internal_revenue_service number release date index number 45d ----------------------------------------------- ------------------------------------------------------------ ---------- -------------------- -------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------- id no ---------------- telephone number -------------------- refer reply to cc psi b05 plr-148104-13 date april legend sub-cde allocatee fund x y d1 d2 d3 d4 d5 d6 d7 a ----------------------------------------------- ---------------------- ---------------------------------------------------------------- ---------------------- ------------------------ ---------------------- --------------------------- ---------------------- --------------------------------------------------------- ---------------------- ------------------ ---------------- ----------------------- -------------------------- -------------------------- -------------------------- ------------------ ------------ plr-148104-13 b c ------- ----- dear ------------- this letter responds to your letter dated date and related correspondence submitted on behalf of sub-cde requesting a letter_ruling involving the new_markets_tax_credit nmtc under sec_45d of the internal_revenue_code the ruling concerns the application of the 6-month cure period under sec_1_45d-1 of the income_tax regulations to the transaction described below facts the information submitted states that allocatee a nonprofit corporation and sub-cde a limited_liability_company llc were formed to serve or provide investment capital for low-income communities or low-income persons allocatee became a qualified_community_development_entity cde on d1 sub-cde became a cde on d2 x a national banking association wholly owns y an llc y wholly owns fund also an llc both y and fund are treated as disregarded entities for federal tax purposes pursuant to an allocation agreement effective d3 the department of treasury community development financial institutions fund made a nmtc allocation to allocatee based on that allocation allocatee sub-allocated dollar_figurea of nmtc to sub-cde on d4 x through y made a capital_contribution in the amount of dollar_figurea to fund fund in turn made a capital_contribution of dollar_figurea in cash to sub-cde in exchange for a b membership interest allocatee holds the remaining c membership interest in sub- cde on or about d3 sub-cde designated fund’s capital_contribution in sub-cde as a qualified_equity_investment qei sub-cde x and fund have worked diligently to find qualified_low-income_community investments qlicis to invest the cash by d5 in order to satisfy the substantially-all requirement under sec_45d by the end of the 12-month_period specified in sec_1_45d-1 the parties have considered a number of projects due to difficult circumstances however the parties have not been able to close on any of the projects on d6 sub-cde became aware or reasonably should have become aware of its inability to invest in any of the qlicis by d5 ruling requested plr-148104-13 the 6-month cure period described in sec_1_45d-1 is available to correct sub- cde’s failure to invest substantially_all of the proceeds of the qei in a qlici within the 12-month_period specified in sec_1_45d-1 law and analysis sec_45d provides that for purposes of sec_38 in the case of a taxpayer who holds a qei on a credit_allowance_date of such investment which occurs during the taxable_year the nmtc for such taxable_year is an amount equal to the applicable_percentage of the amount_paid to the cde for such investment at its original issue sec_45d provides that the term credit_allowance_date means with respect to any qei a the date on which such investment is initially made and b each of the anniversary dates of such date thereafter sec_45d provides that the term qei means any equity_investment in a cde if a such investment is acquired by the taxpayer at its original issue directly or through an underwriter solely in exchange for cash b substantially_all of such cash is used by the cde to make qlicis and c such investment is designated for purposes of sec_45d by the cde sec_45d provides that the term qlici means a any capital or equity_investment in or loan to any qualified_active_low-income_community_business b the purchase from another cde of any loan made by such entity which is a qlici c financial counseling and other services to businesses located in and residents of low- income communities and d any equity_investment in or loan to any cde sec_1_45d-1 provides that except for the seventh year of the 7-year credit_period the term substantially_all means at least percent the substantially_all requirement must be satisfied for each annual period in the 7-year credit_period using either the direct-tracing calculation or the safe-harbor calculation as provided in the section for the first annual period the substantially-all requirement is treated as satisfied if either the direct-tracing calculation or the safe-harbor calculation is performed on a single testing_date and the result of the calculation is at least percent sec_1_45d-1 provides that the taxpayer’s cash investment received by a cde is treated as invested in a qlici only to the extent that the cash is so invested within the 12-month_period beginning on the date the cash is paid_by the taxpayer directly or through an underwriter to the cde sec_1_45d-1 provides that if a qei fails the substantially-all requirement the failure is not a recapture_event if the cde corrects the failure within months after the date the cde becomes aware or reasonably should have become plr-148104-13 aware of the failure only one correction is permitted for each qei during the 7-year credit_period conclusion under sec_45d the first nmtc is claimed on the date on which the qei is initially made sec_45d includes within the definition of a qei any equity_investment in a cde if substantially_all of such cash is used by the cde to make qlicis sec_1_45d-1 provides that the taxpayer’s cash investment received by a cde is treated as invested in a qlici only to the extent that the cash is so invested within the 12-month_period beginning on the date the cash is paid_by the taxpayer directly or through an underwriter to the cde failure to meet the substantially-all requirement within the 12-month_period means that the taxpayer’s cash investment is not treated as a qei on the date the taxpayer’s initial investment is made however sec_1_45d-1 provides a one-time 6-month cure period if a qei fails the substantially-all requirement based on the information submitted and representations made we conclude that the 6-month cure period under sec_1_45d-1 is available to correct sub-cde’s failure to invest substantially_all of the proceeds the qei in a qlici by d5 however the month cure period is not automatically tacked on to the 12-month_period specified in sec_1_45d-1 as the rule states the 6-month cure period begins on the date the cde becomes aware or reasonably should have become aware of the failure to invest substantially_all of the qei proceeds in a qlici within the month period on d6 sub-cde became aware or reasonably should have become aware of its inability to invest in any qlicis by d5 therefore sub-cde must correct its failure to invest substantially_all of the proceeds of the qei in a qlici no later than d7 we express no opinion regarding the application of any other provisions of the code or regulations plr-148104-13 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter_ruling will be sent to your authorized representative sincerely paul f handleman chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court ronald l kirkpatrick sr petitioner v commissioner of internal revenue respondent docket no 6525-13l filed date donald w pemberton for petitioner beth a nunnink for respondent memorandum findings_of_fact and opinion cohen judge this proceeding was commenced in response to a notice_of_determination concerning collection action s under sec_6320 and or with respect to petitioner’s federal_income_tax liability for and unpaid trust fund recovery penalties under sec_6672 for quarters ended september and date date date march and june collectively quarters in issue and date the court granted respondent’s motion to dismiss on the ground of mootness and to strike as to the income_tax_liability for within that motion however respondent stated that t he trust fund recovery penalty liability for the 4th quarter of was mistakenly included on the notice_of_determination no such liability exists and no notice_of_intent_to_levy for the 4th quarter of was issued on the basis of the record this quarter appears moot accordingly this case will be dismissed sua sponte as to petitioner’s trust fund recovery penalty liability for the quarter ended date as to the remaining quarters in issue the issue for decision is whether the settlement officer abused her discretion in sustaining the proposed levy unless otherwise indicated all section references are to the internal_revenue_code in effect at all relevant times findings_of_fact material facts are contained in the administrative record of the exchanges between petitioner and the internal_revenue_service irs office of appeals appeals_office that record has been stipulated the stipulated facts are incorporated in this opinion by this reference petitioner resided in tennessee at the time he filed his petition petitioner served as the chairman of the board_of directors for accurate communications corp accurate for the quarters in issue accurate failed to pay income and employment_taxes related to form sec_941 employer’s quarterly federal tax_return petitioner and his wife jointly filed a personal federal_income_tax return which showed tax of dollar_figure however he did not pay hi sec_2010 tax_liability by date the date the return was due on date petitioner entered into an installment_agreement with the irs to pay off hi sec_2010 tax_liability by date accurate owed form_941 tax_liabilities of dollar_figure in letter approval of request to pay taxes in installments accurate ia letter dated date the irs informed accurate that its request to pay its form_941 tax_liabilities through an installment_agreement had been approved the accurate ia letter addressed only accurate and not petitioner determining petitioner to be a responsible_person of accurate the irs assessed trust fund recovery penalties against him on date with respect to the quarters in issue because of these additional assessments the irs terminated petitioner’s installment_agreement for hi sec_2010 income_tax_liability on or around date on date the irs sent to petitioner notice cp final notice--notice of intent to levy and notice of your right to a hearing informing him that he owed trust fund recovery penalties of over dollar_figure and advising him that the irs intended to levy to collect these taxes in response petitioner timely submitted form request for a collection_due_process or equivalent_hearing sec_6330 hearing request in the sec_6330 hearing request petitioner indicated among other things that he wanted an installment_agreement and that he disagreed with the proposed levy action because an installment_agreement was in place but was terminated for no reason as he was not in default on the installment_agreement petitioner later expressed to the appeals_office settlement officer assigned to his case that he wanted an installment_agreement for hi sec_2010 income_tax_liability but would like for the collection of the trust fund recovery penalties to be suspended because accurate was paying off those liabilities through its own installment_agreement the settlement officer sent to petitioner a letter dated date scheduling a telephone conference for date this conference would be the primary opportunity of the sec_6330 hearing for petitioner to explain why he disagreed with the collection action and to discuss possible collection alternatives one paragraph of the date letter stated on your request for a sec_6330 hearing you indicated your installment_agreement terminated for no reason our records indicated your installment_agreement was established on date and only included your outstanding tax_liability for your form_1040 for calendar_year one of the terms of an installment_agreement is that while the installment_agreement is in effect you will pay any federal taxes you owe on time on date you were assessed civil penalties for failing to pay the withheld taxes for accurate communications when the civil penalties were not paid you did not meet terms of your installment_agreement and your installment_agreement defaulted the letter requested that petitioner complete and return within days form 433-a collection information statement for wage earners and self-employed individuals and form 433-b collection information statement for businesses petitioner timely provided form 433-a but did not include any of the required financial documentation however he later provided a revised form 433-a and included three months of bank records and other documents prior to the telephone conference which had been rescheduled for date petitioner also provided the first page of the accurate ia letter for the settlement officer’s consideration on date the telephone conference took place between the settlement officer and petitioner’s representative the representative indicated that petitioner was not challenging the underlying tax_liabilities and agreed to the civil penalties assessment the settlement officer explained that petitioner’s financial information was incomplete due to in part omissions of property seemingly owned by petitioner and missing bank records from an apparent additional account she also questioned petitioner’s claim that he had monthly income of dollar_figure because the three months of bank records showed average monthly deposits of dollar_figure these concerns prevented her from making a determination regarding the appropriateness of an installment_agreement from her review of the provided financial information the settlement officer projected that petitioner had the ability to make monthly payments of at least dollar_figure petitioner’s representative indicated that petitioner could not pay that much the settlement officer concluded the conference by requesting that additional financial information be supplied by date otherwise the settlement officer would make a determination based upon the provided documentation which would result in her sustaining the proposed levy action on date petitioner’s representative called the settlement officer and indicated that petitioner wanted to pay in full the balance of hi sec_2010 income_tax_liability in order to suspend collection of the trust fund recovery penalties the settlement officer explained that even if the income_tax_liability was resolved collection of the trust fund recovery penalties against petitioner would not be suspended simply because accurate was paying off those liabilities pursuant to its own installment_agreement petitioner’s representative alleged that some other tax account--similarly situated to petitioner’s circumstances--had been placed in suspense the settlement officer replied that petitioner would need to provide an internal_revenue_manual irm or internal_revenue_code section addressing how his account should be resolved otherwise she would not make a recommendation to suspend collection the deadline for getting the additional financial information submitted to the settlement officer was extended to date by the day of the deadline however petitioner had failed to provide any of the requested additional financial information instead petitioner’s representative notified the settlement officer that he was sending funds to fully pay the income_tax_liability he also wanted the settlement officer to provide her determination of the sec_6330 hearing so that petitioner would be able to petition the court the settlement officer received petitioner’s check for the full amount of the income_tax_liability on date before making her determination the settlement officer verified that the requirements of all applicable laws and administrative procedures had been met in reviewing the provided financial documentation the settlement officer determined that petitioner had the ability to pay his outstanding liabilities through a collection alternative but he would not agree to do so on date the appeals_office sent to petitioner a notice_of_determination concerning collection actions s under sec_6320 and or sustaining the proposed levy action opinion sec_6330 generally provides that the commissioner cannot proceed with levy on a taxpayer’s property until the taxpayer has been given notice of and the opportunity for a sec_6330 hearing and if dissatisfied an opportunity for judicial review of the administrative determination at a sec_6330 hearing a taxpayer may raise any relevant issue relating to the collection action including challenges to the appropriateness of the collection actions and possible collection alternatives sec_6330 a taxpayer may contest the validity of the underlying tax_liability but only if the taxpayer did not otherwise have a prior opportunity to dispute the tax_liability sec_6330 see 131_tc_197 the underlying liabilities in this case were assessed under sec_6672 which imposes penalties for failure to collect account for and pay over income and employment_taxes of employees--commonly referred to as trust fund recovery penalties petitioner does not dispute these underlying tax_liabilities where there is no dispute as to the underlying liabilities we review the actions of the appeals_office for abuse_of_discretion see 121_tc_111 114_tc_604 abuse_of_discretion may be found if an action is arbitrary capricious or without sound basis in fact or law 129_tc_107 112_tc_19 petitioner does not argue that he was wrongfully denied a collection alternative or that his prior installment_agreement was wrongfully terminated instead petitioner’s position is that he was originally covered under the installment_agreement entered into by accurate for the trust fund recovery penalties and now that he is in compliance with hi sec_2010 income_tax obligation he should be recovered under accurate’s installment_agreement petitioner appears to have raised this concern during his sec_6330 hearing he did not however produce the accurate installment_agreement or any documentary corroboration of this position cf freeman v commissioner tcmemo_2011_ slip op pincite distinguishing the taxpayer’s sec_6672 liability from the employer’s tax withholding liability and holding that an employer’s installment_agreement covers only its own tax_liability and does not justify the release of a collection action against the taxpayer for his trust fund recovery penalties petitioner instead attempts to support his position by arguing that the settlement officer failed to consider relevant parts of irm pt he asserts that this irm part clearly states that the collection of trust fund recovery penalties from responsible persons should be suspended so long as the primary business_entity has an installment_agreement and is current the relevant parts of irm pt date relied upon by petitioner are as follows in general do not request assessment of trust fund recovery penalties tfrps if business taxpayers meet the terms of installment agreements however tfrps must be considered on the potentially responsible persons of the business_entity based on the following procedures if the agreement will not fully pay all balances due at least a year before the earliest assessment statute expiration date ased then a assemble all documentation for completion of the penalty to the point of proposing assessment b complete interviews for all potentially responsible persons and any other interviews necessary to determine responsibility and willfulness c secure 433a collection information statement from all potentially responsible persons conduct financial analysis to determine whether the penalty if assessed would be collectible d request signature of form_2750 waiver extending statutory period for assessment of trust fund recovery penalty from all potentially responsible officers see irm through and e if a potentially responsible_officer refuses to extend the ased and the trust fund recovery penalty is determined collectible complete and recommend assessment of the tfrp for that responsible_person petitioner neither explains how he arrives at his interpretation of the irm part nor provides any authority that supports his interpretation however even a liberal reading of irm pt and does not suggest that collection should be suspended on previously assessed trust fund recovery penalties of a responsible_person as respondent points out irm pt is procedural guidance for initiating a business taxpayer trust fund-related installment_agreement irm pt addresses a general_rule of nonassessment of trust fund recovery penalties when commencing such an installment_agreement but see irm pt and providing circumstances when assessment of trust fund recovery penalties should be advanced against responsible persons related to in-business trust fund installment agreements it does not address suspension of collection after assessment with respect to an already established installment_agreement sec_6330 provides due process protections for taxpayers in tax collection matters see sego v commissioner t c pincite irm pt and pertains only to assessment of trust fund recovery penalties as petitioner did not challenge his underlying tax_liabilities there is no reason the settlement officer would need to consider the irm with regard to assessment moreover the settlement officer acknowledged and considered petitioner’s argument while petitioner does not appear to have raised specifically irm pt and during the sec_6330 hearing the settlement officer nonetheless looked at relevant irm parts in reviewing petitioner’s case in view of the record we cannot conclude that her determination was arbitrary capricious or without sound basis in fact or law which is the test to be applied whether or not other resolutions could have been reached by the settlement officer or by the court is not the applicable test the settlement officer did not abuse her discretion in sustaining the proposed levy we have considered the other arguments of the parties but they are irrelevant unsupported by the record or by authority or otherwise without merit to reflect the foregoing an appropriate order will be issued and decision will be entered for respondent


t cc no united_states tax_court richard d warren and elizabeth k warren petitioners v commissioner of internal revenue respondent docket no filed date p is a minister_of_the_gospel within the meaning of sec_107 i r c the church which employed him designated most or all of his compensation as a housing allowance during each of the taxable years in issue ps used the allowance to provide a home for themselves and their children the amount they used to provide a home and exclude from income under sec_107 i r c was more than the fair market rental value of their home r contends that ps’ exclusion under sec_107 i r c may not exceed the lesser_of the amount ps used to provide a home or the fair market rental value of their home held the exclusion under sec_107 i r c is limited to the amount used to provide a home not the fair market rental value of the home -- - arthur a oshiro for petitioners it tan russell for respondent opinion colvin judge respondent determined the following deficiencies and accuracy-related_penalties with respect to petitioners’ federal income taxes for taxable years and sec_6662 a year deficiency penalty dollar_figure dollar_figure big_number big_number big_number big_number petitioner is a minister_of_the_gospel within the meaning of sec_107 after concessions the sole issue for decision is whether the amount of petitioner’s housing allowance compensation that is excludable from gross_income under sec_107 is limited to the amount used to provide a home as petitioners contend or to the lesser_of that amount or the fair market rental value of the home as respondent contends we hold that it is limited to the amount used to provide a home unless otherwise indicated section references are to sections of the internal_revenue_code in effect for the years in issue and rule references are to the tax_court rules_of_practice and procedure references to petitioner are to richard d warren - - this case was submitted fully stipulated under rule background a petitioners petitioners are married and resided in trabuco canyon california when they filed their petition in this case petitioner is a minister with a bachelor of arts degree from california baptist college a master of divinity degree from southwestern theological seminary and a doctor of ministry degree from fuller theological seminary in date petitioners bought a residence for dollar_figure the annual fair market rental value of petitioners’ residence was dollar_figure in dollar_figure in and dollar_figure in b saddleback valley community church in petitioner founded the saddleback valley community church the church in his home over the years the church used many different facilities to house the congregation the congregation had grown to more than big_number individuals by and it continued to grow thereafter during the years in issue petitioner served as a duly ordained baptist minister of the church he also authored books entitled the purpose driven church the power to change your life and answers to life’s difficult questions and he owned and operated a tape and book ministry called the encouraging word - - c petitioner’s compensation from the saddleback valley community church fach year before the fiscal_year began the church’s trustees met to designate the amount of compensation to be paid to each of its ministers the trustees also allocated these amounts between salary and housing allowances in the church adopted a fiscal_year ending may for the short_year from january to date petitioner received dollar_figure all of which the trustees of the church designated as a housing allowance for the fiscal_year ending date the trustees approved compensation of dollar_figure for petitioner and designated the full amount as a housing allowance for the fiscal_year ending date the trustees approved compensation of dollar_figure all of which they designated as a housing allowance for the fiscal_year ending date the trustees approved compensation of dollar_figure and allocated dollar_figure for salary and dollar_figure for a housing allowance petitioner received the following amounts from the church as compensation_for the calendar years in issue dollar_figure for dollar_figure for and dollar_figure for petitioners used dollar_figure in dollar_figure in and dollar_figure in to provide a home for themselves and their children by paying expenses for mortgage utilities furnishings landscaping repairs and maintenance and real_property_taxes and homeowner’s insurance - - premiums ’ based on these expenditures petitioners excluded from income on their return all of petitioner’s compensation from the church and reported as income dollar_figure in and dollar_figure in the amounts remaining in dispute are the differences between the rental values of petitioners’ home and the amounts petitioners excluded from their returns the following table summarizes relevant financial information amount in dispute ie amount taxable compensation housing amount excluded rental value excluded less rental year received expenditures from income of home value of home dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number petitioners reported that petitioner had net schedule c profit and loss from business income from his tape and book ministry of dollar_figure in dollar_figure in and dollar_figure in and total income not including the housing allowance paid_by the church to the extent excluded by petitioners from their gross_income of dollar_figure for dollar_figure for and dollar_figure for the parties stipulated that all of these expenditures were used to provide housing although the record is silent as to why petitioners excluded only dollar_figure when they spent dollar_figure on housing for we infer that it was because the church designated an dollar_figure housing allowance for the church’s fiscal_year -- - discussion a respondent’ s contentions respondent contends that the exclusion under sec_107 may not exceed the lesser_of the amount used to provide a home or the fair market rental value of the home respondent contends that permitting a greater exclusion in the reporting of compensation would be contrary to the rental language in the statute and also contrary to the concern for equality among ministers stated in the legislative_history accompanying enactment of sec_107 in we disagree for reasons stated next b sec_107 compensation_for services is generally included in gross_income for purposes of calculating federal income taxes see sec_61 however sec_107 provides the following exception sec_107 rental value of parsonages in the case of a minister_of_the_gospel gross_income does not include-- the rental value of a home furnished to him as part of his compensation or the rental allowance paid to him as part of his compensation to the extent used by him to rent or provide a home contrary to respondent’s position neither sec_107 the regulations promulgated thereunder nor the related - legislative_history limits the amount that may be excluded from income as a parsonage_allowance under sec_107 to the fair market rental value of the residence occupied a rental allowance excludable under sec_107 may be used to rent a home to purchase a home and to pay expenses directly related to providing a home see sec_1_107-1 income_tax regs sec_107 limits the exclusion to the rental value of a home furnished as part of a minister’s compensation in contrast no fair rental value limit is stated in sec_107 or the regulations issued thereunder we have previously held that under sec_107 the fair rental value of a minister’s home is not excludable to the extent that it exceeds the amount the minister uses to provide housing see 82_tc_208 in reed we were not reguired and thus declined to decide the issue here e whether the exclusion under sec_107 is limited to the lesser_of fair rental value or the amount used for housing see id we said the trouble with petitioners’ analysis is that the congress faced with the rental value language of sec_107 did not choose to use such language in sec_107 instead the congress provided that the exclusion applies to the rental allowance paid to the extent used by the minister to rent or provide a home emphasis added thus the congress clearly provided a different measure for the exclusion under sec_107 than the measure provided under sec_107 petitioners have failed to show us a policy problem so overwhelming as to force us to conclude that the congress could not have meant what it said id pincite our reasoning in reed also applies to the instant case c respondent’s arguments based on statutory text respondent contends that the title of sec_107 rental value of parsonages shows that congress intended to impose a rental value limit under sec_107 we disagree it is well settled that the heading of a section does not limit the plain meaning of the text see 331_us_519 87_tc_389 respondent contends that to not impose a fair rental value limit requires that we disregard the word rental in sec_107 we disagree sec_107 clearly is not limited to payment of rent on the contrary it expressly applies toa rental allowance to the extent used to rent or provide a home emphasis added this includes home purchases see sec_1_107-1 income_tax regs the dissent contends that the effect of our interpretation of sec_107 is to read the term rental out of sec_107 see dissent infra pp we disagree and we believe our reading gives full effect to all of the words in sec_107 first sec_107 specifically excludes not only the cost of renting a home but also the cost of providing a home second sec_107 does not include language used in sec_107 that limits the amount of the sec_107 exclusion to the rental value of the residence instead sec_107 requires that the amount excluded be a rental allowance paid as compensation to the minister and used by him or her to rent or provide a home --- - the church designated all of petitioner’s compensation as a housing allowance for its fiscal years ending date and date and percent for its fiscal_year ending date respondent contends that the language in sec_107 that excludes from income a rental allowance paid to a minister as part of his compensation shows that congress intended not to allow an exclusion of all of a minister’s salary we disagree respondent’s reading suggests that the part of his compensation language in sec_107 requires that to be excludable under sec_107 any part of a minister’s compensation may be designated as a rental allowance so long as less than all is so designated under that interpretation a taxpayer could qualify under sec_107 if for example the amount designated as a rental allowance were dollar_figure less than the minister’s total compensation this reading is not specifically indicated by the legislative_history or required by the regulations it seems unlikely that such a tiny difference in amounts should control whether sec_107 applies the part of his compensation language also appears in sec_107 thus under respondent’s reading no exclusion would be available to a minister to whom a church provided a home but no other compensation because the home would be all of that minister’s compensation we do not think congress intended to require ministers living under those circumstances to pay tax on -- - the value of their church-provided housing and we do not believe the phrase part of his compensation in sec_107 and sec_107 has that effect instead we give full meaning to the words of the statute when we read sec_107 and sec_107 to require simply that the source of the funds be the minister’s compensation ’ where a statute plainly authorizes an exclusion from income as here we require unequivocal evidence of legislative purpose before construing the statute so as to override the plain meaning of the words used therein zinniel v commissioner t c in revrul_71_280 1971_2_cb_92 a minister bought a home making a downpayment and mortgage payments in excess of the amount of his annual compensation as a minister the commissioner ruled that the taxpayer’s exclusion under sec_107 is limited to the fair rental value of a house including furnishings appurtenances thereto such as a garage and utilities despite this we apparently have never so held nor have we held that the part of his compensation language in sec_107 bars exclusion of all of a minister’s compensation in 41_tc_465 the taxpayer received dollar_figure compensation as a minister both in and and used more than those amounts to provide his own home the commissioner apparently did not challenge the taxpayer’s exclusion of percent of his pay cf 47_tc_609 where a taxpayer who received dollar_figure compensation as a minister sold a house and used the proceeds to buy another house as a result of his use of the proceeds of the sale of the first house to buy the second house we found that he used only dollar_figure of his dollar_figure compensation_for housing in dicta we noted that if the taxpayer were to prevail in marine v commissioner supra his entire compensation would escape taxation a result that seems clearly contrary to the statute id pincite we found that the taxpayer’s entire salary was artificially designated as a rental allowance and limited him to an exclusion of the actual amount dollar_figure used by him to rent or provide a home 83_tc_742 congress chose not to include the rental value limit in sec_107 we do not read sec_107 to provide otherwise d unequal treatment theory respondent contends that respondent’s position prevents unequal treatment between ministers for whom housing is provided and excluded under sec_107 on one hand and ministers who receive a rental allowance excluded under sec_107 on the other respondent relies on legislative_history accompanying enactment of sec_107 in in explaining why sec_107 was added in the tax-writing committees explained that the then-existing law ie what is now sec_107 -- is unfair to those ministers who are not furnished a parsonage but who receive larger salaries which are taxable to compensate them for expenses they incur in supplying their own home the new provision has removed the discrimination in existing law by providing that the present exclusion is to apply to rental allowances paid to ministers to the extent used by them to rent or provide a home h rept to accompany h_r pub l 83d cong 2d sess s rept to accompany h_r pub in reed v commissioner 82_tc_203 we noted that the predecessors of sec_107 date back to see sec_213 of the revenue act of ch 42_stat_227 sec_22 of the revenue act of ch 45_stat_791 sec_22 of the revenue act of ch 47_stat_169 sec_22 i r c 53_stat_1 -- l 83d cong 2d sess respondent contends that the sec_107 requirement that the rental allowance be used by the minister to rent or provide a home use limitation and the rental value limitation at issue here must both apply under sec_107 to ensure that sec_107 applies equally to all ministers we disagree we have not previously construed sec_107 and sec_107 to require identical treatment of ministers eligible under those two subsections nor does respondent’s position eliminate unequal treatment in reed v commissioner t c pincite we held that the excess of the rental value of a home over the amount used to provide it is not excludable under sec_107 thus we treated ministers who receive a housing allowance differently-- and worse in some respects--than ministers for whom housing is provided under sec_107 that is a minister eligible for the exclusion under sec_107 may exclude the full rental value of a home even if the rental value of the home exceeds the amount used to provide it but under reed a minister eligible for the exclusion under sec_107 may not if we adopt respondent’s position ministers eligible for an exclusion under sec_107 will face a compliance burden not imposed on ministers eligible under sec_107 under respondent’s position ministers who receive a rental allowance could be required to obtain an estimate of the rental value of their home every year in order to know how much to exclude under sec_107 this burden is not imposed on ministers for whom homes are provided the rental value of which is excludable under sec_107 because they may simply exclude the value of the home without any need to estimate the rental value in the instant case the parties stipulated the rental value for each year however the burden of obtaining valuation estimates could become onerous where rental value is in dispute we decline to endorse this disparate treatment here by imposing potentially burdensome valuation obligations where neither the statute nor the legislative_history so requires there may be concern that under sec_107 a minister might exclude from income the cost of an expensive home however respondent does not contend that petitioner’s home was improperly expensive in any event a more expensive home presumably would have a greater rental value which presumably would be excludable under respondent’s approach there may also be concern that a minister with additional income from another source could spend more for housing and thus have a larger sec_107 exclusion than a minister without additional income we are aware of no authority to justify our consideration of this point in construing sec_107 be conclusion for the foregoing reasons we hold that the exclusion_from_gross_income for a designated parsonage_allowance is not limited to the lesser_of the fair market rental value of the home or the amount used to provide a home to reflect the foregoing decision will be entered under rule reviewed by the court chabot parr wells whalen halpern beghe chiechi laro foley vasquez gale thornton and marvel jj agree with this majority opinion the dissent asserts that the majority is sanctioning abuse and that this case is an archetypical example of abuse we recognize that the fact that petitioner has income from a schedule c activity enables him to spend more for housing the same financial flexibility would be available to a minister who has investment_income or who is married to a spouse that earns a separate_income despite the dissent’s concerns there are no special limits in sec_107 providing for those situations concern over those issues does not contrary to the urging of the dissent justify our adding a fair rental value limit to sec_107 -- - nims j dissenting i respectfully dissent the facts of this case present an archetypical example of the potential for abuse now sanctioned by the majority for the first of it sec_4 fiscal periods here involved the saddleback valley community church designated percent of petitioner’s compensation as a housing allowance yet petitioners with other income largely schedule c income near or in excess of dollar_figure for each of the taxable years at issue are nevertheless awarded an exclusion from tax of substantially_all of petitioner’s salary the parties stipulated that the rental value of petitioner’s residence in all relevant taxable years was an amount that was a great deal less than petitioner’s salary in those years moreover with funds available from the above-mentioned alternative sources to cover living_expenses otherwise necessary but unrelated to providing a home petitioners were at liberty to and did spend nearly all compensation_for the betterment of their residence contrary to the majority i am satisfied that the rental allowance of sec_107 was not intended to operate in this manner i believe that both the statutory language and the legislative_history counsel a different result and i disagree with the majority’s reading of these sources as regards the statutory text sec_107 excludes from a minister’s income the rental allowance paid to him as part of his compensation to the extent used by him to rent or provide a home emphasis added the majority’s interpretation -- - however disregards rental as a modifier of allowance and thereby renders superfluous a portion of the statute while the majority correctly emphasizes that sec_107 is applicable to a rental allowance used for payment either of rent or of other expenses and purchases involved in providing a home the majority fails to address the requirement that the funds so used must as a threshold matter qualify as the equivalent of a rental allowance the statute does not simply say that an allowance or even a housing allowance or a residence allowance used to provide a home may be excluded rather the law states that gross_income does not include a rental allowance so used the majority’s interpretation effectively writes this term out of sec_107 it am convinced that the choice and use of rental as a modifier indicates that congress envisioned an exclusion with a correlation to rental value i further believe that the title of sec_107 rental value of parsonages offers additional support for this conclusion i do not dispute that as the majority observes a section heading cannot limit the plain meaning of the text but here the title serves to reiterate the importance and purpose of a word expressly included in the provision i also feel that the reference in the text of sec_107 to the rental allowance as part of the minister’s compensation is instructive no one would seriously contend that the phrase creates a bright-line_rule subject_to manipulation by designating all but a pittance of the minister’s salary as a rental allowance a straw_man constructed by the majority and therefore easily demolished nonetheless i believe that the words evidence the manner in which congress envisaged that the statute would typically operate if rental value limits the sec_107 exclusion it follows that a rental allowance would in the usual case generally constitute only part of a minister’s compensation moreover legislative_history states unambiguously that concerns of fairness and removing discrimination between ministers furnished a home and those provided proportionally larger salaries instigated the development of sec_107 see s rept 83d cong 2d sess h rept 83d cong 2d sess this court too has opined plainly the purpose of the new provision was to equalize the situation between those ministers who received a house rent free and those who were given an allowance that was actually used to provide a home there certainly does not appear to be any intention to place ministers of the second category in a favored position x kk 47_tc_609 nothing about the majority’s open-handed generosity to the favored few exemplified by petitioners in the instant case is consistent with this wise pronouncement although the majority points to a rental value limitation as placing a compliance burden on ministers or churches utilizing -- - sec_107 i do not feel that requiring a valuation or appraisal is unduly burdensome in light of the significant tax_benefit obtained in return but unavailable to all nonclerical taxpayers such a prereguisite is hardly unusual in tax law nor do i believe that it affords sufficient reason to ignore congress’ expressed intent to strive toward fairness lastly i note that a rental value limitation is not inconsistent with the language from our opinion in 82_tc_208 quoted by the majority which stresses that congress clearly provided a different measure for the exclusion under sec_107 than the measure provided under sec_107 a minister seeking treatment under sec_107 is subject_to the distinct requirement that the funds excluded actually be used to provide a home regardless of whether an additional rental value limit is imposed only by imposing such a limit however can all terms of the statutory text as well as the intentions expressed in legislative_history be given meaning and effect therefore i would hold that the exclusion_from_gross_income for a designated parsonage_allowance under sec_107 is limited to the lesser_of the fair rental value of the home or the amount used to provide a home cohen and ruwe jj agree with this dissenting opinion


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division oct uniform issue list number se t er rag ty hhh ik iaai ais sassi ikere iaea hkekkkkkeekekeererkaerererererereaee hikari aeeeererere legend taxpayer a taxpayer b financial_institution c i ' kkk kekkkekrereeerkeiarekeereeeeekee keke ekkekeerareeieke me kkk kkkkkrekkkkerekrehrekkekee hra eer eeerereeerere me krhrkkkkekrkekrekkkkekkrerrekerereeeriek t kkk krereereaeerkeike ' officer d ee ck kkkkkkkekkekekarekeeaeerkeeeeeekee financial_institution e traditional_ira x rikki kaka hmakkakkkhrkeereaeerereikkaeerreekkreee ek kkkkekhkkekrekrekkeeeeeerrereeeareerereree me kxakkhkkahkkekeeeekeekerererererekrerererkekee roth_ira y amount dear rk kkkkekkk hakkar ere ee eereeereaeere kek kkkhkkakkkrkrerekkiheraererereakeeree kikkkkkekekrerekre keke reet hri kkk hk kr kikkke ihre eere me this is in response to a letter dated date submitted by your authorized representative on your behalf as supplemented by correspondence dated december and and march july august and date in which you request relief under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations regulations _ in support of your request for relief you have submitted the following facts and representations taxpayer a and her spouse taxpayer b taxpayers filed joint returns for the and tax years taxpayer a maintains a traditional individual retirement arrangement ira and a roth_ira with financial_institution c as custodian of the iras in taxpayer a successfully converted traditional_ira funds to a roth_ira and was aware that such conversions could take place only during tax years in which the taxpayers’ modified_adjusted_gross_income agi did not exceed dollar_figure on week 4x taxpayer a converted amount from traditional_ira x to roth_ira y the taxpayers’ earned_income was substantially less than dollar_figure however the - taxpayers filed an extension for their federal_income_tax return due to not having received several k-1 forms from financial_institution e the last k-1 form was received by the taxpayers and presented to the tax preparer on _ the income_tax return was completed and provided to the taxpayers for filing by the deadline the tax_return showed a modified agi for the taxpayers in excess of dollar_figure thus rendering taxpayer a ineligible to convert traditional_ira x to roth_ira y during that tax_year the tax_return was timely filed without including the ira conversion in income since the recharacterization was intended to be completed in _ as early as taxpayer a contacted officer d of financial_institution c stating that there will be no way that she and taxpayer b would be able to reduce their modified ag below dollar_figure officer d suggested that the taxpayers wait until their taxes were finalized prior to making a final_decision on whether to recharacterize roth_ira y as a traditional_ira officer d’s suggestion was accompanied by a disclaimer that he and financial_institution c were not tax advisors and by a further suggestion that taxpayer a check with her tax advisor to determine the best course of action on taxpayer a again contacted officer d and stated that she would in fact have to recharacterize roth_ira y as a traditional_ira at this point it was apparent that neither taxpayer a nor officer d was aware that october also was the deadline for completion of the roth_ira y recharacterization for the tax_year as no effort was made by either party to assure that recharacterization was completed by the deadline date on taxpayer a again contacted officer _ d and completed the recharacterization paperwork needed by financial_institution c however officer d relates that it was after this time that it was brought to his attention by financial_institution c’s operations department that the october deadline had not been met and that taxpayer a would need to consult a tax advisor for appropriate action financial_institution c denied taxpayer a’s request for recharacterization because it was after the deadline for completion of such transactions established under sec_408a of the internal_revenue_code code and sec_1_408a-5 of the federal_income_tax regulations il t regs taxpayer a filed this ruling_request seeking relief prior to discovery by the internal_revenue_service service that a recharacterization of the failed conversion had not been completed timely based on the facts and representations provided above taxpayer a requests a ruling that pursuant to sec_301_9100-3 of the regulations she be granted a period not to exceed six months from the date_of_issuance of this ruling letter to complete an election under sec_1 -408a- of the i t regs to recharacterize the roth_ira y to a traditional_ira with respect to your request for relief under sec_301_9100-3 of the regulations sec_408a of the code and sec_1_408a-5 of the i t regs provide that except as otherwise provided by the secretary a taxpayer may elect to recharacterize an ira contribution made to one type of ira as having been made to another type of ira by making a trustee-to-trustee transfer of the ira contribution plus earnings to the other type of ira in a recharacterization the ira contribution is treated as having been made to the transferee ira and not the transferor ira under sec_408a and sec_1_408a-5 this recharacterization election generally must occur on or before the date prescribed by law including extensions for filing the taxpayer's federal_income_tax return for the year of contributions __- sec_1_408a-5 q_and_a -6 of the i t regs describes how a taxpayer makes the election to recharacterize the ira contribution to recharacterize an amount that either has been contributed to a roth_ira or that has been converted from a traditional_ira to a roth_ira the taxpayer must notify the roth_ira trustee of the taxpayer's intent to recharacterize the amount the taxpayer must provide the trustee and the transferee trustee if different from the transferor trustee with specific information that is sufficient to effect the recharacterization and the trustee must make the transfer code sec_408a provides in relevant part that an individual with modified agi in excess of dollar_figure for a taxable_year is not permitted to make a qualified_rollover_contribution to a roth ra from an individual_retirement_arrangement other than a roth - ira during that taxable_year sec_1_408a-4 q a-2 of the i t regs provides in summary that an individual with modified agi in excess of dollar_figure for a taxable_year is not permitted to convert an amount to a roth_ira during that taxable_year furthermore q a-2 b provides that a husband and wife must file a joint federal_income_tax return to convert an amount to a roth_ira and the modified agi subject_to the dollar_figure limit for a taxable_year is the modified agi derived from the joint_return using the couple’s combined income sec_1_408a-5 q a-2 a of the i t regs provides guidance with respect to the calculation of income attributable to recharacterized amounts sec_301_9100-1 sec_301_9100-2 and sec_301_9100-3 of the regulations in general provide guidance concerning requests for relief submitted to the service on or after date sec_301_9100-1 of the regulations provides that the commissioner of internal revenue in his discretion may grant a reasonable extension of the time fixed by a regulation revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin for the making of an election or application_for relief in respect of tax under among others subtitle a of the code sec_301_9100-2 of the regulations lists certain elections for which automatic extensions of time to file are granted sec_301_9100-3 generally provides guidance with respect to the granting of relief with respect to those elections not referenced in sec_301_9100-2 the relief requested in this case is not referenced in sec_301_9100-2 sec_301_9100-3 of the regulations provides that applications that fall within sec_301_9100-3 will be granted when the taxpayer provides sufficient evidence including affidavits described in sec_301_9100-3 to establish that the taxpayer acted reasonably and in good_faith and granting relief would not prejudice the interests of the government sec_301_9100-3 of the regulations provides that a taxpayer will be deemed to have acted reasonably and in good_faith i if the taxpayer’s request for sec_301_9100-1 relief is filed before the failure to make a timely election is discovered by the service ii if the taxpayer inadvertently failed to make the election because of intervening events beyond the taxpayer's control iii if the taxpayer failed to make the election because after exercising reasonable diligence the taxpayer was unaware of the necessity for the election iv the taxpayer reasonably relied upon the written advice of the service or v 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 sec_301_9100-3 of the regulations provides that ordinarily the interests of the government will be treated as prejudiced and that ordinarily the service will not grant relief when tax years that would have been affected by the election had it been timely made are closed by the statute_of_limitations before the taxpayer's receipt of a ruling granting relief under this section in this case taxpayer a filed her request for relief before the failure to make a timely election was discovered by the service moreover because the grant of an extension only defers the payment of tax on the ira_distributions the interests of the government with relation to the revenues have not been prejudiced further the calendar_year is not a closed tax_year therefore with respect to your request for relief we believe that based on the information submitted and the representations contained herein you have met the requirements of sec_301_9100-1 and sec_301_9100-3 of the regulations and that you have acted reasonably and in good_faith with respect to making the election to recharacterize your failed conversion as a traditional_ira specifically the service has concluded that you have met the requirements of clause i of sec_301_9100-3 of the regulations therefore you are granted a period of days from the date of the issuance of this letter_ruling to recharacterize amount plus earnings thereon of roth_ira y as a traditional_ira no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto rod this ruling is based on the assumption that traditional_ira x and roth_ira y meet the requirements of code sec_408 and sec_408a respectively at all relevant times this ruling is directed only to the taxpayer who requested it code sec_6110 provides that it may not be used or cited by others as precedent copies of this letter and related documents have been sent to your authorized representative in accordance with a power_of_attorney on file in this office any questions pertaining to the ruling please contact se t ep ra t1 for further information if you have t sincerely calder wabns carlton a watkins manager employee_plans technical group


t c memo united_states tax_court john paul massa petitioner v commissioner of internal revenue respondent docket no filed date john paul massa pro_se james r robb for respondent memorandum opinion dinan special_trial_judge this case was heard pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_182 unless otherwise indicated all section references are to the internal_revenue_code in effect for the taxable_year in issue all rule references are to the tax_court rules_of_practice and procedure - - respondent determined a deficiency in petitioner's federal_income_tax for in the amount of dollar_figure and an addition_to_tax pursuant to sec_6651 in the amount of dollar_figure the issues for decision are whether petitioner is entitled to schedule c trade_or_business expense deductions whether petitioner is entitled to a medical_expense_deduction for amounts claimed for his special diet and whether petitioner is liable for the sec_6651 addition_to_tax some of the facts have been stipulated and are so found the stipulations of fact and attached exhibits are incorporated herein by this reference petitioner resided in colorado springs colorado on the date the petition was filed in this case petitioner is a certified_public_accountant he worked as the chief financial officer of gates land company glc until he retired in at that time glc was downsizing its workforce and petitioner was suffering from complications related to crohn's disease crohn's disease is characterized by inflammation of the lower digestive tract petitioner has endured numerous surgeries and periods of hospitalization for his crohn's disease in order to meet his minimum nutritional requirements petitioner has followed a special diet and ha sec_2 respondent's adjustments to petitioner's taxable social_security_benefits medical_expense_deduction other than to the amounts claimed for his special diet and miscellaneous_itemized_deductions are computational and will be resolved by the court's holding on the issues in this case - - taken dietary supplements recommended by his physician and a certified nutritionist petitioner conducted a bookkeeping activity during and on a schedule c attached to his return he reported gross_income in the amount of dollar_figure and claimed total expenses in the amount of dollar_figure on a schedule c attached to his return he reported no gross_income and claimed total expenses in the amount of dollar_figure in he ended his bookkeeping activity and referred his clients to another certified_public_accountant petitioner purchased personal care products sold by melaleuca inc during and according to his bank statements the total_amounts of his purchases in and were dollar_figure and dollar_figure respectively petitioner traveled to russia for weeks in date to investigate certain business ventures in preparation for these business ventures petitioner had retained an office service and warehouse space in colorado springs colorado the first issue for decision is whether petitioner is entitled to schedule c trade_or_business expense deductions for on a schedule c attached to his return petitioner reported no gross_income and claimed expenses in the total amount of dollar_figure with respect to a trade activity in the statutory_notice_of_deficiency respondent disallowed any deduction for the claimed expenses - sec_162 allows a deduction for the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying_on_a_trade_or_business the record contains evidence of communications which petitioner had in and concerning potential trade with individuals in the former soviet republics including russia however there is no evidence that any completed business transactions resulted from his communications and travel to russia petitioner testified that the lack of a reliable infrastructure and instability in the russian currency convinced him that business ventures in russia were too risky based on the record we find that petitioner was not carrying_on_a_trade_or_business during rather we find that he was investigating potential trade opportunities we further find that the amounts paid_by him during in connection with his trade activity constitute start-up_expenditures which are only deductible over the 60-month period beginning in the month in which an active trade_or_business begins sec_195 and c we hold that petitioner is not entitled to any deductions for his schedule c trade_or_business_expenses for because his alleged business activity did not rise to the level of an active trade_or_business during sec_195 the second issue for decision is whether petitioner is entitled to a medical_expense_deduction for amounts claimed for his special diet - on a schedule a attached to his return petitioner claimed medical_expenses in the total amount of dollar_figure in the statutory_notice_of_deficiency respondent disallowed any deduction for dollar_figure of the claimed expenses on the ground that petitioner did not establish that the disallowed amount meets the requirements of sec_213 this disallowed amount represents the costs which petitioner claimed for his special diet sec_213 allows as a deduction the expenses paid during the taxable_year not compensated by insurance or otherwise for the medical_care of the taxpayer to the extent that such expenses exceed percent of adjusted_gross_income the term medical_care includes the diagnosis cure mitigation treatment or prevention of disease sec_1_213-1 income_tax regs deductions for expenditures_for medical_care allowable under sec_213 are confined strictly to expenses paid primarily for the prevention or alleviation of a physical or mental defect or illness sec_1_213-1 income_tax regs an expenditure which is merely beneficial to the general health of an individual is not an expenditure for medical_care id we have held that the additional costs of obtaining medically required foods are deductible as expenditures_for medical_care 67_tc_481 38_tc_387 von kalb v commissioner tcmemo_1978_366 on the other hand we have rejected taxpayers' claims for deductions for special foods which were -- - found to be merely substitutes for foods normally consumed by an individual 46_tc_672 30_tc_1202 collins v commissioner tcmemo_1965_233 the costs of a special diet are deductible only to the extent the taxpayer establishes that such costs exceed the costs of a normal diet nehus v commissioner tcmemo_1994_631 affd without published opinion 108_f3d_338 9th cir crawford v commissioner tcmemo_1993_192 based on the record we find that petitioner has failed to establish that his special diet was other than a substitute for a normal diet we are not convinced that his special diet although followed for medical reasons differed from the diet of an ordinarily health-conscious individual sec_1 e income_tax regs moreover petitioner has failed to establish the amount by which his actual food expenditures exceeded the costs of a normal diet petitioner testified that he deducted percent of his total food expenditures_for as medical_expenses but submitted little evidence of the cost gquantity or type of foods and supplements which he purchased during we are therefore unable to make an estimate of his excess costs cf 39_f2d_540 2d cir von kalb v commissioner supra we hold that petitioner is not entitled to a medical_expense_deduction for the amounts claimed for his special diet the third issue for decision is whether petitioner is liable for the sec_6651 addition_to_tax sec_6651 imposes an addition_to_tax for failure to timely file a return unless the taxpayer establishes that such failure is due to reasonable_cause and not due to willful neglect reasonable_cause requires the taxpayer to demonstrate that it exercised ordinary business care and prudence and was nonetheless unable to file a return within the prescribed time 469_us_241 willful neglect means a conscious intentional failure or reckless indifference id the addition_to_tax equal sec_5 percent of the tax required to be shown on the return if the failure_to_file is for not more than month with an additional percent for each additional month or fraction of a month during which the failure_to_file continues not to exceed a maximum of percent sec_6651 a petitioner testified that he thought that he was not required to file a return for because he believed that his gross_income for was less than dollar_figure sec_6012 provides that an individual with a filing_status of single must file an income_tax return for any taxable_year in which his gross_income exceeds the sum of the sec_151 exemption_amount and the sec_63 basic_standard_deduction for such individual sec_6012 a the sum of these amounts for petitioner's taxable_year was dollar_figure however petitioner's reported gross_income for was dollar_figure consisting of - interest dollar_figure dividends dollar_figure and taxable individual_retirement_account distributions dollar_figure petitioner erroneously believed that his claimed schedule c business_expense deductions and his alleged net operating carryover losses from and reduced his reported gross_income for below dollar_figure these amounts reduce taxable_income under sec_63 but do not reduce gross_income under sec_61 see eg sec_61 sec_1_61-3 income_tax regs gross_income derived from business determined without subtraction of selling_expenses losses or other items not ordinarily used in computing costs of goods sold thus petitioner's reported gross_income for exceeded the sec_6012 a a threshold for filing a return petitioner's return for his taxable_year was due on date sec_6072 respondent received petitioner's return at his ogden utah service_center on date in light of the fact that he is a certified_public_accountant we find that petitioner's failure to understand the basic term gross_income does not constitute reasonable_cause for not timely filing his return accordingly we hold that petitioner is liable for the sec_6651 addition_to_tax we note that petitioner's actual gross_income for is greater than his reported gross_income as a result of the computational adjustment to the taxable_amount of his social_security_benefits under sec_86 to reflect the foregoing decision will be entered for respondent


internal_revenue_service number release date index number - ---------------------- ------------------------------------------- ------------------------------------------------------------ ------ ------------------- --------------------------- - department of the treasury washington dc person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi - plr-126614-06 date date ------------------------------------ -------- --------- ------- ---------------------- --------------------------- legend x ------------------------------------------ a ---------------------- ------------------------------------------- b ---------------------- ----------------------------------------- state a year date date dear -------------- an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make an election under sec_754 of the internal_revenue_code facts the information submitted states that x is a limited_partnership formed under the laws of state on date on date b a partner in x sold a portion of its a interest in x to a x’s partnership return was timely filed for year but a sec_754 election to adjust the basis of partnership property was inadvertently not filed with the return this responds to a letter dated date requesting that the service grant x sec_1_754-1 of the income_tax regulations provides that an election sec_301_9100-1 provides that the commissioner may grant a reasonable plr-126614-06 law and analysis sec_754 provides that if a partnership files an election in accordance with the regulations prescribed by the secretary the basis of partnership property is adjusted in the case of a transfer of a partnership_interest in the manner provided in sec_743 such an election shall apply with respect to all distributions of property by the partnership and to all transfers of interests in the partnership during the taxable_year with respect to which the election was filed and all subsequent taxable years under sec_754 to adjust the basis of partnership property under sec_734 and sec_743 with respect to a distribution_of_property to a partner or a transfer of an interest in a partnership shall be made in a written_statement filed with the partnership return for the taxable_year during which the distribution or transfer occurs for the election to be valid the return must be filed not later than the time prescribed by sec_1 e including extensions thereof for filing the return for that taxable_year extension of time 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 internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin commissioner will use to determine whether to grant an extension of time to make the election determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides 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 conclusion based solely upon the information submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of sixty days following the date of this letter to make a sec_754 election effective year the election should be made in a sec_301_9100-3 provides the standards the commissioner will use to sec_301_9100-1 through provide the standards the plr-126614-06 written_statement filed with the applicable service_center for association with x's amended year return a copy of this letter should be attached to the statement filed except as specifically set forth above we express no opinion concerning the as a condition for this late election relief x and the partners of x must amend their federal_income_tax returns consistent with x having made a timely sec_754 election effective year federal_income_tax consequences of the facts or transactions described above under any other provision of the code specifically we express no opinion as to whether or not x is a partnership for federal tax purposes provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representative this ruling is directed only to the taxpayer requesting it sec_6110 sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc ------------------------------------ ----------------------------------------------- ----------------------------- --------------------------------------- ------------------------------------------- ----------------------------- ---------------------------------------- --------------------------------


department of the treasury r reven ervice washington d c - s ’ v tax_exempt_and_government_entities_division date aug contact person identification_number telephone number t e0o b2 employer_identification_number legend b x dear sir or madam uil nos we have considered x's ruling_request dated date regarding x's formation of a limited_liability_company llc to receive a contribution of real_property subject_to potential liabilities x is a community_trust composed of several component parts treated as a single entity and described in sec_501 and sec_170 of the internal_revenue_code x’s governing body is incorporated b an individual owns certain real_property that b intends to donate to x x wishes to accept but is concerned about subjecting itself to potential environmental and premises liability in excess of the value of the property to shield itself from such liability x proposes to organize an llc under state law x will be the sole member of the llc the llc will not elect to be treated as separate from its sole member on form_8832 will donate the property in fee simple to the llc the llc will not assume any liabilities associated with the property arising prior to the transfer the llc will not be subject_to any material restrictions or conditions within the meaning of sec_1_507-2 of the regulations with respect to the property x will treat the property as its own in preparing periodic financial reports to further avoid liability as an agent of the llc x will not be the manager of the llc x will have the power to appoint and remove the managers at any time without cause b will initially be the sole manager of the llc b will serve without compensation other than reimbursement of expenses b is not an officer or director of x and will not acquire any position with x as a result of the contribution x represents that the property will be used in a manner d w f_r e s e t l consistent with x’s exempt purposes all investments and charitable distributions will be subject_to x’s approval x requests the following rulings the llc will be disregarded as separate from x and assets owned or transferred to the llc will be treated as assets owned or transferred to x for all federal tax purposes the llc is not required to submit an application to obtain recognition by the irs of its status under sec_501 of the code in accordance with sec_508 the llc will assume x’s income_tax status accordingly the llc will be a public charity described in sec_509 and sec_170 of the code the acceptance of the contribution of fee simple title to the property by the llc will not adversely affect x's exemption under sec_501 of the code since the property will be used for charitable purposes the fair_market_value of the property at the date of conveyance will be deductible by basa charitable_contribution under sec_170 and sec_2522 of the code in the taxable_year in which the conveyance is made in the manner and to the extent provided by sec_170 the amount of the contribution is the fair_market_value of the property sec_501 of the code exempts from federal_income_tax organizations organized and operated exclusively for charitable purposes sec_508 of the code provides than an organization shall not be treated as described in sec_501 unless it has given notice to the secretary in such manner as the secretary may by regulations prescribe that it is applying for recognition of such status or for any period before the giving of such notice if such notice is given after the time prescribed sec_509 of the code excludes from the definition of private_foundation an organization described in sec_170 sec_1_170a-1 of the income_tax regulations provides generally that the amount of the contribution of property is its fair_market_value at the time of the contribution sec_1_170a-9 of the regulations provides that community trusts have often been established to attract large contributions of a capital or endowment nature for the benefit of a particular community or area and often such contributions have come initially from a smalt number of donors while the community_trust generally has a governing body comprised of representatives of the particular community or area its contributions are often received and maintained in the form of separate trusts or funds which are subject_to varying degrees of control by the governing body to qualify as a publicly_supported_organization a community_trust must meet the percent-of-support test of sec_1_170a-9 or if it cannot meet that test be 200le0027 organized and operated so as to attract new and additional public or governmental support ona continuous basis sufficient to meet the facts_and_circumstances_test of sec_1_170a-9 sec_1_170a-9 provides rules for determining the extent to which separate trusts or funds may be treated as component parts of a community_trust fund or foundation herein collectively referred to as a community_trust and sometimes referred to as an organization for purposes of meeting the requirements of this paragraph for classification as a publicly_supported_organization sec_1_170a-9 of the regulations provides generally that for purposes of sec_170 sec_501 and and chapter of the code any organization that meets certain community_trust requirements set forth in the regulations will be treated as a single entity rather than as an aggregation of separate funds and all funds associated with such organization whether a_trust not-for-profit corporation unincorporated association or a combination thereof will be treated as component parts of such organization sec_301_7701-3 of the procedure and administration regulations provides that a business_entity not classified as a corporation an eligible_entity and having a single member can elect to be classified as an association or to be disregarded as an entity separate from its owner for federal tax purposes sec_301_7701-3 of the regulations provides that unless it elects otherwise a domestic eligible_entity with a single owner is disregarded as an entity separate from its owner sec_301_7701-3 of the regulations provides that an eligible_entity that has been determined to be or claims to be exempt from taxation under sec_501 a is treated as having made an election to be classified as an association ann 1999_43_irb_545 stated that an owner exempt from taxation under sec_501 of the code must include as its own information pertaining to the finances and operations of a disregarded_entity in its annual information_return because the regulations under sec_7701 provide that an entity wholly owned by a single owner may be disregarded as an entity separate from its owner when the entity is disregarded as separate its operations are treated as a branch or division of the owner pursuant to ann the llc is treated as a part of x i as a disregarded_entity unless it elects treatment as a separate association the llc need not submit an application to qualify as a part of x under sec_501 and sec_170 a vi of the code assuming that the owner's ownership of the llc does not adversely affect the owner’ sec_501 or sec_170 status under the facts presented x viewed together with the llc will be described in sec_501 and assuming that the applicable support tests are met b a vi however we decline to rule on the deductibility of b's contribution of the property to the llc under sec_170 of the code see sec_5 of revproc_2000_1 ilr b if accordingly we rule as follows the llc will be disregarded as separate from x for purposes of sec_170 sec_501 and chapter of the code and for return and public disclosure requirements and assets owned or transferred to the llc will be treated as assets owned or transferred to x for such purposes the llc is not required to submit an application in accordance with sec_508 of the code to obtain recognition by the irs of its status as part of an entity described in sec_501 the llc will be encompassed within x's income_tax status accordingly the llc will be part of a public charity described in sec_509 and sec_170 of the code the acceptance of the contribution of fee simple title to the property by the llc will not adversely affect x’s exemption under sec_501 c of the code except as we have ruled above we express no opinion as to the tax consequences of the proposed transaction under the cited provisions of the code or under any other provisions of the code this ruling is directed only to x sec_61 k of the code provides that it may not be used or cited as precedent because this letter could help resolve any future questions about tax_liability you should keep a copy of this ruling in your permanent records if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely terrell m berkovsky manager exempt_organizations technical group