PLR 200509026: Wholly owned property subsidiary treated as part of exempt title holding parent

Plain-English summary

An exempt title holding organization asked how the IRS would treat a subsidiary it formed to hold real property. The parent had owned all of the subsidiary's stock throughout its existence. The IRS ruled that the subsidiary qualified under section 501(c)(25)(E) and would be treated with its parent as a single entity for federal tax purposes while both continued to meet that section's requirements. The parent must include the subsidiary's finances on its Form 990, and the subsidiary need not file separate federal returns. The IRS warned that impermissible activities by the subsidiary could jeopardize the parent's exemption.

Ruling snapshot

• Question: Is the wholly owned property holding corporation a qualified subsidiary of the exempt parent?
• Outcome: Approved, while the section 501(c)(25) requirements continue to be met.
• Key authorities: IRC §§ 501(c)(25)(A), 501(c)(25)(E), 6033.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Number: 200509026
Release Date: 03/04/2005
SE:T:EO:RA:TPU:PE:3R3

Date: December 6, 2004
Employer Identification Number:

Person to Contact and ID Number:

Toll Free Contact Number:

Name of Qualified Subsidiary:

SIN# 501.25-00

Dear ------------:

This letter is in reply to your request for a ruling concerning the status, for federal tax purposes, of your qualified subsidiary, X.

Your exemption as a title-holding corporation under section 501(c)(25) of the Internal Revenue Code was recognized by our exemption letter to you dated Y.

Your qualified subsidiary was formed by you for the purpose of holding title to real property.
The information submitted shows that 100 percent of the stock of your subsidiary has been held by you at all times during its existence.

Section 501(c)(25)(A) of the Code provides for the exemption from federal income tax of title-holding corporations or trusts that hold title to real property and otherwise meet the requirements of section 501(c)(25).

Section 501(c)(25)(E) of the Code provides that a corporation may be a qualified subsidiary of an exempt title-holding organization if 100 percent of its stock is held, at all times during such corporation's existence, by an exempt title-holding organization. The Code further provides that the qualified subsidiary will not be treated as a separate corporation for federal tax purposes. In addition, all of the qualified subsidiary's assets, liabilities, and items of income, deduction, and credit will be treated as belonging to the exempt parent title-holding organization.

Based upon the information provided, we rule that the above-named subsidiary is your qualified subsidiary corporation as described in section 501(c)(25)(E) of the Code. Therefore, you and your qualified subsidiary shall be treated, for federal tax purposes, as a single entity as long as you and your qualified subsidiary continue to meet all of the requirements of section 501(c)(25).

Your activities and those of your qualified subsidiary corporation will be considered in the aggregate to determine whether you continue to qualify for exempt status. Consequently, any activity conducted by a qualified subsidiary corporation that is not permitted under section 501(c)(25) may cause you to lose your exempt status.

2

Your qualified subsidiary corporation is not required to file federal tax and information returns that are generally required under federal tax law since it is treated as part of its exempt parent title-holding organization.

As the exempt parent title-holding organization, you are required to file all federal returns, including Form 990, Return of Organization Exempt From Income Tax, required by section 6033 of the Code, using your Employer Identification Number. The Form 990 must include financial information applicable to your qualified subsidiary corporation. The information pertaining to your qualified subsidiary corporation should not be listed separately, but should be aggregated with the information applicable to you. Therefore, you and your qualified subsidiary corporation must be on the same annual accounting period. Form 990 should be filed with the Ogden Service Center, Ogden, UT 84201-0027.

When Form 990, Return of Organization Exempt from Income Tax is filed, please provide the information listed below with your return:

1. The name, address, and employer identification number, if any, of each qualified
   subsidiary.

2. A statement that you have held 100 percent of the stock of each named qualified
   subsidiary at all times during the subsidiary's existence.

3. The name and address of any previously qualified subsidiary and an explanation as
   to why the subsidiary is no longer a qualified subsidiary.

4. A statement describing any changes during the tax year in the purposes, character,
   or method of operation of each qualified subsidiary.

Please use the employer identification number indicated in the heading of this letter on all returns you file and in all correspondence with the Internal Revenue Service. Your qualified subsidiaries should not apply for their own employer identification number. Because this letter could help resolve any questions about your exempt status, you should keep it in your permanent records.

If you have any questions about this letter, call the toll free number indicated in the heading of this letter, or send correspondence to Internal Revenue Service, TE/GE Customer Service, P.O. Box 2508, Cincinnati, OH 45201. Please see enclosed Information for Organizations Exempt Under Sections Other Than 501(c)(3) for some helpful information about your qualified subsidiary’s responsibilities as an exempt organization.

Sincerely,

Ronald J. Shoemaker

Lois G. Lerner
Director, Exempt Organizations
Rulings & Agreements

Enclosure: Information for Organizations Exempt Under Sections Other Than 501(c)(3)