internal_revenue_service number release date index number ---------------------------- ------------------------------------------------------------ --------------------------- ------------------- ------------------------------- 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 tege eb qp2 plr-101498-11 date july legend x state s ---------------------------------------------------------------- ---------------- plan ----------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- dear ------------ this responds to your authorized representative's letter on behalf of x requesting a ruling concerning the restated deferred_compensation plan the plan which x intends to be an updated eligible_deferred_compensation_plan for employees of x under sec_457 of the internal_revenue_code the code as amended under the economic_growth_and_tax_relief_reconciliation_act_of_2001 egtrra the plan previously received a private_letter_ruling on date x is represented to be a municipal corporation organized and existing under the laws of state s and is an eligible_employer within the meaning of sec_457 under the plan the participant may elect to make deferrals into the plan from includible_compensation as defined in sec_415 of the code in addition the participant may elect to make deferrals into the plan of accumulated sick_pay accumulated vacation pay and accumulated back pay as permitted by sec_457 and the regulations there under the participant’s election must be entered into before the first day of the month in which such amounts would otherwise be paid or made available commencement of distributions must begin by the latest date permitted under sec_401 plr-101498-11 x has established a_trust pursuant to the plan the assets of the plan shall be held for the exclusive benefit of participants and their beneficiaries the trustee may accept rollover_contributions from all eligible retirement plans as defined in sec_401 of the code the plan permits participants to receive distributions in the event of an unforeseeable_emergency only circumstances of severe financial hardships of the participant shall constitute unforeseeable emergencies resulting from a an illness or accident of the participant b loss of the participant’s property due to casualty or c other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the participant including but not limited to imminent foreclosure of or eviction from the participant’s primary residence and the need to pay burial or funeral_expenses of a participant’s deceased spouse or dependent sec_457 of the code provides rules for the deferral of compensation by an individual participating in an eligible_deferred_compensation_plan as defined in sec_457 sec_457 of the code provides that in the case of a participant in an eligible governmental deferred_compensation plan any amount of compensation deferred under the plan and any income attributable to the amounts so deferred shall be includible in gross_income only for the taxable_year in which such compensation or other income is paid to the participant or beneficiary sec_457 of the code prescribes that an eligible_deferred_compensation_plan must meet the distribution_requirements of sec_457 sec_457 of the code provides that for a sec_457 plan to be an eligible_plan the plan must have distribution_requirements providing that under the plan amounts will not be made available to participants or beneficiaries earlier than i the calendar_year in which the participant attains age ii when the participant has a severance_from_employment with the employer or iii when the participant is faced with an unforeseeable_emergency as determined under treasury regulations sec_457 requires a plan to meet the minimum distribution_requirements of sec_401 as described in sec_1_401_a_9_-1 thru a -9 sec_457 defines an eligible_employer to be a state political_subdivision of a state and any agency_or_instrumentality of a state or political_subdivision of a state sec_457 provides that a plan maintained by an eligible governmental employer shall not be treated as an eligible_deferred_compensation_plan unless all assets and rights purchased with such deferred_compensation amounts and all income attributable to such amounts property or rights of the plan are held in trust for the exclusive benefit of participants and their beneficiaries sec_457 provides that a_trust described in sec_457 shall be treated as an organization exempt from tax under sec_501 plr-101498-11 based upon the information submitted and the representations made we conclude as follows the plan as amended and restated effective ------------------------ and further amended on ------------------- and ----------------- constitutes an eligible_deferred_compensation_plan as defined in sec_457 of the code as amended and the regulations there under amounts of compensation deferred in accordance with the terms of the plan including any income attributable to the deferred_compensation will be includible under sec_457 in the recipient's gross_income only for the taxable_year or years in which the amounts are paid to a participant or beneficiary in accordance with the terms of the plan the trust associated with the plan satisfies all applicable_requirements of sec_3 g and will be treated as an organization_exempt_from_taxation under sec_501 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter if the plan is significantly modified this ruling will not necessarily remain applicable this ruling is directed only to the taxpayer requesting it sec_6110 of the code 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 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely cheryl e press cheryl e press senior counsel qualified_plan sec_2 employee_benefits tax exempt government entities enclosure copy for purposes of sec_6110 cc


internal_revenue_service national_office technical_advice_memorandum date number release date index uil no case mis no tam-111464-99 cc dom it a b6 district_director taxpayer’s name taxpayer’s address taxpayer’s identification no year involved date of conference legend taxpayers year adollar_figure bdollar_figure cdollar_figure ddollar_figure edollar_figure fdollar_figure gdollar_figure issue s whether the term ‘regular tax liability’ includes the separate tax paid under sec_402 of the sec_1 on lump-sum_distributions for purposes of the minimum_tax_credit under sec_53 conclusion the term ‘regular tax liability’ includes taxes paid on lump sum distributions under sec_402 for purposes of the minimum_tax_credit under sec_53 facts unless provided otherwise all section references refer to sections of the internal_revenue_code the code as in effect for the appropriate tax_year or years under discussion in year taxpayers filed their federal individual_income_tax_return on a form_1040 reporting adollar_figureof taxable_income on line the federal_income_tax liability with respect to this income amounted to bdollar_figure taxpayers reported additional taxes under sec_402 in year as a result of a lump-sum_distribution of cdollar_figurefrom a qualifying retirement_plan the tax on the lump-sum_distribution amounted to ddollar_figureand was reported on form_4972 tax on lump-sum_distribution this amount was properly included on line of the taxpayers’ year federal_income_tax return combining the regular income_tax_liability of bdollar_figureand the lump-sum_distribution tax of ddollar_figuregave the taxpayers a total_tax liability of edollar_figurefor line of the year form_1040 in year taxpayers also filed a form_6251 alternative_minimum_tax and form_8801 credit for prior year minimum_tax taxpayers properly identified unapplied amt credit carryforwards to year of fdollar_figure taxpayers reported current_year tentative_minimum_tax on form_6251 in the amount to gdollar_figure per the instructions for form_8801 taxpayers compared the current_year tentative_minimum_tax of gdollar_figureto the total_tax liability of edollar_figurereported on line of the year and determined that the entire credit carryforward of fdollar_figurecould be applied against the current_year regular_tax of edollar_figure law and analysis sec_55 of chapter part vi imposes an alternative_minimum_tax amt on all taxpayers in addition to a taxpayer’s regular_tax_liability sec_55 provides that the amt for a taxpayer shall equal the excess if any of the tentative_minimum_tax for the taxable_year over the regular_tax for the taxable_year sec_55 provides that for purposes of this section the term ‘regular tax’ means the regular_tax_liability for the taxable_year as defined in sec_26 reduced by the foreign_tax_credit allowable under sec_27 the sec_936 credit allowable under sec_27 and the puerto rico economic activity credit under sec_30a sec_55 further provides that ‘regular tax’ for purposes of sec_55 shall not include any_tax imposed by sec_402 sec_402 imposes a tax on lump-sum_distributions sec_53 found in chapter part iv allows taxpayers a credit against the tax_imposed_by_chapter_1 of the irc for any taxable_year in an amount equal to the minimum_tax_credit for such taxable_year sec_53 provides that for purposes of sec_53 the minimum_tax_credit for any taxable_year is the excess if any of the adjusted_net_minimum_tax imposed for all prior taxable years beginning after over the amount allowable as a credit under subsection a for such prior taxable years sec_53 provides that the credit allowable under sec_53 for any taxable_year shall not exceed the excess if any of the regular_tax_liability of the taxpayer for such taxable_year reduced by the sum of the credits allowable under subparts a b d e and f of this part over the tentative_minimum_tax for the taxable_year sec_26 found in chapter part iv of the code defines ‘regular tax liability’ specifically sec_26 provides that for purposes of this part the term ‘regular tax liability’ means the tax imposed by this chapter for the taxable_year sec_26 limits the definition of ‘regular tax liability’ by providing a list of tax provisions that shall not be treated as imposed by chapter the list of taxing provisions in sec_26 does not include the tax on lump-sum_distributions provided in sec_402 of chapter therefore for purposes of sec_26 and chapter part iv of the code which includes sec_53 the definition of ‘regular tax liability’ shall include the tax under sec_402 on lump- sum distributions thus under the specific language of sec_55 of the code the term ‘regular tax liability’ for purposes of determining the amount of amt imposed does not include the tax on lump- sum distributions under sec_402 however the term ‘regular tax liability’ for purposes of the minimum_tax_credit of sec_53 does include the tax imposed under sec_402 because sec_53 uses the definition of regular_tax_liability under sec_26 and does not specifically exclude the tax under sec_402 from this definition in addition the appropriate tax form required to be filed due to the application of the amt credit follows the language of the code specifically form_8801 credit for prior year minimum_tax requires the taxpayer to enter his or her regular income_tax_liability minus allowable credits on line the instructions for form_8801 refer the taxpayer to his or her form_1040 u s individual_income_tax_return to determine the proper regular income_tax_liability amount to include on line of form_8801 the amount of regular income_tax_liability from form_1040 includes any_tax on lump-sum_distributions paid_by the taxpayer from form_4972 tax on lump-sum_distributions in this case the plain language of the code is clear and supports the result reached by taxpayers in addition the applicable tax forms and instructions associated with the code provisions at issue also support taxpayers’ conclusion caveat s a copy of this technical_advice_memorandum is to be given to the taxpayer s sec_6110 of the code provides that it may not be used or cited as precedent


internal_revenue_service appeals_office south pine island road suite plantation fl release number release date date date uil code a org name b org address uil code certified mail dear department of the treasury person to contact employee id number tel fax refer reply to in re ein c ein form required to be filed tax period s ended 20xx 20xx 20xx last day to file a petition with the --- united_states tax_court jul this is a final adverse determination as to your exempt status under sec_501 c of the internal_revenue_code irc from federal_income_tax under sec_501 effective march 19xx it is determined that you do not qualify as exempt our adverse determination was made for the following reason s a substantial part of your activities consists of providing down payment assistance to home buyers to finance the assistance you rely on home sellers and other real-estate related businesses that stand to benefit from these down payment assistance transactions your receipt of a payment from the home seller corresponds to the amount of the down payment assistance provided in substantially_all of your down payment assistance transactions the manner in which you operate demonstrates you are operated primarily to further your insiders’ business interests therefore you are operated for a substantial nonexempt purpose in addition your operations further the private interests of the persons that finance your activities accordingly you are not operated exclusively for exempt purposes described in sec_501 contributions to your organization are not deductible under code sec_170 you are required to file federal_income_tax returns on the form indicated above you should file these returns within days from the date of this letter unless a request for an extension of time is granted and do not send them to this office processing of income_tax returns and assessment file the returns in accordance with their instructions of any taxes due will not be delayed because you have filed a petition for declaratory_judgment under code sec_7428 if you decide to contest this determination under the declaratory_judgment provisions of code sec_7428 a petition to the united_states tax_court the united_states court of claims or the district_court of the united_states for the district of columbia must be filed within days from the date this determination was mailed to you contact the clerk of the appropriate court for rules for filing petitions for declaratory_judgment to secure a petition form from the united_states tax_court write to the united_states tax_court second street n w washington d c we will notify the appropriate state officials of this action as required by code sec_6104 you should contact your state officials if you have any questions about how this determination may affect your state responsibilities and requirements if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely charles fisher team manager tax exempt and government entities org address department of the treasury internal_revenue_service east 7th street 130-b st paul mn taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear sirs we have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under sec_501 of the internal_revenue_code code is necessary if you accept our findings take no further action we will issue a final revocation letter applicable law and arguments in support of your position irector eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process you may also request that we refer this matter for technical_advice as explained in publication if we issue a determination_letter to you based on technical_advice no further administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice letter zatalog number 34809f n if we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notify the appropriate state officials of the revocation in accordance with sec_6104 of the code you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs 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 in a united_states court the taxpayer_advocate can however 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 letter the most convenient time to call if we need to contact you thank you for your cooperation if you write please provide a telephone number and enclosures publication publication report of examination sincerely marsha a ramirez director eo examinations latter catalog number 34809f oreo 886a department of the ‘l'reasury - internal_revenue_service schedule no or exhibit name of taxpayer org explanation of items year period ended december 20xx december 20xx december 20xx legend org organization name xyz state co-3 co-4 co-5 co-6 xx date president president 3rf address address director director companie sec_57 city city co-1 co-2 whether org is operated exclusively for exempt purposes within meaning of sec_501 issue overview facts org is an xyz not-for-profit corporation incorporated on march 19xx org’s address is address city xyz in 19xx org applied for recognition as a tax-exempt_organization under i-r c sec_501 on form_1023 application_for exemption n july 19xx based on the information that org provided in its application_for exemption and on the assumption that it would operate in the manner represented in its application org was recognized as a tax-exempt_organization as described in sec_501 application_for recognition of tax-exempt status org filed its application_for recognition of tax-exempt status with the irs under penalties of perjury in 19xx in its application org stated that one of the major functions of org will be to make outright grants to families needing down payment assistance to purchase affordable housing affordable housing will be determined by the federal housing administrations sic maximum mortgage amount for the area the acquisition_cost can be no higher than payment assistance shall be determined by the corporation the purpose of the down payment assistance is to allow families with limited assets to purchase affordable housing that they otherwise could not do because of the lender down payment requirement lack of down payment is the single major obstacle in stopping families from purchasing affordable housing of the mortgage limit the need for down the organization also stated that its planned activities included closing cost grants interest rate buydown grants funding by the corporation to assist families that cannot obtain credit to purchase a home through conventional sources provide affordable rental housing contract with city county state or federal agencies to acquire sites to build affordable housing form 886-a crev department of the treasury - internal_revenue_service page -1- eo department of the lreasury - internal_revenue_service schedule no or exhibit 886a year period ended name of taxpayer explanation of items org december 20xx december 20xx december 20xx build cooperative and assisted living projects for the retired and elderly population org’s form_1023 included a proposed three year budget for 19xx 19xx and 19xx gifts grants and contributions were the only income shown on the proposed budgets regarding funding the organization stated in its application that funding will be raised from actual face to face solictions sic with suppliers subcontractors developers builders landowners professionals utility companies governmental agencies financial institutions insurance_companies abstractors and title companies at the end of the advance_ruling period the organization responded to questions on the percentage of support from the general_public by saying additional contributors these contributors in 19xx and 20xx there were actually actually contributed to org so low-income families could purchase affordable housing org would then grant qualifying recipients the required down payment the contributions would be received and within a short_period of time gifted back out also in response to questions at the end of the advance_ruling period the organization stated we distribute brochures advertise where we feel is effective and enlist specialists in affordable housing lending such as co-1 co-2 co-3 to a mention a few and realtors it federal returns org filed form_990 for the calendar years ended december 20xx december 20xx and december 20xx it was not required to file and did not file forms 990-t in these years org’s only reported activity consisted of operating its down payment assistance program dpa as described in more detail below according to part ii of org’s forms for 20xx 20xx and 20xx the primary activity of the organization was providing financing grants to low-income home buyers part viii of those returns states that djonor contributions pay for direct financing assist sic operating costs in 20xx org received dollar_figure in gross revenue from amounts paid to it by sellérs participating in org’s dpa program these payments were reported as contributions org also reported that it distributed dollar_figure december 20xx org has assets of dollar_figure in financing for low income homebuyers org’s form_990 part iv line shows that as of in gross revenue from amounts paid to it by sellers participating in org’s in 20xx org received dollar_figure dpa program these payments were reported as contributions org also reported that it distributed form 886-arrev department of the treasury - internal_revenue_service page -2- errr 886a department of the ‘lreasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer org year period ended december 20xx december 20xx december 20xx in financing for low income homebuyers org’s form_990 part iv line shows that as of december 20x x org had assets of dollar_figure this includes a receivable of dollar_figure that is described below when payments to president are discussed in 20xx org received dollar_figure in gross revenue from amounts paid to it by sellers participating in org’s dpa program these payments were reported as contributions org also reported that it distributed dollar_figure in financing for low income homebuyers org’s form_990 part v line shows that as of december 20x x org had assets of dollar_figure this includes a receivable of dollar_figure that is described below when payments to president are discussed operation of org’s down pavment assistance program many of the participants in org’s dpa program utilize federal housing administration fha financing for their home purchase to qualify for a federally insured mortgage a buyer must make a down payment in a specified minimum amount generally equal to of the purchase_price to qualify under applicable department of housing and urban development hud rules such a buyer may only receive gifts to use for the down payment from a relative employer labor_union charitable_organization close friend governmental agency or public entity the seller cannot loan money to the buyer for the down payment a pamphlet produced by org describing the process to be used by the buyer says that first you must apply through your mortgage_lender for a mortgage ‘pre-approval’ commitment the lender will complete the necessary forms on your behalf any qualified lender may send in an application_for assistance through org’s dpa program buyers receive a gift of the funds that they use for the down payment a house buyer was eligible to participate in org’s dpa program only if the buyer purchased a house from a seller that agreed to org’s contractual terms org and sellers entered into agreements that required sellers to pay org an amount equal to the down payment gift that the buyer received under org’s dpa program org claimed that the seller’s payment was not provided directly to the buyer but instead was used to replenish the pool of funds that was used to provide gifts to subsequent buyers in addition to requiring the seller to pay an amount equal to the amount_of_the_gift provided to the house buyer org required sellers to pay org an administrative fee equal to of the gift in essence these transactions result in a circular flow of the money the sellers make payments to org org provides the funds to the buyers who use the funds to make the down payment necessary to purchase the seller’s home thereby returning the funds to the seller as noted above org documents explicitly state that the down payment gift to a buyer comes from preexisting org funds rather than from the seller’s contribution in the transaction however org does not solicit outside public contributions or have any source of funds other than contributions from sellers and related fees because the amount of the contribution is always equal to the amount of the down payment assistance provided to the buyer plus the administrative service fee the actual source of the down payment assistance is the seller’s contribution in fact form 886-arev department of the treasury - internal_revenue_service page -3- oer 886a deparment of the treasury - internal_revenue_service schedule no or exhibit name of taxpayer org explanation of items year period ended december 20xx december 20xx december 20xx org also falsely and fraudulently promoted its dpa program by leading house sellers and others to believe that sellers may claim charitable deductions on their federal_income_tax returns for amounts they pay to org its contract with each seller entitled participating home agreement org also labeled the seller’s in payment to org as both a gift and a contribution these contracts obligate the seller in consideration for participating in org’s program to pay org an amount equal to the amount of the dpa received by the buyer the contract which was required to be signed by each participating seller stated seller understands that the contribution will not be used to provide assistance to the buyer of the participating home and that the gift funds provided to the buyer toward the purchase of the seller’s home are derived from pre-existing org funds seller further understands that the seller is only obligated to make the contribution tf a homebuyer utilizing the org program purchases the participating home this agreement also provides that any gift funds deposited by org with escrow or closing agent shall be returned without_recourse within three days to org in the event buyer’s loan closing is terminated seller shall not be obligated to make a contribution upon termination of loan closing of participating home a sample acknowledgement letter was provided by the organization it states thank you for your contribution to org a c non-profit corporation our records indication you made the following contribution your generous contribution was appreciated please retain this information for your tax records the org gifts and administrative fees are shown as reductions in the amount due seller on the real_estate_transaction settlement sheets and the down payment assistance gifts are shown as amounts paid_by or on behalf of borrower on the same settlement sheets other entities during 20xx president was the president of org director was a director the organization has the same address as co-4 which is owned by the three sons of director and president the organization reports that co-4 had a small office in the larger org office which co-4 used in exchange for cleaning and maintaining the premises there is no written_agreement this is office space for which org pays rent in 20xx the co-4 used the services of org three times and paid the usual fee director is also the owner of co-5 a home building company which had one transaction with org form 886-a rev department of the treasury - internal_revenue_service page -4- een 886a department of the ‘treasury - internal_revenue_service schedule no or exhibit name of taxpayer org explanation of items year petiod ended december 20xx december 20xx december 20xx in 20xx the address of org is also the address of co-6 which is also an organization that operates a down payment assistance program the president of co-6 is director co-6 was recognized as a 501_c_3_organization by the internal_revenue_service co-6 is currently appealing the proposed revocation of its exempt status minutes the organization had no minutes of meetings for the period under examination payments to president president was paid for work performed as president and or executive director in 20xx 20xx 20xx and 20xx the organization filed no information documents reporting this and did not withhold any_tax the organization paid president more than she reported on her personal income_tax return none of the payments to president meet the requirements of an accountable_plan loan the books of the organization record that some of the amounts paid to president in 20xx were a loan there is a promissory note dated july 20xx although the balance_sheet for 20xx shows this loan stating that the undersigned president promises to pay org dollar_figure with interest from july 20xx payable on august 20xx at the rate of interest this is filed with the 20xx material there is dollar_figure on the balance_sheet for 20xx and a statement attached to the return giving borrower’s name and title president president there is no security the term t sec_3 years the books of 20xx record a reduction in the principal of the loan this is to record out of pocket expenses by ska per ska a journal entry explained reimbursements for business_expenses during the examination the organization provided ledger sheets that were noted that they were prepared in april 20xx they were supported only with credit card bills and other invoices documentation of business_purpose was not present law argument sec_501 of the internal_revenue_code i r c provides for the exemption from federal_income_tax of corporations organized and operated exclusively for charitable or educational_purposes provided that no part of the net_earnings of such corporations inures to the benefit of any private_shareholder_or_individual see lr c sec_501 form 886-a rev department of the treasury - internal_revenue_service page -5- form 886a department of the ‘lreasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer org year period ended december 20xx december 20xx december 20xx treasury regulations section c -1 c provides that an organization operates exclusively for exempt purposes only if it engages primarily in activities that accomplish exempt purposes specified in c an organization must not engage in substantial activities that fail to further an exempt_purpose in 326_us_279 the supreme court held that the presence of a single the exemption regardless of the number or importance of truly exempt purposes nonexempt purpose if substantial in nature will destroy sec_1_501_c_3_-1 provides that an organization is not organized or operated exclusively for exempt purposes unless it serves a public rather than a private interest to meet this requirement it necessary for an organization to establish that it interests is is not organized or operated for the benefit of private sec_1_501_c_3_-1 defines the term charitable for sec_501 purposes as including the relief of the poor and distressed or of the underprivileged and the promotion of social welfare by organizations designed to lessen neighborhood tensions to eliminate prejudice and discrimination or to combat community deterioration the term charitable also includes the advancement of education id sec_1_501_c_3_-1 provides in part that the term educational for sec_301 purposes relates to the instruction of the public on subjects useful to the individual and beneficial to the community sec_1 c - e provides that an organization that operates a trade_or_business as a substantial part of its activities may meet the requirements of sec_501 if the trade_or_business furthers an exempt_purpose and if the organization’s primary purpose does not consist of carrying on an unrelated_trade_or_business in easter house v u s cl_ct aff'd 846_f2d_78 fed cir the u s court of federal claims considered whether an organization that provided prenatal care and other health-related services to pregnant women including delivery room assistance and placed children with adoptive parents qualified for exemption under sec_501 the court concluded that the organization did not qualify for exemption under sec_501 because its primary activity was placing children for adoption tn a manner indistinguishable from that of a commercial adoption agency the court rejected the organization’s argument that the adoption services merely complemented the health-related services to unwed mothers and their children rather the court found that the health-related services were merely incident to the organization’s operation of an adoption service which in and of itself did not serve an exempt_purpose the organization’s sole source of support was the fees it charged adoptive parents rather than contributions from the public the court also found that the organization competed with for- profit adoption agencies engaged in substantia advertising and accumulated substantial profits addition although the organization provided health care to indigent pregnant women it only did so when a family willing to adopt a woman’s child sponsored the care financially accordingly the court found that the business_purpose and not the advancement of educational and charitable activities purpose of plaintiff's adoption service is exclusively for purposes described in its primary goal and held that the organization was not operated sec_501 easter house cl_ct pincite in form 886-a rev department of the treasury - internal revenuc service page -6- form 886a department of the ‘treasury - internal_revenue_service schedule no or exhibit year period ended name of taxpayer explanation of items org december 20xx december 20xx december 20x-x in 92_tc_1053 the court held that an organization that operated a school to train individuals for careers as political campaign professionals but that could not establish that it operated on a nonpartisan basis did not exclusively serve purposes described in sec_501 because tt also served private interests more than incidentally the court found that the organization was created and funded by persons affiliated with entities of a particular political_party and that most of the organization’s graduates worked in campaigns for the party’s candidates consequently the court concluded that the organization conducted its educational activities with the objective of benefiting the party’s candidates and entities although the candidates and entities benefited were not organization insiders the court stated that the conferral of benefits on disinterested persons who are not members of a charitable_class may cause an organization to serve a private interest within the meaning of sec_1_501_c_3_-1gii the court concluded by stating that even if the political party’s candidates and entities did comprise a charitable_class the organization would bear the burden of proving that its activities benefited members of the class in a non-select manner american campaign academy t c pincite in 71_tc_202 the court held that an organization that marketed handicrafts made by disadvantaged artisans through museums and other non-profit organizations and shops operated for exclusively charitable purposes within the meaning of sec_501 the organization in cooperation with national craft agencies selected the handicrafts it would market from craft cooperatives in communities identified as disadvantaged based on objective evidence collected by the bureau of indian affairs or other government agencies the organization marketed only handicrafts it purchased in bulk from communities of craftsmen the organization did not market the kind of products produced by studio craftsmen nor did it market the handicrafts of artisans who were not disadvantaged the court concluded that the overall purpose of the organization’s activity was to benefit disadvantaged communities the organization’s commercial activity was not an end in itself but the means through which the organization pursued its charitable goals the method the organization used to achieve its purpose did not cause it to serve primarily private interests because the disadvantaged artisans directly benefited by the activity constituted a charitable_class and the organization showed no selectivity with regard to benefiting specific artisans therefore the court held that the organization operated exclusively for exempt purposes described in sec_501 in 283_fsupp2d_58 d d c the court relied on the commerciality doctrine in applying the operational_test because of the commercial manner in which the organization conducted its activities the court found that it was operated for a nonexempt commercial purpose rather than for a tax-exempt purpose as the court stated among the major factors courts have considered in assessing commerciality are competition with for-profit commercial entities extent and degree of below cost services provided pricing policies and reasonableness of financial reserves additional factors include inter alia whether the organization uses commercial promotional methods eg advertising and the extent to which the organization receives charitable donations department of the treasury - internal_revenue_service form 886-a rev page -7- form 886a department of the ‘lreasury - internal_revenue_service schedule no or exhibit name of taxpayer org explanation of items year period ended december 20xx december 20xx december 20xx see also 950_f2d_365 7th cir holding that a religious_organization which ran restaurants and health food stores in furtherance of its health ministry did not qualify for tax-exempt status because it was operated for substantial commercial purposes and not for exclusively exempt purposes revrul_67_138 1967_1_cb_129 held that helping low-income persons obtain adequate and affordable housing is a charitable activity because it relteves the poor and distressed or underprivileged in revrul_67_138 the organization carried on several activities directed to assisting low-income families obtain improved housing including conducting a training course on various aspects of homebuilding and homeownership coordinating and supervising joint construction projects purchasing building sites for resale at cost and lending aid in obtaining home construction loans revrul_70_585 1970_2_cb_115 discussed four situations of organizations providing housing and whether each qualified as charitable within the meaning of sec_501 situation described an organization formed to construct new homes and renovate existing homes for sale to low-income families who could not obtain financing through conventional channels the organization also provided financial aid to low-income families who were eligible for loans under a federal housing program but did not have the necessary down payment the organization made rehabilitated homes available to families who could not qualify for any type of mortgage when possible the organization recovered the cost of the homes through very small periodic_payments but its operating funds were obtained from federal loans and contributions from the general_public the revenue_ruling held that by providing homes for low- income families who otherwise could not afford them the organization relieved the poor and distressed situation described an organization formed to ameliorate the housing needs of minority groups by building housing units for sale to persons of low and moderate income on an open-occupancy basis the housing was made available to members of minority groups who were unable to obtain adequate housing because of local discrimination the housing units were located to help reduce racial and ethnic imbalances in the community as the activities were designed to eliminate prejudice and discrimination and to lessen neighborhood tensions the revenue_ruling held that the organization was engaged in charitable activities within the meaning of sec_501 situation described an organization formed to formulate plans for the renewal and rehabilitation of a particular area in a city as a residential community the median income level in the area was lower than in other sections of the city and the housing in the area generally was old and badly deteriorated the organization developed an overall plan for the rehabilitation of the area sponsored a renewal project and involved residents in the area renewal plan the organization also purchased an apartment building that it rehabilitated and rented at cost to low and moderate income families with a preference given to residents of the area the revenue_ruling held that the organization was described in and activities combated community deterioration sec_501 because its purposes situation described an organization formed to alleviate a shortage of housing for moderate-income families in a particular community the organization planned to build housing to be rented at cost to moderate-income families the revenue_ruling held that the organization failed to qualify for exemption form 886-arre department of the treasury - internal_revenue_service page -8- form 886a schedule no or exhibit peasy - internal_revenue_service department of the name of taxpayer org explanation of items year period ended december 20xx december 20xx december 20xx under sec_501 because the organization’s program was not designed to provide relief to the poor or further any other charitable purpose within the meaning of sec_501 and the regulations in early the irs issued revrul_2006_27 2006_1_cb_915 which describes three organizations involved in providing down payment assistance and determines whether each qualifies for exempt status under sec_501 the organization described in situation makes assistance available to low-income families to purchase decent and safe homes throughout the metropolitan area in which it is located ndividuals are eligible to participate if they are low-income and have the employment history and financial history to qualify for a mortgage with the exception that they do not have the funds necessary for down payments the organization in situation offers financial seminars conducts educational activities to prepare the individuals for home ownership and requires a home inspection report before providing funds for down payment assistance to fund the program the organization conducts broad based fundraising that attracts gifts grants and contributions from the general_public further the organization has policies in place to ensure that the grantmaking staff does not know the identity or contributor status of the home seller or other parties who may benefit from the sale and does not accept contributions contingent on the sale of particular properties because the organization described in situation relieves the poor and distressed requires a home inspection to ensure that the house is habitable conducts educational seminars has a broad based funding program and has policies to ensure that the organization is not beholden to particular donors the service held that the organization is operated exclusively for charitable purposes and qualifies for exemption from federal taxation as an organization described in sec_501 the organization described in situation of revrul_2006_27 is like that described in situation except that its staff knows the identity of the party selling the home and may know the identity of other parties involved in the sale the organization receives a payment from the seller the amount of which bears a direct correlation to the amount of down payment assistance provided in substantially_all the cases in which the organization provides assistance to the home buyers and most of its financial support comes from home sellers and related businesses that may benefit from the sale of homes buyers who receive assistance from the organization to because the organization described in situation provides down payment assistance amounts that directly correlate to the amounts provided by home sellers and relies primarily on payments from home sellers and real_estate related businesses that stand to benefit from the transactions to finance its program the service held that the organization described in situation is not operated exclusively for exempt purposes and does not qualify for exemption from federal_income_tax as an organization described in sec_501 benefiting private interests even if an organization's activities serve a charitable_class or are otherwise charitable within the meaning of sec_501 it must demonstrate that its activities serve a public rather than a private interest within the meaning of reg sec_1_501_c_3_-1 form 886-a rev department of the treasury - internal_revenue_service page -9- form 886a department of the preasury - internal_revenue_service schedule no er exhibit name of taxpayer org explanation of items year period ended december 20xx december 20xx december 20xx revrul_72_147 1972_1_cb_147 held that an organization that provided housing to low income families did not qualify for exemption under sec_501 because it gave preference to employees of business operated by the individual who also controlled the organization the ruling reasoned that although providing housing for low-income families furthers charitable purposes doing so in a manner that gives preference to employees of the founder’s business primarily serves the private interest of the founder rather than a public interest in kj's fund raisers v commissioner t c memo aff'd u s app lexis 2d cir the tax_court held and the second circuit affirmed that an organization formed to raise funds for distribution to charitable causes did not qualify for exemption under sec_501 because its activities resulted in a substantial private benefit to its founders the founders of the organization were the sole owners of kj's place a lounge at which alcoholic beverages were served the founders served as officers of the organization and at times also controlled the organization’s board the tax_court found and the second circuit agreed that the founders exercised substantial influence over the affairs of the organization the organization’s business consisted of selling lucky or similar instant win lottery tickets to patrons of kj's place the organization derived most of its funds from its lottery ticket sales the organization solicited no public donations the lottery tickets were sold during regular business hours by the owners of the lounge and their employees from the proceeds of the sales of the lottery tickets the organization made grants to a variety of charitable organizations supporting charitable organizations may be a charitable activity the tax_court nevertheless upheld the commissioner’s denial of exemption to the organization on the ground that the organization’s operation resulted in more than incidental private benefit the tax_court held and the second circuit affirmed that a substantial purpose of kj's activities was to benefit kj’s place and its owners by attracting new patrons by way of lottery ticket sales to kj's place and by discouraging existing customers from abandoning kj's place in favor of other lounges where such tickets were available thus the organization was not operated exclusively for exempt purposes within the meaning of sec_501 although an organization does not serve a public rather than a private interest within the meaning of reg c -1 d ifany of its assets or earnings inure to the benefit of any insiders or disqualified persons sec_1_501_c_3_-1 inurement is any transfer of charitable assets to the organization’s insiders for which the organization does not receive adequate_consideration inurement can take many forms the provision of tnurement can be direct or indirect organization transferred in excess of dollar_figure million to a for-profit corporation incorporated by the organization’s founder and his wife the directors of the corporation were high-ranking members of the church of scientology the directors approved the founder’s decision to transfer dollar_figure million from the corporation’s account to the ship apol o_aboard which the founder and his family lived the ninth circuit held that the funds funneled through the for-profit corporation constituted inurement to the founder and his family church of scientology f 2d pincite in church of scientology f 2d pincite the in 765_f2d_1387 cir the ninth circuit held that a church that conducted tts activities by mail did not qualify for exemption under sec_501 because a form 886-arev department of the treasury - internal_revenue_service page -10- iret 886a department of the ‘treasury - internal_revenue_service schedule no or exhibit name of taxpayer org explanation of items year period ended december 20xx december 20xx december 20xx substantial purpose of its activities was to benefit a for-profit corporation controlled by the church’s insiders the church employed an advertising agency controlled by its insiders to provide all of the printing and mailing services for the church’s mass mailings the advertising agency devoted approximately two-thirds of its time to the work for the church the majority of the church’s income was paid to the advertising agency although the advertising agency claimed to have clients unrelated to the church it did not advertise its services and refused to identify its other clients the ninth circuit held that the church was operated for the substantial non-exempt purpose of providing a market for the advertising agency’s services and thus primartly served the private interests of the advertising agency and its owners rather than a public purpose in so holding the ninth circuit rejected the church's argument that the income paid_by the advertising agency should not be included in the determination of reasonableness and treated this income as indirect inurement of the church’s earnings to the church’s insiders the prohibition on inurement in organization’s exempt status for inurement regardless of the amount of inurement see spokane motorcycle club supra the founding church of scientology f 2d pincite sec_501 is absolute the service has the authority to revoke an promoting improper charitable_contribution deductions sec_170 allows as a deduction subject_to certain limitations and restrictions any charitable_contribution as defined in sec_170 payment of which is made within the taxable_year sec_170 defines a charitable_contribution as a contribution or gift to or for_the_use_of an entity described in one of the paragraphs of sec_170 sec_170 describes certain entities organized and operated exclusively for religious charitable scientific literary or educational_purposes generally to be deductible as a charitable_contribution under sec_170 a transfer to a charitable_organization must be a contribution or gift without receipt of adequate_consideration made with charitable intent 477_us_105 a payment generally cannot be a charitable_contribution if see also singer the payor expects a substantial benefit in return american bar endowment at co v uls 449_f2d_413 ct_cl substantial benefits are those that are greater than those that inure to the general_public from transfers for charitable purposes which benefits are merely incidental to the transfer singer pincite a charitable_contribution is a transfer of money or property sec_102 provides that the value of property acquired by gift is excluded from gross_income a gift proceeds from a detached and disinterested generosity ’ ‘out of affection respect admiration charity or like impulses 363_us_278 payments that proceed from the constraining force of any moral or legal duty or from anticipated benefit of an economic nature are not gifts duberstein u s pincite thus payments attendant to ordinary business or commercial transactions or that proceed primarily from the moral or legal obligations attendant to such transactions are not gifts ‘the incentive of form 886-acrev department of the treasury - internal_revenue_service page -11- eee 886a department of the ‘vreasury - internal_revenue_service schedule no or exhibit i name of taxpayer org explanation of items year period ended december 20xn december 20xx december 20xx organizations that promote tax_avoidance schemes do not qualify for exemption under sec_501 as organizations described in sec_501 see church of world peace inc v commissioner t c memo aff'd u s app lexis ao cir in church of world peace the church used its tax-exempt status to create a circular tax-avoidance scheme individuals made tax- deductible charitable donations to the church the church then returned the money to the individuals in the form of tax-free housing allowances and also reimbursed the individuals for church expenses that were in fact unrelated to church operations the church emphasized tax_advice in connection with this tax-avoidance scheme the tax_court held and the tenth circuit affirmed that the church did not comply with the requirements of sec_501 because by promoting a circular flow of funds from donors to the church and back to the donors and facilitating improper charitable_contribution deductions the church did not operate exclusively for exempt purposes enumerated in sec_501 eftective date of revocation an organization may ordinarily rely on a favorable determination_letter received from the internal_revenue_service treas reg dollar_figure1 a -t a revproc_2003_4 dollar_figure cross-referencing dollar_figure et seq 2003_1_cb_123 an organization may not rely on a favorable determination_letter however if the organization omitted or misstated a material fact in addition an organization may not rely on a favorable determination if there is a material_change inconsistent with exemption in the organization’s character purposes or methods of operation after the determination_letter is issued sec_601_201 revproc_90_27 1990_1_cb_314 its application or in supporting documents in the commissioner may revoke a favorable determination_letter for good cause sec_1 a - i a revocation of a determination_letter may be retroactive if the organization omitted or misstated a material fact or operated in a manner materially different from that originally represented sec_601_201 revproc_2003_4 dollar_figure cross-referencing dollar_figure et seq analysis org does not qualify as an organization described in r c sec_501 because it operates a program that does not exclusively serve an exempt_purpose described in sec_501 provides substantial private benefit to persons who do not belong to a charitable_class and org has violated the requirements of sec_501 by promoting improper charitable_contribution deductions charitable purposes include relief of the poor and distressed see sec_1_501_c_3_-1 of the regulations org’s down payment assistance program does not operate in a manner that establishes that its primary purpose is to address the needs of low-income people by enabling low-income individuals and families to obtain decent safe housing see revrul_70_585 situation org’s dpa program does not limit assistance to certain geographic areas or target those areas experiencing deterioration or neighborhood tensions it is not limited to first time home buyers rev_rul situation arranging or facilitating the purchase of homes in a broadly defined see form 886-arev department of the treasury - internal_revenue_service page -12- form 886a department of the ‘l'rcasury - internal_revenue_service schedule no or exhibit name of taxpayer org explanation of items year period ended december 20xx december 20xnx december 20xx geographic area does not combat community deterioration or serve other social welfare objectives within the meaning of sec_501 of the code only an insubstantial portion of the activity of an exempt_organization may further a nonexempt purpose as the supreme court held in 326_us_279 the presence of a single non-exempt purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes even if org’s dpa program were directed to exclusively low-income individuals or disadvantaged communities org’s total reliance for financing its dpa activities on home sellers or other real-estate related businesses standing to benefit from the transactions demonstrates that the program is operated for the substantial purpose of benefiting private parties like the organization considered in 92_tc_1053 org is structured and operated to assist the private parties who fund it and give it business sellers who participate in org’s dpa program benefit from achieving access to a wider pool of buyers thereby decreasing their risk and the length of time the home is on the market buyers who participate in org’s dpa program benefit by being able to purchase a home without having to commit more of their own funds real_estate professionals who participate in org’s dpa program from real_estate brokers to escrow companies benefit from increased sales volume and the attendant increase in their compensation it parties in each home sale is evident from the foregoing that org’s dpa program provides ample private benefit to the various the manner in which org operated its dpa program shows that the private benefit to the various participants in org’s activities was the intended outcome of org’s operations rather than a mere incident of such operations org’s down payment assistance procedures are designed to channel funds ina circular manner from the sellers to the buyers and back to the sellers in the form of increased home prices to finance its down payment assistance activities org relies exclusively on sellers and other real-estate related businesses that stand to benefit from the transactions it facilitates org neither solicits nor receives funds from other sources before providing down payment assistance org’s grantmaking staff takes into account whether there is a home seller willing to make a payment to cover the down payment assistance the applicant has requested org requires the home seller to reimburse it dollar-for-dollar for the amount of funds expended to provide down payment asststance on the seller’s home plus an administrative fee of several hundred dollars per home sale org secures an agreement from the seller stipulating to this arrangement prior to the closing no dpa assistance transactions take place unless org ts assured that the amount of the down payment plus the fee is or will be paid_by the seller upon closing org’s receipt of a payment from the home seller corresponding to the amount of the down payment assistance in virtually every transaction indicates that the benefit to the home seller and others involved in the transaction ts not a mere accident but rather an intended outcome of org’s operations in thts respect org ts like the organization considered in easter house which provided health care to indigent pregnant women but only when a family willing to adopt a woman’s child sponsored the care financially the manner in which org operated its dpa program shows that org was in the business of facilitating the sales of homes in a manner indistinguishable from an ordinary trade_or_business in this respect form 886-a rev department of the treasury - internal_revenue_service page -13- oe sec_86a department of the ‘treasury - internal_revenue_service schedule no or exhibit year period ended name of taxpayer explanation of items org december 20xx december 20xx december 20xx org’s operations are similar to an organization which was denied exemption because it operated a conference center for commercial purposes see 283_fsupp2d_58 d d c operating a trade_or_business of facilitating home sales is not an inherently charitable activity unlike the trade_or_business in 71_tc_202 org’s trade_or_business was not utilized as a mere instrument of furthering charitable purposes but was an end in itself org provided services to home sellers for which it charged a market rate fee org did not market its services primarily to persons within a charitable_class org’s primary goal consisted of maximizing the fees it derived from facilitating the sales of real_property org did not solicit or receive any funds from parties that did not have an interest tn the down payment transactions like the organizations considered in american campaign academy supra and easter house v u s cl_ct aff'd 846_f2d_78 fed cir a substantial part of org’s purposes activities furthered commercial rather than exempt furthermore org’s activities were structured to provide private benefit to org’s insiders president and director allowed their sons and the business operated by their sons co-3 to use the space leased by org without making any attempt to determine the fair_market_value of the rent and without any oversight by org’s board_of directors org made loans to director without adequate_consideration or made reimbursements to director without verifying the business_purpose of the expenses the fact that the organization cannot show any meetings of the board makes it apparent that the board provided no oversight based on the foregoing org has not operated exclusively for exempt purposes and accordingly is not entitled to exemption under sec_501 org is also not entitled to exemption under sec_501 because it promoted improper charitable_contribution deductions a payment of money generally cannot be deducted as a charitable_contribution if the payor expects to receive a substantial benefit in return deductible as a charitable_contribution under sec_170 because the seller receives valuable consideration in return for the payment in addition the seller's payment to org is not tax deductible to the seller as a charitable_contribution because the payment is compulsory furthermore the payments from the home sellers to org also do not qualify as gifts under sec_102 the payments from the home sellers do not proceed from detached and disinterested generosity but rather in response to an anticipated economic benefit namely facilitating the sale of the seller’s home under 363_us_278 such payments are not gifts for purposes of sec_102 a seller’s payment to org ts not tax sec_501 see church of world peace inc v commissioner t c memo an organization that promotes an abusive tax_avoidance scheme is not entitled to exemption as an organization described tn in its acknowledgements to sellers org led sellers to believe that sellers who participate in payments to org org used the prospect of a charitable_contribution_deduction as an inducement for sellers to participate in would be entitled to a charitable_contribution_deduction org falsely and fraudulently misrepresented its dpa program would be able to claim a charitable_contribution_deduction for their its dpa program in implying that the seller-participants in its dpa program form 886-acrev department of the treasury - internal_revenue_service page -14- form 886a department of the ureasury - internal_revenue_service schedule no or exhibit name of taxpayer org explanation of items year period ended december 20xn december 20xx december 20xx the quid pro quo nature of these payments because org has promoted improper charitable_contribution deductions in connection with its dpa program org does not operate exclusively for exempt purposes enumerated in sec_501 and does not qualify for exemption as an organization described in c the government proposes revoking org’s exemption back to the organization’s inception because the organization operated in a manner materially different from that represented in exemption in its application_for exemption signed under penalties of perjury on date org did not disclose that the only source of funds for the organization would be from persons who wished to sell their homes form_1023 listed the following as sources of financial support suppliers and subcontractors developers builders landowners professional group utility companies government agencies financial institutions insurance_companies abstractors and title companies church affiliated groups and economic development commission its application_for conclusion in order to qualify for exemption under sec_501 an organization must be both organized and operated to achieve a purpose that is described under that code section org’s dpa program is not operated in accordance with sec_501 and the regulations thereunder governing qualification for tax exemption under code org provides down payment assistance purportedly in the form of a gift to individuals and families for the purchase of ahome org’s dpa activities do not target neighborhoods in need of rehabilitations or other relief such as lessening neighborhood tensions or eliminating prejudice and discrimination org operates tn a manner indistinguishable from a commercial enterprise org’s primary activity is brokering transactions to facilitate the selling of homes org’s primary goal is to maximize the fees from these transactions org’s brokering services are marketed to homebuyers sellers realtors lenders home builders and title companies regardless of the buyers’ income level or need and regardless of the condition of the community tn which the home is located alliances are built with the realtors lenders home builders and title companies to ensure future business for the mutual benefit of the participants org does not engage in any counseling or other activities that further charitable purposes because org’s primary activity is not conducted in a manner designed to further sec_501 purposes org is not operated exclusively for exempt purposes within the meaning of sec_501 furthermore org has promoted an abusive tax_avoidance scheme in connection with its dpa program by advising sellers that they may take a charitable_contribution_deduction for their payments to org even though such payments were quid-pro-quo payments for services rather than payments motivated by detached and disinterested generosity org’s promoter activities are inconsistent with sec_501 exemption for the foregoing reasons revocation of exempt status is proposed because the facts show that in 20xx 20xx and 20xx org operated in a manner materially different from that represented in its form_1023 application the government proposes that the revocation be effective retroactively to the date of the organization’s inception form 886-a rev department of the treasury - internal_revenue_service page -15- form 886a department of the ‘i'rcasury - internal_revenue_service explanation of items name of taxpayer org schedule no or exhibit year period ended december 20xx december 20xx december 20xx taxpayer’s position org’s position with respect to the issues facts applicable law and government’s position as discussed in this report is unknown org will be allowed days to review this report and respond with a rebuttal if considered necessary form 886-a rev department of the treasury - internal_revenue_service page -16-


t c summary opinion united_states tax_court andy akay petitioner v commissioner of internal revenue respondent docket no 5300-16s filed date andy akay pro_se nicholas r rosado for respondent summary opinion carluzzo chief special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code_of_1986 in effect when the petition was filed pursuant to sec_7463 the decision to be 1unless otherwise indicated section references are to the internal revenue continued entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case this is a partner-level affected items deficiency proceeding under the tax equity and fiscal responsibility act of tefra pub_l_no sec_402 stat pincite on date respondent issued to petitioner affected items notices of deficiency for and notices that determined deficiencies of dollar_figure and dollar_figure respectively in his federal_income_tax after concessions the issue for decision is whether petitioner should have included in income capital_gains of dollar_figure and dollar_figure for and respectively background some of the facts have been stipulated and are so found when the petition was filed petitioner resided in california petitioner is the tax_matters_partner of aym llc aym a limited_liability_company formed in or around during the years in issue and for federal_income_tax purposes aym was treated as a partnership continued code code of as amended in effect for the years in issue rule references are to the tax_court rules_of_practice and procedure aym purchased land in with the intent to develop an office building on it in aym obtained a loan and used the proceeds to pay aym expenses related to the development of the office building including grading architectural and engineering services certain amounts were repaid on the loan in and however petitioner could not recall nor does the record establish whether the repayments were made by aym petitioner or otherwise as a result of an examination conducted in accordance with tefra administrative adjustments were made to aym’s and federal_income_tax returns following aym’s examination petitioner as aym’s tax_matters_partner received a notice of final_partnership_administrative_adjustment fpaa dated date and filed a petition in this court with respect to the fpaa ultimately that proceeding was resolved by a stipulated decision entered on date in the stipulated decision the parties agreed to the following adjustments to aym’s partnership items 2aym llc v commissioner t c dkt no date final_decision partnership_item as reported as determined partner cash contributions -0- dollar_figure distributions--money cash securities -0- big_number partnership_item as reported as determined partner cash contributions interest portfolio income--interest net_loss from self-employment distributions--money cash securities -0- -0- -0- -0- dollar_figure big_number big_number big_number on the basis of on those adjustments respondent issued to petitioner the notices determining among other things that petitioner received distributions in excess of basis for and of dollar_figure and dollar_figure respectively discussion sec_731 governs the recognition of gain_or_loss on partnership_distributions and provides in part that gain is not recognized to the recipient partner except to the extent of any money distributed in excess of the adjusted 3petitioner did not contest other adjustments made in the notices of deficiency and therefore those issues are deemed conceded see rule b basis of the partner’s interest in the partnership immediately before the distribution petitioner agrees that he received distributions for and as stipulated in the decision entered on date he now disputes only his share of partnership liabilities for and that is relevant because any increase in a partner’s share in partnership liabilities shall be treated as a contribution of money by the partner to the partnership increasing the partner’s basis in his partnership_interest see sec_752 sec_722 the regulations promulgated under sec_6231 clarify that the determination of a partner’s share of partnership liabilities is a partnership_item sec_301_6231_a_3_-1 proced admin regs states in relevant part that the following items which are required to be taken into account for the taxable_year of a partnership under subtitle a of the code are more appropriately determined at the partnership level than at the partner level and therefore are partnership items the partnership aggregate and each partner’s share of each of the following v partnership liabilities including determinations with respect to the amount of the liabilities whether the liabilities are nonrecourse and changes from the preceding_taxable_year that being so petitioner’s share of aym’s liabilities was or should have been determined in the partnership-level proceeding see dakotah hills offices ltd p’ship v commissioner tcmemo_1996_35 it follows that petitioner’s share of partnership liabilities cannot and will not be reconsidered in this partner-level proceeding because petitioner does not otherwise dispute the adjustments made in the notices and to reflect the foregoing an appropriate order will be issued granting respondent’s motion to dismiss for lack of jurisdiction and to strike with respect to partnership liabilities and decision will be entered for respondent