t c memo united_states tax_court william l and mary lee powell petitioners v commissioner of internal revenue respondent docket no filed date valentine c crotin for petitioners alvin a ohm and andrew m winkler for respondent memorandum opinion goldberg special_trial_judge this case was heard pursuant to sec_7443a and rule sec_180 sec_181 and sec_182 this matter is before the court on respondent's motion to dismiss for lack of jurisdiction the issue raised by respondent's motion to dismiss unless otherwise indicated all section references are to the internal_revenue_code as amended all rule references are to the tax_court rules_of_practice and procedure involves the scope of the court's jurisdiction in an affected- items proceeding some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated by this reference petitioners resided in dallas texas at the time their petition was filed in petitioners invested dollar_figure in the partnership barrister equipment associates serie sec_112 barrister serie sec_112 through their investment in an s_corporation known as erath enterprises inc erath on date respondent issued separate notices of final_partnership_administrative_adjustment fpaa to the tax_matters_partner tmp of barrister serie sec_112 for the taxable years and the adjustments were the subject of proceedings at the partnership level pursuant to sec_6221 through this court entered a stipulated decision in the partnership proceeding anderson equip associates v commissioner docket no on date pursuant to sec_7481 that decision became final on date on date respondent made an assessment of a computational adjustment against petitioners for resulting from the partnership adjustments and an assessment for interest including additional interest under sec_6621 on date respondent made a second assessment of interest including additional interest under sec_6621 on date respondent made an assessment for against petitioners as a computational adjustment resulting from the partnership adjustments and an assessment for interest including additional interest under sec_6621 on or around date respondent made a second assessment of interest including additional interest under sec_6621 in separate notices of deficiency issued on date respondent determined additions to tax for negligence under sec_6653 and and for the substantial_understatement of tax_liability under sec_6661 for and the additions to tax are affected items in that they are based on taxes assessed against petitioners as a result of adjustments to partnership items of barrister serie sec_112 petitioners filed a timely petition for redetermination of the additions to tax for and and of income taxes for and previously assessed by respondent this case was called for trial in dallas texas on date at that time the parties filed a stipulation of settled issues in which they stipulated that petitioners are not liable for additions to tax under sec_6653 sec_6653 and sec_6661 for the taxable years and pursuant to sec_6214 respondent asserted additions to tax under sec_6659 for and in the respective amounts of dollar_figure and dollar_figure petitioners concede that they are liable for additions to tax in these amounts the stipulation of settled issues states that upon entry of decision petitioners waive the restriction contained in sec_6213 prohibiting assessment and collection of the sec_6659 addition_to_tax until the entry of the decision of the court is final as of date petitioners had not paid any of the taxes or interest owing with respect to tax years and which have been assessed on date petitioners filed a motion for leave to file an amendment to petition that motion was granted in the amendment to petition petitioners again stated that the deficiencies in dispute include the amounts assessed against them as a result of the decision in anderson equipment associates v commissioner supra further in the amendment to petition petitioners allege that respondent erred by not reducing the amounts of the taxes and interest assessed by the loss of petitioners' investment in the barrister serie sec_112 and the amount of the investment tax recapture reported by petitioners on their tax_return as a result of their interest in barrister serie sec_112 petitioners argue that the loss and recapture are affected items or in the alternative that the mitigation provisions of sec_1311 through apply petitioners also allege error in the assessment of interest under sec_6621 by order dated date the court ordered respondent to file any motion to dismiss by date on date respondent filed a motion to dismiss for lack of jurisdiction as to the portion of this case which relates to partnership items computational adjustments offsets to previously assessed computational adjustments and the increased rate of interest under sec_6621 the tax treatment of partnership items generally is determined at the partnership level pursuant to the unified_audit and litigation procedures set forth in sec_6221 though tax equity and fiscal responsibility act of tefra publaw_97_248 96_stat_648 87_tc_783 partnership items include inter alia each partner's proportionate share of the partnership's aggregate items of income gain loss deduction or credit and other_amounts determinable at the partnership level with respect to partnership assets or investments necessary to enable the partnership or partner to determine the investment_credit and the recapture of the investment_credit sec_6231 sec_301_6231_a_3_-1 proced admin regs although investment credits are taken into account separately by each partner sec_702 87_tc_49 the tefra procedures apply with respect to all taxable years of a partnership beginning after date 87_tc_1279 the tefra procedures apply to the taxable years and of barrister serie sec_112 an affected_item is defined in sec_6231 as any item to the extent such item is affected by a partnership_item 95_tc_209 the first type of affected_item is a computational adjustment made to record the change in a partner's tax_liability resulting from the proper treatment of partnership items sec_6231 white v commissioner supra once partnership level proceedings are completed respondent is permitted to assess a computational adjustment against a partner without issuing a deficiency_notice sec a n c f energy partners v commissio89_tc_741 maxwell v commissioner supra pincite n the second type of affected_item is one that is dependent on factual determinations to be made at the individual partner level n c f energy partners v commissioner supra pincite section a a i provides that the normal deficiency procedures apply to affected items that require determinations at the partner level additions to tax under sec_6653 and and are affected items requiring factual determinations at the individual partner level and are subject_to the normal deficiency procedures n c f energy partners v commissioner supra pincite in the motion to dismiss respondent argues that the court does not have jurisdiction to redetermine petitioners' tax for the years in issue to the extent that the amounts assessed by respondent are attributable to the proper reporting of partnership items petitioners' shares of the losses and investment_credit basis of the partnership for and are partnership items accordingly we are without jurisdiction over the deficiencies attributable to these items which were assessed as computational adjustments furthermore petitioners agree that we are without jurisdiction over the computational adjustments in this affected items proceeding see 100_tc_367 93_tc_730 petitioners however argue that the investment_tax_credit_recapture reported on their return is an affected_item and they contend that they overpaid taxes in as a result of recognizing recapture of a portion of the investment_credit respondent has since disallowed in taxable years and respondent counters that we do not have jurisdiction to offset the taxes assessed for and by petitioners' alleged overpayment in a year not before the court as we understand it petitioners' argument is that the affirmative defense of equitable_recoupment applies and that the deficiencies assessed for the tax years and should be offset by the alleged overpayment in we do not agree equitable_recoupment may apply in limited circumstances to overcome the bar of the statute_of_limitations to prevent inequitable windfalls to either taxpayers or the government that would otherwise result from inconsistent tax treatment of a single transaction item or event affecting the same taxpayer 101_tc_551 in 494_us_596 the supreme court stated our decisions in bull and stone stand only for the proposition that a party litigating a tax claim in a timely proceeding may in the proceeding seek recoupment of a related and inconsistent but now time-barred tax claim relating to the same transaction in both cases there was no question but that the courts in which the refund actions were brought had jurisdiction to date we have not allowed equitable_recoupment to be the sole basis for jurisdiction as petitioners have conceded we do not have jurisdiction over the computational assessments in this proceeding accordingly the doctrine_of equitable_recoupment does not apply in the alternative petitioners argue that the mitigation provisions sec_1311 through apply in these circumstances petitioners contend that the settlement agreement reached with respect to the and taxable years of barrister serie sec_112 is a determination within the meaning of the mitigation provisions petitioners further argue that the disallowance of the investment credits claimed in and and the recapture of the investment_credit in operate as a double disallowance of credit thus petitioners claim that there was an overpayment_of_tax in petitioners argue that the taxes assessed for and should be offset by the amount of taxes paid_by petitioners in with respect to the investment_credit recapture respondent argues that the court is without jurisdiction to consider petitioners' mitigation argument because the tax years and are open and the provisions do not apply to those years and the tax_year is not before the court where applicable the mitigation provisions permit the correction of an item that is shown to be erroneous by a determination in an administrative or judicial proceeding relating to another year fruit of the loom inc v commissioner tcmemo_1994_492 affd 72_f3d_1338 7th cir if the mitigation provisions apply the taxable_income for the year of the error may be adjusted under sec_1314 sec_1311 petitioners allege that the recapture of the tax_credit in was erroneous however the tax_year is not before us and we lack jurisdiction to redetermine whether petitioners overpaid their income_tax_liability for that year sec_6214 furthermore we do not believe that the mitigation provisions permit the relief sought by petitioners in this proceeding if the adjustment determined under sec_1314 results in a decrease in tax it is treated as if it were an overpayment for the taxable_year with respect to which such adjustment was made the recovery_of which is subject_to the law and regulations applicable to claims and suits for refund sec_1314 sec_1_1314_b_-1 income_tax regs sec_6621 provides for an increase in the interest rate to percent of the statutory rate on the underpayment_of_tax if a substantial_underpayment is due to a tax-motivated transaction respondent asserts that we lack jurisdiction to consider petitioners' liability for interest imposed at an increased rate under sec_6621 in 95_tc_209 the commissioner issued a notice_of_deficiency for additions to tax and increased interest under sec_6621 after the underlying tax_deficiency was assessed as a computational adjustment resulting from partnership proceedings the court held that increased interest under sec_6621 is not treated as a deficiency for purposes of sec_6211 as provided by sec_6601 and thus the court did not have jurisdiction to redetermine additional interest in an affected_item proceeding under section a a i white v commissioner supra pincite the court further held that sec_6621 did not provide the court with jurisdiction to redetermine the taxpayers' liability for increased interest under sec_6621 the court concluded that its jurisdiction under sec_6621 is limited to cases where a portion of the deficiency is attributable to taxes imposed by subtitle a whereas additions to tax are imposed by subtitle f thus in an affected items proceeding involving only additions to tax the court generally does not have jurisdiction under sec_6621 to determine whether additional interest applies petitioners contend however that this court has jurisdiction to consider this issue under sec_6512 in 97_tc_548 this court held that the court may have jurisdiction over a taxpayer's liability for sec_6621 interest by virtue of our jurisdiction to determine an overpayment_of_tax under sec_6512 petitioners have not made any payments let alone an overpayment of the interest due on the underlying deficiencies we agree with respondent that in these circumstances we lack jurisdiction to consider petitioners' liability for interest under sec_6621 based on the foregoing an appropriate order will be issued


t c memo united_states tax_court stephen g and karen p shaltz petitioners v commissioner of internal revenue respondent docket no filed date ps timely filed their joint federal_income_tax return wherein they failed to report a dollar_figure payment p-w received from gm during that payment arose from a complaint that p-w had filed against gm and one of its employees for sexual harassment primarily in violation of the elliott-larsen civil rights act mich comp law sec_37 in her complaint p-w prayed solely for an award of damages for mental anguish humiliation embarrassment and loss of benefits and other economic advantages of employment following mediation gm settled w’s complaint by paying to p-w dollar_figure inclusive of costs interest and attorney fees held but for dollar_figure conceded by r to be excludable in this case from gross_income ps are not entitled to exclude any of the settlement payment from their gross_income under sec_104 i r c ps failed to establish that any of the net settlement payment was received by p-w on account of a personal physical injury or physical sickness as required by sec_104 i r c nor have petitioners established that they received any portion of the net settlement amount for expenses that they paid for medical_care attributable to emotional distress so as to exclude that portion under the flush language of sec_104 i r c robert j zinkel jr for petitioners john w stevens for respondent memorandum opinion laro judge this case is before the court for decision without trial see rule respondent determined a deficiency of dollar_figure in petitioners’ federal_income_tax and a related accuracy-related_penalty of dollar_figure under sec_6662 following concessions by respondent we are left to decide whether sec_104 allows petitioners to exclude from their gross_income a payment that karen p shaltz petitioner received from the settlement of a sexual harassment complaint we hold it does not unless otherwise noted section references are to the applicable versions of the internal_revenue_code rule references are to the tax_court rules_of_practice and procedure background all facts were stipulated the stipulated facts and the exhibits submitted therewith are incorporated herein by this reference petitioners are husband and wife they resided in munith michigan when their petition was filed petitioners timely filed a joint federal_income_tax return they did not report on that return that petitioner had received dollar_figure from general motors inc gm during stemming from a complaint that she had filed in the michigan circuit_court for the county of wayne against gm and one of its employees james pennington pennington the complaint alleged that petitioner’s suit was one of trespass and asserted that gm and pennington were liable to petitioner for sexual harassment primarily in violation of the elliott-larsen civil rights act mich comp laws sec_37 the complaint contained three counts one against gm and pennington and the other two against gm alone with respect to all three counts petitioner prayed solely for an award of damages for mental anguish humiliation embarrassment and loss of benefits and other economic advantages of employment petitioner’s complaint against gm and pennington went to mediation before trial following mediation gm settled thi sec_1 petitioners attached to their brief an affidavit of their counsel we give no consideration to this affidavit see rule b complaint by paying to petitioner in dollar_figure inclusive of costs interest and attorney fees of that amount dollar_figure was retained by petitioner’s counsel under a contingent_fee arrangement respondent concedes that petitioners’ gross_income does not include this dollar_figure petitioner also paid in connection with the litigation dollar_figure in litigation costs mainly deposition expenses petitioner claims also to have paid dollar_figure in medical_expenses related to the alleged injuries underlying the complaint discussion respondent’s determinations in the notice_of_deficiency are presumed correct and petitioners must prove those determinations wrong in order to prevail rule a 290_us_111 the submission of this case to the court under rule does not change or otherwise lessen petitioners’ burden_of_proof rule b 104_tc_1 affd 103_f3d_104 10th cir whereas in certain cases sec_7491 shifts the burden_of_proof to the commissioner we conclude that this is not one of those cases petitioners have neither alleged that sec_7491 is applicable to this case nor established that they have complied with the requirements of sec_7491 and sec_2 but for this general description of the settlement the record does not provide any other details as to the terms or circumstances of the settlement b to substantiate items to maintain required records and to cooperate fully with reasonable requests of the commissioner see sec_7491 sec_61 provides that gross_income includes all income from whatever source derived sec_61 is construed broadly to reach any accession to wealth exclusions from gross_income on the other hand are construed narrowly 515_us_323 504_us_229 348_us_426 the parties disagree over the applicability of sec_104 to the net settlement payment of dollar_figure dollar_figure less dollar_figure that section as applicable herein excludes from gross_income the amount of any damages other than punitive_damages received whether by suit or agreement and whether as lump sums or as periodic_payments on account of personal physical injuries or physical sickness in this context the terms physical injury and physical sickness do not include emotional distress except to the extent of damages not in excess of the amount_paid for medical_care described in sec_213 and b attributable to emotional distress see the flush language of sec_104 the term damages received as used in sec_104 denotes an amount received through prosecution of a legal suit or action based upon tort or tort type rights or through a settlement agreement entered into in lieu of such prosecution sec_1_104-1 income_tax regs in the absence of bona_fide language in a settlement agreement as to the reason for a settlement payment we discern that reason by determining the intent of the payor in making the payment 102_tc_116 affd in part and revd in part on another issue not relevant herein 70_f3d_34 5th cir we do so on the basis of all the facts and circumstances of the case including an analysis of the complaint filed and the details surrounding the litigation id petitioners must meet a two-prong test in order for the net settlement payment to be excluded under sec_104 more specifically they must prove that the underlying cause of action giving rise to petitioner’s recovery_of the payment is based upon tort or tort type rights and the payment was received on account of personal physical injuries or physical sickness commissioner v schleier supra pincite see also sec_3 as relevant herein the small_business job protection act of sbjpa publaw_104_188 sec 110_stat_1838 amended sec_104 to narrow the exclusion for amounts received after date whereas the text of the predecessor section allowed an exclusion for damages received on account of personal injuries or sickness the sbjpa mandated that the damages could be excluded from gross_income only if they were received on account of personal physical injuries or physical sickness emphasis added the supreme court in 515_us_323 addressed the continued a sec_1_104-1 income_tax regs unless petitioners prove both of these prongs the net settlement payment is not excludable from gross_income under sec_104 e g prasil v commissioner tcmemo_2003_100 we begin our analysis with the second prong our inquiry as to this prong is twofold first we need to decide whether petitioner’s complaint for sexual harassment mental anguish humiliation embarrassment and loss of benefits and other economic advantages of employment constitutes an allegation of personal physical injuries or physical sickness see 100_tc_93 affd 33_f3d_625 6th cir second if we find that it does we need to decide what part if any of the net settlement amount was paid to petitioner on account of those personal physical injuries or physical sickness petitioner’s complaint prays for an award only as to the following four damages mental anguish humiliation embarrassment and loss of benefits and other economic advantages of employment the last category of alleged damages loss of continued predecessor text and enunciated the referenced two-prong test without mention of the word physical in that the amendment made to that text by the sbjpa applies to the instant case it logically follows that petitioner’s personal injuries or sickness must be physical in nature to fall within the exclusion of sec_104 see prasil v commissioner tcmemo_2003_100 benefits and other economic advantages of employment is not on account of personal injuries or sickness commissioner v schleier supra pincite economic injuries are not personal injuries for purposes of sec_104 united_states v burke supra pincite same see also robinson v commissioner supra pincite although each of the first three categories of alleged damages mental anguish humiliation embarrassment could be or have been construed to be personal injuries or sickness eg commissioner v schleier supra pincite united_states v burke supra pincite n see also 207_f3d_322 6th cir the question under the applicable text of sec_104 is not merely whether those damages reflected personal injuries or sickness but whether a personal_injury_or_sickness is physical in nature under the facts herein petitioners’ alleged mental anguish humiliation and embarrassment are not personal physical injuries or physical sickness within the meaning of sec_104 but are most akin to emotional distress sec_104 and the flush language of sec_104 see h conf rept pincite ndollar_figure 1996_3_cb_741 ndollar_figure emotional distress including symptoms such as insomnia headaches and stomach disorders i sec_4 petitioners miss this point in that they erroneously apply in their brief the pre-amendment text of sec_104 and the supreme court’s discussion of that predecessor statute in commissioner v schleier supra pincite not considered a physical injury or physical sickness except that an exclusion may be allowed to the amount_paid for medical_care attributable to the emotional distress see also united_states v burke u s pincite stating that former sec_104’s reference to personal injuries encompasses nonphysical injuries to the individual such as those affecting emotions reputation or character greer v united_states supra pincite garrett v commissioner tcmemo_1994_70 see generally black’s law dictionary 7th ed emotional distress denotes a highly unpleasant mental reaction such as anguish grief fright humiliation or fury that results from another person’s conduct emotional pain and suffering we conclude that none of petitioner’s net settlement payment is attributable to personal physical injuries or physical sickness and hold that none of that payment may be excluded from petitioners’ gross_income under sec_104 in so doing we note that the record does not establish the intent of gm in making any or all of the settlement payment to petitioner petitioners make no claim that any part of the net settlement amount was received by petitioner as damages for expenses paid for medical_care attributable to emotional distress nor are we able to find that such was the case accordingly we also conclude that the flush language of sec_104 is inapplicable petitioners introduced into evidence a letter from the social_security administration showing that petitioner was eligible for disability payments during the record is continued thus insofar as petitioners’ sexual harassment complaint was for personal physical injury or physical sickness the record before us would not support a finding that any amount of the dollar_figure settlement was received on account of such injury or sickness as a result the entire payment with the exception of the amount conceded by respondent is taxable bland v commissioner tcmemo_2000_98 citing 180_f3d_859 7th cir see also 35_f3d_93 2d cir sherman v commissioner tcmemo_1999_202 brennan v commissioner tcmemo_1997_317 petitioners argue alternatively that the net settlement payment is not taxable to them to the extent of the aforementioned court costs and claimed medical_expenses by virtue of 202_f3d_854 6th cir we disagree we note at the outset that petitioners have not established that they paid the claimed medical_expenses for emotional distress in estate of clarks the court_of_appeals continued silent as to any reason or reasons for petitioner’s disability petitioners also provided a statement of petitioner’s physician opining that petitioner as of date suffered from depression anxiety stress and recurrent past stressors and had so suffered from these conditions from date while the statement also opined that depression and trauma at work were the reasons for petitioner’s conditions the statement does not mention anything about sexual harassment of petitioner on the record before us we are unable to link petitioner’s disability and her conditions as reflected in the physician’s statement with the sexual harassment complaint or more importantly to gm’s settlement of that complaint for the sixth circuit held that a portion of a judgment awarded to a taxpayer and paid to the taxpayer’s lawyer under a contingent_fee arrangement was not includable in the taxpayer’s gross_income the court reasoned that the taxpayer’s contingent_fee agreement operated under applicable state michigan law as a lien on the portion of the judgment to be recovered and transferred the ownership of that portion to the lawyer we do not read the court of appeals’ opinion in estate of clarks to support petitioners’ position as to the court costs and claimed medical_expenses we hold against petitioners on this issue we have considered all arguments and have found those arguments not discussed herein to be irrelevant and or without merit to reflect the foregoing decision will be entered under rule


t c memo united_states tax_court carey clayton mills petitioner v commissioner of internal revenue respondent docket no filed date carey clayton mills pro_se brock e whalen sheila r pattison and bryan j dotson for respondent memorandum findings_of_fact and opinion goeke judge respondent determined deficiencies in petitioner’s income_tax of dollar_figure and dollar_figure for and years in issue respectively respondent also determined penalties under sec_6662 for the years in unless otherwise indicated all section references are to the internal continued issue however the parties have agreed petitioner is not liable for accuracy- related penalties after concessions the issue for decision is whether the allowable deduction for legal and professional services legal fees for should be dollar_figure or dollar_figure petitioner’s amended return which reflects the dollar_figure deduction for legal fees requires us to consider whether a change in accounting_method from the cash_receipts_and_disbursements_method cash_method to the accrual_method is a valid change we hold the change in accounting_method is not valid and thus petitioner is entitled to a deduction of dollar_figure for legal fees under the cash_method findings_of_fact at the time the petition was filed petitioner resided in alaska petitioner began a for-profit activity to mine minerals mineral mining activity in petitioner formed diversified mining ventures l l c diversified on date pursuant to the laws of the state of alaska through which he conducted his mineral mining activity between and petitioner accounted for gross_income and expenses of his mineral mining activity using the cash_method petitioner reported income and expenses on schedule c continued revenue code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure profit or loss from business attached to his income_tax returns petitioner has not filed with respondent an application to change his method_of_accounting on date petitioner filed hi sec_2011 income_tax return original return he subsequently submitted an amended income_tax return amended return which was processed on or around date on his original return petitioner reported his business income and expenses on schedule c using the cash_method and claimed a deduction for legal fees of dollar_figure reflecting the amount he paid in on his amended return he reported that he was using the cash_method although his return reflected the accrual_method of accounting for his legal fees petitioner cites a tax software error for the reported use of the cash_method petitioner claimed a deduction for legal fees of dollar_figure on his amended return reflecting the total amount of legal fees billed during the tax_year during petitioner did not maintain any formal accounting books_or_records he reported dollar_figure of gross_receipts in from renting out equipment the only record reflecting the gross_receipts was the check used to pay for the diversified is a disregarded_entity for federal tax purposes under sec_301_7701-2 and sec_301_7701-3 proced admin regs therefore petitioner appropriately reported his business income and expenses on schedule c equipment rental which did not include any information regarding the date petitioner became entitled to receive the rental income on date respondent mailed petitioner a notice_of_deficiency for the years in issue respondent initially disallowed the deduction claimed for legal fees for respondent has since conceded that petitioner is entitled to a deduction of dollar_figure for legal fees respondent proposed adjustments to income on form 4549-a income_tax discrepancy adjustments attached to the notice_of_deficiency the adjustment to petitioner’s deduction for legal fees was dollar_figure the adjustment for repairs and maintenance was dollar_figure this however was an error the amounts that should have been listed are dollar_figure for legal fees and dollar_figure for repairs and maintenance the amounts petitioner reported on the amended return the correction of these errors did not increase the amount of the deficiency and the amount left in dispute is significantly less than the original determination petitioner timely filed a petition with this court disputing the notice_of_deficiency i burden_of_proof opinion ordinarily the commissioner’s determinations in a notice_of_deficiency are presumed correct and the taxpayers bear the burden of proving that the commissioner’s determinations are incorrect rule a 290_us_111 deductions are a matter of legislative grace and the taxpayers bear the burden of proving that they have met all requirements necessary to be entitled to the claimed deductions rule a 503_us_79 petitioner argues that respondent introduced a new_matter outside the original notice_of_deficiency in raising the change in accounting_method_issue petitioner contends that he was instructed to change his accounting_method by an internal_revenue_service irs agent and that now the burden_of_proof is shifted to respondent to prove that no such instructions were issued here the record fully presents the facts and the burden_of_proof plays no role in the outcome see 124_tc_95 ii change in accounting_method as a general_rule taxable_income shall be computed under the accounting_method by which the taxpayer regularly computes his income in keeping his books sec_446 once the taxpayer has adopted an accounting_method he must secure the commissioner’s consent before he can compute his taxable_income under a different method sec_446 if the taxpayer changes the accounting_method used in computing taxable_income without first obtaining consent the commissioner can assert sec_446 and require the taxpayer to abandon the new method_of_accounting and to report taxable_income using the old method 130_tc_147 aff’d 659_f3d_316 4th cir sunoco inc v commissioner tcmemo_2004_29 slip op pincite the question in such a case is whether the change constitutes a change_of_accounting_method that is subject_to sec_446 capital one fin corp v commissioner t c pincite sunoco inc v commissioner slip op pincite if the change constitutes a change_of_accounting_method that is subject_to sec_446 then the taxpayer is foreclosed from making the change by sec_446 and the regulations promulgated thereunder without regard to whether the new method would be proper capital one fin corp v commissioner t c pincite sunoco inc v commissioner slip op pincite a change in the accounting_method includes a change in the overall plan of accounting for gross_income or deductions or a change in the treatment of any material_item used in that overall plan sec_1_446-1 income_tax regs a taxpayer’s change_of his overall plan of accounting from the cash_method to the accrual_method is a change in accounting_method id see sunoco inc v commissioner slip op pincite petitioner’s purported adoption of the accrual_method of accounting for diversified in constitutes a change in accounting_method petitioner started his mineral mining activity in from through he accounted for the income and expenses for diversified by using the cash_method according to petitioner he adopted the accrual_method as his overall accounting_method in petitioner’s purported change_of his overall accounting_method from the cash_method to the accrual_method constitutes a change_of_accounting_method for which petitioner was required to obtain to respondent’s consent petitioner did not obtain respondent’s consent before his purported change from the cash_method to the accrual_method of accounting a taxpayer has two means through which he can obtain the commissioner’s consent to a change in accounting_method hawse v commissioner tcmemo_2015_99 at see sec_1_446-1 income_tax regs first the taxpayer can file a properly completed form_3115 application_for change in accounting_method with the commissioner during the taxable_year for which the taxpayer desires to make the change and await an affirmative grant of consent capital one fin corp v commissioner t c pincite sec_1_446-1 income_tax regs the commissioner must notify the taxpayer that his request has been granted for the commissioner’s consent to be effective hawse v commissioner at second the taxpayer can comply with the terms and conditions for obtaining consent under any administrative procedure promulgated by the commissioner for that purpose sec_1_446-1 income_tax regs revproc_2011_14 2011_4_irb_330 and revproc_97_27 1997_1_cb_680 provide the procedures for obtaining the commissioner’s automatic rev_proc and nonautomatic rev_proc consent to a change in accounting_method for the years at issue a taxpayer is required to file a form_3115 or application in lieu of a form_3115 to obtain the commissioner’s automatic consent to a change in accounting_method revproc_2011_14 sec a 2011_4_irb_330 likewise a taxpayer is required to file a form_3115 to obtain the commissioner’s nonautomatic consent to a change in accounting_method revproc_97_27 sec_5 a c b pincite neither revproc_2011_14 supra nor revproc_97_27 supra provides that oral instructions from an agent are sufficient to confer the commissioner’s consent accordingly petitioner did not obtain the commissioner’s consent before his purported adoption of the accrual_method for under sec_446 the commissioner can require the taxpayer to abandon the new accounting_method and to report taxable_income using the old accounting_method sunoco inc v commissioner tcmemo_2004_29 petitioner never received permission from respondent to change his accounting_method and respondent has required petitioner to abandon his new accounting_method the accrual_method under which petitioner’s amended return was filed and to report taxable_income using his old accounting_method the cash_method under the cash_method the proper deduction for legal fees is dollar_figure not the dollar_figure claimed on the amended return iii conclusion we hold that petitioner was required to compute diversified’s income and expenses for the years at issue under the cash_method accordingly petitioner is entitled to a dollar_figure deduction for legal fees for the tax_year in reaching our holdings herein we have considered all arguments the parties made and to the extent not mentioned above we conclude they are moot irrelevant or without merit to reflect the foregoing decision will be entered under rule


internal_revenue_service department of the treasury sev yoy o04 h oo d y9y2 vpys y-oy vo theed pasty lonkey washington dc contact person telephone number in reference to ples eo jan employer_identification_number key district legend x dear taxpayer this ruling revokes and supersedes our prior ruling that was the ruling was issued to you as plr on january issued in response to your letter dated june the establishment of a program to provide employer-related disaster relief and emergency hardship grants and loans to employees of x and its subsidiaries regarding the date request indicated that you are exempt under sec_501 described in sec_501 foundation under sec_509 of the internal_revenue_code as an organization and classified as a private you are a_trust xx is a for profit enterprise your xx x as such a subsidiary of they provide your support trustee is sponsors and committee that constitutes your directors and principal officers is selected by the chairman of the board_of directors of x and they represent officers of kx and its subsidiaries directors select your committee members are disqualified persons within the meaning of sec_4946 of the code with respect to you and its subsidiaries are your an advisory xx and its subsidiaries your you established and administer an employee assistance program to provide relief to current and future full-time and part-time employees and retirees of their eligible dependents employees to you within the méaning of sec_4946 of the code are not eligible retirement age and are participating in x's and its subsidiaries’ individuals who are disqualified persons with respect retirees are defined as those who have reached you also provide relief to your kx and its subsidiaries and sae post-retirement medical and or life_insurance plans eligible class of recipients encompasses big_number persons the your program has two components disaster assistance and employee hardship grants you state that employees who have been the victims of declared federal state or local disasters such as fires floods hurricanes tornados acts of war eligible for disaster assistance include both cash grant advances as well as in-kind goods such as food clothing generators outdoor grills and similar supplies and similar events shall be disaster assistance may you state that disaster assistance is administered by local some or coordinators are authorized to they are acting as your agents and not as employees coordinators appointed by your officers and directors all of the coordinators are employees of x and its subsidiaries however coordinators are advised that when administering the disaster aid of x and its subsidiaries disburse disaster assistance funds to an employee based on the coordinator’s reasonable belief that the employee has an immediate need for such assistance arising from the disaster funds may be used by the employee to provide food clothing temporary housing repairs medical_care funeral services and other critical needs arising from a disaster urgent action often required in disaster situations coordinators are required to collect only a minimum amount of information from the applicants address telephone number social_security_number a brief description of the loss suffered the type and amount of assistance needed and the amount of assistance actually granted coordinators will also verify that the individual is of x and or its subsidiaries information requested will include name because of the an employee you state that in the event that funds are limited coordinators will use their best efforts to ensure that the most critical needs are met first incapacitated the coordinator may provide relief to member or other representative on behalf of the employee or may pay third-party providers as discretion of the coordinator in the event that an employee is is reasonably required in the a family you state that recipients of funds are required to maintain receipts or other records that are reasonable under the circumstances to document their use of funds required to provide a summary of those expenditures and the supporting documentation to you within a reasonable period following the date of disbursement return any unused funds or funds that have been used for purposes other than those for which they ware granted recipients are required to recipients are you state that recipients are required to repay funds within twelve months from the date of disbursement except for any part that is waived by you pursuant to an employee hardship grant you state that your employee hardship grants program provides assistance to employees experiencing severe financial need on account of uninsured losses caused by a declared federal state or local disaster or those other than disaster victims with insufficient income to maintain a minimum standard of living for reasons beyond their control form of grants or in the form of low or no interest loans assistance is provided in the you state that your officers or directors appoint a grant the grc is comprised of persons who to review and approve applications for review committee grc employee hardship grants are employed by x or its subsidiaries in specific job categories no member of the grc is a member of the employee relief steering committee ersc erdcs blind basis so that the grc will be unable to identify the applicant records are maintained as required by revenue_ruling applications are submitted to the grc by the erdcs on a or the employee relief distribution committees 1956_2_cb_306 you state that in approving grants the grc must make a finding of financial hardship based upon a determination that the potential recipient’s available cash assets that can be disposed of without causing further personal hardship and anticipated cash_flow income insurance proceeds etc reasonably be expected to be insufficient to provide for timely retirement of existing obligations and the continuing basic living requirements food housing clothing medical_care etc in making its determination the grc will consider evidence of the applicant’s financial condition such as income expenses other financial obligations current_assets expected insurance proceeds and the availability of other sources of funding financial or other counselling as the grc may require the beneficiary to obtain credit a condition of the grant from all sources can you state that the ersc acts as the oversight committee responsible for recommending policy and ensuring the program operates as intended subsidiaries are represented on the ersc involved with the distribution of relief to employees or the review of grant applications but is available to provide guidance to members of various positions areas of x and its the grc and the erdcs the ersc is not you state that the erdcs are an expansion of the local coordinators described above which x has a presence for providing grant applications to applicants reviewing the an erdc for each state in the members of the erdcs are responsible there i sec_190 oom ow to the erdc within six the applications are reviewed and a when an applicant turns in his her grant advance members of the erdc assemble the information on the applications and disbursing the advances to applicants if they qualify application he she is provided with a grant application and instructed to complete it and return it months grant application in a format that allows the grc to do a review on a blind basis determination is made to either provide a grant or deny it applicant is notified in either situation grant is approved it may be for an amount that is less than equal to or greater than the grant advance amount if any but will not exceed dollar_figure in the event that a grant has been denied and the applicant has been previously issued a grant advance the applicant will be instructed to return the advance to the foundation if the applicant is not financially able to return the advance in its entirety a repayment plan will be established that will allow the applicant to pay back the advance over a period of time most likely not to exceed twelve months or its subsidiaries in specific job categories each erdc has as members persons who are employed by x in the event that a the you state that your directors select members of these committees based on their experience with disaster and hardship issues leadership ability knowledge of the structure and operation of x and its subsidiaries knowledge of your structure and operation area of expertise with regard to x and its subsidiaries and commitment to the idea for which the program is being established committees that will result in equitable representation of all eligible participants members of the grc its subsidiaries within the meaning of sec_416 code ersc and erdcs will be key employees of x and your directors select members for these no more than fifty percent of the of the you state that committee members will be advised that in reviewing grant documents they are acting as your agents and not as employees of x and its subsidiaries you maintain all records of grant applications and committee actions grants loans and information contained in grant applications shall not be used by x and its subsidiaries in any employment decision concerning an employee you state that neither continued employment with x and or a criterion for eligibility for a grant its subsidiaries nor any length of service or position with them will be grants are not terminated if subsidiaries the employ of during any 12-month_period will not disproportionately favor key an employee leaves the employ of loans are not accelerated if x and or its subsidiaries an employee leaves grants loans made x and or its lee le ay employees of x and or its subsidiaries as defined in sec_416 of the code you state that the maximum grant loan amount per eligible the grant loan shall not participant annually will be dollar_figure exceed the amount necessary to meet the financial hardship grant recipients will receive a letter from you indicating that you applicants who do not meet the criteria will be and not x and or its subsidiaries are making the grant so notified all you state that you and x and its subsidiaries use reasonable efforts to ensure that all employees are aware of your program x's and its subsidiaries’ employee handbook includes a brief notice concerning your program and the name address and telephone number of your contact person communicated in periodic internal publications of x and its subsidiaries and in a wallet card provided to each employee and retiree number and details about the program employees the program is clearly identified as your program and not that of x and its subsidiaries the wallet card will contain a hotline telephone employees are advised that your program is also in all communications with disaster assistance and employee hardship grants are provided you mail a letter to eligible participants solely at your discretion through a selection process carried out by the committee annually containing information about the program such as criteria for the awards the application selection and awards process and the structure and purpose of the committees letter also includes instructions on how to make contributions to the program at both the time the letter is received and at the time of a disaster the you state that you solicit contributions annually and when state and federally classified disasters occur you accept contributions from x and its subsidiaries their directors shareholders customers and vendors contributions earmarked for specific individuals to relief supplies you accept as donations those items for which there exists a need this would include not only food water and clothing but items to be used and returned such as chain saws generators outdoor grills etc you do not accept with respect based on the information you furnished we ruled in our date letter that the establishment and administration of the program furthers charitable purposes within the meaning of sec_501 c and sec_170 b of the code since your program is operated in consistent with sec_501 a manner which is and c b of the e l a e e m s code and any indirect benefit received by x and its subsidiaries as disqualified persons is incidental grants and disaster assistance distributed by you pursuant to the program will not result in acts of self-dealing within the meaning of sec_4941 since grants loans will not be awarded to disqualified persons as defined in sec_4946 of the code grants loans are paid to accomplish sec_170 b purposes such grants loans will be qualifying distributions within the meaning of sec_4942 g a i and such since your program will result in qualifying distributions made for a sec_170 b purpose any payment made in furtherance thereof is not a taxable_expenditure under sec_4945 of the code charitable purposes and sec_501 of the code and c b sec_501 of the code provides in part for the exemption from federal_income_tax of organizations that are organized and operated exclusively for among others charitable purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_170 b of the code provides that for purposes the term charitable_contribution means a of sec_170 contribution or gift to or for_the_use_of or community chest exclusively for among others charitable purposes c benefit of any private_shareholder_or_individual fund a corporation trust or foundation organized and operated adds no part of the net_earnings of which inures to the subparagraph sec_1_501_a_-1 of the income_tax regulations defines private_shareholder_or_individual within sec_501 as persons having a personal and private interest in the activities of the organization sec_1 c -1 a of the regulations defines the term exempt_purpose or purposes as any purpose or purposes specified in sec_501 as defined and elaborated in paragraph d of this section sec_1 c -1 d of the regulations provides that an organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals the creator or thus it gcc fee le his family shareholders of the organization or persons controlled directly or indirectly by such private interests sec_1 c -1 d of the regulations provides in that the term charitable is used in section relevant part c generally accepted legal sense things relief of the poor and distressed or of the underprivileged of the code thus and in sec_170 b such term includes among other in its sec_1_170a-4a ii d of the regulations defines needy as being a person who lacks the necessities of life involving physical mental or emotional well-being as of poverty or temporary distress a result sec_1 c -1 c of the regulations provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if activities which accomplish one or more of such exempt purposes specified in sec_501 so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose an organization will not be it engages primarily in in better business bureau of washington d c united_states u s presence of nature will preclude exemption regardless of the number or importance of statutorily exempt purposes a single non-exempt purpose if substantial in v the court held that the inc revrul_75_199 1975_1_cb_160 provides that an organization that restricts its membership to individuals of good moral character and health belonging to a particular ethnic group residing in a stated geographical area and provides sick benefits to members and death_benefits to their beneficiaries is not exempt under sec_501 and by extension is not exempt under sec_501 the organization's income is derived principally from membership dues and is used for the payment of benefits and operating_expenses the revenue_ruling further states that the membership_organization described is essentially a mutual self-interest type of organization income is used to provide direct economic benefits to members and any benefit to the larger community is minor and incidental of the code its revrul_81_58 1981_1_cb_331 amplifies revrul_75_199 supra association composed of officers of particular community educational_purposes and to provide a lump sum payment to each member upon retirement or a lump sum payment to beneficiaries upon the member’s death the association was created for revrul_81_58 describes an a police department ina the membership benefits program a 19sec lv ae the its income is used to provide direct constitutes the association’s primary activity organization's primary sources of income are from contributions by the general_public and through fund raising events members are also required to pay a nominal one-time membership fee upon joining the organization economic benefits to members benefitted by the organization consists of police officers engaged in the performance of essential and hazardous public services and there is organization to the larger community the fact remains that the primary benefits from the organization are limited to its members therefore the organization is not operated exclusively for the promotion of social welfare within the meaning of sec_501 meaning of sec_501 nor by extension for exempt purposes within the an incidental benefit provided by the although the class of employees a disaster relief or emergency hardship organization may be formed for the benefit of distressed individuals but may also overly serve the private interests of or even contributors thereby failing to achieve an exempt_purpose despite otherwise good intentions parker rehabilitation foundation inc for example in wendy v commissioner t c memo its founders principals the organization was created by the parker family to aid an open-ended class of victims of coma organization stated that it anticipated spending percent of its income for the benefit of wendy parker significant contributions were made to the organization by the parker family and the parker family controlled the organization wendy's a substantial recipient of funds substantially selection as benefitted the parker family by assisting with the economic burden of caring for her c - the general_public as required under sec_1 d the benefit did not flow primarily to of the regulations however the x and its subsidiaries are your sponsors and financial you are controlled by x supporters administer an emergency assistance fund to provide relief through grants loans and in-kind goods to all of x’s and its subsidiaries’ eligible employees retirees and those employees’ and retirees’ dependents who experience severe financial hardship for reasons beyond their control which are not covered by insurance or other resources you have established and by providing an employee assistance program to provide relief to x's and its subsidiaries’ and your employees who have suffered losses due to natural disasters or financial hardship as described above program provides relief to persons who are distressed or otherwise proper objects of charity and its subsidiaries with a significant benefit the program is accomplishing two purposes however it also affords x and its the xx employees realize a real potential employees will consider the advantages of subsidiaries benefit because the program provides employees with funds and goods not otherwise available except by reason of their employment by x and its subsidiaries and significant benefit because they have recourse to funds in times of financial hardship when other avenues have been exhausted such a program while employees will find it financial security and an incentive to continue employment this respect the provision of financial assistance to employees in times of financial hardship whether from natural disasters or financial emergencies is benefit programs such as sick life death and accident benefits even though an employee would have no legal right to funds from a disaster or emergency hardship relief fund employees would be eligible for disaster and hardship benefits provided they are employed by a particular employer upon the occurrence of disaster or financial emergency and they are in need of such assistance to provide protection from events that cannot be readily guarded against job essentially the employee assistance funds operate a program similar to other employee a particular employer that has an a significant benefit of the moreover employees of in this respect it an enhancement to in is a employer established controlled and funded disaster relief benefit program would have an important advantage over other similarly situated victims of the disaster in having access to assured assistance the presence of the equivalent of a benefits package even if not availed of would constitute a significant benefit derived from an employment relationship fund dedicated to employees’ welfare is benefit in the same way that a life severance or legal assistance benefit provides protection and security whether or not used thus a significant employment a while these programs do benefit persons who may be needy or distressed they also serve the private interests of x and its subsidiaries who utilize such benefit programs to recruit and retain a more stable and productive workforce your employee assistance program accomplishes activities that are not exclusively in furtherance of one or more exempt purposes because they further the private purposes of subsidiaries more than unsubstantially and funding x and its subsidiaries are able to direct your assistance programs to serve their private purposes by limiting disaster and hardship assistance solely to their employees public benefit is significantly outweighed by the private benefit realized by rewarding persons based on their employment with x and its subsidiaries in terms of recruitment retention ensuring a stable workforce and engendering goodwill and loyalty through their control in this respect x and its any while there is some public benefit in ensuring that individuals are provided for in times of disaster or financial leaeo - no assurance that selection of beneficiaries a particular employer serves the best the public interest may very well be crisis there is solely among employees of interests of the public better served by providing resources to persons who may be much more dire conditions than persons who happen to be employed by a particular employer related eligibility criteria the general welfare of the public is placed at afforded employees of the particular employer a program does not further an exempt_purpose within the meaning of the code better of the regulations under sec_501 business bureau supra and sec_170 b a disadvantage compared with the significant benefit therefore such also by imposing an employment in the benefit conferred on x and its subsidiaries by the disaster relief and emergency hardship program also gives rise to inurement contrary to the requirements under sec_501 and c b for exemption and charitable_contributions only if to other factors organization inures to the benefit of any private_shareholder_or_individual of the code which provide for the qualification no part of the net_earnings of in addition the accordingly we rule that the establishment and administration of the disaster relief and emergency hardship program as described does not further charitable purposes within the meaning of sec_501 of the code and sec_170 c b self-dealing - sec_4941 of the code sec_4941 of the code imposes a tax on each act of self-dealing between a disqualified_person as defined in sec_4946 and a private_foundation sec_4941 e of the code provides that the term self-dealing means any direct or indirect transfer to by or for the benefit of assets of or use a disqualified_person of the income or a private_foundation sec_4946 of the code defines the term disqualified_person to include a substantial_contributor to the foundation a foundation_manager and a corporation of which persons described in subparagraphs a or of the total combined voting power own more than percent c b d sec_53_4941_d_-2 f of the foundation and similar excise_taxes regulations provides that the fact that a disqualified_person receives an incidental or tenuous benefit from the use by a foundation of itself make such use an act of self-dealing its income or assets will not thus the public by in itself result in an act of a private_foundation to which such person is for example a grant by a private_foundation to a recognition a person may receive arising from the charitable activities of a substantial_contributor does not self-dealing since generally the benefit is incidental and tenuous sec_509 a self-dealing merely because such organization is located in the same area as the foundation or merely because one of the sec_509 also a manager of or a substantial_contributor to the foundation similarly a scholarship or a fellowship_grant to a person other than a disqualified_person which is paid_or_incurred by a private_foundation in accordance with a program which is consistent with -- organization’s officers directors or trustees is a substantial_contributor to organization will not be a corporation which is an act of or or the requirements of the foundation’s exempt status under i sec_501 ii sec_170 for contributions made to the foundation and the requirements for the allowance of deductions under iii the requirements of sec_4945 g will not be an act of self-dealing under sec_4941 d merely because a disqualified_person indirectly receives an incidental benefit from such grant fellowship_grant made by a private_foundation in accordance with a program to award scholarships or fellowship grants to the children of employees of a substantial_contributor shall not constitute an act of self-dealing if the requirements of the preceding sentence are satisfied a scholarship or a sec_53_4941_d_-2 of the regulations provides examples in which benefits conferred upon disqualified persons by the use of private_foundation assets are incidental or tenuous these examples describe situations in which the general reputation or prestige of public acknowledgement of some specific donation by him the disqualified_person receives some other relatively minor benefit of participates to charitable program that is general community a wholly incidental degree in the fruits of some a disqualified_person is enhanced by a of broad public interest in the in which such a person merely an indirect nature or in which example describes a private_foundation which makes a grant to city officials for the purposes of alleviating the slum conditions which exist in a particular neighborhood of the city corporation a substantial_contributor to the foundation is located in the same area in which tne grant is be used to 1ec sec_3a cote n e k e e although the general improvement of the area may constitute an incidental and tenuous benefit to the corporation such a benefit by itself will not constitute an act of self-dealing revrul_73_407 1973_2_cb_383 held that the benefit to’a disqualified_person was incidental and tenuous where a private_foundation conditioned a grant to a public charity on the change_of the public charity’s name to that of the disqualified_person based on the benefit provided to x and its subsidiaries your disaster relief and emergency hardship program significantly furthers the interests of x and its subsidiaries the program is associated with employment and accomplishes recruitment and retention incentives and produces a more stable and productive work force mere public recognition merely providing a minor or tenuous benefit and substantial benefit to x and its subsidiaries who are disqualified persons with respect to you by reason of being a substantial_contributor a foundation_manager and or a the program affords x and its subsidiaries more than percent corporation controlled by a substantial_contributor or foundation such a program cannot be dismissed as it offers a real therefore since the benefits to disqualified persons manager are not incidental or tenuous pursuant to sec_53 d - f result in acts of self-dealing within the meaning of sec_4941 e of the regulations grants distributed under the program of the code accordingly we rule that since your program is not operated consistent with sec_501 of the code and benefits to x and its subsidiaries as disqualified persons are substantial rather than incidental or tenuous grants distributed by you pursuant to the program will result in acts of self-dealing within the meaning of sec_4941 and c b qualifying distributions and taxable_expenditures - sec_4942 and sec_4945 of the code sec_4942 of the code imposes a tax on the undistributed_income_of_a_private_foundation sec_4942 g a i of the code provides in relevant that the term qualifying_distribution means any amount part including that portion of reasonable and necessary administrative expenses paid to accomplish one or more purposes described in sec_170 b other than any contribution to an organization controlled directly or indirectly by the foundation or one or more disqualified persons as defined in sec_4946 with respect to the foundation y9enoley sec_4945 of the code imposes a tax on each taxable_expenditure of d of the code a private_foundation as defined in section sec_4945 of the code provides that a 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 it satisfies the requirements of subsection g sec_4945 of the code provides that the term taxable_expenditure means any amount_paid or incurred by a private_foundation for any purpose other than one specified in sec_170 b sec_4945 of the code provides in relevant part that shall not apply to an individual grant awarded sec_4945 on an objective and nondiscriminatory basis pursuant to procedure approved in advance by the secretary_of_the_treasury if is demonstrated to the satisfaction of the secretary that- it a in effect on the day before the date of the enactment of the grant constitutes a scholarship or fellowship_grant which would be subject_to the provisions of sec_117 a as the tax_reform_act_of_1986 an educational_organization described in sec_170 b a to be used for study at and is the purpose of the grant is 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 to achieve a specific sec_53_4945-4 of the regulations provides a it states that for purposes of section the term grants shall include but is not limited to definition of grants such expenditures as scholarships fellowships internships prizes_and_awards described in sec_170 b investments payments to exempt_organizations to be used in furtherance of their exempt purposes similarly grants include such expenditures as and program related grants shall also include loans for purposes sec_170 b of the code describes in relevant an organization that is organized and operated exclusively part for charitable or educational_purposes or for the prevention of cruelty to children sec_53_4945-6 v of the regulations provides in relevant part distribution under sec_4942 will not be treated as taxable_expenditure under sec_4945 of the code that any payment which constitutes a qualifying a for the purpose of resolving the issues under sec_4942 the determination of whether the employer related and hardship program comes within one of the purposes described under sec_170 b any amount_paid by a private_foundation to accomplish any purpose other than one specified in sec_170 b distribution under sec_4942 a expenditure under sec_4945 of the code is fundamental is not a qualifying a taxable and is neither the employer related disaster relief nor the of the code emergency hardship program furthers an exempt_purpose within the meaning of sec_1 c -1 d i of the regulations and sec_170 b made by you are not qualifying distributions within the meaning of sec_4942 grants and or loans do not accomplish a purpose described in sec_170 b of the code and do not result in qualifying distributions pursuant to sec_4942 such payments made by you are taxable_expenditures pursuant to sec_4945 the code therefore grants and loans a i of the code consequently since the of accordingly we rule that grants and loans paid_by you under the disaster relief and emergency hardship program do not accomplish an exempt_purpose under sec_170 b code sec_4942 sec_4945 are not qualifying distributions within the meaning of a i and are taxable_expenditures under of the employer related scholarship programs and employer related disaster relief and emergency hardship programs with respect to scholarship programs provided by private_foundations to children of employees of substantial contributors sec_53_4941_d_-2 of the regulations states that such grants will be considered incidental or tenuous only if the program is consistent with the foundation's exempt status the deductibility of contributions under sec_170 requirements under sec_4945 provision for disaster relief and hardship programs there is no similar specific and the sec_4945 of the code addresses taxes on taxable_expenditures of private_foundation that taxable_expenditure means 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 sec_4945 provides feo p9sg age cite a procedure approved in advance by the secretary if subsection g shall not apply to an individual satisfies the requirements of subsection g provides that subsection d grant awarded on an objective and nondiscriminatory basis pursuant to it demonstrated to the satisfaction of the secretary that the grant constitutes a scholarship or fellowship_grant which would in effect on be subject_to the provisions of sec_117 the day before the date of the enactment of the tax reform act of an educational_organization described in sec_170 b a ii to be used for study at and is as revproc_76_47 1976_2_cb_670 and revenue provide guidelines under which procedure c b employer-related private_foundations that make scholarship or educational loans will be considered to further a purpose consistent with sec_4945 of the code that scholarships and educational loans are awarded to no more than percent of the number of employees of employer who were eligible were applicants for such grants and were considered by the selection committee in selecting the recipients of grants in that year this criterion assures that the key criterion is a particular the scholarships or loans do not overly serve the private interests of the employer because there is no significant probability that employment will make scholarships or loans available to a qualified_employee however your disaster relief and hardship programs are available to all employees who satisfy the eligibility criteria and are limited only by the amount of funding that x and its subsidiaries may provide area of scholarships and educational loans is not directly applicable to your situation since there is that employment will make disaster and hardship assistance available and there is no specific exception for such programs under chapter as there is for scholarships the principles set forth in the a high probability thus 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 above the assistant_commissioner employee_plans and exempt_organizations has granted you relief under sec_7805 of the code from retroactive application of this ruling for disaster relief or emergency hardship payments made up to six months from the date of this ruling and for any such payments made after six months from the date of this ruling under a legal_obligation incurred prior to the end of the six month period we are providing your key district_director with a copy of this ruling you should keep a copy for your permanent records iqaaqd if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading for other matters including questions concerning reporting requirements please contact your key district_director this ruling is directed only to the taxpayer that requested sec_6110 of the code provides that it may not be it used or cited as precedent sincerely marvin friedlander marvin friedlander chief exempt_organizations technical branch


internal_revenue_service number release date index number ------------------------------------------------ --------------------------------------- ------------------------------------------- -------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------------------------- telephone number --------------------- refer reply to cc psi b02 plr-105478-10 date date legend x ----------------------------------------------------- ------------------------ state -------- d1 ------------------ dear ---- ---------------- this responds to a letter dated date submitted on behalf of x by x’s authorized representative requesting a ruling under sec_1362 of the internal_revenue_code facts the information submitted states that x was incorporated in state on d1 it was intended that x elect s_corporation treatment effective d1 however a form_2553 election by a small_business_corporation was not timely filed for x law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation plr-105478-10 sec_1362 provides the rule on when an s election will be effective generally if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made sec_1362 provides that if an s election is made after the first two and one-half months of a corporation's taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election for the taxable_year or no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for such taxable_year and sec_1362 shall not apply conclusion based solely on the facts and the representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation effective d1 accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective d1 within days following the date of this letter then such election will be treated as timely made for x's taxable_year beginning d1 a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transaction described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely bradford r poston senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index no p o box ben franklin station washington dc person to contact telephone number refer reply to cc it a plr-113383-01 date date taxpayer xcorp llc date x dear this responds to your letter dated date as supplemented by your submission dated date requesting rulings as to various factors relating to qualification of taxpayer to serve as an exchange accommodation titleholder pursuant to revproc_2000_37 2000_40_irb_308 the facts relating to your ruling application follow xcorp is an entity engaged in the business of providing services as a facilitator of like-kind_exchanges pursuant to sec_1031 of the internal_revenue_code and sec_1_1031_k_-1 g of the income_tax regulations taxpayer is a corporation affiliated with xcorp taxpayer files its corporate tax_return as part of a consolidated_group of corporations with xcorp taxpayer acts indirectly through its ownership of llc a delaware limited_liability_company as an exchange accommodation titleholder at as that term is defined in sec_4 of revproc_2000_37 llc’s role is to hold property for the benefit of customers to facilitate exchanges under sec_1031 of the code on date x taxpayer including llc entered into a qualified_exchange_accommodation_agreement the qea agreement consistent with the requirements of the revenue_procedure with an exchange customer customer under the qea agreement taxpayer will facilitate an exchange for customer using llc as an at llc will acquire and hold replacement_property for customer under a qualified indicia of ownership and then within the exchange_period provided in the revenue_procedure through a qualified_intermediary transfer replacement_property to customer in an exchange for relinquished_property of customer the relinquished_property will be transferred through the qualified_intermediary to its ultimate buyer for purposes of this ruling letter it is assumed without making any factual determination that llc is eligible to act as an at for the proposed transaction however it has come to taxpayer’s attention that the usefulness of the qualified exchange accommodation arrangements qeaas permitted under the revenue_procedure is reduced because of concerns about duplicate transfer_taxes on the transfer of legal_title of replacement_property from llc to customer or the transfer of relinquished_property to the ultimate buyer if the relinquished_property is parked with llc to minimize this problem taxpayer revised article six paragraph q of the qea agreement to add the following language at the end of the paragraph llc is acting solely as customer’s agent for all purposes except for federal_income_tax purposes it is believed that in many jurisdictions this express agency statement for non federal_income_tax purposes will help avoid additional transfer_tax when for example llc transfers legal_title to property to its exchange customers taxpayer requests that we rule that the addition of the language regarding agency for non federal_income_tax purposes will have no adverse affect on qualification of the qea agreement between taxpayer including llc and customer as a qualified_exchange_accommodation_agreement as defined in section dollar_figure of the revenue_procedure sec_4 of the revenue_procedure requires that the qualified_exchange_accommodation_agreement entered into between an exchanging taxpayer and an at specify that the at will be treated as the beneficial_owner of the exchange property it receives by transfer for all federal_income_tax purposes it further provides that the parties must report the federal_income_tax attributes of the property on their federal_income_tax returns in a manner consistent with that agreement if customer enters into or uses all or most of the types of side agreements or arrangements permitted under section dollar_figure of the revenue_procedure ie an exchange_agreement for at to serve as a qualified_intermediary a guarantee and indemnity agreement any agreement to loan or advance funds a lease to disqualified persons a management or construction agreement with disqualified persons any other arrangement relating to the purchase or sale of the property including put and call agreements at fixed or formula prices or providing for variation of value so that the burdens and benefits of ownership are with customer the at will likely be considered an agent of taxpayer under state law see discussion at section dollar_figure of the revenue_procedure however section dollar_figure provides that property will not fail to be treated as being held in a qeaa merely because the accounting regulatory or state local or foreign tax treatment between the taxpayer and the at is different from the treatment required by section dollar_figure of the revenue_procedure this analysis is consistent with the intent behind the safe_harbor contained in the deferred_exchange regulations which has many parallels to the rules and requirements of the revenue_procedure the preamble to the final deferred_exchange regulations states the following for example commentators questioned whether a taxpayer would be treated as having the immediate right to receive money or other_property for customer to obtain the benefits of the safe_harbor rules of the revenue_procedure the transaction need only fit within the confines of the safe_harbor rules assuming the boundaries of the safe_harbor rules are not exceeded customer is entitled to enjoy the protection afforded to all compliant taxpayers by these rules notwithstanding inconsistent treatment or characterization under state or local law thus a statement in the qea agreement that llc whose activities and assets are attributed to taxpayer is acting as agent of customer for all purposes other than federal_income_tax purposes will not affect the qualification of the qea agreement or the qeaa accordingly the inclusion of a statement in the qea agreement that llc is acting solely as customer’s agent for all purposes except for federal_income_tax purposes will have no adverse affect on the qualification of the qea agreement under revproc_2000_37 except as specifically ruled above no opinion is expressed as to the federal tax treatment of the transaction under any other provisions of the code or regulations that may be applicable or under other general principles of federal income_taxation neither is any opinion is expressed as to the tax treatment of any conditions existing at the time of or effects resulting from the transaction that are not specifically covered by the above ruling under the power_of_attorney form_2848 on file with this office we are sending this original letter to you and a copy to your representative stated on line of the form this ruling is directed only to the taxpayer s who requested it sec_6110 of the code provides that it may not be cited as precedent sincerely yours associate chief_counsel income_tax accounting by robert m casey senior technician reviewer branch cc held by an intermediary if under state_agency law the intermediary is the agent of the taxpayer and the taxpayer has the right to dismiss an agent and thereby obtain property held for the taxpayer by the agent the final regulations also provide that rights conferred upon a taxpayer under state_agency law to dismiss an escrow holder trustee or intermediary will be disregarded in determining whether the taxpayer has the ability to receive or otherwise obtain the benefits of money or other_property held by the escrow holder trustee or intermediary 1991_1_cb_150