internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si -122347-98 date date legend x y state d1 this responds to a letter dated date submitted on behalf of y requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to file an election to be treated as a corporation for federal tax purposes under sec_301_7701-3 facts x is a limited_liability_company formed under the laws of state x is the single owner of y a limited_liability_company formed under the laws of state on d1 x and y intended that y be treated as a corporation for federal tax purposes effective on d1 under the current classification rules y is required to make an election to be treated as a corporation for federal tax purposes y relied on tax professionals who failed to advise y to make an election under sec_301_7701-3 within days of its first taxable_year cc dom p si law and analysis sec_301_7701-3 of the procedure and administration regulations provides guidance on the classification of domestic eligible entities for federal tax purposes generally a domestic eligible_entity with a single member is disregarded as an entity separate from its owner unless the entity elects to be treated otherwise sec_301 b ii under sec_301_7701-3 a domestic eligible_entity may elect to be classified other than as provided under sec_301_7701-3 by filing a form_8832 entity classification election with the designated service_center an election under sec_301_7701-3 can be effective on the date specified on the form_8832 or on the date filed if no date is specified on the form the effective date specified on the form_8832 cannot be more than days prior to the date on which the election is filed sec_301_9100-1 of the procedure and administration regulations 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 sec_301_9100-1 defines a regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_service bulletin sec_301_9100-1 through provide standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301 a sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 conclusion based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result y is granted an extension of time for making the election to be treated as an association for federal tax purposes effective d1 until days following the date of this letter the election should be made by following the procedure set forth in form_8832 and a copy of this letter should be attached to the election cc dom p si except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely signed paul f kugler paul f kugler assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c no united_states tax_court 3k investment partners 3k investments llc tax_matters_partner commissioner of internal revenue respondent petitioner v docket no filed date in this partnership-level proceeding involving a so- called son-of-boss transaction p has moved to compel r to produce redacted copies of all tax opinions collected by r that have been issued regarding son-of-boss transactions as well as a list of the names and addresses of all law firms and accounting firms known to r to have issued tax opinion_letters regarding son-of-boss transactions held because the materials that p seeks to discover are not relevant and do not appear reasonably calculated to lead to discovery of admissible evidence and because the materials are nondisclosable return_information as defined under sec_6103 i r c p’s motions to compel production will be denied albert l grasso and david b shiner for petitioner r scott shieldes for respondent opinion thornton judge this case is before us on petitioner’s motions to compel production of documents pursuant to rule sec_72 and sec_104 for the reasons described below we shall deny petitioner’s motions background this partnership-level proceeding involves respondent’s determination that 3k investment partners the partnership was formed and availed of to engage in a so-called son-of-boss transaction respondent alleges that james menighan mr menighan purchased a prepackaged tax_shelter from the law firm jenkens gilchrist p c jenkens gilchrist whereby through his limited_liability_company 3k investments llc he acquired and contributed offsetting digital options on foreign_currency to 1unless otherwise indicated all rule references are to tax_court rules_of_practice and procedure and section references are to the internal_revenue_code as amended 2boss is an acronym for bond and option sales strategy which the commissioner regards as an abusive_tax_shelter see notice_2000_44 2000_2_cb_255 see also 128_tc_192 the partnership respondent alleges that the transaction was designed to inflate artificially mr menighan’s basis in the partnership see 568_f3d_537 5th cir 515_f3d_749 7th cir 82_fedclaims_636 80_fedclaims_11 see also 128_tc_192 in a notice of final_partnership_administrative_adjustment with respect to the partnership’s tax_year ended date respondent adjusted the items reported on the partnership’s return respondent also determined that pursuant to sec_6662 accuracy-related_penalties apply to all underpayments of tax attributable to adjustments of the partnership items 3seemingly implicit in respondent’s allegation that mr menighan purchased a prepackaged tax_shelter is the assertion that jenkens gilchrist was the promoter of the shelter a question properly at issue in this partnership-level proceeding see tigers eye trading llc v commissioner tcmemo_2009_121 in disposing of the motion before us we need not and do not address any issue as to whether petitioner would be entitled to assert reasonable reliance on the jenkens gilchrist opinions as a defense to the imposition of the penalties 4respondent determined that the accuracy-related_penalty should be imposed on these components of underpayments a percent penalty on the portion of any underpayment attributable to any gross_valuation_misstatement as provided by sec_6662 b e and h a 20-percent penalty on the portion of any underpayment attributable to negligence or disregard of rules and regulations as provided by sec_6662 b and c a percent penalty on any underpayment attributable to substantial continued petitioner timely petitioned the tax_court pursuant to rule petitioner served on respondent a request the first request to produce redacted copies of all tax opinions collected by respondent that have been issued regarding son-of-boss transactions the opinion_letters in response to the first request respondent produced no documents but noted that he previously had provided petitioner copies of two opinion_letters that jenkens gilchrist had issued to mr menighan respondent objected to providing any further response on the grounds that the request was irrelevant not likely to lead to the discovery of admissible evidence and unduly burdensome and impermissibly sought confidential third-party return_information petitioner served on respondent a request the second request to produce a list of the names and addresses of all law firms and accounting firms known to respondent to have issued tax opinion_letters regarding son-of-boss transactions the firm list in response respondent identified jenkens gilchrist as the law firm that issued the two opinion_letters to mr menighan but objected to providing any further response on the grounds that the request was irrelevant and not likely to lead to the continued understatement of income_tax as provided by sec_6662 b and d or a 20-percent penalty on the portion of any underpayment attributable to any substantial_valuation_misstatement as provided by sec_6662 b and e discovery of admissible evidence and impermissibly sought confidential return_information of third-party taxpayers petitioner filed a motion the first motion to compel production of the documents requested in the first request after the court held a hearing on the first motion petitioner filed a motion the second motion to compel production of the documents requested in the second request discussion respondent objects to petitioner’s motions to compel production of the opinion_letters and the firm list primarily on the ground of relevance and on the ground that they impermissibly seek confidential return_information of third-party taxpayers respondent as the party objecting to discovery has the burden of establishing that his objections to the requests for production should be sustained 64_tc_191 relevance rule b regarding the scope of discovery provides in part 5at the hearing although not in his written notice of objection respondent briefly raised an argument that the opinion_letters and the methods employed by the government in collecting the opinion_letters constitute nondiscoverable work product because we sustain respondent’s objections to petitioner’s discovery requests on other grounds we need not and do not address this argument the information or response sought through discovery may concern any matter not privileged and which is relevant to the subject matter involved in the pending case it is not ground for objection that the information or response sought will be inadmissible at the trial if that information or response appears reasonably calculated to lead to discovery of admissible evidence regardless of the burden_of_proof involved although the standard of relevancy in a discovery action is generally liberal the court is especially careful to require a showing of relevancy where as in this case the discovery seeks confidential information relating to third parties avedisian v commissioner tcmemo_1987_176 citing 388_f2d_520 2d cir petitioner contends that the opinion_letters and the firm list are relevant to its defense against respondent’s determination of penalties under sec_6662 no penalty shall be imposed under sec_6662 with respect to any portion of an underpayment if it is shown that there was reasonable_cause and that the taxpayer acted in good_faith see sec_6664 whether a taxpayer acted with good_faith depends upon the facts and circumstances of each case see sec_1_6664-4 income_tax regs in this partnership-level proceeding the applicability of any penalty that relates to an adjustment to a partnership_item is determined at the partnership level see sec_6221 when considering the determination of penalties at the partnership level the court may consider defenses of the partnership including a reasonable_cause defense presented on behalf of the partnership see klamath strategic inv fund v united_states supra pincite new millennium trading l l c v commissioner t c ___ slip op pincite whitehouse hotel ltd pship v commissioner t c ___ slip op pincite respondent does not dispute that petitioner’s requested discovery pertains to defenses of the partnership that are properly before the court petitioner alleges and respondent does not dispute that in connection with many son-of-boss transactions one or more law firms or accounting firms wrote opinion_letters to the investors supporting the claimed tax treatment petitioner alleges and respondent does not dispute that respondent has a large number of these tax opinion_letters petitioner contends the availability of a large number of law firms and accounting firms issuing tax opinion_letters determining that so-called ‘son of boss’ transactions would produce the tax results as reported by petitioner on its subject tax_return would bolster petitioner’s position that it had reasonable_cause and that petitioner acted in good_faith similarly at the hearing petitioner’s counsel argued that based upon the general consensus of national law firms across the country that were issuing tax opinion_letters that were taking the same position as the petitioner in my case was taking i wanted to show that reasonable_cause does exist to take the position that we took on the tax_return petitioner’s argument appears to be a variant of the refrain familiar to parents of teenagers that everyone’s doing it for the same reason that this does not constitute reasonable_cause for teenagers it would not constitute reasonable_cause for petitioner petitioner must establish the reasonableness of its position on the basis of the facts and merits of its own case see avedisian v commissioner supra each individual must rest on the validity of his own position under the applicable taxing provisions independently of others the legal analysis conclusions and recommendations that some tax advisers may have given other taxpayers are irrelevant to the reasonableness of the positions the partnership took on its return see 63_tc_404 petitioner suggests that the requested information is relevant to the partnership’s defense that it reasonably relied upon the advice of tax advisers reliance on the advice of a professional tax adviser may demonstrate reasonable_cause and 6we also reject any suggestion that the requested information which appears to involve only a small subset of tax advisers shows any general consensus of tax advisers regarding son-of-boss transactions good_faith if taking into account all the facts and circumstances the reliance was reasonable and the taxpayer acted in good_faith sec_1_6664-4 c income_tax regs a defense of reasonable reliance on the advice of a professional tax adviser requires the advice to be provided to or for the benefit of the taxpayer and on which the taxpayer relies directly or indirectly with respect to the imposition of the sec_6662 accuracy-related_penalty sec_1_6664-4 income_tax regs reliance on a tax adviser may be reasonable and in good_faith if the taxpayer establishes the adviser was a competent professional with sufficient expertise to justify reliance the taxpayer provided necessary and accurate information and the taxpayer actually relied in good_faith on the adviser’s judgment see 115_tc_43 affd 299_f3d_221 3d cir petitioner does not contend that the advice in the undisclosed opinion_letters was provided directly to the partnership or for its benefit indeed petitioner’s motions to compel production are predicated on an alleged lack of access to these opinion_letters and to the identities of their authors petitioner seems to suggest however that information in the opinion_letters and the firm list might lead to the discovery of admissible evidence as to the reasonableness of the partnership’s reliance upon the tax_advice contained in opinion_letters that jenkens gilchrist provided to mr menighan with respect to the transaction at issue for the reasons described below we disagree the opinion_letters and the firm list have no bearing on any issue as to whether jenkens gilchrist was provided necessary and accurate information nor do we believe that the opinion_letters and the firm list have any bearing on any issue as to whether the partnership actually relied in good_faith on the advice of jenkens gilchrist if as petitioner’s discovery motions suggest the partnership before it filed its return did not have access to the names of any firms other than jenkens gilchrist that issued opinion_letters or to the opinion_letters which it now seeks we do not see how the identity of such firms and the contents of their opinion_letters could tend to establish that the partnership acted in good_faith when it filed its return finally petitioner’s requested discovery of the opinion_letters and the firm list does not appear reasonably calculated to lead to the discovery of admissible evidence with respect to any issue as to whether mr menighan’s tax advisers at jenkens gilchrist were competent professionals with sufficient expertise to justify reliance at best petitioner’s discovery requests might be calculated to lead to discovery of evidence that the advice that jenkens gilchrist provided mr menighan was in some degree similar to advice that other tax advisers had provided other taxpayers with respect to transactions that were in some degree similar but any relevance of such evidence would be too remote we believe to justify discovery of the requested materials especially considering that they relate directly to confidential information of third parties for similar reasons we believe the requested discovery would be unduly burdensome on respondent taking into account the needs of the case see rule b moreover we believe that discovery of evidence of the professional competence of mr menighan’s tax advisers at jenkens gilchrist is obtainable from other sources that are more convenient and less burdensome see id accordingly we shall sustain respondent’s relevance objections to petitioner’s motions to compel production of documents although these are sufficient grounds to deny petitioner’s discovery motions for the sake of completeness and because the parties have argued the issue at length we shall also briefly 7respondent argues persuasively that simply removing the names of taxpayers and other identifying information would not suffice to remove the confidential nature of the opinion_letters 8respondent’s counsel presented to the court as a representative example one of the jenkens gilchrist opinion_letters to mr menighan that respondent had previously provided petitioner the opinion letter is nearly pages respondent contends and we agree especially in the light of the remote relevance of these materials that it would be unduly burdensome for respondent to review possibly hundreds of such opinion_letters page by page to make redactions address respondent’s contentions that under sec_6103 the opinion_letters and the firm list constitute confidential return_information which may not be disclosed confidential return_information under sec_6103 sec_6103 provides that returns and return_information shall be confidential and shall not be disclosed except as authorized by this title see 484_us_9 sec_6103 defines return_information expansively to include among other things a taxpayer’s identity the nature source or amount of his income payments receipts deductions exemptions credits assets liabilities net_worth tax_liability tax withheld deficiencies over assessments or tax_payments whether the taxpayer’s return was is being or will be examined or subject_to other investigation or processing or any other data received by recorded by prepared by furnished to or collected by the secretary with respect to a return or with respect to the determination of the existence or possible existence of liability or the amount thereof of any person under this title for any_tax penalty interest fine forfeiture or other imposition or offense the flush language of sec_6103 provides that return_information does not include data in a form which cannot be associated with or otherwise identify directly or indirectly a particular taxpayer the purpose and effect of these provisions is to protect taxpayers’ private financial information contained within the files of the internal_revenue_service and therefore to encourage the taxpayers’ free and open disclosure to the service 92_tc_180 return_information may not be revealed to a third party except as specifically authorized under sec_6103 id we agree with respondent that the opinion_letters and the data requested in the firm list constitute return_information within the meaning of sec_6103 because they are data received by or collected by the secretary with respect to a return or with respect to the determination of the existence or possible existence of liability or the amount thereof of any person under this title petitioner’s contention that the opinion_letters are not protected from disclosure under sec_6103 because they are not tax returns or attachments thereto ignores the plain terms of the statute which makes confidential not only returns but also return_information as defined expansively in sec_6103 petitioner suggests that if respondent were to redact taxpayer-specific information from the opinion_letters as petitioner has requested they would no longer be protected return_information we disagree in church of scientology of cal v irs supra the supreme court held that correspondence and memoranda among other materials contained within investigative files of the internal_revenue_service irs were nondisclosable return_information even if redacted of identifying data the court stated congress did not intend the statute to allow the disclosure of otherwise confidential return_information merely by the redaction of identifying details id pincite petitioner’s reliance on 117_f3d_607 d c cir is misplaced in tax analysts the court_of_appeals held that legal analyses contained in field_service_advice memoranda fsas prepared by attorneys in irs’s national_office of the office_of_chief_counsel are not return_information under sec_6103 the court_of_appeals reasoned that legal analyses contained in fsas are not data within the meaning of sec_6103 because such non-taxpayer-specific information would have nothing to do with sec_6103’s core purpose of protecting taxpayer privacy id pincite in addition the court_of_appeals reasoned that sec_6103 should be construed in conjunction with sec_6110 which requires that written determinations of the secretary be made public id by contrast sec_6110 has no applicability to the opinion_letters or the firm list the opinion_letters were written by private law firms or accounting firms rather than the commissioner’s office_of_chief_counsel the opinion_letters were collected from investigated taxpayers or parties potentially subject_to penalties moreover as previously discussed both the opinion_letters even if based upon assumed sets of facts as petitioner suggests and the data requested in the firm list constitute information specific to other taxpayers that falls within the core purpose of sec_6103 of protecting taxpayer privacy with little elaboration petitioner contends that even if the opinion_letters are nondisclosable return_information under sec_6103 we should nevertheless determine that the firm list does not constitute return_information it is not apparent to us that the firm list presently even exists it is clear however that the information which petitioner seeks to have respondent provide in the firm list constitutes data collected by the secretary in determining other taxpayers’ tax_liabilities and is therefore return_information under sec_6103 cf 267_f3d_1132 d c cir identities of tax-exempt organizations identities of third parties requesting investigations of tax exempt_organizations and materials included in the third-party requests were nondisclosable return_information 921_f2d_729 7th cir the fact of an irs audit of a taxpayer was return_information petitioner has identified no statutory exception that would permit disclosure of the return_information which it seeks to discover we conclude and hold that the opinion_letters that 9at the hearing the court gave the parties the opportunity to brief whether sec_6103 which provides certain exceptions to nondisclosure in the case of judicial and continued respondent has not already provided and the firm list are confidential return_information under sec_6103 which respondent may not disclose to petitioner in the light of the foregoing an order will be issued denying petitioner’s motions to compel production of documents continued administrative proceedings has any applicability respondent contends it does not petitioner filed a legal memorandum but did not address this issue we deem petitioner to have waived or conceded any argument as to the applicability of sec_6103


internal_revenue_service date number release date index nos cc ita br05 plr-144620 attn legend date a date b cpa dear this is in response to your request for a private_letter_ruling regarding the late filing of a form_1128 application to adopt change or retain a tax_year submitted on behalf of the above-named taxpayer requesting permission to change its annual_accounting_period for federal_income_tax purposes the taxpayer is requesting permission to change its annual_accounting_period from a taxable_year ending may to a taxable_year ending december effective date a the taxpayer has requested that the form_1128 be considered timely filed under the authority contained in sec_301_9100-3 of the procedure and administration regulations the taxpayer is the common parent of a consolidated_group that adopted a may tax_year end the taxpayer decided that december would be a more appropriate year-end for its business and sought to change its tax_year it communicated its intent to change its tax_year to cpa the taxpayer relied on the cpa to prepare and file its form_1128 the taxpayer’s form_1128 was due on date b the taxpayer's form_1128 was never prepared and thus never filed the taxpayer unaware of this omission nevertheless filed its tax returns on its new tax_year the taxpayer has represented that it had satisfied all the regulatory and administrative procedural requirements necessary to make the change automatically sec_1_442-1 of the income_tax regulations as then in effect provided that in order to secure the commissioner's consent to a change in accounting_period the taxpayer must file an application on form_1128 with the commissioner on or before a the 15th day of the second calendar month following the close of the short_period or b if an automatic revenue_procedure is applicable as in the instant case on or before the due_date including extensions for filing the return for the short_period required to effect such change sec_301_9100-3 of the regulations provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions such as the instant case must be made under the rules of sec_301_9100-3 requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government based on the facts and information submitted and the representations made it is held that the taxpayer has acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government accordingly the requirements of the regulations for the granting of relief have been satisfied in this case and taxpayer’s late filed form_1128 requesting permission to change to a tax_year ending december effective for the tax_year beginning date a will be considered timely filed the ruling contained in this letter is based upon facts and representations submitted by the taxpayer and is limited to the filing of form_1128 except as specifically addressed herein no opinion is expressed regarding the tax treatment of the subject transaction under the provisions of any other sections of the code or regulations that may be applicable thereto this office has not verified any of the material submitted in support of the requested ruling verification of factual information representations and other data may be required as part of an examination process a copy of this letter_ruling and taxpayer's form_1128 are being forwarded to the service_center where the taxpayer files its federal_income_tax returns with instructions that the form_1128 be considered timely filed and processed in accordance with established procedures under the automatic revenue_procedure applicable to the taxpayer in accordance with the provisions of a power_of_attorney currently on file with this office a copy of this letter is being sent to the taxpayer’s designated representatives this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent sincerely william jackson branch chief branch office of associate chief_counsel income_tax accounting enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c government entities division jan ane uniform issue list no t ep ra ti ein legend state a city a corporation a plan x plan y ladies and gentlemen this is in response to a request submitted on your behalf by your authorized representative on date supplemented by correspondence dated april august september ruling letter concerning the federal_income_tax treatment of certain contributions to plans x and y under sec_414 of the internal_revenue_code code and date fora private date date in support of the ruling_request the following facts and representations have been submitted corporation a was created by a statute enacted in under the law of state a which provides in part as follows the corporation is a body politic and corporate and is constituted as a public instrumentality of state a and an independent unit in the executive branch of the state government the exercise by the corporation of the powers conferred by this subtitle is deemed to be the performance of an essential public function the purpose of the corporation is to plan develop and manage a state a museum of history and culture in city a in cooperation with and with the active support of the mayor and city council of city a affected state agencies and other public and private institutions years of the each appointee is the one member who is not so members of the board_of directors of corporation a are appointed by the governor for a term of appointed is the mayor of city a required to take the oath of office as set forth in the state constitution members appointed by the governor consist of certain state government officials are representatives of certain historical or cultural institutions in the state have expertise in certain history culture museums or fund- raising or represent the diversity of communities throughout the state that can benefit from the activities of corporation a governor at any time can be removed by the governor for misconduct or incompetence any of the directors appointed by the under the law of state a the board the members of the board_of directors as specified by upon dissolution of corporation a the law of state a control the management and affairs of corporation a all of its assets are required to be distributed to state a corporation a governor and to the general assembly as there are no private interests involved in the ownership or operations of corporation a determination_letter from the service stating that it organization described in sec_501 is required to report annually to the corporation a has received a to its activities of the code is an all but of the approximately dollar_figure total costs of constructing the museum has been funded by state a the site on which the museum will be constructed will be leased to corporation a by city a for a total rent of pursuant to the terms of a long-term_lease dollar_figure ai under state a statute the operating costs of corporation a are to be funded from annual grants from the state a budget or other income of corporation a state a funds have been appropriated to support percent of the museum's annual operating costs and after the museum opens to the public state a funds will be used to support percent of the museum's annual operating costs there are many provisions of state a personnel statutory law that apply to the employees of corporation a to the same extent as all other state a employees including a corporation a employee who employee rights on transfer between units of state government transfers to another state unit does not lose leave or credit earned while employed by corporation a state unit who transfers to corporation a does not lose leave or credit earned while employed by the other state unit likewise an employee of another employee rights on return to state service corporation a must restore all unused sick leave for reinstated corporation a employees and must grant reinstated employees all the benefits allowed under corporation a's personnel system which are the same protections afforded to other state employees corporation a must pay all employees employee payment through state's central payroll bureau through the state's central payroll bureau when those employees are paid from funds appropriated by the general assembly through the state budget and the central payroll bureau must maintain all supporting payroll records corporation a's funds to date and for the foreseeable future have been derived from the general assembly all employees of corporation a receive paychecks just like the ones received by state administrators and other employees of the state because all of we corporation a employees are entitled to no employee loss of health insurance benefits seniority or leave accruals while on leave with pay subsidized state health insurance benefits seniority and leave accruals and pay at the employee's regular hourly rate except during sick leave while on paid leave state health and welfare benefits a employees retirees and their survivors may participate in the state employee and retiree health and welfare benefits program including any state subsidies for the program to the same extent as other eligible state employees corporation the executive director and all pensions regular full-time employees of corporation a may participate in plan x or plan y including any state subsidies for the program employee_death_benefits corporation a employees are entitled to a death_benefit paid_by the state except when death is caused by the employee's negligence survivors of social_security_benefits employees their dependents and survivors are entitled to the same federal social_security_benefits as other state employees and officers corporation a e e e e in addition state a law expressly provides that employees and officials of corporation a enjoy the state's sovereign immunity from suit for tort liability to the same extent as personnel of other state units also the attorney_general of state a must provide legal counsel to corporation a and legal services to the museum established by corporation a plan y requires that employees contribute a certain percentage of salary over the social_security_wage_base employee contributions to plan x are required for certain employees who were members of that plan on december and did not transfer or terminate their membership the law of state a permits employers who participate in plans x and y to pick up contributions to the plans provided that the employer has received a favorable ruling from the service that it has an employer pick-up program within the meaning of sec_414 according to representations made with the ruling_request plans x and y are qualified_plans under sec_401 of the code and the trust funds of plans x and y are exempt from federal_income_tax under sec_501 a of the code on the board_of directors of in as employer pick- corporation a adopted a resolution authorizing corporation a subject_to the service's issuance of a favorable ruling to pick up the mandatory employee contributions of those employees who participate in plans x and y accordance with state a law although designated as employee contributions the contributions will be paid_by the employer through a reduction in current salary an offset against future salary or both up contributions these contributions will not be included in an employee's salary reported for federal_income_tax purposes and will be treated as employer contributions in determining the federal_income_tax treatment of distributions from plans x and y for all other purposes the pick-up contributions will be treated the same as the employee contributions received prior to the adoption of the pick-up program employee of corporation a be permitted to receive the picked-up contributions directly employer shall pick up the mandatory employee contribution and the employee's compensation must be reduced by the amount of the picked-up contribution corporation a represents that it will pay the picked-up contributions directly té plans x and y without ever allowing the employees direct access to such funds in no circumstances would any under the statute the based on the facts and representations as stated above corporation a requests the following rulings contributions made by corporation a on behalf of its employees to plans x and y will be governed by sec_414 of the code and more specifically that no part of the mandatory_contributions picked up by corporation a as an employer of employees included in plans x and y will be considered as gross_income of such employees for the taxable_year in which the pick-up is made the contributions whether picked up by salary reduction off-set against future salary increases or both and although designated as employee contributions will be treated as employer contributions for federal_income_tax purposes and the contributions picked up by corporation a will not constitute wages for federal_income_tax withholding purposes in the taxable_year in which contributed sec_414 of the code provides that contributions otherwise designated as employee contributions shall be treated as employer contributions if such contributions are made to a plan described in sec_401 established by a state government or a political_subdivision or by any agency_or_instrumentality thereof and are picked up by the employing unit the federal_income_tax treatment to be accorded in that revenue of the code is specified contributions which are picked up by the employer within the meaning of sec_414 in revrul_77_462 c b ruling the employer school district agreed to assume and pay the amounts employees were required by state law to contribute to a state pension_plan concluded that the school district's picked-up contributions to the plan are excluded from the employees' income until such time as they are distributed to the employees provisions of sec_3401 a contributions to the plan are excluded from wages for purposes of the collection of income_tax at source on wages therefore no withholding for federal_income_tax purposes is required from the employees' salaries with respect to such picked-up contributions the revenue_ruling held further that under the revrul_77_462 the school district's a and revrul_81_36 c b the issue of whether contributions have been picked up by an employer within the meaning of sec_414 h of the code is addressed in revrul_81_35 c b these revenue rulings established that the following two eriteria must be met the employer must specify that the contributions although designated as employee contributions are being paid_by the employer in lieu of contributions by the employee and the employee must not be given the option of choosing to receive amounts directly instead of having them paid_by the employer to the pension_plan an employer picks up contributions through a reduction in salary an offset against future salary increases or a combination of both is immaterial whether furthermore it in revrul_87_10 c b the service considered whether contributions designated as employee contributions to a governmental_plan are excludable from the gross_income of the employee the service concluded that and with respect to particular contributions the required specification of designated employee contributions must be completed before the period to which such contributions relate to satisfy the criteria set forth in revenue_ruling sec_117 considered a number of the revenue_ruling stated that one of in determining whether an organization is an agency_or_instrumentality of the united_states or any state or political_subdivision thereof the service in revrul_89_49 c b different factors the most important factors to be considered in determining whether an organization is an agency_or_instrumentality of the united_states or of any state or political_subdivision is the degree of control that the federal or state government has over the organization's everyday operations specific_legislation creating the organization source of funds for the organization which the organization’s trustees or operating board are selected considers the employees of the organization to be employees of the applicable governmental_unit all of the above factors are considered in determining whether the applicable governmental_unit the the manner in other factors include whether there is although nw whether an organization is an agency of a government the mere satisfaction of one or all of the factors is not necessarily determinative corporation a's sole purpose for being created is the establishment and maintenance of a cultural and historical museum we conclude that such a purpose can be treated as a governmental purpose and the support activity as a governmental function secondly all but one of the members of the board_of directors of corporation a are appointed by the governor of state a and they are chosen for their competence in the pursuit of the historical and cultural activity of the museum thirdly state a has funded percent of the museum construction costs percent of the museum's annual operating budget since and state a will fund percent annually after the museum opens to the public created by statute pursuant to the authority of the state a general assembly considering the totality of the personnel-related rules covering the employees of state a that also apply to the employees of corporation a employees of corporation a to be its employees accordingly for these reasons corporation a is an instrumentality of state a and thus constitutes an employing unit within the meaning of sec_414 h of the code the applicable governmental_unit considers the lastly we conclude that when for purposes of rev_rul fourth corporation a was the terms of plan x plan y and the resolution by corporation a satisfy the adopted on criteria set forth in revenue rulings and because the contributions although otherwise designated as employee contributions are to be made by corporation a in lieu of contributions by the employees and the employees may not elect to receive such contribution amounts directly accordingly we conclude that contributions made by corporation a on behalf of its employees to plans x and y will be governed by sec_414 of the code and more specifically that no part of the mandatory_contributions picked up by corporation a as an employer of employees included in plans x and y will be considered as gross_income of such employees for the taxable_year in which the pick-up is made the contributions whether picked up by salary reduction off-set against future salary increases or both and although designated as employee contributions will be treated as employer contributions for federal_income_tax purposes and the contributions picked up by corporation a will not constitute wages for federal_income_tax withholding purposes in the taxable_year in which contributed this ruling applies only to contributions specified in the resolution adopted on effective date for the commencement of the proposed pick- up of the mandatory_contributions cannot be earlier than the later of the date the resolution is put into effect or the date of this letter_ruling the ' no opinion is expressed as to whether the amounts in question are subject_to tax under the federal_insurance_contributions_act the amounts in question are being paid pursuant to a salary reduction agreement within the meaning of section b v no opinion is expressed as to whether this ruling is based on the assumption that plans x and y are qualified under sec_401 of the code and their related trusts tax exempt under sec_501 at all relevant times ig nee this letter only addresses the federal_income_tax treatment of certain contributions to be picked up by the taxpayer within the meaning of sec_414 code the taxpayer does not request a ruling as whether plan x or plan y is meaning of sec_414 of the code and this letter cannot be relied on for such purposes a governmental_plan within the of the to this ruling is directed only to the taxpayer who requested it that it may not be used or cited as precedent sec_6110 of the code provides a copy of this ruling is being sent to your authorized representative in accordance with a power_of_attorney on file in this office concerns regarding this ruling please contact should you have any at sincerely yours hi stwre ca john swieca manager employee_plans technical group tax_exempt_and_government_entities_division enclosures deleted copy notice of intention to disclose


department of the treasury internal_revenue_service washington d c office_of_chief_counsel number info release date index no date conex-149090-02 cc psi b8 dear i am responding to your date inquiry on behalf of your constituent your constituent asked about a repeal of the federal excise_tax on highway tractors used to pull recreational vehicles i cannot comment on whether the vehicle your constituent referred to is subject_to federal excise_tax however i hope the following general information is helpful the internal_revenue_code the code imposes a percent excise_tax on the first_retail_sale of tractors of the kind chiefly used for highway transportation with a trailer or semitrailer sec_4051 of the code if a vehicle is primarily designed to tow another vehicle such as a trailer or semitrailer the vehicle is a tractor sec_145_4051-1 of the temporary excise_tax regulations under the highway revenue act of a tractor is a taxable vehicle regardless of whether the trailer or semitrailer the tractor tows is used for recreational or commercial purposes if you have any questions please contact me at or my staff at of sincerely heather c maloy associate chief_counsel passthroughs and special industries


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 ------------------------------ ------------- telephone number -------------------- refer reply to cc psi b02 plr-133227-13 date date legend x a --------------------------------------------------------------------------------------------------------------------- ------- -------------------- trust --------------------------------------------------------------------------------------------------------------------- ------ trust --------------------------------------------------------------------------------------------------------------------- ------- trust --------------------------------------------------------------------------------------------------------------------- ------ trust -------------------------------------------------------------------------------------------------------------------- ------- state date date date date date ------------ ------------------ ----------------- --------------------------- --------------------------- ------------------ plr-133227-13 dear---------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated under the laws of state on date and elected to be an s_corporation effective date trust trust and trust each of which was a qualified_subchapter_s_trust qsst under sec_1361 for which a was the sole income_beneficiary were shareholders of x on date a died trust trust and trust each continued to qualify as a permissible s_corporation shareholder under sec_1_1361-1 of the income_tax regulations for the 2-year period beginning on the day of the deemed owner’s death and ending on date on date trust trust and trust each became an ineligible shareholder of x and x’s election to be an s_corporation terminated on date the trustees of each of trust trust and trust distributed each trust’s stock in x to trust which x represents is a qsst x represents that the circumstances resulting in the termination of x’s s_corporation_election were inadvertent and were not motivated by tax_avoidance or retroactive tax planning x and its shareholders have agreed to make any adjustments that the commissioner may require consistent with the treatment of x as an s_corporation sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 provides that a small_business_corporation means a domestic_corporation that is not an ineligible_corporation and that does not have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1361 provides that for the purposes of sec_1362 a_trust all of which is treated under title_26 subtitle a chapter subchapter_j part i subpart e of the united_states_code as owned by an individual who is a citizen or resident_of_the_united_states may be a shareholder of an s_corporation sec_1361 and sec_1_1361-1 of the income_tax regulations provide that for purposes of sec_1361 a_trust that is described in sec_1361 immediately before the death of the deemed owner and that continues in existence after plr-133227-13 such death is a permitted shareholder but only for the two-year period beginning on the day of the deemed shareholder’s death sec_1_1361-1 provides that if stock is held by a_trust described in sec_1_1361-1 the estate of the deemed owner is generally treated as the shareholder as of the day of the deemed owner’s death sec_1361 provides that in the case of a qualified_subchapter_s_trust with respect to which a beneficiary makes an election under sec_1361 a such trust will be treated as a_trust described in sec_1361 and b for purposes of sec_678 the beneficiary of such trust shall be treated as the owner of that portion of the trust which consists of stock in an s_corporation with respect to which the election under sec_1361 is made sec_1_1361-1 provides that the income_beneficiary who makes the qsst election and is treated for purposes of sec_678 as the owner of that portion of the trust that consists of s_corporation stock is treated as the shareholder for purposes of sec_1361 sec_1366 sec_1367 and sec_1368 sec_1_1361-1 provides that if upon the death of an income_beneficiary the trust continues in existence continues to hold s_corporation stock but no longer satisfies the qsst requirements is not a qualified_subpart_e_trust and does not qualify as an esbt then solely for purposes of sec_1361 as of the date of the income beneficiary’s death the estate of that income_beneficiary is treated as the shareholder of the s_corporation with respect to which the income_beneficiary made the qsst election the estate ordinarily will cease to be treated as the shareholder for purposes of sec_1361 upon the earlier of the transfer of that stock by the trust or the expiration of the 2-year period beginning on the day of the income beneficiary’s death during the period that the estate is treated as the shareholder for purposes of sec_1361 the trust is treated as the shareholder for purpose sec_1366 sec_1367 and sec_1368 sec_1362 provides that if an election under sec_1362 by any corporation was terminated under sec_1362 or the secretary determines that the circumstances resulting in such termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the termination steps were taken so that the corporation is a small_business_corporation and the corporation and each person who was a shareholder of the corporation at any time during the period specified under sec_1362 agrees to make the adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary for that period then notwithstanding the circumstances resulting in such termination the corporation shall be treated as an s_corporation during the period specified by the secretary plr-133227-13 based solely on the information submitted and the representations made we conclude that x’s s_corporation_election terminated on date when trust trust and trust became ineligible shareholders we further conclude that the termination of x’s s_corporation_election was an inadvertent termination within the meaning of sec_1362 accordingly pursuant to the provisions of sec_1362 x will be treated as an s_corporation from date and thereafter provided that x’s s_corporation_election was otherwise valid and has not otherwise terminated under sec_1362 except as specifically ruled above we express or imply no opinion concerning the federal tax consequences of the transactions described above under any other provision of the code specifically we express or imply no opinion regarding whether x is otherwise eligible to be an s_corporation this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative sincerely bradford r poston senior counsel branch passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number ---------------- ------------------------------------------- ------------------------------------- -------------------------------------- ---------------------------------- --------------------------------------- ---------------------------- - --------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------ id no ------------- telephone number --------------------- refer reply to cc ita b03 plr-124503-03 date date ------------ ------------------------------------- legend corporation --------------------- ------------------------------------------------- foundation ------------------------------------------------- state1 state2 dear --------------- this letter responds to a ruling_request jointly submitted by corporation and the foundation by a letter dated date as supplemented by letters dated date date date and date corporation and the foundation requested identical letter rulings on the issues listed below corporation and the foundation have executed forms tax information authorizations allowing each to receive the other’s confidential tax information related to the joint ruling_request both corporation and the foundation have the same authorized representatives ------------- plr-124503-03 previously corporation and the foundation jointly submitted a ruling_request based on an earlier version of the draft stock_option pledge agreement the foundation received plr date this ruling letter is based on a later version of the draft stock_option pledge agreement and encompasses the factual scenarios arising under plr this letter as of its effective date supercedes plr issue sec_1 whether the pledge of the options by corporation constitutes an act of self-dealing between the foundation and a disqualified_person under the provisions of sec_4941 of the internal_revenue_code whether the exercise of the options by the foundation pursuant to the net exercise procedure will constitute an act of self-dealing between the foundation and a disqualified_person under sec_4941 of the code whether the exercise of the options by an unrelated charity will constitute an act of self-dealing between the foundation and a disqualified_person under sec_4941 of the code whether any proceeds that the foundation receives upon the transfer of options to the unrelated charities will be excluded from the computation of the foundation's net_investment_income under sec_4940 of the code whether the gain on the foundation's exercise of the options through the net exercise procedure or sale of the options to an unrelated charity will not be subject_to tax on unrelated_business_taxable_income imposed by sec_511 of the code a if the foundation transfers the options to an unrelated charitable_organization and that charitable_organization engages in a cash exercise of the options whether corporation will be entitled to a charitable_contribution_deduction under sec_170 of the code upon the exercise of the options by the unrelated charitable_organization and whether such deduction will be for an amount equal to the difference between the exercise price and the fair_market_value of the corporation stock transferred upon the exercise plus cash distributed in lieu of a fractional share subject_to the flush language of sec_170 concerning requirements for use of contributions made by corporations and subject_to the limitations on the amount of a charitable_contribution_deduction of a corporation under sec_170 b if the foundation engages in a net exercise of the options whether corporation will be entitled to a charitable_contribution_deduction at the time of the net exercise and whether such deduction will be for an amount equal to the fair_market_value of the corporation stock transferred to the foundation upon the net exercise plus cash plr-124503-03 distributed in lieu of a fractional share subject_to the flush language of sec_170 concerning requirements for use of contributions made by corporations and subject_to the limitations on the amount of a charitable_contribution_deduction of a corporation under sec_170 c if the foundation transfers the options to an unrelated charitable_organization and that charitable_organization engages in a net exercise of the options whether corporation will be entitled to a charitable_contribution_deduction at the time of the net exercise and whether such deduction will be for an amount equal to the fair_market_value of the corporation stock transferred to the charitable_organization upon the net exercise plus cash distributed in lieu of a fractional share subject_to the flush language of sec_170 concerning requirements for use of contributions made by corporations and subject_to the limitations on the amount of a charitable_contribution_deduction of a corporation under sec_170 facts corporation is a for-profit state1 corporation its publicly held stock is listed on the new york stock exchange it is the common parent of an affiliated_group_of_corporations filing consolidated federal_income_tax returns the foundation was established as a state2 trust pursuant to a declaration of trust to provide a vehicle for corporation's charitable giving pursuant to a letter_ruling issued by the irs the foundation is recognized as exempt from tax under sec_501 and is a private_foundation within the meaning of sec_509 the foundation was organized for the purpose of making distributions to or for_the_use_of organizations described in sec_170 and or corporation is a substantial_contributor to the foundation and as such is a disqualified_person with respect to the foundation within the meaning of sec_4946 each of the foundation's trustees is an officer of corporation corporation proposes to pledge to the foundation stock_options for the purchase of shares of common_stock of corporation corporation stock pursuant to a stock_option pledge agreement corporation will not receive any consideration for its pledge of the options the business_purpose of the pledge of the options is to further the charitable purposes of the foundation and other charitable organizations the options will be exercisable at a price specified in the stock_option pledge agreement the exercise price may be equal to or greater than or less than the closing price of corporation stock on the new york stock exchange on the date that the option pledge agreement between corporation and the foundation is executed the option pledge agreement may provide for a cap on the maximum value that may be realized plr-124503-03 upon exercise of the option regardless of how high the trading price of corporation stock rises the options may be exercisable in whole or in part at any time and from time to time beginning on a date specified in the option pledge agreement which may be the date the option pledge agreement is executed or a later date and ending on a specified date or the options may be exercisable only on one date as specified in the option pledge agreement the option pledge agreement may provide that the options will automatically be exercised if corporation stock reaches a certain trading price the foundation will not directly exercise the options because payment of the purchase_price to corporation could constitute self-dealing within the meaning of sec_4941 instead it is anticipated that the foundation will either transfer the options to an unrelated charitable_organization or engage in a net exercise with corporation through a procedure more fully described below under the option pledge agreement the foundation will have the power to transfer the options or any portion thereof to one or more unrelated charitable organizations i described in sec_170 and sec_501 and ii that are not private_foundations under sec_509 or organizations described in sec_509 the option agreement will define an unrelated charitable_organization as a charitable_organization that is i not controlled by the foundation and ii not controlled by any person or entity that is a disqualified_person as defined in sec_4946 with respect to the foundation generally the options will be exercisable in whole or in part and depending on the terms of the option may be exercisable from time to time by a written notice of exercise delivered to corporation upon the exercise of the options the certificate or certificates for shares of corporation stock as to which the options will have been exercised or other evidence of ownership will be delivered to the person or persons exercising the options or to such other party as the exercising person may designate in addition the option pledge agreement will provide a cash-less exercise net exercise procedure in which the holder of the options makes no cash payment to corporation the foundation will have this power and an unrelated charitable_organization to which the options are transferred may have this power under the net exercise procedure the holder would elect to receive shares of corporation stock equal to the net value of the options being exercised on the date of exercise subject_to a cap on the maximum value that may be received if the option pledge agreement includes such a provision the net value of the options is calculated by subtracting the exercise price for the number of options being exercised from the value of the shares that the holder would have received upon a direct exercise which would reflect the cap amount if the option pledge agreement includes such a provision if the holder were to elect the net exercise procedure the holder would notify corporation of the number of options being exercised along with written notice of its election to use the net exercise plr-124503-03 procedure and corporation would issue to the holder the number of shares of corporation stock computed using the formula specified in the option pledge agreement whenever any of the calculations would result in the delivery of a fractional share upon exercise the number of shares to be delivered shall be rounded down to the nearest whole number and in lieu of a fractional share corporation shall make a cash payment equal to the value thereof based on fair_market_value there are two ways that the foundation will be able to obtain value from the option pledge from corporation it will either i use the net exercise procedure to effect a transfer of corporation stock from corporation in satisfaction of its pledge obligation or ii transfer the options to one or more unrelated charities the foundation may transfer the options to an unrelated charity for consideration which may be a price negotiated at arm's length less an agreed-upon discount the fair_market_value of the option would be affected by the terms in the option pledge agreement alternatively the foundation might choose to transfer options to an unrelated charity without consideration the unrelated charity would be expected to exercise the options prior to their expiration corporation will comply with the record keeping and return requirements of sec_1_170a-13 to the extent applicable law and analysis - issues law sec_4941 of the code provides that the term self-dealing includes any lending of money or other extension of credit between a private_foundation and a disqualified_person sec_53_4941_d_-2 of the foundation and similar excise_taxes regulations provides that the making of a promise pledge or similar arrangement to a private_foundation by a disqualified_person whether evidenced by an oral or written_agreement a promissory note or other instrument of indebtedness to the extent motivated by charitable intent and unsupported by consideration is not an extension of credit within the meaning of this paragraph before the date of maturity sec_53_4941_d_-1 of the regulations provides that the term indirect self- dealing includes any transaction between a disqualified_person and an organization controlled by a private_foundation within the meaning of sec_53_4941_d_-1 sec_53_4941_d_-1 of the regulations provides for purposes relative to acts of indirect self-dealing under sec_4941 of the code two basic tests for determining whether an organization is controlled by a private_foundation there is control if the foundation or one of its foundation managers acting only in such capacity may plr-124503-03 only by aggregating their votes or positions of authority require the organization to engage in a transaction which if engaged in with the private_foundation would constitute self-dealing or in the case of a transaction between the organization and a disqualified_person if such disqualified_person together with one or more persons who are disqualified persons by reason of such a person's relationship within the meaning of sec_4946 through g to such disqualified_person may only by aggregating their votes or positions of authority with that of the private_foundation require the organization to engage in such a transaction the regulation also provides that an organization will be considered to be controlled by a private_foundation or by a private_foundation and disqualified persons if such persons are able in fact to control the organization even if their aggregate voting power is less than percent of the total voting power of the organization's governing body or if one or more of such persons has the right to exercise veto power over the actions of such organization relevant to any potential acts of self-dealing sec_511 of the code imposes a tax on the unrelated_business_taxable_income of organizations described in sec_501 of the code sec_512 of the code defines unrelated_business_taxable_income as the gross_income earned by an organization from an unrelated_trade_or_business which is regularly carried on less applicable deductions sec_512 of the code excludes from unrelated_business_taxable_income gains or losses from the sale exchange or other_disposition of property other than a stock_in_trade or other_property of a kind which would properly be includible in inventory if on hand at the close of the taxable_year or b property_held_primarily_for_sale to customers in the ordinary course of the trade_or_business in 755_f2d_404 5th cir the court held that gain from the sale of timberland was excluded from the computation of an organization's capital_gain_net_income the court stated that property that produces capital_gain through appreciation is not an independent category of property whose disposition will be taxable and that the regulations to the extent that they imply it is are invalid because they exceed the scope of the code provisions analysis because the pledge of the option was given without any consideration for the purpose of furthering the charitable purposes of the foundation and other unrelated charitable organizations the pledge of the stock_options by corporation to the foundation does not constitute an act of self-dealing between corporation and the foundation sec_53_4941_d_-2 of the regulations such pledges are not extensions of credit pursuant to sec_53_4941_d_-2 of the regulations corporation pledged the stock_options and will satisfy the options with plr-124503-03 common_stock equal in value to the pledged options because the pledged stock_options were given gratuitously the substitution of common_stock in satisfaction of the pledged stock_options before the expiration date will not result in a self-dealing sale_or_exchange of property between corporation and the foundation thus the foundation's use of the net exercise provisions to collect corporation's pledge obligation will not result in a self-dealing sale_or_exchange of property between corporation and the foundation the transfer of the option by the foundation to an unrelated charity will not be an act of self-dealing since the cancellation of the enforceable pledge will be for consideration paid_by a non-disqualified person or an entity not controlled by a disqualified_person the consideration will be an amount negotiated at arm’s length - equal to the difference between the fair_market_value of the stock subject_to the option on the date of the transfer less an agreed upon discount or the black-scholes value of the option since a representation has been made that the unrelated charity will not be controlled by the foundation as defined in sec_53_4941_d_-1 of the regulations the exercise of the stock_option by the unrelated charity will not constitute an act of self- dealing between the foundation and a disqualified_person as concluded in zemurray foundation v united_states cited above the tax on capital_gain through appreciation applies only to non-charitable assets susceptible to use to produce interest dividends rents and royalties stock_options are not such assets accordingly the foundation's proceeds from the sale of the stock_options to an unrelated charity would be excluded from the computation of the foundation's net_investment_income under sec_4940 of the code because the foundation will not hold the stock_options either as stock_in_trade inventory or for sale in the ordinary course of business the gain on the sale of the stock_options will be excluded from the computation of unrelated_business_taxable_income under sec_512 of the code gain on the sale of the stock_options by the foundation to an unrelated charity will not produce any unrelated_business_taxable_income because the sale comes within the exclusion under sec_512 of the code the exceptions to the exclusion do not apply because the foundation does not resemble a merchant who acquires or produces property to sell to customers furthermore the foundation's receipt of common_stock pursuant to the net exercise of the stock_options is simply the collection of a pledge obligation that will not create unrelated_business_income under sec_512 of the code conclusions - issues plr-124503-03 the pledge of the options by corporation will not constitute an act of self-dealing between the foundation and a disqualified_person under the provisions of sec_4941 of the code the exercise of the options by the foundation pursuant to the net exercise procedure will not constitute an act of self-dealing between the foundation and a disqualified_person under sec_4941 of the code the exercise of the options by an unrelated charity will not constitute an act of self- dealing between the foundation and a disqualified_person under sec_4941 of the code any proceeds that the foundation receives upon the transfer of options to an unrelated charity will be excluded from the computation of the foundation's net_investment_income under sec_4940 of the code gain on the foundation's exercise of the options through the net exercise procedure or sale of the stock_options to an unrelated charity will not be subject_to tax on unrelated_business_taxable_income imposed by sec_511 of the code this letter does not address the treatment of the foundation's ownership of stock_options in the minimum_investment_return under sec_4942 of the code law and analysis - issue sec_170 of the code provides the general_rule that subject_to certain limitations there shall be allowed as a deduction any charitable_contribution as defined in sec_170 payment of which is made within the taxable_year a charitable_contribution shall be allowable as a deduction only if verified under regulations prescribed by the secretary see also sec_1_170a-1 of the income_tax regulations sec_1_170a-1 provides that any charitable_contribution as defined in sec_170 actually paid during the taxable_year is allowable as a deduction in computing taxable_income irrespective of the method_of_accounting employed or of the date on which the contribution is pledged see also sec_1_461-1 however charitable_contributions by corporations may under certain circumstances be deductible even though not paid during the taxable_year as provided in sec_170 and sec_1_170a-11 sec_1_170a-1 provides that ordinarily a contribution is made at the time delivery is effected sec_1_170a-1 provides that if a charitable_contribution is made in property other than money the amount of the contribution is the fair_market_value of the property at the time of the contribution reduced as provided in sec_170 and section plr-124503-03 170a-4 a or sec_170 and sec_1_170a-4a sec_1_170a-1 provides that the fair_market_value is the price at which the property would change hands between a willing buyer and a willing seller neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts revrul_68_174 1968_1_cb_81 provides that a debenture bond or a promissory note issued and delivered by the obligor to a charitable_organization described in sec_170 represents a mere promise to pay at some future date and is not a payment for purposes of deducting a contribution under sec_170 cf revrul_78_38 1978_1_cb_67 revrul_75_348 1975_2_cb_75 holds that a corporation that pledges to sell shares of its common_stock at a specified price to a charitable_organization described in sec_170 is entitled to a charitable_contribution_deduction in the taxable_year in which the pledge is exercised the amount of the contribution is the excess of the fair_market_value of the shares on the date the pledge is exercised over the exercise price also because of the provisions of sec_1032 no gain will be recognized by the corporation as a result of the exercise of the pledge agreement revrul_82_197 1982_2_cb_72 concludes that an individual who grants an option on real_property to a charitable_organization described in sec_170 is allowed a charitable_contribution_deduction for the year in which the organization exercises the option the amount of the contribution is the excess of the fair_market_value of the property on the date the option is exercised over the exercise price conclusion - issue a if the foundation transfers the options to an unrelated charitable_organization and that charitable_organization engages in a cash exercise of the options corporation will be entitled to a charitable_contribution_deduction under sec_170 of the code only upon the exercise of the options by the unrelated charitable_organization and such deduction will be for an amount equal to the difference between the exercise price and the fair_market_value of the corporation stock transferred upon the exercise plus cash distributed in lieu of a fractional share subject_to the flush language of sec_170 concerning requirements for use of contributions made by corporations and subject_to the limitations on the amount of a charitable_contribution_deduction of a corporation under sec_170 b if the foundation engages in a net exercise of the options corporation will be entitled to a charitable_contribution_deduction only at the time of the net exercise and such deduction will be for an amount equal to the fair_market_value of the corporation stock transferred to the foundation upon the net exercise plus cash distributed in lieu of a fractional share subject_to the flush language of sec_170 concerning requirements for use of contributions made by corporations and subject_to the plr-124503-03 limitations on the amount of a charitable_contribution_deduction of a corporation under sec_170 c if the foundation transfers the options to an unrelated charitable_organization and that charitable_organization engages in a net exercise of the options corporation will be entitled to a charitable_contribution_deduction only at the time of the net exercise and such deduction will be for an amount equal to the fair_market_value of the corporation stock transferred to the charitable_organization upon the net exercise plus cash distributed in lieu of a fractional share subject_to the flush language of sec_170 concerning requirements for use of contributions made by corporations and subject_to the limitations on the amount of a charitable_contribution_deduction of a corporation under sec_170 if the stock that corporation transfers is subject_to restrictions that may materially affect the fair_market_value of the stock compare sec_1_170a-13 because this letter could help resolve any future questions about your income_tax responsibility please keep a copy of this letter_ruling in your permanent records except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any item discussed or referenced in this letter this ruling is directed only to the organization requesting it sec_6110 of the code provides that it may not be used or cited as precedent copies of this letter are being sent to your authorized representatives in accordance with the power_of_attorney on file with this office as modified by the submission dated date sincerely christopher f kane chief branch office of associate chief_counsel income_tax accounting enclosures cc copy of this letter copy for sec_6110 purposes


internal_revenue_service cor-115791-00 number info release date uil the honorable mark souder u s house of representatives washington d c dear mr souder date thank you for your letter of date signed by you and a number of your colleagues encouraging the internal_revenue_service to immediately readjust the business standard mileage rate to reflect the recent increase in gasoline prices you note that the increased cost has particularly burdened self-employed taxpayers who use automobiles for business purposes gasoline prices we realize increased gasoline prices are an economic burden however the cost of gasoline is only one part of the business standard mileage rate which includes fixed and operating automobile costs these costs include depreciation or lease payments maintenance and repairs insurance and license and registration fees in addition to gasoline and oil less than one-third of the cents per mile rate comes from the cost of gasoline and oil thus an immediate adjustment in the rate taking into account the recent increase in gasoline prices might not be significant setting the business standard mileage rate the rate is a national average amount determined by an annual study performed by an independent_contractor who is an expert in the cost analysis of business use of automobiles the contractor uses recent data from each state on the component costs of operating the most popular automobiles the contractor then combines this data to achieve a national composite cents-per-mile rate advantages of using the business standard mileage rate reducing a taxpayer’s record-keeping burden is the principal advantage of using the rate gasoline prices rise and fall during the year but taxpayers may continue to use the same rate without having to keep records of actual expenses although rising gasoline prices can be a disadvantage for taxpayers who use the rate falling prices can work to their advantage for example although gasoline prices fell in for all of and through date taxpayers were able to use the rate that reflected the earlier higher prices taxpayer’s options to deduct the ordinary and necessary expenses of using an automobile for business purposes a taxpayer must substantiate the cost date place and business_purpose of each use of the automobile by adequate_records for the cost the taxpayer has two options cid substantiate actual cost by keeping records or by other_sufficient_evidence cid use the business standard mileage rate using the rate gives approximate not actual costs taxpayers can deduct the actual business_expenses of using a personally-owned automobile and this may be advantageous when automobile costs are rising publication travel entertainment gift and car expenses contains further information on how taxpayers should substantiate expenses i have enclosed the relevant pages from that publication i am sending a similar letter to your colleagues i hope this information is helpful please call me at or robert a berkovsky at if you have any questions sincerely charles o rossotti enclosure


t c memo united_states tax_court walter j antonyshyn and georgiana l antonyshyn petitioners v commissioner of internal revenue respondent docket no filed date james g lebloch for petitioners eric m heller for respondent memorandum findings_of_fact and opinion ashford judge by statutory_notice_of_deficiency dated date respondent determined deficiencies in petitioners’ federal_income_tax of dollar_figure and dollar_figure and accuracy-related_penalties pursuant to sec_6662 of dollar_figure and dollar_figure for the and taxable years years at issue respectively after concessions the issue remaining for decision is whether petitioner sec_2 are entitled to rental real_estate loss deductions claimed on their schedules e supplemental income and loss under sec_469 for the years at issue we resolve this issue in favor of respondent findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference petitioners resided in california when their petition was timely filed with the court i petitioners’ residential rental properties during the years at issue mr antonyshyn was an engineer who worked full time for l k comstock co as a project manager mrs antonyshyn was not employed but she held herself out as the property manager of petitioners’ residential rental properties 1unless otherwise indicated all section references are to the internal_revenue_code in effect for the years at issue and all rule references are to the tax_court rules_of_practice and procedure all monetary amounts are rounded to the nearest dollar 2mr antonyshyn did not appear in court at trial but the court’s decision will be binding upon both spouses during the years at issue petitioners owned the following six residential rental properties three single-family residences--one in raleigh north carolina north carolina property a second in o’fallon missouri missouri property and a third in rockwall texas texas property two duplexes each containing two units in augusta georgia collectively georgia properties and a condominium in philadelphia pennsylvania pennsylvania property mr antonyshyn originally purchased the texas property as a residence but he moved to california after he was transferred for work petitioners retained the texas property and used it as a rental property it was rented in but a fire partly destroyed the house soon after the texas property underwent construction until and was not rented out ie did not generate any rental income during the years at issue the pennsylvania property also was not rented out and thus did not generate any rental income during the years at issue it was originally purchased for petitioners’ son who lived there while he attended college after their son’s graduation petitioners intended to lease the pennsylvania property but had difficulty doing so because of problems with the condominium association the rental issues were never resolved and they sold the property in petitioners hired management companies to oversee the north carolina property the georgia properties and the missouri property the management companies found prospective tenants for petitioners inspected properties collected rents received tenant complaints issued notices to tenants and informed petitioners about any issues on the properties mrs antonyshyn tracked her time devoted to their residential rental properties by making notes on pieces of paper as she completed any associated activity mr antonyshyn would later input her time in a computer_program to create a report of her activities on a weekly basis mrs antonyshyn reported big_number and big_number hours for and respectively many of these hours were for nonmanagerial activities ie investor-type activities ii petitioners’ tax returns petitioners prepared and filed timely with the assistance of a paid preparer their form sec_1040 u s individual_income_tax_return for the years at issue as relevant here petitioners attached to each form_1040 a schedule e reporting rental income and expenses attributable to their residential rental properties on their schedule e they claimed loss deductions totaling dollar_figure on their schedule e they claimed loss deductions totaling dollar_figure respondent disallowed the claimed loss deductions for and because petitioners’ residential rental activities were passive activities in the context of sec_469 i burden_of_proof opinion in general the commissioner’s determinations set forth in a notice_of_deficiency are presumed correct and the taxpayer bears the burden of proving otherwise rule a 290_us_111 tax deductions are a matter of legislative grace and the taxpayer bears the burden of proving entitlement to any deduction claimed 89_tc_816 as relevant here this burden requires the taxpayer to demonstrate that the claimed deductions are allowable pursuant to some statutory provision and to substantiate claimed loss deductions by maintaining and producing adequate_records sec_6001 116_tc_438 if the taxpayer produces credible_evidence with respect to any factual issue relevant to ascertaining his federal_income_tax liability and meets certain other requirements the burden_of_proof shifts from the taxpayer to the commissioner as to that factual issue sec_7491 and petitioners allege that the burden_of_proof should shift to respondent pursuant to sec_7491 because they have provided credible_evidence to substantiate their claimed loss deductions as discussed infra the evidence does not establish that the burden_of_proof should shift from petitioners to respondent under sec_7491 as to any issue of fact ii sec_469 losses from residential rental activities a taxpayer is allowed deductions for certain business and investment_expenses under sec_162 and sec_212 where the taxpayer is an individual however sec_469 generally disallows any passive_activity_loss for the taxable_year in which the loss is sustained and treats it as a deduction allocable to the same activity for the next taxable_year sec_469 and b a passive_activity_loss is defined as the excess of the aggregate losses from all passive activities for the taxable_year over the aggregate income from all passive activities for that year sec_469 a passive_activity generally is any activity involving the conduct_of_a_trade_or_business in which the taxpayer does not materially participate sec_469 a taxpayer is treated as materially participating in an activity only if his or her involvement in the operations of the activity is regular continuous and substantial sec_469 rental_activity is treated as a per se passive_activity regardless of whether the taxpayer materially participates sec_469 as relevant here sec_469 provides an exception to the rule that a rental_activity is per se passive the rental activities of a taxpayer in a real property trade_or_business who meets certain enumerated requirements a real_estate_professional are not subject_to the per se rental_activity rule sec_469 sec_1_469-9 c income_tax regs rather the rental activities of a real_estate_professional are subject_to the material_participation requirements of sec_469 see sec_1_469-9 income_tax regs petitioners contend that mrs antonyshyn qualifies as a real_estate_professional a taxpayer qualifies as a real_estate_professional if more than one-half of the personal services performed in trades_or_businesses by the taxpayer during the taxable_year are performed in real_property trades_or_businesses in which the taxpayer materially participates and the taxpayer performs more than hours of services during the taxable_year in real_property trades_or_businesses in which he or she materially participates sec_469 a taxpayer may establish hours of participation in a real_property_trade_or_business by any reasonable means sec_1_469-5t temporary income_tax regs fed reg date contemporaneous daily reports are not 3in the case of a joint federal_income_tax return such as here the requirements to qualify as a real_estate_professional are satisfied if and only if either spouse separately satisfies the requirements there can be no aggregation of spouses’ hours to satisfy the requirements see sec_469 flush language 135_tc_365 in any event the parties have stipulated that mr antonyshyn was not a real_estate_professional during the years at issue required if the taxpayer can establish participation by other reasonable means id reasonable means includes appointment books calendars or narrative summaries that identify the services performed and the approximate number of hours spent performing such services id however this court has noted previously that it is not required to accept a postevent ballpark guesstimate or the unverified undocumented testimony of taxpayers see eg 135_tc_365 lum v commissioner tcmemo_2012_103 estate of stangeland v commissioner tcmemo_2010_185 in determining whether mrs antonyshyn was a real_estate_professional during the years at issue there is no dispute that her residential rental activities constitute a real_property_trade_or_business in addition we assume without deciding that she materially participated in this real_property_trade_or_business however even with this undisputed fact and favorable assumption we find that mrs antonyshyn did not qualify as a real_estate_professional during the years at issue because she failed to meet the 750-hour requirement mrs antonyshyn testified that she tracked her time devoted to her and mr antonyshyn’s residential rental properties by making notes on pieces of paper as she completed any associated activities mr antonyshyn would later enter her time in a computer_program to keep track of her activities she testified that she reviewed these computerized logs for accuracy numerous entries in the logs for the years at issue pertained to investment activities respondent contends that the hours related to investment activities should not count towards the 750-hour requirement if a taxpayer’s capacity in a given activity is more akin to that of an investor then the activity cannot be treated as participation for purposes of deducting passive losses unless the taxpayer is involved in day-to-day management sec_1_469-5t temporary income_tax regs supra sec_1_469-5t temporary income_tax regs supra defines investor activities as follows b work done in individual’s capacity as an investor for purposes of this paragraph f ii work done by an individual in the individual’s capacity as an investor in an activity includes-- studying and reviewing financial statements or reports on operations of the activity preparing or compiling summaries or analyses of the finances or operations of the activity for the individual’s own use and monitoring the finances or operations of the activity in a non-managerial capacity mrs antonyshyn secured the services of three different management companies to handle the day-to-day operations of most of her and mr antonyshyn’s residential rental properties during the years at issue mrs antonyshyn contracted for these management companies to handle many of the daily operational obligations that a real_estate_professional would perform these companies handled activities such as collecting rent inspecting the properties showing the properties advertising vacancies and handling maintenance calls which they would relay to mrs antonyshyn we find that mrs antonyshyn performed little to no day-to-day management or operations of petitioners’ real_estate activities accordingly the log entries for investment activities do not count towards the 750-hour requirement for the years at issue see barniskis v commissioner tcmemo_1999_258 slip op pincite her logs also included entries pertaining to seminars petitioners did not provide evidence to show how these seminars pertained to their residential rental properties likewise these hours should not be counted mrs antonyshyn’s logs included several discrepancies for example her log included an entry for collecting rent for the texas property which was not rented during the log included an entry for a colorado property 4petitioners did not hire a management company to handle the day-to-day operations for the pennsylvania property and the texas property during the years at issue but neither property was rented out ie generated any income during the years at issue petitioners did not own a property in colorado during the years at issue sometimes mrs antonyhsyn would report minutes for a task but on another day she would report four hours for the same task making her logs inconsistent mrs antonyshyn’s logs included excessive hours she would report four hours for traveling to and from the post office but the round trip drive was approximately minutes her logs also included entries for services that the management companies or a repairman or gardener performed further there are no supporting documents to substantiate the hours mrs antonyshyn reported for the years at issue we conclude that the logs are not reliable and that mrs antonyshyn did not meet the 750-hour requirement for the years at issue accordingly she was not a real_estate_professional we sustain respondent’s determination that petitioners’ schedule e rental real_estate loss deductions are not allowed for the years at issue we have considered all of the arguments made by the parties and to the extent they are not addressed herein we find them to be moot irrelevant or without merit to reflect the foregoing decision will be entered for respondent


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi plr-115508-00 date date legend x a b c d d1 dear this letter responds to a letter dated date written on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code that x's s_corporation status will be effective as of the taxable_year beginning d1 facts according to the information submitted x was incorporated on d1 and it was decided that x would be an s_corporation a b c and d the shareholders of x relied on an attorney to file x's form_2553 election by a small_business_corporation with an effective date of d1 the attorney however failed to timely file x's form_2553 x requests a ruling that it will be recognized as an s_corporation effective for the taxable_year beginning d1 under sec_1362 law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides when an s election will be effective if an s election is made within the first two and one half months of a corporation's taxable_year then that corporation will be treated as an s_corporation beginning the year in which the election is made if an s election is made after the first two and one half months of a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made plr-115508-00 sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election or no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for such taxable_year conclusions based solely on the facts submitted and representations made we conclude that x has established reasonable_cause for not making a timely election and is eligible for relief under sec_1362 accordingly if x makes an election to be an s_corporation by filing with the appropriate service_center a completed form_2553 containing an effective date of d1 for the election within days following the date of this letter then such election will be treated as timely made a copy of this letter should be attached to the form_2553 filed with the service_center a copy is enclosed for that purpose except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x is an s_corporation for federal tax purposes the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request_for_ruling it is subject_to verification on examination this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent under a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative sincerely yours robert g honigman acting assistant to the chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes