tcmemo_2010_236 united_states tax_court william sandlin mclaurine ii petitioner v commissioner of internal revenue respondent docket no filed date p failed to report his wages and r determined a deficiency p contested the deficiency arguing that the u s government did not have the authority to tax him because he is a citizen only of alabama and not of the united_states held p is liable for the deficiency held further p is liable for a sec_6673 i r c penalty william sandlin mclaurine ii pro_se marshall r jones for respondent memorandum findings_of_fact and opinion wherry judge this case is before the court on a petition for redetermination of an income_tax deficiency of dollar_figure that respondent determined for petitioner’s tax_year the issues for decision are whether there is a tax_deficiency or overpayment and if so the amount thereof and whether this court should impose a sec_6673 penalty on petitioner for filing a frivolous or groundless petition and instituting proceedings primarily for protest or delay findings_of_fact at the time he filed his petition with this court petitioner resided in alabama absent stipulation to the contrary this case would be appealable to the court_of_appeals for the eleventh circuit see sec_7482 petitioner was born in virginia respondent asserts that during the tax_year at issue petitioner received dollar_figure in wages from an employer who had apparently issued him a form w- 1all section references are to the internal_revenue_code_of_1986 as amended and in effect for the year at issue all rule references are to the tax_court rules_of_practice and procedure 2petitioner insists that at the time of filing the petition he was not a resident of alabama but instead an inhabitant of the state of alabama this semantic distinction is unworthy of a response and we decline to give it one wage and tax statement to that effect and had sent a copy to respondent for petitioner filed a form 1040nr u s nonresident_alien income_tax return showing no income and subsequently attempted to file a form 1040x amended u s individual_income_tax_return with a form 1040nr on the basis of petitioner’s failure to include in reported income the dollar_figure of wages respondent mailed to petitioner on date a notice_of_deficiency showing a deficiency of dollar_figure for petitioner’s tax_year petitioner timely petitioned this court a trial was held on date in mobile alabama petitioner does not dispute receipt of the wages from his employment for personal services instead petitioner argues that he is not a citizen_of_the_united_states and therefore the u s government cannot tax him on wages he earned in alabama in 3respondent indicates he received petitioner’s form 1040nr on or about date in his petition petitioner stated that he had made mistakes in filing the form 1040nr but that he had refiled a 1040x with 1040nr on date to correct the mistakes there is no allegation by either party that the submission of the form 1040x has any effect on the outcome of this case 4petitioner had until date to timely file a petition with this court petitioner’s petition was not filed until date however it was postmarked date under sec_7502 a timely mailed petition may be treated as timely filed and therefore petitioner timely petitioned this court his petition petitioner states the petitioner is not a ‘citizen of the united states’ the source of taxation in this matter come sic from employment for personal services in a foreign_country and is excluded from gross_income and taxable_income by the tax code petitioner alleges that the term foreign in the united_states law refers to the state of alabama because the laws of the united_states are foreign to the state of alabama when his case was called for scheduling at calendar call on date petitioner submitted a written motion to dismiss for lack of jurisdiction which this court after hearing denied petitioner’s motion alleged that this court listed him as pro_se when in fact he is sui juris that his name should not have been capitalized in the caption of the case and that the 10th amendment to the constitution and necessary_and_proper_clause had been grossly misinterpreted by both courts and the u s government petitioner’s argument that the 10th amendment has been misinterpreted appears to center around the permissible exercise of power by the federal government which according to petitioner excludes levying an income_tax 5the written_statement with respondent’s consent was filed as petitioner’s pretrial memorandum petitioner had not provided a pretrial memorandum petitioner used the calendar call to expand on his political arguments explaining the basis for his contention that he is not a u s citizen according to petitioner natural born citizens under the 14th amendment to the constitution are only those who are born and reside in the district of columbia since petitioner was born in virginia and asserts that he never had an intent to be naturalized he claims he is not a citizen_of_the_united_states at calendar call the court attempted to explain to petitioner that he was a citizen both of alabama and the united_states and that the u s government may impose an income_tax on all citizens of the united_states we further advised petitioner that this court is not the proper forum for expressing disagreement with the federal government’s tax laws and policies and that he should instead consider the ballot box and letters to congress or the president we warned petitioner that if at trial he failed to present a case on the merits he could be subject_to a penalty under sec_6673 6respondent’s pretrial memorandum which petitioner received and read before the trial stated that sec_6673 authorized this court to award penalties further respondent questioned continued at the date trial which lasted minutes petitioner did not testify or introduce any witnesses stating that he was under duress and did not wish to make any argument petitioner did present a written_statement expressing his belief that he was under duress and therefore unable to make his case or argument presumably he was referring to the court’s informing him that sec_6673 authorizes the court to impose a penalty of up to dollar_figure if the court concludes the case was brought primarily for delay and or is frivolous or groundless opinion i jurisdiction and burden_of_proof a jurisdiction we begin by confirming our jurisdiction over petitioner’s claims our jurisdiction to determine a federal_income_tax deficiency depends on the issuance of a valid notice_of_deficiency and a timely filed petition sec_6212 sec_6213 sec_6214 93_tc_22 petitioner filed a timely petition in response to a valid notice_of_deficiency regarding his tax_year and we have jurisdiction over the case continued petitioner at trial as to whether the potential imposition of a sec_6673 penalty had caused him to change his position petitioner answered that it had not b burden_of_proof generally the commissioner’s determination of a taxpayer’s liability in the notice_of_deficiency is presumed correct and the taxpayer bears the burden of proving that the determination is improper see rule a 290_us_111 but in the eleventh circuit for the presumption of correctness to apply in some cases involving the receipt of unreported income the deficiency determination must be supported by ‘some evidentiary foundation linking the taxpayer to the alleged income-producing activity ’ 994_f2d_1542 11th cir quoting 596_f2d_358 9th cir revg 67_tc_672 affg tcmemo_1991_636 however petitioner has not disputed respondent’s deficiency determination on the grounds that it was incorrect arbitrary and did not link him with an income-producing activity and therefore the burden_of_proof remains on petitioner see eg dunne v 7we note that while an evidentiary foundation is needed in unreported income cases the required support is minimal 994_f2d_1542 11th cir affg tcmemo_1991_636 see also 808_f2d_758 11th cir stating that the situation where the burden_of_proof shifts to the commissioner ‘is rare and only occurs where the commissioner has introduced no substantive evidence and the evidence shows that the claimed tax_deficiency arising from unreported income was derived by the government from unreliable evidence’ quoting continued commissioner tcmemo_2008_63 concluding that allowing taxpayers to raise burden_of_proof for the first time on appeal would prejudice the irs because if the taxpayer had raised the issue earlier the irs could have presented evidence see also white v commissioner tcmemo_1997_ continued 754_f2d_921 11th cir affg t c memo affg amis v commissioner tcmemo_1984_642 once the minimal evidentiary showing has been made the deficiency determination is presumed correct and it becomes the taxpayer’s burden to prove it arbitrary or erroneous blohm v commissioner supra pincite citing 910_f2d_1374 7th cir affg malicki v commissioner t c memo under sec_7491 the burden_of_proof on factual issues that affect the taxpayer’s tax_liability may shift to the commissioner where the taxpayer introduces credible_evidence with respect to such issue the burden will shift only if the taxpayer has inter alia complied with applicable substantiation requirements and cooperated with reasonable requests by the secretary for witnesses information documents meetings and interviews sec_7491 petitioner did not raise the burden_of_proof issue did not introduce any credible_evidence and failed to comply with the substantiation requirements accordingly sec_7491 does not shift the burden_of_proof to respondent 8even if petitioner had alleged that the deficiency was incorrect and arbitrary petitioner’s tacit acknowledgment that he received the alleged wages is enough minimal evidence for the presumption of correctness to attach to the notice_of_deficiency respondent determined that petitioner received wages of dollar_figure petitioner does not deny this arguing in his petition only that the determination of the tax owed is based on employment for personal services in a foreign_country see havrilla v commissioner no u s app lexis wl 9th cir date affirming tax continued ii taxation of salary income petitioner invoked the jurisdiction of this court but has not denied and at trial did not produce evidence or rebut respondent’s determination that he received and failed to report taxable wages of dollar_figure in rather petitioner argues that he does not owe the deficiency because he is not a u s citizen and therefore the united_states does not have the authority to tax him petitioner’s arguments are without merit and lack factual and legal foundation and we are not obligated to exhaustively review and rebut petitioner’s misguided contentions see sanders v commissioner tcmemo_1997_ to refute these arguments with somber reasoning and copious citation of precedent might suggest that these arguments have some colorable merit see crain v continued court’s dismissal after the taxpayer had argued that the commissioner failed to meet his burden of demonstrating that the taxpayer owed taxes on unreported income yet the taxpayer did not dispute the receipt of wages arguing instead only that the income was not taxable affg tcmemo_1991_497 basile v commissioner tcmemo_2005_51 holding that taxpayer’s deemed admissions as well as the commissioner’s answer provided sufficient evidence linking the taxpayer to the unreported income malfatti v commissioner tcmemo_2005_19 holding that evidence including the taxpayer’s admissions sufficiently linked the taxpayer to income-producing activities affd 168_fedappx_786 9th cir commissioner 737_f2d_1417 5th cir see also 999_f2d_1255 8th cir nieman v commissioner tcmemo_1993_533 stating taxpayer’s absurd arguments that as a citizen of illinois he did not owe federal income taxes were no more than stale tax_protester contentions long dismissed summarily by this court solomon v commissioner tcmemo_1993_509 affd without published opinion 42_f3d_1391 7th cir martin v commissioner tcmemo_1990_560 since petitioner acknowledges being born in virginia he is a citizen_of_the_united_states and subject_to federal_income_tax see u s const amend xiv sec_1 we therefore sustain the deficiency respondent determined for petitioner’s tax_year iii sec_6673 penalty we believe petitioner’s case to be appropriate for a sec_6673 penalty sec_6673 authorizes us to impose a penalty not in excess of dollar_figure on a taxpayer for instituting or maintaining proceedings primarily for delay or in which the taxpayer’s position is frivolous or groundless a position ‘is frivolous where it is contrary to 9the fourteenth amendment to the constitution states all persons born or naturalized in the united_states are citizens of the united_states and of the state wherein they reside u s const amend xiv sec_1 established law and unsupported by a reasoned colorable argument for change in the law ’ 114_tc_136 quoting 791_f2d_68 7th cir this court has stated numerous times that tax-protester arguments such as petitioner’s are frivolous and warrant the imposition of a sec_6673 penalty for example in martin v commissioner supra the taxpayer alleged that as a citizen resident of the state of california it would be constitutionally impermissible to exact a tax from him on income earned within the united_states this court rejected the taxpayer’s claims and imposed an dollar_figure sec_6673 penalty id see also callahan v commissioner tcmemo_2010_201 rejecting taxpayer’s argument that as a citizen of wisconsin he did not owe federal income taxes and imposing a dollar_figure sec_6673 penalty nieman v commissioner supra rejecting taxpayer’s argument that as a citizen of illinois he did not owe federal income taxes and imposing a dollar_figure sec_6673 penalty solomon v commissioner supra rejecting the taxpayer’s argument that as a citizen of illinois he did not owe federal income taxes and imposing a dollar_figure sec_6673 penalty we conclude that this case warrants the imposition of a sec_6673 penalty and therefore impose a penalty of dollar_figure to be paid to the united_states we consider it an abuse of our process that taxpayers with genuine controversies were delayed while we considered this case solomon v commissioner supra we have exercised restraint in penalizing petitioner under sec_6673 this appears to have been the first time petitioner has advanced such frivolous or groundless arguments before us and we note the deficiency was only dollar_figure however if petitioner insists on continuing his tax-protester rhetoric in this court we will be inclined to impose a significantly higher sec_6673 penalty in the future the court has considered all of petitioner’s contentions arguments requests and statements to the extent not discussed herein we conclude that they are meritless moot or irrelevant to reflect the foregoing decision will be entered for respondent


department of the treasury internal_revenue_service ‘teige eo examinations town and country comntons room chesterfield mo tax_exempt_and_government_entities_division number release date legend org organization name xx org address dear date date - address address vil taxpayer_identification_number person to contact d number contact numbers telephone fax during our examination of the return s indicated above we determined that your organization was not described in internal_revenue_code sec_501 c for the tax periad s listed above and therefore it does not qualify for exemption from federal_income_tax this letter is not a determination of your exempt status under sec_501 for any period other than the tax period s listed above the attached report of examination form 886-a explanation of tems summarizes the facts the applicable law and the service's position regarding the examination of the tax period s listed above you have agreed with our determination by signing form 6018-a consent fo proposed action accepting our determination of non-exempt status for the period s stated above you have filed the required income_tax returns in the future if you believe your organization qualifies for tax-exempt status and would like to establish its status you may request a determination from the internal_revenue_service by filing form_1024 application_for recognition of exemption under sec_801 and paying the required user_fee you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established rs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition ina united_states court the taxpayer_advocate can see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this tetter convenient time to call if we need to contact you if you write please provide a telephone number and the most thank you for your cooperation sincerely vicki l hansen acting director eo examinations enclosures form letter catalog number fom 886a ‘name of taxpayer depart of ie tsun reven sane explanation of items schedule noor exhibit org 20xx12 legend org organization name co-1 co-2 xx companie sec_1 date - kyz state -news news county county issues can the org qualify for exempt status under sec_501 c of the internal_revenue_code for the period ending december 20xx when their primary activities consist of the operation of a multiple listing service hereinafter referred to as mls and the publication of a news that are considered particular services for members facts the org hereinafter teferred to org has shown on their filed form_990 return of organization exempt from income for the petiod ending december 20xx j organization type that they are described within sec_501 of the internal_revenue_code the org has never filed a form_1024 application_for recognition of exemption under sec_501 with the service the service records show that the current status of the org i sec_36 organizations other than c or without determination letters but who file forms and a subsection code of c org is incorporated in the state of xyz under the general not for profit corporation law on march 19xx their articles of incorporation article v sections a through f hold that the purposes for which org was formed are v v v v v to unite those engaged in the real_estate business in the xyz counties of county county and county for the purpose of exerting a beneficial influence upon the real_estate business and related interest to promote and maintain high standards of conduct in the real_estate business to provide a unified medium for real_estate owners and those engaged in the real_estate business whereby their interests may be safeguarded and advanced to further the interest in home and other real_property ownership to unite those engaged in the real_estate business in the xyz counties of county county and county with the co-1 and the co-2 thereby furthering their own objectives throughout the state and nation and obtaining the benefits and privileges of membership therein to designate for the benefit of the public those individuals within its jurisdiction authorized to use the term realtor and realtor associate as prescribed and controlled by the co-2 the org has a full-time_employee association executive and a part-time_employee to assist the association executive with his her duties following is a breakdown of the associate executive’s time spent by activity education activities hours co-i hereinafter referred to as co-1 offfite non-co-1 form 886-agev t-68 department of the treasury - internal_revenue_service for 886a ‘name of taxpayer tdepactnat of he feasany- nivel revemne snice explanation of items schedule no or exhibit org 20x12 new member orientation co-1 education and business meetings mls training board co-sponsored education ‘note examples of courses offered onsite site sewage system sec_2 local impact on state government time management quarterly ae seminar sec_5 technology total hours member management activities committee support ‘accounting functions correspondence general phone calls board and general member meetings files management roster management total hours listing activities activities related to mls ‘meetings ‘new member registration training caravan tours software management phone calls total hours lockbox and key management activities hardware management_contract management key programming and reprogramming hours hour sec_50 hour sec_65 form 886-acre page -2- deparment of the treasury - fnteenal revenue servioe tom 886a ‘name of taxpayer deparment af the tete oeral revenue sono explanation of items schedule noor exhibit org 20xx12 total hours notes this comes to a total of hours for the year the schedule below shows the associate executive’s time spent on activities related to org’s exempt_purpose and activities that constitute particular services nonexempt associate executive's time spent description education member management committee support ‘accounting functions correspondence exempt mls total hours hours hours activitie fours news other spent sec_30 __ wa total bt membership o __ o files management roster management general phone calls board general description hoursspent listing activities lockbox and key management non exempt_activities percentage totals hours ml sec_164 the time spent by volunteers on org committees is as follows total hours _ percentage total volunteer hours by committee available mls news totals committee other activities department of che teearury -intemal revenue serice form 886-agev yom 886a ‘department of he treanury- internal revenue serie ‘name of taxpayer org 20x12 explanation of items ‘schedule no or exhibit news ‘awards bylaws banquet membership eeo legislative rpac ‘nominations edueation programs strategic plan plan of action total volunteer hour sec_83 b o volunteer committee hours non time time total hours exempt non exempt exempt exemer hours hours spent spent available percentage percentage tab i description mls news awards bylaws banquet education membership eeo legislative rpac ‘nominations strategic plan plan of action totals the breakdown of the mls income is as follows income service charge is dollar_figure per month or dollar_figuredollar_figure per year plus an annual board membership fee of dollar_figuredollar_figure for the certified appraiser the number of members is approximately the number of members times dollar_figuredollar_figure per year equals dollar_figure according to part vil 93a of the form_990 the income for the mls service was dollar_figuredollar_figure the total income for the organization is dollar_figuredollar_figure based on the above information the income for the mls service i sec_23 of org’s total income the breakdown of the news income is as follows form 886-aae448 departient of the tresaury - internal reveaue service page fom 886a name of taxpayer org depart of ie taso tema evens soiee explanation of items ‘hedule noor exhibit 208x12 income the monthly news fees are based on how many partial page ads and full-page ads each realtor wants to use the income reported on form_990 part vil is dollar_figure v v v the total income for the organization is dollar_figure based on the above information the news service i sec_44 of org's income the breakdown of the expenses for the exempt and non-exempt purposes is as follows description direct expenses mls amount news amount ‘non exempt expense ‘amount for exempt_purpose age expenses mls age expenses hoines mag expense amount sali payroll_taxes accounting fees supplies telephone postage shipping equipment rental ‘ maintenance copier lease printing publications travel conferences conventions meetings board functions interest rent ‘continuing education ‘miscellaneous warranty support repairs dues ‘subscriptions other expenses insurance furmituee form 886-arevsso page -5- department of che treasury - internal_revenue_service totals la’ fom 886a terman teal revenue bence teta a explanation of items ‘name of taxpayer org sec_501 c provides the following definition business_leagues chambers_of_commerce real-estate boards boards_of_trade or professional_football_leagues whether or not administering a pension fund for football players not organized for profit and no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual 20xx12 schedule no or exhibie treasury regulation dollar_figure1 c -1- provides in part that a business league is an association of persons having some common business_interest the purpose of which is to promote such common interest and not to engage in a regular business of a kind ordinarily carried on for profit ttis an organization of the same general class as a chamber of commerce or board_of trade thus its activities should be directed to the improvement of business conditions of one ot more fines of business as distinguished from the performance of particular services for individual persons an organization whose purpose is to engage in a regular business of a kind ordinarily carried on for profit even though the business is conducted on a cooperative basis or produces only sufficient income to be self-sustaining is not a business league revrul_59_234 c b - held that an organization whose primary purpose is to stimulate and facilitate the transaction of business between members through cooperation and exchange of exclusive listings which is inherently designed for the rendering of particular services for individual members as a convenience and economy in the conduct of their respective businesses is not entitled to exemption from federal_income_tax as an organization described in c of the code revrul_78_52 c b held that the distribution of a magazine by a business league exempt from federal_income_tax under sec_501 of the internal_revenue_code of is unrelated_trade_or_business within the meaning of sec_513 governments position the total amount of time spent during the year by the associate executive on providing particular services for members the mls news and other activities is hours out of total hours or the total amount of time spent during the year by org volunteers on providing particular services for members the mls news service and awards service i sec_269 hours out of hours or dollar_figure the total amount of income devoted to particular services for members the mls and the news is dollar_figure of the dollar_figuredollar_figure total income or the total amount of expenses devoted to particular services for members the mls and the news services is dollar_figure of the dollar_figure total expenses or the org articles of incorporation provide that the purpose of the org to unite those engaged in the real_estate business to promote and maintain high standards of conduct to provide a unified medium for real_estate owners and those engaged in real_estate to further the interest in home or other_property ownership and to allow individuals to use the term realtor and realtor associate as prescribed by the co-2 this purpose promotes the member and not the industry as a whole form 886-ageva5 ‘departnent ofthe treavury- internal_revenue_service schedule no or exhibic fom bga tial revenue se tbporin te explanation of items name of taxpayer org as shown above org’s operation is substantially devoted both time spent and financially to activities that are considered particular services to members as described in revrul_59_234 1959_2_cb_149 and revrul_78_52 1978_1_cb_166 these rulings held the organizations not to be a business league within the intendment of sec_501 of the code revocation of the organizations exempt status under c of the code was proposed and upheld a minimal amount of the org’s time spent and finances are devoted to activities that benefit the industry as a whole as described in regulation sec_1 -1 it has been shown that assets of the org are inuring to the member which is prohibited under sec_501 of the code 20kx12 therefore it is the government's position that the org activities of operating the news and multiple listing services are a substantial part of org operations and these rather than to the business industry as a whole the activities of the org are no different than that of a for- profit organization or other realty companies services provide particular services to their members taxpayer's position to be submitted by taxpayer conclusion based on the information above it is concluded that the org does not meet the requirements to be recognized as exempt from federal_income_tax under sec_501 of the internal_revenue_code accordingly the org is not eligible to file the form_990 return of exempt_organizations for the period ending december 20xx or any period thereafter unless they can show to the service that their activities have changed and can qualify for exempt status under sec_501 c of the code form_1120 returns should be filed for the tax periods after january 20xx form 886-ainer s8 page -7- department of the treasury -tnveral revenue service


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division date feb s v - y employer_identification_number contact person identification_number telephone number g0 ba dear sir or madam this is in response to your letter dated date in which you requested certain rulings with respect to a proposed transfer of all of the assets of b to c d and e b c d and e are exempt under sec_501 of the internal_revenue_code and are classified as private_foundations under sec_509 b is currently managed and controlled by trustees who are members of three branches of f with the passage of time the trustees have developed divergent charitable interests and investment philosophies making it increasingly difficult to manage b therefore the trustees have decided that the charitable goals of b would best be carried out by the transfer of b’s assets to three new foundations c d and e the distribution of assets to c d and e will allow the three branches of f to pursue their respective independent charitable interests and objectives there will be no consideration for the proposed transfer of assets and the transfer will not be from current income as b intends to make a substantial gift to g immediately prior to the transfer b will cease to exist after the transfer of assets e b has not notified the service that it intends to terminate its private_foundation_status nor has b ever received notification that its status as a private_foundation has been terminated furthermore b has stated that it has not committed willful repeated acts or failures to act or a willful and flagrant act or failure to act giving rise to liability for tax under chapter sec_507 of the code states in part that except for transfers described in sec_507 an organization's private_foundation_status will be terminated only if the organization notifies the service of its intent to terminate or there have been either willful repeated acts or failures to act or a willful and flagrant act or failure to act giving rise to liability for tax under chapter sec_507 of the code provides that when a private_foundation transfers assets to another private_foundation pursuant to any liquidation merger redemption recapitalization or other adjustment organization or reorganization the transferee foundation shall not be treated as a new organization sec_507 of the code imposes a tax on an organization that terminates its private_foundation_status under sec_507 of the code sec_1_507-3 of the income_tax regulations provides that a transferor private_foundation is required to meet its charitable distribution_requirements under sec_4942 of the code for any taxable_year in which it makes a transfer of all or part of its assets to another private_foundation such transfer shall itself be counted toward satisfaction of such requirements to the extent the amount transferred meets the requirements of sec_4942 of the code however where the transferor has disposed of all of its assets the record-keeping requirements of sec_4942 of the code shall not apply during any period in which it has no assets sec_1_507-1 of the regulations provides that if a private_foundation transfers all or part of its assets to one or more other private_foundations pursuant to a transfer described in sec_507 of the code such transferor foundation will not have terminated its foundation status under sec_507 sec_1_507-1 of the regulations provides that neither a transfer of all of the assets of a private_foundation nor a significant disposition of assets as defined in sec_1_507-3 by a private_foundation whether or not any portion of such disposition of assets is made to another private_foundation shall be deemed to result in a termination of the transferor private_foundation under sec_507 of the code unless the transferor private_foundation elects to terminate pursuant to sec_507 or sec_507 is applicable sec_1_507-3 of the regulations provides that in the case of a significant disposition of assets to one or more private_foundations within the meaning of paragraph c of this subsection the transferee organization shall not be treated as a newly created organization sec_1_507-3 of the regulations provides that a transferee organization in the case of a transfer described in sec_507 of the code shall succeed to the aggregate tax benefit of the transferor organization in an amount equal to the amount of such aggregate tax_benefit of the transferor organization multiplied by a fraction the numerator of which is the fair_market_value of the assets less encumbrances transferred to such transferee and the denominator of which is the fair_market_value of the assets of the transferor less encumbrances immediately before the transfer transfer fair_market_value is determined at the time of sec_1_507-3 i and ii of the regulations provides that in a sec_507 transfer the provisions enumerated in subparagraphs a through g thereof apply to the transferee foundation with respect to the assets transferred to the same extent and in the same manner that they would have applied to the transferor foundation had the transfer described in sec_507 not been effected sec_1_507-3 of the regulations provides that if a transferor private_foundation transfers assets to a private_foundation which is effectively controlled within the meaning of sec_1_482-1a directly or indirectly by the same person or persons who effectively control the transferor private_foundation the transferee foundation will be treated as if it were the transferor foundation for purposes of sec_4940 through and sec_507 through of the code the transferee is treated as the transferor in the proportion which the fair_market_value of the transferor’s assets that were transferred bears to the fair_market_value of all of the assets of the transferor immediately before the transfer sec_1_507-3 of the regulations provides that in order for a transfer of assets pursuant to any liquidation merger redemption recapitalization or other adjustment organization or reorganization not to be a taxable_expenditure it must be to an organization described in sec_501 other than an organization described in sec_509 or treated as described in sec_501 under sec_4947 sec_1_507-3 of the regulations provides that unless a private_foundation gives notice under sec_507 of the code a transfer of assets described in sec_507 of the code will not constitute a termination of the transferor’s private_foundation_status sec_1_507-4 of the regulations provides that the tax on termination of private_foundation_status under sec_507 of the code does not apply to a transfer of assets pursuant to sec_507 of the code unless the provisions of a become applicable sec_4940 of the code imposes a tax on the net_investment_income of private_foundations sec_4941 of the code imposes a tax on each act of self-dealing between a disqualified_person and a private_foundation sec_4942 of the code requires a private_foundation to make specified distributions of income for each taxable_year including the year in which it transfers substantial assets to another private_foundation under sec_507 sec_4942 of the code defines a qualifying_distribution as any amount including that portion of reasonable and necessary administrative expenses paid to accomplish one or more purposes described in sec_170 other than any contribution to i an organization controlled by the foundation or one or more disqualified persons or ii a private_foundation which is not an operating_foundation except as otherwise provided or b any amount_paid to acquire an asset used directly in carrying out one or more purposes described in sec_170 sec_4942 of the code requires that a grantor private_foundation in order to have a qualifying_distribution for its grant to another private_foundation which is not an operating_foundation under sec_4942 of the code must have adequate_records as required by sec_4942 b of the code to show that the grantee private_foundation in fact subsequently made qualifying distributions that were equal to the amount of the grant and that were paid out of the grantee’s own corpus within the meaning of sec_4942 of the code such grantee foundation's qualifying distributions out of corpus must be expended before the close of the grantee’s first tax_year after its tax_year in which it received the grant sec_4944 of the code imposes tax upon a private_foundation which invests any amount in such a manner as to jeopardize the carrying out of any of its exempt purposes sec_4945 of the code imposes tax upon a private foundation's making of any taxable_expenditure under sec_4945 sec_4945 of the code defines the term taxable_expenditure to include any amount_paid or incurred by a private_foundation as a grant to an organization unless a the organization is described in subparagraphs or of sec_509 of the code or is an exempt_operating_foundation as defined in sec_4940 of the code or b the private_foundation exercises expenditure_responsibility with regard to such grant in accordance with sec_4945 of the code the exercise of expenditure_responsibility requires the foundation that makes the transfer to keep detailed records of the way the payment is spent by the recipient foundation sec_4945 of the code provides that expenditure_responsibility referred to in subsection d means that the private_foundation is responsible to exert all reasonable efforts and to establish adequate procedures to see that the grant is spent solely for the purpose for which made to obtain full and detailed reports with respect to such expenditures and to make full and detailed reports to the secretary sec_4946 of the code defines the term disqualified_person as a person who is a substantial_contributor to a private_foundation a foundation_manager an owner of more than of a corporation or partnership which is a substantial_contributor to the private_foundation a family_member of persons described above or a corporation partnership trust or estate of which persons described above own more than of the combined voting power sec_53_4945-5 of the foundation and similar excise_taxes regulations refers to the rules relating to the extent to which the expenditure_responsibility_rules contained in ls sec_4945 and h and this section apply to transfers of assets described in sec_507 sec_53_4945-6 of the regulations provides that a transfer of assets of a private_foundation under sec_507 of the code is not a taxable_expenditure if such transfer is to an organization described in sec_501 other than an organization described in sec_509 or treated as so described under sec_4947 sec_53_4946-1 of the regulations provides that for purposes of sec_4941 the term disqualified_person does not include any organization described in sec_501 other than an organization described in sec_509 based on the above facts the transfer of all of b’s assets to c d and e will allow c d and e to continue the charitable activities previously conducted by b therefore the transfer of assets from b to c d and e will not endanger the tax exempt status of b under sec_507 of the code in the case of a transfer of assets of any private_foundation to another private_foundation pursuant to any liquidation merger redemption recapitalization or other adjustment organization or reorganization the transferee foundation shail not be treated as newly created organization the transfer by b to c d and e will constitute in the aggregate an adjustment organization or reorganization within the meaning of sec_507 accordingly the transfer by b to c d and e will not be treated as a transfer to a newly created organization because b is not terminating its existence and assuming there has been no willful repeated or flagrant act giving rise to liability under chapter no tax will be imposed on b under sec_507 as a result of the transfer of assets from b to c d and e because b c d and e are effectively controlled by the same persons c d and e will be treated as if they were b for purposes of sec_507 through and chapter of the code therefore the rulings requested under sec_4940 sec_4941 sec_4942 and sec_4944 would be provided because these rulings are consistent with the approach in sec_1_507-3 of the regulations which is in effect to disregard the change in form of the organization for purposes of chapter because b is transferring all of its assets to c d and e pursuant to a merger and b c d and e are controlled by the same persons c d and e will be treated as b the transfer will be treated as not having taken place for expenditure_responsibility purposes under sec_4945 of the code thus the transfer will not be a taxable_expenditure under sec_4945 therefore b need not exercise expenditure_responsibility with regard to the merger subsequent to the merger c d and e will be treated as if they were b therefore c d and e will succeed to b’s duty to exercise expenditure_responsibility with respect to any outstanding grants for which expenditure_responsibility is required and b would be relieved of any duty to exercise expenditure_responsibility after the merger as a result of the merger c d and e will be treated as b for purposes of chapter therefore the distribution_requirements of sec_4942 for the year of transfer should be if treating b c d and e as a single organization the regarded as satisfied by b c d and e aggregate qualifying distributions for such year by b c d and e would satisfy its distribution requirement because c d and e are treated as taking over b’s obligations as of the date of merger it follows that as of that date b will no longer have any such obligations because b c d and e are controlled by the same persons for purposes of chapter of the code and sec_507 through of the code c d and e will be treated subsequent to the transfer of all of b’s assets as if they were b in proportion which the fair_market_value of the assets less encumbrances transferred bears to the fair_market_value of b ‘s assets less encumbrances immediately before the transfer thus c d and e can succeed to b’s excess qualifying distributions carryover for purposes of sec_4942 of the code and in proportions determined in accordance with sec_1_507-3 of the regulations consistent with succeeding to b’s tax_attributes under sec_1_507-3 of the regulations c d and e will be treated as if they were b for purposes of chapter including sec_4940 accordingly c d and e would be allowed to report all of the net_income subject_to tax under sec_4940 during the year of merger whether earned by b c d or e and pay all of the sec_4940 taxes on such income for that year because b as an organization described in sec_501 of the code is not a disqualified_person with respect to c d or e the transfer of assets to c d and e will not constitute an act of seif-dealing within the meaning of sec_4941 of the code because b c d and e are exempt under sec_501 and are organized for purposes described in sec_170 and the reason for the transfer is to carry out more efficiently such exempt purposes the transfer would not be a jeopardizing investment under sec_4944 under sec_4940 of the code capital_gains_and_losses are defined as gains and losses from the sale_or_other_disposition of certain property because the asset transfer from b to c d and e will lack consideration no sale_or_other_disposition will have occurred thus there will be no gain and the assets transfer will not give rise to tax under sec_4940 of the code further because the transfer of assets to c d and e is disregarded because in turn c d and e are treated as if they were b for purposes of chapter c’s d’s and e’s basis in the assets transferred to them pursuant to the merger should be the same as the basis of b because b will dispose_of all of its assets the recordkeeping requirements of sec_4942 will not apply during any period in which it has no assets therefore b’s recordkeeping under sec_4942 will not apply after the merger since b will have disposed of all of its assets accordingly based on the information furnished we rule as follows t- the proposed transfer of assets will not affect the continued qualification of b as an organization described in sec_501 of the code that is exempt from federal_income_tax under sec_501 of the code and will not result in the termination of private_foundation_status of b but will constitute an adjustment between private_foundations within the contemplation of sec_507 of the code the proposed transfer will not constitute either a notification of b's intent to terminate its status as a private_foundation under sec_507 of the code or willful repeated acts or failures to act within the meaning of sec_507 of the code by b therefore b will not be liable for the termination_tax imposed by sec_507 of the code the proposed transfer will constitute a significant disposition of assets to one or more foundations and c d and e will not be treated as newly created organizations and will be treated as possessing the attributes and characteristics of b following the transfer c d and e may proportionately reduce their required distributions under sec_4942 of the code by their proportional amounts of b’s excess qualifying distributions carryover for prior years the proposed transfer will not constitute a sale_or_other_disposition within the meaning of sec_4940 of the code will not constitute an act of self-dealing within the meaning of sec_4941 of the code by b c d and e or by any disqualified_person and will not constitute a jeopardizing investment within the meaning of sec_4944 of the code by b c d or e or by any disqualified_person the proposed transfer will not constitute a taxable_expenditure within the meaning of sec_4945 of the code and b will not be required to exercise expenditure_responsibility under sec_4945 of the code with respect to the assets transferred to c d and e the contemplated transaction will not result in any_tax due by b under chapter of the code after distributing ail of its assets in the transaction described above b will not be required to file any_tax returns for any taxable years subsequent to that in which all assets are distributed upon b’s termination it will be required to file a return required by sec_6043 of the code we are informing the ohio te_ge office of this action please keep a copy of this ruling in your organization’s permanent records this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as precedent ee if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely wereatr v fercr gerald v sack manager exempt_organizations technical group


department of the treasury internal_revenue_service washington d c date cc dom fs corp uilc internal_revenue_service national_office field_service_advice number release date memorandum for from subject steven j hankin chief corporate branch field service division cc dom fs below-market loans subject_to sec_7872 indirect loans between a corporation and its shareholders this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend x a b c d e f corp p sec_1 p sec_2 p sec_3 p sec_4 dollar_figurea dollar_figureb dollar_figurec dollar_figured dollar_figuree dollar_figuref dollar_figureg dollar_figureh dollar_figurei dollar_figurej dollar_figurek a b c d e f g h i j k l m n date date issues whether x realized forgone_interest income under sec_7872 in the amounts of dollar_figurea and dollar_figureb for its tax years ending on date and date respectively specifically whether the loan from x to corp can be characterized as an indirect loan between a corporation and its shareholders under sec_7872 whether the loans from x to each of p sec_1 p sec_2 p sec_3 and p sec_4 the borrowing partnerships can be characterized as indirect loans from x to its shareholders under sec_7872 and whether sec_7872 applies to the loans from x to each of b and c conclusions the interest-free loans from x to corp each of the borrowing partnerships and each of b and c may all be classified as corporation-shareholder loans under sec_7872 facts for the taxable years ending date and date the following shareholders owned the stock of x in the following amounts b c d e f l k e b c and d are the children of a e is the estate of the deceased spouse of a a and b are also compensated full-time officers of x while c and d are compensated part-time employees of x x made interest-free demand loans dated date to corp each p sec_1 p sec_2 p sec_3 and p sec_4 the borrowing partnerships and each of b and c the amounts of all of the loans the stock ownership of corp and the capital and profits interest of the borrowing partnerships are as follows a b c d e others amount borrowed corp k d i a d b j h g h m b j h b g h m n p sec_1 p sec_2 p sec_3 p sec_4 b c dollar_figured dollar_figurec dollar_figuree dollar_figuref dollar_figureg dollar_figureh dollar_figurei dollar_figurej dollar_figurek law and analysis law sec_7872 provides that for purposes of this title in the case of any below- market loan to which this section applies and which is a demand_loan the forgone_interest shall be treated as a transferred from the lender to the borrower and b retransferred by the borrower to the lender as interest sec_7872 provides with exceptions not relevant here that this section shall apply to any below-market_loan directly or indirectly between a corporation and any shareholder of such corporation sec_7872 provides that for purposes of this section the term below- market loan means any loan if in the case of a demand_loan interest is payable on the loan at rates less than the applicable_federal_rate sec_7872 provides that the term forgone_interest means with respect to any period during which the loan is outstanding the excess of -- a the amount of interest which would have been payable on the loan for the period if interest accrued on the loan at the applicable_federal_rate and were payable annually on the day referred to in sec_7872 generally the last day of the calendar_year over f the son of c seven children of b c and d b any interest payable on the loan properly allocable to such period sec_7872 provides that in the case of a demand_loan the applicable_federal_rate shall be the federal_short-term_rate in effect under sec_1274 for the period for which the amount of the amount of the forgone_interest is being determined compounded semiannually sec_7872 provides that the term demand_loan means any loan which is payable in full at any time on the demand of the lender prop_reg sec_1 d provides that a below-market_loan is a corporation- shareholder loan if the loan is made directly or indirectly between a corporation and any shareholder of the corporation the amount of money treated as transferred by the lender to the borrower is a distribution of money characterized according to sec_301 if the corporation is the lender or a contribution_to_capital if the shareholder is the lender prop_reg sec_1 c provides a special rule in prop_reg sec_1 d in the case of a below-market_loan that could be characterized as both a compensation- related loan and a corporation-shareholder_loan prop_reg sec_1 d ii provides that a below-market_loan from a corporation that is not a publicly_held_corporation to an employee of the corporation who is also a shareholder owning directly or indirectly more than five percent of the total voting power of all classes of stock entitled to vote or more than five percent of the total number of shares of all other classes of stock or five percent of the total value of shares of all classes of stock including voting_stock of the corporation will be presumed to be a corporation-shareholder_loan in the absence of clear_and_convincing evidence that the loan is made solely in connection with the performances of services prop_reg sec_1 g provides that if a below-market_loan is made between two persons and based on all the facts and circumstances the effect of the loan is to make a gift or a capital_contribution or a distribution of money under sec_301 or in the case of an s_corporation sec_1368 or to pay compensation to a third person indirect participant or is otherwise attributable to the relationship of the lender or borrower to the indirect participant the loan is restructured as two or more successive below-market loans deemed loans for purposes of sec_7872 as follows i a deemed below-market_loan made by the named lender to the indirect participant and ii a deemed below-market_loan made by the indirect participant to the borrower sec_7872 is applied separately to each deemed loan and each deemed loan is treated as having the same provisions as the original loan between the lender and borrower thus for example if a corporation makes an interest-free_loan to another commonly controlled_corporation the loan is restructured as a below-market_loan from the lending corporation to the common parent_corporation and a second below-market_loan from the parent_corporation to the borrowing corporation prop_reg sec_1 g provides that if a lender and a borrower use another person such as an individual a_trust a partnership or a corporation as an intermediary or middleman in a loan transaction and a purpose for such use is to avoid the application of sec_7872 b or c the intermediary will be ignored and the loan will be treated as made directly between the lender and the borrower thus for example if a father and a son arrange their below-market_loan transaction by having the father make a below-market_loan to the father’s partnership followed by a second below-market_loan with substantially identical terms and conditions as the first loan made by the partnership to the son the two below-market loans will be restructured as one below-market_loan from the father to the son analysis background as noted above x loaned money to corp the borrowing partnerships and b and c at a zero percent interest rate therefore the service is alleging that the loans between x and each of the borrowers were below-market demand loans within the meaning of sec_7872 therefore x should be deemed to have received forgone_interest income within the meaning of sec_7872 sec_7872 treats a below-market_loan as if the lender transferred an amount equal to the forgone_interest to the borrower and the borrower immediately transferred such amount to the lender as interest_income the term_loan is interpreted broadly to implement the anti-abuse intent of the statute prop_reg sec_1 a sec_7872 however applies only to certain categories of below-market loans these categories are gift_loans compensation-related loans corporation-shareholder loans tax_avoidance loans and certain other loans classified in the regulations under sec_7872 as significant tax effect loans according to the committee reports for sec_7872 congress believed that the failure to tax below-market loans according to their substance provided taxpayers with opportunities to avoid a number of tax rules specifically corporation-shareholder loans were being used to avoid taxing corporate income at the corporate level s rep no vol 98th cong 2d sess for example by structuring a transaction as an interest-free_loan a corporation could avoid including in income_interest that otherwise would be paid_by its shareholder id as a result a corporation would be in the same economic position as if it were able to deduct amounts distributed as dividends to its shareholder id however if the transaction were structured as a distribution and loan the shareholder would have dividend income and an offsetting interest_deduction and the corporation would have interest_income id to eliminate this abuse a below-market_loan is recharacterized as an arm’s-length transaction in which the lender made a loan to the borrower in exchange for a note requiring the payment of interest at a statutory rate and made a gift distributed a dividend made a contribution_to_capital paid compensation or made another payment to the borrower which in turn is used by the borrower to pay the interest conf comm rep h_r rep no 98th cong 2d sess c b vol specifically in the case of a corporation-shareholder_loan the corporation-lender is treated as paying a dividend which is includible in the income of the shareholder-borrower s rep no vol 98th cong 2d sess the shareholder-borrower is treated as using this payment to pay interest to the corporation-lender at the applicable_federal_rate the corporation is treated as receiving this imputed_interest income at the corporate level also see prop_reg sec_1 d the loan from x to corp a loan between commonly owned corporations that is in substance an indirect below- market loan under sec_7872 should be recast as two or more deemed loans to reflect the substance of the transaction for example a loan that in form is made between commonly owned corporations is in substance characterized one or more indirect loans between the lending corporation the common shareholders and the borrowing corporation sec_7872 applies to any below-market_loan directly or indirectly between a corporation and its shareholder such a transaction should be recast as two deemed loans the first deemed loan being between the lending corporation and its shareholders ie the lending corporation is deemed to have loaned the money to its shareholders and the second deemed loan being between those shareholders and the borrowing corporation ie those shareholders are in turn deemed to have loaned the money received from the lending corporation to the borrowing corporation see prop_reg sec_1 g ii based on our interpretation of sec_7872 and consistent with the proposed_regulations under sec_7872 the loan from x to corp should be treated as an indirect corporation-shareholder_loan under sec_7872 and recast as two deemed loans the first deemed loan is between x and its shareholders and the second deemed loan is between those shareholders and the respective borrowing corporation only the first deemed loan involving petitioner x as the lender is before the tax_court to illustrate the operation of the indirect loan provisions under sec_7872 and the proposed_regulations we will use similar facts to this case but we will assume that individual c owns all of the stock of both x the lending corporation and y the borrowing corporation in form x loans dollar_figure interest-free to y and the applicable_federal_rate is based on these assumed facts sec_7872 would recharacterize the loan from x to y as two deemed loans the first deemed loan would be in the amount of dollar_figure from x to c the second deemed loan would also be in the amount of dollar_figure but from c to y with respect to the first deemed loan x would be treated as having made a loan of dollar_figure pincite to c plus a distribution with respect to its stock to c of dollar_figure thus c would receive dollar_figure of dividend income to the extent that x has earnings_and_profits at least equal to the amount of such distribution c would be treated as having paid dollar_figure as interest to x thus x would have dollar_figure of interest_income with respect to the second deemed loan c should be treated as having made a loan of dollar_figure pincite to y and as having contributed dollar_figure to the capital of y y should be treated as having paid dollar_figure of interest to c the loans from x to the borrowing partnerships as noted above x also made interest-free demand loans to the borrowing partnerships however these partnerships are intermediaries being used by x and its shareholders to avoid the application of sec_7872 that is if x had made these loans directly to its shareholders x would have been subject_to sec_7872 if x sought to avoid the application of that provision by making the loans to the borrowing partnerships instead of to its shareholders the borrowing partnerships may be ignored and the loans may be considered as made by x to its shareholders the loans from x to b and c in this case b and c are employees as well as shareholders of x therefore the loans from x to each of b and c could be classified as either compensation-related loans or corporation-shareholder loans absent evidence that the loans were made solely in_connection_with_the_performance_of_services it is the position of the service that where there is an overlap between the two types of loans such a loan is classified as a corporation-shareholder_loan prop_reg sec_1 c and prop_reg sec_1 d ii the record does not indicate that such loans were made by x to each of b and c in any other capacity than as shareholders therefore the loans from x to each of b and c are classified as corporation-shareholder loans under sec_7872 x receives imputed_interest income on these loans under sec_7872 case development hazards and other considerations


internal_revenue_service number release date index number ------------------------ ------------- ------------------------ ------------------------------------------- ----------------------------- - department of the treasury washington dc person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc fip - plr-110871-04 date date ------------ ------------------------------ -------------------------------------- ---------------------------------------------- ---------------------------------------------------- legend trust state a subsidiary ------------------------------------------------------------------------ llc lp lender office building state b date law firm date dear -------------- trust and subsidiary you have requested a ruling granting trust and subsidiary an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and ----------------------------- ---------------------------- ------------------------- ------------------------ ------------------ ------------ this is in reply to a letter dated date requesting a ruling on behalf of trust conducts substantially_all of its operations through a limited_partnership lp plr-110871-04 administration regulations to file an election for subsidiary to be treated as a taxable_reit_subsidiary trs of trust under sec_856 of the internal_revenue_code facts trust is a state a real_estate_investment_trust reit that has elected to be treated as a real_estate_investment_trust for federal_income_tax purposes trust’s primary business is the acquisition ownership and operation of medical office properties the sole business of subsidiary is to serve as the manager of llc an entity that is indirectly wholly-owned by trust of which trust is the sole general_partner in early lp began the process of obtaining a loan from lender to be secured_by office building as a condition of the loan lender required that the borrower be a bankruptcy-remote entity that also holds the property lender also required that if the borrower were a limited_liability_company the borrower must be managed by a special purpose entity whose purpose was limited to serving as the manager of the limited_liability_company to satisfy lenders requirement lp formed llc a limited_liability_company having lp as its only member to serve as borrower on date lp organized subsidiary a state b corporation to serve as manager of llc lp then transferred office building to llc and llc obtained the loan from lender lp has owned all of the stock of subsidiary since subsidiary’s formation llc’s limited_liability_company agreement provides that the business and affairs of llc shall be conducted exclusively by subsidiary neither llc nor lp may initiate bankruptcy proceedings related to llc without the unanimous written consent of subsidiary’s entire board_of directors throughout its existence subsidiary has had no revenues or expenses and its only asset has been a non-interest bearing note from its shareholder expect law firm to provide tax_advice late in the loan process law firm informed trust of lender’s requirement that a special purpose entity be created to function as manager of the borrower law firm prepared all of the documents to organize subsidiary and the documents were reviewed and approved by both the co-general counsel and secretary of trust neither of these trust officials has a background in tax consequently the formation of subsidiary was not brought to the attention of trust’s tax professionals trust has recently signed a merger agreement the buyer in conducting an investigation of trust’s business discovered the existence of subsidiary and asked trust whether an election was made to treat subsidiary as a trs of trust after conducting its own investigation trust determined on date that an election had not law firm represented trust in connection with the loan transaction trust did not trust and subsidiary have submitted an affidavit of a the executive vice- management of trust has at all times intended to maintain trust’s status as a sec_856 provides that an entity shall not be considered a reit for plr-110871-04 been made prior to the inquiry from the potential buyer none of trust’s tax advisors was aware of subsidiary’s existence reit trust and subsidiary represent that they are not aware of any specific facts that would indicate that their failure to make the trs election had been discovered by the service prior to this request for relief additionally trust and subsidiary represent that they are not seeking to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 finally trust and subsidiary state that by granting this request neither trust nor subsidiary will be in a better position than if the election had been made in a timely manner taking onto account the time_value_of_money president secretary and co-general counsel of trust and secretary of subsidiary in support of the requested ruling law and analysis any taxable_year unless at the close of each calendar_quarter the trust does not hold securities possessing more than percent of the voting power or more than percent of the value of the outstanding securities of any one issuer the foregoing requirement does not apply to the securities of a trs held by a reit sec_856 provides that a reit and a corporation other than a reit may jointly elect to treat such corporation as a taxable_reit_subsidiary to be eligible for treatment as a taxable_reit_subsidiary sec_856 provides that the reit must directly or indirectly own stock in the corporation and the reit and the corporation must jointly elect such treatment the election is irrevocable once made unless both the reit and the subsidiary consent to its revocation in addition the election and the revocation may be made without the consent of the secretary in announcement i r b the internal_revenue_service service announced the availability of form_8875 taxable_reit_subsidiary election according to the announcement this form is to be used for tax years beginning after for eligible entities to elect treatment as a taxable_reit_subsidiary the instructions to form_8875 provide that the subsidiary and the reit can make the election at any time during the tax_year the instructions further provide that the effective date of the election cannot be more than months and days prior to the date of filing the election or more than months after the date of filing the election if no date is specified on the form the election is effective on the date the form is filed with the service officers of both the reit and the taxable_reit_subsidiary must jointly sign the form which is filed with the irs service_center in ogden utah plr-110871-04 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time to make a regulatory election defined in sec_301_9100-1 as an election whose due_date is prescribed by regulations or by a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 through c i sets forth rules that the internal_revenue_service generally will use to determine whether under the particular facts and circumstances of each situation the commissioner will grant an extension of time for regulatory elections that do not meet the requirements of ' sec_301_9100-3 provides that subject_to paragraphs b i through iii of ' when a taxpayer applies for relief under this section before the failure to make the regulatory election is discovered by the service the taxpayer will be deemed to have acted reasonably and in good_faith and ' c provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all years to which the regulatory election applies than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money conclusion based on the information submitted and representations made we conclude that trust and subsidiary have satisfied the requirements for granting a reasonable extension of time to elect under sec_856 to treat subsidiary as a taxable_reit_subsidiary of trust as of date therefore trust and subsidiary are granted a period of time not to exceed days from the date of this letter to submit the form_8875 this ruling is limited to the timeliness of the filing of the form_8875 this ruling s application is limited to the facts representations code sections and regulations cited herein no opinion is expressed with regard to whether trust qualifies as a reit under subchapter_m of the code no opinion is expressed with regard to whether the tax_liability of trust and subsidiary is not lower in the aggregate for all years to which the election applies than such tax_liability would have been if the election had been timely made taking into account the time_value_of_money upon audit of the federal_income_tax returns involved the director s office will determine such tax_liability for the years involved if the director s office determines that such tax_liability is lower that office will determine the federal_income_tax effect plr-110871-04 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely yours william coppersmith william coppersmith chief branch office of associate chief_counsel financial ------------------------------- ---------------- ------------------------ -------------------------------------------


internal_revenue_service number release date index number ---------------------- ---------------------------------------- ---------------------------------------------------- -------------------------------------- ------------------------------ in re --------------------------------------------------- -------------------------------------- ------------------------------ 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 b05 plr-103484-13 date april legend taxpayer ----------------------------------------------------- ----------------------------------------------------- bins --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ year ------------------------------------------------------ dear ----------- this letter responds to a letter dated date and a subsequent submission on behalf of taxpayer requesting an extension of time to make the election under sec_42 of the internal_revenue_code pursuant to sec_301_9100-1 of the procedure and administration regulations according to the information submitted taxpayer owns a multiple building project the building identification numbers assigned to the project buildings are bins taxpayer elected on forms low-income_housing_credit allocation and certification to begin the credit_period for the project buildings in year taxpayer inadvertently failed to make timely correct elections for the project buildings under sec_42 consistent with taxpayer’s intent as evidenced by taxpayer’s contemporaneous documentation sec_42 defines qualified_low-income_housing_project as any project for residential_rental_property if the project meets the requirements of sec_42 or b whichever is elected by the taxpayer the project meets the requirements of plr-103484-13 sec_42 if percent or more of the residential units are both rent-restricted and occupied by individuals whose income i sec_50 percent or less of area_median_gross_income the project meets the requirements of sec_42 if percent or more of the residential units are both rent-restricted and occupied by individuals whose income is percent or less of area_median_gross_income sec_42 provides that following the close of the first taxable_year in the credit_period with respect to any qualified_low-income_building the taxpayer shall certify to the secretary at such time and in such form and in such manner as the secretary prescribes d the election made under sec_42 with respect to the qualified_low-income_housing_project of which such building is a part and e such other information as the secretary may require in the case of a failure to make the certification required by the preceding sentence on the date prescribed therefor unless it is shown that such failure is due to reasonable_cause and not to willful neglect no credit shall be allowable by reason of sec_42 with respect to such building for any taxable_year ending before such certification is made sec_301_9100-7t of the temporary procedure and administration regulations provides that for elections under the tax_reform_act_of_1986 the election under sec_42 must be made for the taxable_year in which the project is placed_in_service and shall be made in the certification required to be filed pursuant to sec_42 form_8609 serves the purpose of the certification required to be filed pursuant to sec_42 and includes the election under sec_42 sec_301_9100-7t provides that the election under sec_42 is irrevocable sec_301_9100-1 through provide the standards the commissioner of internal revenue will use to determine whether to grant an extension of time to make an election sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 plr-103484-13 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government in the instant case based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been met accordingly taxpayer is granted an extension of time to make the elections under sec_42 for the project buildings identified by bins by filing within days from the date of this letter amended forms that include the intended elections the amended forms along with a copy of this letter enclosed herein are to be sent to the following address department of the treasury internal_revenue_service center philadelphia pa no opinion is expressed or implied regarding the application of any other provisions of the code or regulations specifically we express no opinion on whether project buildings otherwise qualify for credit under sec_42 including whether project buildings qualify for credit prior to issuance of the forms this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file a copy of this letter is being sent to taxpayer’s authorized representative sincerely associate chief_counsel passthroughs special industries s christopher j wilson by _______________________ christopher j wilson senior counsel branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


number release date id office uilc cca_2012102212160650 -------------------------- from ------------------- sent monday date pm to ------------------ cc ---------------------------------- subject re guidance on case ----------- - look at the attached irm cite d that says unlike a discrete act the statutory period may expire for the act engaged in the first year but the tax may be assessed for subsequent acts deemed to have occurred for which the statutory period has not expired thus although the statute has expired for the taxable years ------- through ------- you can still assess the tax on tax years that are opened however you cannot assess the sec_4975 excise_tax on the closed years this is also consistent with the attached revrul_2002_43 in which the excise_tax was different on a loan that was a continuing transaction see the taxable years and in the revenue_ruling if you want to talk you can call me at -----------------------or -------------------at --------------------- ----------- attachments irm rev rule


t c summary opinion united_states tax_court steven jay wolk petitioner v commissioner of internal revenue respondent docket no 11536-02s filed date steven jay wolk pro_se lorianne d masano for respondent powell special_trial_judge this case was heard pursuant to the provisions of section of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated subsequent section references are to the internal_revenue_code as amended respondent issued a notice_of_determination concerning collection action s under sec_6320 to petitioner for unpaid federal income taxes and related liabilities in the following amounts year liability1 dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure amounts computed through date the amounts for the and taxable years comprise unpaid federal income taxes additions to tax for failure to timely file federal_income_tax returns and failure to pay federal income taxes under sec_6651 and and interest the unpaid liabilities for the and taxable years reflect unpaid interest calculated for days respondent levied upon petitioner’s bank account on date for payment of petitioner’s and tax_liabilities and interest calculated through that date respondent received payment on date petitioner did not raise any issue with respect to the unpaid interest amounts for and in the petition filed with this court and thus these years are not before the court after concessions the issues are whether the period of limitations on assessment bars respondent from collecting the and tax_liabilities whether respondent correctly issued refund checks to petitioner instead of applying an overpayment to petitioner’s estimated_tax payments and petitioner concedes the amount of federal income taxes due and the additions to tax for failure to timely file federal_income_tax returns under sec_6651 for the and taxable years whether petitioner is liable for the additions to tax under sec_6651 for failure to timely pay the and tax_liabilities petitioner resided in maitland florida at the time the petition was filed background and federal_income_tax returns petitioner filed his return on date respondent assessed petitioner’s reported tax due of dollar_figure on date the return bears a date stamp of date next to the signature line on the return petitioner filed his return on date respondent assessed petitioner’s reported tax_liability of dollar_figure on date the return is not a part of the record as to the taxable_year petitioner filed form_4868 application_for automatic_extension of time to file u s individual_income_tax_return on date and remitted a payment of dollar_figure to respondent petitioner filed his return on date and respondent assessed the reported tax due of dollar_figure on date petitioner made no additional payments for the and taxable years because he contended that an overpayment from applied to the tax_liabilities for those years overpayment we begin by noting that the facts as presented surrounding the and taxable years are unclear and at times contradictory by letter dated date petitioner sent respondent a duplicate copy of his return which respondent filed that date and a copy of form_1045 application_for tentative refund claiming a net_operating_loss nol for that year to be carried back to the taxable_year this generated an overpayment_of_tax in of dollar_figure petitioner asserts that these documents were previously filed in date and that he never received the refund thus he filed form 1040x amended u s individual_income_tax_return requesting respondent to apply the unpaid refund to his estimated_tax payments by the same letter petitioner also filed his return claiming an nol and requested that respondent carryback that nol to this generated an additional overpayment in of dollar_figure petitioner also requested that respondent apply this overpayment as an estimated_tax payment for and for later years as a result the overpayment totaled dollar_figure which petitioner on his return applied as estimated_tax payments petitioner claims the overpayment is dollar_figure the reason for the dollar_figure discrepancy is unclear from the record and we will apply respondent’s calculations upon receipt of these documents respondent applied dollar_figure and dollar_figure of the overpayment to petitioner’s and tax_liabilities respectively the rest dollar_figure remained as an overpayment from as a result respondent issued two refund checks to petitioner dollar_figure4 on date and dollar_figure on date instead of negotiating these refund checks petitioner placed them in a file cabinet when the time in which the checks could be negotiated expired respondent issued a third check to petitioner on date in the amount of dollar_figure again petitioner failed to timely negotiate the third refund check respondent issued a fourth refund check on date in the amount of dollar_figure which petitioner negotiated on date respondent issued to petitioner a notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 petitioner timely filed a request for a collection_due_process_hearing on date respondent issued a notice_of_determination concerning collection action s under sec_6320 to petitioner determining inter alia that all legal and balance remaining from the dollar_figure overpayment resulting from the nol minus the and tax_liabilities plus interest the overpayment resulting from the nol the dollar_figure overpayment plus interest procedural requirements were met and that the collection action should proceed period of limitations discussion petitioner argues that the period of limitations on assessment expired for the and taxable years we review respondent’s determinations de novo as the period of limitations constitutes a challenge to the underlying tax_liabilities see macelvain v commissioner tcmemo_2000_320 the period of limitations is an affirmative defense which must be pled and established by the taxpayer 46_tc_764 20_tc_830 as pertinent here an assessment of taxes must be made within years after the return was filed whether or not such return was filed on or after the date prescribed sec_6501 respondent assessed petitioner’s and taxes on date and date respectively in order to prevail petitioner must establish that he filed his and returns before date and date respectively sec_7491 concerning the burden_of_proof is inapplicable because petitioner has not satisfied its requirements respondent’s certificate_of_official_record indicates inter alia that petitioner filed his return on date while petitioner provided a copy of his return containing a date stamp of date next to the signature line he failed to provide any evidence of mailing or delivery a date stamp on a return without any evidence of mailing or other delivery does not satisfy petitioner’s burden as to the return which is not part of the record respondent’s certificate_of_official_record indicates inter alia that petitioner filed his return on date petitioner testified that he delivered his and returns to respondent’s maitland florida service_center on date petitioner’s testimony without credible supporting documentary_evidence is not enough to satisfy his burden_of_proof see 65_tc_87 affd 540_f2d_821 5th cir accordingly we find that the period of limitations does not bar collection of petitioner’s and tax_liabilities if a taxpayer sends a return by registered mail or certified mail proof that the return was properly registered or that a postmark certified mail sender’s receipt was properly issued shall constitute prima facie evidence that the return was delivered sec_301_7502-1 proced admin regs according to respondent’s certificate_of_official_record petitioner’s return was filed on date application of the overpayment the crux of petitioner’s argument is that if respondent had applied the overpayment generated from the and nol’s as an estimated_tax payment toward any_tax liability due on my return and later years as he requested in the date letter the tax_liabilities for and would have been paid we review respondent’s determination de novo as the validity of the underlying tax_liability ie the amount unpaid after application of credits to which petitioner is entitled is properly at issue see 116_tc_60 sec_6401 provides if the amount allowable as credits exceeds the tax imposed the amount of such excess shall be considered an overpayment the commissioner may first credit any overpayment against any outstanding liability for any_tax owed by the taxpayer making the overpayment sec_301_6402-3 proced admin regs any remaining overpayment may be applied to the estimated_tax but only for the taxable_year immediately succeeding the taxable_year for which such return or amended_return is filed sec_301 a proced admin regs emphasis added see also sec_6402 the commissioner shall refund any balance of the overpayment to the taxpayer sec_6402 for the taxable_year respondent correctly applied the overpayment of dollar_figure generated from the nol in to petitioner’s tax_liability of dollar_figure the balance of the overpayment could not be applied to petitioner’s estimated_tax payments because petitioner filed his return on date long past the taxable_year during which the estimated_tax payments would be due see sec_6654 as to the taxable_year petitioner in completing his return applied the entire overpayment of dollar_figure as estimated_tax payments in as previously discussed respondent could not apply the portion of the overpayment generated from the nol to petitioner’s estimated_tax payments as to the portion of the overpayment arising from the nol respondent correctly applied that portion of the overpayment to petitioner’s tax_liability of dollar_figure it is nonsensical as petitioner requested to apply the remaining balance of the overpayment generated from the nol to petitioner’s estimated_tax payments any overpayment petitioner argues that he filed his return on date this issue was not addressed at trial and we will not decide it in any event if we were to accept petitioner’s filing_date petitioner still filed his return too late as the deadline for the third installment of his estimated_tax payment had passed see sec_6654 petitioner claimed dollar_figure as estimated_tax payments in the reason for the dollar_figure discrepancy is unclear from the record and we will apply respondent’s calculations generated in could only be applied to petitioner’s estimated_tax payments which is the tax_year immediately succeeding the taxable_year in which the return was filed see stephenson v commissioner tcmemo_1995_33 stephenson v commissioner tcmemo_1995_32 when respondent could not apply the remaining overpayment to petitioner’s estimated_tax liability respondent correctly issued petitioner the refund checks accordingly we sustain respondent on this issue additions to tax for failure to timely pay we review respondent’s determination de novo and sustain respondent on this determinationdollar_figure if a federal_income_tax is not timely paid there shall be added to the amount shown as tax on such return percent of the amount of such tax for each month or fraction thereof but not exceeding percent unless it is shown that such failure is due to reasonable_cause and not due to willful neglect sec_6651 petitioner argues that the additions to tax should not be imposed because if respondent had applied the overpayments to petitioner’s estimated_tax payments as he requested the federal income taxes due would have been paid but the fact remains that petitioner did not timely file his returns and he has conceded hi sec_12 respondent has satisfied his burden of production under sec_7491 liability for the additions to tax under sec_6651 moreover as discussed respondent previously had properly applied the overpayment to petitioner’s and tax_liabilities and refunded the remainder to him in closing we note that petitioner is an attorney and has a history of not timely filing tax returns and of apparently ignoring any communications from respondent including not opening envelopes with refund checks this is the crux of the dispute before the court under these circumstances petitioner’s claim that he is an abused taxpayer has a decidedly hollow ring reviewed and adopted as the report of the small_tax_case division decision will be entered for respondent


department of the treasury internal_revenue_service washington d c aug number release date cc tege eoeg et1 - cor-131225-01 uilc memorandum for director internal_revenue_service center kansas city mo attn entity control from subject office of division counsel associate chief_counsel tax exempt and government entities cc tege eoeg et1 - cor-131225-01 railroad retirement act tax status in accordance with the coordination procedure established between the service and the railroad retirement board rrb the rrb has provided us with its opinion that the following business became an employer under the railroad retirement act and the railroad unemployment insurance act effective date we have reviewed the opinion of the rrb and based upon the information submitted to the rrb we also conclude that became an employer under the railroad_retirement_tax_act effective date please take the appropriate action regarding this business will e mcleod cc