internal_revenue_service number release date index number ---------------------------- ------------------------------ ----------------------------------------------------- ----------------------------- ----------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no ------------- telephone number --------------------- refer reply to cc tege eb hw plr-134410-08 date date legend taxpayer ------------------------------------------------------ ------------------------------------------------------ state ------------ county ------------------------ trust ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- plan ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------ dear --------------- this is in reply to your letter dated date and subsequent correspondence in which you request various rulings on behalf of taxpayer with respect to plan and trust facts taxpayer is a school board that oversees the operation of the public schools in county taxpayer is a body politic and corporate existing under the laws of state as a body politic and corporate of state taxpayer is a political_subdivision of state taxpayer adopted plan as a means of providing health and welfare benefits to its retirees their spouses and eligible dependents taxpayer is the sole employer participating in plan taxpayer is authorized to amend_or_terminate plan plr-134410-08 plan provides benefits through insurance and self-insurance arrangements under plan taxpayer pays a portion of the premium for health_insurance_coverage for eligible retirees participants are responsible for the remainder of the premium taxpayer represents that there are no pre-tax salary reduction elections under the plan in addition taxpayer represents that plan does not permit a cash-out of unused amounts or a conversion of sick or vacation days to retiree health benefits participants may not salary-reduce to pay for any benefit taxpayer does not currently provide benefits to individuals who do not qualify as a spouse or as a dependent under sec_152 of the internal_revenue_code the code however if the taxpayer extends benefits to a non-spouse or non-dependents taxpayer will take reasonable steps to identify individuals who do not qualify as a spouse or dependent and include in the income of participants imputed_income relating to any such individual’s participation in plan plan provides that each benefit provided by taxpayer that is a self-insured medical expense reimbursement plan benefit shall comply with the nondiscrimination requirements of sec_105 of the code and the income_tax regulations thereunder taxpayer created trust to provide a vehicle for funding retiree benefits under plan the income of trust consists solely of contributions from taxpayer and investment_income trust assets will be used to pay for plan benefits and for the administration of trust in addition trust will establish and accumulate a reserve fund to pay for health and welfare benefits for future retirees private interests do not participate in the trust no part of trust may be diverted to purposes other than the exclusive benefit of the participants and their beneficiaries no part of the trust’s net_earnings may inure to the benefit of any private person the parties to the trust agreement are taxpayer and the trustees of trust the trustees are the persons currently serving as the chairman and vice chairman of taxpayer taxpayer may terminate trust at any time for any reason upon termination of trust the remaining assets of trust will be transferred to one or more trust funds to be used exclusively for the purpose of providing health and welfare benefits to the participants of plan in the event the assets are not transferred to such a_trust fund the assets will be transferred to taxpayer in no event will the assets be transferred to an entity which is not a state a political_subdivision of a state or an entity the income of which is excluded from gross_income under sec_115 of the code law and analysis plr-134410-08 sec_115 of the code provides that gross_income does not include income derived from any public_utility or the exercise of any essential government function and accruing to a state or any political_subdivision thereof in revrul_77_261 1977_2_cb_45 income from an investment fund established under a written declaration of trust by a state for the temporary investment of cash balances of the state and its participating political subdivisions was excludable from gross_income for federal_income_tax purposes under sec_115 the ruling indicated that the statutory exclusion was intended to extend not to the income of a state or municipality resulting from its own participation in activities but rather to the income of a corporation or other entity engaged in the operation of public_utilities or the performance of some governmental function that accrued to either a state or municipality the ruling points out that it may be assumed that congress did not desire in any way to restrict a state’s participation in enterprises that might be useful in carrying out projects that are desirable from the standpoint of a state government and which are within the ambit of a sovereign to properly conduct in addition pursuant to sec_6012 and the underlying regulations the investment fund being classified as a corporation that is subject_to taxation under subtitle a of the code was required to file a federal_income_tax return each year in revrul_90_74 1990_2_cb_34 the service determined that the income of an organization formed funded and operated by political subdivisions to pool various risks casualty public liability workers’ compensation and employees’ health is excludable from gross_income under sec_115 of the code in revrul_90_74 private interests neither materially participate in the organization nor benefit more than incidentally from the organization trust provides health benefits to retired employees of taxpayer a political_subdivision of state providing health benefits to current and former employees constitutes the performance of an essential government function based upon revrul_90_74 and revrul_77_261 trust performs an essential_governmental_function within the meaning of sec_115 of the code the income of trust accrues to the taxpayer taxpayer is the sole participating employer in plan no private interests participate in or benefit from the operation of trust any distribution of remaining funds in trust to participating retirees upon the dissolution of the trust satisfies an obligation the taxpayer has assumed with respect to providing benefits to its employees the benefit to the participating employees their spouses and dependents is incidental to the public benefit see revrul_90_74 sec_6012 of the code provides in general that every trust having for a taxable_year any taxable_income or having gross_income of dollar_figure or more regardless of the amount of taxable_income shall make returns with respect to income taxes under plr-134410-08 subtitle a however no annual return is required to be filed by trust if income realized by trust is excluded from gross_income under sec_115 sec_7701 and sec_301_7701-4 of the procedure and administration regulations define trusts for purposes of sec_6012 sec_301_7701-4 provides in general that an arrangement will be treated as a_trust under the code if it can be shown that the purpose of the arrangement is to vest in trustees responsibility for the protection and conservation of property for beneficiaries who cannot share in the discharge of this responsibility and therefore are not associates in a joint enterprise for the conduct of business for profit in this case the taxpayer contributes money to the trust to provide health and welfare benefits for former employees their spouses and dependents trustees of trust are given responsibility to protect and conserve the trust’s assets for the beneficiaries who cannot share in the discharge of this responsibility and therefore are not associates in a joint business for profit sec_61 of the code and sec_1_61-21 of the regulations provide that except as otherwise provided in subtitle a of the code gross_income includes compensation_for services including fees commissions fringe_benefits and similar items sec_106 of the code provides that gross_income of an employee does not include employer-provided coverage under an accident_or_health_plan sec_1_106-1 of the regulations provides that the gross_income of an employee does not include contributions which his employer makes to an accident_or_health_plan for compensation through insurance or otherwise to the employee for personal injuries or sickness incurred by him his spouse or his dependents as defined in sec_152 the employer may contribute to an accident_or_health_plan either by paying the premium or a portion of the premium on a policy of accident_or_health_insurance covering one or more of his employees or by contributing to a separate trust or fund including a fund referred to in sec_105 which provides accident and health benefits directly or through insurance to one or more of his employees however if the insurance_policy trust or fund provides other_benefits in addition to accident or health sec_106 applies only to the portion of the contributions allocable to accident or health benefits coverage provided under an accident_and_health_plan to former employees and their spouses and dependents is excludable from gross_income under sec_106 see revrul_62_199 1962_2_cb_32 revrul_82_196 1982_2_cb_53 sec_105 provides that except as otherwise provided in sec_105 amounts received by an employee through accident_or_health_insurance for personal injuries or sickness shall be included in gross_income to the extent such amounts are attributable to plr-134410-08 contributions by the employer which were not includible in the gross_income of the employee or are paid_by the employer sec_105 provides that except in the case of amounts attributable to and not in excess of deductions allowed under sec_213 relating to medical_expenses for any prior taxable_year gross_income does not include amounts referred to in subsection a if such amounts are paid directly or indirectly to the taxpayer to reimburse the taxpayer for expenses_incurred by him for the medical_care as defined in sec_213 of the taxpayer his spouse and his dependents as defined in sec_152 of the code based on the information submitted and representations made we conclude as follows trust income is derived from the exercise of an essential_governmental_function and will accrue to a state or a political_subdivision thereof for purposes of sec_115 accordingly trust’s income is excludable from gross_income under sec_115 of the code trust is not required to file an annual income_tax return under sec_6012 of the code contributions paid to plan and payments made from plan which are used exclusively to pay for the accident or health coverage of retired employees and their spouses and dependents as defined in sec_152 of the code are excludable from the gross_income of retired employees and retired employees’ spouses and dependents under sec_106 and sec_105 of the code no opinion is expressed concerning the federal tax consequences of plan or trust under any other provision of the code other than those specifically stated herein in particular sec_3 of revproc_2007_3 i r b provides that the service will not issue a ruling concerning whether a self-insured_medical_reimbursement_plan satisfies the requirements of sec_105 for a plan_year accordingly no opinion is expressed concerning whether plan satisfies the nondiscrimination requirements of sec_105 of the code and sec_1_105-11 of the regulations 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 plr-134410-08 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely harry beker chief health and welfare branch office of associate chief_counsel division counsel tax exempt government entities cc


t c memo united_states tax_court michael h boulware petitioner v commissioner of internal revenue respondent docket no 23525-12l filed date jonathan h steiner for petitioner d anthony abernathy and peter r hochman for respondent memorandum opinion laro judge this case is before the court for review of a notice_of_determination sustaining the issuance of a notice_of_intent_to_levy to collect petitioner’s unpaid federal_income_tax for and years at issue we review respondent’s determination pursuant to sec_6330 the parties submitted this case to the court fully stipulated for decision without trial under rule the issues before us are whether respondent abused his discretion in denying petitioner’s request for an installment_agreement relating to the years at issue we hold he did not and whether respondent abused his discretion in denying petitioner’s request for a face-to-face hearing we hold he did not petitioner was a resident of hawaii when he petitioned this court deficiency case and appeal background petitioner is the president and shareholder of hawaiian isle enterprises inc and hie holdings inc petitioner’s income_tax liabilities for the years at issue are based upon an opinion rendered by this court on date in hie holdings inc v commissioner tcmemo_2009_130 deficiency case affirmed by the court_of_appeals for the ninth circuit on date fed all section references are to the internal_revenue_code code in effect at all relevant times and all rule references are to the tax_court rules_of_practice and procedure appx 9th cir on date petitioner filed a petition for a rehearing and a rehearing en_banc by the court_of_appeals for the ninth circuit which the court denied on date on date petitioner petitioned the supreme court of the united_states for a writ of certiorari which the supreme court denied on date hie holdings inc v commissioner u s ___ 134_sct_712 following this court’s entry of decision in the deficiency case on date petitioner moved to waive the sec_7485 bond requirement to stay assessment and collection pending appeal or to set the bond at the lowest amount possible in an order dated date we declined to waive the bond requirement stating as mentioned above the posting of a bond is not a requirement to an appeal of our decisions instead the posting of the bond serves to guarantee that the commissioner will be able to collect the deficiencies determined by this court plus interest and to preclude the commissioner otherwise from assessing and collecting those amounts before the appellate review is complete absent petitioners’ posting of a bond fixed at our customary amount we consider it to be inappropriate in the setting at hand to preclude the commissioner if he desires from assessing and collecting those deficiencies plus interest during the pendency of petitioners’ appeal such an appeal which would first go to the court_of_appeals for the ninth circuit and then most likely to the u s supreme court could easily last more petitioner’s deficiencies for the years at issue are dollar_figure for dollar_figure for dollar_figure for and dollar_figure for than years to the extent that the government during the pendency of the appeal lacked a lien as to the full amount of the deficiencies that we determined plus interest the government will stand simply as an unsecured creditor that remains vulnerable to petitioners’ dissipation of their assets we understand that the posting of the bond entails privation and perhaps some suffering and we have empathy for petitioners’ situation yet the purpose of the bond is to protect the government when and if it is necessary to collect the deficiencies and interest due by virtue of our decisions in this regard we take note of the fact that michael boulware hid millions of dollars of assets from the government and from others in the context of these cases and that he participated in other deceptive behavior some of which led to his criminal conviction given michael boulware’s conduct the need to protect the government with a full bond is self-evident in the same order we set the amount of the bond in accordance with our customary practice for appeal bonds quoting 50_tc_28 as follows the customary practice of the tax_court is to fix an appeal_bond equal to the amount of the deficiency for which review is sought plus any additions to the tax and interest running from the time of the filing of the return until the time when the appellate review of the decision is expected to be completed--ordinarily ½ years after the last date on which a petition for review could be filed but of course the amount of the bond cannot exceed twice the deficiency on date petitioner appealed the deficiency case to the court_of_appeals for the ninth circuit but did not post a bond pending appeal on appeal petitioner moved the court_of_appeals for the ninth circuit for a stay of collection pending appeal which the court denied on date irs collection action on date respondent sent petitioner a notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 informing him that a notice_of_federal_tax_lien nftl would be recorded with respect to his income_tax liabilities for the years at issue the letter further informed petitioner of his right to a collection_due_process cdp hearing and that he had until date to request such a hearing on date respondent recorded an nftl with respect to petitioner’s income_tax liabilities for the years at issue on or about date petitioner submitted a form_2848 power_of_attorney and declaration of representative designating jonathan h steiner alan e kobayashi and jon m yasuda as his representatives for taxable years through on date respondent sent petitioner a letter final notice notice_of_intent_to_levy and notice of your right to a hearing with respect to petitioner’s income_tax liabilities for the years at issue the letter further informed at that time petitioner’s unpaid balances for the years at issue were dollar_figure for dollar_figure for dollar_figure for and dollar_figure for petitioner of his right to request a cdp hearing under sec_6330 within days of the letter’s date on date petitioner submitted a form request for a collection_due_process or equivalent_hearing with respect to his tax_liabilities for the years at issue on the form petitioner selected two checkboxes marked filed notice_of_federal_tax_lien and proposed levy or actual levy as the basis for his hearing request in an attachment to the form petitioner stated his belief that a lien withdrawal was warranted because in addition to the years mhb michael h boulware has received tax assessments for the years and is currently working with gary lipetzky honolulu irs appeals to resolve unagreed issues mhb has also appealed the decision of the tax_court that resulted in taxes due for the years mhb contends that the filing of those liens were premature and should have occurred after the appeals process has run its course it is our belief that the amount of taxes that the irs has assessed may not be correct finally petitioner requested on his form a face-to-face meeting on or about date petitioner submitted a form 433-a collection information statement for wage earners and self-employed individuals in which he disclosed his monthly income and expenses as well as his personal assets in this form 433-a petitioner disclosed monthly wage income of dollar_figure monthly rental income of dollar_figure and monthly living_expenses of dollar_figure on date revenue_officer colin p kelly ro kelly prepared a monthly income and expense analysis for petitioner on the basis of petitioner’ sec_2010 tax_return which disclosed monthly rental income of dollar_figure ro kelly increased petitioner’s monthly rental income to dollar_figure for a total monthly income of dollar_figure in addition ro kelly determined that only dollar_figure of petitioner’s claimed monthly living_expenses constituted allowable expenses accordingly ro kelly determined petitioner’s monthly ability to pay to be dollar_figure with regard to petitioner’s equity in assets ro kelly noted that petitioner had a sec_401 plan account with dollar_figure of equity and life_insurance policies with policy numbers ending in and with cash_value of dollar_figure on or around date petitioner’s case was transferred to respondent’s seattle appeals_office on or around date petitioner’s case was again transferred to respondent’s portland appeals_office in a letter dated date respondent informed petitioner that his case had been received for consideration by the portland appeals_office on date settlement officer kimberly a martin so martin sent petitioner a letter informing him that a telephone conference had been scheduled for date and that this conference would be his primary opportunity to discuss his reasons for disagreement with the collection action or to discuss collection alternatives this letter further informed petitioner that his cdp hearing request regarding the proposed levy action was timely but his cdp hearing request regarding the nftl was not nonetheless so martin informed petitioner that she would offer him an equivalent_hearing with respect to the nftl but he could not challenge her equivalent_hearing determination in her letter so martin further informed petitioner you are not able to dispute the liability because the tax_liability that is the subject of this hearing is based on a judicial decision and although you have appealed this decision to the ninth circuit_court of appeals the service is not required to withhold collection absence sic the posting of a bond which was not done in addition the ninth circuit ruled in case number in order dated that your motion to stay collection was denied your request to have the collection_due_process_hearing postponed pending the outcome of your appeal cannot be granted with regard to the possibility of a collection alternative so martin informed petitioner appeals cannot approve an installment_agreement or accept an offer- in-compromise unless all required estimated_tax payments for the current year’s income_tax_liability have been made if you wish to pursue one of these alternatives during the cdp hearing process you must arrange for the payment of any required estimated_tax payments delinquent estimated_tax payments can be included in an installment_agreement however the estimated_tax payments must be paid in full before an offer-in-compromise can be accepted our records indicate that you have not made estimated_tax payments for the following period s finally so martin gave petitioner a list of financial documents that he had to provide before she could consider any collection alternative on date petitioner sent so martin a letter asking for a face-to- face hearing on date so martin replied to petitioner stating you r request for a face to face conference can be discussed once you have provided the information in my letter and we have held the telephone conference there is currently not a settlement officer located in hawaii to hold a face to face conference on the same day petitioner responded to so martin requesting a continuance of the date conference call petitioner requested that the conference call be rescheduled for after date since mr kobayashi his primary certified_public_accountant would be busy until after the tax_return filing deadline petitioner further explained that his controller was still in the process of gathering the information so martin had requested and that his opening brief on appeal before the court_of_appeals for the ninth circuit had only recently been submitted on date so martin informed petitioner that she had rescheduled the conference call to date and that she had extended the due_date for the requested financial documents to date with regard to petitioner’s face-to-face hearing request she stated as for the face to face hearing request we can discuss that during our telephone conference if after the telephone conference s you still are requesting a face to face hearing we can discuss various possibilities the travel budget and if we have other cases requiring face to face meetings in hawaii during that time are factors we consider sometimes in these situations we can arrange to have you meet with a local appeals officer and i could participate on the telephone we can explore various options if needed on date petitioner sent so martin the requested financial documents including an updated form 433-a in this form 433-a petitioner disclosed monthly wage income of dollar_figure monthly rental income of dollar_figure and monthly living_expenses of dollar_figure petitioner further disclosed that his sec_401 plan account had a current value of dollar_figure and his life_insurance policies with policy numbers ending in and had cash_value of dollar_figure finally petitioner’s financial documents included a life_insurance_policy with policy number ending in which was assigned to and had the beneficiary designated as first interstate bank on the basis of various rental agreements so martin determined that petitioner owned a 60-year leasehold interest in mokumoa st honolulu hawaii for dollar_figure a month which he in turn subleased to hie holdings inc for dollar_figure a month however because petitioner paid real_estate and general excise_taxes for the rental property so martin increased petitioner’s monthly rental income to only dollar_figure as disclosed in hi sec_2010 return accordingly so martin determined petitioner’s total monthly income to be dollar_figure using local and national standards so martin further determined petitioner’s allowable monthly expenses to be dollar_figure so martin thus concluded that petitioner had the ability to pay dollar_figure a month in an installment_agreement on date petitioner again requested a continuance of the telephone conference petitioner explained that on date he had received an order from the court_of_appeals for the ninth circuit directing him to submit certain briefing by date petitioner requested that the conference call be rescheduled to april or on date so martin replied to petitioner agreeing to reschedule the conference to date on date so martin conducted the telephone conference during the conference petitioner stated that he might still request a face-to-face hearing in response so martin explained that they would discuss petitioner’s financial information first and then decide whether a face-to-face hearing was still necessary or desirable with regard to an installment_agreement so martin stated that it could cover only the years at issue--it could not cover tax years and because they were the subject of a pending tax_court case nor could it cover tax years through because the returns for those years were still under audit so martin further informed petitioner that he had to be in full compliance with his current tax obligations to qualify for a collection alternative therefore so martin advised petitioner that he needed to make hi sec_2011 estimated_tax payments before she would consider an installment_agreement so martin also advised petitioner that he had to liquidate his equity in certain assets before she would consider an installment_agreement these assets included petitioner’s sec_401 plan account worth approximately dollar_figure from which he could make withdrawals penalty free and his life_insurance policies worth approximately dollar_figure finally so martin informed petitioner that she had determined his ability to pay to be approximately dollar_figure per month on date petitioner sent so martin a letter proposing a dollar_figure- per-month installment_agreement which would cover tax years and in addition to the years at issue with regard to the liquidation of assets petitioner stated as you are aware the tax_liability in this matter remains subject_to dispute and the tax_court deficiency determination is currently on appeal before the ninth circuit mr boulware does not want to liquidate the 401k and life_insurance_policy incurring taxes and creating other hardships unless and until said liability becomes final mr boulware would therefore propose that a collateral_agreement be entered into with the irs under which mr boulware agrees to voluntarily liquidate and pay to the irs these assets within days of the exhaustion of all appeal rights on the tax_court decision the letter further advised so martin as follows in addition the companies plan to take steps to decrease mr boulware’s officer loan account balance as you are aware the companies are currently paying boulware rent on the property located pincite mokumoa street going forward the company plans to instead credit payment of such rent against mr boulware’s officer loan account this will decrease boulware’s monthly income to just his wages of dollar_figure per month but will free up additional funds for the companies which will be available for payment of the companies tax_liabilities please note that mr boulware is currently involved in negotiation and possible litigation of alleged tax deficiencies from other years and that he will continue to incur attorneys’ and professional fees and costs related to those proceedings which expenses are not reflected on mr boulware’s form 433-a he may also face significant state taxes on date so martin responded regarding petitioner’s proposed installment_agreement with regard to the scope of the installment_agreement so martin advised petitioner as follows y our request to include tax periods that are not assessed into an installment_agreement cannot be granted you have petitioned the tax_court on the statutory_notice_of_deficiency for the and tax years and the and tax years are still in the examination stage of the audit process with regard to proposed monthly payment amount so martin stated your payment proposal of dollar_figure month cannot be accepted t he proposed dollar amount does not reflect petitioner’s ability to pay the taxpayer is allowed ordinary expenses for his health and welfare the professional fees and costs not reflected in the form 433a do not qualify as necessary living_expenses with respect to the liquidation of assets so martin responded in your most recent letter you state that the taxpayer does not want to liquidate his assets as you still have litigation pending before the ninth circuit and proposes waiting until all of his appeal rights have been exhausted as previously stated in my initial conference letter the subject tax_liabilities are based on a judicial decision and although you have appealed the decision to the ninth circuit_court of appeals the service is not required to withhold collection absence sic the posting of a bond which was not done in addition the ninth circuit ruled on that your motion to stay collection was denied your request to enter into a collateral_agreement and wait to liquidate the taxpayer’s assets cannot be granted with respect to petitioner’s tax compliance so martin stated during our telephone conference you were advised that the taxpayer must be in full compliance to be eligible for an installment_agreement our records indicate that the taxpayer has not made any estimated_tax payments for finally with respect to petitioner’s plans to pay down his corporate loan account with his rental income so martin responded the taxpayer’s plans to begin paying down his officer’s loan account at this juncture when the loans have been accruing since with no repayments supports the conclusion that the taxpayer is not making a serious attempt to pay his delinquent taxes so martin concluded her letter as follows unless the taxpayer is willing to liquidate hi sec_401k plan and life_insurance be in compliance and agree to an installment_plan that reflects his ability to pay your proposed collection alterative of an installment_agreement cannot be granted and the proposed levy and lien filing will be sustained please respond to me by date otherwise i will issue a determination_letter with my findings emphasis added on date petitioner sent so martin a letter requesting an extension of time until date to respond to her letter dated date and to make estimated_tax payments for in that same letter petitioner requested a face-to-face hearing before the issuance of a notice_of_determination on date so martin discussed the case with her appeals team manager who agreed that petitioner was not entitled to additional time to respond for the following reasons petitioner was not in full compliance petitioner was unwilling to liquidate his assets and petitioner was unwilling to enter into an installment_agreement that reflected his ability to pay on date so martin advised petitioner via telephone that she could not recommend accepting his proposed installment_agreement because he was not in full compliance he was unwilling to liquidate his assets and he proposed to pay his unsecured corporate loan ahead of the irs’ secured debt so martin further advised petitioner that a face-to-face meeting would serve no purpose since he did not qualify for an installment_agreement finally so martin informed petitioner of her decision to sustain the lien and levy filings on date so martin issued a notice_of_determination which sustained the issuance of the notice_of_intent_to_levy and concluded that petitioner did not qualify for an installment_agreement in the notice_of_determination so martin verified that she had no prior involvement with petitioner’s case verified that all legal and procedural requirements had been met and balanced the need for efficient collection with petitioner’s legitimate concerns that the collection action be no more intrusive than necessary discussion sec_6301 empowers the commissioner to collect the taxes imposed by the internal revenue laws to further that objective congress has provided that the commissioner may effect the collection_of_taxes by among other methods liens and levies sec_6321 imposes a lien in favor of the united_states on all property and property rights of a taxpayer liable for taxes after a demand for the payment of the taxes has been made and the taxpayer fails to pay those taxes the lien arises at the time assessment is made and continues until the liability is satisfied or becomes unenforceable by lapse of time sec_6322 sec_6331 authorizes the commissioner to levy upon all property or property rights of any taxpayer liable for any_tax who neglects or refuses to pay that liability within days after notice_and_demand for payment when the commissioner pursues collection by lien or levy he must notify the affected taxpayer in writing of his or her right to a hearing with an impartial appeals officer see sec_6320 and b relating to liens a and b relating to levies where a hearing is requested whether in response to an nftl filing or a proposed levy the presiding appeals officer must satisfy the standards set forth in sec_6330 see sec_6320 sec_6330 as a preliminary matter we note that although the petition in this case is entitled petition for redetermination of lien or levy action under code sec_6320 and or d our jurisdiction is limited to the review of the levy action pursuant to sec_6330 petitioner failed to timely request a cdp hearing regarding the nftl and was granted an equivalent_hearing as provided for by sec_301_6320-1 proced admin regs in 116_tc_255 we held that where a taxpayer’s request for a cdp hearing is untimely the commissioner’s decision to conduct an equivalent_hearing does not waive the time restrictions for requesting such a hearing and the court lacks jurisdiction to review the commissioner’s determination see also 116_tc_263 accordingly we review only respondent’s determination to sustain the notice_of_intent_to_levy as part of the cdp hearing appeals must take into consideration verification that the requirements of applicable law and administrative procedure have been met relevant issues raised by the taxpayer concerning the collection action and whether the proposed collection action balances the need for the efficient collection of tax with the taxpayer’s legitimate concern that the collection action be no more intrusive than necessary sec_6330 relevant issues may include appropriate spousal defenses challenges to the appropriateness of the collection actions and potential collection alternatives such as an installment_agreement or an offer-in-compromise sec_6330 a taxpayer is precluded from challenging the existence or amount of the underlying tax_liability unless the individual did not receive a notice_of_deficiency for the tax_liability or was not otherwise provided with an opportunity to dispute the tax_liability sec_6330 see also 114_tc_604 114_tc_176 petitioner has had the opportunity to dispute his income_tax liabilities for the years at issue in the deficiency case and is therefore precluded from challenging the existence or the amounts of his underlying liabilities in this case where the validity of the underlying tax_liability is not at issue we review appeals’ determinations for abuse_of_discretion sego v commissioner t c pincite goza v commissioner t c pincite abuse_of_discretion exists where the appeals officer’s determinations are arbitrary capricious or without sound basis in fact or law 129_tc_107 the court_of_appeals for the ninth circuit has held that judicial review of nonliability issues under sec_6330 is limited to the administrative record ie the administrative record rule see 568_f3d_710 9th cir aff’g tcmemo_2006_166 recently the court_of_appeals for the district of columbia circuit held in 740_f3d_668 d c cir aff’g tcmemo_2012_27 that under sec_7482 the court_of_appeals for the district of columbia circuit is the proper appellate venue in collection cases under sec_6320 and sec_6330 where the underlying liability is not at issue however the court in byers further stated we have no occasion to decide in this case whether a taxpayer who is seeking review of a cdp decision on a collection method may file in a court_of_appeals other than the d c circuit if the parties have not stipulated to venue in another circuit id pincite in the light of byers we are mindful of the uncertainty of appellate venue and the controlling law in this case we further note however that we have not found a case wherein the court_of_appeals for the district of columbia circuit has either adopted or rejected the administrative record rule in a collection case under sec_6320 or sec_6330 i irs rejection of the installment_agreement sec_6159 authorizes the commissioner to enter into written agreements allowing taxpayers to pay tax in installment payments if he deems that the ‘agreement will facilitate full or partial collection of such liability ’ 140_tc_173 quoting sec_6159 the decision to accept or reject installment agreements lies within the discretion of the commissioner id citing sec_301_6159-1 and c i proced admin regs if an appeals or settlement officer follows all statutory and administrative guidelines and provides a reasoned and balanced decision the court will not reweigh the equities lipson v commissioner tcmemo_2012_252 at petitioner argues that so martin abused her discretion when she rejected his proposed installment_agreement so martin rejected petitioner’s proposed installment_agreement for three reasons petitioner was not in full compliance with the tax laws petitioner refused to liquidate his assets to effect a partial payment and petitioner’s proposed monthly payment did not reflect his ability to pay we address each of these reasons in turn a full compliance with tax laws petitioner argues that so martin abused her discretion and erred as a matter of law by requiring him to be current with his estimated_tax payments before she would accept his proposed installment_agreement we disagree we have consistently held that an appeals officer does not abuse his discretion in denying a taxpayer’s request for an installment_agreement when the taxpayer is not in compliance with his current tax obligations as of the date of the cdp hearing see eg starkman v commissioner tcmemo_2012_236 sustaining rejection where taxpayer failed to timely file his tax_return or make estimated_tax payments pavlica v commissioner tcmemo_2007_163 sustaining rejection where the taxpayer had a history of tax noncompliance and failed to timely file his tax_return see also 329_fedappx_88 9th cir holding that the appeals officer did not abuse his discretion in rejecting the taxpayer’s proposed installment_agreement where the taxpayer was not current on its employment_taxes petitioner’s argument is nearly identical to the taxpayer’s argument in lipson in lipson v commissioner at the taxpayer argued that while the internal_revenue_manual irm pt f date states that current returns for taxes must be filed and current deposits paid to qualify for an agreement irm pt date goes on to state that i f it appears a taxpayer will have a balance due at the end of the current_year the accrued liability may be included in an agreement the taxpayer in lipson v commissioner at argued that the settlement officer erred as a matter of law in determining that his lack of current compliance barred him from qualifying for an installment_agreement the court accepted the taxpayer’s argument that the settlement officer had discretion to approve the proposed installment_agreement id in addition the court found that the settlement officer did rely in part on the taxpayer’s failure to pay current taxes in rejecting his proposed installment_agreement id at however the court held that this reliance did not constitute an abuse_of_discretion because the settlement officer was not required to accept the proposed installment_agreement id similarly we conclude that although so martin could accept an installment_agreement that included petitioner’s current estimated_tax liabilities she acted within her discretion in declining to do so moreover contrary to petitioner’s these standards have not materially changed in the version of the internal_revenue_manual irm that applies to this case irm pt f date states that current returns for taxes must be filed and current deposits paid before an installment_agreement can be approved and irm pt date states that i f it appears a taxpayer will have a balance due at the end of the current_year the accrued liability may be included in an agreement assertions we find that so martin knew that she had that discretion in her letter dated date so martin correctly informed petitioner delinquent estimated_tax payments can be included in an installment_agreement petitioner’s reliance on 508_fsupp2d_734 d minn is misplaced in lofgren the appeals officer erroneously determined that first quarter employment_taxes were new tax debts incurred while a proposal was pending when in fact the taxpayer had submitted its payment plan during the second quarter of and had paid its second quarter employment_taxes id pincite moreover in lofgren the appeals officer summarily denied the taxpayer’s requested payment plan solely upon the basis of his mistaken belief that accepting the plan was impossible under the code and the regulations because of the debt incurred for the first quarter of lofgren is therefore distinguishable because petitioner had not paid hi sec_2012 estimated_taxes as of date the date of the cdp hearing and because so martin gave actual and fair consideration to petitioner’s proposed installment_agreement rejecting it for a number of reasons b liquidation of assets so martin further rejected petitioner’s proposed installment_agreement because he refused to liquidate his retirement account and his life_insurance policies irm pt date states in relevant part taxpayers do not qualify for installment agreements if balance due accounts can be fully or partially satisfied by liquidating assets unless factors such as advanced age ill-health or other special circumstances are determined to prevent the liquidation of the assets we have routinely held that an appeals officer does not abuse his discretion when he rejects an installment_agreement because a taxpayer refuses to liquidate assets to satisfy his tax_liabilities in bibby v commissioner tcmemo_2013_ we held that an appeals officer did not abuse his discretion in rejecting an installment_agreement where the appeals officer made clear that an installment_agreement depended upon the liquidation of three real properties and the taxpayer would not agree to that condition_precedent in o’donnell v commissioner tcmemo_2013_247 we held that an appeals officer did not abuse his discretion in rejecting an installment_agreement where the taxpayer failed to fully disclose his liquid_assets and did not offer to pay his liabilities with those assets see also lipson v commissioner at holding that the settlement officer acted within her discretion in rejecting an installment_agreement where the taxpayer owned investments totaling dollar_figure and noting that taxpayers do not generally qualify for an installment_agreement if balance due accounts can be fully or partially satisfied by liquidating assets in mccarthy v commissioner tcmemo_2013_214 at the appeals officer required the taxpayer to borrow against or liquidate his significant equity in various assets before she would consider his proposed installment_agreement although the taxpayer did make attempts to borrow against his assets and had one loan request approved the appeals officer ultimately rejected his proposed installment_agreement when he failed to borrow against or liquidate his assets on review we held that the appeals officer was not required to set a specific date by which the taxpayer must liquidate his assets and that she acted within her discretion in rejecting his proposed installment_agreement id petitioner argues that so martin abused her discretion because the pendency of an appeal of a decision imposing liability constitutes special circumstances warranting an exception to the general_rule that assets must be liquidated to qualify for an installment_agreement we disagree sec_6213 bars the commissioner from assessing a tax_liability until our decision becomes final and sec_7481 makes our decisions final when opportunities for appeal have been exhausted sec_7485 however supersedes sec_6213 by providing that assessment or collection shall not be stayed during an appeal unless a taxpayer files a bond with the tax_court on or before the time his notice of appeal is filed see 124_tc_189 n kovacevich v commissioner tcmemo_2009_160 n see also dawn v richmond 861_f2d_268 9th cir unpublished table decision holding that the commissioner’s assessment of a deficiency and his collection activities during the pendency of an appeal did not violate any of the taxpayers’ statutory or constitutional rights where the taxpayers did not post a bond to accept petitioner’s argument that a pending appeal is a special circumstance necessitating departure from respondent’s general collection policies would require us to blindly ignore the sec_7485 bond requirement this we can not do moreover the court_of_appeals for the ninth circuit denied petitioner’s motion to stay collection pending appeal therefore respondent was free to pursue collection action against petitioner in accordance with his established policies petitioner argues for the first time on brief that special circumstances existed because of the unique nature of the assets that so martin asked him to liquidate according to petitioner his sec_401 plan account and life petitioner cites sec_6863 providing that seized property may not be sold if a civil_action is commenced in accordance with sec_7429 however sec_6863 is inapposite because this action was commenced under sec_6330 not sec_7429 which pertains to judicial review of jeopardy levies and jeopardy assessments insurance policies could not be replaced once liquidated and thus requiring their liquidation when the potential for reversal still existed was unnecessarily punitive with regard to his retirement account petitioner further argues that so martin should have applied the standards set forth in irm pt date governing levy on retirement accounts by analogy to determine whether to require the liquidation of his sec_401 plan account as part of an installment_agreement on the basis of the administrative record we find that petitioner did not argue below that the special nature of a retirement account or a life_insurance_policy constituted special circumstances under irm pt we likewise find that petitioner did not argue below that the irs’ standards governing levy on petitioner has not cited any case for the proposition that the nature of a retirement account or life_insurance_policy constitutes special circumstances but see mcclanahan v commissioner tcmemo_2008_161 holding that the settlement officer did not abuse his discretion in rejecting the taxpayer’s proposed installment_agreement when the taxpayer refused to make an initial payment corresponding to the realizable equity in his whole_life_insurance policies pursuant to irm pt date the irs is required to consider the following factors in determining whether to levy on a taxpayer’s retirement account whether nonretirement assets exist that are available for collection whether the taxpayer has engaged in flagrant conduct and whether the taxpayer relies on the retirement account or will in the near future for necessary living_expenses examples of flagrant conduct include inter alia contributing to a retirement account while unpaid taxes were accruing being convicted of tax_evasion or assessed with a fraud_penalty and accruing tax_liability on illegal income the existence of flagrant conduct is determined on a case-by-case basis retirement accounts should be extended by analogy to the consideration of his proposed installment_agreement we may not consider issues or arguments that a taxpayer does not raise as part of his cdp hearing giamelli v commissioner t c pincite the statute sec_6330 contemplates consideration of issues ‘raised’ by the taxpayer at the hearing thus if an issue is never raised at the hearing it cannot be a part of the appeals officer’s determination sec_301_6330-1 q a-f3 proced admin regs in seeking tax_court review of a notice_of_determination the taxpayer can only ask the court to consider an issue including a challenge to the underlying tax_liability that was properly raised in the taxpayer’s cdp hearing consequently we may not consider these arguments finally petitioner argues that so martin abused her discretion by requiring him to liquidate his life_insurance policies when respondent would almost certainly not receive any proceeds from that liquidation because they were encumbered by first interstate bank as collateral at all relevant times petitioner’s argument is at best confused and at worst disingenuous so martin asked petitioner to liquidate the life_insurance policies disclosed in his form 433-a with cash_value of dollar_figure and policy numbers ending in and the life_insurance_policy assigned to first interstate bank had a policy number ending in thus so martin correctly concluded that there was no evidence supporting petitioner’s contention that his life_insurance policies ending in and were encumbered by first interstate bank c reflection of ability to pay finally so martin rejected petitioner’s proposed installment_plan of dollar_figure a month because it did not reflect his ability to pay which she determined to be approximately dollar_figure a month irm pt date provides installment agreements must reflect taxpayers’ ability to pay on a monthly basis throughout the duration of agreements a taxpayer’s ability to pay is determined by comparing his monthly income to allowable expenses friedman v commissioner tcmemo_2013_44 at therefore a settlement officer may accept at a minimum a monthly payment equal to the excess of a taxpayer’s monthly income over the taxpayer’s allowable expenses id in reviewing for abuse_of_discretion the court does not recalculate a taxpayer’s ability to pay nor substitute its judgment for that of the settlement officer o’donnell v commissioner at we note that pursuant to an independent calculation of petitioner’s monthly payment potential ro kelly determined that petitioner could pay dollar_figure a month towards his outstanding tax_liabilities so martin determined petitioner’s monthly income on the basis of his financial disclosures and determined his allowable expenses according to local and national standards we have held that a settlement officer does not abuse his discretion by adhering to local and national standards even if adherence to those standards would force taxpayers to change their lifestyle friedman v commissioner at cf aldridge v commissioner tcmemo_2009_276 sustaining the commissioner’s use of the irs’ published national and local allowances as guidelines for basic living_expenses in evaluating the adequacy of proposed installment agreements and holding that taxpayers have the burden of providing information to appeals to justify a departure from the local standards petitioner argues that so martin abused her discretion by not negotiating the amount of the monthly payment petitioner continues boulware never had to make the difficult determination of what he could afford to pay on a monthly basis and he asserts that the liquidation requirement obviated boulware’s need to determine what he was able to pay in an installment_agreement we disagree during the cdp hearing on date so martin informed petitioner that according to her calculations he had the ability to pay approximately dollar_figure per month yet after this hearing petitioner offered to pay a mere dollar_figure a month and informed so martin that he intended to pay dollar_figure a month towards his officer loan account on the basis of petitioner’s offer so martin understandably questioned the sincerity of his interest in paying his outstanding tax_liabilities moreover so martin was not required to haggle with petitioner over the monthly payment amount in conclusion we hold that so martin reasonably determined that the proposed monthly payment did not reflect petitioner’s ability to pay ii face-to-face meeting petitioner argues that he did not receive a proper cdp hearing because so martin denied him a face-to-face hearing sec_301_6330-1 q a d6-d8 proced admin regs states cdp hearings are informal in nature and do not require the appeals officer_or_employee and the taxpayer or the taxpayer’s representative to hold a face-to-face meeting a cdp hearing may but is not required to consist of a face-to-face meeting one or more written or oral communications between an appeals officer_or_employee and the taxpayer or the taxpayer’s representative or some combination thereof except as provided below a taxpayer who presents in the cdp hearing request relevant non-frivolous reasons for disagreement with the proposed levy will ordinarily be offered an opportunity for a face-to-face conference at the appeals_office closest to taxpayer’s residence a face-to-face cdp conference concerning a collection alternative such as an installment_agreement or an offer to compromise liability will not be granted unless other taxpayers would be eligible for the alternative in similar circumstances appeals in its discretion however may grant a face-to-face conference if appeals determines that a face-to-face conference is appropriate to explain to the taxpayer the requirements for becoming eligible for a collection alternative for purposes of determining whether a face-to-face conference will be granted the determination of a taxpayer’s eligibility for a collection alternative is made without regard to the taxpayer’s ability to pay the unpaid tax petitioner requested a face-to-face cdp conference to discuss a collection alternative--ie his proposed installment_agreement at the time petitioner made his request he was not eligible for an installment_agreement because he was not in compliance with the tax laws and he refused to liquidate his assetsdollar_figure moreover we have consistently held that a taxpayer is not automatically entitled to a face-to-face cdp hearing see eg 115_tc_329 holding that a combination of telephone calls and letters constituted a petitioner alleges that so martin refused to grant him a face-to-face hearing because he was a resident of hawaii petitioner’s assertion is belied by the record so martin repeatedly stated that she would grant petitioner a face-to- face hearing if it became necessary although so martin was in oregon she told petitioner about various options for holding a face-to-face meeting--eg she could travel to hawaii to conduct the hearing or she could participate remotely via teleconference while an appeals officer in hawaii conduced the hearing on the basis of the administrative record we find that so martin denied petitioner’s request for a face-to-face hearing not because he resided in hawaii but because he was not eligible for a collection alternative proper cdp hearing radeke v commissioner tcmemo_2012_319 at an informal telephone conference which gives the taxpayer the opportunity to discuss the merits of her case settlement alternatives and other issues related to the proposed levy is a proper cdp hearing rivas v commissioner tcmemo_2012_20 holding that an appeals officer does not abuse his discretion in denying a taxpayer’s request for a face-to-face hearing where the taxpayer failed to identify the relevant issues he wanted to discuss busche v commissioner tcmemo_2011_285 102_tcm_566 a taxpayer does not have an absolute right to a face-to-face hearing therefore we conclude that so martin acted within her discretion in denying petitioner’s face-to-face hearing request finally petitioner alleged in his petition a number of errors that he has failed to argue on brief accordingly we consider these issues to be conceded see 121_tc_308 holding that arguments not addressed in brief may be considered abandoned 119_tc_1 n any arguments not discussed in this opinion are irrelevant moot or lacking in merit to reflect the foregoing decision will be entered for respondent


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division release number release date date date uil code contact person identification_number contact number employer_identification_number form required to be filed tax years all years dear this is our final_determination that you do not qualify for exemption from federal_income_tax as an organization described in internal_revenue_code sec_501 recently we sent you a letter in response to your application that proposed an adverse determination the letter explained the facts law and rationale and gave you days to file a protest since we did not receive a protest within the requisite days the proposed adverse determination is now final because you do not qualify for exemption as an organization described in code sec_501 donors may not deduct contributions to you under code sec_170 you must file federal_income_tax returns on the form and for the years listed above within days of this letter unless you request an extension of time to file instructions and do not send them to this office failure_to_file the returns timely may result in a penalty file the returns in accordance with their we will make this letter and our proposed adverse determination_letter available for public inspection under code sec_6110 after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in notice if you agree with our deletions you do not need to take any further action if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter federal_income_tax status and responsibilities please contact irs customer service at if you have any questions about your or the irs customer service number for businesses the irs customer service number for people with hearing impairments is sincerely lois g lerner director exempt_organizations enclosure notice redacted proposed adverse determination_letter redacted final adverse determination_letter department of the treasury internal_revenue_service washington d c contact person identification_number contact number fax number employer_identification_number tax_exempt_and_government_entities_division date date uniform issue list dear we have considered your application_for recognition of exemption from federal_income_tax under internal_revenue_code sec_501 based on the information provided we have concluded that you do not qualify for exemption under code sec_501 the basis for our conclusion is set forth below facts you were incorporated under the nonprofit laws of the state of m article iii of your articles of incorporation provides that you were formed to assist develop build and operate community based information and electronic communication resources to link individuals businesses educational cultural and social institutions and local_government and to conduct all other lawful businesses as permitted by the state of m you are a consulting firm which was formed to provide services to various governmental units and non-profit organizations the clients within and outside the state of m you offer the following commercially available services for a fee assistance with respect to applying for federal and state grants and with respect to the planning and funding stages of fiber-to-the premises fttp network which includes business planning engineering construction_project management and operation of such networks your fee structure is similar to that of for profit entities offering similar services in your letter dated date you state that you meet with prospective clients to explain the services that you can provide once a client contracts with you to construct an fttp network you will work with that client to coordinate the financing construction implementation and maintenance of the network the fttp networks constructed pursuant to your contracts will be owned by your clients with respect to grant applications you prepare grants are awarded to your clients rather than you upon completion of an fttp network your clients will provide internet telephone and cable services telecommunication services to area residents the subscribers for a fee fees will be paid to the client by the subscribers your role will be to provide maintenance and administrative services to the client which facilitates the client's provision of such telecommunication services in some cases the client will choose not to directly provide services using the fttp network rather it will lease access to the network to interested entities both for profit and non-profit those entities will then directly provide telecommunication services to subscribers in those cases you may elect to lease access to the fttp network from your client and directly provide telecommunication services you will charge subscribers a fee that is set to cover your cost of providing the services in your letter dated date you explain how you will differ from for profit firms providing telecommunication services you state in summary conventional for-profit companies attempt to provide the least possible services at the highest possible cost we attempt to provide the highest level services at the lowest possible cost currently you provide consulting services to n the county the county issued a request for proposals from consulting firms to help it design build and operate a fttp network you were awarded the contract through this competitive bidding process pursuant to the contract you will design build and maintain a fttp network for the county the fttp network will be owned by the county the fees for your consulting services are set to cover your cost of providing such services the county plans to provide telecommunication services to the public utilizing its fttp network the county will have a contractual arrangement with subscribers who receive telecommunication services for a fee the county will contract with you to provide the maintenance of the fttp network and to perform administrative and billing services on its behalf you will provide this service to the county for a fee that is set to cover your cost of providing the service you are supported by income derived from fees for consulting and other services provided to your clients subscribers for the telecommunication services you will provide in the future you will also be supported by fees from you are controlled by a five-member board_of directors your governing board is self- perpetuating each member of your governing board is either an owner or employee of a commercial consulting firm which specializes in telecommunications you provide compensation to four of your five directors these are the only individuals you employ in your letter dated date you state that you do not use national surveys to determine compensation levels you have not established any caps on their compensation levels and you do not have written employment contracts with your officers and directors you are not controlled by your clients nor will they have control_over your day-to-day operations your clients’ relationship with you is solely contractual there is no statute requiring your creation there is no legislative acknowledgement of governmental responsibility with respect to the provision of telecommunication services law sec_501 of the code provides in part for exemption from federal_income_tax of organizations organized and operated exclusively for charitable religious or educational_purposes provided no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 of the income_tax regulations the regulations provides that in order to be exempt as an organization described in sec_501 an organization must be both organized and operated exclusively for one or more purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt section a c -1 b i of the regulations provides that an organization is organized exclusively for one or more exempt purposes only if its articles of organization a limit the purposes of such organization t one or more exempt purposes and b do not expressly empower the organization to engage otherwise than as an insubstantial part of its activities in activities which in themselves are not in furtherance of one or more exempt purposes sec_1_501_c_3_-1 of the regulations provides that an organization is not organized exclusively for one or more exempt purposes if its articles expressly empower it to carry on otherwise than as an insubstantial part of its activities activities which are not in furtherance of one or more exempt purposes even though such organization is by the terms of such articles created for a purpose that is not broader than the purposes specified in sec_501 of the code sec_1_501_c_3_-1 of the regulations provides that an organization operates exclusively for exempt purposes only if it engages primarily in activities that accomplish exempt purposes specified in sec_501 an organization must not engage in substantial activities that fail to further an exempt_purpose sec_1_501_c_3_-1 of the regulations provides that an organization is not operated exclusively for one or more exempt purposes if its net_earnings inure in whole or in part to the benefit of private shareholders or individuals sec_1_501_a_-1 of the regulations defines private_shareholder_or_individual as a person having a personal and private interest in the activities of the organization sec_1_501_c_3_-1 of the regulations provides that an organization is not organized or operated exclusively for exempt purposes unless it serves a public rather than a private interest therefore to meet the requirement of this subsection it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests sec_1_501_c_3_-1 of the regulations provides that the term charitable in sec_501 in its generally accepted legal sense and includes relief of the poor and distressed or of the underprivileged advancement of religion and advancement of education or science sec_1_501_c_3_-1 of the regulations provides that an organization may meet the requirements of sec_501 although it operates a trade_or_business as a substantial part of its activities if the operation of such trade_or_business is in furtherance of the organization’s exempt_purpose and if the organization is not organized and operated for the primary purpose of carrying on an unrelated_trade_or_business revrul_71_529 c b held that a nonprofit organization that provides assistance in the management of the endowment or investment funds of its member colleges and universities for a charge that is less than percent of its total operating costs qualifies for exemption under sec_501 of the code revrul_72_369 1972_2_cb_245 held that an organization formed to provide managerial and consulting services at cost to unrelated exempt_organizations did not qualify for exemption under sec_501 of the code providing managerial and consulting services on a regular basis for a fee is a trade_or_business ordinarily carried on for profit the fact that the services were provided at cost and solely for exempt_organizations was not sufficient to characterize the activity as charitable for purposes of sec_501 the ruling concluded that furnishing the services at cost lacks the donative element necessary to establish this activity as charitable in 70_tc_352 bsw group the tax_court held that a corporation formed to provide consulting services was not exempt under sec_501 of the code because its activities constituted the conduct_of_a_trade_or_business that is ordinarily carried on by commercial ventures its primary purpose was not charitable educational nor scientific organized for profit but rather commercial the court found that the corporation had completely failed to demonstrate that its services were not in competition with commercial businesses the court found that the organization’s financing did not resemble that of the typical 501_c_3_organization it had not solicited nor had it received voluntary contributions from the public were set high enough to recoup all projected costs and to produce a profit moreover it did not appear that the corporation ever planned to charge a fee less than cost and finally the corporation had failed to limit its clientele to organizations that were sec_501 exempt_organizations its only source_of_income was from fees for services and those fees in 326_us_279 66_sct_112 9ol ed c b better business bureau inc the supreme court held that the presence of a single non-exempt purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes the court found that the trade_association had an underlying commercial motive that distinguished its educational program from that carried out by a university rationale sec_1_501_c_3_-1of the regulations provides that in order to be exempt as an organization described in sec_501 of the code an organization must be both organized and operated exclusively for one or more purposes specified that section these tests are independent and an organization must satisfy both to be exempt article ill of your articles of incorporation provides among other things that you were formed to assist develop build and operate community based information and electronic communication resources to link individuals businesses educational cultural and social institutions and local_government and to conduct all other lawful business as permitted by the state of m providing the type of services described at article iii does not further an exempt_purpose furthermore this article authorizes you to conduct any lawful business as permitted by the state of m thus article ii authorizes you to conduct activities outside the scope of sec_501 of the code accordingly you do not meet the organization test described at sec_1 c -1 b of the regulations you were formed to provide consulting and administrative services to governmental units and non-profit organizations for a fee that is set to cover your cost of providing these services in addition you will provide telecommunication services to the public for a fee that is set to cover your cost of providing the services these are your sole activities to obtain your contract with n you participated in a competitive bidding process along with for profit entities providing similar_business services the type of telecommunication services you provide will also be provided by for profit entities an organization providing services of a commercial nature regardless of whether the undertaking is conducted on a nonprofit basis will not qualify for exemption unless the provision of those services directly furthers an exempt_purpose for example the organization described in revrul_71_529 supra qualified for exemption although it provided services of a commercial nature it provided the services solely to organizations described in sec_501 of the code pincite percent of its cost effectively donating the services you do not operate like the organization described in section revrul_71_529 you provide your services at cost you do not limit your clients to governmental entities and organizations described in sec_501 and you directly compete with for profit entities providing similar services you operate ina manner similar to bsw group inc supra the court held that bsw group inc did not qualify for exemption under sec_501 since it provided its services at cost did not limit its clientele to organizations described in sec_501 and failed to demonstrate that its services were not in competition with commercial businesses see also revrul_72_369 supra which held that an organization providing services at cost to organizations described in sec_501 did not qualify for exemption your only purpose is to provide consulting administrative and telecommunication services provision of these services constitutes percent of your activities - providing these services does not further an exempt_purpose thus you are not operated exclusively for one or more exempt purposes see better business bureau inc supra which held that the presence of a single non-exempt purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes further you have not established that your funds will not inure to the benefit of your directors you provide compensation to four of your five directors individuals who control your operations in your letter dated date you state that you do not use national surveys to determine compensation levels you have not established caps on compensation levels and you do not have written employment contracts with your directors based on these statements it is clear that you have not established safeguards to insure that your directors will not receive unreasonable levels of compensation you do not meet the operational_test described at sec_1_501_c_3_-1 of the regulations nor have you established that you are not organized or operated for private benefit as required by sec_1 c -1 d ii you do not satisfy the requirements of sec_1_501_c_3_-1 of the regulations since your operation of a trade_or_business is not in furtherance of an exempt_purpose conclusion based on the information above you have failed to demonstrate that you are organized or operated exclusively for charitable or educational_purposes within the meaning of sec_501 of the code accordingly we conclude that your do not qualify for exemption under sec_501 because you do not qualify for exemption as an organization described in sec_501 of the code you must file federal_income_tax returns contributions to you are not deductible under sec_170 of the code you have the right to file a protest if you believe this determination is incorrect to protest you must submit a statement of your views and fully explain your reasoning you must submit the statement signed by one of your officers within days from the date of this letter we will consider your statement and decide if the information affects our determination your protest statement should be accompanied by the following declaration under penalties of perjury declare that have examined this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all the relevant facts and such facts are true correct and complete you also have a right to request a conference to discuss your protest this request should be made when you file your protest statement an attorney certified_public_accountant or an individual enrolled to practice before the internal_revenue_service may represent you if you want representation during the conference procedures you must file a proper power_of_attorney form_2848 power_of_attorney and declaration of representative if you have not already done so for more information about representation see publication practice_before_the_irs and power_of_attorney all forms and publications mentioned in this letter can be found at www irs gov forms and publications if you do not file a protest within days you will not be able to file a suit for declaratory_judgment in court because the internal_revenue_service irs will consider the failure to protest as a failure to exhaust available administrative remedies code sec_7428 provides in part that a declaratory_judgment or decree shall not be issued in any proceeding unless the tax_court the united_states court of federal claims or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted all of the administrative remedies available to it within the irs if you do not intend to protest this determination you do not need to take any further action if we do not hear from you within days we will issue a final adverse determination_letter that letter will provide information about filing tax returns and other matters please send your protest statement form_2848 and any supporting documents to this address internal_revenue_service constitution ave n w washington dc you may also fax your statement using the fax number shown in the heading of this letter letter to confirm that he or she received your fax if you fax your statement please call the person identified in the heading of this lf you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely lois g lerner director exempt_organizations


internal_revenue_service department of the treasury index number washington dc person to contact telephone number refer reply to cc intl br1-plr-111409-99 date date number release date re a country b date c year d year e date f dear do ty this is in response to a letter dated date f submitted on behalf of a requesting a ruling under sec_877 of the internal_revenue_code_of_1986 code that a’s renunciation of the status of lawful permanent resident_of_the_united_states did not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code1 the information submitted for consideration is substantially as set forth below the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a declaration executed by her under penalties of perjury that she has examined the ruling_request including accompanying documents and to the best of her knowledge and belief the request contains all the relevant facts relating to the request and such facts are true correct and complete this office has not verified any of the material submitted in support of the ruling_request and they are subject_to verification on examination a is a citizen of country b by birth she was born on date c a came to the united_states in year d and soon after obtained permanent resident status in the united_states she relinquished her permanent resident status and returned to country b in year e as of the date she ceased to be a permanent resident_of_the_united_states her net_worth was in excess of the threshold set by the statute for a rebuttable_presumption of tax_avoidance under sec_877 of the code 1all section references are to the internal_revenue_code_of_1986 as amended plr-111409-99 sec_877 generally provides that a citizen who loses u s citizenship or a u s long- term resident who ceases to be taxed as a lawful permanent resident individuals who expatriate within the 10-year period immediately preceding the close of the taxable_year will be taxed under sec_877 and be subject_to the special rules of sec_877 for such taxable_year unless such loss did not have for one of its principal purposes the avoidance of u s taxes sec_2107 and sec_2501 provide special estate and gift_tax regimes respectively for individuals who expatriate with a principal purpose to avoid u s taxes a former citizen or former long-term_resident will be treated as having expatriated with a principal purpose to avoid u s taxes for purposes of sec_877 sec_2107 and sec_2501 if the individual’s average income_tax_liability or the individual’s net_worth on the date of expatriation exceeds certain thresholds see sec_877 sec_2107 and sec_2501 a former citizen whose net_worth or average tax_liability exceeds these thresholds however will not be presumed to have a principal purpose of tax_avoidance if that former citizen is described within certain statutory categories and submits a request for a ruling within one year of the date of loss of u s citizenship for the secretary’s determination as to whether such loss had for one of its principal purposes the avoidance of u s taxes see sec_877 sec_2107 and sec_2501 under notice_98_34 1998_27_irb_30 modifying notice_97_19 1997_1_cb_394 an eligible former long-term_resident whose net_worth or average tax_liability exceeds the applicable thresholds will not be presumed to have a principal purpose of tax_avoidance if that former resident is described within certain categories and submits a complete and good_faith request for a ruling as to whether such loss had for one of its principal purposes the avoidance of u s taxes notice_98_34 requires that certain information be submitted with a request for a ruling that an individual’s expatriation did not have for one of its principal purposes the avoidance of u s taxes a is eligible to request a ruling pursuant to notice_98_34 because she is covered by two categories of individuals eligible to submit ruling requests first within a reasonable period after her expatriation a became a resident fully liable to income_tax in country b the country where she was born second within a reasonable period after her expatriation a became a resident fully liable to income_tax in country b the country where both her parents were born a submitted all the information required by notice_98_34 including any additional information requested by the service after review of the original submission accordingly based solely on the information submitted and the representations made it is held that a has made a complete and good_faith submission in accordance with section plr-111409-99 c b and notice_98_34 therefore a will not be presumed to have as one of her principal purposes for expatriating the avoidance of u s taxes however because the information submitted does not clearly establish the existence or lack of a principal purpose to avoid taxes under subtitle a or b of the code no opinion is expressed as to whether a’s expatriation had for one of its principal purposes the avoidance of such taxes while this ruling rebuts the presumption of tax_avoidance under sec_877 it is not conclusive as to whether a subsequently may be found to have a principal purpose of tax_avoidance under sec_877 sec_2107 and sec_2501 based on all the facts and circumstances see sec_877 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in addition no opinion is expressed as to a’s u s tax_liability for taxable periods prior to her relinquishment of the status of lawful permanent resident or for taxable periods after her relinquishment of the status of lawful permanent resident under any section of the code other than sec_877 sec_2107 and sec_2501 a copy of this letter must be attached to a’s u s income_tax return for the year in which a obtained the ruling whether or not a is otherwise required to file a return this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to each of a and the second authorized representative listed in the power_of_attorney yours truly w edward williams senior technical reviewer branch no office of the associate chief_counsel international cc assistant_commissioner international international district operations op in d


internal_revenue_service number release date index number ----------------- -------------------------------- ------------------------ ----------------------- ------------------------------ in re ------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------------- ---------------------------------------------------- telephone number --------------------- refer reply to cc corp bo1 plr-133087-11 date date legend distributing controlled business y date date a ------------------------ ------------------------------- ----------------------- ---------------------------- ------------------------------- ----------------------- ------------------- ------------------- ------------------- ----------------- b -------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------ ----------------------------------------------------------------------------------------------------- ------------------- c d --------- --------------- plr-133087-11 dear ------------- this letter responds to your authorized representatives’ letter dated date requesting that we supplement a private_letter_ruling dated date the prior letter_ruling additional information was submitted in a letter dated date in the prior letter_ruling we ruled that a series of transactions in which business y was contributed from distributing to controlled the contribution followed by the distribution of controlled stock to distributing’s shareholders the distribution qualified as a tax-free corporate separation under sec_368 and sec_355 of the internal_revenue_code distributing is requesting supplemental rulings concerning a whether liabilities that give rise to a deduction are included in liabilities for purposes of sec_357 of the internal_revenue_code as applied to the contribution and b whether certain distributing warrants should be treated as stock for federal_income_tax purposes so that distributions of controlled stock to distributing warrant holders in the distribution are treated as distributions with respect to stock for purposes of sec_355 supplemental facts liability assumption issue the prior ruling contained the following representation vv the total adjusted bases and the fair_market_value of the assets transferred to controlled by distributing in the contribution will equal or exceed the sum of i the total liabilities if any assumed within the meaning of sec_357 by controlled and ii the total amount of any money and the fair_market_value of any property within the meaning of sec_361 received by distributing from controlled and transferred to distributing’s creditors in connection with the transaction if any the liabilities assumed by controlled included accrued vacation accrued salaries and wages and warranties relating to certain products which distributing refers to as the deductible liabilities distributing makes the following representations concerning the deductible liabilities a the incurrence of the deductible liabilities did not result in the creation of or increase in the basis of any asset of distributing or controlled or the stock of distributing or controlled b the deductible liabilities were accrued liabilities for accounting purposes by distributing but did not meet the timing requirements for a deduction by distributing plr-133087-11 before the contribution under distributing’s method_of_accounting the deductible liabilities met the requirements for a deduction by controlled after the contribution under controlled’s method_of_accounting distributing also modifies representation vv of the prior ruling to provide as follows vv the total adjusted_basis and the fair_market_value of the assets transferred to controlled by distributing in the contribution will equal or exceed the sum of a the total liabilities assumed within the meaning of sec_357 but excluding any liabilities to which sec_357 applies by controlled and b the total amount of any money and the fair_market_value of any property within the meaning of sec_361 received by distributing from controlled and transferred to distributing’s creditors in connection with the transaction if any distributing requests a ruling that the deductible liabilities assumed by controlled will be excluded in determining the amount of liabilities assumed by controlled or to which property transferred to controlled is subject for purposes of sec_357 warrant issue on date distributing entered into a note and warrant purchase agreement in which distributing issued dollar_figurea in senior subordinated notes the notes with an interest rate of b percent together with immediately exercisable warrants to purchase distributing common_stock at dollar_figurec per share a nominal amount the warrants could be exercised by the warrant holders at any time until date when the warrants will expire if not exercised at the time of their issuance distributing valued the warrants at a total amount of approximately d which it reported as an increase in capital for financial reporting purposes the warrants provide that if distributing pays a dividend or other distribution on its stock in cash or other_property distributing will pay the warrant holders as if the warrants been exercised before the record_date of the dividend declaration since the warrants were issued the warrant holders have shared in three dividend distributions by distributing as if the warrants had been exercised before the distributions in addition when controlled stock was distributed to distributing shareholders as described in the prior ruling holders of the warrants received controlled stock in proportion to their equity interests as represented by the warrants as if the warrants had been exercised before that distribution if distributing makes a liquidating_distribution to its shareholders the warrant holders will receive in addition to the distributing stock received on exercising their plr-133087-11 warrants property as would have been payable had the warrant holders exercised their warrants before the date of their liquidating_distribution the warrants provide that the number of distributing shares for which the warrants may be exchanged the warrant share number will be adjusted for various events including a stock split stock_dividend combination of shares issuance of additional distributing stock at a price below their fair_market_value or issuance of additional distributing convertible securities warrants options or other similar rights to subscribe to distributing stock at a price below fair_market_value rulings based solely on the information received and the representations made we rule as follows the deductible liabilities assumed by controlled in the contribution will be excluded in determining the amount of liabilities of distributing assumed by controlled or to which property transferred to controlled is subject for purposes of sec_357 for purposes of the distribution the warrants will be treated as stock and the distribution of controlled stock to the warrant holders as part of the distribution will be treated as a distribution with respect to its stock rev_rul 1982_2_cb_110 and revrul_85_87 c b caveats no opinion is expressed about the tax treatment of the contribution and the distribution under other provisions of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from the contribution or the distribution that are not specifically covered by this ruling letter or the prior letter_ruling in addition to the caveats stated in the prior letter_ruling no opinion is expressed as to whether the deductible liabilities are in fact liabilities that will give rise to a deduction for federal_income_tax purposes procedural statements this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office a copy of this letter had been sent to two of your authorized representatives plr-133087-11 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely ______________________________ mark s jennings chief branch office of associate chief_counsel corporate cc