t c memo united_states tax_court whistleblower 13412-12w petitioner v commissioner of internal revenue respondent docket no 13412-12w filed date sealed for petitioner sealed for respondent memorandum opinion kroupa judge this case is before the court on the whistleblower’s motion to proceed anonymously under rule a the whistleblower ha sec_1 all section references are to the internal_revenue_code in effect for all relevant times and all rule references are to the tax_court rules_of_practice and continued satisfied the burden of showing that the risk of harm to the whistleblower outweighs the public interest in knowing the whistleblower’s identity we will grant the motion and order that the record in this case remain sealed until further order of this court background the following information is stated only for purposes of resolving the pending motion and not for purposes of establishing the validity of the whistleblower’s claim petitioner is a whistleblower that reported tax violations by the whistleblower’s former employer target to respondent the whistleblower disclosed the nature of the tax violations and provided legal analysis and reasoning for respondent to proceed against target nonetheless respondent issued the whistleblower a letter indicating that he was unable to collect any amounts on the whistleblower’s claim the whistleblower filed the petition seeking judicial review of respondent’s determination the whistleblower is retired and receives retirement benefits from target the whistleblower asserts that the whistleblower should be permitted to proceed continued procedure unless otherwise indicated anonymously because if the whistleblower’s identity is disclosed target will seek retribution specifically the whistleblower asserts that target could withhold or terminate the whistleblower’s retirement benefits the whistleblower relies on the retirement benefits and without them would be forced to seek future employment additionally the whistleblower alleges that if the whistleblower’s identity is revealed the whistleblower will suffer professional ostracism harm and job-related harassment because other potential employers will unlikely want to hire or employ a known tax whistleblower finally the whistleblower asserts that the motion should be granted because target may suffer financially if the details of the whistleblower’s claim are publicized the whistleblower filed the motion to proceed anonymously at the same time the whistleblower filed the petition respondent did not file an objection to the motion discussion we must decide whether the whistleblower has satisfied the burden of showing that the risk of harm to the whistleblower outweighs the public interest to have access to the whistleblower’s identity deciding this issue will affect whether the whistleblower may proceed anonymously recently this court adopted rule to create a mechanism to preserve the anonymity of whistleblowers and non-party taxpayers whistleblowers seeking to proceed anonymously must file a motion with this court setting forth a sufficient fact-specific basis for anonymity rule a the petition and subsequent filings are temporarily sealed pending a ruling by the court on the motion to proceed anonymously id a whistleblower is permitted to proceed anonymously if the whistleblower presents a sufficient showing of harm that outweighs counterbalancing societal interests in knowing the whistleblower’s identity see 137_tc_183 see also 214_f3d_1058 9th cir the decision whether to allow a party to proceed anonymously rests within the sound discretion of the trial_court 127_tc_89 see 6_f3d_233 4th cir see also sec_7461 this court has granted a whistleblower’s request to proceed anonymously where the whistleblower was susceptible to professional stigma retaliation and economic duress see whistleblower 14016-10w v commissioner t c pincite granting the whistleblower’s motion to proceed anonymously in part because disclosing the whistleblower’s identity could have adversely affected the whistleblower’s current and future employment moreover this court has granted a motion to proceed anonymously where the taxpayer faced a risk of severe physical harm if the taxpayer’s identity was revealed see anonymous v commissioner t c pincite holding that risk of severe physical harm to the taxpayer and taxpayer’s family outweighed the general_public interest in knowing the taxpayer’s identity the court’s decisions are consistent with the irs whistleblower office general administrative practice of keeping whistleblowers’ identities confidential see whistleblower 14106-10w v commissioner t c pincite although we have reservations about the alleged harm we will err on the side of caution and grant the whistleblower’s request to proceed anonymously the whistleblower has satisfied the whistleblower’s factual burden to proceed anonymously the facts alleged in the petition and the declaration attached to the motion to proceed anonymously demonstrate that disclosure of the whistleblower’s identity could result in the risk of retaliation social and professional stigma and economic duress if target learned the whistleblower’s identity it could possibly withhold or terminate the whistleblower’s retirement benefits we are aware however that distributions from an employer’s retirement plans are governed by the plan’s provisions and an independent_trustee that has fiduciary obligations the whistleblower relies on the retirement benefits and without them would be forced to seek future employment moreover because the whistleblower would be a known whistleblower the whistleblower might face professional ostracism and difficulty securing future employment in short the nature of the potential harm to the whistleblower outweighs the societal interest in knowing the whistleblower’s identity for the foregoing reasons we will grant the whistleblower’s motion to proceed anonymously and the record in this case will remain sealed until further order of the court an appropriate order will be issued


internal_revenue_service number release date index number ---------------------- ---------------------------------------------- ------------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ---------------------- telephone number --------------------- refer reply to cc tege eb ec plr-111250-15 date date city --------------------- plan ----------------------------------------------------------------- state x ------------------------ date ---------------------- year ------- agreement --------------------------------- dear -------------------- this is in response to a letter submitted by your authorized representative requesting a private_letter_ruling specifically you requested a ruling that certain contributions to plan are not income to city employees at the time of contribution under sec_61 of the internal_revenue_code code and are not wages subject_to employment_taxes under sec_3121 and sec_3402 of the code city contributes amounts to plan to provide retirement benefits for eligible employees of city plan is a governmental_plan as defined in sec_414 of the code and is qualified under sec_401 under a contract between city and plan the city and city’s employees are required to make contributions to plan since date city has picked up the employees’ required contributions pursuant to sec_414 beginning in year city and its employees entered into agreement under which a percentage of employees’ statutorily fixed salaries were to be used to pay a portion of city’s required employer contributions to plan thus the city is paying required employee contributions under the pick-up arrangement and employees are paying the city’s required contributions from their salaries pursuant to the agreement you request a ruling that contributions made by the city’s employees under the agreement are employer contributions and thus are not income until distributed to the employees in addition you request a ruling that the city is not required to withhold federal income taxes from these contributions under section plr-111250-15 of the code and that the contributions are not wages under sec_3121 of the code initially the city requested a ruling that the employee contributions under the agreement were pick-up contributions under sec_414 prior to the submission of this letter_ruling request the employee_plans rulings and agreements group of the tax-exempt and government entities division determined that the contributions made pursuant to the agreement do not qualify as employer contributions under sec_414 of the code in response the city revised its request and now seeks the ruling described herein sec_61 of the code defines gross_income as income from any source including any compensation_for services sec_402 of the code provides in general that an amount actually distributed by any employees' trust described in sec_401 that is exempt from tax under sec_501 is taxable to the distributee in the year it is distributed under sec_72 relating to annuities sec_1_402_a_-1 of the income_tax regulations provides that an employee is not required to include in income a contribution made by an employer to a_trust described in sec_401 of the code in a year in which the trust is exempt under sec_501 sec_414 of the code provides that any amount contributed to an employees' trust described in sec_401 is not treated as having been made by the employer if it is designated as an employee contribution under sec_414 however if the contributions of employing units are designated as employee contributions but an employing unit picks up the contributions the contributions so picked up are treated as employer contributions sec_3101 and sec_3111 of the code impose fica_taxes on wages the term wages is defined in sec_3121 for fica purposes as all remuneration for employment with certain specific exceptions not relevant here sec_3121 defines employment as any service of whatever nature performed by an employee for the person employing him with certain specific exceptions not relevant here sec_3402 of the code relating to income_tax_withholding generally requires every employer making a payment of wages to deduct and withhold upon those wages a tax determined in accordance with prescribed tables or computational procedures the term wages is defined in sec_3401 for federal_income_tax withholding purposes as all remuneration for services performed by an employee for his employer with certain specific exceptions not relevant here plr-111250-15 the supreme court has long established the rule that income must be taxed to the person who earns it 337_us_733 in 281_us_111 a husband and wife executed a contract whereby one-half of the husband's future earnings was assigned to the wife the court held that the husband's entire earnings were includible in his gross_income in the year earned even though there was a valid contract between the husband and wife and the husband did not physically receive one-half of the earnings in cash the court stated there is no doubt that the statute could tax salaries to those who earned them and provide that the tax could not be escaped by anticipatory arrangements and contracts however skillfully devised to prevent the salary when paid from vesting even for a second in the man who earned it that seems to us the import of the statute application of this rule is not limited to cases in which the assignor assigned income to a closely related_party in 410_us_441 the court applied this rule in a case in which a medical partnership elected to have a nonprofit health plan foundation pay part of the partnership's compensation to a retirement trust in revrul_67_351 1967_2_cb_86 pursuant to a collective bargaining agreement between a union and a group of employers a vacation plan and trust are established for the benefit of the employees the agreement provides that the employers will pay into the trust a specified amount for each hour worked by qualified employees an individual_account is established for each qualified_employee by the trustees of the trust the individual employee's interest in the amount in his vacation account is fully vested and nonforfeitable from the time the money is paid_by his employer the collective bargaining agreement further states that payments by the employer shall be a part of the wages due to the employees the ruling explains that the contributions to the trust should be regarded as constructive payments of compensation to the employees and thus the contributions to the trust are treated as made by the employees rather than by the employers the ruling concludes that the payments to the trust are compensation income to the employees at the time they are made to the trust further the ruling concludes that the payments to the trust are wages for fica and federal_income_tax withholding purposes therefore based solely on the facts presented and the representations made we conclude that contributions made to the plan under the agreement are employee contributions and are therefore includable in city employees’ gross incomes under sec_61 of the code at the time of contribution furthermore as employee contributions the payments are subject_to federal_income_tax withholding at the time of contribution and are subject_to fica_taxes at the time of contribution unless the maximum wage limitation provided by sec_3121 applies except as expressly provided herein no opinion is expressed or implied as to the plr-111250-15 federal tax consequences of the facts described above under any other provision of the code 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 the ruling contained in this letter is based upon information and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination 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 john b richards senior technical reviewer executive compensation employee_benefits tax exempt government entities enclosures copy of letter copy for sec_6110 purposes


t c memo united_states tax_court ellis j salloum and mary virginia h salloum petitioners v commissioner of internal revenue respondent docket no filed date james g mcgee jr for petitioners clint j locke and thomas a friday for respondent memorandum findings_of_fact and opinion chiechi judge respondent determined a deficiency in and an accuracy- related penalty under sec_6662 a on petitioners’ federal_income_tax tax for their taxable_year of dollar_figure and dollar_figure respectively 1all section references are to the internal_revenue_code code in effect for the year at issue all rule references are to the tax_court rules_of_practice and procedure the issues for decision for petitioners’ taxable_year are does the dollar_figure that centerpoint medical center of independence llc d b a centerpoint medical center transferred to petitioner ellis j salloum during constitute a loan we hold that it does are petitioners liable for the accuracy-related_penalty under sec_6662 we hold that they are findings_of_fact all of the facts in this case which the parties submitted under rule have been stipulated by the parties and are so found petitioners resided in mississippi at the time they filed the petition at a time not established by the record centerpoint medical center of independence llc d b a centerpoint medical center cmc was engaged in recruiting petitioner ellis j salloum2 to join their medical practice as a vascular surgeon cmc’s recruiting efforts were successful on date cmc and petitioner entered into an agreement pursuant to a document titled physician recruiting agreement that comprised five documents including a document titled recruiting agreement we shall sometimes refer to 2unless otherwise stated our references to petitioner are to petitioner ellis j salloum all five of the documents included in the document titled physician recruiting agreement as the physician’s recruiting agreement we shall refer to the document titled recruiting agreement that is part of the physician’s recruiting agreement as the recruiting agreement petitioner signed each of the five documents that were included in the physician’s recruiting agreement except the document titled internal certification which was signed by certain representatives of cmc cmc and petitioner agreed in the physician’s recruiting agreement that petitioner was to join cmc’s medical practice in independence missouri for a period of at least months during which he was to engage in the private practice of medicine as a vascular surgeon petitioner was to work in cmc’s medical practice as an independent_contractor and cmc was to loan to petitioner dollar_figure to be advanced in monthly installments over a period of six months and that loan was to be evidenced by a promissory note one of the documents that is part of the physician’s recruiting agreement was titled compensation guarantee with forgiveness that document incorporated by reference and had attached to it another document titled 3in the first stipulation of facts the parties consistently described the transfer by cmc to petitioner of dollar_figure as a loan to him and as the dollar_figure loan we shall sometimes do the same promissory note we shall sometimes refer to the document titled compensation guarantee with forgiveness as the compensation guarantee with forgiveness agreement we shall refer to the document titled promissory note that was incorporated by reference in the compensation guarantee with forgiveness agreement and attached thereto as the promissory note petitioner not only signed the compensation guarantee with forgiveness agreement he also signed the promissory note the recruiting agreement the compensation guarantee with forgiveness agreement and the promissory note set forth the agreements of cmc and petitioner with respect to inter alia the dollar_figure that cmc agreed to loan to petitioner we shall sometimes refer collectively to the provisions of the recruiting agreement the compensation guarantee with forgiveness agreement and the promissory note that set forth the agreements of cmc and petitioner with respect to the dollar_figure that cmc agreed to transfer to him as the agreement with respect to the dollar_figure transfer to petitioner the recruiting agreement provided in pertinent part that petitioner agrees to engage in the private practice of medicine as a an vascular surgeon in the community on a full-time permanent basis for at least thirty-six months after physician petitioner commences said private practice of medicine the recruit- ing agreement further provided in pertinent part that cmc was to report in form 1099-misc miscellaneous income form 1099-misc any compensation that petitioner received regardless of whether he received cash compensation from cmc or compensation from cmc as a result of the forgiveness of amounts owed by petitioner to cmc the compensation guarantee with forgiveness agreement and the promis- sory note provided in pertinent part that petitioner was obligated to repay to cmc the dollar_figure that it agreed to and did loan to him the compensation guarantee with forgiveness agreement provided in pertinent part a hospital cmc hereby agrees to loan physician petitioner certain amounts of money which hospital shall advance as a guaran- tee of compensation_for physician totaling a maximum of dollar_figure hereinafter the guarantee amount for purposes of the recruiting agreement and any addenda thereto the guarantee amount shall be limited to the salary paid to or incurred on behalf of physician the parties agree and have verified that the guarantee amount represents no more than fair_market_value for physician’s speciality in the community b the guarantee amount shall be paid over a period of six months guarantee period in monthly installments guaran- tee payments e physician agrees to actively engage in the full-time practice of medicine in the community and geographic area served by hospital to bill all patients and third-party payors promptly for all services rendered and to use his her best efforts to collect all patient accounts hospital shall have the right to review and audit physician’s books_and_records for whatever period of time is necessary to assure compliance with the recruiting agreement and any addenda thereto f at the end of the guarantee period the sum of all guarantee payments made by hospital to physician during the guarantee period not otherwise repaid or recouped pursuant to any other provision in this addendum compensation guarantee with forgiveness agree- ment shall be calculated this amount represents the loan repay- ment amount which shall be due and payable by physician as evidenced by the attached promissory note exhibit a executed by physician although not included in the loan repayment amount additional_amounts may be due from physician to hospital in accor- dance with the terms of the addenda attached and made a part of the recruiting agreement interest on the loan repayment amount will begin to accrue at the end of the guarantee period however in an effort to encourage prompt payment interest will be forgiven on any amounts repaid within six months of the end of the guarantee period amounts so forgiven if any as well as any imputed_income as required_by_law will be reported on form_1099 as prescribed by the internal_revenue_service g notwithstanding in recognition of the fact that physician is establishing his her full-time medical practice in the community and geographic area served by hospital and to encourage physician to remain in the community and geographic area served by hospital beyond the guarantee period hospital agrees to forgive and cancel one thirtieth 30th of physician’s loan repayment amount as calculated above to hospital for each calendar month after the end of the guarantee period that physician remains in the full-time practice of medicine in the community and geographic area served by hospital maintains medical staff membership and privileges in good standing at hospital and remains available for emergency room coverage for patients of hospital’s emergency room amounts forgiven if any as well as any imputed_income as required_by_law will be reported on form_1099 as prescribed by the internal revenue service amounts paid in error to the physician will not be subject_to forgiveness h any failure by physician to comply with the terms of paragraph e of this addendum shall be considered a material breach of this ad- dendum and the recruiting agreement by physician and shall autho- rize hospital at its option to pursue the remedies described in the material breach section of the recruiting agreement the promissory note provided in pertinent part for value received the undersigned ellis salloum md physician or maker hereby promises to pay according to the terms of this note to cmc any and all amounts as are actually advanced to physician which is referenced to as the loan repayment amount in the attached recruiting agreement addendum pursuant to the terms of the physician recruitment agreement dated date between the hospital and physician the agreement to which this note is attached hereto and in which it is referred to as exhibit a which provisions are incorporated by reference herein together with interest at the rate per annum equal to the lower_of prime as reported in the money market rates section of the wall street journal on the date provided above plus one percent or the maximum rate permitted by law interest on the loan repayment amount will begin to accrue at the end of the guarantee period however interest will be forgiven on any amounts repaid within six months of the end of the guarantee period this forgiven amount if any will be reported on form_1099 as prescribed by the internal_revenue_service amounts outstanding under this note are subject_to forgiveness but shall become due and payable if physician shall fail at any time during the commitment period as defined in the agreement and incorporated by reference herein to fulfill his her obligations set forth in the agreement and such default shall continue for a period of days after the defaulting party receives written notice thereof from the other party specifying the existence of such default and the de- faulting party has not commenced a cure of such compliance and demonstrated continued diligent pursuit of such cure after notice of default in the event that physician does default on his her obliga- tions set forth in the agreement the hospital may at its option accelerate any outstanding debt to be immediately due and payable by the physician amounts so payable and interest shall be payable in thirty-six equal monthly installments the first such payment to be paid on the first business_day of the month following receipt of written notice that amounts are due hereunder and subsequent installments to be paid on the same day of each succeeding calendar month until all amounts have been paid the maker may prepay without premium or penalty all or any part of this note at any time and from time to time all payments shall be payable in lawful money of the united_states as security for the payment of principal and interest on this note maker hereby irrevocably grants to holder a security_interest in and irrevocably assigns to holder all accounts_receivable of maker’s private practice of medicine whether now existing or hereafter aris- ing but excluding those for goods or services to be paid for under any federal or state insurance or reimbursement program that prohib- its assignment of such receivables to secure maker’s payment and performance of this note including without limitation payment of all principal and interest on this note maker hereby agrees to permit holder to make regular audits of maker’s accounts_receivable balan- ces maker acknowledges and agrees that holder may file a ucc-1 financing statement to perfect holder’s security_interest in maker’s accounts_receivable if any of the events of default described below shall occur maker immediately shall give to holder and permit holder to collect all ac- counts receivable then existing or thereafter arising from maker’s private practice of medicine until all events of default are cured and maker also shall cooperate by endorsing and delivering to holder all checks and other_payments from maker’s accounts_receivable maker warrants and represents to holder that maker will not grant any security interests in or assign such accounts_receivable to any other person or entity during the term of this note maker further warrants and represents to holder that except for the security_interest granted by maker to list here all prior holders of a security_interest if any in the accounts_receivable _________ left blank in the promis- sory note that is part of the record such accounts_receivable presently are not subject_to any security_interest of any other creditor if at any time during the term of this note any of the following events each an event of default shall occur maker fails to pay any interest or principal when due hereunder and such failure to pay is not cured within ten days after holder gives written notice to maker of such failure to pay any voluntary or involuntary bank- ruptcy liquidation insolvency readjustment of debt or other similar act or proceeding shall be commenced by or against maker maker shall apply for or there shall be appointed a receiver custo- dian or trustee for all or a substantial part of maker’s assets maker shall make an assignment for the benefit of creditors maker shall be unable to pay its debts generally as they become due or maker breaches any of maker’s representations warranties or covenants then automatically upon the occurrence of or and at the election of holder upon the occurrence of or the entire amount of unpaid interest and principal hereunder shall become due and payable immediately without diligence presentment protest demand or notice of protest demand dishonor or nonpay- ment all of which are expressly waived hereby pursuant to the agreement with respect to the dollar_figure transfer to peti- tioner petitioner had an unconditional obligation to repay to cmc the dollar_figure that it transferred to him that obligation of petitioner was however subject_to a condition_subsequent that is to say if petitioner worked in cmc’s medical practice for at least six months cmc agree d to forgive and cancel one thirtieth 30th of physician’s loan repayment amount dollar_figure for each calendar month after the end of the guarantee period six months that physician petitioner remains in the full-time practice of medicine in the community and geographic area served by hospital maintains medical staff membership and privileges in good standing at hospi- tal and remains available for emergency room coverage for patients of hospital’s emergency room amounts forgiven if any as well as any imputed_income as required_by_law will be reported on form_1099 as prescribed by the internal_revenue_service amounts paid in error to the physician will not be subject_to forgiveness pursuant to the physician’s recruiting agreement in particular the compen- sation guarantee with forgiveness agreement and the promissory note that were part of the physician’s recruiting agreement in during the first six months of petitioner’s employment with cmc cmc loaned dollar_figure to him petitioner did not include the dollar_figure loan in gross_income for petitioners’ taxable_year and thus that amount was not taxed on disbursement to him during that year during cmc paid petitioner total nonemployee compensation of dollar_figure and reported that nonemployee compensation in form 1099-misc that it issued to him for that year cmc did not include the dollar_figure loan in form misc or in another information_return that it issued to petitioner for his taxable_year during cmc paid petitioner total nonemployee compensation of dollar_figure and reported that nonemployee compensation in form 1099-misc that it issued to him for that year in date petitioner terminated his employment with cmc during and cmc did not pay petitioner any nonemployee compensation cmc did not issue to petitioner form 1099-misc for his taxable_year sec_2011 or sec_2012 pursuant to the physician’s recruiting agreement in particular the compen- sation guarantee with forgiveness agreement and the promissory note that were part of the physician’s recruiting agreement during petitioner made pay- ments to cmc totaling dollar_figure petitioner’s repayments in repayment of the remaining balance of the dollar_figure that cmc had loaned to him in petitioners included schedule c profit or loss from business schedule c with their tax_return for their taxable_year return in the return petitioners showed total_tax of dollar_figure in the schedule c petitioners claimed petitioner’s repayments of dollar_figure as other expenses claimed schedule c repayment expenses respondent issued a notice_of_deficiency to petitioners for their taxable_year notice in that notice respondent determined to disallow the claimed schedule c repayment expenses of dollar_figure respondent also determined in the notice that petitioners are liable for their taxable_year for the accuracy- related penalty under sec_6662 opinion petitioners bear the burden of establishing that the determinations in the notice are erroneous see rule a 290_us_111 moreover deductions are a matter of legislative grace and petitioners bear the burden of establishing that they are entitled to any deduction claimed see 503_us_79 that this case was submitted fully stipulated under rule does not change petitioners’ burden_of_proof or the effect of a failure of proof see rule b 95_tc_82 aff’d 943_f2d_22 8th cir we turn first to whether petitioners are entitled to the claimed sched- ule c repayment expenses of dollar_figure the resolution of that issue depends on whether the dollar_figure that cmc transferred to petitioner during pursuant to the physician’s recruiting agreement constitutes a loan that is because as petitioners acknowledge a taxpayer is not entitled to deduct the repayment of a loan see 62_tc_878 11_bta_1299 consequently petitioners do not dispute that if we were to find that the dollar_figure that cmc transferred to petitioner during constitutes a loan they would not be entitled to the claimed schedule c repayment expenses of dollar_figure they do dispute however respondent’s position that the dollar_figure in question constitutes a loan the determination of whether a transfer of funds constitutes a loan is a question of fact see eg 54_tc_905 in order for a transfer of funds to constitute a loan at the time the funds are trans- ferred there must be an unconditional obligation ie an obligation that is not subject_to a condition_precedent on the part of the transferee to repay and an unconditional intention on the part of the transferor to secure repayment of the funds see eg 88_tc_604 aff’d without published opinion 855_f2d_855 8th cir dickinson v commissioner tcmemo_2014_136 at whether a transfer of funds constitutes a loan may be inferred from factors surrounding the transfer including the existence of a debt_instrument the exis- tence of a written loan agreement the provision of collateral securing the pur- ported loan the accrual of interest on the purported loan the solvency of the purported borrower at the time of the purported loan the treatment of the transferred funds as a loan by the purported lender and the purported borrower a demand for repayment of the transferred funds and the repayment of the trans- ferred funds see eg haag v commissioner t c pincite n 18_tc_780 aff’d per curiam 205_f2d_353 2d cir mcfadden v commissioner tcmemo_2002_166 wl at various factors surrounding the transfer during by cmc to petitioner of dollar_figure indicate that that transfer of those funds constitutes a loan including the following petitioner executed a promissory note in which he agreed to repay to cmc all amounts that cmc transferred to him and that the compensation guarantee with forgiveness agreement referred to as the loan repayment amount ie dollar_figure there was a loan agreement with respect to cmc’s transfer to petitioner of the dollar_figure in question that comprised the recruiting agreement the compensation guarantee with forgiveness agreement and the promissory note petitioner agreed to pay interest on the dollar_figure that he received from cmc at the rate specified in that note petitioner agreed to secure the repayment of the dollar_figure loan and the interest thereon by granting cmc a security_interest in all accounts_receivable of his private practice of medicine petitioner had the ability to repay the dollar_figure that cmc transferred to him petitioner in fact repaid the dollar_figure and petitioner and cmc treated the dollar_figure that cmc transferred to petitioner as a loan in that cmc did not include the dollar_figure loan in form 1099-misc or in any other information_return that it issued to petitioner for his taxable_year and petitioner did not include the dollar_figure in gross_income for petitioners’ taxable_year in the face of the various factors set forth above which indicate that the dollar_figure transfer to petitioner by cmc constitutes a loan petitioners nonetheless take the position that the dollar_figure that petitioner received from cmc should be considered an advance_payment of dr salloum’s salary made pursuant to the physician recruiting agreement not a loan we find petitioners’ position that the dollar_figure that cmc transferred to petitioner during does not constitute a loan to be inconsistent with the first stipulation of facts in that stipulation petitioners and respondent agreed inter alia that cmc agreed to loan mr salloum dollar_figure and that mr salloum received the dollar_figure loan within the first six months of his employment at cmc which occurred in in support of their position petitioners contend that there is no uncondi- tional obligation imposed on petitioner to repay the amount ie dollar_figure 4see supra note extended to him that is because according to petitioners a ny repayments of the dollar_figure would only become due if the petitioner materially breached the physician recruiting agreement as we understand the core of petitioners’ argument in support of their position that the dollar_figure that cmc transferred to him does not constitute a loan petitioners are contending that petitioner’s obligation to repay the dollar_figure that cmc transferred to him was subject_to a condition_precedent and consequently his obligation to repay that amount to cmc was not unconditional in advancing their position petitioners rely on the following language in the compensation guarantee with forgiveness agreement h any failure by physician to comply with the terms of paragraph e of this addendum shall be considered a material breach of this addendum and the recruiting agreement by physician and shall authorize hospital at its option to pursue the remedies described in the material breach section of the recruiting agreement according to petitioners w hen dr salloum terminated his employment with cmc any unearned advanced amounts became due to cmc petitioners’ reliance on only paragraph h in the compensation guarantee with forgiveness agreement ignores other pertinent provisions in the agreement with respect to the dollar_figure transfer to petitioner for example the compensation guarantee with forgiveness agreement also contained the following provisions a hospital cmc hereby agrees to loan physician petitioner certain amounts of money which hospital shall advance as a guarantee of compensation_for physician totaling a maximum of dollar_figure hereinafter the guarantee amount e physician agrees to actively engage in the full-time practice of medicine in the community and geographic area served by hospital to bill all patients and third-party payors promptly for all services rendered and to use his her best efforts to collect all patient accounts hospital shall have the right to review and audit physician’s books_and_records for whatever period of time is necessary to assure compliance with the recruiting agreement and any addenda thereto f at the end of the guarantee period the sum of all guarantee payments made by hospital to physician during the guarantee period not otherwise repaid or recouped pursuant to any other provision in this addendum compensation guarantee with forgiveness agreement shall be calculated this amount represents the loan repayment amount which shall be due and payable by physician as evidenced by the attached promissory note exhibit a executed by physician although not included in the loan repayment amount additional_amounts may be due from physician to hospital in accordance with the terms of the addenda attached and made a part of the recruiting agreement interest on the loan repayment amount will begin to accrue at the end of the guarantee period however in an effort to encourage prompt payment interest will be forgiven on any amounts repaid within six months of the end of the guarantee period amounts so forgiven if any as well as any imputed_income as required_by_law will be reported on form_1099 as prescribed by the internal_revenue_service g notwithstanding in recognition of the fact that physician is establishing his her full-time medical practice in the community and geographic area served by hospital and to encourage physician to remain in the community and geographic area served by hospital beyond the guarantee period hospital agrees to forgive and cancel one thirtieth 30th of physician’s loan repayment amount as calculated above to hospital for each calendar month after the end of the guarantee period that physician remains in the full-time practice of medicine in the community and geographic area served by hospital maintains medical staff membership and privileges in good standing at hospital and remains available for emergency room coverage for patients of hospital’s emergency room amounts forgiven if any as well as any imputed_income as required_by_law will be reported on form_1099 as prescribed by the internal_revenue_service amounts paid in error to the physician will not be subject_to forgiveness we have found that pursuant to the agreement with respect to the dollar_figure transfer to petitioner petitioner had an unconditional obligation to repay to cmc the dollar_figure that it transferred to him that obligation of petitioner was however subject_to a condition_subsequent that is to say if petitioner worked in cmc’s medical practice for at least six months cmc agree d to forgive and cancel one thirtieth 30th of physician’s loan repayment amount dollar_figure for each calendar month after the end of the guarantee period six months that physician petitioner remains in the full-time practice of medicine in the community and geographic area served by hospital maintains medical staff membership and privileges in good standing at hospital and remains available for emergency room coverage for patients of hospital’s emergency room amounts forgiven if any as well as any imputed_income as required_by_law will be reported on form_1099 as prescribed by the internal_revenue_service amounts paid in error to the physician will not be subject_to forgiveness based upon our examination of the entire record before us we find that petitioners have failed to carry their burden of establishing that the dollar_figure that cmc transferred to petitioner during was not a loan petitioners do not dispute that if we were to find that the dollar_figure that cmc transferred to petitioner during constitutes a loan they would not be entitled to the claimed schedule c repayment expenses of dollar_figure we address now the accuracy-related_penalty under sec_6662 that respondent determined in the notice that section imposes an accuracy-related_penalty of percent of the underpayment to which sec_6662 applies sec_6662 applies to the portion of any underpayment which is attributable to inter alia negligence or disregard of rules or regulations sec_6662 or a sub- stantial understatement_of_tax sec_6662 the term negligence in sec_6662 includes any failure to make a reasonable attempt to comply with the code sec_6662 negligence has also been defined as a failure to do what a reasonable person would do under the circumstances 963_f2d_907 6th cir aff’g tcmemo_1991_179 91_tc_686 aff’d 893_f2d_656 4th cir the term negligence also includes any failure by the taxpayer to keep adequate books_and_records or to substantiate items properly sec_1_6662-3 income_tax regs the term disregard includes any careless reckless or intentional disregard sec_6662 for purposes of sec_6662 an understatement is equal to the excess of the amount of tax required to be shown in the tax_return over the amount of tax shown in the return sec_6662 an understatement is substantial in the case of an individual if the amount of the understatement for the taxable_year exceeds the greater of percent of the tax required to be shown in the tax_return for that year or dollar_figure sec_6662 the accuracy-related_penalty under sec_6662 does not apply to any portion of an underpayment if it is shown that there was reasonable_cause for and that the taxpayer acted in good_faith with respect to such portion sec_6664 the determination of whether the taxpayer acted with reasonable_cause and in good_faith depends on all the pertinent facts and circumstances including the taxpayer’s efforts to assess the taxpayer’s proper tax_liability the knowledge and experience of the taxpayer and the reliance on the advice of a professional such as an accountant sec_1_6664-4 income_tax regs reliance on the advice of a professional may demonstrate reasonable_cause and good_faith if under all the circumstances such reliance was reasonable and the taxpayer acted in good_faith id in this connection advice is defined as a communication that reflects the adviser’s analysis or conclusion 136_tc_585 see sec_1_6664-4 income_tax regs moreover in order for a taxpayer to rely reasonably upon advice so as possibly to negate a sec_6662 accuracy-related_penalty determined by the commissioner the taxpayer must prove by a preponderance_of_the_evidence that the taxpayer meets each requirement of the following three-prong test the adviser was a competent professional who had sufficient expertise to justify reliance the taxpayer provided necessary and accurate information to the adviser and the taxpayer actually relied in good_faith on the adviser’s judgment 115_tc_43 aff’d 299_f3d_221 3d cir a taxpayer’s duty to file an accurate tax_return generally may not be avoided by the taxpayer’s claim that he or she relied on a tax_return_preparer see 88_tc_654 moreover a taxpayer’s unconditional reliance on a certified_public_accountant c p a does not standing alone constitute reasonable reliance in good_faith for purposes of sec_6664 and the regulations thereunder see 144_tc_306 a taxpayer has an obligation to exercise d iligence and prudence id in addition a taxpayer has a duty to read a tax_return that a c p a prepares for the taxpayer see id even if a taxpayer provided all the information necessary to enable a c p a to prepare an accurate tax_return the taxpayer still has a duty to read the tax_return and make sure that it is accurate see 70_tc_465 aff’d 651_f2d_1233 6th cir a taxpayer’s reliance on a tax_return_preparer with complete information regarding a taxpayer’s business activities does not constitute reasonable_cause if the taxpayer’s cursory review of the tax_return would have revealed errors see metra chem corp v commissioner t c pincite furthermore the mere fact that a c p a prepared a tax_return does not mean that he or she opined on any or all of the items reported in that return see neonatology assocs p a v commissioner t c pincite respondent bears the burden of production with respect to the accuracy- related penalty under sec_6662 that respondent determined in the notice see sec_7491 116_tc_438 to satisfy respondent’s burden of production respondent must come forward with sufficient evidence indicating that it is appropriate to impose the penalty see higbee v commissioner t c pincite although respondent bears the burden of production with respect to the accuracy-related_penalty under sec_6662 respondent need not introduce evidence regarding reasonable_cause or similar provisions t he taxpayer bears the burden_of_proof with regard to those issues id on the record before us we find that respondent has carried respondent’s burden of production under sec_7491 with respect to the accuracy-related_penalty under sec_6662 it is respondent’s position that petitioners are liable for their taxable_year for the accuracy-related_penalty because there is a substantial_understatement of tax for that year under sec_6662 in their return petitioners showed total_tax of dollar_figure in the notice respondent determined a deficiency of dollar_figure we agree with respondent that there is a substantial_understatement of tax for petitioners’ taxable_year see sec_6662 and a petitioners argue however that they are not liable under sec_6662 because they are not well-versed in the nuances of the tax law surrounding their claimed deductions and reasonably relied on the advice and the guidance of their c p a when they reported in their return the claimed schedule c repayment expenses of dollar_figure that respondent disallowed in the notice according to petitioners under sec_6664 there was reasonable_cause for and they acted in good_faith with respect to the underpayment for their taxable_year petitioners’ return is not part of the record we thus do not know whether petitioners retained someone to prepare or assist them in the preparation of that return let alone whether any person that they may have retained was a c p a moreover the record is devoid of evidence regarding what if any information they gave to any c p a that they may have retained and what if any advice any such c p a may have given them with respect to the claimed schedule c repayment expenses see neonatology assocs p a v commission- er t c pincite based upon our examination of the entire record before us we find that petitioners have failed to carry their burden of establishing that there was reasonable_cause for and that they acted in good_faith with respect to the underpayment for their taxable_year on that record we find that petitioners have failed to carry their burden of establishing that they are not liable for their taxable_year for the accuracy-related_penalty because of a substantial_understatement of tax under sec_6662 5the record also is devoid of evidence with respect to the preparation of petitioners’ return 6respondent argues in the alternative that petitioners are liable for their taxable_year for the accuracy-related_penalty under sec_6662 because of negligence under sec_6662 because we have already held that petitioners continued we have considered all of the contentions and arguments of the parties that are not discussed herein and we find them to be without merit irrelevant and or moot to reflect the foregoing decision will be entered for respondent continued are liable under sec_6662 due to a substantial_understatement of tax under sec_6662 we need not reach that alternative argument


internal_revenue_service number release date index number ------------------------------------ ------------------------------------------------------- --------------------------------- ---------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------------- --------------------------------------------------- telephone number ---------------------- refer reply to cc psi b01 plr-109050-17 date date legend x ------------------------------------------- -------------------------------------------------------- a ---------------------- trust -------------------------------------------- state --------------- date1 -------------------- date2 -------------------- dear ------------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x by x’s authorized representative requesting relief under sec_1362 of the internal_revenue_code the code facts according to the information submitted x was incorporated under the laws of state on date1 x elected to be treated as an s_corporation effective date1 on date2 trust became an ineligible shareholder of x a the trustee of trust and x intended to treat and have always treated trust as an electing_small_business_trust esbt however an election to treat trust as an esbt effective date2 was not timely filed plr-109050-17 consequently trust was an ineligible shareholder and as a result x’s s_corporation_election terminated on date2 x represents that the circumstances resulting in the termination of its s_corporation_election were inadvertent and not motivated by tax_avoidance or retroactive tax planning additionally x and its shareholders have filed their federal_income_tax returns consistent with having a valid s_corporation_election in effect x and its shareholders have agreed to make any adjustment consistent with the treatment of x as an s_corporation as may be required by the secretary with respect to the period specified by sec_1362 law and analysis sec_1361 defines an s_corporation as a small_business_corporation for which an election under sec_1362 is in effect for the taxable_year sec_1361 provides that the term small_business_corporation means a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock sec_1361 provides that for purposes of sec_1361 a_trust all of which is treated under subpart e of part i of subchapter_j of chapter as owned by an individual who is a citizen or resident_of_the_united_states may be a shareholder sec_1361 provides that for purposes of sec_1362 an esbt is a permitted shareholder of a small_business_corporation sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1362 provides in part that if an election under sec_1362 was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such ineffectiveness or termination steps were taken so that the corporation is a small_business_corporation and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as plr-109050-17 may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness or termination the corporation shall be treated as an s_corporation during the period specified by the secretary sec_1_1362-4 provides that the commissioner may require any adjustments that are appropriate in general the adjustments required should be consistent with the treatment of the corporation as an s_corporation during the period specified by the commissioner in the case of stock held by an ineligible shareholder that causes an inadvertent termination or invalid election for an s_corporation under sec_1362 the commissioner may require the ineligible shareholder to be treated as a shareholder of the s_corporation during the period the ineligible shareholder actually held stock in the corporation moreover the commissioner may require protective adjustments that prevent the loss of any revenue due to the holding of stock by an ineligible shareholder for example a nonresident_alien conclusion based solely on the information submitted and the representations made we conclude that x’s s election terminated on date2 when trust became a shareholder and that the termination was inadvertent within the meaning of sec_1362 therefore x will be treated as continuing to be an s_corporation from date2 and thereafter provided that x’s s_corporation_election was otherwise valid and was not otherwise terminated under sec_1362 this ruling is contingent upon x and all of its shareholders treated x as having been and s_corporation and trust as having been an esbt for the period beginning date2 and thereafter within days from the date of this letter the trustee of trust must file an election to treat trust as an esbt effective date2 with the appropriate service_center a copy of this letter should be attached to the election if these conditions are not met then this ruling is null and void accordingly x’s shareholders in determining their respective income_tax liabilities must include their pro_rata share of the separately and non-separately computed items of x as provided in sec_1366 make any adjustments to stock basis as provided in sec_1367 and take into account distributions made by x as provided by sec_1368 except as expressly provided herein no opinion is express or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically no opinion is express concerning whether x is otherwise eligible to be treated as an s_corporation or whether trust is eligible to be treated as an esbt this ruling is directed only to the taxpayer who requested it according to sec_6110 this ruling may not be used or cited as precedent plr-109050-17 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 laura c fields laura c fields senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy of this for sec_6110 purposes


internal_revenue_service number release date index number ---------------------------- ----------------- ----------------------- ----------------------------------- department of the treasury washington dc person to contact ------------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 - plr-101483-06 date date ----------------- ----------------------- ------------------- ------------------- ------------------------------------------------ ------------------------ x date date trust dear ---------------- this responds to a letter dated date submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code facts x elected to be taxed as an s_corporation effective date on date trust became a shareholder of x the income beneficiaries intended to file elections to treat their respective separate shares of trust as a aqualified subchapter_s_trust qsst under sec_1361 however the respective income beneficiaries did not timely file the plr-101483-06 appropriate election under d as a result of the failure_to_file the elections x’s s_corporation_election terminated on date x represents that there was no intent to terminate x s s_corporation_election and that the failure_to_file timely the qsst elections for trust was not motivated by tax_avoidance or retroactive tax planning x also represents that since date and thereafter trust has complied with the requirements under sec_1361 which defines a qsst x and its shareholders agree to make any adjustments required by the secretary consistent with the treatment of x as an s_corporation law and analysis sec_1361 provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 defines a small_business_corporation as a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than one class of stock sec_1361 provides that a qsst whose beneficiary makes an election under sec_1362 will be treated as a_trust described in sec_1361 and the qsst's beneficiary will be treated as the owner for purposes of sec_678 of that portion of the qsst's s_corporation stock to which the election under sec_1361 applies under sec_1361 a beneficiary of a qsst may elect to have sec_1361 apply under sec_1361 this election will be effective up to days and two months before the date of the election sec_1361 defines a qsst as a_trust a the terms of which require that i during the life of the current income_beneficiary there shall be only one income_beneficiary of the trust ii any corpus distributed during the life of the current income_beneficiary may be distributed only to such beneficiary iii the income_interest of the current beneficiary in the trust shall terminate on the earlier of the beneficiary's death or the termination of the trust and iv upon the termination of the trust during the life of the current income_beneficiary the trust shall distribute all of its assets to that beneficiary and b all of the income within the meaning of sec_643 of which is distributed or plr-101483-06 required to be distributed currently to one individual who is a citizen or resident_of_the_united_states sec_1362 provides in relevant part that if an election under sec_1362 by any corporation was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 b or to obtain shareholder consents the secretary determines that the circumstances resulting in such termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in ineffectiveness steps were taken so that the corporation is once more a small_business_corporation and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make any adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to the period then notwithstanding the circumstances resulting in the ineffectiveness the corporation shall be treated as continuing to be an s_corporation during the period specified by the secretary conclusion based solely on the information submitted and the representations made we conclude that x's subchapter_s_election terminated because qsst elections were not filed for trust in addition we conclude that the termination was inadvertent within the meaning of sec_1362 therefore x will be treated as continuing to be an s_corporation from date and thereafter provided that the beneficiaries of trust file qsst elections with the appropriate service_center within days of the date of this letter a copy of this letter should be attached to the qsst election except as specifically set forth above we express no opinion concerning the this ruling is directed only to the taxpayer s requesting it sec_6110 of federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x is otherwise eligible to be treated as an s_corporation or whether the separate shares of trust are eligible to be treated as a qsst the code provides that it may not be used or cited as precedent letter is being sent to your representative in accordance with the power_of_attorney on file with this office a copy of this the rulings contained in this letter are based upon information and plr-101483-06 representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination s sincerely david r haglund senior technician reviewer office of associate chief_counsel passthroughs special industries copy of this letter copy for ' purposes enclosures cc


internal_revenue_service number release date index number ----------------------------------------- -------------------------------- ---------------------------- ------------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ------------ telephone number --------------------- refer reply to cc psi b03 plr-115508-09 date date company ----------------------------------------------------------- ------------------------------------------ shareholder ------------------------------------------------------------- -------------------- state a ------------- ------------------ dear ----------------- we received your letter dated date submitted on behalf of company requesting a ruling under sec_1362 of the internal_revenue_code this letter responds to that request facts company was incorporated on a under state law company’s sole shareholder shareholder intended for company to be an s_corporation effective from its date of incorporation however company’s form_2553 election by a small_business_corporation was not timely filed thus company requests a ruling that it will be recognized as an s_corporation effective a law and analysis plr-115508-09 sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1362 provides that an election under sec_1362 may be made by a small_business_corporation for any taxable_year - a at any time during the preceding_taxable_year or b at any time during the taxable_year and on or before the 15th day of the third month of the taxable_year sec_1362 provides that if a an election under sec_1362 is made for any taxable_year determined without regard to sec_1362 after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make the election the secretary may treat such an election as timely made for the taxable_year and sec_1362 shall not apply conclusion based on the facts submitted and representations made we conclude that company has established reasonable_cause for failing to make a timely s_corporation_election thus we conclude that company is eligible for relief under sec_1362 accordingly if company makes an election to be an s_corporation by filing with the appropriate service_center a completed form_2553 effective a within days following the date of this letter the election shall be treated as timely made a copy of this letter should be attached to the form_2553 filed with the service_center a copy is enclosed for that purpose except as expressly provided herein we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion concerning whether company is otherwise eligible to be an s_corporation for federal tax purposes plr-115508-09 this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely s leslie h finlow senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures a copy of this letter a copy for sec_6110 purposes


number release date id office uilc cca_2009071312265937 -------------- from ------------------- sent monday date pm to ---------------------------- cc ----------- subject re tax_matters_partner the general_partner is the tmp under the largest profits interest rule because zero is the largest general_partner interest he has an interest in capital appreciation in any event which would be sufficient to constitute a profits interest of more than zero the limitation under sec_301_6231_a_7_-1 does not apply because that limitation only applies when a partner is deemed to have no profits interest because of death insolvency conversion incompetency or liquidation we don't need a tmp in any event since a generic tmp fpaa is sufficient --------------------------------------- -----------------------------------------------------------------------------------------