internal_revenue_service national_office technical_advice_memorandum number release date date third party communication none date of communication not applicable index uil no case-mis no tam-115459-09 ----------------------- --------------------------------------------- --------- ------------------------ --------------------------------------------- taxpayer's name taxpayer's address taxpayer's identification no year involved date of conference --------------------------------------------------------------- --------------------- ---------------------------- ------------------------------- ---------------------- ------- ---------------------- legend taxpayer state a ----------------------------------------------------- --------------------------------------------- ------------- state a statutes ---------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------------------- individual a ------------------------------------------------- ---------------------------------------------------------------------------------------------- tam-115459-09 --------------------------------------------------------------------------------------------------------- c d x y z xx yy zz x y z month e date a date b year year year year year year year ---------------------------------- -------- -------- -------------- -- ---- -- -- ----------- ------------------------ ------ -------------- ---------------------------- ------------------------- ------- ------- ------- ------- ------- ------- ------- tam-115459-09 year year year issue ------- ------- ------- whether the general declaration of taxpayer's surplus made in month e of year constitutes a deductible policyholder_dividend within the meaning sec_811 of the internal code for the year tax_year conclusion the general declaration made in month e of year of taxpayer's surplus does not constitute a policyholder_dividend within the meaning of sec_811 deductible in the year tax_year facts taxpayer is a workers’ compensation self insurance_trust formed in year pursuant to a state a statute for federal_income_tax purposes it files a form 1120-pc u s property and casualty insurance_company income_tax return taxpayer has a number of employer members each with a positive net_worth associated with the c industry which are allowed under the state a statute to pool their liabilities and form a self insurance fund each member of the group becomes jointly and severally liable for the workers’ compensation liabilities of each other member of the group taxpayer's tax_year is a calendar_year the group of employer members are required by state a statute to meet certain financial and investment requirements for example the group must have at least dollar_figurex of net_worth taxpayer in turn is restricted to certain investments such as united_states treasury securities deposits that are insured by the federal deposit insurance corporation and corporate bonds having a minimum rating of a by the x y or z rating agencies while the workers’ compensation self-insurance funds operating in state a are not considered to be insurance_companies for state regulatory purposes under a separate state a statute the state a department of insurance the department has certain authority over the funds further if a fund’s operating_expenses are kept low in if such a self insurance fund is properly organized and implemented participation in such insurance fund satisfies a member employer’s responsibility under state a’s workers’ compensation law tam-115459-09 relation to the fund’s premium and investment_income such funds often provide for policyholder dividends to assist in keeping track of a fund’s items of income and expense the department requires the funds to account for these items on a fund year basis all policies have a common anniversary date which coincides with the fund year concept a fund year will typically remain open and reflect activity until all claims are closed and paid with no remaining reserve liabilities all expenses are paid and any remaining funds are returned to members this means that premium income from a given year is matched against expenses for that year although expenses may actually be paid in later years taxpayer has a history of distributing policyholder dividends to its members over the years of its existence for year the state a statute is silent as to whether taxpayer has any need to notify the department of its intent to declare a dividend the state a statute is also silent as to what particular time when a distribution of dividends must be made a portion of the state a statute provides that any monies for a fund year in excess of the amount necessary to fund all obligations of the fund may be declared as refundable to the members of the fund by the board_of trustees the board_of trustees shall be authorized to distribute the refund at their discretion in accordance with the agreement establishing the fund and the following limitations a the amount of the distribution shall not exceed the surplus funds available in the fund year as indicated by the most recently completed audited financial statements of the fund b the board_of trustees shall notify the department in writing of their intent to make a refund to the membership the fund year to which the distributions apply and the amount of the distribution for each fund year thirty days prior to distribution c no distributions shall be paid if an open fund year has a deficit as set forth in paragraph b above taxpayer was required to notify the department in writing of its intent to distribute policyholder dividends from excess_proceeds thirty days prior to distribution according to individual a an official of the for year the state a statute provided that if a deficit exists in a fund year the fund shall eliminate the deficit or submit a plan for elimination of the deficit pursuant to regulations promulgated by the department tam-115459-09 department the notification is for actuarial purposes so that the department’s actuaries can verify that a fund has excess funds from which to pay the dividends a fund does not need the department’s approval to make the distribution however the purpose of the notification is to give the department an opportunity to evaluate a fund’s ability to pay the dividends until the department agrees that the fund has the ability to pay no distribution is made furthermore if the department objects in whole or in part then no distribution objected to by the department is made taxpayer's trust agreement with respect to policyholder dividends provides as follows the trustees are authorized to set_aside from premiums collected a reasonable sum for the operating_expenses and or administrative expenses of the trust all remaining funds coming into their hands during any one year of the trust shall be set_aside and shall be used for purposes such as payments of medical surgical hospital and nursing home expenses and payments of employees covered by this agreement including settlements awards judgments legal fees and costs in all contested cases payments of lawful assessments as required by state a reimbursement legally required pursuant to the terms of any bond excess insurance_policy or similar agreement entered into by the trust distribute dividends to members in such manner as the board shall deem to be equitable including but not limited to limiting distribution to members with a loss ratio not in excess of a level designated by the board any member who has participated in the trust for any particular fund year may share in pro-rata distributions of dividends attributable to that fund year regardless of when such dividends might actually be paid if a said member participated in the trust for the year for which such distribution is being made and b said member is a member in good standing of the trust and the b organization as of the date specified by the trustees at the time the dividend declaration was made notwithstanding anything herein to the contrary it is the intention of the trust agreement that ultimately all net gains from all sources of income received by the trust will be returned to all eligible members with regard to the impact of the department’s impact of taxpayer’s practice of paying policyholder dividends at the national_office conference held in this case taxpayer’s representative provided an illustration of the department’s regulatory oversight that is taxpayer proposed paying a dividend with respect to a certain number of fund years and sent a letter to that effect to the department the department wrote back that taxpayer had a deficit for an earlier fund year taxpayer then responded to the department that it proposed to take surplus from another fund year to extinguish any deficit in the earlier fund year and that action resolved the concern the department had raised tam-115459-09 annually usually in month e of a year taxpayer’s board_of trustees board holds a meeting that among other items will typically involve the general declaration of dividends_to_policyholders with respect to the current fund year this same annual board meeting will also usually involve specific dividend declarations with respect to open past fund years the amount of the specific dividend declaration for past open fund years depends primarily on favorable loss development of claims of those past fund years and the actual payment to eligible members will follow the specific dividend declaration within a matter of several months immediately prior to year taxpayer had fund year sec_2 through which were both open and had tentative balances due the members of taxpayer for those years provided that there was favorable loss development with respect to these individual fund years in month e of year the board made a general declaration with respect to policyholder dividends which provides in part as follows be it resolved that all taxable revenues less deductible expenses of taxpayer fund for the calendar_year is hereby declared as a dividend returnable to eligible members as soon as it is reasonable prudent to so it is further resolved that all accounting net_income for the year calendar_year is hereby declared as a dividend returnable to eligible members as soon as it is reasonably prudent to do so it is the intent of this resolution to return all income taxable or accounting to eligible members as quickly as is reasonable under the circumstances at the same meeting the board also made a specific declaration with respect to fund years and which amounts were actually paid to eligible members within a short time frame after the specific dividend declaration in year when taxpayer prepared its form 1120-pc for year it considered the information available with respect to the fund year information for year and claimed a policyholder_dividend deduction of dollar_figurey in that dollar_figurey amount for the anticipated year fund year surplus there was included a z d dividend which eligible members of taxpayer would receive if they attended certain training classes however the historic practice with respect to the d dividend was unlike the rest of the amount of the claimed policyholder_dividend of dollar_figurey based on the general declaration for year which was not ascertained and when ascertained not paid out for several years that the d dividend would actually be paid out before september of the year following the year of the general declaration of policyholder dividends law tam-115459-09 sec_461 provides that the amount of any deduction or credit allowed by this subtitle shall be taken for the taxable_year which is the proper taxable_year under the method_of_accounting used in computing taxable_income sec_1_461-1 of the income_tax regulations provides in part that under an accrual_method of accounting a liability as defined in sec_1_446-1 is incurred and generally is taken into account for federal_income_tax purposes in the taxable_year in which all the events have occurred that established the fact of the liability the amount of the liability can be determined with reasonable accuracy and economic_performance has occurred with respect to the liability see paragraph a iii a of this section for examples of liabilities that may not be taken into account until a taxable_year subsequent to the taxable_year incurred and see sec_1_461-4 through for rules relating to economic_performance sec_461 provides that for purposes of this title in determining whether an amount has been incurred with respect to any item during any taxable_year the all_events_test shall not be treated as met any earlier than when economic_performance with respect to such item occurs sec_1_461-4 provides in part that in the case of rebates or refunds economic_performance occurs when payment is made sec_461 provides in part that notwithstanding paragraph an item shall be treated as incurred during any taxable_year if i the all_events_test with respect to such item is met during such taxable_year determined without regard to paragraph economic_performance with respect to such item occurs within the shorter of a reasonable period after the close of such taxable_year or ½ months after the close of such taxable_year sec_461 provides that sec_461 shall not apply to any item for which a deduction is allowable under a provision of this title which specifically provides for a deduction for estimated expenses sec_832 provides for a deduction for dividends_and_similar_distributions paid or declared to policyholders in their capacity as such except in the case of a mutual fire insurance_company described in sec_832 for purposes of the preceding sentence the term dividends and other similar distributions includes amounts returned or credited to policyholders on cancellation or expiration of policies described in sec_832 for purposes of this paragraph the term paid or declared shall be construed according to the method_of_accounting regularly employed in keeping the books of the insurance_company sec_834 provides that the term dividends_to_policyholders means dividends_and_similar_distributions paid or declared to policyholders for purposes of tam-115459-09 the preceding sentence the term paid or declared shall be construed according to the method regularly employed in keeping the books of the insurance_company sec_1_822-12 provides in part as follows if on the other hand the method_of_accounting so employed is the accrual_method the deduction or a reasonably accurate estimate thereof for dividends_and_similar_distributions declared to policyholders for any taxable_year will in general be computed by adding the amount of dividends_and_similar_distributions declared but unpaid at the end of the taxable_year to dividends_and_similar_distributions paid during the taxable_year and deducting dividends_and_similar_distributions declared but unpaid at the beginning of the taxable_year if an insurance_company using the accrual_method does not compute the deduction for dividends_and_similar_distributions declared to policyholders in the manner stated it must submit with its return a full and complete explanation of the manner in which the deduction is computed in revrul_57_134 1957_1_cb_210 the insurance_company on november 15th of the taxable_year declared a dividend to policyholders of all company profits in excess of dollar_figurex dollars for such taxable_year payable after the close of the year the dividend was paid on january 20th of the following year revrul_57_134 stated that the declaration cannot create a debt at the time the resolution therefor is adopted by the board_of directors because losses may occur during the remainder of the year which would more than offset the corporation’s prior earnings for such year accordingly under such resolution no debt between the corporation and the policyholders can be created until the taxable_year has closed since only then would it be clear whether there would be earnings available for the purposes of the dividend declaration at the end of the taxable_year during which the dividend is declared pursuant to a resolution of the board_of directors however all events will have occurred which fix the company’s liability for the dividend and such liability cannot be affected by anything transpiring after that time analysis in summary the service believes the amount declared as a policyholder_dividend for year i is not deductible under sec_832 because the fact of liability under the accrual_method of accounting is contingent and the economic_performance requirement of sec_461 has not been met accrual accounting-contingency sec_832 provides a deduction for policyholder dividends_paid or declared the statute states that the term paid or declared shall be construed according to the method_of_accounting regularly employed in keeping the books of the insurance_company under the accrual_method of accounting a liability is incurred in the taxable_year in which all the events have occurred that establish the fact of the tam-115459-09 liability and the amount of the liability can be determined with reasonable accuracy sec_1_461-1 although expenses may be deductible before they have become due and payable liability must first be established 481_us_239 if all the events necessary to establish the fact of liability have not occurred the liability is contingent upon the prior occurrence of a particular event a condition_precedent and may not be accrued for purposes of deduction 56_tc_1083 aff'd 482_f2d_150 3d cir 348_f2d_485 cert_denied 382_us_1009 in our view the required fact of liability has not been established by the general declaration for year such a liability is at that point contingent on the existence of taxpayer’s profits which in turn is dependent on the future claims loss development if the loss reserve set up for year proves inadequate in future years profits will be reduced to pay claims and in turn reduce taxpayer's liability to pay the year declared dividends in 253_f2d_691 3rd cir aff’g 150_fsupp_355 d del cert_denied 358_us_827 the court considered a corporation’s contingent obligation to repay its two major shareholders for providing advances to the corporation which were used to pay dividends on preferred_stock to other shareholders the agreement between the parties provided for their reimbursement conditioned upon the declaration of the semi-annual current dividend on the preferred_stock and the existence of profits these conditions were required to be met before the corporation’s liability to pay principal and interest to the two major shareholders became absolute the court held that only after the regular dividend for the current semi-annual period was declared on outstanding preferred_stock liability to repay the interest on advances accrued when profits excluding consideration of dividends accumulated but not paid was sufficient to enable taxpayer to repay with interest the advances made by the majority shareholders the facts of the present case bear certain similarities to the situation in american bemberg in that there are certain conditions precedents or benchmarks that must occur before the fact of liability exists as to the members of a particular fund year there has be a profit in that particular fund year this is the basic contingency problem ie the amounts subject_to the general declarations but held for long periods of time by taxpayer without being actually paid out to the participants are subject_to being paid to claimants because of unfavorable loss development which could cause initially anticipated profits to not come to fruition in practice there are also other benchmarks that are important in moving from contingent to non-contingent liability status for example the setting aside of amounts in the more specific declarations relative to amounts to be paid with respect to other fund years associated with this action is the involvement of the department in providing feedback to the funds with respect to actuarial and financial matters and that tam-115459-09 might have a bearing on their ability to actually pay the amount of the dividends they propose whether a business_expense has been incurred as to permit an accrual basis taxpayer to deduct it under sec_162 is governed by the all_events_test that originated in anderson supra that test is contained in sec_1_461-1 which provides that u nder an accrual_method of accounting an expense is deductible for the taxable_year in which all the events have occurred which determine that fact of the liability and the amount thereof can be determined with reasonable accuracy in united_states v general dynamics corp supra the court held that where filing is a condition_precedent to liability an accrual basis taxpayer providing medical benefits to its employees cannot deduct at the close of the taxable_year an estimate of its obligation to pay for medical_care obtained by employees or their qualified dependents during the final quarter of the year claims for which have not been reported to the employer it is fundamental to the all_events_test that although expenses may be deductible before they have become due and payable liability must first be firmly established this is consistent with our prior holdings that a taxpayer may not deduct a liability that is contingent see 280_us_445 or contested see 321_us_281 nor may a taxpayer deduct an estimate of an anticipated expense no matter how statistically certain if it is based on events that have not occurred by the close of the taxable_year 291_us_193 cf 367_us_687 united_states v general dynamics corp id pincite if all the events necessary to establish the fact of liability have not occurred the liability is contingent and may not be accrued for purposes of deduction abkco industries inc v comm'r supra field enterprises inc v united_states supra in these cases the court held that the taxpayer's liability for the payments in question in abkco industries royalties and in field enterprises inc quality bonuses was contingent upon the prior occurrence of a particular event a condition_precedent in this case taxpayer's business is insuring workers'_compensation risks and thus is liable for all appropriate claims under the insurance policies sold to its members taxpayer's excess surplus is returned to members as policyholder dividends but this excess surplus is net of all workers'_compensation claims for a fund year the condition_precedent to taxpayer's fact of liability for policyholder dividends is the satisfaction of all legal responsibility to pay claims for a particular fund year an illustration of a financial issue that might be raised by the department that could have an impact is its role in enforcing the statutory requirement that only a rated bonds are entitled to treatment as admitted_assets for regulatory purposes tam-115459-09 in the year that taxpayer declares a policyholder_dividend it also sets up and deducts for tax purposes a loss reserve for workers'_compensation claims both case reserve and incurred but not reported ibnr only a loss reserve that is fair and reasonable may be deducted sec_1_832-4 if that reserve proves to be inaccurate then a taxpayer can take a tax deduction in a subsequent year either when it increases its reserve or pays a claim policyholder dividends are also deductible in general if paid thus a taxpayer could offset its entire income by ordinary business_expenses workers'_compensation claims and policyholder dividends the tax problem is one of timing because the current fair and reasonable estimate of losses is most likely inaccurate taxpayer keeps the declared dividend in order to pay for future unanticipated claims taxpayer's dividend declaration amount is a solvency reserve retained to pay those increased claims only when the claims activity of a particular fund year are settled or final can the excess surplus if any of a fund year be accurately determined and actually paid out to members the prudent business man often sets up reserves to cover contingent liabilities but they are not allowable as deductions 280_us_445 taxpayer has addressed the legal issue of whether taxpayer's declared dividends do not satisfy the all_events_test of the accrual_method of accounting because they are subject_to a contingency at the national_office conference taxpayer cited revrul_57_134 as authority the service disagrees that revrul_57_134 is authority supporting taxpayer the ruling does not contain any facts regarding contingencies as to fact of liability as is present in this case indeed the taxpayer in the ruling paid the dividend in january of the year following the year in which the dividend declaration was made which would suggest that no contingency existed at the end of the year of declaration consequently it is appropriate to ask taxpayer why it keeps the declared dividend for so long before actually paying it out to members taxpayer in its written submission of date a offered various comments addressing the question of why the trustees take so long to pay back projected fund year surplus taxpayer states that actual payment of the declared dividend is usually deferred until it is prudent to return the funds to eligible members any actuary will tell you that it takes several years for a worker's compensation fund year claims portfolio to mature claim losses are based in part on estimate of future medical_expenses and future lost wages depending on the nature of the claim some claims become worse than originally thought others can be settled for less than the original estimate the trustees believe it is simply not prudent to return all projected excess revenues to members all at once and hope the estimate of unpaid incurred losses turns out to be tam-115459-09 correct as the fund year matures the trustees pay to eligible members a portion of the estimated fund surplus for that fund year taxpayer submission of date b pincite because each member of taxpayer is liable in solido for the claims made against taxpayer the trustees are very concerned about returning projected surplus too quickly to eligible members the last thing in the world the trustees want to do is be in a position where they have paid out more than the projected surplus and must either transfer surplus from another fund year or make a special assessment against the members to cover any projected deficit taxpayer submission of date a pincite the trustees are also cognizant of their obligation to be fair to all members since its inception taxpayer has not returned dividends to members whose loss ratio for a fund year it greater the xx the reason for this rule is two-fold it encourages the member to implement loss prevention procedures and rewards those members who have directly contributed to the surplus in the early years following a fund year case specific reserves are typically set conservatively to ensure that the claim will settle for less than the estimated amount because of this practice a member's loss experience for a fund year might be initially in excess of xx but may eventually decline below xx thereby making the member eligible to receive a dividend from that fund year if the trustees allow the claims experience to mature over a few years before returning the lion's share of projected surplus for a fund year the trustees are able to more equitably distribute dividends to eligible members taxpayer submission of date a pincite and taxpayer further states that the trustees believe that their approach is a sound and reasonable business practice which does not result in any loss of revenue to the government there is no profit or gain which goes untaxed the tax is merely deferred until the trustees determine that it is prudent and reasonable to return the surplus to the members typically between years yy and following a fund year taxpayer submission of date a pincite taxpayer submits the following illustration assume the initial projected surplus for the fund year is dollar_figure 6x which is deducted as a policyholder_dividend on the 200---tax return assume that in it appears that the projected surplus for is overstated by dollar_figurex due to an increase in estimated claim expense for that year the fund's reserve for dividends payable would be reduced during to recognize the revision to the estimate of surplus for the fund year if the projected surplus for the year standing alone is dollar_figure 5x the dividend deduction for the year would be dollar_figure 5x less the dollar_figurex adjustment to the reserve from the year or a net deduction of dollar_figure 5x for the year the formula in sec_1_822-12 b is being followed reserves at end of year dollar_figure 1x million less dividends_paid from the reserve dollar_figure less reserve at beginning of the year dollar_figure 6x equals dividend deduction of dollar_figure 5x taxpayer submission of date a pincite tam-115459-09 taxpayer in summary concludes that taxpayer was created as a liquidating_trust it must operate substantially at cost it must return all underwriting gain and investment_income to eligible members from each fund year the trustees have no other choice it is a contractually mandated obligation which is fixed at the end of each fund year taxpayer submission of date a pincite the service believes that the comments submitted by the taxpayer and set out above are consistent with the service's conclusion that the fact of liability has not occurred in the year that a fund year policyholder_dividend is declared economic performance- sec_461 the service believes that the economic_performance provision of sec_461 enacted in literally applies to all accrual basis taxpayers and in this case would require the postponement of the claimed deduction until an actual cash payment of the dividend is made to members as regard to the exceptions made available in sec_461 the recurring_item_exception provide in sec_461 does not apply because the general declaration made by taxpayer is not followed by payment within the time frames allowed by sec_461 and the exception provided by sec_461 does not apply because the sec_832 does not specifically provided for a deduction for estimated expenses taxpayer makes several arguments regarding the applicability of the economic_performance rule_of sec_461 one argument is that in the congress changed that law to effectively deny a deduction for policyholder dividends until paid for life_insurance_companies if congress had intended to deny a deduction for dividends until paid for non-life insurance_companies it could have easily done so the service disagrees the argument that congress has not specifically amended sec_832 by addressing self insurance funds by name does not answer the issue of whether sec_461 is applicable to taxpayer the service position is that sec_832 requires a taxpayer to follow its method_of_accounting which generally is the accrual_method and under such method includes the all_events_test sec_461 states that the all_events_test is not satisfied until economic_performance occurs arguably congress has not amended sec_832 because it is satisfied with current accrual economic_performance conditions for allowing a policyholder_dividend deduction taxpayer cites the conference_report to the technical_and_miscellaneous_revenue_act_of_1988 pub_l_no h conf r pincite conf_rep regarding the definition of certain workers'_compensation funds as supporting its position the conference committee deleted b of the house bill which stated that the group be bound by state law or regulation or by its governing documents to promptly return to its members all monies not needed to pay or reserve against claims under the state workers' disability compensation laws and expenses thus the tam-115459-09 opportunity to apply economic_performance requirements for the return of the excess of earnings_and_profits in the form of declared dividends was specifically deleted by congress the service disagrees in addition to the various service arguments made above the service would note that the application of sec_461 would grant a taxpayer a long time period to pay the dividend that under the promptly return condition in the rejected legislation because of the recurring_item_exception in sec_461 caveat a few years prior to year taxpayer instituted a d dividend program we have not developed additional facts in sufficient detail to make a determination whether that program has any impact on the analysis contained in this memorandum a copy of this technical_advice_memorandum is to be given to the taxpayer sec_6110 of the code provides that it may not be used or cited as precedent s


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-141533-08 date date x --------------------------------------------------- -------------- member ------------------------------------------------- ---------------------------------------------- state d1 ------------- --------------------------- dear ------------ this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting a ruling under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations that x be granted an extension of time to file an election to be classified as an association_taxable_as_a_corporation under sec_301_7701-3 effective d1 facts according to the information submitted x was formed on d1 under the laws of state member of x intended that x be treated as an association_taxable_as_a_corporation for federal tax purposes effective d1 however due to inadvertence x failed to file timely a form_8832 entity classification election plr-141533-08 law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 sec_301_7701-3 provides that except as provided in sec_301 b unless the entity elects otherwise a domestic eligible_entity is i a partnership if it has two or more members or ii disregarded as an entity separate from its owner if it has a single owner sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides that an election made under sec_301 c i will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 sets forth the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x plr-141533-08 is granted an extension of time of days from the date of this letter to file form_8832 with the appropriate service_center and to elect to be classified as an association_taxable_as_a_corporation for federal tax purposes effective d1 a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose except as expressly set forth above no opinion is expressed or implied concerning the federal tax consequences of the facts discussed above under any other provision of the code this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representatives sincerely curtis g wilson curtis g wilson associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


t c summary opinion united_states tax_court myrtle jean clark petitioner v commissioner of internal revenue respondent docket no 19081-03s filed date myrtle jean clark pro_se john w strate for respondent couvillion special_trial_judge this case was heard pursuant to sec_7463 of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority petitioner seeks a review under sec_1unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the years at issue d of respondent’s decision to proceed with collection of petitioner’s federal_income_tax liabilities for the and tax years some of the facts were stipulated those facts with the annexed exhibits are so found and are made a part hereof petitioner’s legal residence at the time the petition was filed was bakersfield california petitioner was married to zack clark mr clark mr clark died on date during the years in issue petitioner was a housewife mr clark was self-employed as a mechanic in and operated a personnel and property management business during and petitioner and mr clark filed a joint federal_income_tax return for on date the return showed a tax of dollar_figure this amount was not paid at the time of filing petitioner and mr clark filed a joint federal_income_tax return for on date that return showed a tax of dollar_figure which was also not paid at the time of filing petitioner and mr clark filed a joint federal_income_tax return for on date that return showed a tax of dollar_figure which also was not paid at the time of filing 2petitioner and mr clark were divorced in but remarried about year later for purposes of this proceeding however petitioner was married to mr clark during the years in issue therefore the divorce is not a factor to be considered in deciding this case as to the taxes overpayment credits from subsequent years were applied to the balance due in and on date intent to levy collection_due_process_notice and levy notice collection notices were issued to petitioner and mr clark for each of the years at issue these notices were labeled as refused unclaimed on date copies of the notices were not presented at trial petitioner claims that she never knew of or saw these notices after mr clark died on date petitioner became aware that she could request relief from joint liability in connection with the tax_liabilities described on date petitioner filed form_8857 request for innocent spouse relief and an attached form questionnaire for requesting spouse which were received by respondent on date in a notice_of_determination for and a preliminary notice_of_determination for and respondent denied and proposed to deny respectively petitioner’s request for relief from joint liability for her federal income taxes under sec_6015 c and f on date respondent mailed to petitioner a final notice denying petitioner’s request for innocent spouse relief under sec_6015 c and f for the notice stated that the request was denied because it was received more than two years after the date the internal_revenue_service began collection activity the date of the collection activity on your account after the enactment of sec_6015 was date on date respondent mailed to petitioner a preliminary determination proposing to deny petitioner’s request for innocent spouse relief under sec_6015 c and f for for the reason the request was received more than two years after the date the internal_revenue_service began collection activity the date of the first collection activity on your account after the enactment of sec_6015 was date petitioner filed an amended petition with this court for and on date appealing respondent’s determinations the sole issue for decision is whether denial of relief for and was an abuse of respondent’s discretion where the underlying tax_liability is not at issue as in this case the court reviews the determination regarding collection actions on the basis of whether there was an abuse_of_discretion by respondent 114_tc_604 an abuse_of_discretion is defined as any_action that 3though the preliminary notice for and stated that the first collection activity on that account was date as opposed to date this discrepancy is insignificant to the issue because date is still more than years after date respondent contends that date the date the collection notices were sent is the date of the first collection activity on each of the accounts is unreasonable arbitrary or capricious or lacking sound basis in law taking into account all the facts and circumstances 122_tc_32 118_tc_106 the issue to be decided here is whether the denial of relief from joint liability to petitioner for her and federal income taxes under sec_6015 was an abuse_of_discretion generally spouses filing joint federal_income_tax returns are jointly and severally liable for all taxes due sec_6013 under certain circumstances however sec_6015 provides relief from this general_rule sec_6015 applies to any liability for tax arising after date and to any liability for tax arising on or before date but remaining unpaid as of such date internal_revenue_service restructuring and reform act of rra publaw_105_206 112_stat_740 sec_6015 provides three avenues for relief to a taxpayer who has filed a joint_return sec_6015 provides relief with respect to understatements of tax attributable to certain erroneous items on the return sec_6015 sec_6015 was enacted as part of the internal_revenue_service restructuring and reform act of rra publaw_105_206 112_stat_734 prior to the enactment of sec_6015 relief from the imposition of joint_and_several_liability for spouses filing joint returns was available under sec_6013 provides relief for a portion of an understatement_of_tax for taxpayers who are separated or divorced and sec_6015 more broadly confers on the secretary discretion to grant equitable relief for taxpayers who otherwise do not qualify for relief under sec_6015 or c a requisite to granting relief under sec_6015 or c is the existence of a tax_deficiency sec_6015 and c 120_tc_62 therefore if there is no deficiency for the year for which relief is sought relief from joint_and_several_liability is not available under sec_6015 or c see 120_tc_137 see also block v commissioner supra in this case for the years in question there are underpayments of taxes arising from filed income_tax returns on which the taxes shown on those returns were not paid there are no deficiencies arising from the issuance by respondent of notices of deficiencies therefore because there are no tax deficiencies petitioner is not entitled to relief under sec_6015 or c to that extent therefore respondent is sustained however petitioner falls under the equitable relief provision of sec_6015 sec_6015 provides sec_6015 equitable relief --under procedures prescribed by the secretary if-- taking into account all the facts and circumstances it is inequitable to hold the individual liable for any unpaid tax or any deficiency or any portion of either and relief is not available to such individual under subsection b or c the secretary may relieve such individual of such liability to request equitable relief under sec_6015 a requesting spouse must file form_8857 or other similar statement with the irs no later than years from the date of the first collection activity against the requesting spouse after date with respect to the joint tax_liability sec_1 b income_tax regs one example of collection activity as defined in sec_1_6015-5 income_tax regs is a sec_6330 notice which is a notice sent providing taxpayers notice of the irs’s intent to levy and of a right to a sec_6330 hearing sec_1_6015-5 income_tax regs in addition to the requirement that a sec_6330 notice be sent to the taxpayer sec_3501 of the rra requires that collection-related notices sent by the irs inform individuals subject_to joint liability of their rights to relief under sec_6015 rra sec_3501 112_stat_770 see 123_tc_314 see also nelson v commissioner tcmemo_2005_9 in holding that it was an abuse sec_1_6015-5 income_tax regs is applicable for all elections under sec_6015 filed on or after date sec_1_6015-9 income_tax regs of discretion for the commissioner to deny a request for relief under sec_6015 by applying the 2-year statute_of_limitations the court in mcgee stated it would be inequitable if respondent could prevent review of a request for relief under sec_6015 by failing to inform petitioner of her right to relief in defiance of a congressional mandate such a result would be contrary to the very purpose of sec_6015 which is to relieve inequitable situations involving joint liabilities mcgee v commissioner supra pincite see also nelson v commissioner supra respondent contends that the date of the first collection activity in each of the tax years at issue was the date collection notices were mailed to petitioner and mr clark on date the collection notices are not in the administrative record of the irs and were not presented as evidence at trial there is no evidence that the collection notices informed petitioner of her right to apply for relief 6in mcgee the court decided that applying the statute_of_limitations imposed by revproc_2000_15 2000_1_cb_447 was an abuse_of_discretion 123_tc_314 though the statute_of_limitations applied in this case was imposed by sec_1_6015-5 income_tax regs and not by revproc_2000_15 supra the interpretation remains the same any other interpretation would be in conflict with the public law additionally it should be noted that revproc_2003_61 2003_2_cb_296 not revproc_2000_15 2000_1_cb_447 applies to tax years and in this case because revproc_2003_61 supra supersedes revproc_2000_15 supra for requests still pending on date for which no preliminary determination_letter had been issued as of date the notice of preliminary determination for and was mailed to petitioner on date under sec_6015 according to the testimony of petitioner she was not aware of her right to request relief until after the death of mr clark on date not sending the notice of rights resulted in petitioner’s failure to request relief under sec_6015 within years after the first collection activity because she did not know of these rights therefore on this record there was an abuse_of_discretion by respondent in denying petitioner’s request for relief under sec_6015 on the ground that the 2-year limitation period applies respondent acknowledged at trial that there was no analysis or evaluation of the facts and circumstances of petitioner’s case in denying her request for relief under sec_6015 the courts have held that in reviewing administrative actions a case should be remanded for further factual determinations deemed necessary to complete an inadequate administrative record or to make one adequate see natl nutritional foods association v weinberger 512_f2d_688 2d cir see also 411_us_138 616_f2d_1153 9th cir friday v commissioner t c ____ therefore because the court holds that petitioner filed her application_for relief timely and because the administrative record is not adequate the case will be remanded to respondent for further consideration reviewed and adopted as the report of the small_tax_case division to reflect the foregoing an appropriate order will be issued


h tgrnal revenue service appeals_office number release date date march department of the treasury employer_identification_number person to contact employee id number tel fax tax period s ended uil dear we considered your appeal of the adverse action proposed by the director exempt_organizations rulings and agreements our final_determination is you do not qualify for exemption from federal_income_tax under internal_revenue_code the code sec_501 a as an organization described in sec_501 c of the code our adverse determination was made for the following reason s you are not primarily operated for the promotion of social welfare of the people of the community because your primary activities are the participation in a political campaign on behalf of or in opposition to a candidate for public_office you are required to file federal_income_tax retums on forms for the tax periods stated in the heading of this letter and for all tax years thereafter file your return with the appropriate irs service_center according to the return's instructions for further instructions forms and information visit www irs gov include your employer_identification_number on au returns you file and in all correspondence with irs this letter and the proposed adverse determination_letter will be available for public inspection under code sec_6110 after deleting certain identifying information we sent you in a separate mailing notice notice of intention to disclose review the notice and the documents attached that show our proposed deletions if you disagree with our proposed deletions follow the instructions in notice you also have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate_service t as is an independent organization within the irs tas helps taxpayers wliose problems with the irs are causing financial difficulties who have tried but have not been able to resolve their problems with the irs and those who believe an irs system or procedure is not working as it should if you believe you are eligible for tas assistance call1-s77-777-477s or for individuals who are deaf hard of hearing or have a speech disability call ttyitdd 1-s00-s29-4059 for more information go to www irs gov advocate tas assistance isn't a substitute for established irs procedures such as formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court if you have any questions about this letter please contact the person listed at the top of this letter thank you for your cooperation sincerely yours appeals team manager enclosure publication and or department of the treasury internal_revenue_service washington d c contact person identification_number contact number fax number employer_identification_number uil tax_exempt_and_government_entities_division date may legend b date c state d political_party e year f year g officeholder h office x dollar amount y dollar amount dear we have considered your application_for recognition of exemption from federal_income_tax under sec_501 a based on the information provided in connection with your application and in your form_990 for the year e we have concluded that you do not qualify for exemption under sec_501 c the basis for our conclusion is set forth below issue do you qualify for exemption under sec_501 c of the internal_revenue_code no for the reasons stated below facts you incorporated on b in the state of c your articles of incorporation and bylaws state that you are organized and operated exclusively for sec_501 c purposes they also state that your specific purposes are to educate the general_public on issues of public concern including climate change health care food policy and other such issues your activities consist of producing and disseminating radio television and print advertisements polling and public opinion research producing and disseminating white papers and meeting with interested business and civic leaders in c you posted many of your advertisements and white papers on your website you provided a complete list of media buys with the dates you ran the advertisements a description of the advertisements and the cost of each one you ran all advertisements statewide in e including three television one radio and one print in the period leading up to the primary_election you a so ran one television and two radio advertisements in the period leading up to the general election furthermore following the general election you ran two print advertisements about percent of the expenses for these media buys were incurred for advertisements run during the periods leading up to the primary and general elections you submitted the content of advertisements foljr of these advertisements two radio and two print include express statements to vote for g eg vote for g and c needs to re-elect g two advertisements one television and one radio identified the g expressed approval for the g's actions eg g who protects our way of life and indicated that outsiders who controlled g's primary opponent were trying to defeat g you ran the advertisements before the general election one television advertisement identified one of the candidates for public_office and his position on an issue the advertisement also told viewers to call that candidate and express opposition to his position on that issue however the candidate was not a government_official in a position to vote on that issue you aired the advertisement shortly before the primary_election two print advertisements addressed public policy issues one discussed the impact of federal regulatory actions on c's industries the other discussed the impact of tax cuts on the c's economy both advertisements instructed readers to call their congressman about these issues you ran the advertisements after the general election we were unable to view two of the television advertisements you aired one of the advertisements before the primary_election and you aired the other before the general election you identified the advertisement you aired before the general election as an independent expenditure on your complete list of media buys you described your independent expenditures as expenditures_for direct and indirect political activities on schedule c of form_990 in response to our question about your expenses for radio and television time to educate residents on key issues facing c you responded that you spent more than x dollars on media buys and media production in the year e you reported a nearly identical amount on your form_990 for e for education-media and education-production which comprised percent of your total program service expenses for e according to form_990 instructions program services are mainly those activities that further the organization's exempt purposes they do not include management and general_expenses or fundraising expenses in part iv of form_990 for e you indicated that you had engaged in direct or indirect campaign activities on behalf or in opposition to candidates for public_office on schedule c political and campaign lobbying_activities you reported that you spent y dollars on these activities in e which you described as independent expenditures in support of candidate g these independent expenditures included radio television and print advertisements which were designed to educate the citizens of c on where g stood on important social welfare issues these independent expenditures of y dollars comprised more than half of your total program service expenses for e you stated that you intend to conduct polling and public opinion research and have conducted one poll you contracted with a polling firm to survey registered likely d primary voters about issues pertinent to c voters such as agriculture policy unions and social_security issues you provided the telephone script used for the survey the script includes questions as to whether the respondent is a registered voter which primary the respondent is planning to vote in and how likely the respondent is to vote in the upcoming d primary according to the script you will terminate the survey if the respondent is not a registered voter or if the respondent does not plan to vote in the d primary the survey asked the respondent to rate the performance of the united_states congress the president and the current d h for c it asks whether the respondent is likely to vote to re-elect the current h or to vote for one of the primary challengers the survey asks the respondent to rate statements some people have given for supporting a candidate in the d primary the survey included one statement about the primary challenger without any opinion expressed the survey included two statements about g eg g voted against the cap and trade bill and each included a favorable opinion ie we need g in washington in order to protect c and g had the courage to put the people of c before the d the survey also asks the respondent to rate statements some people have given for opposing a candidate in the d primary it includes seven statements about the challenger and two statements about g statements about the challenger explain that elected officials who have worked with the challenger are supporting g that special interests are funding the challenger's campaign and that the challenger has been involved in sending u s jobs overseas statements about the g explain that g is against reform and unions and does not support the president you held meetings in years e through f where your directors met with agriculture and business leaders to discuss issues such as gaming legislation climate change tax reform immigration policy and health care implementation you did not devote any monetary resources to these discussions that your board members conducted finally you produced four white papers on the following topics climate change tax policy agriculture policy and regulatory policy none of the white papers is more than one page each describes an issue and states your position the white paper on agricultural policy states that you oppose policies that will drive agricultural production overseas the white paper on climate change describes criticisms of the cap and trade legislation you posted these documents on your website and e-mailed them to a distribution list drawn from your directors' personal and professional contact lists such lists include members of the c legislature civic leaders business executives and federal elected officials law sec_501 c of the code provides for the exemption from federal_income_tax of organizations not organized for profit but operated exclusively for the promotion of social welfare sec_1 c -1 a of the income_tax regulations provides that an organization is operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in some way the common good and general welfare of the people of the community an organization embraced within this section is one which is operated primarily for the purpose of bringing about civic betterments and social improvements in addition the regulations provide that the promotion of social welfare does not include direct or indirect participation in political campaigns on behalf of or in opposition to any candidate for public_office revrul_68_45 1968_1_cb_259 explains that all facts and circumstances are taken into account in determining an organization's primary activity under sec_501 c the organization's activities included the following veteran's programs assistance to needy veterans widows and orphans patriotic programs and community welfare programs such as providing and furnishing playgrounds for children and sports programs for teenagers the organization also conducted bingo_games for the general_public and the resulting income was its principal source of revenue the irs held that the fact that the bingo_games generated its principal source_of_income did not mean that the games were its primary activity taking into account all facts and circumstances the irs found that the organization's social welfare activities were its primary activities in revrul_67_368 1967_2_cb_194 the irs held that an organization which was formed to promote an enlightened electorate and whose primary activity was rating candidates for public_office was not exempt under sec_501 c because it did not promote social welfare the ruling stated that the comparative rating of candidates even on a non-partisan basis constitutes the participation or intervention on behalf of candidates favorably rated and in opposition to those less favorably rated in revrul_81_95 1981_1_cb_332 the irs considered the effect of engaging in political campaign activities on a sec_501 organization the ruling refers to five revenue rulings for other examples of what constitutes participation or intervention in political campaigns each of those rulings involves a sec_501 c organization the organization was primarily engaged in activities designed to promote social welfare in addition it conducted activities involving participation and intervention in political campaigns on behalf of or in opposition to candidates for nomination or election to public_office the ruling concluded that because the organization's primary activities promoted social welfare its lawful participation or intervention in political campaigns on behalf of or in opposition to candidates for public_office would not adversely affect its exempt status under sec_501 c revrul_2004_6 2004_1_cb_328 analyzes six situations to determine whether the organization described in each has expended funds for a sec_527 exempt_function as a result of an advocacy communication on a public policy issue a sec_527 e exempt_function means the function of influencing or attempting to influence the selection nomination election or appointment of any individual to any federal state or local public_office or office in a political_organization or the election of presidential or vice-presidential electors whether or not such individual or electors are selected nominated elected or appointed all the facts and circumstances must be considered when making this determination factors that tend to show that an advocacy communication on a public policy issue is for a sec_527 e exempt_function include but are not limited to the following the communication identifies a candidate for public_office the timing of the communication coincides with an electoral campaign the communication targets voters in a particular election the communication identifies that candidate's position on the public policy issue that is the subject of the communication the position of the candidate on the public policy issue has been raised as distinguishing the candidate from others in the campaign either in the communication itself or in other public communications and the communication is not part of an ongoing series of substantially_similar advocacy communications by the organization on the same issue in facts and circumstances such as those described in the six situations factors that tend to show that an advocacy communication on a public policy issue is not for a sec_527 exempt_function include but are not limited to the following the absence of anyone or more of the factors listed above the communication identifies specific_legislation or a specific event outside the control of the organization that the organization hopes to influence the timing of the communication coincides with a specific event outside the control of the organization that the organization hopes to influence such as a legislative vote or other major legislative action for example a hearing before a legislative committee on the issue that is the subject of the communication the communication identifies the candidate solely as a government_official who is in a position to act on the public policy issue in connection with the specific event such as a legislator who is eligible to vote on the legislation and the communication identifies the candidate solely in the list of key or principal sponsors of the legislation that is the subject of the communication each of the situations assumes that all payments for the described activity are from the general treasury of the organization rather than from a separate segregated fund under sec_527 the organization would continue to be exempt under sec_501 a even if the described activity is not a sec_501 c exempt activity because the organization's primary activities are described in the appropriate subparagraph of sec_501 c and all advocacy communications described also include a solicitation of contributions to the organization revrul_2007_41 2007_1_cb_1421 analyze sec_21 situations to determine whether the sec_501 c organization described in each has directly or indirectly participated in a political campaign on behalf of or in opposition to a candidate for public_office all facts and circumstances are considered when making this determination when determining whether a communication results in political campaign intervention key factors include whether the statement identifies one or more candidates for a given public_office whether the statement expresses approval or disapproval for one or more candidates' positions and or actions whether the statement is delivered close in time to the election whether the statement makes reference to voting or an election whether the issue addressed in the communication has been raised as an issue distinguishing candidates for a given office whether the communication is part of an ongoing series of communications by the organization on the same issue that are made independent of the timing of any election and whether the timing of the communication and identification of the candidate are related to a non-electoral event such as a scheduled vote on specific_legislation by an officeholder who also happens to be a candidate for public_office a communication is particularly at risk of political campaign intervention when it makes reference to candidates or voting in a specific upcoming election nevertheless the communication must still be considered in context before arriving at any conclusions additionally the ruling states that sec_501 c organizations are permitted to conduct certain voter education activities if they are carried out in a non-partisan manner on the other hand voter education or registration activities conducted in a biased manner that favors or opposes one or more candidates is political campaign intervention finally the ruling states that a web site is a form of communication if an organization posts something on its web site that favors or opposes a candidate for public_office the organization will be treated the same as if it distributed printed material oral statements or broadcasts that favored or opposed a candidate application of law an organization is operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in some way the common good and general welfare of the people of the community sec_1_501_c_4_-1 whether an organization's primary activities are social welfare activities is determined based on all of the facts and circumstances rev_rul the promotion of social welfare does not include direct or indirect participation or intervention in a political campaign on behalf of or in opposition to any candidate for public_office sec_1 c -1 a ii all the facts and circumstances including the specific factors described in revenue rulings and are considered when detennining whether an organization claiming exemption under sec_501 c has engaged in direct or indirect participation or intervention in a political campaign on behalf of or in opposition to any candidate for public_office see revrul_81_95 citing sec_501 rulings as examples of political campaign intervention for sec_501 c purposes you produced and disseminated advertisements conducted polling met with interested business and civic leaders and disseminated white papers advertisements according to your reporting on form_990 and representations on your application_for exemption your advertisement expenses comprised a majority of your program services expenses you described your expenditures_for political campaign activities reported on form_990 schedule c political and campaign lobbying_activities as expenses for radio television and print advertisements n you aired most of your advertisements which you produced and distributed through television radio print and the internet during an election campaign the advertisements that we viewed identified candidates and made positive or negative statements about candidates for public_office these advertisements were not part of an ongoing series of substantially_similar advocacy communications on the same issue some advertisements contained express statements to vote for a specific candidate all of these advertisements constitute direct or indirect participation or intervention in a political campaign on behalf of or in opposition to any candidate for public_office you aired the two television advertisements we were unable to view in the periods leading up to the primary and general elections you identified one of these advertisements as an independent expenditure in your application materials and you reported your independent expenditures as expenditures_for direct and indirect political activities and independent expenditures in support of g on schedule c of form_990 we cannot conclude that these two advertisements promoted social welfare within the meaning of sec_501 c polling you stated that you were conducting public opinion polling about issues pertinent to c voters such as agriculture policy unions and social_security issues your poll included questions on these and other issues you framed many questions in terms of statements that support or oppose a candidate the poll included more statements to support g than to support g's challenger and many more reasons to oppose the challenger than to oppose g the balance of positive and negative messages resulted in a poll that was biased in favor of g considering all the facts and circumstances we have concluded that your polling activities support or oppose the election of a candidate for public_office meetings the limited information you submitted regarding your meetings with various agriculture and business leaders does not establish that these activities promoted social welfare by your description these activities constituted a small portion of your time and resources white papers the white papers you provided are no more than one page of those four white papers your paper on cap and trade policy corresponds to one of the statements given for supporting g in your public opinion poll your paper against driving agricultural production overseas corresponds to one of the reasons given for opposing g's challenger in your public opinion poll you did not provide information as to when you disseminated these papers to your limited distribution list or when you posted them on your website we cannot conclude that producing these white papers and posting them on your website promoted social welfare within the meaning of sec_501 c conclusion based on our analysis of the information you provided in connection with your application and in your form_990 for the year e we have determined that you are not operated exclusively for the promotion of social welfare within the meaning of sec_501 c accordingly you are not exempt under sec_501 c 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 that information affects our determination if your statement does not provide a basis to reconsider our determination we will forward your case to our appeals_office you can find more information about the role of the appeals_office in publication how to appeal an irs decision on tax-exempt status types of information that should be included in your protest can be found on page of publication under the heading filing a protest your protest statement must be declared true under penalties of perjury this may be done by adding to the appeal the following signed declaration under penalties of pe ury i declare that i have examined this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete your appeal will be considered incomplete without this statement if an organization's representative submits the appeal a substitute declaration must be included stating that the representative prepared the appeal and accompanying documents and whether the representative knows personally that the statements of facts contained in the appeal and accompanying documents are true and correct an attorney certified_public_accountant or an individual enrolled to practice before the internal_revenue_service may represent you during the appeal process to be represented during the appeal process 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 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 to you that letter will provide information about filing tax returns and other matters please send your protest statement form_2848 and any supporting documents to the applicable address mail to deliver to internal_revenue_service eo determinations quality assurance room p o box cincinnati oh internal_revenue_service eo determinations quality assurance main street room cincinnati oh you may also fax your statement using the fax number shown in the heading of this letter if you fax your statement please call the person identified in the heading of this letter to confirm that he or she received your fax if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely holly o paz director exempt_organizations rulings and agreements enclosure publication


t c memo united_states tax_court robert l stewart petitioner v commissioner of internal revenue respondent docket no filed date robert l stewart pro_se catherine l campbell for respondent memorandum opinion ruwe judge this matter is before the court on respondent’s motion to dismiss for lack of jurisdiction and to strike claim_for_abatement of additions to tax respondent’s motion is based on the ground that petitioner in addition to seeking abatement of interest is seeking abatement of an - - addition_to_tax under sec_665l1l a respondent contends that this court lacks jurisdiction to consider petitioner’s claim to abate an addition_to_tax respondent is not seeking dismissal of the request for review of the failure to abate interest on date respondent issued a notice of final_determination partially allowing petitioner’s request to abate interest on his federal_income_tax liability petitioner filed a petition to this court under sec_6404 and rules in the petition petitioner alleged that the amount in dispute for was dollar_figure petitioner identified this amount as interest billed any accrued interest petitioner disagreed with the amount of the partial allowance and stated that he believes he is entitled to an abatement of the full amount because he has paid all his taxes including additions to tax ‘unless otherwise indicated all section references are to the internal_revenue_code currently in effect and all rule references are to the tax_court rules_of_practice and procedure sec_6404 was redesignated sec_6404 by the victims of terrorism tax relief act of publaw_107_134 da b 115_stat_2427 in his answer to the petition respondent alleged that the dollar_figure amount shown on the petition refers to interest and penalties accrued but unpaid on petitioner’s federal_income_tax liability as of date respondent alleged that dollar_figure of this amount was attributable to interest and the remaining dollar_figure was attributable to a failure to pay penalty in his motion to dismiss respondent alleges that the current balance due from petitioner totals dollar_figure respondent claims dollar_figure of this amount is the balance due on an addition_to_tax for imposed under sec_6651 in his response to respondent’s motion petitioner does not dispute respondent’s allegation that dollar_figure is attributable to an addition_to_tax petitioner claims that he was advised that his only recourse in this matter was to file a petition in the tax_court and he asks the court to allow him to address whether he is entitled to abatement of any penalties and additions to tax the tax_court may exercise jurisdiction only to the extent authorized by congress 114_tc_324 112_tc_19 sec_6404 provides this court with jurisdiction to determine whether the secretary’s failure to abate interest under this section was an abuse_of_discretion we have previously held that we do not have jurisdiction under sec_6404 to review the commissioner’s failure to abate penalties and additions to tax 112_tc_230 woodral v commissioner supra pincite n hawksley v commissioner tcmemo_2000_354 n gross v commissioner tcmemo_2000_44 accordingly we shall grant respondent’s motion and the portion of the petition that seeks abatement of - - any penalties or additions to tax shall be stricken for lack of jurisdiction see woodral v commissioner supra pincite an appropriate order will be issued granting respondent’s motion


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-102794-07 date date internal_revenue_service number release date index number ------------------------------------------- ----------------------------------------------- ----------------------------- --------------------------------- legend x -------------------------------------------- ----------------------- ---------------------- ----------------------- -------------------------- -------------------------------------------- trust -------------------------------------------------- d1 d2 d3 d4 state dear -------------- correspondence submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code this responds to a letter dated date and subsequent ---------------------- ------------------ plr-102794-07 facts the information submitted states that x was incorporated under the laws of state x and its shareholders represent that although trust was eligible to elect to be on d1 and elected to be an s_corporation effective d2 on d3 and d4 shares of the stock of x were transferred to trust an ineligible shareholder an electing_small_business_trust esbt under sec_1361 they were unaware of the need to make such an election x and its shareholders represent that the circumstances resulting in the termination of x's election to be an s_corporation were inadvertent x represents that x and its shareholders have filed federal_income_tax returns consistent with x's s_corporation_election x and each person who was and is a shareholder of x at any time since d3 agree to make such adjustments consistent with the treatment of x as an s_corporation that the secretary may require law and analysis sec_1362 provides that an election under sec_1362 shall be sec_1361 provides that a small_business_corporation cannot have as 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 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 terminated whenever at any time on or after the first day of the taxable_year for which the corporation is an s_corporation the corporation ceases to be a small_business_corporation s_corporation sec_1361 provides that the term esbt means any trust if i such trust does not have as a beneficiary any person other than i an individual ii an estate iii an organization described in paragraph or of sec_170 or iv an organization described in sec_170 which holds a contingent_interest in such trust and is not a potential_current_beneficiary ii no interest in such trust was acquired by purchase and iii an election under this subsection applies to such trust sec_1361 provides that an election to be an esbt shall be made by the trustee any such election shall be applied to the taxable_year of the trust for which made and all subsequent taxable years of such trust unless revoked with the consent of the secretary sec_1361 states that an esbt is a permissible shareholder of an sec_1362 provides that if an election under sec_1362 by any plr-102794-07 corporation a 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 to obtain shareholder consent 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 the termination steps were taken - a so that the corporation is a small_business_corporation or b to acquire the required shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to this subsection agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such termination such corporation shall be treated as an s_corporation during the period specified by the secretary conclusion based solely upon the representations made and the information submitted we conclude that x's s election terminated on d3 when shares of the stock of x were transferred to trust we further conclude however that the termination was an inadvertent termination within the meaning of sec_1362 pursuant to the provisions of sec_1362 x will be treated as continuing to be an s_corporation on d3 and thereafter provided that the trustee of trust files an esbt election and provided that x's s election was not otherwise terminated under sec_1362 trust must file an esbt election pursuant to the procedures set forth in sec_1_1361-1 effective d3 with the appropriate service_center within days of the date of this letter trust must also amend its federal_income_tax returns consistent with being an esbt trust will be treated as an esbt under sec_1361 effective d3 a copy of this letter should be attached to the esbt election x's shareholders must include their pro_rata share of the separately and nonseparately computed items of x as provided in sec_1366 make any adjustments to stock basis as provided in sec_1367 and take into account any distributions made by x to its shareholders as provided in sec_1368 except as specifically ruled upon above no opinion is expressed as to the federal_income_tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x was or is a small_business_corporation or whether trust is otherwise eligible to be an esbt this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent plr-102794-07 in accordance with the power_of_attorney on file with this office copies of this letter_ruling will be sent to your authorized representatives enclosures sincerely audrey w ellis senior counsel branch office of the associate chief_counsel passthroughs and special industries copy of this letter copy for sec_6110 purposes cc


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 psi b07 plr-112349-04 date date --------------------------------------------------------------- ------------------------ legend taxpayer -- -------------------------------------------------------------------------- a b c d dear ---------- ---------------------------------------- ----------------------------- ------- ------- ---------------------- ------- we received your letter submitted on behalf of taxpayer requesting an extension of time under sec_301_9100-1 of the procedure and administration regulations to make an election to be treated as a homeowners_association under sec_528 of the internal_revenue_code for the taxable years a through b this letter responds to your request the information submitted and the representations made are as follows taxpayer is a residential_real_estate_management_association that was established by developer in a developer handled the management responsibilities until the management functions were transferred to taxpayer on c because neither the previous nor current officers were aware of the income_tax filing_requirements for a homeowners_association nor were they told of any filing_requirements by developer no income_tax returns were filed for the association prior to d plr-112349-04 sec_528 and sec_1_528-1 of the income_tax regulations generally provide that homeowners associations meeting the requirements of sec_528 may elect to be treated as tax-exempt organizations but only to the extent of their exempt_function_income sec_528 provides in part that the term homeowners_association means an organization that elects at such time and in such manner as the secretary by regulations prescribes to have sec_528 apply for the taxable_year sec_1_528-8 provides that a separate election to be treated as a homeowners_association under sec_528 must be made for each taxable_year this election is made by filing a properly completed form 1120-h or such other form as the secretary may prescribe sec_1_528-8 provides that for taxable years ending after date the election must be made not later than the time including extensions for filing an income_tax return for the year in which the election is to apply sec_301_9100-1 provides that the commissioner in an exercise of discretion may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but not more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-2 and sec_301_9100-3 provide the standards the commissioner will use to determine whether to grant an extension of time to make the election under sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government based on the facts and representations submitted with your request we have determined that the requirements of sec_301_9100-3 have been satisfied with respect to taxable years a through b therefore an extension of time is granted until days from the date of this ruling for making an election to be treated as a homeowners_association under sec_528 for the taxable years a through b we note however that the burden is upon taxpayer to produce upon request any records necessary to establish to the satisfaction of the service that taxpayer meets all of the requirements of sec_528 plr-112349-04 except as expressly ruled 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 or under any other provisions of the code moreover we express no opinion concerning the assessment of interest additions to tax additional_amounts or penalties for failure_to_file an income_tax return with respect to any year specifically we express or imply no opinion on whether taxpayer qualifies as a homeowners_association under sec_528 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 a copy of this letter should be attached to taxpayer’s election for each year covered by this ruling letter in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely s heather c maloy associate chief_counsel passthroughs and special industries cc -