internal_revenue_service number release date index number --------------------------- ------------------- ------------------------------------------------ ---------------------------------- ------------------ -------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc corp plr-102687-10 date date legend legend distributing controlled gp lp lp ------------------------------------------------------ --------------------------------------------------------------------------- ---------------------------------- ------------------------- -------------------------------------------- ---------------------------------- --------------------------------- ------------------------------ ---------------------------------- ------------------------- ------------------------------------------ ------------------------------- ------------------------- ------------------ ----------------------------------------------------- ------------------------------- ------------------------- state a ------------ busine sec_1 ------------------------------------------------------------------------------------------------------------- ------------------------------------------------------ busine sec_2 ---------------------------------------- plr-102687-10 year year busine sec_1 employees shareholder a shareholder b shareholder c shareholder d shareholder e shareholder f shareholder g a b c d e ------- ------- -------------------- ------------------- ---------------- ----------------------- -------------------- ---------------------------- -------------------------- --------------------------- -------------------------- ----------------------- -------------------------- ------------------------- -------------------------- ------------------------------- -------------------------- ------------------------------ -------------------------- -------------------------------- -------------------------- ---- ------ ---- ------ ------ plr-102687-10 f g h i j k l ---- ------ ------ ------ -- -- ---- dear -------------- this letter responds to your request for rulings on certain federal_income_tax consequences of the proposed transaction described below the information submitted in that letter and in later correspondence is summarized below the rulings contained in this letter are based on facts and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process in particular this office has not reviewed any information pertaining to and has made no determination regarding whether the proposed transaction i satisfies the business_purpose requirement of sec_1_355-2 of the income_tax regulations ii is used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both see sec_355 of the internal_revenue_code and sec_1 d or iii is part of a plan or series of related transactions pursuant to which one or more persons will acquire directly or indirectly stock representing a fifty percent or greater interest in distributing or controlled see sec_355 and sec_1_355-7 summary of facts distributing is a closely held s_corporation incorporated in year organized and with its principal_place_of_business in state a distributing is owned directly or through trusts by seven individual family members as follows shareholder a which owns a by vote and b by value shareholder b which owns c by value shareholder c which owns d by vote and e by value shareholder d which also owns d by vote plr-102687-10 and e by value shareholder e which owns f by value shareholder f which also owns f by value and shareholder g which owns d by vote and g by value distributing is engaged directly or indirectly in various businesses including busine sec_1 and busine sec_2 distributing owns an h interest in lp and an i interest in lp each of busine sec_1 and busine sec_2 is currently operated by lp and managed by gp an s_corporation that is closely held by the same family that owns distributing gp is owned directly or through trusts by four individual family members shareholder a which owns a by vote and value and shareholders c d and g each of which owns d by vote and value gp is the general_partner of lp and lp it holds a j interest in lp and a k interest in lp an unrelated party owns the remaining l interest in both lp and lp shareholders a b and c are involved in the management of businesse sec_1 and each is also an employee of gp financial information has been received indicating that each of busine sec_1 and busine sec_2 has had gross_receipts and operating_expenses representing the active_conduct_of_a_trade_or_business for each of the past five years proposed transaction for what are represented to be valid business purposes distributing proposes the following steps the proposed transaction i ii iii iv v the busine sec_1 employees will be transferred from lp to lp the transfer controlled will be incorporated in state a distributing will contribute all of its assets relating to the conduct of busine sec_2 - namely its i interest in lp - to controlled in exchange for all shares of stock in controlled the contribution controlled will assume any and all liabilities of distributing relating to the conduct of busine sec_2 immediately after completion of the transfer and the contribution distributing will distribute all controlled stock to the distributing shareholders on a pro_rata basis the distribution controlled will make an election under sec_1362 to be treated as an s_corporation within the meaning of sec_1361 plr-102687-10 vi following the distribution controlled will continue to be engaged in busine sec_2 and distributing will continue to be engaged in busine sec_1 among other businesses representations the following representations have been made in connection with the proposed transaction a b c d e f any indebtedness owed by controlled to distributing after the distribution will not constitute stock_or_securities no part of the consideration to be distributed by distributing will be received by a shareholder as a creditor employee or in any capacity other than that of a shareholder of the corporation the five years of financial information submitted concerning each of busine sec_1 and busine sec_2 represents its present operations and with regard to each of busine sec_1 and busine sec_2 there have been no substantial operational changes since the date of the last financial statements submitted following the transaction distributing and controlled will each continue the active_conduct of its business independently and with its separate employees except that i certain employees of lp and gp will continue to provide support with respect to busine sec_1 and ii shareholders a b and c will continue to be involved in busine sec_2 all shared employees will be paid the fair_market_value of their services by these entities neither busine sec_1 nor busine sec_2 nor control of an entity conducting either business will have been acquired during the five-year period ending on the date of the distribution in a transaction in which gain_or_loss was recognized or treated as recognized in whole or in part the distribution is carried out for the following corporate business purposes i separation of two distinct lines of business that are not necessarily compatible or mutually beneficial ii isolation of busine sec_1 from the risks and liabilities of busine sec_2 and vice-versa and iii provision of stakeholders in both businesses with the opportunity to focus attention on a single line_of_business the distribution of the stock of controlled is motivated in whole or substantial part by one or more of these corporate business purposes g the proposed transaction is not used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both plr-102687-10 h i j k l m n o the total adjusted bases of the assets to be transferred to controlled by distributing in the proposed transaction will equal or exceed the sum of the total liabilities assumed within the meaning of sec_357 by controlled the total fair_market_value of the assets transferred to controlled in the proposed transaction will exceed the sum of i the amount of any liabilities assumed within the meaning of sec_357 by controlled in the exchange and ii the amount of any liabilities owed to controlled by distributing that are discharged or extinguished in connection with the exchange the total fair_market_value of the assets of controlled will exceed the amount of its liabilities immediately_after_the_exchange the liabilities to be assumed within the meaning of sec_357 by controlled in the contribution were incurred in the ordinary course of business and are associated with the assets being transferred to controlled the aggregate fair_market_value of the assets transferred to controlled in the contribution will equal or exceed the aggregate adjusted_basis of these assets distributing neither accumulated its receivables nor made extraordinary payment of its payables in anticipation of the proposed transaction no intercorporate debt will exist between distributing and controlled at the time of or subsequent to the distribution other than intercompany loans or other obligations that have arisen in the ordinary course of business for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of distributing stock entitled to vote or percent or more of the total value of shares of all classes of distributing stock that was acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution for purposes of sec_355 immediately after the distribution no person determined after applying sec_355 will hold stock possessing percent or more of the total combined voting power of all classes of controlled stock entitled to vote or percent or more of the total value of shares of all classes of controlled stock that was either i acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution or ii attributable to distributions on distributing stock_or_securities that were acquired by purchase as defined in sec_355 and during the five-year period determined after applying sec_355 ending on the date of the distribution plr-102687-10 p q r s t u v w x y z payments made transactions between distributing and controlled will be for fair_market_value based on terms and conditions arrived at by the parties bargaining at arm's length in connection with all continuing no two parties to the proposed transaction are investment companies as defined in sec_368 and iv the distribution is not part of a plan or series of related transactions within the meaning of sec_1_355-7 pursuant to which one or more persons will acquire directly or indirectly stock representing a fifty percent or greater interest within the meaning of sec_355 in distributing or controlled including any predecessor or successor of any such corporation immediately after the transaction as defined in sec_355 neither distributing nor controlled will be a disqualified_investment_corporation within the meaning of sec_355 effective year distributing made an election under sec_1362 to be an s_corporation within the meaning of sec_1361 and distributing has continued to be an s_corporation since year within the meaning of sec_1361 immediately after the distribution controlled will be eligible to elect s_corporation status pursuant to sec_1362 effective immediately after the distribution controlled will elect to be treated as an s_corporation effective immediately after the distribution see sec_1_1361-3 none of the persons holding stock membership interests or any equity_interest in either distributing or controlled is a nonresident_alien_individual a foreign_corporation or a the requirements of sec_1361 trusts meeting trust except for there is no plan or intention to revoke or otherwise terminate the s_corporation_election of either distributing or controlled throughout the five-year period ending on the date of the distribution lp and lp were treated as partnerships for u s federal_income_tax purposes neither lp nor lp will elect to be classified as an association_taxable_as_a_corporation under sec_301_7701-3 plr-102687-10 aa throughout the five-year period ending on the date of the distribution distributing has owned a significant interest within the meaning of revrul_2007_42 i r b in each of lp and lp bb distributing and controlled will continue to own a significant interest within the meaning of revrul_2007_42 i r b in lp and lp respectively immediately after the distribution cc each of shareholder a shareholder b and shareholder c was a shareholder of distributing throughout the five-year period ending on the date of the distribution dd each of shareholder a shareholder b and shareholder c will continue to be a shareholder of distributing and will be a shareholder of controlled immediately after the distribution ee each of the busine sec_1 employees will be transferred from lp to lp before the contribution rulings based solely on the information submitted and the representations set forth above this office rules as follows the transfer by distributing to controlled of part of its assets in exchange for all controlled stock followed by the distribution of all controlled stock to the distributing shareholders will constitute a reorganization within the meaning of sec_368 distributing and controlled each will be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by distributing upon the transfer of assets to controlled in exchange for controlled stock and the assumption_of_liabilities sec_361 and sec_357 no gain_or_loss will be recognized by controlled on the receipt of assets in exchange for controlled stock sec_1032 controlled's basis for each asset received from distributing will equal the basis of that asset in the hands of distributing immediately prior to the proposed transaction sec_362 controlled's holding_period for each of its assets received from distributing will include the period during which distributing held the asset sec_1223 plr-102687-10 no gain_or_loss will be recognized by distributing on the distribution sec_361 no gain_or_loss will be recognized by and no amount will otherwise be included in the income of the distributing shareholders upon their receipt of controlled stock sec_355 the aggregate basis of the controlled stock and the distributing stock in the hands of the distributing shareholders will equal the basis of the distributing stock held by such shareholders immediately prior to the distribution allocated between the distributing stock and the controlled stock in proportion to the fair_market_value of the distributing and controlled stock after the distribution sec_358 sec_358 the holding_period of the controlled stock received by each distributing shareholder will in each instance include the holding_period of the distributing stock with respect to which the distribution is made provided that such distributing stock is held as a capital_asset on the distribution date sec_1223 proper allocations of distributing’s earnings_and_profits will be made in accordance with the provisions of sec_312 and sec_1_312-10 between distributing and controlled caveats no opinion is expressed or implied about the tax treatment of the proposed transaction under other provisions of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the above rulings in particular this office has not reviewed any information pertaining to and has made no determination regarding i whether the proposed transaction satisfies the business_purpose requirement of sec_1_355-2 ii whether the proposed transaction is used principally as a device for the distribution of the earnings_and_profits of distributing or controlled or both see sec_355 and sec_1_355-2 or iii whether the proposed transaction is part of a plan or series of related transactions under sec_355 in addition no opinion is expressed regarding issues relating to distributing’s status as an s_corporation or controlled's subchapter_s_election procedural matters this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent plr-102687-10 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely lisa a fuller senior counsel branch office of associate chief_counsel corporate


t c memo united_states tax_court stephen h briggs and patricia a briggs petitioners v commissioner of internal revenue respondent docket no filed date stephen h briggs and patricia a briggs pro sese skyler k bradbury and charles b burnett for respondent memorandum opinion lauber judge petitioners are tax protesters with respect to their federal_income_tax for the internal_revenue_service irs or respondent determined a tax_deficiency of dollar_figure and an accuracy-related_penalty of dollar_figure under sec_6662 respondent has moved for summary_judgment under rule contending that there are no disputed issues of fact and that he is entitled to judgment as a matter of law petitioners have not responded to this motion we will grant the motion for summary_judgment and sustain the tax_deficiency and penalty we will also require petitioners to pay under sec_6673 an additional penalty to the united_states in the amount of dollar_figure for advancing frivolous positions in this court background the following facts are derived from the parties’ pleadings and respondent’s motion papers including the affidavits and exhibits attached thereto petitioners resided in utah when they filed their petition during petitioner-husband was employed by comcast cable holdings llc and by the u s census bureau petitioner-wife was employed by christus health utah and by matthew a baker both petitioners received some unemploy- ment compensation during and petitioner-husband also received an indivi- dual retirement account ira distribution petitioners’ private-sector employers all statutory references are to the internal_revenue_code in effect at all relevant times and all rule references are to the tax_court rules_of_practice and procedure we round all dollar amounts to the nearest dollar furnished them with forms w-2 wage and tax statement reporting that petitioners had been paid wages during in the following amounts payor christus health utah comcast cable holdings llc matthew a baker total amount dollar_figure big_number big_number big_number petitioners jointly filed a form 1040a u s individual_income_tax_return for they reported as income their unemployment_compensation the ira distribution and dollar_figure of wages after claiming various exemptions and deduc- tions they reported zero taxable_income and zero tax due petitioners reported on their return no wage income from their three private-sector employers this reflected the well-worn tax-protester argument that only wages paid_by the u s government--here the dollar_figure paid to petitioner-hus- band by the census bureau--constitute taxable_income petitioners completed and attached to their return three forms substitute for form_w-2 wage and tax statement taxpayers are instructed to file this form when they do not re- ceive a form_w-2 or where the form_w-2 supplied by their employer is incorrect petitioners averred on the forms that the wages tips and other compensa- tion they received from each of their private-sector employers during was zero the irs selected petitioners’ return for examination following this examination the irs sent them a timely notice_of_deficiency this notice deter- mined a deficiency of dollar_figure based on their unreported wage income of dollar_figure petitioners timely petitioned this court they stated as the basis for their disagreement with respondent’s position that the irs had erred in ignoring our sworn testimony in favor of erroneous information returns they asserted that the forms w-2 are anonymous hearsay documents that the a mounts listed in the notice under taxable wages are not correct and that t he irs has failed to comply with regulations specifying the method of assessing tax one month later petitioners filed an amended petition that detailed their tax- protester arguments with greater specificity this document asserted among other things that the irs willfully denied their fifth_amendment rights against self-incrimination that petitioners affirmatively dispute and rebut the receipt of ‘wages’ from non-government payors that the irs’ reliance on the forms the instructions to form_4852 inform taxpayers if you received an incor- rect form_w-2 you should always attempt to have your employer is- sue a corrected form before filing form_4852 there is no evidence that petition- ers attempted to do this w-2 denied petitioners due process of law under the fifth and fourteenth amendments that the payors of their wages were not employers as defined in sec_3401 and that petitioners were not employees as defined in sec_3401 these assertions were followed by eight pages of incoherent legalese evidently downloaded from tax-protester web sites much procedural skirmishing followed as relevant here petitioners filed a second amended petition reiterating the arguments in their first amended petition and advancing irrelevant contentions about collection_due_process and respon- dent’s alleged failure to comply with the revenue act of they next filed a document asserting that the irs had acted lawlessly in examining their re- turns that their receipt of money from their employers is immaterial and that they had no obligation to prove the non-taxability of their wages because this would place the burden_of_proof on us when by statute it rightfully should be on r espondent on date we warned petitioners that they were ad- vancing frivolous positions we directed their attention to sec_6673 which authorizes this court to impose a penalty of up to dollar_figure on taxpayers asserting frivolous positions on date respondent filed an answer to petitioners’ second amended petition alleging that petitioners were liable for an accuracy-related penalty under sec_6662 on date petitioners filed several motions including a motion to strike scandalous and impertinent content and a motion to strike respondent’s amended answer as a sham pleading these motions were denied on date respondent filed a motion for summary_judgment respondent attached as exhibits to this motion copies of documents establishing that forms w-2 were issued to petitioners by their private-sector employers re- spondent also attached to this motion certified business records from each em- ployer executed by its custodian of records confirming that the employers had paid wages to petitioners in the amounts shown on the forms w-2 these records included copies of pay stubs issued to petitioners or a schedule of their payroll history on date we ordered petitioners to respond to the motion for summary_judgment by date we warned them that under tax_court rule d judgment may be entered against a party who fails to respond to a motion for summary_judgment petitioners ignored this order and have not responded to the irs’ motion discussion a summary_judgment standard the purpose of summary_judgment is to expedite litigation and avoid costly time-consuming and unnecessary trials fla peach corp v commissioner 90_tc_678 under rule b the court may grant summary_judgment when there is no genuine dispute as to any material fact and a decision may be rendered as a matter of law 98_tc_518 aff’d 17_f3d_965 7th cir in deciding whether to grant summary_judgment we construe factual materials and inferences drawn from them in the light most favorable to the nonmoving party ibid however the nonmoving party may not rest upon the mere allegations or denials of his pleadings but instead must set forth specific facts showing that there is a genuine dispute for trial rule d see sundstrand corp t c pincite petitioners have set forth no facts showing that there is a genuine dispute for trial because they failed to respond to the motion for summary_judgment we could enter a decision against them for that reason alone see rule d we will nevertheless consider the motion on its merits we conclude that there are no material facts in dispute and that this case is appropriate for summary adjudication b unreported income the irs’ determinations in a notice_of_deficiency are generally presumed correct and the taxpayer bears the burden of proving those determinations erro- neous rule a 290_us_111 for this pre- sumption to adhere in cases involving receipt of unreported income respondent must provide some reasonable foundation connecting the taxpayer to the income- producing activity see eg 937_f2d_1548 10th cir aff’g tcmemo_1989_552 tucker v commissioner tcmemo_2014_51 at once respondent has produced evidence linking the taxpayer to an income-producing activity the burden_of_proof shifts to the taxpayer to prove by a preponderance_of_the_evidence that respondent’s determinations are arbitrary or erroneous 293_us_507 87_tc_74 respondent has produced in addition to the forms w-2 issued to petitioners certified business records from each employer’s custodian of records confirming the wages paid to petitioners during by christus health utah comcast cable holdings llc and matthew a baker on the basis of this credible_evidence we are satisfied that the irs’ determinations of unreported income as set forth in the notice_of_deficiency are correct and those determinations are accordingly sustained see 181_f3d_1002 9th cir aff’g tcmemo_1997_97 powerstein v commissioner tcmemo_2011_271 102_tcm_497 c accuracy-related_penalty sec_6662 imposes a penalty upon the portion of any underpay- ment of tax that is attributable among other things to a ny substantial under- statement of income_tax sec_6662 b an understatement of income_tax is substantial if it exceeds the greater of dollar_figure or of the tax required to be shown on the return sec_6662 under sec_7491 the irs bears the burden of production with respect to the liability of an individual for any penalty see 116_tc_438 because respondent asserted the penalty in an amended answer respondent also bears the burden_of_proof on this issue see rule a 135_tc_199 respondent bears the burden_of_proof for a penalty asserted in an amended answer the notice_of_deficiency determined an understatement of income_tax of dollar_figure which we have sustained this amount exceeds dollar_figure and of the total_tax ie dollar_figure required to be shown on petitioners’ return respon- dent has thus carried his burden of production by demonstrating a substantial_understatement_of_income_tax see sec_7491 sec_6664 provides that the accuracy-related_penalty shall not be imposed with respect to any portion of an underpayment if it is shown that there was a reasonable_cause for such portion and that the taxpayer acted in good_faith with respect to it the decision as to whether the taxpayer acted with reasonable_cause and in good_faith is made on a case-by-case basis taking into account all pertinent facts and circumstances see sec_1_6664-4 income_tax regs circumstances that may signal reasonable_cause and good_faith include an honest misunderstanding of fact or law that is reasonable in light of all the facts and circumstances including the experience knowledge and education of the taxpayer ibid petitioners’ assertions that wages from private-sector employers are not in- come for federal_income_tax purposes are frivolous see 136_tc_455 pohl v commissioner tcmemo_2013_ at accordingly they have neither substantial_authority nor a reasonable basis for their position see sec_6662 and ii we find their arguments too lacking in any legal or factual basis to constitute a reasonable misunderstanding of the law see sec_1_6664-4 income_tax regs respondent has thus borne his burden of proving that petitioners lacked reasonable_cause for their underpayment we will accordingly sustain the accuracy-related_penalty as asserted in respondent’s amended answer d sec_6673 penalty in his motion for summary_judgment respondent asks the court to impose a penalty on petitioners under sec_6673 that section authorizes this court to require a taxpayer to pay to the united_states a penalty not in excess of dollar_figure if it appears that the taxpayer has instituted or maintained proceedings primarily for delay or the taxpayer’s position is frivolous or groundless the purpose of sec_6673 is to compel taxpayers to conform their conduct to settled tax principles and to deter the waste of judicial resources see 791_f2d_68 7th cir salzer v commissioner tcmemo_2014_188 at petitioners were previously before this court in briggs v commissioner t c dkt no date bench opinion where they challenged a notice_of_deficiency for by advancing substantially_similar and equally frivo- lous contentions while noting that we need not address frivolous arguments we took the trouble to do so in order to explain to p etitioners that indeed their arguments are frivolous we imposed a sec_6673 penalty of dollar_figure as a caution and warned petitioners that if they appeared before this court again and asserted similar arguments they risked a higher penalty petitioners appeared before this court again and persisted in advancing frivolous arguments we gave them another warning in our date order shortly after receiving this warning petitioners filed several pleadings in- cluding a motion to strike scandalous and impertinent content a motion to strike sham pleadings and a memorandum in support of these motions all of which included frivolous arguments we again find that petitioners have asserted frivo- lous positions in this court and will require them to pay to the united_states under sec_6673 a penalty of dollar_figure we warn petitioners that assertion of frivo- lous positions in any future appearance before this court may result in a higher penalty to reflect the foregoing an appropriate order and decision will be entered


internal_revenue_service index number department of the treasury washington dc person to contact telephone number refer reply to cc intl br 1-plr-101130-99 date jun ters f899 dear this is in response to a letter dated date from your authorized representative requesting a ruling on taxpayer's behalf under sec_877 of the internal_revenue_code_of_1986 code that taxpayer's loss of lawful u s resident status did not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code the information submitted for consideration is substantially as set forth below the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by penalty of perjury statements 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 taxpayer was born in country a on date b his father and mother were citizens of country a taxpayer moved to the united_states in year c and became a lawful permanent resident he began working in a large_bank in year d and continued to work in banking administration until his retirement in year g he had no other business activities in the united_states or in country a after his retirement ail of taxpayer's family lives in country a he always planned to retire to country a to be with his family in year e he and his sister bought land on which to build a retirement home in country a they began construction in year f which was completed in year h he sold his u s home on date and immediately moved into his country a home on date j bs plr-101130-99 on date k after the effective date of sec_877 as amended by the health insurance portability and accountability act of taxpayer voluntarily relinquished his u s lawful permanent resident status he became ill shortly thereafter and died on date l the executor of taxpayer’s estate has submitted this request for a ruling taxpayer's net_worth on the date of loss of citizenship exceeded dollar_figure taxpayer's u_s_assets consisted exclusively of a small u s bank account an ira a k account an annuity_contract with his employer and two small life_insurance policies stock account any built-in_gain was primarily attributable to hi sec_401 tap account ira and retirement annuity his country a assets included his home and a country a sec_877 as amended generally provides that a u s citizen who loses u s citizenship or a u s long-term_resident who ceases to be taxed as a lawful permanent resident individuals who expatriate within the 10-year period immediately preceding the close of the taxable_year will be subject_to the special rules of sec_877 for such taxable_year unless such loss or cessation did not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code sec_2107 and sec_2501 provide special estate and gift_tax regimes respectively for individuals who expatriate with a principal purpose to avoid taxes a former citizen or former long term-resident will be treated as having expatriated with a principal purpose to avoid u s taxes for purposes of sec_877 sec_2107 and sec_2501 a if the individual's average income_tax_liability or the individual's net_worth on the date of expatriation exceeds certain thresholds see sec_877 sec_2107 and sec_2501 for purposes of applying the foregoing provisions a former citizen or former long term-resident is presumed to have expatriated with a principal purpose to avoid u s taxes if i the individual's average annual net u s income_tax for the five taxable years prior to expatriation is greater than dollar_figure or ii the individual's net_worth on the date of expatriation is dollar_figure or more as modified by post-1996 cost-of- living adjustments sec_877 of the code see also sec_2107 and sec_2501 of the code under notice_97_19 1997_1_cb_394 as modified by notice_98_34 r b a former long-term_resident whose net_worth or average tax_liability bsb plr-101130-99 exceeds the applicable thresholds will not be presumed to have a principal purpose of tax_avoidance if that former citizen is described within certain categories and submits a complete and good_faith request for a ruling as to whether such loss had for one of its principal purposes the avoidance of u s taxes see sec_877 sec_2107 and sec_2501 notice_97_19 as modified by notice_98_34 requires that certain information be submitted with a request for a ruling that an individual's expatriation did not have for one of its principal purposes the avoidance of u s taxes taxpayer is eligible to request a ruling under sec_877 because he is described in a statutory category of individuals eligible to submit ruling requests inasmuch as taxpayer became a citizen at birth of country a see sec_877 taxpayer submitted all of the information required in notice_97_19 including any additional information requested by the service after review of the submission accordingly based solely on the information submitted and the representations made it is held that taxpayer has made a complete and good_faith submission in accordance with sec_877 and notice_97_19 as modified by notice_98_34 and therefore taxpayer will not be presumed to have expatriated with a principal purpose of tax_avoidance it is further held that taxpayer will not be treated under sec_877 as having as one of his principal purposes for expatriating the avoidance of u s taxes because the information submitted clearly establishes the lack of such a principal purpose to avoid tax under subtitle a or b of the code except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in addition no opinion is expressed as to taxpayer's u s tax_liability for taxable periods prior to his loss of citizenship or for periods after his loss of citizenship under sections of the code other than sec_877 sec_2107 and sec_2501 a copy of this letter must be attached to taxpayer's u s income_tax return for the year in which his executor has obtained the ruling whether or not taxpayer is otherwise required to file a return plr-101130-99 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the executor of taxpayer’s estate sincerely reviewer office of the associate chief_counsel international cc


internal_revenue_service number release date index number --------------------------------------------- ------------------------------- -------------------- ----------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------ id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-126772-10 date date legend x --------------------------------- ----------------------- trust ------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ -------------------------------- ----------------------- a state date date year year ------------------------ ---------------- ------------------------- ---------------------- ------- -------- dear --------------------- this responds to a letter dated date submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated in state on date x made an election to be treated as an s_corporation effective date trust made an election to be treated as a qualified_subchapter_s_trust qsst with respect to a effective date plr-126772-10 on the first day of the year following year trust ceased to qualify as a qsst due to its failure to distribute all of its income within the meaning of sec_1_643_b_-1 to a in year trust discovered the failure in year and made a corrective distribution to a representing all undistributed_income between year and year x represents that a reported a’s allocable share of trust’s income on all affected returns consistent with the treatment of the trust as qsst x further represents that x filed as an s_corporation for all years from and after date x represents that the circumstances resulting in the termination of x's s_corporation_election were inadvertent and were not motivated by tax_avoidance or retroactive tax planning sec_1361 provides that for purposes of sec_1361 a_trust all of which is treated under subpart e of part i of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states may be a shareholder sec_1361 provides that in the case of a qsst with respect to which a beneficiary makes an election under sec_1361 -- a such trust shall be treated as a_trust described in sec_1361 and b for purposes of sec_678 the beneficiary of such trust shall be treated as the owner of that portion of the trust which consists of stock in an s_corporation with respect to which the election under sec_1361 is made sec_1361 provides that for purposes of sec_1361 a qsst means a_trust a the terms of which require that i during the life of the current income_beneficiary there shall be only income_beneficiary of the trust ii any corpus distributed during the life of the current income_beneficiary may be distributed only to such beneficiary iii the income_interest of the current income_beneficiary in the trust shall terminate on the earlier of such beneficiary's death or the termination of the trust and iv upon the termination of the trust during the life of the current income_beneficiary the trust shall distribute all of its assets to such beneficiary and b all of the income within the meaning of sec_643 of which is distributed or required to be distributed currently to individual who is a citizen or resident_of_the_united_states sec_1362 provides that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in the ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s plr-126772-10 corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in the ineffectiveness or termination the corporation will be treated as an s_corporation during the period specified by the secretary based solely on the facts submitted and the representations made we conclude that the termination of x’s s_corporation_election on the first day of year following year was inadvertent within the meaning of sec_1362 we further hold that pursuant to the provisions of sec_1362 x will be treated as continuing to be an s_corporation from date and thereafter provided x’s s_corporation_election was valid and provided that the election was not otherwise terminated under sec_1361 except as specifically ruled above we express no opinion concerning the federal tax consequences of the transactions described above under any other provisions of the code this ruling is directed only to the taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file a copy of this letter is being sent to x’s authorized representative sincerely bradford r poston acting branch chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


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 te_ge eo2 - plr-132322-03 date date ------- ---------- ------------------------- --------------------------------------- legend hospital ----------------------------------------------------- city year state statute a day dear ----------------- this is in reply to a letter dated date requesting a ruling that hospital may be treated as an integral part of city for federal_income_tax purposes and that charitable_contributions made to hospital for public purposes are deductible under sec_170 -------------------------- --------------------- facts pursuant to statute a hospital is governed by a board_of nine trustees the city property was donated to city by a private individual in year for the purpose of establishing a city hospital the procedure for the donation of property to a city for this purpose is governed by state statute a the terms of the deed by which the donation was made included certain restrictions imposed by the donor pursuant to statute a when property is donated to a city for the purpose of establishing a city hospital the city is directed to immediately name a board_of trustees and vest title in the trustees to hold and control according to the terms of the bequest in a decision dated day the district_court of state modified some of the terms of the deed to bring it into harmony with the statutory guidelines commission has the power to change the number of trustees on the board and has done so twice changing the number of trustees from five to seven and from seven to nine all of the members of the board_of trustees are appointed by the mayor of city subject_to the approval of the city commissioners the board members are considered city officials their term of office is described in statute a board meetings are public meetings subject_to the state open meeting statute the hospital facilities and the property on which the facilities are located were donated to city however city’s control respecting the operation and management of the hospital is vested in the board the original deed conveying the property to city requires that plans for changes or improvements in the buildings or the real_property must be submitted to the mayor and commissioners of city for their approval the annual budget and audit of hospital are filed with city for review by the city commission offsetting the expenses of its healthcare operations no part of the net_earnings of hospital inures to the benefit of any private person hospital’s annual operating income comes primarily from hospital operations and charitable_contributions city can levy taxes for the purpose of equipping maintaining operating and improving hospital it can also issue bonds for the purpose of hospital construction within and outside of city since the hospital was acquired by donation in year several additions and renovations have been made to the hospital facilities and some adjoining real_estate has been purchased city has contributed cash funds for these projects in addition the city has issued both revenue bonds and general obligation bonds to pay for renovation and construction projects carried out by hospital all revenue of hospital derived from hospital operations is applied solely toward law and analysis integral part generally if income is earned by an enterprise that is an integral part of a state or political_subdivision of a state that income is not taxable in the absence of specific in 308_fsupp_761 d md in state of michigan and 40_f3d_817 statutory authorization to tax that income see revrul_87_2 1987_1_cb_18 revrul_71_131 1971_1_cb_28 revrul_71_132 1971_1_cb_29 rev’d on other grounds 400_us_4 mssic the state of maryland formed a corporation to insure the customer accounts of state chartered savings and loan associations under mssic’s charter the full faith and credit of the state was not pledged for mssic’s obligations only three of eleven directors were selected by state officials the district_court rejected mssic’s claim of intergovernmental tax immunity because the state made no financial contribution to mssic and had no present_interest in the income of mssic thus the imposition of an income_tax on mssic would not burden the state of maryland although the supreme court reversed the lower court on other grounds it agreed with the lower court’s analysis about the treatment of state created enterprises 6th cir rev’g 802_fsupp_120 w d mich the court held that the investment_income of the michigan education trust met was not subject_to current taxation under sec_11 the court’s opinion is internally inconsistent because it concludes that met qualifies as a political_subdivision of the state of michigan id pincite that met is in a broad sense a municipal corporation id pincite and that met is in any event an integral part of the state of michigan id pincite moreover the court’s reliance on the factors listed in revrul_57_128 1957_1_cb_311 to reach its conclusion is misplaced the revenue_ruling applies to entities that are separate from the state the factors in the revenue_ruling do not determine whether an enterprise is considered to be a separate_entity or an integral part of the state sec_301_7701-1 et seq of the procedure and administration regulations the co-called check-the-box_regulations support the position that an entity that is recognized as separate from a state or political_subdivision for local law purposes may still be an integral part of that state political_subdivision sec_301_7701-1 provides in part that an entity formed under local law is not always recognized as a separate_entity for federal tax purposes for example an organization wholly owned by a state is not recognized as a separate_entity for federal tax purposes if it is an integral part of the state necessary to consider all of the facts and circumstances including the state’s degree of control_over the enterprise and the state’s financial commitment to the enterprise donated to the city for the purpose of establishing a city hospital is governed by state city has substantial control_over hospital the management of a hospital in determining whether an enterprise is an integral part of the state it is sec_170 of the code states that the term charitable_contribution sec_170 of the code provides subject_to certain limitations a deduction statute all of the members of the board_of trustees are appointed by the mayor of city subject_to the approval of the city commissioners the annual budget and audit are reviewed annually by the city commission in addition city has made a substantial financial commitment to hospital city contributed the hospital facilities and the land on which the facilities are located in addition city has contributed cash as well as bond proceeds including the proceeds from general obligation bonds for the acquisition of additional land and the construction and renovation of the hospital facilities accordingly we conclude that hospital is an integral part of city that hospital’s income is not subject_to federal_income_tax and that hospital is not required to file an annual federal_income_tax return sec_170 for contributions or gifts to or for_the_use_of organizations described in sec_170 payment of which is made within the taxable_year includes a contribution or gift to or for_the_use_of a state a possession_of_the_united_states any political_subdivision of a state or any possession_of_the_united_states or the district of columbia but only if the contribution is made for exclusively public purposes or for_the_use_of hospital are to or for_the_use_of an entity described in sec_170 accordingly contributions or gifts to or for_the_use_of hospital are to or for_the_use_of city and provided they are made for exclusively public purposes are generally deductible under sec_170 to the extent otherwise allowed by sec_170 hospital is an integral part of city charitable_contributions to hospital are deductible by the donors to the extent provided by sec_170 of the code tax consequences of any particular transaction except as specifically provided otherwise no opinion is expressed on the federal in this case because hospital is an integral part of city contributions or gifts to conclusions this ruling is directed only to the taxpayer who requested it sec_6110 ___________________________ barbara beckman assistant to the chief branch exempt_organizations division counsel associate chief_counsel tax exempt and government entities sincerely provides that this ruling may not be used or cited as precedent enclosures copy of this letter copy for sec_6110 purposes cc -------------------------------------------------------------------------- --------- ----------------------------------- -------------------------------------- --------------------------------- --------------------- ----------------------------------------- ---------------------------


tcmemo_2010_40 united_states tax_court james robert and kathy morse petitioners v commissioner of internal revenue respondent james robert and kathy s morse petitioners v commissioner of internal revenue respondent docket nos filed date james robert and kathy s morse pro sese rollin g thorley for respondent memorandum opinion gerber judge these consolidated cases were submitted fully stipulated pursuant to rule for petitioners’ 1unless otherwise indicated all rule references are to the tax_court rules_of_practice and procedure and all section references are to the internal_revenue_code in effect for the continued and tax years respondent determined the following income_tax deficiencies and an accuracy-related_penalty year deficiency dollar_figure big_number accuracy- related penalty sec_6662 dollar_figure -0- the deficiencies are attributable to petitioners’ failure to report income the questions for our consideration are whether petitioners’ income from wages is taxable for both years and whether they are liable for an accuracy-related_penalty for background petitioners james robert morse petitioner and kathy s morse mrs morse were residents of arizona at the time their petitions were filed mrs morse died on date after the filing of the petitions for petitioners timely filed a joint form_1040 u s individual_income_tax_return reflecting zero gross and zero adjusted_gross_income and claiming a dollar_figure overpayment of withholding_tax respondent applied the dollar_figure overpayment to petitioners’ outstanding income_tax_liability on their continued years at issue 2respondent has moved with respect to both cases to dismiss mrs morse for failure to prosecute as no representative of her estate has come forward to pursue this proceeding respondent’s motions to dismiss will be granted income_tax return petitioners reported dollar_figure and dollar_figure as wages solely for purposes of social_security and medicare along with an explanation as to why said wages were not taxable as income for petitioners timely filed a joint form 1040ez income_tax return for single and joint filers with no dependents reporting dollar_figure of adjusted_gross_income from unemployment_compensation and claiming a dollar_figure overpayment of withholding_tax respondent applied dollar_figure of the dollar_figure to petitioners’ outstanding income_tax_liability for and the remaining dollar_figure to petitioners’ outstanding income_tax_liability for on their return petitioners reported wages solely for social_security and medicare purposes but not as gross_income subsequently respondent on date sent petitioners letters advising that their and income_tax returns contained reporting positions that are considered to be frivolous tax submissions and that they might be subject_to a penalty under sec_6702 those same letters provided petitioners with an opportunity to correct their and returns in responses dated date petitioner advised respondent that his returns were correct and that his position was fully explained therein in addition petitioner posed numerous questions as to why respondent considered his tax reporting position to be frivolous subsequently respondent assessed a dollar_figure penalty against petitioner and against mrs morse under sec_6702 petitioners did not pay the dollar_figure penalties and respondent proceeded to pursue collection activity thereafter respondent verified the existence of petitioners’ wages and advised petitioners of the intention to determine income_tax deficiencies petitioners retorted that respondent had no right to change their and returns respondent issued notices of deficiency for the tax years and on september and date respectively from which petitioners petitioned this court discussion petitioner admits that petitioners received wages during and but argues that those wages are not taxable petitioner’s argument is familiar to this and other courts and has been soundly rejected on numerous occasions petitioner in an attempt to construct an argument begins with definitions of the terms includes and including and some general principles of statutory construction he then defines certain terms such as united_states employee and related terms finally he refers the court to sec_3401 which concerns withholding of tax from wages by citing out of context selected text from 3petitioner also made arguments concerning the sec_6702 penalties that had been assessed but this court is without jurisdiction to address the merits of that assessment the withholding_tax provisions petitioner concludes that only residents of the district of columbia and federal employees are subject_to the federal_income_tax on their wages petitioner’s position is without substance and has been rejected on numerous occasions by this and other courts by selectively analyzing statutes out of context petitioner has reached the conclusion that petitioners’ wages received for and do not constitute taxable_income petitioner has followed in the footsteps of numerous others who have unsuccessfully attempted to find a way to avoid paying federal_income_tax we find petitioner’s arguments to be wholly without merit and not worthy of further analysis for example it has been explained that compensation_for labor or services paid in the form of wages or salary has been universally held by the courts of this republic to be income subject_to the income_tax laws currently applicable 640_f2d_1014 9th cir see 687_f2d_264 8th cir affg per curiam tcmemo_1981_506 632_f2d_706 8th cir 619_f2d_716 8th cir 80_tc_1111 moreover we are not obligated to exhaustively review and or rebut petitioner’s misguided contentions 737_f2d_1417 5th cir we accordingly hold that petitioners’ wage income is subject_to the income_tax and that respondent did not err in determining income_tax deficiencies against petitioners finally we consider whether petitioners are liable for an accuracy-related_penalty under sec_6662 sec_6662 and b and imposes an accuracy-related_penalty of percent on the portion of an underpayment attributable to negligence or disregard of rules or regulations or to a substantial_understatement_of_income_tax an understatement is substantial if it exceeds the greater of percent of the tax required to be shown on the return for the taxable_year or dollar_figure sec_6662 petitioners did not have a substantial_understatement as their underpayment fell short of the statutory threshold accordingly we consider whether petitioners are subject_to an accuracy-related_penalty attributable to negligence respondent has carried the burden of production by showing that petitioners failed to report income and that their reason for doing so was frivolous an underpayment is not subject_to an accuracy-related_penalty to the extent that the taxpayer shows that the underpayment is due to reasonable_cause and good_faith sec_6664 115_tc_43 affd 299_f3d_221 3d cir see also sec_1_6662-3 sec_1_6664-4 income_tax regs petitioners’ position reflected on their income_tax returns and the position presented to this court are without substance and have no support in case precedent it is of no consequence that petitioners presented a detailed explanation of their statutory analysis because it has been rejected by numerous courts and because it is nothing more than sophistry accordingly we hold that petitioners were negligent and are subject_to the accuracy-related_penalty for the tax underpayment to reflect the foregoing appropriate orders and decisions will be entered


department of the treasury internal_revenue_service te_ge eo examinations mc dal os commerce st dallas tx tax_exempt_and_government_entities_division release number release date legend org organization name org address date xx date address address form number tax_year ended taxpayer_identification_number person to contact employee identification_number contact telephone number phone fax in reply refer to te_ge review staff dear 'rhis is a final adverse determination_letter as to your exempt status under sec_501 c of the internal_revenue_code your exemption from federal_income_tax under sec_501 of the code is hereby revoked effective july 20xx our adverse determination was made for the following reasons organizations described in lr c sec_501 and exempt under sec_501 a must be organized and operated exclusively for exempt purposes you have failed to demonstrate that you are operated exclusively for exempt purposes since your organization has been inactive and has failed to conduct any activity in furtherance of a charitable purpose based upon these reasons we are retroactively revoking your sec_501 tax exempt status effective for all years beginning on or after july 20xx contributions to your organization are no longer deductible under sec_170 of the internal_revenue_code you are required to ftle federal_income_tax returns on form_1120 u s_corporation income_tax return for the years ended june 20xx and for all years thereafter with the appropriate service_center immediately and by the due_date of form_1120 for all subsequent years proccssmg of income_tax returns and assessment of any taxes due will not be delayed should a petition for declaratory_judgment be flied under sec_7428 of the internal_revenue_code if you decide to contest this determination in court you must initiate a suit for declaratory_judgment in the united_states tax_court the united_states court of federal claims or the district_court of the united_states for the district of coh unbia before the st day after the date this determination was mailed to you contact the clerk of the appropriate court for the rules for initiating suits for declaratory_judgment you also have the right to contact the office_of_the_taxpayer_advocate however you should first contact the person whose name and telephone number are shown above since this person can access your tax information and can help you get answers you can call and ask for taxpayer_advocate assistance or you can contact the taxpayer_advocate from the site where the tax_deficiency was determined by calling or writing to taxpayer a dvocate assistance cannot be used as a substitute for established irs procedures formal appeals processes etc the taxpayer_advocate is not able to reverse legal or technically correct_tax determinations nor extend the time fixed by law that you have to file a petition in the united_states tax_court the taxpayer i dvocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours nanette m downing director eo examinations internal_revenue_service department of the treasury taxpayer_identification_number form tax_year s ended person to contacuid number contact numbers telephone fax date date org address certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under sec_50j c of the internal_revenue_code code is necessary fyou accept our findings take no further action we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision your protest should include a statement of the facts the applicable law and arguments in support of your position an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and prol11ptly the enclosed publication the examination process and publication exempt_organizations appeal procedures or unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process you may also request that we refer this matter for technical_advice as explained in publication if we issue a determination_letter to yoll based on technical_advice no further administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice letter rev catalog number 34809f if we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district ofcolu111bia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notify the appropriate state officials of the revocation in accordance with section c of the code you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper hand iing you may call toll-free j-877-777-4778 and ask for taxpayer_advocate assistance i f you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation sincerely sunita lough director eo examinations enclosures publication publication report of examination letter rev catalog number 34809f form 886a n arne of taxpayer org derartment of the treasury rntc rnai rcvc 1ue sen'ice ex lanation of items ibit year period ended 20xx legend org chapter zation name xx - date cen-org - cen-org chapter issue should the sec_501 tax exempt status oforg be revoked because it is not operated exclusively for tax exempt purposes facts the org the organization was created under the group exemption of cen-org the central organization the organization is exempt as described in sec_501 and sec_509 the status code date of the organization is april 20xx there are no organizing documents specifically created for the chapter this chapter adopted the central organizations documents which includes information about the practices of the subsidiary associations the organization has no assets and was never active the organization never filed form_990 but was included on the central organization's return for 20xx and 20xx in an attached schedule that stated that the organization had no activity during the year 20xx there would have been no requirement for the organization to file since there was no revenue the pension_protection_act ppa of20xx changed the filing requirement for supporting organizations that had transactions occulting after july 20xx sec_501 exempts from federal_income_tax corporations and any community chest fund or foundation organized and operated exclusively for religious charitable scientific testing for public safety literary or educational_purposes or for the prevention of cruelty to chi ldren or animals no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual no substantial part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation and which doe sec_110t participate in or intervene in including the publishing or distributing of statements any political campaign on behalf of any candidate for public_office regulation section dollar_figure i c -1 c l provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose it is the position of the service that alumni associations generally are not rev_rul organized and operated exclusively for educational_purposes within the meaning of sec_50 i c of the code except in those cases where the association is controlled by or operated as form 886-a rev department of the treasury internal_revenue_service page -1 form 886a name of taxpayer oro dcpartrrc'nt nt' thl treasury internal_revenue_service ex lanation of items ibit year period ended 20xx an integral part of an educational_institution or otherwise shows a substantial integration with such an institution revrul_56_486 c b an alumni association formed at the instigation of university officials was incorporated for the purpose of fostering a spirit of loyalty and fraternity among the graduates and former students of the university and to effect united action in promoting the general welfare of the university as an educational_institution the financial affairs of the association are under the direct control of the administrative officers of the university held since the association is organized primarily for the purpose of promoting the welfare of the university with which it is affiliated is operated as an integral part of it and is subject_to the control of the university as to its policies and destination of funds it qualifies for exemption from federal_income_tax under sec_50 i c of the internal_revenue_code of as a corporation organized and operated exclusively for educational_purposes sec_509 organizations must meet all three of the following tests organizational and operational tests under sec_509 relationship_test under sec_509 b disqualified_person control test under sec_509 overall these tests are meant to ensure that a supporting_organization is responsive to the needs of a public charity and intimately involved in its operations and that the public charity or publicly_supported_organization is motivated to be attentive to the operations of the supporting_organization and that it is not controlled directly or indirectly by disqualified persons organizational and operational tests the organization is not organized to benefit one or more specified publicly supported organizations pursuant to sec_1_509_a_-4 and iv an organization's governing instrument must state the specified publicly_supported_organization s on whose behalf the organization is to be operated and cannot expressly empower the organization to support or benefit any organizations other than the specified publicly_supported_organization s moreover the operational_test set forth in sec_1_509_a_-4 is not satisfied a supporting_organization will be regarded as operated exclusively to support a specified publicly_supported_organization s only if it engages in activities which support or benefit the specified publicly suppolied organizations s as was discussed under the primary issue above the organization has not been active and is not operated exclusively for the benefit of the publicly supported organizations the operational_test requires the organization to exclusively engage in activities that benefit specified publicly supported organizations form 886-acrcv department of the treasury - internal_revenue_service page -2 i epartment of the trea ury - i nternal revenue sen-icc explanation of i terns schedule no or exhibit year period ended 6j30j20xx form 886a n arne of taxpayer org relationship_test as set fortb in sec_1 s09 a -4 f there are three permissible relationships a operated supervised or controlled by b supervised or controlled in connection with and c operated in connection with one or more publicly supported organizations the relationships operated supervised or controlled by and supervised or controlled in connection with presuppose a substantial degree of direction over the policies programs and activities of the supporting_organization by a publicly_supported_organization the operated supervised or controlled by relationship is established by the fact that a majority of the officers directors or trustees of the supporting_organization are appointed or elected by the governing body members oftbe governing body officers acting in their official capacity or the membership of the publicly_supported_organization the supervised or controlled in connection with relationship is established by the fact that there is common supervision or control by the persons supervising or controlling both the supporting and the publicly supported organizations ie that contro i or management of the supporting_organization is vested in the same persons that control or manage the publicly_supported_organization in the present case the facts indicate tbat there was no substantial control or direction over the policies or activities of the organization by the publicly_supported_organization the third and final relationship possible for section s09 a organizations is the operated in connection with relationship which requires that the supporting_organization be responsive to the needs or demands of the publicly_supported_organization and constitute an integral part of or maintain a significant involvement in the affairs of the publicly_supported_organization this relationship is satisfied where the supporting_organization meets both the responsiveness and integral part tests the integral part test has not been met in this case while the responsiveness test guarantees that the publicly_supported_organization can influence the activities of the supporting_organization the integral part test ensures that the publicly_supported_organization will be motivated to attend to the operations of the supporting_organization the integral part test is considered to have been satisfied if the supporting_organization maintains a significant involvement in the operations of one or more publicly supported organizations and the publicly supported organizations are in tum dependent upon the supporting_organization for the type of support which it provides sec_1 s09 a i i in order to meet the integral part test either sec_1 i ii or iii must be satisfied sec_1 s09 a -4 i ii provides that the activities engaged in for or on behalf of the publicly supported organizations must be activities to perform the functions of or to carry out the form 886-acrcv 4-g8 department of the treasury - internal_revenue_service page -3 form 886a name of taxpayer org l cpar mcnt of th 'j'rca li1'y i mcrnal r vcl1u service ex lanation of i terns schedule no or exhibit year period ended 20xx purposes of such organizations and but for the involvement of the supporting_organization would normally be engaged in by the publicly supported organizations themselves thus this part of the integral part test applies in those situations in which the supporting_organization actually engages in activities which benefit the publicly supported organizations as opposed to simply making grants to the publicly supported organizations the organization does not meet this test because it does not perform any activities for or on behalf of the publicly supported organizations the organization is not active income_tax regulations sec_1 a -40 regarding control by disqualified persons provides a supporting_organization may not be controlled directly or indirectly by one or more disqualified persons as defined in sec_4946 other than foundation managers and other than one or more publicly supported organizations taxpayer's position taxpayer did not respond to proposed revocation report government's position the ire so c tax exempt status of the org should be revoked because it is not organized or operated exclusively for tax exempt purposes in order to be exempt as an organization described in section sol c an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt reg l sol c -1 a l the facts show that the organization is not active and does not have organizing documents the organization has not been active since it received it's ein in 20xx accordingly there is no indication that the organization is being operated for an exempt_purpose and the exempt status of the organization should be revoked form 886-a rcv department of the treasury - internal_revenue_service page -4