t c summary opinion united_states tax_court carlos h and maria c gonzalez petitioners v commissioner of internal revenue respondent docket no 8709-04s filed date michael stearns for petitioners gordon p sanz for respondent couvillion special_trial_judge this case was heard pursuant to sec_7463 in effect when the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority 1unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the years at issue respondent determined deficiencies in petitioners’ federal income taxes for and in the amounts of dollar_figure and dollar_figure respectively and accuracy-related_penalties under sec_6662 for those years in the amounts of dollar_figure and dollar_figure respectively the issues for decision are whether petitioners were engaged in an export activity during the years at issue and if so whether such activity was an activity_not_engaged_in_for_profit under sec_183 whether petitioners are entitled to deductions for expenses relating to that activity under sec_162 and whether petitioners are liable for the sec_6662 accuracy-related_penalties some of the facts were stipulated those facts with the exhibits annexed thereto are so found and made part hereof petitioners resided at katy texas at the time the petition was filed carlos h gonzalez petitioner is a senior petroleum engineer for conoco inc conoco a major oil company in 2under sec_7491 where a taxpayer introduces credible_evidence with respect to any factual issue relevant to ascertaining the liability of the taxpayer the burden_of_proof shifts to the commissioner petitioners have not produced credible_evidence with respect to the principal issue nor have petitioners under sec_7491 maintained records required with regard to substantiating their claimed expenses therefore the burden_of_proof does not shift to respondent however as to the penalties the burden of production is on respondent sec_7491 the court’s holding in this case is based upon due regard to the requirements of sec_7491 houston texas petitioner has a bachelor of science degree in petroleum engineering and has been an employee of conoco for over years maria c gonzalez petitioner’s spouse was also employed during the years at issue earning wage and salary income of dollar_figure and dollar_figure respectively for the years at issue petitioners are natives of colombia south america both are u s citizens petitioners have maintained contacts with their families and friends in colombia for the years and petitioners included with their federal_income_tax returns schedules c profit or loss from business related to an activity called special supply co with the business_purpose described as the export of industrial supplies the income and expenses of the activity for the year were reported as follows income -0- expenses advertising dollar_figure car truck expenses big_number legal professional office expense sec_373 travel big_number other expenses big_number total expenses dollar_figure loss dollar_figure 1consisted of communications dollar_figure dues subscriptions colombia office big_number contract labor big_number education total dollar_figure for the year petitioners reported the following income and expenses related to that activity on schedule c of their income_tax return income dollar_figure expenses advertising dollar_figure car truck expenses big_number depreciation big_number legal professional office expenses big_number travel big_number other expenses big_number total expenses dollar_figure loss dollar_figure 1consisted of communications dollar_figure bank charge sec_130 dues subscriptions colombia office big_number toll sec_386 freight contract labor big_number total dollar_figure in the notice_of_deficiency respondent disallowed the schedule c deductions claimed for both years at trial petitioners conceded that the dollar_figure reported gross_income for was not related to the purported activity and was paid to petitioner for consultation services as stated in the notice_of_deficiency the expenses were disallowed for the reason that it has not been established that the expenses were incurred and paid and additionally it has not been established that the activity described in schedule c for the taxable years and constitutes a bona_fide trade_or_business venture entered into for profit the purpose of the purported activity as described by petitioners was to sell oil field equipment from the united_states to oil_and_gas exploration companies in colombia south america petitioners began reporting this activity on their federal_income_tax return for they claimed losses from this activity as follows 3under sec_183 if an activity is not engaged in for profit deductions for expenses are allowable only to the extent of the gross_income derived from such activity since petitioners conceded that the dollar_figure in income was not related to the activity none of the expenses is allowable as deductions to the extent of that reported income 4the record does not show whether petitioners reported any gain_or_loss from this activity for the years and in the stipulation petitioners agreed that their claimed losses for should be reduced from dollar_figure to dollar_figure and the loss should be reduced from dollar_figure to dollar_figure with these concessions the total claimed losses would be dollar_figure instead of the dollar_figure shown above dollar_figure big_number big_number big_number year at issue big_number year at issue big_number not before the court total losses dollar_figure the profits or losses for the years prior to were not presented at trial it appears that the years and are the only years in which this activity has been called into question by the irs petitioners acknowledged at trial that they are no longer reporting income and expenses with respect to this activity on their federal_income_tax returns petitioners’ brief focuses exclusively on the argument that the losses they incurred for the years at issue came from an activity engaged in for profit and that under sec_183 they are entitled to deductions for the expenses_incurred for the years in question respondent however focuses the issue as follows petitioners’ opening brief suffers from one serious logical fallacy the basic premise of the brief is that mr and mrs gonzalez operated an oil field equipment exportation business during the years and petitioners then attempt to explain how its operation comported with the factors the court looks to to determine whether it was an activity entered into for profit respondent asserts that this approach ignores a much more basic question was there actually an activity petitioners claim that they operated their business in the united_states and they also maintained a presence in colombia respondent asserts that there is no evidence that there was ever a business petitioners reported losses from this alleged business on their returns for and the mere reporting of this activity does not prove its existence other than their testimony and a series of documents generated by them there is no evidence in the record to establish that there even was an activity petitioners presented no checks receipts or any other third party documents to prove they conducted a business they claimed to have an office in colombia but again they only presented computer generated accounting_records to support the existence of their colombia operation further there was no evidence presented regarding the source of the capital necessary to operate in colombia or how it was transmitted to that location they presented no checks wire transfers or other physical evidence to establish funding petitioners conceded a portion of their claimed colombia office expense when respondent determined that the location of the alleged office was an apartment building thus before the court begins examining the various factors associated with activities entered into for profit the court must first determine if there was in fact any activity to judge respondent asserts that it is altogether inconceivable that petitioners would be without a single third party record if they in fact operated a business in two separate countries sec_183 provides in general that in the case of an activity engaged in by an individual if such activity is not engaged in for profit no deduction is allowable except for deductions that are otherwise allowable without regard to whether the activity is engaged in for profit and or to the extent of the gross_income from the activity sec_183 therefore presupposes the existence of an activity as noted above in the notice_of_deficiency respondent disallowed the claimed deductions on the ground it had not been established that the expenses were incurred and paid as pointed out by respondent on brief no statements bills receipts or checks evidencing the conduct of any activity in colombia were offered into evidence by petitioners moreover there was no income derived from any colombian activity for the years in question no evidence was offered for example of correspondence from potential customers or other sources that would relate to the purported activity on this record the court holds that there was no activity conducted by petitioners for the years at issue consequently it follows that there are no expenses allowable as deductions from that nonexistent activity the court therefore need not address whether the activity was not engaged in for profit because there was no activity respondent determined that petitioners are liable for penalties under sec_6662 for negligence or disregard of rules or regulations in pertinent part sec_6662 imposes an accuracy-related_penalty equal to percent of the portion of an underpayment_of_tax that is attributable to negligence or disregard of rules or regulations sec_6662 c sec_6662 defines negligence as including any failure to make a reasonable attempt to comply with the provisions of the internal_revenue_code and defines disregard as including any careless reckless or intentional disregard however under sec_6664 the penalty under sec_6662 shall not be imposed with respect to any portion of the underpayment if it is shown that there was reasonable_cause for the underpayment and the taxpayer acted in good_faith even though the burden of production is on the commissioner under sec_7491 as to penalties that does not mean that the burden_of_proof shifts to the commissioner where the commissioner introduces sufficient evidence to show that the taxpayer is liable for the penalty the taxpayer has the burden of proving that he is not liable for the penalty 116_tc_438 the court is satisfied that respondent has met the burden of production in this case petitioners claimed deductions for a nonexistent activity the actions of petitioners as described above represented a blatant attempt to circumvent the internal_revenue_code which unfortunately they were able to get away with for several prior years petitioners have no reasonable_cause for the underpayments for the years at issue in this case in which their nonexistent activity was brought to light the accuracy- related penalties are sustained reviewed and adopted as the report of the small_tax_case division decision will be entered for respondent


t c memo united_states tax_court john parks trowbridge petitioner v commissioner of internal revenue respondent sabrina martin f k a sabrina l trowbridge petitioner v commissioner of internal revenue respondent docket nos filed date r determined deficiencies in tax with respect to ps h and w for the years as well as additions to tax under sec_6651 and sec_6654 i r c with respect to various of those years ps filed petitions for redetermination but failed to appear at trial r moved for default judgment with respect to the deficiencies in tax determined against ps for all years and the additions to tax determined against h for the years r proceeded to trial on the issues of the additions to tax determined against w for all years and the additions to tax determined against h for and held r’s motion for default judgment is granted held further form sec_1040 and sec_1040ez filed by ps do not constitute valid federal_income_tax returns held further ps are liable for the additions to tax at issue in the amounts determined by r with minor adjustments held further h and w are liable for penalties under sec_6673 i r c in the amounts of dollar_figure and dollar_figure respectively john parks trowbridge and sabrina martin pro sese m kathryn bellis for respondent memorandum findings_of_fact and opinion halpern judge these cases have been consolidated for purposes of trial briefing and opinion by notices of deficiency dated date the notices of deficiency respondent determined deficiencies in and additions to each petitioner’s federal income taxes as follows john parks trowbridge dr trowbridge year deficiency dollar_figure big_number big_number big_number big_number additions to tax sec_6651 sec_6654 -- dollar_figure big_number big_number big_number dollar_figure big_number big_number big_number sabrina l trowbridge ms martin1 year deficiency dollar_figure big_number big_number big_number big_number additions to tax sec_6651 sec_6654 dollar_figure big_number big_number big_number big_number -- dollar_figure big_number big_number big_number respondent has moved that petitioners be held in default with respect to the deficiencies in tax determined against them for all years and that dr trowbridge be held in default with respect to the additions to tax determined against him for and in addition respondent has moved for partial summary_judgment in his favor with respect to the additions to tax determined against dr trowbridge for and and the additions to tax determined against ms martin for all years respondent has also asked the court to impose a penalty on each petitioner under sec_6673 in the amount of dollar_figure for the reasons that follow we shall grant respondent’s motions for default judgment sustain with minor adjustments the additions to tax that are the subject of his motions for partial summary_judgment and impose penalties under sec_6673 unless otherwise indicated all section references are to the internal_revenue_code in effect for the years at issue and all rule references are to the tax_court rules_of_practice and during the years at issue ms martin was married to dr trowbridge and was known as sabrina l trowbridge she is now known as sabrina martin and we shall refer to her as ms martin for all purposes in this report procedure for the sake of convenience all dollar amounts are rounded to the nearest dollar findings_of_fact preliminary facts at the time the petitions were filed in these cases each petitioner resided in harris county texas petitioners were married to each other during the years at issue but filed separate returns for those years dr trowbridge is a physician and ms martin is a nurse and administrative assistant who during the years at issue was sometimes employed by dr trowbridge’s professional_corporation both petitioners are calendar_year taxpayers respondent’s examination with respect to dr trowbridge’s and taxable years commenced before respondent’s examinations with respect to dr trowbridge’s and taxable years and ms martin’s through taxable years commenced after date dr trowbridge’s and form sec_1040 form on date dr trowbridge mailed to the internal_revenue_service irs a form_1040 u s individual_income_tax_return dr trowbridge’s form_1040 which the ir sec_2 as discussed infra dr trowbridge’s form_1040 is relevant to the determination of whether he is liable for the sec_6654 addition_to_tax with respect to his taxable_year received on date on page of dr trowbridge’s form_1040 he reported tax of dollar_figure but stated see attached disclaimer statement--admitted tax_liability is zero the attached disclaimer statement the disclaimer reads in part as follows the assessment and payment of income taxes is voluntary john respectfully declines to volunteer concerning assessment and payment of any_tax balance due on the return or any redetermination of said tax be it known that we separately and together therefore deny tax_liability and do not admit that the stated amount of tax on return as calculated solely by reference to provided tables is due and collectible the tax_return read as a whole shows no amount as being the tax and shows the tax to be zero and zero is the starting point in determining a deficiency or any other action involving this return john has provided payment in the amount of dollar_figure as a voluntary contribution the disclaimer is signed by dr trowbridge and acknowledged in full agreement by ms martin respondent determined a deficiency in dr trowbridge’s tax for of dollar_figure form_1040 on date dr trowbridge mailed to the irs a form_1040 u s individual_income_tax_return dr trowbridge’s form_1040 which the irs received on date on page of dr trowbridge’s form_1040 he reported tax of dollar_figure but stated see attached disclaimer statement--admitted tax_liability is zero in substance the attached disclaimer is identical to the disclaimer dr trowbridge submitted to the irs no other document purporting to be a return for respondent determined a deficiency in dr trowbridge’s tax for of dollar_figure the only payment made by dr trowbridge for was dollar_figure paid on date with his form_1040 form_1040 on date dr trowbridge mailed to the irs a form_1040 u s individual_income_tax_return dr trowbridge’s form_1040 which the irs received on date on page of dr trowbridge’s form_1040 he reported tax of dollar_figure but stated see attached disclaimer statement--admitted tax_liability is zero in substance the attached disclaimer is identical to the disclaimer dr trowbridge submitted to the irs no other document purporting to be a return for respondent determined a deficiency in dr trowbridge’s tax for of dollar_figure the only payment made by dr trowbridge for was dollar_figure paid on date with his form_1040 ms martin’s through income_tax filings form_1040 on or around date ms martin mailed to the irs a form_1040 u s individual_income_tax_return ms martin’s form_1040 which the irs received on date on page of ms martin’s form_1040 she reported tax of dollar_figure and withholding of dollar_figure she also stated see attached disclaimer statement--admitted tax_liability is zero the attached disclaimer refers to her but in substance is identical to the disclaimer ms martin submitted to the irs no other document purporting to be a return for respondent determined a deficiency in ms martin’s tax for of dollar_figure the only payment made by ms martin for was dollar_figure paid on date with her form_1040 form_1040 on or around date ms martin mailed to the irs a form_1040 u s individual_income_tax_return ms martin’s form_1040 which the irs received on date on page of ms martin’s form_1040 she reported tax of dollar_figure and withholding of dollar_figure she also stated see attached disclaimer statement--admitted tax_liability is zero the attached disclaimer refers to her but in substance is identical to the disclaimer ms martin submitted to the irs no other document purporting to be a return for respondent determined a deficiency in ms martin’s tax for of dollar_figure the only payment made by ms martin for was dollar_figure paid on date with her form_1040 and tax obligations ms martin did not file federal_income_tax returns for either or she did not make any estimated_tax payments for those years respondent determined deficiencies of dollar_figure and dollar_figure in ms martin’s taxes for and respectively form 1040ez on or about date ms martin mailed to the irs a form 1040ez income_tax return for singles and joint filers with no dependents ms martin’s form 1040ez which the irs received on date on ms martin’s form 1040ez she reported tax of dollar_figure an earned_income_credit of dollar_figure and withholding of dollar_figure she also stated see attached disclaimer statement--admitted tax_liability is zero the attached disclaimer refers to her but in substance is identical to the disclaimer ms martin submitted to the irs no other document purporting to be a return for respondent determined a deficiency in ms martin’s tax for of dollar_figure the only payment made by ms martin for was dollar_figure paid on date with her form 1040ez the pleadings and related matters the petitions in response to the notices of deficiency both petitioners filed petitions on date in many respects the petitions are identical dr trowbridge’s petition i sec_74 pages long and ms martin’s petition i sec_75 pages long although the petitions do assign error to respondent’s determinations for the most part they make a convoluted argument that subjecting petitioners to the same rate_of_tax as federal employees constitutes impermissible disparate treatment petitioners cite a variety of code sections and regulatory materials to show that public employees and certain others receive benefits from the federal government that are not available to petitioners as private independent contractors or private sector workers they state in direct contrast to the private independent_contractor or non-government workers whose economic position and rate of personal earnings are not fixed and guaranteed by statute the rate instead is controlled by what the market place will bear and without any position fixed by statute this gives the government employees or officers a great personal and economic advantage over that afforded to the private independent_contractor or non-government workers and as such creates a disparate or unequal treatment under the law because the internal_revenue_service administratively states that the private independent contractors or private sector workers pay sic must pay the same rate or percentage of tax on net_income as do the government employees under title sec_1 or without affording these same government privileges services benefits contributions or funds they argue that either respondent has to afford them a lower special tax_rate or they must be afforded the same benefits as federal government employees it is the position of this petitioner that there is within the internal_revenue_code irc a separate taxing statute with a reduced or compensatory rate_of_tax for the taxpayers who are private independent contractors or private sector workers if not then this petitioner is entitled to receive the same compensation in benefits and economic protections as the federal employee appointed or elected official or corporate or partnership individuals respondent’s motions for a more definite statement in response to the petitions respondent moved in each case for a more definite statement or to dismiss for failure to state a claim upon which relief can be granted following a hearing on respondent’s motions we declined to dismiss but concluded that the petitions contained frivolous and groundless allegations we struck from the petitions all such allegations which constituted the bulk of the petitions the answers on date respondent filed his answers to the abridged petitions denying all material allegations of fact made in support of the lone remaining assignment of error contained therein standing_pretrial_order and notice on date the court issued its standing_pretrial_order and notice in each case setting the cases for trial at the trial session of the court commencing on date in houston texas petitioners’ discovery requests on september and ms martin and dr trowbridge respectively served on respondent a request for admissions each request is over pages in length without attachments and requests over admissions on date each petitioner served on respondent interrogatories and a request for production of documents each set of interrogatories is over pages in length and contains over interrogatories on date respondent filed motions for protective orders with respect to the requests for admissions interrogatories and requests for production of documents served by petitioners respondent argued that such requests were not timely addressed improper issues and were intended to burden respondent unduly waste his resources and divert him from trial preparation we asked petitioners to respond and after considering their responses granted respondent relief substantially for the reasons stated in respondent’s motions petitioners’ dismissal efforts motions to dismiss for lack of jurisdiction on date dr trowbridge submitted for the petitioners a motion styled petitioner’s verified challenge to jurisdiction of the court which we filed in each case as a motion to dismiss for lack of jurisdiction the motion denies the existence of any contracts or commercial agreements which create an attachment of an equity relationship between the ‘united states’ and or the state of texas and petitioner the motion also states petitioner has specifically forfeited waived rejected declined and refused to voluntarily accept any and all benefits especially admiralty and limited debt liability benefits from the ‘united states’ and its instrumentalities apparently on those bases the motion then states petitioner hereby gives formal notice to the court of petitioner’s status as a nonjuristic person a texas state citizen and that in such status petitioner squarely challenges and voids the jurisdiction of this court petitioners claimed in the motion that we lack in personam jurisdiction and subject matter jurisdiction we denied the motion motions to dismiss on date dr trowbridge submitted and ms martin signed in full agreement a motion styled petitioner’s notice of withdrawal of petition which we filed in each case as a motion to dismiss the motions to dismiss and denied in those motions petitioners reiterated their claims that we lack jurisdiction and stated that they wished to withdraw their petitions petitioner hereby gives notice of withdrawal of the petition for review by the united_states tax_court this notice of withdrawal of petition makes moot voids and cancels all proceedings previously scheduled by this court for action upon the petition filed in error trial session these cases were called from the calendar at the court’s trial session commencing on monday date in houston texas on friday date an employee of the court clerk’s office contacted petitioners and reminded them that they were expected to appear at the call of the calendar on monday december when on that date the cases were called from the calendar petitioners failed to appear counsel for respondent appeared and announced ready for trial the court set the cases for trial on tuesday date pincite a m and directed the deputy trial clerk to contact petitioners by telephone and notify them of the date and time of the trial when the cases were recalled from the calendar on december for to the extent petitioners were relying on grounds other than jurisdiction a decision dismissing the proceedings would have been considered a decision sustaining the deficiencies determined by respondent see sec_7459 since we did not believe that was the result petitioners intended we denied the motions to dismiss trial petitioners failed to appear counsel for respondent appeared and announced ready for trial the deputy trial clerk reported that he had left messages for both petitioners as to the date and time of the trial respondent moved to dismiss for default in both cases and the court set those motions for a hearing on friday date the court instructed respondent’s counsel to arrange personal service of the petitioners to inform them of the hearing the court heard one witness in support of respondent’s case on friday date the cases were recalled from the calendar for a hearing on respondent’s motions to dismiss for default petitioners failed to appear counsel for respondent appeared and announced ready for the hearing internal revenue_agent marilyn maciness testified that she had served each petitioner personally with notice of the hearing the court took respondent’s motions to dismiss for default under advisement i motions to dismiss for default opinion respondent has moved that dr trowbridge be held in default with respect to and that a decision be entered in respondent’s favor in the full amount of the deficiencies in tax determined by respondent against dr trowbridge for the years through and the additions to tax determined by respondent against dr trowbridge for the years through and that ms martin be held in default with respect to and that a decision be entered in respondent’s favor in the full amount of the deficiencies in tax determined by respondent against ms martin for the years through petitioners object respectively to those motions collectively the default motions in pertinent part rule a provides a default if any party has failed to plead or otherwise proceed as provided by these rules or as required by the court then such party may be held in default by the court either on motion of another party or on the initiative of the court thereafter the court may enter a decision against the defaulting party upon such terms and conditions as the court may deem proper respondent argues that petitioners’ failures to appear for the call of these cases on date and at the trial of the cases on date constitute defaults and that it is appropriate for the court to enter default judgments against each with respect to the deficiencies and additions to tax that are the subject of the default motions although petitioners failed to appear at the hearing on the default motions they did submit a document to the court that day styled mandatory judicial_notice of petitioner’s refusal for cause of respondent’s motion for default judgment which we filed in each case as an objection to the respective default motions petitioners object to the default motions principally on the ground that each had withdrawn his or her petition by the motions to dismiss which we had denied we have no doubt that petitioners had knowledge of the call of these cases on date and the recall of the cases on december and we assume that petitioners failed to answer those calls because they no longer wished to continue their cases in this court that is the position taken by them in the motions to dismiss which we denied we shall therefore hold each of them in default we shall enter a decision against each petitioner that includes the full amount of the deficiencies in tax and additions to tax that are the subject of the default motions that is appropriate since respondent had denied all material allegations of fact set forth in the petitions in support of the assignments of error and none of petitioners’ filings has otherwise convinced us that respondent in any way erred in determining the deficiencies in tax and additions to tax that are the subject of the default motions ii remaining additions to tax a introduction respondent proceeded to trial on the issues of the additions to tax determined against dr trowbridge for the years and and the additions to tax determined against ms martin for the years through collectively the remaining additions to tax on account of the burden of production imposed on the secretary by current sec_7491 hereafter sec_7491 as will be discussed respondent has carried that burden b summary adjudication unnecessary respondent has moved for partial summary_judgment in his favor with respect to the remaining additions to tax petitioners object respectively to those motions collectively the summary_judgment motions a party may move for summary adjudication in the moving party’s favor upon all or any part of the legal issues in controversy rule a summary_judgment is a device used to expedite litigation and is intended to avoid unnecessary and expensive trials of ‘phantom factual questions ’ 78_tc_412 the party moving for summary_judgment has the burden of showing the absence of a genuine issue as to any material fact id see rule b the opposing party is to be afforded the benefit of all reasonable doubt and any inference to be drawn from the underlying facts contained in the record must be viewed in a light most favorable to the party opposing the motion for summary_judgment espinoza v commissioner supra pincite we do not decide whether respondent was required to satisfy sec_7491 in this default setting respondent has moved for partial summary judgments but since there was a trial in these cases at which respondent presented evidence pertaining to the remaining additions to tax we need not determine whether the summary_judgment motions satisfy the standards for summary adjudication we shall therefore deny the summary_judgment motions although we largely sustain respondent’s substantive positions therein as discussed below c substantive provision sec_1 sec_6651 sec_6651 provides for an addition_to_tax in the event a taxpayer fails to file a timely return determined with regard to any extension of time for filing unless it is shown that such failure is due to reasonable_cause and not due to willful neglect the amount of the addition is equal to percent of the amount_required_to_be_shown_as_tax on such return for each month or fraction thereof during which such failure continues up to a maximum addition of percent for returns more than months delinquent for these purposes the amount_required_to_be_shown_as_tax on the return is reduced by any timely payments of the tax6 and any credits which may be claimed on the return sec_6651 in general payment of income_tax is due on the due_date of the corresponding return determined without regard to any filing extensions sec_6151 sec_6654 sec_6654 provides for an addition_to_tax in the event of an underpayment of a required_installment of individual estimated_tax as relevant to these cases each required_installment of estimated_tax is equal to percent of the required_annual_payment which in turn is equal to the lesser_of percent of the tax shown on the individual’s return for that year or if no return is filed percent of his or her tax for such year or if the individual filed a return for the immediately preceding_taxable_year percent of the tax shown on that return sec_6654 and ii the due dates of the required installments for a calendar taxable_year are april june and september of that year and january of the following year sec_6654 for purposes of sec_6654 an individual’s tax consists of income_tax and self-employment_tax and is determined before the application of any wage withholding credit7 but after the application of other allowable credits sec_6654 see sec_31 there are two mechanical exceptions to the applicability of the sec_6654 addition_to_tax first as relevant to these cases the addition is not applicable if the tax shown on the individual’s return for the year in question or if no return is filed the individual’s tax for that year reduced for these under sec_6654 wage withholding credits are treated as payments of estimated_tax purposes by any allowable credit for wage withholding is less than dollar_figure sec_6654 second the addition is not applicable if the individual’s tax for the preceding_taxable_year was zero sec_6654 d sec_7491 sec_7491 imposes the burden of production in any court_proceeding ie the burden of moving forward with evidence on the commissioner with respect to the liability of any individual for penalties and additions to tax in order to meet the burden of production under sec_7491 the commissioner need only make a prima facie case that imposition of the penalty or addition_to_tax is appropriate he need not negate the existence of any circumstantial defense such as reasonable_cause 116_tc_438 h conf rept pincite 1998_3_cb_747 furthermore sec_7491 has no effect on the burden_of_proof ie the burden of persuasion higbee v commissioner supra pincite which remains on petitioners in these cases rule effective for taxable years beginning after date the threshold_amount is dollar_figure taxpayer_relief_act_of_1997 publaw_105_34 111_stat_994 sec_7491 applies to court proceedings arising in connection with examinations commencing after date internal_revenue_service restructuring and reform act of publaw_105_206 sec c 112_stat_727 as referenced in our findings_of_fact the additions to tax not included in the default motions collectively the remaining additions to tax pertain to examinations commenced after date a cf current sec_7491 shifting the burden_of_proof to the commissioner in certain circumstances e discussion petitioners’ form sec_1040 and sec_1040ez respondent contends that the form sec_1040 and sec_1040ez filed by petitioners with respect to the years at issue do not constitute valid returnsdollar_figure in 114_tc_136 we held that a disclaimer statement similar to the ones at issue in these cases rendered the form_1040 to which it was attached invalid we see no reason to depart from the reasoning of that case here accordingly we conclude that dr trowbridge’s form sec_1040 and ms martin’s form sec_1040 and form 1040ez are not valid returns respondent’s sec_6651 determinations as relevant to his sec_6651 determinations respondent produced evidence that petitioners did not file valid federal_income_tax returns for any of the years at issue respondent also produced evidence that neither petitioner made any timely payments of tax with respect to the years at issuedollar_figure we address that contention separately because it is relevant to our analysis of both the sec_6651 and the sec_6654 additions to tax asserted by respondent in his sec_6651 computations respondent properly credited each petitioner with one-half of petitioners’ aggregate wage_withholding_credit where applicable see sec_6651 sec_1_31-1 income_tax regs rule for wage withholding credits of separately filing spouses domiciled in a community continued based on the foregoing we conclude that respondent established a prima facie case that the determination of percent additions to tax under sec_6651 with respect to dr trowbridge for the years and and with respect to ms martin for the years is appropriate thereby satisfying sec_7491 in the absence of any evidence refuting that prima facie case such as reasonable_cause or lack of willful neglect on the part of either petitioner we conclude that petitioners are liable for such additions to tax except as noted below we also accept respondent’s computation of the amounts of those additions as set forth in the notices of deficiency respondent’s sec_6654 determinations as relevant to his sec_6654 determinations respondent introduced into evidence dr trowbridge’s invalid return for in addition to the evidence of invalid and nonexistent returns discussed above in the context of his sec_6651 determinations respondent also produced evidence that aside continued property state respondent also properly credited ms martin with her earned_income_credit for see sec_6651 respondent inexplicably based his sec_6651 computation for ms martin on tax of dollar_figure rather than the dollar_figure amount of tax that appears elsewhere in the notice_of_deficiency issued to her the correct amount of such addition shall be the subject of a rule computation from amounts withheld from wages neither petitioner made any timely payments of tax that could be applied against his or her required annual payments for the years at issue in the absence of valid returns the applicability of the dollar_figure de_minimis exception to the sec_6654 addition_to_tax discussed above is determined on the basis of each petitioner’s tax within the meaning of sec_6654 for the years at issue see sec_6654 in light of the deficiency decisions that we shall enter against petitioners pursuant to our disposition herein of the default motions neither petitioner qualifies for the dollar_figure de_minimis exception for any of the years at issue the impending entry of those deficiency decisions also precludes the applicability of the sec_6654 exception zero tax for preceding year with respect to any of the years at issue based on the foregoing we conclude that respondent established a prima facie case that the determination of additions to tax under sec_6654 with respect to dr trowbridge for the years and and with respect to ms martin for the years is appropriate thereby satisfying sec_7491 absent any evidence refuting that prima facie as is the case with his sec_6651 computations respondent properly credited each petitioner with one-half of petitioners’ aggregate wage_withholding_credit where applicable see sec_6654 supra note sec_1_31-1 income_tax regs supra note case we conclude that petitioners are liable for such additions to tax except as noted below we also accept respondent’s computation of the amounts of those additions as set forth in the notices of deficiency iii sec_6673 penalties respondent asks that we impose a penalty against each petitioner under sec_6673 in the amount of dollar_figure in pertinent part sec_6673 provides sec_6673 sanctions and costs awarded by courts a tax_court proceedings -- procedures instituted primarily for delay etc --whenever it appears to the tax_court that-- a proceedings before it have been instituted or maintained by the taxpayer primarily for delay b the taxpayer’s position in such proceeding is frivolous or groundless or the tax_court in its decision may require the taxpayer to pay to the united_states a penalty not in excess of dollar_figure respondent inexplicably based his sec_6654 computation for ms martin on tax of dollar_figure rather than the dollar_figure amount of tax that appears elsewhere in the notice_of_deficiency issued to her in his sec_6654 computation for ms martin rather than reducing her tax by the amount of her earned_income_credit respondent improperly treated that credit as a payment of estimated_tax see sec_6654 and g the correct amounts of those additions to tax shall be the subject of rule_155_computations the purpose of sec_6673 is to compel taxpayers to think and to conform their conduct to settled principles before they file returns and litigate 791_f2d_68 7th cir see also grasselli v commissioner tcmemo_1994_581 quoting coleman a taxpayer’s position is frivolous if it is contrary to established law and unsupported by a reasoned colorable argument for change in the law e g 115_tc_523 we need not find specific damages to invoke sec_6673 rather that section is a penalty provision intended to deter and penalize frivolous claims and positions in deficiency proceedings 102_tc_596 petitioners do not here argue for any change in the law and there is no plausible argument that as maintained in the disclaimers attached to their form sec_1040 and sec_1040ez the payment of income taxes is voluntary e g 91_tc_88 similarly there is no plausible argument that as maintained in the petitions subjecting petitioners to the same rate_of_tax that applies to federal employees constitutes impermissible disparate treatment see rogers v commissioner tcmemo_2001_20 affd without published opinion 281_f3d_1278 5th cir whatever legitimate arguments may underlie their assignments of error petitioners have emphasized frivolous arguments and for that reason alone deserve to have sec_6673 penalties imposed against them we are also convinced by petitioners’ conduct that they both instituted and maintained these proceedings for delay which is a separate basis for imposing a sec_6673 penalty we struck all but minimal portions of their and 75-page petitions their discovery requests ran to hundreds of pages and we granted respondent’s motions for protective orders with respect thereto in part on the ground that we agreed with respondent that the discovery was intended to burden respondent unduly waste his resources and divert him from trial preparation petitioners actively indeed forcefully prosecuted these cases until weeks before trial at that point they attempted to withdraw their petitions asserting a jurisdictional challenge premised on their disavowal of any commercial relationship with and any enjoyment of benefits from the united_states they refused to appear for trial or for a hearing on respondent’s motions to dismiss for default despite notice thereof in both instances we interpret petitioners’ actions in prosecuting and not prosecuting these cases as evidence of their intent to delay these proceedings there are numerous years and for some years large dollar amounts involved in these cases there is before us another case involving dr trowbridge and his and tax years that case involves conduct similar to that in this case see trowbridge v commissioner tcmemo_2003_165 we think that both petitioners deserve large penalties under sec_6673 it is clear to us that dr trowbridge took the lead in the sanctionable activity here therefore we shall impose on him a penalty of dollar_figure we shall impose on ms martin who filed her own petition and submitted documents and took actions that matched those submitted and taken by dr trowbridge a penalty of dollar_figure to reflect the foregoing appropriate orders will be issued and decisions will be entered under rule


department of the treasury employer_identification_number contact person - id number contact telephone number uil internal_revenue_service p box cincinnati oh release number release date date date legend x name y school district z state m dollars amount n number p number dear you asked for advance approval of your scholarship grant procedures under internal_revenue_code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax you requested approval of your scholarship program to fund the education of certain qualifying students our determination we approved your procedures for awarding scholarships based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding scholarships meet the requirements of code sec_4945 as a result expenditures you make under these procedures won't be taxable also awards made under these procedures are scholarship or fellowship grants and are not taxable to the recipients if they use them for qualified_tuition_and_related_expenses subject_to the limitations in code sec_117 description of your request your letter indicates that you will operate a scholarship program called x you provide scholarships to students who are graduates of y who are continuing their education with preference to those who are pursuing careers in the teaching profession the scholarships are only available to students who plan to attend schools in z and are to be used primarily for tuition and other related expenses letter catalog number 58263t ow the number of scholarships that will be awarded each year and the amount of each scholarship will vary depending on the amount of funds available to be distributed you are required to annually distribute the greater of the net_income of the trust or the amount that must be distributed to satisfy code sec_4942 up top scholarships for m dollars is anticipated and will be paid on a schedule of the full amount per semester information about x is found on y’s website also the scholarship packets are sent to the assistant superintendent the public relations director and to the principals and head counselors at each campus in y they also promote the scholarship opportunity to all of the students only graduates from y with preference to those preparing for a teaching profession are eligible to apply scholarship applicants are required to submit the following e e aone page essay written by the applicant expressing his her interest in continuing his her education or pursuing a degree in the teaching profession attendance records for all years in attendance in y transcripts that include absences gpa and class ranking at least two letters of recommendation attesting to the applicant's potential for becoming a future teacher one of the letters should be from someone outside y the selection committee referred to as the scholarship advisory committee is made up of n officials from y each year you will advise the scholarship advisory committee of the amount of funds available to be awarded as scholarships the members of the scholarship advisory committee review the scholarship applications and rank the applicants based on the degree they are pursuing school attendance gpa and class ranking the scholarship advisory committee then submits its recommendations and the amount to be awarded to you to make the final selection all scholarships are awarded on an objective and non-discriminatory basis no scholarship may be awarded to any disqualified_person as defined in code sec_4946 you will pay the scholarship proceeds directly to the university college the recipient attends for the benefit of the recipient you provide a letter to each university college specifying that the university college’s acceptance of the funds constitutes the university college’s agreement to i refund any unused portion of the scholarship if a scholarship recipient fails to meet any term or condition of the scholarship and ii notify you if the scholarship recipient fails to meet any term or condition of the scholarship if the university school will not agree to such terms then you will obtain the needed reports and grade transcripts from the scholarship recipient you maintain case histories showing recipients of your scholarships including names addresses purposes of awards amount of each award manner of selections and relationship if any to officers trustees or donors of funds to you you maintain such information and documentation until the applicable statute_of_limitations period expires basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is a scholarship or fellowship subject_to the provisions of code sec_117 the grant is to be used for study at an educational_organization described in code sec_170 other conditions that apply to this determination this determination only covers the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don't differ significantly from those described in your original request this determination applies only to you it may not be cited as a precedent you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you may report any significant changes to your program by completing form_8940 and sending it to the cincinnati office of exempt_organizations at internal_revenue_service exempt_organizations determinations you cannot award grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary please keep a copy of this letter in your records if you have questions please contact the person listed at the top of this letter sincerely director exempt_organizations


internal_revenue_service number info release date index numbers mr office of u n system administration bureau of international_organization affairs u s department of state room washington d c dear mr cc ita genin-144179-01 this letter responds to your inquiry of date asking about the taxability of various types of income earned by u s citizens and permanent residents who work for international organizations this letter is an information_letter as defined in section dollar_figure of revproc_2001_1 2001_1_irb_1 an information_letter is advisory only and has no binding effect on the internal_revenue_service section dollar_figure of revproc_2001_1 as we understand the facts this inquiry is pursuant to negotiations between the u s department of state and various international organizations regarding types of income to be earned by american citizens and permanent residents you seek an understanding of how various types of income are taxed and will use the information to explain to the concerned international organizations the position the u s department of state will take vis-a-vis a particular income the types of income at issue include salaries various types of allowances grants and subsidies and reimbursements of certain costs sec_1 of the internal_revenue_code generally imposes a tax on individuals determined as a percentage of taxable_income sec_63 generally defines taxable_income as gross_income minus allowed deductions other than the standard_deduction in the case of individuals who do not elect to itemize their deductions for the taxable_year the term taxable_income means adjusted_gross_income minus the standard_deduction and the deduction for personal exemptions provided in sec_151 sec_63 genin-144179-01 sec_62 provides the term adjusted_gross_income means in the case of an individual gross_income less certain deductions sec_61 generally defines gross_income as all income from whatever source derived sec_61 also provides a list of types of income that constitute gross_income sec_1_61-1 of the income_tax regulations defines gross_income to include income realized in any form whether in money property or services unless excluded by another provision of law income may be realized therefore in the form of services meals accommodations stock or other_property as well as in cash gross_income is not limited to the types of income listed in sec_61 u s citizen employees if the employees of international organizations are u s citizens or u s residents compensation_for services is generally included in their gross_income sec_61 sec_1_61-2 provides a list of examples of compensation_for services including wages salaries commissions paid to salesmen compensation_for services on the basis of a percentage of profits fringe_benefits tips bonuses termination or severance_pay rewards jury fees retirement pay of employees pensions and retirement allowances the includibility of the various types of income for u s citizens and residents also depends upon whether the various types of income are specifically excluded from gross_income under a statutory exclusion provision exclusion by qualified individuals of foreign_earned_income sec_911 provides qualified individuals may elect to exclude from their gross_income and exempt from u s tax their foreign_earned_income the sec_911 exclusion is limited by sec_1_911-6 which prohibits other exclusions from gross_income deductions and credits to the extent the exclusion deduction or credit is properly allocable to or chargeable against amounts excluded from gross_income under sec_911 sec_1_911-6 thus moving_expenses for example cannot be both excluded from gross_income under sec_911 and deducted under sec_217 sec_1_911-6 see also revrul_75_84 1975_1_cb_236 revrul_75_85 1975_1_cb_239 a qualified_individual is an individual whose tax_home is in a foreign_country and who is a u s citizen who establishes a bona_fide residency for an uninterrupted period of an entire taxable_year or a u s citizen or resident who during any period of consecutive months is present in a foreign_country or countries during at least full days in those months genin-144179-01 foreign_earned_income is the amount received by a qualified_individual from sources within a foreign_country that constitutes earned_income attributable to services performed by that individual during the period for which that individual is in the foreign_country sec_911 foreign_earned_income includes wages salaries professional fees bonuses and other_amounts received as compensation_for_personal_services actually rendered sec_1_911-3 e and e such compensation is considered to derive from sources within a foreign_country if it is attributable to services performed by an individual in a foreign_country or countries sec_1_911-3 foreign_earned_income does not include any meals or lodging provided by employers in_kind which qualifies under sec_119 as a camp in a foreign_country as described below foreign_earned_income also does not include any amount received as a pension or annuity any amount_paid by an employer which is the u s government nor any amount received by beneficiaries of nonexempt trusts or nonqualified annuities under sec_402 and sec_403 sec_1_911-3 if an individual working at an international_organization is an employee of the u s government then the sec_911 exclusion is not available provided the u s citizen or resident employees of international organizations can meet the qualified_individual requirements of sec_911 the types of income paid_by their international_organization employers generally qualify as foreign_earned_income that is excludable under sec_911 the amount of foreign_earned_income the u s citizen or u s resident employees of international organizations may exclude per year is limited to amounts listed in sec_911 in case of employees who are qualified individuals for periods of less than a year the exclusion amount listed in sec_911 is multiplied by the number of qualifying days in the taxable_year over the number of days in the taxable_year sec_1_911-3 exclusion by qualified individuals of certain housing costs sec_911 also provides that qualified individuals may elect to exclude from their gross_income and exempt from u s tax their housing_cost_amount housing_cost_amount is an amount derived from a complex formula described below based on housing_expenses housing_expenses include both cash allowances and housing provided in-kind by the employer if however in-kind housing provided by the employer constitutes a camp in a foreign_country described in sec_1_119-1 then this sort of in-kind housing is not included in the definition of either foreign_earned_income or the housing_cost_amount sec_1_911-3 and sec_1 b vii thus u s citizen and u s resident genin-144179-01 employees of international organizations who are provided housing constituting a camp in a foreign_country described in sec_1_119-1 must deduct their housing_cost_amount under the rules of sec_119 not under sec_911 in addition to cash allowances and housing provided in-kind by the employer housing_expenses also include rent utilities insurance occupancy taxes furniture rental household repairs and parking paid beyond or in the absence of allowances and housing provided by the employer sec_1_911-4 housing_expenses do not include the cost of house purchase furniture purchase domestic labor mortgage interest taxes depreciation the expenses of more than one foreign household expenses excluded from gross_income under sec_119 expenses excluded as deductible moving_expenses under sec_217 or the cost of a pay television subscription sec_1_911-4 as with foreign_earned_income the housing_cost_amount u s citizen and resident employees of international organizations may exclude per year is limited the excludable housing_cost_amount is the amount equal to the excess of the housing_expenses of an individual his spouse and dependants residing with him for a taxable sec_119 provides the value of any meals or lodging furnished to an employee his spouse and his dependants by his employer for the convenience_of_the_employer shall be excluded from the employee’s gross_income if in the case of meals the meals are furnished on the business_premises of the employer or in the case of lodging the employee is required to accept the lodging on the business_premises of his employer as a condition of his employment sec_1_119-1 of the income_tax regulations specifies the employee will be regarded as required to accept the lodging as a condition of his employment if the employee is required to be available for duty at all times or if the employee could not perform the services required of him unless he is furnished such lodging cash allowances for meals or lodging received by an employee are not excludable under sec_119 sec_1_119-1 the lodging will be regarded to be on the business_premises of the employer if it is a camp in a foreign_country sec_1_119-1 camps in foreign countries possess the following characteristics they are provided because the place where the employee renders his services is in a remote_area where housing is not available they are located as near as practicable to the place where the employee renders his services and they are furnished in a common area or enclave which is not available to the general_public and which normally accommodates or more employees sec_1_119-1 some u s citizen and u s resident employees of international organizations may be required to accept housing in_kind provided by their international_organization employers that meets the characteristics of camps described in sec_1 d genin-144179-01 year reduced by an amount equal to the product of percent of the salary of a gs-14 u s government employee multiplied by the number of qualifying days of such taxable_year within which he was in the foreign_country sec_911 and sec_1_911-4 and c for example if a u s citizen employee of an international_organization receives a salary of dollar_figure per year and housing provided by the international_organization with a fair rental value of dollar_figure per year and pays dollar_figure per year in additional housing_expenses then his gross_income is dollar_figure his housing_expenses of dollar_figure are the sum of the dollar_figure fair rental value of his employer-provided house and the dollar_figure per year in additional housing_expenses his housing_expenses are reduced by an amount equal to percent of the salary of a gs-14 u s government employee multiplied by the number of days of such taxable_year within which he was in the foreign_country over if the salary of a gs-14 employee is dollar_figure and he was a qualified_individual for the entire year this amount is dollar_figure subtracting dollar_figure from dollar_figure produces the excludable housing_cost_amount dollar_figure in this case dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure -dollar_figure dollar_figure permanent resident employees sec_893 provides in part that wages fees or salaries of any employee of an international_organization as defined in sec_7701 received as compensation_for official services to such international_organization shall not be included in gross_income and shall be exempt from taxation if the employee is not a citizen_of_the_united_states income received by an alien employee of an international_organization from sources other than his official compensation such as personal business or investment_income does not qualify for exclusion_from_gross_income and exemption from tax under sec_893 unless specifically exempted under another provision of the internal_revenue_code such income is generally includible in the employee’s gross_income and will be subject_to u s tax the sec_893 exclusion_from_gross_income and tax exemption does not apply however to lawful permanent resident green card holder employees of international organizations who have executed and filed the waiver under sec_247 of the immigration and nationality act ina in order to retain their immigrant ie lawful permanent resident status sec_1_893-1 title u s c sec_1257 after the date of filing the waiver a green card holder employee is no longer entitled to the sec_893 tax exemption with respect to compensation he received from the international_organization the legislative_history to sec_247 of the ina indicates that congress was concerned that green card holders who are eligible for u s citizenship should not be entitled to privileges exemptions and immunities resulting from their occupational status including exemption from tax on their genin-144179-01 salaries that would not be equally available to u s citizens similarly situated h rept no 82d cong 2d sess s rept 82d cong 2d sess we hope this general information is helpful for more specific guidance a taxpayer may request a private_letter_ruling from the national_office of the internal_revenue_service please refer to revproc_2001_1 2001_1_irb_1 for procedures for requesting a private_letter_ruling if we can be of further assistance to you regarding this matter please contact of the income_tax and accounting division at sincerely paul m ritenour chief branch office of associate chief_counsel income_tax and accounting


internal_revenue_service number release date index number --------------------- ----------------------------------------------------------- ------------------------------------------ ---------------------------- ---------------------------------- department of the treasury washington dc person to contact ----------------------- id no ---------------- telephone number --------------------- refer reply to cc intl - plr-158087-02 date date taxpayer branch date sec_1 legend legend ------------------------------------------ -------------------------------------------------------------------------------------- ------------------------ -------------------- -------------------------------------------------------------------------------------- ------------------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------- individual a ------------------------ dear ------------- this replies to a letter dated date in which taxpayer requests an extension of time under sec_301_9100-3 to make the following filings with respect to branch for the tax years indicated a certification described in sec_1 2a d for each of the tax years ended on date sec_1 and the election agreement described in sec_1_1503-2 to replace the certifications to be filed under sec_1 2a d for the tax years ended on date sec_1 and in accordance with the special transition rule in sec_1_1503-2 and the election agreement described in sec_1_1503-2 for each of the tax years ended on date sec_3 and additional information was submitted on date the information submitted for consideration is substantially as set forth below the ruling contained in this letter is predicated upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as a part of the audit process in re plr-158087-02 individual a was a vice president and tax manager of taxpayer during the tax years at issue individual a was responsible for all tax matters for taxpayer including filing taxpayer’s tax returns and all tax planning the affidavit of individual a and the facts submitted explain the circumstances that led to the failure_to_file the election agreements and establish that taxpayer relied on individual a to make the filings in a timely manner sec_301 -1 b provides that an election includes an application_for relief in respect of tax and defines a regulatory election as an election whose due_date is prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement sec_301_9100-1 provides that the commissioner has discretion to grant a taxpayer a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government in the present situation the certifications and election agreements are a regulatory election as defined in sec_301_9100-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayer an extension of time provided that taxpayer satisfies the rules set forth in sec_301_9100-3 based on the facts and information submitted we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time until days from the date of this letter to make the following filings with respect to branch for the tax years indicated a certification described in sec_1_1503-2a d for each of the tax years ended on date sec_1 and the election agreement described in sec_1 g i to replace the certifications to be filed under sec_1_1503-2a d for the tax years ended on date sec_1 and in accordance with the special transition rule in sec_1_1503-2 and the election agreement described in sec_1_1503-2 for each of the tax years ended on date sec_3 and in re plr-158087-02 the granting of an extension of time is not a determination that taxpayer is otherwise eligible to file the certifications and election agreements sec_301_9100-1 a copy of this ruling letter should be associated with the certifications and election agreements this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent no ruling has been requested and none is expressed as to the application of any other section of the code or regulations to the facts presented except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any transaction or item discussed or referenced in this letter specifically no opinion is expressed as to the comments and facts stated in the footnote on page one of your ruling_request pursuant to a power_of_attorney on file in this office a copy of this ruling letter is being furnished to your authorized representative sincerely associate chief_counsel international by s allen goldstein allen goldstein reviewer enclosure copy for sec_6110 purposes


internal_revenue_service number release date index number -------------- ------------------------------------ ---------------------------- ------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------- id no ------------- telephone number -------------------- refer reply to cc psi b01 plr-148401-07 date date ------------- ------------------ ------------------------------------- legend x ----------------------------------------- d state dear ------------ this responds to a letter dated date and subsequent correspondence submitted by x requesting relief under sec_1362 of the internal_revenue_code facts according to the information submitted x was incorporated on d under the laws of state x intended to be treated as an s_corporation for federal tax purposes effective d but the proper election was not timely filed law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides that if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s plr-148401-07 corporation for the year in which the election is made if the election is made after the first two and one-half months of a corporation's taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if no election is made pursuant to sec_1362 or if made the election is made after the date prescribed for making such an election and the secretary determines there was reasonable_cause for the failure to timely make the election then the secretary may treat such election as timely made for such taxable_year and effective as of the first day of that year x did not file a timely election to be treated as an s_corporation under sec_1362 effective d x has however established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective d within days from the date of this letter x must submit a properly completed form_2553 with a copy of this letter attached to the appropriate service_center 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 specifically no opinion is expressed or implied concerning whether x otherwise qualifies as an s_corporation for federal tax purposes this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely s david r haglund senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy of this letter for sec_6110 purposes cc


government entities t and division department of thetreasury internal_revenue_service washington d c sep uniform issue list xxxxxxxxxxkxkk ee tep rat legend taxpayer a ira b bank c ira d bank e amount amount amount xxxxxxxxxxxxx xxxxxxxxxxxxx xxxxxxxxxxxxx xxxxxxxxxxxxx xxxxxxxxxxxxx xxxxxxxxxxxxx xxxxxxxxxxxxx xxxxxxxxxxxxx dear xxxxxxxxxxxxx this is in response to your request dated date as supplemented by correspondence dated date in which your authorized representatives request on your behalf a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a represents that she received a complete distribution from ira b totaling amount taxpayer a asserts that her failure to accomplish a rollover within the day period prescribed by sec_408 was due to her medical_condition which impaired her ability to manage her financial affairs taxpayer a maintained ira b an individual_retirement_account under sec_408 of the code with bank c taxpayer a asserts that she intended for her assets to remain in a tax deferred environment taxpayer a represents that the distribution was requested because the funds in ira b were in an investment that was due to mature and she was advised that she would get a better return on her investment if she transferred her funds to an ira maintained at bank e on date taxpayer a received a distribution totaling amount from ira b with amount being the portion of amount that represents taxpayer a’s required_minimum_distribution for tax_year during the 60-day rollover period following the distribution of amount taxpayer a was hospitalized for a period of time and suffered severe side effects and complications that prevented her from carrying out her financial - affairs including completing a timely rollover of amount as a partial_rollover of the distribution of amount on date taxpayer a transferred amount into ira d with bank e taxpayer a represents that amount has not been used for any other purpose and remains in ira d taxpayer a has suffered from a number of mental health disorders for several years and has been receiving both treatment and medication documentation and medical records have been submitted that show taxpayer a’s state of physical and mental health during the period surrounding the distribution of amount which condition impaired her ability to manage her financial affairs based on the facts and representations a ruling has been requested that the internal_revenue_service the service waive the day rollover requirement contained in sec_408 of the code with respect to the distribution of amount sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 r b date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by taxpayer a is consistent with her assertion that taxpayer a’s failure to accomplish a timely rollover was caused by her medical_condition which impaired her ability to manage her financial affairs therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount from ira b on date and contribution of amount into ira d on date provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution of amount amount will be considered a rollover_contribution within the meaning of sec_408 of the code this ruling does not authorize the rollover of any amounts that are required to be distributed by sec_408 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_61 k of the code provides that it may not be used or cited as precedent a copy of this letter is being sent to your authorized representatives pursuant to a power_of_attorney on file in this office lf you wish to inquire about this ruling please contact xxxxxxxxxx id xxxxxxxxx at xxx xxx-xxxx please address all correspondence to se t ep ra t1 sincerely culler watkins carlton a watkins manager employee_plans technical group enclosures deleted copy of ruling letter notice of intention to disclose


internal_revenue_service number release date index number -------------------- ---------------------------------------------------- ------------------- ------------------------------------ - department of the treasury washington dc person to contact ------------------ id no ------------- telephone number --------------------- refer reply to cc tege eoeg e02 - plr-137201-03 date date do ------------------------------------------------------------------- ---------------------------------------------------- legend agency association ---------------------------------------- state state laws ---------------------------------------------------------- ----------------------------------------------------------- --------------------------------------------------------------------- ------------------------------------------------------------------------ dear -------------------- -------- this is in response to your letter dated date and subsequent correspondence requesting a ruling that the income of pool is excluded from gross_income under sec_115 of the internal_revenue_code facts agency is an unincorporated association of counties and county-related political subdivisions of state_agency was established by means of participation agreements with its members to provide central cooperative and coordinated assistance and services to its members in all matters relating to information resources and technologies in order to increase efficiencies and improve the quality reliability and interoperability of their information resources technologies and services pursuant to state laws agency is organized exclusively for the benefit of counties and other related political subdivisions of state to provide technological services to its members membership in agency is limited to state counties and other political subdivisions of state that execute participation agreements with agency agency represents that each current or future member must be a political_subdivision as defined in plr-137201-03 sec_1_103-1 of the federal_income_tax regulations of state an organization constituting an integral part of a political_subdivision of state or an entity whose income is excluded from gross_income under sec_115 of the code agency’s participation_agreement will be amended to conform to these representations by agency association is a nonprofit membership corporation established by resolution of the state legislature and later incorporated the association’s articles of incorporation provide that it was organized and shall be operated to augment the efforts of state county officials to provide a responsive form of government for the people of state further the interest of local_government for the people of state and assist the people and counties of state in accomplishing their goals toward meeting the challenge of modern society and acts necessary to achieve that end voting membership in association is limited to counties of state association has received a ruling from the internal_revenue_service that it is exempt from federal tax under sec_501 of the code as an organization described in sec_501 agency is governed by a board_of trustees appointed by the president of association and approved by association’s board_of directors all board members must be an employee or an elected official of a member of agency association is under contract with agency to provide administrative services and serve as agency’s administrator association acts as an independent_contractor and has control of its services and the manner in which they are performed association is free to contract for similar services to be performed for other trusts funds or pools sponsored by association while it is under contract with agency at present because agency is a new entity that lacks sufficient income the association is providing administrative services at no cost when agency becomes fully operational agency will pay actual cost reimbursement for the services rendered pursuant to the contract the contract provides that either party may terminate the contract at any time upon thirty days’ written notice agency’s income is from contributions and fees from its members and investment_income agency makes expenditures to cover technological services and resources royalties and miscellaneous expenses no net_earnings of agency may inure to the benefit of or be distributed to any private person except that reasonable_compensation for services rendered may be paid_by agency in the event of agency’s dissolution all its assets after payment of debts and obligations shall be distributed to its members that are organizations the income of which is excluded under sec_115 of the code plr-137201-03 law analysis sec_115 of the code provides that gross_income does not include income derived from any essential_governmental_function and accruing to a state or political_subdivision thereof in revrul_77_261 1977_2_cb_45 holds that income from a fund established under a written declaration of trust by a state for the temporary investment of cash balances of the state and its political subdivisions is excludable from gross_income under sec_115 that ruling reasons that the investment of positive cash balances by a state or political_subdivision thereof in order to receive yield on the funds until needed to meet expenses is a necessary incident of the power of the state or political_subdivision to collect taxes or other revenue for use in meeting governmental expenses in addition the ruling also provides that since the state and its participating political subdivisions have an unrestricted right to their proportionate share of the investment fund’s income the fund’s income accrues to them within the meaning of sec_115 revrul_77_261 points out that congress did not desire in any way to restrict a state’s participation in enterprises that might be useful in carrying out those projects desirable from the standpoint of the state government which on a broad consideration of the question may be the function of the sovereign to conduct revrul_90_74 1990_2_cb_34 holds that income of an organization formed operated and funded by political subdivisions of a state to pool their casualty risks is excluded from gross_income under sec_115 of the code the ruling states that income of such an organization formed to pool risks in lieu of purchasing insurance to cover their public liability workers’ compensation or employees’ health obligations is excluded under sec_115 if private interests do not except for incidental_benefits to employees of the participating state and political subdivisions participate in or benefit from the organizations agency was created to provide a vehicle for providing technological services to its members as in revrul_77_261 the use of technology to perform services for the public is a necessary incident of the power of the state or political_subdivision agency therefore like the organization described in revrul_77_261 performs an essential_governmental_function within the meaning of sec_115 of the code the income of agency is used solely to provide benefits to members and their employees only counties and other political subdivisions of state are allowed to become members of agency in the event of the dissolution of agency all its remaining assets after the payment of debts and obligations shall be distributed to its members that are organizations the income of which is excluded under sec_115 of the code private interests do not participate in or benefit from income of agency plr-137201-03 therefore the income of agency accrues to political subdivisions within the meaning of sec_115 of the code conclusion provided that agency amends its participation_agreement as provided above we conclude that the income of agency is excluded from gross_income under sec_115 of the code a copy of this letter should be attached to any income_tax return to which it is relevant this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter letter is being sent to your authorized representative in accordance with the power_of_attorney on file with this office a copy of this except as expressly provided herein no opinion is expressed or implied sincerely barbara e beckman assistant chief eo branch office of division counsel associate chief_counsel tax exempt and government entities enclosures cc