tcmemo_2013_237 united_states tax_court charles p karch and patricia l karch petitioners v commissioner of internal revenue respondent docket no filed date charles p karch for petitioners jamie j song for respondent memorandum findings_of_fact and opinion vasquez judge respondent determined deficiencies in petitioners’ federal_income_tax additions to tax and accuracy-related_penalties for the years and in the amounts as follows addition_to_tax sec_6651 penalty sec_6662 dollar_figure big_number big_number big_number big_number big_number dollar_figure big_number big_number big_number big_number big_number deficiency dollar_figure big_number big_number big_number big_number big_number year the issues for decision are whether petitioners are entitled to deduct expenses reported on schedules c profit or loss from business in excess of the amounts allowed in the notice_of_deficiency whether petitioners are entitled to net_operating_loss nol deductions whether petitioners are liable for additions to tax under sec_6651 and whether petitioners are liable for accuracy- related penalties under sec_6662 unless otherwise indicated all section references are to the internal_revenue_code code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure all monetary amounts are rounded to the nearest dollar the remaining adjustments in the notice_of_deficiency are computational and will be resolved under rule findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time the petition was filed petitioners resided in new jersey mr karch’s law practice charles karch mr karch is an attorney and a certified_public_accountant during the years at issue he operated a solo law practice in new jersey as part of his practice mr karch has prepared tax returns and has represented clients before the internal_revenue_service irs mr karch is admitted to practice before this court mr karch hired various people to work in his law practice during the years at issue he treated some as employees and others as independent contractors debora prado and donald koonjy were among those treated as employees daniel karch was treated as an employee for and as an independent_contractor for all other years for mr karch also treated alena bohacova a temporary secretary as an independent_contractor daniel karch mr karch’s brother and a lawyer performed legal services for mr karch’s law practice during the years in issue mr karch’s law office was pincite roosevelt avenue butler new jersey butler property from to date petitioners resided at the butler property petitioners resided on the second floor which consisted of two bedrooms and a bathroom mr karch’s law practice was on the first floor the kitchen was also on the first floor during at least through petitioners also owned a studio apartment in new york city studio mr karch used the studio when he visited clients or conducted business in new york city and sometimes stayed overnight tax returns petitioners prepared their own federal_income_tax returns for the years in issue they claimed an nol deduction for every year in issue except each year petitioners attached to their return a schedule c for mr karch’s law practice petitioners claimed the standard_deduction for and and itemized their deductions for and petitioners reported the studio mortgage interest_expense on mr karch’s schedules c for and petitioners reported all the butler property mortgage interest_expense on mr karch’s schedules c even though the butler property was also their residence in date petitioners moved to a residence in kinnelon new jersey kinnelon property mr karch continued to operate his law practice at the butler property during those years for petitioners reported mortgage interest_expenses on both schedule a itemized_deductions and schedule c it is unclear from the record whether the mortgage interest_expense on the schedule a relates to the studio or the butler property or some combination thereof petitioners failed to timely file their federal_income_tax returns for all of the years at issue although petitioners’ income_tax returns were due on april of the year following the taxable_year the actual filing dates were as follows taxable_year date return filed date date date date date date notice_of_deficiency on date the irs issued a notice_of_deficiency making numerous adjustments for the years at issue the irs disallowed petitioners’ claimed nol deductions it also disallowed all or some of the following claimed schedule c expense deductions advertising car and truck contract labor depreciation and sec_179 mortgage interest utilities wages and other expenses the irs also determined that while petitioners resided at the butler property only of the property was used for mr karch’s law practice thus for through the notice_of_deficiency permitted petitioners to deduct of their mortgage interest_expenses and taxes and licenses expenses on schedule c and the remaining on schedule a for the notice_of_deficiency allowed all of petitioners’ claimed mortgage interest_expenses on schedule c and permitted petitioners to deduct an additional dollar_figure of mortgage interest_expenses on schedule a the notice_of_deficiency permitted petitioners to deduct dollar_figure of petitioners reported the following as other expenses administrative fees bank charges computer fees contract services freight and shipping postage professional dues publications telephone and misc petitioners did not claim and the notice_of_deficiency did not allow any deduction for taxes and licenses expenses on schedule c for it appears that respondent did not distinguish between the butler property and the studio when allocating mortgage interest_expenses between schedules a and schedules c thus of the studio mortgage interest_expenses was also permitted on schedules c and the remaining was deducted on schedules a for example for petitioners substantiated dollar_figure of studio mortgage interest_expenses and dollar_figure of butler property mortgage interest_expenses for total mortgage interest_expenses of dollar_figure the notice_of_deficiency allocated of dollar_figure on schedule c dollar_figure and the remaining on schedule a dollar_figure their claimed taxes and licenses expenses on schedule c and the remaining dollar_figure on schedule a for the notice_of_deficiency did not make any adjustments to petitioners’ claimed mortgage interest_expenses and taxes and licenses expenses the notice_of_deficiency permitted petitioners to itemize their deductions for the years in which the itemized_deductions exceeded the standard_deduction ie and procedural background petitioners petitioned this court on date and their case was set for trial in date on date petitioners filed a motion to continue petitioners stated that they needed additional time to prepare for trial because of health problems and severe weather in new jersey respondent did not object to a continuance and the court granted petitioners’ motion in date petitioners’ case was rescheduled for trial on date on date respondent filed a motion to compel responses to respondent’s request for production of documents and a motion to compel responses to respondent’s interrogatories motions to compel the court granted respondent’s motions to compel but petitioners did not comply with our order on date petitioners filed another motion to continue petitioners again stated that they needed additional time to prepare for trial because of health problems and severe weather respondent objected to another continuance and we denied petitioners’ motion at calendar call on date petitioners made an oral motion to continue the court denied petitioners’ motion and set the trial for date at trial petitioners again made an oral motion to continue which the court denied opinion i petitioners’ request for additional time on brief petitioners request additional trial time stating that mr karch is willing and has been willing to present more documentation however has been denied the ability to do so reopening the record for the submission of additional evidence lies within the discretion of the court 114_tc_276 citing 401_us_321 the policy of the court is to try all of the issues raised in a case in one proceeding to avoid piecemeal and protracted litigation 64_tc_989 petitioners were given ample opportunity to provide evidence both before and at trial moreover petitioners failed to comply with the court’s order granting respondent’s motions to compel petitioners also failed to abide by the court’s standing_pretrial_order that requires all documents that a party expects to use at trial be provided to the other party at least days in advance of the trial calendar petitioners have not been denied the opportunity to present documentation they have simply refused to avail themselves of the many opportunities provided under such circumstances we decline to bifurcate the trial to receive additional evidence ii burden_of_proof in general the commissioner’s determinations in a notice_of_deficiency are presumed correct and the taxpayer has the burden of proving that the determinations are in error rule a 290_us_111 under sec_7491 the burden_of_proof may shift to the commissioner if the taxpayer produces credible_evidence with respect to any relevant factual issue and satisfies the requirements of sec_7491 sec_7491 requires a taxpayer to demonstrate that he complied with requirements under the code to substantiate any item maintained all records required under the code and cooperated with reasonable requests by the secretary for witnesses information documents meetings and interviews see also 116_tc_438 the burden is on the taxpayer to show that he satisfied these requirements see richardson v commissioner tcmemo_2005_143 although petitioners argue the burden shifts to respondent they have failed to show that they satisfy the requirements of sec_7491 they have failed to show that they complied with the code’s substantiation requirements maintained required records and cooperated with respondent accordingly petitioners bear the burden_of_proof iii deficiency as we have observed in countless opinions deductions are a matter of legislative grace and the taxpayer bears the burden of establishing entitlement to any claimed deduction rule a 503_us_79 292_us_435 this burden requires the taxpayer to substantiate deductions claimed by keeping and producing adequate_records that enable the commissioner to determine the taxpayer’s correct_tax liability sec_6001 65_tc_87 aff’d per curiam 540_f2d_821 5th cir 43_tc_824 a taxpayer claiming a deduction on a federal_income_tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that the expense to which the deduction relates has been paid_or_incurred see sec_6001 hradesky v commissioner t c pincite sec_1_6001-1 income_tax regs in the event that a taxpayer establishes that a deductible expense has been paid but is unable to substantiate the precise amount we generally may estimate the amount of the deductible expense bearing heavily against the taxpayer whose inexactitude in substantiating the amount of the expense is of the taxpayer’s own making 39_f2d_540 2d cir we cannot estimate a deductible expense however unless the taxpayer presents evidence sufficient to provide some basis upon which an estimate may be made 85_tc_731 petitioners’ records purporting to substantiate their claimed deductions are not well organized the records have not been submitted to the court in a fashion that allows for easy association with the portions of deductions that remain in dispute nevertheless we make what sense we can with what we have to work with and summarize our findings in the following paragraphs a wages respondent completely disallowed petitioners’ claimed wages expense deductions for the years at issue petitioners submitted forms w-2 wage and tax statement for and and forms w-3 transmittal of wage and tax statements for and however the total wages reported on the forms w-2 for and do not match the wages reported on the schedules c for those years the wages reported on forms w-3 for and do not match the wages reported on the schedules c for those years moreover petitioners offered no proof that any of these forms were filed with the irs petitioners also failed to offer any proof of payment of the amounts reported on the forms eg canceled checks or any underlying documentation eg time sheets or employment contracts we find these forms w-2 and forms w-3 insufficient to substantiate the claimed wages expense deductions see parker v commissioner tcmemo_2012_357 finding a form 1099-misc miscellaneous income insufficient substantiation when not filed with the irs not supported by any underlying documentation and not matching information reported on tax_return for we find that petitioners did establish the amounts of wages paid to employees daniel karch ms prado and mr koonjy petitioners introduced canceled checks showing total payments in of dollar_figure dollar_figure and dollar_figure to daniel karch mr koonjy and ms prado respectively thus petitioners are entitled to deduct dollar_figure as wage expenses on mr karch’s schedule c respondent’s determinations with respect to wage expense deductions for the other years at issue are sustained b contract services except for mr karch did not deduct the money paid to independent contractors as contract labor expense s line of part ii expenses of schedule c but instead deducted it as contract services expenses under other expenses line for mr karch reported dollar_figure of contract services expenses under other expenses line and dollar_figure of contract labor expenses line it appears that mr karch accidently reported the contract labor expenses twice for because mr karch reported contract labor expenses as other expense for all other years we assume that he intended to report the contract labor expenses under other expenses for petitioners introduced canceled checks establishing the amounts paid for contract services for and mr karch paid daniel karch dollar_figure respondent completely disallowed the claimed contract labor expenses when the identical amounts were pointed out to mr karch at trial he testified i can see that it looks like a duplicate this is consistent with petitioners’ position on brief on brief petitioners assert that the canceled checks to independent contractors in should increase the amount of allowed other expenses petitioners do not address the contract labor expense deduction in their brief dollar_figure and dollar_figure in and respectively in mr karch paid ms bohacova dollar_figure the notice_of_deficiency allowed petitioners deductions for other expenses which include contract service expenses of dollar_figure dollar_figure and dollar_figure for and respectively it is unclear from the record whether the allowed other expenses include any of the amounts mr karch claimed as contract services expenses respondent may have already allowed petitioners deductions for some or all of the contract services they substantiated at trial accordingly petitioners are entitled to deduct only the contract services expenses in excess of the amounts of other expenses allowed in the notice_of_deficiency petitioners therefore are entitled to additional deductions for other expenses of dollar_figure for and dollar_figure for to substantiate contract labor expenses for and petitioners introduced spreadsheets showing total payments to daniel karch of dollar_figure and dollar_figure respectively however petitioners did not introduce any underlying documentation eg contracts invoices or forms 1099-misc filed with the irs or any proof of payment eg canceled checks we find that the spreadsheets are insufficient to substantiate mr karch’s claimed contract services expenses for and see bruns v commissioner tcmemo_2009_168 concluding a quicken printout listing payments insufficient to substantiate contract labor expenses with no proof of payment c various expenses in an attempt to substantiate various expenses reported on mr karch’s schedule c petitioners introduced a spreadsheet that mr karch prepared the weekend before trial petitioners did not introduce the underlying documents from which mr karch compiled the spreadsheet or offer any proof of payment furthermore the notice_of_deficiency allowed some of petitioners’ claimed schedule c deductions eg advertising utilities car and truck and it is unknown whether the expenses on the spreadsheet relate to expenses respondent has already allowed we find the spreadsheet insufficient to substantiate any of mr karch’s schedule c deductions in excess of those the notice_of_deficiency allowed d mortgage interest_expense sec_1 percentage allowed on schedule c petitioners dispute respondent’s determination that only of the butler property was used exclusively for mr karch’s law practice while they lived there however they have failed to show that this determination is incorrect petitioners did not introduce photographs of the butler property or a floor_plan at trial mr karch estimated that the butler property was approximately big_number square feet and guessed that the second floor which consisted of two bedrooms and a bathroom wa sec_220 square feet we find mr karch’s testimony insufficient to establish that more than of the butler property was used for his law practice from to date thus petitioners are entitled to deduct only of the butler mortgage interest_expense on schedules c petitioners also assert that they are entitled to deduct studio mortgage interest_expenses on schedules c because mr karch used the studio when he visited clients or conducted business in new york city however it is unclear how much of the studio mortgage interest petitioners argue is deductible on schedules c at trial mr karch testified s ome of it may belong under schedule a do i know exactly how much offhand i couldn’t guess morever petitioners have failed to establish that the studio was used exclusively for business purposes thus we find that petitioners are not entitled to deduct the studio mortgage interest_expenses on schedules c in excess of the percentage allowed by respondentdollar_figure as mentioned supra note the notice_of_deficiency appears to have permitted petitioners to deduct of the studio mortgage interest_expense on mr karch’s schedules c amounts of mortgage interest_expenses petitioners introduced numerous forms mortgage interest statement for the years in issue petitioners were able to substantiate mortgage interest_expenses greater than the amounts allowed in the notice_of_deficiency for and for petitioners reported dollar_figure of mortgage interest_expenses on schedule c respondent allowed petitioners to deduct of dollar_figure dollar_figure on the schedule c and moved the remaining dollar_figure to schedule a at trial petitioners introduced two forms showing total mortgage interest_expenses of dollar_figure thus petitioners are entitled to an additional dollar_figure of mortgage interest_expenses for on their schedule a and schedule c in the same percentages as allowed in the notice_of_deficiency for the notice_of_deficiency did not adjust the mortgage interest_expenses petitioners reported on schedule c and permitted them to deduct dollar_figure of mortgage interest_expenses on schedule a at trial petitioners introduced a form_1098 showing mortgage interest_expenses of dollar_figure for the kinnelon property thus petitioners are entitled to an additional schedule a mortgage interest_expense_deduction of dollar_figure for of this total dollar_figure relates to the studio and dollar_figure relates to the butler property e taxes and licenses expenses at trial petitioners introduced a property_tax assessment for the butler property which states this is not a bill petitioners did not offer any proof that they paid real_estate_taxes in in excess of the amount allowed in the notice_of_deficiency petitioners introduced a bill and proof of payment for real_estate_taxes for the kinnelon property however the bill and proof of payment were less than the real_estate_taxes they deducted on their schedule a which were allowed by the irs petitioners did not introduce any other evidence with respect to the taxes and licenses accordingly respondent’s determinations with respect to the taxes and licenses deductions are sustained f net operating losses sec_172 allows a taxpayer to deduct an nol for a taxable_year that equals the sum of the nol carryovers plus nol carrybacks to that year a taxpayer claiming an nol deduction bears the burden of substantiating the deduction by establishing both the nol and the amount of any nol that may be carried over or back to the subject years rule a 349_us_232 green v commissioner t c memo 86_tcm_273 as part of meeting that burden the taxpayer must file with his return for that year a concise statement setting forth the amount of the nol deduction claimed and all material and pertinent facts including a detailed schedule showing the computation of the nol deduction sec_1_172-1 income_tax regs petitioners failed to attach the required schedule to any return in which they claimed an nol deduction they also failed to provide returns for any other year showing that they incurred a loss which could be carried forward or back to the years in issue at trial petitioners introduced two documents that look like schedule a-nol of form_1045 application_for tentative refund when the court noted at trial that the documents did not have a date or form number like other irs forms mr karch stated that he was not submitting the documents as official irs forms these documents are for the years and and show an nol for each of those years even if we were to accept these documents as credible_evidence of nols for and they do not establish that petitioners had nols for the years at issue petitioners did not introduce any other evidence relating to nols petitioners have failed to produce credible_evidence establishing when the nols were incurred the amounts incurred or the amounts available to be carried to the years at issue accordingly respondent’s disallowance of the nol deductions is sustained g other adjustments petitioners did not introduce any evidence with respect to the remaining adjustments in the notice_of_deficiency for the years in issue accordingly the remaining adjustments are sustained iv sec_6651 sec_6651 imposes an addition_to_tax for failure_to_file a return when due unless it is shown that such failure is due to reasonable_cause and not due to willful neglect the addition equal sec_5 of the amount_required_to_be_shown_as_tax on a return for each month that the return is late not to exceed in total the commissioner has the burden of production with respect to the liability of an individual for an addition_to_tax under sec_6651 sec_7491 the burden of showing reasonable_cause under sec_6651 remains on the taxpayer 116_tc_438 to show reasonable_cause petitioners must demonstrate that they exercised ordinary business care and prudence but nevertheless were unable to file their income_tax returns by their due dates see 469_us_241 sec_301_6651-1 proced admin regs willful neglect is defined as a conscious intentional failure or reckless indifference boyle u s pincite respondent has met his burden because petitioners filed their federal_income_tax returns late for the years in issue petitioners failed to demonstrate reasonable_cause and lack of willful neglect for filing late returns therefore petitioners are liable for the additions to tax under sec_6651 for the years in issue v sec_6662 pursuant to sec_6662 and b and a taxpayer may be liable for a penalty of of the portion of an underpayment_of_tax due to negligence or disregard of rules or regulations or a substantial_understatement_of_income_tax negligence is defined as any failure to make a reasonable attempt to comply with the provisions of the internal_revenue_code this includes a failure to keep adequate books_and_records or to substantiate items properly sec_6662 sec_1_6662-3 income_tax regs negligence has also been defined as the failure to exercise due care or the failure to do what a reasonable person would do under the circumstances see 92_tc_1 aff’d 925_f2d_348 9th cir 85_tc_934 disregard means any careless reckless or intentional disregard sec c understatement means the excess of the amount of the tax required to be shown on the return over the amount of the tax imposed which is shown on the return reduced by any rebate sec_6662 a substantial_understatement_of_income_tax is defined as an understatement_of_tax that exceeds the greater of of the tax required to be shown on the tax_return or dollar_figure sec_6662 the commissioner bears the initial burden of production sec_7491 if the commissioner satisfies his burden the taxpayer then bears the ultimate burden of persuasion higbee v commissioner t c pincite respondent has discharged his burden of production under sec_7491 by showing that petitioners failed to keep adequate books_and_records and that they failed to properly substantiate their reported expenses see sec_1_6662-3 income_tax regs furthermore to the extent the rule_155_computations establish that petitioners have substantial understatements of income_tax respondent has also met his burden of production in this regard see prince v commissioner tcmemo_2003_247 petitioners offered no evidence that they acted with reasonable_cause and in good_faith considering all the circumstances including the fact that mr karch is a certified_public_accountant and a lawyer we are unable to conclude that petitioners acted with reasonable_cause and in good_faith in respect to the preparation and filing of their tax returns for the years in issue as a result we sustain the accuracy-related_penalties that respondent determined under sec_6662 for the years in issue to reflect the foregoing decision will be entered under rule


internal_revenue_service number release date index number --------------------------------------- ---------------------------------------- -------------------------- ------------------------------- legend x department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-123176-05 date date --------------------------------------- ----------------------- ------------- --------------------------- d1 state d2 dear ------------- this responds to the letter dated date and related correspondence submitted on behalf of x requesting relief under ' b of the internal_revenue_code ---------------------- facts x was incorporated on d1 under the laws of state x intended to be treated as an s_corporation for federal tax purposes effective d2 but the s election was not timely filed law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation s taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made if the election is made after the first two and one-half months of a plr-123176-05 corporation s taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if no election is made pursuant to ' a or if made the election is made after the date prescribed for making such an election and the secretary determines there was reasonable_cause for the failure to timely make the election then the secretary may treat such an election as timely made for such taxable_year and effective as of the first day of that tax_year x did not file a timely election to be treated as an s_corporation under ' a effective d2 x has however established reasonable_cause for not making a timely election and is entitled to relief under ' b conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective d2 within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the relevant service_center 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 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 mailed to your authorized representative sincerely s dianna k miosi dianna k miosi chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for ' purposes cc


t c memo united_states tax_court nathan snyder and gail snyder petitioners v commissioner of internal revenue respondent docket no filed date kenneth ef keate for petitioners melissa j hedtke for respondent memorandum opinion dinan special_trial_judge respondent determined a deficiency in petitioners’ federal_income_tax in the amount of dollar_figure for the taxable_year rule references are to the tax_court rules_of_practice and procedure - - after a concession by petitioners ’ the issues for decision are whether petitioners are entitled to claimed itemized_deductions or to the standard_deduction in lieu thereof whether petitioners are entitled to a deduction for car and truck expenses for their business and whether petitioners are entitled to a deduction for legal and professional expenses for their business ’ some of the facts have been stipulated and are so found the stipulations of fact and the attached exhibits are incorporated herein by this reference in addition certain facts are deemed to have been admitted by petitioners as discussed below petitioners resided in columbia heights minnesota on the date the petition was filed in this case petitioners filed a joint federal_income_tax return for the taxable_year on the return petitioners claimed a miscellaneous itemized_deduction for employment agency fees of dollar_figure filed with the return was a schedule c profit or loss from business for a service-insurance business named np snyder agency on which petitioners claimed deductions for ‘at trial petitioners conceded the correct amount of the state_income_tax refund includable in income is dollar_figure rather than dollar_figure as reported on their return adjustments to self-employment_income tax and the deduction therefor are computational and will be resolved by the court’s holding on the issues in this case inter alia car and truck expenses of dollar_figure and legal and professional services of dollar_figure in the statutory_notice_of_deficiency respondent disallowed the deduction for the employment agency fees because petitioners failed to show the expense was paid during the taxable_year and that the expense was an ordinary and necessary business_expense as a result petitioners’ remaining itemized_deductions are less than the standard_deduction of dollar_figure which respondent accordingly allowed in lieu thereof respondent also disallowed petitioners’ schedule c business deductions listed above because petitioners failed to show that they were eligible for them on date after the filing of the petition and the answer in this case respondent served on counsel for petitioners requests for admissions the requests set forth the following relevant matters the correct amount of petitioners’ miscellaneous_itemized_deductions for was zero dollar_figure as determined by respondent the correct amount of petitioners’ schedule c car truck expense for was zero dollar_figure as determined by respondent the correct amount of petitioners’ schedule c legal professional expense for was zero dollar_figure as determined by respondent petitioners never filed answers to the requests for admissions with the court as required by rule c and according to respondent’s undisputed assertion petitioners did not serve such - - answers on respondent within the 30-day period specified by rule c therefore each matter in the requests is deemed admitted and is conclusively established for purposes of this case see rule c f petitioners did not move to permit withdrawal or modification of the admissions as permitted under rule f consequently the evidence presented at trial may be used to place the admitted facts ina different light but not to impeach them see 85_tc_812 the deemed admissions listed above dispose_of all the issues in this case no credible_evidence was submitted at the trial of this case to contradict the admissions we therefore uphold respondent’s determinations in their entirety to reflect the foregoing decision will be entered for respondent although petitioners argued in the petition that they were entitled to deductions not claimed on the original return and no deemed admissions precluded petitioners’ presentation of evidence concerning such deductions no evidence was presented at trial supporting this argument


t c summary opinion united_states tax_court maria corbisiero petitioner and john a snider jr intervenor v commissioner of internal revenue respondent docket no 3356-13s filed date jack e thornton jr for petitioner john a snider jr pro_se james roland rich for respondent summary opinion armen special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case by final appeals determination dated date respondent granted partial relief under sec_6015 to petitioner regarding her claim for relief from joint_and_several_liability for federal_income_tax for petitioner timely filed a petition with this court under sec_6015 seeking review of respondent’s determination and requesting full relief thereafter petitioner’s former spouse filed a notice to intervene pursuant to rule b opposing any relief to petitioner the sole issue for decision is whether petitioner is entitled to relief from joint_and_several_liability under sec_6015 for background some of the facts have been stipulated and they are so found the stipulation of facts and the accompanying exhibits are incorporated herein by this unless otherwise indicated all subsequent section references are to the internal_revenue_code in effect at all relevant times and all rule references are to the tax_court rules_of_practice and procedure at trial respondent conceded that petitioner is entitled to full relief under sec_6015 intervenor continues to contend that petitioner should not be granted any relief whatsoever reference petitioner resided in the state of north carolina when the petition was filed petitioner and intervenor were married for approximately years after petitioner and intervenor’s children were born petitioner worked as a homemaker petitioner was not employed outside of the home in and she had not been so employed for approximately years prior thereto during petitioner’s marriage intervenor owned and managed a corporation preferred rent-a-jon inc business petitioner assisted intervenor approximately one day a week in his business by performing office work such as preparing invoices or depositing checks petitioner was not an employee of the business nor did she receive any income from it in although petitioner and intervenor had a joint personal bank account they maintained a low balance and generally did not use such account for their personal expenses rather the couple’s personal expenses for items such as groceries clothing and recreation were paid from funds in intervenor’s business bank account during their marriage petitioner and intervenor filed joint federal_income_tax returns petitioner was not involved in the preparation of such returns in mid-date petitioner and intervenor filed a joint income_tax return for the tax_year petitioner did not provide any information to the preparer in the preparation of that return nor was she otherwise involved in its preparation petitioner did not sign the return however she did not object to its filing nor did she seek to disavow it at the time that the return was filed petitioner was aware that it reported a liability however at the time that the return was filed petitioner reasonably thought on the basis of the couple’s past taxpaying history that the amount owing would be paid_by intervenor within a reasonable period of time from his business income petitioner and intervenor separated in date and their divorce was finalized in date on date after the couple had separated but before their divorce become final petitioner filed form_8857 request for innocent spouse relief for the tax_year on date after the couple’s divorce had become final respondent issued the final appeals determination partially granting petitioner’s request for relief under sec_6015 petitioner then filed a timely petition with this court in date thereafter in date intervenor filed a notice of intervention arguing that petitioner should not be granted any innocent spouse relief whatsoever petitioner is currently employed and earns approximately dollar_figure per year which represents the sole source of her support petitioner’s income barely exceeds her basic everyday expenses petitioner’s financial circumstances on the date of trial were essentially the same as at the time that she filed her request for relief with respondent as previously noted respondent conceded at trial that petitioner is entitled to full innocent spouse relief under sec_6015 in contrast intervenor continues to argue that petitioner is not entitled to any relief whatsoever discussion married taxpayers may elect to file a joint federal_income_tax return sec_6013 generally each spouse filing the return is jointly and severally liable for the entire tax due sec_6013 pursuant to sec_6015 however a taxpayer may seek relief from joint liability petitioner contends that she should be granted relief from joint_and_several_liability pursuant to sec_6015 generally the spouse requesting relief bears the burden_of_proof see rule a 119_tc_306 aff’d 101_fedappx_34 6th cir however to the extent that the commissioner is no longer an adverse_party to the taxpayer here because respondent agrees that petitioner is entitled to full relief and the intervenor opposes any relief the burden_of_proof would presumably shift to the intervenor see stergios v commissioner tcmemo_2009_15 wl at citing 115_tc_118 and 114_tc_354 however we need not decide whether the burden_of_proof shifts to intervenor in the instant case because we decide the issue by a preponderance_of_the_evidence see stergios v commissioner tcmemo_2009_ see also 132_tc_203 holding that in reviewing the commissioner’s determination under sec_6015 the court applies a de novo standard of review as well as a de novo scope of review i joint federal_income_tax return for sec_6013 provides that a husband and wife may file a joint income_tax return generally a joint income_tax return must be signed by both spouses sec_1_6013-1 income_tax regs petitioner argues that because she did not sign the tax_return she did not file a return for that year we disagree because their divorce was not finalized until petitioner and intervenor were eligible to file a joint_return for see sec_1_6013-4 income_tax regs whether an income_tax return is a joint_return or a separate_return of the other spouse is a question of fact harrington v commissioner tcmemo_2012_285 at citing 27_tc_270 aff’d 251_f2d_44 8th cir the determinative factor in deciding whether a filed return qualifies as a joint_return is whether a husband and wife intended to file a joint_return ziegler v commissioner tcmemo_2003_282 wl at n citing 22_tc_893 in evaluating intent this court has considered whether the nonsigning spouse filed a separate_return whether the nonsigning spouse objected to the joint filing and whether the prior filing history indicates an intent to file jointly harrington v commissioner at although the commissioner’s determination of jointness generally has a presumption of correctness and the taxpayer has the burden of proving it wrong 290_us_111 in the case of a spouse who does not sign a purported joint_return the presumption is removed and the burden of producing additional evidence that a joint_return was filed shifts to the commissioner 412_f2d_304 2d cir aff’g in part rev’g in part tcmemo_1967_174 carrick v commissioner tcmemo_1991_502 there is an exception to the general_rule that to constitute a valid joint_return the return must be signed by both taxpayers this exception holds that if an income_tax return is intended by both spouses as a joint_return the absence of the signature of one spouse does not prevent their intention from being realized 56_tc_1 the rule is generally applied when one spouse signs a joint_return usually for both spouses and it is shown that the other spouse has tacitly consented to the joint_return filing this is commonly referred to as the tacit_consent_rule see eg 35_tc_747 reifler v commissioner tcmemo_2013_258 at harris v commissioner tcmemo_1961_324 accordingly although the ultimate burden_of_proof remains with the taxpayer the commissioner bears the burden of going forward with evidence from which the court could conclude that the nonsigning spouse intended to file the purported joint_return esposito v commissioner tcmemo_1991_262 citing douglass v commissioner t c memo respondent has satisfied his burden of production first petitioner and intervenor had previously filed their federal_income_tax returns as married_filing_jointly second petitioner was aware that the return had been filed but she made no effort to disavow it in view of these facts petitioner has not satisfied her burden of establishing that she did not intend to file a joint_return with intervenor rather the tacit_consent_rule applies consequently the return filed for is a valid joint_return ii relief under sec_6015 as previously stated when a husband and wife elect to file a joint federal_income_tax return pursuant to sec_6013 each spouse becomes jointly and severally liable for the tax due on the spouses’ aggregate income see sec_6013 nevertheless an individual who has made a joint_return may elect to seek relief from joint_and_several_liability under subsections b c and f of sec_6015 sec_6015 f such relief may or may not be available depending on the particular facts and circumstances of the individual’s situation a relief under sec_6015 and c relief may be available under sec_6015 depending on if the proceedings arise from an understatement_of_tax or an underpayment_of_tax under sec_6015 and c relief is available only from an understatement or a deficiency and not from an underpayment of income_tax reported on a joint_return 705_f3d_980 9th cir aff’g tcmemo_2010_134 revproc_2013_34 sec_2 2013_43_irb_397 in the instant case petitioner’s liability did not arise from an understatement_of_tax or a deficiency but rather from an underpayment_of_tax that was reported on the return accordingly relief under sec_6015 or c is not available to petitioner and we therefore turn to sec_6015 to decide whether relief is available under that provision b equitable relief under sec_6015 as relevant herein a requesting spouse who is unable to qualify for relief pursuant to sec_6015 or c may nonetheless avoid joint_and_several_liability if taking into account all of the facts and circumstances it is inequitable to hold that individual liable for any unpaid tax sec_6015 and where the commissioner initially denies a requesting spouse full equitable relief under sec_6015 such individual may petition the court to determine the appropriate relief available sec_6015 our charge under sec_6015 is to decide whether a taxpayer is entitled to equitable relief on the basis of all the facts and circumstances sriram v commissioner tcmemo_2012_91 we revproc_2013_34 2013_43_irb_397 modifies and supersedes revproc_2003_61 2003_2_cb_296 and is effective for requests for relief filed on or after date or for requests for equitable relief pending on date whether with the irs its office of appeals or in a case docketed in a federal court revproc_2013_34 sec i r b pincite decide de novo whether equitable relief is warranted under sec_6015 porter v commissioner t c pincite pursuant to his grant of authority under sec_6015 the commissioner has established guidelines for determining whether an individual qualifies for equitable relief revproc_2013_34 supra modifying and superseding revproc_2003_61 2003_2_cb_296 the court considers these guidelines in light of the attendant facts and circumstances to decide whether equitable relief is appropriate but the court is not bound by them 136_tc_432 sriram v commissioner tcmemo_2012_91 threshold requirements the commissioner’s guidelines begin by establishing threshold requirements that must be satisfied before an equitable relief request may be considered revproc_2013_34 sec_4 i r b pincite the threshold requirements are the spouse filed a joint_return for the taxable_year for which the spouse seeks relief relief is not available to the spouse under sec_6015 or c the claim for relief is timely filed no assets were transferred between the spouses as part of a fraudulent scheme the nonrequesting spouse did not transfer disqualified assets to the requesting spouse the requesting spouse did not knowingly participate in the filing of a fraudulent the tax_return and with several exceptions the tax_liability from which the spouse seeks relief is attributable to an item of the nonrequesting spouse id if the liability is partially attributable to the requesting spouse then relief can be considered only for the portion of the liability attributable to the nonrequesting spouse id a requesting spouse that satisfies the threshold conditions listed above must then demonstrate that equitable relief is appropriate under certain factors id sec dollar_figure and i r b pincite thus if the requesting spouse satisfies the so-called streamlined conditions under revproc_2013_34 sec_4 relief will be granted if however streamlined relief is not available then the commissioner will look to the facts and circumstances as set forth in revproc_2013_34 sec_4 to determine whether innocent spouse relief is available to the requesting spouse under that provision of the revenue_procedure these exceptions are attribution solely due to the operation of community_property law nominal ownership misappropriation of funds intended for the payment of tax abuse and fraud committed by the nonrequesting spouse as the reason for the erroneous item revproc_2013_34 sec_4 i r b pincite respondent concedes that petitioner meets all of the threshold conditions in respect of the entire tax_liability intervenor has given us no reason to think that petitioner has not satisfied any of the threshold requirements in any event on the basis of the record before us we conclude that petitioner has satisfied all of the threshold requirements accordingly we consider next whether petitioner is entitled to streamlined relief pursuant to revproc_2013_34 sec_4 streamlined requirements when the threshold conditions have been satisfied the commissioner will ordinarily grant relief with respect to an underpayment_of_tax if the requesting spouse meets each of the so-called streamlined requirements set forth in revproc_2013_34 sec_4 that section permits relief if all of the following requirements are satisfied on the date that the service makes a determination the requesting spouse is no longer married to the nonrequesting spouse on the date that the requesting spouse reasonably believed that the joint_return was filed the requesting spouse did not know or have reason to know that the nonrequesting spouse would not or could not pay the underpayment of the tax reported on the revproc_2013_34 supra relaxed the timely filing_requirements of revproc_2003_61 supra as respondent concedes that petitioner satisfied the more restrictive timely filing_requirements of the earlier revenue_procedure she has necessarily satisfied the more liberal one of the current revenue_procedure return at that time or within a reasonable period of time after the filing of the return and the requesting spouse would suffer economic hardship if relief were not granted at the time that respondent made the determination regarding the request for relief petitioner was no longer married to intervenor thus the first requirement is satisfied petitioner convincingly testified that she thought that the couple’s tax_liability would be paid from the income from intervenor’s business as this was the standard practice for their other personal expenses petitioner did not know or have reason to know that the full tax_liability would not be paid thus the second requirement is satisfied finally petitioner earns approximately dollar_figure per year her income barely matches her basic living_expenses respondent determined and we agree based on the record before us that petitioner would suffer economic hardship if relief were not granted thus the third requirement is satisfied in sum petitioner satisfies all of the streamlined requirements intervenor has given us no reason to think that disposition on this basis is inappropriate and there is nothing in the record that would negate such approach therefore pursuant to revproc_2013_34 sec_4 and as conceded by respondent petitioner is entitled to full innocent spouse relief for under sec_6015 to reflect the foregoing decision will be entered for petitioner


tax_exempt_and_government_entities_division department of the treasury internal_revenue_service washington d c contact person identification_number telephone number employer_identification_number release number release date uil date date m n dear this is in response to a letter dated date requesting a ruling that certain proposed contractual relationships will not generate unrelated_business_taxable_income under sec_512 of the internal_revenue_code the code to m mis exempt under sec_501 of the code as an organization described in sec_501 and has been classified as an educational_organization under sec_509 and sec_170 mis the trustee of a number of charitable_remainder trusts including n collectively the trusts and as trustee mis the legal owner of the trusts’ assets in addition mhas a remainder_interest in each of the trusts the charitable_remainder trusts distribute to individual beneficiaries either a unitrust_amount equal to a percentage of the market_value of trust assets or an annuity amount with the remainder_interest distributed in either case to mafter a term of years or upon the death of the life beneficiaries as a result of its relationship with the trusts as both trustee and beneficiary mhas a substantial interest in the value of each trust moreover the donors to the trusts have funded the trusts with the intention that m benefit substantially from the assets of the trusts and that the assets will be managed to achieve the greatest possible return on investment in this regard donors often express their desire for the return on the assets to match the return on ms endowment or for the assets to participate in the return on the endowment donors have expressed their concern when the investment return of a_trust has been lower than the return on ms endowment most of m’s endowment is invested in what m refers to as its qo the o is invested in a widely diverse manner including substantial investments in both public and private domestic and foreign equity fixed income hedge funds and real assets much of the income earned by the portfolio consists of passive dividends interest rents and long and short-term_capital_gains but some income is debt-financed or otherwise treated as unrelated_business_taxable_income m has provided information showing that the endowment has outperformed the trusts on an annualized return basis in most years m would like to achieve greater economies of scale in the management of the trusts a potentially higher investment return for the trusts and increased diversification of the trusts’ investments mseeks to accomplish these goals by enabling the trusts to participate albeit indirectly in the return on m’s endowment m proposes to create a contractual obligation pursuant to which it would issue a contract right to each of the trusts for so-called o units units the value of the units would equal the value of the shares of the endowment held by the various academic departments and schools that comprise m the contract right would entitle the trusts to receive periodic_payments based on the number of units owned the trusts would thereby be able to receive an investment return equal to that of the o m states that it uses a unit concept internally with respect to the various restricted funds departments and schools at m each department or school owns a certain number of units of the o the value of which is based on the value of the underlying o investments m determines a payout rate on the o each year based in part on the q’s investment performance each department is entitled to a payout in an amount equal to the payout rate times the number of units it holds msets the value of the units on a quarterly basis based on the underlying asset value of the o m seeks to enable the trusts to invest in a manner similar to a department or school of m a_trust would acquire units from m's o that would give the trusts a contractual right against m but no interest whatsoever in the underlying investment_assets of the endowment the contract between m and the trusts would provide that the price of the units would equal their value at the time of acquisition the units would have the same value that m uses for internal accounting purposes the contract would provide that each trust would receive payments on the units held by it equal to the payout rate m establishes for the o with payouts made at least annually or more frequently as appropriate a_trust could choose either to reinvest part of the payout or redeem additional-shares depending on its cash requirements the trusts will treat payouts as ordinary_income regardless of the character of the underlying income of the endowment whether capital_gain ordinary_income or return_of_capital and regardless of whether the payout is made entirely by distributions of income or in part by redemption of shares the trusts will treat redemptions of shares over and above receipt of the payout rate as generating long or short-term_capital_gain or loss depending on the holding_period of the redeemed shares under the contract the trusts would not have any ownership_interest in the underlying assets of the o or any contract rights with respect to the other trusts the trusts would have no power or right of any kind to control direct supervise recommend or review mss business activities operations or decisions with respect to the o except the right to review the payout computations they would not have the right to veto or opt_out of any of the underlying o investments the contract would provide that with respect to the issuance of shares mis neither a partner nor an agent of the trusts that the trusts would never be or become liable for or for which m is liable or responsible any cost expense or payment incurred or due by m relating to the o or the underlying o and m would indemnify and hold the trusts harmless from and against any liability arising out of any_action or inaction by m with respect to the o or the underlying o assets the costs of management are borne by the entire o and the return paid to the trusts will reflect those costs mwill not charge a fee for managing units of the trusts in o m’s investments are managed by a controlled tax-exempt affiliate of m those managers typically charge a fee and receive reimbursement of expenses in the process of managing o these fees and expenses are charged against the aggregate return of o and either directly or indirectly reduce m's total return on its endowment consequently those fees will be reflected indirectly in the spending rate payments to be made to the trusts m has the right to be reimbursed for reasonable and necessary expenses_incurred in connection with the oversight of the portfolio investments of its endowment including fees indirectly charged by the affiliated managers for management of o mhas the sole charitable_remainder interest in each of the trusts that will be permitted to purchase units in o you have requested the following ruling the issuance of units from m to the trusts the making or receipt of payments with respect to the units and the holding or redemption of the units will not generate unrelated_business_taxable_income to mor the trusts your original request included charitable lead trusts in the definition of trusts we are not issuing a ruling to one or more of m’s charitable lead trusts thus the word trusts as used in this letter refers only to m's charitable_remainder trusts and the ruling issued by this letter relates only to the participation by m's charitable_remainder trusts in the m endowment we are concerned that non-charitable beneficiaries may benefit inappropriately from deferrals that can be controlled and designed for tax_benefit therefore we are studying whether it remains appropriate to characterize the transaction as a contract when a charitable_lead_trust is involved and whether it is appropriate to conclude that a charitable_lead_trust will realize unrelated_trade_or_business income accordingly we will decline to issue a ruling concerning the participation by a charitable_lead_trust as an investor in m's endowment law sec_511 of the code in part imposes a tax on the unrelated_business_taxable_income of organizations described in sec_501 sec_512 of the code defines the term unrelated_business_taxable_income as the grdss income derived by any organization from any unrelated_trade_or_business regularly carried on by it less the allowable deductions which are directly connected with the carrying on of such trade_or_business both computed with the modifications provided in sec_512 ‘ sec_512 of the code sets forth so-called modifications which are excluded from the computation of unrelated_business_taxable_income these modifications include dividends interest royalties rent from real_property and gain from the sale of property sec_513 of the code defines the term unrelated_trade_or_business as any trade_or_business the conduct of which is not substantially related aside from the need of such organization for income or funds or the use it makes of the profits derived to the exercise or performance by such organization of its exempt_purpose or function sec_513 of the code provides that the term trade_or_business includes any activity which is carried on for the production_of_income from the sale_of_goods or the performance of services sec_1_513-1 of the income_tax regulations provides that gross_income of an exempt_organization subject_to the tax imposed by sec_511 of the code is includible in the computation of unrelated_business_taxable_income if it is income from a trade_or_business such trade_or_business is regularly carried on by the organization and the conduct of such trade_or_business is not substantially related other than through the production of funds to the organization's performance of its exempt functions sec_1_513-1 of the regulations provides that for purposes of sec_513 of the code the term trade_or_business has the same meaning it has in sec_162 and generally includes any activity carried on for the production_of_income from the sale_of_goods or performance of services sec_1_513-1 of the regulations provides that in determining whether trade_or_business from which a particular amount of gross_income derives is regularly carried on within the meaning of sec_512 of the code regard must be had to the frequency and continuity with which the activities productive of the income are conducted and the manner in which they are pursued for example specific business activities of an exempt_organization will ordinarily be deemed to be regularly carried on if they manifest a frequency and continuity and are pursued in a manner generally similar to comparable commercial activities of non-exempt organizations sec_1_513-1 of the regulations provides that in general gross_income derives from unrelated_trade_or_business within the meaning of sec_513 of the code if the conduct of the trade_or_business which produces the income is not substantially related other than through the production of funds to the purposes for which exemption is granted the presence of this requirement necessitates an examination of the relationship between the business activities which generate the particular income in question -- the activities that is of producing or distributing the goods or performing the services involved -- and the accomplishment of the organization's exempt purposes sec_1_513-1 of the regulations provides that trade_or_business is related to exempt purposes in the relevant sense only where the conduct of the business activities has a causal relationship to the achievement of exempt purposes and is substantially related for purposes of sec_513 of the code only if the causal relationship is a substantial one thus for the conduct of trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of those purposes where the production or distribution of the goods or the performance of the services does not contribute importantly to the accomplishment of the exempt purposes of an organization the income from the sale of the goods or the performance of the services does not derive from the conduct of related trade_or_business whether activities productive of gross_income contribute importantly to the accomplishment of any purpose for which an organization is granted exemption depends in each case upon the facts and circumstances involved revrul_69_528 1969_2_cb_127 describes an organization that was formed to provide investment services on a fee basis exclusively to organizations exempt under sec_501 of the code it receives funds from the participating exempt_organizations invests in common stocks reinvests income and realized appreciation and upon request liquidates a participant's interest and distributes the proceeds to the participant the rev_rul states that providing investment services on a regular basis for a fee is a trade_or_business ordinarily if the services were regularly provided by one tax-exempt_organization for carried on for profit other tax-exempt organizations such activity would constitute unrelated_trade_or_business the rev_rul holds that the organization is not exempt under sec_501 as noted previously organizations described in sec_501 of the code are subject_to tax on their unrelated_business_income under sec_511 in order for such an organization's income to be subject_to the unrelated_business_income_tax three requirements must be met the income must be from a trade_or_business the trade_or_business must be regularly carried on and the conduct of the trade_or_business must not be substantially related to the organization's exempt_purpose or function see sec_1_513-1 of the regulations analysis here m proposes to enter into a contractual relationship with certain trusts that are charitable_remainder trusts in which m has an interest as a beneficiary and serves as trustee of the trust under such a contractual relationship each trust would receive payments on the units held by it equal to the payout rate m establishes for its with payouts made annually or more frequently at the option of m a_trust would acquire units from the mo which would give the trusts a contractual right against m but no interest whatsoever in the underlying investment_assets of the qo the contract between m and the trusts would provide that the price of the units would equal their value at the time of acquisition the shares would have the same value that m uses for internal accounting purposes consequently a_trust could choose either to reinvest part of the payout or redeem additional shares depending on its cash requirements thus under the contractual relationship with m the trusts would have a right to the payout declared by m plus the right to redeem the units at the value that m uses for internal accounting purposes generally an organization that otherwise qualifies for recognition of exemption under sec_501 of the code and provides investment services on a regular basis for a fee to other exempt or nonexempt organizations would be engaged in an unrelated_trade_or_business under sec_513 see revrul_69_528 supra such an activity would constitute a trade_or_business under sec_513 and sec_1_513-1 of the regulations and would be regularly carried on under sec_512 and sec_1_513-1 thus if mcharged a fee for investment management services provided to organizations unrelated to m or generated income from the management of the funds invested by such organizations these activities could result in unrelated_business_taxable_income under sec_512 here however m is not charging a fee for its services and not otherwise receiving income from the services it provides to the trusts thus under these circumstances m will not receive unrelated_business_taxable_income under sec_512 the fact that m will engage in the investment activity for the benefit of individuals who are co-beneficiaries of the trusts at the same time that it engages in investment activity for its own benefit as the remainder beneficiary limits the scope of the service provided to others and distinguishes it from a commercial venture in view of the foregoing we rule as follows the issuance of units from m to the trusts the making or receipt of payments with respect to the units and the holding or redemption of the units will not generate unrelated_business_taxable_income to m this ruling is based on the understanding that there will be no material changes in the facts upon which it is based we express no opinion as to the tax consequences of the proposed transaction under any other section of the code pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to mss authorized representatives a copy of this letter should be kept in m's permanent records this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent if there are any questions about this ruling please contact the person whose name and i telephone number are shown in the heading of this letter sincerely robert c harper jr manager exempt_organizations technical group enclosure notice


department of the treasury washington d c tax_exempt_and_government_entities_division date mar a0y ujil gy employer_identification_number contact person _- identification_number telephone number t ev by dear sir or madam this is in reply to a letter dated date requesting a ruling under sec_4941 sec_4942 and sec_4945 of the internal_revenue_code with respect to certain proposed activities in a separate communication we have determined that b is tax-exempt under sec_501 of the code and classified as a private_foundation under sec_509 b was formed by execution of its deed_of_trust on b’s activities and operations will be funded by contributions made by c and d in amounts yet to be determined although such amounts will be sufficient to fund the obligations of b and enable it to fulfill its charitable mission and goals the primary and possibly exclusive activities of b will be entering into and making payments under a production agreement with a qualified television producer to provide essential assistance to c b’s trustee to produce unique public service television programs to be broadcast in a public service manner to achieve b's charitable and educational purpose of providing instruction to the public especially senior citizens on subjects useful to individuals especially senior citizens and beneficial to the community the programs will be exclusively of a ican stomp e an educational nature will deal primarily with healthcare and behavioral subjects of particular interest to senior citizens and will be broadcast over cable television outlets for public viewing c has a keen awareness of and ability to select for program production appropriate and important topics of interest to senior citizens in the past c created numerous episodes of the program e which pertained to such topics and which were broadcast by f on two channels over its cable network the costs associated with such prior episodes were paid for with private funding most recently provided c and d and members of their family are substantial shareholders of f and by c and d certain family members are executive employees of f b however will have no contracts agreements or other arrangements with f nevertheless it is expected that the programs produced with funding from b wiil continue to be broadcast over f’s cable network which will be absolutely essential in order to most effectively communicate the information provided in the programs to b’s target audience the important mission of b will be to continue to fund the production of programs of c will serve as she has in the past as the host of all programs which will substantially the same nature as prior programs all for the benefit of the public and especially senior citizens continue to be known as e the programs will continue to include interviews with well-known experts in the fields germane to the subject matters covered in addition b will sponsor a website and will maintain the website available to all members of the public without charge for easy access to the most important information concerning the subjects of the various programs to be funded by b although b will have no direct contractual relationship with f it is certainly expected that the future programs produced with funding from b will continue to be broadcast by f’s cable network although the exact scheduling and frequency of broadcasts may change these programs will also be offered or made available to other cable networks that desire to include the programs as part of their programming primarily as a service to the general_public and especially the elderly when b commences its operations f as well as any other cable network will be it is understood however that f intends to continue its practice of placing spots for prohibited from marketing advertising spots directly in connection with its broadcast of episodes of e advertisers who qualify for the bonus program which may result in the same being broadcast adjacent to or during an episode of e and to continue to place its own promotional spots adjacent to or during its broadcast of e that it does not receive any formal remuneration for an agreement to place commercial spots adjacent to or within any of its broadcasts of any episodes of e no intention to attempt to sell or to sell any commercial advertising in connection with its broadcast of episodes of e in a letter dated date f has represented f further represents that it has when 8b commences its operations it will receive no advertising or other form of commercial revenue from the broadcast of episodes of e while it is possible that in the future b will solicit and may receive qualified sponsorship payments for its acknowledgement of any sponsorship provided to assist with the production of episodes of the program no agreements concerning such sponsorship have been made or are in place other than possible qualified sponsorship payments b will receive no net_income from its production of episodes of the program and will receive no payments in connection with their broadcast except for the possibility of the receipt of payments from broadcasters and others desiring copies of the programs to reimburse b for the costs of providing dubs of the programs in order to fund the production of the e program b will enter into a production agreement with g while it is understood that g will enter into an agreement with f for the broadcast of episodes of e which are funded by b g also will make future episodes of e available for broadcast to other cable service providers and any other interested broadcast outlets for use as public service programming on substantially the same basis upon which g is permitted to make the program available to f for broadcast all rights to the episodes of e produced with funding provided by b will be owned by b the production agreement between b and g will require the use of all amounts paid there under by b exclusively for the charitable educational_purposes described in the production agreement and will also require that g produce detailed written periodic reports describing the actual use of all amounts paid to g by b under the terms of the production agreement g is a sole_proprietorship owned and operated by h h previously has served as the executive producer and director of episodes of e and is highly qualified to continue in that role under the terms of the production agreement with b h is an independent businesswoman and neither she nor g has any other relationship to b its trustees or any other disqualified_person with respect to b made by b to g under the production agreement will reflect fair_market_value in consideration for the production services to be rendered by g and h to b g’s agreement with b will be negotiated at arm’s-length and all payments in addition to the production and direction of future episodes of e h and the staff of g will assist c in researching subjects for episodes moreover although c as in the past will exercise responsibility for identifying program topics h and g’s staff will provide assistance in identifying subject matter experts to be interviewed during future programs among other things g will conduct videotaped interviews of several prospective participants for future episodes and together with c will view the taped interviews to select the person or persons who will participate in future episodes emphasizing that the primary aim of e important and useful information to senior citizens h has noted that even the pace and tempo at which the program is produced and directed for viewing is slower and more deliberative than it would be if the target audience were younger and that this done solely to enhance the ability of senior citizens to understand and absorb the information being provided by the program g will be responsible for all other aspects of filming editing and broadcast details of all future episodes of e including contracting with f and all other broadcast facilities is provide c will receive no compensation_for the services she provides to b including her participation in the production and broadcast of b’s programs the only benefit to c will be in the form of personal satisfaction from the ability to provide important healthcare and other similar information to the public in a manner that she believes currently is not being made available by any other service in a letter dated date you have represented that f is not a disqualified person’ with respect to b within the meaning of sec_4946 of the internal_revenue_code sec_4941 of the code imposes a tax on each act of self-dealing between a disqualified_person and a private_foundation sec_4941 d e of the code inciudes in the definition of self-dealing any direct or indirect transfer to or use by or for the benefit of a disqualified_person of the income or assets of a private_foundation sec_4942 of the code requires a private_foundation to make specified distributions of income for each taxable_year sec_4945 of the code provides for the imposition of taxes on each taxable_expenditure of a private_foundation sec_53 d -2 f of the foundation and similar excise_taxes regulations provides that the fact that a disqualified_person receives an incidental or tenuous benefit from the use by a private_foundation of its income or assets will not by itself make such use an act of self-dealing sec_53_4942_a_-3 of the regulations defines qualifying distributions to include amounts paid to accomplish one or more purposes described in sec_170 or sec_170 sec_53_4946-1 of the regulations provides that the following are disqualified persons with respect to a private_foundation i a substantial_contributor to the foundation as defined in sec_507 and the regulations thereunder ii all foundation managers of the foundation as defined in sec_4946 and paragraph f i of this section you have represented that c and d are disqualified persons with regard to b however the provision of services by c to b would not be considered an act of self-dealing because the services are being furnished without charge exclusively for the charitable educational_purposes of b which are specified in sec_501 furthermore you have represented that f is not a disqualified_person with respect to b moreover the provision of goods services or facilities by b to c is not an act of self- dealing because the value of such furnishing is reasonable and necessary to the performance by c of her tasks in carrying out the charitable educational_purposes of b and is not excessive under the circumstances any benefit to c would be both incidental and tenuous within the meaning of sec_53 d -2 f of the regulations lastly the expenditures made by b in the form of payments to g under the terms of the proposed production agreement for the charitable educationa purposes of b constitute direct charitable acts and qualify for treatment as qualifying distributions because the payments are made to accomplish one or more purposes described in sec_170 moreover such _5- ov v425051 payments are not taxable_expenditures because under the proposed production agreement the funds will be used exclusively for the production of episodes that would be instructive of the public and primarily senior citizens on subjects useful to the individual and beneficial to the community and for no other purpose therefore these payments would count as qualifying distributions within the meaning of sec_4942 and do not constitute taxable_expenditures within the meaning of sec_4945 of the code accordingly based on the above stated facts and circumstances we rule as follows the furnishing of services by c to b is not an act of seif-dealing under sec_4941 of the code because the subject services are being provided without charge and exclusively for purposes specified in sec_501 the furnishing of goods services or facilities by b to c is not an act of self-dealing under sec_4941 because the value of such furnishing is reasonable and necessary to the performance by c of her services in carrying out the exempt purposes of b and is not excessive and because under the circumstances any benefit to c is not more than incidental the expenditures to be made by b in the form of payments to a non- sec_501 organization under the proposed production agreement will constitute direct charitable acts of the type that qualify for treatment as qualifying distributions under sec_4942 of the code because they are paid to accomplish one or more purposes described in sec_170 and are not taxable_expenditures under sec_4945 we are informing the te_ge office of this action please keep a copy of this ruling with your organization’s permanent records this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as precedent if you any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely lior joseph chasin acting manager exempt_organizations technical group


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 eoeg teb presp-146656-06 date date dear --------------- pursuant to sec_54 of the internal_revenue_code the code and notice_2005_98 2005_52_irb_1211 and after review of your application submitted on date including supplements thereto we have determined that the projects described in appendix a attached hereto are qualified for purposes of sec_54 and will be owned by one or more qualified borrowers we allocate authority to ----------------- ---------------------------------- the issuer a qualified issuer under sec_54 to issue up to dollar_figure----------------of clean renewable energy bonds crebs bonds issued pursuant to this allocation must be designated by the issuer as bonds for purposes of sec_54 for the projects described in appendix a up to the amount allocated for each project described in appendix a bonds so designated must be issued on or before date please be aware that in order for bonds to be crebs the applicable_requirements of the code including without limitation sec_54 notice_2005_98 and notice_2006_7 2006_10_irb_559 must be met please note that creb proceeds may be used to reimburse capital expenditures paid_by qualified borrowers for qualified projects only if the provisions of sec_54 are met if you have any questions with respect to this allocation please contact --------------------- ---------------------------------------- of the office of division counsel associate chief_counsel tax-exempt and government entities on --------------------- not a toll-free call 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 presp-146656-06 for purposes of the renewable_electricity_production_credit under sec_45 of the code no inference may be drawn from this allocation that any project listed in appendix a is a qualified_facility or that electricity to be produced at such project s is electricity from a qualified_energy resource at a qualified_facility within the meaning of sec_45 this determination is directed only to the applicant named above sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any form 8038-g information_return for tax- exempt governmental obligations filed for bonds issued pursuant to this allocation the allocation contained in this letter is based upon information and representations submitted by the applicant for the creb allocation 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 application_for an allocation it is subject_to verification on examination sincerely assistant chief_counsel exempt_organizations employment_tax government entities tax exempt government entities by timothy l jones senior counsel tax-exempt_bonds branch presp-146656-06 appendix a borrower name project type project location ------------------------------ ---------------- wind facility ------------------------------ ---------------- wind facility ------------------------------ ---------------- wind facility ------------------------------ ---------------- wind facility ------------------------------ ---------------- ------------------------------ ---------------- wind facility wind facility ------------------------------ ---------------- wind facility ------------------------------ ---------------- wind facility ------------------------------ ---------------- wind facility ------------------------------ ---------------- wind facility ------------------------------ wind facility ---------------- ------------------------------ ---------------- wind facility -------------------------------- -------------------------------- -------------------------------- -------------------------------- -------------- -------------------------------- ----------------------- -------------------------------- -------------------------------- ------------- ------------------------------- -------------------------------- ------------------------- -------------------------------- -------------------------------- ------------- -------------------------------- -------------------------------- -------------------- -------------------------------- -------------------------------- ----------- -------------------------------- -------------------------------- ------------------ -------------------------------- -------------------------------- --------------- -------------------------------- -------------------------------- ---------- total amount allocated dollar_figure-------------- dollar_figure-------------- dollar_figure-------------- dollar_figure-------------- dollar_figure-------------- dollar_figure-------------- dollar_figure-------------- dollar_figure-------------- dollar_figure-------------- dollar_figure-------------- dollar_figure-------------- dollar_figure-------------- dollar_figure---------------- presp-146656-06 ---------------------------------- ------------------------------------------------ ------------------------------------------------- -------------------------- -------------------------------------------- ---------------------------