t c summary opinion united_states tax_court manolito t legaspi petitioner v commissioner of internal revenue respondent docket no 19895-13s filed date manolito t legaspi pro_se paulmikell a fabian for respondent summary opinion guy special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by unless otherwise indicated section references are to the internal revenue continued any other court and this opinion shall not be treated as precedent for any other case respondent determined a deficiency of dollar_figure in petitioner’s federal_income_tax for year in issue petitioner filed a timely petition for redetermination with the court pursuant to sec_6213 at the time the petition was filed petitioner resided in california after concessions the issues remaining for decision are whether petitioner is entitled to a deduction in excess of the dollar_figure respondent allowed in the notice_of_deficiency for vehicle expenses claimed on schedule c profit or loss from business a noncash charitable_contribution_deduction of dollar_figure claimed on schedule a itemized_deductions a dependency_exemption deduction for his minor son and an earned_income_credit eic continued code as amended and in effect for and rule references are to the tax_court rules_of_practice and procedure monetary amounts are rounded to the nearest dollar petitioner concedes that he is not entitled to an itemized_deduction for real_estate_taxes in excess of the dollar_figure deduction that respondent allowed in the notice_of_deficiency to the extent not discussed herein other issues are computational and flow from our decision in this case background some of the facts have been stipulated and are so found the stipulation of facts and the accompanying exhibits are incorporated herein by this reference i petitioner’s web site petitioner earned a degree in computer science from de la salle university in the philippines in or after working as a computer programmer for about years petitioner created a web site filamnation com devoted to publishing information about events of interest to filipino americans petitioner testified that filamnation com averaged about big_number to big_number visitors each day during and that he was able to generate income by selling advertisement space on the web site to various businesses he further testified that he entered into agreements with event promoters to include promotional information about special events on filamnation com in exchange for permission to set up a booth to promote his web site at those events when attending an event petitioner typically conducted a raffle as a means to collect personal email addresses from participants in exchange for a chance to win filamnation com t-shirts petitioner used the email addresses he collected this way to disseminate filamnation com’s newsletter to as many as big_number email addresses up to three times per week petitioner testified that he traveled by car throughout california and neighboring states to attend events and promote filamnation com he further testified that he usually spent the night with friends on longer trips petitioner produced a mileage log for that identified each event he attended the dates he traveled the cities he traveled to and the number of miles he drove according to the mileage log petitioner attended more than events and drove big_number miles in ii petitioner’s charitable_contributions goodwill issued a receipt to petitioner dated date acknowledging that he donated six bags of clothing one bag of shoes accessories and six pieces of furniture the goodwill receipt does not include a detailed description of the items petitioner donated or a statement whether he received anything of value in exchange for the items at trial petitioner produced photographs of seven pieces of furniture he claimed to have donated--a three-piece bedroom set an armoire a console table a cd rack and a mirror each photograph included petitioner’s handwritten notes listing the year the item was purchased the original purchase_price for the item and the item’s fair market value--an amount equal to one-third of the listed purchase_price petitioner did not obtain an independent appraisal of the noncash items that he donated to goodwill but rather he assigned a value to each item himself iii petitioner’s divorce petitioner testified that he and his now former spouse maria s reyes were divorced in but that he continued to reside with her and their two children until date at that point petitioner moved out and the couple’s two children continued to reside with ms reyes iv petitioner’s tax_return for petitioner timely filed a form_1040 u s individual_income_tax_return for claiming head_of_household filing_status and dependency_exemption deductions for himself his mother and his minor son ml he reported adjusted_gross_income of dollar_figure comprising net business income of dollar_figure and unemployment_compensation of dollar_figure petitioner claimed various itemized_deductions on schedule a including gifts to charity other than by cash or check of dollar_figure on form_8283 noncash charitable_contributions petitioner reported that on date he donated items to goodwill valued at dollar_figure and that he had acquired the items on it is the court’s policy to refer to minor children only by their initials see rule a date with a cost or adjusted_basis of dollar_figure petitioner did not attach to his tax_return an appraisal of the noncash items that he donated to goodwill petitioner reported on schedule c that he conducted a marketing business filamnation com that generated gross_receipts of dollar_figure he reported that he drove big_number miles for business purposes and applying the applicable standard mileage rate of cents per mile he claimed a deduction for vehicle expenses of dollar_figure v ms reyes’ tax_return for ms reyes also filed a federal_income_tax return for she reported wage income of dollar_figure and like petitioner claimed a dependency_exemption deduction for ml she also claimed an eic of dollar_figure vi developments during and after trial the court permitted petitioner to belatedly assert for the first time at trial that he is entitled to an eic for placing the parties on equal footing the court likewise permitted respondent to assert for the first time at trial that petitioner was not entitled to a dependency_exemption deduction for ml the commissioner generally updates the optional standard mileage rates annually see sec_1_274-5 income_tax regs the standard mileage rate of cents per mile for is set forth in revproc_2009_54 sec_2 2009_51_irb_930 at the conclusion of the trial the court left the record open for a brief period to permit petitioner to produce additional documentation substantiating his vehicle expenses the parties were unable however to agree to a supplemental stipulation of facts and the record subsequently was closed discussion the commissioner’s determination of a taxpayer’s liability in a notice_of_deficiency normally is presumed correct and the taxpayer bears the burden of proving that the determination is incorrect rule a 290_us_111 deductions are a matter of legislative grace and the taxpayer generally bears the burden of proving entitlement to any deduction claimed rule a 503_us_79 292_us_435 a taxpayer must substantiate deductions claimed by keeping and producing adequate_records that enable the commissioner to determine the taxpayer’s correct_tax liability sec_6001 65_tc_87 aff’d per curiam 540_f2d_821 5th cir although petitioner has not asserted that the burden_of_proof as to any relevant factual issue should shift to respondent under sec_7491 respondent bears the burden of proving that petitioner is not entitled to a dependency_exemption deduction for ml see rule a respondent shall bear the burden_of_proof in respect of any new_matter or increases in the deficiency 43_tc_824 a taxpayer claiming a deduction on a federal_income_tax return must demonstrate that the deduction is allowable pursuant to a statutory provision and must further substantiate that the expense to which the deduction relates has been paid_or_incurred sec_6001 hradesky v commissioner t c pincite when a taxpayer establishes that he or she paid_or_incurred a deductible expense but fails to establish the amount of the deduction the court normally may estimate the amount allowable as a deduction 39_f2d_540 2d cir 85_tc_731 there must be sufficient evidence in the record however to permit the court to conclude that a deductible expense was paid_or_incurred in at least the amount allowed 245_f2d_559 5th cir under sec_162 a deduction is allowed for ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business a deduction normally is not allowed however for personal living or family_expenses sec_262 whether an expenditure satisfies the requirements for deductibility under sec_162 generally is a question of fact see 320_us_467 sec_274 prescribes more stringent substantiation requirements to be met before a taxpayer may deduct certain categories of expenses including expenses related to the use of listed_property as defined in sec_280f see 50_tc_823 aff’d 412_f2d_201 2d cir as relevant here the term listed_property includes passenger automobiles sec_280f to satisfy the requirements of sec_274 a taxpayer generally must maintain adequate_records or produce sufficient evidence corroborating his or her own statement which in combination are sufficient to establish the amount date and time and business_purpose for each expenditure or business use of listed_property sec_1_274-5t c temporary income_tax regs fed reg date sec_1_274-5t temporary income_tax regs fed reg date provides in relevant part that adequate_records generally consist of an account book a diary a log a statement of expense trip sheets or a similar record made at or near the time of the expenditure or use along with supporting documentary_evidence sec_1_274-5 income_tax regs provides in relevant part that a taxpayer who elects to use the optional standard mileage rate method to compute vehicle expenses must nevertheless meet the strict substantiation requirements of sec_274 moreover the court may not use the rule established in cohan v commissioner f 2d pincite to estimate expenses covered by sec_274 sanford v commissioner t c pincite sec_1_274-5t temporary income_tax regs fed reg date i vehicle expenses petitioner elected to apply the standard mileage rate and claimed a deduction for vehicle expenses of dollar_figure respondent maintains that petitioner has not adequately substantiated vehicle expenses greater than dollar_figure petitioner testified that he traveled extensively in to attend events where he promoted filamnation com the record includes a mileage log that purports to show the number of miles that petitioner drove for business purposes although we have no doubt that petitioner traveled to promote his web site he nevertheless failed to produce any supporting documentation to substantiate the information in his mileage log in particular he offered no evidence such as gasoline receipts credit card statements emails from event promoters or testimony or statements from friends to corroborate the information in his mileage log on this record we conclude that petitioner has failed to adequately respondent determined that petitioner drove big_number miles for business purposes in multiplying big_number miles by the standard mileage rate of cents per mile respondent allowed petitioner vehicle expenses of dollar_figure substantiate a deduction for vehicle expenses greater than the amount respondent allowed ii charitable_contributions charitable_contributions are deductible only if verified in accordance with regulations prescribed by the secretary sec_170 see 136_tc_515 sec_170 provides that the taxpayer must obtain a contemporaneous written acknowledgment from the donee for any claimed charitable_contribution_deduction of dollar_figure or more sec_170 provides in relevant part that the contemporaneous written acknowledgment must include the amount of cash and a description of any property other than cash contributed whether the donee organization provided any goods or services in consideration in whole or in part for any cash or property contributed and if so a description and good-faith estimate of the value of any goods or services provided by the donee sec_1_170a-13 f income_tax regs sec_170 provides that a written acknowledgment is contemporaneous when the taxpayer obtains it on or before the earlier of the date the taxpayer files a return for the year of contribution or the due_date including extensions for filing that return in addition to the written acknowledgment requirement sec_170 and related regulations establish more detailed requirements for substantiation of contributions of property other than money for noncash contributions of dollar_figure or less the taxpayer must substantiate the contribution with a receipt from the donee indicating the donee’s name the date and location of the contribution and a description of the property in detail reasonably sufficient under the circumstances sec_1_170a-13 income_tax regs for noncash contributions in excess of dollar_figure the taxpayer normally must also maintain written records showing the manner in which the item was acquired the approximate date_of_acquisition and the cost or adjusted_basis of the property id para b see lattin v commissioner tcmemo_1995_233 goodwill issued a receipt to petitioner acknowledging that he donated clothing shoes accessories and furniture in date the receipt does not include a statement whether goodwill provided any goods or services in consideration in whole or in part for the property that petitioner contributed and the receipt does not include a detailed description of the donated items under the if information regarding the acquisition_date or cost_basis of the property is not available and the taxpayer attaches a statement to his return setting forth reasonable_cause for not being able to provide such information the taxpayer’s charitable_contribution_deduction shall not be disallowed on that account sec_1_170a-13 income_tax regs circumstances petitioner has failed to meet the substantiation requirements for contributions of dollar_figure or more prescribed in sec_170 and therefore we sustain respondent’s determination that he is not entitled to a deduction for the noncash charitable_contributions claimed on his return iii dependency_exemption deduction and eic as previously discussed the court permitted petitioner to assert for the first time at trial that he was entitled to an eic the court likewise permitted respondent to present evidence challenging the dependency_exemption deduction that petitioner claimed for ml a dependency_exemption deduction an individual is allowed a deduction for an exemption for each individual who is a dependent as defined in sec_152 of the taxpayer for the taxable_year sec_151 sec_152 defines the term dependent to include a qualifying_child generally a qualifying_child must bear a specified relationship to the taxpayer eg be a child of the taxpayer have the same principal_place_of_abode as the taxpayer for more than one-half of such taxable_year meet certain age requirements not have provided over one-half of such individual’s own support for the taxable_year at issue and not have filed a joint_return for that year sec_152 sec_152 provides special rules when two or more taxpayers can claim the same qualifying_child as a dependent as relevant here sec_152 provides that if the parents claiming any qualified child do not file a joint_return together such child shall be treated as the qualifying_child of the parent with whom the child resided for the longest period during the taxable_year petitioner moved out of what had been the marital home in date and we have found that ml continued to reside with ms reyes thereafter under the circumstances and inasmuch as petitioner did not file a joint tax_return with ms reyes for it follows that ml was the qualifying_child of ms reyes in accordance with the provisions of sec_152 petitioner likewise cannot claim ml as his qualifying_child under the special rules that apply in the case of divorced parents see sec_152 espinoza v commissioner tcmemo_2011_108 pursuant to sec_152 when certain criteria are met a child may be treated as a qualifying_child of the noncustodial_parent here petitioner rather than of the custodial_parent ms reyes sec_152 sec_1_152-4 income_tax regs in accordance with sec_152 consistent with petitioner’s testimony that he moved out of the marital home in date ms reyes was ml’s custodial_parent see sec_152 the term ‘custodial parent’ means the parent having custody for the greater portion of the calendar_year and petitioner could treat ml as his qualifying_child only if ms reyes had signed a written declaration that she would not claim ml as a dependent and if petitioner attached the written declaration to his tax_return for petitioner did not attach the requisite written declaration to his tax_return and in fact the record reflects that ms reyes claimed ml as her dependent for the taxable_year considering all the circumstances we conclude that petitioner is not entitled to a dependency_exemption deduction for ml for b earned_income_credit petitioner asserted at trial that he is entitled to an eic respondent contends that petitioner is not entitled to an eic because he did not have a qualifying_child as required_by_law for the year in issue sec_32 allows an eligible_individual an eic sec_32 defines an eligible_individual as an individual who has a qualifying_child for the taxable_year the term qualifying_child is defined in sec_32 to mean a qualifying_child of the taxpayer as defined in sec_152 determined without regard to paragraph d thereof and sec_152 consistent with the preceding discussion ml was not petitioner’s qualifying_child as that term is defined in sec_152 for it therefore follows that petitioner is not eligible for an eicdollar_figure to reflect the foregoing decision will be entered under rule petitioner did not assert that he would be eligible for an eic without a qualifying_child under the provisions of sec_32 for the sake of completeness we note that petitioner reported adjusted_gross_income of dollar_figure for including dollar_figure of unemployment_compensation see revproc_2009_50 sec_3 2009_45_irb_617 for taxable_year taxpayers with a filing_status of head_of_household are subject_to the complete phaseout of the eic if adjusted_gross_income or if greater earned_income exceeds dollar_figure


created on pm 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 fip b03 plr-100395-05 date date ------- ------------ --------------------------- ------------------------------- -------------------------------------- legend fund a ------------------------------------------------------------------------- fund b ------------------------------------------------------------------------- company state x year a year b year c year d year e year f year g date ----------------------- ------- ------- ------- ------- ------- ------- plr-100395-05 dear ------------- this ruling responds to a letter dated date submitted on behalf of fund a and fund b the funds by their authorized representatives each of the funds requests consent to revoke for taxable_year b a previous election made by each of the funds under sec_4982 of the internal_revenue_code additionally each of the funds requests that the calculation of its required distributions of capital_gain_net_income under sec_4982 and e for the calendar_year ending december year b be determined on the basis of capital_gains_and_losses and foreign_currency gains and losses if any realized and recognized during the 10-month period from january year b through october year b facts company is a family of mutual funds contained within a single investment_company organized in year c as a state x corporation company is an open- end management investment_company registered under the investment_company act of as amended fund a and fund b are among funds controlled by company as a series company fund a elected to be treated as a regulated_investment_company a ric for federal_income_tax purposes under sec_851 of the code in year d fund b elected to be a ric in year e each of the funds uses an accrual_method of accounting for tax and financial_accounting purposes and each fund’s taxable_year ends on december beginning in year a each of the funds pursuant to sec_4982 elected to use the calendar_year ending on december in lieu of the one-year period ending on october for purposes of calculating the required_distribution under sec_4982 sec_4982 and sec_4982 at the time each of the funds originally made its election each of the funds believed that the election under sec_4982 would relieve the administrative burdens associated with dual calculations of capital_gains_and_losses under the excise_tax and subchapter_m provisions of the code however the funds’ experience has been that the sec_4982 election has created additional administrative complexities primarily due to time constraints in declaring required excise_tax distributions moreover the promulgation of regulations coordinating the excise_tax and subchapter_m provisions has greatly reduced the administrative burden of having a taxable_year different from the period used for determining the required distributions under sec_4982 accordingly each of the funds seeks consent to plr-100395-05 revoke its election to use the calendar_year for purposes of sec_4982 and sec_4982 december to october effective date furthermore each of the funds intends to change its fiscal_year end from permitting each of the funds to revoke its sec_4982 election and compute capital_gain_net_income for the one-year period ending on october rather than the fund’s taxable_year ending december would significantly lessen the administrative burden of computing capital_gain_net_income in an accurate and timely manner additionally each of the funds represents that the desire to revoke its sec_4982 election is due to administrative and non-tax related financial burdens caused by the election it is not seeking to revoke its election for the purpose of preserving or securing a tax_benefit it will neither benefit through hindsight nor prejudice the interests of the government as a result of being permitted to revoke its election it will not make any subsequent elections under sec_4982 for five calendar years following the year of the grant of revocation law and analysis sec_4982 which was enacted as part of the tax reform act of sec_4982 defines the term required_distribution to mean with and is effective for tax years beginning after date imposes an excise_tax on every ric for each calendar_year equal to percent of the excess if any of the required_distribution over the distributed_amount for the calendar_year respect to any calendar_year the sum of percent of the ric’s ordinary_income for such calendar_year plus percent of its capital_gain_net_income for the one-year period ending on october of such calendar_year month of november or december the ric may elect to have its capital_gain_net_income for its taxable_year applied in lieu of the one-year period ending on october of the calendar_year for purposes of satisfying the required_distribution defined in sec_4982 sec_4982 provides that once made such election may be revoked only with the consent of the secretary sec_4982 provides that if the taxable_year of a ric ends in the plr-100395-05 sec_4982 provides that any foreign_currency_gain_or_loss attributable to a sec_988 transaction and which is properly taken into account for the portion of the calendar_year after october shall not be taken into account in determining the ordinary_income of the ric for the calendar_year but shall be taken into account in determining the ric’s ordinary_income in the following calendar_year however if a ric has made an election under sec_4982 the preceding sentence shall be applied by substituting the last day of the ric’s taxable_year for october based upon the information submitted and the representations made we conclude that each fund’s desire to revoke its election under sec_4982 is because of administrative burdens and not because of any federal tax-related financial burden caused by the election each of the funds does not seek to revoke its election for the purpose of preserving or securing a federal tax_benefit additionally the funds will neither benefit through hindsight nor prejudice the interest of the government as a result of being permitted to revoke their elections conclusion accordingly based upon the representations made and pursuant to sec_4982 the secretary consents to the revocation of the election made by each of the funds under sec_4982 effective for calendar_year b and subsequent years in addition in calculating the required_distribution for year b for purposes of sec_4982 and e the capital_gain_net_income and foreign_currency gains and losses of the funds will be determined on the basis of the capital_gains_and_losses and foreign_currency gains and losses if any recognized and realized during the 10-month period from january year b through october year b as a condition to the secretary’s consent to the revocation pursuant to sec_4982 none of the funds may make a subsequent election under sec_4982 for a period of five calendar years following the year to which the grant of revocation applies ie year f through year g except as specifically ruled upon above no opinion is expressed or implied as to any other federal excise or income_tax consequences this ruling is directed only to the taxpayers requesting it sec_6110 provides that it may not be used or cited as precedent this letter is being sent to your authorized representatives in accordance with the power_of_attorney on file with this office a copy of plr-100395-05 it is important that a copy of this letter be attached to the federal income and excise_tax return filed by each of the funds for the year to which this ruling applies sincerely yours __________________________ enclosures copy of this letter copy for sec_6110 purposes cc alice m bennett chief branch office of associate chief_counsel financial institutions and products


internal_revenue_service department of the treasury index number washington dc person to contact telephone number refer reply to cc intl br4-plr-110893-99 date bec i999 legend cc d business t t i country z date u date v date w date x plr-110893-99 plr1 year y this responds to your date letter requesting a ruling confirming that the election to treat a b c and d as domestic corporations under sec_1504 of the internal_revenue_code code will be unaffected by a recent amendment to country z's law additional information was provided on date and date the ruling contained in this letter is predicated upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the ruling_request verification of the information representations and other data may be required as part of the audit process p is a domestic_corporation that owns directly or indirectly all outstanding shares s is a domestic_corporation that owns directly or indirectly all outstanding shares of s of a b c and d the abcd group a b c and d are country z corporations engaged in business t in country z country z is a country that is contiguous with the united_states p is the common parent of an affiliated_group_of_corporations filing a consolidated u s income_tax return abcd group p’s affitiated group currently includes s and the prior to date x country z's law prohibited a foreign organization from conducting business t in country z through a branch ie through an entity not organized under the corporate laws of country z country z s incorporated a b c and d under the laws of country z s also made an election under sec_1504 of the code to have a b c and d treated as domestic corporations subsequently p became the common parent of the affiliated_group for the taxable years commencing in year y to the present either p or s was the common parent of the group that included a b c and d election a b c and d were includible corporations for purposes of sec_1504 and thus eligible to be members of the affiliated_group in order to operate business t in by making a sec_1504 on date x country z amended its law affecting business t under the amended law certain foreign organizations e organizations not incorporated under the laws of country z may apply for an order from an agency of country z permitting plr-110893-99 the foreign organization to conduct business t through a branch in country z on date u p applied for an order permitting s to conduct business t through a branch in country z on date v the country z agency responded to p’s date u request by letter informing p that it was not prepared to conclude that s meets the criteria noted in the applicable_section of the relevant law of any member of the abcd group p has provided a copy of the date v letter s was not permitted to conduct the business sec_1501 permits an affiliated_group_of_corporations to make a consolidated_income_tax_return with respect to the income of the members of the affiliated_group the affiliated_group may include one or more chains of includible corporations see sec_1504 generally an includible_corporation is any corporation except inter alia a foreign_corporation see sec_1504 however under sec_1504 certain contiguous country corporations that are subsidiaries of domestic parent corporations may upon the election of the parent_corporation be treated as domestic corporations for purposes of subtitle a of the code an election under sec_1504 enables a parent_corporation to include in its affiliated_group eligible contiguous country corporations in order to make a sec_1504 election the capital stock exclusive of the directors’ qualifying shares of the contiguous country corporation must be percent owned or controlled directly or indirectly by the domestic parent_corporation the contiguous country corporation also must be maintained solely to comply with the law of a country contiguous to the united_states foreign law’ as to title or operation of property the contiguous country corporation need not have been formed to comply with the foreign law provided that is maintained solely for that purpose during the time for which the election is effective on date w the irs' office of associate chief_counsel international ruled in private_letter_ruling plr that pursuant to sec_1504 a b c and d were qualified contiguous country corporations under sec_1504 and would be treated as domestic corporations for purposes of subtitle a of the code provided that s complied with certain requirements under sec_367 s requests a ruling stating that the determination made in plr1 issued by the irs on date w will be unaffected by the aforementioned amendment to country z law under the aforementioned amendment an order from the applicable country z agency is a condition_precedent to permitting a foreign ie non-country z organization to conduct business t through a branch in country z applied for such an order but the request for the order was denied s is therefore not entitled to conduct business t through a branch in country z and may continue to do so only through country z corporations thus a b c and d are still maintained solely p on behalf of s plr-110893-99 to comply with country z law consequently and based upon the representations made and the information submitted the determinations made in plr1 issued on date w are not affected by the aforementioned amendment to country z law except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any income_tax return to which it is relevant sincerely ah -- philip l tretiak senior technical reviewer branch office of associate chief_counsel international


date internal_revenue_service number info release date conex-119044-04 cc ita b02 index no ---------------------------------------------- ------------------------------------------------------ -------------------------------------- ---------------------------- dear ------------------------------ i am writing in response to your letter of date addressed to irs commissioner mark everson you wrote on behalf of your constituent ----------------------- -------- who is concerned about the deductibility of private school tuition as a medical_care expense his son has been diagnosed with --------------------------------------------------- ----------------------------------------------------------------------------------- and is attending a school that specializes in correcting this kind of disorder an irs employee told your constituent the tuition at the school was not deductible as a special_school expense because the school does not have a physician on staff education is normally not medical_care thus a physician must diagnose a medical_condition and recommend special education to correct the condition for the education to be medical_care the school need not employ physicians to provide that education but the school must have a curriculum designed to provide medical_care helping the student overcome a physical or mental handicap and move on to normal education and living is the essence of special education sec_1_213-1 of the income_tax regulations revrul_70_285 1970_1_cb_52 publication medical and dental expenses states a taxpayer can include in medical_expenses the cost tuition meals_and_lodging of attending a school that furnishes special education to help a child to overcome learning disabilities a doctor must recommend that the child attend the school for special education overcoming the learning disabilities must be a principal reason for attending the school and any ordinary education received must be incidental to the special education provided special education thus includes teaching braille to a visually-impaired person teaching lip reading to a hearing-impaired person giving remedial language training to correct a condition caused by a birth defect or overcoming other disabilities -------------quoted the following statement from publication you cannot include in medical_expenses the cost of sending a problem child to a school where the course of study and the disciplinary methods have a beneficial effect on the child’s attitude if the availability of medical_care in the school is not a principal reason for sending the student there apparently ---------------accountant said this statement explained why the expenses would not be deductible -------------asked that we remove this statement from publication because he believes it discriminates against children with mental health issues i believe the statement quoted is correct in its context of children who need discipline to correct their behavior this is an example of education that is not medical_care thus a parent who sends a defiant son to military school is not doing this to overcome a mental or physical disorder but to provide discipline and ordinary education although the irs tries to assist taxpayers who telephone with questions a telephone conversation is not an authoritative analysis -------------may of course consult with his accountant on whether to apply for a private_letter_ruling to determine deductibility of the cost of sending his son to a particular school to receive a favorable ruling he will need to show his son is attending principally to receive medical_care i hope this information is helpful in responding to ------------ if you have any questions please call me at -------------------- or -------------------------------------------------------------------- ------------------------------------- sincerely robert m brown associate chief_counsel income_tax and accounting macro form rev department of the treasury - internal_revenue_service


department of the treasury internal_revenue_service te_ge eo examinations commerce street m c dal dallas tx tax_exempt_and_government_entities_division number release date date jun person to contact identification_number telephone number in reply refer to last date for filing a petition with the tax_court uil certified mail- return receipt requested dear this is a final adverse determination_letter that your exempt status under sec_501 of the internal_revenue_code irc is revoked recognition of your exemption under sec_501 c is revoked effective july 20xx our adverse determination was made for the following reason s you have not established that you are operated exclusively for an exempt_purpose or that you have been engaged primarily in activities that accomplish one or more exempt purposes within the meaning of sec_501 contributions to your organization are not deductible under sec_170 of the internal_revenue_code you are required to file federal_income_tax returns on form_1120 these returns should be filed with the appropriate service_center for the year ending june 20xx and for all years thereafter processing of income_tax returns and assessment of any taxes due will not be delayed should a petition for declaratory_judgment be filed 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 claim court or the district_court of the united_states for the district of columbia 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 the taxpayer_advocate_service t as is an independent organization within the irs that can help protect your taxpayer rights we can offer you help if your tax problem is causing a hardship or you've tried but haven't been able to resolve your problem with the irs if you qualify for our assistance which is always free we will do everything possible to help you visit taxpayeradvocate irs gov or call we will notify the appropriate state officials of this action as required by sec_6104 of the internal_revenue_code if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours margaret von lienen director eo examinations enclosures publication department of the treasury internal_revenue_service tax_exempt_and_government_entities_division date january ii taxpayer_identification_number form tax_year s ended person to contact idnumber contact numbers phone number fax number manager's name id number manager's contact number phone number response due_date certified mail- return receipt requested dear why you are receiving this letter we propose to revoke your status as an organization described in sec_50 i c of the internal_revenue_code code enclosed is our report of examination explaining the proposed action what you need to do ifyou agree if you agree with our proposal please sign the enclosed form_6018 consent to proposed action- sec_7428 and return it to the contact person at the address listed above unless you have already provided us a signed form we'll issue a final revocation letter determining that you aren't an organization described in sec_50l c after we issue the final revocation letter we'll announce that your organization is no longer eligible for contributions deductible under sec_170 of the code if we don't hear from you if you don't respond to this proposal within calendar days from the date of this letter we'll issue a final revocation letter failing to respond to this proposal will adversely impact your legal standing to seek a declaratory_judgment because you failed to exhaust your administrative remedies effect of revocation status if you receive a final revocation letter you'll be required to file federal_income_tax returns for the tax_year s shown above as well as for subsequent lax years what you need to do ifyou disagree with the proposed revocation ifyou disagree with our proposed revocation you may request a meeting or telephone conference with the supervisor of the irs contact identified in the heading of this letter you also may file a protest with the letter rev catalog number 34809f irs appeals_office by submitting a written request to the contact person at the address listed above within calendar days from the date of this letter the appeals_office is independent of the exempt_organizations division and resolves most disputes informally for your protest to be valid it must contain certain specific information including a statement of the facts the applicable law and arguments in support of your position for specific information needed f x a valid protest please refer to page one of the enclosed publication how to appeal an irs decision on tax-exempt status and page six of the enclosed publication the examination process publication also includes information on your rights as a taxpayer and the irs collection process please note that fast track mediation referred to in publication generally doesn't apply after we issue this letter you also may request that we refer this matter for technical_advice as explained in publication please contact the individual identified on the first page of this letter if you are considering requesting technical_advice if we issue a determination_letter to you based on a technical_advice_memorandum issued by the exempt_organizations rulings and agreements office no further irs administrative appeal will be available to you contacting the taxpayer_advocate office is a taxpayer right you have the right to contact the office oft he taxpayer_advocate their assistance isn't a substitute foc established irs procedures such as the formal appeals process the taxpayer_advocate can't reverse a legally correct_tax determination or extend the time you have fixed by law to file a petition in a united_states court they can however sec that a tax matter that hasn't been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at internal_revenue_service office_of_the_taxpayer_advocate for additional information if you have any questions please call the contact person at the telephone number shown in the heading of this letter ifyou 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 paul a marmolejo acting director_ eo examinations enclosures report of examination form_6018 publication publication letter rev ca alog number 34809f form 886a name of taxpayer department of the treasury - internal_revenue_service ex lanation of items schedule no or exhibit year period ended june 20xx lssye sec_1 does federal_income_tax under sec_501 c continue to qualify for exemption from lssye sec_2 does described in sec_509 continue to qualify a private_foundation as facts november 19xx in name was incorporated on at that time the and changed in 20xx article x of the is organized exclusively for internal_revenue_code code sec_501 c articles of incorporation states the within the meaning of submitted form_1023 application_for recognition of exemption under the sec_501 to the internal_revenue_service irs on december 19xx the narrative description in part ii activities and operational information attached provides in part the irs issued letter dated january 19xx recognizing the as an exempt_organization under code sec_501 c and that it was likely to qualify as a public charity under code sec_509 the irs issued internal_revenue_bulletin 20xx-x dated february 20xx providing a list of organizations that failed to establish or were unable to maintain their status as a public charity or as operating_foundations the page the listing on the bulletin does not indicate the organizations lost their tax exempt status under code sec_501 c is listed on the form 886-a rev department of the treasury - internal_revenue_service page of6 form 886a i name of taxpayer department of the treasury- internal_revenue_service explanation of items schedule no or exhibit year period ended june 20xx current irs records show the under code sec_501 c and as a private non-operating is recognized as a tax exempt_organization the ending june 20xx shows the any expenses part ii shows the assets the shows the any expenses part ii shows the form_990-pf return of private_foundation part i for the period did not receive any revenue or incur does not have any form_990-pf part i for the period ending june 20xx did not receive any revenue or incur does not have any assets the 20xx shows the part ii shows the the shows the part ii shows the form_990-pf part i for the period ending june did not receive any revenue or incur any expenses does not have any assets form_990-pf part i for the period ending june 20xx did not receive any revenue or incur any expenses does not have any assets law code sec_509 provides in part the term private_foundation means a domestic or foreign organization described in code sec_501 other than code sec_509 an organization described in code sec_170 other than in clauses vii and viii code sec_509 an organization which normally receives more than one-third of its support in each taxable_year from any combination of gifts grants contributions or membership fees and gross_receipts from admissions sales of merchandise performance of services or furnishing of facilities in an activity which is not an unrelated_trade_or_business within the meaning of code sec_513 not including such receipts from any person or from any bureau or similar agency of a governmental_unit code sec_509 an organization that is organized and at all times thereafter is operated exclusively for the benefit of to perform the functions of or to carry out the purposes of one or more specified organizations described in paragraph or is operated supervised or controlled by one or more organizations described in paragraph or supervised or controlled in connection with one or more such organizations or operated in connection with one or more such organizations and is not controlled directly or indirectly by one or more disqualified persons as defined in code sec_4946 other form 886-a rev department of the treasury - internal_revenue_service page of6 form 886a name of taxpayer department of the treasury - internal_revenue_service ex lanation of items schedule no or exhibit year period ended june 20xx than foundation managers and other than one or more organizations described in paragraph or and code sec_509 an organization which is organized and operated exclusively for testing for public safety code sec_509 provides in part if an organization is a private_foundation within the meaning of subsection a on date or becomes a private_foundation on any subsequent date such organization shall be treated as a private_foundation for all periods after date or after such subsequent date unless its status as such is terminated under code sec_507 code sec_507 provides in part except as provided in subsection b the status of any organization as a private_foundation shall be terminated only if code sec_507 such organization notifies the secretary at such time and in such manner as the secretary may by regulations prescribe of its intent to accomplish such termination or code sec_507 with respect to such organization there have been either willful repeated acts or failures to act or a willful and flagrant act or failure to act giving rise to liability for tax under chapter and code sec_507 the secretary notifies such organization that by reason of subparagraph a such organization is liable for the tax imposed by subsection c and either such organization pays the tax imposed by subsection c or any portion not abated under subsection g or the entire amount of such tax is abated under subsection g code sec_170 describes a church or a convention or association of churches code sec_170 describes an educational_organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on code sec_170 describes an organization the principal purpose or functions of which are the providing of medical or hospital care or medical education or medical_research form 886-a rev department of the treasury- internal_revenue_service page of6 form 886a i name of taxpayer department of the treasury - internal_revenue_service explanation of items schedule no or exhibit year period ended june 20xx code sec_170 b a iv describes an organization which normally receives a substantial part of its support exclusive of income received in the exercise or performance by such organization of its charitable educational or other purpose or function constituting the basis for its exemption under code sec_501 a from the united_states or any state or political_subdivision thereof or from direct or indirect_contributions from the general_public and which is organized and operated exclusively to receive hold invest and administer property and to make expenditures to or for the benefit of a college or university which is an organization referred to in clause ii of this subparagraph and which is an agency_or_instrumentality of a state or political_subdivision thereof or which is owned or operated by a state or political_subdivision thereof or by an agency_or_instrumentality of one or more states or political subdivisions code sec_170 describes a governmental_unit referred to in subsection c code sec_170 describes an organization referred to in subsection c which normally receives a substantial part of its support exclusive of income received in the exercise or performance by such organization of its charitable educational or other purpose or function constituting the basis for its exemption under code sec_501 a from a governmental_unit referred to in subsection c or from direct or indirect_contributions from the general_public code sec_501 c 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 to foster national or international amateur sports competition but only if no part of its activities involve the provision of athletic_facilities or equipment or for the prevention of cruelty to children 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 except as otherwise provided in subsection h and which does not participate in or intervene in including the publishing or distributing of statements any political campaign on behalf of or in opposition to any candidate for public_office federal tax regulations regulations sec_1 c -1 a states in part that in order to be exempt as an organization described in code sec_501 c the 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 the term exempt_purpose or purposes as used in this section means any purpose or purposes specified in code sec_501 c form 886-a rev department of the treasury - internal_revenue_service page of6 form 886a name of taxpayer department of the treasury - i ntemal revenue sen ice ex lanation of items schedule no or exhibit year period ended june 20xx regulations sec_1_501_c_3_-1 provides that an organization will not be regarded as operated exclusively for exempt purposes if more than an insubstantial part of its activities is not in furtherance of exempt purposes regulations sec_1 c -1 b states in part that an organization is not organized exclusively for one or more exempt purposes unless its assets are dedicated to an exempt_purpose an organization's assets will be considered dedicated to an exempt_purpose for example if upon dissolution such assets would by reason of a provision in the organization's articles or by operation of law be distributed for one or more exempt purposes or to the federal government or to a state_or_local_government for a public purpose or would be distributed by a court to another organization to be used in such manner as in the judgment of the court will best accomplish the general purposes for which the dissolved organization was organized however an organization does not meet the organizational_test if its articles or the law of the state in which it was created provide that its assets would upon dissolution be distributed to its members or shareholders regulations sec_1_6001-1 state in part except as provided in paragraph b of this section any person subject_to tax under subtitle a of the code including a qualified_state individual income_tax which is treated pursuant to sec_6361 a as if it were imposed by chapter of subtitle a or any person required to file a return of information with respect to income shall keep such permanent books of account or records including inventories as are sufficient to establish the amount of gross_income deductions credits or other matters required to be shown by such person in any return of such tax or information in addition to such permanent books_and_records as are required by paragraph a of this section with respect to the tax imposed by code sec_511 on unrelated_business_income of certain exempt_organizations every organization exempt from tax under code sec_501 a shall keep such permanent books of account or records including inventories as are sufficient to show specifically the items of gross_income receipts and disbursements such organizations shall also keep such books_and_records as are required to substantiate the information required by code sec_6033 the books_or_records required by this section shall be kept at all times available for inspection by authorized internal revenue officers or employees and shall be retained so long as the contents thereof may become material in the administration of any internal revenue law taxpayer's position the has not provided a definitive position at this time the representative provided written response stating the commenced operations although it is actively searching for opportunities to acquire within its tax exempt_purpose the representative did not provide any supporting documentation to show the search efforts has not form 886-a rev department of the treasury - internal_revenue_service page of6 form 886a name of taxpayer department of the treasury - internal_revenue_service ex lanation of items schedule no or exhibit year period ended june 20xx government's positjon issue the c because it did not demonstrate that it is operated exclusively for a charitable purpose as required by the code sec_501 c and regulation sec_1 c does not continue to qualify for exemption under code section the or and therefore does not qualify for exemption as a public charity is not an organization described in code sec_509 lssye the in code sec_509 because it is not an organization described in code sec_501 c does not meet the definition of a private_foundation as described the because it is not organized or operated exclusively for religious charitable scientific testing for public safety literary or educational_purposes or to foster national or international amateur sports competition is not an organization described in code sec_501 c the because it does not meet the meaning of a private_foundation as provided in code sec_509 should not be treated for subsequent periods the it currently carries on a charitable activity but none was not provide was afforded an opportunity to provide support to demonstrate conclusion the c because it did not demonstrate that it carries on a charitable activity and does not meet the definition of a private_foundation under code sec_509 does not continue to qualify for exemption under code section form 886-a rev department of the treasury - internal_revenue_service page of6 ein pending aiiachment no irs form_1023 information required in item ofl'art ii the applicant is a n wly furmcd cr atcd fn the purpusc 1lf tih mgh these he applicant currcmly do not own any ' r acquisitilln or construdi ln and to commence upcrations upon a determination of its tax- exempt statu all vv ill have appropriate sta t'f on duty to pwvidc jr the will be owned and lperated on a non-profit basis fach the applicant may alsu provide but plans to s ck appwpriatc while it is anticipated that the primary source of will be scll upporting in that its operating li mds will be derived principally each ti om because or the whether directly or through such as or llowevcr once individuals arc the applicant will make efforts to assist such individuals in obtaining whatever support may be available under should they need such d t ctuatcd either by maintaining such individuals our to the extent possible by seeking whatever support may be availabk under or by some eomhinat i n i those means this charitable policy ill be established f_r that purpose programs once the applicant has ac4uircd sevt ral applkant for example the applicant is interested in engaging interested in is in research and ash flow has stabilized and other related activities particularly in the to form 886-a attachment page lof2 eln pending thus iving the should maintaining a sense of community l1oth-within in vhich ' the applicant hopes to utilize the resources of various further its tax- exempt purposes meaningful work to do creating and a1 d the and between the relating to to arc located md offering op1wrtunities for interaction bet een form 886-a attachment page 2of2


internal_revenue_service number release date index number - ------------------------------------- ----------------------------------------- ------------------------------- ----------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------- telephone number --------------------- refer reply to cc tege eoeg teb presp-146680-06 date date dear -------------- this letter is in response to your application_for an allocation of authority to issue dollar_figure------- ----------------in clean renewable energy bonds crebs under sec_54 of the internal_revenue_code the code sec_54 of the code imposes a limitation of dollar_figure on the amount of crebs which may be issued to finance qualified projects the limitation sec_54 provides that the limitation is to be allocated by the secretary of treasury in such manner as the secretary deems appropriate except that no more than dollar_figure of the limitation may be allocated to finance qualified projects of qualified borrowers which are governmental bodies section of notice_2005_98 2005_52_irb_1211 provides that the limitation will be allocated among qualified projects for which a share of such limitation has been requested beginning with the project s requesting the smallest share in dollar amount and continuing with the project s requesting the next-smallest share until the total limitation has been exhausted however in the event that dollar_figure has been allocated to qualified projects of qualified borrowers that are governmental bodies the remaining shares of the limitation will be allocated under the methodology described in the previous sentence only to qualified projects of qualified borrowers that are not governmental bodies for purposes of allocating the limitation among projects all qualified projects located at the same site and owned by the same qualified_borrower are treated as a single project and each project is treated as requesting a single allocation an allocation of shares of the limitation cannot be made with respect to the project owned by the borrower listed in appendix a because such borrower is a governmental body and dollar_figure has already been allocated to applications requesting a smaller presp-146680-06 share of the limitation to finance qualified projects owned by qualified borrowers that are governmental bodies we appreciate your submission of the application_for our consideration and encourage you to continue to pursue your plans for constructing a clean renewable energy project sincerely assistant chief_counsel exempt_organizations employment_tax government entities tax exempt government entities by timothy l jones senior counsel tax-exempt_bonds branch presp-146680-06 borrower name appendix a project type project location ------------------------------ -------------- trash combustion facility -------------------------------- --------------------------- amount requested dollar_figure-------------- ---------------------------------- ------------------------------------------------ ------------------------------------------------- -------------------------- -------------------------------------------- ---------------------------


internal_revenue_service national_office technical_advice_memorandum date third party communication none date of communication not applicable number release date index uil no case-mis no tam-104315-16 director of field operations western compliance practice area - southwest paul j curtis taxpayer's name taxpayer's address taxpayer's identification no years involved date of conference ------------------------------------- ------------------------------- ----------------------------------- ----------------- --------------- ---------------------------- legend taxpayer ------------------------------------- signals ----------------------- issues for purposes of the domestic_production_activities_deduction under sec_199 of the internal_revenue_code code whether a package that includes multiple channels of video programming or the signals transmitted by taxpayer to distribute the package of video programming together referred to as a ---------------- package is a qualified_film within the meaning of sec_199 and sec_1_199-3 of the income_tax regulations whether the gross_receipts that taxpayer derived from its ---------------- packages qualify as domestic_production_gross_receipts dpgr under sec_199 and sec_1_199-3 tam-104315-16 conclusions no a ---------------- package is not a qualified_film within the meaning of sec_199 or sec_1_199-3 because it is not property described in sec_168 any motion picture film or video tape or live or delayed television programming within the meaning of sec_1_199-3 no the gross_receipts that taxpayer derived from its ---------------- packages were not from the disposition of a qualified_film produced by taxpayer and are not dpgr under sec_199 and sec_1_199-3 however the gross_receipts that taxpayer derived from any individual film included in a ---------------- package that is a qualified_film produced by taxpayer may qualify as dpgr thus a portion of taxpayer’s gross_receipts may be dpgr under sec_199 and sec_1_199-3 and each qualified_film produced by taxpayer may be considered an item as provided by sec_1 d ii facts taxpayer is a multichannel video programming distributor mvpd regulated by the federal communications commission fcc as a telecommunications service provider an mvpd is defined as a person such as but not limited to a cable operator a multichannel multipoint distribution service a direct broadcast satellite service or a television receive-only satellite program distributor who makes available for purchase by subscribers or customers multiple channels of video programming u s c sec_522 as an mvpd taxpayer is subject_to the rules in the communications act of as amended by the telecommunications act of telecommunication services are defined as the offering of telecommunications for a fee directly to the public regardless of the facilities used u s c sec_153 telecommunications is defined as the transmission between or among points specified by the user of information of the user’s choosing without change in the form or content of the information as sent and received u s c sec_153 the term cable channel or channel is defined as a portion of the electromagnetic frequency spectrum which is used in a cable system and which is capable of delivering a television channel as television channel is defined by the fcc by regulation u s c sec_522 in exchange for ----------------------fees taxpayer distributed to customers via the transmission of signals -------------------channels containing television programs advertisements and interstitials for the tax years at issue taxpayer offered ---- core --------------- packages to customers the programming content customers received varied depending on their --------------- package and geographic location the reference to the gross_receipts that taxpayer derived from its ---------------- packages includes all fees attributable to each ----------------package including the hardware required for customers to receive the signals transmitted by taxpayer tam-104315-16 for the tax years at issue only ------ of taxpayer’s core --------------- packages included access to certain premium channels containing films and television programs with visual depictions of actual sexually explicit conduct for which records are required to be maintained under u s c taxpayer also provided to customers access to additional premium channels and pay-per-view films on a separate fee basis the terms and conditions of the contractual relationship between taxpayer and customers are set forth in customer agreements which are service contracts taxpayer licensed most of the underlying programming content from unrelated third parties for the tax years at issue generally taxpayer could not substantially alter the programming content taxpayer did however produce some original programming content from ------- through ------- taxpayer produced content for a total of ---- channels in ------- taxpayer produced content for a total of ---- channels summary of taxpayer and lb_i positions taxpayer takes the position that each one of its --------------- packages is a new film that is also a qualified_film produced by taxpayer thus the -------------------------------- -----------------------------------------------------------------------------------------------------fees customers paid to taxpayer in exchange for access to its --------------- packages qualify as dpgr under sec_199 and sec_1_199-3 taxpayer relies on i r s technical_advice_memorandum date the tam to support its assertion taxpayer further asserts that gross_receipts derived from the disposition of hardware are also dpgr from the disposition of a qualified_film produced by taxpayer lb_i disagrees with taxpayer that a package of television channels is a qualified_film according to lb_i as a matter of law a ----------------package is not a film and thus is not a qualified_film for sec_199 purposes lb_i asserts that the reference to any motion picture film video tape or live or delayed television programming film in sec_199 and sec_1_199-3 is limited to individual films lb_i further disagrees that the gross_receipts taxpayer derived from the disposition of its --------------- packages are dpgr from a qualified_film produced by taxpayer under sec_199 and sec_1_199-3 lb_i asserts that the only gross_receipts that are dpgr under sec_199 and sec_1_199-3 are those derived from the individual films that are the components of a ----------------package if such films on an individual basis meet the requirements to be a qualified_film produced by taxpayer accordingly the gross receipt sec_1 as a preliminary matter the tam has no precedential value and taxpayer cannot rely on it directly or indirectly see sec_6110 and k tam-104315-16 taxpayer derived from its --------------- packages are not dpgr because they are not attributable to the disposition of a qualified_film produced by taxpayer thus a -------- --------------- package is not taxpayer’s item under sec_1_199-3 and taxpayer must apply the rules of sec_1_199-3 to each individual film included in its --------- ----------------packages however lb_i recognizes that taxpayer may be entitled to include the gross_receipts allocable to each individual film that meets the definition of qualified_film and that was produced by taxpayer under sec_1_199-3 in its sec_199 deduction calculation that is lb_i asserts that only films that taxpayer establishes are individually a qualified_film produced by taxpayer may be treated as the item under sec_1_199-3 because the gross_receipts from such films are dpgr thus only the gross_receipts taxpayer derived from those individual qualified films components that were produced by taxpayer may qualify as dpgr law under sec_199 the sec_199 deduction is determined by applying a percentage to the lesser_of the taxpayer's qualified_production_activities_income qpai or taxable_income determined without regard to the sec_199 deduction the applicable_percentage i sec_3 percent for taxable years beginning in and percent for taxable years beginning in through and percent for taxable years beginning after under sec_199 qpai is determined by taking dpgr for the taxable_year less cost_of_goods_sold cgs allocable to such dpgr less other expenses losses or deductions which are properly allocable to such dpgr sec_199 provides that dpgr means the gross_receipts of the taxpayer that are derived from any lease rental license sale exchange or other_disposition collectively disposition of any qualified_film produced_by_the_taxpayer sec_199 defines the term qualified_film as any property described in sec_168 if not less than percent of the total compensation relating to the production of such property is compensation_for services performed in the united_states by actors production personnel directors and producers such term does not include property with respect to which records are required to be maintained under u s c regarding material containing the depiction of sexually explicit conduct a qualified_film shall include any copyrights trademarks or other intangibles with respect to such film the methods and means of distributing a qualified_film shall not affect the availability of the deduction sec_168 property is any motion picture film or video tape tam-104315-16 under sec_1_199-3 a taxpayer may use any reasonable method satisfactory to the secretary based on all facts and circumstances to determine whether gross_receipts qualify as dpgr on an item-by-item basis and not for example on a division-by- division product line-by-product line or transaction-by-transaction basis sec_1_199-3 defines the item as the property offered by the taxpayer in the normal course of taxpayer’s business for lease rental license sale exchange or other_disposition to customers if the gross_receipts from such property qualify as dpgr sec_1_199-3 provides that if such property does not qualify under sec_1_199-3 then any component of such property described in sec_1 d i is treated as the item provided that the gross_receipts that are attributable to the disposition of the component of such property qualify as dpgr each component that meets the requirements to be treated as the item must be treated as a separate item and may not be combined with a component that does not meet the requirements of sec_1_199-3 sec_1_199-3 provides that for purposes of sec_1_199-3 in no event may a single item consist of two or more properties unless those properties are offered for disposition in the normal course of the taxpayer’s business as a single item regardless of how the properties are packaged sec_1_199-3 states that the term qualified_film means any motion picture film or video tape under sec_168 or live or delayed television programming film if not less than percent of the total compensation relating to the production of such film is compensation_for services performed in the united_states by actors production personnel directors and producers for purposes of sec_1_199-3 the term actors includes players newscasters or any other persons who are compensated for their performance or appearance in a film for purposes of sec_1_199-3 the term production personnel includes writers choreographers and composers who are compensated for providing services during the production of a film as well as casting agents camera operators set designers lighting technicians make-up artists and other persons who are compensated for providing services that are directly related to the production of the film except as provided in sec_1_199-3 the definition of a qualified_film does not include tangible_personal_property embodying the qualified_film such as dvds or videocassettes sec_1_199-3 provides that if a taxpayer produces a qualified_film and the film is affixed to tangible_personal_property for example a dvd then the taxpayer may treat the tangible_personal_property whether or not the taxpayer manufactured or produced such tangible_personal_property to which the qualified_film is affixed as part of the qualified_film tam-104315-16 sec_1_199-3 provides in general that dpgr include the gross_receipts from the disposition of any qualified_film produced by such taxpayer sec_1_199-3 provides that the not-less-than-50-percent-of-the-total- compensation requirement under sec_1_199-3 is calculated using a fraction the numerator of the fraction is the compensation_for services performed in the united_states and the denominator of the fraction is the total compensation_for services regardless of where the production activities are performed sec_1_199-3 treats a qualified_film as produced_by_the_taxpayer for purposes of sec_199 if the production activity performed by the taxpayer is substantial in nature within the meaning of sec_1_199-3 the special rules of sec_1_199-3 regarding a contract with an unrelated_person and aggregation apply in determining whether the taxpayer’s production activity is substantial in nature sec_1_199-3 and are applied by substituting the term qualified_film for qualifying_production_property qpp and disregarding the requirement that the production activity must be within the united_states the production activity of the taxpayer must consist of more than the minor or immaterial combination or assembly of two or more components of a film for purposes of sec_1_199-3 the relative value added by affixing trademarks or trade names as defined in sec_1_197-2 will be treated as zero sec_1_199-3 provides that a film will be treated as a qualified_film under sec_1_199-3 and produced_by_the_taxpayer under sec_1_199-3 qualified_film produced_by_the_taxpayer if the taxpayer meets the requirements of sec_1_199-3 and ii a taxpayer that chooses to use the safe_harbor must apply all the provisions of sec_1_199-3 analysis an income_tax deduction is a matter of legislative grace and a taxpayer has the burden of proving that it is entitled to the deduction 141_tc_298 taxpayer can satisfy its burden by showing that it meets all the requirements to receive the deduction under sec_199 and the amount deductible to demonstrate that it meets the requirements of sec_199 taxpayer must show that it derived gross_receipts from a qualified_film that it produced in this case taxpayer must first establish that a ----------------package is a qualified_film as defined in sec_199 and sec_1_199-3 to do this taxpayer must show that a ----------------package is property that is a film motion picture film or video tape under sec_168 or live or delayed television programming at least percent of the total compensation relating to the production of such film is compensation_for services performed in the united_states by actors production personnel directors and producers and it is not property for which records are required to be maintained under u s c tam-104315-16 issue for purposes of the domestic_production_activities_deduction under sec_199 whether a ---------------- package is a qualified_film under sec_199 and sec_1_199-3 a a ----------------package is not a qualified_film under sec_199 because it is not property described in sec_168 or sec_1_199-3 sec_199 defines the term qualified_film as any property described in sec_168 provided such property meets the other requirements of sec_199 property described in sec_168 is any motion picture film or video tape see 541_us_176 the inquiry begins with the statutory text and ends there as well if the text is unambiguous our office does not consider a ----------------package a motion picture film or video tape under even the most liberal reading of the phrase in sec_168 and we are unaware of any authority that indicates otherwise instead we view each of the individual films included in a ------ --------------- package as a motion picture film or video tape under sec_168 the definition of the term qualified_film under sec_1_199-3 is also limited to individual films in addition to property described in sec_168 sec_1_199-3 includes live or delayed television programming within the definition of the term film for sec_199 purposes while this added language describes a type of programming the phrase must be read in conjunction with the statutory reference to sec_168 this leads to the conclusion that the phrase refers to individual television programs that are broadcast live or on a delayed basis it is therefore inappropriate to interpret the inclusion of the word programming as allowing for a package of live or delayed programs to be considered an individual film for sec_199 purposes this is also consistent with the regulatory text to illustrate immediately following the phrase live or delayed television programming is a parenthetical with an express reference to the term film in the singular thus while each program is a film that may individually be a qualified_film a package of multiple programs is not a film and therefore not a qualified_film interpreting the definition of the term qualified_film in the singular is also consistent with congress’ expressed intent to limit the tax benefits of sec_199 to film production rather than film distribution the code and regulations both reference compensation paid for services performed in the united_states by actors production personnel directors and producers that relate to the production of a film rather than producing programming content taxpayer’s activities with respect to a ----------------package primarily consist of distributing through the transmission of signals the television channels included in the ----------------package the signals are the medium in which the films are distributed generating and transmitting signals to distribute a ---------------- -------------------------------------------------------------------------------------------------------------------- package does not result in the production of any new programming content further it does not involve the performance of services by actors production personnel directors and producers the assertion that taxpayer’s activities are not those that congress intended to incentivize is further supported by sec_199 which provides in relevant tam-104315-16 part that t he methods and means of distributing a qualified_film shall not affect the availability of the deduction under this section congress intended to exclude transmission and distribution activities from the production of a qualified_film as they do not affect the availability of the deduction under sec_199 consequently expanding the definition of qualified_film to include a package of films could improperly extend the benefits of sec_199 to taxpayers engaged in film distribution via the transmission of signals rather than film production the legislative_history surrounding the provisions relating to film production reinforces both the statutory and regulatory language cited above congress was concerned by the decreasing number of films being produced domestically see s rep no pincite to best effectuate congress’ express desire to encourage domestic film production the qualified_film determination must be made on an individual film basis if the determination was made on a ----------------package basis taxpayer could potentially claim the sec_199 deduction for films produced outside the united_states qualified films that it did not produce and films that are property described under u s c the legislative_history indicates congress’ intent to encourage the production of films domestically there is nothing however to suggest that congress intended to incentivize the transmission of signals and distribution of films within the united_states if any of the terms used to define qualified_film are ambiguous they must be interpreted in a manner that is consistent with their common meaning 444_us_37 a fundamental canon of statutory construction is that unle sec_2 specifically the senate report states that while discussing provisions making depreciation rules more favorable to the film industry the committee understands that over the past decade production of american film projects has moved to foreign locations specifically in recent years a number of foreign governments have offered tax and other incentives designed to entice production of u s motion pictures and television programs to their countries these governments have recognized that the benefits of hosting such productions do not flow only to the film and television industry these productions create broader economic effects with revenues and jobs generated in a variety of other local businesses hotels restaurants catering companies equipment rental facilities transportation vendors and many others benefit from these productions congress specifically did not intend to benefit the distribution of television signals h_r rep no n conf_rep u s c c a n n explaining that distribution activities do not affect whether taxpayer qualified for benefits staff of j comm on taxation general explanation of tax legislation enacted in the 108th congress n comm print jcs-5-05 explaining the same the proposed_regulations under sec_199 also clarify that film production activities do not include film transmission or distribution including the transmission of a film by electronic signal and the activities facilitating such transmission such as formatting that enables the film to be transmitted prop_reg sec_1_199-3 sec_80 fr date tam-104315-16 otherwise defined words will be interpreted as taking their ordinary contemporary common meaning merriam-webster’s online dictionary defines the term motion picture as a series of pictures projected on a screen in rapid succession with objects shown in successive positions slightly changed so as to produce the optical effect of a continuous picture in which the objects move and a representation as of a story by means of motion pictures it also defines the term video tape as a movie tv program etc that is recorded on videotape it is our office’s view that a ------------------ package does not fall within the common meaning of the term motion picture film or video tape further the phrase live or delayed television programming in sec_1 k refers to live television programming or delayed television programming both are types of programs that fall within the definition of the term film however a --------- ----------------package as a whole does not fall within the common meaning of either of those types of programs rather only the individual films that were included in taxpayer’s ---------------- packages satisfy the common meaning of film for sec_199 purposes further reading the common meaning of these terms to refer to a particular type of film in the singular is consistent with the statutory reference to sec_168 thus a ---------------- package and the television channels upon which such films are simultaneously distributed does not fall within the common meaning of any terms used to define qualified_film for sec_199 purposes sec_199 and the regulations thereunder as well as the legislative_history require a qualified_film to be an individual film and not a package including multiple films like the - --------------- package consequently taxpayer cannot circumvent the statutorily prescribed mandate that only one individual film may be a qualified_film for sec_199 purposes b application of the other elements in the definition of the term qualified_film in sec_199 and sec_1_199-3 supports analyzing films on an individual basis sec_199 provides in part that property is a qualified_film if it is property described in sec_168 at least percent of the total compensation relating to the production of such film is compensation_for services performed in the united_states by actors production personnel directors and producers and it is not property for which records are required to be maintained under u s c above our office explained why a ---------------- package is not property described in sec_168 and sec_1_199-3 consideration of the other qualified_film requirements makes clear that treating a ---------------- package as a qualified_film is inconsistent with the statutory and regulatory scheme of sec_199 taxpayer argues that a ---------------- package as a whole is a qualified_film that meets the percent compensation requirement because most of its activities with respect to a ---------------- package occur in the united_states at the same time however taxpayer intends to exclude property described under u s c on an tam-104315-16 individual film-by-film basis so that the inclusion of such property in the ------------------ package does not disqualify the entire package taxpayer’s position results in an inconsistent application of two statutory requirements found in the definition of qualified_film the failure to satisfy either element results in the exclusion of property from the definition of qualified_film each element of sec_199 must be applied on an individual film-by-film basis taxpayer also relies on sec_1_199-3 the item rule to further support its position that a ---------------- package is a qualified_film as long as taxpayer can establish that it meets the percent compensation requirement on a ---------------- package basis however taxpayer’s position misconstrues the item rule the item rule provides that the term item means the property offered by the taxpayer in the normal course of the taxpayer’s business for disposition to customers if the gross_receipts from such disposition qualify as dgpr taxpayer argues that the rule implies that a ------------------ package can be a film and even a qualified_film because taxpayer disposed of the ----- --------------- package in the normal course of its business and the ----------------package included films the item rule provides only the basis for determining whether gross_receipts are dpgr it does not modify the statutory or regulatory definition of qualified_film thus whether taxpayer satisfies the percent compensation requirement or any other requirement of sec_199 on a ---------------- package basis is immaterial because a ----------------package is not a film consequently a ----------------package may not be the item under sec_1_199-3 because it does not satisfy the requirements of sec_199 issue whether the gross_receipts taxpayer derived from the disposition of its ---------- ----------------packages qualify as dpgr under sec_199 and sec_1_199-3 as explained above a ----------------package does not meet the statutory or regulatory definitions of the term qualified_film because a ---------------- package is not a film as a result the gross_receipts taxpayer derived from its ----------------packages were not derived from the disposition of a qualified_film produced by taxpayer thus the gross_receipts taxpayer derived from its ----------------packages are not dpgr under sec_199 and sec_1_199-3 further any gross_receipts taxpayer derived from non-qualifying services are non-dpgr under sec_1_199-3 any component in this case any individual film included in taxpayer’s ----------------packages may be treated as an item provided the gross_receipts from the disposition of the ---------------- packages that are attributable to the components qualify as dpgr in this case taxpayer licensed nearly all of the television channels included in its ---------------- packages from unrelated third parties these channels included the individual films that are the components of its ----------------- ------------------------------------------------------------------------------------------------------------------ packages because taxpayer licensed all of these films from unrelated third parties taxpayer cannot be considered to have produced any of these films within the meaning tam-104315-16 of sec_1_199-3 as a result a significant portion of the gross_receipts that taxpayer derived from its ---------------- packages are attributable to films that were not produced by taxpayer here the facts indicate that taxpayer only produced programming content for ---------------------------------channels that were included in its various ------------- ---------------packages thus it is appropriate to evaluate the individual films included in a ---------------- package to determine whether any one film is a qualified_film produced by taxpayer and a potential item under sec_1_199-3 for the gross_receipts from any of these films to qualify as dpgr taxpayer must establish that an individual film meets the requirements of sec_199 and sec_1 k to be a qualified_film outlined above and that taxpayer produced the qualified_film within the meaning of sec_1_199-3 alternatively taxpayer may apply the safe_harbor in sec_1_199-3 to determine whether a film may be treated as a qualified_film under k and produced by taxpayer under sec_1_199-3 in either case taxpayer’s activities relating to the transmission of signals and distribution of licensed television channels via signals are not qualified_film production activities for purposes of sec_1_199-3 or sec_1_199-3 because qualified_film production activities are limited to those activities that result in the creation of property described in sec_199 and sec_1_199-3 finally because a ---------------- package is not a film taxpayer cannot rely on sec_1 k ii a to treat tangible_personal_property as part of a qualified_film produced by taxpayer further taxpayer’s reliance on sec_1_199-3 is misplaced because it requires that a qualified_film be affixed to the tangible_personal_property which does not occur in this case in conclusion taxpayer may be entitled to include as dpgr in its sec_199 deduction calculation gross_receipts from the components of a ---------------- package that taxpayer can establish meet the definition of qualified_film and which were produced by taxpayer assuming all of the other requirements of sec_199 are met for each component caveats a copy of this technical_advice_memorandum is to be given to the taxpayer sec_6110 of the code provides that it may not be used or cited as precedent