department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division sep uniform issue list tep ram3 legend taxpayera ira x bank b companyc individual d amount e dear ' this is in response to your request dated date in which you request a - waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code’ taxpayer a claims that her failure to accomplish a timely rollover was due to both a lack of information following the abrupt resignation of her agent individual d and health issues of both herself and her husband the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a maintained ira x at company c taxpayer a had executed a durable_power_of_attorney giving individual d authority to take various actions on her behalf taxpayer a represents that she requested that individual d consolidate her various investment accounts into bank b in date individual d withdrew amount e from ira x and deposited it along with other funds into taxpayers a’s non-ira account at bank b within a month of this withdrawal individual d abruptly resigned and failed to explain to taxpayer a that amount e was a distribution from ira x and should be rolled over within the next few weeks to avoid taxation of such amounts during the same period of time that this was happening both taxpayer a and her husband were hospitalized taxpayer a then had to go to a rehabilitation facility where she remained for several weeks taxpayer a’s husband was then admitted to a nursing home facility taxpayer a relied on individual d to handle the financial aspects of the consolidation of her accounts and to advise her with respect to them individual d did not rollover amount e and resigned without advising taxpayer a of the need to rollover the amount withdrawn from ira x within the remainder of the 60-day period taxpayer a represents that amount e has not been used for any other purpose based on the facts and representations you request a ruling that the internal_revenue_service waive the day rollover requirement contained in sec_408 of the code with respect to the distribution of amount e sec_408 of the code provides that except as otherwise provided in sec_408 of the code any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 of the code sec_408 of the code provides that sec_408 of the code does not apply to any amount described in sec_408 of the code received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 of the code from an ira which was not includible in gross_income because of the application of sec_408 of the code sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 of the code do not apply to any amount required to be distributed under sec_408 of the code sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable contro of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer a is consistent with her assertion that her failure to accomplish a timely rollover was due to both a lack of information following the abrupt resignation of her agent individual d and health issues of both herself and her husband therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount e from ira x taxpayer a is granted a period of days from the issuance of this ruling letter to transfer amount e to an ira provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution the contribution of amount e will be considered a rollover_contribution within the meaning of sec_408 of the code this ruling does not authorize the rollover of amounts that are required to be distributed by sec_408 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter 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 if you wish to inquire about this ruling please contact id at - please address all correspondence to se t ep ra t3 sincerely yours p o e g a t a a c t o f l o z e a m o a t v a s w n l o e a m e j laura b warshawsky manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose


t c memo united_states tax_court floetta bullock petitioner v commissioner of internal revenue respondent docket no filed date floetta bullock pro_se jason t scott and michael skeen for respondent memorandum findings_of_fact and opinion vasquez judge respondent determined a deficiency in petitioner’s federal_income_tax of dollar_figure for the tax_year the issue for decision is whether petitioner received dollar_figure in cancellation of indebtedness cod income during findings_of_fact petitioner resided in ceres california when she filed her petition petitioner has an adult son who together with his wife petitioner’s daughter-in-law ran a business hauling cars across the country in after petitioner’s son and daughter-in-law had a business emergency they sought a loan to purchase a used dually pickup truck1 so they could continue their business of hauling cars petitioner along with her son and daughter-in-law discussed loan options with a credit_union recommended by the truck dealership although petitioner intended to serve as a cosigner for her son she unwittingly signed paperwork indicating that she was the primary obligor on the loan however after the paperwork was signed the credit_union dealt only with petitioner’s son and daughter-in-law who made the payments on the loan a year later in the truck was stolen from the street in front of the home where petitioner her son and her daughter-in-law lived the initial insurance policies on the truck covered only a portion of the outstanding balance of the loan when the insurance_company paid the credit_union petitioner’s son a dually truck is a truck with dual wheels on the rear axle for a total of four tires on the rear axle petitioner was not aware until trial that she had signed a document agreeing to be the primary obligor and daughter-in-law stopped making loan payments the outstanding balance on the loan which was dollar_figure after the insurance payout was discharged petitioner received neither phone calls nor correspondence from the credit_union attempting to collect the outstanding balance nor did she receive any information regarding the discharge of the loan respondent received a form 1099-c cancellation of debt from the credit_union indicating that petitioner had received cod income of dollar_figure for the tax_year petitioner did not report the purported cod income on her federal_income_tax return on date respondent timely issued petitioner a notice_of_deficiency determining that she had unreported cod income of dollar_figure petitioner timely filed a petition with this court for redetermination opinion as a general_rule the commissioner’s determination of a taxpayer’s liability in a notice_of_deficiency is presumed correct and the taxpayer bears the burden of proving that the determination is incorrect rule a 290_us_111 sec_7491 provides that if in any court_proceeding a the record does not specify why there was a five-year gap between the car theft in and the release of indebtedness in unless otherwise indicated all section references are to the internal continued taxpayer introduces credible_evidence with respect to any factual issue relevant to ascertaining the liability for tax and meets other prerequisites the burden_of_proof rests on the commissioner as to that factual issue see 116_tc_438 this case is decided on the preponderance_of_the_evidence and is not affected by the burden_of_proof or sec_7491 sec_61 defines gross_income for purposes of calculating taxable_income as all income from whatever source derived and further specifies that continued revenue code in effect for the year at issue and all rule references are to the tax_court rules_of_practice and procedure if an information_return such as form 1099-c is the basis for the commissioner’s determination_of_a_deficiency sec_6201 may apply to shift the burden of production to the commissioner if in any court_proceeding the taxpayer asserts a reasonable dispute with respect to the income reported on the information_return and the taxpayer has fully cooperated with the commissioner see mcquatters v commissioner tcmemo_1998_88 petitioner has challenged the information reported by the credit_union however as stated above this case is decided on the preponderance_of_the_evidence and is not affected by the burden_of_proof or sec_6201 income_from_discharge_of_indebtedness is included within this broad definition sec_61 the underlying rationale for the inclusion of cod income is that to the extent a taxpayer is released from indebtedness he or she realizes an accession to income because of the freeing of assets previously offset by the liability 116_tc_63 citing 284_us_1 see 88_tc_435 essentially the discharge of a debt below the face value of the debt accords the debtor an economic benefit equivalent to income 216_f3d_537 6th cir citing united_states v kirby lumber co u s pincite aff’g tcmemo_1998_196 for cod income to exist a bona_fide debt must exist see estate of miller v commissioner tcmemo_1978_374 tax ct memo lexi sec_141 at whether a transaction constitutes a debt is a factual determination see id tax ct memo lexi sec_141 at this court among others has articulated not all discharges of indebtedness are includable in gross_income sec_108 excludes certain discharges from gross_income see sec_108 e f excluding discharge_of_indebtedness from gross_income in certain cases involving inter alia insolvency qualified_farm_indebtedness lost deductions and certain student_loan discharges however petitioner did not raise any of these exceptions to the general cod inclusion rule different factors for analyzing whether a bona_fide debt exists see eg 74_tc_476 estate of rosen v commissioner tcmemo_2006_115 tax ct memo lexi sec_116 at hunt v commissioner tcmemo_1989_335 tax ct memo lexis at however the ultimate question regarding the existence of a bona_fide debt is was there a genuine intention to create a debt with a reasonable expectation of repayment and did that intention comport with the economic reality of creating a debtor-creditor relationship dixie dairies corp v commissioner t c pincite citing 61_tc_367 a guaranty creates a contingent_liability where a party’s obligation to make a payment under the guaranty is contingent upon the primary obligor’s failure to pay the debt mylander v commissioner tcmemo_2014_191 at citing 47_tc_159 aff’d 392_f2d_458 8th cir and am jur 2d guaranty sec_2 the guarantor of a contingent_liability generally does not recognize income upon discharge of a debt 50_tc_803 such a discharge creates no previously untaxed accretion in assets that would result in an increase in net_worth id pincite the guarantor no more realizes income from the transaction than he would if a tornado bearing down on his home and threatening a loss changes course and leaves the house intact with these principles in mind we hold that the transaction at issue did not create a bona_fide debt of petitioner when petitioner went to the car dealership she did not intend to be the primary obligor on the loan in fact she did not realize until trial that she had signed paperwork stating otherwise she did not intend to personally repay the loan and she made no payments on the loan see 55_tc_345 the intent of the parties in turn may be reflected by their subsequent acts the credit_union also understood that petitioner intended only to be a cosigner it was aware that petitioner’s son and daughter-in-law were responsible for the loan payments and it never looked to petitioner for repayment see id without an intention for petitioner to repay the debt there was no bona_fide primary obligation between petitioner and the credit_union see pepsico p r inc v commissioner tcmemo_2012_269 at emphasizing the lack of intent to create a repayable obligation as a factor in holding that no debt existed we base many of our factual findings on the credible testimony of petitioner and her daughter-in-law see 58_tc_560 instead petitioner with the knowledge of the credit_union essentially operated as a guarantor for her son and daughter-in-law petitioner was merely promising to be responsible for her son and daughter-in-law in the event they failed to make the loan payments she made no payments on the loan and she never used the truck because petitioner was merely the secondary obligor her net_worth was not increased over what it would have been if the original transaction had never occurred see mylander v commissioner at holding that the taxpayers did not receive cod income for a debt that they had become primary obligors on via a guaranty citing landreth v commissioner t c pincite when the truck loan was forgiven petitioner did not realize an untaxed increase in wealth see id at therefore petitioner did not receive dollar_figure in cancellation of debt income during in reaching all of our holdings herein we have considered all arguments made by the parties and to the extent not mentioned above we find them to be moot irrelevant or without merit decision will be entered for petitioner


_ significant index no a _ department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division oct ep cr ka in re toad company this letter constitutes notice that a waiver of the minimum_funding_standard for the plan for the plan_year ending date has been granted subject_to the following conditions the company makes the required quarterly contributions to the plan due on date and date for the plan_year ending date in a timely manner and meets the minimum_funding_standard for the plan for the plan_year ending date by date without applying for a waiver of the minimum_funding_standard and the company makes the required quarterly contributions to the plan due on date date date and date for the plan_year ending date in a timely manner and meets the minimum_funding_standard for the plan for the plan_year ending date by date without applying for a waiver of the minimum_funding_standard you agreed to these conditions in letter dated date sent via facsimile if any one of these conditions is not satisfied the waiver is retroactively null and void this conditional waiver has been granted in accordance with sec_412 of the internal_revenue_code and sec_303 of the employee_retirement_income_security_act_of_1974 erisa the amount for which this conditional waiver has been granted is the contribution that would otherwise be required to reduce the balance in the funding_standard_account to zero as of date oo the company remanufactures and sells replacement fuel system components and air conditioning compressors for substantially_all makes and models of domestic and foreign automobiles trucks and marine applications the company is in a competitive industry and has experienced declining sales from the fiscal_year ending date to date for the fiscal_year ending date the company's sales increased however the company’s costs increased dramatically due to rising fuel related materials and services in order to effect a recovery_of its business the company has closed operations consolidated operations and implemented cost controls over the past several years in order to improve profits effective date the company has been able to implement price increases to some of its customers the company is contemplating an acquisition consisting of inventory and customers only that would substantially increase sales and result in increased utilization of existing facilities thereby reducing the effect of fixed expenses the plan is poorly funded on a current_liability basis however the company has shown its determination to fund the plan by making the required quarterly contributions due on date and date for the plan_year ending date hence the waiver of the minimum_funding_standard for the plan_year ending date has been granted subject_to the conditions stated above your attention is called to sec_412 of the code and sec_304 of erisa which describe the consequences that would result in the event the plan is amended to increase benefits change the rate in the accrual_of_benefits or to change the rate of vesting while any portion of the waived_funding_deficiency remains unamortized please note that any amendment to a profit sharing plan or any other retirement pians covering employees covered by this plan maintained by the company to increase the liabilities of those plans would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa similarly the establishment of a new profit sharing plan or any other retirement_plan by the company covering employees covered by this plan would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent when filing form_5500 for the plan_year ending date the date of this letter should be entered on schedule b actuarial information for this reason we suggest that you furnish a copy of this letter to the enrolled_actuary who is responsible for the completion of the schedule b we have sent a copy of this letter to the manager ep classification in ' and to the manager ep compliance unit in - if you require further assistance in this matter please contact sincerely yours dq donna m prestia manager employee_plans actuarial group


internal_revenue_service number release date index number ---------------------------- ------------- ---------------------------------------------------- -------------------------------------- --------------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ------------------------ id no ------------- telephone number -------------------- refer reply to cc corp plr-119610-09 date date legend taxpayer ------------------------------------------------------------------------------------------------- ----------------------- state x ------------- date1 -------------------------- date -------------------------- dear ------------------ this letter responds to your date request for rulings as to the federal_income_tax consequences of a proposed transaction the information received in that request and in subsequent correspondence is summarized below the rulings contained in this letter are based upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process summary of facts taxpayer is a state x limited_liability_company that elected to be treated as a corporation and regulated_investment_company ric for federal_income_tax purposes taxpayer represents that it qualifies as a ric under the internal_revenue_code the code that it intends to maintain such qualification as a ric and that it regularly plr-119610-09 distributes its earnings_and_profits as required under sec_852 taxpayer has outstanding one class of common_stock the common_stock which is not traded on any established_securities_market and preferred_stock and auction preferred_stock taxpayer intends to make a spillback dividend with respect to its taxable_year ending date and one or more future dividends and one or more future spillback dividends with respect to its taxable_year ending date collectively the special dividends common_stock shareholders will have the right to elect to receive special dividends in cash or stock of equivalent value as described below unless paid entirely in cash taxpayer expects to declare the special dividends using the following election mechanism each common_stock shareholder may elect to receive its dividend in the form of a cash the cash_option or b common_stock the stock_option by the election deadline if a stockholder fails to make a valid election by the election deadline that stockholder will be deemed to have elected the stock_option the total amount of cash payable in a special dividend will be limited to an amount equal to approximately percent or more of the special dividend the calculation of the number of shares to be received by any stockholder will be determined during the one to three business days following the election deadline based upon a formula utilizing net asset value that is designed to equate in value the number of shares to be received with the amount of money that could be received instead the special dividend payment_date will be as close as reasonably practicable following the end of the valuation period while each stockholder will have the option to elect to receive cash in lieu of stock for all of the stockholder's entire entitlement under a special dividend taxpayer will limit the amount of cash to be distributed in the aggregate to approximately percent or more of the special dividend such amount the cash limit any cash paid in lieu of fractional shares of common_stock will not count towards the cash limit in no event will the total amount of cash available be less than percent of the special dividend if the total number of shares of common_stock with respect to which an election to receive the dividend in cash is made cash election shares would result in the payment of cash in an aggregate amount that is less than or equal to the cash limit then all holders of cash election shares will receive the special dividend on all such shares in cash if the number of cash election shares would result in the payment of cash in an aggregate amount that is greater than the cash limit then stockholders electing to receive the special dividend in cash will receive the special dividend on their cash election shares as follows a cash on each stockholder's cash election shares equal to the proportion that such stockholder's cash election shares bear to the total cash election shares of all stockholders multiplied by an amount equal to the cash limit plus b shares of common_stock in payment of the special dividend on each stockholder's remaining cash election shares plr-119610-09 as a result if too many stockholders elect to receive the special dividend in cash the stockholder may instead receive a pro_rata amount of cash but in no event less than percent of their entitlement under the special dividend rulings based solely on the information provided and the representations made we rule as follows with respect to the special dividends any and all of the cash and stock distributed in the special dividends by taxpayer will be treated as a distribution_of_property with respect to its stock to which sec_301 applies sec_301 and sec_305 the amount of the distribution of the stock received by any stockholder electing to receive stock will be considered to equal the amount of the money which could have been received instead sec_1_305-1 caveats we express no opinion about the tax treatment of the proposed transaction under other provisions of the code and regulations or the tax treatment of any condition existing at the time of or effects resulting from the proposed transaction that is not specifically covered by the above rulings in particular no opinion is expressed with regard to whether taxpayer qualifies as a ric under subchapter_m of the code or whether any of the dividends constitute a preferential_dividend under sec_562 furthermore no opinion is expressed as to the reasonableness of taxpayer’s stock valuation method procedural statements this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely _____________________________ richard k passales senior counsel branch office of associate chief_counsel corporate cc


t c summary opinion united_states tax_court chris robert klein petitioner v commissioner of internal revenue respondent docket no 26518-14s filed date chris robert klein pro_se timothy j driscoll for respondent summary opinion whalen judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case hereinafter all section references are to the internal_revenue_code code as amended and in effect for the taxable_year in issue unless stated otherwise and all rule references are to the tax_court rules_of_practice and procedure respondent determined a deficiency of dollar_figure in petitioner’ sec_2011 federal_income_tax together with additions to tax of dollar_figure and dollar_figure under sec_6651 and respectively after a concession by respondent described below the issues for decision are whether petitioner is liable for the deficiency whether petitioner is liable for the additions to tax under sec_6651 and and whether the court should grant the oral motion of respondent’s attorney to impose a penalty under sec_6673 on petitioner for instituting these proceedings primarily for delay or for asserting frivolous or groundless positions background some of the facts have been stipulated by the parties and the stipulation of facts filed by the parties together with the exhibits attached thereto is incorporated herein by this reference petitioner resided in easley south carolina when he filed his petition in this case in date petitioner was hired by digital technology products sales and service llc digital to work as an administrative assistant initially petitioner submitted to the company a form_w-4 employee’s withholding allowance certificate on which he claimed two withholding_allowances for purposes of computing his federal_income_tax withholding shortly after that petitioner submitted a revised form_w-4 on which he claimed to be exempt from federal_income_tax withholding during digital paid dollar_figure to petitioner as compensation_for his services digital withheld no federal_income_tax from petitioner’s compensation_for the year petitioner did not file a federal_income_tax return for taxable_year on date respondent made a return on petitioner’s behalf under the provisions of sec_6020 referred to herein as a substitute for return or an sfr the sfr included two items of unreported income a state tax_refund of dollar_figure for a prior year and petitioner’s compensation from digital of dollar_figure on date respondent issued a notice_of_deficiency to petitioner for taxable_year the adjustments determined in the notice_of_deficiency included the two items of unreported income that were included in the sfr the state tax_refund of dollar_figure and petitioner’s compensation of dollar_figure reduced by petitioner objected to the paragraph of the stipulation of facts that described the sfr paragraph and to the copy of the sfr that was attached to the stipulation exhibit 1-j on the ground that the sfr had not been properly prepared and that the delegation_order was invalid the court overruled petitioner’s objections and the sfr was taken into evidence the standard_deduction of dollar_figure and a personal_exemption of dollar_figure on the basis of those adjustments totaling dollar_figure the notice_of_deficiency computed a deficiency of dollar_figure in petitioner’s income_tax for the notice_of_deficiency also determined petitioner’s liability for additions to tax under sec_6651 and of dollar_figure and dollar_figure respectively respondent’s pretrial memorandum makes the following concession respondent is conceding the issue of income attributable to petitioner’s prior year’s state tax_refund at the conclusion of petitioner’s testimony at trial respondent’s attorney made an oral motion for the court to impose a penalty of dollar_figure against petitioner under sec_6673 discussion i unreported income sec_61 defines gross_income as all income from whatever source derived including but not limited to the following items compensation_for services including fees commissions fringe_benefits and similar items see generally 435_us_21 434_us_77 410_us_441 348_us_426 petitioner stipulates that during he was employed by digital and was paid dollar_figure during the year for his services to the company nevertheless petitioner argues that he is not subject_to income_tax on the compensation he received from digital and that he was not required to file an income_tax return for in support of that position petitioner relies on a series of vague frivolous and groundless arguments in his petition in his testimony at trial and in his pretrial memorandum in his petition petitioner complained that respondent’s agent had not provided the statute that makes me or my income liable for the tax in question and that he never received from respondent’s agent the explanation for why i or my salary for was liable for the tax or why i was required to file a return as a result petitioner concludes i can’t pay a tax for which there is no proof that i owe at trial petitioner testified that according to my research of the subtitle a i do not find myself liable for any of those taxes that are listed in subtitle a therefore i did not file a return furthermore he stated i provided many supreme court cases that support this fact sic that not all--the labor of american citizens is not taxable never was from the beginning under subtitle a of course and the irs in my research and my correspondence with them ie with respondent’s agents i believe the irs has failed to provide the appropriate statute that makes me liable me or my payments liable for a tax under subtitle a and i have even questioned irs authority to even administer and enforce income taxes under title_26 finally petitioner’s pretrial memorandum contains a hodgepodge of frivolous irrelevant and spurious arguments petitioner’s memorandum starts by stating that he had assessed him self and had determined that he had no tax_liability under the system of self assessment i have assessed myself and determined that i had no tax_liability under title_26 for the previous year nor did i expect to have one i determined that i was exempt and checked the box on line of the voluntary withholding agreement form_w-4 my employer offered me obviously if someone is exempt their wages salary is not taxable petitioner’s memorandum states that wages and salaries from the service of private employment of us citizens is not listed as taxable in the code from what i have found petitioner’s memorandum asks the internal_revenue_service irs to provide the code statute sic that states the compensation of a retail bookkeeper is a taxable_payment activity privilege under title_26 according to petitioner the irs refuses to say how or under what code section they have determined that individual citizens are liable for tax on domestic income they just pretend you are and hope you don’t know any better to answer petitioner’s question the code section that makes him taxable on his compensation is sec_61 which defines gross_income to mean all income from whatever source derived including but not limited to compensation_for services petitioner rejects this answer according to petitioner’s memorandum sec_61 does not require his compensation to be included in gross_income because that section is found in part i of subchapter_b of subtitle a of the code entitled computation of taxable_income and is subject_to the next part part ii of subchapter_b entitled items specifically included in gross_income which sets out items specifically included in gross_income petitioner notes that the items specifically included in gross_income that are listed in part ii sec_71 through do not include the labor of private americans petitioner’s pretrial memorandum states that american employers do not have to withhold from citizens as authority for that statement he cites irs publication withholding of tax on nonresident_aliens and foreign entities and the code provisions for the withholding of tax on nonresident_aliens and foreign_corporations sec_1441 through petitioner’s memorandum concludes there is no subtitle a ‘income’ tax on united_states citizens’ labor while they live and work in the states finally petitioner’s pretrial memorandum refers to the source_rules and other general rules relating to foreign_income found in sec_861 through we find petitioner’s assertion that he was not required to file a tax_return or pay tax for taxable_year because the irs had failed to respond to his request to identify a provision in the code requiring the filing of a return or the payment of tax to be frivolous furthermore this position is among the positions identified as frivolous by the irs see notice_2010_33 2010_17_irb_609 iii b similarly we find petitioner’s assertion that he assessed himself under our self-assessment tax system and found that he did not owe any income_tax for equivalent to the argument that the filing of a federal_income_tax return and the payment of income_tax is voluntary this is a frivolous position furthermore it is a position that has been identified as frivolous by the irs see id iii a revrul_2007_20 2007_1_cb_863 we also reject as frivolous petitioner’s argument that sec_61 does not require the inclusion of compensation_for services in his gross_income according to petitioner’s argument the only items includable in a taxpayer’s gross_income are the items enumerated in sec_71 through which constitute part ii of subchapter_b bearing the heading items specifically included in gross_income because compensation_for services is not included among those items petitioner argues that compensation_for services in not included in gross_income petitioner’s argument is based upon a misinterpretation of the word included to exclude compensation_for services from the definition of gross_income his argument is contrary to sec_7701 which provides that the terms includes and including shall not be deemed to exclude other things otherwise within the meaning of the term defined thus the word included in the heading of part ii items specifically included in gross_income is a term of enlargement not of limitation similar attempts to misuse the word included in other contexts have been rejected as frivolous see 136_tc_498 callihan v commissioner tcmemo_2011_268 interpreting the definition of the term united_states in sec_3121 to exclude all states aff’d 490_fedappx_327 11th cir revrul_2006_ 2006_1_cb_743 interpreting the definition of the term employee in sec_3401 to exclude everyone other than federal employees and persons residing in washington d c or federal territories and enclaves finally we reject as frivolous or groundless petitioner’s position that citizens of the united_states are not subject_to tax on their wages derived from sources within the united_states because according to petitioner under the code only foreign-based income or income received by nonresident_aliens and foreign_corporations from sources within the united_states is taxable see 119_tc_285 furthermore this is a position that has been identified as frivolous by the irs see notice_2010_33 2010_17_irb_609 iii revrul_2004_30 2004_1_cb_622 for the reasons discussed above we reject petitioner’s position that he is not liable for income_tax on the compensation he received from digital during and we reject his position that he was not required to file an income_tax return for that tax_year therefore we sustain respondent’s determination of petitioner’s taxable_income in the notice_of_deficiency except for the inclusion of a prior year state refund of dollar_figure that respondent conceded ii additions to tax under sec_6651 and as mentioned above respondent determined in the notice_of_deficiency that petitioner is liable for the addition_to_tax under sec_6651 for failure_to_file a timely return and the addition_to_tax under sec_6651 for failure to timely pay the tax shown on his return under sec_7491 the commissioner bears the burden of production as to whether a taxpayer is liable for an addition_to_tax and must provide sufficient evidence showing that imposing the addition_to_tax is appropriate in the particular case see 116_tc_438 as to the addition_to_tax under sec_6651 for failure to timely file respondent has met this burden of production by showing that petitioner did not file an income_tax return for as to the addition_to_tax under sec_6651 for failure to timely pay the amount shown as tax on the return there must first be an amount of tax shown on a return 120_tc_163 aff’d without published opinion a f t r 2d ria 3d cir for this purpose a return made by the commissioner under sec_6020 that meets certain requirements is treated as the return filed by the taxpayer see sec_6651 ulloa v commissioner tcmemo_2010_68 wl at respondent introduced an sfr consisting of form sec_6020 certification signed by respondent’s examination operations manager a form_4549 income_tax examination changes including an explanation of the delinquency penalty and a tax_year interest computation and a form 886-a explanation of items the return is subscribed it contains sufficient information to calculate petitioner’s tax_liability and it purports to be a return thus it constitutes a valid sfr under sec_6020 see gleason v commissioner tcmemo_2011_154 wl at accordingly respondent has satisfied the burden of production under sec_7491 for the sec_6651 addition_to_tax by producing evidence sufficient to establish that a return showing petitioner’s tax_liability was filed by petitioner or prepared by respondent as an sfr under sec_6020 for the year in issue moreover the petition makes no reference to respondent’s determination that petitioner is liable for the additions to tax under sec_6651 and thus petitioner did not assign error in the petition to respondent’s determination regarding the additions to tax under sec_6651 and as a result those issues are deemed conceded by petitioner under rule b which provides that a ny issue not raised in the assignments of error shall be deemed to be conceded and respondent has no obligation under sec_7491 to produce evidence that the additions to tax are appropriate see 118_tc_358 iii sanctions and costs under sec_6673 at the conclusion of the trial respondent’s attorney orally moved to impose the penalty under sec_6673 in an amount up to dollar_figure during his oral motion respondent’s attorney stated that after reviewing petitioner’s papers he had warned petitioner that petitioner’s arguments were frivolous and he had given him an opportunity not to submit those arguments to the court according to respondent’s attorney petitioner responded that he was fully aware of the penalty and he wanted to move forward furthermore in the following exchange with petitioner at calendar call the court also warned petitioner that the court might impose a penalty under sec_6673 the court and just so that we have full transparency and you’re aware of what’s going on here at the end of the trial respondent’s counsel may stand up or hand up a written motion asking for penalties against you under sec_6673 do you know what that section is mr klein yes i did read the code yes the court all right and so you’re aware that if i decide that the issues that you’re raising are frivolous and primarily for delay that section of the code authorizes me to impose penalties of dollar_figure you’re aware of that mr klein i’m fully aware of the code yes all of the arguments that petitioner made were frivolous and a waste of the limited resources of the court and respondent petitioner persisted in making these arguments despite warnings by respondent’s attorney and the court the record also demonstrates that petitioner instituted and maintained these proceedings primarily for delay in the exercise of our discretion we conclude that a penalty under sec_6673 is appropriate accordingly we will order that petitioner pay to the united_states a penalty of dollar_figure under sec_6673 to reflect the foregoing including respondent’s concession an appropriate order will be issued and decision will be entered under rule


internal_revenue_service release number e ge technical_advice_memorandum release date - uil date area manager - taxpayer's name taxpayer's address taxpayer's identification_number years involved conference held legend issues whether funds derived by t a state-chartered credit_union described in sec_501 of the internal_revenue_code from the following activities should be treated as unrelated_business_taxable_income under sec_511 of the code a b sale of insurance products interchange income derived in connection with t’s visa credit card program facts established in tis a state-chartered credit_union which is recognized as exempt from federal_income_tax under sec_501 a of the code as an organization described in sec_501 the purpose of t as set forth in the corporate by-laws is to promote thrift among its members by affording them an opportunity for accumulating payments on shares and to make loans therefrom to its members for provident and productive purposes t’s activities include accepting deposits from and maintaining the accounts and savings of its members these deposit accounts include savings or share accounts on which members earn periodic dividends credited to the accounts and share draft accounts which are transaction accounts similar to bank checking accounts t represents that its day-to-day business operations differ from conventional banking institutions in several ways t states that it conducts its business to reflect its non-profit mutual structure t makes loans to its members and states that many borrowers have low incomes and might not otherwise qualify for credit from conventional for-profit banks t also represents that it regularly issues loans for very small amounts such as loans for auto repairs which are typically not made by for-profit banks t indicates that it serves smaller communities than those served by for-profit banks t also indicates that because of its mutual non-profit operation alll members not just those maintaining high minimum balances are able to earn competitive rates on their deposits and pay low banking fees t represents that in order to maintain its financial viability and continue to satisfy its stated purposes of promoting thrift and providing a source of low cost credit it has endeavored to become a full service financial_institution consequently t offers more than just demand deposits and loans currently t makes insurance products and visa credit card program available to members the different types of insurance are described in more detail below _ a group return was filed by the state banking department each credit_union included in the group return is represented as a separate corporate entity t was included in the form_990 group that is exempt from federal_income_tax return on the basis that it was in fact operating as a state-chartered credit_union as of the close of the tax_year there is no record of t filing a form 990-t unrelated_business_income_tax return for the year at issue a sale of insurance products t contracted with an independent insurance_company to offer credit life and credit disability insurance to its members t and at least one employee are required to be licensed by the state department of insurance in order to offer and or sell this insurance to members t derives a fee based on a fixed percentage of gross premiums from the insurance_company to market these products and perform certain administrative services in connection with the insurance program t offers credit insurance to each member when a loan application request is made a member's participation in the insurance program is voluntary and is not a prerequisite for the approval of a loan application if a member elects to receive coverage he or she will sign the required forms provided by t on behalf of the insurance_company the insurance policies provide in pertinent part that the outstanding loan balance subject_to any cap on the insured amount will be repaid to the credit_union by the insurer upon the death of a member or by payment of or reimbursement of the contractual loan installments in the case of disability a member who elects to purchase credit insurance is required to pay the premiums to t for coverage t prepares a premium remittance report on a monthly basis that summarizes the insurance premiums payable to the insurance_company the report identifies the gross premium charges the administrative fee at the contract rate to be retained by t and the net_premiums to be remitted by t for administrative convenience and to ensure timely payment of premiums to the insurer t adds the premium charge to each member's loan balance and remits the premiums to the insurer net of the administrative fee ultimately recovers the premiums as the member makes payment s on his or her loan the insurance_company may issue a refund to t based on the claims experience rating than crediting members’ accounts t retains any refund attributable to experience rating rather t t also performs certain marketing and administrative services on behalf of one or more insurance_companies in connection with other insurance products offered to members such products include but are not necessarily limited to accidental death and disability credit card life and disability and life_insurance policies that any member may subscribe to and elect to pay for through his or her credit_union account these kinds of insurance are offered independently of any loans the member may have with the credit_union t derives a fee on a periodic basis for services rendered to the insurance_companies t earned fees from its insurance program in excess of dollar_figure examination during each of the tax years under interchange income derived in connection with t’s visa credit card b program as a member of visa usa inc visa t is authorized to offer its members a visa credit card visa is an association of financial institutions that issue payment cards using visa's infrastructure and brand t became a member of visa through a sponsorship arrangement made by v an organization that sponsors its member credit unions for membership in bankcard programs and arranges for the provision of credit card and debit card processing services for its membership t’s membership in visa will hereinafter be referenced using the term member by reason of being a member t is subject_to the visa by-laws and operating regulations which prescribe the duties and responsibilities applicable to card issuers as a member that issues visa credit cards t is authorized to enter into direct contractual relationships with its cardholders and extend credit to and collect payments from cardholders ie members t markets its visa brand credit card approves or rejects applications for credit cards and performs a variety of administrative functions in accordance with the visa operating regulations furthermore t is at risk for credit it extends in connection with the use of the credit card and is responsible for the collection of any debt t’s members apply for a credit card by completing a standard application form t then approves or rejects the application based on the loan criteria that it has established if a member is approved for a credit card t will extend a line of credit subject_to limitations in connection with the use of such card credit cards offered by t at times vary with respect to the credit line interest rate and benefits attendant to the card t has two sources of revenue from its members’ use of visa credit cards summarized as follows line of credit - t ears interest_income on the unpaid balance of any line of credit extended in connection with the visa credit cards the terms and conditions pertaining to the credit cards including the interest rate charged are set forth in the cardholder agreement executed between t and each approved member t also receives income from certain fees and service charges as provided in the cardholder agreement including cash advance fees late penalty payment fees over limit fees and card or personal identification_number pin replacement fees although the name of the credit_union and visa logo are conspicuously present on the face of the plastic card only t bears any loss from a member's default on his or her obligation merchant assessments - by reason of its membership in visa and its active role in the marketing and issuance of visa brand credit cards t derives revenue from fees charged to retail businesses participating in the visa payment system visa processes the series of transactions that begin when a cardholder makes a purchase of goods or services using a visa brand credit card however a credit card transaction cannot be consummated if the retail business at which the transaction cycle begins is unwilling to accept them in order to foster card issuance and usage visa and its member institutions have developed and implemented visa net an advanced network that acts as an authorization service for visa card transactions as well as a clearing and settlement service to transfer payment information between parties technological developments marketing and other factors have encouraged retail businesses including supermarkets restaurants chain retailers and hundreds of thousands of other vendors and merchants collectively referred to as the merchants’ to accept visa cards as a payment option every transaction using a visa card incurs costs including but not limited to the point of sale pos terminal s provided to merchants that facilitate the transactions the visa network transmission lines and software that link the transaction authorization and related sales data between the merchants and visa and the expense associated with the credit union’s agent which may also be a member of visa that processes the transaction and converts it to statement form for the multiple parties involved each merchant that accepts visa cards as a payment option must contractually agree ie the merchant agreement to pay a fee related to the transaction processing costs of visa card payments the fees assessed against merchants otherwise known in the industry as interchange income may vary by card product processing technology and merchant category but are generally based on a percentage of net sales plus a fixed transaction fee interchange income is generated from a payment system that operates every day of the year on a continuous basis the interchange income derived by visa is apportioned among the members that issue payment cards in accordance with a revenue sharing arrangement that credits a member's settlement account for that portion of interchange income attributable to its cardholders’ purchases accordingly t derives interchange income based on the consumer purchases made by its own members using the visa credit card the payment of interest charges and related service fees by a member of t pursuant to the cardholder agreement is not contingent on although it may be derived from credit card purchases this is evidenced by the fact that a member may incur credit card debt for instance by borrowing through cash advances without generating interchange income likewise a member may use his or her card to purchase goods or services which generate interchange income to t without incurring interest charges this is demonstrated by a member who pays the current month’s charges in full thereby maintaining a zero balance card both the interchange program and cardholder loan program incur a variety of expenses directly related to the type of income that each business produces due to the size and complexity of the credit card program t contracts directly and indirectly through v with an outside vendor that is able to capture and process data related to the interchange program from access to the visa network that records credit card purchases and the cardholder program from information furnished by t the processing vendor ‘vendor’ maintains a separate settlement account to record the interchange income and related expenses pertaining to t as well as the expenses attributable to the cardholder program t receives a statement from the vendor on a monthly basis that details the amount of interchange income credited to its account and the itemized charges related to both the interchange and cardholder programs expenses charged to t in connection with the interchange program include authorization fees transaction processing fees and marketing fees including scoreboard redemption fees expenses_incurred and charged by the vendor to administer certain functions of t’s cardholder loan program include statement and notice fees security fees and pass-thru postage and delivery fees other expenses such as card issuance file residency maintenance and inquiry appear to be allocable to both the interchange and cardholder programs additional fees royalties and assessments may be charged to t directly by visa or indirectly through the vendor as they pertain to one or both programs t maintains separate general ledger accounts to record the interest_income and interchange income derived from credit card transactions during each tax_year under examination t derived gross interchange income in excess of dollar_figure law sec_501 of the internal_revenue_code code provides in part that organizations described in sec_501 are exempt from federal_income_tax sec_501 of the code specifically exempts from federal_income_tax credit unions without capital stock organized and operated for mutual purposes and without profit sec_1_501_c_14_-1 of the income_tax regulations regulations provides in part that credit unions other than federal credit unions described in sec_501 of the code without capital stock organized and operated for mutual purposes and without profit are exempt from tax under sec_501 state-chartered credit unions were first acknowledged as exempt from federal_income_tax in a opinion of the attorney_general the attorney_general considered credit unions organized under the laws of the commonwealth of massachusetts the attorney general's opinion described the purposes of credit unions existing at that time i t is apparent that the purpose of these financial associations is to help people save and to assist those in need of financial help whose credit may not be established at the larger banks in reality they are fundamentally similar and supplemental to the existing agencies for promoting thrift namely the savings banks and cooperative banks except on a much smaller scale the attorney general's opinion also described some of the operations of credit unions--making loans in appropriate amounts to members on which a low rate of interest is charged and that p rompt payment of obligations is a fundamental requirement the opinion described in detail the procedures by which members’ savings were held by the credit_union and how the members earned interest on their deposits the opinion also pointed to the democratic character of the governance of these early credit unions by their members at the annual meeting of the association each member shareholder and depositor has but one vote after review of the features and operations of these early massachusetts credit unions the attorney general’s opinion held that state-chartered credit unions would be exempt from federal_income_tax see u s op atty gen the legal analysis of the attorney general's opinion was adopted in treasury regulations issued in and this remained the official basis for the tax exempt status of state-chartered credit unions until the revenue act of granted express statutory tax-exempt status to state-chartered credit unions however the revenue act of removed tax exemption from savings and loan associations cooperative banks and mutual_savings_banks the legislative_history of the act suggests that the reason these entities lost their exemption was because of their increasing similarity to commercial banks and the resulting loss specifically referring to the early days of their original characteristic of mutuality of these institutions the legislative_history states the fact that the members were both the borrowers and the lenders was the essence of the mutuality of these organizations see generally s rep no date reprinted in u s code cong ad svc present-day sec_501 - as enacted in - incorporates the requirements of mutuality and non-profit operation which formed the basis for the attorney general's recognition of credit unions’ tax-exempt status in accordingly the basic purposes of the credit_union tax exemption remain essentially the same today as they were in based on the attorney general's opinion the basis for exemption is the provision of savings accounts and loans to members who may not be served by banks in a non-profit and mutual manner sec_511 of the code imposes a tax on the unrelated_business_taxable_income of organizations otherwise exempt from federal_income_tax under sec_501 sec_512 of the code provides that the term unrelated_business_taxable_income means with certain modifications the gross_income derived by an organization from any unrelated_trade_or_business regularly carried on by it less allowable deductions sec_513 of the code defines the term unrelated_trade_or_business in the case of any organization subject_to tax imposed by sec_511 as any trade_or_business the conduct of which is not substantially related aside from the need of such organization for the income or funds or the use it makes of the profits derived to the exercise or performance by such organization of its exempt_function sec_1_513-1 of the regulations provides that gross_income of an exempt_organization subject_to the tax imposed by sec_511 of the code is with certain exceptions includable in the computation of unrelated_business_taxable_income if it is income from trade_or_business such trade_or_business is regularly carried on by the organization and the conduct of such trade_or_business is not substantially related other than through the production of funds to the organization's performance of its exempt functions sec_1_513-1 of the regulations provides that the term trade_or_business has the same meaning it has in sec_162 of the code and generally includes any activity carried on for the production_of_income from the sale_of_goods or the performance of services sec_1_513-1 of the regulations states that in determining whether a trade_or_business is regularly carried on within the meaning of sec_512 of the code regard must be had to the frequency and continuity with which the activities are conducted and the manner in which they are pursued hence for example specific business activities will ordinarily be deemed regularly carried on if they manifest a frequency and continuity and are pursued in a manner generally similar to comparable commercial activities of nonexempt organizations sec_1_513-1 of the regulations provides that gross_income is derived from unrelated_trade_or_business within the meaning of sec_513 of the code if the conduct of the trade_or_business which produces the income is not substantially related other than through the production of funds to the purposes for which exemption is granted the presence of this requirement necessitates an examination of the relationship between the business activities that generate the particular income in question - the activities that is of producing or distributing the goods or performing the services involved - and the accomplishment of the organization's exempt purposes sec_1_513-1 of the regulations provides that a trade_or_business is related to exempt purposes in the relevant sense only where the conduct of the business activities has a causal relationship to the achievement of exempt purposes other than through the production_of_income and it is substantially related for purposes of sec_513 only if the causal relationship is a strong one thus for the conduct_of_a_trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of those exempt purposes whether activities contribute importantly to an organization's exempt purposes depends in each case upon the facts and circumstances involved in 693_f2d_525 5th cir a business league described in sec_501 c of the code engaged in several activities including the endorsement of insurance to its members the court analyzed whether these activities were substantially related to the business league's exempt_purpose under sec_501 c of advancing the credit_union movement in order to determine whether income generated from those activities resulted in unrelated_business_income to the business league in its analysis the court stated that the substantial relationship’ determination is necessarily a fact- based inquiry id pincite the court also noted that the regulations under sec_513 require a case-by-case identification of the exempt_purpose an analysis of how the activity contributes to that purpose and an examination of the scale on which the activity is conducted the league promoted the purchase of insurance policies from a particular carrier providing the carrier with convenient services in the marketing and administration of its programs the court stated that the league’s endorsement of group_insurance plans was principally motivated by a desire to raise revenue the court also discussed at length the distinction between group and individual benefit the court said the distinction between inherently group benefits and individual benefits is analogous to the aggregate entity concept familiar in partnership_taxation a partnership may enjoy benefits in his separate just as a member of capacities as partner and non-partner so may a member of the league may enjoy benefits both as a league member and as an individual credit only those activities that benefit the credit unions in their capacities union the be considered league members can as this group benefit standard also accords with league’s exempt_function the requirement that a business league seek to improve the conditions of an entire line_of_business rather than perform discrete services for individuals see sec_4 c -1 when the activities of a business league are directed toward the achievement of the common business its members are interest inherently group benefits benefits that accrue to its members the substantially related of to id pincite the court continued its analysis by stating that insurance endorsement and administration is not the sort of unique activity that satisfies the substantial relationship_test nor is its benefits group-related id pincite rather than merely advising members of the availability and desirability of insurance coverage to credit unions generally the league promoted the purchase of polices from a particular carrier the court affirmed the district court’s rationale that the league’s insurance activities did little more than generate revenue because the league’s endorsement was basically a fundraising activity it was by definition unrelated business activity under sec_513 id pincite therefore the court concluded that the league’s insurance activities were not substantially related to its tax-exempt purpose of advancing the credit_union movement rather the connection between the furtherance of the credit_union movement and the selling of insurance was at best tangential in 78_tc_246 aff'd 726_f2d_1097 6th cir the court held that promotional and administrative fees and an experience rating reserve refund received by a business league described in sec_501 of the code for promoting group_insurance programs for its members constituted unrelated_business_taxable_income under sec_512 in holding that the business league’s activities were not substantially related the court considered whether the league’s insurance activities contributed importantly to the league’s exempt_purpose of advancing the common business interests of independent insurance agents the court stated the burden is on the taxpayer to show that the challenged activities contribute directly and importantly to the improvement of conditions in a particular line_of_business the court noted that the petitioner's insurance activities did little more than generate revenue for the association and provided members with a convenient and economical service in the operation of their agencies as such they stood in sharp contrast to petitioner's educational and legislative activities which served the broader purpose of improving the general business environment in which insurance agents operated thus the court found petitioner's activity of promoting insurance was not substantially related to its exempt_purpose in la caisse popu563_f2d_505 1st cir the government unsuccessfully challenged the exempt status under sec_501 of the code of an organization chartered as a credit_union by the state of new hampshire the government maintained that the organization was not exempt because it offered a wide variety of services typically offered by nonexempt full service banks and was therefore not organized or operated as a credit_union among these services were checking accounts mortgage loans banking by mail safe deposit boxes and a night depository this case focused solely on the taxpayer's exemption under sec_501 and did not address the provisions of sec_511 through in 646_fsupp_1199 n d ala a credit_union described in sec_501 of the code offered cancer and group_life_insurance to its individual members the issue was whether commissions the credit_union received from servicing these particular types of insurance policies constituted unrelated_business_income under sec_512 the court did not reach the issue for jurisdictional reasons however it stated ina footnote that the petitioner would have lost on the merits of this issue because the policies benefited the insured without any reference to the member's loans or accounts with the credit_union that court stated in dicta that cancer and group_life_insurance offered by a credit_union to its members would result in unrelated business table income for the following reasons petitioner earned commissions for servicing cancer and group_life_insurance policies these policies were for the express benefit of the insured without any reference to the member's loans or accounts with the credit_union petitioner derived no benefit from the policies other than commission on the sale of said policies earned from the insurance_companies which issued the policies the sale of the cancer and group_life_insurance policies referred to had no substantial causal relationship to petitioner's exempt purposes and the sale of the policies bore no relationship to petitioner's function as a credit_union id pincite n revrul_60_228 1960_1_cb_200 interprets the substantially related rey rul 1969_1_cb_155 provides that an organization must be formed and operated under the state law governing the formation of credit unions to qualify for exemption under sec_501 of the code as a state- chartered credit_union rey rul 1972_1_cb_152 provides that to qualify as a credit_union_exempt from income_tax under sec_501 a of the code an organization must in addition to being formed and operated under a state credit_union law operate without profit and for the mutual benefit of its members the revenue_ruling clarified revrul_69_282 stating that a state charter is a threshold requirement for exemption but not the sole requirement requirement of sec_513 an organization exempt from federal_income_tax as an agricultural_organization described in sec_501 of the code promoted wider insurance coverage among its members and other local farmers including life casualty and fire insurance the insurance programs are provided by several insurance_companies but the organization's administrative and secretarial staff is assigned to the work the organization receives an overall fee from the insurance_company for office and other services rendered them in connection with the insurance programs the revenue_ruling provides that a trade_or_business is substantially related to an organization’s exempt_activities if the principal purpose of the trade_or_business furthers these exempt purposes however in this case such activities are not usually associated with the functions of an agricultural_organization and normally would not be carried on by such an organization in furtherance of its exempt purposes therefore these activities are not substantially related to the organization’s exempt purposes thus the income resulting from these activities is subject_to tax under sec_511 analysis in determining whether an income-producing activity is an unrelated_trade_or_business it is necessary to show that there is a trade_or_business the trade_or_business is regularly carried on and the conduct of the trade_or_business is not substantially related to the organization's exempt_purpose or function see sec_1_513-1 a of the regulations t has agreed that the activities at issue are trade_or_business that is regularly carried on therefore the sole issue is whether each activity is substantially related to the organization's achievement of its exempt purposes gross_income is derived from an unrelated_trade_or_business if the conduct of the trade_or_business is not substantially related other than through production of funds to the purposes for which exemption is granted sec_1_513-1 of the regulations determination of the substantial relationship issue requires an examination of the relationship between the business activities which generate the particular income in question and the accomplishment of the organization's exempt purposes d the regulations further state that for the conduct of trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of services from which the gross_income is derived must contribute importantly to the accomplishment of those purposes sec_1_513-1 of the regulations see also prof ins agents of michigan supra insurance activity was not substantially related because activity did little more than generate revenue and provide members with a service and did not further taxpayer's exempt_purpose of improving business conditions and louisiana credit_union league supra league's endorsement of group_insurance plans was principally motivated by a desire to raise revenue and at best was only tangentially related to the furtherance of the league’s exempt_purpose of improving business conditions of one or more lines of business the court found the requisite substantial relationship lacking for t’s activities to escape taxation as unrelated_business_income the activities must contribute directly and importantly to the accomplishment of one or more of t’s exempt purposes-promotion of thrift and providing low cost credit for its members through mutual and nonprofit operation sec_4 d of the regulations see also prof ins agents of michigan supra we address each of the activities below insurance t argues that the sale of credit disability insurance is directly related to the credit union’s specific exempt purposes of fostering thrift among the members including both the extension of credit to members on reasonable terms and encouraging savings among the members and providing services to members on a mutual basis t further maintains that credit insurance which is an integral part of a member loan transaction is a mechanism for assuring the prompt repayment of debts in situations where the financial resources of the borrower and the borrower's family become strained as a result of disability in fact credit disability the facts do not show how sales of credit disability insurance contribute directly and importantly to accomplishing t’s exempt purposes credit disability insurance is not required for the approval of a loan insurance is not available to members on certain types of loans such as mortgage and other real_estate loans the member decides whether to purchase credit disability insurance based on his or her own assessment of whether the insurance will provide a benefit to that individual member the individual member benefits in that the member need not worry about paying a loan to tin the event of disability while there is also a benefit to the credit_union as the beneficiary the facts do not show how the sale of credit disability insurance otherwise contributes importantly and directly to accomplishing t's exempt purposes other than through the production_of_income availability of credit disability insurance does not encourage savings or assist t credit in offering low cost t does not take into consideration the need for this insurance by members t performs no studies to determine which members may need credit disability insurance and there is no required corresponding counseling to members who may have more need than others although t’s staff may recommend insurance based on the level of personal and family resources these recommendations are not mandatory in specific cases and coverage is not required in these cases applying the factors of alabama central credit_union supra t earns commissions for providing credit disability insurance sells policies for the express benefit of the insured albeit with reference to a member's loan with the credit_union derives some benefit from the credit disability insurance but the primary benefit is production_of_income both through the commission on the sale of the insurance earned and the bonuses paid to t employees the insurance referred to has no substantial causal relationship to t’s exempt purposes and the insurance bears no relationship to t’s function as a credit_union looking at the facts with respect to credit disability insurance the sale of credit disability insurance is not substantially related to t’s exempt purposes the available information indicates that the sale of insurance is primarily for the purpose of generating income to t and some of its employees and for the benefit of the insured rather than for the benefit of t’s membership based on all of the facts and circumstances t’s activities with respect to the sale of credit disability insurance do not contribute importantly to accomplishing t’s exempt purposes therefore the sale of credit disability insurance is not substantially related to t’s exempt purposes and amounts received therefrom are subject_to ubit t argues that making ad d and other types of insurance available to members is substantially related to the credit union’s exempt_purpose of promoting thrift by providing basic financial protection to members on a mutual t also argues that these insurances facilitate prompt repayment of loans basis on a mutual basis by protecting the individual member's financial security the facts do not show how t’s sales of these insurances contribute directly and importantly to t’s exempt purposes t has not demonstrated that sales of _t has also not insurance encourage savings by members who purchase it provided information showing that the sale of insurance aids a member in obtaining credit or reduces the cost of providing credit to members the facts do not demonstrate that the sale of insurance to individual members advances t's mutual operation insurance provides a financial protection to an individual the individual’s purchase of insurance does not provide a benefit to the members as a whole the legislative_history of sec_501 of the code indicates that mutuality is tied to the same members being the borrowers and lenders in loan transactions rather than the general principles that t espouses s rep no date t has not stated how the sale of insurance to an individual provides a mutual benefit to t’s members the facts also do not show how sale of insurance benefits the members of the credit_union as a whole a member may if a member of t purchase insurance without obtaining credit or a loan from t receives accidental dismemberment insurance payments the member may use the insurance payments as he or she wishes rather than saving them or paying in the case of accidental death the member's beneficiary off an obligation to t may or may not be a member of t and also may use the payments as he or she desires in alabama central credit_union supra the court stated in dicta several in this case t factors cited above relevant to the substantially related inquiry earns commissions for servicing ad d insurance policies sells policies for the express benefit of the insured without any reference to the member's loans or accounts with the credit_union derives no benefit from the policies other than commission on the sale of the policies earned from the insurance_companies which issued the policies the sale of the insurance policies referred to has no substantial causal relationship to t's exempt purposes and the sale of the policies bears no relationship to t’s function as a credit_union based on all of the facts and circumstances t’s activities with respect to the sale of insurance do not contribute importantly to accomplishing t’s exempt purposes the insurance sold benefits an individual and t receives no benefit other than the production_of_income therefore the sale of insurance is not substantially related to t’s exempt purposes and amounts received therefrom are subject_to unrelated_business_income_tax ubit interchange income derived in connection with t’s visa credit card program making interest-bearing loans to members is a traditional activity of exempt credit unions_credit unions originally made unsecured personal loans to members because of changes in the financial marketplace and the expanded needs of financial_institution customers today all the types of loans made by t - including personal loans to members first mortgage loans and second-mortgage or home equity loans secured_by residential real_estate owned by the member small_business loans auto loans secured_by the automobile owned by the member whose purchase is financed by the loan and credit card loans - are recognized as substantially related to the exempt purposes and functions of t similarly activities attendant on these loan programs are also conclusions for reasons set forth above we conclude that the income received by a sec_501 credit_union from the sale of insurance products is not substantially related to the furtherance of t’s exempt purposes and therefore is subject_to ubit substantially related to t’s thrift-encouragement and mutual member service purposes credit card loans are extended to members as a component of the overall credit card program and ultimately the member lending program as a whole maintained by t accordingly the credit card program is substantially related to t’s exempt purposes therefore any net_income after deduction of related expenses arising from the card program specifically including but not limited to the interchange fees generated by merchant purchases is not subject_to unrelated_business_income_tax interchange income derived by t in connection with its visa credit card program is substantially related to the performance of t's exempt_function and therefore does not constitute unrelated_business_income subject_to the tax imposed by sec_511 of the code a copy of this technical_advice_memorandum is to be given to the taxpayer sec_6110 of the code provides that it may not be used or cited as precedent - end -


department of the treasury employer_identification_number contact person - id number contact telephone number internal_revenue_service p o box cincinnati oh number release date date date uil legend w scholarship program x business y businesses z dollar amount dear you asked for advance approval of your employer-related scholarship grant procedures under internal_revenue_code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax you requested approval of your scholarship program to fund the education of certain qualifying students our determination we initially approved your procedures for awarding employer-related scholarships in our letter dated march based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding employer-related scholarships continue to meet the requirements of code sec_4945 as a result expenditures you make under these procedures won't be taxable also awards made under these procedures are scholarship or fellowship grants and are not taxable to the recipients if they use them for qualified_tuition_and_related_expenses subject_to the limitations provided in code sec_117 description of your request your letter indicates you will continue to operate an employer-related scholarship program called w the purpose of w is to assist students with financial aid awards will be made to eligible persons on a nondiscriminatory basis without regard to ethnic racial or religious background dependent_children of the employees of x and x’s nine affiliate companies y who meet certain academic and other requirements will be eligible to apply for grants a maximum award of z dollars per year will be granted this may be increased in the future as costs increase the number of grants will be limited by revproc_76_47 awards will be granted with first preference to undergraduate students enrolled at an accredited college or university based on academic standings gpa if additional grants letter catalog number 58264e are available the selection committee will consider first students pursuing post-graduate studies and then students beginning in grade descending to kindergarten all grants awarded will be based on objectively determined academic criteria and the student must document progress toward a degree or diploma to be eligible for future grants basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is a scholarship or fellowship subject_to code sec_117 the grant is to be used for study at an educational_organization described in code sec_170 revproc_76_47 1976_2_cb_670 provides guidelines to determine whether grants a private_foundation makes under an employer-related program to employees or children of employees are scholarship or fellowship grants subject_to the provisions of code sec_117 if the program satisfies the seven conditions in sections dollar_figure through dollar_figure of revproc_76_47 and meets the applicable_percentage tests described in section dollar_figure of revproc_76_47 we will assume the grants are subject_to the provisions of code sec_117 you represented that your grant program will meet the requirements of either the percent or percent percentage_test in revproc_76_47 these tests require that e e e the number of grants awarded to employees’ children in any year won't exceed percent of the number of employees’ children who were eligible for grants were applicants for grants and were considered by the selection committee for grants or the number of grants awarded to employees’ children in any year won't exceed percent of the number of employees’ children who were eligible for grants whether or not they submitted an application or the number of grants awarded to employees in any year won't exceed percent of the number of employees who were eligible for grants were applicants for grants and were considered by the selection committee for grants you further represented that you will include only children who meet the eligibility standards described in revproc_85_51 1985_2_cb_717 when applying the percent test applicable to employees’ children in determining how many employee children are eligible for a scholarship under the percent test a private_foundation may include only those children who submit a written letter catalog number 58264e statement or who meet the foundation's eligibility requirements they must also satisfy certain enrollment conditions you represented that your procedures for awarding grants under this program will meet the requirements of revproc_76_47 in particular e e e an independent selection committee whose members are separate from you your creator and the employer will select individual grant recipients you will not use grants to recruit employees nor will you end a grant if the employee leaves the employer you will not limit the recipient to a course of study that would particularly benefit you or the employer other conditions that apply to this determination e e e e e e e this determination only covers the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don’t differ significantly from those described in your original request this determination is in effect as long as your procedures comply with sections dollar_figure through dollar_figure of revproc_76_47 and with either of the percentage tests of sec_4 if you establish another program covering the same individuals that program must also meet the percentage_test this determination applies only to you it may not be cited as a precedent you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes to your program to the cincinnati office of exempt_organizations at internal_revenue_service exempt_organizations determinations p o box cincinnati oh you cannot award grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary we've sent a copy of this letter to your representative as indicated in your power_of_attorney letter catalog number 58264e please keep a copy of this letter in your records if you have questions please contact the person listed at the top of this letter sincerely holly o paz director exempt_organizations rulings and agreements letter catalog number 58264e


internal_revenue_service number release date index numbers ------------------------------------ ------------------------------------------------- -------------------------------------- ------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ---------------- telephone number -------------------- refer reply to cc psi plr-123586-18 date date x a b_trust trust trust trust trust state date date date ------------------------------------ ---------------------- ------------------- ----------------------- ---------------------------------------------- ------------------------------------------------------ --------------------- ---------------------------- ------------------------------------- ------------------ -------------------- -------------------------- -------------------------- plr-123586-18 dear -------------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to make an election under sec_754 of the internal_revenue_code code facts the information submitted states that x was formed on date as a state limited_liability_company that is classified as a partnership for federal tax purposes trust which held an interest in x was a revocable_living_trust which was treated under sec_671 as owned by a and b on date a died upon a’s death trust was divided into trust trust trust and trust x’s tax_return for its taxable_year ended date was timely filed but a sec_754 election to adjust the basis of partnership property was inadvertently not filed with the return x represents that it has acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government law sec_754 provides in part that if a partnership files an election in accordance with the regulations prescribed by the secretary the basis of partnership property is adjusted in the case of a distribution_of_property in the manner provided in sec_734 and in the case of a transfer of a partnership_interest in the manner provided in sec_743 such an election shall apply with respect to all distributions of property by the partnership and to all transfers of interests in the partnership during the taxable_year with respect to which the election was filed and all subsequent taxable years sec_1_754-1 of the income_tax regulations provides in part that an election under sec_754 to adjust the basis of partnership property under sec_734 and sec_743 with respect to a distribution_of_property to a partner or a transfer of an interest in a partnership shall be made in a written_statement filed with the partnership return for the taxable_year during which the distribution or transfer occurs for the election to be valid the return must be filed not later than the time prescribed by sec_1_6031_a_-1 including extensions thereof for filing the return for the taxable_year sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin plr-123586-18 sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to make an election under sec_754 effective for its taxable_year ended date and thereafter the election should be made in a written_statement filed with the appropriate service_center for association with x’s return for its taxable_year ended date a copy of this letter should be attached to the election except as specifically set forth above we express or imply no opinion concerning the federal tax consequences of the facts described above under any other provision of the code and the regulations thereunder this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination plr-123586-18 in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to x's authorized representative sincerely associate chief_counsel passthroughs and special industries by ______________________________ stacy l short senior technician reviewer branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes