department of the treasury_department of the treasury internal_revenue_service internal_revenue_service washington d c washington d c number release date date gl-610467-99 uilc memorandum for district_counsel indiana from subject kathryn a zuba chief branch general litigation offers-in-compromise - effect of bankruptcy on processability this memorandum contains our supplemental response to your memorandum dated date you ask that we pre-review your memorandum to acting chief special procedures branch indiana district this document is not to be cited as precedent your memorandum raised issues regarding the processability of offers in compromise oics that have not been accepted or rejected as of the date of the filing of the taxpayer’s bankruptcy petition in our prior response dated date we agreed with your conclusion that such oics can be returned as nonprocessable your memorandum also concluded that while the internal_revenue_service service may consider oics submitted by debtors in bankruptcy as nonprocessable a bankruptcy court may not agree in light of the issues raised in in re 240_br_689 bankr s d w v and in re chapman bankr lexi sec_1091 s d w v date the court in mills and chapman held that the service’s refusal to consider oics from taxpayers in bankruptcy violated a of the bankruptcy code in our prior response we advised that we were in the process of developing our litigating position with regard to the issues raised in mills and chapman and that we would respond to you on these issues in a detailed memorandum after our final position is reached the following is our supplemental response for the reasons that follow we conclude that the service’s policy not to process oics from taxpayers in bankruptcy does not violate the bankruptcy code and that the service may not be compelled by a court to consider oics from taxpayers in bankruptcy does the service 's policy not to process oics from taxpayers in bankruptcy violate the anti-discrimination provision of the bankruptcy code issue conclusion gl-610467-99 no the service's policy not to process oics from taxpayers in bankruptcy does not violate the anti-discrimination provision of the bankruptcy code background the offer_in_compromise handbook provides that when an offer is received it is first reviewed for processability irm oics from taxpayers in bankruptcy or who have not filed required tax returns will be returned as nonprocessable id deviation from the not processable criteria may not be made without written authorization from the national_office irm the instructions to form_656 offer_in_compromise rev jan also explain that taxpayers are not eligible for consideration of an oic on the basis of doubt as to collectibility or effective tax_administration if they have not filed all federal tax returns or are involved in an open bankruptcy proceeding an offer will not be considered until the conclusion or termination of the bankruptcy proceeding irm in chapter cases an offer_in_compromise will normally not be considered until a discharge is granted irm if a chapter discharge has been granted but the case is still pending the service may consider an offer but the amount acceptable for the offer should include the amount the service reasonably expects to recover from the bankruptcy in addition to what can be collected from the taxpayer on non-discharged liabilities or from the estate outside the bankruptcy irm while the service will not consider an offer_in_compromise in a chapter case the manual authorizes the occasional acceptance of a compromising plan in a chapter case when it is in the service’s best interest to do so irm the manual does not authorize the acceptance of a compromising plan in a chapter case where a determination is made to return offer documents because the offer to compromise was nonprocessable the return of the offer does not constitute a rejection of the offer and does not entitle the taxpayer to appeal the matter to appeals pursuant to sec_7122 temp sec_301_7122-1t e the offer_in_compromise handbook further explains the service will not consider an offer_in_compromise submitted by a taxpayer in bankruptcy when a taxpayer files bankruptcy the bankruptcy code provides procedures resolving the service’s claim irm see also irm i the mills and chapman opinions discussion it is our understanding that the service’s policy not to consider oics from taxpayers in bankruptcy does not prohibit compromise of the service’s claim based upon doubt as to liability gl-610467-99 in re 240_br_689 bankr s d w v was a chapter case in which the service had over dollar_figure in tax claims of which over dollar_figure were entitled to priority status these taxes arose from the debtors’ unpaid employment_taxes of a failed convenience style grocery store after a number of plans were rejected the debtors submitted a form_656 oic and filed another plan proposing to pay the service dollar_figure as a lump sum to pay the priority claims in full at confirmation the service objected to the use of an oic as a basis for satisfying its priority tax claim and did not process the oic the debtors then commenced an adversary proceeding in the bankruptcy court alleging that the service violated a of the bankruptcy code by refusing to consider their oic the facts were substantially the same in in re chapman bankr lexi sec_1091 s d w v date the debtors were represented by the same attorney and the case was litigated before the same judge the bankruptcy court’s legal analysis was identical in mills and chapman the court concluded that while the service cannot be compelled to accept oics its failure to even consider them from taxpayers based solely on their bankruptcy status constitutes discrimination prohibited by bankruptcy code a b r pincite section a provides in pertinent part a governmental_unit may not deny a license permit charter franchise or other similar grant to a person that is or has been a debtor under this title solely because such bankrupt or debtor is or has been a debtor under this title emphasis added the court relied on the following portion of the legislative_history of to support its conclusion in addition the section is not exclusive the enumeration of various forms of discrimination against former bankrupts is not intended to permit other forms of discrimination the courts have been developing the perez rule this section permits further development to prohibit actions by governmental or quasi-governmental organizations that perform licensing functions such as a state bar association or a medical society or by other organizations that can seriously affect the debtor’s livelihood or fresh_start such as exclusion from a union on the basis of discharge of a debt to the unions’s credit_union thi sec_2 other portions of this legislative_history show that when congress wrote it codified the result of perez v cambell 402_us_634 which held that a state law providing that a debtor’s drivers license would not be renewed because a tort judgment resulting from an automobile accident remained unpaid even though the debt had been discharged in bankruptcy violated the supremacy clause of the united_states constitution because it frustrated the fresh_start policy of the bankruptcy code gl-610467-99 section is not so broad as a comparable section proposed by the bankruptcy commission which would have extended the prohibition to any discrimination even by private parties nevertheless it is not limiting either as noted the courts will continue to mark the contours of the anti-discriminations provision in pursuit of sound bankruptcy policy h_r rep no pincite reprinted in u s c c a n citations omitted the court concluded that t he statute and legislative_history when read together clearly indicate that congress did not intend to be all-inclusive but instead intended to prohibit bankruptcy-based discrimination that can seriously affect the debtor’s livelihood or fresh_start b r pincite the court agreed with the service’s contention that it could not be compelled to accept an oic because such a decision is within the discretion of the service however the court found that the use of the word shall in sec_7122 indicates that consideration of the oic is not discretionary id pincite citing 465_fsupp_437 d n j the court also recognized that sec_7122 provides for an administrative review of rejected offers the court reasoned that by not considering oics from taxpayers in bankruptcy bankruptcy debtors are denied additional protections available to taxpayers who are not in bankruptcy b r pincite the court rejected the service’s argument that because the bankruptcy code specifically provides that its priority claims will be paid in full its refusal to consider oics in bankruptcy does not affect debtor’s rights in bankruptcy the court countered that if the taxes were compromised a lesser amount would be required to be paid under the chapter plan id pincite ii does the bankruptcy code require that the service consider offers in compromise from taxpayers in bankruptcy the first court_of_appeals case to address the scope of the license permit charter franchise or other similar grant in a was in re 771_f2d_28 2nd cir in goldrich the debtor challenged the state of new york’s refusal to guarantee debtor’s student loans because debtor had obtained bankruptcy discharges of previous student loans the court considered the legislative_history and concluded that does not promise protection against consideration of the prior bankruptcy in post-discharge credit arrangements id pincite the court reasoned a credit guarantee is not a license permit charter or franchise nor is it in any way similar to those grants had congress intended to extend this section to cover loans or other forms of credit it could have included some term that could have supported such an extension we gl-610467-99 are reluctant to probe beyond the plain language of the statute although the exact scope of the items enumerated may be undefined the fact that the list is composed solely of benefits conferred by the state that are unrelated to credit is unambiguous congress’ failure to manifest any intention to include items of a distinctly different character is also unambiguous in the absence of ambiguity no further inquiry is required while congress may have intended to allow expansion of the scope of protection described in section it clearly also intended that such expansion would be limited to situations sufficiently similar to perez to fall within the enumeration the extension of credit is manifestly different from both examples given in the senate report licensing and exclusion from a union the fact that expansion must be permitted within the bounds of the statute’s undefined terms may not be interpreted to require similar amplification outside of those bounds id pincite two courts of appeals cases followed goldrich but with varying results in in re 823_f2d_151 5th cir the court ostensibly adopted the narrow approach articulated in goldrich reasoning that the application of a should be limited to situations analogous to those enumerated in the statute ie licenses charters franchises and other similar grants the court held that participation in a small_business administration program under which minority businesses are given preferential treatment in selection for government contracts constituted a franchise as defined by blacks’ law dictionary thus the court held that the air force’s refusal to renew a sba contract with a debtor because of its chapter status violated a in in re 876_f2d_1090 3rd cir the debtors challenged a provision of a state program that provided loans to homeowners in financial difficulty to prevent imminent mortgage foreclosure under the terms of the program no loan payments would be made at any time the mortgagee was prohibited from instituting foreclosure proceedings against the mortgagor because the automatic_stay prevented such foreclosure loan payments were not provided to bankruptcy debtors during its duration the court held that the loan simply is not a license permit charter franchise or other similar grant per a the court continued i t seems perfectly clear that the items enumerated are in the nature of indicia of authority from a governmental_unit to the authorized person to pursue some endeavor thus a ‘similar grant’ should be given the same meaning f 2d pincite while the narrow interpretation in these cases follows the language of the statute congress was not pleased with the result in goldrich in the bankruptcy reform gl-610467-99 act of congress overruled goldrich through the addition of c section c provides that student loans or grants may not be denied based upon a debtor’s past or present bankruptcy status the language in the legislative_history indicates that the provision was only intended to clarify the anti-discrimination provisions of the bankruptcy code to ensure that applicants for student loans are not denied those benefits due to a prior bankruptcy it further remarked this section overrules goldrich which gave an unduly narrow interpretation to code section like section itself this section is not intended to limit in any way other situations in which discrimination should be prohibited under this section as under section generally a debtor should not be treated differently based solely on the fact that the debtor once owed a student_loan which was not paid because it was discharged the debtor should be treated the same as if the prior student_loan had never existed cong rec h date this legislative_history arguably leaves unclear the scope of though the language quoted above would indicate that the goldrich court’s reasoning was mistaken and that should be interpreted more broadly the very narrow remedy employed by congress indicates otherwise that is had congress truly envisioned a much broader scope of it could have expanded the scope of prohibited acts in a rather than specifically adding c the only court_of_appeals opinion addressing a since the amendments did not mention the legislative_history in re toth 136_f3d_477 6th cir cert den 524_us_954 in toth the debtors challenged the state’s policy of requiring at least three years to lapse after the date of a bankruptcy discharge before processing a loan application under a low income home improvement loan program of the united_states administered by the state the court refused the opportunity to construe a broadly to further the fresh_start policy of the bankruptcy code and instead agreed with the analysis in watts and goldrich f 3d pincite the court further explained the items enumerated in the statute - licenses permits charters and franchises - are benefits conferred by government that are unrelated to the extension of credit they reveal that the target of a is government’s role as a gatekeeper in determining who may pursue this is taken from the section by section description of the bankruptcy reform act of which was inserted into the record in floor statements attributed to the speaker of the house pro tempore and makes up the entirety of the legislative_history of the act gl-610467-99 certain livelihoods it is directed at governmental entities that might be inclined to discriminate against former bankruptcy debtors in a manner that frustrated the fresh_start policy of the bankruptcy code by denying them permission to pursue certain occupations or endeavors the intent of congress incorporated into the plain language of a should not be transformed by employing an expansive understanding of the fresh_start policy to insulate a debtor from all adverse consequences of a bankruptcy filing or discharge id thus the toth court’s limitation of the types of prohibited government action is perhaps the narrowest to date limiting to situations where the government discriminates in its role as a gatekeeper in determining who may pursue certain livelihoods although the toth court failed to address the legislative_history relating to the passage of c resort to the legislative_history was not necessary considering the plain language of a an alternative view is reflected in a leading treatise’s criticism of toth watts and goldrich while the conclusion that section does not apply to extensions of credit may be generally correct the courts did not adequately consider whether the state programs involved were in fact more in the nature of benefits conferred upon needy applicants without regard to their credit worthiness and therefore more similar to a franchise or similar grant rather than an extension of credit collier on bankruptcy 15th ed such an interpretation could be supported by a number of lower court decisions which have had little trouble finding government subsidy programs to be within the language courts have held that a public tenant may not be denied the continued right to live in his or her apartment and thus denied the subsidy inherent in public housing because of unpaid rent which is discharged or dischargeable or because a bankruptcy has been filed even if the bankruptcy had the effect of causing rejection of the preexisting lease see in re 148_br_966 s d fla 76_br_257 d conn 208_br_358 bankr e d pa in re szymecki 87_br_14 bankr w d pa see also in re 23_br_662 bankr d conn state program offering mortgage assistance cannot deny benefits based upon the filing of bankruptcy or upon the automatic_stay provided by a bankruptcy filing we disagree with the position espoused by collier the assertion that benefits conferred on needy applicants is somehow a like a license permit charter franchise or other similar grant is not tenable as the watts and toth courts concluded the targeted government actions concern government’s role as a gatekeeper to pursue some occupation of endeavor it is not so broad as to include gl-610467-99 benefit programs even so we do not think even collier’s position is so broad as to encompass the service’s oic program the compromise of tax_liabilities to reflect collection potential and enhance voluntary compliance with the tax code is not the type of benefit conferred upon needy applicants that even collier envisioned we also disagree with the conclusion of the mills and chapman court that a and its legislative_history when read together indicate that congress intended to prohibit bankruptcy-based discrimination by governmental units that can seriously affect the debtor’s livelihood or fresh_start as the courts in goldrich watts and toth have recognized the plain language of a reveals that congress did not in fact prohibit all forms of discrimination that affect a debtor’s fresh_start congress only prohibited the discrimination with respect to a license permit charter franchise or other similar grant or employment see also 489_us_235 the plain language of legislation should be conclusive except in the rare cases in which the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters consideration of an oic is not similar to a license permit charter or franchise black’s law dictionary 6th ed defines license in pertinent part as a permit granted by an appropriate governmental body to pursue some occupation or to carry on some business subject_to regulation under the police power a license is not a contract between the state and licensee but is a mere personal permit a permit is i n general any document which grants a person a right to do something a license or grant of authority to do such a thing id a charter is a n instrument emanating from sovereign power in the nature of a grant either to the whole nation or to a class or portion of the people to a corporation or to a colony or dependency assuring them of certain rights liberties or powers id a franchise is a special privilege to do certain things conferred by government on an individual or corporation and which does not belong to citizens generally of common right eg right to offer cable television service in contrast an accepted oic is a contract to settle the taxpayer’s tax_liabilities see eg 372_f2d_352 3rd cir 303_f2d_1 5th cir when the government enters into a contract with the debtor in compromise of existing tax_liabilities it is not engaging in the type of regulatory conduct that is similar to a license permit charter or franchise thus a does not apply toth watts further the legislative_history cited by the mills court does not in fact support the court’s conclusion the passage provided in pertinent part that t his section permits further development of case law to prohibit actions by governmental or quasi-governmental organizations that perform licensing functions emphasis added the passage then cites two examples of government units that perform licensing functions a state bar association or a medical society and a union thus this portion of the legislative_history only shows that congress intended courts to broadly prohibit other forms of discrimination by governmental units that do gl-610467-99 licensing functions not to extend the prohibition to any function performed by governmental units when quoting the legislative_history the court skipped over another portion of the legislative_history which shows the intended effect of the effect of the section and of the further interpretations of the perez rule is to strengthen the anti-affirmation policy found in section c discrimination based solely on nonpayment could encourage reaffirmations contrary to expressed policy h_r rep no pincite reprinted in u s c c a n thus congress was primarily concerned that debtors would be forced to reaffirm discharged debts because of conditions made by licensing-type governmental units though the statute clearly intended to prohibit other forms of discrimination by these entities the concern evidenced by the legislative_history is quite distinguishable from the issue at hand the governmental power at issue is not its right to regulate under the police power provided for under non-bankruptcy law but is the power to collect taxes as provided in the internal_revenue_code and the bankruptcy code itself when congress wrote the bankruptcy code it engaged in a complex balancing of various interests interpreting b c a so as to require that the service consider compromise of its claims notwithstanding the provisions of the bankruptcy code that provide for full payment of priority and secured claims is inconsistent with the statutory scheme and has the effect of rewriting the bankruptcy code on a legislative level courts may not reorganize the priorities established by congress on a legislative level 517_us_535 even where statute contemplated equitable subordination of tax claims bankruptcy court could not exercise the discretion in such a general way as to reorder the prioritie sec_4 the same would be true had the court relied upon sec_105 the court did not specifically address the issue under this section having found that applied a debtor would generally not need to compromise its tax_liabilities with the service if the service did not have priority or secured claims in amounts that exceed the offer also it is a commonplace of statutory construction that the specific governs the general 504_us_374 citing 482_us_437 the rights granted under a and a are more specific than the general and inapplicable prohibitions contained in gl-610467-99 established by congress because doing so would be impermissibly acting on legislative level see also 485_us_197 w hatever equitable powers remain in the bankruptcy court must and can only be exercised within the confines of the bankruptcy code because the plain language of the statute does not allow for a broad reading of the types of governmental actions that can be subject_to scrutiny under a we conclude that the service’s policy of not processing oics from taxpayers in bankruptcy does not violate further we see no mechanism in the bankruptcy code whereby a court could order a governmental_unit to consider compromise of its claim iii does sec_7122 compel the service to consider oics from taxpayers in bankruptcy though the mills court agreed with the service’s contention that it could not be compelled to accept an oic because such a decision is within the discretion of the service the court found that the use of the word shall in sec_7122 indicates that consideration of the oic is not discretionary b r pincite citing 465_fsupp_437 d n j aff'd on other grounds 607_f2d_61 3rd cir the court also recognized that sec_7122 provides for an administrative review of rejected offers the court reasoned that by not considering oics from taxpayers in bankruptcy bankruptcy debtors are denied additional protections available to taxpayers who are not in bankruptcy b r pincite sec_7122 clearly states that the secretary may compromise any civil or criminal tax case prior to referral to the department of justice in accordance with applicable procedures sec_7122 c sec_301_7122-1 see also boules v commissioner 810_f2d_209 d c cir cert_denied 484_us_896 the decision to accept or reject an oic is discretionary and cannot be compelled see 156_br_600 bankr e d ark courts are not authorized to make or compel settlement for the parties under any construction of sec_7122 carroll v internal_revenue_service a f t r 2d e d n y as the court in carroll noted t he decision to accept or reject a compromise offer by its nature involved the discretion of administrative authority and cannot be compelled by any_action for a mandatory injunction to compel acceptance of or indeed consideration of a proposed compromise of a tax_liability amounts to injunctive action with respect to the collection of a tax barred by sec_7421 see generally enoch v williams packing and navigation co 370_us_1 sec_7122 provides that the service shall prescribe guidelines for oics shall make allowances for living_expenses and the service shall not reject an oic solely on the basis of the amount of the offer gl-610467-99 the only authority the court cited to support its contention that the service must consider oics was garden state garden state was a summons enforcement case the opinion contained language that the service’s refusal to consider compromises before a decision whether to refer the case to the department of justice for criminal prosecution was evidence that the summons was unenforceable as it was issued in bad faith the court held that bad faith was not shown in that case because the taxpayer had not actually requested a conference to negotiate a compromise however the court also stated that the outcome might be different had there been a request for compromise met only by pro forma efforts by way of lip service to the negotiation process the mills and chapman court did not mention that the language in garden state was dictum and was rejected on review by the court_of_appeals f 2d pincite the third circuit stated t he refusal of the service to enter into compromise negotiations standing alone does not amount to ‘bad faith ’ id indeed the trial_court itself later stated garden state was by way of hope or expectation that since i r s has complete jurisdiction to compromise and settle all aspects of a ‘tax case’ both civil and criminal before referral to the attorney_general the comment might induce both taxpayers and i r s to undertake good_faith negotiations for resolution of any disagreement without generating avoidable litigation 497_fsupp_78 d n j the garden state dicta was also rejected by the court in united_states v smith u s dist lexis u s tax cas cch p91089 a f t r 2d ria s d n y the smith court accepted the government’s argument that garden state is logically practically and legally unsound the court also noted that the decision whether to discuss settlement and whether to issue a summons is a discretionary one that cannot be compelled by the court id citing leaonard v michell 473_f2d_709 2nd cir mandamus cannot force a discretionary act conclusion for the foregoing reasons we conclude that the service 's policy not to process oics from taxpayers in bankruptcy is not prohibited by the bankruptcy code and that a bankruptcy court cannot compel the service to consider an oic from a taxpayer in a bankruptcy case if you have any questions please contact the attorney assigned to this matter at cc assistant regional_counsel gl southeast region


t c summary opinion united_states tax_court nathan jaramtllo and davina metzgar petitioners v commissioner of internal revenue respondent docket no 1224-01s filed date nathan jaramillo and davina metzgar pro_se dennis r onnen for respondent couvillion special_trial_judge this case was heard pursuant to sec_7463 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 years at issue all rule references are to the tax_court rules_of_practice and procedure respondent determined deficiencies of dollar_figure dollar_figure and dollar_figure in petitioners' federal income taxes respectively for and an addition_to_tax under sec_6651 a in the amount of dollar_figure for and penalties under sec_6662 in the amounts of dollar_figure dollar_figure and dollar_figure for and respectively some of the facts were stipulated and those facts with the annexed exhibits are so found and are incorporated herein by reference at the time the petition was filed petitioners' legal residence was albuquergue new mexico the issues for decision are whether petitioners are entitled to deductions for expenses_incurred in a trade_or_business activity during whether petitioners are liable for the addition_to_tax under sec_6651 for and whether petitioners are liable for the accuracy-related_penalties under sec_6662 for each of the years in question in addition the court considers the applicability of sec_6673 to the facts of this case for the years in question petitioners itemized their deductions on schedule a itemized_deductions of their returns in the notice_of_deficiency respondent disallowed for each of the years in question their itemized_deductions for charitable_contributions and miscellaneous deductions including unreimbursed employee_expenses and tax preparation fees asa result of these adjustments petitioners' remaining itemized_deductions for each of the years in question were less than the standard_deduction allowable under sec_63 consequently respondent allowed petitioners the standard_deduction for each year at trial petitioners agreed that the disallowed deductions claimed on their returns exceeded the actual amounts they had incurred for contributions and miscellaneous expenses and further agreed that the actual amounts they had incurred in these two categories together with the other allowed deductions would total less than the standard_deduction for each year petitioners therefore conceded respondent's adjustments to their itemized_deductions for the years in question petitioners were both employed in the years at issue at the isleta casino and resort near albuquerque new mexico in addition only for the year petitioners were engaged in a trade_or_business activity that they described as a multilevel marketing activity involving sales of a health drink the activity was discontinued after year the first issue addresses petitioners' multilevel sales activity on their federal_income_tax return petitioners reported income and deducted expenses relating to this activity on a schedule c profit or loss from business as follows gross_receipts dollar_figure bxpenses car and truck dollar_figure office expenses big_number supplies big_number travel big_number meals and entertainment utilities big_number loss dollar_figure in the notice_of_deficiency respondent disallowed the deductions for all the expenses for lack of substantiation petitioners did not maintain books_and_records of their income and expenses related to this activity at trial they presented what appears to be a computer printout of transactions involving their distributors along with copies of bank statements reflecting deposits and checks issued this information does not present a complete or even a partial picture of the operation it appears from these records that the sales activity operations were commingled with petitioners' personal transactions petitioners produced no records that would substantiate any of the deductions claimed nor were any logs maintained to support the travel and meals and entertainment expense deductions claimed sec_162 allows a deduction for the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying_on_a_trade_or_business a taxpayer is required to maintain records sufficient to establish the amount of income and expenses_incurred in connection with a business activity sec_6001 sec_1_6001-1 income_tax regs moreover in the case of travel_expenses and certain other expenses such as entertainment gifts and the use of listed properties under sec_280f a sec_274 imposes stringent substantiation requirements to document more particularly the nature and amount of such expenses petitioners’ records that were submitted into evidence do not suffice to substantiate the expenses claimed on their returns including those expenses that would be subject_to sec_274 the court recognizes that petitioners realized gross_income of dollar_figure and certainly incurred some expenses in the production of those gross_receipts except for expenses that are subject_to substantiation under sec_274 where the court is satisfied that expenses were incurred in the production_of_income but the taxpayer has not established the amount of the deduction the court is allowed to estimate an allowable_amount 39_f2d_540 2d cir pursuant to cohan the court allows petitioners a deduction of dollar_figure for expenses related to their trade_or_business activity for in all other respects respondent is sustained on this issue with respect to the second issue the addition_to_tax under sec_6651 for petitioners agreed that their return for that year was not filed timely and they presented no evidence that they had applied for or had been granted an extension for the late filing of their return although petitioners knew that their return had not been filed timely they were not concerned because their returns reflected an overpayment of taxes sec_6072 provides that income_tax returns must be filed on or before the 15th day of april following the close of the taxable_year subject_to exceptions not applicable here unless the failure_to_file timely is due to reasonable_cause and not due to willful neglect petitioners’ belief at the time their return was filed that they had overpaid their taxes does not constitute reasonable_cause for a late filing on a deficiency subsequently determined by respondent e g hintze v commissioner tcmemo_2001_70 respondent accordingly is sustained on this issue with respect to the accuracy-related_penalties under sec_6662 petitioners contend they should be absolved of liability for the penalties because they relied on their income_tax_return_preparer petitioners' returns were prepared by robin beltran ’ sec_6662 provides for an accuracy-related_penalty egual to percent of any portion of an underpayment_of_tax required to be shown on the return that is attributable to the taxpayer's negligence or disregard of rules or regulations sec_2 this case is one of numerous cases heard by the court involving tax returns prepared by mr beltran a and b negligence consists of any failure to make a reasonable attempt to comply with the provisions of the internal_revenue_code and disregard consists of any careless reckless or intentional disregard sec_6662 the courts have refined the code definition of negligence as a lack of due care or failure to do what a reasonable and prudent person would do under similar circumstances 925_f2d_348 9th cir affg t cc sec_1_6662-3 income_tax regs provides that negligence is strongly indicated where a taxpayer fails to make a reasonable attempt to ascertain the correctness of a deduction on a return which would seem to a reasonable and prudent person to be 'too good to be true’ under the circumstances an exception applies when the taxpayer demonstrates there was reasonable_cause for the underpayment and the taxpayer acted in good_faith with respect to the underpayment sec_6664 whether the taxpayer acted with reasonable_cause and in good_faith is determined by the relevant facts and circumstances the most important factor is the extent of the taxpayer's effort to assess the proper tax_liability stubblefield v commissioner tcmemo_1996_537 sec_1 b income_tax regs under sec_1_6664-4 income_tax regs circumstances that may indicate reasonable_cause and good_faith include an honest misunderstanding of fact or law that is reasonable in light of all of the facts and circumstances including the experience knowledge and education of the taxpayer moreover a taxpayer is generally charged with knowledge of the law 99_tc_202 although a taxpayer is not subject_to the addition_to_tax for negligence where the taxpayer makes honest mistakes in complex matters the taxpayer must take reasonable steps to determine the law and to comply with it id under certain circumstances a taxpayer may avoid the accuracy-related_penalty for negligence where the taxpayer reasonably relied on the advice of a competent professional sec_1_6664-4 income_tax regs see sec_6664 89_tc_849 affd 904_f2d_1011 5th cir affd 501_us_868 however reliance on a professional adviser standing alone is not an absolute defense to negligence it is only one factor to be considered in order for reliance on a professional adviser to relieve a taxpayer from the negligence_penalty the taxpayer must establish that the professional adviser on whom he or she relied had the expertise and knowledge of the relevant facts to provide informed advice on the subject matter freytag v commissioner supra pincite petitioners made no effort to ascertain the professional background and qualifications of their return preparer they knew that their claimed deductions were not based on the amounts they actually expended that circumstance should have prompted petitioners to determine whether such representations by their return preparer were correct they did not consult other tax professionals to verify the accuracy of the returns prepared by mr beltran or the representations he made to them regarding their deductions the court is satisfied from the record that mr beltran knew or had reason to know all the relevant facts upon which had he been a qualified professional he could have accurately advised petitioners on the amount of their allowable deductions mr beltran listed unrealistic amounts as deductions on petitioners' returns which they conceded at trial petitioners knew they were required under the law to substantiate deductions claimed on their returns the circumstances should have prompted them to look beyond and ascertain the accuracy of their preparer's representations petitioners therefore made no effort to assess their tax_liabilities correctly on this record the court sustains respondent on the sec_6662 a accuracy-related_penalties for the years in question sec_6673 authorizes the court to require a taxpayer to pay to the united_states a penalty not exceeding dollar_figure when in the court's judgment proceedings have been instituted or maintained by the taxpayer primarily for delay or where the taxpayer's position in the proceeding is frivolous or groundless -- - at trial petitioners recognized that their disallowed itemized_deductions were false and could not be sustained they conceded those adjustments petitioners knew that they could deduct only amounts that they had actually paid they made no attempt to determine the qualifications of their return preparer and moreover did not seek other professional advice to satisfy the accuracy of their returns petitioners cited no legal authority to the court that under similar facts would exonerate them from the penalties under sec_6662 prior to mr beltran's preparation of petitioners’ returns petitioners prepared drafts of their returns which they presented to mr beltran on these drafts petitioners did not claim itemized_deductions mr beltran's arrangement with petitioners was that his tax preparation fees would be percent of the refunds calculated on the returns prepared by him to the extent such refunds exceeded the refunds calculated by petitioners on the drafts of their returns mr beltran represented to petitioners that records were not necessary to substantiate deductions and they were entitled to deductions based on a percentage of their income he further advised petitioners not to respond to inguiries of respondent with regard to their returns including respondent's counsel in preparation of this case for trial petitioners adhered to that advice and only in the few days before trial did they submit one document that was grossly inadequate to substantiate expenses claimed on the returns the notice sent to petitioners from the court setting this case for trial called to the parties attention the requirement that the parties contact each other promptly and cooperate fully in the preparation and presentation of the case petitioners' failure to do this pursuant to mr beltran's advice satisfies the court that petitioners instituted and maintained this proceeding primarily for delay the function of this court is to provide a forum to decide issues relating to liability for federal taxes any reasonable and prudent person under the facts presented to the court should have known that petitioners' claimed deductions could not have been sustained and petitioners knew that this court does not and should not countenance the use of this court as a vehicle for disgruntled litigants to proclaim the wrongdoing of another their return preparer as a basis for relief from penalties that were determined by respondent on facts that clearly are not sustainable golub v commissioner tcmemo_1999_288 petitioners therefore have interfered with the court's function to the detriment of other parties having cases with legitimate issues for the court to consider petitioners have caused needless expense and wasted resources not only for the court but for its personnel respondent and respondent's counsel under these circumstances the penalty under sec_6673 is warranted and petitioners will be ordered to pay a penalty of dollar_figure to the united_states under sec_6673 reviewed and adopted as the report of the small_tax_case division decision will be entered under rule


department of the treasury internal_revenue_service washington d c date office of hie counsel number info release date conex-154094-08 uil the honorable jim webb united_states senate washington dc attention dear senator webb am responding to your letter dated date on behalf of your constituent during travel overseas related ta his employment i responded directly to response hope this information is helpful if you have additional questions please contact me or at sincerely asked about the tax treatment of expenses he incurred as you requested am enclosing a copy of my christopher f kane branch chief branch incoma tax and accounting enclosure department of the treasury internal_revenue_service washington d c office of ‘chief counsel dear date jam responding to your letter to senator webb about the tax treatment of expenses_incurred during overseas travel in connection with your employment senator webb wrots to us on your behalf and asked us ta respond directly to you generally you are not in general you can deduct all the ordinary and necessary expenses paid_or_incurred in carrying on any trade or businass including traveling expenses while in the pursuit of business away from your tax_home your tax_home is usually your regular place of business or post of duty regardiess of where you maintain your family home if you do not have a regular or main place of business because of the nature of your work then your tax_home may be the place where you regularly live considered to have a tax_home in a foreign_country for any period in which your abode is in the united_states travel_expenses are generally nondeductible if they are paid_or_incurred in connection with an indefinite or permanent work assignment travel_expenses paid_or_incurred in connection with a temporary work assignment away from the taxpayer's home are deductible a temporary work assignment is limited to one year if you expect your employment to last for less than one year and it does in fact last for less than one year it is temporary unless facts and circumstances indicate otherwise if you expect it to last for more than one year itis an indefinite work assignment if you expect it to last for one year or less but at some later date you expect it to last longer than one year itis temporary in the absenca of facts and circumstances indicating otherwise until your expectation changes once your expectation changes it is indefinite and travel_expenses incurred are non-deductible generally if you can satisfy that you were away from your tax_home due to foreseeable temporary employment your travel_expenses are deductible deductible expenses include lodging conex-154094 up to percent of meals or you can utilize the meals and incidental_expenses m ie per_diem sheet released by the gsa if you use the m ie sheet you do not need to record exact amounts of meals however you must still keep records of the meals to prove time place and business purposes a per_diem_allowance is a fixed amount of daily if your employer does not reimburse you for your travel_expenses that you some employers may provide reimbursement for travel_expenses incurred during temporary work assignments reimbursement your employer gives you for your lodging and meals when you are away from home on business if you receive a per_diem you are not taxed on the amount of the per_diem unless you receive an excess_amount over your actual expenses an amployer does not have to provide reimbursement or a per_diem for your travel_expenses incurred in temporary employment away from your home you can still deduct the expenses on form_2106 employee business_expenses or 2106-ez unreimbursed employee business_expenses to deduct expenses you must substantiate all deductions with clear records for examples of what the records must show please refer to publication travel entertainment gift and car expenses you should fill out form_2106 or farm 2106ez if applicable and attach it to the taxable year's form_1040 you can use form 2106ez if your employer did not reimburse your expenses the expenses are related to your job and if you are claiming a car deduction you claim the standard mileage rate because your temporary work assignment is located outside the united_states you should also refer to publication tax guide for u s citizens and resident aliens abroad this publication has information on the foreign_earned_income and housing exclusion you can also contact your employer for assistance in determining your expenses all of the above documents are available on our website www irs gov hope this information is helpful if you have further questions please vat sincerely christopher f kane branch chief branch income_tax accounting cc the honorable jim webb attn


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b01-plr-129089-01 date date legend fund on date the internal_revenue_service issued ltr plr- to fund the purpose of this letter is to inform you that ltr is hereby revoked in accordance with section dollar_figure of revproc_2001_1 2001_1_irb_1 date ltr granted fund a partnership rulings that i fund’s method of making reverse sec_704 allocations is a reasonable method within the meaning of sec_1_704-3 of the income_tax regulations and ii fund may combine built-in gains and losses from qualified_financial_assets contributed to it with gains and losses from revaluations for purposes of performing aggregate allocations however ltr did not sufficiently identify the partners of fund or the assets contributed to fund accordingly ltr is revoked sec_7805 of the code provides that the secretary_of_the_treasury or_his_delegate may prescribe the extent if any to which any ruling including any judicial decision or any administrative determination other than by regulation relating to the internal revenue laws shall be applied without retroactive effect section dollar_figure of revproc_2001_1 provides that a letter_ruling found to be in error or not in accord with the current views of the internal_revenue_service may be revoked or modified unless it was part of a closing_agreement if a letter_ruling is revoked the revocation applies to all years open under the statute_of_limitations unless the service uses its discretionary authority under sec_7805 to limit the retroactive effect of the revocation section dollar_figure provides that except in rare or unusual circumstances the revocation or modification of a letter_ruling will not be applied retroactively to the taxpayer to whom the letter_ruling was issued provided that inter alia the taxpayer relied in good_faith on the letter_ruling and revoking or modifying the letter_ruling would be to the taxpayer’s detriment section dollar_figure prescribes the procedures for requesting relief under sec_7805 plr-129089-01 sec_6110 of the code provides that this ruling 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 the taxpayer s william p o’shea sincerely yours deputy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si br 1-plr-112832-98 date date legend partnership gp parent sub lp d1 dear this responds to your representative’s letter of date and prior correspondence requesting rulings under sec_752 and sec_465 of the internal_revenue_code regarding partnership's proposal to issue a single loan and use the proceeds to pay some of partnership's outstanding debt obligations facts gp is a wholly owned subsidiary of parent on d1 gp and lp formed partnership partnership gp lp and parent intend to undertake a series of transactions that will result in the conversion of parent into a real_estate investment plr-112832-98 trust reit taxable under the contribution by parent to partnership of all of its hotel related assets and the acquisition by partnership of partnership interests in a number of partnerships owned by outside parties the consolidation as part of the consolidation partnership will acquire in exchange for partnership units interests in partnerships the property partnerships that own full service hotels located throughout the united_states and canada partnership will become the owner of substantially_all of the interests in the property partnerships but the property partnerships will be structured so that they remain partnerships for federal tax purposes by having a limited_liability_company owned by partnership and parent as the other partner parent and some of its subsidiaries will also contribute approximately full service hotels owned entirely by parent and its subsidiaries to partnership in exchange for partnership units finally partnership will acquire in exchange for partnership units partial_interests in a number of other partnerships that own full service hotels throughout the united_states partial interest partnerships after the consolidation the partnership the property partnerships and the partial interest partnerships will lease the hotels to indirectly controlled_subsidiaries of sub sub is currently a wholly-owned subsidiary of parent but will become a separate company as part of the reit_conversion sub will operate the hotels under the existing management agreements and pay rent to partnership certain property partnerships and certain partial interest partnerships partnership will be engaged in the acquisition and development of full service hotels partnership has elected to use the traditional allocation method with curative allocations only upon sale of property under sec_704 and sec_1_704-3 of the income_tax regulations to account for the variation between the basis of each property contributed to partnership and the fair_market_value of the property at the time of contribution partnership intends to issue unsecured debt unsecured debt that will be a general obligation of partnership but will not be recourse to any of partnership's partners any partner of any of the partial interest partnerships any assets of any partner any related_person as defined in sec_1_752-4 or any assets of any related_person an exception to the nonrecourse nature of the unsecured debt is that it will become recourse to parent if parent without the lenders’ approvals acquires more than an insignificant amount of assets other than its interest in partnership in addition partnership and some of its subsidiaries will pledge their membership interests in entities disregarded for federal tax purposes as security for the unsecured debt partnership anticipates that it will use the unsecured debt proceeds to repay a portion of the outstanding debt obligations that it will assume on the consolidation and to fund the acquisition and development of real_estate plr-112832-98 the aggregate gross fair_market_value of the property that will be owned by partnership that is neither real_property nor property incidental to the activity of holding real_property will be less than percent of the aggregate gross fair_market_value of the partnership property that is deemed to secure the unsecured debt the unsecured debt originally will be issued to nationally recognized underwriters and or major money center banks in some cases however the underwriters may immediately attempt to sell the unsecured debt but only to qualified persons as defined in sec_49 who are also either i qualified institutional buyers as defined in rule 144a under the securities act of or ii institutional accredited investors as defined in rule a or of the securities act of the initial purchasers each initial purchaser will acknowledge and represent that it is purchasing an interest in the unsecured debt for its own account or an account over which it exercises sole investment discretion and that it and any such account is a qualified_person as defined in sec_49 and is either a qualified institutional buyer or an institutional accredited investor acknowledges that the unsecured debt has not been registered under the securities act of and may not be offered or sold within the u s or to u s persons except as provided below agrees that if it resells or transfers the unsecured debt before the second anniversary of its issuance by partnership it will resell or transfer the unsecured debt only to i partnership ii a qualified institutional buyer or an institutional accredited investor iii under an exemption from registration under the securities act of if available if the purchaser represents that it is a qualified_person under sec_49 or iv under a registration_statement filed with the securities_and_exchange_commission and agrees that it will give each subsequent purchaser notice of any restrictions on the transfer of the unsecured debt partnership anticipates that it will enter into a registration rights agreement with the initial purchasers the registration rights agreement will require partnership to use its reasonable best efforts to file a registration_statement for the unsecured debt with the securities_and_exchange_commission within days of its issuance and to cause the registration_statement to be declared effective under the securities act of within days of the debt's issuance when the registration_statement becomes effective the resale restrictions described above will terminate partnership represents that the allocation of the unsecured debt among its multiple properties established at the time of the borrowing will be used throughout the plr-112832-98 time the unsecured debt is outstanding to the best of its knowledge the initial purchasers will be qualified persons as defined in sec_49 until the earlier of i two years or ii a registration_statement for the unsecured debt is declared effective under the securities act of and that during that time period substantially_all of the benefits_and_burdens_of_ownership of the unsecured debt will inure to those purchasers and the unsecured debt will not be convertible into an equity_interest in partnership rulings requested partnership may allocate its nonrecourse debt including the unsecured debt among its multiple properties serving as security for the debt in any amounts determined by it partnership will be limited in the amount of debt it may allocate to any one property by the lesser_of the fair_market_value of the property or the amount of debt previously allocated to the property repaid with the proceeds of the newly issued unsecured debt the unsecured debt is treated as a nonrecourse_liability secured_by partnership's assets including the assets of the property partnerships and the partial interest partnerships guaranteeing repayment of the unsecured debt for purposes of sec_1_752-3 to the extent that a creditor has a claim against the assets under state law in the event of partnership's default for purposes of sec_752 reductions occurring during the taxable_year to the amount of the unsecured debt outstanding resulting from principal repayments may be allocated by partnership among its multiple properties in the same manner and same proportion as the unsecured debt is initially allocated pursuant to ruling_request the unsecured debt is treated as qualified_nonrecourse_financing secured_by partnership's real_estate_assets and as to which no person has personal liability for purposes of sec_465 also that the unsecured debt will be treated as qualified_nonrecourse_financing to the extent that a creditor has a claim against partnership's properties under state law if partnership defaults on the unsecured debt plr-112832-98 law and rulings sec_752 issues and ruling sec_1 allocation of the unsecured debt among partnership's properties under sec_752 sec_704 provides that income gain loss and deduction for property contributed to the partnership by a partner must be shared among the partners to take account of the variation between the adjusted tax basis of the property to the partnership and its fair_market_value at the time of contribution sec_1_704-3 provides that except as otherwise provided in the regulations sec_704 applies on a property-by-property basis therefore in determining whether there is a disparity between adjusted tax basis and fair_market_value the built- in gains and losses on items of contributed_property cannot be aggregated sec_752 provides that any increase in a partner's share of the liabilities of a partnership or any increase in a partner's individual liabilities by reason of the assumption by such partner of partnership liabilities will be considered as a contribution of money by such partner to the partnership sec_752 provides that any decrease in a partner's share of the liabilities of a partnership or any decrease in a partner's individual liabilities by reason of the assumption by the partnership of such individual liabilities will be considered as a distribution of money to the partner by the partnership sec_752 provides that for sec_752 a liability to which property is subject will to the extent of the fair_market_value of such property be considered as a liability of the owner of the property sec_1_752-3 provides that a partner's share of the nonrecourse liabilities of a partnership equals the sum of the amounts specified in sec_1_752-3 - sec_1_752-3 provides that the partner's share of the nonrecourse liabilities of the partnership includes the amount of any taxable gain that would be allocated to the partner under sec_704 or in the same manner as sec_704 in connection with a revaluation of partnership property if the partnership disposed of in a taxable transaction all partnership property subject_to one or more nonrecourse liabilities of the partnership in full satisfaction of the liabilities and for no other consideration the gain a partner would be allocated under the hypothetical sale in sec_1_752-3 is referred to as sec_704 minimum gain sec_704 minimum gain is the amount of gain that a partner would receive under sec_704 from a hypothetical sale solely in satisfaction of the nonrecourse plr-112832-98 liabilities encumbering partnership property with limited exceptions see sec_1 e sec_704 gain is calculated on a property-by-property basis if more than one item of partnership property is subject_to a single nonrecourse_liability the partnership must allocate the nonrecourse_liability among the individual items of partnership property before the partnership can calculate each partner's share of sec_704 minimum gain the portion of the nonrecourse_liability allocated to each item of partnership property is then treated as a separate loan under sec_1_752-3 in this case more than one item of partnership property is subject_to the unsecured debt we conclude based solely on the facts submitted and the representations made that when determining the sec_704 minimum gain under sec_1_752-3 partnership may allocate the unsecured debt among its properties that are subject_to the unsecured debt in any amount that does not exceed the lesser_of i the fair_market_value of the property or ii the amount of debt previously allocated to the property and repaid with proceeds of the unsecured debt nonrecourse_liability sec_1_752-1 provides that a partnership_liability is a nonrecourse_liability under sec_752 to the extent that no partner or related_person bears the economic risk of loss under sec_1_752-2 the unsecured debt will be a general obligation of partnership the creditors however will have no claim against the partners in partnership or any related_person as defined in sec_1_752-4 or any such persons' assets if partnership defaults on the unsecured debt thus no partner or related_person bears the economic risk of loss under sec_1_752-2 therefore the unsecured debt is a nonrecourse_liability under sec_752 no individual item of partnership's property will secure the unsecured debt but the creditors will have a claim against all of partnership's properties if partnership defaults on the debt additionally the creditors have an interest in partnership’s interests in entities disregarded for federal tax purposes we conclude based solely on the facts submitted and the representations made that partnership's properties are subject_to the unsecured debt under sec_1_752-3 to the extent a creditor on the unsecured debt has a claim against such properties under state law if partnership defaults on the unsecured debt allocation of debt reductions for purposes of sec_752 reductions occurring during the taxable_year of the amount of unsecured debt outstanding resulting from principal payments must be allocated by partnership among its multiple properties in the same manner and same proportion as the unsecured debt is initially allocated by partnership to the properties sec_465 issue and ruling plr-112832-98 qualified_nonrecourse_financing for an individual or a c_corporation that satisfies the stock ownership requirement of sec_542 sec_465 limits the deductions for losses for any taxable_year for an activity to the extent of the total amount for which the taxpayer is at risk for the activity at the close of the taxable_year for partnerships the sec_465 at-risk_limitation applies at the partner level under sec_465 the activity of holding real_property is subject_to the at-risk_limitation of sec_465 sec_465 provides that a taxpayer's at-risk amount includes amounts borrowed for use in an activity to the extent that the taxpayer is personally liable for the repayment of the borrowed amounts sec_465 however allows a taxpayer to treat qualified_nonrecourse_financing as an amount_at_risk even though the taxpayer is not personally liable for the repayment of the financing sec_465 provides that notwithstanding any other provision of sec_465 for an activity of holding real_property a taxpayer is considered at risk for the taxpayer's share of any qualified_nonrecourse_financing that is secured_by real_property used in the activity of holding real_property sec_465 defines qualified_nonrecourse_financing to mean any financing i that is borrowed by the taxpayer for the activity of holding real_property ii that is borrowed by the taxpayer from a qualified_person or represents a loan from any federal state_or_local_government or instrumentality thereof or is guaranteed by any federal state_or_local_government iii except to the extent provided in regulations for which no person is personally liable for repayment and iv that is not convertible debt sec_1_465-27 states that the personal liability of any partnership for repayment of a financing is disregarded and the financing is treated as qualified_nonrecourse_financing secured_by real_property if i the only persons personally liable to repay the financing are partnerships ii each partnership with personal liability holds only property described in sec_1_465-27 and iii in exercising its remedies to collect on the financing in a default or default-like situation the lender may proceed only against property that is described in sec_1_465-27 and that is held by the partnership or partnerships sec_1_465-27 states that principles similar to those found in sec_1_465-27 apply in determining whether a financing of an entity disregarded for federal tax purposes is treated as qualified_nonrecourse_financing secured_by real_property we conclude based solely on the facts submitted and representations made that the unsecured debt is qualified_nonrecourse_financing under sec_465 therefore the partners of partnership will be considered at risk for their share of the plr-112832-98 unsecured debt to the extent a creditor on the unsecured debt has a claim against partnership’s properties under state law if partnership defaults on the unsecured debt this ruling is directed only to the taxpayer who requested it under sec_6110 this ruling may not be used or cited as precedent pursuant to a power_of_attorney on file with this office we are sending copies of this letter to partnership's authorized representatives sincerely yours signed daniel j coburn daniel j coburn assistant to the branch chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service te_ge eo examinations fulton strest room brooklyn ny ‘tax exempt and government entities division date xk wilr801 date -- address address taxpayer_identification_number person to contact identification_number contact telephone number last date for filing a pleading with the tax_court the claims_court or the united_states district_court for the district of columbia april 20xx number release date legend org organization name org address certified mail dear this is a final adverse determination regarding your exempt status under sec_501 of the intemal revenue code the code our favorable determination_letter to you dated august 19xx is hereby revoked and you are no longer exempt under sec_501 of the code effective july 20xx the revocation of your exempt status was made for the following reason s in our tetters dated february 20xx we requested additional information necessary to conduct an examination of your form_990 for the year ended june 20xx we also made several telephones calls to your representative on march 20xx april 20xx may 20xx and may 20xx we have not received the requested information sec_1_6033-1 of the income_tax regulations provides in part that every organization which is exempt from tax shall submit such additional information as may be required by the internal_revenue_service for the purpose of inquiring into its exempt ‘status since you have not provided the requested information we hereby revoke your organization’s exemption from federal_income_tax under sec_501 c of the internal_revenue_code effective july 20xx contributions to your organization are no longer deductible under sec_170 after july 20xx ‘you are required to file income_tax returns on form_1120 these returns should be filed with the appropriate service_center for the tax_year ending june 20xx and for all tax years thereafter in accordance with the instructions of the return processing of income_tax returns and assessments of any taxes due will not be delayed should a petition for deciaratary judgment be filed under sec_7428 of the intemal revenue code if you decide to contest this determination under the declaratory_judgment provisions of sec_7428 of the code a petition to the united_states tax_court the united_states claims_court or the district_court of the united_states for the district of columbia must be filed before the day after the date this determination was mailed to you please contact the clerk of the appropriate court for rules regarding filing petitions for declaratory judgments by referring to the enclosed publication you may write to these courts at the following addresses you alsa have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at we will notify the appropriate state officials of this action as required by code sec_6104 you should contact your state officials if you have any questions about how this final_determination may affect your state responsibilities and requirements if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter renee wells acting director eo examinations publication enclosure sincerely overnment entities org address department of the treasury internal_revenue_service ms dal commerce street dallas tx date taxpayer dentification number form tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested oear we have enclosed a copy of our report of examination explaining why we believe tevocation of your exempt status under sec_501 of the intemal revenue code code is necessary if you accept our findings take no further action we will issue a final revocation letter ifyou do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision applicable law and arguments in support of your position your protest should include a statement of the facts the an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process you may also request that we refer this matter for technical_advice as explained in publication if we issue a determination_letter to you based on technical_advice no further administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice letter catalog number dollar_figuref ifwe do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notify the appropriate state officials of the revocation in accordance with sec_6104 of the code if you do the taxpayer_advocate cannot reverse a legally correct_tax you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at ifyou have any questions please call the contact person at the telephone number shown in the heading of this letter the mast convenient time to call if we need to contact you if you write please provide a telephone number and thank you for your cooperation enclosures publication publication report of examination sincerely marsha a ramirez director eo examinations letter catalog number 34809f ‘department ofthe tieaniy- terral revenae service foun 886a name of taxpayer ors ein issue - organization not responding ‘schedule no or exhibit ‘year period ended explanation of items to document request by the irs 20xx by peru suost legend org organization name xx date issue failing to respond to document request whether the organization qualifies for exemption under sec_501 of the internal_revenue_code facts exhibit a provides copy of the internal_revenue_service correspondence requesting that exempt_organization file the additional information required to complete the examination started earlier letter was mailed out on february 20xx agent made several telephone calls to the representative following up on this issue agent had called on march 20xx april 20xx may 20xx and may 20xx with no response exempt_organization failed to respond to the internal_revenue_service correspondence or telephone calls law sec_6001 provides that every person liable for any_tax imposed by the irc or for the collection thereof shall keep adequate_records as the secretary_of_the_treasury or_his_delegate may from time to time prescribe sec_6033 provides except as provided in sec_6033 every organization exempt from tax under sec_501 shall file an annual return stating specifically the items of gross_income receipts and disbursements and such other information for the purposes of carrying out the internal revenue laws as the secretary may by forms or regulations prescribe and keep such records render under oath such statements make such other retums and comply with such rules and regulations as the secretary may from time to time prescribe treas reg sec_1 -1 a in conjunction with treas reg sec_1_6001-1 provides that every organization exempt from tax under sec_501 and subject_to the tax imposed by sec_511 on its unrelated_business_income must keep such permanent books or accounts or records including inventories as are sufficient to establish the amount of gross_income deduction credits or other matters required to be shown by such person in any retumn of such tax such organization shall also keep such books_and_records as are required to substantiate the information required by sec_6033 sec_1_6001-1 states that the books_or_records required by this section shall be kept at all times available for inspection by authorized internal revenue officers or form 886-a rev department of the treasury - internal_revenue_service page -1- oun 886a department ofthe trearary - internal_revenue_service explanation of items name of taxpayer org ein issue - organization not responding to document request by the irs ‘schedule no or exhibit year period ended 20xx employees and shall be retained as long as the contents thereof may be material in the administration of any internal revenue law sec_1_6033-2 provides that every organization which has established its right to exentption from tax whether or not it is required to file an annual retum of information shall submit such additional information as may be required by the district_director for the purpose of enabling him to inquire further into its exempt status and to administer the provisions of subchapier f sec_501 and the following chapter of the code and sec_6033 revrul_59_95 1959_1_cb_627 concerns an exempt_organization that was requested to produce a financial statement and statement of its operations for a certain year however its records were so incomplete that the organization was unable to furnish such statements the service held that the failure or inability to file the required information_return or otherwise to comply with the provisions of sec_6033 and the regulations which implement it may result in the termination of the exempt status of an organization previously held exempt on the grounds that the organization has not established that it is observing the conditions required for the continuation of exempt status jn accordance with the above cited provisions of the code and regulations under sec_6001 and sec_6033 organizations recognized as exempt from federal_income_tax must meet certain reporting requirements these requirements relate to the filing of complete and accurate annual information and other required federal tax forms and the retention of records sufficient to determine whether such entity is operated for the purposes for which it was granted tax-exempt status and to determine its liability for any unrelated_business_income_tax taxpayer's position this area is left blank government's position based on the above cited law it is the government’s position that the exempt_organization has failed to meet its reporting requirements as such the tax exempt status of the same should be withdrawn conclusion it is the irs's position that the organization failed to meet the reporting requirements under sec_6001 and sec_6033 to be recogaized as exempt ftom federal_income_tax under sec_501 accordingly the organization's exempt status is revoked effective july 20xx form 886-a rev department of the treasury - internal_revenue_service page -2- ‘departrent ofthe treacy -tatemal revenu service form 886a ‘name of taxpayer org ein issue - or ‘schedule no or exhibit year period ended explanation of items not responding responding raanwation not to document request by 20xx the irs ‘eatest ization py form_1120 retums should be filed for the tax periods ending on or after june 20xx form 886-a rev - department of the treasury - internal_revenue_service page -3-


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 b03 plr-112158-08 date september x a b c legend ----------------- ---------------------------------------------- ----------------------- ------------------------- ----------------------------- --------------------- country ------------ country --------- --------------------- --------------------- d1 d2 dear ---- this letter responds to a letter dated date and subsequent correspondence written on behalf of x requesting a ruling under sec_301_9100-3 of the procedure and administration regulations facts x was formed under the laws of country x represents that it is a foreign_entity eligible to elect to be classified as a disregarded_entity for federal tax purposes x plr-112158-08 was a wholly-owned subsidiary of a a country corporation b a country corporation acquired a through a subsidiary entity c on d1 upon b’s acquisition of a it was intended that x would be treated as a disregarded_entity effective d2 however due to inadvertence a form_8832 entity classification election to treat x as a disregarded_entity effective d2 was not timely filed law and analysis sec_301_7701-3 provides in part 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 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an entity separate from its owner sec_301_7701-3 provides in part that except as provided in sec_301_7701-3 unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides in part that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 entity classification election with the service_center designated on form_8832 sec_301_7701-3 provides that an election under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed if an election specifies an effective date more than days prior to the date on which the election is filed it will be effective days prior to the date it was filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but not more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-2 provides the standards the commissioner will use to determine whether to grant an automatic_extension of time for making certain elections plr-112158-08 sec_301_9100-3 provides the guidelines for granting extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301 a provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based solely on the facts submitted and the representations made we conclude that x has satisfied the requirements of sec_301 and sec_301_9100-3 as a result x is granted an extension of sixty days from the date of this letter to file a properly executed form_8832 with the appropriate service_center to elect to be classified as a disregarded_entity effective d2 a copy of this letter should be attached to the form_8832 except as specifically set forth above we express no opinion concerning the federal tax consequences of the above described facts under any other provision of the internal_revenue_code in accordance with a power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely s william p o’shea associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc