identification_number last digits year period ended 886-a form date name of taxpayer me or exhibit 20xx revrul_66_149 supports this position stating that a social_club that derives a substantial part of its income from non-member sources is not exempt as an organization described in c conclusion the organization no longer qualifies for exemption under sec_501 as its investment_income has exceeded the investment_income threshold continually therefore it is proposed that the eo’s exempt status under c of the code be revoked effective july 20xx should this revocation be upheld form_1120 must be filed starting with the tax period ending june 20xx www irs gov form 886-a rev catalog number 20810w page


department of the treasury internal_revenue_service te_ge - eo mandatory review commerce street mc 4920-dal dallas tx tax_exempt_and_government_entities_division number release date legend org organization name xx date uil address address date date org address employer_identification_number person to contact identification_number contact telephone number in reply refer to te_ge review staff last day for filing a petition with tax_court june 20xx certified mail - return receipt requested dear this is a final adverse determination revoking your exempt status under sec_501 of the internal_revenue_code our adverse determination was made for the following reasons org has not established that you have been operated exclusively for exempt purposes within the meaning of internal_revenue_code sec_501 you are not a charitable_organization within the meaning of sec_1 c - d in that you failed to establish that you were operated exclusively for an exempt_purpose during the examination we were advised that the entity was no longer viable and records would be provided to document this fact this information was never submitted to the service nor did you document any activities for the period under examination based upon the above we are revoking your organization’s exemption from federal_income_tax under sec_501 of the internal_revenue_code retroactively to january 20xx contributions to your organization are no longer deductible under sec_170 of the internal_revenue_code you are required to file federal_income_tax return form_1120 for all years beginning after december 20xx form_1120 must be filed by the 15' day of the third month after the end of your annual_accounting_period you are required to file form_1120 with the appropriate internal revenue campus processing of income_tax returns and assessment of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination in court you must initiate a suit for declaratory_judgment in the united_states tax_court the united_states claim court or the district_court of the united_states for the district of columbia before the day after the date this determination was mailed to you contact the clerk of the appropriate court for the rules for initiating suits for declaratory_judgment if you write please attach a copy of this letter to help identify your account keep a copy for your records also please include your telephone number and the most convenient time for us to call so we can contact you if we need additional information you also have the right to contact the office_of_the_taxpayer_advocate however you should first contact the person whose name and telephone number are shown above since this person can access your tax information and can help you get answers you can call and ask for taxpayer_advocate assistance or you can contact the local taxpayer_advocate office by calling faxing or writing to internal_revenue_service taxpayer advocates office taxpayer_advocate assistance cannot be used as a substitute for established irs procedures formal appeals process etc the taxpayer_advocate is not able to reverse legal or technically correct_tax determinations nor extend the time fixed by law that you have to file a petition in the united_states tax_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 we will notify the appropriate state officials of this action as required by sec_6104 of the internal_revenue_code if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely marsha a ramirez director eo examinations tax_exempt_and_government_entities_division org address department of the treasury internal_revenue_service commerce st m c 4900-dal dallas texas taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax certified mail -- return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe an adjustment of your organization's exempt status is necessary if you do not agree with our position you may appeal your case the enclosed publication the examination process explains how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process if you request a conference we will forward your written_statement of protest to the appeals_office and they will contact you for your convenience an envelope is enclosed if you and appeals do not agree on some or all of the issues after your appeals_conference or if you do not request an appeals_conference you may file suit in united_states tax_court the united_states court of federal claims or united_states district_court after satisfying procedural and jurisdictional requirements as described in publication letter catalog number 34801v you may also request that we refer this matter for technical_advice as explained in publication exempt_organization appeal procedures for unagreed issues if a determination_letter is issued to you based on technical_advice no further administrative appeal is available to you within the irs on the issue that was the subject of the technical_advice if we do not hear from you within days from the date of this letter we if you accept our findings please sign and return the enclosed form_6018 consent to proposed adverse action we will then send you a final letter modifying or revoking exempt status will process your case on the basis of the recommendations shown in the report of examination and this letter will become final in that event you will be required to file federal_income_tax returns for the tax period s shown above file these returns with the ogden service_center 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 prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter the most convenient time to call if we need to contact you if you write please provide a telephone number and letter catalog number 34801v thank you for your cooperation sincerely marsha a ramirez director eo examinations enclosures publication publication form_6018 report of examination envelope letter catalog number 34801v form 886-a explanation of items schedule or exhibit no name of taxpayer org year ended 20xx12 xx date employee employee founders legend org organization name founders issue has the org met the requirements to qualify for tax exempt status under c of the internal_revenue_code facts org was recognized by the internal_revenue_service as a tax exempt_organization under c of the internal_revenue_code in december 19xx the primary activities of the organization is to secure books school supplies equipment and other educational materials to lift the burden of unrealized potential from students and teachers on september 20xx the internal_revenue_service sent a certified letter request a return to be filed for year ending december 20xx on october 20xx the internal_revenue_service received the certified receipt on october 20xx the internal_revenue_service sent a certified letter to a different address that was located during research letter was not picked up on january 20xx the internal_revenue_service sent a certified letter to founders home address letter was returned undeliverable on january 20xx the internal_revenue_service received faxed correspondence along with form_990 for year ending december 20xx that was stamped by the internal_revenue_service on november 20xx the faxed information was sent by employee on march 20xx the internal_revenue_service commenced an examination of the organization for the fiscal_year ended december 20xx to determine if the organization is operating exclusively for tax exempt purposes as part of the examination an interview was conducted and information regarding the organization’s activities was requested via information document requests idr idr number was sent to founders and employee on march 20xx and requested the following information documents n o k a articles of incorporation and all amendments bylaws irs exemption_letter original application_for exempt status minutes of board_of director's meeting from 20xx through 20xx department of the treasury - internal_revenue_service form 886-a form 886-a explanation of items year ended 20xx12 schedule or exhibit no xx date employee employee founders name of taxpayer org legend org organization name founders newsletter pamphlets brochures interview with officers all accounting_records g l checks invoices etc on april 20xx the internal_revenue_service drove to the last know location of the exempt_organization another organization was located at the address on april 20xx the internal_revenue_service received a phone call from employee she stated that the organization was not operational since 20xx she was going to send related information on the organization on june 20xx idr-02 was sent to the organization because the internal_revenue_service had not received any response from the organization in regards to idr and the information was requested during a phone conversation with employee the idr-02 repeated the request for information during the phone conversation to date the internal_revenue_service has not received any of the requested information or documents from the organization law internal_revenue_code sec_501 provides for tax exemption to organizations organized and operated exclusively for charitable purposes and no part of the net earning which inures to the benefit of any individual regulation sec_1_501_c_3_-1 organizational and operational tests provides that in order to be exempt as an organization described in sec_501 an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt regulation sec_1_501_c_3_-1 provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose department of the treasury - internal_revenue_service form 886-a schedule or explanation of items exhibit no form 886-a year ended 20xx12 xx date employee employee founders name of taxpayer org legend org organization name founders regulation sec_1_501_c_3_-1 provides an organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest thus to meet the requirement of this subdivision it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests sec_1_6033-2 of the income_tax regulations provides in part that every organization which is exempt from tax shall submit such additional information as may be required by the internal_revenue_service for the purposes of inquiring into its exempt status revrul_59_95 provides that a failure_to_file required information_return or comply with the provision of sec_6033 of the code and the regulations which implement it may result in the termination of the exempt status of an organization previously held exempt on the grounds that the organization has not established that it is observing the conditions required for the continuation of an exempt status government’s position org has not met the requirements to qualify for tax exempt status under c of the internal_revenue_code org’s activities are not exclusively in furtherance of a c purpose org has not complied with the irs’ requests for information to determine if it is still qualified for tax exempt status under c of the code therefore revocation of org’s tax exempt status is recommended effective january 20xx department of the treasury - internal_revenue_service form 886-a


number release date internal_revenue_service index numbers - ---------------------------------------- ---------------------------------------------- ------------------- ------------------------- ------------------------- --------------------- department of the treasury washington dc person to contact ----------------------------------------------------- -------- telephone number -------------------- refer reply to cc psi - plr-100311-06 date date legend x ------------------------------------------------------------------ --------- -------------- ----------- ------------------ d1 country dear -------------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations for x to file an election to be treated as a disregarded_entity under the laws of country was acquired by a single owner with limited_liability on d1 x intended to be treated as a disregarded_entity for federal tax purposes effective d1 however x did not timely file a form_8832 entity classification election according to the information submitted all of the interest in x an entity formed sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes under sec_301_7701-3 except as provided in sec_301 b unless it elects otherwise a foreign eligible_entity is classified as an association if all members have limited_liability sec_301_7701-3 provides that for purposes of sec_301_7701-3 a sec_301_7701-3 provides that an election under sec_301_7701-3 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 will be effective on the date specified on form_8832 or on the date filed if no such date is specified on the form the effective date specified on form_8832 cannot be more than days prior to the date the form is filed and cannot be more than months after the date on which the form is filed sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 sets forth the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file form_8832 and elect to be treated as a disregarded_entity for federal tax purposes effective d1 a copy of this letter should be attached to the form_8832 based on the facts submitted and representations made we conclude that the except as specifically set forth above no opinion is expressed or implied as to the federal tax consequences of the transaction described above under any other provision of the code sec_6110 provides that it may not be used or cited as precedent this ruling is directed only to the taxpayer on whose behalf it was requested in accordance with the power_of_attorney on file with this office a copy of this sincerely letter is being sent to x’s authorized representative enclosures copy of this letter copy for sec_6110 purposes heather c maloy associate chief_counsel passthroughs and special industries


t c summary opinion united_states tax_court james d and bobbie rogers petitioners v commissioner of internal revenue respondent docket no 25365-09s filed date james d and bobbie rogers pro_se john t arthur for respondent panuthos chief special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by 1unless 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 all dollar amounts are rounded to the nearest dollar any other court and this opinion shall not be treated as precedent for any other case respondent determined a dollar_figure deficiency in petitioners’ federal_income_tax the issue for decision is whether a dollar_figure withdrawal by petitioner husband from his annuity in is includable as gross_income background some of the facts have been stipulated and the stipulations and accompanying exhibits are incorporated by this reference petitioners resided in georgia when the petition was filed mr rogers petitioner was an employee of lockheed martin corp during the period through during this period petitioner participated in an employer-sponsored savings_plan into which he directed percent of his after-tax salary the savings_plan was composed of petitioner’s after-tax contributions employer contributions and accumulated interest petitioner retired in and on date the funds in petitioner’s lockheed savings_plan were transferred to a pershing government account money market fund pershing on date petitioner withdrew dollar_figure from pershing leaving a balance of dollar_figure 2the exact nature of this plan is not reflected in the record 3the record reflects an initial investment of dollar_figure in the pershing account on date petitioner rolled over the remaining funds in pershing to an annuity with allianz life_insurance co of north america allianz annuity the allianz annuity was established with an initial deposit of dollar_figure with payments to begin june the application_for the allianz annuity under the heading qualified_plans reflects that the box ira transfer rollover was checked petitioner made the following deposit and withdrawals from his allianz annuity date date date date date date date date deposit dollar_figure withdrawal --- --- --- --- --- --- --- dollar_figure big_number big_number big_number big_number big_number petitioner surrendered his allianz annuity on date when he received dollar_figure petitioner’s and forms 1099-r distributions from pensions annuities retirement or profit- sharing plans iras insurance contracts etc reflect that 4the record reflects that petitioner transferred dollar_figure from pershing to the allianz annuity less dollar_figure in fees totaling dollar_figure the record does not provide an explanation of the discrepancy between the balance in the pershing account of dollar_figure and the transfer amount of dollar_figure federal and state income taxes were withheld at the time of the respective withdrawals petitioner’s form 1099-r reflects that petitioner elected not to have federal or state income taxes withheld from the dollar_figure withdrawal petitioners timely filed a joint form_1040 u s individual_income_tax_return for petitioners did not report the dollar_figure withdrawal on their jointly filed federal_income_tax return respondent determined that the dollar_figure withdrawal in is includable in gross_income and issued petitioners a statutory_notice_of_deficiency determining a deficiency of dollar_figure on date i burden_of_proof discussion generally the commissioner’s deficiency determination is presumed correct and the taxpayer bears the burden of proving that the determination is incorrect see rule a 290_us_111 sec_7491 provides generally that the burden_of_proof regarding factual matters may shift to the commissioner if the taxpayer satisfies certain substantiation and recordkeeping 5allianz sent petitioner a form 1099-r for each year he made a withdrawal sec_3405 provides generally that the payor of any nonperiodic_distribution shall withhold an amount equal to percent of the distribution unless the individual elects not to have any amount withheld the record reflects that no federal or state income taxes were withheld at the time of the final disbursement of the allianz annuity in requirements petitioners have not alleged and we do not find that the burden_of_proof should shift to respondent see sec_7491 and b therefore petitioners bear the burden_of_proof see rule a ii gross_income the internal_revenue_code defines gross_income as all income from whatever source derived including annuities see sec_61 sec_72 additionally any amount_paid or distributed from an individual_retirement_account ira shall be included in gross_income by the payee sec_408 sec_1_408-4 income_tax regs subject_to certain specific restrictions a taxpayer is generally allowed to deduct his qualified retirement contributions to an ira up to a specified dollar amount for the year in which the contributions are made see sec_219 sec_1_219-1 income_tax regs under certain circumstances a taxpayer may also make nondeductible_contributions to his ira see sec_408 a taxpayer generally has a zero basis in an ira sec_1_408-4 income_tax regs the taxpayer may have basis in an ira to the extent allocable to the investment_in_the_contract see sec_72 hoang v commissioner tcmemo_2006_47 a taxpayer’s investment_in_the_contract is composed of nondeductible_contributions to the ira less any withdrawals or distributions of the previously taxed contributions sec_72 108_tc_54 a taxpayer is not considered to have received gross_income upon a distribution of funds that represents a return of his investment_in_the_contract sec_72 nondeductible_contributions made to an ira must be reported annually on form_8606 nondeductible iras see sec_408 the form_8606 instructions state that a taxpayer must keep copies of records including completed forms for previous years in order for the taxpayer to verify the nontaxable portion of the ira withdrawal or distribution furthermore amounts received before the annuity_starting_date are includable in gross_income to the extent allocable to income_on_the_contract and are not includable in income to the extent allocable to the investment_in_the_contract sec_72 campbell v commissioner supra pincite petitioner contends that the dollar_figure withdrawal is not includable in gross_income because the funds initially deposited into his allianz annuity are allocable to the previously taxed contributions he made into his lockheed savings_plan and thus constitute a return of his investment in the annuity petitioner further argues that the previously taxed funds in his lockheed sec_72 defines annuity_starting_date as the first day of the first period for which an amount is received as an annuity under the contract petitioner withdrew dollar_figure from his annuity in before his annuity_starting_date in savings_plan were not properly allocated as such when transferred to his allianz annuity to establish whether the dollar_figure withdrawal is includable in petitioners’ gross_income we must determine the amount of petitioner’s investment in the allianz annuity according to the contract with allianz petitioner’s deposit totaling dollar_figure was derived from untaxed earnings the allianz contract does not make any reference to previously taxed funds petitioner asserted at trial that he had documentation to support the position that he had contributed approximately dollar_figure of previously taxed funds into his lockheed savings_plan by the time he retired in he further argues that the previously taxed funds were ultimately transferred to the allianz annuity petitioner seeks to support his position with incomplete documents in addition to vague testimony respondent acknowledges that the documents petitioner provided support the assertion that petitioner made some after- tax contributions to his employer-sponsored savings_plan these after-tax contributions generally would represent petitioner’s 8the court left the record open to permit petitioner an opportunity to substantiate his claim despite being provided an opportunity to submit additional documents petitioner did not submit any additional documents for the court’s consideration the court accordingly closed the record and deemed the case submitted investment if petitioner could identify or trace the contributions to any remaining funds in the plan we conclude from the documents petitioner submitted that he contributed a minimum of dollar_figure in after-tax_dollars to his lockheed savings plandollar_figure petitioner made multiple withdrawals from his account including a dollar_figure withdrawal from pershing in petitioner failed to establish that the dollar_figure withdrawal did not deplete any investment that petitioner may have had in the lockheed savings account petitioner offered no documentation to support an investment in his lockheed savings_plan in excess of dollar_figure petitioner did not provide copies of completed forms on which taxpayers are required to designate nondeductible_contributions to an ira see sec_408 it is the 9there is no documentation to indicate whether petitioner withdrew his after-tax contributions from his lockheed savings_plan before he retired in 10this amount was calculated by adding the post-1986 after-tax contributions of dollar_figure specified on the salaried savings_plan quarterly statement for the period through the year-to-date salaried savings_plan after-tax savings of dollar_figure specified on petitioner’s lockheed earnings statement for the period through and the after-tax employee contributions of dollar_figure specified on the salaried savings_plan quarterly statement for the period through the total dollar_figure has been rounded up to the nearest dollar 11although we conclude that petitioner made after-tax contributions of dollar_figure to his lockheed savings_plan there is no documentation to show whether petitioner withdrew those after-tax contributions before he retired taxpayer’s responsibility to maintain records sufficient to enable the commissioner to determine his correct_tax liability sec_6001 sec_1_6001-1 income_tax regs although we found petitioner’s testimony to be generally credible petitioner’s testimony by itself was insufficient to substantiate an investment in his lockheed savings_plan and therefore in his allianz annuity on the basis of the foregoing respondent’s determination is sustained to reflect the foregoing decision will be entered for respondent


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 corp plr-137746-08 date date ty ------------- ty ------------- legend distributing controlled holding lp holding gp dre dre dre --------------------------------------------------------- --------------------------------------------------------- ----------------------- --------------------------------------------------------- --------------------------------------------------------- --------------------------------------------------------- ----------------------- --------------------------------------------------------- --------------------------------------------------------- ----------------------- --------------------------------------------------------- --------------------------------------------------------- ----------------------- ------------------------------ --------------------------------------------------- ------------------------------- --------------------------------------------------- --------------------------------------------------------- ----------------------------------------- plr-137746-08 lp lp lp lp lp other controlled shareholders manager company company finance company finance company finance company --------------------------------------------------------- --------------------------------------------------------- --------------------------------------------------------- ----------------------- --------------------------------------------------------- --------------------------------------------------------- ----------------------- --------------------------------------------------------- --------------------------------------------------------- ----------------------- --------------------------------------------------------- --------------------------------------------------------- ----------------------- --------------------------------------------------------- --------------------------------------------------------- ----------------------- --------------------------------------- --------------------------------------------------------- ------------------------------- --------------------------------------------------------- --------------------------------------------------------- ----------------------- --------------------------------------------------------- ---------------------------------- --------------------------------------------------------- ------------------------------- --------------------------------------------------------- ------------------------------- --------------------------------------------------------- --------------------------------------------------------- ----------------------- plr-137746-08 investor investor new holding lp new holding gp new holdco new holdco new holdco new holdco new holdco new holdco business a date a date b date c a b --------------------------------------------------------- ----------- -------------------------- --------------------------------------------------------- --------------------------------------------------------- ----------------------- --------------------------------------------------------- --------------------------------------------------------- ----------------------- --------------------------------------------------------- --------------------------------------------------------- ----------------------- --------------------------------------------------------- ------------------------------- --------------------------------------------------------- ------------------------------- --------------------------------------------------------- ------------------------------- --------------------------------------------------------- -------------------------------- --------------------------------------------------------- ------------------------------------------------ ---------------------------------------------- -------------------------- ------------------- ------------------- ----------------------------- ----------------------------- plr-137746-08 c d e f g h i j k dollar_figurel dollar_figurem dollar_figuren dollar_figureo p q r s t u v w x --------------------------- --------------------------- ----------------------------- --------------------------- --------------------------- --------------------------- ------------------------- ------------------------- --------------------------- ------------------ -------------- ------------------ ------------------ ---------- ---------- --------- ------- ------------------------------- ------------------------------- ------------------ ----- ------------- plr-137746-08 y z aa bb cc dd ee ff gg -------------- ------------- ------- --------------------------------- --------------------------- -------------------------------------- ----------------------------------- -- ----------------- dear -------------- this letter responds to your date letter requesting that we supplement our letter rulings dated date plr plr and date plr plr the prior rulings the information submitted for consideration in this supplemental request is summarized below capitalized terms not defined in this ruling have the meanings assigned to them in the prior rulings the ruling contained in this letter is based on facts and representations submitted by the taxpayers and accompanied by penalty of perjury statements executed by the appropriate parties this office has not verified any of the materials submitted in support of the request for a ruling verification of the information representations and other data may be required as part of the audit process in particular this office has not reviewed any information and has not made any determination regarding i whether internal distribution internal distribution and the share exchange satisfy the business_purpose requirement of sec_1_355-2 of the income_tax regulations ii whether the proposed transactions are being used principally as a device for the distribution of the earnings_and_profits of the distributing_corporation or the controlled_corporation or both see sec_355 of the internal_revenue_code and sec_1_355-2 or iii whether internal distribution internal distribution or the share exchange are part of a plan or series of related transactions pursuant to which one or more persons acquire directly or indirectly stock plr-137746-08 representing a 50-percent_or_greater_interest in the distributing or controlled corporations see sec_355 and sec_1_355-7 the prior rulings address certain federal_income_tax consequences of certain transactions under sec_355 and sec_368 of the internal_revenue_code and other code provisions except as modified below the representations and caveats set forth in the prior rulings remain in effect for purposes of this supplemental ruling letter summary of supplemental facts distributing is a publicly traded holding_company with a single class of stock outstanding voting common_stock distributing is the common parent of an affiliated_group_of_corporations that files a consolidated federal_income_tax return from the completion of the share exchange on date a until the time of the combination described below controlled was the common parent_corporation of an affiliated_group_of_corporations that filed a consolidated federal_income_tax return controlled is a holding_company with a single class of stock outstanding voting common_stock controlled through its subsidiaries is engaged in business a at the time of the controlled contribution described below the stock in controlled was owned as follows lp1 through a disregarded_entity owned approximately p of the stock lp2 through a disregarded_entity owned approximately q of the stock lp3 through a disregarded_entity owned approximately r of the stock and the other controlled shareholders owned the remaining approximately s of the stock at the time of the holding contribution described below new holding lp owned directly or indirectly all the interests in holding lp a disregarded_entity and holding lp directly owned all of the stock in company engaged in business a the limited_partner interests in new holding lp entitled to an aggregate of a of the capital and profits of new holding lp were owned b by lp c by lp d by manager e by investor and f by investor and certain current and former employees of holding lp and its subsidiaries the general_partner interest in new holding lp entitled to g of the capital and profits of new holding lp was owned by new holding gp the limited_liability_company interests in new holding gp entitled to all of the capital and profits of new holding gp were owned h by lp i by lp j by manager and k by investor on date a distributing distributed all of the stock in controlled to dre dre and dre disregarded wholly-owned subsidiaries of lp lp and lp respectively and to the other controlled shareholders in exchange for distributing stock in the share exchange in connection with the proposed transactions distributing lp lp and lp received the prior rulings to the effect that among other things the contribution as defined in the prior rulings together with the share on or about date b and date c holding lp which had also owned all the stock in company distributed the stock in company to new holding lp plr-137746-08 exchange would qualify as a reorganization under sec_368 see plr plr plr plr supplemental transactions on date b and date c subsequent to the issuance of the prior rulings and as part of a single_plan of combination the taxpayers completed the following transactions combination i new holding lp contributed all of the limited_partner interests in holding lp and all of the limited_liability_company interests in holding gp both disregarded entities to finance company a newly-formed corporation and a direct wholly-owned subsidiary of new holding lp finance company in turn contributed such interests to finance company a newly-formed corporation and a direct wholly- owned subsidiary of finance company finance company in turn contributed such interests to finance company a newly-formed corporation and a direct wholly- owned subsidiary of finance company ii new holding lp contributed all of the stock of finance company to new holdco a newly-formed corporation solely in exchange for t of the common_stock of new holdco the holding contribution iii concurrently the shareholders of controlled contributed all of the stock of controlled to new holdco solely in exchange for u in the aggregate of the common_stock of new holdco the controlled contribution the controlled contribution together with the holding contribution and the lp equity contribution as defined below are referred to as the new holdco contributions in the case of lp lp and lp the controlled contribution took the form of a contribution by the applicable lp of all of the interests in its disregarded holding_company that owns stock of controlled for example lp contributed to new holdco all of the interests in dre iv immediately after the new holdco contributions new holdco contributed all of the property that it received in the new holdco contributions to new holdco a newly-formed corporation and a direct wholly-owned subsidiary of new holdco new holdco in turn contributed such property to new holdco a newly- formed corporation and a direct wholly-owned subsidiary of new holdco a committee of significant investors in each of lp lp lp lp and lp each an investment review committee has approved a valuation of dollar_figurel for the aggregate outstanding equity interests of holding lp and has further approved an allocation of dollar_figurem to the outstanding_stock of company and dollar_figuren to the outstanding_stock of company each investment review committee also has approved a valuation of dollar_figureo for the outstanding_stock of controlled plr-137746-08 v immediately thereafter new holdco contributed all of the stock of controlled that it owned directly and all of the interests in dre dre and dre to new holdco a newly-formed corporation and a direct wholly-owned subsidiary of new holdco new holdco in turn contributed all such interests to new holdco a newly-formed corporation and a direct wholly-owned subsidiary of new holdco new holdco contributed all such interests to its wholly-owned disregarded subsidiary new holdco vi at the closing of the combination finance company borrowed approximately dollar_figurev from unrelated third party banks under a credit agreement dated date b by and among finance company as borrower and the several lenders from time to time party thereto the new bridge debt the new bridge debt has a term of w days subject_to a possible extension of up to one year in the case of a portion of the new bridge debt a variable interest rate based on the prime rate or the eurodollar rate and is unsecured lp and lp each provided a guarantee of the new bridge debt in the maximum amount of dollar_figurex million and dollar_figurey million respectively vii in addition finance company issued dollar_figurez in principal_amount of aa subordinated notes to lp the new lp notes in connection with the issuance of the new lp notes lp made an equity contribution of dollar_figurebb to new holdco in exchange for cc of the common_stock in new holdco the lp equity contribution viii the proceeds of the new bridge debt and the new lp notes were used as follows a dollar_figuredd was loaned by finance company to a wholly-owned indirect subsidiary through an intercompany loan to repay existing indebtedness b dollar_figureee was placed by finance company in an interest-bearing account that is intended to secure the payment of interest on the new bridge debt and c the remaining amounts were used to pay fees and expenses of the parties and the lenders ix in connection with the closing of the combination new holdco adopted a stockholders agreement to which lp lp lp lp in respect of its direct holding in new holdco new holding lp and the other direct holders of stock in new holdco are parties in addition lp lp manager and investor are parties to the stockholders agreement substantially as if each held directly the percentage of the stock of new holdco held by each through new holding lp under the stockholders agreement the board_of directors of new holdco consists of one director designated by each of lp lp lp lp and lp each an lp and collectively the lps five directors ff directors designated by investor and one additional director who is a member of management and who is designated by the lps on any matter considered by the board each of the five directors designated by an lp will be entitled to cast votes representing a percentage of the total voting power of the board equal to the percentage share of the stock of new holdco owned at the time directly or indirectly by the lp designating that director for this purpose lp5 will take into account its acquisition of cc of the shares in new holdco on any matter considered by the board the directors designated by investor will be entitled to cast plr-137746-08 votes in the aggregate representing a percentage of the total voting power of the board equal to the percentage share of the stock of new holdco owned at the time directly or indirectly by investor the remaining voting power of the board representing only approximately gg is held by the management director x in connection with the combination new holdco adopted a stock_option plan the option plan the option plan provides for the grant of nonqualified options to acquire the common_stock of new holdco options on customary terms and conditions to employees of or other service providers to new holdco and its subsidiaries grantees in connection with the grantee's performance of services as an employee director or independent_contractor of or to new holdco and its subsidiaries in each case the option will be nontransferable within the meaning of sec_1_83-3 the option will not have a readily_ascertainable_fair_market_value as defined in sec_1_83-7 and the acquisition of stock if any by the grantee on the exercise of the option will be subject_to sec_83 in each case the stock acquired by a grantee on the exercise of an option will not be excessive by reference to the services performed by the grantee apart from the potential effect of the coordinating group rules of sec_1 h no grantee will be a controlling shareholder of controlled within the meaning of sec_1_355-7 or a ten percent shareholder of controlled within the meaning of sec_1 h no option will be issued transferred or listed with a principal purpose to avoid the application of sec_355 xi certain of the grantees who are senior employees of company were limited partners in holding lp and became limited partners in new holding lp as a result of the combination these grantees were parties to the limited_partnership agreement of holding lp and are subject_to the limited_partnership agreement of new holding lp to each of which lp and lp also are parties xii no grantee is a party to the stockholders agreement in his capacity as a grantee or otherwise xiii each option will be exercisable for common_stock of new holdco only at and after the time of an initial_public_offering of the common_stock of new holdco if prior to the occurrence of an initial_public_offering there is a sale of new holdco then the option if then vested will be converted into a right to receive an amount in cash equal to the difference between the fair_market_value of the common_stock for which the option is exercisable and the strike_price of the option if prior to the occurrence of an initial_public_offering the employment of a grantee with new holdco and its subsidiaries terminates for any reason then the option if then vested will be converted into a right to receive an amount in cash equal to the difference between the fair_market_value of the common_stock for which the option is exercisable and the strike_price of the option xiv at the time of an initial_public_offering of the stock of new holdco new holding lp will distribute to any grantee that is a partner in new holding lp his plr-137746-08 proportionate share of the stock of new holdco held by new holding lp and the stockholder’s agreement will be terminated xv after completion of the combination and only if the taxpayers receive certain additional rulings under sec_355 the taxpayers contemplate that they would transfer company to new holdco supplemental representations distributing controlled new holding lp and the lps as applicable make the following representations except as described below no acquisition of stock of distributing or controlled of sub or company or of sub or company including any predecessor or successor of each such corporation occurred or will occur pursuant to a plan or series of related transactions within the meaning of sec_355 that includes the share exchange internal distribution or internal distribution respectively each of the following acquisitions of stock of controlled including any predecessor or successor is or may be part of a plan or series of related transactions within the meaning of sec_1_355-7 that includes the share exchange internal distribution or internal distribution the indirect acquisitions of stock in controlled by new holding lp the partners of new holding lp and lp resulting from the combination and if it occurs the proposed transfer of company to new holdco1 taking all of these acquisitions into account stock representing a 50-percent_or_greater_interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor of any such corporation will not be acquired by any person or persons new holding lp and the lps contemplate that they may ultimately exit their position in new holdco through an initial_public_offering of the stock of new holdco however there has been no agreement understanding arrangement or substantial negotiations within the meaning of sec_1_355-7 concerning any such initial_public_offering supplemental ruling based on the information and representations set forth herein and submitted with the prior rulings we rule as follows the combination will not affect the continuing validity of the prior rulings plr-137746-08 caveats no opinion is expressed about the tax treatment of the combination or the proposed transactions in the prior rulings under other provisions of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from the combination or the proposed transactions that are not specifically covered by the above ruling or by the prior rulings in particular no opinion is expressed regarding i whether internal distribution internal distribution and the share exchange satisfy the business_purpose requirement of sec_1_355-2 ii whether the proposed transactions are being used principally as a device for the distribution of the earnings_and_profits of any of the distributing or controlled corporations see sec_355 and sec_1_355-2 and iii whether internal distribution internal distribution or the share exchange are acquisitions that are part of a plan or series of related transactions under sec_355 procedural statements this ruling is directed only to the taxpayers requesting it sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling in accordance with the power_of_attorney on file in this office a copy of this ruling letter will be sent to the taxpayers' authorized representatives sincerely mary e goode senior counsel branch office of associate chief_counsel corporate cc