internal_revenue_service appeals_office san jose appeals ms-7100 s market st suite san jose ca date dec number release date certified mail dear department of the treasury employer_identification_number person to contact uil this is a final adverse determination regarding your exempt status under sec_501 c of the internal_revenue_code the code it is determined that you do not qualify as exempt from federal_income_tax under sec_501 c of the code effective january xxxx our adverse determination was made for the following reason s you are not operated exclusively for exempt purposes within the meaning of code sec_501 c and sec_1_501_c_3_-1 you do not engage primarily in activities that accomplish one or more of the exempt purposes specified in code sec_501 c more than an insubstantial part of your activities are in furtherance of a non-exempt purpose you are not operated primarily for a public purpose as is required by code sec_501 and sec_1 c -1 d ii your operations result in substantial benefit to private interests contributions to you are not deductible under sec_170 of the code you are required to file federal_income_tax returns on forms file your return with the appropriate internal_revenue_service center per the instructions of the return for further instructions forms and information please visit www irs gov if you were a private_foundation as of the effective date of the adverse determination you are considered to be taxable private_foundation until you terminate your private_foundation_status under sec_507 of the code in addition to your income_tax return you must also continue to file form_990-pf by the 15th day of the fifth month after the end of your annual_accounting_period processing of income_tax returns and assessments of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the code we will make this letter and the proposed adverse determination_letter available for public inspection under code sec_6110 after deleting certain identifying information we have provided to you in a separate mailing notice notice of intention to disclose please review the notice and the documents attached that show our proposed deletions if you disagree with our proposed deletions follow the instructions in notice if you decide to contest this determination you may file an action for declaratory_judgment under the provisions of sec_7428 of the code in one of the following three venues united_states tax_court the united_states court of federal claims or the united_states district_court for the district of columbia a petition or complaint in one of these three courts must be filed within days from the date this determination_letter was mailed to you please contact the clerk of the appropriate court for rules for filing petitions for declaratory_judgment to secure a petition form from the united_states tax_court write to the united_states tax_court second street n w washington d c see also publication you also 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 matters that may not have been resolved through normal channels get prompt and proper handling if you want taxpayer_advocate assistance please contact the taxpayer_advocate for the irs office that issued this letter you may call toll-free for the taxpayer_advocate or visit www irs gov advocate for more information if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours appeals team manager enclosure publication and or cc department of the treasury ijiinternal revenue service irs tax_exempt_and_government_entities_division aug date taxpayer_identification_number form tax_year s ended person to contact number contact numbers phone number fax number manager's name num er manager's contact number phone number response due_date certified mail - return receipt requested dear why you are receiving this letter we propose to revoke your status as an organization described in sec_50l c of the internal_revenue_code code enclosed is our report of examination explaining the proposed action what you need to do if you agree if you agree with our proposal please sign the enclosed form_6018 consent to proposed action- sec_7428 and return it to the contact person at the address listed above unless you have already provided us a signed form we'll issue a final revocation letter determining that you aren't an organization described in sec_50l c after we issue the final revocation letter we'll announce that your organization is no longer eligible for contributions deductible under sec_170 of the code ifwe don't hear from you if you don't respond to this proposal within calendar days from the date ofthis letter we'll issue a final revocation letter failing to respond to this proposal will adversely impact your legal standing to seek a declaratory_judgment because you failed to exhaust your administrative remedies effect of revocation status if you receive a final revocation letter you'll be required to file federal_income_tax returns for the tax_year s shown above as well as for subsequent tax years what you need -to do if you disagree with the proposed revocation if you disagree with our proposed revocation you may request a meeting or telephone conference with the supervisor ofthe irs contact identified in the heading ofthis letter you also may file a protest with the letter rev catalog number 34809f irs appeals_office by submitting a written request to the contact person at the address listed above within calendar days from the date of this letter the appeals_office is independent of the exempt_organizations division and resolves most disputes informally for your protest to be valid it must contain certain specific information including a statement of the facts the applicable law and arguments in support of your position for specific information needed for a valid protest please refer to page one of the enclosed publication how to appeal an irs decision on tax-exempt status and page six of the enclosed publication the examination process publication also includes information on your rights as a taxpayer and the irs collection process please note that fast track mediation referred to in publication generally doesn't apply after we issue this letter you also may request that we refer this matter for technical_advice as explained in publication please contact the individual identified on the first page of this letter if you are considering requesting technical_advice if we issue a determination_letter to you based on a technical_advice_memorandum issued by the exempt_organizations rulings and agreements office no further irs administrative appeal will be available to you contacting the taxpayer_advocate office is a taxpayer right you have the right to contact the office ofthe taxpayer_advocate their assistance isn't a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate can't reverse a legally correct_tax determination or extend the time you have fixed by law to file a petition in a united_states court they can however see that a tax matter that hasn't been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance ifyou prefer you may contact your local taxpayer_advocate at internal_revenue_service office_of_the_taxpayer_advocate for additional information if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation sincerely barbara l harris acting director eo examinations enclosures report of examination form_6018 publication publication letter rev catalog number 34809f form 886a name oftaxpayer i department of the t reuwy internal_revenue_service explanation of items schedule no or exhibit l year period ended december issues whether exempt status under internal_revenue_code irc sec_501 c should be revoked since its primary purpose is the provision of housing to the founders' farm employees which serves the private interests of the founders whether certain payments identified below constitute taxable_expenditures defined under sec_4945 and and should be taxed under sec_4945 and b facts organization background form_1023 application_for reco miuon of exemption was filed by it states its purpose is to distribute charnaole on contributions to o religious organizations o schools and universities o other cultural historical or educational organizations if further states that its financial support will come from contributions from individuals and professional people fundraising will be planned with individual solicitations the officers and directors it is not a activities will be conducted in supporting_organization a private_operating_foundation or a home for the aged or handicapped it does not provide any scholarship benefits or student aid the facilities and operations will not be managed by another organization or individual under a contract it is not a party to any leases and does not provide services or products by was incorporated in the state of on by the will operate exclusively for charitable religious educational department of commerce and consumer affairs state of state that scientific or literary purposes upon dissolution assets shall be distributed for exempt purposes described under sec_501 c or to federal state_or_local_government the organization will not engage in any act of self-dealing as defined in sec_4941 d of the irc none of the corporation's assets or net_earnings will inure in whole or part to the benefit of any private individual except in furtherance of charitable religious educational scientific or literary purposes these documents form 886-a rev department of the treasury - internal_revenue_service page -- form 886a name oftaxpayer department of the t te2swj intmul revenue service explanation of items schedule no or exhibit year period ended december officers president vice president director director treasurer the address for all officers is bylaws were signed by related_entity the and incorporated in operated by as a for-profit agricultural business founded owned and and his family its commercial operations are on approximately ' farm acres and it provides full-time employment to approximately - people office is located a all tenants of employees employees' rent that is due to the low income agricultural housing activity are deducts rent from its employees' payroll for the amount of the no references or links to no website then sell follows website were found on has encourages fundraisers to purchase website produce inventory at farmers markets an excerpt from website other activities has advertised a variety of public events since the year or earlier it has provided weekly farmers markets since the year of - of examples of internet postings advertise similar seasonal activities hosted by these include o an advertisement with costs for entertainment including a giant corn maze rides and a list restaurants selling their food the advertisement form 886-a rev department of the treasury - internal_revenue_service page -- fo m 886a name oftaxpayer i department of the treasury - internal_revenue_service explanation of items schedule no or exhibit year period ended december promotes the market place that shoooers can browse thursday o s hosts easter egg hunt with hay rides rock climbing inflatables and more from a m -5 pm t call ext o while the say they are concerned about the fate of the workers they maintain they are good corporate citizens who offer com maze and pumpkin patch events for school kids and easter egg hunts for children in the community during which they teach them about aoriculture and farm life com investigated for state and federal labor violations reported activities filed form_990 for year through _ c hat reported fund raising activities forms that reported housing activities providing housing ' employees is foundation's primary activity per filed forms 990-pf from nhen it reported gro sec_1 states it had no activities until as nuhlic contributions from fund raising receipts ofdollar_figure were and from easter egg hunt after expenses of foundation showed a loss ot dollar_figure no distributions of donations-or grants 990-pf for years to to present receipts ofdollar_figure from dollar_figure were made by housing rental hrougt activities the following are chronological activities for housing may board meeting foundation's board met to approve action to pursue a usda farm labor housing loan may letter of conditions from usda this letter describes the housing as shows the activity as units of sec_521 rental assistance units employees and form 886-a rcv depanment of the t reaswy - internal_revenue_service page - form 886a name oftaxpaycr depa rtro t of the treasury -internal revenue service e lanation of items schedule no or exhibit year period ended december the letter states proof of ir sec_501 status is required and describes usda eligibility requirements a as a broad-based has a membership that reflects a variety of interests in the area where the housing will be located nonprofit organization of farm workers july loan received received a usda farm labor housing loan ofdollar_figure assistance funding to provide housing for migrant farm workers plus rental july building purchased purchased a at the time of this apartment building unit building at purchase several of fo employees resided at renters of the apartment building were released as tenants with the exception of related to employees all tenants since purchase have been or are employees september management_contract contracted management agreement with controlled by or to be the managing agent of the apartments per a is owned and labor housing has no known relationship with august housing applicants labor housing document states all applications will be placed an on a master waiting list the managing agent will keep detailed records regarding applications on list housed rejected or canceled all applicants will be notified in writing of status rejections will be made in writing with appeal rights april of t building repairs a building oermit was issued for minor repairs and re-roofing of the apartments the owner on the building permit is shown as form 886-a rev department of the treasury - internal_revenue_service page -- form 886a name oftaxpayer depanment of the t rcaswy - internal_revenue_service e lanation of items schedule no or exhibit year period ended december activities for year of examination revenue for year ended december form_990-pf reported the following ontributions gifts grants etc - total revenue labor housing the examination results show the following revenue labor housing revenue rent tenants labor housing revenue rent subsidy total revenue dollar_figure l_ dollar_figure dollar_figure i dollar_figure rental income was collected by contracted management company the records for the rental activities were maintained by for contributions ofdollar_figure amount represents year the expenses were incurred for no money was contributed to forgiveness of a debt for expenses year event called on instead the s paid in a prior claims that because did not repay for expenses considered itself to have made contributions to foundation in year the examiner found internet advertisements showing was found sponsors of the event no mention of - as the expenses qualifying distributions and undistributed_income form_990-pf for tax_year scholarships to students and that contributions were only given to preselected charitable organizations excess distributions carried from year states qualifying distributions of totaled dollar_figure were made for qualifying distributions scholarship to students the auditor requested all documents related tc criteria solicitation and recipient selection process had no supporting documentation related to their scholarships and no irs approval of their scholarship programs scholarship availability was mostly communicated by word of mouth stated it had no specific documented formalities and that scholarship authorization form 886-a rev department of the treasury- internal_revenue_service page -- fonn 886a name oftaxpayer i department of the t reaswy- internal re enue service explanation of items schedule no or exhibit year period ended december show the following payments records for the dollar_figure of scholarship to students expenditure on form a member of ms 's school transcripts were mailed to s scholarship jette states your parents are very proud of you paid directly to ms pharmacy fraternity at explained that met a member of ms the state legislature during an event hosted by the of the scholarship at this event and she was subsequently selected to receive the scholarship based on high academic achievement other_payments are as follows bureau ms family who is with iearned dollar_figure addressed to dollar_figure donation to a local high school letter of appreciation is paid directly to believes that this was paid as a replacement for a lost check paid out in prior years to assist in expenses_ for school books no supporting documentation was provided the paid to friends of provided a copy of check there was also dollar_figure representative and noted as donation the financial institution's copy of the same check shows the note as stated this payment for the political_candidate was a mistake by an main account from account to its bank account to correct the mistake regardless no reimbursement to employee who wrote a check from its bank event tickets and donation vas evidenced transferreddollar_figure dated from public records show representatives representing the won re-election state of committee friends of is a member of the house of i district since in and campaign spending commission reports that contributions includeddollar_figure received on from supplemental january - june friends of report on qualifying distributions excess distributions the auditor requested records to explain the dollar_figure distribution carried from year to the year the distributions were paid for the amounts and purposes as follows fonn 886-a rev 4-g8 departmenr of dte treasury- inremal revenue service page -- form886a name oftaxpaycr i department of the treasury- internal_revenue_service explanation of items schedule no or exhibit year period ended december housing rental year sunset on the plains expenses payments to individuals payments to schools and church liabilities the amount ofdollar_figure was included in liabilities for a bill paid_by for no documents supported that was liable for this expense tax law - exempt status exempt_purpose sec_501 provides for the exemption from federal_income_tax of corporations organized and operated exclusively for charitable or educational_purposes provided that no part of the net_earnings inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 of the income_tax regulations regulations provides that an organization operates exclusively for exempt purposes only if it engages primarily in activities that accomplish exempt purposes specified in sec_501 c an organization must not engage in substantial activities that fail to further an exempt_purpose in better business bureau of washington d c v u s u s big_number the supreme court held that the presence of a single nonexempt purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes regulations sec_1_501_c_3_-1 provides that an organization is not organized or 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 regulations sec_1 c -1 d defines the term charitable as used in sec_501 c as including the relief of the poor and distressed or of the underprivileged and the promotion of social welfare by organizations designed to lessen neighborhood tensions to eliminate prejudice and discrimination or to combat community deterioration revproc_96_32 1996_1_cb_717 i r s sets forth a safe_harbor under which organizations that provide low-income_housing will be considered charitable as described in sec_501 of the irc because they relieve the poor and distressed as described in sec_1 c -l d 06-dollar_figure of the regulations as follows form 886-a rev department of the treasury- internal_revenue_service page -- ------------------------------------------------------------- form886a name of taxpayer i department of the t reaswy internal_revenue_service exp_lanation of items schedule no or exhibit year period ended december to be recognized as exempt from income_tax under sec_501 a low-income_housing organization must not only serve a charitable purpose but also meet the other requirements of that section including the prohibitions against inurement and private benefit if an organization furthers a charitable purpose such as relieving the poor and distressed it nevertheless may fail to qualify for exemption because private interests of individuals with a financial stake in the project are furthered for example the role of a private developer or management company in the organization's activities must be carefully scrutinized to ensure the absence of inurement or impermissible private benefit resulting from real_property sales development fees or management contracts an organization of farmers formed to furnish farm laborers for individual farmers does not qualify for exemption the organization obtained requests from member farmers for workers assigns the laborers to the farmers receives payment from the farmers and pays the laborers or their representatives the organization's income is from a small rental fee paid_by the workers and fees and dues paid_by the farmers its funds are used to operate a labor camp to house transient farm workers while they are working in the area the organization by engaging in the activities described above is merely providing services to individual farmers that they would have to provide for themselves or get someone else to provide for them revenue_ruling rev_rul 1972_2_cb_249 an organization formed to provide low_income_housing to families but with preference for housing to employees of a farm proprietorship operated by the individual who created and controls the organization does not qualify for exemption under sec_501 c of the irc the organization constructed ten rental units adjacent to the farm applicants for housing were preference according to type of position and length of employment on the farm all of the units are occupied by regular employees of the farm the individual pays the rent for the employees all of the housing units are occupied by low income families the organization was initially funded through a loan from a governmental agency and contributions from the individual its receipts are from rental payments and its disbursements are for repayments on the loan and upkeep of the rental units since the organization gave preference for housing to employees of the farm proprietorship operated by the individual who created and controls the organization and all the units are in fact occupied by such employees the organization is serving the private interests of the individual rather than a public interest accordingly it is held that the organization's activities are not charitable and that it does not qualify for exemption from federal_income_tax under sec_501 of the irc revrul_72_147 1972_1_cb_147 the court held that an organization that operated a school to train individuals for careers as political campaign professionals but that could not establish that it operated form 886-a rev department of the treasury- lntemal revenue service page -- - ----------------- -- ------ department of the treasury - i nremal revenue service explanation of items schedule no or exhibit year period ended december ' form 886a name oftaxpaver i on a nonpartisan basis did not exclusively serve purposes described in sec_501 because it se rved private interests more than incidentally the court found that the organization was created and funded by persons affiliated with a particular political_party and that most of the organizations graduates worked in campaigns for the party's candidates the court concluded the organization conducted its educational activities with the objective of benefiting the party's candidates and entities although the candidates and entities benefited were not organizational insiders the court stated that the conferral of benefits on disinterested persons who are not members of a charitable_class may cause an organization to serve private interests within the meaning of sec_501 -1 d ii the court concluded by stating that even ifthe political party's candidates and entities did comprise a charitable_class the organization would bear the burden of proving that is activities benefited members of the class in a non select manner american campaign academy t c pincite the court held that an association formed in a private real_estate development to operate parks swimming pools boat docks and other recreational facilities did not qualify as sec_501 c organization althot1gh the organization provided some benefit to the general_public the primary intended beneficiaries were the residents and property owners of the private development thus the organization operated for a substantial non-exempt purpose rather than for exclusively charitable purposes 88_tc_1 affd a nonprofit organization that provides specially designed h using to elderly persons at the lowest feasible cost and maintains in residence those tenants who subsequently become unable to pay its monthly fees is an organization operated exclusively for charitable purposes within the meaning sec_501 rev rut 1979_2_cb_194 see also revrul_72_124 g b revrul_61_72 1961_1_cb_188 and revrul_64_231 g b in foundling church of scientology v united_states 412_f2d_1197 ct_cl cert_denied 397_us_1009 an organization argued that the court should not find that the organization's earnings had inured to its founders since it had made some payments to him as repayments on a loan since the organization did not produce any documents evidencing this indebtedness the court concluded that the plaintiff had failed to meet its burden_of_proof that a part of the corporate earnings was not a source of benefit to private individuals in wendy l parker rehabilitation foundation inc v c i r tcmemo_1986_348 the tax_court upheld the service's position that a foundation formed to aid coma victims including a family_member of the founders was not entitled to recognition of exemption approximately of the organization's net_income was expected to be distributed to aid the family coma victim the court found that the family coma victim was a substantial beneficiary of the foundation's funds it also noted that such distributions relieved the family of the economic burden of providing medical and rehabilitation care fonn 886-a rev depanment of the treasury - internal_revenue_service page -- form886a name oftaxpayer i department of the t re2su ' - i ntemal revenue sen-ice explanation of items schedule no or exhlbit year period ended december for their family_member and therefore constituted inurement to the benefit of private individuals benefit does not have to involve the flow of funds see revrul_76_206 providing services to a for-profit that would otherwise have had to have been purchased benefit does not require that payments for goods or services be unreasonable or exceed fair_market_value 71_tc_1067 a nonprofit organization formed to aid immigrants in overcoming social cultural and economic problems by providing personal counseling referrals to helpful agencies social and recreational activities instruction in english and distributing a newsletter containing information on attaining citizenship securing housing and obtaining medical_care is operated exclusively for charitable and educational_purposes and qualifies for exemption under sec_501 revrul_76_205 g b sec_501 provides for exemption from income_tax for organizations described in sec_501 and sec_501 sec_501 provides this exemption for corporations associations and trusts that are organized and operated for charitable educational literary religious and or scientific purposes to test for public safety for fostering national or international amateur sports competition with certain limitations or for preventing cruelty to animals or children sec_501 c also requires that no p art of the net_earnings inures to the benefit of any private_shareholder_or_individual that no substantial part of the activities of is to carry on propaganda or otherwise attempt to influence legislation and that it not participate in or intervene in any political campaign on behalf of or in opposition to any candidate for public_office sec_507 sets forth the requirements for a private_foundation to be terminated either voluntarily under sec_507 or involuntarily under sec_507 the two requirements for involuntary termination are that there have been either willful repeated acts or failures to act or a willful and flagrant act or failure to act that give rise to liabilities for taxes under chapter and that for this reason the secretary notifies the organization that it is subject_to a termination_tax imposed by sec_507 sec_509 defines private_foundations to be organizations described in sec_501 that do not meet one of the exceptions further listed in sec_509 a a or a tax law private_foundation and excise_taxes sec_4945 sec_4945 and sec_4945 impose excise_taxes on taxable_expenditures defined in sec_4945 form 886-a rev department of the treasury- internal_revenue_service page -- form 886a name of taxpayer dep u tmcnt of the treasury- lntcnul revenue service ex lanation of items -schedule no or exhibit year period ended december sec_4945 imposes a excise_tax for each taxable_expenditure that is to be paid_by the private_foundation sec_4945 imposes an excise_tax of on the foundation for taxable_expenditures that are not corrected sec_4945 i within the taxable_period that shall be paid_by the private_foundation sec_4945 imposes an excise_tax of on the foundation_manager in cases where taxes are imposed under sec_4945 b and the foundation_manager refused to agree to part or all of the correction sec_4945 i this tax is to be paid_by the foundation_manager sec_4945 limits the tax imposed by sec_4945 to dollar_figure and the tax imposed by sec_4945 to dollar_figure political legislative sec_4945 holds that taxable_expenditures include any amounts_expended by a private_foundation to carry on propaganda or otherwise to attempt to influence legislation which includes any attempt to influen ce any legislation through n attempt to affect the opinion of the 'general public or any segment thereof and any attempt to influence legislation through communication with any member or employee of a legislative body or with any other government_official or employee who may participate in the formulation of the legislation except technical_advice or assistance provided to a governmental body or to a committee or other subdivision thereof in response to a written request by such body or subdivision as the case may be other than through making available the results of nonpartisan analysis study or research sec_4945 and sec_4945 e a private_foundation influences the outcome of a specific public election if it participates or intervenes directly or indirectly in any political campaign on behalf of or in opposition to any candidate for public_office regulation a the term candidate for public means an individual who offers himself or herself or is proposed by others as a contestant for an elective national state or local public_office sec_162 sets forth the types of ordinary and necessary expenses that may be allowed as deductions in carrying on any trade_or_business sec_162 denies a deduction under sec_162 for certain lobbying and political_expenditures sec_162 proceeds to list the expenditures which are not deductible including amounts paid_or_incurred in connection with influencing_legislation sec_162 participating in or intervening in any political campaign on behalf of or in opposition to any candidate for public_office sec_162 e b any attempt to influence the general_public or segments thereof with respect to elections legislative matters or referendums irc form 886-a rev department of the treasury- internal_revenue_service page -- fo 886a name oftaxpayer department of the treasury- internal_revenue_service ex lanation of items schedule no or exhibit year period boded december e c or any direct communication with certain executive branch officials in an attempt to influence the official actions or positions of those officials sec_162 sec_4945 sets forth that with respect to any taxable_expenditure sec_4945 the terms correction and correct mean the recovery_of part or all of the expenditure to the extent possible and where full recovery is not possible such additional corrective action as is prescribed by the secretary by sec_4945 holds that with respect to any taxable_expenditure sec_4945 the taxable_period is the period beginning with the date on which the taxable_expenditure occurs and ending on the earlier of a the date of mailing of a notice_of_deficiency with respect to the tax imposed by sec_4945 or b the date on which tax imposed by sec_4945 is assessed scholarships and grants grants to individuals must be made in accordance with procedures approved in advance by the internal_revenue_service to secure such approval a private_foundation must demonstrate in its request for advance approval that o its procedure awards grants on an objective and non-discriminatory basis o the procedure is reasonably calculated to result in perforn'lance by grantees of the activities that the grants are intended to finance and o the foundation will supervise grants to determine whether grantees have fulfilled the grant terms see regulation sec_53_4945-4 sec_4945 excludes from the term taxable_expenditure scholarship grants that are subject_to the provisions of sec_117 and are to be used for study at an educational_institution described in sec_170 sec_4945 provides further that these individual grants must be provided on an objective and nondiscriminatory basis pursuant to a procedure approved in advance by the secretary termination of a private_foundation sec_507 sets forth the requirements for a private_foundation to be terminated either voluntarily under sec_507 or involuntarily under sec_507 the two requirements for involuntary termination are that there have been either willful repeated acts or failures to act or a willful and flagrant act or failure to act that give rise to liabilities for taxes under chapter and that for this reason the secretary notifies the organization that it is subject_to a termination_tax imposed by sec_507 fonn 886-a rev department of the treasury - internal_revenue_service page -- fonn886a name oftaxpayer i dqnrt mmt of tht treasury - lntt mal revenue servict explanation of items schedule no or exhibit year period ended december sec_509 defines private_foundations to be organizations described in sec_501 that do not meet one of the exceptions further listed in sec_509 sec_509 sec_509 or a income_tax sec_11 imposes a tax for each taxable_year on the taxable_income of every corporation sec_61 of the code defines gross_income as all income from whatever source derived sec_162 of the code allows as a deduction all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business sec_1_6001-1 of the regulations requires corporations to make such returns render such statements or keep such specific records as will enable the service to determine whether or not such corporation is liable for tax under subtitle a of the code sec_1_6012-2 of the regulations requires every corporation subject_to taxation under subtitle a of the code to make a return of income regardless of whether it has taxable_income or regardless of the amount of its gross_income in addition this regulation specifies form_1120 as the required return of a corporation government's position provision of low_income_housing exclusively to the founders' employees constitutes activities that primarily serve the private interests of the founders is not operated exclusively for a charitable purpose and does not meet this requirement to qualify for exemption from federal_income_tax under sec_501 recognition of exempt status under sec_501 should be revoked because n does not meet the requirements liable for excise_taxes applicable to private_foundations on payments made directly to individuals and to a non-qualifying organization form 886-a rev department or the trcasuty- internal_revenue_service page -- form 886a name ofta xpayer i deputment of the treasury - lntemal revenue service exp l anation of i terns schedule no or exhlbit year period ended december the aforementioned payments are in violation of sec_4945 and is liable for the amount of tax is subject_to taxation under subtitle a of the irc as described below private benefit was formed for the private benefit of its-founders the family members and their family-owned commercial farms organized and primarily operated in a manner to further the commercial farm ventures of and the family is recognized that to receive a government grant for housing its farm workers proof of sec_501 c status was required by usda this status can secure key funding and facilitate lender and governmental agency approval of the funding transfers units employees and several instances support that farms' considered its very own foundation the names of documents usda loan is units of sec_512 rental assistance the founders used their sec_501 c exempt status to obtain government subsidies for housing then used the benefits exclusively for employees of the founders' business did not seriously solicit tenants other than the for the ultimate result is tnat any benefit tram the housing activity went exclusively and directly to its founders and employees the organizations activities are fully oriented to its own membership rather than to the general_public as noted in g_c_m an organization which serves a private interest other than incidentally is not entitled to exemption as an organization described in sec_501 c employees activities and expenditures benefit had unfettered use of funds and used them for private purposes to pay for its self-promotional community events including products and of for-profit vendors' products insiders family members as evidenced by insider contributions that were changed at whim to loans markets and other events that included sales of control was used to benefit by substantial non-exempt purpose substantial non-exempt purpose was one of qualifying for a feder l housing loan and rent subsidies for regulatory requirements that competing for-profit farms must contend with to employees while avoiding the form 886-a rev department of the treasury - internal_revenue_service page -- form886a name ofta xpayer i department of the treaswy internal revenue semce expjanation of items schedule no or exhibit yeac pe riod ended december acquire the same loans and rent subsidies the government loan for the housing was dependant on the organization enjoying recognition of tax exempt status under sec_501 c it is not furthering a charitable or educational purpose to ensure expenses paid for the government for its employees only further low-income tenants were not provided tools or opportl jnities to better their situation through training related to home ownership unlike the case in revrul_67_138 had a ready supply of farm labor through provision of housing situation can also be distinguished from situation sec_1 through of rev rut none of which primarily benefited their individual members founders or other insiders to be recognized as exempt from income_tax under sec_501 a low_income_housing organization must not only serve a charitable purpose but also meet the other requirements of that section including the prohibitions against inurement and private benefit has not established that it does not provide preferential services or benet1ts to its members other than those of a purely incidental nature as in 326_us_279 the presence of a single nonexempt purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes is like the organization described in rev where all units of the housing have been occupied by employees or employees' family members of a farm proprietorship operated by the individual who created and controls the although providing housing for low-income families furthers charitable purposes doing so in a manner that gives preference to employees of the founder's business primarily serves the private interest of the founder rather than a public interest is similar to easter house where the court found that the health related_services were merely incidental to the organization's operations of a service which in and of itself did not serve an exempt_purpose and the business_purpose and not the advancement of education and charitable activities purpose of the activity is the primary goal easter house 12ci ct at any charitable purpose of providing housing for here with the poor is incidental to actual business_purpose of housing their employees while obtaining government subsidies available only to non-profit organizations form 886-a rev department of me treaswy- internal r enuc service page -- form 886a name oftaxpayer department of the t reaswy - internal_revenue_service ex lanation of items schedule no or exhibit l year period ended december further like the organization described in rev_rul g b where the furnishing of housing for transient farm laborers is merely a necessary adjunct for the accomplishment of the organization's purpose in case that of securing a labor force for the founder's business similarly is like the organization in revrul_69_280 c b that operated primanly and directly for the benefits of the individual members rather than for the community as a whole provides substantial financial benefits to by essentially providing it with a means of housing their employees and providing an easy source of capital to purchase real_estate to accomplish this utilizing the exempt status of eliminates roadblocks to obtaining a housing loan and saves considerable t1me and money to repay the loan through government payment of low rent subsidies and payroll deductions for rent as such serves a private interest more than incidentally contrary to sec_1 c -1 d ii of the regulations revocation does not qualify for exemption from tax under sec_501 c because it has failed to operate exclusively for exempt purposes as required by sec_501 sec_1 c -1 a and sec_1_501_c_3_-1 because more than an insubstantial part of its activities is not in furtherance of exempt' purposes a substantial part of its funding expenses staff and program is in furtherance of increasing profits of the founders' agricultural business c should be revoked recognition of exempt status under note once a private foundation's exempt status is revoked it is considered a taxable private_foundation until it terminates its jrivate foundation status under the provisions sec_507 of the code it must continue to file form_990-pf and pay any applicable private_foundation_excise_taxes calculated on form until termination taxable_expenditures the the analyses of the liabilities and the computation of the taxes for each year is subject_to the excise_taxes under sec_4945 outlined below are the grants or scholarships to individuals were made prior to receiving approval therefore it constitutes taxable_expenditures under sec_4945 regardless the scholarship would not have met the approval criteria that requires grants to be awarded on an objective and nondiscriminatory basis no data supports that any type of selection criteria was established or followed see sec_4945 sec_4945 g and regs a ii --------------------------------------------------------------- fonn 886-a rev department of the treasury- internal_revenue_service page -- form 886a name oftaxpayer department of the treasury internal_revenue_service e lanation of items schedule no or exhibit year period ended december contributions to a candidate for public_office are taxable_expenditures subject_to chapter excise_taxes the transfer of funds did not correct the distribution see sec_4945 internal forgiven loan shown as contribution to the examiner could uncover no evidence to support that the event was related to was held on was liable for the event expenses all advertisements support that this was one of for-profit property nor does evidence support that but rather public credit was given to and it ' promotional and revenue generating events that for several years independent of has been conducting the amount ofdollar_figure debt is disallowed contribution representing forgiveness of an unproven the excess_distribution carryover from the prior year of of distributions of which only dollar_figure were qualifying distributions see calculation below however further documentation was hot supplied to support that this amount of qualifying distributions exceeded a determined amount of distributions therefore no excess_distribution carry over to the be allowed at this time vas based on year return will year minimum year s distributions ofdollar_figure shown as excess distributions on year j amount - - - purpose housing rental year sunset on the plains expense sec_1 scholarship scholarship recipient ' ' - ' -- l_ - school school total non-qualifying distributions from year - total qualifying distributions from year qualifying non- qualfying - non-qualfying distribution i - ' i - - - -i i form 886-a rcv department of the treasury- internal_revenue_service page -- - - - - - - - - - - - - - - - - - - - - - - - form 886a name oftaxpayec department of the treasury- lntemal revenue service ex lanation of items schedule no or exhibit yeac period ended december taxpayer's position the taxpayer has not yet provided their opinion conclusion has not demonstrated that it is operated exclusively for exempt purposes within the meaning sec_501 and sec_1 c d one or more exempt purposes specified in sec_501 it is operated for a substantial non-exempt purpose and for the benefit of private rather than public did not engage primarily in activities that accomplish interests and its activities resulted in substantial private benefit required to file federal_income_tax returns on forms for the - as stated in the heading of this letter and tax perioa ending december for all tax years thereafter was a private_foundation as of the effective date of because revocation it is considered to be a taxable private_foundation until it terminates its private_foundation_status under sec_507 of the code in addition to the income_tax return you must also continue to file form_990-pf by the 15th day of the fifth month after the end of your annual_accounting_period for information on termination your private_foundation_status irm and sec_507 and b sec_4945 computations the taxable_expenditures made by the d subject the foundation to imposition of the first_tier_excise_tax under sec_4945 at a tax_rate of since correction of the expenditures has not been made sec_4945 imposes a second tier excise_tax of against the foundation under sec_4945 and the total taxable_expenditures of dollar_figure dollar_figure' dollar_figure paid directly to ms paid directly to paid to friends of the tax is computed as shown below year taxable_expenditures sec_4945 rate form 886-a rev include the following - - - - -i yo department of the treasury internal_revenue_service page -- form 886a name oftaxpayer i department of the t rnsury - internal_revenue_service explanation of items schedule no or exhibit l year period ended december i sec_4945 excise_tax taxable_expenditures sec_4945 rate sec_4945 excise_tax total sec_4945 taxes dollar_figure x i - - i returns and payments should be sent to the following mailing address internal_revenue_service teige division m s w540 rb make check s or money order s payable to the united_states treasury for the foregoing reasons and revocation of its exempt status is proposed effective january is not an organization described in sec_501 c forms returns should be filed for the tax periods ending on or after january forms 990-pf and are also applicable to private_foundations information form_1120 filing requirement taxation under subtitle a of the code a corporate organization whose tax-exempt status is revoked is brought current on its filing and tax_liabilities by transferring the form_990 data to converted forms and assessing any_tax due if foundation's exempt status is revoked forms u s_corporation income_tax return should be filed for the tax period_s ending on or after january sec_1_6012-2 of the regulations requires every corporation subject_to taxation under subtitle a of the code to file form_1120 to report the income and deductions per sec_61 and sec_162 of the code respectively the examiner adjusted the revenue from dollar_figure for the year reflect the additional tenant and subsidy rental income shown on the expenses were adjusted from dollar_figure donation disbursements made to individuals and to a non-qualified entity to disallow the dollar_figure to dollar_figure to to records of form 886-a rev department of the treasury- internal_revenue_service page --


number release date id office uilc cca_2009040614341537 -------------- from ------------------- sent monday april pm to ------------------- cc ----------- subject re no for purposes of sec_165 profit_motive is determined by the profit_motive of the partnership as reflected by the state of mind of the general_partner acting on the partnership's behalf see brannen v commissioner and garcia v commissioner the partner's profit_motive in entering the partnership is relevant however to whether a partnership was formed for federal tax purposes under the supreme court case in culbertson and tower in this context that partners' profit_motive is relevant to economic_substance and shamming the partnership these issues may be determined in an fpaa under sec_6233


index numbers v cc dom it a plr-106855-99 sy legend o date date date dear t t i you have requested that a ruling be issued to a under sec_301_9100-1 of the procedure and administration regulations on behalf of its subsidiary b a wishes to file a form_970 application to use lifo inventory_method for one of b’s two divisions this ruling_request is being made under sec_301_9100-3 on date b acquired inventory in a transaction it represents is described in sec_351 of the internal_revenue_code this inventory had been identified by the transferor using the last-in_first-out lifo inventory_method this inventory was placed by b into one of its two divisions this inventory has been identified by b using the lifo inventory_method and this method is used for both federal_income_tax and financial reporting purposes in date a's failure_to_file a form_970 to enable b to use the lifo inventory_method was discovered -2- sec_472 provides that a taxpayer may use the lifo_method of inventorying goods specified in an application to use such method filed at such time and in such manner as the secretary may prescribe sec_1_472-3 of the income_tax regulations provides that the lifo inventory_method may be adopted and used only if the taxpayer files with its income_tax return for the tax_year as of the close of which the method is first to be used a statement of its election to use such inventory_method the statement shal be made on form_970 pursuant to the instructions printed with respect thereto and to the requirements of this section or in such other manner as may be acceptable to the commissioner revrul_70_564 1970_1_cb_109 holds that a corporation that acquires inventories in a transfer under sec_351 must file a form_970 in order to adopt the lifo inventory_method under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of the time to make a regulatory election under all subtitles of the code except subtitles e g h and i provided that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-1 defines a regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin an election includes an application_for relief in respect of tax and a request to adopt change or retain an accounting_method or accounting_period sec_301_9100-2 sets forth rules governing automatic extensions for making certain elections if the provisions of sec_301_9100-2 do not apply to a taxpayer's situation the provisions of sec_301_9100-3 may apply sec_301_9100-3 sets forth the standards that the commissioner will use in determining whether to grant an extension of time to make a regulatory election it also sets forth information and representations that must be furnished by the taxpayer to enable the internal_revenue_service to determine whether the taxpayer has satisfied these standards the standards to be applied are whether the taxpayer acted reasonably and in good_faith and whether granting relief would prejudice the interests of the government under sec_301_9100-3 a taxpayer that applies for relief for failure to make an election before the failure is discovered by the service ordinarily will be deemed to aa have acted reasonably and in good_faith however pursuant to sec_301_9100-3 a taxpayer will not be considered to have acted reasonably and in good_faith if the taxpayer seeks to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested or if the taxpayer was informed in all material respects of the required election and related tax consequences and chose not to make the election furthermore a taxpayer ordinarily will not be considered to have acted reasonably and in good_faith if the taxpayer uses hindsight in requesting relief sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability in the aggregate for all tax years affected by the regulatory election than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money likewise if the tax consequences of more than one taxpayer are affected by the election the government's interests are prejudiced if extending the time for making the election may result in the affected taxpayers in the aggregate having a lower tax_liability than if the election mad been timely made sec_301_9100-3 provides that the interests of the government are ordinarily prejudiced if the tax_year in which the regulatory election should have been made are closed by the period of limitations on assessment before the taxpayer receives the ruling granting relief under sec_301_9100-1 the information and representations furnished establish that a and b have acted reasonably and in good_faith in this request furthermore granting an extension will not prejudice the interests of the government accordingly an extension of time is hereby granted for a to file a form_970 on behalf of b the form_970 shall be filed for the tax_year ended date this extension shall be for a period of days from the date of this ruling please attach a copy of this ruling to the form_970 when it is filed no opinion is expressed as to the application of any other provisions of the code or the regulations which may be applicable specifically no opinion is expressed regarding whether b acquired the inventory at issue in a sec_351 transaction further no opinion is expressed regarding b's corporate structure that is no opinion is expressed that b is correctly treating its two divisions as separate trades_or_businesses as defined in sec_446 pursuant to a power_of_attorney on file in this office a copy of this ruling is being sent to a mg a 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 yours heather maloy acting assistant chief_counsel income_tax and accounting by james l atkinson acting deputy assistant chief_counsel xo


number release date internal_revenue_service 860d ----------------------- --------------------------------- ----------------------------------- ----------------------------------- ------------------------------ ---------------------------- 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 fip b03 plr-107077-06 date june legend date ---------------------------- date ------------------ date -------------------- date ---------------------- taxpayer ------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------- seller ------------------------------- master servicer ------------------------------------------------------------ -------------------------------------------------------------------------------------------------------------- depositor ------------------ trustee ------------------------------ firm ---------------------------------------- firm ----------------------- dear mr -------------- plr-107077-06 this private_letter_ruling responds to a letter dated date requesting an extension of time under sec_301_9100-1 of the procedure and administration regulations to make an election under sec_860d of the internal_revenue_code the code to be treated as a real_estate_mortgage_investment_conduit remic facts taxpayer was established on date by agreement between seller master servicer depositor and trustee taxpayer was established to facilitate the securitization of remic regular interests created upon the conveyance of certain mortgage loans to the depositor from the seller the transaction is evidenced by a prospectus supplement and a pooling and servicing agreement stating the intention of taxpayer to make four remic elections remic remic remic and the master remic trustee was responsible for completing forms ss-4 and for each remic and forwarding them to firm which was responsible for completing the remic elections and tax returns on date trustee mailed a draft pooling and servicing agreement reflecting three remics with forms ss-4 and for remic remic and the master remic to firm on date trustee mailed a final pooling and servicing agreement reflecting four remics to firm firm did not realize that the pooling and servicing agreement provided on date reflected a change in the number of remics from three to four and failed to prepare form_8736 for remic on date firm discovered the failure to make an election for remic and notified trustee and firm firm subsequently submitted a request for a private_letter_ruling requesting relief under sec_301_9100-1 for an extension of time for taxpayer to elect to be treated as a remic under sec_860d of the code taxpayer makes the following additional representations the request for relief was filed by taxpayer before the failure to make the regulatory election was discovered by the service granting the relief requested will not result in taxpayer having a lower tax_liability in the aggregate for all years to which the regulatory election applies than that taxpayer would have had if the election had been timely made taking into account the time_value_of_money taxpayer did not seek to alter a return position for which an accuracy-related_penalty has been or could have been imposed under sec_6662 of the code at the time the taxpayer requested relief and the new position requires or permits a regulatory election for which relief is requested being fully informed of the required regulatory election and related tax consequences taxpayer did not choose to not file the election law and analysis plr-107077-06 sec_860d of the code provides that an entity which meets the requirements of a remic under sec_860d may elect to be treated as a remic for its first taxable_year and that such election must be made on the return for its first taxable_year sec_1_860d-1 provides that a qualified_entity makes a remic election by timely filing for its first taxable_year a form_1066 signed by a person authorized to sign that return this regulation also provides a reference to sec_301_9100-1 for rules regarding extensions of time for making elections sec_1_860f-4 of the regulations provides that the due_date and any extensions for filing a remic’s annual tax_return are determined as if the remic were a partnership therefore pursuant to sec_1 e a remic’s annual return must be filed on or before the fifteenth day of the fourth month following the close of the taxable_year unless an extension is granted sec_301_9100-1 of the regulations provides in part that the commissioner has discretion to grant a reasonable extension of time to make a regulatory election defined in sec_301_9100-1 as an election whose due_date is prescribed by regulations or by a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the code except e g h and i sec_301_9100-3 through c i of the regulations set forth rules that the internal_revenue_service generally will use to determine whether under the particular facts and circumstances of each situation the commissioner will grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that subject_to paragraphs b i through iii of sec_301_9100-3 when a taxpayer applies for relief under this section before the failure to make the regulatory election is discovered by the service the taxpayer will be deemed to have acted reasonably and in good_faith and sec_301_9100-3 provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax_liability in the aggregate for all years to which the regulatory election applies than the taxpayer would have had if the election had been timely made taking into account the time_value_of_money conclusion based on the information submitted and representations made we conclude that taxpayer has satisfied the requirements for granting a reasonable extension of time to elect remic status therefore taxpayer is granted a reasonable extension of time not to exceed days from the date of this letter to elect remic status for purposes of sec_860d and sec_1_860d-1 this ruling is limited to the timeliness of the remic election of taxpayer this ruling does not relieve taxpayer from any penalty that they may owe as a result of the failure plr-107077-06 to timely file form_1066 this ruling’s application is limited to the facts representations code sections and regulations cited herein no opinion is expressed with regard to whether taxpayer meets the requirements of a remic under sec_860d no opinion is expressed with regard to whether taxpayer’s tax_liability is not lower in the aggregate for all years to which the lection applies than such tax_liability would have been if the election had been timely made taking into account the time_value_of_money upon audit of the federal_income_tax returns involved the director’s office will determine such tax_liability for the years involved if the director’s office determines that such tax_liability is lower that office will determine the federal_income_tax effect except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to taxpayer that requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the provisions of a power_of_attorney currently on file we are sending a copy of this ruling letter to your authorized representative sincerely yours alice m bennett chief branch ____________________ office of associate chief_counsel financial institutions and products


office_of_chief_counsel internal_revenue_service memorandum number release date cc pa rjgoldstein posts-151438-08 uilc date date to alan bruckner group manager specialty programs employment_tax program territory - east group from blaise g dusenberry senior technician reviewer procedure administration subject --------------- -------------------------------------------------------------------------- this chief_counsel_advice responds to your request for assistance this advice may not be used or cited as precedent legend company a ---------------- company b --------------------------------- year ------- year ------- year ------- year ------- year ------- year ------- year ------- n1 ------------ n2 ------------ n3 -------------- n4 -------------- n5 ----------- posts-151438-08 n6 -------------- issue whether the service may determine an intentional disregard penalty under sec_6721 against company a for failing to timely file information returns for year conclusions yes the service may determine the intentional disregard penalty under sec_6721 against company a because the facts suggest it knowingly or willfully failed to timely file information returns with the service for year facts company a is ------------------------form filers in the united_states company a executes trades for --------------- ---------------- and --------------------------- for year through year company a’s filings increased from approximately n1 to approximately n2 forms for year the filing almost quadrupled to approximately n3 forms in march of year company a filed approximately n4 forms for year almost triple the prior years filing for year sec_1 through company a exhibited a pattern of late and inaccurate filings the service however has not previously contemplated an intentional disregard penalty for this taxpayer year year company a was formed in year during which it acquired company b both companies catered to ----------------and were required to file millions of forms for both years forms were late filed under both company names although they should have been filed solely under company a’s name address and tin the service sent a notice 972cg notice of proposed penalty to both company a’s and company b’s last_known_address for year and year the service received no response from company b as it had ceased operating from the last_known_address used by the service company a however responded to the year and year notices by letters explaining why the forms were filed late the reasons included computer problems at both company a and the service’s fire unit in martinsburg company a stated that t he personnel at company a have made the proper resource and system commitments after the year filing to ensure that the year and future years form 1099’s will be submitted in a timely fashion despite this statement company a’s year filing was rejected due to improper formatting and the corrected filing did not occur until september of year nevertheless the service waived the penalties for both years posts-151438-08 year year for year and year the forms were again late filed under both company a’s and company b’s names for both years notices of proposed penalty were sent to company b at their former address and no response was received for company a a penalty notice was not generated for year and we are unsure why for year company a was granted a filing extension within which it timely filed year in october of year company a electronically filed approximately n3 forms with over n5 errors company a claims to have requested an extension although this has not been verified regardless the filing was approximately four months after the deadline including any extensions rendering all n3 forms late filed since company a is ------------------------filers in the united_states martinsburg personnel were aware of the non-filing and contacted company a via phone and e-mail to inquire as to their anticipated filing_date in addition a computer generated letter was sent on july of year stating that company a had not yet electronically filed its year forms on november of year an employment_tax specialist met with executives of company a regarding this matter company a provided no explanation for the late filing on january of year company a through counsel submitted a memorandum opposing the intentional disregard penalty by explaining that the failure to timely file was attributable to the enormous unanticipated growth in trade volume and do es not reflect anything ‘intentional ’ nor any ‘disregard’ of company a’s obligations law and analysis sec_6721 provides for a penalty when an information_return is not timely filed under the general_rule the penalty is determined based on a sliding scale the amount increases based on the lateness of the filing and is capped at dollar_figure per failure not to exceed dollar_figure for returns filed after august subsection e provides for an uncapped penalty based on intentional disregard when it can be shown that the taxpayer knowingly or willfully failed to timely file the information returns sec_301_6721-1 the intentional disregard penalty for late filing form_1099 information returns i sec_5 of the aggregate amount of the items required to be reported whether a taxpayer knowingly or willfully fails to timely file an information_return is determined on the basis of all the facts and circumstances in the particular case id some of the factors to consider in making the determination are stated in sec_301_6721-1 and include posts-151438-08 i whether the failure_to_file timely is part of a pattern of conduct of repeatedly failing to file timely ii whether a correction was promptly made upon discovery of the failure iii whether the taxpayer corrects the failure_to_file within days of a written request from the service to file iv whether the failure to timely file penalty is less than the cost of timely filing the first factor weighs in favor of finding intentional disregard since year company a has exhibited a pattern of repeatedly failing to timely file its information returns the service waived proposed penalties for year sec_1 and after company a showed that it had reasonable_cause for the failure to timely file and assured the service that remedial measures were taken to ensure future compliance these remedial measures were apparently not taken or were inadequate as evidenced by company a’s subsequent late filings in addition company a improperly filed millions of late forms for year sec_1 through under company b’s name address and tin as a result of inadequate verification and oversight the second and third factors also weigh in favor of finding intentional disregard company a was contacted by personnel from the service’s martinsburg fire division via e-mail beginning in may of year an it specialist sent company a e-mails on may may and august inquiring as to when company a would be ready to transmit its forms in addition a computer generated letter was sent on july of year informing company a that the service had not received its forms filing for year company a ignored these contacts and filed its information returns in october of year more than months after the may 2nd e-mail and months after the july 7th letter furthermore company a was aware of the filing deadline as evidenced by its prior correspondence with the service regarding prior tax years and its claimed extension request for year finally the fourth factor weighs in favor of finding intentional disregard upon being informed that the service was considering the intentional disregard penalty for year company a took the steps needed to timely comply with its filing obligation for year year had a three-fold increase of approximately n6 forms the fact that company a was able to timely file after experiencing such a large increase in volume strongly suggests that company a could have timely filed the forms for year and the prior years had it dedicated the necessary resources company a’s repeated excuse for the late filing in year sec_1 through due to enormous unanticipated growth appears to lack merit and its repeated late filing due to insufficient resources appears to be attributable to a financial decision in addition company a has stated that it provided its clients with timely forms every year even though it was unable to timely report to the service this suggests that the information was available and that company a was able to print and timely mail millions of forms these actions strongly suggest that company a could have but posts-151438-08 chose not to expend the resources necessary to timely file with the service in light of the fact that the service had not imposed any penalty on company a for year sec_1 through it can be inferred that they weighed the cost of timely filing with the service against the potential penalty and decided against the expenditure likewise it can be inferred that company a believed that the cost of losing customers due to late mailings of forms was considered greater than the cost of ensuring that its customers timely received their forms we concluded that all four factors weigh in favor of a finding of intentional disregard company a repeatedly filed information returns well past the filing deadline company a was aware of its obligation and did not act to fulfill it the evidence suggests that this was a conscious business decision the service may therefore determine the uncapped intentional disregard penalty for year against company a pursuant to sec_6721 case development hazards and other considerations ------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------- posts-151438-08 --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------- this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please contact ronald j goldstein at if you have any further questions


significant index number department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division jun j 201i tep ra ar re taxpayer dear this letter constitutes notice that approval has been granted for your request for a 5-year automatic_extension for amortizing the unfunded liabilities as of april for the above-named plan which are described in sec_431 and sec_431 of the internal_revenue_code code and sec_304 and sec_304 b of the employee_retirement_income_security_act_of_1974 erisa this extension is effective with the plan_year beginning april established as of april this extension applies to the eligible amortization charge bases the extension of the amortization periods of the unfunded liabilities of the plan was granted in accordance with sec_431 d of the code sec_431 d a of the code requires the secretary to extend the period of time required to amortize any unfunded_liability of a plan for a period of time not in excess of years if the plan submits an application meeting the criteria stated in sec_431 the plan has submitted the required information to meet the criteria in sec_431 including a certification from the plan's actuary that i absent the extension under subparagraph a the plan would have an accumulated_funding_deficiency in the current plan_year or any of the succeeding plan years ii the plan_sponsor has adopted a plan to improve the plan's funding status iii the plan is projected to have sufficient assets to timely pay expected benefits and anticipated expenditures over the amortization period as extended and iv the notice required under paragraph a has been provided we have sent a copy of this letter to the and to the this ruling is directed only to the taxpayer that requested it sec_6110 k of the internal_revenue_code provides that it may not be used or cited by others as precedent if you require further assistance in this matter please contact sincerely yours no david m ziegler manager ep actuarial group


t c memo united_states tax_court terrell equipment company inc et al petitioners v commissioner of internal revenue respondent docket nos filed date william a roberts for petitioners vernon w griffin and terrell equipment co inc janet m griffin pro_se ’ audrey m morris for respondent ' cases of the following petitioners are consolidated herewith vernon w griffin docket no and janet m griffin docket no petitioner janet m griffin janet was represented by stephen c coen at trial and for the opening brief however mr coen withdrew as counsel after the initial brief but before the reply brief was submitted - - memorandum opinion vasquez judge this case is before the court on petitioners’ motions for award of litigation and administrative costs and attorney’s fees pursuant to sec_7430 and rule we see no reason for an evidentiary hearing on this matter rule a accordingly we rule on petitioners’ motions based on the parties’ submissions and the existing record rule a the portions of our opinion on the merits in the instant case terrell equip co v commissioner tcmemo_2002_58 terrell i holding that respondent failed to prove by clear_and_convincing evidence that petitioners were liable for additions to tax and penalties for fraud that are relevant to our disposition of this motion are incorporated herein by this reference after concessions ’ the issues for decision are whether petitioners are the prevailing_party in the underlying tax case whether petitioners unreasonably protracted the court’s proceeding whether janet m griffin janet exhausted her administrative remedies and whether the all references to sec_7430 are to such section as in effect at the time the petitions were filed and all rule references are to the tax_court rules_of_practice and procedure respondent concedes that petitioners terrell equip co inc teco and vernon griffin vernon exhausted their administrative remedies and that all petitioners substantially prevailed and met the net_worth requirements amounts of administrative and litigation costs claimed by petitioners are reasonable sec_7430 provides for the award of administrative and litigation costs to a taxpayer in an administrative or court_proceeding brought against the united_states involving the determination of any_tax interest or penalty pursuant to the internal_revenue_code an award of administrative or litigation costs may be made where the taxpayer is the prevailing_party exhausted available administrative remedies ’ did not unreasonably protract the administrative or judicial proceeding and claimed reasonable administrative and litigation costs sec_7430 b c 988_f2d_27 5th cir these requirements are conjunctive and failure to satisfy any one will preclude an award of costs to petitioners 88_tc_492 to be a prevailing_party the taxpayer must substantially prevail with respect to either the amount in controversy or the most significant issue or set of issues presented and at the time the petition in the case was filed the taxpayer must meet the net_worth requirements of u s c sec d b sec_7430 a a this requirement applies only to litigation costs sec_7430 b - taxpayer however will not be treated as the prevailing_party if the commissioner establishes that the commissioner’s position was substantially justified sec_7430 b for purposes of the administrative proceedings respondent’s position is that which was articulated in the notice_of_deficiency sec_7430 b huffman v commissioner 978_f2d_1139 9th cir affg in part and revg in part tcmemo_1991_ 108_tc_430 for purposes of the court proceedings respondent’s position is that which was set forth in the answer sec_7430 a huffman v commissioner supra pincite8 maggie mgmt co v commissioner supra pincite the substantially justified standard is essentially a continuation of the prior law’s reasonableness standard 106_tc_76 a position is substantially justified if it is justified to a degree that could satisfy a reasonable person and has a reasonable basis in both fact and law 487_us_552 portillo v commissioner supra pincite huffman v commissioner supra pincite swanson v commissioner supra pincite a position although the dispute in 487_us_552 arose under the provisions of the equal_access_to_justice_act baja u s c sec d the relevant provisions of the eaja are almost identical to the language of sec_7430 109_tc_227 n we therefore consider the holding in pierce v underwood supra to be applicable to the case before us id that merely has enough merit to avoid sanctions for frivolousness will not satisfy this standard pierce v underwood supra pincite the determination of reasonableness is based on all of the facts and circumstances surrounding the proceeding and the legal precedents relating to the case 94_tc_685 a position has a reasonable basis in fact if there is such relevant evidence as a reasonable mind might accept as adequate to support a conclusion pierce v underwood supra pincite a position is substantially justified in law if legal precedent substantially supports the commissioner’s position given the facts available to the commissioner coastal petroleum refiners inc v commissioner supra pincite determining the reasonableness of the commissioner’s position and conduct requires considering what the commissioner knew at the time 88_tc_1329 85_tc_927 the fact that the commissioner loses on the merits or concedes the case does not establish that a position was not substantially justified however it is a factor to be considered portillo v commissioner supra pincite 100_tc_457 affd in part and revd in part 43_f3d_172 5th cir - - petitioners argue that respondent’s position was unsupportable by the stipulated facts ’ although we noted in terrell i that some of the stipulated facts supported the conclusion that most of the traditional badges_of_fraud did not exist the parties stipulated many facts that could have supported a finding of fraud some of these stipulated facts were in date janet paid dollar_figure for repair work on her son’s bmw with a teco check in date janet paid dollar_figure for service work on her son’s bmw with a teco check on date vernon instructed teco’s bookkeeper to write him a teco check in the amount of dollar_figure this check was deducted as raw materials on teco’s books however it was never used for the purchase of raw materials vernon deposited the dollar_figure check into a personal bank account at first national bank of grand saline first national jointly held by vernon and janet the griffins did not include the dollar_figure in the amount reported on the form_1099 listing the amount of personal expenses paid for and withdrawals made by vernon out of teco’s funds for ’ in their motion teco and vernon alleged that the facts in this case were fully stipulated this assertion is incorrect the trial of this case took days we heard factual testimony from numerous witnesses and the trial transcript was more than big_number pages - on date vernon wrote a dollar_figure check from the first national account to an investment brokerage firm this amount was a personal investment by vernon in date vernon’s sister received a teco check for dollar_figure this check was deducted as a miscellaneous expense on teco’s books on date a dollar_figure teco check was given to vernon’s sister this check was deducted as a miscellaneous business_expense on teco’s books on date vernon received a dollar_figure check from teco this check was deducted as a miscellaneous business_expense on teco’s books on date vernon received a dollar_figure check from teco this check was deducted as a miscellaneous expense on teco’s books vernon deposited the dollar_figure check into a personal bank account at southside state bank of tyler texas southside bank jointly held by him and janet on date vernon received an dollar_figure check from teco this check was deducted as a miscellaneous expense on teco’s books vernon deposited the dollar_figure check into the southside bank account on date vernon used a teco check to pay for work done on the lawn sprinkler system at his personal_residence this check was deducted as a repairs expense on teco’s books - - from date through date vernon and janet paid with teco checks service charges to glamour pools for the pool located at their personal_residence on date vernon purchased a toyota runner for dollar_figure vernon used a teco check to pay part of the purchase_price the vehicle was titled to vernon insured as a personal vehicle and was driven exclusively by vernon or members of his immediate_family for personal_use in mid-1988 the griffins had a fence constructed at their personal_residence on date janet wrote a teco check totaling dollar_figure to jim young fence company to pay for the fence this check was deducted as a miscellaneous business_expense on teco’s books on date a dollar_figure teco check was used to make a mortgage payment on vernon’s sister’s house this check was deducted as an operating supplies expense on teco’s books on date vernon received a dollar_figure check from teco this check was deducted as a miscellaneous business_expense on teco’s books in the griffins backdated at least two checks in and contrary to normal practices vernon failed to deposit receipts of teco’s scrap metal sales into teco’s business bank account during vernon and janet wrote teco checks - totaling dollar_figure for the purchase of luggage briefcases and wallets these checks were deducted as a miscellaneous office supplies advertising or trade_show expenses on teco’s books in vernon paid for a weight loss program he participated in with two teco checks on their joint federal_income_tax return the griffins claimed a mortgage interest_deduction of dollar_figure that they did not pay in on date vernon received a company check for dollar_figure this check was deducted as raw materials on teco’s books but it never was used to purchase raw materials vernon deposited the dollar_figure check into his southside bank account on date vernon wrote a dollar_figure check from his southside bank account to the teco pension_plan this check was dated date on date vernon received a dollar_figure check from teco this check was deducted as shop supplies on teco’s books on date vernon and janet purchased a motor home and made a dollar_figure downpayment with a teco check on date vernon received a check for dollar_figure from teco this check was deducted as a miscellaneous business_expense on teco’s books - on date a dollar_figure teco check was used to make a mortgage payment on vernon’s sister’s house this check was deducted as a miscellaneous business_expense on teco’s books on date vernon purchased a dollar_figure harley-davidson fatboy with teco funds this motorcycle was used exclusively by vernon and or his immediate_family in teco purchased a suburban teco later sold the suburban to bobby moses janet deposited the check from mr moses into a personal bank account she jointly held with vernon during the years in issue teco purchased a dollar_figure ski boat this payment was deducted as a miscellaneous business_expense on teco’s books the boat was titled and registered in vernon’s name the teco checks solely written to vernon during and totaled dollar_figure dollar_figure and dollar_figure respectively these amounts do not include the numerous other personal expenses paid for by teco janet and vernon however caused teco to issue vernon forms listing only dollar_figure dollar_figure and dollar_figure for and respectively respondent’s burden of proving fraud by clear_and_convincing evidence is a heavy burden although some of the evidence in this case raised our suspicion about the possibility of fraud the evidence was insufficient for us to conclude that petitioners’ actions were fraudulent 90_tc_1130 27_tc_561 affd 252_f2d_681 6th cir although we concluded that respondent failed to prove that vernon and janet intended to file false form sec_1040 u s individual_income_tax_return and 1099-misc miscellaneous income on the basis of the evidence it was reasonable for respondent to believe that the court could find that petitioners filed false form sec_1040 and furthermore it was reasonable for respondent to believe that the court could find that petitioners falsified the books_and_records of teco and that the inaccurate records of teco listing improper deductions and uses of teco funds were part of a scheme to conceal petitioners’ true income and expenses additionally it was reasonable for respondent to believe that the court could find that petitioners filed false tax returns because they knew that the amount of income listed on their form sec_1040 and was understated and that nondeductible expenses were categorized as deductible items in teco’s books_and_records at trial the court had to determine the credibility of the witnesses including petitioners and reconcile the conflicting documentary and testimonial evidence johnson v commissioner tcmemo_1999_237 affd without published opinion 246_f3d_674 9th cir although we found vernon and janet to be credible witnesses on the basis of the evidence it was reasonable for respondent to believe that the court would find vernon and janet liable for additions to tax and penalties for fraud petitioners also assert that respondent’s position was not supported by the law specifically they refer to respondent’s claim that pursuant to schneider v commissioner tcmemo_1977_179 unreported income standing alone is sufficient to establish fraud by clear_and_convincing evidence in terrell i we rejected this argument although we agree with petitioners that this particular argument was not supported by the law it was not respondent’s primary argument it was an alternative argument in case the court found that none of the other badges_of_fraud other than unreported income were present respondent went to trial on the basis of the theory that multiple badges_of_fraud existed and at trial he attempted to prove that multiple badges_of_fraud were present although in terrell i after hearing all the witnesses evaluating all the testimony and on the basis of the entire record we concluded that respondent had failed to prove that any of the other badges_of_fraud were present there was some evidence that could have allowed us to reach the opposite conclusion we conclude respondent has established that the position_of_the_united_states was substantially justified at both the administrative and litigation level because it was a reasonable position sufficiently supported by the facts and circumstances of the case and the existing legal precedent accordingly petitioners are not the prevailing_party sec_7430 c b in light of our holding that respondent’s position was substantially justified we need not address whether petitioners unreasonably protracted the court’s proceeding janet exhausted her administrative remedies or the amounts of administrative and litigation costs claimed by petitioners are reasonable accordingly we hold that petitioners are not entitled to an award of administrative or litigation costs to reflect the foregoing an appropriate order will be issued and decisions will be entered for petitioners