t c memo united_states tax_court michael mcavey and kathleen mcavey petitioners v commissioner of internal revenue respondent docket no 2583-17l filed date john p fazzio for petitioners thomas a deamus for respondent memorandum opinion thornton judge in this collection_due_process cdp case petitioners seek review pursuant to sec_6330 of respondent’s determination to sustain a proposed levy to collect unpaid income_tax for and thi sec_1unless otherwise indicated all section references are to the internal continued case is before the court on respondent’s motion for summary_judgment and on petitioners’ motion to remand background petitioners’ and income_tax liabilities were assessed on the basis of returns petitioners filed and two valid sec_7121 closing agreements both completed on form 870-lt settlement agreement for partnership items and partnership level determinations as to penalties additions to tax and additional_amounts and agreement for affected items the closing agreements relate to certain partnerships petitioners partly owned in these agreements petitioners agreed to assessment and collection of certain liabilities including accuracy-related_penalties under sec_6662 both agreements contain the following provision continued revenue code in effect for the relevant times and all rule references are to the tax_court rules_of_practice and procedure monetary amounts are rounded to the nearest dollar 2the first agreement which relates to petitioners’ income_tax_liability was signed by petitioners on date and by respondent’s agent on date the second agreement which relates to petitioners’ income_tax_liability was signed by petitioners on date and by respondent’s agent on date copies of these agreements are included as exhibits to a declaration in support of respondent’s response to petitioners’ motion to remand petitioners have raised no objection to our consideration of these documents and we deem petitioners to have waived any such objection the undersigned taxpayer s in accordance with irc sections b and d also waive s the restrictions provided in sec_6225 and sec_6213 and consent s to the assessment and collection of any deficiency attributable to partnership items penalties additions to tax and additional_amounts that relate to adjustments to partnership items as set forth in the attached schedule of adjustments plus any interest provided by law on date respondent issued to each petitioner a letter 1058a notice_of_intent_to_levy and notice of your right to a hearing notices of intent to levy with respect to petitioners’ and income_tax liabilities according to the notices of intent to levy petitioners owed dollar_figure for and dollar_figure for including interest and penalties through date on or about date petitioners submitted to respondent a form request for a collection_due_process or equivalent_hearing with respect to their and income_tax liabilities on their form under the heading c heck the most appropriate box for the reason you disagree with the filing of the lien or the levy petitioners checked the box captioned other and 3also on date respondent issued to petitioners separate notices of intent to levy with respect to their income_tax_liability according to those notices petitioners owed dollar_figure for including interest and penalties through date 4the record does not suggest nor do petitioners contend that they ever asked for a cdp hearing with respect to referred respondent to an attachment the attachment states that petitioners were seeking an offer-in-compromise oic on or about date petitioners submitted to respondent form_656 offer_in_compromise with respect to their and income_tax liabilities petitioners checked the box to designate their oic as an offer on the basis of doubt as to collectibility and proposed to pay a total of dollar_figure to satisfy their and income_tax liabilities in monthly payments of dollar_figure for months followed by a final payment of dollar_figure petitioners’ oic was accompanied by a completed form 433-a collection information statement for wage earners and self-employed individuals their form 433-a listed among other assets interests in partnerships and real_estate in cornwall new york cornwall property the cornwall property was not their residence petitioners’ oic was initially assigned to respondent’s oic group which investigated petitioners’ assets and income to determine how much of the debt respondent could reasonably expect to collect according to petitioners’ form_1040 u s individual tax returns their partnerships had been passing through substantial amounts of income to them on or about date the oic group found that petitioners’ equity in assets including their partnership interests residence cornwall property and cars was dollar_figure and petitioners’ annual net_income was dollar_figure both findings appear to have been attributable in large part to petitioners’ equity in and income from partnerships on the basis of these findings the oic specialist group concluded that petitioners’ reasonable collection potential rcp was at least dollar_figure because it concluded that petitioners’ rcp exceeded their dollar_figure oic the oic group recommended that the oic be denied meanwhile petitioners’ cdp case had been assigned to an appeals officer ao on or about date their oic was forwarded to the ao for consideration as part of the cdp hearing on date the ao issued to petitioners a letter appeals received your request for a collection_due_process_hearing scheduling a cdp hearing for date a telephone cdp hearing held on that date focused on whether petitioners were entitled to the oic they had submitted petitioners’ accountant stuart becker represented petitioners during the hearing and throughout the cdp administrative proceedings following the cdp hearing the ao corresponded with mr becker they discussed among other things petitioners’ partnership interests petitioners claimed that the partnership interests were worthless and that the income they had reported on their most recent income_tax returns was self-charged_interest ie allegedly phantom income attributable to interest_income accrued by the partnership on loans to the partners to support these claims petitioners provided forms u s return of partnership income these returns do not however report any loans to partners on lines of schedules l balance sheets per books petitioners also provided to the ao a series of promissory notes and assumption agreements which would appear to show that mr mcavey is liable to the partnerships and personally liable to third parties for a share of the partnerships’ liabilities the ao ultimately remained unconvinced by petitioners’ explanation of their partnership interests and income in particular it was unclear to the ao why partners would over a period of several years persist in a worthless investment that generated substantial amounts of allegedly phantom income the ao suggested that petitioners amend the terms of their oic to include a collateral_agreement which would have waived petitioners’ claim to certain unused net operating losses nols and capital losses it appears that in exchange the ao agreed to exclude any possible equity in or income from the partnerships for purposes of calculating petitioners’ rcp 5apparently the partnerships were all engaged in oil exploration activities and the third parties provided oil exploration services petitioners claimed that the partnerships had not found any oil as of the time of the cdp hearing meanwhile the parties were discussing the cornwall property petitioners had sold the property on date after requesting a cdp hearing and submitting their oic the net_proceeds of the sale were dollar_figure after state taxes petitioners claimed that they used the proceeds to pay living_expenses the ao asked petitioners to provide evidence of the use of the proceeds petitioners did not do so the record reflects that the ao agreed without proof to accept that dollar_figure of the proceeds had been spent on living_expenses the ao included the remainder of the proceeds rounded down to the nearest dollar_figure --dollar_figure--in petitioners’ rcp as dissipated assets on date the ao and mr becker had a conference call in which they agreed on the values of petitioners’ assets except that petitioners continued to dispute the ao’s inclusion in their rcp of dollar_figure from the sale of the cornwall property the parties also agreed that petitioners’ partnership interests and income would be excluded from their rcp the ao informed mr becker that petitioners’ rcp was dollar_figure after including dollar_figure of the proceeds of the cornwall property sale as dissipated assets and excluding petitioners’ partnership interests from consideration the ao informed mr 6additionally the ao’s calculation of rcp does not include any income it appears that the ao accepted petitioners’ claim that they had no appreciable nonpartnership net_income becker that petitioners’ oic would not be accepted unless petitioners increased their offer to dollar_figure ie their rcp and agreed to a collateral_agreement waiving their unused nols and capital losses mr becker responded that if petitioners were to amend their offer as the ao had described they would be forfeiting significant tax benefits the ao agreed but she reminded mr becker that if respondent ultimately accepted such an offer respondent would be waiving a significant portion of petitioners’ tax_liabilities in exchange mr becker stated that he would need to discuss an amended oic with petitioners the ao asked mr becker to call back by date on date an associate of mr becker called the ao after business hours and left a message the ao called back on date but did not reach mr becker the ao left a message that mr becker should call back on date the ao called mr becker again but still did not reach him she left a message informing mr becker that if he did not respond by date she would close the case and issue a notice_of_determination on date the ao issued a notice_of_determination denying 7mr becker also asked during the date conference whether the cdp officer would allow a future income collateral_agreement in lieu of increasing the dollar_figure amount the cdp officer responded that such an agreement would not be permitted petitioners’ oic and sustaining the notices of intent to levy the record does not reflect any calls from petitioners or their representative between the date call and the date the notice_of_determination was issued while residing in new jersey petitioners timely filed a petition discussion the court may grant summary_judgment when there is no genuine dispute as to any material fact and a decision may be rendered as a matter of law rule b 98_tc_518 aff’d 17_f3d_965 7th cir the moving party bears the burden of showing that there is no genuine issue of material fact sundstrand corp v commissioner t c pincite in deciding whether to grant summary_judgment we view the factual materials and inferences drawn from them in the light most favorable to the nonmoving party id where the validity of the underlying tax_liability was properly at issue in the cdp hearing the court reviews the commissioner’s determination de novo as to that issue 114_tc_176 where the underlying tax_liability was not properly at issue the court reviews the commissioner’s determination only for abuse_of_discretion id pincite petitioners did not challenge their underlying liabilities at the cdp hearing--the only issue discussed was petitioners’ oic--and therefore their underlying liabilities are not at issue in this case see 129_tc_107 accordingly we review respondent’s determination for abuse_of_discretion in their petition petitioners allege that the ao erred in including in their rcp dollar_figure from the cornwall property sale requesting that petitioners waive their nols and capital losses refusing to agree to any collateral agreements offered by the taxpayers and closing the case and issuing the notice_of_determination too quickly in their opposition to respondent’s motion for summary_judgment and in their motion to remand petitioners raise another issue they now allege that the ao erred in failing to verify that the assessment of penalties which respondent had assessed on the basis of closing agreements petitioners had signed complied with sec_6751 i petitioners’ oic sec_7122 authorizes the secretary to compromise any civil or criminal case arising under the internal revenue laws sec_7122 authorizes the secretary to prescribe guidelines for officers and employees of the internal 8although petitioners have not amended their petition to include this issue respondent has not objected to our considering it and we deem respondent to have waived any such objection revenue service irs to follow in determining whether an oic is adequate regulations implementing sec_7122 set forth three grounds for the compromise of a liability doubt as to liability doubt as to collectibility and promotion of effective tax_administration sec_301_7122-1 proced admin regs petitioners made an oic on the basis of doubt as to collectibility a determination of doubt as to collectibility includes a determination of ability to pay sec_301_7122-1 proced admin regs in determining ability to pay the commissioner permits taxpayers to retain sufficient funds to pay basic living_expenses id an offer to compromise based on doubt as to collectibility generally will be considered acceptable if it is unlikely that the tax can be collected in full and the offer reasonably reflects the amount the irs could collect through other means including administrative and judicial collection remedies this amount is the reasonable collection potential of a case in determining the reasonable collection potential of a case the irs will take into account the taxpayer’s reasonable basic living_expenses in some cases the irs may accept an offer of less than the total reasonable collection potential of a case if there are special circumstances revproc_2003_71 sec_4 2003_2_cb_517 in general it is not an abuse_of_discretion for the commissioner to refuse an oic if the offer does not reflect the taxpayer’s rcp e g 136_tc_475 aff’d 502_fedappx_1 d c cir a the cornwall property in their petition petitioners dispute the ao’s inclusion in their rcp as dissipated assets of dollar_figure of the proceeds from the cornwall property sale respondent contends in his motion for summary_judgment that this inclusion was not an abuse_of_discretion petitioners’ opposition to respondent’s motion does not maintain this dispute and we deem them to have waived or conceded this issue in any event there was no abuse_of_discretion with respect to the cornwall property a dissipated asset is any asset that has been sold transferred or spent on nonpriority items or debts and that is no longer available to pay the tax_liability see eg johnson v commissioner t c pincite a consequence of including dissipated assets in rcp is that the taxpayer is fictitiously assumed to have funds that he no longer has an assumption that may be discouraging to the delinquent taxpayer id the reason for including dissipated assets in rcp is to deter delinquent taxpayers from wasting money that they owe and should pay as tax id the cornwall property was sold during the administrative_proceeding the record shows that the ao asked petitioners’ representative for proof that the proceeds of the cornwall property sale had been spent on necessary living_expenses as petitioners claimed petitioners never provided any such proof the ao nevertheless treated dollar_figure of the proceeds as if they had been spent on necessary living_expenses the remainder was included in petitioners’ rcp in the light of petitioners’ failure to provide or support a basis for excluding the remainder from their rcp there was no abuse_of_discretion in this decision b collateral_agreement as to nols and capital losses a collateral_agreement is an agreement added to the basic payment agreement arising from an accepted oic a collateral_agreement enables the government to collect funds in addition to the amount actually secured_by the offer or to add additional terms not included in the standard form_656 agreement thereby recouping part or all of the difference between the amount of the offer or additional terms of the offer and the liability compromised internal revenue 9petitioners also claim to have spent approximately dollar_figure of the proceeds from the cornwall property sale on their business they argue that this would have been an acceptable use of the funds but they have offered no proof or explanation to support their claim that these alleged business_expenses which were allegedly incurred well after their tax_liabilities arose should have taken priority over petitioners’ preexisting tax_liabilities and therefore the ao did not abuse her discretion in declining to consider these alleged business_expenses manual irm pt date after consideration of all the facts and circumstances the refusal to enter into an appropriate collateral_agreement may be a reason to reject the taxpayer’s offer id the petition assigns error to the ao’s suggestion that petitioners amend their oic to include a collateral_agreement waiving nols and capital losses the petition states the a ppeals officer insisted that the taxpayers agree to waive the entire amount of their n et o perating l osses by insisting on this requirement the a ppeals officer was demanding payment in full this is because the tax savings forfeited by waiving the nol s coupled with the total cash payments demanded by the a ppeals officer approximately equal ed the full amount of the tax this was pointed out to the a ppeals officer nevertheless she insisted upon a relinquishment of the entire amount of the taxpayers’ nol s with full knowledge that the result would amount to payment in full of the tax_liability thereby dispelling the notion of compromise that an offer_in_compromise seeks to promote this argument is without merit allowance for offers in compromise under sec_7122 does not mean that the commissioner must compromise the amount he seeks to collect if the taxpayer can fully pay in any event there was no abuse_of_discretion in the ao’s suggesting that petitioners amend their oic to include a collateral_agreement waiving nols and capital losses it is generally the commissioner’s policy that collateral agreements waiving losses are appropriate to consider in situations where the taxpayer’s rcp is less than the amount of liability see irm pt date as petitioners were claiming that their rcp was less than the amount of their debt there was no abuse_of_discretion in the ao’s request for a collateral_agreement moreover it would appear that the collateral_agreement was essentially offered in exchange for excluding petitioners’ partnership interests and income from calculation of their rcp the documents petitioners provided to the ao in support of their claims do not answer why if the partnerships were worthless the partners were choosing to report large amounts of interest_income rather than wind up the partnerships there may be a perfectly reasonable answer but petitioners did not provide it consequently it was not unreasonable for the ao to propose an alternative solution which avoided the issue namely the collateral_agreement as the ao explained the collateral_agreement alternative had positives and negatives for both parties petitioners would have given up potentially substantial tax benefits in partial satisfaction of their debtdollar_figure on the other hand respondent 10in their motion to remand petitioners suggest that the ao’s insistence on including the collateral_agreement was essentially based on concerns over petitioners’ fortunes improving petitioners suggest that the collateral_agreement would have been unfair because of uncertainties in petitioner’s ie mr mcavey’s financial future as petitioner was engaging in a new venture where his future income was entirely uncertain petitioners’ argument is without merit it amounts to contending that respondent should have forgiven a portion of their debt outright without requiring them to give up potentially valuable tax continued would have been giving up collection of a substantial portion of petitioners’ liability there was no abuse_of_discretion in the ao’s suggesting this tradeoff c future income collateral_agreement in their petition petitioners claim that the ao abused her discretion in refusing to entertain any collateral agreements offered by the taxpayers petitioners have offered no more specific description of the agreements to which they refer during the date call mr becker proposed a future income collateral_agreement in lieu of increasing petitioners’ dollar_figure offer to dollar_figure ie their rcp as determined by the ao the ao refused the proposal respondent’s motion for summary_judgment contends that there was no abuse_of_discretion in the ao’s refusal because petitioners failed to present any evidence to show that they expected a substantial increase in their future income petitioners’ opposition to respondent’s motion does not maintain this dispute and we therefore deem them to have waived or conceded the issue in any event the commissioner generally considers future income collateral agreements when the investigation reveals that a substantial increase in the taxpayer’s future income is expected irm pt date continued attributes in return petitioners claimed during the cdp hearing that they had little or no income other than the income from their partnerships and no appreciable cashflow the record does not indicate that petitioners ever claimed to expect an increase in their future income and petitioners have not contended otherwise it was therefore not an abuse_of_discretion for the ao to refuse to consider a future income collateral_agreement d amount of time afforded to petitioners petitioners do not dispute that their representative mr becker understood on date that petitioners’ original oic would not be accepted and that if they wished to increase their offer to dollar_figure and add a collateral_agreement waiving nols and capital losses the ao was amenable to those amended terms the record also reflects and petitioners have not disputed that the ao set date as the deadline for a response and the ao tried to contact petitioners’ representative twice once on date and again on date the parties agree that the ao had received no response before finally issuing the notice_of_determination on date the petition contends that this sequence of events afforded petitioners inadequate time to respond with an amended offer and that the ao did not make clear that she would close the case and issue a notice_of_determination if petitioners did not respond there was no abuse_of_discretion in the ao’s decision to issue the notice_of_determination on date the conversations between the ao and mr becker that led up to and culminated in the date call were sufficient to inform mr becker that petitioners’ dollar_figure offer would not be accepted and that petitioners would be required to amend their oic and add a collateral_agreement as of date when the ao issued the notice_of_determination days after their last call petitioners’ representative had missed a deadline to respond had failed to respond to the ao’s two attempts to reach him and had failed otherwise to communicate with the ao under these circumstances the ao acted reasonably and in accordance with the regulations in closing the case and making a determination on the basis of the record as it was see sec_301_6330-1 q a-e9 proced admin regs appeals will issue a n otice of d etermination as expeditiously as possible under the circumstances dollar_figure 11petitioners complain that it took several years to negotiate a settlement with respect to their partnerships and then a year or two more to arrive at the date call their implication would appear to be that because respondent allegedly took a long time before the call they should have been given continued the petition asserts that petitioners’ failure to respond was attributable to the alleged fact that mr becker’s office was flooded a week or so before the christmas new year’s holiday petitioners also allege that this was communicated to the ao petitioners have not supported these allegations with an affidavit or declaration and therefore have failed to raise a genuine dispute of fact in this respect moreover petitioners have not maintained this argument in their opposition to respondent’s motion for summary_judgment and therefore we deem them to have waived or conceded this argument in any event even if we were to assume arguendo that mr becker’s office was flooded a week or so before christmas the date deadline fell well before that time as did the ao’s date attempt to reach mr becker additionally petitioners allege and have properly supported by declaration that mr becker did not inform them of the ao’s suggestion that they amend their offer assuming the truth of this allegation for purposes of deciding continued commensurate time after the call this contention is without merit the time taken to negotiate the settlement with respect to petitioners’ deficiencies is irrelevant to whether the timing of the cdp hearing and determination was appropriate and the appropriateness of the timing of one aspect of the cdp administrative_proceeding does not necessarily depend on the timing of other aspects the relevant question is whether the timing was appropriate to the issue at hand in the light of all the facts and circumstances as we have explained petitioners were given adequate time to respond respondent’s motion for summary_judgment we conclude it provides no basis for relief in general respondent’s agents are not permitted to bypass a taxpayer’s representative unless certain requirements are met although respondent’s agents may send certain notices such as a notice_of_determination directly to the taxpayer see eg irm pt date consequently the ao acted appropriately in communicating solely with mr becker mr becker had a duty to communicate promptly with his clients see eg c f_r sec dollar_figure a practitioner may not unreasonably delay the prompt disposition of any matter before the internal_revenue_service there was enough time between the date call and issuance of the notice_of_determination days for mr becker to communicate with petitioners and report back to the ao even if his office was flooded at some point the ao did not abuse her discretion in relying on mr becker to communicate effectively with petitioners and to respond promptly after the date call any dereliction of duty on mr becker’s part is irrelevant to the ao’s determination and any remedy petitioners might have for any such dereliction lies outside these proceedings for these reasons we conclude that there was no abuse_of_discretion in the ao’s decision to close the case and issue a notice_of_determination on date ii petitioners’ closing agreements and sec_6751 in general if the taxpayer properly raises an issue as to whether the cdp officer verified pursuant to sec_6330 and a that the requirements of any applicable law or administrative procedure have been met this court will consider the verification issue without regard to whether the taxpayer raised the issue at the cdp hearing 131_tc_197 supplemented by 136_tc_463 as noted petitioners contend--in their opposition to respondent’s motion for summary_judgment and in their motion to remand--that the ao abused her discretion in failing to verify that there was written supervisory approval pursuant to sec_6751 of the initial determinations of the sec_6662 penalties that were assessed against petitioners in his response to petitioners’ motion respondent agrees that the ao did not verify compliance with sec_6751 but contends that valid closing agreements attached as exhibits to his response provided the basis for these penalty assessments so as to satisfy any requirement under sec_6751 in their reply petitioners do not object to our considering these closing agreements nor do they dispute that the penalty assessments were made on the basis of these closing agreements sec_7121 provides that closing agreements shall be final and conclusive and except upon a showing of fraud or malfeasance or misrepresentation of a material fact-- the case shall not be reopened as to the matters agreed upon or the agreement modified by any officer employee or agent of the united_states and in any suit action or proceeding such agreement or any determination or assessment made in accordance therewith shall not be annulled modified set_aside or disregarded to the extent of matters agreed upon closing agreements are final e g 105_tc_157 aff’d 86_f3d_260 1st cir petitioners have not alleged or supported any fraud malfeasance or misrepresentation of material fact with respect to these closing agreements and we deem petitioners to have waived or conceded any such argument consequently respondent may not reopen those aspects of petitioners’ case addressed in the closing agreements and the closing agreements that petitioners signed may not be annulled modified set_aside or disregarded in this proceeding the closing agreements at issue specifically provide that petitioners consent to assessment of the penalties in question in signing these agreements petitioners therefore agreed to waive the procedural requirement of sec_6751 consequently it is clear that if there was any error in the ao’s failure to obtain verification of compliance with sec_6751 it was harmless error because neither respondent nor this court may set_aside petitioners’ valid closing agreements or petitioners’ consent to assessment contained therein for this reason no bona_fide interest would be served by remanding for verification as to this issue cf 118_tc_162 holding that no bona_fide interest would be served in remanding a cdp case for the ao to verify assessment records where records that the commissioner provided the taxpayer after the cdp hearing showed that the assessments were proper iii petitioners’ motion to remand petitioners have moved that the court remand this case to respondent’s office of appeals for four reasons they claim that the ao abused her discretion the ao failed to verify that the requirement of sec_6751 was met the parties were close to settlement when the notice_of_determination was issued and petitioners’ circumstances have changed we have already addressed the first two claims the third claim is not a reason to remand in the absence of an abuse_of_discretion as to the fourth claim in general we may remand a cdp case for materially changed circumstances if it would be helpful necessary or productive see eg churchill v commissioner tcmemo_2011_182 petitioners claim that their circumstances materially changed after the cdp hearing because they have not earned any income since the cdp hearing and they have generated substantial losses since the cdp hearing as a result of their decision to embark on a risky new business venture petitioners’ motion claims that this alleged business was a new venture where mr mcavey’s future income was entirely uncertain but as explained see supra note the ao’s calculation of petitioners’ rcp did not include any income consequently the situation with respect to petitioners’ income does not appear to have materially changed since the cdp hearing and if petitioners have spent assets in pursuit of some risky new business venture rather than paying their tax_liabilities respondent would be entitled on remand to include in their rcp any such assets as dissipated assets cf tucker v commissioner tcmemo_2011_67 101_tcm_1307 aff’d 676_f3d_1129 d c cir consequently petitioners have not made even a prima facie showing that the events they claim have occurred since the cdp hearing would be likely to change the ao’s determination for these reasons we conclude that petitioners’ request for a remand on the basis of changed circumstances is without merit moreover the ao issued the notice_of_determination after petitioners or their representative defaulted on their opportunity to respond with an amended oic in essence petitioners seek a second chance to engage in negotiations that petitioners or their representatives allowed to lapse there is no legal equitable or practical reason to remand this case to allow such a second chance after carefully considering all the facts and circumstances of this case we conclude that ordering a remand would be tantamount to pressuring respondent and actively taking petitioners’ side in the negotiations a role we should not as a court and neutral arbitrator undertake kuretski v commissioner tcmemo_2012_262 at aff’d 755_f3d_929 d c cir dollar_figure for these reasons petitioners’ motion to remand will be denied iv conclusion our review of the record establishes that the ao properly discharged all of her responsibilities under sec_6330 finding no abuse_of_discretion in any respect we will sustain the proposed collection actions 12petitioners may of course submit collection alternatives to respondent in the future but any such activity would be beyond the scope of this cdp case to reflect the foregoing an appropriate order will be issued granting respondent’s motion for summary_judgment and denying petitioners’ motion to remand and decision will be entered for respondent


internal_revenue_service oct number info release date uilc cc p si 1-cor-117924-00 we are responding to correspondence submitted on your behalf by cpa requesting relief in order to establish date as the effective date for your s_corporation_election the information submitted explains that the shareholders were under the impression their attorney had filed an election for the corporation however based on internal_revenue_service records the corporation failed to file a timely form_2553 although we are unable to respond to your request as submitted this letter provides useful information announcement copy enclosed provides guidance on seeking relief for late s_corporation elections and inadvertent invalid s_corporation elections generally to request relief for a late or invalid s_corporation_election you must request a private_letter_ruling from the national_office the procedures for requesting a private_letter_ruling are set out in revproc_2000_1 copy enclosed in addition revproc_2000_1 requires taxpayers to submit a user_fee along with their ruling_request the standard user_fee for a private_letter_ruling is dollar_figure however taxpayers with gross_income of less than dollar_figure million on their last-filed tax_return qualify for a reduced user_fee in the amount of dollar_figure if you are eligible to pay the reduced fee a statement certifying your gross_income must accompany your request otherwise you will be billed for the higher fee please review appendix b for a sample format for requesting a private_letter_ruling if you decide to submit a formal request for a private_letter_ruling please provide documents supporting your intention to be an s_corporation from inception and include the proper user_fee please refer your request to our office by adding the following to the address attn cc p a p o box ben franklin station washington dc direct to cc psi b1 room please keep this letter with your tax records and feel free to provide a copy of it to your authorized representative we hope that the above information proves helpful sincerely yours s dianna k miosi dianna k miosi chief branch associate chief_counsel passthroughs and special industries enclosures announcement revproc_2000_1


department of the treasury internal_revenue_service p o box irs cincinnati oh release number release date uil code date date employer id number contact person id number contact telephone number form you must file tax years dear this letter is our final_determination that you don’t qualify for tax-exempt status under sec_501 of the internal_revenue_code the code recently we sent you a proposed adverse determination in response to your application the proposed adverse determination explained the facts law and basis for our conclusion and it gave you days to file a protest because we didn’t receive a protest within the required days the proposed determination is now final because you don’t qualify as a tax-exempt_organization under sec_501 of the code donors can’t deduct contributions to you under sec_170 of the code you must file federal_income_tax returns for the tax years listed at the top of this letter using the required form also listed at the top of this letter within days of this letter unless you request an extension of time to file we’ll make this final adverse determination_letter and the proposed adverse determination_letter available for public inspection as required under sec_6110 of the code after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in the notice on how to notify us if you agree with our deletions you don’t need to take any further action we'll also notify the appropriate state officials of our determination by sending them a copy of this final letter and the proposed determination_letter under sec_6104 of the code you should contact your state officials if you have questions about how this determination will affect your state responsibilities and requirements letter rev catalog number 47632s if you have questions about this letter you can contact the person listed at the top of this letter if you have questions about your federal_income_tax status and responsibilities call our customer service number pincite-829-1040 tty for deaf or hard of hearing or customer service for businesses pincite-829-4933 we sent a copy of this letter to your representative as indicated in your power_of_attorney sincerely jeffrey i cooper director exempt_organizations rulings and agreements enclosures notice redacted letter proposed adverse determination under sec_501 c redacted letter final adverse determination under sec_501 - no protest letter rev catalog number 47632s department of the treasury internal_revenue_service p o box irs cincinnati oh legend b formation date c organization d company e individual f state g website h company j religious group k date l individual m percentage n percentage x dollars amount dear date date employer id number contact person id number contact telephone number contact fax number uil we considered your application_for recognition of exemption from federal_income_tax under sec_501 a of the internal_revenue_code the code based on the information provided we determined that you don’t qualify for exemption under sec_501 of the code this letter explains the basis for our conclusion please keep it for your records issues do you qualify for exemption under sec_501 of the code no for the reasons stated below facts you incorporated in the state of f on b your articles of incorporation state that you shall be operated exclusively for charitable purposes within the meaning of sec_501 of the internal_revenue_code the membership provision in your articles of incorporation and sec_1 of your bylaws state that your sole member is c a f nonprofit corporation sec_2 of your bylaws states that you shall be wholly owned by c your board shall consist of an executive committee appointed by the board_of c you and c currently have letter rev catalog number 47630w overlapping board members your bylaws further state that the board_of c may remove any director from his or her position and may fill any vacancies on your board you were formed to provide publishing and marketing services for authors you publish books of interest to the j community including resource materials for churches for youth and adults your website states that you is your application that you will provide authors with the latest in publishing technology and customized marketing for their publications you will also publish some sponsored books based on charitable gifts from individuals and organizations you limit your services to those materials that you determine to be compatible with your mission and purpose you stated in an article on the website by l dated k explained that you formed from an idea between l an executive editor with c and e a fellow church member who leads a created services company called d the two individuals came up with the idea for you as a new collaborative venture to publish books and other resources the article explained that e had extensive experience in book and curriculum publishing as well as knowledge of the latest technology and d can make a creative idea into a resource the staff at c also has experience and c has built-in marketing for everything it produces and entry into a primary audience through its news journal subscribers the article goes on to explain that the new book publishing effort should engage authors should share rewards with authors and should get books to press quickly and make them widely available it states authors have the opportunity to benefit immediately from the early sales of books - and to receive a much larger cut of the royalties in the long term the article also explains that your imprints will get exposure through print and web advertising in c in addition to social media and an online store e is the majority owner of d while d is a third party contractor and shares no common board members officers or members with you e does serve as a member of your book acquisitions team the following services are provided to you by d as needed copy editing interior typesetting design cover design print on demand set-up ebook set-up it services for you online bookstore and entry of product information into the online bookstore you indicated that you did not consider any other companies besides d because d uniquely experienced in this approach to book publishing and trusted relationships were in place you said that a primary consideration was that using d as a vendor working cooperatively with your staff creates an immediate and complete book publishing operation you stated that the fees paid to d are based on market_value and are commensurate with other designers and copyeditors used for these services you also stated that you use other independent contractors for services when production needs demand it however no other providers were listed as having received payments is you submitted a consulting agreement between you and d where d and its owner e were retained to provide their services and offer valuable skills and experience to help your mission among the listed services provided by d are recruit authors develop marketing promote and generate sales through its d’s website and generate ebook sales you paid a one-time fee of x dollars to d then for services rendered you pay to d half of all the net_income derived from the sale of books or other resources published by you under the direct involvement and participation of d you also make payments to c you stated that n of any profit is split between c and d at the year-end in order to support the ministry of c you accept proposals for books and educational resources on your website there is an online form that individuals can complete and then upload their proposal or manuscript books are selected by the book acquisition committee of e l and one other individual book selection is made based on quality of writing and letter rev catalog number 47630w the positive ministry impact on readers especially church leaders the book acquisition committee sets the price of the books being sold based on fair value determination and the ease of using consistent pricing you have printed books that are available at g and ebooks that are available on your website on g and on the h site you have author subvention payments or fees that allow the authors to share in the investment of the production of their books this also allows for more generous royalties for them and lower author purchasing options the fees are set to cover actual hard costs including design copyrighting and author copies of publishing the book so that the publisher can immediately provide higher royalties to the author while the fees support the publishing program they do not cover the full cost_of_producing and promoting each book fees may vary depending on the length and complexity of the volume you hold all author subvention payments as other liabilities until the initial publication and all other expenses have been incurred and paid this is usually a period of six months or more if any amount remains the amount is moved to an income account for use as general operating funds you pay m royalties to authors this is based on the standard in the industry while taking into consideration the amount of the author subvention payment you explained that you differ from a commercial publishing company because you seek to allow ministry related books to be published that would otherwise not likely meet the profit based requirements of commercial publishing firms you also encourage authors to purchase books at cost printing and shipping plus a small admin fee you state that this allows books to support the author’s ministry goals and more easily reach their readers with no profit made by you while commercial firms only offer a discount of off the list price plus shipping to protect their sales and make a profit your website contains information about additional activity experiences which are highly personalized travel and learning opportunities that combine inspiration and adventure although this activity is on your website and contains your name as part of the activity name you stated that these experiences are operated by c law sec_501 of the code provides in part for the exemption from federal_income_tax to organizations organized and operated exclusively for charitable religious or educational_purposes where no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 states that in order to be exempt as an organization described in sec_501 of the code an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt sec_1_501_c_3_-1 provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities that accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_1_501_c_3_-1 provides that an organization is not organized and operated exclusively for exempt purposes under sec_501 of the code unless it serves a public rather than a private interest thus an organization must establish that it is not organized or operated for the benefit of private letter rev catalog number 47630w interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests in revrul_60_351 1960_2_cb_169 a corporation is organized and operated on a non-profit basis it publishes a foreign language magazine containing fiction poetry book reviews and articles which it states is of a literary scientific and educational character the magazine is available to the general_public through regular paid subscriptions the corporation's income is derived mainly from subscriptions and sales of individual copies of the publication and some is from advertising and contributions its expenditures consist of fees paid to authors for their works salaries printing advertising shipping packing postage and other operating costs incurred in the publication of the magazine it is devoted to publishing a magazine and selling it to the general_public in accordance with ordinary commercial publishing practices it is held that the corporation is not an exempt charitable scientific literary or educational_organization within the meaning of sec_501 of the code in revrul_68_26 1968_1_cb_272 an organization incorporated without stock by a church provides a standardized source of educational and religious material for the church's parochial school system its affairs are managed by a board_of directors composed of clergymen appointed by the church and responsible to the church for the organization's finances and operations the organization prints material which is prepared and edited by the school system the organization sells the material exclusively to the parochial schools system all profits are returned annually to the school system the ruling states that although a technical parent-subsidiary relationship between the church and the organization is lacking because of the nonstock character of the organization a substantially_similar relationship does in fact exist through the control and close supervision of its affairs by the church in printing material which has been prepared for the parochial school system the organization is carrying out an integral part of the activities of the church the parent organization accordingly it qualifies for exemption under sec_501 because it is operated as an integral part of the exempt_activities of the parent revrul_73_164 1973_1_cb_223 states that a church-controlled commercial printing corporation whose business earnings are paid periodically to the church but which has no other significant charitable activity is a feeder_organization as described in sec_502 of the code and does not qualify for exemption under sec_501 in revrul_77_4 1977_1_cb_141 wl a nonprofit organization whose only activities are preparing and publishing a newspaper of local national and international news articles with an ethnic emphasis soliciting advertising and selling subscriptions to that newspaper in a manner indistinguishable from ordinary commercial publishing practices is not operated exclusively for charitable and educational_purposes and does not qualify for exemption in 326_us_279 the supreme court of the united_states interpreted the requirement in sec_501 that an organization be operated exclusively by indicating that an organization must be devoted to exempt purposes exclusively this plainly means that the presence of a single non-exempt purpose if substantial in nature will destroy the exemption regardless of the number and importance of truly exempt purposes the court found that the trade_association had an underlying commercial motive that distinguished its educational program from that carried out by a university letter rev catalog number 47630w in 263_fsupp_924 the government retroactively revoked the taxpayer's exempt status concluding that for the previous five years the taxpayer was engaged primarily if not solely in publishing activities the court noted that to qualify for sec_501 exemption the taxpayer must be organized and operated exclusively for an exempt_purpose the court rejected the taxpayer's argument that rather than its primary activity the court should focus on the end to which that activity was taken namely religious education the court pointed out that the taxpayer's sole activity and purpose was the carrying on of the publishing trade and held that the taxpayer's purpose rather than its goals were the focus of sec_501 in old dominion box co v united_states 477_f2d_344 4th cir cert_denied 413_us_910 the court held that operating for the benefit of private parties constitutes a substantial non-exempt purpose in living faith inc v commissioner t c m affd 950_f2d_365 cir the court said that the activities were conducted as a business and the organization was in direct competition with other restaurants and health food stores thus it did not qualify for exemption under sec_501 the appellate court stated the factors that the court relied upon to find commerciality and thus offered the best contemporary explanation of the commerciality doctrine these factors include the organization sold goods and services to the public the organization was in direct competition with for profit businesses the prices set by the organization were based upon pricing formulas common in retail food businesses the organization utilized promotional material and commercial catch phrases to enhance sales the organization advertised its services and food the organization did not receive any charitable_contributions in 283_fsupp2d_58 d d c the court laid out the factors for determining whether an organization's activity is of a commercial nature it said among the major factors courts have considered in assessing commerciality are competition with for profit commercial entities extent and degree of below cost services provided pricing policies and reasonableness of financial reserves additional factors include whether the organization uses commercial promotional methods eg advertising and the extent to which the organization receives charitable donations the court also decreed that the organization derived substantial income from business entities that rented the facility but that the center did not provide services at substantially below cost to other sec_501 organizations nor did it show that the facility was used by organizations to promote educations with the meaning of sec_501 in 71_tc_661 the petitioner published and sold books that its founder wrote the tax_court found that the organization's actual purpose was to benefit the founder by publishing his books and promoting his theories even if the publication of his books in part furthered religious or educational_purposes petitioner would still not qualify for exemption under sec_501 because a substantial part of its activity benefited him personally application of law you are not operated exclusively for charitable religious or educational_purposes consistent with sec_501 of the code or sec_1_501_c_3_-1 and therefore fail to meet the operational_test specifically the facts above indicate that you are not operated for exempt purposes but that you are operated in a commercial manner although your publishing activities consist of creating educational materials more than an insubstantial part of your operations consist of providing goods for fees comparable to for-profit entities letter rev catalog number 47630w per sec_1_501_c_3_-1 you are not operated exclusively for one or more exempt purposes because you do not engage primarily in activities that accomplish one or more of such exempt purposes specified in sec_501 you are not like the organization in revrul_68_26 because your publishing activities are not for the exclusive use of c but rather to sell to the general_public and although you were created by c e the majority owner of d also had a part in your creation and benefits from your activities instead you are similar to the organization in revrul_73_164 while you are related to c and some of your revenue is periodically paid back to c you are set up as a commercial printing operation with no other charitable activities you were formed to provide publishing and marketing services for authors you collect subvention fees from authors to allow authors to share in the investment of their books you pay m royalties to authors this is based on the standard in the industry while taking into consideration the amount of the author subvention payment a website article explained that your new book publishing effort should engage authors should share rewards with authors and should get books to press quickly and make them widely available it states authors have the opportunity to benefit immediately from the early sales of books - and to receive a much larger cut of the royalties in the long term your book acquisition committee sets the price of the books being sold based on fair value determination and the ease of using consistent pricing like the organization in revrul_77_4 your operations are indistinguishable from ordinary commercial publishing practices you are similar to the organization in fides publishers assn v united_states which printed published and sold products to promote religious culture these products were sold at cost plus a markup the organization argued that rather than focusing on its primary activity the court should focus on the end to which that activity was taken namely religious education you have indicated your purpose to be advancing religion through the distribution of products much like the organization in this case you mark up and sell your products and generate revenue you pay royalties to authors and part of your revenue to d a for-profit entity much like the organization in the ruling your activities and purpose are focused on publishing as a regular trade rather than c activities of being religious or educational since you are operating a regular trade_or_business you have an underlying commercial motive as noted in better business bureau of washington d c like the organization in revrul_60_351 your main activity consists of publishing you publish religious material on a regular basis and offer the material for sale online through your own website and the websites of g and h you receive revenue from these sales as well as subvention fees from your authors you pay royalties to the authors and you also pay d half of all the net_income derived from the sale of books or other resources published by you under the direct involvement and participation of d like the organization in revrul_60_351 your operations are similar to those of ordinary commercial publishing practices and you do not qualify for exemption under sec_501 of the code you are similar to the organizations in living faith inc v commissioner and_airlie foundation v commissioner because your activities are similar to those of a commercial publishing company although you were created with religious principles in mind and publish religious based books your primary purpose is the operation of a trade_or_business you have printed books that are available for sale at g and ebooks that are available on your website on g and on the h site while you indicated that you differ from a commercial publishing company because you seek to allow ministry related books to be published that would otherwise not likely meet the profit based requirements of commercial publishing firms you are still selling books to the public in a commercial manner based on fair value determination and paying royalties to authors in comparison to the entities in each ruling you exhibit similar factors indicative of commercial operations including regular and ongoing book sales competition with other publishers common retail pricing structures marketing and advertising and the reliance on sales and fees versus contributions letter rev catalog number 47630w like the organization in old dominion box co v united_states your operations result in benefit to private parties more than incidentally and therefore constitute a substantial nonexempt purpose you were formed to provide a publishing and marketing service for authors you stated in your application that you will provide authors with the latest in publishing technology and customized marketing for their publications while you do select the items that you publish you pay the authors royalties from the sales of their books a website articles stated authors have the opportunity to benefit immediately from the early sales of books - and to receive a much larger cut of the royalties in the long term the article also explains that your imprints will get exposure through print and web advertising in c in addition to social media and an online store since your activities serve the private interests of d e and various authors you are also not organized and operated exclusively for exempt purposes sec_1_501_c_3_-1 similar to the organization in christian manner international inc v commissioner of internal revenue you serve the private interests one of your creators e the majority owner of the for-profit d you were formed as an idea between l an executive editor with c and e a fellow church member who leads a creative services company called d the two individuals came up with the idea for you as ‘a new collaborative venture to publish books and other resources not only did the majority owner of d help create you you stated that you did not consider any other companies because d is uniquely experienced in this approach to book publishing and trusted relationships were in place per your consultant agreement with d for services rendered you pay to d half of all the net_income derived from the sale of books or other resources published by you under the direct involvement and participation of d conclusion based on the information submitted you are not operating exclusively for one or more purposes described in sec_501 of the code you are operating in a commercial manner and your activities benefit the private interests of authors as well as d and e therefore you are not described in sec_501 of the code even though some of your activities may be religious and educational in nature if you don’t agree you have a right to file a protest if you don’t agree with our proposed adverse determination to do so you must send a statement to us within days of the date of this letter the statement must include e e e e e your name address employer_identification_number ein and a daytime phone number acopy of this letter highlighting the findings you disagree with anexplanation of why you disagree including any supporting documents the law or authority if any you are relying on the signature of an officer director trustee or other official who is authorized to sign for the organization or your authorized representative e one of the following declarations letter rev catalog number 47630w for an officer director trustee or other official who is authorized to sign for the organization under penalties of perjury i declare that i examined this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete for authorized representatives under penalties of perjury i declare that i prepared this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete your representative attorney certified_public_accountant or other individual enrolled to practice_before_the_irs must file a form_2848 power_of_attorney and declaration of representative with us if he or she hasn’t already done so you can find more information about representation in publication practice_before_the_irs and power_of_attorney we'll review your protest statement and decide if you provided a basis for us to reconsider our determination if so we’ ll continue to process your case considering the information you provided if you haven’t provided a basis for reconsideration we’ll forward your case to the office of appeals and notify you you can find more information about the role of the appeals_office in publication how to appeal an irs decision on tax- exempt status if you don’t file a protest within days you can’t seek a declaratory_judgment in court at a later date because the law requires that you use the irs administrative process first sec_7428 of the code where to send your protest please send your protest statement form_2848 if needed and any supporting documents to the applicable address u s mail street address for delivery service internal_revenue_service eo determinations quality assurance room p o box cincinnati oh internal_revenue_service eo determinations quality assurance main street room cincinnati oh you can also fax your statement and supporting documents to the fax number listed at the top of this letter if you fax your statement please contact the person listed at the top of this letter to confirm that he or she received it if you agree if you agree with our proposed adverse determination you don’t need to do anything if we don’t hear from you within days we’ll issue a final adverse determination_letter that letter will provide information on your income_tax filing_requirements letter rev catalog number 47630w you can find all forms and publications mentioned in this letter on our website at www irs gov formspubs if you have questions you can contact the person listed at the top of this letter we sent a copy of this letter to your representative as indicated in your power_of_attorney sincerely jeffrey i cooper director exempt_organizations rulings and agreements enclosure publication letter rev catalog number 47630w


‘department of the treasury internal_revenue_service p o box irs cincinnati oh release number release date vil dear date date employer id number contact person id number contact telephone number form you must file tax years this letter is our final_determination that you don’t qualify for tax-exempt status under sec_501 of the internal_revenue_code the code recently we sent you a proposed adverse determination in response to your application the proposed adverse determination explained the facts law and basis for our conclusion and it gave you days to file a protest because we didn’t receive a protest within the required days the proposed determination is now final because you don’t qualify as a tax-exempt_organization under sec_501 of the code donors can’t deduct contributions to you under sec_170 of the code you must file federal_income_tax returns for the tax years listed at the top of this letter using the required form also listed at the top of this letter within days of this letter unless you request an extension of time to file we’ll make this final adverse determination_letter and the proposed adverse determination_letter available for public inspection as required under sec_6110 of the code after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in the notice on how to notify us if you agree with our deletions you don’t need to take any further action we'll also notify the appropriate state officials of our determination by sending them a copy of this final letter and the proposed determination_letter under sec_6104 of the code you should contact your state officials if you have questions about how this determination will affect your state responsibilities and requirements letter rev catalog number 47632s ifyou have questions about this letter you can contact the person listed at the top of this letter if you have questions about your federal_income_tax status and responsibilities call our customer service number pincite-829-1040 itty for deaf or hard of hearing or customer service for businesses pincite-829-4933 sincerely jeffrey i cooper director exempt_organizations rulings and agreements enclosures notice redacted letter proposed adverse determination under sec_501 c redacted letter final adverse determination under sec_501 - no protest letter rev catalog number 47632s date date employer id number contact person id number contact telephone number contact fax number uil ‘ department of the treasury internal_revenue_service rs p o box i cincinnati oh legend k state m name n ensemble name p date q label name r year s year t name v dollars amount w dollars amount x dollars amount y dollars amount z dollars amount dear we considered your application_for recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code the code based on the information provided we determined that you don’t qualify for exemption under sec_501 of the code this letter explains the basis for our conclusion please keep it for your records issues are you operated exclusively for one or more exempt purposes described in sec_501 of the code no for the reasons stated below do you operate for a public purpose instead of a substantial private purpose no for the reasons stated below letter rev catalog number 47630w facts you were incorporated in the state of k on p the third paragraph of your articles of incorporation states your purpose as follows the corporation is formed to manage and produce the artistic works of m and collaborating artists the works include compositions concerts recordings publications and education workshops by m and collaborating artists m is a musician who will be involved in composing producing directing and performing the works in collaboration with other composers producers directors performers musicians and artists your articles of incorporation also state the lawful public or quasi-public objective which each business_purpose will achieve is to expose the public to the artistic work of m and collaborating artists the work is experimental music not purposed for the commercial music market so the public would not otherwise receive the cultural value of exposure to this artistic work you also added a provision to the eighth paragraph in your articles of incorporation stating you are organized exclusively for charitable religious educational and scientific purposes including making distributions to organizations that are exempt under sec_501 of the code however per the eighth paragraph wording this language does not expand or alter your purposes or powers in the third paragraph sec_1 of your bylaws states that your purpose is to manage and produce the artistic works of m m is one of your directors as well as your artistic director sec_2 of your bylaws states the artistic director of the organization shall be a director during their term as artistic director sec_2 states any director other than the artistic director may be removed from office with or without cause at any annual or special meeting of the board_of directors by the affirmative vote of two-thirds of directors then in office sec_3_2 of your bylaws indicates that all officers shall be elected for a term of three years other than the artistic director finally sec_3_9 explains that the artistic director is responsible for your projects and artistic direction you were formed to manage and produce the works of m and collaborating artists your website states you are a not-for-profit organization for managing and producing the works of m and there is a quote from one of your board members that says i am very excited and honored to support m’s work and that of this organization your activities include presenting telematic and other types of contemporary art music to the public through public performances education programs and workshops commissioning of new works and distributing recordings and scores of music telematics music consists of a collaboration of artists in different cities performing together via the internet so performances are taking place in multiple cities at the same time your activities are based in k and occasionally extend to other domestic and international locations as well as online venues you stated that while this type of contemporary music has great artistic merit it is not often commercially available so you try to expose the public to it creating music compositions makes up of your activities you commission new works of contemporary art music from musicians composers and collaborating artists when creating music compositions you commission m and collaborating artists to compose the pieces make and print the score and parts for performers and do the computer programming and instrument building specific to the pieces the newly letter rev catalog number 47630w commissioned works are either performed and or recorded by you and are presented to the public through public performances or the release of recordings and or scores the public presentation of music at concerts also makes up of your activities and involves booking concert venues coordinating with co-presenting organizations hiring performers marketing making and printing concert programs technical support and site visits your website contains links to localized non-telematic works and a page for information on telematic works you instruct those visiting your website to contact you for more information on presenting those projects and commissioning new work you also have an ensemble the n that is one of your programs it is an k city based experimental music large ensemble created bv co- artistic directors m conductor composer and t bassist composer the n large film multimedia and the n is the k site- via the internet by t m and at times of the group m along with collaborating composers at times writes solo and chamber works for n and musicians internationally n has created an album and it was released under the q label the cd is available at concerts and on the q website your third activity presenting educational programs and workshops makes up of your activities and includes the same activities as concert presentation it may also include private lessons master classes and teaching residencies related to contemporary art music your website contains information about your private lessons the lessons are open to all ages and ability levels and are offered in home in k or online internationally instrumental lessons include performance improvisation composition listening history and theory music from m n and downtown k aesthetics are integrated into the pedagogy students are eligible for individual workshops with n musicians you may provide scholarships to your education programs in the future based upon merit and financial need these three activities have been active in the career of m since r your final activity of documenting and distributing recordings of the music accounts for the remaining of your activities you create audio and or video recordings of new and or existing works of contemporary art music this activity includes making recordings at concerts and recording studios post production manufacturing in physical and digital format distribution and archiving the publication and distribution of music scores and writings includes making the scores and writings editing manufacturing in physical and digital format distribution and archiving you provide recording equipment and production equipment and you hire individuals to record master edit and produce the recordings you also produce printed publications such as scores of newly commissioned works the manufacturing and distribution are new activities but the making post production editing and archiving of recording music scores and writings have been active in the career of m since r any music that you distribute will be done so through your online store or at performances you will not sell to any commercial retailers and any proceeds from your sales will be used for your future activities your artistic director m in consultation with the board_of directors selects the works to document commission or distribute you state that in the past you have documented commissioned and distributed works of other artists in addition to m and you will continue to do so however outside of the individuals listed as part of n no one else’s work was mentioned or documented you will compensate any artists that you commission for a work for their time spent your works that you commission will include a recording of the performance of the work and you will own the copyrights to these recordings ownership of the copyright to the composition will be negotiated between you and the artist you state that if the artist retains the rights to the composition you and the public still benefit from the copyright to the recording of the work you will pay the appropriate license fees at market rate for any instance in which you document and distribute works where you do not own the copyright to the composition any music you distribute will be distributed through your online store or at performances any proceeds from sales will be used for your future activities letter rev catalog number 47630w your funding comes from private donations government grants private grants corporate sponsorship ticket sales and merchandise sales you also receive receipts from services performed for your education programs you compensate artists for artist fees and travel_expenses associated with performances you will compensate m and collaborating artists for artist fees commissioning fees merchandise fees travel_expenses and conducting education sessions you will also compensate individuals for performing administrative services the compensation terms are negotiated based on professional experience market rate and the size of the total project budget additionally you may contract with for-profit entities such as sound technicians and lighting technicians to assist in the production of artistic works you did not provide any contracts or documentation between you and mln t or any other artists regarding how fees were negotiated or established in s your professional fees consisted of approximately x dollars in artist fees paid to artists and musicians for participation in performances y dollars for studio rental fees and fees paid to professionals who provided audio and video recording of the performances z dollars in education fees paid to artists for giving lessons to students v dollars for transportation fees and w dollars in miscellaneous expenses such as production fees and bank fees you expect your expenses in future years to be similar you may also use your funds to produce the works of m and collaborating artists the artists will maintain the intellectual_property rights to the works law sec_501 of the internal_revenue_code provides in part for the exemption from federal_income_tax to organizations organized and operated exclusively for charitable religious or educational_purposes where no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 provides that in order to be exempt as an organization described in sec_501 of the code an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt sec_1_501_c_3_-1 provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_1_501_c_3_-1 provides that an organization is not organized and operated exclusively for exempt purposes under sec_501 of the code unless it serves a public rather than a private interest thus an organization must establish that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests revrul_55_231 1955_1_cb_72 held that an organization whose primary purpose was to promote the circulation of books of one of its incorporators and whose activities consisted of purchasing such works and making them available for public use was not organized and operated exclusively for educational_purposes within the meaning of sec_501 revrul_66_46 1966_1_cb_133 held a nonprofit organization which is formed to promote public appreciation of group harmony singing and to educate its members and the general_public in this type of music is exempt from federal_income_tax under sec_501 c of the internal_revenue_code of letter rev catalog number 47630w revrul_67_392 1967_2_cb_191 held that a nonprofit organization which encourages and promotes the advancement of young musical artists by conducting weekly workshops sponsoring public concerts by the artists and securing paid engagements for the artists to improve their professional standing may be exempt from federal_income_tax under sec_501 of the internal_revenue_code of in carrying out its purposes the organization works with musicians and singers who are interested in acquiring concert experience the organization conducts weekly workshop sessions for training artists in concert technique and also sponsors public concerts by the artists these concerts are designed to introduce the artists to the public to help them establish themselves professionally and also to improve the musical appreciation of the public a further activity of the organization is securing bookings for the artists at no charge revrul_79_369 1979_2_cb_226 held that an organization created to develop and promote an appreciation of contemporary symphonic and chamber music by recording and selling primarily to educational institutions new works of unrecognized composers as well as neglected works of more established composers was exempt from tax under sec_501 of the code compositions to be recorded by the organization were selected by an editorial board the members of the editorial board were appointed by the president of the organization the board was comprised of recognized experts in the contemporary music field none of whose works may be considered for recording members of the board are replaced every two years to insure selection of a broad range of compositional styles selections are made based upon the quality of the work rather than any potential for profit in 326_us_279 the supreme court held that the presence of a single non-exempt purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes in 71_tc_661 the petitioner published and sold books that its founder wrote the tax_court found that the organization's actual purpose was to benefit the founder by publishing his books and promoting his theories even if the publication of his books in part furthered religious or educational_purposes petitioner would still not qualify for exemption under sec_501 because a substantial part of its activity benefited him personally in wendy l parker rehabilitation foundation inc petitioner v commissioner tcmemo_1986_348 the tax_court upheld the service's position that a foundation formed to aid coma victims including a family_member of the founders was not entitled to recognition of exemption approximately of the organization's net_income was expected to be distributed to aid the family coma victim the court found that the family coma victim was a substantial beneficiary of the foundation's activities in salvation navy inc v commissioner of internal revenue tcmemo_2002_275 the tax_court found that one of the reasons why the organization did not qualify for exemption from federal_income_tax was because it could not prove that it was not organized to serve the private interests of its founder application of law you are not as described in sec_501 of the code because you are not operated exclusively for exempt purposes sec_1_501_c_3_-1 you were formed to manage and produce the artistic works of m and collaborating artists as well as to expose the public to the artistic work of m and collaborating artists per sec_1_501_c_3_-1 you are not operated exclusively for exempt purposes because you do not engage exclusively in activities that accomplish one or more exempt purposes your letter rev catalog number 47630w activities are primarily for the benefit of m and artists who collaborate with m any educational activities are secondary to managing and supporting the works of m you have not established that you are not organized and operated for the benefit of the private interests of your artistic director m more than an insubstantial amount of your activities are directed at promoting the work and career of m per sec_1_501_c_3_-1 you are therefore not organized and operated exclusively for exempt purposes under sec_501 of the code because you serve private rather than public interests you are like the organization in revrul_79_369 in that you are trying to promote an appreciation of music however unlike the organization in revrul_79_369 the works that you commission record and distribute are not selected by a board_of recognized experts in the field whose work may not be considered for commissions or recording as artistic director m is responsible for your projects and artistic direction your artistic director m selects the works to document commission or distribute in consultation with the board_of directors m and collaborating artists will be compensated for artist fees commissioning fees merchandise fees travel_expenses and conducting education sessions per your bylaws m as your artistic director is a director of the organization during her term as artistic director and cannot be removed from office with or without cause while you state that in the past you have documented commissioned and distributed works of other artists in addition to m and you will continue to do so your website is focused on the works of m and n you are therefore like the organization in wendy l parker rehabilitation foundation inc petitioner v commissioner in that you were primarily formed to promote and benefit one of your founders who is your artistic director and has control_over your projects and direction you are similar to the organization in revrul_55_231 in that you are not operated exclusively for educational_purposes because you are purchasing your educational materials your music from one of your founders who is also your artistic director and making it available to the public like the organization in christian manner international inc v commissioner of internal revenue your purpose is to mainly commission record and distribute the works of your artistic director although you indicated that you will also commission works from other artists your organizing document clearly states that you were formed to manage and produce the artistic works of m and collaborating artists the works include compositions concerts recordings publications and education workshops by m and collaborating artists while collaborating artists are mentioned your focus is on m your artistic director although your music in part furthers an educational purpose you do not qualify for exemption because a more than insubstantial part of your activities benefit m personally as in salvation navy inc v commissioner of internal revenue you have not proven that you were not organized to serve the private interests of your artistic director m similar to above while you are like the organization in revrul_67_392 in that you promote the advancement of music by conducting educational programs and workshops and holding public performances you are not focused on advancing young musical artists as in the rev_rul the activities of the organization in revrul_67_392 are geared at advancing young musical artists while your activities are geared toward advancing m n and t you were formed to promote and manage m you have an ensemble the n that is one of your programs and was created by co-artistic directors m conductor composer and t bassist composer your website is focused on promoting the activities of m and n not various young artists trying to improve their professional standing finally while you are similar to the organization in revrul_66_46 in that you are trying to increase the public’s appreciation of the arts you are mainly promoting the work of m one of your founders and your letter rev catalog number 47630w artistic director per better business bureau of washington d c inc v united_states the presence of a single non-exempt purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes although many of your activities are educational in nature you were formed for a non-exempt purpose to manage and produce the artistic works of m and collaborating artists therefore you do not qualify for exemption under sec_501 of the code your position you stated that your performances further your exempt_purpose by exposing the public to artistic works they would otherwise not be exposed to you feel that the creation of new recordings and scores furthers your exempt_purpose by documenting performances that the public can have access to and listen to in their own homes you state that your educational programs and workshops further your exempt_purpose by educating the public about the music and giving students the ability to learn about and perform the music and to become more culturally aware citizens you commission new works from artists that you believe are capable of creating works of artistic merit that would benefit the public through their creation our response to your position you were formed to manage and produce the works of m and collaborating artists a single substantial activity in furtherance of a non-exempt purpose disqualifies an organization from exemption despite the presence of other exempt purposes see better business bureau v united_states supra while some of your activities are educational in nature your activities that involve managing and promoting m one of your founders and your artistic director are not in furtherance of an exempt_purpose as artistic director m may not be removed from office and is responsible for your projects and artistic direction m in consultation with the board_of directors selects the works to document commission or distribute you will compensate any artists that you commission for a work for their time spent and artists may retain ownership of the copyright for the work ownership of the copyright to the composition will be negotiated between you and the artist the benefit to m and the collaborating artists exceeds any public benefit derived from your activities since you operate fora substantial non-exempt purpose you fail to qualify for exemption from federal_income_tax regardless of the number or importance of any truly exempt purposes conclusion based on the information submitted you are not operating exclusively for one or more purposes described in even though some of your activities may be educational and charitable you are sec_501 of the code primarily operating to benefit m and artists who collaborate with m therefore you are not described in sec_501 of the code if you don’t agree you have a right to file a protest if you don’t agree with our proposed adverse determination to do so you must send a statement to us within days of the date of this letter the statement must include e e e e your name address employer_identification_number ein and a daytime phone number acopy of this letter highlighting the findings you disagree with anexplanation of why you disagree including any supporting documents the law or authority if any you are relying on letter rev catalog number 47630w e e the signature of an officer director trustee or other official who is authorized to sign for the organization or your authorized representative one of the following declarations for an officer director trustee or other official who is authorized to sign for the organization under penalties of perjury i declare that i examined this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete for authorized representatives under penalties of perjury i declare that j prepared this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all relevant facts and such facts are true correct and complete your representative attorney certified_public_accountant or other individual enrolled to practice_before_the_irs must file a form_2848 power_of_attorney and declaration of representative with us if he or she hasn’t already done so you can find more information about representation in publication practice_before_the_irs and power_of_attorney we’ll review your protest statement and decide if you provided a basis for us to reconsider our determination if so we’ll continue to process your case considering the information you provided if you haven’t provided a basis for reconsideration we’ll forward your case to the office of appeals and notify you you can find more information about the role of the appeals_office in publication how to appeal an irs decision on tax- exempt status if you don’t file a protest within days you can’t seek a declaratory_judgment in court at a later date because the law requires that you use the irs administrative process first sec_7428 of the code where to send your protest please send your protest statement form_2848 if needed and any supporting documents to the applicable address u s mail internal_revenue_service eo determinations quality assurance room p o box cincinnati oh if you agree street address for delivery service internal_revenue_service eo determinations quality assurance main street room cincinnati oh you can also fax your statement and supporting documents to the fax number listed at the top of this letter if you fax your statement please contact the person listed at the top of this letter to confirm that he or she received it letter rev catalog number 47630w if you agree with our proposed adverse determination you don’t need to do anything if we don’t hear from you within days we’ll issue a final adverse determination_letter that letter will provide information on your income_tax filing_requirements you can find all forms and publications mentioned in this letter on our website at www irs gov formspubs if you have questions you can contact the person listed at the top of this letter sincerely jeffrey i cooper director exempt_organizations rulings and agreements enclosure publication letter rev catalog number 47630w


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 b03 plr-103047-15 plr-103048-15 date date legend x ----------------------------------------------- ---------------------------------------------------------- ------------------------------------- y ----------------------------------------------- ------------------------------------------------------------- ------------------------------------- z ------------------------------ ------------------------------------- state --------------- date ----------------------- dear -------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x by its authorized representative requesting relief under sec_301_9100-3 of the procedure and administration regulations for x to elect to treat y and z as qualified subchapter_s subsidiaries qsubs facts plr-103047-15 plr-103048-15 x a state corporation wholly owns y and z state corporations x elected to be treated as an s_corporation effective date and intended to elect to treat y and z as qsubs effective date however due to inadvertence x failed to file form_8869 qualified_subchapter_s_subsidiary election for each subsidiary law sec_1361 of the internal_revenue_code code provides that a qsub shall not be treated as a separate corporation and all assets liabilities and items of income deduction and credit of a qsub shall be treated as assets liabilities and such items as the case may be of the s_corporation sec_1361 defines a qsub as a domestic_corporation which is not an ineligible_corporation as defined in sec_1361 if percent of the stock of the corporation is held by an s_corporation and the s_corporation elects to treat the corporation as a qsub sec_1_1361-3 of the income_tax regulations provides the time and manner of making a qsub election sec_1_1361-3 provides that an s_corporation makes a qsub election with respect to a subsidiary by filing a form_8869 with the appropriate service_center sec_1_1361-3 provides that a qsub election cannot be effective more than two months and days prior to the date of filing sec_1_1361-3 provides that an extension of time to make a qsub election may be available under procedures applicable under sec_301_9100-1 and sec_301_9100-3 sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but not more than months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-2 provides an automatic_extension of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government plr-103047-15 plr-103048-15 conclusion based solely on the facts submitted and the representations made we conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 with respect to the qsub elections for y and z accordingly we grant x an extension of time of days from the date of this letter to file properly executed forms for y and z with the appropriate service_center effective date a copy of this letter should be attached to the elections except as expressly provided herein we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion as to whether x is a valid s_corporation or whether y and z are eligible to be qsubs 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 in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representatives 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 sincerely associate chief_counsel passthroughs special industries by _________________________________ mary beth carchia senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes