internal_revenue_service number release date index number --------------------------------------------------- ------------------------------- ----------------------- -------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- id no ------------- telephone number --------------------- refer reply to cc psi b04 plr-119764-03 date october - - - ----------------------------------------------------------------------------------------------------------- ---------------------------- --------------------------- ------------------------------------------------------------------------------------------ re ---------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------- legend settlor spouse trust ------------------------------------------------------------------------------------------------------------- - trustee - child a - child b child c - child a_trust - ---------------------------------------------------------------------------- child b trust- ----------------------------------------------------------------------------- child c trust- ----------------------------------------------------------------------------------------------------- gc3 trust ---------------------------------------------------------- trust b -------------------------------------------------------------------------------------------------- --------------------------------------- -------------------------- ---------------------------- ---------------------------------------------------- ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- - - - - - - - - - - - - - - - - - - - - - - - - - - - - -------------------- -------------------- ------------------------- ---------------------- ------------------------------------- -------------------------------- ------------------------------ ------------------------ -------- ------- ------- ------- -------------------------- -------------------------- ------------------------ ------------------ ------------------- ------------------ ------------- ------------- ------------- --------------------- ------------- ---------------------------------------------------- -------------------------------------------------- ------------------------------------------------------------------------------ plr-119764-03 cg1 gc2 gc3 ggc3 step-gc1 step-gc2 step-gc3 guardian state x year year year date date date date date date dollar_figureu dollar_figurev dollar_figurew dollar_figurex dollar_figurey cite cite cite ------------------------------------------------------------------ dear ---------- this is in reference to the letter dated date and subsequent correspondence submitted by your authorized representative requesting rulings regarding the effect of the proposed settlement agreement for federal gift income and generation-skipping_transfer_tax purposes plr-119764-03 background the submitted facts are as follows settlor created trust a revocable_trust on date and served as the sole trustee trust became irrevocable upon settlor’s death on date prior to date trustee an independent corporation is the sole trustee of trust trust is governed by the laws of state x settlor was survived by spouse and three children child a child b and child c at the time trust was created on date child a had three children gc1 gc2 and gc3 currently neither gc1 nor gc2 have any children gc3 ha sec_1 child ggc3 pursuant to paragraph of trust upon settlor’s death the trustee was directed to distribute certain specific assets and pecuniary amounts the remaining corpus of trust was divided into four separate trusts one trust for the benefit of spouse and a separate trust for the benefit of spouse and each of settlor’s three children child a_trust child b_trust and child c trust paragraph of trust contains the dispositive provisions for child a_trust child b_trust and child c trust under paragraph a trustee may make discretionary distributions of income and principal from each of the children’s separate trusts to spouse for her comfortable maintenance health and welfare in addition under paragraph b the trustee of the child a_trust is to pay to child a and to the descendants of child a such part or all of the income and principal of the trust even though exhausting the trust as the trustee believes desirable for the comfortable maintenance health education and welfare of child a and his descendants considering the desirability of supplementing their respective incomes or assets and all other circumstances and factors the trustee believes pertinent provided however that no payment of principal of the trust shall be made to a child of mine unless that child demonstrates that such payment is needed for the purposes specified above and cannot be provided out of his or her own assets without altering the standard of living of that child under paragraph c if child a dies before the complete distribution of child a_trust corpus the principal and undistributed_income will be distributed to or for the benefit of persons who are then living or born thereafter and who are descendants of settlor or married to those descendants in such proportions and subject_to such trusts powers and conditions as child a may appoint by will plr-119764-03 under paragraph d if child a fails to exercise the testamentary_power_of_appointment the principal and undistributed_income of the child a_trust is to be divided and allocated per stirpes among child a’s then living descendants property so allocated for a beneficiary is to be retained in trust as a separate trust named for that beneficiary and disposed of as provided in paragraph paragraph e of trust provides that when a grandchild or more remote descendant of settlor who is a beneficiary of a_trust named for that descendant reaches age thirty one-half of any remaining trust corpus will be distributed to such descendant and the remainder will be distributed upon that descendant reaching age forty paragraph g provides that despite any other provisions of trust each trust created under trust will terminate no later than twenty-one years after the death of the last to die of settlor spouse and any of settlor’s descendants living on date and the trustee shall distribute any property held in trust to the beneficiary for whom the trust is named in accordance with paragraph of trust child a is currently acting as the adviser to child a_trust as adviser child a has the right to direct purchases and sales of trust property and to direct any reorganization consolidation merger or change in financial structure of a_trust asset however the rights and duties of the adviser can only be exercised in a fiduciary capacity an adviser may resign at any time or may waive or delegate to any person any or all such adviser’s rights and powers by written notice to the trustee paragraph of trust provides that the trustee may resign at any time by written notice to such of settlor’s descendants as are then living paragraph states that a majority of settlor’s adult descendants who are legally competent may appoint a successor trustee to fill a vacancy in the office of trustee by a written instrument delivered to the corporation appointed paragraph of trust states that the words descendant and descendants shall include an adopted_child of any person and of his or her descendants by blood or adoption on or about year child a married for the second time his second spouse had children step-gc1 step-gc2 and step-gc3 from a prior marriage during the year period from the funding of trust through year trustee allegedly distributed approximately dollar_figureu of income to child a and approximately dollar_figurev of income to step-gc1 step-gc2 and step-gc3 the trustee did not inform gc1 gc2 and gc3 of the existence of trust until trust had been in existence for nearly twenty years at that time trustee began making distributions of income to gc1 and gc2 and four years plr-119764-03 later began making distributions of income to gc3 distributions of income totaling approximately dollar_figurew were made to gc1 and gc2 and approximately dollar_figurex to gc3 child a adopted step-gc1 step-gc2 and step-gc3 on date which was several years after the commencement of trust distributions to step-gc1 step-gc2 and step-gc3 spouse died on date in year gc1 and gc3 commenced legal action contesting the validity of the distributions to child a step-gc1 step-gc2 step-gc3 gc1 and gc2 gc3 contended that child a knowingly and intentionally interfered with gc3’s rights as beneficiary of child a_trust and that child a knowingly and intentionally induced trustee to breach its fiduciary duties as a result of this action trustee paid dollar_figurey to trust as reimbursement for the distributions made to child a as custodian for step-gc1 step-gc2 and step-gc3 plus income attributable to the distributions further trustee filed a petition with the appropriate court seeking instructions relating to the propriety of the distributions made to child a the propriety of the distributions made to step-gc1 step-gc2 and step-gc3 before they were adopted and the meaning of the term comfortable maintenance as used in paragraph b after protracted negotiation on date gc3 entered into a settlement agreement with child a under the terms of the settlement agreement gc3 and child a agreed to seek court approval for the division of trust into two separate trusts gc3 trust and trust b gc3 trust will be established for the benefit of gc3 ggc3 and any other descendant of gc3 trust b will be established for the benefit of child a gc1 gc2 step-gc1 step- gc2 step-gc3 and their descendants other than gc3 and her descendants in general one-sixth of the assets of trust will be distributed to gc3 trust and the remaining assets will be distributed to trust b however one-third of the funds paid to trust by trustee prior to the settlement as reimbursement will be distributed to gc3 trust and the remaining funds restored by trustee will be distributed to trust b any additional funds restored by the trustee by court order or otherwise relating to pre- settlement actions regarding trust will also be divided one-third to gc3 trust and two- thirds to trust b trustee will continue to serve as trustee of trust b and will also serve as a temporary trustee of gc3 trust until a new corporate trustee is selected by the interested parties both gc3 trust and trust b will continue to be governed by the same discretionary standards for distributions set forth in paragraph b of trust and other relevant terms and provisions of trust including paragraph g regarding the complete termination of any trust created under its terms with respect to gc3 trust during gc3’s lifetime the trustee shall pay to gc3 and her descendants income and principal under terms identical to those contained in paragraph b of trust on gc3’s death any remaining plr-119764-03 principal and accumulated income is to be divided and allocated per stirpes among gc3’s living descendants and held in further trust all trusts must terminate no later than years after the death of settlor spouse and any descendants of settlor living on date upon division of trust child a will irrevocably exercise his power_of_appointment set forth under paragraph c with respect to gc3 trust and direct that on his death the property is to continue to be held in the gc3 trust under the terms as described above in addition with respect to gc3 trust child a will delegate to gc3 all his rights and powers as adviser set forth under paragraph of trust it is represented that ggc3 and the unborn descendants of gc3 are represented by guardian a court appointed guardian ad litem and guardian would not have approved the settlement unless child a’s power was exercised to appoint the property in further trust for the benefit ggc3 and the unborn descendants of gc3 the terms of the settlement agreement were approved by the appropriate local court by order on date conditioned upon receipt of a favorable ruling from the irs you have requested the following rulings the division of child a_trust pursuant to the terms of the settlement agreement will not result in child a_trust losing its generation-skipping_transfer_tax exempt status under sec_2601 and will not subject child a_trust trust b or gc3 trust to the gst tax the irrevocable exercise by child a of the power set forth under paragraph c of trust directing that the amount passing to the gc3 trust remain in trust for the benefit of gc3 and her descendants upon child a’s death will not constitute an addition to child a_trust trust b or gc3 trust for purposes of the gst tax the appointment of a new corporate trustee to serve as trustee of gc3 trust will not subject child a_trust trust b or gc3 trust to the gst tax the appointment of gc3 as the adviser of gc3 trust will not subject child a_trust trust b or gc3 trust to the gst tax the division of child a_trust into gc3 trust and trust b and the allocation of the assets of child a_trust between gc3 trust and trust b will not constitute a transfer by any trust or beneficiary that will be subject_to the gift_tax under sec_2501 plr-119764-03 the division of child a_trust into gc3 trust and trust b and the allocation of existing assets between gc3 trust and trust b will not be treated as a sale_or_other_disposition that would require any trust or any beneficiary to recognize gain_or_loss under sec_1001 after the division of child a_trust into gc3 trust and trust b the assets of gc3 trust and trust b received from child a_trust will have the same basis and the same holding periods as the assets had in the child a_trust after the division of child a_trust into gc3 trust and trust b both gc3 trust and trust b will be treated as separate taxpayers under sec_643 law and analysis rulings - sec_2601 imposes a tax on every generation-skipping_transfer gst made after date under ' a of the tax_reform_act_of_1986 and ' a of the generation-skipping_transfer_tax regulations the gst tax is generally applicable to generation-skipping transfers made after date however under ' b a and ' b i the tax does not apply to a transfer under a_trust that was irrevocable on date but only to the extent that such transfer is not made out of corpus added to the trust after date or out of income attributable to corpus so added sec_26_2601-1 provides that except as provided under ' b v b where any portion of a_trust remains in the trust after the post-date release exercise or lapse of a power_of_appointment over that portion of the trust and the release exercise or lapse is treated to any extent as a taxable transfer under chapter or chapter the value of the entire portion of the trust subject_to the power that was released exercised or lapsed is treated as if that portion had been withdrawn and immediately retransferred to the trust at the time of the release exercise or lapse the creator of the power will be considered the transferor of the addition except to the extent that the release exercise or lapse of the power is treated as a taxable transfer under chapter or chapter plr-119764-03 sec_26_2601-1 provides a special rule for certain powers of appointment under this section the release exercise or lapse of a power_of_appointment other than a general_power_of_appointment as defined in ' b will not be treated as an addition to a_trust if such power_of_appointment was created in an irrevocable_trust that was not subject_to chapter under ' b and in the case of an exercise the power_of_appointment is not exercised in a manner that may postpone or suspend the vesting absolute ownership or power of alienation of an interest in property for a period measured from the date of creation of the trust extending beyond any life in being at the date of creation of the trust plus a period of years plus if necessary a reasonable period of gestation the perpetuities period a general_power_of_appointment is defined in ' b for federal estate_tax purposes as a power that is exercisable in favor of the individual possessing the power his estate his creditors or the creditors of his estate the definition of a general_power_of_appointment under ' c for federal gift_tax purposes is generally the same as that provided in ' b sec_2514 provides that the exercise or release of a general_power_of_appointment created after date is deemed a transfer of property by the individual possessing the power sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust that is exempt from the generation-skipping_transfer_tax will not cause the trust to lose its exempt status in general unless otherwise noted in the regulations these rules are only applicable for gst tax purposes the rules do not apply for example in determining whether the transaction results in a gift_for gift_tax purposes or the realization of gain for income_tax purposes under sec_1001 sec_26_2601-1 provides that a court-approved settlement of a bona_fide issue regarding the administration of a_trust or the construction of the terms of the governing instrument will not cause an exempt trust to be subject_to the provisions of chapter if -- the settlement is the product of arm s length negotiations and the settlement is within the range of reasonable outcomes under the governing instrument and applicable state law addressing the issues resolved by the settlement a settlement that results in a compromise between the positions of the litigating parties and reflects the parties assessments of the relative strengths of their positions is a settlement that is within the range of reasonable outcomes sec_26_2601-1 and provide generally that a modification of the governing instrument of an exempt trust by judicial reformation will not cause an exempt trust to be subject_to the provisions of chapter if the modification does not shift a beneficial_interest in the trust to any beneficiary who occupies a lower generation as plr-119764-03 defined in sec_2651 than the person or persons who held the beneficial_interest prior to the modification and the modification does not extend the time for vesting of any beneficial_interest in the trust beyond the period provided for in the original trust a modification that is administrative in nature will not be considered to shift the beneficial_interest in the trust see also sec_26_2601-1 example the law of state x provides at cite that the trustee has the following power severance and consolidation to sever any trust estate on a fractional basis into or more separate trusts for any reason a separate_account or trust created by severance or segregation shall be treated as a separate trust for all purposes from and after the date on which the severance or segregation is effective and shall be held on terms and conditions that are substantially equivalent to the terms of the trust from which it was severed or segregated so that the aggregate interests of each beneficiary in the several trusts are substantially equivalent to the beneficiary’s interests in the trust before severance provided however that any terms of the trust before severance that would affect qualification of the trust for any federal tax deduction exclusion election exemption or other special federal tax status must remain identical in each of the separate trusts created in this case the gst tax would not generally apply to child a_trust because child a_trust which was established under the terms of trust was irrevocable at settlor’s death on date prior to date also no additions actual or constructive have been made to child a_trust since that date as stated above all the parties to the child a_trust including ggc3 and any unborn heirs of gc1 gc2 and gc3 have been represented in the negotiations that preceded the proposed settlement agreement we note that after the division both trust b and gc3 trust will continue to be administered by corporate trustees and distributions of income and principal from each trust to the current beneficiaries will continue to be subject_to the same restrictions and limitations set forth in child a_trust we also note that each descendant of child a including ggc3 has an interest in the principal and income of the child a_trust and are all potential appointees under child a’s power_of_appointment under paragraph c consequently the interest of ggc3 in the new gc3 trust is consistent with ggc3’s interest in child a_trust and the guardian ad litem appointed for ggc3 and gc3’s unborn descendants would not have approved the settlement in the absence of these provisions for ggc3 and the unborn descendants we conclude that the settlement agreement is the product of arm’s length negotiation further the terms of the agreement dividing the child a_trust as described above and providing for the exercise of child a’s limited_power_of_appointment as described above represent a compromise that reflects the parties’ assessment of the relative plr-119764-03 strengths of their positions therefore the agreement is within the range of reasonable outcomes under sec_26_2601-1 further child a’s exercise of his limited_power_of_appointment pursuant to the terms of the settlement agreement in favor of gc3 trust will not postpone or suspend the vesting absolute ownership or power of alienation of an interest in property for a period measured from the date of creation of the trust extending beyond any life in being at the date of creation of the trust plus a period of years plus if necessary a reasonable period of gestation the perpetuities period accordingly child a s irrevocable exercise of the power_of_appointment set forth under paragraph c of trust appointing the applicable_portion of the child a_trust corpus to the gc3 trust for the benefit of gc3 and her descendants will not constitute an addition to child a_trust trust b or gc3 trust for purposes of the gst tax see sec_26_2601-1 accordingly the division of child a_trust and the exercise of child a’s power_of_appointment pursuant to the terms of the settlement agreement will not result in child a_trust losing its generation-skipping_transfer_tax exempt status under sec_2601 and will not subject child a_trust trust b or gc3 trust to the gst tax further pursuant to the terms of the proposed settlement at all times the trustee of child a_trust prior to the division and of trust b and gc3 trust after the division will be either trustee or another independent corporate trustee at no time will any of the three trusts have a trustee that is not an independent corporate trustee also child a will delegate all rights and powers as adviser with respect to the gc3 trust to gc3 gc3’s powers as trust adviser will be limited as prescribed in paragraph of trust and can only be exercised in a fiduciary capacity accordingly the appointment of a new corporate trustee to serve as trustee of gc3 trust and the appointment of gc3 as the adviser with respect to gc3 trust are modifications that are administrative in nature and will not subject child a_trust trust b or gc3 trust to the gst tax see sec_26_2601-1 ruling you have requested a ruling that the division of child a_trust into gc3 trust and trust b and the allocation of the assets of child a_trust between gc3 trust and trust b will not constitute a transfer by any trust or beneficiary that will be subject_to the gift_tax under sec_2501 sec_2501 imposes a tax for each calendar_year on the transfer of property by gift during such calendar_year by any individual plr-119764-03 sec_2511 provides that subject_to certain limitations the gift_tax applies whether the transfer is in trust or otherwise direct or indirect and whether the property transferred is real or personal tangible or intangible sec_25_2511-1 of the gift_tax regulations states that any transaction in which an interest in property is gratuitously passed or conferred upon another regardless of the means or device employed constitutes a gift subject_to tax whether an agreement settling a dispute is effective for gift_tax purposes depends on whether the settlement is based on a valid enforceable claim asserted by the parties and to the extent feasible produces an economically fair result see 674_f2d_761 9th cir citing 387_us_456 thus state law must be examined to ascertain the legitimacy of each party s claim if it is determined that each party has a valid claim the service must determine that the distribution under the settlement reflects the result that would apply under state law if there is a difference it is necessary to consider whether the difference may be justified because of the uncertainty of the result if the question were litigated the law of state x requires that trusts be administered with due regard to the respective interests of income beneficiaries and remaindermen cite exercise by trustees of judgment and care which persons of prudence discretion and intelligence would exercise in the management of their own personal affairs and under the circumstances then prevailing is a basic duty_of the trustee cite based on the information submitted and the facts as described in the submitted documents and the court order a bona_fide controversy existed between the parties pertaining to the administration of the dispositive provisions of child a_trust and the role of child a as the adviser to trustee all the parties who hold an interest in the child a_trust including ggc3 and any unborn heirs have been represented in the negotiations that preceded the proposed settlement agreement the terms of the proposed settlement is based on arms-length negotiations among all the interested parties the terms of the settlement agreement are reflective of the rights of the parties under the applicable law of state x that would be applied by the highest court of that state accordingly based on the facts submitted and the representations made we conclude that implementation of the proposed settlement agreement dividing child a_trust into gc3 trust and trust b and the allocation of the assets of child a_trust between gc3 trust and trust b as set forth in the proposed settlement agreement will not constitute a transfer by any trust or beneficiary of child a_trust that will be subject_to the gift_tax under sec_2501 plr-119764-03 rulings and it is the practice of the service in the interest of sound tax_administration to answer inquiries of individuals and organizations regarding the tax effects of their acts or transactions prior to the filing of returns or reports that are required by the revenue laws however under section dollar_figure of revproc_2004_1 2004_1_irb_1 the service will decline to rule when appropriate in the interest of sound tax_administration or on other grounds whenever warranted by the facts or circumstances of a particular case pursuant to this provision we decline to provide rulings with respect to ruling requests and ruling you have requested a ruling that after the division of child a_trust into gc3 trust and trust b both gc3 trust and trust b will be treated as separate taxpayers under sec_643 sec_643 provides that under regulations to be prescribed by the secretary two or more trusts shall be treated as one trust if such trusts have substantially the same grantor or grantors and substantially the same primary beneficiary or beneficiaries and a principal purpose of such trusts is the avoidance of federal_income_tax the gc3 trust and trust b are to be established as a result of the division of the child a_trust these trusts are created as of the date of the division and therefore are subject_to ' f while the gc3 trust and trust b will have the same grantor the trusts will have different primary beneficiaries provided that the gc3 trust and trust b are separately managed and administered the gc3 trust and trust b will be treated as separate trusts for federal_income_tax purposes a copy of this letter should be attached to any income gift estate or generation- skipping transfer_tax returns that you may file relating to these matters the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by the appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as specifically ruled above no opinion is expressed as to the federal tax consequences of the facts described above under the cited provisions or any other provisions of the code or regulations this ruling is conditioned on the approval of the division of the child a_trust under the terms described in the taxpayer s letter and the settlement agreement plr-119764-03 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours george masnik chief branch associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


tax_exempt_and_government_entities_division department of the treasury internal_revenue_service washington d c number release date date date uil eo dear contact person identification_number contact number employer_identification_number form required to be filed tax years this is our final_determination that you do not qualify for exemption from federal_income_tax as an organization described in internal_revenue_code sec_501 recently we sent you a letter in response to your application that proposed an adverse determination the letter explained the facts law and rationale and gave you days to file a protest since we did not _ receive a protest within the requisite days the proposed adverse determination is now final since you do not qualify for exemption as an organization described in code sec_501 donors may not deduct contributions to you under code sec_170 you must file federal_income_tax returns on the form and for the years listed above within days of this letter unless you request an extension of time to file we will make this letter and our proposed adverse determination_letter available for public inspection under code sec_6110 after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions you should follow the instructions in notice if you agree with our deletions you do not need to take any further action in accordance with code sec_6104 we will notify the appropriate state officials of our determination by sending them a copy of this final letter and the proposed adverse letter you should contact your state officials if you have any questions about how this determination may affect your state responsibilities and requirements letter cg catalog number if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter federal_income_tax status and responsibilities please contact irs customer service pincite-829-1040 or the irs customer service number for businesses the irs customer service number for people with hearing impairments is if you have any questions about your sincerely robert s choi director exempt_organizations rulings agreements enclosure notice redacted proposed adverse determination_letter redacted final adverse determination_letter letter cg catalog number department of the treasury internal_revenue_service washington d c contact person identification_number contact number fax number employer_identification_number uilnos tax_exempt_and_government_entities_division date date legend a name of individual b name of individual n date o name of state x name of entity y name of entity z name of entity dear we have considered your application_for recognition of exemption from federal_income_tax under internal_revenue_code sec_501 based on the information provided we have concluded that you do not qualify for exemption under code sec_501 the basis for our conclusion is set forth below issue do you qualify for recognition of tax exemption under sec_501 of the code facts the articles of incorporation indicate that you were incorporated on n as a domestic business corporation see exhibit under the business corporation law of o and that you have the authority to issue shares of stock your articles of incorporation do not limit your purposes to those within sec_501 of the code or to dedicate your assets permanently to charity instead your articles of incorporation state the corporation is formed to engage in any lawful act or activity for which a corporation may be organized under the business corporation law provided that is not formed to engage in any act or activity requiring the consent or approval of any state official department board agency or other body without such consent or approval first being obtained a second document which you refer to as your operating_agreement has not been filed with o the control of your organization appears to be vested in your compensated officers you have not adopted bylaws the minutes of your organizational meeting of the board_of directors state in the event of resignation or death of a member of the board the officers will appoint a replacement thus your board members are selected and appointed by your officers founders you have also not adopted a conflict of interest policy you provided a sample conflict of interest policy which indicate directors will vote on compensation and officers will not no director will have or do business with the corporation however your sample conflict of interest policy does not preclude you from conducting business with the related businesses of your officers who also control your organization in your application you describe your activities as follows be will the consumer some public speaking engagements will you provide counseling and education services to the general_public relating to times consumer credit use one-on-one consultations convenient to be accepted and no fees will be charged counseling and classes will be offered to conform with the provisions of the bankruptcy abuse protection and consumer protection act and responsible use of credit reorganization and or budgeting assistance will be offered to those who desire it the officers have contributed funds for start_up costs funds for operations are expected to be received from clients for consultations and or classes and reorganization plans other funds are expected to be received from creditors that are being paid through reorganizations plans but those fees would be optional offered at you further detail the above activities as following in your response letters of date date and date credit counseling you will gather financial information of a prospective client and inform the client about the process of your services documents needed for the counseling and fee information at the initial contact you will also inform them that the services will be provided regardless of their ability to pay upon a prospect's agreement to use your service you will set up two meetings which last about one hour each you will make the third meeting available if the second meeting does not achieve object of the counseling the content of first meeting is as follows at the first meeting budgeting and cost cutting measures will be discussed possible solutions will be presented in a general manner with the pros and cons of each a plan of action will not be presented at this meeting the client will leave with ‘homework’ consisting of writing down every cent they spend over the next days to weeks the second meeting will be set up within two weeks of the initial meeting to review the 'homework’ discuss areas for improvement and present options that the counselor has determined would be appropriate for this particular client the options could include simple cost cutting measures restructuring how much is paid to each creditor to pay balances down more quickly the client negotiating with creditors to get rates and or payments reduced the counselor negotiating with creditors possible home equity or refinancing if appropriate or filing for bankruptcy all options will be discussed in detail with the client to assure that they understand the ramifications of each choice if client agrees to a plan of action at this time the details will be written up and the client and counselor will sign this agreement has no legal standing at the end of the meetings you will make recommendations to clients which will include entering into a debt management plan and filing for bankruptcy the fee for the initial consultation is dollar_figure and includes a second and possible third appointment if the above issue can not be resolved by the end of second or third session you will refer the client to other agencies such as social service agencies career counseling agencies or small_business consulting entities for a better resolution you did not elaborate whether the initial three counseling meetings are also a part of your debt management plan program bankruptcy certification program individual counseling sessions or business analysis consulting program debt management plans dmps your dmp program consists of interviews with clients contact and negotiations with creditors establishing payment plans for clients and collecting and processing clients' payments and fees these are typical practices of commercial debt consolidation companies the debt management_contract form shows further details about payment methods and due_date escrow account cancellation policy and monthly written reports you will require a client to meet with a counselor for review at least every six months further discussion will take place if credit misuse problem is detected you will also make check-in-calls every two to three months to check for any concerns and changes however you represent that you do not provide any on-going educational seminars or classes to the clients in the course of your dmp program todollar_figure the fee for this service willbe dollar_figure per month for individuals and couples and you will charge more if a business is involved you state that you will waive fees if the client cannot afford to pay the criteria for waiving fees are the client's living_expenses are percent or more of their income the client is unemployed the client is on medical leave or terminally ill the client is on social_security disability_income the client is a victim of a disaster you will ask the creditor to pay fair share you further state that if the creditor will not pay fair share the plan will still be implemented as though they did pre-bankruptcy certification you will charge a fee of dollar_figure as needed fees may be reduced or waived if client is unable to pay which includes follow up sessions post-bankruptcy counseling certification course you offer a certification course designed to meet the requirements of the bankruptcy court the certification course is comprised of four two-hour classes with flexible time schedules the fee will be dollar_figure dollar_figure material which will be used for this course is an as follows for couples you state that the fees will be waived if the client is unable to pay the -page booklet the content of the booklet for singles and introduction one page learning about money one page keys to financial skills one page plotting a course one page the beginning four pages credit reports three pages credit scores two pages warning signs re-establishing credit one page plotting a course for financial security one page glossary of terms one page resources two page sec_5 discretionary individual counseling sessions you will offer counseling on budgeting financial management saving for a goal pre-marital financial counseling and couples counseling you state that these are optional and separate sessions from debt management and bankruptcy related programs in your letter of date you charge adollar_figure__ requested by the client the client is expected to pay the full fees fee per session that lasts minutes as these are optional services business analysis you will provide business analysis consultation for partnerships and corporations you charge dollar_figure _ per hour for this service in your letter of date you state that you will have a listing in the yellow pages and advertise in local newspapers you will also have targeted direct mailings to bankruptcy attorneys the sample advertisement you provided states offering credit counseling budget counseling goal setting debt management and certification for bankruptcy counseling classes for individual or business in our setting or yours other than the provision of counseling and consulting services your advertisement makes no mention of any substantive educational program that you provide to the public you have not specifically apportioned your revenues expenses and time between your various activities including debt management plans pre-bankruptcy and post-bankruptcy counseling certification programs discretionary individual counseling sessions and business analysis activities however you state that percent of your total activity is devoted to debt management plans all other programs therefore comprise the remaining percent of your total activities your revenues according to the projected financial data you provided are as follows budget budget budget class enrollment fees creditor commissions consultation fees reorganization plan fees total income dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure according to financial data you provided on the form_1023 application_for recognition of tax exempt status under sec_501 of the internal_revenue_code you will not conduct any form of public fundraising or grant application program all of your revenue will come from fees charged to clients for services rendered or fair share that you will receive from creditors you have also provided the following information regarding your expenses budget budget budget dollar_figure dollar_figure compensation of officers other salaries and wages occupancy cost ___- depreciation depletion fundraising expense other expenses total expense dollar_figure dollar_figure dollar_figure dollar_figure you represent that all your activities at the present time are performed by two officers a president and secretary and b vice president and treasurer you state that you want your clients to have access to the best financial services possible a’s previous experience in banking and lending and b’s experience in accounting taxes and investments should provide your clients with a personal roadmap to help them out of their current difficulty you indicate that a owns x a collection agency mortgage banking and rental real_estate company see exhibit and y a print advertising company in your letter of date in this letter you also stated that it is possible that you may place occasional print advertising with y and such advertising would be placed at or below the rates offered to you by other companies b owns an accounting and financial services company z you indicate that z will share office space and equipment with you at no cost however the meeting minutes of date and date showed that free service and rent is only for the start_up period and will end when you begin to service clients and officers' compensation has been determined b will also provide accounting and administrative services to you at no cost during the start_up period with respect to the performance of your activities a’s focus will be teaching the bankruptcy certification classes as required by the bankruptcy court and b’s focus will be on budgeting couples counseling business analysis and debt management plans law sec_501 of the code exempts from federal_income_tax corporations organized and operated exclusively for charitable educational and other purposes provided that no part of its net_earnings inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 of the income_tax regulations provides that in order to be exempt as an organization described in sec_501 an organization must be both organized and operated exclusively for one or more purposes specified in such section to meet either the organizational_test or the operational_test it is not exempt if an organization fails sec_1_501_c_3_-1 of the regulations provides that an organization is organized exclusively for one or more exempt purposes only if its articles of organization insubstantial part of its activities in activities that in themselves are not in furtherance of one or more exempt purposes a limit the purposes of such organization to one or more exempt purposes and b do not expressly empower the organization to engage otherwise than as an sec_1_501_c_3_-1 of the regulations holds that an organization is not organized exclusively for one or more exempt purposes unless its assets are dedicated to an exempt_purpose an organization’s assets will be considered dedicated to an exempt_purpose for example if upon dissolution such assets would by reason of a provision in the organization’s articles or operation of law be distributed for one or more exempt purposes sec_1_501_c_3_-1 of the regulations provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities that accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_1_501_c_3_-1 of the regulations provides that an organization is not operated exclusively for one or more exempt purposes if its net_earnings inure in whole or in part to the benefit of private shareholders or individuals sec_1_501_a_-1 defines the words private_shareholder_or_individual in sec_501 to refer to persons having a personal and private interest in the activities of the organization sec_1_501_c_3_-1 of the regulations states that an organization is not operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest created it it must not be operated for the benefit of designated individuals or the persons who sec_1_501_c_3_-1 of the regulations provides that the term charitable is used in sec_501 of the code in its generally accepted legal sense and includes relief of the poor and distressed or of the underprivileged as well as the advancement of education sec_1_501_c_3_-1 of the regulations provides that the term educational refers to a the instruction or training of the individual for the purpose of improving or developing his capabilities or b the instruction of the public on subjects useful to the individual and beneficial to the community in revrul_69_441 1969_2_cb_115 the service found that a nonprofit organization formed to help reduce personal bankruptcy by informing the public on personal money management and aiding low-income individuals and families with financial problems was exempt under sec_501 of the code its board_of directors was comprised of representatives from religious organizations civic groups labor unions business groups and educational institutions the organization provided information to the public on budgeting buying practices and the sound use of consumer credit through the use of films speakers and publications it aided low- income individuals and families who have financial problems by providing them with individual counseling and if necessary by establishing budget plans under the budget plan the debtor voluntarily made fixed payments to the organization which held the funds in a_trust account and disbursed the funds on a partial payment basis to the creditors the organization did not charge fees for counseling services or proration services the debtor received full credit against his debts for all amounts paid the organization did not make loans to debtors or negotiate loans on their behalf primarily from the creditors participating in the organization’s budget plans for its support finally the organization relied upon voluntary contributions the service found that by aiding low-income individuals and families who have financial problems and by providing without charge counseling and a means for the orderly discharge_of_indebtedness the organization was relieving the poor and distressed moreover by providing the public with information on budgeting buying practices and the sound use of consumer credit the organization was instructing the public on subjects useful to the individual and beneficial to the community thus the organization was exempt from federal_income_tax under sec_501 of the code section dollar_figure of revproc_2008_9 i r b provides that exempt status will be recognized in advance of operations if proposed operations can be described in sufficient detail to permit a conclusion that the organization will clearly meet the particular requirements of the section under which exemption is claimed a mere restatement of purposes or a statement that proposed activities will be in furtherance of such purposes will not satisfy this requirement the organization must fully describe the activities in which it expects to engage including the standards criteria procedures or other means adopted or planned for carrying out the activities the anticipated sources of receipts and the nature of contemplated expenditures where the organization cannot demonstrate to the satisfaction of the service that its proposed activities will be exempt the service will generally issue a proposed adverse determination_letter or ruling 505_f2d_1068 cir provides that an organization seeking a determination_letter or ruling as to the recognition of its tax-exempt status has the burden of proving that it satisfies all of the requirements of the particular tax-exemption category for an organization claiming the benefits of sec_501 exemption is a privilege a matter of grace rather than right 470_f2d_849 cir cert_denied 414_us_864 the applicant for tax exempt status under sec_501 has the burden of showing it comes squarely within the terms of the law conferring the benefit sought 30_tc_1151 in 326_us_279 the supreme court held that the presence of a single non-exempt purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes the court found that the trade_association had an underlying commercial motive that distinguished its educational program from that carried out by a university in 70_tc_352 the court found that a corporation formed to provide consulting services was not exempt under sec_501 because its activities constituted the conduct_of_a_trade_or_business that is ordinarily carried on by commercial ventures organized for profit its primary purpose was not charitable educational nor scientific but rather commercial in addition the court found that the organization’s financing did not resemble that of the typical c organizations it had not solicited nor had it received voluntary contributions from the public its only source_of_income was from fees from services and those fees were set high enough to recoup all projected costs and to produce a profit moreover it did not appear that the corporation ever planned to charge a fee less than cost and finally the corporation did not limit its clientele to organizations that were sec_501 exempt_organizations in 283_fsupp2d_58 d d c the court relied on the commerciality doctrine in applying the operational_test because of the commercial manner in which this organization conducted its activities the court found that it was operated for a non- exempt commercial purpose rather than for a tax-exempt purpose among the major factors courts have considered in assessing commerciality are competition with for-profit commercial entities extent and degree of below cost services provided pricing policies and reasonableness of financial reserves additional factors include inter alia whether the organization uses commercial promotional methods eg advertising and the extent to which the organization receives charitable donations in consumer credit counseling service of alabama inc v united_states u s tax cas d d c the court held an organization that provided free information on budgeting buying practices and the sound use of consumer credit qualified for exemption from income_tax because its activities were charitable and educational the consumer credit counseling service which had been recognized as exempt under sec_501 in a group ruling is an umbrella organization made up of numerous credit counseling service agencies in this case these agencies provided information to the general_public through the use of speakers films and publications on the subjects of budgeting buying practices and the sound use of consumer credit they also provided counseling on budgeting and the appropriate use of consumer credit to debt-distressed individuals and families the professional counselors used only percent of their time for debt management programs they did not limit these services to low-income individuals and families but they provided their services free of charge the court found that the law did not require that an organization must perform its exempt functions solely for the benefit of low-income individuals to qualify under sec_501 nonetheless these agencies did not charge a fee for the programs that constituted their principal activities a nominal fee was charged for the debt management services but was waived when payment would work a financial hardship the agencies received the bulk of their support from government and private_foundation grants contributions and assistance from labor agencies and the united way an incidental amount of their revenue was from fees thus the court concluded that each of the plaintiff consumer credit counseling agencies was an organization described in sec_501 as a charitable and educational_organization see also credit counseling centers of oklahoma inc v united_states u s tax cas d d c in which the facts were virtually identical and the law was identical to those in consumer credit counseling centers of alabama inc v united_states discussed immediately above outside the context of credit counseling individual counseling has in a number of instances been held to be a tax-exempt charitable activity revrul_78_99 1978_1_cb_152 free individual and group counseling of widows revrul_76_205 1976_1_cb_154 free counseling and english instruction for immigrants revrul_73_569 1973_2_cb_179 free counseling to pregnant women revrul_70_590 1970_2_cb_116 clinic to help users of mind-altering drugs revrul_70_640 1970_2_cb_117 free marriage counseling revrul_68_71 c b career planning education through free vocational counseling and publications sold at a nominal charge overwhelmingly the counseling activities described in these rulings were provided free and the organizations were supported by contributions from the public in 302_f2d_934 ct_cl the court considered an organization that provided analyses of securities and industries and of the economic climate in general it sold subscriptions to various periodicals and services providing advice for purchases of individual securities the court noted that education is a broad concept and assumed arguendo that the organization had an educational purpose however the totality of the organization’s activities which included the sale of many publications as well as the sale of advice for a fee to individuals was indicative of a business therefore the court held that the organization had a significant non-exempt commercial purpose that was not incidental to the educational purpose and was not entitled to be regarded as exempt in kj's fund raisers inc v commissioner t c memo affirmed aftr 2d the tax_court found that another gaming organization was not exempt while the organization raised money for charitable purposes it also operated for the substantial benefit of private interests the organization's founders kristine hurd and james gould were the sole owners of a bar kj's place the organization through the owners and employees of k's place sold lottery tickets exclusively at kj's place during regular business hours while in kj's place the lottery ticket purchasers were sold beverages the initial directors were hurd gould and a related individual the initial board was replaced several times until hurd and gould were no longer on the board at all times hurd and gould were the organization's officers salaries had been paid to hurd and gould and rent had been paid to kj's place the organization maintained that the fact that salaries and rent were no longer paid in this fashion indicated the independence of the board the court took another view although those practices ceased and are not in issue here the current board_of directors is composed of at least the majority of the same members who allowed those amounts to be paid this strongly suggests that hurd and gould are free to set policy for their own benefit without objection from the board nothing in the record since date indicates otherwise in 82_tc_196 an organization operated bingo at a bar a for-profit enterprise for purposes of raising money for scholarships the board_of directors included the bar’s owners and accountant and two other persons the court reasoned that because the bar owners controlled the organization and appointed its directors the organization’s fundraising activities could be used to the advantage of the bar owners and thus provide them with a maximum private benefit the organization claimed that it was independent because there was a separate_accounting and that no payments were going to the bar the court maintained that the organization’s and the bar’s activities were so interrelated as to be functionally inseparable a separate_accounting did not change that fact thus the organization did not operate exclusively for exempt purposes but rather benefited private interests - the bar owners exemption was properly denied in 276_f2d_476 5th cir the court denied tax exemption to an organization in part because its net_earnings were distributed to its shareholder for their personal benefit the founder of the organization and his two sisters were the only shareholders these three and two of their spouses were the organization's trustees the court found that the organization was operated as a business ultimately producing substantial revenues for its operators in salvation navy v commissioner tcmemo_2002_275 the court found that one of the reasons why the organization did not qualify for exemption from federal_income_tax was because it could not prove that its net_earnings would not inure to the benefit of a private individual its founder in church by mail inc v commissioner the court affirmed a tax_court decision church by mail sent out sermons in numerous mailings this required a great deal of printing services twentieth century advertising agency provided the printing and the mailing twentieth century was controlled by the same ministers it also employed family members the services were provided under two contracts the contracts were signed by the two ministers for both church by mail and twentieth century church by mail business comprised two-thirds of the business of twentieth century in deciding for the government the court makes the following statement there is ample evidence in the record to support the tax court’s finding that the church was operated for the substantial non-exempt purpose of providing a market for twentieth’s services the employees of twentieth spend two-thirds of their time working on the services provided to the church the majority of the church's income is paid to twentieth to cover repayments on loan principal interest and commissions finally the potential for abuse created by the ministers’ control of the church requires open and candid disclosure of facts bearing upon the exemption application moreover the ministers’ dual control of both the church and twentieth enables them to profit from the affiliation of the two entities through increased compensation if such disclosure is not made the logical the tax_court has stated that an application_for tax-exempt status calls for open and candid disclosure of all facts bearing upon an applicant's organization operations and finances to assure that there is not abuse of the revenue laws inference is that the facts if disclosed would show that the applicant fails to meet the requirements of sec_501 74_tc_531 see also 412_f2d_1197 cert_denied 397_us_1009 furthermore the courts have repeatedly upheld the service’s determination that an organization has failed to establish exemption when the organization fails to provide requested information tapplicant has for the most part provided only generalizations in response to repeated requests by the service for more detail on prospective activities such generalizations do not satisfy us that applicant qualifies for the exemption peoples prize v commissioner t c memo rationale based on the administrative record we hold that you are not organized and operated for exempt purposes under sec_501 of the code an organization cannot be recognized as exempt under sec_501 unless it shows that it is both organized and operated exclusively for charitable or other exempt purposes among other things the articles of organization must demonstrate conclusively that the organization meets the organizational_test of sec_1 c -1 b i and sec_1 c -1 b of the regulations according to your articles of incorporation you are formed as a for-profit entity in accordance with the business corporation law of o additionally your articles of incorporation permit you to issue stock enabling your earnings to inure to the private benefit of your stockholders your articles of incorporation neither limit your purposes to one or more exempt purposes nor dedicate your assets to an exempt_purpose s under sec_501 of the code in addition the application and supporting documentation must demonstrate conclusively that the organization meets the operational_test of sec_1_501_c_3_-1 of the regulations also an organization exempt under sec_501 of the code cannot allow its net_earnings to inure to the benefit of private individuals and cannot be organized to benefit private interests we hold that you do not satisfy the operational requirement to be recognized as exempt under sec_501 of the code in fact the administrative record demonstrates that you are operated for a substantial non-exempt commercial purpose like a commercial trade_or_business you provide services to individuals corporations and partnerships for which you charge a fee your services include budget counseling financial management saving for a goal consultations pre-marital financial counseling couples counseling debt management plans pre-bankruptcy counseling and businesses analysis our examination of the information you submitted shows that you operate for substantial non- exempt commercial purposes in contravention of sec_501 to qualify under sec_501 an organization cannot have a non-exempt purpose that is more than insubstantial however your dmps and consulting activities occupy more than insubstantial portion your total activity and revenues selling and administering debt management plans dmps the provision of discretionary individual counseling sessions and business analysis consultations for partnerships and corporations are not inherently a charitable or educational activity and constitute commercial activities your activities appear to have an underlying commercial motive that distinguishes your educational activities from that carried out by a university see better business bureau of washington d c inc v united_states supra you are remarkably similar to the organization described in b s w group inc v commissioner supra your activities constitute the conduct_of_a_trade_or_business that is ordinarily carried on by commercial ventures organized for profit your primary purpose is not charitable or educational but rather commercial like a for-profit business the vast majority of your revenues are from fees paid_by those who receive consulting or other services from you while charitable institutions often do provide services to individuals the cost is generally subsidized by contributors who do not receive anything in return your fees however are set high enough to recoup all projected costs and to produce a profit the services you provide including financial management business you meet the factors cited in airlie foundation v commissioner supra exemplifying a commercial operation analysis budget counseling debt consolidation pre-marital counseling saving for a goal consultations are in direct competition with similar financial planning or investment firms these are services are typical of a for-profit investment or financial planning consulting firm like a for- profit business your services are rendered in exchange for a fee you also advertise your services to the public in a like manner to a for-profit business and do not limit your counseling and consulting services to a charitable_class of individuals you income is derived solely from fees charged from services rendered and you do not receive any form of charitable_contributions from the public moreover you have provided no evidence that your fees will bear any relation to the costs of providing your service and will not be a purely profit-making tool you have provided no economic rationale for the amount you will charge for your services you have provided no financial studies or other information that would justify the amount of any particular fee therefore you have met many of the factors cited airlie foundation v commissioner supra in demonstrating a commercial manner of operation moreover you represent that you will not limit your services to a particular charitable_class of individuals such as minorities low-income or elderly there are no limitations of your services except with respect to those individuals and their families who would clearly benefit from those services therefore you are unlike the organization described in revrul_69_441 1969_2_cb_115 which aided low-income individuals and families who have financial problems thereby relieving the poor and distressed the organization described in the revenue_ruling also provided educational and counseling programs free of charge except for discretionary individual counseling and business analysis consultation services you state that you will waive your fees for those unable to pay however you have provided no evidence that your clients will ever receive free services or services according to their ability to pay the information you present to the public and your advertisements do not show any written evidence of your fee waiver policy your financial structure does not resemble that of a typical charity either because it solely relies upon revenues earned by selling your dmps business consultation and bankruptcy certification services to the public you are unlike the organizations described in consumer credit counseling service of alabama inc v united_states supra which received the bulk of their support from government and private_foundation grants contributions and assistance from labor agencies and the united way these organizations only received an incidental amount of their revenues from fees therefore you are operated in the manner of a trade_or_business in fact you do not have any plans to raise funds from the public thus you have also failed to substantiate that you follow an educational methodology indeed your operational focus is on your debt management plans and bankruptcy certification program for fees rather than financial education one clear example of this reliance can be found in your advertising material which solely emphasizes your services for a fee without any references to the operation of a substantive educational program see exhibit you do not provide any form of on-going education in your counseling or financial services programs although there is an educational component to your post-bankruptcy certification program the public benefit from this single program appears limit compared to your overall financial counseling and consulting programs services you provide once the client is on the dmp you do not conduct any educational programs for these participants the pre-bankruptcy counseling consists primarily of gathering information from the client and determining whether they want to pursue this course of action because your officer b is a financial planner you also provide investment consulting business consulting and other financial planning services it appears that your counseling activities traverse far beyond counseling of individuals regarding their spending habits and budgeting concerns and into the realm of financial investment advice for individuais and businesses it is clear from your own description that your primary purpose is the sale and servicing of dmps bankruptcy certifications and other services for a fee rather than public education accordingly we conclude that you have a substantial non-exempt commercial purpose you are similar to the organization described in american institute for economic research v united_states supra in which the court held that the organization’s sale of publications and sale of advice for a fee to individuals were indicative of a business therefore the organization had a significant non-exempt commercial purpose that was not incidental to the exempt_purpose and was not entitled to be regarded as tax exempt a fundamental requirement for an organization that seeks exemption from federal income taxes is that it benefits the public rather than its creator shareholders or persons having a personal or private interest in the activities of the organization see sec_1_501_c_3_-1 and sec_1_501_c_3_-1 of the regulations your organizational structure and manner of operation result in inurement to your officers and their related for-profit businesses in the form of business referrals compensation payment for services and rent as your board_of directors is appointed by your officers it is clear that the control of the organization is vested with your officers a and b akin to the organization described in_kj's fund raisers inc v commissioner supra even though you state that your board_of directors will establish the salaries rental payments to z advertising fees to y and possibly payments for accounting and administrative services to b in the future since your board is appointed by your officers this fact strongly suggest that a and b are free to set policy for their own benefit without objection from the board substantially_all of your proceeds almost percent of total revenue will be returned to your officers a and b in the form of compensation and other_payments such as rent similar to the organization described in birmingham business college inc v commissioner and church by mail supra you are operated as a trade_or_business ultimately producing substantial revenues for your operators a and b z will share office space and equipment there does not appear to be a clear separation between your activities and those of z a financial services company owned by your officer b with you moreover as a financial planner b will be proving accounting and administrative services to you both you and z provide some indistinguishable services such as financial management services budget analysis for corporations and businesses and other forms of financial counseling although you claim that z has separate_accounting and is an independent for-profit entity your operations are comparable to the organization described in p l l scholarship fund v commissioner supra in that your activities and those of z are functionally inseparable you also resemble the organization described in salvation navy v commissioner supra in that you have not proved that your net_earnings would not inure to the benefit of private individuals your officers and founders hence it appears that a substantial purpose of your purpose is to serve the private benefit a and b and their private businesses y and z resulting in prohibited inurement and is therefore precluded from recognition of tax exemption under sec_501 of the code you have failed to describe your operations in sufficient detail to show that you are furthering an exclusively educational purpose as described in harding hospital inc v united_states nelson v commissioner christian echoes national ministry inc v united_states and revproc_2008_9 supra the burden is on the applicant organization to demonstrate that it has met the operational_test as specified under sec_501 of the code you did not provide any evidence that your dmp and bankruptcy counseling will be an incidental adjunct to a substantial and substantive program of public education and individual counseling you have provided no materials that indicate you will have a substantive on-going educational program directed to the individuals and families you serve in your dmp and your bankruptcy certification programs your primary goal and a majority of your time appear to be devoted to the provision of financial management budget counseling business analysis and selling and maintaining dmps thereby furthering a substantial non-exempt commercial purpose you have not shown that you are not operated to serve the private benefit of your officers who appoint your board_of directors in summary you do not meet the requirements under sec_501 of the code because you fail both the operational and organizational tests because your primary purpose is to sell dmps and bankruptcy certification rather than to educate and counsel the general_public we find that you operate for a substantial non-exempt commercial purpose in addition you have not shown that your operational and financial structure do not result in inurement to your officers and their related for-profit businesses in direct contravention of sec_501 of the code accordingly you do not qualify for exemption as an organization described in sec_501 of the code or under any other section of the internal_revenue_code and you must federal_income_tax returns contributions to you are not deductible under sec_170 of the code you have the right to file a protest if you believe this determination is incorrect to protest you must submit a statement of your views and fully explain your reasoning you must submit the statement signed by one of your officers within days from the date of this letter we will consider your statement and decide if the information affects our determination if your statement does not provide a basis to reconsider our determination we will forward your case to our appeals_office you can find more information about the role of the appeals_office in publication exempt_organization appeal procedures for unagreed issues types of information that should be included in your appeal can be found on page of publication under the heading regional_office appeal’ these items include n o r the organization’s name address and employer_identification_number a statement that the organization wants to appeal the determination the date and symbols on the determination_letter a statement of facts supporting the organization's position in any contested factual issue a statement outlining the law or other authority the organization is relying on and a statement as to whether a hearing is desired the statement of facts item must be declared true under penalties of perjury this may be done by adding to the appeal the following signed declaration under penalties of perjury declare that have examined the statement of facts presented in this appeal and in any accompanying schedules and statements and to the best of my knowledge and belief they are true correct and complete your appeal will be considered incomplete without this statement if an organization's representative submits the appeal a substitute declaration must be included stating that the representative prepared the appeal and accompanying documents and whether the representative knows personally that the statements of facts contained in the appeal and accompanying documents are true and correct you also have a right to request a conference to discuss your protest this request should be made when you file your protest statement an attorney certified_public_accountant or an individual enrolled to practice before the internal_revenue_service may represent you want representation during the conference procedures you must file a proper power_of_attorney form_2848 power_of_attorney and declaration of representative if you have not already done so for more information about representation see publication practice_before_the_irs and power_of_attorney all forms and publications mentioned in this letter can be found at www irs gov forms and publications if you if you do not file a protest within days you will not be able to file a suit for declaratory_judgment in court because the internal_revenue_service irs will consider the failure to protest as a failure to exhaust available administrative remedies code sec_7428 provides in part that a declaratory_judgment or decree shall not be issued in any proceeding unless the tax_court the united_states court of federal claims or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted all of the administrative remedies available to it within the irs types of information that should be included in your appeal can be found on page of publication under the heading regional_office appeal these items include the organization’s name address and employer_identification_number astatement that the organization wants to appeal the determination the date and symbols on the determination_letter a statement of facts supporting the organization’s position in any contested factual issue a statement outlining the law or other authority the organization is relying on and a statement as to whether a hearing is desired the statement of facts item must be declared true under penalties of perjury this may be done by adding to the appeal the following signed declaration under penalties of perjury declare that have examined the statement of facts presented in this appeal and in any accompanying schedules and statements and to the best of my knowledge and belief they are true correct and complete your appeal will be considered incomplete without this statement if you do not intend to protest this determination you do not need to take any further action if we do not hear from you within days we will issue a final adverse determination_letter that letter will provide information about filing tax returns and other matters please send your protest statement form_2848 and any supporting documents to the applicable address us mail street address internal_revenue_service eo determinations quality assurance room internal_revenue_service eo determinations quality assurance room p o box cincinnati oh attn main st federal bldg cincinnati oh attn you may also fax your statement using the fax number shown in the heading of this letter you fax your statement please call the person identified in the heading of this letter to confirm that he or she received your fax if if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely robert choi director exempt_organizations rulings agreements enclosures exhibits publication


department of the treasury internal_revenue_service washington d c ot ekenet aho ve sivision r uniform issue list aug tw qe tep ral ti legend taxpayer a broker a iraa ira b company a company b company c amount amount amount amount date date date dear this is in response to a ruling_request submitted by your authorized representative dated date in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a age represents that she received a distribution from her individual_retirement_account ira a totaling amount from company a taxpayer a asserts that the failure to accomplish a rollover of amount within the 60-day period prescribed by sec_408 of the code was due to a mistake made by broker a taxpayer a further represents that amount has not been used for any other purpose based on advice from broker a taxpayer a instructed broker a to execute a trustee-to- trustee transfer of amount from ira a to iras with company b while executing the transfer broker a’s office mistakenly checked a block on the form submitted to company a that caused the withholding of for federal taxes and for state taxes on date amount was withdrawn from ira a and amount was withheld for taxes amount withheld for federal taxes plus amount withheld also for state taxes on date amount amount minus amount was deposited into iras with company b taxpayer a and broker a became aware of amount being mistakenly withheld for tax purposes subsequent to receiving an original and a corrected form 1099r from company ain taxpayer a deposited amount into ira b on date based on the above facts and representations you request a ruling that the internal_revenue_service service waive the 60-day rollover requirement contained in sec_408 of the code with respect to amount which was mistakenly withheld for taxes sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to section - d the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and the documentation submitted by taxpayer a is consistent with her assertion that the failure to accomplish a timely rollover of amount was due to a mistake made by broker a therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount from ira a provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution amount will be considered a valid rollover_contribution to ira b within the meaning of sec_408 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter 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 if you wish to inquire about this ruling please contact se t ep ra t1 ' sincerely yours cprller a watteins carlton a watkins manager employee_plans technical group enclosures deleted copy of this letter notice of intention to disclose notice cc


t c memo united_states tax_court jorge zamora-quezada petitioner v commissioner of internal revenue respondent docket no filed date jorge zamora-quezada pro_se david b mora for respondent memorandum opinion laro judge jorge zamora-quezada petitioned the court to redetermine respondent's determinations with respect to his through taxable years respondent determined the following deficiencies and additions thereto additions to tax_deficiency sec_6651 year dollar_figure dollar_figure dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number sec_6654 following petitioner's concession that he is liable for the deficiencies determined by respondent we must decide whether he is liable for the additions to tax as well we hold he is unless otherwise noted section references are to the internal_revenue_code in effect for the years in issue rule references are to the tax_court rules_of_practice and procedure background petitioner resided in guadalajara jalisco mexico when he petitioned the court petitioner was in the united_states on a student visa for approximately the 5-year period prior to during this period he performed personal services in the united_states as an employee and federal taxes were withheld from the corresponding paychecks that he received his visa expired in and he continued to work and live in the united_states from through without official residency status petitioner earned_income in the united_states during each of the years from through performing services as a physician on an independent_contractor basis he worked in various medical facilities most of which were located in or near boston massachusetts many of these facilities issued petitioner a form 1099-misc miscellaneous income listing the amount of income that the issuer paid to him during the related year the first national bank of boston also issued him a statement showing that it paid him dollar_figure of interest_income during petitioner did not file a federal_income_tax return for any of the subject years discussion petitioner must prove respondent's determinations wrong in order to prevail rule a 290_us_111 respondent determined that petitioner was liable for an addition_to_tax under sec_6651 for each year in issue because petitioner failed to file federal_income_tax returns in order to avoid this addition_to_tax petitioner must prove that his failure_to_file was due to reasonable_cause and not due to willful neglect sec_6651 rule a 469_us_241 failure_to_file timely federal_income_tax return is due to reasonable_cause if the taxpayer exercised ordinary business care and prudence and nevertheless was unable to file the return within the prescribed time sec_301_6651-1 proced admin regs willful neglect means a conscious intentional failure or reckless indifference united_states v boyle supra pincite petitioner claims that he did not believe that he had to file federal_income_tax returns for the subject years because he worked and lived in the united_states as an illegal alien we are unpersuaded by this claim it is clear that the federal_income_tax reaches income that is earned in the united_states by an alien even if deemed a nonresident see sec_61 sec_872 sec_7701 see also sec_861 and b respondent also determined an addition_to_tax under sec_6654 for each year in issue asserting that petitioner failed to pay estimated_tax this addition_to_tax is mandatory unless petitioner proves he met one of the exceptions contained in sec_6654 91_tc_874 petitioner has failed to do so accordingly we sustain respondent's determinations under sec_6654 to reflect the foregoing decision will be entered for respondent


department of the treasury internal_revenue_service washington d c l tax_exempt_and_government_entities_division uics jan - qt ef rai t legend decedent wife daughter daughter company company state county court date date date date date date citation citation citation statute statute statute dear l f h n h i i w h w h this is intesponse to the in which you through your authorized representative request a letter_ruling under letter as supplemented by correspondence dated sec_2518 of the internal_revenue_code code the following facts and representations support your ruling_request facts on date decedent a resident of state opened an ira with company the ira agreement designated his wife wife as the primary beneficiary and daughter sec_1 and as contingent beneficiaries of the ira in the event wife did not survive decedent subsequently decedent transferred all of the assets from the company ira to an ira established with under the company agreement wife company which decedent opened on date was designated as the primary beneficiary of the company ira however no contingent beneficiaries were designated under the agreement wife died shortly thereafter on date decedent died testate on date article fifth of decedent’s will provides in relevant part that in the event that wife does not survive decedent or if wife dies within sixty days of decedent the rest residue and remainder of decedent’s estate is to pass to decedent’s two daughters in equal shares per stirpes on date personal representative of wife’s estate disclaimed each and every interest which wife or her estate had in the company ira which was within nine months of decedent’s death daughter in her capacity as on date court entered an order reforming the beneficiary designation of the the date the ira was opened under the company ira nunc_pro_tunc as of date beneficiary designation as reformed daughter sec_1 and were designated as the contingent beneficiaries of the company ira as was the case with respect to the company ira the order also approved the disclaimer of wife’s interest in the company ira the disclaimer was executed approved by the probate_court received by the personal representative of decedent’s estate and recorded in the public records of county within nine months after the date of decedent’s death the taxpayer has submitted an affidavit from the individual who assisted decedent in establishing the company ira the affiant states that decedent advised the affiant that the company ira was to have the same beneficiaries as the company ira however his instructions were not implemented and daughter and daughter were not designated as contingent beneficiaries the taxpayer represents that neither wife nor her estate had made any voluntary assignment of or transfer of contract to assign or transfer or encumbrance of given a written waiver of the right to disclaim the succession to and any interest in and had not made any sale_or_other_disposition of an interest in the ira furthermore neither wife nor her estate had accepted the ira or any interest in the ira _ ruling requested that the above-referenced disclaimer of the company ira is a valid disclaimer within the meaning of code sec_2518 and as a result of the disclaimer daughter and daughter became equal fifty percent beneficiaries of the company ira law and analysis sec_25 a of the internal_revenue_code provides that if a person makes a qualified_disclaimer with respect to any interest in property then for purposes of the estate gift and generation-skippin g transfer_taxes the interest will be treated as if it had never been transferred to the disclaimant irrevocable and unqualified refusal by a person to accept an interest in property but only if section b defines the term qualified_disclaimer to mean an such refusal is in writing such writing is received by the transferor of the interest the transferor's legal_representative or the holder of the legal_title to the property to which the interest relates not later than the date which is nine months after the later of the date on which the transfer creating the interest in such person is made or the day on which such person attains age such person has not accepted the interest or any of its benefits and as a result of such refusal the interest passes without any direction on the part of the person making the disclaimer and passes either to the spouse of the decedent or to a person other than the person making the disclaimer sec_25_2518-1 of the gift_tax regulations provides in part that if a person makes a qualified_disclaimer then for purposes of federal estate gift and generation-skipping_transfer_tax provisions the disclaimed interest in property is treated as if it had never been transferred to the person making the qualified_disclaimer instead it is considered as passing directly from the transferor of the property to the person entitled to receive the property as a result of the disclaimer accordingly a person making a qualified_disclaimer is not treated as making a gift sec_25_2518-2 provides that a disclaimer is a qualified_disclaimer only if it is in writing and signed either by the disclaimant or the disclaimant’s legal_representative under applicable state law a person may disclaim in whole or in part conditionally or unconditionally any interest in or power over property further with court approval a fiduciary defined as including a personal representative may disclaim an interest in or power over property statute i disposition of the property in the event of a disclaimer then if the disclaimant is an individual the disclaimed interest passes as if the disclaimant had died immediately before the interest was created statute under statute generally a disclaimer may be made at any time in generally if the instrument does not contain a provision directing addition under applicable state law an inter_vivos revocable_trust can be reformed after the death of the settler for a unilateral drafting mistake if clear_and_convincing evidence demonstrates that a unilateral drafting error was made citation sec_1 and see also citation where the court declined to reform the instrument in the absence of clear_and_convincing proof of a drafting mistake in this case wife’s legal_representative on wife’s behalf disclaimed her and her estate’s interest in the company ira the disclaimer was in writing delivered within months of the decedent's death and wife did not accept any of the disclaimed interest further the court order reforming the company ira beneficiary designation was consistent with state law conclusion accordingly based on the facts presented and the representations made we conclude with respect to your ruling_request that the above-referenced disclaimer constituted a qualified_disclaimer under sec_2518 further under applicable state law as a result of the disclaimer wife is treated as having predeceased the decedent with respect to the disclaimed interest accordingly the company ira proceeds passed equally to daughter sec_1 and as contingent beneficiaries of the company ira this ruling letter is based on the assumption that the iras referenced herein either were or are valid within the meaning of code sec_408 at all times relevant thereto it also assumes the correctness of all facts and representations contained therein no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter 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 pursuant to a power_of_attorney on file with the service the original of this letter_ruling is being sent to you and a copy to your authorized representatives esq d if you wish to inquire about this ruling please contact at please address all correspondence to se t ep ra t3 sincerely yours vw rances v slogn manager employee_plans technical group enclosures deleted copy of letter_ruling notice