lg kendrick llc petitioner v commissioner of internal revenue respondent docket no 10241-12l filed date p is a single-member llc that operates a franchise busi- ness the internal_revenue_service irs determined that p had employees and had unpaid federal employment_taxes ie unpaid withholding and federal_insurance_contributions_act tax_liabilities with respect to its form sec_941 employer’s quarterly federal tax_return for the last three quarters of and all four quarters of and unpaid federal_unemployment_tax_act tax_liabilities with respect to its united_states tax_court reports forms employer’s annual federal unemployment futa_tax return for the and taxable years collectively periods at issue after processing substitutes for returns and assessing the employment_taxes for the periods at issue the irs mailed to p a notice of the filing of a notice_of_federal_tax_lien nftl and a levy notice with respect to the periods at issue p timely requested and received a sec_6320 hearing with the irs appeals_office the appeals_office subsequently issued two notices of determination sustaining the nftl filing and the proposed levy for the periods at issue except the nftl filing for p’s date form_941 liability which the notices did not address p filed a petition disputing the appeals office’s determinations we remanded this case on r’s motion and the appeals_office issued a supplemental notice_of_determination the supplemental notice sustained the nftl filing and the proposed levy for the periods at issue including the nftl filing for p’s date form_941 liability held the original notices of deter- mination did not embody a determination to sustain and therefore were invalid with respect to the nftl filing for p’s date form_941 liability held further a supple- mental notice_of_determination that sustains a collection action for a taxable_period cannot form the basis for the court’s jurisdiction when the original notice_of_determination was invalid with respect to the collection action for that tax- able period held further the court does not have jurisdiction to review the nftl filing for p’s date form_941 liability held further p is not entitled to challenge the underlying liabilities for the periods at issue over which the court has jurisdiction held further the appeals office’s determinations are sustained for the periods at issue over which the court has jurisdiction michael e lunnon member for petitioner luke d ortner for respondent opinion marvel judge pursuant to sec_6330 petitioner seeks review of determinations by respondent hereinafter irs or respondent to sustain collection actions by levy and the filing of a notice_of_federal_tax_lien nftl relating to petitioner’s unpaid federal employment_taxes ie unpaid withholding and federal_insurance_contributions_act fica unless otherwise indicated all section references are to the internal_revenue_code as amended and in effect for the relevant times and all rule references are to the tax_court rules_of_practice and procedure lg kendrick llc v commissioner tax_liabilities with respect to its form sec_941 employer’s quarterly federal tax_return for the last three quarters of and all four quarters of and unpaid federal_unemployment_tax_act futa_tax liabilities with respect to its forms employer’s annual federal unemployment futa_tax return for the and taxable_year sec_3 collectively periods at issue the issues for decision are whether we have jurisdic- tion to review the nftl filing for petitioner’s date form_941 liability petitioner may challenge its underlying liabilities and if so the correct amounts of the underlying liabilities and the appeals_office abused its discretion in sustaining the nftl filing and the proposed levy action we hold that we do not have jurisdiction to review the nftl filing for petitioner’s date form_941 liability that petitioner cannot challenge the underlying liabilities for the periods over which we have jurisdiction and that the appeals_office did not abuse its discretion we sustain the irs’ determinations for the periods over which we have jurisdiction background the parties submitted this case fully stipulated under rule the stipulated facts and facts drawn from stipulated exhibits are incorporated herein by this reference peti- see infra pp regarding the nftl filing for petitioner’s decem- ber form_941 liability we hold infra that the irs did not make a written_determination with respect to this liability petitioner’s form_940 liability with respect to the taxable_year is prorated because petitioner was formed during see infra p em- ployment tax_liabilities for periods before petitioner’s formation are the subject of the opinion in lunnon v commissioner tcmemo_2015_156 see sec_301_7701-2 proced admin regs the trust fund recov- ery penalties that the irs proposed to assess against mr lunnon with re- spect to the form_941 liabilities for the periods at issue are not before the court for the remainder of this report we use the term employment_tax to refer to taxes under fica secs futa secs and income_tax_withholding secs and petitioner objected to exhibit 3-j respondent’s request for admissions because it was not part of the administrative record when this case was recalled at the date albuquerque new mexico trial session we reserved ruling on petitioner’s objection we decide this case without re- continued united_states tax_court reports tioner’s principal_place_of_business was in gallup new mexico when the petition was filed petitioner is a single-member llc formed in that operates as a franchise of the business the ups store its manager and sole member is michael e lunnon from until petitioner’s formation in mr lunnon oper- ated the franchise business as a sole_proprietorship origi- nally under the name mail boxes etc mr lunnon reported wages and paid employment_taxes with respect to employees of the franchise to the state of new mexico until he also filed form sec_941 with the irs for the date quarter through the date quarter during the periods at issue petitioner paid an average of five individuals approximately twice per month mr lunnon has maintained a workers’ compensation and employer’s liability insurance_policy since at least a insurance_policy applica- tion that mr lunnon signed and submitted for his business shows an estimated annual payroll of dollar_figure the policy was renewed every year until at least however peti- tioner did not file form sec_941 or forms or pay any employment_tax for the periods at issue after the irs had summoned and reviewed bank records associated with petitioner’s business and made a field call to the business the irs concluded that petitioner had paid employees approximately dollar_figure per month and therefore had employment_tax liabilities for the periods at issue although the irs requested that mr lunnon file on behalf of petitioner employment_tax returns for the delinquent periods mr lunnon refused and revenue_officer t w gard to deemed admissions under rule c and we treat petitioner’s ob- jection as moot the irs revenue officer’s case notes suggest that mr lunnon at one point represented that the michael lunnon revocable_trust was at least a partial owner of petitioner however the case notes also state that mr lunnon is the only member listed on petitioner’s articles of organization and the record does not contain any information about the michael lunnon revocable_trust mr lunnon not petitioner is the named insured on the insurance pol- icy for the periods at issue even though mr lunnon operated his business through petitioner during that time this figure does not include the amount that petitioner paid to mr lunnon as a wage lg kendrick llc v commissioner lyons prepared a substitute for return under sec_6020 for each period at issue the revenue_officer sent petitioner a letter do dated date by certified mail to the business address one of the individuals who the irs had determined was an employee cameron curley signed the certified mail receipt on date the letter informed petitioner about the substitutes for returns and stated that petitioner had days to prepare and mail employment_tax returns mail addi- tional information petitioner wanted the irs to consider or request a conference with revenue_officer lyons the letter further stated that the irs would process the substitutes for returns and assess the tax reflected on the returns plus any additional penalties and interest if petitioner did not respond within days the letter explained that petitioner’s representative could request a meeting or a telephone con- ference with the revenue officer’s supervisor if petitioner did not agree with any or all of the irs findings given you if petitioner still did not agree with the findings after a con- ference with the supervisor it would have the opportunity to appeal its case to the area director of general appeals petitioner or its representative did not respond to the letter do within days the irs processed the sub- stitutes for returns and assessed the tax on date the irs mailed to petitioner a letter final notice_of_intent_to_levy and notice of your right to a hearing levy notice with respect to the periods at issue in the levy notice the irs proposed for the first time additions to tax under sec_6651 for late payment the irs also mailed to petitioner a letter do notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 dated date with respect to the liabilities at issue including the date form_941 liability in response to these notices petitioner timely filed a form request for a collection_due_process or equivalent_hearing signed by mr lunnon in his capacity as member manager the hearing request disputed the proposed levy and the nftl filing requested withdrawal of the nftl filing and stated the llc does not understand any basis for the claims made in the final notice and does not believe the llc owes them united_states tax_court reports petitioner’s case was transferred to settlement officer joann mares in the irs appeals_office settlement officer mares scheduled a telephone conference call for date but mr lunnon told settlement officer mares that petitioner preferred to conduct the sec_6320 hearing through correspondence and neither he nor another rep- resentative participated in a telephone conference settle- ment officer mares agreed to conduct the hearing through correspondence and requested that petitioner provide finan- cial information and file its delinquent employment and income_tax returns by date petitioner did not give settlement officer mares any of the requested financial information and did not file the requested returns by the deadline settlement officer mares allowed petitioner an additional days to comply with her request instead of providing any information to settlement officer mares mr lunnon initiated a freedom_of_information_act_request on petitioner’s behalf for any documents the irs had proving that petitioner had paid employees and was subject_to filing employment_tax returns for the periods at issue because petitioner did not give settlement officer mares any pertinent information she sustained the proposed levy and the nftl filing on the basis of the information in the administrative record on date the appeals_office issued two documents titled notice_of_determination con- cerning collection action s under sec_6320 and or one notice sustained the collection action for the liabilities at issue except that it did not address the proposed levy or the nftl filing for petitioner’s date form_941 liability first notice_of_determination the first page of the first notice_of_determination had a list titled tax period s ended which listed the taxable periods to which the notice pertained and included the date taxable_period the taxable_period for form_940 liabilities is often identified as the last day of the calendar_year see eg j s auto painting inc v commis- sioner tcmemo_2013_232 at concerning a form_940 liability for the taxable_year ended date everett assocs inc v com- missioner tcmemo_2012_143 slip op pincite concerning a form_940 li- ability for the year ended date and therefore the ref- erence to date to indicate petitioner’ sec_2010 form_940 liability is not inapposite the third page of the first notice_of_determination re- ferred to petitioner’s form_940 liabilities for the taxable periods lg kendrick llc v commissioner the third page of the first notice_of_determination contained two tables detailing to which taxable periods and collection activities the notice pertained the first table included the proposed levy of the form_941 liabilities for the quarters ending date through date inclusive and of the form_940 liabilities for the taxable periods and the second table included the nftl filing with respect to the form_941 liabilities for the quarters date through date inclu- sive and with respect to the form_940 liabilities for the tax- able periods and the other notice_of_determination sustained the proposed levy of petitioner’s date form_941 liability second notice_of_determination the first page of the second notice_of_determination listed the relevant taxable_period as date a table on the third page clarified that the notice pertained only to the proposed levy of petitioner’s date form_941 liability the nftl neither the first notice_of_determination nor the second notice_of_determination together original notices of deter- mination addressed for petitioner’s date form_941 liability or the proposed sec_6651 additions to tax the original notices of deter- mination concluded that petitioner did not properly challenge the underlying liabilities and incorrectly stated that the employment_taxes were assessed on the basis of voluntarily filed returns filing petitioner timely filed a petition in this court disputing the original notices of determination in preparation for trial the irs subpoenaed additional bank records and documents related to the workers’ compensation insurance_policy respondent subsequently filed a motion to remand peti- tioner’s case to the appeals_office because during the sec_6320 hearing the settlement officer did not fully explain to petitioner the basis for the employment_tax assess- ments did not make a determination about whether peti- tioner was entitled to challenge the underlying liabilities and did not include the nftl filing for petitioner’s date form_941 liability on either notice of determina- tion we granted respondent’s motion and united_states tax_court reports on remand the case was returned to settlement officer mares settlement officer mares mailed to petitioner the documents that the irs had relied upon to assess the under- lying liabilities and documents supporting the assessments that the irs had obtained during the pendency of the tax_court case including copies of checks drawn on petitioner’s bank account that mr lunnon wrote to the same individuals twice per month employment_tax transcripts from the state of new mexico workers’ compensation insurance_policy docu- ments irs transcripts and internal irs documents summa- rizing petitioner’s bank records settlement officer mares also mailed to petitioner a letter dated date which stated i wasn’t sure if you understood upon the receipt of the letter do that you could have prepared and signed tax returns that you believe are correct and return them to the irs within days if you have the cor- rect returns you may submit these to me on or before date so that the internal_revenue_service can process them the letter also asked petitioner to explain its rela- tionship with cameron curley and requested that petitioner submit financial information to settlement officer mares and file the delinquent form sec_941 and for the periods at issue by date so that she could consider collec- tion alternatives the letter also warned petitioner that if it did not respond to the letter settlement officer mares would make a supplemental determination on the basis of informa- tion already in the record instead of supplying the requested information mr lunnon sent a letter to settlement officer mares challenging the documents that respondent had provided because at least some of them were not available when the irs made its original determinations and because some of the documents referred to mr lunnon rather than to petitioner in response settlement officer mares allowed petitioner until date to prepare the requested returns using the docu- ments that respondent had provided to it or any other addi- tional information petitioner had mr lunnon did not cause the letter erroneously referenced taxable periods not at issue and al- though the recipient of the letter was lg kendrick llc the salutation read dear mr lunnon settlement officer mares later clarified in a sub- sequent letter that the date letter in fact related to petitioner’s employment_tax liabilities for the periods at issue lg kendrick llc v commissioner petitioner to file the delinquent returns or send settlement officer mares pertinent information instead mr lunnon continued to challenge the relevancy of the documents respondent had provided but did not say the documents reflected incorrect information or deny that petitioner had employees for the periods at issue because petitioner did not file the delinquent returns or provide information after multiple opportunities to do so the appeals_office issued to petitioner a supplemental notice_of_determination concerning collection action s under sec_6320 and or supplemental notice_of_determination on the basis of the information in the administrative record the appeals_office determined that petitioner had had a prior opportunity to contest the underlying liabilities and that even if the appeals_office were able to consider it petitioner had failed to submit evidence adequately contesting the underlying liabilities after a reasonable opportunity to do so the supplemental notice_of_determination also stated that it includes the period ending for both the levy and the lien as the taxpayer requested as petitioner did not request a collection alternative or provide any relevant information with respect to its nftl filing withdrawal request settlement officer mares determined to sustain the collection actions the supplemental notice_of_determination did not provide petitioner with additional appeal rights beyond those associated with the original notices of deter- mination i sec_6320 hearing discussion sec_6321 imposes a lien on all property and property rights of a taxpayer liable for taxes where a demand for the payment of the taxes has been made and the taxpayer fails to pay the irs is authorized to file an nftl with respect to a taxpayer who has an outstanding tax_liability and fails to pay after notice_and_demand sec_6323 sec_6320 requires the secretary to send written notice to the tax- payer of the filing of an nftl and of the taxpayer’s right to the term secretary means the secretary_of_the_treasury or his dele- gate sec_7701 united_states tax_court reports an administrative hearing on the matter the conduct and scope of sec_6320 hearings are governed by sec_6330 d other than paragraph b e and g sec_6320 the secretary is authorized to collect tax by levy upon a taxpayer’s property if any taxpayer liable to pay any_tax neglects or refuses to pay such tax within days after notice_and_demand for payment sec_6331 sec_6330 requires the secretary to send written notice to the taxpayer of the taxpayer’s right to request a sec_6330 hearing before a levy is made if the taxpayer makes a timely request for a hearing the irs appeals_office conducts the hearing sec_6330 at a sec_6320 or sec_6330 hearing a taxpayer may raise any relevant issue including appropriate spousal defenses challenges to the appropriateness of the collection action and collection alternatives such as an offer-in-compromise or an installment_agreement sec_6330 additionally the taxpayer may contest the validity of the underlying tax_liability but only if the taxpayer did not otherwise have an opportunity to dispute the tax_liability sec_6330 114_tc_604 following a hearing the appeals_office must issue a notice_of_determination regarding the appropriateness of the collec- tion action the appeals_office is required to take into consideration verification presented by the secretary that the requirements of applicable law and administrative proce- dure have been met relevant issues that the taxpayer raised and whether the proposed collection action appro- priately balances the need for efficient collection_of_taxes with the taxpayer’s concerns regarding the intrusiveness of the proposed collection action sec_6330 134_tc_280 pursuant to sec_6320 and sec_6330 we have juris- diction to review the appeals office’s determination see 125_tc_301 aff ’d 469_f3d_27 1st cir where the validity of the underlying tax_liability is properly at issue we review the determination regarding the underlying tax_liability de novo sego v commissioner t c pincite 114_tc_176 we review all other determinations for abuse_of_discretion sego v commissioner t c at lg kendrick llc v commissioner goza v commissioner t c pincite in reviewing for abuse_of_discretion we must uphold the appeals office’s determination unless it is arbitrary capricious or without sound basis in fact or law see eg murphy v commissioner t c pincite taylor v commissioner tcmemo_2009_27 97_tcm_1109 ii jurisdiction to review the nftl filing for petitioner’s date form_941 liability questions of jurisdiction may be raised by either party or the court at any stage of a proceeding 116_tc_263 citing 96_tc_10 the tax_court is a court of limited jurisdiction and may exercise jurisdiction only when congress has expressly authorized it to do so see sec_7442 66_tc_61 see also rule b the court has jurisdiction to determine its jurisdiction over a particular case 83_tc_309 moreover the court’s jurisdiction cannot be enlarged by the parties’ agreement or waiver or failure to object 111_tc_273 although the irs had sent petitioner a letter do and petitioner had requested a sec_6320 hearing with respect to the nftl filing for the date form_941 liability the original notices of determination did not include the nftl filing for that liability as a collection action for which the irs had made a determination how- ever the supplemental notice_of_determination stated that it includes the period ending for both the levy and the lien as the taxpayer requested respondent contends that the court has jurisdiction to review the nftl filing for the date form_941 liability because its omis- sion from the original notices of determination was an inad- vertent clerical_error petitioner substantively received a hearing with respect to the collection action and the supple- mental notice_of_determination simply clarifies that the hearing and determination with respect to the liability were embedded in the original notices of determination and united_states tax_court reports hearing we therefore consider whether the original notices of determination confer jurisdiction over the nftl filing for petitioner’s date form_941 liability and if not whether the supplemental notice_of_determination cures the jurisdictional defect in 117_tc_159 we held that the only statutory requirements for jurisdiction under sec_6330 were a written notice that embodies a determination to proceed with the collection of the taxes in issue and a timely filed petition although the appeals office’s determination need not follow a particular format see 119_tc_252 the determination must be in writing see lunsford v commis- sioner t c pincite sec_301_6330-1 q a-e8 proced admin regs if the appeals_office does not issue a written_determination with respect to a particular taxable_period or liability under sec_6320 the absence of such a determination is grounds for dismissal of a petition regarding that period or liability see 114_tc_492 it therefore follows that a notice of deter- mination must specify to which taxable_period liability and collection action it relates or at the very least provide sufficient information so that the taxpayer cannot reasonably on date the court ordered respondent to file a memo- randum brief explaining his position with respect to this jurisdictional issue the court permitted but did not require petitioner to file an answer- ing brief by date and petitioner did not do so similarly we and several u s courts of appeals have stated that a valid notice_of_deficiency must at a minimum advise the taxpayer that the irs has made a determination and specify the amount of the defi- ciency and the tax_year involved see 961_f2d_1 1st cir 932_f2d_1128 5th cir aff ’g in part rev’g in part and remanding tcmemo_1990_68 814_f2d_1356 9th cir aff ’g 84_tc_1308 800_f2d_987 10th cir aff ’g 84_tc_1308 787_f2d_1541 11th cir 186_f2d_239 6th cir finding a deficiency_notice valid where it fairly advised the taxpayer of the amount and year of the deficiency and the taxpayer was fully ad- vised of the reasons forming the basis for the commissioner’s ac- tion 88_tc_167 see also 88_f2d_650 2d cir t he notice is only to advise the person who is to pay the deficiency that the commissioner means to assess him anything that does this unequivocally is good enough lg kendrick llc v commissioner be deceived as to these items see 98_f2d_968 7th cir rev’g and remanding 33_bta_564 erickson v commis- sioner tcmemo_1991_97 61_tcm_2073 normally a notice_of_determination includes these key pieces of information and our jurisdiction to review a collec- tion action for a particular taxable_period and liability is soundly established when a notice_of_determination does not clearly set forth this information we must determine whether the notice is valid an invalid notice cannot form the basis for our jurisdiction and the commissioner may proceed with the collection action only if he subsequently issues a valid notice with attendant appeal rights see sec_6330 124_tc_36 describing invalid notices of determination as void and of no effect in certain circumstances we have held that a flaw in a jurisdictional notice is not fatal if the notice along with any attachments is sufficient to apprise the taxpayer of the commissioner’s determination and the taxpayer was not prejudiced or misled by the flaw see 140_tc_210 mis- takes in a notice will not invalidate it if there is no prejudice to the taxpayer citing 324_f3d_1110 9th cir for example we have held that typo- graphical errors in a jurisdictional notice as to the taxable_period do not invalidate the notice where the notice gives the taxpayer sufficient information to determine the period to which the notice relates see eg 34_tc_1137 finding a notice_of_deficiency valid when it erroneously referred to the wrong years and the taxpayers were not misled by the error mccollin v commissioner tcmemo_2010_93 slip op pincite n finding a notice_of_determination valid when an attach- ment to the notice referred to an incorrect year but the notice itself and other relevant documents contained the correct the appeals office’s determination must also take into consideration the items listed in sec_6330 because a notice_of_determination under sec_6320 is the juris- dictional equivalent to a notice_of_deficiency caselaw regarding the validity of a notice_of_deficiency pursuant to sec_6212 also informs our holding see 114_tc_492 united_states tax_court reports year petaluma fx partners llc v commissioner tcmemo_2007_254 slip op pincite finding a notice of final_partnership_administrative_adjustment referring to a taxable_year ended date valid when the taxpayer’s tax- able year ended date the commissioner made adjustments to the correct year and the partnership did not exist until the end of date call v commissioner tcmemo_2005_289 slip op pincite n stating that a typo- graphical error in the notice_of_determination erroneously referring to as did not affect the notice aff ’d 230_fedappx_758 9th cir anderten v commissioner tcmemo_1993_2 65_tcm_1697 finding a notice_of_deficiency that incorrectly referred to when the commissioner determined a deficiency for was valid when taking the entire document into consideration the tax- payer could not have been misled erickson v commissioner t c m cch pincite7 finding that a taxpayer was not misled even though in some places the notice of defi- ciency referred to instead of the correct year fernandez v commissioner tcmemo_1979_476 39_tcm_569 holding that a typographical error in a notice_of_deficiency did not invalidate the notice when the facts clearly show that petitioners reasonably could not have been deceived as to the year covered by the notice_of_deficiency smith v commissioner tcmemo_1979_16 38_tcm_51 finding a notice_of_deficiency valid when the taxpayers were not confused or misled by the typographical errors in the notice_of_deficiency referring to instead of however the instant case is distinguishable from cases where the jurisdictional notice contained a typographical or other minor error but still revealed on its face that the commissioner had made a determination with respect to a particular period the tables within the original notices of determination listed all periods and collection activities for which the appeals_office had made determinations they did not include the nftl filing for petitioner’s date form_941 liability nothing in the remainder of the notices hints that the appeals_office made a determination with respect to the nftl filing for that liability the ref- erences to the taxable_period date on the first pages of the original notices of determination do not provide lg kendrick llc v commissioner clarification because the notices address other collection activities with respect to that period see supra pp and note in short the original notices of determination were devoid of any information from which a reasonable person could con- clude that the appeals_office had made a determination with respect to the nftl filing for the date form_941 liability the fundamental purpose of a notice of deter- mination ie to notify the taxpayer of the appeals office’s determination to sustain a collection action for a particular taxable_period was not fulfilled we also do not look behind the notice as respondent urges us to do to determine whether petitioner substantively received a hearing with respect to the date form_941 liability it is the appeals office’s written_determination not the fact that a sec_6320 hearing occurred that is the basis for our jurisdiction cf lunsford v commissioner t c pincite holding that a notice valid on its face and a timely filed petition confer jurisdiction on this court whether or not the taxpayer had a fair sec_6320 hearing we there- fore hold that the original notices of determination do not confer jurisdiction on this court with respect to the nftl filing for petitioner’s date form_941 liability after petitioner filed its petition we remanded this case to the appeals_office and the appeals_office issued a supple- mental notice_of_determination the notice stated that t his supplemental notice_of_determination includes the period ending for both the levy and the lien as the tax- payer requested we must therefore determine whether a supplemental notice may form the basis for our jurisdiction under sec_6320 when the original notices of deter- mination did not include a determination to sustain a collec- tion activity for a particular period or liability we considered whether a supplemental notice of deter- mination can form the basis for our jurisdiction under sec_6320 in 130_tc_88 although sec_6320 and sec_6330 hearings are often held jointly when the commissioner has proposed to levy and has filed an nftl with re- spect to the same taxable_period a proposed levy and an nftl filing are distinct collection activities for which the commissioner must make sepa- rate determinations even if those determinations are embodied in the same notice_of_determination see sec_6320 sec_6321 sec_6330 sec_6331 united_states tax_court reports in ginsberg the commissioner issued a notice_of_determination sustaining a proposed levy of the taxpayer’s trust fund recovery penalties id pincite the court lacks jurisdiction over these penalties in deficiency cases see sec_6211 sec_6213 and the commissioner issued the notice_of_determination before the enactment of the pension_protection_act of ppa pub_l_no sec_855 sec_120 stat pincite which expanded the court’s sec_6320 juris- diction to include review of the commissioner’s collection activity regardless of the type of underlying tax see 130_tc_44 the taxpayer there- fore disputed the notice_of_determination by filing a com- plaint with the u s district_court for the district of new jersey which subsequently remanded the case to the irs appeals_office ginsberg v commissioner t c pincite after congress had enacted the ppa the appeals_office issued a supplemental notice_of_determination sustaining the collection action and the taxpayer filed a petition in this court disputing the supplemental notice id in holding that we lacked jurisdiction over the supple- mental notice we noted that a taxpayer is entitled to only one sec_6320 and sec_6330 hearing with respect to a tax period which in turn yields only one lien or levy determina- tion for each period see id pincite although the initial deter- mination may be supplemented following a remand t he supplemental determination notice is merely a supplement to the original determination notice and relates back to the original determination notice it is not a new determination and does not provide the taxpayer any additional appeal rights id pincite fn ref omitted because we lacked jurisdiction over the original notice_of_determination we similarly lacked jurisdiction over the determination as supplemented see id pincite respondent contends that ginsberg is distinguishable from this case because rather than attempting to confer addi- tional jurisdiction on the court that could not have been present in the original notice the supplemental notice in this case simply clarifies that the original hearing and determina- tion in this case substantively included the period ending date for the lien notice we disagree with respondent that ginsberg is distinguishable as in ginsberg the original notices of determination did not confer jurisdic- lg kendrick llc v commissioner tion on the court it does not matter that a predicate deter- mination could have been present in the original notice s or that as respondent contends such a determina- tion was embedded in the original notices we have already found supra that the original notices of determination did not embody a determination to sustain the nftl filing for peti- tioner’s date form_941 liability the supple- mental notice merely relates back to the original notices and is not a new determination see id pincite it did not pro- vide petitioner with any additional appeal rights and there- fore cannot form the basis for our jurisdiction under sec_6320 and sec_6330 see id pincite n if we do not have juris- diction to review the original determination notice the issuance of a supplemental determination notice does not give us jurisdiction the original notices of determination were insufficient to confer jurisdiction to review the nftl filing for petitioner’s date form_941 liability a supplemental notice_of_determination cannot cure this jurisdictional defect therefore we do not have jurisdiction to review the nftl filing for petitioner’s date form_941 liability iii the underlying liabilities we next review whether petitioner may challenge the underlying liabilities with respect to the taxable periods over which we have jurisdiction petitioner has continuously maintained that it does not owe the underlying employment_taxes because the irs has the burden of proving that petitioner paid employees for the periods at issue and the irs did not meet this burden because it may not rely on documentary_evidence obtained after the issuance of the original notices of determination to sustain the assessed taxes respondent contends that petitioner may not challenge the underlying liabilities because the letter do con- stituted a prior opportunity to dispute the liabilities and because petitioner did not properly raise the issue with the appeals_office because we find that petitioner did not prop- erly raise the underlying liabilities with the appeals_office after a reasonable opportunity to do so we do not address whether the letter do provided petitioner with a prior opportunity to challenge the liabilities see caudle v united_states tax_court reports commissioner tcmemo_2014_196 at n aff ’d 603_fedappx_220 4th cir in reviewing a determination under sec_6330 including challenges to the underlying liability we consider only issues that the taxpayer properly raised during the sec_6320 hearing sec_301_6320-1 q a-f3 f q a-f3 proced admin regs see 129_tc_107 the tax- payer does not properly raise an issue including the under- lying liability during the hearing if it fails to present to appeals any evidence with respect to that issue after being given a reasonable opportunity to present such evidence sec_301_6320-1 q a-f3 f q a-f3 proced admin regs see 135_tc_344 on remand petitioner had ample opportunity to file its delinquent tax returns and present any other information that it wanted settlement officer mares to consider with respect to the employment_tax liabilities in the letter dated date settlement officer mares stated that because petitioner may not have been aware of the oppor- tunity to submit its own returns upon receipt of the letter do the irs would process the delinquent returns for the periods at issue if petitioner submitted them by date even though petitioner responded to this request with generally unhelpful and irrelevant information settle- ment officer mares allowed petitioner an extension of time to file the returns until date she told peti- tioner that it could use the documents that respondent had provided or any additional information to prepare the returns instead of filing returns or producing any relevant information petitioner continued to assert that it was not liable for the underlying liabilities because respondent could not prove using only information available during the original hearing the existence of any employees petitioner rejecting the documentary_evidence that respondent obtained during the trial as untimely and there- fore irrelevant quotes 754_f2d_921 11th cir aff ’g tcmemo_1982_489 for the proposition that a taxpayer should not bear the burden of proving a negative no unreported income if the commis- sioner can present no substantive evidence to support his lg kendrick llc v commissioner deficiency claim however gatlin is a deficiency case and does not address the requirements for properly raising an issue before the appeals_office see id on remand the appeals_office provided petitioner with documentary_evidence of petitioner’s employees including copies of checks summaries of petitioner’s own bank records documents showing employment_tax payments to the state of new mexico and bills and renewal notifications from the workers’ compensation insurance_policy and petitioner still did not produce its own evidence tending to refute the appeals office’s determinations petitioner contends that the documentary_evidence is insufficient because it includes ref- erences to taxable periods not at issue although the record contains references to taxable periods other than the ones at issue here it also contains documentary_evidence related to the periods at issue petitioner also invokes the chenery doctrine although not by name to discount respondent’s evidence by contending that the determinations cannot be upheld on grounds other than those upon which the appeals_office actually relied see 332_us_194 318_us_80 antioco v commis- sioner tcmemo_2013_35 at petitioner interprets this doctrine to mean that respondent may not consider docu- mentary evidence during a remand sec_6320 hearing that was unavailable at the original hearing petitioner is correct in stating that we uphold the appeals office’s determination only on grounds upon which the appeals_office actually relied in the notice_of_determination see chenery i u s pincite antioco v commissioner at jones v commissioner tcmemo_2012_274 at however sec_6320 and sec_6330 provide that a taxpayer is entitled to only one hearing with respect to either an nftl filing or a proposed levy respectively for the taxable_period related to the unpaid liability 131_tc_1 aff ’d 325_fedappx_448 7th cir 130_tc_79 a hearing on remand is a supplement to the tax- to the extent it is practicable a sec_6330 hearing will be held in con- junction with a sec_6320 hearing sec_301_6330-1 q a-d3 proced admin regs united_states tax_court reports payer’s original sec_6320 hearing and provides the parties with the opportunity to complete the initial sec_6320 hearing while preserving the taxpayer’s right to receive judicial review of the ultimate administrative deter- mination wadleigh v commissioner t c pincite kelby v commissioner t c pincite the appeals_office on remand is not constrained by the original administrative record as often the purpose of remand is to augment a defi- cient record see 136_tc_463 supplementing 131_tc_197 see also meyer v commissioner tcmemo_2013_268 at remanding a case to the appeals_office to supplement the administrative record to show that a notice_of_deficiency was properly mailed the appeals_office makes a single deter- mination with respect to an nftl filing or a proposed levy for a taxable_period kelby v commissioner t c pincite when this court remands a case and the appeals_office issues a supplemental notice_of_determination we review the determination as supplemented id on remand settlement officer mares had access to and relied upon documentation unavailable during the original hearing respondent provided these documents subpoenaed in preparation for trial to petitioner upon receipt and incor- porated them into the administrative record on remand we remanded this case in part for the appeals_office to clarify whether petitioner had had a prior opportunity to challenge the underlying liabilities and to explain to petitioner the basis of the underlying assessments settlement officer mares appropriately relied on the additional documents to carry out the court’s remand order and did not violate the chenery doctrine in doing so petitioner may not distort the law to justify its continued refusal to cooperate with respondent or its abdication of the fundamental responsibil- ities of maintaining records and filing tax returns see hoyle because we review the determination as supplemented the remand cured misstatements of fact in the original notices of determination such as the incorrect assertion that petitioner voluntarily filed employment_tax returns see 130_tc_79 langley v commissioner tcmemo_2015_11 sustaining a supplemental notice_of_determination after the taxpayer’s sec_6330 hearing was remanded be- cause the notice_of_determination relied upon misstatements in the admin- istrative record lg kendrick llc v commissioner see also sec_6001 v commissioner t c pincite jordan v commissioner tcmemo_2011_243 slip op pincite when we remand a case to the appeals_office to clarify the record the appeals_office is not limited to what the appeals_office considered during the first administrative hearing citing hoyle v commissioner t c pincite supplementing 134_tc_1 sec_31_6011_a_-1 sec_31_6011_a_-3 employment_tax regs requiring employers to file returns under fica and futa petitioner therefore did not properly challenge the underlying liabilities during the sec_6320 hearing and we do not address them here see pough v commissioner t c pincite holding that the taxpayer did not properly challenge the underlying liabilities when he did not file amended income_tax returns before the appeals_office issued the notice_of_determination despite saying he would do so busche v commissioner tcmemo_2011_285 slip op pincite discussing the taxpayer’s and the commissioner’s burdens and responsibilities during a sec_6320 hearing see also sec_6020 andary- stern v commissioner tcmemo_2002_212 slip op pincite explaining that in the absence of a taxpayer-filed return the commissioner need only do the best he can with the information available to him we also do not consider the validity of the sec_6651 additions to tax which are part of the underlying liabilities see 115_tc_329 sec_6651 imposes an addition_to_tax in the case of a failure to pay a tax required to be shown on a return which was not so shown within days after the date of the irs’ notice_and_demand letter because the irs first proposed to assess these additions to tax in the levy notice petitioner did not have a prior opportunity to dispute the additions to tax and was entitled to challenge them during the sec_6320 hearing see ramdas v commissioner tcmemo_2013_104 at holding that the taxpayer was entitled to challenge a sec_6651 addition_to_tax during a sec_6330 hearing moreover petitioner did not allege any facts or produce any credible_evidence regarding the underlying liabilities in the stipulation of facts or otherwise that would permit us to conclude that it properly raised the issue before the court see rule b 114_tc_176 united_states tax_court reports because the addition_to_tax did not accrue until after the issuance of the notice_of_deficiency assessment and notice_and_demand however petitioner did not seek administra- tive review of the additions to tax on his sec_6320 hearing request or during the hearing itself and petitioner did not assign error to the additions to tax in the petition neither the original notices of determination nor the supple- mental notice_of_determination addressed the additions to tax pursuant to sec_6330 the appeals office’s determination shall take into consideration issues raised by the taxpayer under paragraph thus if an issue is never raised at the hearing it cannot be a part of the appeals office’s determination giamelli v commissioner t c pincite we generally cannot review under sec_6330 respondent’s determinations on the basis of an issue that petitioner did not raise and that the appeals_office never considered and we therefore do not disturb the determinations on the basis of the nonruling on the sec_6651 additions to tax see 118_tc_488 ramdas v commissioner at see also rule b 123_tc_213 holding that when a taxpayer fails to assign error in the petition with respect to an addition_to_tax the taxpayer is deemed to have conceded that item and the commissioner has no obligation to produce evidence to sup- port the determination citing 118_tc_358 but cf hoyle v commissioner t c pincite holding that the court may review the appeal office’s verification under sec_6330 without regard to whether the taxpayer raised it at the sec_6320 hearing iv conclusion because petitioner may not challenge the underlying liabil- ities we review the appeals office’s determinations for abuse_of_discretion see sego v commissioner t c pincite goza v commissioner t c pincite the record supports a finding that the appeals_office properly verified that the requirements of applicable law and administrative procedure had been met see sec_6330 wadleigh v commissioner lg kendrick llc v commissioner t c pincite petitioner did not request a collection alternative or file the necessary financial information and past due returns that would have allowed the appeals_office to consider accepting one see sec_6330 although petitioner checked the box for lien withdrawal on its sec_6320 request it did not present the appeals_office with any evidence regarding its entitlement to a withdrawal of the nftl filing and therefore did not properly raise the issue before the appeals_office or this court see giamelli v commissioner t c pincite magana v commissioner t c pincite sec_301_6320-1 q a-f3 proced admin regs the appeals_office properly balanced the need for efficient collection_of_taxes with petitioner’s concerns regarding the intrusiveness of the proposed collection actions we have considered the parties’ remaining arguments and to the extent not discussed above conclude those arguments are irrelevant moot or without merit to reflect the fore- going an appropriate order and decision will be entered f


internal_revenue_service index no number release date cc ebeo 4-plr-108656-99 date company plan_year a date b dear this is in reply to a request for a ruling concerning whether compensation paid under the plan upon the attainment of a performance_goal will be considered performance-based compensation under sec_162 of the internal_revenue_code even though the compensation could have been paid upon the executive’s termination without cause or for good reason executives of company including executives who will be covered employees for purposes of sec_162 of the code will be granted awards of restricted_stock under company’s plan the awards of restricted_stock will be evidenced by a restricted_stock agreement that will specify the number of shares granted the period of the restriction and any other conditions of vesting in the award awards of restricted_stock will vest only if the employee is still employed as of a specified date and if performance targets such as earnings per share net operating_profit after-tax profit return on equity or return on invested capital are met for awards granted in year a the awards will vest if the employee is still employed on date b and if earnings per share increase at a specified rate over the vesting period in the event of a change_of control of company the restricted shares shall immediately vest in the event an executive terminates as a result of death or disability the shares will immediately become fully vested the restricted_stock agreements will provide that shares also will immediately become fully vested if an executive is terminated by company without cause or on termination by the executive for good reason for purposes of determining whether a termination by company is with or without cause company defines cause to mean i an act of willful misrepresentation fraud or willful dishonesty intended to result in substantial personal enrichment at the expense of company ii willful misconduct with regard to company that was intended to have a material adverse impact on company iii material willful and knowing violation of company guidelines or the executive’s fiduciary duties which has or was intended to have a material adverse impact on company iv willful or reckless behavior which has a material adverse impact on company v willful failure to perform duties or follow written direction of the board_of directors vi conviction of or pleading nolo contendre or guilty to a felony or vii any other material breach that is not cured within days of receipt of written notice for purposes of determining whether a termination is for good reason company defines good reason to mean the occurrence of any of the following without the executive’s express written consent i assignment of duties materially inconsistent with the executive’s current authorities duties responsibilities and status any reduction in the executive’s title position or reporting lines or any material reduction in the executive’s status authorities duties or responsibilities ii relocation of the executive from the principal office of company or relocation of the principal office of company iii reduction in the executive’s base salary iv reduction in the executive overall level of participation in company incentive benefit or retirement plans v failure of company to obtain assumption of the executive’s employment agreement from a successor of company or vi any other material breach of the executive’s employment by company sec_162 of the code allows as a deduction all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business including a reasonable allowance for salaries or other compensation_for_personal_services actually rendered sec_162 of the code provides that in the case of any publicly_held_corporation no deduction is allowed for applicable_employee_remuneration with respect to any covered_employee to the extent that the amount of the remuneration for the taxable_year exceeds dollar_figure sec_162 of the code defines applicable_employee_remuneration with respect to any covered_employee for any taxable_year generally as the aggregate amount allowable as a deduction for the taxable_year determined without regard to sec_162 for remuneration for services performed by the employee whether or not during the taxable_year however pursuant to sec_162 the term does not include remuneration payable solely on account of the attainment of one or more performance goals but only if-- i the performance goals are determined by a compensation committee of the board_of directors of the taxpayer which is comprised of or more outside directors ii the material terms under which the remuneration is to be paid including the performance goals are disclosed to shareholders and approved by a majority of the vote before the payment of the remuneration and iii before any payment of such remuneration the compensation committee referred to in clause i certifies that the performance goals and any other material terms were in fact satisfied sec_1_162-27 of the income_tax regulations provides in part that qualified_performance-based_compensation must be paid solely on account of the attainment of one or more preestablished objective performance goals according to sec_1_162-27 of the regulations a preestablished performance_goal must state in terms of an objective formula or standard the method for computing the amount of compensation payable to the employee if the goal is attained a formula or standard is objective if a third party having knowledge of the relevant performance results could calculate the amount to be paid to the employee a formula or standard must specify the individual employees or class of employees to which it applies sec_1_162-27 of the regulations provides that the terms of an objective formula or standard must preclude discretion to increase the amount of compensation payable that would otherwise be due upon attainment of the goal sec_1_162-27 of the regulations provides that the facts and circumstances cannot indicate that the employee would receive all or part of the compensation regardless of whether the performance_goal is attained thus if the payment of compensation under a grant or award is only nominally or partially contingent on attaining a performance_goal none of the compensation payable under the grant or award will be considered performance-based however this section also provides that compensation does not fail to be qualified_performance-based_compensation merely because the plan allows the compensation to be payable upon death disability or change_of_ownership or control although compensation actually paid on account of those events prior to the attainment of the performance_goal would not satisfy the requirements of paragraph e termination by company without cause and termination by an executive with good reason are both involuntary terminations similar to terminations as a result of death disability or change in control therefore based on the facts submitted we rule that restricted share awards under the plan will be considered performance-based assuming they meet the requirements of sec_162 of the code even though the compensation could be paid upon termination of the executive by company without cause or termination by the executive for good reason 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 except as specifically ruled above no opinion is expressed as to the federal tax consequences of the transaction described above under any other provisions of the code sincerely yours _________________________ robert b misner assistant chief branch office of the associate chief_counsel employee_benefits and exempt_organizations enclosure copy for sec_6110 purposes


t c summary opinion united_states tax_court jorge maliabo balumba petitioner v commissioner of internal revenue respondent docket no 5501-06s filed date jorge maliabo balumba pro_se roger w bracken for respondent panuthos chief special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure respondent determined a dollar_figure deficiency in petitioner’s federal_income_tax the issues for decision are whether petitioner is entitled to deductions for dependency_exemptions whether petitioner is entitled to a child_tax_credit whether petitioner qualifies as a head_of_household and whether petitioner is entitled to an earned_income_credit background some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time the petition was filed petitioner resided in silver spring maryland from january through date petitioner lived in gaithersburg maryland with his mother his aunt and six siblings petitioner worked during as did his mother his aunt and one of his sisters petitioner earned dollar_figure and his mother earned approximately dollar_figure the record does not disclose how much petitioner’s aunt or sister earned the four family members who worked each contributed toward the family’s monthly expenses such as food clothing mortgage and utility costs on or about date petitioner moved to washington d c petitioner rented a room with his girlfriend hafiza olatunde and continued to live there until sometime in petitioner’s mother aunt and siblings remained in gaithersburg during this time petitioner filed his federal_income_tax return as a head_of_household he also claimed deductions for dependency_exemptions child tax_credits and an earned_income_credit with respect to two of his sisters fm and mm respondent issued petitioner a notice_of_deficiency in date denying the claimed deductions and credits respondent also changed petitioner’s filing_status to single discussion in general the commissioner’s determinations set forth in a notice_of_deficiency are presumed correct and the taxpayer bears the burden of showing that the determinations are in error rule a 290_us_111 deductions and credits are a matter of legislative grace and the taxpayer bears the burden of proving entitlement to any deduction or credit claimed on a return see 503_us_79 wilson v commissioner tcmemo_2001_139 pursuant to sec_7491 the burden_of_proof as to factual matters shifts to the commissioner under certain circumstances petitioner has neither alleged that sec_7491 applies nor established his compliance with the requirements of sec_7491 and b to substantiate the court uses only the minor children’s initials items maintain records and cooperate fully with respondent’s reasonable requests petitioner therefore bears the burden_of_proof i deductions for dependency_exemptions a taxpayer may be entitled to claim as a deduction an exemption_amount for each of his or her dependents sec_151 an individual must meet the following five tests in order to qualify as a dependent of the taxpayer support_test relationship or household test citizenship or residency test gross_income_test and joint_return_test sec_151 and sec_152 if the individual fails any of these tests he or she does not qualify as a dependent for a claimed dependent to satisfy the support_test a taxpayer generally must provide more than half of the claimed dependent’s support for the calendar_year in which the taxable_year of the taxpayer begins sec_152 the taxpayer must initially demonstrate by competent evidence the total amount of the support furnished by all sources for the taxable_year at issue 56_tc_512 cotton v commissioner tcmemo_2000_333 if the total amount of support is not established then it is generally not possible to conclude that the taxpayer provided more than half of the support to the claimed dependent blanco v commissioner supra pincite- cotton v commissioner supra support includes food shelter clothing medical and dental care education and the like sec_1_152-1 income_tax regs petitioner credibly testified that he contributed money toward his family’s expenses petitioner failed however to establish the total amount of support that fm and mm received in or the amount of support that he provided accordingly petitioner has not demonstrated that he provided more than half of fm’s or mm’s support see blanco v commissioner supra pincite petitioner contends that he and his mother agreed that petitioner would be financially responsible for fm and mm petitioner therefore believes he should be able to claim fm and mm as dependents although it is not entirely clear petitioner may be arguing that there was a multiple_support_agreement with respect to fm and mm sec_152 provides sec_152 multiple support agreements --for purposes of subsection a over half of the support of an individual for a calendar_year shall be treated as received from the taxpayer if- no one person contributed over half of such support over half of such support was received from persons each of whom but for the fact that he did not contribute over half of such support would have been entitled to claim such individual as a dependent for a taxable_year beginning in such calendar_year the taxpayer contributed over percent of such support and each person described in paragraph other than the taxpayer who contributed over percent of such support files a written declaration in such manner and form as the secretary may by regulations prescribe that he will not claim such individual as a dependent for any taxable_year beginning in such calendar_year petitioner has failed to demonstrate that no one person contributed over half of the support for fm or mm in furthermore neither petitioner’s mother nor any other member of his family filed a written declaration allowing petitioner to claim fm or mm as a dependent accordingly we conclude there was no multiple_support_agreement with respect to fm or mm see sec_152 petitioner therefore is not entitled to the claimed deductions and respondent’s determination is sustained ii child tax_credits sec_24 provides for a credit against the tax for the taxable_year with respect to each qualifying_child of the taxpayer the term qualifying_child means any individual if three requirements are met one of which is that the taxpayer be allowed a deduction under sec_151 with respect to such individual for the taxable_year sec_24 because we conclude that petitioner is not entitled to a dependency_exemption deduction with respect to fm or mm they are not qualifying children and petitioner is not entitled to child tax_credits respondent’s determination is sustained iii head_of_household sec_1 imposes a special income_tax rate on a taxpayer filing as head_of_household to qualify as a head_of_household the taxpayer must inter alia maintain as his or her home a household that is the principal_place_of_abode for an individual who qualifies as the taxpayer’s dependent under sec_151 sec_2 toney v commissioner tcmemo_2004_165 because we conclude that neither fm nor mm qualifies as petitioner’s dependent under sec_151 he is not entitled to head-of-household filing_status respondent’s determination is sustained iv earned_income_credit subject_to limitations an eligible_individual is allowed a credit which is calculated as a percentage of the individual’s earned_income sec_32 sec_32 in pertinent part defines an eligible_individual as any individual who has a qualifying_child for the taxable_year a qualifying_child is one who satisfies a relationship_test a residency test and an age_test sec_32 to satisfy the residency test the individual must have the same principal_place_of_abode as the taxpayer for more than one- half of the taxable_year sec_32 as mentioned above petitioner resided with ms olatunde in washington d c for the last months of accordingly petitioner’s residence was not fm’s or mm’s principal_place_of_abode for more than one-half of the taxable_year petitioner therefore is not entitled to an earned_income_credit and respondent’s determination is sustained reviewed and adopted as the report of the small_tax_case division to reflect the foregoing decision will be entered for respondent


t c memo united_states tax_court harold d and joan e edwards petitioners v commissioner of internal revenue respondent docket no filed date robert e kovacevich for petitioners lisa m oshiro and danae m rawson for respondent memorandum findings_of_fact and opinion haines judge respondent determined a deficiency of dollar_figure in petitioners’ federal_income_tax for the issue for decision is whether income harold d edwards mr edwards unless otherwise indicated all section references are to the internal_revenue_code as amended amounts are rounded to the nearest dollar received from an insurance agency deemed a sole_proprietorship is subject_to self-employment_tax under sec_1401 and sec_1402 findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts together with attached exhibits is incorporated herein by this reference at the time they filed their petition petitioners resided in washington petitioners were married on date they lived in washington state at all times during their marriage and have no separate_property agreements harold d edwards l l c the edwards agency is an insurance agency owned by mr edwards mr edwards established the business in and it has carried his name throughout its existence the edwards agency sells the insurance policies of the farmers insurance group farmers insurance at some time before mr edwards retired from the day- to-day operation of the business after mr edwards’s retirement petitioners traveled extensively and mr edwards spent less than hours per day in his office lois payne ms payne a member of the edwards agency’s staff and a full-time_employee assumed most of the managerial duties of the business nevertheless mr edwards maintained an insurance license as required by the state of washington he continued to sign all of the edwards agency’s payroll checks examined the books_and_records of the business regularly and paid bills for business items such as paper and stamps mr edwards also retained the power to fire ms payne and he reviewed the folios which reported the edwards agency’s commission income from premium renewals at no time was petitioner joan e edwards mrs edwards involved in the business operation of the edwards agency nor did she hold an insurance license in the edwards agency maintained three full-time employees and had gross_receipts of dollar_figure petitioners received dollar_figure in net_income from the edwards agency premium renewals from clients accounted for percent of the net_income of the edwards agency and the additional percent came from clients purchasing additional insurance on new cars homes or other_property the edwards agency did not solicit premium renewals instead the regional or national farmers insurance office sent edwards agency clients renewal notices in the mail and the clients made their payments directly to the farmer sec_2 in order to own an insurance agency in washington a person must have an insurance license wash rev code ann sec_48 west supp during farmers insurance made monthly deposits of such premium renewals into the nw farmers insurance group federal credit_union account of petitioners and those deposits totaled dollar_figure insurance billing office farmers insurance then credited the edwards agency with the commissions from the premium renewals and reported these credits every month in a folio on petitioners’ form_1040 u s individual_income_tax_return filed jointly in date gross_income and expenses from the edwards agency were listed on a schedule c profit or loss from business mrs edwards was listed as the proprietor of the edwards agency mr edwards also asserted that he materially participated in the operation of the edwards agency by checking the yes box in line g of schedule c and he listed his occupation on page of the return as self-employed respondent issued a notice_of_deficiency on date determining that the amounts petitioners received from the edwards agency in constituted income from mr edwards’s self-employment within the meaning of sec_1401 and therefore were subject_to self-employment_tax opinion sec_1401 imposes a tax on the self-employment_income of individuals respondent determined that the net profit mr edwards received from the operation of the edwards agency constituted self-employment_income from both past and present business operations and consequently petitioners were liable for self-employment_tax we need not decide whether the burden_of_proof shifts to respondent under sec_7491 because we decide this case on the basis of the preponderance of evidence on the record self-employment_income means the net_earnings from self- employment derived by an individual sec_1402 net_earnings_from_self-employment are the gross_income derived by an individual from any trade_or_business carried on by such individual less the deductions allowed which are attributable to such trade_or_business sec_1402 the term derive requires a nexus between the income received and a trade_or_business that is or was actually carried on 76_tc_441 the trade_or_business must be carried on by the individual either personally or through agents or employees sec_1_1402_a_-2 income_tax regs the self-employment_tax provisions are broadly construed in favor of treating income as earnings from self-employment 95_tc_639 81_tc_830 s rept 81st cong 2d sess 1950_2_cb_302 petitioners contend that they do not owe self-employment_tax because mr edwards had retired from the edwards agency and thus did not have a sufficient nexus with the agency’s income to actually be carrying_on_a_trade_or_business respondent first contends that because the gross_income from the edwards agency’s renewal_commissions was greater than petitioners’ net_income from all of the agency’s revenues the entire amount of petitioners’ schedule c net_income is derived from premium renewals respondent references lencke v commissioner tcmemo_1997_284 for the well-settled rule that self-employment_income includes commission payments to a former insurance agent of previously earned commissions and asks us to find that the principles of lencke apply to this case it is well established that renewal_commissions received by a retired insurance agent are subject_to self-employment_tax as a form of deferred_compensation erickson v commissioner 1_f3d_1231 1st cir affg without published opinion tcmemo_1992_585 108_tc_130 sec_1_1402_a_-1 income_tax regs however income must arise from some actual whether present past or future income- producing activity of the taxpayer before it becomes subject_to self-employment_tax newberry v commissioner supra pincite earnings from past income-producing activities must be tied to the quantity or quality of the taxpayer’s prior labor 130_f3d_1388 10th cir affg tcmemo_1996_269 although mr edwards and ms payne testified that mr edwards did not sell insurance in and had been retired from petitioners’ net_income from the edwards agency in was dollar_figure whereas the agency’s gross_receipts from renewals were dollar_figure the day-to-day operations of the agency for several years the record does not indicate that the renewal_commissions were earned by other edwards agency employees mr edwards worked as a principal agent for his insurance agency for decades and the court has received no evidence that traces the edwards agency’s renewal_commissions to the work of other insurance agents accordingly we find that the edwards agency’s renewal_commissions constitute self-employment_income to mr edwards respondent also alleges that the current business activities of the edwards agency constitute the carrying on of a trade_or_business by mr edwards we agree with respondent a limited_liability_company with a single owner is disregarded as an entity separate from its owner for federal_income_tax purposes unless the entity elects to be classified as an association sec_301_7701-3 and b proced admin regs if a business_entity with only one owner is disregarded its activities are treated in the same manner as a sole_proprietorship branch or division of the owner sec_301 a proced admin regs petitioners treated the edwards agency as a disregarded_entity that was not separate from its owner and they clearly reported its income and expenses on their schedule c despite listing herself as the proprietor of the edwards agency on petitioners’ return mrs edwards did not possess an insurance license and could not own the agency under washington law however mr edwards held an insurance license and we find him to be the true owner of the edwards agency as the single owner of a disregarded_entity deemed a sole_proprietorship mr edwards is taxed on the edwards agency’s income sec_301_7701-2 proced admin regs it is immaterial that the day-to-day business operations of the edwards agency were carried on by ms payne and other employees for purposes of income being included in an individual’s net_earnings_from_self-employment a trade_or_business can be carried on by an individual either personally or through agents or employees newberry v commissioner supra pincite s rept supra c b pincite sec_1_1402_a_-2 income_tax regs petitioners do not contest that ms payne and other edwards agency workers were employees of mr edwards’s deemed sole_proprietorship accordingly this court finds that edwards agency income constitutes gross_income derived from a trade_or_business carried on by mr edwards under sec_1402 in reaching these holdings the court has considered all arguments made and to the extent not mentioned concludes that they are moot irrelevant or without merit to reflect the foregoing decision will be entered for respondent


c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date number info release date conex-130498-09 uil ---------------------------------------- ------------------------------------------------------ --------------------------- ------------------------ dear --------------- your letter dated date to irs commissioner douglas h shulman was forwarded to me for response you asked that we review our position and consider ending the reporting requirements for payments made to volunteer firefighters as explained in detail below the law has historically provided and continues to provide that the information reporting requirements for payments to a volunteer firefighter differ depending on the individual firefighter’s status as an employee or an independent_contractor our interpretation of these provisions is well established and has remained constant over many years we appreciate the critical role volunteers at our nation’s fire departments play in maintaining the public safety for this reason we have worked to educate firefighting organizations about their tax obligations through various outreach programs we remain committed to partnering with them to help them correctly understand and apply the tax and reporting requirements the tax laws generally apply to volunteer firefighters in the same way they do to other workers in most cases the information reporting requirements for payments made or benefits provided to a worker depend on the worker’s status as either a common_law_employee or an independent_contractor non-employee the fact that a firefighter may be called a volunteer does not determine his or her status as an employee or an independent_contractor neither does it determine the nature of required federal information reporting the regulations that provide the criteria for determining a worker’s status as an employee or an independent_contractor for the federal_insurance_contributions_act conex-130498-09 fica tax and for federal_income_tax withholding purposes are found in sec_31_3121_d_-1 and sec_31_3401_c_-1 of the employment_tax regulations these regulations provide rules frequently referred to as the common_law rules that state in general that if the worker provides services under the direction and control of the service_recipient the worker is considered an employee for employment_tax and related information reporting purposes the rules reflect common_law principles developed and affirmed over decades by the courts which govern irs policy in this area whether a worker is an employee or an independent_contractor for federal tax and related information reporting purposes is determined under the internal_revenue_code and the employment_tax regulations the fair labor standards act does not affect whether an individual is an employee for federal tax purposes thus a worker may be an employee for federal tax purposes and not an employee for fair labor standards act purposes the term wages for purposes of fica is all remuneration for employment with certain exceptions sec_3121 of the code the law provides a similar definition of wages for purposes of federal_income_tax withholding sec_3401 of the code an employer who pays wages to an employee must furnish the employee with a form_w-2 showing the_amount_of_wages paid sec_6051 of the code wages paid to workers who are independent contractors generally must be reported on a form misc sec_6041 of the code the law excepts from the definition of wages for fica tax purposes any benefit or payment that an employee can exclude from gross_income under code sec_139b sec_3121 of the code the mortgage forgiveness debt relief act of adopted sec_139b of the code to provide members of qualified volunteer emergency response organizations including firefighters an exclusion_from_gross_income for certain state_or_local_tax benefits or payments these benefits or payments may be in the form of reimbursement or otherwise but the exclusion is limited to dollar_figure a month the law provides a similar exception from wages for income_tax_withholding purposes sec_3401 of the code in short employers do not need to report on form_w-2 or form 1099-misc any payments made or benefits provided to volunteer firefighters that are excluded from income under sec_139b however employers must report on form_w-2 or form 1099-misc amounts that are not excludable under sec_139b or any other code provision depending on the status of the volunteer firefighter as an employee or independent_contractor conex-130498-09 i appreciate and share your interest in this subject and in the well-being of firefighting organizations if you have further questions please call me or -----------------at -------- ---- ------------- sincerely lynne camillo branch chief employment_tax branch exempt_organizations employment_tax government entities tax exempt government entities


tax_exempt_and_government_entities_division number release date date date department of the treasury internal_revenue_service washington d c contact person identification_number telephone number employer_identification_number uil b - a l e r s a i l i o j o community e k a t t o e w t a o e w k o k d o h dear this is in response to your ruling_request dated date and amended on date requesting whether proposed changes to your grant program will cause it to lose its tax- exempt status under sec_501 or cause grants to individuals to be taxable_expenditures within the meaning of sec_4945 facts the trust is an irrevocable charitable_trust created on date by grantor that is recognized as exempt from federal_income_tax under sec_501 and classified as a private_foundation under sec_509 the trust is a charitable and educational trust established to provide financial assistance to interns residents and students at hospital preparing for the medical profession or seeking graduate work in their profession and to assist hospital personnel at hospital including but not limited to graduate nurses student nurses and paramedics to further their professional education the grantees are limited to employees of hospital the purpose of the trust is to assist as many deserving persons as possible and encourage them to assist themselves in securing needed funds in excess of the grant amount to complete selection of grant recipients will be based solely upon substantial objective their training standards that are completely unrelated to the employment of the recipients or to the employer's line_of_business such standards as but not limited to prior academic performance performance on tests designed to measure ability and aptitude for higher education recommendations from instructors or other individuals not related to the potential awardees financial need and conclusions drawn from personal interviews as to motivation and character may be utilized the trust instrument provides that the grantees shall be selected by the selection committee from among those individuals determined eligible by standards set by the selection committee the amounts of each grant are also determined by the selection committee and shall be applied to the payment of regular and customary charges for the specialized medical training undertaken by the grantee the trust instrument currently requires that the selection committee consist of at least five individuals consisting of the following persons the executive director of hospital the supervisor of nurses of hospital a practicing physician having a minimum of ten years of practice affiliated with hospital an attorney in general practice in county and a person of standing in the community as appointed by the other members of the selection committee the trust instrument requires a corporate bank as trustee at all times the trust instrument does not provide for a contingent class of beneficiaries should hospital cease to exist or materially change its operations administration or organization on date hospital was acquired by company a for-profit company pursuant to a plan of bankruptcy approved by the us bankruptcy court trustee instituted a moratorium on grants at that time due to concerns about tax implications arising from the acquisition by company trustee represents that it will judicially modify the terms of the trust from the terms in existence at the time of the form_1023 submission by trust when it first sought advance approval the trustee submitted a draft with the following proposed modifications which we assume the court will approve for purposes of this ruling_request the grants shall not be used as an inducement to recruit or retain employees of hospital pertinent to condition of rev_proc the selection committee shall consist of persons appointed by the trustee and shall include i an officer_or_employee of the trustee an attorney practicing in county and iii no fewer than three persons of standing in community pertinent to condition of rev_proc at no time shall any of the selection committee consist of current or formers officers directors or employees of hospital at no time shall any of the selection committee consist of any person who would be a disqualified_person as that term is defined in sec_4946 with respect to hospital or grantor pertinent to condition of rev_proc the grantees shall be selected according to objective standards unrelated to the grantee’s employment including but not limited to i being eligible for matriculation in the course of study for which the grantee is applying and meeting the admission requirements of the educational provider and ii the grantee receiving satisfactory grades in and completing the course of study pertinent to condition of rev_proc all employees at hospital will be eligible for the grants regardless of occupation pertinent to condition of rev_proc the grant shall not be terminated if a grantee is no longer employed by hospital pertinent to condition of rev_proc the grantees shall not be required to perform teaching research or other services for hospital pertinent to condition of rev_proc the grants will be applicable to education related to any occupation or profession and would not be limited to medical education pertinent to condition of rev_proc checks will be made to the employee directly and the trustee will require proof of payment to the educational_institution from the employee the trustee will investigate any and all cases of fraud or misrepresentation in courts of law in the event that the trust’s purposes become impossible or illegal to carry out it will terminate and its assets shall be distributed for one or more exempt purposes within the meaning of sec_501 rulings requested you have requested the following rulings whether the proposed changes to the trust’s grant program will cause trust to lose its tax-exempt status under sec_501 and whether grants to individuals subject_to the proposed changes to the trust's grant program will be taxable_expenditures within the meaning of sec_4945 law r c sec_117 states gross_income does not include any amount received as a qualified_scholarship by an individual who is a candidate_for_a_degree at an educational_organization described in sec_170 sec_501 provides exemption from taxation for various entities organized and operated exclusively for religious charitable scientific testing for public safety literary or educational_purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual no substantial part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation and which does not participate in or intervene in any political campaign on behalf of any candidate for public_office sec_4945 provides the term taxable_expenditure includes any amount_paid or incurred by a private_foundation as a grant to an individual for travel study or other similar purposes by such individual unless such grant satisfies the requirements of sec_4945 sec_4945 provides sec_4945 shall not apply to an individual grant awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance by the secretary if it is demonstrated to the satisfaction of the secretary that the grant constitutes a scholarship or fellowship_grant which would be subject_to the provisions of sec_117 and is to be used for study at an educational_organization described in sec_170 the grant constitutes a prize or award which is subject_to the provisions of sec_74 if the recipient of such prize or award is selected from the general_public or the purpose of the grant is to achieve a specific objective produce a report or other similar product or improve or enhance a literary artistic musical scientific teaching or other similar capacity skill or talent of the grantee sec_1_501_c_3_-1 provides that in order to be exempt as an organization described in sec_501 an organization must be both organized and operated exclusively for one or more of the purposes specified in sec_501 if an organization fails to meet either the organizational_test or the operational_test it is not exempt sec_1_501_c_3_-1 provides an organization is not organized exclusively for one or more exempt purposes unless its assets are dedicated to an exempt_purpose sec_1_501_c_3_-1 provides the term exempt_purpose or purposes means any purpose or purposes specified in sec_501 sec_53_4945-4 states that a request for advance approval of a foundation's grant procedures must fully describe the foundation's procedures for awarding grants and for ascertaining that such grants are used for the proper purposes and that such approval shall apply to a subsequent grant program as long as the procedures under which it is conducted do not differ materially from those described in the request to the commissioner the request must contain the following items i a statement describing the selection process that is sufficiently detailed for the commissioner to determine whether the grants are made on an objective and nondiscriminatory basis ii a description of the terms and conditions under which the foundation ordinarily makes such grants that is sufficient to enable the commissioner to determine whether the grants awarded under such procedures would meet the requirements of paragraph or of sec_4945 iii a detailed description of the private foundation's procedure for exercising supervision over grants as described in sec_53 c and iv a description of the foundation's procedures for review of grantee reports for investigation where diversion of grant funds from their proper purposes is indicated and for recovery_of diverted grant funds revrul_81_217 1981_36_irb_16 provides in part that where a private_foundation pays grants to an organization that is not a private_foundation to provide scholarships only to children of a particular employer the grants are grants to individuals under sec_4945 for which advance approval under sec_4945 is required and are employer-related' grants to which the guidelines of revproc_76_47 apply revproc_76_47 1976_2_cb_670 provides guidelines to be used in determining whether a grant made by a private_foundation under an employer-related grant program to an employee of the employer to which the program relates is a scholarship or fellowship_grant subject_to the provisions of sec_117 and therefore excludable as a taxable_expenditure under sec_4945 the procedure states that an employer-related program is a program that treats some or all of the employees of a particular employer as a group from which grantees of some or all of the foundation's educational grants will be selected limits the potential grantees for some or all of the foundation's grants to individuals who are employees of a particular employer or otherwise gives such individuals a preference or priority over others in being selected as grantees if a private foundation's program satisfies the seven conditions and the percentage_test the procedure further provides that if the private foundation's educational grants are not scholarships or fellowship grants subject_to the provisions of sec_117 or otherwise qualify under sec_4945 or they would be taxable_expenditures within the meaning of sec_4945 and might depending upon the circumstances lead to a loss of the private foundation's exempt status or a facts_and_circumstances_test as an alternative to the percentage_test the service will assume the grants awarded under the program to employees will be scholarships or fellowship grants subject_to the provisions of sec_117 if a private foundation's program does not satisfy one or more of the seven conditions in revproc_76_47 the service will not issue a ruling that the grants awarded are scholarships or fellowship grants under sec_117 one of those seven conditions is that the selection of grant recipients must be made by a committee consisting wholly of individuals totally independent and separate from the private_foundation its organizer and the employer concerned analysis sec_4945 provides that a grant by a private_foundation to an individual for travel study or other similar purpose by such individual is a taxable_expenditure by the private_foundation for purposes of the tax imposed by sec_4945 unless such grant satisfies the requirements of sec_4945 in addition to satisfying either sec_4945 or a private_foundation must show its grants are made on an objective and nondiscriminatory basis under procedures approved in advance by the secretary sec_4945 a request for advance approval of a foundation's grant procedures must fully describe the foundation's procedures for awarding grants and for ascertaining that such grants are used for the proper purposes and that such approval shall apply to a subsequent grant program as long as the procedures under which it is conducted do not differ materially from those described in the request to the commissioner sec_53_4945-4 trust is requesting advance approval of the grant program as modified as described below the terms of the trust modifications describe a selection process that is sufficiently detailed for the commissioner to determine whether the grants are made on an objective and nondiscriminatory basis and whether the grants awarded under such procedures would meet the requirements of paragraph or of sec_4945 in accordance with sec_53_4945-4 and ii the proposed modifications to trust’s terms require the grantee to be eligible for matriculation in the course of study for which the grant application is made meet admission complete the course of study and receive satisfactory grades trustee states that those grants for degree completion are conditioned on the grantee providing the selection committee a report card and certificate of completion trustee states the selection committee monitors the report cards and those not seeking degrees will be required to give the selection committee a certificate of completion or similar document based on the trust's proposed modifications these procedures meet the requirements of sec_53_4945-4 lastly trustee states that checks will be made to the employee directly and that trustee will require proof of payment to the educational_institution from the employee trustee further states it will investigate any and all cases of fraud or misrepresentation in courts of law based on the trust's representations these procedures meet the requirements of sec_53 d iv r c sec_4945 provides that a grant otherwise qualifying under sec_4945 will not be a it is demonstrated to the satisfaction of the secretary that the grant is a taxable_expenditure if scholarship or fellowship_grant that is subject_to the provisions of sec_117 revproc_76_47 1976_2_cb_670 provides guidelines to be used in determining whether a grant made by a private_foundation under an employer-related grant program to an employee of the employer to which the program relates is a scholarship or fellowship_grant subject_to the provisions of sec_117 and therefore excludable as a taxable_expenditure under sec_4945 revproc_76_47 1976_2_cb_670 provides that an employer-related program is a program that treats some or all of the employees of a particular employer as a group from which grantees of some or all of the foundation's educational grants will be selected limits the potential grantees for some or all of the foundation's grants to individuals who are employees of a particular employer or otherwise gives such individuals a preference or priority over others in being selected as grantees see also revrul_79_131 1979_1_cb_368 and revrul_81_217 1981_36_irb_16 the trust's grant program is employer-related because its grantees are limited to the employees of hospital therefore revproc_76_47 supra applies revproc_76_47 supra provides that if a private foundation's program satisfies i the seven conditions and ii the percentage_test or a facts_and_circumstances_test as an alternative to the percentage_test the service will assume the grants awarded under the program to employees will be scholarships or fellowship grants subject_to the provisions of sec_117 revproc_76_47 supra provides that if a private foundation's program does not satisfy one or more of the seven conditions the service will not issue a ruling that the grants awarded are scholarships or fellowship grants under sec_117 one of the seven conditions is that the selection of grant recipients must be made by a committee consisting wholly of individuals independent and separate from the private_foundation its organizer and the employer concerned the trust's proposed modifications satisfy this condition based on the foregoing and the representations that the trust modifications will be approved by a court of competent jurisdiction all seven conditions are met revproc_76_47 supra requires that the trust satisfy either a percentage_test or a facts_and_circumstances_test in addition to the seven conditions based on the information provided the trust meets the facts_and_circumstances_test trust was created and funded not by hospital but by a benefactor of hospital scholarships will be available to all employees of hospital and no longer limited to medical education the selection committee is independent of hospital and those facts trust typically trust makes grants to only about percent of the employees and circumstances together with the other representations and restrictions contained in the trust if modified as described above indicate that the primary purpose of the program is educate the recipients as individuals rather than to provide extra compensation or employment incentive to them rulings based on the foregoing subject_to the representations that the terms of the trust are judicially modified by a court of competent jurisdiction in materially similar form to the terms presented above the proposed changes to the trust’s grant program will not cause trust to lose its tax- exempt status under sec_501 and grants to individuals subject_to the proposed changes to the trust’s grant program will not be taxable_expenditures within the meaning of sec_4945 this ruling will be made available for public inspection under sec_6110 after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice this ruling is directed only to the organization that requested it sec_6110 provides that it may not be used or cited by others as precedent this ruling is based on the facts as they were presented and on the understanding that there will be no material changes in these facts this ruling does not address the applicability of any section of the code or regulations to the facts submitted other than with respect to the sections described because it could help resolve questions concerning your federal_income_tax status this ruling should be kept in your permanent records if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter in accordance with the power_of_attorney currently on file with the internal_revenue_service we are sending a copy of this letter to your authorized representative sincerely theodore lieber manager exempt_organizations technical group enclosure notice