department of the treasury internal_revenue_service te_ge eo examinations commerce street m c dal dallas tx date mar tax_exempt_and_government_entities_division release number release date _ uil code person to contact identification_number telephone number in reply refer to te_ge review staff last date for filing a petition with the court tax jun 20xx certified mail - return receipt requested dear this is a final adverse determination regarding your exempt status under sec_501 of the internal_revenue_code the code our favorable determination_letter to you dated may 20xx is hereby revoked and you are no longer exempt under sec_501 a of the code effective january 20xx our adverse determination was made for the following reasons that you are operated exclusively for an exempt you have not established purpose or that you have been engaged primarily in activities that accomplish one or more exempt purposes as required by sec_1 c - i c you failed to respond to repeated reasonable requests to allow the internal_revenue_service as required by the code sec_6001 and sec_6033 as such you fail to meet the operational requirements for continued exemption under sec_501 c of the code and sec_1 c -i a expenditures to examine activities receipts your or contributions to your organization are no longer deductible under sec_170 of the 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 december 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 district_court of the united_states for the district of columbia before the day after the date this determination was mailed to you contact the clerk of the appropriate court for the rules for initiating suits for declaratory_judgment you may write to the courts at the following addresses the united_states claim court or united_states tax_court second street nw washington dc 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 the taxpayer_advocate_service tas 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 paul a marmolejo acting director eo examinations enclosures publication internal_revenue_service tax_exempt_and_government_entities_division exempt_organizations examinations commerce street ms dal dallas tx department of the treasury date date taxpayer_identification_number form tax_year s ended december 20xx person to contact id number contact numbers manager’s name id number manager’s contact number response due_date october 20xx certified mail - return receipt requested dear 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 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 letter rev catalog number 34809f 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 if you disagree with the proposed revocation 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 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_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 in a 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 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 if you write please provide a telephone number and the most convenient time to call if we need to contact you letter rev catalog number 34809f thank you for your cooperation enclosures report of examination form_6018 publication publication sincerely margaret von lienen director eo examinations letter rev catalog number 34809f schedule number or exhibit form 886-a rev date explanations of items name of taxpayer tax identification_number 20xx12 year period ended issue whether - for exemption under c of the internal_revenue_code continues to qualify facts organization was granted tax-exempt status as a section_501_c_3_organization on may 20xx according to its articles of incorporation dated june 20xx the corporation is organized for the herein after referred to as the for the tax period ending december 20xx the organization filed form 990-n e-postcard which was received november 20xx on january 20xx the internal_revenue_service service initiated an examination of the organization’s form 990-n e-postcard for the december 20xx tax_year letter initial appointment letter - no prior contact dated january 20xx was sent to the organization arranging an appointment to begin the examination process by reviewing the organization’s books_and_records to substantiate its filing requirement the letter indicated the examination would take place on march 20xx pincite 00am at a location to be determined once telephone contact was made the letter also stated to contact the examining revenue_agent to confirm the appointment and if the organization had any questions included with the letter were form_4564 information_document_request idr publication your rights as a taxpayer and a partially completed form_2848 power_of_attorney and declaration of representative on february 20xx the agent contacted which is a related for-profit entity at a telephone number obtained from internet research of the website the address for this entity is the same as the address for the exempt_organization the agent identified himself to the receptionist name and badge number the agent asked to speak to officer listed on the exempt_organizations select check for the organization the receptionist stated she was not available at the moment the agent left name and telephone contact information for a call back herein after referred to as with title principle telephone contact to was attempted on february 20xx to confirm receipt of the initial correspondence and the examination appointment date of march 20xx a voice message was left to return the phone call form 886a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a row date explanations of items name of taxpayer year period ended 20xx12 tax identification_number was attempted on february 20xx to confirm telephone contact to receipt of the initial correspondence and the examination appointment date of march 20xx a voice message was left to return the phone call telephone contact to was attempted on february 20xx to confirm receipt of the initial correspondence and the examination appointment date of march 20xx a voice message was left to return the phone call on march 20xx the agent resent the original contents of the initial correspondence via certified mail to the address on file for the organization with a response due_date of march 20xx to schedule the examination the agent also sent a postal tracer to the postmaster in requesting the last_known_address for the organization the city of telephone contact to was attempted on april 20xx to confirm receipt of the correspondence dated march 20xx a voice message was left to return the phone call on april 20xx the correspondence mailed to the organization on march 20xx was returned to the agent as return to sender vacant unable to forward on may 20xx the agent mailed via overnight mail letter initial appointment letter - no prior contact to the organization requesting contact is made with the agent by telephone as soon as possible to schedule an examination included with the letter were form_4564 information_document_request idr publication your rights as a taxpayer and a partially completed form_2848 power_of_attorney and declaration of representative on may 20xx the postal tracer was returned to the agent stating mail is delivered to address given suite on may 20xx the agent mailed via certified mail letter initial appointment letter - no prior contact addressed to the principle officer at the organization’s address requesting contact is made with the agent by telephone as soon as possible to schedule an examination included with the letter were form_4564 information_document_request idr publication your rights as a taxpayer and a partially completed form_2848 power_of_attorney and declaration of representative on may 20xx called the agent and left a message for call back on may 20xx telephone contact was made with president full-time but agreed to an updated examination appointment of june 20xx pincite am depending on the availability of the organization’s accountant and would call the agent back to confirm examination location indicated that she no longer lived in the organization’s form 886-a department of the treasury-internal revenue service catalog number 20810w publish no irs gov page schedule number or exhibit form 886-a rev date explanations of items name of taxpayer tax identification_number 20xx12 year period ended on june 20xx telephone contact was made with president to verify the examination location correspondence to the accountant and had not gotten a response from the accountant indicated that the examination could be conducted at the location where the organization’s receives mail an updated appointment letter initial appointment letter after telephone contact was mailed to included with the letter were form_4564 information_document_request idr publication your rights as a taxpayer stated that she had given all the ' the organization’s telephone contact was attempted to and june 20xx to confirm examination appointment and location a telephone message was left after close of business for the agent confirming the examination appointment and location on june 20xx june 20xx the agent visited the organization at the address confirmed by 20xx met with under examination she also stated that appearance but would meet with the agent in the afternoon was not available at the scheduled time of the examination the agent who stated she was a volunteer of the organization for the period was unavailable due to a court on june provided the agent with copies of the organization's articles of incorporation and determination_letter dated may 20xx stated that the organization did not have any activities in the 20xx tax_year due to insufficient funding and support in a message left with am failed to show up for the afternoon meeting with the agent but stated she would meet with the agent on july 20xx at the agent visited the organization at the location confirmed by to conduct the examination time the agent waited approximately minutes after the scheduled time for arrive tried to contact on july 20xx was not present at the location at the scheduled to never showed up for the examination appointment the agent also several times via telephone telephone contact to update on the organization’s progress gathering documents identified on the idr for examination was unavailable a voice message was left to return the call was attempted on july 20xx and july 20xx to get an left a voice message for the agent after close of business on july 20xx stating that all the documents were with the organization’s accountant and that she would contact the accountant to gather the documents contact her was via e-mail and provided the agent with an e-mail address also indicated the best way to the agent e-mailed progress gathering the documents identified on the idr for examination on july 20xx to get an update on the organization's 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 name of taxpayer tax identification_number year period ended 20xx12 stated in an e-mail response that she had dropped the idr request off at the accountant’s office she also stated that the organization did not have a bank account for the period under examination telephone contact was attempted on july 20xx to organization's progress gathering documents identified on the idr for examination was not available a voice message was left to return the call to get an update on the telephone along with e-mail contact was attempted on july 20xx to an update on the organization’s progress gathering documents identified on the idr for examination was not available a voice message was left to return the call to get telephone contact was attempted on august 20xx to to get an update on the organization’s progress gathering documents identified on the idr for examination to return the call were not available a voice message was left and and telephone contact was attempted on august 20xx to get an update on the organization’s progress gathering documents identified on the idr for examination to return the call were not available a voice message was left and and to law sec_501 exempts from federal_income_tax corporations and any community chest fund or foundation organized and operated exclusively for religious charitable scientific testing for public safety literary or educational_purposes or for the prevention of cruelty to 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 and which does not participate in or intervene in including the publishing or distributing of statements any political campaign on behalf of any candidate for public_office sec_6001 of the code provides that every person liable for any_tax imposed by the code or for the collection thereof shall keep adequate_records as the secretary_of_the_treasury or_his_delegate may from time to time prescribe sec_6033 of the code provides except as provided in sec_6033 every organization exempt from tax under sec_501 shall file an annual return stating specifically the items of gross_income receipts and disbursements and such other information for the purposes of carrying out the internal revenue laws as the secretary may by forms or regulations prescribe and keep such records render under oath such statements make such other returns and comply with such rules and regulations as the secretary may from time to time prescribe form 886-a department of the treasury-internal revenue service catalog number 20810w publish no irs gov page_4 schedule number or exhibit form 886-a rev date explanations of items name of taxpayer tax identification_number sec_1_6001-1 of the regulations in conjunction with sec_1_6001-1 provides that every organization exempt from tax under sec_501 of the code and subject_to the tax imposed by sec_511 on its unrelated_business_income must keep such permanent books or accounts or records including inventories as are sufficient to establish the amount of gross_income deduction credits or other matters required to be shown by such person in any return of such tax such organization shall also keep such books_and_records as are required to substantiate the information required by sec_6033 year period ended 20xx12 sec_1_6001-1 of the regulations states that 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 as long as the contents thereof may be material in the administration of any internal revenue law sec_1_6033-1 of the regulations provides that every organization which has established its right to exemption from tax whether or not it is required to file an annual return of information shall submit such additional information as may be required by the district_director for the purpose of enabling him to inquire further into its exempt status and to administer the provisions of subchapter_f sec_501 and the following chapter of the code and sec_6033 revrul_59_95 1959_1_cb_627 concerns an exempt_organization that was requested to produce a financial statement and statement of its operations for a certain year however its records were so incomplete that the organization was unable to furnish such statements the service held that the failure or inability to file the required information_return or otherwise to comply with the provisions of sec_6033 of the code and the regulations which implement it may result in the termination of the exempt status of an organization previously held exempt on the grounds that the organization has not established that it is observing the conditions required for the continuation of exempt status in accordance with the above cited provisions of the code and regulations under sec_6001 and sec_6033 organizations recognized as exempt from federal_income_tax must meet certain reporting requirements these requirements relate to the filing of a complete and accurate annual information and other required federal tax forms and the retention of records sufficient to determine whether such entity is operated for the purposes for which it was granted tax-exempt status and to determine its liability for any unrelated_business_income_tax taxpayers position calls e-mails or certified mail the organization has not provided a position has not responded to telephone government position the organization has failed to show that it meets the operational_test for a sec_501 organization for the year under examination in order to meet the operational_test they must 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 name of taxpayer tax identification_number show that they engage primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose further an organization is not operated exclusively for one or more exempt purposes of its net_earnings inure in whole or in part to the benefit of private shareholders or individuals year period ended 20xx12 the exempt status of revoked because it fails to meet the requirements of sec_6033 and sec_1_6033-2 the organization failed to provide the information required by the internal_revenue_service for the purpose of inquiring into its tax exempt status should be furthermore as referenced by revrul_59_95 an organization_exempt_from_taxation under sec_501 that fails to submit such additional information required by the service for the purpose of inquiring into its exempt status may result in the termination of its exempt status the service has repeatedly asked the organization to submit necessary information to inquire into its tax exempt status the organization has failed to provide the requested information the agent attempted numerous times to contact the organization using its last_known_address the agent also attempted to contact the organization via telephone through a related for-profit entity with the same address as the organization correspondence was sent via regular and certified mail to schedule the examination the organization did not respond to any of the correspondence sent by the service the organization has failed to provide information about its exempt status as required by the code and regulations sec_6033 and sec_1_6033-1 by not complying with the code and regulations the organization has jeopardized its exempt status the organization failed to meet the record keeping requirements per the cited regulations that allow the service to inquire into its tax exempt status the lack of any meaning response to the service’s requests for information demonstrates that the organization has not met its obligations and responsibilities to maintain the necessary records to satisfy the service’s request to substantiate its form 990-n e-postcard conclusion it is the irs's position that the organization failed to meet the reporting requirements under sec_6001 and sec_6033 to be recognized as exempt from federal_income_tax under sec_501 of the internal_revenue_code accordingly the organization's exempt status should be revoked effective january 20xx form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service


sm 24gys co -o internal_revenue_service department of the treasury washington dc coniact person telephone number in reference to date feb i999 o poe eo t legend b dear sir or madam this is in reference to your letter of date requesting advance approval of your grant procedures under sec_4945 of the internal_revenue_code the information submitted indicates that grants will be administered and supervised by b income_tax under sec_501 and has been classified as other than a private_foundation under sec_509 b of the internal_revenue_code and b a vi is exempt from federal your scholarship program is called c under the terms of an to fund b will prepare agreement you will make annual contributions to b scholarshivos for the benefit of minority youth and furnish application forms receive all applications determine the recipients and amount to be awarded notify the recipients of the award confirm enrollment in an educational_institution make payment of the award investigate the use of the grant funds by the recipients in their educational programs utilizing selection criteria whereby each candidate is evaluated based on the following scholastic aptitude as measured by performance on the scholastic aptitude test scholastic performance measured by rank in class counselor appraisal and interests activities and leadershio contributions recipients are determined solely by b and supervise and scholarships will only be awarded to students that plan to enroll in an institution that meets the requirements of sec_170 b a restricted in his her course of study the recipient will not be of the code sec_4945 of the code provides for the imposition of taxes on each taxable_expenditure of a private_foundation section d of the code provides that the term taxable_expenditure private_foundation as or other similar purposes by such individual unless such grant satisfies the requirements of sec_4945 means any amount_paid or incurred by a a grant to an individual for travel study sec_4945 of the code provides that section shall not apply to an individual grant awarded on an d objective and nondiscriminatory basis pursuant to a procedure approved in advance by the secretary if is demonstrated to the satisfaction of the secretary that the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 and is educational_institution described in sec_170 the code to be used for study at an a ii of it since your scholarships are not employer-related grants the provisions of revproc_76_47 are not applicable based upon the information submitted and assuming your program will be conducted as vroposed with a view to providin objectivity and nondiscrimination in the awarding of scholarship grants we rule that your grants to b for the awarding of scholarship grants comply with the requirements of section g with these procedures will not constitute taxable_expenditures within the meaning of sec_4945 are eligible for the exclusion from income provided for in sec_117 of the code to the extent that such grants are actually used for qualified_tuition_and_related_expenses within the meaning of sec_117 thus expenditures made in accordance of the code and as such of the code of the code this ruling is conditioned on the understanding that there is based will be no material changes in the facts upon which it it is further conditioned on the understanding that no grants will be awarded to creators officers directors trustees or members of the selection committee or for a purpose inconsistent with the purposes described in sec_170 b of the code please note that this ruling is only applicable to grants awarded under your scholarship program as outlined above before you enter into any other scholarship programs you should submit a request for advance approval of that program a we are informing your key district_director of this action please keep a copy of this ruling with your organization's 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 beretel v sxck gerald v sack chief exempt_organizations technical brancn


t c memo united_states tax_court amad zaker eram petitioner v commissioner of internal revenue respondent docket no filed date amad zaker eram pro_se kathleen a tagni for respondent memorandum findings_of_fact and opinion vasquez judge respondent determined a deficiency of dollar_figure in petitioner’s federal_income_tax for and an accuracy-related_penalty of dollar_figure after concessions the issues remaining for decision are whether petitioner conceded dollar_figure of charitable_contributions and dollar_figure of miscellaneous_itemized_deductions while petitioner did not address the accuracy- continued petitioner was a qualified_individual whose abode was outside the united_states during the relevant period between date and date for purposes of claiming an exclusion of foreign_earned_income under sec_911 for and whether petitioner is liable for an accuracy-related_penalty under sec_6662 for findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference petitioner resided in california at the time he filed the petition i petitioner’s background petitioner was born in iraq in he grew up speaking arabic and studied english while in school in at the age of he moved to the united_states and settled in san diego california with his first wife they had one child together petitioner has two brothers both of whom moved to the united_states continued related penalty in his petition we find that it was tried by consent see rule b unless otherwise indicated all 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 sometime thereafter petitioner obtained a california driver’s license soon after arriving in the united_states and was naturalized as a u s citizen in during and petitioner made two trips to visit his parents in iraq in after the iran-iraq war had ended petitioner’s parents left iraq and joined him and his brothers in the united_states petitioner and his family stayed in touch with friends and family who remained in iraq they did not return to iraq-- initially out of fear of the hussein regime’s brutality and later to avoid the violence in the country after hussein was deposed--but they did hope to eventually return there petitioner and his first wife divorced in and he married his second wife in he and his second wife had three children together before divorcing in following the divorce his second wife retained primary custody of their three children and his contact with his children was greatly reduced in petitioner married his third wife he and his third wife did not have any children together they separated at the beginning of and they divorced sometime in ii petitioner’s foreign work experience in petitioner began working in virginia under a contract with the defense intelligence agency dia as part of this job he obtained a government security clearance from the dia sometime during the year an opening for a post in iraq became available and petitioner volunteered one of his brothers edward anton was already working for the united_states in iraq and petitioner hoped to do the same however petitioner’s employer assigned him to a post in qatar instead he worked on a u s military base in qatar for approximately months petitioner’s deployment ended at the beginning of but he did not immediately return to the united_states he instead traveled to mexicali a town in mexico just across the border from the united_states and about miles east of san diego he stayed in mexicali for approximately six months then in mid- he got a new job in san diego and returned to the united_states iii employment with torres torres advanced enterprise solutions llc taes is a defense contractor based in virginia taes primarily provides security and linguistic services through contracts with the u s department of state and the u s department of defense in or taes entered into a contract with the u s department of state to provide translation services in iraq the contract period originally ended on date but was subsequently extended through date taes hired petitioner to work as an arabic english linguist under the contract beginning in date he was paid an annual salary of dollar_figure petitioner first left the united_states for iraq on date the u s department of state issued him a letter of authorization loa which is a travel document that shows where the holder is permitted to travel to in a foreign_country and what government services he or she may access there his original loa permitted him to work in iraq until date but his authorization was subsequently renewed two more times his final loa permitted him to work in iraq until date petitioner was stationed in the international zone known colloquially as the iz or the green zone green zone the green zone was a large section of baghdad that was designated a safe area for u s government contractors federal employees and military personnel in when petitioner first arrived in the green zone the area was under the jurisdiction of the u s military control was handed over to the iraqi government on date security was tight in the green zone the entrances were guarded and authorization was required to enter or exit nevertheless some businesses were open inside the green zone and apartments were available for rent petitioner’s duties involved going out of the green zone on missions as part of a provisional reconstruction team stationed in baghdad the team’s purpose was to help in rebuilding fire stations in baghdad petitioner served as an interpreter for his team and also as a cultural adviser in this capacity he had numerous encounters with local iraqis on his missions when petitioner was not on a mission he stayed inside the green zone when petitioner first arrived in iraq in early he lived on a u s military base inside the green zone in after control of the green zone was transferred to the iraqi government taes moved its employees out of the military base and into a large house also inside the green zone taes had purchased the house in order to provide housing for its employees taes had crews to clean and maintain the house and employees were provided with meals inside the house although petitioner would occasionally buy his own food however less than a month after petitioner had moved into the building the iraqi government forced taes and its employees to vacate the house petitioner and his coworkers were relocated to a group of trailers on a nearby piece of property which is where petitioner lived until he left iraq as a u s department of state contractor petitioner had access to an apo-- an address box with a u s zip code which he could use to receive mail in iraq he used this address to receive packages with items he needed such as boots and pants otherwise he used the address of his parents’ home in el cajon california to receive mail in addition to using the el cajon address as his mail drop he and his third wife reported that address as their residence on their joint federal_income_tax return for although they had already separated he did not maintain a home in the united_states during the relevant period the u s department of state contract also provided petitioner with access to some limited financial services such as check cashing however because his bank in the united_states provided him with online services he was able to manage all of his financial affairs using only his u s bank account petitioner was provided with ground transportation when required and he did not own a vehicle in iraq or obtain an iraqi driver’s license he did however have a vehicle registered under his name in the united_states which one of his sons used while petitioner was in iraq taes also provided petitioner with vacation time and a dollar_figure travel allowance he accrued two days of vacation each month for a total of days each year he was permitted to use vacation time starting at the end of his first six months working in iraq and then every six months thereafter he took a vacation el cajon is a suburb of san diego in date and again in date on both occasions he traveled to san diego and visited his family his family living in the united_states was prohibited from visiting him in iraq during his off-hours petitioner had time to interact with his coworkers including his brother edward anton some of his coworkers were local iraqis he was also able to see his father’s brother who still lived in iraq outside the green zone with his family on multiple occasions his uncle and family came to visit him inside the green zone although petitioner was unable to go to his uncle’s home because of security restrictions when his uncle and family came to visit petitioner escorted them to and from the gate of the green zone in date petitioner sent an email to rita nisan a human resources generalist working for taes stating that he needed to return to san diego to look after his children he was particularly concerned about one of his sons who he had learned was struggling with personal issues and needed his father’s help he hoped that taes could switch him to a contract under which he could work alternating months on and off duty taes did not do so and his employment with the company ended on date in date two months before his return to the united_states petitioner helped his son antonio to purchase a house in chula vista california chula vista house legal_title to the chula vista house was in antonio’s name nevertheless when petitioner returned to the united_states he moved into the chula vista house and reported it as his address on his tax_return for iv tax_return preparation petitioner timely filed form_1040 u s individual_income_tax_return for return on his return he claimed a deduction for charitable_contributions of dollar_figure and miscellaneous_itemized_deductions totaling dollar_figure he also claimed a foreign_earned_income_exclusion of dollar_figure on form_2555 foreign_earned_income respondent began examining petitioner’s return on or around date on date petitioner prepared a form 1040x amended u s individual_income_tax_return for and a form 1040x for amended returns on his amended returns petitioner claimed that he was exempt from all federal_income_tax for those years under sec_112 because he was working in a qualified combat_zone respondent did not issue refunds for these claims chula vista is a suburb of san diego petitioner conceded these deductions at trial see supra note i burden_of_proof opinion as a general_rule the commissioner’s determinations in a notice_of_deficiency are presumed correct and the taxpayer bears the burden of proving that those determinations are erroneous rule a 290_us_111 there are exceptions to this rule sec_7491 shifts the burden_of_proof to the commissioner as to any factual issue relevant to a taxpayer’s liability for tax if the taxpayer meets certain preliminary conditions this case is decided on the preponderance_of_the_evidence and is not affected by sec_7491 ii gross_income in general sec_61 provides that gross_income means all income from whatever source derived thus citizens of the united_states generally are taxed on income earned outside the united_states unless the income is specifically excluded 117_tc_95 aff’d sub nom 68_fedappx_44 9th cir and aff’d sub nom 357_f3d_1108 10th cir exclusions from income are construed narrowly and taxpayers must bring themselves within the clear scope of the exclusion id iii sec_911 sec_911 provides in part that a qualified_individual may elect to exclude from gross_income his or her foreign_earned_income sec_911 limits the amount of foreign_earned_income that may be excluded in the maximum amount of foreign_earned_income that could be excluded was dollar_figure sec_911 revproc_2008_66 sec_3 2008_2_cb_1107 sec_911 defines foreign_earned_income to mean in general the amount received by an individual from sources within a foreign_country or countries which constitute earned_income attributable to services performed by such individual during the period set forth in sec_911 sec_911 excludes from foreign_earned_income certain amounts not relevant to this case sec_911 defines the term qualified_individual for purposes of sec_911 to mean an individual whose tax_home is in a foreign_country and who is-- a a citizen_of_the_united_states and establishes to the satisfaction of the secretary that he has been a bona_fide_resident of a foreign_country or countries for an uninterrupted period which includes an entire taxable_year or b a citizen or resident_of_the_united_states and who during any period of consecutive months is present in a foreign_country or countries during at least full days in such period thus a taxpayer must both maintain a tax_home in a foreign_country and either a establish a bona_fide residency for an entire taxable_year or b be present in a foreign_country during at least full days in a 12-month_period as to the second requirement respondent does not dispute that petitioner was present in iraq for at least days during the 12-month_period ending on the day he left iraq the relevant period and concedes that he meets the physical_presence_test see sec_911 consequently the validity of petitioner’s claim for the sec_911 exclusion rests on whether his tax_home was in a foreign_country during the relevant period between date and date sec_911 defines the term tax_home as an individual’s home for purposes of sec_162 relating to travel_expenses while away from home sec_162 provides for a deduction for ordinary and necessary expenses paid during the taxable_year in carrying_on_a_trade_or_business including travel_expenses incurred while away from home in the pursuit of a trade_or_business see also 326_us_465 for purposes of sec_162 an individual’s tax_home is the vicinity of the taxpayer’s principal place of employment and not where his or her personal_residence is located 74_tc_578 see also revrul_75_432 1975_2_cb_60 if an individual is engaged in a trade_or_business at more than one location during the tax_year the individual’s tax_home is at his or her regular place of business or if the individual has more than one regular place of business at his or her principal_place_of_business see sec_1_911-2 income_tax regs if an individual has no regular or principal_place_of_business because of the nature of the business then the individual’s tax_home is his or her place of abode in a real and substantial sense id an individual however shall not be treated as having a tax_home in a foreign_country for any period during which his or her abode is within the united_states sec_911 see also 93_tc_297 temporary presence of the individual in the united_states does not necessarily mean that the individual’s abode is in the united_states sec_1_911-2 income_tax regs petitioner’s principal place of employment during the relevant period was in iraq therefore whether his tax_home is in iraq rests on whether his abode was in the united_states during the relevant period neither sec_911 nor the regulations thereunder define abode thus we turn to our caselaw in prior sec_911 cases we have examined and contrasted a taxpayer’s domestic ties ie his or her familial economic and personal ties to the united_states with his or her ties to the foreign_country in which he or she claims a tax_home in order to determine whether his or her abode was in the united_states during a particular period see harrington v commissioner t c pincite see also daly v commissioner tcmemo_2013_147 struck v commissioner tcmemo_2007_42 tax ct memo lexi sec_42 moudy v commissioner tcmemo_1989_216 tax ct memo lexi sec_216 benham v commissioner tcmemo_1989_215 bosarge v commissioner tcmemo_1989_15 hummer v commissioner tcmemo_1988_528 tax ct memo lexi sec_556 lemay v commissioner tcmemo_1987_256 aff’d 837_f2d_681 5th cir bujol v commissioner tcmemo_1987_230 tax ct memo lexis aff’d without published opinion 842_f2d_328 5th cir even though a taxpayer may have some limited ties to a foreign_country during a particular period if the taxpayer’s ties to the united_states remain strong we have held that his or her abode remained in the united_states especially when his or her ties to the foreign_country were transitory or limited during that period harrington v commissioner t c pincite in struck v commissioner tax ct memo lexi sec_42 at the taxpayers were employed by an automotive company to operate a yacht id the yacht sailed primarily in foreign waters and the taxpayers lived and worked aboard the vessel even when docked at foreign ports id their living_expenses were paid_by the automotive company id they were given two weeks of vacation each year and their compensation included travel_expenses to return to the united_states id while they spent most of the year outside the united_states they did own undeveloped land and a townhouse in the united_states that they rented out id at they did not stay at the townhouse when they visited the united_states on their vacations but would sometimes camp on the undeveloped land id in addition to the real_property they owned two vehicles which they garaged at a relative’s property and maintained california bank accounts as well as california driver’s licenses id at we held that the taxpayers had met the requirements of sec_911 id at as to the tax_home requirement we found that the taxpayers whose business was to sail in foreign and international waters were itinerants and consequently had a foreign tax_home id at as to abode we examined if in a year a taxpayer has neither a regular or principal_place_of_business nor any abode in a real and substantial sense a taxpayer may be classified as an continued the ties the taxpayers had to the united_states and found that the taxpayers had only limited domestic ties during the period at issue id at because the taxpayers also met the physical_presence_test under sec_911 id at we found that they qualified for the foreign_earned_income_exclusion id at recently we considered a sec_911 case involving a government contractor who had worked in both afghanistan and iraq see daly v commissioner tcmemo_2013_147 in daly the taxpayer husband worked under his employer’s contract with the department of defense id at while deployed the taxpayer husband lived and worked on u s military bases id at the taxpayer husband was not permitted to leave the bases nor was his family permitted to live with him on the bases id instead his wife remained in their home in utah where she ran a lobbying business id at during the years in issue the taxpayer husband also worked in his employer’s offices in utah between his deployments id at continued itinerant whose tax_home is located wherever the taxpayer is physically located from day to day struck v commissioner tcmemo_2007_42 tax ct memo lexi sec_42 at citing 752_f2d_337 8th cir aff’g tcmemo_1984_63 47_tc_71 and revrul_73_529 c b we found that the taxpayer husband’s ties to iraq and afghanistan were severely limited and transitory during the period at issue while his ties to utah remained strong id at consequently we found that during the period at issue the taxpayer husband’s abode was in the united_states his tax_home was in the united_states and he was not eligible for the foreign_earned_income_exclusion iv parties’ arguments petitioner argues that in the years leading up to the relevant period he had severed most of his ties to the united_states and that his ties to the united_states remained limited throughout the relevant period he also argues that his ties to iraq during the relevant period were strong especially in the light of his background as a native iraqi respondent argues that petitioner’s ties to the united_states were strong during the relevant period and on brief emphasizes the strength of petitioner’s ties to his family in the united_states respondent also argues that petitioner’s ties to iraq were limited and transitory during the relevant period in daly and other sec_911 cases where we found that the taxpayer’s abode remained in the united_states we took note of the strong domestic familial ties that the taxpayers maintained during the period see eg harrington v commissioner t c pincite daly v commissioner at moudy v commissioner tax ct memo lexi sec_216 at bujol v commissioner tax ct memo lexis at in this case petitioner’s credible testimony shows that his ties to his family in the united_states were limited during the relevant period at the beginning of when petitioner first left for iraq he had divorced his first two wives rarely saw his children and was separated from his third wife during the relevant period petitioner’s contact with his family in the united_states was minimal and he saw his family only during his two vacations moreover petitioner’s ties to his family in the united_states had weakened several years before the relevant period in the light of petitioner’s decision in to follow up months working in qatar by spending months in the mexican border town of mexicali rather than returning to see his family in san diego petitioner’s testimony demonstrates that his domestic familial ties during the relevant period were limited respondent has presented some evidence of petitioner’s other domestic ties including petitioner’s u s bank account driver’s license vehicle and purchase of the chula vista house for his son however in the light of petitioner’s testimony about his familial ties his lack of a home in the united_states during the relevant period and the other evidence in the record we find that these other ties are not enough to support a finding that petitioner’s ties to the united_states were strong during the relevant period petitioner also credibly testified as to his strong ties to iraq during the relevant period he is a native of iraq a native speaker of iraqi arabic and familiar with iraqi culture moreover he has deep ties to iraq including family who still live there as well as friends with whom he and his family have stayed in touch long after emigrating petitioner also credibly testified that he had many interactions with local iraqis during the relevant period and saw his uncle and his uncle’s family on multiple occasions we thus find this case to be different from other sec_911 cases where the taxpayers’ foreign ties were limited and transitory see eg 93_tc_297 daly v commissioner tcmemo_2013_147 moudy v commissioner tcmemo_1989_216 bujol v commissioner tcmemo_1987_230 respondent argues that petitioner was confined to the green zone when not on missions and prohibited from having any foreign contacts consequently respondent argues that petitioner’s living situation was similar to the taxpayer we note however that petitioner’s domestic familial ties were renewed when his son’s sudden and urgent need for help prompted petitioner to return to the united_states we find that these familial ties were reestablished only at the end of the relevant period and do not change the outcome husband’s situation in daly we disagree petitioner has introduced credible_evidence that he had strong ties to iraq during the relevant period and respondent has not persuaded us otherwise considering all the facts and circumstances we find that during the relevant period between date and date petitioner’s ties to iraq were strong while his ties to the united_states were limited accordingly we find that petitioner’s abode was not in the united_states therefore petitioner’s tax_home was in iraq petitioner is a qualified_individual for purposes of sec_911 and petitioner is entitled to the foreign_earned_income_exclusion for v additional arguments in addition to the above arguments respondent argues in the alternative that petitioner is not entitled to the sec_911 exclusion because his stay in iraq was temporary and therefore his tax_home was not in iraq see 358_us_59 petitioner worked in iraq subject_to a petitioner also raised an alternative argument he appears to argue that he is also eligible under sec_112 for the exclusion of income earned while serving in a combat_zone however he was not a member of the armed_forces_of_the_united_states during or and is not eligible for the exclusion see sec_112 sec_7701 see also 61_tc_675 a pilot employed by a private airline flying civilian aircraft under contract with the department of defense in support of the u s military in a combat_zone during the vietnam war was not a member of the armed_forces and therefore not entitled to the sec_112 exclusion contract with a specific end date however that contract was extended on more than one occasion and during the relevant period petitioner intended to stay in iraq indefinitely with the expectation that the contract would continue to be extended this is illustrated by the three loas issued to him which had successively later end dates we find that during the relevant period petitioner’s stay in iraq was not temporary and his tax_home was in iraq vi penalty pursuant to sec_6662 and b and a taxpayer may be liable for a penalty of of the portion of an underpayment_of_tax due to negligence or disregard of rules or regulations or a substantial_understatement_of_income_tax negligence is defined as any failure to make a reasonable attempt to comply with the provisions of the internal_revenue_code this includes a failure to keep adequate books_and_records or to substantiate items properly sec_6662 sec_1_6662-3 income_tax regs disregard means any careless reckless or intentional disregard sec_6662 understatement means the excess of the amount of the tax required to be shown on the return over the amount of the tax imposed which is shown on the return reduced by any rebate sec_6662 a substantial_understatement_of_income_tax is defined as an understatement of tax that exceeds the greater of of the tax required to be shown on the tax_return or dollar_figure sec_6662 the commissioner bears the initial burden of production sec_7491 if the commissioner satisfies his burden the taxpayer then bears the ultimate burden of persuasion 116_tc_438 because we hold for petitioner as to the sec_911 exclusion petitioner has no underpayment and hence no accuracy-related_penalty as to his excluded foreign_earned_income as to the underpayment relating to petitioner’s conceded charitable_contribution_deduction and miscellaneous_itemized_deductions respondent has shown that petitioner failed to keep adequate books_and_records therefore respondent has met his burden of production see sec_1_6662-3 income_tax regs the accuracy-related_penalty is not imposed with respect to any portion of the underpayment as to which the taxpayer shows that he or she acted with reasonable_cause and in good_faith sec_6664 higbee v commissioner t c pincite petitioner did not offer any evidence that he acted with reasonable_cause and good_faith we therefore find that he is liable for a penalty on the amount of his underpayment attributable to the items he conceded vii conclusion in reaching our holding herein we have considered all arguments made and to the extent not mentioned above we conclude they are moot irrelevant or without merit to reflect the foregoing decision will be entered under rule petitioner states for the first time on brief that his records substantiating the charitable and miscellaneous_itemized_deductions were lost because of poor storage see supra note while we do not question the veracity of his explanation ex_parte statements made on brief are not admissible as evidence rule c


t c summary opinion united_states tax_court gregory g stokes petitioner v commissioner of internal revenue respondent docket no 14488-14s filed date gregory g stokes pro_se emile louis hebert iii for respondent summary opinion pugh judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed unless otherwise indicated all 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 pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case on date respondent determined a deficiency of dollar_figure in petitioner’s federal_income_tax for the issues for decision are whether petitioner is entitled to dependency_exemption deductions and the child_tax_credit for his three children background some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference petitioner resided in louisiana at the time he filed his petition petitioner separated from his wife gina stokes sometime between and the separation was formalized by an agreement between petitioner and ms stokes signed on date that agreement gave to ms stokes custody of the couple’s three children n s c s and m s who lived with her in further paragraph of the agreement provided that ms stokes would claim the dependency_exemption deductions for the children before petitioner and ms stokes had claimed the deductions as they had filed jointly at the end of for privacy reasons the court refers to children by their initials see rule a petitioner and ms stokes decided that petitioner would claim the dependency_exemption deductions because he provided significant financial support for the children and she did not have sufficient income to benefit from the dependency_exemption deductions petitioner agreed to share part of the tax_refund with ms stokes petitioner filed a form_1040 u s individual_income_tax_return for on which he claimed dependency_exemption deductions and the child_tax_credit for his three children petitioner failed to attach a form_8332 release revocation of release of claim to exemption for child by custodial_parent or a similar statement to his return respondent disallowed the dependency_exemption deductions and the child_tax_credit discussion the internal_revenue_code allows as a deduction an exemption for each dependent of a taxpayer in computing taxable_income sec_151 sec_152 defines a dependent as a qualifying_child or a qualifying_relative of the taxpayer in addition to other requirements a qualifying_child must have the same principal_residence as the taxpayer for more than one-half of the tax_year sec_152 in addition to other requirements a qualifying_relative must have an annual gross_income of less than the exemption_amount and the taxpayer must provide over one-half of the qualifying relative’s support for the calendar_year in which the taxable_year begins sec_152 in the case of divorced or separated parents sec_152 provides a special rule to determine which parent is entitled to a dependency_exemption deduction for a child generally a child who is in the custody of one or both of the child’s parents for more than one-half of the calendar_year and receives more than one-half of his or her support from parents who are divorced or separated or who live apart at all times during the last six months of the calendar_year will be considered the qualifying_child of the custodial_parent sec_152 sec_152 defines the custodial_parent as the parent having custody for the greater portion of the calendar_year sec_152 defines the noncustodial_parent as the parent who is not the custodial_parent petitioner is not the custodial_parent of his three children with ms stokes and they did not live with him during pursuant to sec_152 a child will be treated as a qualifying_child of the noncustodial_parent rather than of the custodial_parent when certain criteria are met one of the requirements is that the custodial_parent signs a written declaration in such manner and form as the secretary may by regulations prescribe that such custodial_parent will not claim such child as a dependent for any taxable_year beginning in such calendar_year sec_152 the declaration required under sec_152 must be made either on a completed form_8332 or on a statement conforming to the substance of form_8332 114_tc_184 form_8332 provides an effective and uniform way for a custodial_parent to make the declaration required in sec_152 for the benefit of the noncustodial_parent 139_tc_468 aff’d 745_f3d_890 8th cir petitioner gave credible and uncontradicted testimony that he provided over one-half of the support for his three children and provided documentation to support his testimony about the support he provided for the children his testimony as to his oral agreement with ms stokes that she would relinquish her right as set forth in their separation agreement paragraph to claim the dependency_exemption deductions for their three children also was credible however petitioner did not obtain a form_8332 or a similar written_statement from ms stokes without that form or a similar written_statement containing the information prescribed by sec_152 this court is required to find that he is not entitled to the dependency_exemption deductions see 142_tc_131 subject_to limitations sec_24 allows a child_tax_credit with respect to a qualifying_child of the taxpayer as described in sec_152 for whom the taxpayer is allowed a deduction under sec_151 because n s c s and m s are not qualifying children under sec_152 for the reasons stated above petitioner is not entitled to the child_tax_credit for see sec_24 smith v commissioner tcmemo_2006_163 to reflect the foregoing decision will be entered for respondent


internal_revenue_service number release date index number -------------------- --------------------- ----------------------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ----------------------- id no ------------------- --------------------------------------------------- telephone number ---------------------- refer reply to cc ita b04 plr-112624-15 date october legend taxpayer ------------------------- ---------------------------------------------------- corporation ----------------------------------------------------------- ---------------------------------------------------- ------------------------------------ date date buyer state --------------------------- ------------------------ ---------------------------------- -------------- dear --------------- this responds to your request for a ruling under sec_1202 of the internal_revenue_code dated date the ruling contained in this letter is 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 taxpayer represents the facts to be as follows on date corporation was formed and issued common_stock to eight stockholders including the taxpayer the initial stockholders on date pursuant to an agreement buyer purchased a portion of the corporation stock owned by each initial stockholder also pursuant to that agreement corporation redeemed a portion of each initial stockholder’s corporation stock together the transaction thus immediately after plr-112624-15 the transaction buyer and initial stockholders owned all the stock of corporation immediately following the transaction corporation converted into an llc pursuant to state law corporation elected to continue to be taxed as a corporation for federal_income_tax purposes taxpayer makes the following additional representations as of the date corporation satisfied the requirements of sec_1202 upon the receipt of corporation stock on date taxpayer held qualified_small_business_stock under sec_1202 taxpayer’s corporation stock retained after the transaction continued to be the conversion of corporation into an llc pursuant to state law qualifies as sec_1202 stock and a sec_368 reorganization sec_1202 provides that gross_income does not include percent of any gain from the sale_or_exchange of qualified_small_business_stock held for more than years sec_1202 provides the definition of qualified_small_business_stock sec_1202 provides that certain transfers of qualified_small_business_stock will not be treated as a sale_or_exchange or affect the qualification of that stock as qualified_small_business_stock sec_1202 provides that r ules similar to the rules of sec_1244 shall apply for purposes of this section sec_1244 provides in part that a successor_corporation in a reorganization described in sec_368 shall be treated as the same corporation as its predecessor sec_368 provides that a corporate_reorganization includes a mere change in identity form or place of organization of one corporation however effected therefore based on the facts and representations submitted we rule that the status of the original issue common_stock of corporation as qualified_small_business_corporation_stock held by the initial stockholders if the stock is qualified_small_business_stock under sec_1202 is unaffected by the conversion 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 specifically no opinion is expressed or implied concerning i the qualification of corporation under sec_1202 ii the qualification of corporation’s stock as qualified_small_business_stock under sec_1202 or iii whether the conversion qualifies as a sec_368 reorganization plr-112624-15 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely j peter baumgarten assistant to the chief branch income_tax accounting


t c memo united_states tax_court michael g bunney petitioner v commissioner of internal revenue respondent docket no filed date john alan cohan for petitioner lorraine y wu for respondent memorandum findings_of_fact and opinion cohen judge respondent determined deficiencies in petitioner’s federal income taxes and an addition_to_tax as follows year deficiency addition_to_tax sec_6651 dollar_figure big_number big_number -- dollar_figure -- the issue for decision is whether petitioner is entitled to deduct claimed losses reported on schedule f profit or loss from farming from his horse activity for the years in issue petitioner presented neither evidence nor argument concerning the addition_to_tax and is thus deemed to have conceded that issue unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure findings_of_fact some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference petitioner resided in la jolla california at the time he filed the petition in this case petitioner received an undergraduate degree in marketing from san diego state university he received a master of business administration with a specialization in finance from national university petitioner has been employed with several public and privately held companies since he wa sec_21 with positions ranging from sales representative to chief operating officer and executive vice president petitioner spent years of active_duty in the navy and years in the naval reserves retiring at the rank of captain petitioner has taught courses in marketing sales management business planning small_business management computer science aeronautics and accounting at various colleges in southern california petitioner was married prior to the years in issue and was granted a judgment of dissolution of the marriage on date petitioner’s daughter sarah a bunney was born on date during petitioner was employed by time warner entertainment and video home sales services inc petitioner’s wages as reported on his forms w-2 wage and tax statement totaled dollar_figure in during petitioner was employed by winnebago software co winnebago and verio-san diego inc in petitioner traveled to northern california and sun valley idaho as part of his employment petitioner’s wages as reported on his forms w-2 totaled dollar_figure in during petitioner was employed by winnebago and pulse engineering inc as a part of his employment in petitioner traveled to singapore china germany toronto canada boston massachusetts new york city new york and eden prairie minnesota petitioner’s wages as reported on his forms w-2 totaled dollar_figure in the horse activity petitioner began riding horses when he was years old and has always had an interest in horses in he developed an interest in reining horses a type of western riding sport petitioner engaged in the horse activity under the name m s performance horses m s at the outset petitioner neither obtained a business license nor filed a fictitious name statement for m s during the years in issue petitioner operated m s to breed train sell and compete horses petitioner researched the horse activity by going to reining competitions reading books and publications about the industry and attending clinics in petitioner purchased his first breeding stallion an american paint horse bandits lucky doc on date petitioner prepared a business plan for m s including an income statement and an estimate of revenues and expenses over the next few years m s changed direction due to a change in the breeding rules for reining horses as a result of this change petitioner began to purchase high-quality broodmares to breed with horses in southern california petitioner did not update his business plan to reflect the change in the direction of the business petitioner sold bandits lucky doc in petitioner employed manuel campos campos as a trainer for years campos’s business manuel campos performance horses campos horses had about to full-time clients with of them engaging in breeding or training as a business when petitioner first became a client of campos horses he owned a breeding stallion and was breeding paint horses petitioner also took riding lessons from campos from date through date petitioner was a member of the national reining horse association reining association petitioner let his membership expire at the end of petitioner was not listed with the reining association as a trainer or breeder during the years in issue in date petitioner signed a declaration with the reining association stating that he had not trained or assisted in training for remuneration for the prior years neither petitioner nor m s was listed with the reining association as having collected any lifetime earnings or points from reining association approved shows petitioner’s daughter however has ridden horses in reining competitions in the youth categories petitioner’s daughter earned dollar_figure in lifetime earnings and dollar_figure points in reining association approved shows as of date petitioner’s business records petitioner maintained his business records using the computer_software program known as quicken petitioner created with the quicken program a list of expenses for the years in issue petitioner did not maintain records of any bills from veterinarians for services provided to m s campos horses occasionally would provide bills and invoices for services performed as petitioner requested petitioner did not receive or maintain bills of sale or purchase records for all of the horses he owned petitioner did not receive or maintain registration documents or transfer reports to establish the number and identities of the horses he owned during the years in issue petitioner did not consistently provide a bill of sale to customers who purchased his horses the retained copies of bills of sale showed either petitioner or petitioner and his daughter as the sellers petitioner kept advertising and promotional materials on his computer petitioner prepared flyers and business cards on his computer advertising bandits lucky doc for breeding of the advertisements that petitioner kept none of them listed m s or petitioner as the seller or breeder of the horse advertised in petitioner used the name three colts west performance horses to promote a horse on a flyer in petitioner placed three advertisements in performance horse magazine under his name without reference to m s petitioner distributed business cards at competitions and shows in order to advertise bandits lucky doc m s did not have stationery with its own name or logo instead almost all correspondence was prepared under petitioner’s name or under petitioner’s and petitioner’s daughter’s names several letters were prepared under the heading of olympic equine enterprises or three colts west performance horses petitioner did not retain correspondence sent to m s from potential clients or other third parties until petitioner insured bandits lucky doc petitioner did not insure any of the horses that he owned during the years in issue in petitioner prepared an inventory of some of the equipment used by m s in order to have the equipment covered under his homeowner’s insurance_policy some of the equipment was stored at an offsite trainer’s facility petitioner did not have a dedicated telephone line for m s and instead used a pager a cellular telephone and his home telephone line petitioner occasionally used his employers’ telephone numbers for m s in petitioner opened a dedicated bank account for m s with union bank of california on date petitioner filed a fictitious business name statement for m s on date in connection with custody and child_support proceedings petitioner signed a declaration that was filed with the superior court of california for the county of san diego in the declaration petitioner claimed that the losses_incurred by m s should be considered to reduce his income for purposes of calculating child_support payments petitioner made a similar claim regarding losses from a consulting business the graham group graham petitioner estimated dollar_figure in monthly losses from m s and dollar_figure in monthly losses from graham on date petitioner filed an income and expense declaration with the superior court petitioner estimated monthly expenses of dollar_figure for his daughter’s pet supplies and associated expenses on date petitioner filed a second income and expense declaration estimating monthly expenses of dollar_figure for pet supplies for daughter’s horses on date petitioner filed a responsive declaration to order to show cause or notice of motion with the superior court petitioner stated in the declaration that he paid percent of the expenses related to his daughter’s three horses totaling over dollar_figure per month federal tax returns petitioner filed form sec_1040 u s individual_income_tax_return for through petitioner listed his occupation on the returns as manager equine business attached to each of the form sec_1040 was a schedule f reporting a net farm loss each year for petitioner’s horse activity petitioner described his horse activity on the schedules f as equine breeding training and sales from through petitioner reported the following gross_receipts and losses with respect to the horse-related activity year gross_income expenses loss total dollar_figure dollar_figure big_number big_number -0- big_number big_number big_number big_number dollar_figure big_number big_number big_number big_number big_number big_number big_number dollar_figure dollar_figure big_number big_number big_number big_number big_number big_number big_number dollar_figure petitioner has never realized a profit from the horse activity petitioner filed form_4868 application_for automatic_extension of time to file u s individual_income_tax_return for extending the due_date for the return until date petitioner did not request a further extension of time to file on date petitioner filed his return for opinion at the outset we note that petitioner’s briefs did not comply with rule e in that his proposed findings_of_fact recite testimony from trial and rely on documents that were not admitted into evidence thus his briefs are unreliable and unhelpful the factual assertions not based on evidence will be disregarded the horse activity respondent determined that petitioner’s horse activity was not an activity engaged in for profit within the meaning of sec_183 under sec_183 if an activity is not engaged in for profit no deductions attributable to the activity shall be allowed except as provided in sec_183 sec_183 allows only those deductions that are not dependent upon a profit objective such as taxes sec_183 allows the deductions that would be allowable if the activity were engaged in for profit but only to the extent that gross_income attributable to the activity exceeds the deductions permitted by sec_183 an activity_not_engaged_in_for_profit is defined in sec_183 as any activity other than one with respect to which deductions are allowable for the taxable_year under sec_162 or under paragraph or or sec_212 under sec_183 in the case of an activity consisting in major part of the breeding training showing or racing of horses if the gross_income derived from the activity exceeds the deductions for any of consecutive taxable years then the activity shall be presumed to be engaged in for profit unless the commissioner establishes to the contrary see 72_tc_411 affd without published opinion 647_f2d_170 9th cir because m s has operated at a loss since it began in the presumption does not apply in this case the court_of_appeals for the ninth circuit to which an appeal in this case would lie has held that for a deduction to be allowed under sec_162 or sec_212 or a taxpayer must establish that he engaged in the activity with the primary predominant or principal purpose and intent of realizing an economic profit independent of tax savings 4_f3d_709 9th cir affg tcmemo_1991_212 781_f2d_724 9th cir affg lahr v commissioner tcmemo_1984_472 see prieto v commissioner tcmemo_2001_266 affd 59_fedappx_999 9th cir the taxpayer’s expectation need not be a reasonable one but the profit objective must be bona_fide golanty v commissioner supra pincite sec_1_183-2 income_tax regs in determining whether the requisite intention to make a profit exists greater weight is to be given to the objective facts than to the taxpayer’s self- serving characterization of his intent indep elec supply inc v commissioner supra pincite sec_1_183-2 income_tax regs sec_1_183-2 income_tax regs sets forth a nonexclusive list of factors to be considered in determining whether the taxpayer has the requisite profit objective the factors are the manner in which the taxpayer carries on the activity the expertise of the taxpayer or his advisers the time and effort expended by the taxpayer in carrying on the activity the expectation that assets used in the activity may appreciate in value the success of the taxpayer in carrying on other similar or dissimilar activities the taxpayer's history of income or loss with respect to the activity the amount of occasional profits if any that are earned the financial status of the taxpayer and elements of personal pleasure or recreation these factors are not intended to be exclusive and no one factor or majority of the factors need be considered determinative golanty v commissioner supra pincite sec_1_183-2 income_tax regs in this case the predominant factors weighing against petitioner are whether petitioner carried on the activity in a businesslike manner petitioner’s history of losses and the elements of personal pleasure involved none of the other factors supports his position petitioner argues that he conducted his horse activity in a businesslike manner maintaining complete and accurate books_and_records conducting the activity in a manner substantially_similar to comparable businesses that are profitable and making changes in operations to adopt new techniques or abandon unprofitable methods are factors that may indicate that a taxpayer conducted the activity for profit 72_tc_659 sec_1_183-2 income_tax regs petitioner did not maintain accurate and complete books_and_records for m s petitioner testified that it was not his practice to use bills of sale or purchase agreements when horses changed ownership the documents that petitioner provided as bills of sale were computer-generated and petitioner admitted to printing them from his computer hard drive in preparation for trial petitioner testified that it was not the general practice in the industry to provide bills of sale and that the important documents were the registration document and transfer report at the time of trial however petitioner was unable to provide registration documents for any horse that he owned and he did not have copies of transfer reports for any horses that he purchased or sold during the years in issue petitioner did not maintain records of the breeding of any mares the materials that petitioner provided as evidence of his advertising were also computer-generated and were printed in preparation for trial petitioner provided no evidence of original advertisements used by m s petitioner had no record of correspondence from other persons the correspondence he provided was also computer-generated and was prepared for trial petitioner had no records of bills or invoices for any expenses he incurred on behalf of m s petitioner provided a list of expenses that was prepared using the quicken software program the expense report was prepared and printed solely for trial petitioner did not maintain records for the purpose of decreasing expenses or increasing profits almost all of petitioner’s evidence regarding his record keeping was printed from his computer in preparation for trial petitioner provided no credible_evidence of conducting a business of horse breeding and there is no reliable evidence that he was breeding any horses after selling bandits lucky doc a taxpayer’s history of income or loss with respect to an activity may indicate the presence or absence of a profit objective see golanty v commissioner t c pincite kuberski v commissioner tcmemo_2002_200 sec_1_183-2 income_tax regs the magnitude of the activity’s losses in comparison with its revenues may be an indication that the taxpayer did not have a profit objective mckeever v commissioner tcmemo_2000_288 a continuous series of losses during the startup stage will not necessarily be deemed indicative that the activity was not engaged in for profit sec_1_183-2 income_tax regs the cumulative loss however should not be of such a magnitude that an overall profit on the entire operation could not possibly be achieved see 45_tc_261 affd 379_f2d_252 2d cir from until m s had cumulative losses totaling dollar_figure petitioner claims that it takes time to reach a profitable level in a horse breeding business and that m s was still in the startup phase petitioner has not however provided any evidence or plan that he could ever recoup his prior losses or make the business profitable petitioner did not provide any evidence that he changed his business plan in order to make the business profitable the magnitude of m s’s continuing losses in comparison to the revenues m s received negates a profit objective elements of personal pleasure or recreation from an activity may indicate that the activity was not engaged in for profit sec_1_183-2 income_tax regs petitioner stated in documents filed with the superior court that he supported his daughter’s interest through the years by providing for the costs of maintaining her horses and paying for riding competitions petitioner has provided no credible_evidence that he owned any horses other than those used by his daughter for recreational purposes based on the preponderance_of_the_evidence and particularly the large recurring and unlikely to be recouped losses we conclude that petitioner’s horse activity was not engaged in for profit to reflect the foregoing decision will be entered for respondent


t c memo united_states tax_court levi kenneth hodges et al petitioners v commissioner of internal revenue respondent docket nos filed date levi kenneth hodges pro_se edwina l jones for respondent memorandum opinion wells judge respondent determined federal_income_tax deficiencies for levi kenneth hodges’ or levi k hodges’ 1cases of the following petitioners are consolidated herewith for purposes of trial briefing and opinion levi kenneth hodges docket no and levi k hodges docket no these cases are collectively referred to herein as the instant case petitioner’s and taxable years of dollar_figure dollar_figure and big_number respectively for respondent determined additions to tax under sec_6651 and sec_6654 a of dollar_figure and dollar_figure respectively for respondent determined additions to tax under sec_6651 and sec_6654 of dollar_figure and dollar_figure respectively for respondent determined additions to tax under sec_6651 and sec_6654 of dollar_figure and dollar_figure respectively the issues we must decide are whether petitioner received and failed to report taxable_income for hi sec_2001 sec_2002 and taxable years and whether petitioner is liable for the additions to tax determined by respondent pursuant to sec_6651 and sec_6654 for the taxable years in issue 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 petitions petitioner resided in south carolina petitioner did not timely file a federal_income_tax return for hi sec_2001 sec_2002 or taxable_year 2all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure during petitioner received nonemployee compensation of dollar_figure interest_income of dollar_figure stock sale proceeds of dollar_figure and real_estate sale proceeds of dollar_figure during petitioner received nonemployee compensation of dollar_figure interest_income of dollar_figure and real_estate sale proceeds of dollar_figure during petitioner received nonemployee compensation of dollar_figure and interest_income of dollar_figure respondent determined tax deficiencies and additions to tax for petitioner’ sec_2001 sec_2002 and taxable years as follows year deficiency sec_6651 sec_6654 additions to tax dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure on april and date and date respondent sent petitioner notices of deficiency for petitioner’ sec_2001 sec_2002 and taxable years respectively on date and january and date petitioner filed petitions with this court for redetermination of the deficiencies for hi sec_2001 sec_2002 and taxable years respectively in each of those petitions petitioner stated that he did not have any_tax liability denied the figures and 3the sec_6651 additions to tax set forth in this opinion are those that respondent determined in the notices of deficiency the sec_6651 additions to tax set forth in respondent’s pretrial memorandum differed from those listed in this opinion we do not decide which figures are correct but expect the parties to resolve this issue in the computations we will order pursuant to rule contents of the notices of deficiency disputed the computations and claimed that for the years in issue he had dependents deductions credits costs of doing business_losses and depreciation in a letter to respondent dated date petitioner made the frivolous assertion that he did not realize gain on the sale of his labor and thus had no income and was not required to file a federal_income_tax return under sec_6012 on date petitioner submitted to respondent a form_1040 u s individual_income_tax_return for hi sec_2002 taxable_year and attached what purports to be a corrected form 1099-misc miscellaneous income for the corrected form 1099-misc was prepared by petitioner and shows zero nonemployee compensation_for petitioner’ sec_2002 form_1040 showed interest_income of dollar_figure and no other income for hi sec_2002 taxable_year resulting in no tax allegedly due for petitioner submitted to respondent an affidavit dated date frivolously asserting among other things that respondent had no authority to issue a notice_of_deficiency for hi sec_2001 taxable_year because petitioner had not filed an income_tax return along with that affidavit petitioner submitted a form_1040 for hi sec_2001 taxable_year and a purportedly corrected form 1099-misc prepared by petitioner and showing zero nonemployee compensation_for petitioner’ sec_2001 form_1040 showed interest_income of dollar_figure capital_gain of dollar_figure a rental loss of dollar_figure and no tax due for on date petitioner sent respondent a letter asserting that petitioner did not have taxable_income for his taxable_year and frivolously asserting that respondent did not have the authority to issue a notice_of_deficiency for his taxable_year because petitioner had not filed an income_tax return for that year along with that letter petitioner also sent respondent a form_1040 for his taxable_year and a corrected form 1099-misc prepared by petitioner and showing zero nonemployee compensation_for petitioner’s form_1040 showed interest_income of dollar_figure and no other income for resulting in no tax due for on date petitioner submitted to respondent another affidavit frivolously asserting among other things that petitioner did not receive any income as that term has been defined by the supreme court of the united_states and that petitioner had no income_tax_liability for hi sec_2001 sec_2002 and taxable years petitioner attached to the affidavit copies of form_1040 for hi sec_2001 sec_2002 and taxable years dated date showing no tax due for any of those years the instant case was set for trial in columbia south carolina on date at that trial petitioner conceded he had received the amounts determined in the notices of deficiency and agreed to provide receipts for the expenses that he claimed should offset those receipts on the basis of those representations this court continued the instant case to allow to the parties to reach a settlement subsequently petitioner provided respondent with documentation to support business_expenses for hi sec_2001 sec_2002 and taxable years and with evidence of his bases in the real_estate and stocks sold in those years consequently respondent conceded that petitioner is entitled to deduct business_expenses of dollar_figure dollar_figure and dollar_figure for hi sec_2001 sec_2002 and taxable years respectively additionally respondent conceded that petitioner incurred a long-term_capital_loss of dollar_figure on the real_estate and stock sales in a long-term_capital_loss of dollar_figure on the sale of real_estate in an ordinary_loss of dollar_figure on the sale of business property in and a rental loss of dollar_figure in the parties reached a tentative agreement regarding petitioner’s tax_liabilities for hi sec_2001 sec_2002 and taxable years petitioner apparently had a change_of heart and instead of signing the settlement documents filed a motion to dismiss on date in that motion petitioner asserted that this court lacked jurisdiction over him on date petitioner’s motion to dismiss was denied and this case was again set for trial on date at the trial petitioner did not dispute receiving the amounts shown in the deficiency notices but claimed on the basis of various tax-protester arguments that those amounts were not taxable_income discussion petitioner’s taxable_income for and as a general_rule the commissioner’s determinations in a notice_of_deficiency are presumed correct 290_us_111 and rule a places the burden of proving an error on the taxpayer petitioner conceded at trial that he received the amounts of compensation interest and sale proceeds set out in the notices of deficiency for hi sec_2001 sec_2002 and taxable years in the light of that concession there are no disputed issues of fact in respect of his receipt of those amounts accordingly the only issue remaining for this court to decide is the legal question of whether the amounts petitioner received are taxable under the internal_revenue_code a question we decide as a matter of law without reference to the presumption of correctness or the burden_of_proof petitioner argues that the income he received in and was not taxable_income within the relevant meaning of the law to support his assertion petitioner offered only tax- protester arguments and corrected forms 1099-misc for year sec_2001 sec_2002 and prepared by petitioner himself the corrected forms 1099-misc were based on tax-protester arguments and we do not find them worthy of belief gross_income means all income from whatever source derived including compensation_for services interest and gains from dealings in property sec_61 compensation_for services rendered constitutes taxable_income and a taxpayer has no basis in his labor 82_tc_403 the only arguments that petitioner has raised to support his assertion that the payments he received in and were not taxable_income within the relevant meaning of the law are frivolous tax-protester arguments we do not address petitioner’s frivolous and groundless arguments with somber reasoning and copious citation of precedent to do so might suggest that these arguments have some degree of colorable merit see 737_f2d_1417 5th cir we conclude that the income respondent seeks to tax is taxable_income under the internal_revenue_code accordingly we uphold respondent’s determination of deficiencies in petitioner’s income and self-employment_tax for hi sec_2001 sec_2002 and taxable years subject_to recalculation to reflect the deductions and losses respondent conceded additions to tax sec_6012 generally requires the filing of an income_tax return by all individuals receiving gross_income in excess of certain minimum amounts because petitioner’s gross_income for the years in issue as determined by respondent in the notices of deficiency and upheld by this court above exceeded the sec_6012 minimum amount petitioner was required to file federal_income_tax returns for hi sec_2001 sec_2002 and taxable years sec_6651 imposes an addition_to_tax for failure_to_file an income_tax return by the due_date a taxpayer may be relieved of the addition however if he can demonstrate that the failure is due to reasonable_cause and not due to willful neglect id sec_6654 imposes an addition_to_tax for failure to pay estimated income_tax sec_6654 applies where prepayments of tax through either withholdings or estimated quarterly payments do not equal the percentage of total liability required under the statute pursuant to sec_7491 the commissioner bears the burden of production with respect to the additions to tax under sec_6651 and sec_6654 to meet that burden the commissioner must produce sufficient evidence to demonstrate that the addition_to_tax is appropriate see 116_tc_438 however the commissioner’s obligation under sec_7491 initially to come forward with evidence that it is appropriate to apply a particular penalty to a taxpayer is conditioned upon the taxpayer’s assigning error to the commissioner’s penalty determination 127_tc_200 affd 521_f3d_1289 10th cir a taxpayer who fails to assign error to a penalty is deemed under rule b to have conceded the penalty 118_tc_358 petitioner’s petition for hi sec_2001 taxable_year assigned error as follows i do not have any_tax liability i deny the figures and content of the notice_of_deficiency i dispute the computations in the year in question i had dependents deductions credits costs of doing business_losses depreciation i have no job and i am not employed i have no savings no investments no i r a or pension_plan petitioner’s assignments of error in his petitions for hi sec_2002 and taxable years were substantially the same as those quoted above we conclude from the foregoing that petitioner did not assign error to respondent’s determinations that petitioner failed to timely file federal_income_tax returns and petitioner failed to make required_payments of estimated income_tax consequently we conclude that petitioner is deemed to have conceded pursuant to rule b that the penalties respondent determined are appropriate accordingly the additions to tax under sec_6651 and sec_6654 for the taxable years in issue are sustained subject_to recalculation to reflect the recalculated deficiencies conceded by respondent sec_6673 penalty respondent has moved for a penalty under sec_6673 sec_6673 provides that this court may require the taxpayer to pay a penalty not in excess of dollar_figure whenever it appears to this court that a the proceedings were instituted or maintained by the taxpayer primarily for delay b the taxpayer’s position is frivolous or groundless or c the taxpayer unreasonably failed to pursue available administrative remedies petitioner was warned by this court and by respondent that he could be subject_to a penalty if he persisted in raising frivolous tax-protester arguments despite being warned petitioner continued to delay the instant proceedings with frivolous arguments consequently pursuant to sec_6673 we impose on petitioner a penalty of dollar_figure for the case at docket no a penalty of dollar_figure for the case at docket no and a penalty of dollar_figure for the case at docket no we have considered all of the contentions and arguments of the parties that are not discussed herein and we conclude that they are without merit irrelevant or moot to reflect the foregoing orders and decisions will be entered under rule