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 ita b03 plr-106161-11 date date ty ------- ty ------- legend taxpayer ---------------------------------------------------------------- parent ------ -------------------------------------------------- subsidiary ------ ---------------------------------------------------- fund group -------------------------------- owning funds ---------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------- year ------- extended due_date --------------------------- discovery date ------------------------- dear -------------------- this is in response to your letter dated date in your letter you requested an extension of time to file the forms necessary to make a consent_dividend election under sec_565 of the internal_revenue_code for the tax_year ending december year the request is based on sec_301_9100-1 and sec_301_9100-3 of the procedure and administrative regulations facts taxpayer a corporation is a regulated_investment_company owned by parent subsidiary and the owning funds in parent’s fund group parent administers the various funds in the fund group parent and subsidiary hold shares of each of the funds in the fund group in separate_accounts established for the purpose of funding variable_annuity contracts and variable life_insurance policies investors in parent and subsidiary may select one of the funds in the fund group including taxpayer as an plr-106161-11 investment option for a variable_annuity contract or life_insurance_policy taxpayer must make minimum distributions each tax_year to continue to be subject_to tax as a regulated_investment_company for future tax years parent prepared taxpayer’s form 1120-ric u s income_tax return for regulated_investment_companies for the tax_year ending december year and filed it before the extended due_date before filing taxpayer’s form 1120-ric the board_of directors approved taxpayer’s issuance of consent dividends to parent subsidiary and the owning funds to satisfy the taxpayer’s year distribution_requirements parent’s employees had no prior experience issuing consent dividends after consulting outside accountants and lawyers parent’s employees prepared an internal memorandum outlining the process of how funds in the fund group should issue consent dividends and the tax consequences of issuing them the memorandum stated that parent needed to file a form_973 corporation claim for deduction for consent dividends with each form 1120-ric of each fund in the fund group but the memorandum did not mention the additional regulatory requirement that parent file a form_972 consent of shareholder to include specific amount in gross_income with each fund’s return for each consent_dividend paid to a different shareholder of taxpayer time passed between when parent’s employees prepared the memorandum and when they began preparing the forms 1120-ric for each fund in the fund group when parent prepared form 1120-ric on behalf of taxpayer parent’s employees followed the memorandum’s instructions thus taxpayer’s return included an executed form_973 with the filing but not any executed form sec_972 the form sec_972 were not attached even though parent’s employees possessed two executed originals of form_972 one authorizing the inclusion of consent dividends in parent’s gross_income and the other authorizing the inclusion of consent dividends in subsidiary’s gross_income parent’s employees never obtained executed form sec_972 authorizing the inclusion of consent dividends in the gross_income of the various owning funds because they were inexperienced in issuing consent dividends they believed the law did not require them to obtain form sec_972 for the owning funds because the gross_income would flow through to parent and subsidiary for whom they had obtained executed form sec_972 taxpayer’s shareholders parent subsidiary and the various owning funds each included the appropriate amount of consent_dividend income in their respective gross incomes on parent’s consolidated_income_tax_return for year after the extended due_date but before the discovery date parent’s auditor discovered that no form sec_972 had been attached to taxpayer’s form 1120-ric to taxpayer’s knowledge the irs was not aware of the omission of the form_972 and has not contacted parent about the year consent_dividend election nor has it notified parent that taxpayer’s year form 1120-ric is under examination plr-106161-11 law and analysis sec_852 provides that a regulated_investment_company may claim a deduction for dividends_paid as defined in sec_561 in computing its investment_company_taxable_income sec_852 provides that a regulated_investment_company may claim a deduction for dividends_paid as defined in sec_561 in computing its net capital_gains determined with reference to capital_gain dividends only sec_561 provides that the deduction for dividends_paid includes consent dividends for the taxable_year as determined under sec_565 sec_565 of the code provides that if any person owns consent_stock as defined in sec_565 in a corporation on the last day of the taxable_year of such corporation and such person agrees in a consent filed with the return of such corporation in accordance with the regulations to treat as a dividend the amount specified in such consent the amount so specified shall except as provided in sec_565 constitute a consent_dividend for purposes of sec_561 relating to the deduction for dividends_paid consent_stock which is the type of stock with respect to which consent dividends are allowed sec_565 includes what is generally known as common_stock and participating preferred_stock the participation rights of which are unlimited sec_1_565-6 of the income_tax regulations sec_1_565-1 provides that the dividends_paid deduction as defined in sec_561 includes the consent dividends for the taxable_year a consent_dividend is a hypothetical distribution as distinguished from an actual distribution made by certain corporations to any person who owns consent_stock on the last day of the taxable_year of such corporation and who agrees to treat the hypothetical distribution as an actual dividend subject_to specified limitations by filing a consent at the time and in the manner specified in sec_1_565-1 sec_1_565-1 provides that a consent may be filed no later than the due_date of the corporation's income_tax return for the taxable_year for which the dividends_paid deduction is claimed with such return and not later than the due_date the corporation must file form sec_972 for each consenting shareholder and a return on form_973 showing by classes the stock outstanding on the first and last days of the taxable_year the dividend rights of such stock distributions made during the taxable years to shareholders and give all other information required by the form under revrul_78_296 1978_2_cb_183 the due_date for purposes of sec_1_565-1 includes the extended due_date of a return filed pursuant to an extension of time to file sec_301_9100-1 through of the procedure and administration regulations provide the standards the commissioner uses to determine whether to plr-106161-11 grant an extension of time to make a regulatory election 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 sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time 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 internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides extensions of time to make a regulatory election under code sections other than those for which sec_301_9100-2 expressly permits automatic extensions requests for extensions of time for regulatory elections will be granted when the taxpayer provides evidence including affidavits described in the regulations to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-3 states that a taxpayer will be deemed to have acted reasonably and in good_faith if the taxpayer -- i requests relief before the failure to make the regulatory election is discovered by the service ii failed to make the election because of intervening events beyond the taxpayer's control iii failed to make the election because after exercising due diligence the taxpayer was unaware of the necessity for the election iv reasonably relied on the written advice of the service or v reasonably relied on a qualified_tax professional and the tax professional failed to make or advise the taxpayer to make the election under sec_301_9100-3 a taxpayer will not be considered to have acted reasonably and in good_faith if the taxpayer -- i seeks to alter a return position for which an accuracy related penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief taking plr-106161-11 into account sec_1_6664-2 and the new position requires or permits a regulatory election for which relief is requested ii was informed in all material respects of the required election and related tax consequences but chose not to file the election or iii uses hindsight in requesting relief if specific facts have changed since the original deadline that make the election advantageous to a taxpayer the service will not ordinarily grant relief taxpayer in this case requested relief before the failure to make the regulatory election was discovered by the service and thus under sec_301_9100-3 the taxpayer will be deemed to have acted reasonably and in good_faith taxpayer has also represented that none of the circumstances listed in sec_301_9100-3 apply sec_301_9100-3 provides in part 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 taxable years affected by the election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money sec_301_9100-3 provides in part that the interests of the government are ordinarily prejudiced if the taxable_year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under sec_6501 before the taxpayer’s receipt of a ruling granting relief under these criteria the interests of the government are not prejudiced in this case taxpayer has represented that granting relief would not result in a lower tax_liability in the aggregate for all taxable years affected by the election than taxpayer would have had if the election had been timely made taking into account the time_value_of_money furthermore the taxable_year in which the regulatory election should have been made and any taxable years that would have been affected had it been timely made are not closed by the period of assessment conclusion taxpayer's election is a regulatory election as defined under sec_301_9100-1 because the due_date of the election is prescribed in the regulations under sec_1_565-1 in the present situation the requirements of sec_301_9100-1 and sec_301_9100-3 of the regulations have been satisfied the information and representations made by taxpayer establish that taxpayer acted reasonably and in good_faith furthermore granting an extension will not prejudice the interests of the government taxpayer represented that it will not have a lower tax_liability in the aggregate for all taxable years affected by the election if given permission to make the plr-106161-11 election than taxpayer would have if the election were made by the original deadline for making the election taxpayer also represented that the period of assessment for year will not be closed before receipt of a ruling accordingly taxpayer is granted an extension of time for making the election to issue consent dividends until days following the date of this ruling the election should be made by filing the forms necessary to make the sec_565 consent_dividend election for year and by including a copy of this ruling with an amended_return for year this ruling is limited to the timeliness of the consent_dividend election taxpayer wishes to make for year this ruling’s application is limited to the facts representations code sections and regulations cited herein except as expressly provided herein no opinion is expressed or implied concerning the federal_income_tax consequences of any aspect of any transaction or item discussed or referenced in this ruling 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 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling 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 robert casey acting branch chief branch income_tax accounting cc


number release date uil cc el gl b2 date ’0’4 cid cid dollar_figure ’6 department of the treasury internal_revenue_service 2iilfh cid ri cid klhi cid rxqvho 7klv xoohwlq lv iru lqirupdwlrqdo sxusrvhv w lv qrw d gluhfwlyh bulletin no july court orders service to consider offers in compromise in bankruptcy take a look a bankruptcy court has found the service’s policy not to consider an offer_in_compromise submitted by a debtor in bankruptcy to be discriminatory and a violation of b c while the service’s decision whether or not to accept an offer_in_compromise oic remains discretionary the bankruptcy court of in re chapman aftr2d bankr s w va date used its equitable power under b c sec_105 to require the service to at least consider the oic the debtors filed chapter bankruptcy owing the service nearly dollar_figure in priority taxes the debtors’ plan_of_reorganization proposed to satisfy the service’s claim by means of an oic in the amount of dollar_figure and the debtors in fact submitted an oic with a deposit to the service under established policy the service did not consider the debtors’ oic and timely objected to the debtors’ plan the debtors in turn asked that the court require the service to review their oic as though the debtors were not in bankruptcy the service argued that under sec_7122 consideration of an oic is discretionary the bankruptcy code provides sufficient protections for debtors and the service’s decision not to process an oic while a debtor is in bankruptcy is not discriminatory because it applies to all debtors in bankruptcy the service also argued that as a priority tax debt is nondischargeable and must be paid in full under the debtors’ plan refusal to consider an oic has no effect on a debtor further the consideration of an oic might be considered a violation of the automatic_stay the court found little merit to any of these arguments examining b c a and its legislative_history the court found clear congressional intent to prohibit discrimination that can seriously affect the debtor’s livelihood or fresh_start the court then looked to sec_7122 and found that although acceptance of an oic is discretionary nothing in that statute’s language indicates that the service can refuse to even consider an otherwise valid oic the court found the refusal to consider an oic denies a bankruptcy debtor many of the protections such as administrative appeal rights that even a denied oic taxpayer is offered bulletin no june the court also found that although the service’s priority tax debt must be paid in full a successful oic would reduce the amount considered a priority debt and thus clearly have an impact on the debtor’s fresh_start as to the question of whether consideration of an oic would be a stay violation the court held that the debtors’ choice to submit an oic is a voluntary waiver of that defense and should the service have additional concerns it could request that the stay be lifted bankruptcy code cases compromise or settlement compromise settlement bankruptcy assessments jeopardy_assessment judicial review arnold v united_states aftr2d m d fla date - taxpayers challenged jeopardy assessments which were upheld by the court the court determined under sec_7429 that the taxpayer’s indictment for tax_evasion use of shell_corporations and nominees to hide assets lack of attachable assets and history of filing false tax returns and financial statements established the jeopardy assessments were reasonable under the circumstances the court dismissed the taxpayers’ defense of disability because it was a defense to ultimate liability not the reasonableness of the assessment the court also dismissed the taxpayer’s claim that the acts cited to support the government’s case were too old because the sec_7429 is a summary proceeding the court may examine otherwise inadmissible evidence that the service relied on in making its jeopardy assessments bankruptcy code cases automatic_stay sec_362 creation perfection or enforcement of liens against property of debtor or estate in re dinatale bankr lexi sec_803 bankr d md date - debtor received discharge in no-asset chapter bankruptcy then argued that the service violated the discharge injunction by renewing pre-petition tax_liens against the debtor’s property the court first overruled the service’s objection on statute of limitation grounds holding a remedy exists under b c sec_362 even after bankruptcy the court then disagreed with the debtor’s argument finding that because the service’s liens passed through bankruptcy and could be enforced in rem even against otherwise exempt_property such as the debtor’s pension_plan renewal of those liens was not a violation of the discharge injunction bankruptcy code cases chapter reorganization effect of confirmation refunds jurisdictional prerequisites puckett jr v united_states u s dist lexis s d tex date - taxpayers’ refund action is barred by res_judicata because the bankruptcy court’s order confirming the amended plan_of_reorganization conclusively determined taxpayers’ tax_liability for the years at issue taxpayers filed no objections and taxpayers paid the taxes the court here used the claim preclusion requirements from agrilectric power partners ltd v general elec co f 3d bulletin no june 5th cir to reach its conclusion finding the taxpayers’ reliance on in re taylor 132_f3d_256 5th cir unpersuasive as the service did not file a claim or otherwise participate in the bankruptcy proceedings in taylor finally the court overruled the taxpayers’ objection to the government’s f_r c p rule b motion as untimely filed after the government filed its answer because the government in its answer presented the defense of res_judicata raised in the motion thereby giving the taxpayers notice the court would consider the motion as a rule c motion for judgment on the pleadings bankruptcy code cases chapter family farmer discharge in re cousins aftr2d d n h date - the district_court affirmed the bankruptcy court’s decision that debtors were not liable for post-petition_interest on the service’s non-dischargeable priority tax claim when interest was not provided for in the debtors’ confirmed chapter plan the court found the service’s reliance on 376_us_358 unpersuasive as bruning is effectively a chapter case not applicable to a confirmed plan_of_reorganization bankruptcy code cases exceptions to discharge no late or fraudulent_returns tudisco v united_states u s app lexis 2nd cir date - the second circuit affirmed the lower courts’ findings that taxes were nondischargeable due to willful evasion although as the debtor failed to file or pay taxes the court did not decide whether mere nonpayment would be sufficient alone for a finding of willful evasion the appellate court also affirmed the lower courts’ determination that the debtor’s retirement_funds although exempt from the bankruptcy_estate were subject_to the federal_tax_lien bankruptcy code cases exceptions to discharge pre-petition priority taxes in re grothues aftr2d w d tex date - taxpayer pled guilty to tax_evasion and agreed to pay back taxes owed by taxpayer’s corporations when taxpayer failed to make payments the service began collection and the taxpayer filed joint chapter bankruptcy with her spouse the bankruptcy court determined the taxes were nondischargeable under the fraud exception of b c a c but the district_court reversed because the service asserted_liability against the debtor as a nominee or alter ego of the corporations the debtor had no direct liability for the taxes therefore the service despite the fact it was attempting to enforce a money judgment had only a equitable claim against the debtor because this equitable claim was not a tax claim it could not be excepted from discharge under either section a c or section a a bankruptcy code cases proofs of claim sec_501 amendment supplement bulletin no june in re jones bankr lexis bankr w d mich date - debtors filed chapter bankruptcy listing secured priority and unsecured tax debts owed to the united_states after the debtors’ plan was confirmed and after the bar date the trustee refused to pay the service so the service filed its proof_of_claim the debtors also filed a proof_of_claim on behalf of the service but only for the secured portion of the taxes and in a lesser amount than claimed by the service the court held that as the service had failed to protect its claim by timely filing or by requesting an extension of time under f_r b p the service could not now assert that its proof_of_claim merely amended the debtors’ proof_of_claim consequently apart from the amount listed on the debtors’ proof_of_claim the federal taxes were discharged compromise settlement binding effect streck v commissioner u s app lexis 6th cir date unpublished - the sixth circuit upheld the service’s disallowance of business_expense deductions and innocent spouse relief the taxpayers also claimed the service was bound by an offer_in_compromise because it was signed by the revenue_agent who purportedly told them it had been accepted the appeals court noted the agent did not have statutory authority to accept the offer had signed only the portion of the offer which accepted a waiver of the statute_of_limitations and that the government could not be estopped by oral representations damages suits for against u s failure to release lien sec_7432 damages suits for against u s unauthorized collection sec_7433 levy release_of_levy h w reeder d o p c v united_states u s app lexis 9th cir date unpublished - service levied upon and sold assets of taxpayer corporation the ninth circuit first dismissed the claims of the corporation’s owner as lacking standing next the court found that although the corporation had been involuntarily terminated three years before under arizona law it retained the right to file suit as a part of winding up its affairs and so had standing to sue the united_states moving to the merits the court held that the revenue_officer did not exhibit reckless or intentional behavior in violation of sec_6331 by selling property not belonging to the taxpayer because she did not learn that most of the assets were leased until after the sale the court next affirmed the district court’s finding of no intentional or reckless disregard of the requirements of sec_6343 though the revenue_officer failed to release liens when paid in full because there were no regulations in place and the revenue_officer provided copies of payments to the taxpayer finally because a levy is not a lien there was no violation of sec_7432 erroneous refunds suits for mildred cotler trust v united_states u s app lexis 2d cir date - taxpayer paid proposed tax assessments but not penalties the service then assessed and the taxpayer challenged the deficiency after reaching a bulletin no june settlement which was paid the service removed the freeze code on the account and assessed the agreed amount of taxes and interest however before the assessment was posted the total amount_paid was refunded to the taxpayer when the taxpayer died six years later the service filed a claim against the estate for the amount erroneously refunded the district_court ruled in favor of the service based on the assessment but on appeal the service agreed that an erroneous refund does not revive an assessment extinguished by payment the current service position instead the service tried to argue fraud the tenth circuit in reversing the district_court found no evidence of fraud basically because the government never argued it before the district_court and although acknowledging the taxpayer’s estate received a windfall allowed the estate to keep the monies levy erroneous property of third person walwyn v united_states u s dist lexis e d n y date - service sought to enforce tax_liens on residential real_estate in name of taxpayer edward charles however property actually had been purchased at a city tax sale by charles’ relatives the walwyns using charles as a straw purchaser to meet financing standards because charles was owner in name only and walwyns had made all payments of mortgage and taxes made substantial improvements and were the sole occupants of the property the court on equitable grounds enjoined the sale of the property and voided the government’s tax_lien liens after-acquired property trusts collection from spend thrift matter of orr u s app lexis 5th cir date - taxpayer beneficiary of spendthrift trust filed bankruptcy which discharged his personal liability for unpaid federal taxes under texas law a spendthrift trust_beneficiary possesses an equitable ownership_interest in the trust corpus which is property or rights to property sufficient for a federal_tax_lien to attach as a result the fifth circuit held the taxpayer’s subsequent bankruptcy did not affect the validity of the federal tax_liens which were valid against future income distributions liens priority over mortgages united_states v fletcher bankr lexi sec_832 bankr s d ala date - while defending himself against tax assessments taxpayer ran up legal expenses for which his law firm filed a mortgage after the service subsequently filed notices of federal_tax_lien the law firm argued it had priority even though it had notice of the service’s tax assessments the court agreed citing in re 31_f3d_1081 11th cir for the service to have priority under sec_6323 the court held the service must have recorded its lien prior to the filing of the competing security_interest liens priority over state and local_taxes state of minnesota v united_states u s app lexis 8th cir date - taxpayer owed state and federal taxes filing its returns on date bulletin no june federal taxes were assessed on august and the state processed the taxpayer’s returns on august notices of federal_tax_lien were filed in january although minnesota law provides that a tax is a lien on property from the date of assessment the date the return was filed the court_of_appeals held that the state lien was not choate until it had been processed the court determined that after filing the state commissioner of the revenue must examine the return and determine the taxpayer’s liability and cannot compute penalty or interest until after a return is processed therefore the amount of the state liens was not determined nor were the liens summarily enforceable giving the federal lien priority liens priority over state and local_taxes priority insolvency u s c estate of walker v department of revenue tenn app lexi sec_447 tenn ct app date - the state appellate court found the federal_estate_taxes had absolute priority under the insolvency statute u s c a the state of tennessee unsuccessfully argued that its state inheritance_tax was a debt of the estate not a debt of the debtor as it arose after taxpayer’s death penalties failure to collect withhold or pay over responsible_officer loew v united_states u s dist lexis w d wash date - the court held that the taxpayer was a responsible_person because although he did not hold the corporate position responsible for the payment of taxes he had authority to direct payment penalties failure to collect withhold or pay over willfulness macagnone v united_states u s dist lexis m d fla date - reversing the bankruptcy court’s holding pincite_br_784 see february gl bulletin the district_court concluded that under eleventh circuit precedent once a taxpayer is found to be a responsible_party the burden_of_proof shifts to the taxpayer to disprove willfulness suits against the u s or employees declaratory judgments kinard v kinard aftr2d d s c date - a personal representative brought suit to declare that she and decedent were common_law wife and husband and so claim marital_deduction for the estate the court found it lacked subject matter jurisdiction under the declaratory_judgment act u s c sec_2201 and the anti-injunction_act sec_7421 because a declaration regarding the marital status of the personal representative and the decedent would be the same as an injunction against the service’s assessment against the estate’s marital_deduction claim the court refused to judicially interfere with the service’s assessment process


department of the treasury internal_revenue_service te_ge eo examinations tax_exempt_and_government_entities_division date release number taxpayer_identification_number release date uil code certified mail dear person to contact identification_number contact telephone number the revocation of your exempt status was made for the following reason s contributions to your organization are no longer deductible under sec_170 after january 20xx this is a final adverse determination regarding your exempt status under sec_501 of the internal_revenue_code the code our favorable determination_letter to you dated april 20xx is hereby revoked and you are no longer exempt under sec_501 of the code effective january 20xx as a result of our examination for the tax_year ended december 20xx it was determined that your organization has been inactive since july 20xx and that there have been no operations or regular financial activities conducted or planned as such you failed to meet the operational requirements for continued exemption under sec_501 processing of income_tax returns and assessments of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code you are required to file income_tax returns on form_1120 these returns should be filed with the appropriate service_center for the tax_year ending december 20xx and for all tax years thereafter in accordance with the instructions of the return if you decide to contest this determination under the declaratory_judgment provisions of sec_7428 of the code a petition to the united_states tax_court the united_states claims_court or the district_court of the united_states for the district of columbia must be filed before the day after the date this determination was mailed to you please contact the clerk of the appropriate court for rules regarding filing petitions for declaratory judgments by referring to the enclosed publication you may write to these courts at the following addresses united_states tax_court second street nw washington d c united_states court of federal claims madison place nw washington d c united_states district_court for the district of columbia constitution avenue nw washington d c you also 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 internal_revenue_service taxpayer_advocate if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter enclosure publication sincerely mary a epps acting director eo examinations letter catalog number 34198j department of the treasury internal_revenue_service cm irs tax_exempt_and_government_entities_division date date taxpayer_identification_number form tax_year s ended person to contact id number contact numbers manager's name id number manager's contact number response due_date certified mail - return receipt requested dear why you are receiving this letter we propose to revoke your status as an organization described in sec_501 of the internal_revenue_code code enclosed is our report of examination explaining the proposed action what you need to do if you agree if you agree with our proposal please sign the enclosed form_6018 consent to proposed action - sec_7428 and return it to the contact person at the address listed above unless you have already provided us a signed form we'll issue a final revocation letter determining that you aren't an organization described in sec_501 after we issue the final revocation letter we’1 announce that your organization is no longer eligible for contributions deductible under sec_170 of the code if we don't hear from you if you don't respond to this proposal within calendar days from the date of this letter we'll issue a final revocation letter failing to respond to this proposal will adversely impact your legal standing to seek a declaratory_judgment because you failed to exhaust your administrative remedies effect of revocation status if you receive a final revocation letter you'll be required to file federal_income_tax returns for the tax_year s shown above as well as for subsequent tax years what you need to do if you disagree with the proposed revocation if you disagree with our proposed revocation you may request a meeting or telephone conference with the supervisor of the irs contact identified in the heading of this letter you also may file a protest with the letter rev catalog number 34809f irs appeals_office by submitting a written request to the contact person at the address listed above within calendar days from the date of this letter the appeals_office is independent of the exempt_organizations division and resolves most disputes informally for your protest to be valid it must contain certain specific information including a statement of the facts the applicable law and arguments in support of your position for specific information needed for a valid protest please refer to page one of the enclosed publication how to appeal an irs decision on tax-exempt status and page six of the enclosed publication the examination process publication also includes information on your rights as a taxpayer and the irs collection process please note that fast track mediation referred to in publication generally doesn’t apply after we issue this letter you also may request that we refer this matter for technical_advice as explained in publication please contact the individual identified on the first page of this letter if you are considering requesting technical_advice if we issue a determination_letter to you based on a technical_advice_memorandum issued by the exempt_organizations rulings and agreements office no further irs administrative appeal will be available to you contacting the taxpayer_advocate office is a taxpayer right you have the right to contact the office_of_the_taxpayer_advocate their assistance isn’t a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate can't reverse a legally correct_tax determination or extend the time you have fixed by law to file a petition in a united_states court they can however see that a tax matter that hasn't 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 internal_revenue_service office_of_the_taxpayer_advocate tel fax number for additional information if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation sincerely nan downing director eo examinations enclosures report of examination form_6018 publication publication letter rev catalog number 34809f form_886 a name of ‘taxpayer schedule no or exhibit year period ended explanation of items department of the treasury - internal_revenue_service december 20xx issue whether the school at continues to qualify for exemption as an organization described within the internal_revenue_code c due to inactivity for several years fact the school at and in a determination_letter dated april 20xx the school at determined to be exempt from federal_income_tax effective july 20xx as an organization described in sec_501 was incorporated under the laws of the state of was during the onsite audit on february 20xx the president of the organization stated that the school was inactive since july 20xx due to shortage of funds from the main provider and financer the and had no operational or financial activities since then the organization was initially established to promote and support arts in areas by providing exposure to the arts and artists through art classes art workshops art exhibits presentations lectures music performances concerts and other arts events and by supporting people involved in the arts and letters by providing residential and studio facilities where they can pursue their creative endeavors and surrounding law sec_1_501_c_3_-1 provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities that accomplish one or more of the exempt purposes specified in sec_501 sec_1_501_c_3_-1 of the regulations provides that in order to be exempt as an organization described in sec_501 of the code the organization must be one that is both organized and operated exclusively for one or more of the purposes specified in that section form 886-a crev department of the treasury - internal_revenue_service page -1- form_886 a name of taxpayer schedule no or exhibit year period ended explanation of items department of the treasury - internal_revenue_service december 20xx sec_1_6033-1 provides that every organization which has established its right to exemption from tax whether or not it is required to file an annual return of information shall submit such additional information as may be required by the district_director for the purpose of enabling him to inquire further into its exempt status and to administer the provisions of subchapter_f sec_501 and the following chapter of the code and sec_6033 sec_6033 provides except as provided in sec_6033 every organization exempt from tax under sec_501 shall file an annual return stating specifically the items of gross_income receipts and disbursements and such other information for the purposes of carrying out the internal revenue laws the secretary may also prescribe by forms or regulations the requirement of every organization to keep such records render under oath such statements make such other returns and comply with such rules and regulations as the secretary may from time to time prescribe in accordance with the above cited provisions of the code and regulations under sec_6001 and sec_6033 organizations recognized as exempt from federal_income_tax must meet certain reporting requirements these requirements relate to the filing of a complete and accurate annual information and other required federal tax forms and the retention of records sufficient to determine whether such entity is operated for the purposes for which it was granted tax-exempt status the eo has failed to show us that they meet the operational_test for a sec_501 organization for the year under examination in order to meet the operational_test they must show that they engage primarily in activities which accomplish one or more of such exempt purposes specified in section sec_501 as evidence of their failure to operate for exempt purposes we reviewed the form_990 filings and found little or no support for exempt operations the originally filed form_990 for 20xx does not state their revenues or their expenses in part i they explicitly state in part ill line by checking the yes box that they cease conducting or making significant changes in how the school conducts its program services in fact clearly they have not been performing exempt_purpose activities since july 20xx which is required for a sec_501 organization to keep their tax-exempt status accordingly we are proposing revocation because they do not operate for exempt purposes as a result of the examination we have determined that the eo is not operating for exempt purposes as a sec_501 organization accordingly since the organization form 886-a crev department of the treasury - internal_revenue_service page -2- ’ form_886 a name of taxpayer schedule no or exhibit year period ended explanation of items department of the treasury - internal_revenue_service december 20xx failed to operate primarily for exempt purposes we are proposing revocation of their tax-exempt status effective january 20xx taxpayer's position the taxpayer declared that the organization has no operational or financial activities government's position the government position is that the organization has been inactive for several years now and that there have been no operations or financial activities conducted in accordance with the above cited provisions of the code and regulations under sec_6001 and sec_6033 organizations recognized as exempt from federal_income_tax must meet certain reporting requirements these requirements relate to the filing of a complete and accurate annual information and other required federal tax forms and the retention of records sufficient to determine whether such entity is operated for the purposes for which it was granted tax-exempt status and to determine its liability for any unrelated_business_income_tax the school at conclusion organization failed to meet it is the irs's position that the school at continued exemption under sec_501 failed to meet the operational requirements for as a result of the examination we have determined that the eo is not operating for the operational and reporting requirements under sec_6001 and sec_6033 to be recognized as exempt from federal_income_tax under sec_501 by not complying with the code and regulations the organization has jeopardized its exempt status accordingly the organization's exempt status is revoked effective january 20xx organization are no longer deductible contributions to the school at under sec_170 of the internal_revenue_code exempt purposes as a sec_501 organization department of the treasury - internal_revenue_service form 886-arev page -3-


t c memo united_states tax_court alejandrina de aycardi petitioner v commissioner of internal revenue respondent docket no filed date alejandrina de aycardi pro_se susan g lewis for respondent memorandum findings_of_fact and opinion swift judge respondent determined deficiencies and additions to tax for and with respect to petitioner's federal income taxes as follows petitioner was represented at the trial of this case by beatriz e meza ms meza was allowed to withdraw her appearance on behalf of petitioner on date year deficiency dollar_figure big_number big_number addition_to_tax sec_6651 dollar_figure big_number big_number unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure the issue for decision is whether certain income that petitioner received in and qualifies under sec_871 as nontaxable interest on qualified portfolio debt investments findings_of_fact many of the facts have been stipulated and are so found at the time the petition was filed and during the years in issue petitioner resided in ocana colombia from to petitioner attended college in the united_states and during those years petitioner obtained a u s social_security_number in petitioner returned to colombia since petitioner has resided in colombia in november of with assistance from a sister who resided in the united_states petitioner invested dollar_figure in a mutual_fund with respect to which petitioner received u s source interest and dividend income petitioner did not file a form_w-8 certificate of foreign status that is normally required in order to qualify interest received by a nonresident of the united_states for nontaxable treatment under sec_871 during and petitioner received dollar_figure and dollar_figure respectively in dividend income with regard to the above dollar_figure mutual_fund investment because petitioner had provided her social_security_number to the mutual_fund and because petitioner had not provided a form_w-8 to the mutual_fund the mutual_fund treated petitioner as a u s resident and filed with respondent forms 1099-int and div reflecting the interest and dividend income paid to petitioner in and for and petitioner did not file federal_income_tax returns for and respondent prepared substitute income_tax returns on petitioner's behalf using information set forth in the forms 1099-int and div that were filed with respondent by the mutual_fund on the substitute income_tax returns respondent treated petitioner as a u s resident and calculated the tax owed by petitioner based on tax_rates applicable to u s residents respondent treated the interest and dividend income that petitioner received in and as taxable and respondent used the standard 20-percent backup withholding rate in calculating petitioner's tax_liability for each year on brief respondent concedes that the interest_income that petitioner received on her mutual_fund investment qualifies as exempt from u s tax opinion generally sec_871 imposes a 30-percent withholding_tax on certain income received by nonresident_aliens from sources within the united_states sec_871 however treats portfolio debt interest as nontaxable and not subject_to the 30-percent withholding_tax under sec_871 dividends received however are not eligible for this nontaxable treatment under sec_871 exemptions exclusions and other provisions treating income as nontaxable occur as a matter of legislative grace and should remain strictly construed 311_us_46 316_f2d_151 3d cir a taxpayer is entitled to an exclusion only if there is clear provision for the favorable tax treatment 719_f2d_1408 7th cir affg james v commissioner tcmemo_1982_456 reasonable reliance on an agent may constitute a defense to penalties but not to the underlying tax_liability 469_us_241 generally taxpayers bear the burden of proving by a preponderance_of_the_evidence that respondent's determinations are incorrect rule a 290_us_111 respondent however bears the burden_of_proof with regard to new issues and increases in the deficiency rule a the question of what constitutes a new issue depends among other things on whether different evidence must be presented than that relating to the issues raised in the original notice_of_deficiency 77_tc_881 petitioner argues that the mutual_fund misclassified her status as a u s resident for federal_income_tax purposes and incorrectly invested her dollar_figure in a mutual_fund on which both interest and dividends were earned petitioner argues that due to this alleged misclassification and incorrect mutual_fund into which her funds were invested she received from the mutual_fund dividend income of dollar_figure and dollar_figure in and respectively instead of interest petitioner emphasizes that had the dividends been received as interest the interest would have been treated as nontaxable under sec_871 petitioner therefore argues that the dividend income that she did receive should now be reclassified as interest and treated as nontaxable for federal_income_tax purposes under sec_871 as explained respondent concedes that the actual interest that petitioner received on her mutual_fund investment qualifies as nontaxable under sec_871 respondent now argues that the dividend income petitioner received on her mutual_fund investment does not qualify as nontaxable interest under sec_871 and -- because it has now been determined that petitioner was not a u s resident -- respondent argues that the dividend income of dollar_figure and dollar_figure that petitioner received should be treated as taxable u s source income to petitioner and subject_to tax at the 30-percent withholding rate applicable to taxable u s source income of nonresident_aliens also because respondent does not want to assert an increased deficiency and therefore shift the burden_of_proof under rule a respondent -- on the dividend income -- asserts only the original tax deficiencies that were determined to be applicable thereto based on the tax_rates applicable to u s residents namely the 20-percent backup withholding rate respondent's taxation of petitioner on the dividend income as a nonresident_alien but at the 20-percent u s backup withholding rate so as to avoid increasing the tax_deficiency attributable to the dividend income does not constitute a new issue the assertion of a new_theory which merely clarifies or develops the original determination without being inconsistent and without increasing the amount of the deficiency generally will not be treated as a new issue achiro v commissioner supra pincite as a nonresident of the unites states petitioner's dividend income received on the mutual_fund investment is taxable under sec_871 and normally would be taxed on the basis of the 30-percent withholding_tax applicable to nonresident_aliens the dividend income that petitioner received does not qualify under sec_871 as nontaxable u s source interest_income received by a nonresident_alien generally we treat facts as they happened not how they could or might have happened in the ideal situation for a taxpayer see 40_bta_1074 revd and remanded on another issue 114_f2d_760 4th cir in and in regard to the amounts in controversy petitioner received dividend income not portfolio debt interest_income that would have been nontaxable under sec_871 petitioner failed to file a form_w-8 to notify the withholding_agent of her nonresident_alien status and petitioner has not presented evidence that proved either that the deficiency determinations were incorrect or that petitioner qualifies under sec_871 for a tax exemption on her dividend income petitioner's argument that she relied on the mutual_fund to properly invest her dollar_figure to ensure that she was not taxed on any income earned on her investment is not persuasive reasonable reliance on an agent may constitute a possible defense to penalties but not to the underlying tax 469_us_241 we conclude that the dividend income petitioner received on her mutual_fund investment does not qualify as nontaxable interest_income under sec_871 for consistency with the rate_of_tax as applied in respondent's notice_of_deficiency we -- at respondent's request -- sustain respondent's imposition of the 20-percent withholding_tax rate on petitioner's dividend income to reflect the foregoing decision will be entered under rule


internal_revenue_service number release date index number ------------------- -------------------------------- ----------------------------- legend department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------------- telephone number ---------------------- refer reply to cc tege eb ec plr-141223-15 date date ------------------------ ---------- date x employer ---------------------- date --------------------------- dear ------------- this letter is in response to your request dated date in which you asked for consent to revoke an election you made under sec_83 of the internal_revenue_code code the facts as represented are as follows on date you were granted an award of x shares of employer common_stock by employer subject_to a substantial_risk_of_forfeiture on date you filed an election under sec_83 of the code with the internal_revenue_service center where you file your individual tax_return the sec_83 election referenced all x shares of the common_stock received from employer on date on date less than days after date you sent a letter to this office requesting consent to revoke your sec_83 election sec_83 of the code sets forth the rules for transfers of property in_connection_with_the_performance_of_services sec_83 provides that the excess of the fair_market_value of the property transferred at the time the property becomes substantially_vested over the amount if any paid for the property shall be included as compensation in the service provider's gross_income for the taxable_year in which the property becomes substantially_vested property is substantially_vested when it is either transferable or no longer subject_to a substantial_risk_of_forfeiture sec_83 of the code and sec_1_83-2 of the income_tax regulations permit the service provider to elect to include in gross_income the excess if any of the fair_market_value of the property at the time of transfer over the amount if any paid for the plr-141223-15 property as compensation_for services under sec_83 of the code an election made under sec_83 must be made in accordance with the regulations thereunder and must be filed with the internal_revenue_service no later than days after the date that the property is transferred to the service provider sec_83 of the code and sec_1_83-2 of the income_tax regulations provide that an election under sec_83 may not be revoked without the consent of the commissioner of the internal_revenue_service sec_1_83-2 provides that consent to revoke an election under sec_83 will be granted only in a case where the transferee is under a mistake of fact as to the underlying transaction and must be requested within days of the date on which the mistake first became known to the person who made the election the service has recognized the principle that an election made under the code or regulations may be revoked on or before the due_date for making the election section dollar_figure of revproc_2006_31 2006_1_irb_32 provides that a request for consent to revoke a sec_83 election will generally be granted if the request is filed on or before the due_date for making that sec_83 election in the instant case you filed your request to revoke your sec_83 election within the day time period allowed under sec_83 for making the election based solely on the representations provided and the information and documents submitted consent to revoke your sec_83 election is granted except as specifically ruled above no opinion is expressed as to the federal tax consequences of the transaction described above under any other provision of the code specifically no opinion is expressed concerning other tax consequences of sec_83 and its applicability to the transaction described above this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter should be attached to your income_tax return for ------- sincerely s thomas d scholz senior counsel executive compensation branch office of division counsel associate chief_counsel tax exempt and government entities