internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc corp -plr date date legend company district selling shareholders date date date date state c xxx ppp project b ddd percent purchaser purchaser purchaser ccc plr hhh dollar_figurefff dollar_figureggg dollar_figureiii case j dear this letter responds to the date request for rulings submitted by your representative on behalf of company and the selling shareholders listed on the attached schedule a with respect to the transfer of certain water rights you have requested a ruling that for federal_income_tax purposes company's participation in the procedures by which the transfer of the water is accomplished in conjunction with the sales by the selling shareholders of their rights to the water will not constitute a sale_or_other_disposition of property by company nor a distribution_of_property by the company to the selling shareholders with respect to their stock additionally you have requested rulings on whether the water rights will constitute capital assets in the hands of the selling shareholders and whether certain_sales of these water rights will constitute sales or exchanges of capital assets the information submitted in the request and in a later submission is summarized below facts company was organized on date as a ditch and reservoir company and is subject_to state c's statutory requirements for mutual ditch companies company uses the cash_method_of_accounting and its fiscal_year ends on date approximately xxx of the company's shareholders are selling shareholders the other shareholders are not transferring any of their water rights and are not involved in the transactions described herein state c mutual ditch companies generally were created when a group of farmers banded together and formed the cooperative company for the express purpose of storing and conducting water for irrigation purposes company's primary function has been to deliver to and store the water of its shareholders the company's assets are limited to those necessary to deliver and store the water these assets include weirs canals dams water control devices and a storage reservoir the shareholders used the bylaws and shares to quantify each of their beneficial use rights in the water transported by the company the company owns no land on which to make use of the water it transports and stores although water is derived from two sources only the water from project b the project b water as described below is the subject of this ruling_request plr on date district a quasi-governmental corporation subject_to state c's statutory requirements for such entities entered into an agreement the repayment contract with the united_states bureau of reclamation the bureau for the development of project b project b emanates from the reclamation act of as amended the repayment contract grants district the right to allocate the project b water the district does so through allotment contracts that require the water users to pay their proportionate share of the district's costs to operate and maintain project b and to repay the federal government for its construction costs the operating reimbursements costs on date district entered into an allotment contract with company which provided that company would be entitled to receive an allocation of water for the beneficial use of its shareholders the project b water was then allocated pro_rata among the shareholders based on their shares in addition to paying on a pro_rata basis company's annual operating_expenses based on their respective allocation of project b water each shareholder pays his proportionate share of the operating reimbursements costs under the allotment contract conditions in state c are such that water is in great demand as such the selling shareholders intend to relinquish their beneficial_ownership of ddd percent of the project b water through three sales agreements the master sales agreements with purchaser purchaser and purchaser the master sales agreements with purchaser and purchaser provide they will acquire an aggregate of ccc units of project b water at dollar_figurefff per unit and dollar_figureggg per unit respectively the master sales agreement with purchaser provides for an allocation of hhh units of project b water at dollar_figureiii per unit in order to satisfy certain transfer requirements of the district the master sales agreement with purchaser includes an option for purchaser to take all or some of the units through a twenty-five year interruptible supply contract the interruptible supply contract under the interruptible supply contract the price for the units is the same as in the master sales agreement and it includes an option to purchase the units for a nominal fee by its terms the interruptible supply contract will remove beneficial_ownership of the units from the selling shareholders you have indicated that purchaser has elected to take all the units pursuant to the interruptible supply contract the selling shareholders will be paid in full for all units upon the closing of all three transactions including the transaction subject_to the interruptible supply contract to facilitate the negotiation of the master sales agreements and the interruptible supply contract the selling shareholders created ppp to act as their agent the only members of ppp are the selling shareholders the selling shareholders are not selling their shares in company but their shares will bear a legend to reflect that they are no longer entitled to their full allocation of the project b water plr you have indicated that company is not materially participating in the transactions described above company as a party to the allotment contract however will agree to the amendment of the allotment contract to reflect the reduced allotment of project b water the master sales agreements and the interruptible supply contract are conditioned on our rulings herein however the selling shareholders due to the crisis situation in state c have already transferred some of the project b water to the purchasers the emergency sales the consideration received by the selling shareholders from these emergency sales is being held in escrow pending our rulings herein according to the courts of state c mutual ditch companies are unique entities which are formed not under state c' s general corporation statutes but under special legislation reserved for ditch and reservoir companies in analyzing the relationship between the shareholders and mutual ditch companies in regards to water rights the supreme court of state c in case j has stated that a mutual ditch company is merely engaged in the business of transporting and storing the water for its shareholders benefit and the law of state c uniformly holds that the actual ownership of the water rights is in the shareholder the supreme court's analysis noted that a longstanding tenet of state c law is that ownership of a water right can be acquired only by the actual beneficial use of the water mere diversion is not sufficient to meet the requirements of state c's constitution finally the supreme court noted that it is well established that the water rights owned by the shareholders are property rights accordingly based on this supreme court's decision and other decisions by this court it is clear that under state c law company is not the beneficial_owner of any of the water it transports for the benefit of its shareholders including the project b water representations company has represented that it is not a party to the master sales agreements or the interruptible supply contract and shall not receive any proceeds or other consideration arising or resulting from the transactions described herein based on the information and representations submitted we rule as follows the selling shareholders for federal_income_tax purposes are the beneficial owners of the project b water rights and the sale of such rights including the short-term emergency sales described above will not be deemed to be a sale_or_other_disposition of property by the company or a distribution_of_property by the company to the selling shareholders with respect to their stock accordingly the company will not realize gain_or_loss as a result of the selling shareholders' transactions sec_1001 sec_301 sec_311 plr the beneficial rights in the project b water constitutes a capital_asset in the hands of the selling shareholders sec_1221 the transfer of the beneficial rights in the project b water under the master sales agreements and the interruptible supply contract constitute sales of capital assets by the selling shareholders sec_1222 caveat no opinion is expressed about the tax treatment of the transactions under other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the transactions that are not specifically covered by the above ruling for example no opinion is expressed about whether the short-term emergency sales constitute sales or exchanges of capital assets nor are we opining on the selling shareholders' bases in these water rights the rulings contained in this letter are based upon information and a representation submitted by the company and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination procedural statements this ruling is directed only to the taxpayers requesting it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your taxpayer_representative sincerely steven hankin senior technical reviewer branch office of associate chief_counsel corporate


t c summary opinion united_states tax_court preston reece and carolyn young-reece petitioners v commissioner of internal revenue respondent docket no 8416-07s filed date preston reece and carolyn young-reece pro sese ashley vaughan for respondent goldberg special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure some of the issues have been settled the remaining issues for decision are whether petitioners are entitled to itemized and business_expense deductions that remain in dispute and whether petitioners are liable for the accuracy-related_penalty this case centers on deductions for the tax_year claimed on schedule a itemized_deductions and schedule c profit or loss from business that respondent disallowed we provide an initial factual introduction to summarize the events leading up to the commencement of this case introduction some of the facts have been stipulated and are so found the stipulation of facts the attached exhibits and the stipulation of settled issues are incorporated herein by this reference petitioners resided in texas when they filed their petition during petitioner preston reece mr reece worked for anheuser-busch brewery as a machinist and petitioner carolyn young-reece ms reece operated an unincorporated real_estate sales business from her home ms reece reported the income and expenses for her real_estate business on a schedule c using the cash_method_of_accounting ms reece had a real_estate broker’s license for over years preceding the date of trial however she was not very active in the real_estate business for the years preceding the date of trial in ms reece spent approximately two-thirds of her time as a self-employed real_estate broker selling three properties which generated income from sales commissions of dollar_figure ms reece spent one-third of her time as an employee of norwood management inc where she sold homes petitioners were members of jasper missionary baptist church in new waverly texas during this is the church that mr reece has attended since he was a boy petitioners attended services every other week and typically made contributions by placing an envelope containing cash in the offering plate when it was passed around petitioners deducted dollar_figure for cash contributions given to their church christopher young is ms reece’s son petitioners paid for christopher young’s tuition at houston baptist university by check in the check was in the amount of dollar_figure petitioners also claimed charitable_contributions deductions for clothes books furniture kitchen appliances and various other items donated to purple heart and to sand dollar in the amounts of dollar_figure and dollar_figure respectively during the internal_revenue_service irs audited petitioners’ income_tax return petitioners failed to appear for the audit whereupon the irs disallowed all of petitioners’ schedule c business_expense deductions and schedule a itemized_deductions made adjustments relating to the self-employment_tax and determined an accuracy-related_penalty respondent issued to petitioners a notice_of_deficiency reflecting an increase in federal_income_tax of dollar_figure and an accuracy-related_penalty of dollar_figure under sec_6662 after the petition was filed an appeals_conference was scheduled but petitioners failed to appear discussion deductions are a matter of legislative grace and the taxpayer bears the burden of proving his entitlement to a deduction rule a 503_us_79 292_us_435 a taxpayer is required to maintain records sufficient to establish the amount of his or her income and deductions sec_6001 sec_1_6001-1 e income_tax regs taxpayers may deduct only the business_expenses that they can substantiate 90_tc_74 under sec_7491 the burden may shift to the commissioner regarding factual matters if the taxpayer produces credible_evidence and meets the other requirements of the section petitioners did not argue for a burden shift and thus did not fulfill the requirements of sec_7491 therefore the burden remains with them a taxpayer may deduct ordinary and necessary expenses that he pays in connection with the operation of a trade_or_business sec_162 122_tc_305 to be ordinary the expense must be of a common or frequent occurrence in the type of business involved 308_us_488 to be necessary an expense must be appropriate and helpful to the taxpayer’s business 290_us_111 additionally the expenditure must be directly connected with or pertaining to the taxpayer’s trade_or_business sec_1_162-1 income_tax regs sec_262 disallows deductions for personal living or family_expenses if a taxpayer establishes that an expense is deductible but is unable to substantiate the precise amount we may estimate the amount bearing heavily against the taxpayer whose inexactitude is of his own making 39_f2d_540 2d cir however the taxpayer must present sufficient evidence for the court to make an estimate because without such a basis any allowance would amount to unguided largesse 245_f2d_559 5th cir 85_tc_731 i itemized and business_expense deductions a itemized_deductions at issue--dollar_figure the table below shows the three itemized_deductions that remain in dispute itemized_deduction real_property_taxes charitable_contributions cash noncash amount per tax_return amount per examination dollar_figure big_number big_number -0- -0- amount in dispute dollar_figure big_number big_number real_property taxes--dollar_figure petitioners testified that they have owned their home for approximately years and they had their property_tax statement at the time they prepared their return petitioners failed to provide the irs with any documentation that would substantiate this deduction however at trial petitioners provided a property_tax bill for an amount similar to the amount claimed for although petitioners did not have a property_tax bill we believe they owned the property and paid real_estate_taxes in therefore petitioners are entitled to a deduction for real_property_taxes of dollar_figure charitable contributions--dollar_figure a cash--dollar_figure petitioners testified that they have been parishioners at jasper missionary baptist church for a long time and that they attend services approximately every other week contributing approximately dollar_figure in cash per visit the letter from jasper missionary baptist church states that petitioners contributed dollar_figure to the church during the tax_year the letter is contemporaneous with the donation and was signed by the clerk of the church see sec_170 we find that the letter is credible_evidence petitioners testified that the other dollar_figure consists of a dollar_figure payment for college tuition at houston baptist university for their son miscellaneous gifts and donations of dollar_figure assuming that houston baptist university was a qualified_organization as defined by sec_170 in order for petitioners to be entitled to a charitable_contribution_deduction under sec_170 for the payment made to the university they must show the extent to which the tuition payment exceeds the market_value of their son’s education and that the excess payment was made with the intention of making a gift see 477_us_105 petitioners have failed to establish that the amount_paid to houston baptist university exceeded the market_value of the education received by their son so as to take on the dual character of both a tuition payment and a charitable_contribution additionally even if we assume that the dollar_figure was a qualified tuition expense it is not deductible by petitioners because petitioners did not claim a dependency_exemption for their son on their return for the tax_year see sec_222 sec_25a therefore petitioners are not entitled to a charitable_contribution_deduction for their son’s tuition petitioners have failed to substantiate the remaining dollar_figure however they have adequately substantiated charitable_contributions to jasper missionary baptist church in the amount of dollar_figure accordingly petitioners are entitled to a deduction of dollar_figure for cash charitable_contributions b noncash--dollar_figure at trial petitioners offered a handwritten list of numerous items donated to charitable organizations such as purple heart and sand dollar this list fails to provide the dollar amount assigned to the various donated items ms reece testified that the amount deducted on their income_tax return was a mere estimate further petitioners did not provide any type of receipt given to them by the charitable organizations to evidence their contributions accordingly because petitioners have failed to adequately substantiate their contributions respondent’s determination is sustained and no deduction shall be allowed b business_expense deductions at issue--dollar_figure the table below shows the business_expense deductions on schedule c that remain in dispute business_expense deduction amount per tax_return advertising legal professional office expense repairs maintenance supplies taxes and licenses travel meals and entertainment other expenses- promotion other expenses-mls dollar_figure big_number big_number big_number big_number big_number amount per stipulation dollar_figure dollar_figure -0- -0- -0- dollar_figure -0- -0- -0- amount in dispute dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure advertising legal and professional and taxes and licenses--dollar_figure the parties stipulated that petitioners substantiated advertising legal and professional and tax and license expenses of dollar_figure dollar_figure and dollar_figure respectively petitioners failed to provide any documentation that would substantiate any amount in excess of the amounts stipulated on the basis of the record the court is unable to make a reasoned estimate accordingly petitioners are not entitled to deductions in excess of the amounts stipulated travel--dollar_figure ms reece produced documentation at trial showing that she traveled from houston to oakland on date and from oakland back to houston on date at a total cost of dollar_figure she further testified that she traveled to san francisco to meet with a client at the client’s request about selling a property located in houston and that she met with the client every day for approximately or hours ms reece was engaged by the customer to list the property for sale but never did sell it during her weekend trip to san francisco ms reece stayed with her niece we find it implausible that ms reece spent such a prolonged period of time discussing the sale of a single piece of property and believe that the trip was made primarily for personal reasons see sec_1_162-2 income_tax regs therefore respondent’s determination is sustained office expense repairs and maintenance supplies meals and entertainment other expenses-promotion and other expenses-mls--dollar_figure petitioners have failed to provide any documentation that would substantiate these expenses or enable the court to make a reasoned estimate accordingly respondent’s determination is sustained as to these expense deductions ii accuracy-related_penalty taxpayers may be liable for a 20-percent penalty on the portion of an underpayment_of_tax attributable to negligence disregard of rules or regulations or a substantial_understatement_of_income_tax sec_6662 and b and negligence is a failure to make a reasonable attempt to comply with the provisions of the code the taxpayer is required to prove he acted with due care sec_6662 857_f2d_1383 9th cir affg dister v commissioner tcmemo_1987_217 sec_1_6662-3 income_tax regs the term negligence in sec_6662 includes any failure to make a reasonable attempt to comply with the code sec_6662 negligence has also been defined as the failure to exercise due care or the failure to do what a reasonable person would do under the circumstances see 92_tc_1 affd 925_f2d_348 9th cir 85_tc_934 the term disregard includes any careless reckless or intentional disregard sec_6662 failure to keep adequate_records may be evidence not only of negligence but also of intentional disregard of regulations see sec_1_6662-3 and income_tax regs see also benson v commissioner tcmemo_2007_113 negligence penalties do not apply where the taxpayer shows that he had reasonable_cause and acted in good_faith sec_6664 the determination depends on the facts and circumstances of each case and includes the knowledge and experience of the taxpayer and the reliance on the advice of a professional such as an accountant sec_1_6664-4 income_tax regs most important in this determination is the extent of the taxpayer’s effort to determine the proper tax_liability id respondent has the burden of production under sec_7491 with respect to the accuracy-related_penalty under sec_6662 to satisfy that burden respondent must produce sufficient evidence showing that it is appropriate to impose the penalty 116_tc_438 respondent has met his burden of production by establishing that petitioners maintained their books_and_records in a negligent manner petitioners have failed to demonstrate reasonable_cause for inadequate recordkeeping and their inability to substantiate a good number of their deductions petitioners claim that they were unable to obtain many of their tax records because of shortness of time and because of mr reece’s date hip surgery however we note that on date petitioners were served with a notice setting the case for trial at the houston trial session beginning date we believe that petitioners had ample time to obtain such records these reasons are not sufficient to establish reasonable_cause for inadequate recordkeeping we sustain respondent on the accuracy-related_penalty to reflect our disposition of the issues decision will be entered under rule


t c memo united_states tax_court dennis m powers petitioner v commissioner of internal revenue respondent docket no 11465-13l filed date dennis m powers pro_se alexandra e nicholaides for respondent memorandum opinion lauber judge in this collection_due_process cdp case petitioner seeks review pursuant to sec_6320 and sec_6330 of a determination by all statutory references are to the internal_revenue_code in effect at all relevant times and all rule references are to the tax_court rules_of_practice and procedure all dollar amounts are rounded to the nearest dollar the internal_revenue_service irs or respondent to uphold a notice_of_federal_tax_lien nftl filing and a notice_of_intent_to_levy respondent has moved for summary_judgment under rule contending that there are no disputed issues of material fact and that his determination to sustain the proposed collection actions was proper as a matter of law we agree and accordingly will grant the motion background the following facts are based on the parties’ pleadings and attached exhi- bits see rule b petitioner resided in michigan when he filed his petition petitioner did not file a federal_income_tax return for or the irs prepared for each year a substitute for return sfr that met the requirements of sec_6020 on the basis of third-party information reports the irs deter- mined that petitioner had received self-employment_income of dollar_figure and dollar_figure during and respectively for each year the irs allowed him the standard_deduction one personal_exemption and a deduction for one-half of the applicable self-employment_tax respondent prepared notices of deficiency based on the sfrs determining tax deficiencies and penalties for and the irs sent these notices to petitioner by certified mail on december and date respectively both notices were sent to the address appearing on petitioner’ sec_2010 tax_return which was petitioner’s last_known_address as shown in irs records respondent attached to his motion copies of u s postal service substitute forms show- ing that articles with tracking numbers matching those on the notices of deficiency were mailed to petitioner at this address in his petition petitioner admits that he received the notices of deficiency he did not petition this court for redetermina- tion of the deficiency for either year respondent assessed the tax and penalties for and in an effort to collect these assessed liabilities respondent delivered to petitioner on date a notice_of_intent_to_levy and notice of your right to a hearing two weeks later respondent sent petitioner a letter notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 on date petitioner timely submitted a form request for a collection_due_process or equivalent_hearing he did not explicitly request either an installment_agreement or an offer-in-compromise but he checked the box marked i cannot pay balance petitioner represented on this form that after re- ceiving the notices of deficiency he had filed tax returns for and reporting taxable_income lower than the amounts shown in those notices on date an irs settlement officer so sent petitioner a letter acknowledging receipt of the form and scheduling a telephone cdp hear- ing for date in this letter the so asked petitioner to provide a form 433-a collection information statement for wage earners and self-employed individuals along with supporting documents enabling her to verify income expenses assets and liabilities the letter also requested that petitioner provide signed copies of tax returns for and on march petitioner asked that the cdp hearing be postponed to march and the so granted this request on march petitioner telephoned the so and requested a second postponement to march the so also granted this re- quest during that call the so reminded petitioner that she had not received any of the documentation requested in her february letter petitioner indicated that he would provide all of the requested documentation before march the irs has no record of receiving these returns petitioner alleges that he spoke with someone at an irs service_center who told him that his returns had probably been received and were in processing whether petitioner actually filed delinquent returns for is not a material issue of fact for purposes of this cdp proceeding the relevant fact is that petitioner neglected to submit copies of these returns to the so despite her repeated requests see infra pp on march petitioner and the so participated in the telephone cdp hear- ing the so informed petitioner that she had not received any of the documents requested in her february letter he replied that he had placed in the mail that morning signed tax returns for together with a form 433-a and supporting financial information petitioner told the so that he wished to make arrangements to pay the re- duced tax_liabilities shown on the returns that he had allegedly mailed to her he indicated that his only income at the time consisted of social_security_benefits but that he was in the process of seeking reemployment with his former employer he stated his desire to defer discussion of collection alternatives until he had con- firmed his employment situation the parties agreed that petitioner would call the so on date pincite p m to continue discussion of collection alternatives the so did not receive the tax returns or the form 433-a that petitioner said he had mailed on march in his response to the summary_judgment mo- tion petitioner states his assumption that these documents were lost in the mail he does not claim that he sent these documents via certified or registered mail and he has supplied no affidavit or exhibit that would support such a claim petitioner did not call in for the scheduled telephone conference on april and he did not contact the so in an effort to reschedule this conference the so thereupon determined that the case should be closed because petitioner had not requested a specific collection alternative and had supplied no financial information the so reviewed the administrative file verified that the tax for and had been properly assessed and determined that all other requirements of applicable law and administrative procedure had been met on date the irs issued petitioner a notice_of_determination con- cerning collection actions s under sec_6320 and or sustaining the nftl filing and proposed levy action petitioner timely petitioned this court for review his petition appears to seek review of his underlying tax_liabilities for and asserting that t he amounts due for and are less than those shown in the irs notices of deficiency his petition also alleges that his sole source_of_income is social_security and a levy of that would constitute a severe hardship for him respondent moved for summary_judgment and peti- tioner filed a timely response to that motion discussion the purpose of summary_judgment is to expedite litigation and avoid un- necessary and time-consuming trials fla peach corp v commissioner 90_tc_678 the court may grant summary_judgment when there is no genu- ine dispute as to any material fact and a decision may be rendered as a matter of law rule b 98_tc_518 aff’d 17_f3d_965 7th cir in deciding whether to grant summary_judgment we construe factual materials and inferences drawn from them in the light most favorable to the nonmoving party sundstrand corp t c pincite where the moving party properly makes and supports a motion for summary_judgment an adverse_party may not rest upon the mere allegations or denials of such party’s pleading but must set forth specific facts showing that there is a genuine dispute for trial rule d we conclude that this case is appropriate for summary adjudication a standard of review where the amount of a taxpayer’s underlying tax_liability is properly at is- sue in a cdp case we review the irs’ determination de novo 114_tc_176 sec_6330 permits a taxpayer to challenge the existence or amount of his underlying liability only if he did not receive a notice_of_deficiency or otherwise have a prior opportunity to contest that liability where the taxpayer does not or cannot dispute his underlying tax liabi- lities we review the irs’ determinations regarding nonliability issues for abuse_of_discretion 131_tc_197 goza t c pincite abuse_of_discretion exists when a determination is arbitrary capricious or without sound basis in fact or law see 125_tc_301 aff’d 469_f3d_27 1st cir the notices of deficiency for and were mailed to petitioner’s last_known_address and he concedes that he received these notices he did not peti- tion this court within the time set by statute for redetermination of these deficien- cies see sec_6213 because petitioner had but did not take advantage of a prior opportunity to contest his underlying tax_liabilities for both years he was not entitled to challenge those liabilities in the cdp hearing see sec_6330 we accordingly review the so’s actions for abuse_of_discretion only b analysis in deciding whether the so abused her discretion in sustaining the collec- tion action we consider whether she properly verified that the requirements of any applicable law or administrative procedure have been met considered any by inviting petitioner to submit copies of tax returns for the so appeared willing to consider his underlying tax_liabilities as part of a discussion of collection alternatives where an appeals officer exercises her discretion to ad- dress an issue that the taxpayer is not entitled to raise during the cdp process any decision made with respect to that issue is not part of the notice_of_determination and hence is not reviewable by this court see ding v commissioner tcmemo_2015_20 at sec_301_6320-1 q a-e11 proced admin regs as it was petitioner submitted no evidence to the so concerning his underlying tax_liabilities that issue was not properly presented to her and is not before us relevant issues petitioner raised and determined whether any proposed collection action balances the need for the efficient collection_of_taxes with the legitimate concern of petitioner that any collection action be no more intrusive than necessary see sec_6330 it is clear from our review of the record that the so examined petitioner’s account transcripts and verified that the requirements of applicable law and ad- ministrative procedure were followed the so properly balanced the need for efficient collection_of_taxes with petitioner’s legitimate concern that collection action be no more intrusive than necessary the only question is whether the so properly considered any issues petitioner raised concerning his entitlement to a collection alternative although petitioner told the so that the levy would place a financial hard- ship on him he did not formally request any specific collection alternative the so postponed the cdp hearing twice in order to accommodate petitioner and to allow him additional time in which to submit the information necessary for her to consider a collection alternative following the cdp hearing she gave petitioner another two weeks to supply this information but he failed to do so he failed to call in for the telephone conference scheduled for april and made no effort to contact the so to request that it be rescheduled an appeals officer does not abuse her discretion when she does not take into account information that she requested and that was not provided in a reasonable_time murphy t c pincite petitioner asserts that he mailed the requested information to the so on march and speculates that it was lost in the mail he does not claim that he sent these documents via certified or registered mail and he has supplied no affi- davit or exhibit that would support such a claim the taxpayer generally bears the risk of nondelivery when a tax_return or other document which was not sent by registered or certified mail is lost by the u s postal service see 90_tc_947 petitioner’s unsupported allegation that he mailed this information is insufficient to create a genuine dispute of material fact see rule d the so made repeated requests for petitioner’s tax returns and financial information and waited a sufficient period to review these documents before closing the file no statutory or regulatory provision requires that taxpayers be afforded an unlimited opportunity to supplement the administrative record roman v commissioner tcmemo_2004_20 87_tcm_835 especially is that so where as here the record is replete with explicit deadlines that respondent generously extended for petitioner’s benefit ibid we find that the so did not abuse her discretion by declining to offer petitioner a collection alternative when he did not put any specific proposal on the table did not submit the necessary financial information and did not call in for or seek to reschedule the telephone conference during which collection alternatives were supposed to be discussed see morlino v commissioner tcmemo_2005_203 90_tcm_168 to reflect the foregoing an appropriate order and decision will be entered


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division date’ aug -2 contact person uniform issue list number identification_number telephone number vla g4 a h s dear this is in reply to your request for a set-aside s to meet contingent liabilities and a court order as allowable under sec_53 a -3 b of the foundation and similar excise_taxes regulations whereas such a set-aside for your preceding tax_year ended june this set-aside request is for your tax_year ending june was approved in plr h having ceased being a hospital is a private_foundation under sec_509 of the code and thus is subject_to sec_4942 of the code requiring in general a minimum annual distribution for exempt purposes however h continues to remain subject_to significant contingent liabilities that arose prior to also h is subject_to an plus one rule under a the asset sale ending its function as a hospital state law whereby all infants born at the then h hospital facility prior its end have until the age of plus one year to file any medical malpractice claim against h significantly h remains under a state court order providing that while pending claims and potential claims exist none of h’s assets may be expended except for h’s own ordinary and necessary operating_expenses or in accord with that court's orders sec_4942 of the code imposes tax on any private_foundation that fails to distribute the required annual distribution for exempt purposes in general the distributable_amount is distribution is equal to five percent of any noncharitable investment_assets of the private_foundation absent a set-aside approved by the service for each tax_year the qualifying_distribution for exempt purposes must be made before the first day of the second tax_year following the tax_year concerned sec_53_4942_a_-3 of the foundation and similar excise_taxes regulations provides that if a private_foundation is involved in litigation and may not distribute assets or income because of a court order the private_foundation may except as provided in sec_53_4942_a_-2 or ii seek and obtain a set-aside for the purpose described in sec_53_4942_a_-3 the amount to be set-aside shall be equal to that portion of the private foundation's distributable_amount which is attributable to the assets or income that are held pursuant to court order and which but for the court order precluding the distribution of such assets or income would have been distributed in the event that the litigation encompasses more than one tax_year the private_foundation may seek additional contingent set-asides such amounts must actually be distributed by the last day of the tax_year following the tax_year in which the litigation is terminated amounts not distributed by the close of the appropriate tax_year shall be treated as described in sec_53_4942_a_-2 for the succeeding tax_year h’s assets cannot be used to meet sec_4942 of the code except to the extent provided by the court order reserving such assets for h’s possible contingent liabilities such a court order is the type of situation allowing a set-aside under sec_53_4942_a_-3 of the regulations accordingly we rule that h can make a contingent set-aside for its tax_year ending june the amount to be set_aside will be equal to the entire portion of h's current_year distributable_amount because no portion of h's assets aside from its own operating_expenses may be distributed while the court order is pending based on h's estimate the set-aside amount of five percent will be approximately s amount but the exact amount of the set-aside can be determined upon h's final accounting for its tax_year we direct your attention to sec_53_4942_a_-3 of the regulations entitled evidence of set-aside that section provides that a set-aside approved by the internal_revenue_service shall be evidenced by the entry of a dollar amount on the books_and_records of the private_foundation as a pledge or obligation to be paid at a future date or dates 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 sincerely s joseph chasin manager exempt_organizations technical group


internal_revenue_service number release date index nos cc dom it a plr-118109-99 attention date ein dear this is in reference to a form_1128 application to adopt change or retain a tax_year submitted on behalf of the above- named taxpayer requesting permission to change its accounting_period for federal_income_tax purposes from a taxable_year ending to a taxable_year ending effective the taxpayer has requested that the form_1128 be considered timely filed under the authority contained in sec_301_9100-3 of the procedure and administration regulations the taxpayer's form_1128 requesting a change in accounting_period to a tax_year ending was due on or before the information furnished indicates that the application_for the change in accounting_period was filed late but was filed within days of the due_date sec_1_442-1 of the income_tax regulations provides that in order to secure the commissioner's consent to a change in accounting_period the taxpayer must file an application on form_1128 with the commissioner on or before the 15th day of the second calendar month following the close of the short_period sec_301_9100-3 provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions such as the instant case must be made under the rules of sec_301_9100-3 requests for relief subject_to 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 the granting of relief will not prejudice the interests of the government based on the facts and information submitted and the representations made it is held that the taxpayer has acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government accordingly the requirements of the regulations for the granting of relief have been satisfied in this case and taxpayer’s late filed form_1128 requesting permission to change to a tax_year ending effective for the short_period of is considered timely filed pursuant to appendix a of revproc_99_1 1999_1_irb_6 an additional user_fee is required in order to process the form_1128 the user_fee will be requested in a separate correspondence we will begin processing the taxpayer’s application after the user_fee is received the ruling contained in this letter is based upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as part of an examination process this ruling addresses the granting of sec_301_9100-3 relief only no opinion is expressed regarding the tax treatment of the instant transaction under the provisions of any other sections of the code or regulations that may be applicable thereto or regarding the tax treatment of any conditions existing at the time of or effects resulting from the instant transaction specifically no opinion is expressed as to whether the taxpayer is permitted under the code and applicable regulations to change to the tax_year requested in the subject form_1128 in accordance with the provisions of a power_of_attorney currently on file we are sending a copy of this ruling letter to the taxpayer's authorized representative this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent sincerely yours assistant chief_counsel income_tax and accounting by james atkinson acting deputy assistant chief_counsel enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court shirley j raney petitioner v commissioner of internal revenue respondent docket no filed date shirley j raney pro_se j scot simpson for respondent memorandum findings_of_fact and opinion ruwe judge respondent determined deficiencies in petitioner’s federal income taxes and additions to tax as follows additions to tax_year deficiency sec_6651 sec_6654 a dollar_figure dollar_figure dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number the issues for decision are whether petitioner received taxable wage and pension income during each of the years in issue whether petitioner is liable for additions to tax under sec_6651' for fraudulent_failure_to_file income_tax returns for the years in issue and whether petitioner is liable for the additions to tax under sec_6654 for failure to pay estimated_tax for the years in issue when this case was called for trial respondent moved pursuant to rule f to compel petitioner to enter into a proposed stipulation of facts after hearing the parties on the motion we determined that there was no real dispute about the facts proposed for stipulation and that there was no good reason why the facts and exhibits attached to the stipulation should not be made part of the evidentiary record we therefore granted respondent’s motion and deemed the matters contained in the proposed stipulation to be facts for purposes of this case see rule f after we granted the motion the parties decided ‘unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure - - that they would not call any witnesses and the case was submitted on the stipulated facts findings_of_fact petitioner resided in tampa florida at the time she filed her petition petitioner was married and had no dependent_children during the years in issue during petitioner was employed by wal-mart and fireman’s fund and received wage income from those employers in the amounts of dollar_figure and dollar_figure respectively during petitioner was employed by fireman’s fund and received wage income of dollar_figure during petitioner was employed by fireman’s fund montgomery ward data input services and physicians healthcare and received wage income from those employers in the amounts of dollar_figure dollar_figure dollar_figure and dollar_figure respectively during petitioner was employed by physicians healthcare and burns wilcox and received wage income from those employers in the amounts of dollar_figure and dollar_figure respectively during petitioner was employed by burns wilcox and the u s postal service and received wage income from those employers in the amounts of dollar_figure and dollar_figure respectively petitioner received forms w-2 wage and tax statement reflecting these wages in petitioner received dollar_figure from fireman’s fund esop in petitioner received dollar_figure in pension income from - the bank of new york in petitioner received dollar_figure from the fireman’s fund retirement_plan petitioner provided the fireman’s fund with form_w-4 employee’s withholding allowance certificate dated date on which she claimed withholding_allowances petitioner provided montgomery ward with form_w-4 dated date on which she claimed eight withholding_allowances petitioner provided data input services with form_w-4 dated date on which she claimed eight withholding_allowances petitioner provided physicians healthcare with form_w-4 dated date on which she claimed eight withholding_allowances petitioner provided burns wilcox with form_w-4 dated date on which she claimed eight withholding_allowances petitioner’s employers withheld federal income taxes from her wages in the amounts of dollar_figure dollar_figure dollar_figure dollar_figure and dollar_figure for the years and respectively petitioner made no estimated_tax payments for the years in issue petitioner sent form sec_1040 u s individual_income_tax_return to respondent for the years in issue the form sec_1040 were received by the internal_revenue_service on date on those form sec_1040 petitioner reported no income respondent did not accept the above-referenced form sec_1040 as tax - - returns petitioner has not filed any other income_tax returns for the years in issue in correspondence with respondent petitioner indicated that she did not believe that the tax laws required her to pay tax on the income that she received petitioner continues to take that position in her brief opinion petitioner received wage income from various employers during the years and in the respective amounts of dollar_figure dollar_figure dollar_figure dollar_figure and dollar_figure petitioner also received pension income during and in the respective amounts of dollar_figure dollar_figure and dollar_figure petitioner generally argues that no act of congress authorizes taxation of these amounts we disagree all these amounts constitute gross_income under sec_61 petitioner’s arguments to the contrary are wholly without merit and not worthy of further analysis we hold that petitioner has deficiencies in income taxes in the amounts determined in the notice_of_deficiency respondent also determined that petitioner is liable for additions to tax pursuant to sec_6651 for fraudulent in computing the amount of the deficiencies respondent determined that petitioner was liable for an increase in tax of percent on the pension distributions pursuant to sec_72 petitioner has not disputed this and offered no evidence on this point - - failure_to_file returns for each of the years in issue the existence of fraud is a question of fact to be resolved upon consideration of the entire record see 67_tc_181 affd without published opinion 578_f2d_1383 8th cir 69_tc_391 fraud is not to be imputed or presumed but rather must be established by independent evidence of fraudulent intent see 55_tc_85 53_tc_96 fraud may not be found under circumstances which at the most create only suspicion 184_f2d_86 10th cir 92_tc_661 a finding of fraud requires proof of specific intent to evade a tax believed to be owing if an understatement_of_tax is caused by a good_faith misunderstanding of the tax laws the understatement would not be due to fraud see 99_tc_202 a good_faith misunderstanding for this purpose can exist even if the misunderstanding is objectively unreasonable see id pincite- we have cautioned however that a good_faith misunderstanding of the law is different from disagreement with the law or a belief that the law is or may be unconstitutional see id pincite - the main thrust of petitioner’s position in this case is that the tax laws do not require her to pay taxes on the income that she received while we believe that petitioner’s position is objectively unreasonable the sparse evidence in the record before us does not clearly and convincingly negate petitioner’s implicit claim that she was acting on her good_faith understanding of the law of course we may question whether petitioner’s purported misunderstanding of the law was the product of good_faith however suspicions no matter how strong are not a substitute for evidence see id pincite respondent bears the burden of proving fraudulent intent by clear_and_convincing evidence see sec_7454 rule b respondent has not done so we therefore hold that petitioner is not liable for the additions to tax under sec_6651 ’ petitioner bears the burden_of_proof regarding the sec_6654 additions to tax for failure to pay estimated_tax petitioner offered no evidence regarding the sec_6654 a the record before us contains no evidence of petitioner’s business experience educational background prior history of filing income_tax returns or dealings with the internal_revenue_service prior to in respondent’s brief he requests that we on our own motion impose an additional penalty under sec_6673 given the fact that petitioner has prevailed on the sec_6651 issue we decline respondent’s invitation --- - additions to tax nor did she address this issue in her brief we therefore uphold respondent’s determination on this issue decision will be entered for respondent with respect to the deficiencies and the additions to tax under sec_6654 and for petitioner with respect to the additions to tax under sec_6651


t c summary opinion united_states tax_court anthony v and sandy k margavio petitioners v commissioner of internal revenue respondent docket no 1835-01s filed date anthony v margavio pro_se linda a neal for respondent pajak special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed unless otherwise indicated section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority respondent determined a deficiency of dollar_figure in petitioners’ federal_income_tax this court must decide whether petitioners failed to include part of their pension annuity in their taxable_income some of the facts in this case have been stipulated and are so found petitioners resided in metairie louisiana at the time the petition was filed mr margavio petitioner retired in date at the age of prior to his retirement petitioner’s retirement contributions totaled dollar_figure all amounts are rounded petitioners timely filed a federal_income_tax return on the return petitioners reported dollar_figure on line 16a total pensions and annuities and dollar_figure on line 16b taxable_amount for the taxable_year the teachers’ retirement_system of louisiana issued to petitioner a form 1099-r form 1099-r distributions from pensions annuities retirement or profit- sharing plans iras insurance contracts etc which reported a gross distribution to petitioner of dollar_figure and a taxable_amount of dollar_figure in the notice_of_deficiency respondent determined that petitioner had failed to include dollar_figure dollar_figure taxable_amount less the dollar_figure reported by petitioners of taxable pension annuity income on their return we consider the dollar_figure discrepancy between the amount of dollar_figure shown on the form 1099-r and the amount of dollar_figure shown on the notice_of_deficiency to be de_minimis petitioner contends that the restrictions of sec_72 did not apply to him he asserts that he wanted to test the envelope petitioner said he’s heard of people trying it and some getting away with it he also contends he is entitled based on his retirement contributions to a greater tax-free portion of the pension annuity distribution in general the determinations of the commissioner in a notice_of_deficiency are presumed correct and the burden is on the taxpayer to show that the determinations are incorrect rule a 290_us_111 petitioner does not argue the applicability of sec_7491 and the record reflects that sec_7491 does not apply gross_income generally includes income from whatever source derived including income from pensions and annuities sec_61 sec_72 sec_72 provides in general that amounts received under an annuity_contract are includable in gross_income except to the extent that such amounts are considered to be a return of consideration paid specifically sec_72 provides that unless otherwise provided gross_income includes any amount_received_as_an_annuity sec_72 however provides that a portion of the annuity will be excluded from gross_income in particular gross_income does not include that part of any amount_received_as_an_annuity which bears the same ratio to such amount as the investment_in_the_contract as of the annuity_starting_date bears to the expected_return under the contract as of such date sec_72 this ratio is referred to as the exclusion_ratio sec_72 sec_72 as relevant here defines the investment_in_the_contract to be the aggregate amount of premiums or other consideration paid for the contract the expected_return referred to above is determined by multiplying at the commencement of the annuity the total of the annuity payments_to_be_received annually by a multiple based on the annuitant’s age and sex sec_1_72-5 income_tax regs the application of the exclusion_ratio to each annuity_payment determines the amount excluded from the gross_income of the annuitant and thus the amount is not subject_to federal_income_tax this excluded amount represents that part of the annuity_payment which accounts for the return of the annuitant’s investment in the annuity the exclusion_ratio operates to exclude from gross_income taxpayer contributions over the entire period of the annuity kirkland v commissioner tcmemo_1994_220 the tax-free portion of the pension annuity_payment is computed using either the simplified_method or the general_rule see generally internal_revenue_service publication pension and annuity income and internal_revenue_service publication general_rule for pensions and annuities at trial petitioner testified that he didn’t think the restrictions of section in terms of how to claim that tax exempt portion actually applied petitioner provided no internal_revenue_code section or regulation or case law to support his contention that the exclusion_ratio provided for in sec_72 should not apply to him petitioner did not convince the court that he was entitled to a greater tax-free portion of the pension annuity distribution than provided by the form 1099-r or determined by respondent accordingly we sustain respondent’s determination with respect to this issue petitioner also argues that his position for is correct because he treated his pension distributions the same way in and respondent did not challenge petitioner’s position during an audit of we must hold that his position is without legal merit it is well established that prior administrative determinations involving the same or related_taxpayer do not preclude the internal_revenue_service from making a contrary determination for a different year 60_tc_368 55_tc_28 43_tc_824 petitioner is wrong on this point and as we have held is wrong as to the law applicable to the taxability of his pension payments we have considered petitioner’s remaining arguments and conclude they are either irrelevant or without merit reviewed and adopted as the report of the small_tax_case division decision will be entered for respondent


internal_revenue_service washington d c department of the treasury tax_exempt_and_government_entities_division reiease number release date date date legend b president q date t state dear applicant contact person identification_number contact number fax number employer_identification_number uil we have considered your application_for recognition of exemption from federal_income_tax under internal_revenue_code sec_501 based on the information provided we have concluded that you do not qualify for exemption under code sec_501 the basis for our conclusion is set forth below issues do you qualify for exemption under sec_501 of the code no for the reasons described below facts you were incorporated on date q in the state of t article of your articles of incorporation states you are organized for the provision of mediation services quality management consulting hospital accreditation preparation services miscellaneous uplifting services for the elderly veterans of military service and research_and_development services your amended articles of incorporation state you are organized exclusively for charitable religious educational and scientific purposes letter cg catalog number 47628k your narrative description of activities states you will provide mediation services quality management consulting hospital accreditation preparatory services and miscellaneous uplifting services for the elderly and veterans of military services further you will provide internal auditing services your consulting services target proactive risk management for patients health care facilities and health care providers you work to improve the safety of patients through patient safety initiatives as mandated under the patient safety and quality improvement act of you explain that the patient safety act applies to both non-profit and for-profit organizations you will provide consulting services to individuals and organizations regardiess of their tax-exempt status you will not refuse to assist any organization that strives to improve its quality of patient care you will offer free introductory consultations to potential clients you will operate throughout the continental_united_states and globally you state that the bulk of services provided will be delivered by your president you claim that all management and consulting services provided under the auspices of the patient safety act are tax exempt qualified_services because they are the propagation of a government program you indicate you provide services to any organization that strives to improve its quality of patient care you will participate in research activities to facilitate economic development of small veteran owned businesses in need activities may include clinical studies academic reviews contributing to ongoing studies or providing general business consulting services you claim this lessens the burden of government you will conduct fundraising through solicitation of vehicles boats planes or similar donations foundation grant solicitations and government grant solicitation you are currently receiving your funding from b your president who is your only officer you will charge fees for services you price services with market circumstances in mind and strive to remain competitive by the quality of service provided and not by underpricing or undercutting competitors your fee structure depends on the nature of the project and the level of expertise required you charge approximately dollar_figure per hour for consulting services consulting services are billed at the remuneration rate of the consultant providing the services auditing fees are determined based on the core competencies required and the auditor’s salary determined using a salary survey your expenses include contributions compensation_for your president occupancy depreciation and other program service expenses b will receive compensation over dollar_figure per year over dollar_figure per hour for services rendered you explain b operated in prior years with yearly compensation in arrears as a collectable debt performance bonuses not to exceed approximately dollar_figure per annum you may make interest free educational career improvement or other technical loans to officers directors or employees further you will award revenue based payments when an employee participates in auditing streamlining or process improvement activities where the client agrees to pay a percentage of money saved the employee will receive approximately of the proceeds if the employee is the originator of the account revenue based payments will not exceed the amounts statutorily allowed by law in addition to salary payments you will provide letter cg catalog number 47628k law sec_501 of the code provides in part for the exemption from federal_income_tax of corporations organized and operated exclusively for charitable scientific or educational_purposes provided no part of the organization's net_earnings inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 of the income_tax regulations states that in order to be exempt as an organization described in sec_501 of the code an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt sec_1_501_c_3_-1 of the regulations provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities that accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_1_501_c_3_-1 of the regulations provides that in order to be exempt under sec_501 of the code an organization must be both organized and operated exclusively for exempt purposes unless it serves a public rather than a private interest to meet this requirement it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests sec_1_501_c_3_-1 of the regulations provides that the term ‘charitable’ is used in sec_501 of the code in its generally accepted legal sense such term includes relief of the distressed in revrul_69_266 1969_1_cb_151 an organization was formed and controlled by a medical doctor the doctor transferred assets including his medical practice his home and his automobile to the organization in return the organization hired the doctor and charged prevailing fees for services rendered the service held that the operation of the medical practice did not differ significantly from the private practice of medicine for profit the organization was operated by its creator as an attempt to reduce his personal federal_income_tax liability thus the organization’s primary function was to serve the private interests of its creator rather than a public interest in essence revrul_71_529 1971_2_cb_234 found that a nonprofit organization that provides assistance in the management of participating colleges’ and universities’ endowment or investment funds for a charge substantially below cost qualifies for exemption under sec_501 of the code membership in the organization is restricted to colleges and universities exempt under sec_501 of the code and its board_of directors was composed of representatives of the member organizations letter cg catalog number 47628k revrul_72_369 1972_2_cb_245 found that an organization formed to provide managerial and consulting services at cost to unrelated exempt_organizations does not qualify for exemption under sec_501 of the code revrul_74_587 1974_2_cb_162 found that a nonprofit organization formed to relieve poverty eliminate prejudice reduce neighborhood tensions and combat community deterioration through a program of financial assistance in the form of low cost or long-term loans to or the purchase of equity interests in various business enterprises in economically depressed areas is exempt under sec_501 of the code revrul_76_419 1976_2_cb_146 found that a nonprofit organization that purchases blighted land in an economically depressed community converts the land into an industrial park and encourages industrial enterprises to locate new facilities in the park in order to provide employment opportunities for low income residents of the area is operated exclusively for charitable purposes and qualifies for exemption under sec_501 of the code an organization is not operated exclusively for charitable purposes and thus will not qualify for exemption under sec_501 if it has a single non-charitable purpose that is substantial in nature this is true regardless of the number or importance of the organization's charitable purposes see 326_us_279 which held activities that were in part aimed at promoting the prosperity and standing of the business community were held to serve a substantial non-exempt purpose 70_tc_352 describes an organization whose sole activity was to provide consulting services for a fee to nonprofit_organizations it provided qualified persons to perform research projects for its clients the fees charged by the organization were set at or close to cost but were not less than the organization’s full cost of providing its service the organization was denied exemption because it operated in a commercial nonexempt manner the provision of managerial and consulting services on a regular basis for a fee is a trade_or_business ordinarily carried on for profit the court held that the organization was not operated exclusively for charitable educational or scientific purposes within the meaning of sec_501 of the code in 283_fsupp2d_58 d d c the district_court relied on the commerciality doctrine in applying the operational_test the operational_test requires both that an organization engage primarily in activities that accomplish its exempt_purpose and that not more than an insubstantial part of its activities further a non-exempt purpose because of the commercial manner in which the organization conducted its activities the court found that it was operated for a non-exempt commercial purpose rather than for a tax- exempt_purpose the court stated among the major factors courts have considered in assessing commerciality are competition with for profit commercial entities extent and degree of below cost services provided pricing policies and reasonableness of financial reserves additional factors include whether the organization uses commercial promotional methods eg advertising and the extent to which the organization receives charitable donations catalog number 47628k letter cg - cir the appeals court upheld the tax_court decision that asmark in asmark institute inc v commissioner of internal revenue tcmemo_2011_20 aff'd 486_fedappx_566 institute is not entitled to exempt status under sec_501 of the code because the institute’s operations were commercial rather than charitable its activities consist mainly of compliance services for a fee the court also found that appellant’s free services are relatively small in relation to all of its services and are in fact tied in some manner to fee-based membership the court also found that the appellant’s largely fee-based business plan and its competition within a for-profit market were also strong evidence of the predominance of their nonexempt commercial purposes the tax_court concluded it was apparent from the record that appellant’s consulting services are mainly associated with the fees appellant receives through its various retainer agreements membership agreements and service packages the sale of services including consulting services is commonly considered to be a non-exempt commercial purpose in harding hospital inc v united_states f cir the court held that an organization seeking a ruling as to recognition of its exempt status has the burden of proving that it satisfies the requirements of the particular exemption statute application of law you are not described in sec_501 of the code and sec_1_501_c_3_-1 of the regulations you fail the operational_test for exemption under c because you are operated in a commercial manner a substantial part of your activities are commercial you provide internal auditing services quality management consulting hospital accreditation preparatory services and consultation services to veterans and the elderly for a fee fees charged are at market rates these services are provided to individuals and organizations regardless of their tax-exempt status you are in competition with other individuals and organizations who provide similar services on a for-profit basis these facts demonstrate a commercial and substantially non-exempt purpose inconsistent with sec_501 of the code and sec_1_501_c_3_-1 of the regulations you also operate for the private interest of b and potential employees who are eligible for revenue based payments and performance bonuses therefore you are not organized or operated exclusively as described in sec_1_501_c_3_-1 of the regulations your services are not designed for the relief of the poor and distressed to lessen the burdens of government or the promotion of social welfare your services are not provided exclusively to the poor distressed or underprivileged nor are they directed to an economically depressed community even though some of your services are directed to veterans or the elderly or are provided in response to government programs the manner in which you operate is commercial and you are structured to benefit b therefore your activities are not charitable as described in sec_1_501_c_3_-1 of the regulations your fee-based service activities are similar to those described in revrul_72_369 and in the catalog number 47628k letter cg --6- court cases bsw group inc airlie foundation and asmark institute as in these four situations you operate in a commercial manner you provide management and consulting services to both for-profit and non-profit health care facilities your fees are not substantially below cost as stated above you are operating a trade_or_business similar to and in competition with commercial operations providing similar management and consulting services you are not similar to the organization described in revrul_71_529 because you are not providing services for a fee substantially below cost you are also not similar to the organizations described in revrul_74_587 or revrul_76_419 because you do not operate in an economically depressed area or a distressed area consulting services throughout the united_states and globally you provide services to any organization that strives to improve its quality of patient care you provide management and you are similar to the organizations in better business bureau of washington d c inc and revrul_69_266 because you too have a substantial non-exempt purpose the facts show you operate for a substantial non-exempt commercial purpose and you also operate for the benefit of b as in harding hospital inc v united_states you have the burden of proving that you satisfy the requirements for tax exemption you have failed to provide enough information to prove to us that you are organized and operating in a manner appropriate under sec_501 of the code conclusion based on the above facts and analysis you do not qualify for exemption under sec_501 of the code because you are not operated exclusively for a c purpose the facts show you operate for a substantial non-exempt commercial purpose as well as for the benefit of b accordingly we conclude you do not qualify for exemption under sec_501 you have the right to file a protest if you believe this determination is incorrect to protest you must submit a statement of your views and fully explain your reasoning you must submit the statement signed by one of your officers within days from the date of this letter we will consider your statement and decide if that information affects our determination if your statement does not provide a basis to reconsider our determination we will forward your case to -our appeals_office you can find more information about the role of the appeals_office in publication how to appeal an irs decision on tax-exempt status types of information that should be included in your protest can be found on page of publication under the heading ‘filing a protest be declared true under penalties of perjury following signed declaration this may be done by adding to the protest the the statement of facts bullet must under penalties of perjury declare that have examined the statement of facts presented in this protest and in any accompanying schedules and statements and to the best of my catalog number 47628k letter cg knowledge and belief they are true correct and complete your protest will be considered incomplete without this statement if an organization's representative submits the protest a substitute declaration must be included stating that the representative prepared the protest and accompanying documents and whether the representative knows personally that the statements of facts contained in the protest and accompanying documents are true and correct an attorney certified_public_accountant or an individual enrolled to practice before the internal_revenue_service may represent you during the appeal process to be represented during the appeal process you must file a proper power_of_attorney form_2848 power of attomey and declaration of representative if you have not already done so for more information about representation see publication practice_before_the_irs and power_of_attorney all forms and publications mentioned in this letter can be found at www irs gov forms and publications if you do not intend to protest this determination you do not need to take any further action if we do not hear from you within days we will issue a final adverse determination_letter to you that letter will provide information about filing tax returns and other matters please send your protest statement form_2848 and any supporting documents to the applicable address mail to deliver to internal_revenue_service eo determinations quality assurance room p o box cincinnati oh ' internal_revenue_service eo determinations quality assurance main street room cincinnati oh you may also fax your statement using the fax number shown in the heading of this letter you fax your statement please call the person identified in the heading of this letter to confirm that he or she received your fax if if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely director exempt_organizations enclosure publication letter cg catalog number 47628k


internal_revenue_service number release date index number ---------------------------- ------------------------------ ------------------------------ -------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-104004-09 date date x trusts --------------------------------------------------------------------------------------------------- ----------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- ------------------------------------------ country --------------- date --------------------------- date ------------------------- dear--------------- this responds to a letter dated date and subsequent information submitted on behalf of x requesting that the service grant x an extension of time under sec_301_9100-3 of the procedure and administration regulations for x to file an election to be treated as a partnership the information submitted states x is an entity organized on date under the laws of country with limited_liability for each owner on date five trusts acquired an interest in x x intended to be treated as a partnership for federal tax purposes effective date however x did not timely file a form_8832 entity classification election sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 sec_301_7701-2 provides guidance on the classification of a foreign eligible plr-104004-09 entity for federal tax purposes under sec_301_7701-3 except as provided in sec_301_7701-3 unless it elects otherwise a foreign eligible_entity is classified as an association if all members have limited_liability sec_301_7701-3 provides that for purposes of sec_301_7701-3 a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides that an election under sec_301_7701-3 will be effective on the date specified on form_8832 or on the date filed if no such date is specified on the form the effective date specified on form_8832 cannot be more than days prior to the date the form is filed and cannot be more than months after the date on which the form is filed sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 sets forth the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect to be treated as a partnership for federal tax purposes effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code plr-104004-09 as a condition for this late election relief x and its partners must file all federal_income_tax returns for x and its partners consistent with x having made a timely election to be a partnership effective date this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x's authorized representative sincerely curt g wilson deputy associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes