t c no united_states tax_court menard inc petitioner v commissioner of internal revenue respondent john r menard petitioner v commissioner of internal revenue respondent docket nos filed date mi is an accrual basis taxpayer with a fiscal_year ending jan s is a cash_basis taxpayer who was the president ceo and 89-percent shareholder of mi during mi’s tye in an earlier opinion the court concluded that a portion of the compensation that mi paid to s during tye was unreasonable and represented a disguised_dividend and consequently mi was liable for an income_tax deficiency to the extent s’s compensation was not deductible as an ordinary and necessary business_expense this opinion supplements our previously filed opinions in menard inc v commissioner tcmemo_2004_207 and menard inc v commissioner tcmemo_2005_3 the court also concluded that s was liable for an income_tax deficiency to the extent mi’s payment of certain expenses was unreasonable in amount and constituted a constructive_dividend to s and s constructively received interest_income on loans he made to mi r filed computations for entry of decision pursuant to rule tax_court rules_of_practice and procedure s and mi objected to r’s computations because they did not reflect an offset against their income_tax deficiencies equal to the amount of hospital taxes that s and mi overpaid under sec_3101 and sec_3111 i r c in respect of the portion of s’s compensation that the court recharacterized as a disguised_dividend after the submission of the computations and related objections congress passed the pension_protection_act of ppa publaw_109_280 120_stat_1020 which amended sec_6214 i r c to provide that the tax_court may apply the doctrine_of equitable_recoupment effective for any_action or proceeding in the court with respect to which a decision has not become final as of date sec_6214 i r c as amended by ppa sec_858 provides that the court has jurisdiction to apply the doctrine_of equitable_recoupment to the same extent that the doctrine is available in civil tax cases before the district courts of the united_states and the u s court of federal claims held where as here the court has original jurisdiction to redetermine a deficiency pursuant to sec_6213 i r c the court may apply the equitable_recoupment doctrine even if the court lacks subject matter jurisdiction over the type of tax to which the equitable_recoupment claim is directed held further the requirements for establishing a claim of equitable_recoupment are satisfied in this case and s and mi are entitled to an offset against their income_tax deficiencies equal to the hospital taxes that s and mi paid on the portion of s’s compensation that the court recharacterized as a disguised_dividend held further before mi’s income_tax deficiency may be offset by the hospital tax in question mi must eliminate or back out the deduction for such hospital tax that it claimed on its tax_return for robert e dallman vincent j beres and robert j misey jr for petitioners christa a gruber j paul knap and michael calabrese for respondent supplemental opinion marvel judge this matter is before the court on petitioners’ objection to respondent’s proposed rule computations submitted in response to our holdings in menard inc v commissioner tcmemo_2004_207 menard i and menard inc v commissioner tcmemo_2005_3 menard ii as discussed in greater detail below in menard i we held that petitioners are liable for income_tax deficiencies for the taxable_year ended tye in menard ii we denied petitioners’ motion for reconsideration the issue we must decide is whether under the equitable_recoupment doctrine petitioners are entitled to an offset against their income_tax liabilities for tye equal to the 1unless otherwise indicated all rule references are to the tax_court rules_of_practice and procedure and all chapter subtitle and section references are to the internal_revenue_code amount of so-called hospital insurance taxes that they overpaid pursuant to sec_3101 and sec_3111 on the portion of petitioner john r menard’s compensation recharacterized in menard i as a disguised_dividend background we adopt the findings_of_fact set forth in menard i for convenience and clarity we repeat below the facts necessary for the disposition of this matter and we supplement those findings with additional facts as appropriate menard inc menards was incorporated in wisconsin in and is engaged primarily in the retail_sale of hardware building supplies paint garden equipment and similar items as of the trial date menards had approximately stores in nine midwestern states and was one of the nation’s top retail home improvement chains john r menard mr menard served as president and chief_executive_officer of menards and has been a controlling shareholder of menards since its incorporation during the period in question mr menard owned approximately percent of menards’s voting and nonvoting_stock menards is an accrual basis taxpayer and has a fiscal_year ending january for tax and financial reporting purposes on date menards timely filed form_1120 u s_corporation income_tax return for tye on date respondent sent to menards a notice_of_deficiency with respect to its tye menards timely petitioned this court seeking a redetermination of the deficiency mr menard is a cash_basis taxpayer with a taxable_year ending december between march and date mr menard timely filed form_1040 u s individual_income_tax_return for on date respondent sent a separate notice_of_deficiency to mr menard with respect to mr menard timely petitioned this court seeking a redetermination of the deficiency the two cases were consolidated for trial briefing and opinion following a trial and the submission of posttrial briefs we issued our opinion in menard i holding among other things that menards was not entitled to a business_expense deduction for a significant portion of the compensation it paid to mr menard for because the compensation was unreasonable was not paid entirely for personal services and was properly characterized as a disguised_dividend to mr menard separately we sustained respondent’s determination that mr menard was liable for an income_tax deficiency to the extent that menards’s payment of certain expenses on mr menard’s behalf was unreasonable and constituted a constructive_dividend to mr menard after we issued our opinions in menard i and menard ii we received and filed respondent’s computation for entry of decision pursuant to rule in each of these consolidated cases respondent concluded that menards owed an income_tax deficiency of dollar_figure and a penalty of dollar_figure and mr menard owed an income_tax deficiency of dollar_figure and a penalty of dollar_figure petitioners filed a notice of objection to respondent’s rule_155_computations in which they alleged that menards’s correct income_tax deficiency and penalty amounts were dollar_figure and dollar_figure respectively and that mr menard’s correct income_tax deficiency and penalty amounts were dollar_figure and dollar_figure respectively the parties’ deficiency computations for both menards and mr menard differ by dollar_figure which is the amount of hospital_insurance_tax hospital tax that mr menard and menards contend they overpaid pursuant to sec_3101 and sec_3111 respectively petitioners contend that consistent with our 2we also received and filed respondent’s response to petitioners’ objection petitioners’ reply to respondent’s response and supplements from both parties 3petitioners’ counsel first raised the question whether respondent would permit petitioners to offset the amount of any hospital tax overpayments against any income_tax deficiencies determined by the court at a meeting in date and in correspondence that followed the meeting at that time respondent’s counsel agreed that the matter was purely computational and it would not be necessary for petitioners to file an amended petition raising the issue under the continued holding in menard i recharacterizing a portion of the compensation that menards paid to mr menard as a constructive_dividend they overpaid so much of the hospital tax that they remitted to the commissioner during as was attributable to the constructive_dividend petitioners argue that under the doctrine_of equitable_recoupment they are entitled to offset the amount of their hospital tax overpayments against their respective income_tax deficiencies for tye and that they have met all of the requirements necessary to establish their equitable_recoupment defense respondent maintains that the court lacks the authority under the equitable_recoupment doctrine to offset petitioners’ income_tax deficiencies by the amounts of their overpaid hospital taxes because we lack jurisdiction over hospital tax deficiencies and overpayments respondent contends that hospital taxes play no role in the determination_of_a_deficiency within the meaning of sec_6211 and that neither additional hospital tax_liabilities nor hospital tax overpayments are included in a continued circumstances the court does not consider petitioners’ equitable_recoupment claim to be a new issue within the meaning of rule and respondent does not contend otherwise 4petitioners also asserted that respondent should be equitably estopped from refusing to consider their overpayments of hospital tax in the course of computing their correct_tax liabilities however petitioners failed to develop this argument with any specificity and we decline to address it computation for entry of decision because we lack jurisdiction over hospital taxes according to respondent applying equitable_recoupment in this case would allow petitioners to slip through a back door to challenge a tax they could not directly petition the court to review respondent does not dispute the amount by which petitioners contend they overpaid their hospital taxes nor does respondent dispute that the elements necessary for an equitable_recoupment claim are present in this case neither menards nor mr menard filed a claim for a refund of the hospital taxes that they overpaid the period of limitations for filing a refund claim has now expired with respect to both petitioners we have not yet entered decisions in these cases and consequently no decision has become final within the meaning of sec_7481 discussion these cases present an issue of first impression regarding the scope of our authority to apply the doctrine_of equitable 5respondent did not raise any specific challenge to mr menard’s computations respondent does assert however that assuming equitable_recoupment is available in this case petitioner menard inc erred in computing the amount of its income_tax deficiency after accounting for the offset of hospital tax we shall discuss this issue in greater detail below recoupment specifically we must decide whether the tax that is the subject of a litigant’s equitable_recoupment defense must be one over which we have deficiency and overpayment jurisdiction under sec_6211 and sec_6212 i jurisdiction of the tax_court a deficiency and overpayment jurisdiction like other federal courts the tax_court is a court of limited jurisdiction and it may exercise its jurisdiction only to the extent authorized by congress 85_tc_527 sec_7442 expressly provides that the court and its divisions shall have such jurisdiction as is conferred on them by the internal_revenue_code and by laws enacted after date see 70_tc_446 54_tc_1402 petitioners each received a notice_of_deficiency and they invoked our jurisdiction by filing a petition for redetermination of a deficiency under sec_6213 sec_6214 grants us jurisdiction to redetermine the correct amount of a deficiency and to determine whether any additional_amounts or any additions to tax should be assessed sec_6211 in relevant part defines the term deficiency as the amount by which the tax imposed by subtitle a sec_1 through or subtitle b sec_2001 through or chapter sec_4911 and sec_4912 chapter sec_4940 through chapter sec_4971 through 4980e or chapter sec_4981 and sec_4982 exceeds the amount shown as the tax by the taxpayer on a return sec_6212 which authorizes the commissioner to issue a notice_of_deficiency likewise is limited to a deficiency in respect of any taxes imposed by subtitle a or b or chapter or pursuant to sec_6512 we also have jurisdiction to determine the amount of an overpayment6 of tax in limited circumstances our jurisdiction to determine whether there has been an overpayment is limited to the same taxable_year or years for which the commissioner has issued a notice_of_deficiency and with regard to which the taxpayer has timely filed a petition for redetermination of the deficiency sec_6512 in addition our overpayment jurisdiction is limited to determining an overpayment of income gift estate or excise_taxes and related interest imposed by chapter or sec_6512 and once we have determined that there is no deficiency but that the taxpayer has made an overpayment_of_tax or that there is a deficiency but the taxpayer has made an overpayment of such tax we have jurisdiction to determine the 6an overpayment_of_tax is ‘any payment in excess of that which is properly due ’ see 110_tc_291 n quoting 332_us_524 amount of the overpayment and order a refund of the overpayment or to credit the overpayment against the deficiency if the requirements of sec_6512 are satisfied sec_6512 and b jurisdiction over hospital tax petitioners’ equitable_recoupment defense pertains to hospital tax imposed by the federal_insurance_contributions_act codified as chapter sections sec_3101 imposes a 45-percent hospital tax on the wage income of all employees which the employer must withhold from the employees’ wages and pay to the secretary see sec_3102 sec_3501 in addition sec_3111 requires employers to pay to the secretary a corresponding 45-percent hospital tax on all wages paid to employees see sec_3501 our deficiency and overpayment jurisdiction described above does not extend to hospital tax imposed under sec_3101 and sec_3111 nevertheless congress has recently expanded our jurisdiction with respect to employment_tax in congress passed the taxpayer_relief_act_of_1997 publaw_105_34 sec a 111_stat_1055 adding sec_7436 which confers jurisdiction on the court to review certain determinations made by the commissioner regarding employment status worker classification and the proper amount of employment tax7 under such determinations 121_tc_89 affd 425_f3d_1203 9th cir 117_tc_263 however our jurisdiction under sec_7436 depends upon and only arises after a determination of worker classification by the secretary charlotte’s office boutique inc v commissioner supra pincite the secretary has not made such a determination in this case and therefore we do not have original jurisdiction under sec_7436 over petitioners’ claims for hospital tax offsets against their income_tax deficiencies sec_7436 defines the term employment_tax as any_tax imposed by subtit c which encompasses sec_3101 to sec_7436 was amended to give the court authority to determine the proper amount of employment_tax by the consolidated appropriations act publaw_106_554 app g sec f stat 2763a-643 sec_7436 provides that the principles of subsections a b c d and f of sec_6213 sec_6214 sec_6215 sec_6503 sec_6512 and sec_7481 shall apply to proceedings brought under this section in the same manner as if the secretary’s determination described in subsection a were a notice_of_deficiency 9we also have jurisdiction in a deficiency proceeding to make a determination under sec_31 which allows a credit against income_tax for the withholding of excess employment_tax as a result of the taxpayer’s having received wages from more than one employer see 54_tc_1402 else v commissioner tcmemo_1984_36 purdy v commissioner tcmemo_1982_652 however sec_31 is not at issue in this case and provides no basis for asserting original continued ordinarily a taxpayer asserting an overpayment of hospital tax must file a claim_for_refund_or_credit with the secretary see sec_6402 sec_6413 sec_31_6402_a_-1 employment_tax regs if the secretary denies the taxpayer’s claim_for_refund_or_credit the taxpayer may file suit in federal district_court or the court of federal claims to recover any_tax alleged to have been erroneously or illegally assessed or collected sec_7422 u s c sec_1346 in addition any claim for a refund_or_credit must be made within years from the time the return was filed or years from the time the tax was paid whichever of such periods expires later sec_6511 no credit or refund shall be allowed or made after the period of limitations for filing such a claim expires sec_6511 ii the equitable_recoupment doctrine a generally the doctrine_of equitable_recoupment is a judicially created doctrine that under certain circumstances allows a litigant to avoid the bar of an expired statutory limitation period 494_us_596 295_us_247 the doctrine prevents an inequitable windfall to a taxpayer or to the government that would otherwise result from the inconsistent tax treatment of a single continued jurisdiction over petitioners’ hospital tax overpayments transaction item or event affecting the same taxpayer or a sufficiently related_taxpayer 101_tc_551 mueller ii see also united_states v dalm supra pincite n bull v united_states supra equitable_recoupment operates as a defense that may be asserted by a taxpayer to reduce the commissioner’s timely claim of a deficiency or by the commissioner to reduce the taxpayer’s timely claim for a refund 766_f2d_1038 7th cir estate of mueller v commissioner supra pincite estate of orenstein v commissioner tcmemo_2000_150 when applied for the benefit of a taxpayer the equitable_recoupment doctrine allows a taxpayer to recoup the amount of a time-barred tax overpayment by allowing the overpayment to be applied as an offset against a deficiency if certain requirements are met bull v united_states supra pincite 113_tc_198 10in estate of mueller v commissioner tcmemo_1992_284 we redetermined the increased value of certain shares of stock included in the decedent’s gross_estate in 101_tc_551 we denied the commissioner’s motion to dismiss for lack of jurisdiction in respect of the taxpayer’s partial affirmative defense of equitable_recoupment in 107_tc_189 affd on other grounds 153_f3d_302 6th cir we rejected the taxpayer’s equitable_recoupment claim on the ground that equitable_recoupment is restricted to use as a defense against an otherwise valid claim for a deficiency and the doctrine may not be used to increase the amount of a tax overpayment where it is determined that no deficiency exists as a general_rule the party claiming the benefit of an equitable_recoupment defense must establish that it applies see estate of mueller v commissioner supra pincite in order to establish that equitable_recoupment applies a party must prove the following elements the overpayment or deficiency for which recoupment is sought by way of offset is barred by an expired period of limitation the time-barred overpayment or deficiency arose out of the same transaction item or taxable_event as the overpayment or deficiency before the court the transaction item or taxable_event has been inconsistently subjected to two taxes and if the transaction item or taxable_event involves two or more taxpayers there is sufficient identity of interest between the taxpayers subject_to the two taxes that the taxpayers should be treated as one united_states v dalm supra pincite 113_tc_6 affd 264_f3d_904 9th cir estate of orenstein v commissioner supra b tax_court jurisdiction to apply equitable_recoupment we addressed the question of our authority to consider a claim of equitable_recoupment in mueller ii in that case we held that our authority to apply equitable_recoupment was inherent in the jurisdiction conferred on us by statute to redetermine a tax_deficiency estate of mueller v commissioner supra pincite we concluded that exercising jurisdiction over the taxpayer’s equitable_recoupment claim did not require us to exercise jurisdiction that was beyond the scope of the taxpayer’s primary claim for redetermination of the deficiency explaining that when a taxpayer raises an affirmative defense to a deficiency determination we need no additional source of jurisdiction to render a decision with respect to the defense it is part of the entire action over which we have jurisdiction id in several cases following mueller ii we reaffirmed our jurisdiction to consider equitable_recoupment as an affirmative defense in resolving a deficiency proceeding estate of branson v commissioner supra 106_tc_430 estate of orenstein v commissioner supra the courts of appeals that considered whether this court may entertain an equitable_recoupment claim split on the question in 153_f3d_302 6th cir affg on other grounds 107_tc_189 the court_of_appeals held that this court lacked jurisdiction to consider a claim of equitable_recoupment in contrast in 264_f3d_904 9th cir the court_of_appeals reached the opposite conclusion for present purposes any uncertainty regarding the court’s authority to apply the equitable_recoupment doctrine was eliminated with the enactment of the pension_protection_act of ppa publaw_109_280 120_stat_1020 which amended sec_6214 by adding a second sentence to the provision sec_6214 now provides as follows sec_6214 jurisdiction over other years and quarters --the tax_court in redetermining a deficiency of income_tax for any taxable_year or of gift_tax for any calendar_year or calendar_quarter shall consider such facts with relation to the taxes for other years or calendar quarters as may be necessary correctly to redetermine the amount of such deficiency but in so doing shall have no jurisdiction to determine whether or not the tax for any other year or calendar_quarter has been overpaid or underpaid notwithstanding the preceding sentence the tax_court may apply the doctrine_of equitable_recoupment to the same extent that it is available in civil tax cases before the district courts of the united_states and the united_states court of federal claims sec_6214 as amended is effective for any_action or proceeding before the court with respect to which a decision has not become final as determined under sec_7481 as of date ppa sec_858 120_stat_1020 because no decisions have been entered in these cases sec_6214 as amended applies in determining the scope of our authority to apply the doctrine_of equitable_recoupment there is very little in the way of legislative_history underlying the amendment to sec_6214 the most complete statement concerning the amendment is contained in s rept pincite which states in pertinent part reasons for change the committee believes that it is important to resolve the conflict among the circuit courts by eliminating the uncertainty or confusion of differing results in differing circuits the committee also believes that the provision will provide simplification benefits to both taxpayers and the irs explanation of provision the bill does not include the provision as approved by the committee because an identical or substantially_similar provision was enacted into law in the pension_protection_act of pub_l_no sec_858 subsequent to committee action on the bill the following discussion described the provision as approved by the committee the provision confirms that the tax_court may apply the principle of equitable_recoupment to the same extent that it may be applied in federal civil tax cases by the u s district courts or the u s court of claims iii analysis a the scope of the court’s jurisdiction to consider equitable_recoupment claims sec_6214 provides that this court may apply the doctrine_of equitable_recoupment to the same extent that it is available in civil tax cases before other federal trial courts the limited legislative_history underlying the recent amendment to sec_6214 indicates congress intended to eliminate confusion over the court’s authority to apply the doctrine 11s rept pertained to s 109th cong 2d sess titled telephone_excise_tax repeal and taxpayer protection and assistance act of as explained in the bracketed material contained in the above-quoted portion of the report after the senate finance committee’s action on s sec_6214 was amended by the pension_protection_act of publaw_109_280 120_stat_1020 nevertheless s rept supra pincite correctly describes the substance of the amendment to sec_6214 created by conflicting court_of_appeals opinions and to provide simplification benefits to both taxpayers and the commissioner s rept supra pincite see staff of joint comm on taxation technical explanation of h_r the pension_protection_act of pincite j comm print respondent acknowledges that sec_6214 grants the court authority to apply the doctrine_of equitable_recoupment in appropriate cases nevertheless respondent asserts that we may not apply the doctrine in this case because our authority is limited to taxes over which we have deficiency or overpayment jurisdiction ie income estate_and_gift_taxes and excise_taxes imposed under chapter sec_41 sec_42 sec_43 and sec_44 in support of his position respondent attempts to draw parallels between the first and second sentences of sec_6214 specifically while the first sentence of sec_6214 permits us to consider facts with relation to other taxable years and calendar quarters in determining the correct amounts of the deficiencies for the taxable years properly before us the provision expressly bars us from exercising jurisdiction to determine whether the tax for those other taxable years or calendar quarters has been overpaid or underpaid as respondent sees it just as the first sentence of sec_6214 limits our jurisdiction the second sentence of sec_6214 which grants us authority to apply the doctrine_of equitable_recoupment should be narrowly construed so that our jurisdiction is restricted in all events to taxes within our original jurisdiction petitioners assert that respondent is attempting to add words of limitation to the otherwise plain language of sec_6214 petitioners maintain that sec_6214 is broadly worded and clearly expresses congress’s intent to put this court on equal footing with other federal trial courts vested with jurisdiction over civil tax disputes petitioners argue that to the extent other federal trial courts with jurisdiction over civil tax cases may apply the doctrine_of equitable_recoupment in respect of hospital tax the tax_court may do so as well as explained below we reject respondent’s narrow construction of sec_6214 respondent’s position regarding our authority to apply the doctrine_of equitable_recoupment conflicts with the plain language of sec_6214 its legislative_history and the policies underlying the doctrine when congress recently amended sec_6214 it confirmed in the broadest of terms our authority to apply the doctrine_of equitable_recoupment the plain language of sec_6214 offers no justification or support for the narrow construction that respondent advocates sec_6214 simply states that the scope of the court’s authority to apply the doctrine_of equitable_recoupment is equal to that of other federal trial courts with jurisdiction over civil tax cases if as respondent suggests congress intended to limit the scope of the court’s equitable_recoupment authority to taxes that normally fall within the court’s deficiency and or overpayment jurisdiction we are convinced that congress would have drafted sec_6214 to say so in clear and unambiguous terms nor does the legislative_history underlying the amendment to sec_6214 provide any support for respondent’s position to the contrary s rept supra pincite indicates that congress viewed the amendment to sec_6214 as a means to provide clarity and simplification for taxpayers and the commissioner alike the literal interpretation of sec_6214 that petitioners advocate under which the court is authorized to apply the doctrine_of equitable_recoupment in respect of all internal revenue taxes offers clarity and a meaningful measure of simplification in that both parties can be confident that the court may provide a complete remedy for a given taxable_year in contrast respondent’s narrow construction of the provision would add uncertainty to litigation and create a category of cases in which equitable_recoupment would not be available in the tax_court respondent’s narrow construction of sec_6214 is also inconsistent with the central policy underlying the doctrine_of equitable_recoupment ie to prevent an inequitable windfall to a taxpayer or the government that would otherwise result from the inconsistent tax treatment of a single transaction item or event we assume that if the roles were reversed and petitioners had filed timely refund suits in federal district_court alleging that they overpaid their hospital tax respondent would assert equitable_recoupment and seek to offset some or all of the claimed refunds by the amount of any income_tax petitioners might owe in connection with the same transaction just as a federal district_court may apply the doctrine_of equitable_recoupment in favor of the commissioner in the scenario described above fundamental fairness suggests that this court likewise may apply the doctrine in favor of petitioners under the facts presented in the instant case otherwise respondent will enjoy an inequitable windfall due to the inconsistent tax treatment of a single transaction under two different internal revenue taxes as a final matter we reject respondent’s argument that we are allowing petitioners to use the doctrine_of equitable_recoupment to expand our jurisdiction and introduce hospital tax into the case through the back door we have consistently held that ‘while we cannot expand our jurisdiction through equitable principles we can apply equitable principles in the disposition of cases that come within our jurisdiction ’ 92_tc_776 quoting 90_tc_259 hamblen j concurring see also estate of branson v commissioner t c pincite estate of mueller v commissioner t c pincite in mueller ii and in each of the subsequent cases in which we have applied equitable_recoupment we held that our jurisdiction to redetermine the disputed deficiency provided the basis for the court to consider affirmative defenses including equitable_recoupment see estate of branson v commissioner supra pincite 106_tc_430 estate of orenstein v commissioner tcmemo_2000_150 in this light our authority to consider a claim of equitable_recoupment is merely ancillary to our jurisdiction to redetermine a tax_deficiency and does not unduly expand upon that jurisdiction in sum we conclude there is no requirement in sec_6214 that in applying the doctrine_of equitable_recoupment we have original or subject matter jurisdiction over the tax that the commissioner or the taxpayer seeks to apply as an offset against a claimed deficiency or refund we hold that if our jurisdiction is properly invoked upon the filing of a petition for redetermination of a deficiency we may apply the doctrine in respect of any_tax imposed under the internal_revenue_code so long as the elements necessary to support a claim of equitable_recoupment are established b application of the equitable_recoupment doctrine to the facts of this case respondent does not dispute that the elements of equitable_recoupment are present in these cases see supra p consequently we need not discuss the individual elements in any detail we are required however to address respondent’s contention that menards improperly computed its income_tax_liability in connection with the offset of its share of the hospital tax specifically respondent asserts that since menards deducted its share of the hospital tax on its income_tax return for menards must first eliminate or back out that particular deduction then recompute its income_tax_liability in accordance with the court’s earlier opinions and finally offset the resulting income_tax deficiency by the amount of the hospital tax that it paid under sec_3111 menards disagrees with respondent and cites sec_1 a income_tax regs which provides the general_rule that if an asserted_liability is contested the taxpayer transfers money to satisfy the asserted_liability and if but for the contest of the asserted_liability a deduction is otherwise allowed with regard to the asserted_liability the deduction is allowed for the taxable_year of the transfer in conjunction with this provision sec_1_461-2 income_tax regs provides in pertinent part that the refund of a contested amount is includable in gross_income for the taxable_year of receipt or for an earlier taxable_year if properly accruable for such earlier year although menards relies on the regulation for the proposition that there should be no adjustment to the deduction for hospital tax that it claimed in menards fails to elaborate on what it considers the year of receipt for purpose of including the refund in its income menards cites no case in which the above-referenced regulation was applied in respect of a claim for equitable_recoupment and we are not aware of any such precedent we conclude that sec_1_461-2 income_tax regs is not dispositive in the particular circumstances of this case and we shall adopt respondent’s approach for purposes of completing the computations in this matter the effect of our holding sustaining menards’s equitable_recoupment claim is that menards will enjoy the benefit of an otherwise time-barred overpayment credit in the taxable_year considering that such relief is available to menards only by way of the application of an equitable principle we believe that all matters related to the overpayment credit including the proper treatment of the previously claimed hospital tax deduction should be resolved in a final_decision for the taxable_year in short the parties will be directed to provide the court with correct computations in accordance with respondent’s position as described above we have considered the remaining arguments of both parties for results contrary to those expressed herein and to the extent not discussed above we find those arguments to be irrelevant moot or without merit to reflect the foregoing an appropriate order will be issued


internal_revenue_service p o box cincinnati oh release number release date date department of the treasury employer_identification_number contact person - id number contact telephone number uil list dollar_figure legend v location x name y name b dollars amount c dollars amount d dollars amount e dollars amount f dollars amount g dollars amount dear why you are receiving this letter this is our response to your date letter requesting approval of a set-aside under internal_revenue_code sec_4942 you've been recognized as tax-exempt under sec_501 of the code and have been determined to be a private_foundation under sec_509 our determination based on the information furnished your set-aside program is approved under internal_revenue_code sec_4942 as required under sec_4942 the set_aside amount must be paid within the 60-month period after the date of the first set-aside description of set-aside request you have requested a set-aside of b dollars for the tax_year ending date and additional set asides of c dollars d dollars e dollars and f dollars for the tax_year sec_2012 through respectively to fund the project as described in the following there is currently no freestanding hospice house facility in v so end of life care is available only in an institutional hospital setting which is very expensive and a very structured place for a hospice patient nearing life’s end you will provide funding for the construction of a freestanding hospice house estimated to cost g dollars the facility will be located among trees and green space moreover it will include over ten suites with home-like décor and private restrooms family space chapel and ample parking as well as room to expand to more suites the facility you propose to help fund will reduce medicare costs while providing patients with quality care dignity comfort and compassion as well as enabling their families to focus on being together you have been conducting research for the project for over three years by touring numerous facilities which has enabled you to gather information about startup processes state and federal regulations staffing requirements financials and recommended house plans meetings have been held with the local major medical centers’ administrators and home care service providers in your area who see a need for such a facility you will not own and operate the hospice yourself but the owner will be an exempt_organization under sec_501 you anticipate that the hospice house will be a joint_venture of two regional hospitals x and y both x and y are exempt under sec_501 moreover an existing llc which is an umbrella organization of x and y and currently operates other joint healthcare initiatives of these entities may be the joint owners most hospice houses that operate in this fashion are also able to get services from the owners such as medical_supplies food services and some staffing in order to fund the project in its entirety as is your intention you will have to raise a very large amount in grants and contributions from outside sources in addition to dedicating your entire annual distributable amounts through when the project is expected to be completed you anticipate that it will take several years for your fundraising campaign to produce a substantial amount of revenue the project is currently in the planning stages in a consulting firm will be hired to conduct a feasibility study in the architect will be engaged and the fundraising campaign will open the fundraising campaign will be the principal focus of your activities in construction will commence in a foundation_manager has represented the amounts set_aside in the tax_year sec_2011 sec_2012 sec_2013 sec_2014 and sec_2015 will all have been paid out for the project by date sixty months from the date of the initial set-aside the project can be better accomplished by a set-aside than by an immediate payment of funds because the planning design and fundraising phases will take several years to complete with the construction phase commencing only toward the end of the sixty-month period hence your heaviest outlays will be concentrated in the latter part of the project_period project is so high in relation to your annual income that the accumulated income over the entire project_period will not be sufficient to finance it therefore you will have to generate large new revenues from a fundraising campaign to meet your funding goal in addition the cost of the the approved set-asides will permit you to accumulate your distributable amounts for the tax_year sec_2011 through in order to obtain the required amount of funds to construct the hospice facility basis for our determination internal_revenue_code sec_4942 states that an amount set_aside for a specific project which includes one or more purposes described in sec_170 may be treated as a qualifying_distribution if requirements of sec_4942 it meets the sec_4942 of the code states that an amount set_aside for a specific project will meet the requirements of this subparagraph if at the time of the set- aside the foundation establishes that the amount will be paid within five years and either clause i or ii are satisfied sec_4942 of the code is satisfied if at the time of the set-aside the private_foundation establishes that the project can better be accomplished using the set-aside than by making an immediate payment sec_53_4942_a_-3 of the foundations and similar excise_taxes regulations provides that a private_foundation may establish a project as better accomplished by a set-aside than by immediate payment if the set-aside satisfies the suitability test described in sec_53_4942_a_-3 sec_53_4942_a_-3 of the foundations and similar excise_taxes regulations provides that specific projects better accomplished using a set-aside include but are not limited to projects where relatively long-term expenditures must be made requiring more than one year’s income to assure their continuity in revrul_77_7 1977_1_cb_354 the term specific project as defined in sec_53_4942_a_-3 of the excise_tax regulations was held to include a building project to be undertaken by a public charity unrelated to the foundation making the set-aside what you must do your approved set-asides will be documented on your records as pledges or obligations to be paid_by the date specified the amounts set_aside will be taken into account to determine your minimum_investment_return under internal_revenue_code sec_4942 and the income attributable to your set_aside s will also be taken into account in computing your adjusted_net_income under sec_4942 of the code additional information this determination is directed only to the organization that requested it internal_revenue_code sec_6110 provides that it may not be used or cited as a precedent please keep a copy of this letter in your records we have sent a copy of this letter to your representative as indicated in your power_of_attorney if you have any questions please contact the person listed in the heading of this letter sincerely lois lerner director exempt_organizations enclosure


t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s department of the treasury i n t e r n al r e v e n u e s e rv i c e wa s h i n g t o n d c date person to contact and id number -------------------------------------- contact telephone number ---------------------- d i v i s i o n number release date the honorable jim cooper house of representatives washington d c attention ---------------------- uniform issue list dear mr cooper i am responding to your inquiry dated date on behalf of your constituents and the tax-exempt organizations they represent you asked questions about the policy of u s citizenship and immigration services that requires religious organizations to provide a determination_letter from us with an application_for an r-1 temporary religious worker visa that the organization is tax-exempt under sec_501 of the internal_revenue_code irc even if that religious_organization is otherwise not required to have a determination_letter specifically you requested information on the application requirements for places of worship i apologize for the delay in responding to your inquiry by law churches their integrated_auxiliaries and conventions or associations of churches are not required to apply with us to operate as tax-exempt organizations the law also excludes churches from the requirement to file federal annual returns churches are excluded from federal unemployment tax futa liability but generally are liable for federal_insurance_contributions_act fica_taxes state and local governments have various exemptions for churches although there is no requirement to do so many churches seek recognition of tax- exempt status from us because such recognition assures church leaders members and contributors that we recognize the church as exempt and it qualifies for related tax benefits for example contributors to a church we recognize as tax exempt would know that their contributions generally are tax-deductible to get such recognition the church must file a form_1023 application_for recognition of exemption under sec_501 of the internal_revenue_code and pay the user_fee when we do formally recognize a church’s exempt status we provide a determination_letter to that organization your constituents can find more information about religious organizations and federal tax exemption on our website www irs gov charities- -non-profits and clicking on churches religious organizations in the left column additionally your constituents can find information regarding applying for a determination_letter of tax-exempt status on our website www irs gov charities- -non-profits and clicking in how to apply to be tax-exempt this letter is for informational purposes only and provides general statements of well- defined law it is not a ruling and taxpayers cannot rely on it as such rev_proc 2013_1_irb_1 revproc_2013_4 i r b we will make this letter available for public inspection after deleting names addresses and other identifying information as appropriate under the freedom_of_information_act announcement i r b i have enclosed a copy of this letter with the proposed deletions i hope this information is helpful if you have any questions please contact me at ------ ----------------------or --------------------- identification_number ------------------ at ---------------------- sincerely kenneth c corbin acting director exempt_organizations enclosure


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division jul uniform issue list set ep rati legend taxpayer a amount p amount q dear this is in response to a letter dated date in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code the following facts and representations were submitted under penalty of perjury in support of your request taxpayer a maintained an individual_retirement_account ira x under code sec_408 on date taxpayer a withdrew amount p from ira x to pay for pre-closing and closing costs associated with the sale of beach rental property and the purchase of a different beach rental property the sale and purchase occurred on december and of respectively and proceeds of amount q an amount in excess of amount p were deposited in a money market account on date a date within the 60-day period for rollovers taxpayer a asserts that his failure to timely roll over amount p was due to his attention being focused on his child’s neurological difficulties due to ongoing concerns regarding the development of speech and motor skills of his preschool- age child and as a result of teacher recommendations after taxpayer a’s child entered preschool in the fall of taxpayer a sought a neuropsychological assessment of his child testing occurred throughout december of and on date taxpayer a received a final report that confirmed his ongoing concerns he notes that he received the final report 60-day period submission that taxpayer a’s child received testing prior to the above neuropsychological assessment although the nature of such testing is unclear because this section of the report was redacted for privacy purposes the submission also indicates that concerns were raised in november of and it appears from the final report included in taxpayer a’s prior to the expiration of the an occupational therapist began working with taxpayer a’s child on a weekly basis six months prior to the december neuropsychological assessment based on the above facts and representations taxpayer a requests that the internal_revenue_service the service waive the 60-day rollover requirement with respect to amount p code sec_408 provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 code sec_408 defines ira_rollovers and provides the rules applicable thereto code sec_408 provides that sec_408 does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution code sec_408 provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the one-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 code sec_408 provides a similar 60-day rollover period for partial rollovers code sec_408 provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 revproc_2003_16 r b provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to code sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred during the time leading up to although the information presented shows that taxpayer a’s child suffers from a neurological disability such disability was an ongoing concern to taxpayer a and predates taxpayer a’s withdrawal from his ira and including the testing of taxpayer a’s child taxpayer a was able to keep track of other matters and engage in financial transactions such as the ira withdrawal on date and the real_estate transactions on december and date in addition taxpayer a received the proceeds of his real_estate_transaction on date prior to having received his child’s test results thus the facts in this case do not demonstrate the type of circumstance that would justify a waiver of the 60-day rollover period therefore the service declines to waive the 60-day requirement under sec_408 in this case no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other code section which may be applicable thereto this letter is directed only to the taxpayer who requested it code sec_6110 provides that it may not be used or cited as precedent if you wish to inquire about this ruling please contact sincerely yours carlim a ufcteins carlton a watkins manager employee_plans technical group enclosures deleted copy of letter_ruling notice


internal_revenue_service number release date index number ------------------ --------------------------------------------------- ------------------ -------------------------------------------- re legend 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 plr-147484-11 date april ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- -------------------------- taxpayer --------------------------------------------- trust date date a b attorney law firm ------------------------------- year year year -------- ----- ---------------------------------------------- ------- ------- ------- dear ---------- this letter responds to a letter from your authorized representatives dated date requesting an extension of time pursuant to sec_2642 of the internal_revenue_code and sec_301_9100-3 of the procedure and administration regulations to allocate generation-skipping_transfer gst_exemption to a transfer the facts and representations submitted are summarized as follows taxpayer created and funded an irrevocable_trust trust for the benefit of his children and their issue on date in year on the same date taxpayer contributed dollar_figurea of property to trust on date in year taxpayer contributed dollar_figureb of property to trust taxpayer retained attorney to advise him concerning both transfers attorney did not advise taxpayer to file the form_709 united_states gift and generation-skipping_transfer_tax return for year and no returns were filed date is prior to plr-147484-11 date and date is after date in year law firm discovered that taxpayer failed to file form_709 for year sec_1 and which resulted in taxpayer not making an allocation of his gst_exemption to trust in year taxpayer represents that no taxable_distributions or taxable terminations have occurred with respect to trust and that no contributions other than the date sec_1 and transfers have been made to trust taxpayer requests an extension of time under sec_2642 and sec_301_9100-1 and sec_301_9100-3 to allocate his gst_exemption to the date transfer to trust sec_2601 imposes a tax on every gst which is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the gst tax is the taxable_amount multiplied by the applicable_rate sec_2641 defines the term applicable_rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2642 provides that for purposes of chapter the inclusion_ratio with respect to any property transferred in a gst is generally defined as the excess if any of over the applicable_fraction the applicable_fraction as defined in sec_2642 is a fraction the numerator of which is the amount of gst_exemption allocated to the trust or to property transferred in a direct_skip and the denominator of which is the value of the property transferred to the trust or involved in the direct_skip sec_2631 as in effect at the time of the date transfer provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure that may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that an allocation of gst_exemption to property transferred during the transferor’s lifetime is made on form_709 sec_2642 provides that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 sec_2642 provides that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make plr-147484-11 an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of sec_2642 which was enacted into law on date sec_2642 provides that in determining whether to grant relief the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief the time for making the allocation or election shall be treated as if not expressly prescribed by statute notice_2001_50 2001_2_cb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a gst_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election plr-147484-11 based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied taxpayer is granted an extension of time of days from the date of this letter to allocate his available gst exemptions to the date transfer the allocations will be effective as of the date of the transfer to trust and the value of the transfer trust as determined for federal gift_tax purposes will be used in determining the amount of taxpayer’s gst_exemption to be allocated to trust the allocation should be made on the original form_709 united_states gift and generation-skipping_transfer_tax return for the year in which the date transfer was made and filed with the internal_revenue_service center cincinnati ohio a copy of this letter should be attached to the form_709 a copy is enclosed for this purpose except as expressly provided herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayers 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 representatives the rulings contained in this letter are based upon information and representations submitted by the taxpayers 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 associate chief_counsel passthroughs special industries by _____________________________ lorraine e gardner senior counsel branch office of associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes two copies of this letter