Preparer Tax Identification Number

February 10, 2011

A PTIN needs to be obtained by all tax return preparers who are compensated for preparing or assisting in the preparation of all or substantially all of any U.S. federal tax return, claim for refund or other tax form submitted to the IRS, except for certain forms listed on the IRS Web site (search for the FAQ section concerning PTINs).

Unless a preparer is an attorney, CPA or enrolled agent, or unless the preparer does not complete Form 1040 series returns, the preparer will need to pass an IRS competency exam and tax continuing education courses. In other words, the exam and continuing education requirements do not apply if the preparer is completing forms other than Form 1040 series returns.

Qualified Management Contracts (Treas. Reg. 1.141-3(b)(4); Rev. Proc. 97-13; Rev. Proc. 2016-44; Notice 2014-67)

February 9, 2011


  • Rev. Proc. 97-13, as modified and amplified by Notice 2014-67, thanks to the publicfinancetaxblog.
  • Rev. Proc. 2016-44, as revised on September 2, 2016 with the extended transition period.  Modifies and supersedes Rev. Proc. 97-13 and Rev. Proc. 2001-39.
  • Under Treas. Reg. 1.141-1(b), a “renewal option” is defined as a provision under which either party has a legally enforceable right to renew the contract.  For example, a provision under which a contract is automatically renewed for 1-year periods (an “evergreen provision”) absent cancellation by either party is not a “renewal option” (even if it is expected to be renewed).
  • PLR 200651012 (Dec. 22, 2006):  Professional art college’s contract to manage student resident hall with corporation which provides management, administrative and operational services to the college won’t result in private business use of the dormitory.  The contract provides for a fixed fee over a 15-year term.  The fee is adjusted based on the CPI.  The contract also provides for reimbursements.  The contract has a renewal option for one-year periods.  The manager does not have any role or relationship with the university that substantially limits the university’s ability to exercise its rights, including cancellation rights, under the agreement.  The manager was created by the university.
  • PLR 200222006 (Feb. 19, 2002): Very helpful discussion regarding separation of agreements and compensation, and deferral of compensation and incentives:
    • Management contract between a hotel owner and a management contract, and separate preopening contract between the two, for (1) preopening services and (2) multiple operating services.  Provides for multiple fee structures: A fixed monthly fee for preopening, for 3 years; a fixed management fee with a deferral component; a one-time productivity reward that is subject to deferral; a centralized service fee with CPI adjustment; an inducement fee deemed repayment (treated as a reduction in fees paid by the owner); and expense reimbursement to third parties and not executive staff, for 15 years.
    • The IRS suggests that it may be appropriate to aggregate the terms of the two contracts so that the total term of the contracts is 18 years.  Nevertheless, assuming aggregation, the emphasis of the preopening contract is on supervision of the design and construction of the hotel prior to the date the hotel is placed in service – therefore the management phase of the contract occurs “primarily” during the 15-year term of the management contract.
    • The management fee (the fixed fee) is subject to adjustment based on percentage change in total RevPAR of the competitive set (excluding the hotel).  Beginning in the third year, the owner has the right to defer paying a stated dollar amount of the management fee if revenues of the hotel are not sufficient to pay certain senior expenses such as capital replacement reserves and a preferred return to the owner.  The deferred fee will accrue, however, and is payable in full if the contract is terminated or ends pursuant to its terms.
    • The IRS concludes that the non-deferrable portion of the management fee is a periodic fixed fee arrangement and the adjustment based on RevPAR is an acceptable external standard.
    • However, the IRS finds that the deferrable portion of the management fee could be viewed as a net profits-based payment.  The circumstances, however, suggest that the arrangement is acceptable – though outside of the safe harbor – because the full amount of the deferred fees will be payable regardless of the existence of net profits when the contract is terminated.  In addition, the amount of the deferred fees is a stated dollar amount and not itself a percentage of hotel net profits.  Finally, a feasibility study suggests that no deferrals will even occur with respect to the deferrable portion of the management fee and the incentive reward (which is also deferrable).
  • PLR 200926005 (Jun. 26, 2009):  Agreements with outside physicians relating to compensation based on “Net Professional Patient Billings” determined not to give rise to private business use based on all facts and circumstances.  Agreement exceeded the permissible term under Sec. 5.03(6) (2 years where, among other things, the services are provided primarily to third parties).
  • PLR 201145005 (Aug. 4, 2011): Though it does not meet all the requirements of sec. 5 of Rev. Proc. 97-13, company’s management contract for authority’s bond-financed exhibition and convention facility will not cause a private business use of the facility under sec. 1.141-3(b)(4).  Though the agreement’s term is some two months longer than five years, the deviation is insignificant.  November 11 Tax Notes.
  • PLR 201228029 (Mar. 30, 2012):  IRS determines, based all on facts and circumstances and not based on the safe habors in Rev. Rul. 97-13, that an agreement providing for (1) fixed direct fee (with adjustment based on credit support provided by service provider), (2) incentive compensation component, (3) reimbursement of pass-through expenditures (including partially marked-up costs from affiliates of the service provider) does not cause private use.  The arrangement does not, in any of these compensation parts, fall within the safe harbors, but the IRS, in its ability to make a facts and circumstances determination, holds that the agreement does not give rise to private use.
  • PLR 201338031 (May 20, 2013):  Amending an agreement in a material manner causes the contract to be treated as a contract that is newly entered into as of the date of the material change.  A contract for the management of a hotel does not meet the requirements of section 5 of Rev. Proc. 97-13.  The contract provides for the payment of a base fee and an incentive fee.  The base fee is the greater of (1) an amount that would be a periodic fixed fee if it were paid every year or (2) a percent of the hotel’s actual gross receipts.  The incentive fee is a percentage of adjusted gross receipts if a certain RevPAR rate is achieved.  However, because the base fee and the incentive fee, both independently and in combination, are not based on a share of net profits, the IRS determined that the contract would not result in private business use of the hotel, based on all the facts and circumstances.
  • FSA 199932017 (Aug. 13, 1999):  Whether a private corporation’s operation of a prison constructed with proceeds of bonds that are tax-exempt results in private business use; whether a private corporation’s guarantee of the payment of debt service on the bonds satisfies the private payment or security test; and whether an examining agent should rely on the Trust Indenture or the Official Statement when the two documents are inconsistent with respect to the property that secures payment of debt service on the bonds.  Not enough information to make a determination on any of these questions.
  • PLR 200501003 (Jan. 1, 2005):  Service provider managing and serving output facility pool of generator equipment is providing services incidental to the governmental users’ use of the financed property.

Midwestern Disaster Area Bonds

February 3, 2011

A.  Checklist for reviewing Midwestern Disaster Area Bond proposals:

  • ___ The project must be in a Midwestern disaster area
  • ___ Have you identified the state agency providing the allocations?
  • ___ The bonds will be issued before January 1, 2013
  • ___ At least 95% of the net proceeds of the bonds be used for “qualified project costs” and “qualifying projects”
  • ___ The project is a  “qualifying project”
    • ___ Used by a person who suffered a loss in a T/B attributable to severe storms, tornadoes or flooding giving rise to any Presidential declaration or  ___ Person using the project has been designated by the Governor as a person carrying on a T/B replacing a T/B with respect to which another person has suffered such loss;
    • ___ If public utility project, project involves repair or reconstruction of public utility property damaged by the severe storms, tornados or flooding;
    • ___ If mortgage financing, [see statute].
  • ___ Bond proceeds will finance “qualified project costs”
    • ___ Yes, the costs will be any costs for a “qualified residential rental project”;
    • ___ Yes, the costs will be to acquire, construct, reconstruct or renovate nonresidential real property (including fixed improvements) located in the disaster area; and/or
    • ___ Yes, the costs will be used to acquire, construct, reconstruct or renovate public utility property in the disaster area.
  • ___ The bond proceeds will finance no movable fixtures and equipment
  • ___ The bonds have been designated as MDABs by the Governor (or as otherwise required by state law)
  • ___ The bonds have been authorized under state law (and all requirements of state law have been followed)
  • ___ Issuance costs do not exceed 2% of the proceeds of the issue
  • ___ Average maturity of the bonds does not exceed 120% of the average reasonably expected economic life of the financed facilities
  • ___ Less than 25% of the bond proceeds will be used to acquire land (or interest therein) (Section 147(c))
  • ___ Are bond proceeds going to be spent on existing (used) property? If so, borrower will need to make rehabilitation expenditures equal to at least 50% (not 15%) of the cost of acquiring the building within two years after the later of the date the building is acquired or the date the bonds are issued)
  • ___ Bond proceeds may not finance airplane, skybox or other private luxury boxes, health club facility, golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other gambling facility or liquor store
  • ___ The TEFRA approval process must be completed