internal_revenue_service number release date index numbers ------------------------------ ------------------------------------------------------------ ----------------------------------- --------------------------------------------------- ---------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ---------------- telephone number -------------------- refer reply to cc psi b03 plr-116883-13 date date company ------------------------------------------------------------------------------------------------------------------------ legend state ----------- x dear ----------------- this responds to a letter dated date submitted on behalf of company requesting a ruling concerning the qualifying_income exception to the publicly_traded_partnership rules of sec_7704 of the internal_revenue_code code facts company is a limited_partnership organized under the laws of state company is a publicly_traded_partnership within the meaning of sec_7704 of the code company through affiliated limited_partnerships or disregarded entities is principally engaged in the transportation storage and distribution of refined petroleum products this ruling_request involves fees company charges as part of its fuel additization ethanol blending and biodiesel blending activities at its refined product terminals company owns x refined product terminals company’s refined product terminals receive petroleum from refineries major common-carrier pipelines or other vessels company stores these products at its refined product terminals which it then loads onto delivery vehicles for transportation to the next point in the fuel supply chain company charges a fee for receiving and loading fuels onto delivery vehicles for transportation during the loading process company also injects fuel additives and plr-116883-13 blends ethanol and biodiesel into petroleum products company represents that it acts as a wholesale_distributor of refined petroleum products and is not engaged in retail activity company generates fees at its refined product terminals for various additization activities company handles a number of different types of additives at its terminals including detergent additives dyes cetene improvers pour point depressants deicers wax crystal modifiers anti-smoke additives antioxidants metal deactivators anti-haze additives biocides corrosion and gum inhibitors and anti-static additives fuel additization activities involve receiving additives from various suppliers and blending those additives into petroleum products in accordance with the requirements of company’s customers company receives some proprietary additives from customers for mixture in accordance with the customer’s specifications company also uses generic additives that are blended into fuel for sale to its customers additives are injected into fuels while the fuels are being loaded onto transportation vehicles for delivery to customers company generates fees at its refined product terminals from ethanol blending activities company receives ethanol from customers via truck or rail which it then pumps into storage tanks company blends ethanol into gasoline by injecting the ethanol into gasoline via pipelines attached to the storage tanks while the gasoline is being loaded onto transportation trucks for delivery to customers company generates fees at its refined product terminals from biodiesel blending activities company receives biodiesel from customers via truck which it then pumps into storage tanks company blends biodiesel into fuel by injecting the biodiesel via pipelines attached to the storage tanks while the fuel is being loaded onto transportation trucks for delivery to customers law and analysis sec_7704 provides that a publicly_traded_partnership shall be treated as a corporation sec_7704 provides that the term publicly_traded_partnership means any partnership if interests in that partnership are traded on an established_securities_market or interests in that partnership are readily_tradable on a secondary market or substantial equivalent thereof sec_7704 provides that sec_7701 shall not apply to any publicly_traded_partnership for any taxable_year if such partnership met the gross_income requirements of sec_7704 for such taxable_year and each preceding_taxable_year beginning after date during which the partnership or any predecessor was in existence plr-116883-13 sec_7704 explains that a partnership meets the gross_income requirements of sec_7704 for any taxable_year if percent or more of the gross_income of such partnership is qualifying_income sec_7704 provides that the term qualifying_income means income or gains derived from the exploration development mining or production processing refining transportation including pipelines transporting gas oil or products thereof or the marketing of any mineral_or_natural_resource including fertilizer geothermal_energy or timber industrial source carbon dioxide or the transportation or storage of any fuel described in sec_6426 c d or e or any alcohol fuel defined in sec_6426 or any biodiesel fuel defined in sec_40a conclusion based solely on the facts submitted and representations made we conclude that the income derived by company from its additization activities ethanol blending and biodiesel blending activities is qualifying_income within the meaning of sec_7704 except as expressly provided herein no opinion is expressed or implied concerning the federal tax consequences of any transaction or item discussed or referenced in this letter in particular no opinion is expressed as to whether company meets the percent gross_income requirement of sec_7704 in any taxable_year for which this ruling may apply the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination this ruling is directly only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent however in the event of a technical_termination of company under sec_708 the resulting_partnership may continue to rely on this ruling in determining its qualifying_income under sec_7704 plr-116883-13 pursuant to the power_of_attorney on file with the office a copy of this ruling will be sent to taxpayer’s authorized representative sincerely richard t probst senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures a copy of this letter a copy for sec_6110 purposes


department of the washington dc contact person telephone number in reference to date dec sy po -ee internal_revenue_service venue of ef co ty legend b c d dear sir or madam this is in reference to your letter of date requesting certain rulings with regard to modification of b's grant program b is exempt under sec_501 of the code and is classified as a private_foundation under sec_509 b was funded by d which is substantial_contributor and d works closely with b disqualified_person with respect to b under sec_4946 of the code from b assets deserving charitable projects in those areas where d has a presence or interest and review of grant proposals at many employees worldwide and building upon its strong history as a community leader and supporter of philanthropy d enrich the charitable grantmaking of not otherwise be possible with existing b resources d performs a number of functions in the solicitation is able to to a degree which could no charge to b through its to fund b b is proposing to modify its c program to begin making charitable grants to smaller foreign charitable organizations under the program c accepts grant applications in the amount of one dollar to one million dollars the c program does not have any specific grant application form grant proposal be less than five single-spaced pages but does require that the neither d nor any d employee is permitted to obtain any personal benefit from the grants be used to purchase any goods or services from d funds from the grants cannot as contemplated under the program the chief officer of foreign charity applicant submits an application the foreign charity includes an affidavit for equivalency the i1f available determination which complies with sec_53_4945-5 a of the regulations and rev organizations that do not furnish an affidavit for equivalency determination the grant approval board will require expenditure_responsibility with respect to the grant designated employee of grant d will be involved in monitoring the c b for those proc a in many foreign countries the need for charitable support however in many of these same countries the is great and the charitable benefits produced by what would be considered even modest grants here in the united_states are often dramatic charitable regulatory infrastructure that is common in the united_states does not exist complicates compliance with u s than reject many such grant applications out of hand to exercise expenditure_responsibility as appropriate accordingly rather b desires the lack of such an infrastructure tax laws the exercise of expenditure_responsibility in such cases is for example in some foreign countries where the foreign charitable_organization may not quite challenging and b has already taken into account many of these concerns grants would be made have a bank account and the local banking environment may be quite primitive to external suppliers such as contractors may carry with it the taint of corruption or disguised kickbacks cases grant payments will be made directly to the foreign charity b will consider the recommendation of d's employee s and make payments directly to the foreign service or equipment supplier in cases where the economic environment is more stable in other situations making requests directly in both these d's designated employee involvement is crucial in investigating the legitimacy of programs attuned to the needs of or impropriety b d's employee is aware of local cultural norms and is to avoid the appearance of corruption the foreign charity and its the proposed written grant commitment for grants from b under the c program includes an agreement by the grantee to repay any portion of the grant not used for grant purposes to submit full and complete annual reports on the manner in which the funds are spent and the progress made in accomplishing the purposes of the grant to maintain records of receipts and expenditures and to make its books_and_records available to the grantor at reasonable times and not propaganda or otherwise to attempt to influence legislation to influence the outcome of any specific public election or carry on directly or to make any grant which does not comply with the individual gran indirectly any voter registration drive to use any of to carry on the funds to requirement of sec_4945 grant requirements of sec_4945 or activity for any noncharitable purpose also specifies the purposes of the grant of the code or the organization to undertake any the written_agreement b will retain records indicating the following the name and address of the grantee the date and amount of the grant the purpose of the grant the amounts spent by the grantee based upon the most recent report received from the grantee whether the grantee has diverted any portion of the funds therefrom in the case of the grant reports received from the grantee and any verification of the grantee's reports to the knowledge or the grantor the dates of any or the income from the purpose of the date and results of an endowment grant sec_501 of the code provides for the exemption from federal_income_tax of organizations organized and operated exclusively for charitable and educational_purposes sec_509 of the code defines private_foundation as a domestic or foreign organization described in sec_501 c other than an organization described in sec_170 b a other than in clauses vii and viii sec_4942 of the code imposes an excise_tax on a private_foundation unless the foundation annually makes qualifying distributions equal to its assets of the fair_market_value of at least sec_4942 of the code provides that the term qualifying distributions means any amount_paid to accomplish one or more of the charitable purposes described in sec_170 b other than contributions to organization or a private_nonoperating_foundation a controlled sec_53_4942_a_-3 of the foundation and similar excise_taxes regulations provides that if foreign organization which does not have a ruling or determination_letter from the internal_revenue_service stating that of the code then the grantor private_foundation may make a good_faith determination that the grantee organization is organization described in sec_509 code an organization described in sec_509 a distribution is the an or is of it to a or sec_4945 of the code provides for the imposition of taxes on each taxable_expenditure of a private_foundation sec_4945 of the code requires that any amount_paid by a private_foundation to any organization other than a public charity will be deemed a taxable_expenditure unless the private_foundation exercises expenditure_responsibility sec_4945 of the code provides that the expenditure in subsection d means that the responsibility referred to private_foundation is responsible to exert all reasonable efforts and to establish adequate procedures to see that the grant is spent solely for the purpose for which made to obtain full and complete records from the grantee on how the funds are spent and expenditures to the secretary to make full and detailed reports with respect to such sec_53_4945-5 of the regulations provides that a a grant where it conducts a pre- private_foundation will be deemed to be exercising expenditure_responsibility with respect to grant inquiry to obtain reasonable assurance that the grantee of the funds will use them for the proper purposes sec_53_4945-5 of the regulations requires the grantee to execute a written_agreement specifying the purposes of the grant and promising to use all of the funds received from the private_foundation for the purposes stated in the agreement and to return all funds not so used to submit a full and complete financial report to the private_foundation once a year maintain adequate books_and_records to be made available for inspection by the private_foundation and not to use any of funds to influence legislation carry on propaganda or participate in political elections moreover the to sec_53_4945-6 of the regulations provides that a private_foundation may not make a grant to described in sec_501 unless the making of the grant itself constitutes a direct charitable act or a program related investment or through compliance with sec_53_4945-6 of the regulations the grantor is reasonably assured that the grant will be used for purposes described in sec_170 b of the code of the code specifies purposes including religious charitable scientific and educational sec_170 b an organization not sec_53_4945-6 of the regulations provides that a private_foundation may be reasonably assured that the grant will be used for purposes under sec_170 b only if the grantee agrees and subsequently does maintain the funds in a separate fund dedicated to purposes described under sec_170 b of the code of the code sec_53_4945-5 of a private_foundation makes a grant to the regulations provides that a foreign organization if or is of the code a grant made to an organization of the code if the grantor private_foundation has made a good which does not have a ruling or determination_letter from the internal_revenue_service stating that it such described in sec_509 grant will not be treated as an organization other than an organization described in sec_509 faith determination that the grantee organization is organization described in sec_509 code considered as made where the determination is based on an affidavit of the grantee organization or an opinion of counsel of the grantor or the grantee that the grantee is described in sec_509 affidavit or opinion must set forth sufficient facts concerning the operations and support of the grantee to enable the internal_revenue_service to determine that the grantee would likely qualify as an organization described in sec_509 er such a good_faith determination ordinarily will be an organization of the code the code such an of the an or or or of revproc_92_94 1992_2_cb_507 describes a safe_harbor process by which a private_foundation manager can exercise reasonable_judgment under sec_4945 a grant to determination_letter from the internal_revenue_service that it exempt under sec_501 and is not a private_foundation under sec_509 a foreign grantee organization that lacks a of the code of the code concerning or is section dollar_figure of revproc_92_94 provides that before of and a to the code a foreign grantee organization that has no making a grant to internal_revenue_service determination_letter as under sec_501 foundation can obtain an affidavit signed by an grantee officer explaining that the grantee is organized and operated for such exempt purposes description or its activities a copy of documents and information to show its dedication of income and assets to exempt purposes its lack of any proprietary or private interests its dissolution only for exempt purposes its lack of more than insubstantial influencing of legislation its lack of participation in any political campaigns its absence of control by any other organization for any nonexempt purposes and its financial data as to any relevant public financial support the grantee's affidavit must include a its status the grantor its organizing revrul_71_460 1971_2_cb_231 holds that an activity which is charitable within the meaning of sec_501 carried on a charitable activity if carried on in the united_states would also be in foreign_country if 33s based upon the above facts we have determined that the the to the and are not contributions to a controlled distributions under the c program will be qualifying distributions by b under sec_4942 of the code information submitted indicates that the grants from b foreign charities are intended to be used to accomplish one or more of the charitable purposes described in sec_170 b organization or a private_nonoperating_foundation charitable activity of a foreign_country does not change the fact that these grants are considered to be qualifying distributions specifically holds that an activity which is charitable within the meaning of sec_501 states would also be foreign_country that b will have in place guidelines and measures which will allow b the foreign charity for charitable purposes within the meaning of sec_501 c a charitable activity if carried on ina moreover the information provided indicates the grants will be used by be reasonably assured that b will be conducted in and c b in the united if carried on rul c b the code that the rev to of we have also determined that the distributions under the c of the code b under section the information submitted indicates that b program will not be taxable_expenditures by d has taken adequate steps to ensure that the grants will be used by these foreign charities for their intended charitable purpose first under b's guidelines and procedures where the foreign charity can avail itself of the equivalency letter process the foreign charity is required to do so requirements set forth in sec_53 4945-s a of regulations and rev charities cannot avail themselves of procedure under rev responsibility in accordance with the terms of c's program guidelines and procedures c's program guidelines and procedures require that these foreign charities provide specific information through the grant application and the grant agreement which allows b required under sec_53 sec_5 of to exercise the requisite expenditure_responsibility as then b will exercise expenditure the the foreign the qualified affidavit and must satisfy the the regulations second proc rul if accordingly based on the information furnished we rule as follows distributions under the c program will be qualifying distributions by b under sec_4942 of the code distributions under the c program will not be taxable_expenditures by b under sec_4945 of the code 33b ’ we are informing the te_ge office of this action please keep a copy of this ruling with your permanent records this ruling is directed only to the organization that requested it may not be used or cited as precedent sec_6110 of the code provides that it sincerely yours serato v sook gerald v sack manager exempt_organizations group


internal_revenue_service number release date index number -------------------------------------------- ----------------------------------------- -------------------------- ----------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------ telephone number -------------------- refer reply to cc psi b01 plr-148059-07 date date legend llc ----------------------------------------------------------- ------------------------------------------ a --------------------------- ------------------------------------------------------------- date year -------------------------- ------ dear ---------------- this letter responds to a request dated date for an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_754 of the internal_revenue_code facts the information submitted states that llc is a limited_liability_company that is treated as a partnership for federal tax purposes on date llc redeemed the partnership_interest held by a llc's partnership return was timely filed for year but a sec_754 election to adjust the basis of partnership property was inadvertently not filed with the return law and analysis sec_754 provides that if a partnership files an election in accordance with the regulations prescribed by the secretary the basis of partnership property is adjusted in plr-148059-07 the case of a transfer of a partnership_interest in the manner provided in sec_743 such an election shall apply with respect to all distributions of property by the partnership and to all transfers of interests in the partnership during the taxable_year with respect to which the election was filed and all subsequent taxable years a transfer of an interest in a partnership on the death of a partner is eligible for the sec_754 election the value of the partnership_interest reported on the estate_tax_return including discounts is the value used to determine the basis of the partnership_interest and the adjustment to basis of partnership property under sec_743 and sec_754 see generally sec_1_1014-3 sec_1_754-1 of the income_tax regulations provides that an election under sec_754 to adjust the basis of partnership property under sec_734 and sec_743 with respect to a distribution_of_property to a partner or a transfer of an interest in a partnership is made in a written_statement filed with the partnership return for the taxable_year during which the distribution or transfer occurs for the election to be valid the return must be filed not later than the time prescribed by sec_1 e including extensions thereof for filing the return for that taxable_year under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose deadline is prescribed by a regulations published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions for time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 conclusion based solely upon the information submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result llc is granted an extension of time of sixty days following the date of this letter to make a sec_754 election the election should be made in a written_statement filed with the applicable service_center for association with llc’s return a copy of this letter should be attached to the statement filed plr-148059-07 except as specifically set forth above we express no opinion concerning the federal_income_tax consequences of the transactions described above under any other provision of the code specifically we express no opinion as to whether llc is a partnership for federal tax purposes this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file with this office a copy of this ruling will be sent to the taxpayer’s representative sincerely s william p o’shea associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court ellis e neder jr petitioner v commissioner of internal revenue respondent docket no filed date ellis e neder jr pro_se stephen r takeuchi for respondent memorandum findings_of_fact and opinion colvin judge by notice_of_deficiency dated date respondent determined a deficiency in petitioner’s federal_income_tax of dollar_figure for and additions to tax for fraud under sec_6653 and and for substantial_understatement of tax under sec_6661 petitioner was convicted of various crimes related to bank loans he obtained and filing false tax returns for and the issues for decision are whether petitioner is collaterally estopped from disputing that he failed to report income in we hold that he is to the extent discussed herein whether the statute_of_limitations bars assessment of tax for we hold that it does not whether as respondent contends petitioner’s federal_income_tax deficiency for is dollar_figure we hold that it is whether petitioner is liable for the addition_to_tax for fraud for we hold that he is not whether petitioner is liable for an addition_to_tax for substantial_understatement for we hold that he is findings_of_fact some of the facts have been stipulated and are so found a petitioner petitioner was incarcerated in seagoville texas when the petition was filed his permanent residence was in jacksonville florida before and after his incarceration unless otherwise indicated section references are to sections of the internal_revenue_code as applied in rule references are to the tax_court rules_of_practice and procedure petitioner was an attorney and was admitted to the practice of law during petitioner had a money market account at jacksonville savings and loan association money market account and a bank account at atlantic national bank of florida atlantic national account b petitioner’s real_estate activities petitioner was involved in several real_estate development projects in which we refer to as southern grove i southern grove ii beach harbor i and river creek he financed those projects with bank loans that he obtained in totaling dollar_figure for southern grove i dollar_figure for southern grove ii dollar_figure for beach harbor i and dollar_figure for river creek petitioner used shell_corporations to buy land from third parties and immediately resell the land at inflated prices to limited_partnerships that he controlled he concealed from lenders the fact that he controlled the shell_corporations that he had purchased the land at prices substantially lower than the inflated resale prices and that the limited_partnerships had not made substantial downpayments petitioner used part of the loan proceeds to buy property from third party sellers and to pay other development costs in addition petitioner’s attorney wrote checks paying part of the loan proceeds to petitioner’s shell_corporations in petitioner endorsed some of those checks and deposited the following amounts of the loan proceeds in his money market account or his atlantic national account dollar_figure from the southern grove i loan dollar_figure from the southern grove ii loan dollar_figure from the beach harbor i loan and dollar_figure from the river creek loan c petitioner’s federal_income_tax return for brooks brooks david certified public accountants prepared petitioner’s form_1040 u s individual_income_tax_return petitioner filed that return on date petitioner reported dollar_figure in wages dollar_figure in interest and dollar_figure in gross rents received petitioner did not report the amounts of the loan proceeds that were deposited in his accounts in connection with the transactions described in paragraph b above petitioner reported a loss of dollar_figure on schedule c profit or loss from business or profession and a loss of dollar_figure on schedule e supplemental income and loss petitioner reported adjusted_gross_income of dollar_figure itemized_deductions totaling dollar_figure taxable_income of minus dollar_figure and no tax due d petitioner’s indictment and conviction indictment in date petitioner was indicted by a grand jury in the united_states district_court in jacksonville florida petitioner was charged with the following crimes relating to his financing of the real_estate development projects identified above bank wire and mail fraud conspiracy to defraud a financial_institution submitting false statements overvalued land appraisals to federally insured financial institutions racketeering and obtaining land acquisition and construction loans under false pretenses petitioner was also charged in count sec_86 and sec_87 with violating sec_7206 willfully filing false tax returns for and count of the indictment alleged in pertinent part the defendant did knowingly and willfully make and subscribe a u s individual_income_tax_return form_1040 for the calendar_year which return the defendant did not believe to be true and correct as to every material matter in that the said return reported a total income of dollar_figure for said calendar_year whereas as the defendant then well knew and believed he had received additional income in the approximate amount of dollar_figure and had not reported such income in his tax_return in violation of title_26 united_states_code sec_7206 count of the indictment was substantially like count it charged that petitioner knowingly failed to report income of dollar_figure on his tax_return at the criminal trial the government called an internal_revenue_service special_agent the special_agent as a witness sec_7206 makes it a felony for a person to willfully make and subscribe any return statement or other document which contains or is verified by a written declaration that it is made under the penalties of perjury and which such person does not believe to be true and correct as to every material matter at a sidebar during the government’s direct examination of the special_agent the trial judge made clear that the issue under sec_7206 was whether petitioner had knowingly made a false statement on his and returns not the amounts of petitioner’s unreported income the trial judge in the criminal case instructed the jury with respect to count sec_86 and sec_87 as follows title_26 united_states_code sec_7206 makes it a crime for anyone willfully to make a false statement on an income_tax return willfully means with intent to violate a known legal duty the defendant neder can be found guilty of that offense as charged in counts eighty-six and eighty- seven only if all of the following elements are proved beyond a reasonable doubt first second third fourth that the defendant signed an income_tax return that contained a written declaration that it was made under penalties of perjury that in this return the defendant falsely reported a total income in his return of dollar_figure and in his return a minus dollar_figure that the defendant knew the statement was false and that the defendant made the statement on purpose and not as a result of accident negligence or inadvertence the trial judge did not ask the jury to decide the amount of petitioner’s unreported income conviction and sentencing petitioner was convicted of conspiracy to defraud a financial_institution bank fraud mail fraud wire fraud making false statements to financial institutions racketeering and filing false tax returns for and he was sentenced to years and months in prison and years of probation and he was ordered to make restitution totaling more than dollar_figure million to various financial institutions petitioner’s prison sentence included years for filing a false tax_return for petitioner’s criminal appeals the united_states court_of_appeals for the eleventh circuit affirmed petitioner’s convictions 136_f3d_1459 11th cir the united_states supreme court held that an error in jury instructions relating to the charge that petitioner had filed false tax returns under sec_7206 for and was harmless affirmed petitioner’s convictions under sec_7206 for and and reversed and remanded various non-tax counts for determinations whether certain errors were harmless 527_us_1 on remand the court_of_appeals held that the errors with regard to petitioner’s non-tax convictions were harmless and affirmed those convictions 197_f3d_1122 11th cir petitioner filed with the district_court a motion for new trial on the ground that the government had improperly failed to disclose certain exculpatory evidence and improperly used false testimony of petitioner’s attorney the district_court denied petitioner’s motion the court_of_appeals affirmed the district court’s ruling in date petitioner filed with the district_court a motion to vacate set_aside or correct his sentence and judgment of conviction petitioner alleged in the motion that he was a victim of prosecutorial misconduct because the government had failed to disclose material exculpatory evidence including evidence that his attorney had contracted to buy a condominium at one of petitioner’s developments and that petitioner had provided the deposit the district_court denied petitioner’s motion the court_of_appeals affirmed the district court’s ruling petitioner filed a petition for writ of certiorari which was denied the judgment of conviction entered against petitioner is final opinion a whether collateral_estoppel applies and if so to what extent background the parties dispute whether petitioner is collaterally estopped by his criminal convictions from denying certain facts if collateral_estoppel applies the judgment in a prior action precludes relitigation in a second action of issues actually litigated and necessary to the outcome of the first action 439_us_322 91_tc_273 collateral_estoppel applies if the issues presented in subsequent litigation are in substance the same as those decided in earlier litigation there is a final judgment rendered by a court of competent jurisdiction in the earlier litigation the doctrine is invoked against a party or their privies to the prior judgment the parties actually litigated the issues and the resolution of these issues was essential to the prior decision and the controlling facts and applicable legal principles are unchanged from those in the prior litigation 105_tc_141 90_tc_162 affd 904_f2d_525 9th cir collateral_estoppel does not apply if special circumstances are present which give reason to doubt the quality or fairness of procedures followed in prior litigation 440_us_147 meier v commissioner supra pincite the parties agree that requirements and are met whether special circumstances are present petitioner contends that collateral_estoppel does not apply because the government lost or destroyed exculpatory evidence that was critical to his criminal defense and that the prosecutor and other attorneys engaged in misconduct at his criminal trial petitioner previously litigated his claims of misconduct by the prosecutor and attorneys the district_court and the court_of_appeals rejected those claims petitioner’s evidence in this case supporting these claims was vague and uncorroborated petitioner has not shown that the procedures in his criminal trial were unfair we conclude that no special circumstances exist to bar the application of collateral_estoppel here effect of application of collateral_estoppel petitioner contends that the issues in this case and the criminal case are not substantially the same and thus that collateral_estoppel does not apply because this is a civil case we disagree a person convicted of a crime can be collaterally estopped in a later civil case from disputing matters necessary to the criminal conviction 832_f2d_1021 7th cir 711_f2d_267 d c cir 82_tc_413 affd without published opinion 772_f2d_910 9th cir we conclude that petitioner is collaterally estopped from denying that he used mail and electronic means to obtain loans from financial institutions by fraud and misrepresentation and that he was convicted of count of conspiracy to defraud a financial_institution counts of bank fraud counts of mail fraud counts of wire fraud counts of making false statements to financial institutions and counts of racketeering under u s c section c and d petitioner is also estopped from denying that he was convicted of violating sec_7206 for and and more specifically that he signed a tax_return under the penalties of perjury he did not believe the return to be correct as to every material matter and he acted willfully see 777_f2d_644 11th cir whether petitioner is collaterally estopped from disputing that he had income in equal to the portion of the loans he put in his accounts respondent contends that as a result of his conviction under sec_7206 petitioner is collaterally estopped from denying that he received and knowingly failed to report dollar_figure of income in we disagree the trial judge in petitioner’s criminal case made clear that the jury was not asked to decide the amount of petitioner’ sec_3 the amount of unreported income alleged in the indictment was dollar_figure unreported income for the prosecution’s sole grounds for contending that petitioner filed a false tax_return for was that petitioner did not report as income deposits into his personal accounts of parts of the loan proceeds since these were the only allegations that petitioner’s return was false it was essential to petitioner’s criminal conviction under sec_7206 that the jury concluded that to some extent the money deposited in petitioner’s accounts was income to petitioner collateral_estoppel applies only to the extent a finding was necessary to the result in petitioner’s criminal case we conclude that petitioner is barred by the doctrine_of collateral_estoppel from disputing that he received but intentionally failed to report some amount of unreported income in b whether the statute of limitation bars assessment of tax petitioner filed his tax_return on date the notice_of_deficiency was mailed slightly less than years later on date petitioner contends that the notice_of_deficiency was untimely because it was mailed more than years after petitioner filed his return on date sec_6501 bars sending a notice_of_deficiency more than years after the later of the date the tax_return was filed or the due_date of the tax_return unless an exception to the three-year time limit applies however the commissioner has years to send the notice_of_deficiency if the commissioner proves by a preponderance_of_the_evidence that an omitted amount exceeding percent of the gross_income reported was properly includable in gross_income sec_6501 82_tc_546 affd 774_f2d_644 4th cir 52_tc_240 affd 435_f2d_53 2d cir petitioner reported gross_income in the amount of dollar_figure in his return percent of this amount is dollar_figure as stated above at paragraph a-4 petitioner is collaterally estopped from denying that he received some amount of unreported income in petitioner nominally borrowed funds for commercial purposes yet he deposited dollar_figure of the proceeds into his personal accounts he did not need that portion of the proceeds to buy the property for which the loans nominally were made he exaggerated the value of the collateral provided for the loans these violations of the usual obligations of a borrower are sufficient to show by a preponderance_of_the_evidence that he did not intend to fully repay the loans given the massive amount of the deposits dollar_figure we infer that petitioner received income of more than dollar_figure from his deposits of loan proceeds into his personal accounts in petitioner introduced no evidence to the contrary thus we conclude that petitioner omitted more than percent of his gross_income and respondent timely mailed the notice_of_deficiency within years of the date petitioner filed his tax_return c whether respondent’s determination of petitioner’s income_tax deficiency for is correct respondent determined that petitioner failed to report taxable_income in the amount of dollar_figure for and that he has a deficiency in tax in the amount of dollar_figure for respondent’s determination of petitioner’s deficiency is presumed to be correct and petitioner bears the burden of proving otherwise see rule a 290_us_111 before relying on this presumption the commissioner must introduce evidence linking the taxpayer to an income-producing activity 596_f2d_358 9th cir revg 67_tc_672 respondent has done this petitioner conducted transactions that led to the deposits of large amounts of money into his personal accounts and as discussed above petitioner is collaterally estopped from denying that he received some income from those deposits petitioner does not contend that respondent’s determination is arbitrary see 293_us_507 the parties do not discuss the burden_of_proof because the notice_of_deficiency was issued in ie before date sec_7491 does not apply see internal_revenue_service restructuring and reform act of publaw_105_206 sec a 112_stat_726 petitioner offered no evidence showing that respondent’s determination was erroneous we conclude that petitioner’s deficiency for is the amount that respondent determined d whether petitioner is liable for the addition_to_tax for fraud background respondent contends that petitioner is liable for the addition_to_tax for fraud under sec_6653 for fraud is actual intentional wrongdoing designed to evade a tax believed to be owing 394_f2d_366 5th cir affg tcmemo_1966_81 to prevail under sec_6653 the commissioner must prove by clear_and_convincing evidence petitioner underpaid tax for and some part of the underpayment is due to fraud sec_6653 sec_7454 rule b 94_tc_654 92_tc_661 the fact that petitioner failed to meet his burden_of_proof on the underlying deficiency in this case does not relieve respondent of the burden to prove by clear_and_convincing petitioner made no argument about respondent’s determination at trial and in his posttrial briefs he argued only that respondent had unclean hands and that the government had lost or destroyed exculpatory evidence for the addition_to_tax for fraud consists of percent of the underpayment amount sec_6653 plu sec_50 percent of the interest due on the portion of the underpayment attributable to fraud sec_6653 evidence both elements of fraud 240_f2d_944 5th cir 234_f2d_823 5th cir affg in part and revg in part tcmemo_1955_9 225_f2d_216 6th cir affg in part and revg in part a memorandum opinion of this court 56_tc_297 53_tc_96 fraudulent intent respondent bears the burden of proving by clear_and_convincing evidence that petitioner had fraudulent intent sec_7454 rule b fraudulent intent may be proved by circumstantial evidence because direct evidence of fraud is rarely available 99_tc_202 petzoldt v commissioner supra 67_tc_181 affd without published opinion 578_f2d_1383 8th cir a sec_7206 conviction respondent contends that petitioner’s conviction under sec_7206 for shows that petitioner’s underpayment_of_tax for is due to fraud we disagree a sec_7206 conviction is a badge of fraud 796_f2d_303 9th cir affg tcmemo_1984_601 84_tc_636 however a finding of fraudulent intent is not essential to a conviction under sec_7206 and a conviction under sec_7206 does not establish that the taxpayer had fraudulent intent to underpay tax even if the sole allegation that the return was false was that the taxpayer had knowingly omitted a substantial amount of income wright v commissioner supra pincite respondent contends that petitioner’s failure to report millions of dollars of income for years is a badge of fraud we disagree respondent has not shown the amount of petitioner’s underpayment by clear_and_convincing evidence two years of conduct is not a pattern for purposes of establishing a badge of fraud see 577_f2d_1206 5th cir years do not a pattern make b convictions relating to bank loans respondent contends that testimony by the special_agent at petitioner’s criminal trial clearly and convincingly shows that petitioner fraudulently intended to evade tax we disagree first it is well established that conviction under sec_7206 is not sufficient to establish fraud see united_states v edwards f 2d pincite wright v commissioner supra we have found taxpayers convicted under sec_7206 not to be liable for fraud where the sole allegation that the return was false was that the taxpayer knowingly omitted a substantial amount of income see eg kemp v commissioner tcmemo_2004_153 mcgowan v commissioner tcmemo_2004_146 wickersham v commissioner tcmemo_1999_276 mcculley v commissioner tcmemo_1997_285 cox v commissioner tcmemo_1985_324 rinehart v commissioner tcmemo_1983_184 second we did not have an opportunity to observe the special agent’s testimony respondent called no witnesses in this case did not establish that witnesses with personal knowledge of the facts were unavailable and did not examine petitioner regarding the fraud issue even though petitioner testified at the trial in this case third parties in our court sometimes stipulate that testimony from another case will be received into evidence as if it were testimony in our case see eg am lithofold corp v commissioner 55_tc_904 sparkman v commissioner tcmemo_2005_136 n sexcius v commissioner tcmemo_1996_175 n estate of baxter v commissioner tcmemo_1992_ rhodes v commissioner tcmemo_1977_33 haimowitz v commissioner tcmemo_1971_241 n the testimony of one of respondent’s agents at petitioner’s criminal trial was attached to the stipulation in this case but petitioner made clear at the start of the trial that he did not intend to stipulate that the prior testimony was admissible as if it were testimony in this case absent a meeting of the minds of the parties on this point we do not consider the testimony from the criminal case as if it were testimony in this case we sustained respondent’s determination that part of the proceeds of several loans that petitioner deposited in his bank accounts was income to him in however neither the determination nor the record provides clear_and_convincing evidence that petitioner omitted the loan proceeds from income with fraudulent intent 54_tc_882 c petitioner’s testimony in his criminal case respondent contends that petitioner’s testimony at his criminal trial that he relied on advice of counsel that the loans were not income shows that he fraudulently intended to evade tax because his prior testimony was not credible respondent cites no case in which any court considered testimony in another case as a badge of fraud in a civil tax case petitioner’s testimony at his criminal trial is not a part of our record we have already considered the appropriate role and effect of petitioner’s criminal conviction on the fraud issue in this case respondent provides no reason or authority for separately considering petitioner’s testimony at his criminal trial as a badge of fraud d conclusion respondent has not shown by clear_and_convincing evidence that petitioner intended to evade tax for that he knew he owed e whether petitioner is liable for the addition_to_tax for substantial_understatement petitioner contends that he is not liable for the addition_to_tax under sec_6661 for substantial_understatement in sec_6661 imposed an addition_to_tax of percent of the amount of any underpayment attributable to a substantial_understatement_of_income_tax petitioner bears the burden of proving that he is not liable for the addition_to_tax under sec_6661 rule a petitioner offered no evidence or argument that he is not liable for the addition_to_tax under sec_6661 for we conclude that petitioner is liable for the sec_6661 addition_to_tax for to reflect the foregoing decision will be entered under rule


t c summary opinion united_states tax_court terrance lashawn and christy shields petitioners v commissioner of internal revenue respondent docket no 23815-05s filed date terrance lashawn and christy shields pro sese james h brunson iii for respondent wells judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority all subsequent section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure respondent determined a deficiency in federal_income_tax in the amount of dollar_figure for petitioners’ taxable_year the issue we must decide is whether petitioners may claim petitioner terrance lashawn shields’s son as a dependent and receive the additional_child_tax_credit pursuant to sec_24 background some of the facts and certain exhibits have been stipulated the parties’ stipulations of fact are incorporated in this opinion by reference and are found as facts in the instant case at the time of filing the petition in the instant case petitioners resided in eastman georgia in this opinion our references to j s are to the biological son of petitioner terrance lashawn shields and aundrea b warner ms warner by order dated date the superior court of bleckly county awarded primary physical custody of j s to ms warner custody order petitioners timely filed their tax_return claiming deductions for four exemptions and a child_tax_credit in the amount of dollar_figure for two children including j s respondent disallowed the dependency_exemption deduction for j s and reduced the amount of the child_tax_credit from dollar_figure for two children to dollar_figure for one child on date respondent sent petitioners a notice_of_deficiency discussion as a general_rule the commissioner’s determinations in the notice_of_deficiency are presumed correct and the taxpayer bears the burden of proving an error rule a 290_us_111 in general a taxpayer is allowed as a deduction an exemption for each dependent sec_151 a dependent includes a son or daughter of the taxpayer over half of whose support for the calendar_year was provided by the taxpayer sec_152 in the case of a child who receives over half of his support during the calendar_year from his parent sec_1 who are divorced or separated or who live apart during the last months of the calendar_year the child is treated as receiving over half of his support from the parent having custody for the greater portion of the calendar_year sec_152 despite the heading support_test in case of child of divorced parents etc sec_152 1we infer from the record that ms warner and petitioner terrance lashawn shields provided over half of j s ’s support during but note that j s ’s maternal grandmother may have provided some support applies regardless of whether the parents were married 121_tc_245 custody is determined by the most recent divorce or custody decree sec_1_152-4 income_tax regs a noncustodial_parent may be entitled to a dependency_exemption deduction pursuant to sec_151 if the noncustodial_parent attaches to his tax_return a form_8332 release of claim to exemption for child of divorced or separated parents or similar written declaration signed by the custodial_parent stating that the custodial_parent will not claim the child as a dependent for the calendar_year sec_152 114_tc_184 the custody order granted primary physical custody to ms warner petitioners did not attach to their return a form_8332 or similar written declaration by ms warner stating that she would not claim the child as a dependent accordingly we hold that petitioners are not entitled to a dependency_exemption deduction for j s for taxable_year to qualify for the additional_child_tax_credit the taxpayer must show that he was entitled to a dependency_exemption deduction for his child see sec_24 c as stated above petitioners are not entitled to a dependency_exemption deduction 2it is unclear from the record whether ms warner and petitioner terrance lashawn shields were previously married for j s for the taxable_year in issue accordingly we hold petitioners are not entitled to the additional_child_tax_credit for taxable_year to reflect the foregoing decision will be entered for respondent


department of the treasury internal_revenue_service tax_exempt_and_government_entities_division date jun number person to contact release date identification_number contact telephone number telephone number fax ein uil certified mail - return receipt requested dear this is a final_determination that your exempt status under sec_501 c of the internal_revenue_code is revoked recognition of your exemption under internal_revenue_code sec_501 is revoked effective for the following reason s you have not demonstrated that you arc operated exclusively for charitable educational or other exempt purposes within the meaning of sec_501 organizations that are described in ilr c sec_501 and sec_501 a must be organized and operated exclusively for an exempt_purpose you have not established that you have operated exclusively for an exempt_purpose as such you failed to meet the requirements of internal_revenue_code sec_501 and sec_1_501_c_3_-1 d in that you failed to establish that you were operated exclusively for an exempt_purpose contributions to your organization are no longer deductible under sec_170 of the internal_revenue_code effective 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 and for all subsequent years processing of inconle tax returns and assessment of any taxes due will not be delayed should a petition for declaratory judgmen t be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination in court you nlust initiate a suit for declaratory judgement in the united_states tax_court the united_states claim court or the district_court of tbc united_states for the district of columbia before the day after the date this determina tion was mailed to you contact the clerk of the appropriate court for the rules for initiating suits for declaratory_judgment regarding filing petitions for declaratory_judgment by referring to the enclosed publication please note that the united_states tax_court is the only one of these courts where a declaratory_judgment action can be pursued without the services of a lawyer you may write to the courts at the following addresses please contact the clerk of the respective court for rules and the appropriate forms u nited states tax_court second street nw washington dc 20217' us court of federal claims madison place nw washington dc u s district_court for the district of columbia constitution ave n w washington dc you may call the irs telephone number listed in your local directory an irs employee there may be able to help you but the contact person at the address shown on this letter is most familiar with your case you may also call the internal_revenue_service taxpayer_advocate the taxpayer_advocate_service las 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 t o help you visit taxpayeradvocate irs gov or call if you have any questions please contact the person whose name and telephone number arc shown in the heading of this letter sincerely yours eliclosures publication director eo examinations department of the treasury internal_revenue_service tax exempt and government entities exempt_organizations examinations date taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax manager's name id number certified mail - return receipt requested dear rs manager's contact number conta response due due_date why you are receiving this letter we propose to revoke your status as an organization described in sec_501 of the internal_revenue_code code enclosed is our report of examination explaining the proposed action what you need to do if you 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_501 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 ifwe 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 tax years what you need to do ifyou disagree with the proposed revocation letter rev catalog number 34809f if you 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 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 for 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 advice memorandum issued by the exempt_organizations rulings and agreements office no further irs administrative appeal will be available to you we issue a determination_letter to you based on a technical contacting the taxpayer_advocate office is a taxpayer right you have the right to contact the office_of_the_taxpayer_advocate their assistance isn't a substitute for 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 ina united_states court they can however see 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 ff you prefer you may contact your local taxpayer_advocate at for additional information if you have any questions please call the contact person at the telephone number shown in the heading of this letter f you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation sincerely director eo examinations enclosures report of examination form_6018 publication publication letter rev catalog number 34809f schedule number or exhibit form 886-a rev date explanations of items tax identification_number year period ended name of taxpayer explanation for proposed revocation of exempt status the purpose of this attachment is to provide you with our preliminary examination findings which c exempt indicate that we should propose revocation of the status primary basis for revocation ’s exempt status because our we intend to propose revocation of the examination revealed that the organization appears to be a foreign conduit without control or discretion over charitable funds solicited in the united_states and distributed to a foreign_entity ie in addition the organization appears to have permitted its income to inure to the benefit of a disqualified_person facts we are proposing revocation of the organization’s exempt status based on the following facts formed a charitable_organization within the united_states the certain persons in this country desirous of furthering the work of a foreign organization located in domestic organization and makes payments by check at convenient intervals to organization previously received a ruling that contributions to it are deductible under sec_170 organization represents of the code in conducting its fundraising activities the to prospective contributors that funds raised will go to sec_170 the service holds that contributions to domestic organizations that operate under the circumstances described above are not deductible receives contributions according to located in the organization does the representative for the organization confirmed that the not provide grants to the foreign organization on a proposal basis but raises funds to support known activities in which the foreign organization consistently engages the organization has provided no documentation to show how funds contributed by the domestic organization were utilized for charitable purposes according to revrul_68_489 1998_2_cb_210 an organization will not jeopardize its exemption under sec_501 of the code even though it distributes funds to nonexempt organizations provided it retains control and discretion over use of the funds and maintains records establishing that the funds were used for sec_501 purposes expenditure_responsibility is required as sec_170 states that a contribution or gift by a corporation to a_trust chest fund or foundation shall be deductible by reason of paragraph c only if it is to be used within the united_states or any of its possessions exclusively for purposes specified in subparagraph c b contributions made directly to foreign organizations are not deductible and our examination revealed that the have no control or discretion over how the foreign organization utilizes its contributed funds organization appears to form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date explanations of items tax identification_number year period ended name of taxpayer while may be the equivalent of a 501_c_3_organization in organization has provided no documentation to show how the domestic organization maintained expenditure_responsibility or to show how the foreign organization utilized any of the funds contributed from the little information secured over the course of the examination the organization is considered to generally fund the activities of across-the- board to potentially include non c expenditures as well as an unknown percentage of administrative costs according to sec_170 if an organization is required for other reasons such as a specific provision in its charter to turn contributions or any particular contribution it receives over to another organization then in determining whether such contributions are deductible it is appropriate to determine whether the ultimate recipient of the contribution is a qualifying_organization it is well established in the law of taxation that a given result at the end of a straight path is not made a different result because reached by a devious path minnesota tea co v helvering 302_us_355 pincite ct_d c b moreover it seems clear that the requirements of sec_170 of the code would be nullified if contributions inevitably committed to go to a foreign organization were held to be deductible solely because in the course of transmittal to the foreign organization they came to rest momentarily in a qualifying domestic organization in such cases the domestic organization is only nominally the donee the real donee is the ultimate foreign recipient in the year under review the received contributions which were inevitably committed to go to instance the contributed funds came to rest briefly with the until the organization made payments by check at convenient intervals to organization organization in this inthe year under review the organization engaged in no other charitable activities other than to fund the activities of the foreign organization in 485_us_351 108_sct_1179 99_led_368 the supreme court held that an organization must prove unambiguously that it qualifies for a tax exemption in 505_f2d_1068 the court held that an organization seeking a ruling as to recognition of its tax exempt status has the burden of proving that it satisfies the requirements of the particular exemption statute whether an organization has satisfied the operational_test is a question of fact in better business bureau of washington d c inc v united_states 326_us_179 the supreme court held that the presence of a single non- exempt_purpose if substantial in nature will destroy a claim for exemption regardless of the number or importance of truly exempt purposes as mentioned above sec_170 states that contributions to domestic organizations that operate under the circumstances described above are not deductible our examination revealed the support of organization’s primary activity due to the organization’s apparent operation as a foreign conduit coupled with the organization’s lack of expenditure_responsibility we conclude that the organization is no longer eligible for tax exemption under sec_501 to be the additionally in the year under review multiple checks totaling dollar_figure a disqualified_person cashed from the domestic organization’s bank account form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date explanations of items tax identification_number year period ended name of taxpayer a disqualified_person is an officer director or trustee of a private_foundation or a person having similar responsibilities under regs f a person is considered an officer of a foundation if he or she is specifically so designated under the certificate of incorporation bylaws or other constitutive documents of the foundation he or she is also considered an officer under the regulations if he or she regularly exercises general authority to make administrative or policy decisions on behalf of the foundation the individual who made dollar_figure was listed as senior payable to cash and the individual who cashed them vice president on the bank signature authorization card for the account from which the checks were made payable but was not listed as an officer on the organization’s corresponding form_990 return and use of the domestic organization’s checking account checks that were made payable to the foreign organization which was indicative of his authority to conduct business on behalf of the organization power to exercise general authority is implied due to his access to also wrote the in checks the representative stated that had hand carried the cash amounts to the foreign organization but provided no explanation as to why many checks were made payable directly to the foreign organization but others were made payable to cash and cashed by the representative supplied copies of receipts that he stated were from the foreign organization the same individual who cashed the checks in but the receipts were signed by the united_states as the receipts supplied do not constitute acceptable documentation for the dollar_figure we also intend to propose revocation based on inurement in checks cashed by sec_501 of the code forbids inurement of any part of the net_earnings of a qualifying_organization to the benefit of any private_shareholder_or_individual any part literally means any part the smallest amount of inurement results in the organization’s failure to meet the requirements for exempt status the was formed to support a foreign organization solicits tax-deductible conclusion our examination revealed that the organization contributions in the united_states for which it represents to prospective contributors that the ultimate destination for the contributed funds is organization makes distributions to the foreign organization via check payments made at convenient intervals with no apparent control or discretion over how the foreign organization utilizes the funds as a result the government's position is that foreign conduit in addition a disqualified_person issued and cashed dollar_figure in checks from the organization’s bank account with no acceptable documentation to show what became of the funds or whether or not the funds were used for charitable purposes we intend to propose revocation of the organization’s exempt status based on the results of our examination once an organization’s exempt status is revoked contributions to the organization are no longer deductible under sec_170 and the organization is no longer eligible for tax exemption under sec_501 appears to be a the form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service


t c memo united_states tax_court raymond t and patricia murphy petitioners v commissioner of internal revenue respondent docket no filed date gerald katz for petitioners c teddy li for respondent memorandum findings_of_fact and opinion holmes judge in date raymond murphy sent a check to philip hunt for dollar_figure murphy says the check was for interest that he owed hunt on two living horses the commissioner says the check was a repayment of principal on a dead one if murphy is right the entire amount is deductible if he isn’t none is findings_of_fact raymond murphy has been a veterinarian specializing in horses for forty years he also became a real_estate developer and a few of the deductions originally contested in this case come from that business but the bulk of this case and murphy’s great pleasure comes from breeding raising and trading thoroughbred horses although murphy has owned a stableful over the years only three horses figure in this case hamseh desert spice and on the piste all three are broodmares and all came to murphy from what he described as his wheeling and dealing and whipping and dipping with philip devere hunt of tipperary ireland a fellow breeder whom murphy has long known murphy bought hamseh and desert spice from hunt in hamseh cost him dollar_figure which he financed in part with a promissory note for dollar_figure in hunt’s favor interest on this note accrued at a rate of ten percent per annum on any unpaid balance and the note required_interest payments in date and date and then all remaining principal and interest by date the note stated that all payments shall be first applied to interest and the balance to principal desert spice cost murphy dollar_figure he financed dollar_figure of the total price with a promissory note like the note for hamseh this note also had a specific repayment schedule dollar_figure of principal in date interest at ten percent in date another dollar_figure of principal in date interest on the balance in date and any remaining principal and interest by date as in the note for hamseh murphy’s payments on desert spice were first to be applied to interest before any reductions in principal and that leads to the third horse in this case on the piste hunt apparently sold her to murphy in date there was no date on the bill of sale but a copy of the fax that hunt sent to murphy to confirm the sale bore a date stamp murphy agreed to pay dollar_figure but the sale was subject_to the condition that she be carrying a foal certification by a veterinarian that on the piste was pregnant would trigger a payment of dollar_figure murphy would owe the remainder on or before date but unlike the deals for hamseh and desert spice the deal for on the piste did not require murphy to pay interest on the unpaid principal on date murphy paid hunt dollar_figure after on the piste’s pregnancy was confirmed he also took out an insurance_policy on her for dollar_figure the horse remained in hunt’s stables pending shipment to maryland but less than six weeks later both she and her unborn foal died while still in ireland murphy filed a claim with his insurer piste means ski trail--alluding to the names of her sire and dam shirley heights and snowing her pedigree features two appearances by nasrullah the grandsire of secretariat and one by native dancer a winner of the preakness and belmont two of the most prominent breeding stallions of the last century and received a check for dollar_figure on date on december he sent a dollar_figure check to hunt the memo line on the front of the check said that payment was being made for hamseh and desert spice interest of course as the irs noticed this was the same amount that murphy still owed hunt for on the piste it is here that agreement between the parties ends and we canter into a mare’s nest of conflicting claims murphy argues that he was in arrears on his payments of principal and interest on both hamseh and desert spice as final payment for on the piste was not due until the end of murphy claims that he agreed with hunt to pay off at least some of the interest owing on the other two horses that the interest amount worked out to dollar_figure the amount of principal still owed for on the piste simply reflects the fact that that was the money that he had in hand as a result of the insurance settlement he relies for proof on a written payment extension signed by hunt that gave him an additional year to date to make final payment for on the piste provided that he use dollar_figure of the dollar_figure in insurance proceeds from the death of on the piste to bring the interest owed on hamseh current through the end of and the interest owed on desert spice current through the beginning of date murphy claims that the agreement was based on the interest and principal calculations of his accountant and that hunt concurred in them murphy claimed the dollar_figure payment as an interest_deduction on his tax_return the commissioner disallowed that deduction having concluded that murphy had actually already paid for hamseh and desert spice he believes that murphy used the dollar_figure to pay off the balance owing for on the piste he also disallowed various other minor expenses a notice_of_deficiency followed in which the commissioner asserted an accuracy-related_penalty under sec_6662 on the entire deficiency the parties originally submitted the case for decision on stipulated facts under rule but it was then restored to the court’s general docket for trial the murphys are residents of maryland as they were when they filed their petition and trial was held in baltimore opinion we must decide three issues whether murphy has successfully shifted the burden_of_proof onto the irs whether murphy’s payment to hunt was a deductible_interest given the paperwork that murphy produced this might seem to amount to an assertion that murphy was committing fraud this would have triggered a larger penalty but would also have saddled the commissioner with a heavier burden_of_proof unless otherwise indicated section references are to the internal_revenue_code as in effect for the years at issue and the rule references are to the tax_court rules_of_practice and procedure expense and whether murphy is liable for an accuracy-related_penalty due to negligence or a substantial_understatement burden_of_proof a taxpayer usually bears the burden_of_proof on each contested issue of fact rule a 119_tc_306 affd 101_fedappx_34 6th cir but sec_7491 lets him shift that burden to the commissioner if he shows that he kept all the records required by the code and cooperated with the irs and if he introduces credible_evidence about the particular issue on which he is trying to shift the burden cipriano v commissioner tcmemo_2001_157 affd 55_fedappx_104 3d cir in this case we find that the commissioner bears the burden_of_proof on the central issue of the interest_deduction murphy was able to provide copies of the essential documents and credibly testified that his c p a kept extensive records regarding his business dealings the commissioner did not refute this claim murphy was also able to substantiate the interest transaction through canceled checks and payment agreements and we believed his testimony that he had cooperated with the irs during the audit of his return this is enough to shift the burden though we do note that this usually doesn’t matter very much--most cases will be decided on a preponderance_of_the_evidence shifting the burden may however affect the way we view possible gaps in the evidence deductibility of interest turning to the main issue in the case--murphy’s attempted dollar_figure deduction for interest--we begin with the law sec_163 states as a general_rule that there shall be allowed as a deduction all interest_paid or accrued within the taxable_year on indebtedness in 32_tc_798 revd and remanded on other grounds 289_f2d_861 6th cir we defined indebtedness as an existing unconditional and legally enforceable obligation for the payment of money recognizing this the commissioner argues first that the disputed check couldn’t have gone to pay interest on hamseh and desert spice because murphy had already paid off those notes meaning there was no underlying valid debt between murphy and hunt the commissioner’s strongest argument is the presence of the legend paid in full marked on the promissory notes for both hamseh and desert spice if murphy had paid these notes according to their original terms they would both have been paid off by date the problem however is that neither party introduced documentary or expert evidence of when the notes were marked as paid in full murphy himself testified that the promissory notes were marked paid in full only much later at the end of he said he still had not ponied up enough money to extinguish the debt for either hamseh or desert spice according to murphy he and hunt modified their sales contracts for hamseh and desert spice to use the cash-in-hand from the insurance settlement to pay much of the unpaid interest on those horses the debt was finally extinguished--and the notes marked paid in full --only years later when murphy agreed to turn over to hunt one foal each from hamseh and desert spice in addition to his testimony murphy produced a written_agreement with hunt ratifying the continuing existence of his obligation to pay the outstanding principal for on the piste in judging the credibility of this story we wondered what was in it for hunt--if murphy is to be believed by the time he bought on the piste in mid-1997 he was still in debt to hunt on the other two horses for hundreds of thousands of dollars if murphy was truly delinquent in his payments to hunt why would hunt continue to whip and dip by selling on the piste to him why is there no rock-solid contemporaneous documentation regarding the many extensions modifications etc of the note payments that were to have occurred it would also have been easy one might think for one party or the other to have introduced murphy’s check registers and bank statements for to see the extent to which the debts on hamseh and desert spice had been paid but neither party did despite murphy’s having turned all these records over to the irs during audit and the commissioner invoked his right to exclude the testimony of the accountant who’d prepared murphy’s tax returns on the ground that he had not been identified in murphy’s pretrial memorandum we are therefore forced to rely mostly on our evaluations of murphy’s truthfulness and the rather thin paper trail and in the end we do find that murphy’s testimony was credible due to the length of his dealings with hunt including many successful trades and coownership of some horses we find that their relationship was strong enough to explain hunt’s willingness to extend the payment schedule for hamseh and desert spice apart from unsuccessfully challenging murphy’s credibility and despite having the burden_of_proof on this issue the irs provided no direct evidence that murphy did not owe hunt money for those two horses when he mailed hunt the dollar_figure check we therefore find that murphy has shown that a valid indebtedness on hamseh and desert spice still existed at the end of see first natl f 2d pincite leniency by lender in not pressing for collection on debt does not create presumption that debt is invalid the commissioner next argues that even if those notes were still outstanding murphy must have intended to use the money to repay the principal owed for on the piste because dollar_figure was the exact amount that murphy still owed hunt for that horse here again we find murphy credible when he testified that he got together with his accountant in late to calculate the number of days’ worth of interest on hamseh and desert spice that dollar_figure would pay off and then secured hunt’s acquiescence in treating the payment as interest on those two horses instead of full payment of principal for on the piste a note that isn’t paid according to its original terms is still a debt even though overdue see id and hunt was free to accept immediate payment of interest for hamseh and desert spice and equally free to extend the due_date for murphy to finish paying for on the piste see eg kluesner v commissioner tcmemo_1989_83 the parties to a contract may modify an existing contract by mutual consent citation omitted we hold that the dollar_figure payment was for interest on a valid and enforceable debt between murphy and hunt that’s all that’s required to rule in murphy’s favor on the issue of deductibility accuracy-related_penalty only the penalty issue remains the commissioner can impose a penalty for negligence on a taxpayer who fails to make a reasonable attempt to comply with the provisions of the code or displays careless reckless or intentional disregard of the code or regulations sec_6662 sec_1_6662-3 income_tax regs in this case the commissioner asserted the penalty against the entire deficiency most of the asserted penalty disappears with our ruling that murphy was entitled to treat the dollar_figure payment as interest there were however other adjustments in the notice_of_deficiency these were comparatively small and in a burst of lawyerly horse-trading before the trial began they were all settled with reciprocal concessions murphy conceded the following description capitalization of electrical legal expenses utilities telephone dues and subscriptions total amount dollar_figure big_number big_number big_number big_number the parties did not settle the question of whether the sec_6662 penalty would apply to these items the court warned them that they should introduce some evidence on these items because the penalty remained in dispute they did not do so and now we have to decide the issue in the absence of any evidence we solve this problem by relying on 118_tc_358 where we said an individual must first challenge a penalty by filing a petition alleging some error in the determination of the penalty if the individual challenges a penalty in that manner the challenge generally will succeed unless the commissioner produces evidence that the penalty is appropriate in this case murphy did contest in his petition the penalty on all the items that the commissioner disallowed it was therefore up to the commissioner to come forward with at least some evidence that their imposition was justified--for example by showing that murphy hadn’t kept adequate books_and_records on those items see eg 116_tc_438 biazar v commissioner tcmemo_2004_270 this he did not do instead he argues that murphy’s concession to the disallowance of these minor items is ipso facto proof of murphy’s negligence this argument is much too broad-- conceding that a deduction is not allowable is not the same as conceding that it was taken negligently or in intentional disregard of the rules and regulations the commissioner’s alternate basis for the penalty is that murphy substantially understated his tax_liability an understatement is deemed substantial if it exceeds the greater of ten percent of the tax required to be shown on the return or dollar_figure sec_6662 sec_1_6662-4 income_tax regs as we reasoned in perry funeral home v commissioner tcmemo_2003_340 the commissioner satisfies his burden under sec_7491 to show some evidence of understatement by pointing to a taxpayer’s concession that at least some deductions were not allowable whether any understatement resulting from murphy’s concessions on these smaller items is substantial or not is a computational issue and so decision will be entered under rule


internal_revenue_service department of the treasury index no number info release date washington dc person to contact john t sapienza jr id no telephone number refer reply to cc dom it a - cor-111007-00 date date dear commissioner rossotti asked me to respond to your letter of date concerning obesity and weight-loss programs you asked the internal_revenue_service to issue a revenue_ruling allowing obese individuals to deduct the costs of weight-loss programs as medical_care expenses under sec_213 of the internal_revenue_code the current irs position on weight-loss programs is stated in revrul_79_151 1979_1_cb_116 this ruling holds that if participation in the program was to improve the participant’s appearance general health and sense of well-being the expenses of the program are not for medical_care and therefore are not deductible of course the expenses of a weight-loss program prescribed to treat a specific disease are for medical_care and are deductible we appreciate your suggestion and the references you provided to studies on obesity each year the irs and the department of the treasury review the many suggestions for revenue rulings and other forms of guidance to be published the projects selected are announced in the annual priority guidance plan input such as you have provided is helpful to us in selecting projects for the priority guidance plan i hope this information is helpful please call john t sapienza jr at the number above if you have any questions sincerely deputy assistant chief_counsel income_tax accounting by robert a berkovsky chief branch