t c summary opinion united_states tax_court frederick w haas and donna s haas petitioners v commissioner of internal revenue respondent docket no 7524-04s filed date frederick w haas and donna s haas pro_se pamela l mable for respondent powell special_trial_judge this case was heard pursuant to the provisions of section of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue respondent determined a deficiency of dollar_figure and an accuracy-related_penalty under sec_6662 of dollar_figure in petitioners’ federal_income_tax after concessions the issue is whether petitioners are liable for a 10-percent additional tax under sec_72 of dollar_figure at the time the petition was filed petitioners resided in alpharetta georgia background petitioner frederick w haas was a chemical engineer and was employed by various chemical companies in he was employed by british petroleum bp and was employed by bp for a number of years in he was employed by ohm remediation ohm a leader in the cleaning up of high hazard chemical spills ohm was bought by it corporation it in during his years as a chemical engineer petitioner was exposed to various chemicals and became sensitive to various chemicals in date petitioner’s doctor wrote that petitioner should avoid direct exposure to known liver toxins he may however participate in site surveys where the level of protection recommended is level c or level d on date petitioner was told that his physical examination results were in the normal limits range but he was restricted from petitioners concede that they omitted from gross_income dollar_figure state_income_tax refund dollar_figure interest_income from state farm life_insurance co and dollar_figure interest_income from the u s treasury dept respondent concedes the sec_6662 penalty exposure to known liver toxins in it went bankrupt and petitioner's employment was terminated after it went into bankruptcy petitioner could not find employment similar to that which he had he attended north georgia college and state university became qualified as a high school teacher and became a teacher in date during petitioner withdrew dollar_figure from a sec_401 retirement_plan the distribution at that time he had not reached age petitioners reported the distribution on their joint federal_income_tax return but did not report any additional tax under sec_72 respondent determined that the 10-percent additional tax was due sec_72 provides discussion sec_72 10-percent additional tax on early distributions from qualified_retirement_plans -- imposition of additional tax --if any taxpayer receives any amount from a qualified_retirement_plan the taxpayer’s tax under this chapter for the taxable_year in which such amount is received shall be increased by an amount equal to percent of the portion of such amount which is includible in gross_income subsection not to apply to certain distributions --except as provided in paragraphs and paragraph shall not apply to any of the following distributions a in general --distributions which are-- iii attributable to the employee’s being disabled within the meaning of subsection m sec_72 provides meaning of disabled --for purposes of this section an individual shall be considered to be disabled if he is unable to engage in any substantial_gainful_activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinate duration an individual shall not be considered to be disabled unless he furnishes proof of the existence thereof in such form and manner as the secretary may require the regulations provide inter alia that to be considered disabled a person is unable to engage in any substantial_gainful_activity substantial_gainful_activity means the activity or a comparable activity in which the individual customarily engaged prior to the disability sec_1_72-17 income_tax regs petitioners agree that there was a distribution during the taxable_year and that the distribution was taxable the question solely concerns whether the sec_72 additional tax applies petitioners maintain that petitioner was disabled within the meaning of sec_72 during the year of the distribution this is somewhat peculiar since petitioner during the entire year was paid a dollar_figure salary for his employment with it furthermore the reports from his doctors provide that while he should avoid direct exposure to known liver toxins he could participate in site surveys with recommended protection and his physical examination results were within normal limits petitioner points to communications with it personnel in march and april of where it was determined that he should not go on certain projects but also during he was still going out on projects in when it went into bankruptcy and petitioner became unemployed we cannot say his unemployment was due to a disability within the meaning of sec_72 certainly none of his doctors stated that he was disabled it may well be that he had medical problems but we are not convinced that these problems could be expected to result in death or to be of a long-continued duration to keep him from engaging in his customary or any comparable substantial_gainful_activity petitioners may have been subject_to financial hardship during there is however no exception under sec_72 for financial hardship this principle has been applied consistently in cases dealing with premature individual_retirement_account distributions see 111_tc_250 gallagher v commissioner tcmemo_2001_34 deal v commissioner tcmemo_1999_352 pulliam v commissioner tcmemo_1996_354 as the legislative_history of sec_408 the predecessor to sec_72 explains the purpose of the 10-percent additional tax was to discourage early distributions from retirement plans because premature distributions frustrate the intention of saving for retirement s rept pincite c b supp petitioners are therefore subject_to the 10-percent additional tax under sec_72 on the distribution reviewed and adopted as the report of the small_tax_case division decision will be entered for respondent with respect to the deficiency and decision will be entered for petitioner with respect to the sec_6662 penalty


department of the treasury internal_revenue_service washington d c date jul ae oor st dollar_figure-o0 contact person jd sumner telepnone number employer_identification_number legend dear sir or madam this is in response to your request for a ruling concerning your proposed reorganization the information presented discloses that a owns and operates a nonprofit acute care hospital that is exempt as an organization described in sec_501 of the internal_revenue_code prior to the recent bylaw amendment described in more detail betow it was governed by a self-perpetuating board_of directors in accordance with the amended bylaws its board_of directors now consists of fourteen members twelve of whom are elected by b as the sole member and two of whom the president of the medical staff and the president of the hospital auxiliary are ex officio b is a nonstock nonprofit corporation recognized as exempt from federal_income_tax as an organization described in sec_501 of the code itis classified under sec_509 as a supporting_organization described in sec_509 b's articles of incorporation state that it has been organized in order to support a and other sec_501 organizations related to a that are other than private_foundations as described in sec_509 or sec_509 in accordance with its articles of incorporation and bylaws b is governed by a self-perpetuating board_of directors of up to fifteen members b's bylaws require that at all times a majority of its board be members of a's board you stated that a wanted a corporate structure that preserves the acute care community hospital as a vital part but not the sole focus of a diversified system of health care therefore the board_of directors of a approved the reorganization that will result in a becoming a subsidiary of a parent_corporation and in other health care ventures being concentrated in the parent it is hoped that by reorganizing the resulting system will be able to promote the delivery of health care for a's service area more efficiently the specific purposes of the reorganization are continued leadership role in the community and continued capacity to provide patient care at a lower cost to facilitate compliance with governmental reporting requirements to segregate hospital assets from non-hospital assets in order to limit third party liability to separate regulated and non-regulated activities to separate the management of non-hospital activities and assets from the management of a to increase investment opportunities and enhance the development of new revenue sources to increase flexibility in undertaking capital projects to increase innovation and diversification and eliminate unnecessary duplication of resources and initiatives and to facilitate long-range planning to assure a's b was formed by a to function as the parent_corporation of the reorganized system a has amended its bylaws to make b its sole member in addition to the power to elect the board_of directors of a and any future entities within the system a's amended bylaws reserve to b the power to approve its annual capital and operating budgets the sale of substantial assets the incurrence of debt and substantial unbudgeted contractual commitments amendments to its bylaws and the appointment removal and compensation of officers and senior management as the parent entity b will formulate overall policy and planning for the constituents of the organization a will retain its existing assets and will continue its hospital operations subject_to the direction and approval of b's board_of directors if other tax exempt entities are added to the system it is anticipated that there may be a sharing of funds assets services and personnel among a and those other tax exempt members some of which will be paid for and some of which may be gratuitous a intends to transfer its ownership_interest in any entity in which it holds an interest to b you request the following rulings the proposed reorganization will not adversely affect the tax exempt status of aas an organization described in sec_501 of the code nor will it affect the status of a as an organization classified under sec_509 and sec_170 or give rise to unrelated_business_taxable_income to a under sections the proposed reorganization will not adversely affect the tax exempt status of b under sec_501 of the code nor will it affect b's classification under sec_509 of the code or give rise to unrelated_business_taxable_income to b under sections the sharing of personnel services facilities and expenses by a and b will not jeopardize the continued tax exempt or nonprivate foundation status of a or b under sec_501 and sec_509 of the code or give rise to unrelated_business_taxable_income under sections to a or b sec_501 c of the code describes as exempt from federal_income_tax as provided under sec_501 organizations organized and operated exclusively for charitable purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 of the income_tax regulations provides that an organization is not organized or operated exclusively for an exempt_purpose 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 designated individuals sec_1_501_c_3_-1 of the regulations provides that the term charitable is used in sec_501 in its generally accepted legal sense the promotion of health has long been recognized as a charitable purpose see restatement second of trusts sec_368 sec_372 4a scott and fratcher the law of trusts sec_368 sec_372 4th ed revrul_69_545 1969_2_cb_117 provides that a nonprofit organization whose purpose and activity are providing hospital care is promoting health and may therefore qualify as organized and operated in furtherance of a charitable purpose under sec_501 of the code if it meets the community benefit requirements revrul_78_41 1978_1_cb_148 describes a_trust whose sole purpose was to accumulate and hold funds for use in satisfying malpractice claims against a hospital the trust was determined to be an integra part of the hospital because it was controlled dag by the hospital directly the organization was ruled to be exempt under sec_501 of the code sec_509 of the code defines the term private_foundation as a domestic or foreign organization described in sec_501 other than an organization described in sec_170 other than in clauses vii and viii sec_170 of the code refers to an organization whose principal purpose or function is the provision of medical or hospital care sec_509 of the code excludes from the definition of private_foundation an organization which a is organized and at all times thereafter is operated exclusively for the benefit of to perform the functions of or to carry out the purposes of one or more organizations described in sec_509 or sec_509 b is organized supervised or controlled by or in connection with one or more organizations described in sec_509 or sec_509 and c is not controlled directly or indirectly by one or more disqualified persons defined in sec_4946 other than foundation managers and other than one or more organizations described in sec_509 or sec_509 sec_511 of the code imposes a tax on the unrelated_business_taxable_income as defined in sec_512 of organizations described in sec_501 sec_512 of the code defines the term unrelated_business_taxable_income as the gross_income derived by an organization from any unrelated_trade_or_business regularly carried on by it less the allowable deductions which are directly connected with the carrying on of the trade_or_business with certain modifications sec_512 of the code provides that if a trade_or_business regularly carried on by a partnership of which an organization is a member is an unrelated_trade_or_business with respect to such organization this organization in computing its unrelated_business_taxable_income must include its share whether or not distributed of the gross_income of the partnership from such unrelated_trade_or_business and its share of the partnership deductions directly connected with such gross_income et sec_513 a of the code defines the term unrelated_trade_or_business as any trade_or_business the conduct of which is not substantially related aside from the need of the organization for income or funds or the use it makes of the profits derived to the exercise or performance by such organization of its exempt purposes sec_514 of the code provides for the taxation under sec_512 of income from debt-financed_property sec_514 however provides that the definition of debt-financed_property does not include any property substantially_all the use of which is substantially related to the exercise or performance by such organization of its charitable purposes constituting the basis for its exemption under sec_501 sec_1_513-1 of the regulations states that a trade_or_business is related to exempt purposes only where the conduct of the business activity has a causal relationship to the achievement of an exempt_purpose and is substantially related for purposes of sec_513 only if the causal relationship is a substantial one thus for the conduct_of_a_trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of those purposes after the reorganization a will continue to provide health care to the community by operating a licensed general hospital the same charitable activity that originally qualified it for exemption under sec_501 of the code awill be engaged directly in the promotion of health of the community as described in revrul_69_545 supra therefore a will continue to be exempt as an organization described in sec_501 in addition the corporate_reorganization will not change a's status as an organization providing medical or hospital care within the meaning of sec_470 of the code as such it operated exclusively for charitable purposes within the meaning of sec_501 c of the code and sec_4 c -1 d of the regulations is and will continue to be organized and no assets are being transferred from a to b except for a's interest in c and cash a will receive no consideration from b for that may be transferred from time to time these transfers therefore these transactions will not give rise to unrelated taxable business income to a within the meaning of sec_512 of the code 7d after the reorganization b will conduct policy making and planning activities and the other supporting functions that a would otherwise have to provide no part of its earnings inure to the benefit of any private person and it serves exclusively charitable interests similar to the organization discussed in revrul_78_41 supra therefore b will continue to qualify for exemption as an organization described in sec_501 of the code b will also continue to qualify as a nonprivate foundation under sec_509 of the code it satisfies the organizational_test because its articles of incorporation limit its purposes to those set out in sec_509 for the benefit and support of a an organization described in sec_509 it satisfies the operational_test because it engages solely in activities that support or benefit a the organizational documents of b require that a majority of its directors be members of a's board this satisfies the requirements of common supervision or control by the persons supervising or controlling both the supporting_organization and the supported_organization since the contro or management of the supporting_organization b is vested in the same persons that control or manage the publicly_supported_organization a this common_control assures that b will remain responsive to a's needs and requirements b is therefore supervised or controlled in connection with a within the meaning of sec_1 a - f and sec_1_509_a_-4 of the regulations the transfers to b including b's becoming the sole member of a are being made as part of the reorganization to consolidate all the system's holdings directly or indirectly in the system parent contributions to an exempt_organization do not produce taxable_income to the recipient further the assets being transferred are excluded from the unrelated_business_income_tax under sec_512 of the code since the intention of the reorganization is to make the system's overall operations more efficient the transfer is substantially related to a's and b's charitable purpose of providing health care to the community the transaction will therefore not give rise to unrelated taxable business income to b within the meaning of sec_512 any sharing of resources between b and a will constitute activities between related exempt_organizations in furtherance of their exempt purposes such activities therefore will not jeopardize the exempt status of either a or b any trade_or_business which contributes importantly to the accomplishment of an organization's exempt purposes is excluded from the definition of unrelated_trade_or_business under sec_512 of the code since any sharing of resources among the sec_501 organizations in the system will be substantially related to the exempt purposes of a and b in providing health care for the benefit of the community any payments in connection with the sharing of such resources will not give rise to unrelated in addition income received from business taxable_income to any exempt entity property the use of which is substantially related to the furtherance of an exempt_purpose constituting the basis for the organization's exemption is not included in unrelated_debt-financed_income under sec_514 accordingly we rule as follows the proposed reorganization will not adversely affect the status of a as an organization described in sec_501 of the code and will not adversely affect a's classification under sec_509 as other than a private_foundation under sec_509 and sec_170 or give rise to unrelated_business_taxable_income to a under sections the proposed reorganization will not adversely affect the status of b as an organization described in sec_501 of the code and will not adversely affect b's classification under sec_509 as other than a private_foundation under sec_509 or give rise to unrelated_business_taxable_income to b under sections the sharing of personnel services facilities and expenses by a and b will not jeopardize the continued tax exempt or nonprivate foundation status of a or b or give rise to unrelated_business_taxable_income under sections of the code to a or to b this ruling is based on the understanding that there will be no material_change in the facts upon which it is based any changes that may have a bearing on your tax status should be reported to the service this ruling does not address the applicability of any section of the code or regulations to the facts submitted other than with respect to the sections described this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as precedent we are informing your key district_director of this ruling because this letter could help resolve future questions about your income_tax responsibility please keep a copy of this ruling in your permanent records if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter we have sent a copy of this letter to your representative as indicated in your power_of_attorney sincerely marvin ys ieflander marvin friedlander chief exempt_organizations technical branch


t c memo united_states tax_court michael w braun petitioner v commissioner of internal revenue respondent docket no filed date michael w braun pro_se dennis r onnen for respondent memorandum findings_of_fact and opinion kroupa judge respondent determined that petitioner was not entitled to an abatement of interest under sec_6404 e 1all section references are to the internal_revenue_code in effect for the years at issue and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated with respect to the brauns’2 joint federal_income_tax returns for and the sole issue for decision is whether respondent abused his discretion in failing to abate interest we hold that respondent did not abuse his discretion findings_of_fact the parties have stipulated some of the facts which are incorporated in our findings by this reference petitioner resided in grandview missouri when he filed the petition the brauns’ and income_tax returns petitioner and his wife had consistently filed their income_tax returns and paid their income_tax liabilities timely until when a series of events caused the brauns to file returns and pay their income_tax liabilities late these events began when petitioner lost his job in shortly thereafter petitioner was shot through the throat lung and shoulder by an intruder burglarizing his home in early petitioner survived but the effect on his employability and finances was devastating after spending days on life support petitioner spent another days in the hospital and approximately more months bedridden undergoing surgeries and receiving extensive therapy 2the brauns are petitioner and his wife tammy j braun who filed joint federal_income_tax returns because petitioner filed the petition is his name only we refer to the brauns when describing their joint tax_liabilities and actions they took together references to petitioner are to petitioner individually petitioner finally began to get his life back on track about years later and in he filed the brauns’ tax returns for through and submitted an offer_in_compromise to respondent for the outstanding tax_liabilities and interest specifically petitioner filed the brauns’ prior years of income_tax returns on date the brauns were due refunds for and after crediting the refunds against their tax_liability the brauns had tax_liabilities left outstanding for and respondent previously sent the brauns a deficiency_notice for when the brauns failed to respond respondent assessed an amount the internal_revenue_service irs determined to be the brauns’ tax_liability and dollar_figure in interest respondent assessed additional tax and interest after the brauns filed their income_tax return for respondent also assessed the tax reported on their income_tax return for 3the brauns were due refunds for and that respondent applied against their tax_liability income_tax credits totaling dollar_figure from and were applied to the brauns’ account and respondent abated dollar_figure of interest_income tax_credits totaling dollar_figure from were also applied to the brauns’ account 4the amount assessed for included a dollar_figure income_tax deficiency a dollar_figure addition_to_tax under sec_6651 for failure_to_file timely and a dollar_figure addition_to_tax under sec_6654 for failure to pay estimated_tax 5the late-filed return for reflected a dollar_figure tax_liability that resulted in an additional_assessment for of dollar_figure in tax and dollar_figure in interest plus interest in addition respondent made assessments of dollar_figure for and dollar_figure for against the brauns in date offer_in_compromise petitioner submitted his initial offer_in_compromise in the form of a letter summarizing his job loss and physical injury in response respondent withdrew penalties against the brauns for except the estimated_tax addition and sent petitioner proper forms for filing an offer_in_compromise respondent sent to petitioner a form 433-f collection information statement and form_656 offer_in_compromise petitioner completed and returned these forms to respondent offering to compromise the brauns’ tax_liability for dollar_figure at that time the brauns’ tax_liabilities totaled approximately dollar_figure including interest respondent later requested a longer information statement from petitioner this time a form 433-a collection information statement for wage earners and self-employed individuals petitioner refused to submit the longer form 433-a insisting instead that respondent use the shorter form 433-f which he had already submitted 6the late-filed return for reflected a dollar_figure tax_liability 7form 433-a collection information statement for wage earners and self-employed individuals is six pages compared to the one-page form 433-f collection information statement respondent initially sent the brauns because the brauns had individual_retirement_accounts totaling more than dollar_figure but offered to pay approximately dollar_figure of an dollar_figure tax_liability including interest respondent determined that petitioner’s offer was too low respondent rejected petitioner’s offer_in_compromise on collectibility and liability grounds respondent relied upon the shorter form 433-f that petitioner had originally submitted in making his determination petitioner appealed appeal offer_in_compromise determination the appeals_office appeals scheduled a conference with petitioner to discuss his offer_in_compromise petitioner canceled the meeting but increased his offer_in_compromise from dollar_figure to dollar_figure appeals requested another conference with petitioner petitioner objected to the conference because he mistrusted respondent petitioner stated that he preferred all communication be in the form of written correspondence petitioner also charged respondent with making false statements corresponding for the sole purpose of finding funds rather than to consider his offer retaliating against him because he had exposed respondent’s gestapo tactics and discriminating against him on account of sex race age and marital status respondent sought to reassure petitioner by letter that appeals was independent of other offices in the irs respondent explained that petitioner could openly discuss matters with appeals that he had the right to legal representation at a conference and or he could be accompanied by another person again petitioner refused respondent’s gesture and insisted upon a written record of communication petitioner raised his offer_in_compromise again this time to the full amount of the brauns’ tax_liabilities for and excluding interest petitioner’s amended offer also required that respondent admit to having committed errors investment account information during consideration of petitioner’s offers appeals requested the current value of petitioner’ sec_401 account twice petitioner sent respondent the current vested amount rather than the current value respondent’s taxpayer_advocate the ta later explained the distinction to petitioner the ta also told petitioner that respondent should have requested all 8at that time petitioner computed his full tax_liability less interest at dollar_figure petitioner later stated that his full tax_liability less interest was dollar_figure each time that petitioner amended his offer_in_compromise he did so by letter to respondent rather than by submitting an updated form_656 offer_in_compromise 9on date petitioner replied that the current vested balance in hi sec_401 account was dollar_figure as of date later petitioner reported that the current vested balance in hi sec_401 account was dollar_figure as of date information regarding the brauns’ pension plans and investment accounts rather than only petitioner’ sec_401 informationdollar_figure the ta relayed this to appeals and appeals mailed petitioner an amended letter requesting the correct information petitioner reported approximately dollar_figure in investments as individual retirement accountsdollar_figure after reconsideration appeals affirmed respondent’s initial determination rejecting petitioner’s offer_in_compromise for dollar_figure appeals also rejected petitioner’s final offer to pay the brauns’ full tax_liabilities for and excluding interest claim_for_abatement because petitioner’s last offer_in_compromise amounted to percent of the brauns’ tax_liability petitioner’s claim essentially took the form of an interest abatement claim respondent therefore requested that petitioner submit a form_843 claim_for_refund and request for abatement in connection with his offer_in_compromise in the interest abatement request petitioner alleged errors and undue delay in respondent’s 10the brauns had previously submitted investment account information in their form 433-f on date 11the brauns reported dollar_figure in individual_retirement_accounts as of date the brauns reported dollar_figure as of date consideration of his offer_in_compromise respondent denied petitioner’s interest abatement claimdollar_figure the entire course of events from petitioner’s first request to compromise their tax_liability through respondent’s final denial of his claim took more than years notice_of_intent_to_levy and payment respondent sent the brauns a notice_of_intent_to_levy on date and a form 668-w notice_of_levy on wages salary and other income on date the brauns paid respondent dollar_figure on date approximately months after petitioner received respondent’s final_determination rejecting his offers in compromise the brauns’ payment satisfied their tax_liabilities for and but left outstanding accrued and unassessed interestdollar_figure petitioner appealed to our court respondent’s determination not to abate interest for and 12on date the appeals_office also notified the brauns that their interest abatement claim would be denied petitioner received a letter from respondent denying his interest abatement claim days later 13of the brauns’ dollar_figure payment respondent applied dollar_figure to the brauns’ account and dollar_figure to the brauns’ account opinion we are asked to decide whether respondent abused his discretion in denying petitioner’s interest abatement claim interest on a deficiency in income_tax generally begins to accrue on the due_date of the tax_return and continues to accrue compounding daily until payment is made see sec_6601 sec_6622 this court may order an abatement of interest if there is an abuse_of_discretion by the commissioner in failing to abate interest see sec_6404 formerly sec_6404 113_tc_145 in order to demonstrate an abuse_of_discretion a taxpayer must prove that the commissioner exercised his discretion arbitrarily capriciously or without sound basis in fact or law see rule a lee v commissioner supra 112_tc_19 the commissioner may abate interest if the taxpayer identifies both an error or delay in payment of tax caused by a ministerial or managerial act of respondent and the period of time over which interest should be abated as a result of the error or delay see sec_6404 as currently in effect donovan v commissioner tcmemo_2000_220 see also 112_tc_230 douponce v commissioner tcmemo_1999_398 in congress amended sec_6404 to allow abatement attributable to erroneous or dilatory performance by respondent of managerial acts but congress made the amendment effective only for interest accruing on tax deficiencies or payments for tax years beginning after date the former standard for interest abatement therefore applies to while the amended provision applies to petitioner’s interest abatement claim regarding specifically for the commissioner may abate the assessment of interest with respect to an error or delay by an officer_or_employee of the irs in performing a ministerial_act sec_6404 for the commissioner may abate the assessment of interest with respect to any unreasonable error or delay resulting from managerial as well as ministerial acts sec_6404 see taxpayer bill of right sec_2 publaw_104_168 and 110_stat_1457 effective for interest accruing with respect to deficiencies or payments for taxable years beginning after date a ministerial_act is a procedural or mechanical act that does not involve the exercise of judgment or discretion and that occurs during the processing of a taxpayer’s case after all discretionary decisions in the case have occurred goblirsch v commissioner tcmemo_2005_78 citing lee v commissioner supra and donovan v commissioner t c memo sec_301_6404-2t b temporary proced admin regs fed reg date sec_301_6404-2 proced admin regs in contrast a managerial act is an administrative act that occurs during the processing of a taxpayer’s case and that involves the temporary or permanent loss of records or the exercise of judgment or discretion relating to management of personnel sec_301_6404-2 proced admin regs congress did not intend the interest abatement statute to be used routinely accordingly we grant abatement only where failure to abate interest would be widely perceived as grossly unfair lee v commissioner supra h rept pincite 1986_3_cb_1 s rept pincite 1986_3_cb_1 further the mere passage of time does not establish an error or delay by the commissioner see lee v commissioner supra pincite petitioner contends that respondent committed several errors in processing his offers in compromise these errors petitioner asserts include respondent’s conflicting requests for an information_return and respondent’s request for all the brauns’ investment account information when respondent had earlier requested only k information in addition petitioner alleges that respondent falsely claimed that petitioner did not respond to an earlier phone inquiry by respondentdollar_figure these errors petitioner claims account for the undue delay in respondent’s denial of his offers in compromise consequently petitioner contends that respondent should have abated all interest related to the brauns’ tax_liabilities for and we address each of petitioner’s contentions in turn whether petitioner established an error or delay by respondent in performing a ministerial or managerial act for petitioner to prevail he must first identify an error or delay by respondent in the performance of a ministerial_act for or a ministerial or managerial act for examples of ministerial errors or delays include an unreasonable delay in the transferral of a case among irs district offices or a delay in the issuance of a deficiency_notice after all discretionary decisions in the case have occurred see sec_301_6404-2 examples and proced admin regs petitioner has alleged no delays attributable to the transferral of his case among irs offices or a delay in issuing the brauns a notice of 14petitioner cites as an example of respondent misleading him a call from respondent on date requesting pay stubs and form 433-a from petitioner in response petitioner sent respondent two letters on apr and date in a letter on date respondent stated among other things that he had received no response from petitioner to his earlier phone call because respondent sent the letter merely days after petitioner’s earlier letter however it is plausible that respondent had not received petitioner’s letters before he sent his response deficiency petitioner has alleged therefore no ministerial delays in this case managerial errors or delays on the other hand include situations involving the loss of records or the exercise of judgment relating to management of personnel see sec_301 c proced admin regs delays involving the exercise of such judgment may result from the commissioner sending an irs agent to training or granting sick leave to an agent for an extended period without reassigning the agent’s cases see sec_301_6404-2 examples proced admin regs petitioner alleges that respondent committed a managerial mistake in requesting that petitioner submit a form 433-f then requesting that petitioner submit form 433-a which is substantially longer one month after respondent requested the longer form however respondent told petitioner that he would proceed with his determination based upon the shorter form as petitioner requested the delay therefore was not longer than a month moreover an abatement of interest is not warranted where a significant aspect of the delay is attributable to petitioner see sec_6404 sec_301_6404-2 example proced admin regs here petitioner originally submitted his offer_in_compromise without proper forms he increased the amount of his offer twice he canceled one conference with respondent and refused others and he failed to submit all the information that respondent requested we find that these actions constituted a significant cause of the delay in processing petitioner’s offers in compromise petitioner’s remaining allegations that respondent misled him discriminated against him and retaliated against him are not supported by the record whether petitioner established a correlation between a specific period of delay in payment and an error or delay by respondent further sec_6404 requires that petitioner not only identify a mistake by respondent but link the mistake to a specific period of delay in payment for which interest should be abated petitioner has alleged no specific period during which interest should be abated other than objecting generally to all interest flowing from the brauns’ tax_liabilities for and the requisite correlation between an error or delay attributable to the commissioner and a specific period of time is for the most part missing where a taxpayer requests that all interest with respect to the deficiencies be abated see donovan v commissioner tcmemo_2000_220 petitioner’s request amounts to a claim for an exemption from interest rather than a claim_for_abatement of interest id congress did not intend the statute to be used routinely to avoid payment of interest see h rept supra pincite c b vol pincite s rept supra pincite c b vol pincite whether petitioner would have paid the tax_liability earlier but for respondent’s error finally no abatement is warranted where notwithstanding a mistake by the commissioner no earlier payment would have been made see wright v commissioner tcmemo_2004_69 affd 125_fedappx_547 5th cir see also spurgin v commissioner tcmemo_2001_290 bo v commissioner tcmemo_2005_150 interest accruing merely because a taxpayer fails to pay the assessed tax is not subject_to abatement under sec_6404 ahmaogak v commissioner tcmemo_2003_238 donovan v commissioner supra douponce v commissioner tcmemo_1999_ petitioner has not demonstrated that the brauns would have paid their tax_liabilities for and earlier but for respondent’s actions conclusion we recognize that petitioner underwent severe physical trauma as well as job loss before and after his injury all of which contributed to the brauns’ failing to file or pay their income_tax timely for or our jurisdiction is limited however to determining whether respondent abused his discretion in not abating interest from our review of the record petitioner has not shown that respondent was dilatory in performing a ministerial or managerial act in fact our review reflects that respondent followed regular irs procedures in processing petitioner’s various offers in compromise and that interest accruals for and were merely the result of petitioner’s failure to pay the entire balance owed we therefore conclude that respondent did not abuse his discretion by denying petitioner’s request to abate interest on the brauns’ unpaid tax_liabilities for and accordingly we sustain respondent’s determination in reaching our holding we have considered all arguments made and to the extent not mentioned we conclude that they are moot irrelevant or without merit to reflect the foregoing decision will be entered for respondent


department of the treasury internal_revenue_service washington d c contact person identification_number telephone number employer_identification_number tax_exempt_and_government_entities_division release number release date date date uil i z a x i k n i dear this is in response to your ruling_request dated date you are requesting an extension which would allow you an additional five years as provided in sec_4943 of the internal_revenue_code code within which to dispose_of your excess_business_holdings resulting from an unusually large bequest facts you are an organization that has been recognized as exempt from federal_income_tax under sec_501 of the code and classified as a private_foundation under sec_509 under the terms of the n trust as modified upon the death of a the successor trustees distributed all of a’s m stock to you on x after the audit of the estate_tax_return was completed you currently own percent of m’s class a common_stock one of your directors holds the remaining ten percent and another director holds five percent of m’s class b and five percent of m's class c common_stock you state that the two directors are disqualified persons as defined in sec_4943 all of the stock has equal voting rights you made diligent efforts to dispose_of your shares of m within five years but the size complexity and diversity of the holdings combined with other factors made such disposition impossible except at a price substantially below fair_market_value m is one of the world’s largest manufacturers and distributors of products in its industry which relies on its end markets sectors of the commercial construction market m has two synergistic business divisions its physical presence consists of its headquarters two manufacturing facilities and sales and distribution facilities scattered throughout the u s and canada four years ago you began a six-month process to sell m by contacting over a hundred potential buyers even with reported growth trends you only received an eight percent bid to contact ratio within four months you entered into a non-binding letter of intent with a proposed buyer two months later upon receiving reports from m’s management that the current fiscal_year would not meet previously forecasted levels the proposed buyer made a final offer reflecting the decline but the board rejected the offer and terminated the sale since the offer was at substantially below fair_market_value the board believed that it would not have been in the best interests of its shareholders including you to pursue the sale you have implemented the following plan to strengthen the value of m n w r o a clear management succession plan a freeze of your pension_plan improvements in information_technology and financial reporting improvements in accounting for inventory and obsolescence selective acquisition of assets businesses to improve m’s competitive position you state that you can begin another six-month sales process and complete a sale before the expiration of the requested five-year extension therefore you are requesting a five-year extension of time under sec_4943 of the code to dispose_of your excess holdings in m you forwarded a copy of this plan to your state attorney_general as required by sec_4943 your state attorney_general does not oppose your request for a five-year extension from the service ruling requested pursuant to sec_4943 of the code you are granted a five-year extension of the five- year period in which to dispose_of such portion of your interest in the stock of m such that your ownership does not constitute excess_business_holdings under sec_4943 law sec_4943 of the code imposes a percent tax on the excess_business_holdings of any private_foundation in a business_enterprise during any taxable_year sec_4943 of the code states that the term excess_business_holdings means with respect to the holdings of any private_foundation in any business_enterprise the amount of stock or other interest in the enterprise which the foundation would have to dispose_of to a person other than a disqualified_person in order for the remaining holdings of the foundation in such enterprise to be permitted holdings sec_4943 of the code states that generally the permitted holdings of any private_foundation in an incorporated business_enterprise are i percent of the voting_stock reduced by ii the percentage of the voting_stock owned by all disqualified persons sec_4943 of the code states that except as provided in paragraph which is a transitional rule if after date there is a change in the holdings in a business_enterprise other than by purchase by the private_foundation or by a disqualified_person which causes the private_foundation to have excess_business_holdings in such enterprise the interest of the foundation in such enterprise immediately after such change shall while held by the foundation be treated as held by a disqualified_person rather than by the foundation during the five-year period beginning on the date of such change in holdings before the close of the extension period b a the foundation establishes that i diligent efforts to dispose_of such holdings have been made within the initial five-year period and ii disposition within the initial five-year period has not been possible except at a price substantially below fair_market_value by reason of such size and complexity or diversity of such holdings before the close of the initial five-year period i the private_foundation submits to the secretary a plan for disposing of all of the excess_business_holdings involved in the extension and ii the private_foundation submits the plan described in clause i to the attorney_general or other appropriate state official having administrative or supervisory authority or responsibility with respect to the foundation's disposition of the excess_business_holdings involved and submits to the secretary any response received by the private_foundation from the attorney_general or other appropriate state official to such plan during such five-year period and c the secretary determines that such plan can reasonably be expected to be carried out sec_4943 of the code states that the secretary may extend for an additional five-year period the period under paragraph for disposing of excess_business_holdings in the case of an unusually large gift or bequest of diverse business holdings or holdings with complex corporate structures if sec_53_4943-6 of the foundation and similar excise_tax regulations regulations states that generally in the case of an acquisition of holdings in a business_enterprise by a private_foundation pursuant to the terms of a will or trust the five-year period described in sec_4943 of the code and in this section shall not commence until the date on which the distributions of such holdings from the estate_or_trust to the foundation occurs analysis and conclusion you are subject_to sec_4943 of the code which imposes a tax on the excess_business_holdings of private_foundations generally under sec_4943 a private_foundation is permitted to hold twenty percent of the voting_stock in a business_enterprise with any excess constituting excess_business_holdings however if as is the case here a private_foundation acquires holdings in a business_enterprise other than by purchase eg by bequest from a will which causes the foundation to have excess_business_holdings then the interest of the foundation in such business_enterprise shall be treated as held by a disqualified_person rather than the foundation for a five-year period beginning on the date such holdings were acquired by the foundation under sec_4943 under sec_4943 of the code however the service may extend the initial five-year period for disposing of excess_business_holdings for an additional five years if you establish that i you made diligent efforts to dispose_of your holdings within the initial five-year period but were unable to do so because of the size and complexity of such holdings it you submit a plan for disposing of all excess_business_holdings in the five-year extension period and submit such plan to the state attorney_general and iii the service determines that such plan can reasonably be expected to be carried out before the close of the extension period the original five-year period to dispose_of your excess_business_holdings in m commenced on x the date of distribution in accordance with sec_53_4943-6 of the regulations and ends on y even though you diligently pursued the disposition of your excess_business_holdings in m the size and complexity of your unusually large holding greatly affected your ability to dispose_of your shares within the five-year period provided by sec_4943 of the code you submitted your request for an extension of the five-year period to the service before the close of the initial five-year period as required by sec_4943 of the code with your plan to it appears that you can dispose_of your holdings within the five-year extension period reasonably expect to carry out your plan before the close of the extension period you submitted your plan to your state attorney_general who did not oppose your request for extension based on the information you submitted you have met the requirements of sec_4943 and b of the code based on the foregoing we rule as requested as follows under sec_4943 of the code the five-year period in which you may dispose_of such portion of m shares in order to meet the requirements of sec_4943 is extended an additional five years which ends on z this ruling will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent this ruling is based on the facts as they were presented and on the understanding that there will be no material changes in these facts this ruling does not address the applicability of any section of the code or regulations to the facts submitted other than with respect to the sections described because it could help resolved questions concerning your federal_income_tax status this ruling should be kept in your permanent records if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter in accordance with the power_of_attorney currently on file with the internal_revenue_service we are sending a copy of this letter to your authorized representative sincerely ronald j shoemaker manager exempt_organizations technical group enclosure notice redacted ruling letter


internal_revenue_service national_office technical_advice_memorandum number release date index uil no case mis no tam-168647-02 cc pa apjp b1 taxpayer's name taxpayer's address taxpayer's identification no years involved date of conference legend taxpayer corporation issue whether taxpayer is required to issue a form_1099 to a powwow contest winner who receives a dollar_figure or more cash prize conclusion yes taxpayer is required to issue a form_1099 to a powwow contest winner who receives a dollar_figure or more cash prize facts taxpayer is a federally recognized indian_tribe see sec_7701 revproc_2002_64 2002_42_irb_717 taxpayer hosts an annual powwow and awards prizes to the contest dance and drum winners powwows are cultural not religious events the cost of the powwow exceeds the revenue during taxpayer’s annual powwow in taxpayer gave cash prizes to the winners of the dance contests some of these cash prizes exceed dollar_figure the tam-168647-02 dance contest itself is not a separate trade_or_business but is a significant portion of the powwow according to the advertising materials and the dancers’ prizes schedule winners are awarded prizes nothing in these materials indicates that each dancer or drummer competing in the contest will receive a prize according to taxpayer the powwow is not used to attract customers to other activities of the community taxpayer owns and or operates a convenience store and campground in addition corporation is wholly-owned by taxpayer corporation owns and operates the casinos on taxpayer’s land corporation also leases and operates the hotel located on taxpayer’s land there is no business relationship between the powwow taxpayers’s business enterprises and corporation’s casinos taxpayer argues that the information reporting requirements under sec_6041 do not apply to the payments made to the winners of the powwow’s dance contest because taxpayer is not subject_to tax taxpayer is not a person for purposes of sec_7701 of the internal_revenue_code code and taxpayer is not engaged in a trade_or_business when conducting the powwow law and analysis sec_6041 of the code provides that all persons engaged in a trade_or_business and making payment in the course of the trade_or_business to another person of rent salaries wages premiums annuities compensations remunerations emoluments or other fixed or determinable gains profits and income of dollar_figure or more in any taxable_year must file a return showing gains profits and income and the name and address of the recipient sec_1_6041-1 of the income_tax regulations regulations provide that the term all persons engaged in a trade_or_business as used in sec_6041 includes not only those so engaged for gain or profit but also organizations the activities of which are not for the purpose of gain or profit thus the term includes the organizations referred to in sec_401 sec_501 sec_501 and sec_521 and in paragraph i of this section on the other hand sec_6041 applies only to payments in the course of trade_or_business hence it does not apply to an amount_paid by the proprietor of a business to a physician for medical services rendered by the physician to the proprietor’s child tribe tax status taxpayer argues that because it is a tax exempt entity it is not subject_to any form tam-168647-02 of federal taxation including sec_6041 information reporting taxpayer is a federally recognized indian_tribe listed in revproc_2002_64 2002_42_irb_717 for this reason taxpayer is not subject_to federal_income_tax both the service and the courts have stated many times that indian tribes are subject_to federal tax laws revrul_67_284 67_2_cb_55 sets forth the general principles applicable to the federal_income_tax treatment of income paid to or on behalf of enrolled members of indian tribes id pincite although the revenue_ruling was not intended to set forth general principles applicable to the tax status of tribes it does contain a two sentence summary regarding the income_taxation of indian tribes income_tax statutes do not tax indian tribes the tribe is not a taxable entity revrul_94_16 also states that indian tribes are not taxable entities citing revrul_67_284 id pincite this time however the statement appears with a clarification of its meaning first the ruling states because an indian_tribe is not a taxable entity any income earned by an unincorporated tribe regardless of the location of the business activities that produced the income is not subject_to federal_income_tax id pincite the ruling further explains this revenue_ruling deals with federal income taxes it does not affect the application of other federal taxes such as employment_taxes or excise_taxes including excise_taxes on wagering to indian tribes or tribal_corporation id the courts support the service’s position that indian tribes are taxable entities with respect to federal taxes other than income_tax indian tribes are subject_to fica and futa 57_br_398 bankr 9th cir washoe tribes of nevada and california v united_states ustc cch p9718 aft 2d ph p79-6006 d nev an indian_tribe is not exempt from federal excise_tax absent an express exemption in the code 691_f2d_878 9th cir cert_denied 460_us_1040 revrul_94_81 1994_2_cb_412 section d of the indian gaming regulatory act u s c d igra does not exempt indian tribes from certain federal excise_tax 534_us_84 resolving a split between the fed cir and the 10th cir in this case taxpayer is a federally recognized indian_tribe as a result the taxpayer is not subject_to federal_income_tax although not subject_to federal_income_tax taxpayer is subject_to provisions of the code including provisions relating to information reporting such as sec_6041 person pursuant to sec_7701 sec_6041 applies to persons engaged in a trade_or_business taxpayer tam-168647-02 also argues that indian tribes are not subject_to the code because an indian_tribe is not a person for purposes of sec_7701 of the code sec_7701 provides that the term person when used in title_26 where not otherwise distinctly expressed or manifestly incompatible with the intent thereof shall be construed to mean and include an individual a_trust estate partnership_association company or corporation in 208_f3d_871 10th cir the court concluded that an indian_tribe is a person within the meaning of sec_7701 it explained that congress unambiguously intended for the word ‘person ’ as used in sec_7701 to encompass all legal entities including indian tribes and tribal organizations that are the subject of rights and duties in revrul_85_194 1985_2_cb_301 the service ruled that sec_6041 applies to an indian_tribe as stated above the taxpayer is a federally recognized indian_tribe an indian_tribe is a person for purposes of sec_7701 and sec_6041 therefore taxpayer is a person for purposes of sec_7701 and sec_6041 trade_or_business pursuant to sec_6041 taxpayer argues that an indian_tribal_government is not a trade_or_business and therefore not subject_to the reporting requirements of sec_6041 according to taxpayer to be engaged in a trade_or_business the taxpayer must be involved in the activity with continuity and regularity and that the taxpayer’s primary purpose for engaging in the activity must be for profit 480_us_23 however the court stated that its interpretation of the phrase trade_or_business was limited to code sections at issue in the case which included sec_162 id pincite n sec_6041 was not at issue in groetzinger thus groetzinger is not controlling in this case neither sec_6041 nor the regulations thereunder reference sec_162 in defining the phrase engaged in a trade_or_business in fact sec_1_6041-1 provides a broad definition of trade_or_business the regulations state that all persons engaged in a trade_or_business includes not only those so engaged for gain or profit but also organizations the activities of which are not for the purpose of gain or profit as a result the information reporting requirements of sec_6041 are not limited to organizations that are engaged in activities for gain or profit according to the facts taxpayer’s annual powwow is not used to attract customers to taxpayer’s other business enterprises and the cost of the powwow exceeds the revenue however as stated above sec_6041 and its regulations apply to organizations the activities of which are not for the purpose of gain or profit thus even if taxpayer’s activities are not for the purpose of gain or profit tam-168647-02 taxpayer’s payments to the powwow dance contest winners are subject_to the information reporting requirements of sec_6041 and the regulations thereunder caveat s a copy of this technical_advice_memorandum is to be given to the taxpayer s sec_6110 of the code provides that it may not be used or cited as precedent


internal_revenue_service department of the treasury number release date index numbers washington dc person to contact telephone number refer reply to cc corp b05-plr-165588-01 date date legend parent acquirer merger sub investment firm company official company official tax advisor authorized representatives plr-165588-01 a b state x state y date date date date date date y z dear this responds to a letter dated date submitted on behalf of the parent consolidated_group requesting an extension of time under sec_301_9100-1 through of the procedure and administration regulations to file an election parent as the common parent of an affiliated_group_of_corporations that file a consolidated federal_income_tax return the group is requesting an extension to file a closing-of-the-books election pursuant to sec_1_382-6 of the income_tax regulations the election with respect to a transaction that occurred on date additional information was received in a letter dated date the material information is summarized below parent a state x corporation and the other members of the group are engaged in the business of providing a and b services the group computes its consolidated federal_income_tax liability using an accrual_method of accounting and files its consolidated federal_income_tax returns on a calendar_year basis the group is a loss group within the meaning of sec_1_1502-91 plr-165588-01 on date acquirer a state y limited_liability_company taxable as a partnership for federal tax purposes and organized by investment firm formed merger sub a state y corporation on date parent and merger sub entered into an agreement and plan of merger agreement and parent subsequently obtained the approval of its shareholders to proceed under the agreement on date in accordance with the agreement merger sub merged with and into parent the merger parent survived the merger and pursuant to the agreement acquirer acquired ownership of approximately y at least of parent‘s outstanding common_stock in exchange for cash the remaining z of parent shares were retained by management and other prior shareholders the merger resulted in an ownership_change as defined in sec_382 of the internal_revenue_code and sec_1 2t a and b i on date for parent and all of the other members of the group on date parent filed a consolidated federal_income_tax return for the taxable_year ending on date the election was due on date but for various reasons it was not filed on or about date tax advisor or tax advisor’s firm discovered and informed parent that the election was not filed subsequently this request was submitted under sec_301_9100-1 for an extension of time to file the election the period of limitations on assessment under sec_6501 has not expired for the taxable_year for which the group’s election should have been filed or for any taxable_year s that would have been affected by the election had it been timely filed the following representations have been made in connection with this request the group has not accelerated income into the pre-change period or deferred loss to the post-change period for the purpose of avoiding the application of sec_382 the group will determine its alternative_minimum_taxable_income and adjust current earnings for the pre-change and post-change periods based on a closing of the books as of date and will elect out of ratable allocation the group has not carried back and does not intend to carry back to a prior taxable_year any portion of the consolidated_net_operating_loss it incurred in its taxable_year ended date the internal_revenue_service has not discovered parent’s failure to make the election the group is not currently under the jurisdiction of a court in a title_11_or_similar_case and at all times since date the group has continued the operations of its plr-165588-01 historic trade_or_business sec_1_382-6 provides that except as provided in paragraphs b and d of the section a loss_corporation must allocate its net_operating_loss or taxable_income and its net_capital_loss or modified capital_gain_net_income for the change year between the pre-change period and the post-change period by ratably allocating an equal portion to each day in the year sec_1_382-6 provides that a loss_corporation may elect to allocate its net_operating_loss or taxable_income and its net_capital_loss or modified capital_gain_net_income for the change year between the pre-change period and the post-change period as if the loss corporation’s books were closed on the change_date sec_1_382-6 provides that a loss_corporation makes the closing-of-the- books election by including the following statement on the information statement required by sec_1_382-2t for the change year the closing-of-the-books election under sec_1_382-6 is hereby made with respect to the ownership_change occurring on insert date the election must be made on or before the due_date including extensions of the loss corporation's income_tax return for the change year sec_1_1502-91 defines a loss group as a consolidated_group that either i is entitled to use a net_operating_loss_carryover that did not arise and is not treated as arising in a srly ii has a consolidated_net_operating_loss for the taxable_year in which a testing_date of the common parent occurs or iii has a net unrealized built-in- loss under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election see sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government see sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1_382-6 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant an extension of time for parent to file the election provided that parent shows it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government plr-165588-01 information affidavits and representations submitted by parent company official company official tax advisor and parent’s authorized representatives explain the circumstances that resulted in the failure to timely file a valid election the information establishes that the request for relief was filed before the failure to make the election was discovered by the internal_revenue_service and that the interests of the government will not be prejudiced if relief is granted see sec_301_9100-3 based on the facts and information submitted including the representations made we conclude that parent has shown that it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-1 until days from the date on this letter for parent to file the election as described above the above extension of time is conditioned on the filing by parent within days of the date on this letter of all returns and amended returns if any necessary to report the transaction in accordance with the election and the taxpayers' the group’s tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the applicable director’s office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers’ tax_liability is lower see sec_301_9100-3 parent must file the election in accordance with sec_1_382-6 that is parent must file or amend as applicable the group’s consolidated income_tax returns for the taxable_year in which the transaction was consummated and for any other affected_taxable_year and to attach to the returns a copy of the election a copy of the information statement if one has not already been attached and a copy of this letter we express no opinion as to whether the group is a loss group as defined in sec_1_1502-91 or whether an ownership_change as defined in sec_382 and sec_1_382-2t and sec_1_1502-92 occurred on date or any other tax consequences arising from the election in addition we express no opinion as to the tax consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-1 we relied on certain statements and representations made by the taxpayers however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-1 to file the election penalties and interest that would otherwise be applicable if any continue to apply plr-165588-01 a copy of this letter must be attached to any income_tax return to which it is relevant this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file in this office a copy of this letter is being sent to the first and second representatives listed on that power_of_attorney sincerely ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc


t c memo united_states tax_court glass blocks unlimited petitioner v commissioner of internal revenue respondent docket no filed date fredrick blodgett an officer for petitioner michael k park kirk m paxson and patricia p wang for respondent memorandum findings_of_fact and opinion halpern judge this case is before the court on a petition for redetermination of a notice_of_determination of worker classification notice by the notice respondent informed petitioner that he had determined that fredrick blodgett is classified as petitioner's employee for federal employment_tax purposes for each of the four quarters of and and that petitioner is not entitled to relief under the revenue act of pub_l_no sec_530 stat pincite as amended sec_530 attached to the notice is a schedule setting forth petitioner's liabilities for federal_insurance_contributions_act fica_taxes pursuant to sec_3101 and sec_3111 additions to tax pursuant to sec_6651 and penalties pursuant to sec_6656 as follows tax period ended employment_tax addition_to_tax sec_6651 dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure penalty sec_6656 dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure petitioner does not challenge respondent's determinations that mr blodgett should be classified as petitioner's employee or that it is not entitled to relief under except with reference to the revenue act of pub_l_no sec_530 stat pincite section references are to the internal_revenue_code in effect for the taxable periods at issue all rule references are to the tax_court rules_of_practice and procedure sec_530 but disputes the tax_liabilities set forth in the notice the issues for decision are whether and to what extent petitioner's distributions totaling dollar_figure and dollar_figure for and respectively to mr blodgett should be recharacterized as wages subject_to federal employment_tax whether petitioner is liable for the additions to tax under sec_6651 and whether petitioner is liable for the penalties under sec_6656 petitioner bears the burden_of_proof see rule a findings_of_fact petitioner is an s_corporation within the meaning of sec_1361 it is a calendar_year taxpayer that makes its federal_income_tax return on form_1120s u s income_tax return for an s_corporation at the time the petition was filed petitioner's principal_place_of_business was in costa mesa california during and petitioner operated a business that sold and distributed glass blocks for the real_estate market in north america during those years mr blodgett was president of petitioner and he was its sole shareholder he worked full time for petitioner which had no other full-time employees he was responsible for all operational and financial decisions of the company and sec_7491 which shifts the burden_of_proof to the secretary in certain circumstances does not apply to employment_tax disputes see sec_7491 he performed nearly all of the work necessary to run the business petitioner additionally used an unspecified number of day laborers whom it paid totals of dollar_figure and dollar_figure in and respectively following a downturn in the real_estate and construction markets after petitioner's business began to experience financial difficulties and mr blodgett transferred funds to petitioner in order to cover operating_expenses and other costs in mr blodgett transferred dollar_figure from his family_trust to petitioner deborah r vancleave mr blodgett's fiance at the time contributed dollar_figure to petitioner in and an additional dollar_figure in petitioner did not give any collateral to mr blodgett with respect to the transfers and no promissory notes reflecting the transfers were issued petitioner did not on its and forms 1120s report paying mr blodgett a salary or wages it did however distribute money to him as cash was available and he asked for it petitioner distributed not less than dollar_figure to mr blodgett over the course of during petitioner made distributions to mr blodgett totaling not less than dollar_figure on its form_1120s petitioner reported gross_receipts of dollar_figure total income of dollar_figure and net ordinary business income of dollar_figure petitioner also reported repayment of dollar_figure of loans from shareholders on schedule l balance sheets per books petitioner reported that the corporation did not have any outstanding loans from shareholders at the beginning of the year and had a balance of dollar_figure in loans from shareholders at the end of the year on its form_1120s petitioner reported gross_receipts of dollar_figure total income of dollar_figure and net ordinary business income of dollar_figure petitioner reported repayment of dollar_figure of loans from shareholders petitioner's reported loans from shareholders balance decreased from dollar_figure at the beginning of the year to dollar_figure at the end of the year petitioner also reported dividend distributions totaling dollar_figure mr blodgett did not have any other employment during or on his form_1040 u s individual_income_tax_return he reported dollar_figure of subchapter_s income from petitioner and dollar_figure in taxable interest from a bank account on his form_1040 he reported dollar_figure of subchapter_s income from petitioner and no other income for that year petitioner did not file a form_941 employer's quarterly federal tax_return for any quarter in or petitioner did not issue a form_w-2 wage and tax statement or form 1099-misc miscellaneous income to mr blodgett for or respondent conducted an employment_tax audit for petitioner's and tax years determined that mr blodgett should be classified as petitioner's employee and that the distributions should be characterized as wages for employment_tax purposes and issued the notice petitioner timely filed a petition with this court i introduction opinion petitioner an s_corporation distributed dollar_figure and dollar_figure in and respectively to mr blodgett its president sole shareholder and only full- time employee respondent determined that the distributions constituted wages for which fica_taxes should have been paid we have jurisdiction under sec_7436 to decide whether respondent's determination of worker classification is correct and to decide the proper amount of employment_tax including additions to tax and penalties under that determination see also 117_tc_263 ii employment_taxes a in general sec_3101 and sec_3111 impose fica_taxes on wages received with respect to employment the fica tax is a tax on wages up to an annual_limit that comprises a social_security_tax and a medicare_tax sec_3101 sec_3111 one half of the fica tax is imposed on the employer see sec_3111 and the other half on the employee see sec_3101 sec_3102 requires an employer to withhold from wages the amount of the tax imposed on its employee and the employer is liable for paying the tax it is required to so withhold sec_3102 for employment_tax purposes wages are defined as all remuneration for employment including the cash_value of all remuneration including benefits paid in any medium other than cash with exceptions not applicable in this case sec_3121 notwithstanding the manner in which an employer characterizes payments made to an employee the critical fact is whether a payment is actually received as remuneration for employment sec_31_3121_a_-1 employment_tax regs see also 121_tc_89 aff'd 425_f3d_1203 9th cir an officer who performs more than minor services for a corporation and who receives remuneration in any form for those services is considered an employee and his or her wages are subject_to the employer's payment of federal employment_taxes 117_tc_141 aff'd sub nom 54_fedappx_100 3d cir see also sec_3121 sec_31_3121_d_-1 employment_tax regs petitioner does not object to respondent's determination that mr blodgett was its employee during the periods at issue and the evidence clearly supports such a finding as president of the company mr blodgett was petitioner's only officer mr blodgett was also petitioner's sole full-time worker in and he performed substantially_all of the work necessary to operate the business including processing orders collecting payments arranging shipment of goods managing inventory and handling customer relations his services generated all of petitioner's income because mr blodgett was petitioner's employee for the periods at issue and performed substantial services for it yet it did not pay him a salary its distributions to him are deemed wages and thus are subject_to federal employment_taxes veterinary surgical consultants p c v commissioner t c pincite- see also 918_f2d_90 9th cir that petitioner characterized dollar_figure of those distributions as dividends for is immaterial an employer cannot avoid federal employment_taxes by characterizing payments to its sole employee officer and shareholder as dividends rather than wages where such payments represent remuneration for services rendered spicer accounting inc f 2d pincite b distributions not repayment of shareholder loans petitioner contends that certain distributions represented repayment of loans between itself and mr blodgett and as such should not be recharacterized as wages according to petitioner transfers of funds totaling dollar_figure in and dollar_figure in from mr blodgett or his fiance on his behalf were loans to petitioner and the distributions were merely repayment of those loans respondent argues that the funds were contributions to capital and the distributions constitute wages to mr blodgett the proper characterization of the transfers as either loans or capital contributions is made by reference to all the evidence see 74_tc_476 see also herrera v commissioner t c because mr blodgett was an officer of petitioner during the periods in issue sec_530 relief is unavailable see 119_tc_121 holding that sec_530 relief is limited to controversies regarding the employment_tax status of service providers under the common_law and does not apply with respect to statutory employees such as corporate officers aff'd 93_fedappx_473 3d cir memo at petitioner bears the burden of proving that the transfers were loans see rule a see also dixie dairies corp v commissioner t c pincite courts have established a nonexclusive list of factors to consider when evaluating the nature of transfers of funds to closely held corporations such factors include the names given to the documents that would be evidence of the purported loans the presence or absence of a fixed maturity_date the likely source of repayment the right to enforce payments participation in management as a result of the advances subordination of the purported loans to the loans of the corporation's creditors the intent of the parties the capitalization of the corporation the ability of the corporation to obtain financing from outside sources thinness of capital structure in relation to debt use to which the funds were put the failure of the corporation to repay and the risk involved in making the transfers 95_tc_257 the factors are not equally significant and no single factor is determinative ultimately we must determine whether the transfer analyzed in terms of economic reality constitutes risk capital entirely subject_to the fortunes of the corporate venture or a strict debtor-creditor relationship dixie dairies corp v commissioner t c pincite herrera v commissioner at transfers to closely held corporations by controlling shareholders are subject_to heightened scrutiny however and the labels attached to such transfers by the controlling shareholder through bookkeeping entries or testimony have limited significance unless these labels are supported by other objective evidence e g boatner v commissioner tcmemo_1997_379 wl at aff'd without published opinion 164_f3d_629 9th cir applying the above factors we find that the transfers in question were capital contributions and not bona_fide loans there were no written agreements or promissory notes supporting mr blodgett's testimony that the transfers were loans while it is true that a portion of the transfers was reported as loans from shareholders on petitioner's forms 1120s that entry is of little value without the support of other objective criteria indeed petitioner did not even report the dollar_figure transfer as a shareholder loan on its return the absence of notes or other instruments plus petitioner's failure to treat the dollar_figure transfer as a loan at all indicates that the transfers were not loans moreover there is no evidence that mr blodgett required_interest for_the_use_of the funds that petitioner provided any security for the loan or that a fixed repayment schedule existed mr blodgett withdrew funds solely on the basis of petitioner's financial ability to repay where the expectation of repayment depends solely on the success of the borrower's business rather than on an unconditional obligation to repay the transaction has the appearance of a capital_contribution see eg 800_f2d_625 6th cir aff'g tcmemo_1985_58 on the basis of the evidence we conclude that the funds mr blodgett transferred to petitioner were in substance capital contributions and not bona_fide loans therefore petitioner's distributions did not represent repayment of shareholder loans c reasonableness of compensation petitioner also contends that characterization of all distributions from petitioner to mr blodgett as wages would constitute unreasonable_compensation to him claiming that he worked only hours per week performing minimal and undemanding duties for which no training or special skills were required petitioner proposes that we find dollar_figure to be a reasonable annual salary petitioner directs us to the wage and salary information reported on various salary- reporting web sites to support its assertion that no more than dollar_figure per hour would be an appropriate wage then multiplies that wage by an alleged big_number hours worked each year reasonableness of compensation is a question determined by all the facts and circumstances of the case e g joly v commissioner tcmemo_1998_361 wl at aff'd without published opinion 211_f3d_1269 6th cir factors affecting the reasonableness of compensation include the employee's role in the company comparisons of the employee's salary to those paid_by similar companies for similar services the character and condition of the company and potential conflicts of interest 716_f2d_1241 9th cir rev'g tcmemo_1980_282 the evidence in this case does not convince us that the amounts respondent recharacterized as wages constitute unreasonable_compensation for the services mr blodgett performed first we do not find petitioner's evidence persuasive even if we were to accept the salary information petitioner submitted as reliable and we decline to do so petitioner has failed to show that the positions for which it has provided salary information are sufficiently analogous to mr blodgett's position with petitioner although reasonable_compensation is an issue typically found in the context of income_tax deductions under sec_162 courts have found that reasonableness analysis is at times appropriate in determining whether certain payments were in fact remuneration for employment subject_to fica tax see eg david e 668_f3d_1008 8th cir petitioner directs the court to statistics concerning the median hourly wages of a shipping clerk an accounts_receivable clerk and an accounts_payable clerk plus the average annual salary for officers of s_corporations in the wholesale durables business mr blodgett's role in petitioner's business however was more substantial than any one of those positions rather he performed all of those roles within the company and through his efforts generated all of petitioner's sales and income for the periods at issue moreover we do not accept that mr blodgett worked only hours per week mr blodgett told his examiner during the audit for petitioner's and tax years that he worked over hours per week petitioner's own web site states that petitioner's hours were a m to p m monday through friday during and in the absence of other evidence substantiating mr blodgett's later testimony that he worked only hours per week we give that testimony little weight thus even assuming arguendo that petitioner's proposed finding of dollar_figure per hour is a reasonable wage for an employee in mr blodgett's position such a finding would in fact support the conclusion that dollar_figure and dollar_figure were reasonable for a full-time_employee accordingly petitioner has not carried its burden to show that the amounts respondent determined are unreasonable_compensation iii additions to tax and penalties respondent determined that petitioner is liable for additions to tax under sec_6651 for its failure_to_file form sec_941 for the periods at issue and penalties under sec_6656 for its failure to deposit the requisite amount of tax for those quarters sec_6651 imposes an addition_to_tax in the event a taxpayer fails to file a timely return determined with regard to any extension of time for filing unless the taxpayer shows that such failure is due to reasonable_cause and not due to willful neglect the amount of the addition is equal to of the amount of the tax required to be shown on the delinquent_return for each month or fraction thereof during which the return remains delinquent up to a maximum of for returns more than four months delinquent sec_6651 sec_6656 imposes a penalty equal to of the portion of an underpayment in tax that is required to be deposited if the failure to deposit is more than days beyond the prescribed deadline unless it is shown that such failure is due to reasonable_cause and not to willful neglect sec_6656 and b it is undisputed that petitioner filed no employment_tax returns and deposited no employment_taxes with the treasury petitioner has not offered any argument that respondent's determinations of the additions and penalties are incorrect or inappropriate nor has petitioner argued that its failure_to_file returns or to deposit employment_tax was due to reasonable_cause and not to willful neglect respondent has shown adequate ground for imposing the penalties and additions consequently we sustain respondent's determination that petitioner is liable for the sec_6651 additions to tax and the sec_6656 penalties for all periods at issue iv conclusion we sustain respondent's determinations of worker classification federal employment_tax deficiencies penalties and additions to tax to reflect the foregoing decision will be entered for respondent


internal_revenue_service index number number release date date cc dom fi p plr-114357-98 fund fund a fund b fund c fund d year a year b year c year d state dear this is in reply to a letter dated date seeking consent to revoke for year a and subsequent calendar years elections previously made by funds a b c and d collectively the funds under sec_4982 of the internal_revenue_code additionally the funds request that the calculation of their required distributions of capital_gain_net_income under sec_4982 and foreign_currency gains and losses under plr-114357-98 sec_4982 for the calendar_year ending december year a be determined on the basis of capital_gains_and_losses realized and recognized during the ten-month period from january year a through october year a facts fund is organized as a state corporation it is a diversified open-end management investment_company under the investment_company act of u s c 80a-1 et seq fund has elected and qualified and intends to continue to qualify to be treated as a regulated_investment_company ric under subchapter_m of the code each of the funds is organized as a separate portfolio of fund and under sec_851 of the code qualifies as a separate corporation the funds first elected to be taxed as rics for their taxable years ending december year b funds use the accrual_method of accounting for tax and financial_accounting purposes and use the calendar_year for tax purposes beginning with calendar_year b funds elected under sec_4982 of the code to use their taxable years the calendar_year in lieu of the one-year period ending on october for purposes of calculating the required_distribution amount under sec_4982 and sec_4982 funds’ taxable years have also been used in determining the treatment of foreign_currency gains and losses under sec_4982 funds assumed that the election under sec_4982 would relieve the administrative burden associated with dual calculations of capital_gain_net_income and sec_988 gain_or_loss under the excise_tax and subchapter_m provisions of the code the experience of funds has been that the election has created additional administrative complexities primarily due to time constraints in declaring required excise_tax distributions further the promulgation of regulations coordinating the excise_tax and subchapter_m provisions has greatly reduced the administrative burden of having a tax_year different from the period used for determining its required_distribution under sec_4982 accordingly funds seek consent to revoke their elections to use their taxable years the calendar_year for purposes of sec_4982 sec_4982 and sec_4982 funds represent that the desire to revoke their elections is due to administrative and non-tax related financial burdens caused by the election they are not seeking to revoke their elections for the purpose of preserving or securing a tax_benefit plr-114357-98 they will neither benefit through hindsight nor prejudice the interests of the government as a result of being permitted to revoke the elections and they will not make subsequent elections under sec_4982 of the code for five calendar years following the year of the grant of revocation law and analysis sec_4982 of the code which was enacted as part of the tax_reform_act_of_1986 and is effective for tax years beginning after date imposes an excise_tax on every ric for each calendar_year equal to percent of the excess if any of the required_distribution for the calendar_year over the distributed_amount for the calendar_year sec_4982 defines required_distribution to mean with respect to any calendar_year the sum of percent of the ric’s ordinary_income for such calendar_year plus percent of its capital_gain_net_income for the 1-year period ending on october of such calendar_year sec_4982 provides that if the tax_year of a ric ends with the month of november or december the ric may elect to have the capital_gain_net_income for its tax_year applied in lieu of the 1-year period ending on october of the calendar_year for purposes of satisfying the required_distribution defined in sec_4982 sec_4982 provides that once made such election may be revoked only with the consent of the secretary sec_4982 provides that any foreign_currency_gain_or_loss which is attributable to a sec_988 transaction and which is properly taken into account for the portion of the calendar_year after october shall not be taken into account in determining the amount of the ordinary_income of the ric for such calendar_year but shall be taken into account in determining the ordinary_income of the investment_company for the following calendar_year in the case of any company making an election under sec_4982 however the preceding sentence shall be applied by substituting the last day of the company’s taxable_year for october conclusion based on the information submitted and the representations made we conclude that the funds’ desire to revoke their elections under sec_4982 is because of administrative burdens and not because of any federal tax-related financial burden caused by the election the funds do not seek plr-114357-98 to revoke their elections for the purpose of preserving or securing a federal tax_benefit additionally the funds will neither benefit through hindsight nor prejudice the interests of the government as a result of being permitted to revoke their election accordingly it is held as follows pursuant to sec_4982 the secretary consents to the revocation of the elections made by funds under sec_4982 effective for calendar_year a and subsequent years for purposes of sec_4982 the capital_gain_net_income of the funds as defined in sec_4982 e and any foreign_currency gains and losses as defined in sec_4982 will be determined on the basis of the capital_gains_and_losses and foreign_currency gains and losses taken into account during the 10-month period from january year a through october year a year a will be the first taxable_year of the funds in which the election under sec_4982 of the code will not apply for purposes of determining its post-october losses as applied to the funds’ computations of investment_company_taxable_income and net capital_gains under sec_852 and sec_852 of the code and sec_1_852-11 of the income_tax regulations the determination of the funds’ earnings_and_profits under sec_852 of the code and sec_1_852-11 of the regulations and for purposes of designating capital_gain dividends under sec_852 of the code and sec_1 e of the regulations as a condition to the secretary’s consent to the revocation pursuant to sec_4982 funds may not make a subsequent election under sec_4982 for a period of calendar years following the year to which the grant of revocation applies that is year c through year d except as specifically ruled upon above no opinion is expressed or implied as to the federal excise or income_tax consequences regarding funds this ruling is directed only to the taxpayers that requested it sec_6110 of the code provides that it may not be used or cited as precedent plr-114357-98 it is important that a copy of this letter be attached the federal income and excise_tax returns filed by funds for the first year to which this ruling applies sincerely yours assistant chief_counsel financial institutions products by william e coppersmith william e coppersmith chief branch