t c no united_states tax_court gloria j spurlock petitioner v commissioner of internal revenue respondent docket no filed date held a sec_6020 i r c return made by r which shows an amount of tax does not affect whether there is a deficiency under sec_6211 i r c where p failed to file a return the amount of tax shown on a sec_6020 i r c return made by r is subject_to deficiency procedures and r must follow those procedures before he can make an assessment 91_tc_926 gloria j spurlock pro_se frederick w krieg for respondent -- - opinion ruwe judge this matter is before us on petitioner’s motions for partial summary_judgment under rule the issues for decision are whether a sec_6020 return prepared by respondent is a return for purposes of sec_6211 and whether there can exist a deficiency with respect to tax_liabilities stated on a sec_6020 return at the time of filing the petition in this case petitioner was a resident of louisville kentucky petitioner did not file federal_income_tax returns for or however respondent prepared what he represents as substitutes for return for each of those tax years the substitutes for return upon which respondent relies show a tax_liability of dollar_figure for dollar_figure for and dollar_figure for respondent has not made any income_tax assessments against petitioner for the tax_liabilities shown on those returns respondent issued a notice_of_deficiency to petitioner on date in which he determined the following income_tax deficiencies and additions to tax ‘unless otherwise indicated all section references are to the internal_revenue_code in effect for the tax years in issue and all rule references are to the tax_court rules_of_practice and procedure respondent states that the term ‘substitute for return’ is a term used by respondent for returns or partial returns prepared by respondent where the taxpayer did not file a return additions to tax_year deficiency sec_6651 a sec_6651 a sec_6654 dollar_figure dollar_figure n a dollar_figure big_number dollar_figure to be determined dollar_figure big_number dollar_figure to be determined dollar_figure under rule a either party may move for summary_judgment upon all or part of the legal issues involved in the case we shall grant a motion for partial summary_judgment where there is no genuine issue as to any material fact relevant to the issues involved rule b 98_tc_518 affd 17_f3d_965 7th cir the moving party has the burden of proving that no genuine issue of material fact exists and that he is entitled to judgment as a matter of law 116_tc_73 under sec_6020 respondent has the authority to execute a return if any person fails to make any return required by any internal revenue law or regulation made thereunder at the time prescribed therefor or makes willfully or otherwise a false_or_fraudulent_return sec_6020 provides that any return so made and subscribed by the secretary shall be prima facie good and sufficient for all legal purposes on the basis of the language contained in sec_6020 b petitioner argues that returns prepared by respondent -both parties agree that respondent filed sec_6020 b returns for the years in issue however we do not decide whether those returns meet the requirements of sec_6020 q4e- are treated in the same manner as if the taxpayer had filed those returns under sec_6211 the term deficiency is generally defined as the amount of tax imposed less the amount shown as the tax by the taxpayer upon his return see 423_us_161 petitioner contends that neither an amount of tax shown upon a return made by respondent nor an amount of tax shown upon a return filed by a taxpayer falls within the definition of the term ‘deficiency ’ petitioner argues that since the amounts stated as tax liabilties in the substitutes for return are equal to the amounts determined by respondent in the notice_of_deficiency there is no deficiency under sec_6211 respondent on the other hand contends that sec_6211 a refers to an amount shown as tax by the taxpayer upon his return and that petitioner did not file returns in this case respondent argues that when a sec_6020 return is prepared it is considered a return filed by the taxpayer for the purpose of calculating the sec_6651 addition_to_tax pursuant to sec_6651 however respondent contends that a section sec_6651 provides sec_6651 treatment of returns prepared by secretary under sec_6020 --in the case of any return made by the secretary under sec_6020 b -- such return shall be disregarded for purposes of determining the amount of the addition continued - - b return is not a return of the taxpayer for purposes of sec_6211 and that the amount shown on a sec_6020 b return represents a deficiency the language in sec_6211 itself does not refer toa sec_6020 return or a return prepared by the commissioner instead sec_6211 speaks in terms of a return made by the taxpayer and an amount shown as the tax by the taxpayer thereon continued under paragraph of subsection a but such return shall be treated as the return filed by the taxpayer for purposes of determining the amount of the addition under paragraphs and of subsection a sec_6211 provides sec_6211 definition of a deficiency a in general ---for purposes of this title in the case of income estate_and_gift_taxes imposed by subtitles a and b and excise_taxes imposed by chapter sec_41 sec_42 sec_43 and sec_44 the term deficiency means the amount by which the tax imposed by subtitle a or b or chapter or exceeds the excess of-- the sum of a the amount shown as the tax by the taxpayer upon his return if a return was made by the taxpayer and an amount was shown as the tax by the taxpayer thereon plus b the amounts previously assessed or collected without assessment as a deficiency over-- continued in 91_tc_926 we addressed the issue of whether a sec_6020 return made by the commissioner was a separate_return filed by an individual under sec_6013 we held that in order to provide a rational meaning for the term individual sec_6013 b should not be interpreted to include a return prepared by respondent under sec_6020 id pincite similarly in order for the references to the term taxpayer in sec_6211 to have any rational meaning sec_6211 should be interpreted to exclude returns which are prepared by the commissioner there are other examples where this court has interpreted references in the code to the term return as not including a return prepared by the commissioner for example in 115_tc_316 we held that a sec_6020 b return was not a return filed by the taxpayer for purposes of sec_6511 likewise congress has expressly or impliedly limited the application of sec_6020 under sec_6501 b notwithstanding the provisions of paragraph of sec_6020 the execution of a return by the secretary pursuant to the authority conferred by such section shall not start the running of the period of limitations on assessment and continued the amount of rebates as defined in subsection b made - collection and in sec_6651 a return prepared by the commissioner shall be disregarded for purposes of sec_6651 which imposes an addition_to_tax for failure_to_file any return petitioner argues on the basis of the aforementioned code sections that where sec_6020 returns are not to be ‘good and sufficient for all legal purposes ’ congress has either specifically stated the legal purpose for which they will not be good and sufficient as in sec_6501 however we do not find that the language of sec_6020 is limited only where congress does so expressly our decisions in millsap v commissioner supra and healer v commissioner supra dealt with situations where congress did not impose any specific limitation on sec_6020 with respect to the code sections involved and we are not prepared to say that those cases were incorrectly decided further we might add that congress impliedly recognized that sec_6020 has limited application when it enacted sec_6651 sec_6651 treats a sec_6020 b return as a return of the taxpayer for purposes of sec_6651 and petitioner however argues that sec_6651 is an example of a provision that is so narrowly drawn that the term return can only be interpreted to refer to a return filed by the taxpayer despite petitioner’s --- - contentions sec_6651 is no more narrowly drawn than sec_6211 upon which petitioner relies indeed sec_6651 refers to the amount shown as tax on any return whereas sec_6211 refers to a return made by the taxpayer petitioner also argues that a sec_6020 return is prima facie good and sufficient to furnish a basis for assessing the tax liabilties stated thereon and that under sec_6201 a tax shown upon a return made by respondent is to be treated in the same manner as is a tax shown upon a return filed by a taxpayer petitioner reads sec_6201 a to state that if respondent has determined a tax and has disclosed the tax on a return by him then respondent is required to assess the tax so determined and so disclosed without resort to deficiency procedures we have previously rejected this same argument in millsap v commissioner supra in millsap v commissioner supra we rejected the notion that respondent could preempt our deficiency procedures by filing substitutes for return stating in their current form the basic deficiency procedures are contained in sec_6211 through respondent is not entitled with few exceptions to assess income_tax until after the proper mailing of a notice_of_deficiency and if petitioned until the decision of this court becomes final sec_6213 accordingly the historical and traditional purpose of a return prepared and filed by the commissioner would be suspended or would not take effect until the deficiency procedures are first completed if the return respondent prepares under sec_6020 b authority is literally treated as prima facie good and sufficient for all legal purposes respondent could ignore the deficiency procedures this is because the return is a consent to assessment of tax in our tax system see sec_6201 and sec_1 a income_tax regs congress has recognized that literal application of sec_6020 may create anomalous results and has provided some explicit safeguards the execution of a return by the respondent pursuant to sec_6020 shall not start the running of the period of limitations on assessment and collection sec_6501 id pincite fn ref omitted we concluded that the substitute return should in no way preclude a taxpayer’s statutory right to a hearing on the deficiency and the elements that comprise it id pincite sec_6201 provides that the secretary shall assess all taxes determined by the taxpayer or by the secretary as to which returns or lists are made under this title although sec_6201 does not appear to distinguish between the obligations to assess a tax with respect to a return filed by the taxpayer and a return filed by the commissioner congress surely ‘petitioner argues that in 91_tc_926 the taxpayer did not raise and this court did not address whether the commissioner could assess an income_tax in a case involving a sec_6020 return without going through the deficiency procedures however in the headnote to that opinion we stated p contends that r’s preparation of a return under authority of sec_6020 does not obviate p’s statutory right to deficiency procedures including our redetermination of r’s determination of filing_status id pincite and we held that the returns prepared by r do not obviate p’s entitlement to deficiency procedures id -- - did not intend to deny nonfilers a prepayment forum in all cases where a sec_6020 return is filed ’ nevertheless petitioner suggests that nonfilers should be treated in the same manner as delinguent filers petitioner contends that delinquent filers who have shown an amount of tax on their return cannot contest their tax_liabilities under the deficiency procedures but they must instead pay first and litigate later on the other hand if a sec_6020 return is not good and sufficient for purposes of sec_6201 a and a nonfilers will be entitled to the deficiency procedures petitioner contends that this creates an absurd result a disparity between delinquent filers and nonfilers that could not have been the intention of congress we disagree there is a fundamental difference between a delinquent filer and a nonfiler the delinguent filer has accepted the correctness of the amounts shown on his or her return whereas the nonfiler has not accepted those amounts with respect to the delinquent filer sec_6201 authorizes the secretary to assess see also ruff v commissioner tcmemo_1990_521 angstadt v commissioner tcmemo_1990_433 browder v commissioner tcmemo_1990_408 in ruff v commissioner supra we stated that the internal_revenue_service may prepare substitute returns for taxpayers who fail to do so themselves sec_6020 but the substitute return does not preclude a taxpayer’s statutory right to a hearing on the deficiency and the elements that comprise it against the taxpayer the tax_liability shown on her own tax_return that was signed under penalties of perjury in the instant case respondent agrees that he must follow the deficiency procedures prior to assessment of an income_tax_liability stated on a sec_6020 return unless the taxpayer agrees to the correctness of the tax_liability stated in such a return see sec_6020 petitioner has not agreed to the correctness of the tax_liabilities stated in the returns prepared by respondent and she vigorously contests whether she has any income_tax liabilities for the tax years at issue we hold that respondent must follow the deficiency procedures with respect to tax_liabilities stated in the sec_6020 returns we also hold that a sec_6020 return is not a return under sec_6211 and that there can be a deficiency within the meaning of that section even though the tax_liabilities stated on the sec_6020 returns are equal to the deficiencies determined in the notice_of_deficiency we shall deny petitioner’s motions ‘petitioner has raised an additional argument with respect to her tax_year pursuant to sec_301 6211-l1 a proced admin regs respondent determined that the amount shown on a return was zero and computed the deficiency for that year to be the full amount of petitioner’s determined tax_liability of dollar_figure sec_301_6211-1 proced admin regs provides in relevant part that if no return is made for the purpose of the definition ‘the amount shown as the tax by the taxpayer upon his return’ shall be considered as zero petitioner contends that this regulation does not implement sec_6211 ina reasonable manner petitioner relies on an amendment to the predecessor of sec_6211 which removed language similar to the continued for partial summary_judgment an appropriate order will be issued denying the motions for partial summary_judgment continued relevant language contained in the regulation see individual income_tax act of ch sec a 58_stat_245 u s c sec_6211 we do not agree with petitioner that congress intended to exclude from the definition of a deficiency taxes which are determined by respondent for a nonfiling taxpayer if that were the case respondent could preempt the deficiency procedures with respect to all nonfilers we hold that sec_301_6211-1 proced admin regs is not an unreasonable interpretation of sec_6211 see 423_us_161 citing sec_301_6211-1 proced admin regs and stating that where there has been no tax_return filed the deficiency is the amount of tax due 919_f2d_830 2d cir when a taxpayer does not file a tax_return it is as if he fileda return showing a zero amount for purposes of assessing a deficiency


internal_revenue_service national_office technical_advice_memorandum number release date index uil nos case mis no tam-162881-02 cc corp b6 taxpayer's name taxpayer's address taxpayer's identification no years involved date of conference legend distributing date sec_5 s8 s9 controlled date date date date month month tam-162881-02 year year dollar_figurea dollar_figureb dollar_figurec dollar_figured x y issues whether controlled’s sale of certain of its warrants to s9 constitutes a bargain sale of the warrants within the meaning of sec_482 of the internal_revenue_code if controlled’s sale of the warrants constitutes a bargain sale whether the transaction should be recast under revrul_69_630 as a cash distribution of the bargain portion of the sale to the common parent followed by a capital_contribution of such cash to s9 conclusion controlled’s sale of the warrants does not constitute a bargain sale because the sale was at arms’ length alternatively if the sale is treated as a bargain sale within the meaning of sec_482 the bargain portion of the sale is treated as a stock_dividend under sec_305 and the basis consequences of the stock_dividend generally zero basis to distributee are determined under sec_307 facts prior to the transaction described below distributing was the common parent of an affiliated_group_of_corporations filing a consolidated federal_income_tax return distributing owned x of the stock of controlled which was more than and the public owned the rest distributing also owned all of the stock of sec_5 which owned all of the stock of s8 which owned all of the stock of s9 tam-162881-02 shortly after receiving a private_letter_ruling plr dated date and supplemented by a private_letter_ruling plr dated date and pursuant to its terms distributing announced that it would distribute its controlled stock pro_rata and controlled would pay a cash dividend to its shareholders of dollar_figurea per share in order to finance part of the cash dividend controlled planned to sell warrants to distributing or an affiliate of distributing the warrants were convertible into a special class of controlled stock this stock was identical to the controlled common_stock except that it was entitled to only y of a vote per share the price of the warrants was determined by a formula based on the average value of the controlled common_stock during a specified period ending on a specified date prior to the announcement of the distribution shortly after the announcement described above and several months before the controlled stock_distribution distributing’s investment banker an independent third party valued the warrants in the aggregate at dollar_figureb prior to the transfer of the warrants their value increased substantially as of date distributing’s investment banker valued the warrants in the aggregate at dollar_figurec nevertheless controlled sold the warrants to s9 for the original stated price of dollar_figureb on date distributing distributed the stock of controlled to its shareholders pro_rata on date s9 distributed the warrants to s8 s9 deferred the gain that it otherwise would have recognized as a result of this distribution on date s8 sold the warrants to sec_5 in month of year sec_5 sold some of the warrants to a group of underwriters in month of year sec_5 sold the remaining warrants back to controlled the sale of the warrants by sec_5 outside the group triggered s9's deferred gain s9's amount_realized is dollar_figured the issue is whether s9's aggregate basis in the controlled warrants is dollar_figureb or dollar_figurec law and analysis taxpayer’s argument the taxpayer argues that the bargain sale principles of revrul_69_630 1969_2_cb_112 apply to the sale of the warrants in revrul_69_630 individual a owns all of the stock of corporations x and y a caused x to sell property to y for less than an arm' sec_1 the terms used in this technical_advice_memorandum to describe the parties are identical to those used in the original and supplemental private letter rulings updated to reflect changes in the corporate structure of distributing since the issuance of these letters controlled sold other_securities to other affiliates of distributing to finance the rest of the cash dividend tam-162881-02 length price applying sec_482 the ruling held that the income of x will be increased to reflect the arm's length price of the property sold to y the ruling further held that the basis of the property in the hands of y will also be increased to reflect the arm's length price finally the ruling held that the amount of such increase will be treated as a distribution to a the controlling shareholder with respect to his stock of x and as a capital_contribution by a to y applying the principles of revrul_69_630 to its case the taxpayer argues that s9 would be treated as having paid dollar_figurec for the warrants for which controlled would not recognize any gain thus resulting in s9's obtaining a dollar_figurec basis in the warrants controlled would be treated as having distributed the difference between what it was deemed to have received dollar_figurec and what it actually received dollar_figureb to distributing as a cash distribution with respect to its controlled stock and distributing would be treated as having made a capital_contribution of such amount to sec_5 which will be treated as having contributed such amount to s8 which will be treated as having contributed such amount to s9 the appeals officer’s arguments the appeals officer a o makes several arguments challenging taxpayer’s analysis first the a o disputes the aggregate value of dollar_figurec as of date as the correct fair_market_value of the warrants on that date the a o notes that the warrants were convertible into a new class of controlled common_stock which would dilute and thus reduce the value of the outstanding controlled stock the a o also notes that the new class of controlled common_stock would only have y of a vote per share this reduced voting power would also reduce the value of such stock this reduction in the value of the controlled stock would also reduce the value of the controlled warrants second the a o distinguishes revrul_69_630 because in that case the selling corporation included the deemed sales_price in income by contrast in this case controlled would not recognize any gain upon the receipt of property in exchange for the warrants thus the a o argues that if such amount is not included in income it cannot be added to the basis of the warrants finally the a o argues that under sec_1_1502-31 as in effect for the years at issue the basis_of_property received in a distribution is determined under old sec_301 old sec_301 provides that the basis_of_property in the hands of the recipient is the sum of the adjusted_basis of the property in the hands of the distributing_corporation plus the amount of gain recognized by the distributing_corporation under the current facts the basis of the warrants in the hands of the distributing_corporation is zero and since the distributing_corporation recognized no gain on the distribution such basis remains zero analysis tam-162881-02 we agree with the result advocated by the a o but on different grounds issue one a threshold issue in this case is whether controlled’s sale of the warrants constitutes a bargain sale if it does not there is no need to determine the consequences of the transaction under the recast principles of revrul_69_630 for the reasons explained below we conclude that the sale not a bargain sale at the time the terms of the warrants were written the parties agreed that dollar_figureb was the fair_market_value of the warrants the parties secured an opinion from distributing’s investment banker an independent third party that dollar_figureb was in fact the aggregate fair_market_value of such warrants in that case they are bound by that valuation see doctor’s bldg hospital inc v u s ustc s d tex thus at the time of the agreement there was no bargain element to the acquisition of the warrants because the parties were operating at arms’ length see nestle holdings inc v commissioner 152_f3d_83 moreover the warrant agreement did not contain a provision for adjusting the purchase_price of the warrants should it go up or down between the time of the agreement and the time of the sale thus there is no authority for the taxpayer to recalculate the purchase_price based on its alleged fair_market_value at the time of the sale under this analysis there is no need to recast the transaction or make collateral adjustments to account for a bargain element when there is no bargain element in particular the service is only allowed to recast a transaction or series of steps if the form of those steps does not reflect their substance see eg 90_tc_171 aff'd 886_f2d_1318 7th cir 111_tc_315 in this case as noted above at the time of the agreement it is uncontested that the consideration for the warrants equaled their fair_market_value thus there is no basis for the service to recast the transaction in this case even if it were so inclined in addition even if the form of the transaction does not reflect its substance the taxpayer is generally precluded from attempting to recharacterize its own transaction see 108_tc_590 see also 87_tc_1046 63_tc_149 citing 264_f2d_305 2d cir aff'g 29_tc_129 estate of durkin v commissioner tcmemo_1992_325 supplemented by 99_tc_561 and estate of corbett v commissioner tcmemo_1996_255 thus even if the taxpayer is correct that the acquisition of the warrants wa sec_3 under this analysis since the price of the warrants at the time of the sale is irrelevant we do not address the a o ’s argument challenging the taxpayer’s valuation of the warrants at the time of the sale tam-162881-02 a bargain sale taxpayer is precluded from making this argument issue two even if controlled’s sale of the warrants constitutes a bargain sale we agree with the a o that revrul_69_630 is distinguishable but for a different reason revrul_69_630 and other similar authorities deal with the bargain sale of property in the current case controlled is not selling property but its own warrants warrants and stock of a corporation are treated differently under the code from property under sec_317 warrants are not considered property for purposes of certain specified code sections including sec_301 in other words there are specific sections of the internal_revenue_code dealing with such instruments these sections are exceptions to the general provisions of the code dealing with sales or distribution_of_property for example if revrul_69_630 did apply the first collateral_adjustment is a deemed_distribution of the bargain amount from the seller to the common parent in the case of property the applicable code section i sec_301 in the case of a corporation’s own warrants there is a specific code section which addresses that - sec_305 this specific code section overrides the application of the general_rule of sec_301 if revrul_69_630 does not apply then the most straightforward analysis is to treat the transaction as a sale of warrants from controlled to s9 to the extent of the consideration paid_by s9 to controlled with the remainder of the warrants treated as having been distributed by controlled to distributing under sec_305 distributing’s receipt of the warrants would be tax-free in addition distributing’s basis in the warrants would be determined under sec_307 in this case since distributing has represented that the value of the warrants deemed distributed is less than of the value of the underlying stock sec_307 would apply under that provision distributing would have a zero basis in these warrants distributing would then be treated having contributed the warrants ultimately to s9 as described above s9's zero basis in the warrants it ultimately received from distributing would be added to the amount dollar_figureb that it paid controlled for warrants thus s9's aggregate basis in the warrants is dollar_figureb caveat a copy of this technical_advice_memorandum is to be given to the taxpayer sec_6110 of the code provides that it may not be used or cited as precedent because our analysis under sec_305 and sec_307 achieves the same result as the a o ’s consolidated_return argument we do not need to address it here


internal_revenue_service number info release date index number --------------------- --------------------------------------------- --------------------------------- department of the treasury washington dc person to contact --------------------- id no ------------- telephone number --------------------- refer reply to cc psi b1 - genin-148274-03 date dec taxpayer --------------------------------------------------- taxpayer --------------------------------------------------- dear ------------- this responds to your letter dated date in which it was requested that we recognize taxpayer’s election to be an s_corporation effective date a corporation which meets the definition of a small_business_corporation under sec_1362 of the internal_revenue_code may elect to be treated as an s_corporation in order for an s_corporation_election to be effective for the taxable_year in which it is made it must be made within the first two and one-half months of the corporation’s taxable_year sec_1362 if an s election is made after that time then the corporation will not be treated as an s_corporation until the taxable_year following the one in which the s election was filed sec_1362 an election made after the first two and one-half months of the taxable_year in which it is intended to be effective may be treated as effective if the secretary determines that there was reasonable_cause for the corporation’s failure to make a timely election sec_1362 announcement copy enclosed provides guidance on seeking relief for late s_corporation elections generally to request relief for a late s_corporation_election you must request a private_letter_ruling from the national_office the procedures for requesting a private_letter_ruling are set out in revproc_2003_1 copy enclosed in addition revproc_2003_1 requires taxpayers to submit a user_fee along with their ruling_request the standard user_fee for a private_letter_ruling is dollar_figure however taxpayers with gross_income of less than dollar_figure million on their tax_return for the most recent 12-month taxable_year qualify for a reduced user_fee in the amount of dollar_figure if you qualify for the reduced fee you must include a statement certifying your gross_income for the last 12-month taxable_year otherwise the higher fee will apply if you decide to submit a formal request for a private_letter_ruling please review appendix b of revproc_2003_1 and be certain to include all required procedural statements also include the proper user_fee and any documents that substantiate your intent to be an s_corporation from inception please refer your request to our office by adding the following to the address attn cc pa t p o box ben franklin station washington dc direct to cc psi room we hope that this information is helpful to you if you have additional questions please contact rebekah myers at not a toll-free call as requested in the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer s dianna k miosi sincerely dianna k miosi chief branch office of office of the associate chief_counsel passthroughs and special industries enclosures announcement revproc_2003_1


internal_revenue_service number release date index number ----------------------------------------- ------------------------- ----------------------------------- re ----------------------------------------------- ---------------------------- 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 b04 plr-105267-11 date date legend husband wife accountant trust trust child child year date date a ----------------------------------------------- -------------------------------------------------- -------------------------- ------------------------------------------------------------------- --------------------------------------------------------------------- ------------------- -------------------- ------- ---------------------- ---------------------- -------- dear ---------------------------- this letter responds to your authorized representative’s letter dated date requesting an extension of time under sec_2642 of the internal_revenue_code and sec_301_9100-3 of the procedure and administration regulations to allocate husband’s gst_exemption and wife’s gst_exemption to the year transfer to trust and trust the facts and representations submitted are summarized as follows on date husband created trust for the benefit of child and his descendants and trust for the benefit of child and his descendants on date husband made a gift of dollar_figurea to each trust plr-105267-11 husband and his wife wife hired accountant to prepare their form sec_709 united_states gift and generation-skipping_transfer_tax returns for year husband and wife consented to treat the transfers made during year as being made one-half by each pursuant to sec_2513 accountant prepared the form sec_709 but failed to report the dollar_figurea transfer to trust and the dollar_figurea transfer to trust wife and husband timely filed the form sec_709 for year you have requested an extension of time under sec_2642 and sec_301_9100-3 to allocate husband’s gst_exemption and wife’s gst_exemption to the year transfer to trust and trust law and analysis sec_2513 provides that a gift made by one spouse to any person other than the donor’s spouse is considered for purposes of the gift_tax as made one-half by the donor and one-half by the donor’s spouse but only if at the time of the gift each spouse is a citizen or resident_of_the_united_states sec_2601 imposes a tax on every generation-skipping_transfer a generation-skipping_transfer is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the tax imposed by sec_2601 is the taxable_amount multiplied by the applicable_rate sec_2641 defines the term applicable_rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2631 as in effect for the years at issue provides that for purposes of determining the gst tax every individual shall be allowed a gst_exemption of dollar_figure which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that an allocation of gst_exemption to property transferred during the transferor's lifetime other than in a direct_skip is made on form_709 sec_2652 provides that for purposes of the gst tax the term transferor means the decedent in the case of any property subject_to the estate_tax and the donor in the case of any property subject_to the gift_tax plr-105267-11 sec_2652 provides that if under sec_2513 one-half of a gift is treated as made by an individual and one-half of such gift is treated as made by the spouse of such individual such gift shall be so treated for purposes of chapter sec_2642 provides that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 or c the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period its value at the time of the close of the estate_tax_inclusion_period sec_2642 provides that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of sec_2642 sec_2642 provides that in determining whether to grant relief under this paragraph the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief under this paragraph the time for making the allocation or election shall be treated as if not expressly prescribed by statute see notice_2001_50 2001_2_cb_189 sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose date is prescribed by a regulation and not expressly provided by statute in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election plr-105267-11 based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore husband and wife are each granted an extension of time of days from the date of this letter to allocate their available gst_exemption to the year transfers to trust and trust the allocation will be effective as of the respective date of the transfers to trust and trust and the value of the transfers to trust and trust as determined for federal gift_tax purposes will be used in determining the amount of gst_exemption to be allocated to trust and trust these allocations should be made on supplemental form sec_709 for year the form sec_709 should be filed with the cincinnati service_center at the following address internal_revenue_service cincinnati service_center - stop cincinnati oh a copy of this letter should be attached to the supplemental form sec_709 a copy is enclosed for this purpose in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives 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 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 the rulings in this letter pertaining to the federal estate and or generation-skipping_transfer_tax apply only to the extent that the relevant sections of the internal_revenue_code are in effect during the period at issue plr-105267-11 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely associate chief_counsel passthroughs special industries _________________________ by leslie h finlow senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter cc


office_of_chief_counsel internal_revenue_service memorandum number release date cc intl b04 tperry preno-115487-05 uilc date may to mr fred dulas revenue service representative -large mid-size business ------------------------------------ ------------------ ---------------------------- from mr robert w lorence jr senior counsel branch office of associate chief_counsel international subject transfer of options to purchase real_property by foreign persons this chief_counsel_advice responds to your request for assistance on date this advice may not be used or cited as precedent issue whether withholding_tax is required under sec_1445 when a nonresident_alien_individual disposes of an option to acquire a u s real_property interest before exercising the option conclusion yes under sec_1_1445-1 a transferee of an option to acquire a u s real_property interest must deduct and withhold a tax equal to of the amount_realized by the transferor upon the disposition facts in the florida real_estate market some nonresident_alien individuals have acquired options to purchase u s real_property interests and sold the options before preno-115487-05 exercising the options and taking title to the underlying property the transferees of the options often real_estate developers are not withholding_tax on amounts realized from the sale of the options under sec_1445 law and analysis under sec_897 gain_or_loss of a nonresident_alien_individual or foreign under sec_897 a u s real_property interest includes an interest in real corporation from the disposition of a u s real_property interest is subject_to u s tax as if the gain_or_loss were effectively connected with the conduct of a u s trade_or_business under sec_1445 if a foreign_person disposes of a u s real_property interest the transferee of such interest is required to deduct and withhold a tax equal to percent of the amount_realized on the disposition property located in the united_states sec_897 provides that an interest_in_real_property includes options to acquire land or improvements thereon and options to acquire leaseholds of land and improvements thereon sec_1 d ii b provides an option a contract or a right_of_first_refusal to acquire any interest_in_real_property other than an interest solely as a creditor will itself constitute an interest_in_real_property other than solely as a creditor as a result an option to acquire an interest_in_real_property located in the united_states is itself a u s real_property interest subject_to tax under sec_897 upon its disposition acquire a u s real_property interest must deduct and withhold a tax equal to percent of the amount_realized by the foreign transferor upon the disposition sec_1 b iii however does not require withholding upon the initial grant of an option thus the withholding_tax under sec_1445 applies when a foreign transferor sells an option to another person for consideration under sec_1461 transferees of the options are liable for the tax if they fail to withhold please call tracy perry at if you have any further questions sec_1_1445-1 provides that the transferee of an option to _____________________________ robert w lorence jr senior counsel branch office of associate chief_counsel international


department of the treasury int ernal revenue service washington d c date o f f i c e o f c h i e f c o u n s e l number release date uilc cc tege eoeg teb tjones wta-n-135065-01 memorandum for charles m anderson manager tax-exempt_bonds - field operations from subject timothy l jones assistant chief tax-exempt_bond branch this written technical assistance is to inform you of our position regarding a lease arrangement at an airport that causes a bond financed parking lot to be privately used for purposes of sec_141 of the internal_revenue_code in accordance with sec_6110 this chief_counsel_advice should not be cited as precedent issue is the private_business_use_test under sec_141 met if the amount of a lease payment to an airport authority for a terminal space takes into account the net profits generated by parking facility fees on a bond financed parking lot conclusion when an airport authority’s lease with a private air carrier gives the carrier an interest in the net profits generated by the parking facility fees in the form of reduced lease payments such lease causes the private_business_use_test under sec_141 to be met with respect to the parking facility because it is an arrangement that conveys special legal entitlements to the financed facility to the carrier facts the authority is a public entity that owns and operates an airport and is authorized to issue tax-exempt_bonds it plans to issue tax exempt bonds to build a parking facility adjacent to the airport the bonds the authority leases terminal space at the airport to a private air carrier under a lease arrangement whereby the carrier has exclusive use of the leased premises the proposed parking facility is not part of this exclusive lease arrangement with the carrier instead the parking facility will be used primarily by customers of the airlines at the airport including private air carriers with incidental_use by employees of the airlines the fees generated by the parking facility are to be applied to debt service on the wta-n-135065-01 bonds any remaining net profits of the parking facility are part of the authority’s net_revenues under the lease with the carrier rental charges are assessed to the carrier based primarily on square footage of area leased however these rental charges will be reduced under the terms of the lease by a portion of the authority’s net_revenues which include net profits of the parking facility if the net_revenues exceed a certain level a it is expected that the parking facility will generate a profit and that the net_revenues of the authority will exceed a the carrier will have no other rights to the parking facility law and analysis generally under sec_103 interest on a state_or_local_bond is exempt from tax unless the bond is a private_activity_bond under sec_103 sec_141 provides that a bond is a private_activity_bond if the bond satisfies the private_business_use_test and the private_security_or_payment_test of sec_141 or the private_loan_financing_test of sec_141 sec_141 provides that the private_business_use_test is satisfied if more than percent of the proceeds of the bonds are to be used for any private_business_use private_business_use is defined in sec_141 as use directly or indirectly in the trade_or_business of nongovernmental persons under sec_141 the private_security_or_payment_test is satisfied if payment of the principal of or the interest on more than percent of the proceeds of the issue is directly or indirectly secured_by any interest in property used or to be used for a private_business_use or payments in respect of such property or to be derived from payments whether or not to the issuer in respect of property or borrowed money used or to be used for a private_business_use sec_141 the private_loan_financing_test is satisfied if the amount of the proceeds of the issue which are to be used directly or indirectly to make or finance loans to persons other than governmental units exceeds the lesser_of percent of such proceeds or dollar_figure sec_1_141-3 sets forth that use of financed property is treated as the direct use of proceeds in determining whether an issue meets the private_business_use_test it is necessary to look to both the indirect and direct use of proceeds sec_1_141-3 provides that use as a member of the general_public is not private_business_use use of financed property by nongovernmental persons in their trade_or_business is treated as general_public use only if the property is intended to be available and in fact is reasonably available for use on the same basis by natural persons not engaged in a trade_or_business sec_1_141-3 provides that in general use under an arrangement that conveys priority rights or other preferential benefits is not use on the same basis as the general_public sec_1_141-3 states that use of wta-n-135065-01 financed property by the general_public does not prevent the proceeds from being used for a private_business_use because of other use under this section sec_1_141-3 provides that both actual and beneficial use by a nongovernmental person may be treated as private_business_use and generally the private_business_use_test is met only if a nongovernmental person has special legal entitlements to use the financed property under an arrangement with the issuer sec_1_141-3 provides that an arrangement that conveys special legal entitlements for beneficial use of bond proceeds or of financed property that are comparable to special legal entitlements described under sec_1_141-3 or results in private_business_use sec_1_141-3 example iii illustrates the application of the private_business_use rules city i issues bonds and uses all of the proceeds to finance construction of a runway at a new city-owned airport the runway is available on a fee basis to the general_public private air carriers lease terminal space from the airport the lease payments under the leases with the private air carriers are determined on a residual basis by taking into account the net_revenues generated by runway landing fees these leases cause the private_business_use_test to be met with respect to the runway because they are arrangements that convey special legal entitlements to the financed facility to nongovernmental persons in contrast sec_1_141-3 example illustrates a case where the private_business_use_test is not met city s issues bonds and uses all of the proceeds to finance construction of a city-owned parking garage at the city-owned airport even though it is reasonably expected that more than percent of the actual use of the parking garage will be by employees of private air carriers in connection with their use of the airport terminals leased by those carriers the use nevertheless is general_public use because use of the garages by the air carrier will be on the same basis as passengers and other members of the general_public using the airport the leases for_the_use_of the terminal space provide no priority rights to the air carriers for use of the parking garage and the lease payments are determined without taking into account the revenues generated by the parking garage although the lessee air carriers receive a special economic benefit from the use of the parking garage this economic benefit is not sufficient to cause the air carriers to be private business users because the parking garage is available for general_public use the issue does not meet the private_business_use_test here the authority’s lease with the private air carrier causes the private_business_use_test under sec_141 to be met with respect to the parking facility bonds the lease provides the carrier with a special legal entitlement to the net profits of the parking facility when the authority’s net_revenues exceed a an interest in the net profits of a facility is the type of special legal entitlement that gives rise to private_business_use under sec_1_141-3 see sec_1_141-3 example iii similar to example iii the rental payments due under the authority’s lease with the carrier are determined on a residual basis by taking into account the net profits generated by the parking facility wta-n-135065-01 while there is no guarantee that the parking facility will generate net profits the fact that there is an expectation that net_revenues of the authority will exceed a creates a special legal entitlement to use that bond financed facility satisfying the private_business_use_test under sec_141 therefore under the facts described above the authority’s lease with the private air carrier causes the private_business_use_test under sec_141 to be met with respect to the parking facility this written technical assistance is advisory only and does not represent an expression of the views of the service as to the application of law regulations and precedents to the facts of a specific case if there are questions regarding whether the facts and circumstances in a particular case establish a residual lease arrangement please seek the input of this office if you have any questions please feel free to contact me at


cca_2013070213180051 ------------ id office uilc number release date from --------------------- sent tuesday july pm to ----------------- cc ------------------- subject ----------------------- hi -------- in response to your inquiry we recommend that the exam team abandon its argument that the infrastructure assets at issue are intangible assets with an indeterminate useful_life further factual development is needed to determine whether these assets are intangible assets under sec_1_263_a_-4 of the income_tax regulations or dedicated improvements under sec_1_263_a_-4 based upon the facts provided to us at this point the infrastructure assets appear to be dedicated improvements --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- -------------------


department of the treasury internal_revenue_service washington d c ta x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n release number release date date date contact person identification_number telephone number employer_identification_number this is in response to your request for a ruling that certain proposed contractual uniform issue list dear relationships will not generate unrelated_business_taxable_income under sec_512 of the internal_revenue_code the code you are exempt under sec_501 of the code as an organization described in sec_501 and have been classified as an educational_organization under sec_509 and sec_170 you are the trustee of a number of charitable_remainder trusts collectively the trusts and as trustee you are the legal owner of the trusts’ assets in addition you have a remainder_interest in each of the trusts as a result of the relationship with the trusts as both trustee and beneficiary you have a substantial interest in the value of each trust moreover the donors to the trusts have funded the trusts with the intention that you benefit substantially from the assets of the trusts and that the assets will be managed to achieve the greatest possible return on investment your endowment is invested in traditional publicly traded assets and private investments your private investments include foreign stocks bonds venture capital private equity real_estate energy investments and cash instruments much of the income earned by the portfolio consists of passive dividends interest and long and short-term_capital_gains but some income is debt-financed or otherwise treated as unrelated_business_taxable_income you propose to create a contractual obligation pursuant to which you would issue a you determine a payout rate on the endowment each year based in part on the the contract would provide that each trust would receive payments on the shares held contract right to each of the trusts for a proportionate share of your endowment the cumulative value of the shares would be the dollar value of the assets held by the individual trusts combined with the shares of the endowment held by the various of departments and schools making up your institution the contract right would entitle the trusts to receive periodic_payments based on the shares owned by each of the trusts the trusts would thereby be able to receive an investment return equal to that of the endowment endowment’s investment performance through a custodian bank you calculate the market_value of each endowment share on a monthly basis the market_value of each endowment share initially equals the value_of_the_gift or contribution to the endowment and is subsequently adjusted in accordance with the market_value of the endowment each department and division is entitled to an amount equal to the payout rate times the number of shares it holds you seek to enable the trusts to invest in the endowment in a manner identical to your departments or schools a_trust would acquire a share in the endowment which would give the trusts a contractual right against the university but no interest whatsoever in the underlying investment_assets of the endowment the shares would have the same value that you use for internal accounting purposes by it equal to the payout rate you establish for the endowment with payouts made at least annually or more frequently as appropriate a_trust could choose either to reinvest part of the payout or redeem additional shares depending on its cash requirements the trusts will treat payouts as ordinary_income regardless of the character of the underlying income of the endowment whether capital_gain ordinary_income or return_of_capital and regardless of whether the payout is made entirely by distributions of income or in part by redemption of shares the trusts will treat redemptions of shares over and above receipt of the payout rate as generating long or short-term_capital_gain or loss depending on the holding_period of the redeemed shares assets of the endowment or any contract rights with respect to the other trusts the trusts would have no power or right of any kind to control direct supervise recommend or review your business activities operations or decisions with respect to the endowment except the right to review the payout computations they would not have the right to veto or opt_out of any of the underlying endowment investments the contract would provide that with respect to the issuance of shares you are neither a partner nor an agent of the trusts that the trusts would never be or become liable for any cost expense or payment incurred or due by you or for which you are liable or responsible relating to the endowment or the underlying endowment assets and you would indemnify and hold the trusts harmless from and against any liability arising out of any_action or inaction by you with respect to the endowment or the underlying endowment assets respect to the shares and the holding or redemption of the shares will not generate unrelated under the contract the trusts would not have any ownership_interest in the underlying the issuance of shares by you to the trusts the making or receipt of payments with you have requested the following ruling sec_511 of the code in part imposes a tax on the unrelated business taxable section dollar_figure of revproc_2007_4 provides that the service will not issue letter rulings sec_512 of the code defines the term unrelated_business_taxable_income as business taxable_income to you or the trusts pertaining to unrelated_business_income_tax issues arising where charitable_lead_trust assets are invested with charitable organizations thus the word trusts as used in this letter refers only to your charitable_remainder trusts and the ruling issued by this letter relates only to the participation by your charitable_remainder trusts in your endowment law income of organizations described in sec_501 the gross_income derived by any organization from any unrelated_trade_or_business regularly carried on by it less the allowable deductions which are directly connected with the carrying on of such trade_or_business both computed with the modifications provided in sec_512 sec_512 of the code sets forth so-called modifications which are excluded from the computation of unrelated_business_taxable_income these modifications include dividends interest royalties rent from real_property and gain from the sale of property or business the conduct of which is not substantially related aside from the need of such organization for income or funds or the use it makes of the profits derived to the exercise or performance by such organization of its exempt_purpose or function activity which is carried on for the production_of_income from the sale_of_goods or the performance of services exempt_organization subject_to the tax imposed by sec_511 of the code is includible in the computation of unrelated_business_taxable_income if it is income from a trade_or_business such trade_or_business is regularly carried on by the organization and the conduct of such trade_or_business is not substantially related other than through the production of funds to the organization's performance of its exempt functions sec_1_513-1 of the regulations provides that for purposes of sec_513 of the code the term trade_or_business has the same meaning it has in sec_162 and generally includes any activity carried on for the production_of_income from the sale_of_goods or performance of services business from which a particular amount of gross_income derives is regularly carried on within the meaning of sec_512 of the code regard must be had to the frequency and continuity with which the activities productive of the income are conducted and the manner in which they sec_513 of the code defines the term unrelated_trade_or_business as any trade sec_1_513-1 of the regulations provides that in determining whether trade or sec_1_513-1 of the income_tax regulations provides that gross_income of an sec_513 of the code provides that the term trade_or_business includes any sec_1_513-1 of the regulations provides that trade_or_business is related to sec_1_513-1 of the regulations provides that in general gross_income derives are pursued for example specific business activities of an exempt_organization will ordinarily be deemed to be regularly carried on if they manifest a frequency and continuity and are pursued in a manner generally similar to comparable commercial activities of non-exempt organizations from unrelated_trade_or_business within the meaning of sec_513 of the code if the conduct of the trade_or_business which produces the income is not substantially related other than through the production of funds to the purposes for which exemption is granted the presence of this requirement necessitates an examination of the relationship between the business activities which generate the particular income in question -- the activities that is of producing or distributing the goods or performing the services involved -- and the accomplishment of the organization's exempt purposes exempt purposes in the relevant sense only where the conduct of the business activities has a causal relationship to the achievement of exempt purposes and is substantially related for purposes of sec_513 of the code only if the causal relationship is a substantial one thus for the conduct of trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of those purposes where the production or distribution of the goods or the performance of the services does not contribute importantly to the accomplishment of the exempt purposes of an organization the income from the sale of the goods or the performance of the services does not derive from the conduct of related trade_or_business whether activities productive of gross_income contribute importantly to the accomplishment of any purpose for which an organization is granted exemption depends in each case upon the facts and circumstances involved provide investment services on a fee basis exclusively to organizations exempt under sec_501 of the code it receives funds from the participating exempt_organizations invests in common stocks reinvests income and realized appreciation and upon request liquidates a participant's interest and distributes the proceeds to the participant the rev_rul states that providing investment services on a regular basis for a fee is a trade_or_business ordinarily carried on for profit if the services were regularly provided by one tax-exempt_organization for other tax-exempt organizations such activity would constitute unrelated_trade_or_business the rev_rul holds that the organization is not exempt under sec_501 as noted previously organizations described in sec_501 of the code are subject_to tax on their unrelated_business_income under sec_511 in order for such an organization's income to be subject_to the unrelated_business_income_tax three requirements must be met the income must be from a trade_or_business the trade_or_business must be regularly carried on and the conduct of the trade_or_business must not be substantially related to the organization's exempt_purpose or function see sec_1_513-1 of the regulations revrul_69_528 1969_2_cb_127 describes an organization that was formed to you propose to enter into a contractual relationship with certain trusts that are consequently a_trust could choose either to reinvest part of the payout or redeem a analysis charitable_remainder trusts in which you have an interest as a beneficiary and serve as trustee of the trust under such a contractual relationship each trust would receive payments on the shares held by it equal to the payout rate you establish for your endowment with payouts made as determined by you each trust would acquire shares from your endowment which would give the trusts a contractual right against you but no interest whatsoever in the underlying investment_assets of the endowment the contract between you and the trusts would provide that the price of the shares would equal their value at the time of acquisition the shares would have the same value that you use for internal accounting purposes portion of the shares depending on its cash requirements thus under the contractual relationship with you the trusts would have a right to the payout declared by you plus the right to redeem the shares at the value that you use for internal accounting purposes generally an organization that otherwise qualifies for recognition of exemption under sec_501 of the code and provides investment services on a regular basis for a fee to other exempt or nonexempt organizations would be engaged in an unrelated_trade_or_business under sec_513 see revrul_69_528 supra such an activity would constitute a trade_or_business under sec_513 and sec_1_513-1 of the regulations and would be regularly carried on under sec_512 and sec_1_513-1 thus if you charged a fee for investment management services provided to organizations unrelated to you or generated income from the management of the funds invested by such organizations these activities could result in unrelated_business_taxable_income under sec_512 here however you are not charging a fee for services and not otherwise receiving income from the services provided to the trusts thus under these circumstances you will not receive unrelated_business_taxable_income under sec_512 are co-beneficiaries of the trusts at the same time that you engage in investment activity for your own benefit as the remainder beneficiary limits the scope of the service provided to others and distinguishes it from a commercial venture the issuance of shares from you to the trusts the making or receipt of payments with respect to the shares and the holding or redemption of the shares will not generate unrelated_business_taxable_income to you the fact that you will engage in the investment activity for the benefit of individuals who this ruling is based on the following two assumptions in view of the foregoing we rule as follows you will not charge any fee for managing the investment of the trusts in your endowment other third party management firms charge a fee and receive reimbursement of expenses for management services provided to your endowment these fees and expenses are charged against the aggregate return of the endowment and will be reflected indirectly in the payout to the trusts and others participating in the endowment you will also be entitled to the fees any trustee may receive with respect to the administering the trusts you are the sole charitable_beneficiary of each charitable_remainder_trust this ruling is directed only to the organization that requested it sec_6110 of this ruling is based on the understanding that there will be no material changes in the if there are any questions about this ruling please contact the person whose name and facts upon which it is based we express no opinion as to the tax consequences of the proposed transaction under any other section of the code pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to your authorized representatives a copy of this letter should be kept in your permanent records the code provides that it may not be used or cited by others as precedent telephone number are shown in the heading of this letter enclosure notice robert c harper jr manager exempt_organizations technical group sincerely


t c memo united_states tax_court robert conrad eanes ii petitioner v commissioner of internal revenue respondent docket no filed date robert conrad eanes ii pro_se fred be green jr for respondent memorandum findings_of_fact and opinion marvel judge respondent determined the following deficiencies and additions to tax with respect to petitioner’s federal income taxes ‘all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure monetary amounts are rounded to the nearest dollar additions to tax sec sec sec year deficiency a a dollar_figure dollar_figure dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number dollar_figure big_number big_number big_number ‘in his answer respondent conceded the additions to tax under sec_665l1 a and claimed increased additions to tax under sec_6651 for and of dollar_figure and dollar_figure respectively after concessions ’ the issues for decision are whether petitioner is liable for self-employment_tax for each year at issue except whether petitioner is liable for additions to tax for failure_to_file returns for each year at issue pursuant to sec_6651 and whether petitioner is liable for additions to tax for failure to make estimated_tax payments for each year at issue except and pursuant to sec_6654 prior to trial petitioner and respondent entered into a stipulation of settled issues wherein petitioner conceded deficiencies without regard to self-employment_tax of dollar_figure for dollar_figure for dollar_figure for dollar_figure for dollar_figure for dollar_figure for and dollar_figure for the parties agree there is no deficiency in income_tax due from petitioner for without regard to self-employment_tax and that petitioner is not liable for self-employment_tax for at trial petitioner orally conceded that he received self-employment_income during the years at issue but asserted that he was not liable for the self-employment_tax on that income petitioner also conceded all remaining matters in dispute except for the issues for decision in this opinion - - findings_of_fact some of the facts have been stipulated and are so found we incorporate the stipulation of facts by this reference petitioner robert conrad eanes ii resided in henderson nevada at the time the petition was filed during the years at issue petitioner was self-employed and earned schedule c profit or loss from business income in amounts sufficient to require the filing of a federal_income_tax return for each year at issue petitioner however did not file a federal_income_tax return or an application_for extension of time to file his federal_income_tax returns for any of the years at issue using payor information returns forms respondent reconstructed petitioner’s self-employment_income and determined that petitioner is liable for self-employment taxes as follows net_earnings sch c from self-employment year income self-employment_tax dollar_figure dollar_figure dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number respondent issued a notice_of_deficiency for through on date and a notice_of_deficiency for through on date q4e- prior to trial respondent prepared and stipulated the following revised computations of petitioner’s net_earnings_from_self-employment as well as the income_tax deficiencies and additions to tax allegedly owed by petitioner for all years at issue revised net revised additions to earnings from revised self- deficiencies tax revised year self-employment employment_tax incl se tax sec_6651 sec_6654 dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number opinion self-employment_tax the first social_security act ch 49_stat_620 was enacted as part of a program to provide retirement benefits to qualifying individuals who no longer were employed today such benefits are funded primarily from taxes paid_by employers employees and self-employed individuals under the federal_insurance_contributions_act fica ch 68a stat and the self-employment_contributions_act_of_1954 seca ch 68a stat see secs -respondent stipulated that petitioner had schedule c profit or loss from business income of dollar_figure schedule c expenses of dollar_figure and no liability for self-employment_tax for - - sec_1401 imposes a tax on the self-employment_income of every individual for old age survivors disability insurance and hospital insurance see sec_1401 and b beachy v commissioner tcmemo_2000_125 greene v commissioner tcmemo_2000_26 sec_1_1401-1 income_tax regs self- employment income means the net_earnings_from_self-employment derived by an individual sec_1402 net_earnings_from_self-employment means the gross_income derived by an individual from any trade_or_business carried on by such individual less the deductions allowed by this subtitle which are attributable to such trade_or_business sec_1402 see also sec_1 a - income_tax regs self-employment_tax is assessed and collected as part of the income_tax must be included in computing any income_tax deficiency or overpayment for the applicable tax period and must be taken into account for estimated_tax purposes see sec_1_1401-1 income_tax regs petitioner does not dispute that he received self-employment_income as determined by respondent petitioner disputes only whether he is required to pay self-employment_tax petitioner contends that since self-employment_tax is merely a contribution he may choose whether or not to pay it according to petitioner a contribution is a voluntary payment petitioner bears the burden of proving that respondent’s -- - determinations are erroneous see rule a 290_us_111 ’ petitioner’s argument focuses on the use of the word contributions in seca’s title and relies upon what petitioner claims is its plain meaning petitioner’s argument is misplaced webster’s collegiate dictionary defines contribution among other things as a payment as a levy or tax imposed by military civil or ecclesiastical authorities usually for a special or extraordinary purpose webster’s collegiate dictionary 10th ed the use of the term contributions in seca’s title is consistent with the definition cited above self-employment_tax is a tax imposed by the united_states government for a special purpose ie to fund social_security and hospital insurance benefits the taxation regime established by seca has been upheld as constitutional see 211_f2d_375 5th cir egan v commissioner tcmemo_1980_560 affd without published opinion 9th cir sec_1401 imposes a tax on income earned from self- employment in order to fund the payment of social_security and although respondent claimed increased additions to tax under sec_6651 in his answer as to which he bears the burden_of_proof see rule a the issue is moot since respondent has conceded that petitioner’s liability for the sec_6651 addition_to_tax for and is lower than that determined in the notice_of_deficiency - hospital insurance benefits to self-employed persons the obligation to pay self-employment_tax is mandatory if the requirements of sec_1401 are met as they are in this case we hold therefore that petitioner is liable for self-employment_tax as modified by respondent additions to tax under sec_6651 a sec_6651 authorizes the imposition of an addition_to_tax for failure_to_file a timely return unless it is shown that such failure is due to reasonable_cause and not due to willful neglect see sec_665l1 a 469_us_241 38_f3d_440 9th cir harris v commissioner tcmemo_1998_332 a failure_to_file a timely federal_income_tax return is due to reasonable_cause if the taxpayer exercised ordinary business care and prudence and nevertheless was unable to file the return within the prescribed time see sec_301_6651-1 proced admin regs willful neglect means a conscious intentional failure_to_file or reckless indifference toward filing see united_states v boyle supra petitioner concedes he did not file federal_income_tax returns or applications for extensions of time to file for through petitioner contends that he did not file returns because he did not have money to pay the taxes he owed at the time the returns were due and it was his understanding that the --- - returns and the taxes owed had to be submitted simultaneously petitioner states that he never had any willful intent not to file and that he knew that he was going to have to file a taxpayer’s inability to pay federal income taxes does not constitute reasonable_cause for failure_to_file a timely return see stokes v commissioner tcmemo_1989_661 citing fitch v commissioner t c memo see also 25_tc_1100 revd on another issue 259_f2d_300 5th cir 21_tc_1012 since petitioner introduced no evidence of any legitimate reason for his failure_to_file timely returns we hold that he did not have reasonable_cause for his failure_to_file as required by sec_6651 and that therefore petitioner is liable for the additions to tax as revised by respondent sec_6654 addition_to_tax sec_6654 imposes an addition_to_tax in the case of any underpayment of estimated_tax by an individual sec_6654 unless a statutory exception applies the addition_to_tax under sec_6654 is mandatory see sec_6654 e 91_tc_874 75_tc_1 see also 33_tc_1071 this section --- - has no provision relating to reasonable_cause and lack of willful neglect it is mandatory and extenuating circumstances are irrelevant none of the statutory exceptions under sec_6654 applies in this case respondent determined that petitioner is liable for an addition_to_tax under sec_6654 for each tax_year at issue he subsequently conceded however that petitioner is not liable for the addition_to_tax under sec_6654 for and petitioner conceded at trial that he did not make any payments of estimated_tax since petitioner was required to make estimated_tax payments for all of the years at issue except and and he failed to do so respondent’s determination as modified is sustained to reflect the foregoing and the concessions of the parties decision will be entered under rule