Ezel / IRS Rulings / 201025063

IRS explained the 35 percent employee rule for renewal community businesses

Number
201025063
Outcome
Advice
Document type
Chief Counsel Advice
IRS subject
Empowerment Zone - Other definitions and special rules
Topics
Other topics
Code sections
§ 1400G, § 1397C
Ruling dated
May 27, 2010
Publicly released
June 25, 2010
Source
View Official PDF

Apply this to your situation

This page covers legal advice the IRS Office of Chief Counsel wrote for IRS staff, issued in 2010, which can't be cited as precedent. Ask about your situation and see what the current Code and IRS guidance say, with citations.

Currency note: this determination was released in 2010
Statutory amendments, regulation changes, court decisions, or later IRS guidance may have changed the analysis since then. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, threshold, or position mentioned here.
Not precedent. Under 26 U.S.C. § 6110(k)(3), this written determination may not be used or cited as precedent. It is advice from the IRS Office of Chief Counsel to IRS personnel on the facts they presented, and identifying details were redacted by the IRS before release. The official IRS release (linked on this page as a PDF) is the authoritative source.
About this page: The plain-English summary and ruling snapshot below were written by Ezel based on the official IRS release. The full text is the IRS's own document.
View official IRS release (PDF)

Plain-English summary

The IRS advised that at least 35 percent of a renewal community business's employees must live in a renewal community. It explained that the renewal community capital gain exclusion applies to qualified capital gain from selling or exchanging a qualified community asset held for more than five years. The requirements depend on whether the asset is stock, a partnership interest, or business property. The IRS tied the definition of renewal community business to the qualified business rules in IRC § 1397C, as modified by IRC § 1400G.

Ruling snapshot

  • Question: What employee-residency requirement applies to a renewal community business, and when can the capital gain exclusion apply?
  • Outcome: Advice given
  • Key authorities: IRC §§ 1397C and 1400G.

Full text (IRS public release)

ID: CCA_2010052709033957 Number: 201025063
Release Date: 6/25/2010
Office: ----------------
UILC: 1397.00-00

From: ------------------
Sent: Thursday, May 27, 2010 9:03:44 AM
To: -----------------------
Cc: --------------------
Subject: RE: EZ/RC Zone question

Hi -------. The 35% rule is one of the requirements to be a renewal community business
--at least 35 percent of the employees must be residents of the renewal community.

The renewal community capital gain exclusion applies to any qualified capital gain from the sale or exchange of a qualified community asset held for more than 5 years. If the qualified community asset is stock or a partnership interest, the corporation or partnership, respectively, has to be a renewal community business. If the qualified community asset is business property, it has to be substantially used by the taxpayer in a renewal community business. The term "renewal community business" is defined in IRC section 1400G as any entity or proprietorship that would be a qualified business entity or qualified proprietorship under IRC section 1397C if references to renewal communities were substituted for references to empowerment zones in IRC section 1397C. One of the requirements to be a qualified business entity or qualified proprietorship is that at least 35 percent of its employees are residents of a renewal community. See IRC section 1397C(b)(6) or (c)(5).

If you have any further questions regarding this matter, please let me know.

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