Facts: Not-for-Profit, Inc. (NFP) owns 60% of a For-Profit Corporation (FP). FP owns title to property...

Transcribed Image Text:

Facts: Not-for-Profit, Inc. ("NFP") owns 60% of a For-Profit Corporation (FP). FP owns title to property (land) leased to NFP. The lease rental amounts from NFP are equal to reimbursement to FP for maintenance, property taxes and other incidental expenses related to the leased property. Thus, FP pays no income taxes because the rental income from NFP is completely offiset by the maintenance and property taxes, ete. incurred by FP. FP also has net operating loss ("NOL") carryforwards. Pursuant to the lease agreements, leasehold improvements made by NFP, which are substantial, revert back to FP at the end of the lease. However, these long-term leases have been renewed regularly over several decades. The property has become extremely valuable over the years and is located in an upscale residential neighborhood. This leased property could be used for other purposes, which would yield much higher returns to FP than the related party lease with NFP. FP has not applied (nor does ir intend to) for Title Holding Company status with the IRS, which would require amendments to FP's certificate of incorporation and bylaws and related sharcholder approvals. Title Holding Companies are tax exempt cntities. 26 U.S.C. $501(cX2). Neither FP nor NFP have disclosed in their respeetive audited separate or consolidated financial statements any "Uncertain Tax Positions ('UTP) (See FASB Interpretation No. 48 (Codificd at ASC 740-10). Nor have FP or NFP disclosed on their respective federal tax returns that FP or NFP have any UTPS (these would be reported on Schedule UTP (Form 1120 for FP) and Schedule D (Form 990 for NFP). Instead, primarily relying upon GCM 35188 (attached), both FP and NFP have taken the position that they are not required to disclose any UTPS. Relevant Law: IRC $$482, 501(a), 501(cx2),(7), and related IRS regulations and rulings, GCM 35188 (1973-419): see also "Instructions for Schedule UTP (Form 1120)," Instructions for Form 990 (Schedule D and Part XIII), FASB Interpretation No. 48 (2009) For purposes of this project, it is assumed that FP and NFP are related parties under federal income tax law (see IRC $$ 267(b), 318(a), 707(b)). Issue: Does NFP or FP have UTP disclosure requirements under federal tax law? Instructions: After conducting the appropriate researeh and analysis, prepare a research memorandum (see 4007 of text). Use proper legal citations. Optional: You also may attach legal briefs of pertinent case law (see 13019.03 of text). Facts: Not-for-Profit, Inc. ("NFP") owns 60% of a For-Profit Corporation (FP). FP owns title to property (land) leased to NFP. The lease rental amounts from NFP are equal to reimbursement to FP for maintenance, property taxes and other incidental expenses related to the leased property. Thus, FP pays no income taxes because the rental income from NFP is completely offiset by the maintenance and property taxes, ete. incurred by FP. FP also has net operating loss ("NOL") carryforwards. Pursuant to the lease agreements, leasehold improvements made by NFP, which are substantial, revert back to FP at the end of the lease. However, these long-term leases have been renewed regularly over several decades. The property has become extremely valuable over the years and is located in an upscale residential neighborhood. This leased property could be used for other purposes, which would yield much higher returns to FP than the related party lease with NFP. FP has not applied (nor does ir intend to) for Title Holding Company status with the IRS, which would require amendments to FP's certificate of incorporation and bylaws and related sharcholder approvals. Title Holding Companies are tax exempt cntities. 26 U.S.C. $501(cX2). Neither FP nor NFP have disclosed in their respeetive audited separate or consolidated financial statements any "Uncertain Tax Positions ('UTP) (See FASB Interpretation No. 48 (Codificd at ASC 740-10). Nor have FP or NFP disclosed on their respective federal tax returns that FP or NFP have any UTPS (these would be reported on Schedule UTP (Form 1120 for FP) and Schedule D (Form 990 for NFP). Instead, primarily relying upon GCM 35188 (attached), both FP and NFP have taken the position that they are not required to disclose any UTPS. Relevant Law: IRC $$482, 501(a), 501(cx2),(7), and related IRS regulations and rulings, GCM 35188 (1973-419): see also "Instructions for Schedule UTP (Form 1120)," Instructions for Form 990 (Schedule D and Part XIII), FASB Interpretation No. 48 (2009) For purposes of this project, it is assumed that FP and NFP are related parties under federal income tax law (see IRC $$ 267(b), 318(a), 707(b)). Issue: Does NFP or FP have UTP disclosure requirements under federal tax law? Instructions: After conducting the appropriate researeh and analysis, prepare a research memorandum (see 4007 of text). Use proper legal citations. Optional: You also may attach legal briefs of pertinent case law (see 13019.03 of text).

Answer rating: 100% (QA)

Research Memorandum To Client From Re UTP Disclosure Requirements for NotforProfit Inc NFP and ForProfit Corporation FP I Introduction This memorandum addresses the uncertain tax positions UTPs disclo... View the full answer