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 psi plr-131129-04 date november company -------------------------------- -------------------------- corporation ------------------------------------- -------------------------- --------------------------------------------------------------------- ------------------- -------------------- ----------------------- ira -------------------------------------------------------------- m -------------------------------------------------------- n -------------------------------------------------------- shareholders -------------------------------------------------------- --------------------------------------------------------- -------------------------------------------------------- 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plr-131129-04 a b c d dear ----------------- this letter responds to your letter signed date as well as additional correspondence submitted on behalf of company requesting a ruling under ' f of the internal_revenue_code that the termination of company's s_corporation_election was inadvertent company represents the facts as follows facts company was incorporated on a under the laws of state and elected under ' a to be an s_corporation that same date corporation purchased shares of company on b ira as directed by n purchased shares of company on c both corporation and ira are ineligible shareholders in d accountants for corporation while preparing corporation’s income_tax return discovered the investment in company they notified both m president and shareholder of corporation and company of the termination of company’s s_corporation_election at about the same time accountants for company while preparing company’s income_tax return discovered the existence of the two ineligible shareholders and notified company of the terminating event corporation transferred its company shares to m reporting the stock purchase as a cash distribution to m followed by m’s purchase of the shares directly company returned the purchase money to ira in exchange for its stock and n then purchased the company shares directly company promptly authorized its accountants to file this ruling_request company had no intention or desire to terminate its s_corporation_election company and shareholders agree to make adjustments during the termination period consistent with the treatment of company as an s_corporation as might be required by the service plr-131129-04 law except as provided in ' g ' a provides that a small_business_corporation may elect in accordance with the provisions of ' to be an s_corporation sec_1361 provides that for purposes of subchapter_s the term asmall business corporation means a domestic_corporation that is not an ineligible_corporation and that does not among other things have as a shareholder a person other than an estate a_trust described in ' c or an organization described in ' c who is not an individual sec_1362 provides that an election under ' a terminates whenever the corporation ceases to be a small_business_corporation sec_1362 provides that if an election under ' a by any corporation was terminated under ' d or the secretary determines that the circumstances resulting in termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in termination steps were taken so that the corporation is a small_business_corporation and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to ' f agrees to make the adjustments consistent with the treatment of the corporation as an s_corporation as might be required by the secretary regarding this period then notwithstanding the circumstances resulting in termination the corporation shall be treated as an s_corporation during the period specified by the secretary sec_1_1362-4 of the income_tax regulations provides that the determination of whether a termination was inadvertent is made by the commissioner the corporation has the burden of establishing that under the relevant facts and circumstances the commissioner should determine that the termination was inadvertent the fact that the terminating event was not reasonably within the control of the corporation and was not part of a plan to terminate the election or the fact that the event took place without the knowledge of the corporation notwithstanding its due diligence to safeguard itself against such an event tends to establish that the termination was inadvertent sec_1_1362-4 provides that the commissioner may require any adjustments that are appropriate in general the adjustments required should be consistent with the treatment of the corporation as an s_corporation during the period specified by the commissioner in the case of a transfer of stock to an ineligible shareholder that causes an inadvertent termination under ' f the commissioner may require the ineligible shareholder to be treated as a shareholder of an s plr-131129-04 corporation during the period the ineligible shareholder actually held stock in the corporation moreover the commissioner may require protective adjustments that prevent any loss of revenue due to a transfer of stock to an ineligible shareholder eg a transfer to a nonresident_alien conclusion based on the facts and representations submitted by company we conclude that the termination of company's s_corporation_election due to the transfer of company stock to corporation was inadvertent within the meaning of ' f consequently we rule that company will continue to be treated as an s_corporation from b and thereafter unless company's s election otherwise terminates under ' d as a condition for this ruling corporation and ira must not be treated as shareholders for any time they held company shares accordingly for the time corporation and ira did hold company shares m and n must include the prorata share of the separately and nonseparately computed items attributable to those shares in their income as provided in ' make adjustments to the stock basis of those shares as provided in ' and take into account any distributions with respect to those shares as provided in ' except for the specific ruling above no opinion is expressed or implied concerning the federal_income_tax consequences of the facts of this case under any other provision of the code specifically no opinion is expressed or implied regarding the transactions and adjustments undertaken to make company a small_business_corporation once more or regarding company's eligibility to be an s_corporation under a power_of_attorney on file with this office we are sending the original of this letter to you and a copy to company plr-131129-04 this ruling is directed only to the taxpayer who requested it according to ' k this ruling may not be used or cited as precedent s sincerely mary beth collins senior technician reviewer branch office of associate chief_counsel passthroughs and special industries copy of this letter copy for ' purposes enclosure cc


department of the treasury a internal_revenue_service washington d c date dec contact person id number th l oh oz- f- employer_identification_number legend a b dear sir or madam telephone number ti - ot this is in response to a letter from your authorized representative requesting a series of rulings on your behalf regarding the tax consequences associated with the purchase from and subsequent lease of certain real and personal_property to b a and b are exempt from federal_income_tax under sec_501 of the internal_revenue_code and are classified as nonprivate foundations under sec_509 a and b operate hospitals you have stated that to improve access and better serve the needs of their respective communities b has agreed to sell its hospital facilities and related equipment to a in order to construct a new hospital the parties have agreed that after the sale b will lease back its hospital facilities until the new hospital is built you have stated that the transaction is expected to occur in two phases at the phase one closing a will pay the purchase_price for the transfer by b of title to the real_estate buildings and equipment other then the delivery rooms and will lease the property and equipment back to b pursuant to a lease at the phase two closing which is expected to occur no more than years later the delivery rooms inventory supplies and certain contracts will be assigned to a the lease with b will be terminated and a will take operational control of the hospital facilities and equipment under the acquisition documents b as b is currently using the property to operate a hospital is required to use the leased property for the same purposes you have requested the following rulings in connection with the affiliations and subsequent activities and transactions described above the transactions described herein will not jeopardize the tax-exempt status of a or any of its tax-exempt affiliates under sec_501 of the code the lease of the hospital facilities and equipment to b will not constitute the operation of an unrelated_trade_or_business by a pursuant to sec_511 through of the code the lease of hospital facilities by a to b pursuant to the terms of the lease will not cause the receipt by a of unrelated_debt-financed_income within the meaning of sec_514 of the code sec_501 of the code provides an exemption from federal_income_tax for organizations described in sec_501 including organizations that are organized and operated exclusively for charitable educational or scientific purposes sec_1_501_c_3_-1 of the income_tax regulations provides that the term charitable is used in sec_501 of the code in its generally accepted legal sense revrul_69_545 1969_2_cb_117 acknowledges that the promotion of health is a charitable purpose within the meaning of sec_501 of the code sec_511 of the code imposes a tax on the unrelated_business_income of organizations described in sec_501 sec_512 of the code defines unrelated_business_taxable_income as the gross_income derived by an 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 the trade_or_business with certain modifications sec_513 of the code defines unrelated_trade_or_business as any trade_or_business the conduct of which is not substantially related aside from the need of the organization for funds or the use it makes of the profits derived to the exercise of the organization's exempt purposes or functions sec_1_513-1 of the regulations provides in part that a trade_or_business is related to exempt purposes only where the conduct of the business activities has a causal relationship to the achievement of exempt purposes and it 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 exempt purposes sec_514 requires unrelated_business_income attributable to debt-financed_property to be included within the calculation of an organization’s unrelated_business_taxable_income the transactions described herein will not adversely affect the tax exempt status of aor any of its affiliates under sec_501 of the code as they will continue to promote health within the meaning of revrul_69_545 in addition the transactions described in this letter will not result in the receipt by a of unrelated_business_taxable_income under sec_511 through of the code because these activities will be substantially related to the accomplishment of a’s exempt purposes by assuring that the community will continue to have access to critical hospital facilities while new hospital facilities are being built the limited five year duration of the lease is consistent with the amount of time needed to construct the new hospital therefore the end result will be that the community will have an additional hospital in the area with no lapse in hospital services accordingly based on all the facts and circumstances described above we rule the transactions described herein will not jeopardize the tax-exempt status of a or any of its tax-exempt affiliates under sec_501 of the code the lease of the hospital facilities and equipment to b will not constitute the operation of an unrelated_trade_or_business by a pursuant to sec_511 through of the code the lease of hospital facilities by a to b pursuant to the terms of the lease will not cause the receipt by a of unrelated_debt-financed_income within the meaning of sec_514 of the code these rulings are based on the understanding that there will be no material changes in the facts upon which they are based these rulings are directed only to the organization that requested them sec_6110 of the code provides that they may not be used or cited by others as precedent these rulings do not address the applicability of any section of the code or regulations to the facts submitted other than with respect to the sections described please keep a copy of these rulings in your permanent records sincerely marvin friedlander manager exempt_organizations technical group


internal_revenue_service number info release date uil conex the honorable mitch mcconnell united_states senate washington d c date attention mr brytt deye dear senator mcconnell this letter is in response to your inquiry copy enclosed dated date on behalf of your constituent concerning the taxation of company stock_option plans that he is very much opposed to read about a new irs ruling is referring to notice_2001_14 2001_6_irb_516 published i believe date copy enclosed in that notice we simply clarify current law about the application of employment_taxes to statutory_stock_options such as incentive stock_options described in sec_422 of the internal_revenue_code code and options granted under an employee_stock_purchase_plan described in sec_423 of the code the notice also provides relief to taxpayers regarding the application of these taxes fica tax employment_taxes include the federal_insurance_contributions_act fica tax fica tax is made up of social_security and medicare taxes on the wages paid to an employee the congress enacted the social_security act and the fica to provide for a federal system of old-age survivors disability and hospital insurance under this system the social_security_tax finances old-age survivors and disability insurance the medicare_tax finances hospital insurance thus fica tax finances social_security retirement benefits and medicare coverage that are important in the lives of many taxpayers futa_tax employment_taxes also include the federal_unemployment_tax_act futa_tax futa is an excise_tax imposed on an employer that is based on wages paid in employment this tax provides for federally aided state administered unemployment_compensation programs that are important in the lives of many taxpayers how we calculate fica and futa_tax the fica tax and futa_tax are calculated as a percentage of an employee’s wages for fica tax and futa_tax purposes wages are defined generally as all remuneration for employment including the cash_value of all remuneration including benefits paid in any medium other than cash the internal_revenue_code provisions provide no exceptions from wages for remuneration paid in the form of stock nor are there any provisions that exclude from wages remuneration received that result from the exercise of a statutory stock_option accordingly fica tax and futa_tax apply to the payment of wages that arise from a statutory stock_option when exercised the wages paid are equal to the difference between the fair_market_value of the stock received by an employee pursuant to an exercise of an option and the price paid_by the employee for the stock income_tax_withholding furthermore employment_taxes include income_tax_withholding on wages paid to an employee like for fica tax and futa_tax for income withholding purposes wages generally mean all remuneration for services performed by an employee for his employer including the cash_value of all remuneration including benefits paid in any medium other than cash for income_tax purposes a statutory stock_option is generally not taxable to the employee either when the option is granted or when it is exercised see sec_421 of the code depending upon the circumstances a statutory stock_option may result in compensation income subject_to income_tax_withholding when the stock that is acquired pursuant to the exercise of the option is sold or disposed of by the employee congressional legislative_history indicates that a purpose of income_tax_withholding is to help individuals pay income_tax in the year in which the income is earned_income tax withholding accomplishes this purpose and serves a very valuable role for most taxpayers notice_2001_14 notice_2001_14 provides generous relief on the application of employment_taxes to statutory_stock_options it provides that the irs will not assess fica tax or futa_tax on the exercise of a statutory option exercised before date the notice also provides that the irs will not treat the disposition of stock acquired by an employee pursuant to the exercise of a statutory option that occurs prior to date as subject_to income_tax_withholding we are considering all the comments we received under this notice in developing any further guidance on the application of employment_taxes to statutory_stock_options i hope this information is helpful please call me at or elliot m rogers at if you have any questions sincerely mary oppenheimer assistant chief_counsel exempt_organizations employment_tax government entities office of the division counsel associate chief_counsel tax exempt and government entities enclosures


internal_revenue_service department of the treasury index number washington dc number release date person to contact refer reply to cc intl br1-plr-119041-97 date date ty a country b date c year d this is in response to a letter dated date from your authorized representative requesting a ruling under sec_877 of the internal_revenue_code_of_1986 code that a’s proposed loss of long-term_resident status will not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code additional information was submitted in letters dated date and date the information submitted for consideration is substantially as set forth below the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by penalty of perjury statements 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 a was born in country b on date c a is a citizen of country b a obtained his lawful permanent resident status in year d a intends to relinquish his status as a lawful permanent resident expatriate approximately three months following the receipt of a ruling as to whether his expatriation will have for one of its principal purposes the avoidance of u s taxes on the date of a's expatriation his net_worth will exceed the plr-119041-97 applicable_amount set forth in sec_877 sec_877 generally provides that a citizen who loses u s citizenship or a u s long-term_resident who ceases to be taxed as a lawful permanent resident individuals who expatriate within the 10-year period immediately preceding the close of the taxable_year will be subject_to the special rules of sec_877 for such taxable_year unless such loss did not have for one of its principal purposes the avoidance of u s taxes sec_2107 and sec_2501 provide special estate and gift_tax regimes respectively for individuals who expatriate with a principal purpose to avoid u s taxes a former citizen or former long term-resident will be treated as having expatriated with a principal purpose to avoid u s taxes for purposes of sec_877 sec_2107 and sec_2501 if the individual’s average income_tax_liability or the individual’s net_worth on the date of expatriation exceed certain thresholds see sec_877 sec_2107 and sec_2501 a former u s citizen whose net_worth or average tax_liability exceeds these thresholds however will not be presumed to have a principal purpose of tax_avoidance if that former citizen is described within certain statutory categories and submits a request for a ruling within one year of the date of loss of u s citizenship for the secretary’s determination as to whether such loss had for one of its principal purposes the avoidance of u s taxes see sec_877 sec_2107 and sec_2501 under notice_98_34 1998_27_irb_30 modifying notice_97_19 1997_1_cb_394 a former long term resident whose net_worth or average tax_liability exceeds the applicable thresholds will not be presumed to have a principal purpose of tax_avoidance if that former resident is described in certain categories and submits a complete and good_faith request for a ruling as to whether such loss had for one of its principal purposes the avoidance of u s taxes a is eligible to request a ruling under sec_877 because at the time of his expatriation he will be a citizen of country b the country in which his parents were born and he will be subject_to country b taxes on his worldwide income notice_98_34 requires that certain information be submitted with a request for a ruling that an individual’s expatriation did not have for one of its principal purposes the avoidance of u s taxes a submitted all of the information required by notice_98_34 including any additional information requested by the service after review of the submission accordingly based solely on the information submitted and the representations made it is held that a has made a complete and good_faith submission in accordance with sec_877 and notice_98_34 and therefore a will not be presumed to plr-119041-97 have expatriated with a principal purpose of tax_avoidance however because the information submitted does not clearly establish the existence or lack of a principal purpose to avoid taxes under subtitle a or b of the code no opinion is expressed as to whether a’s expatriation will have for one of its principal purposes the avoidance of such taxes while this ruling rebuts the presumption of tax_avoidance under sec_877 it is not conclusive as to whether a subsequently may be found to have a principal purpose of tax_avoidance under sec_877 sec_2107 and sec_2501 based on all the facts and circumstances see sec_877 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 in addition no opinion is expressed as to a’s u s tax_liability for the taxable years prior to or after his expatriation under sections of the code other than sec_877 sec_2107 and sec_2501 a copy of this letter must be attached to a’s u s income_tax return for the year in which a obtains the ruling whether or not a is otherwise required to file a return this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to a sincerely yours senior technical reviewer w edward williams cc intl br1


t c memo united_states tax_court richard c mathews petitioner v commissioner of internal revenue respondent docket nos filed date richard c mathews pro_se william f castor and h elizabeth h downs for respondent memorandum findings_of_fact and opinion vasquez judge in these consolidated cases respondent determined deficiencies and sec_6663 civil_fraud penalties for tax years and as follows deficiency dollar_figure big_number year civil_fraud penalty1 sec_6663 dollar_figure dollar_figure in the deficiency notices respondent also determined that petitioner is liable for sec_6662 accuracy-related_penalties if it is determined that any portion of the underpayment_of_tax is not due to fraud the issue for decision is whether petitioner fraudulently and with the intent to evade tax omitted income from his and federal_income_tax returns all section references are to the internal_revenue_code in effect for the years in issue and rule references are to the tax_court rules_of_practice and procedure findings_of_fact some of the facts have been deemed stipulated under rule f and are so found we incorporate the stipulation of facts and the attached exhibits by this reference petitioner resided in arkansas when the petitions in these cases were filed petitioner’s background petitioner dropped out of high school after completing the 10th grade he then joined the u s army and discovered he had a knack for computers using his computer skills petitioner helped conduct electronic surveillance for a military unit until he was honorably discharged in petitioner’s multilevel marketing business in the late 1980s or early 1990s petitioner began participating in multilevel marketing a sales strategy in which distributors recruit secondary distributors to sell products see 876_f3d_831 n 6th cir distributors earn money from direct sales to customers they also receive revenue from sales made by the secondary distributors id doing business as mathews multi-sales petitioner participated in numerous multilevel marketing ventures over the years selling coffee vitamins and other physical products petitioner eventually shifted his multilevel marketing activity to the internet doing business as mathews multi-service out of his home petitioner operated several internet-based multilevel marketing programs including wealth team international association wtia fortune minutes glad club dollar_figure miracle and it’s no miracle collectively multi-service programs under most of the multi-service programs people would join with the intention of recruiting new members if they were successful they would receive a percentage of the membership fees paid_by their recruits and the recruits of their recruits and so on for example wtia had a membership fee of dollar_figure of that dollar_figure petitioner was required to pay out dollar_figure to the member-recruiters petitioner created accounts with several online payment systems to receive membership fees these online payment systems included paypal storm pay safepay solutions e-bullion e-gold and internet gold after receiving the membership fees in the online payment systems petitioner remitted portions of the fees to the member-recruiters who were owed commissions petitioner then moved some of the remaining funds to a joint checking account he held with his former wife donna mathews mrs mathews he generally did so by depositing checks from the online payment systems for at least one of the online payment systems petitioner also moved funds to his bank accounts via direct deposit petitioner wanted to establish an international business presence for the multi-service programs he believed that being headquartered in the united_states would limit his ability to do business worldwide unsure how to operate members who joined the multi-service programs initially received software but it is unclear what function the software served respondent has not alleged that the multi-service programs violated federal or state law petitioner and mrs mathews divorced on a date not established by the record internationally petitioner turned to the internet his online research eventually led him to a panamanian entity whose representatives advised him to establish a_trust in belize petitioner believed that the establishment of a_trust in belize would allow him to do business anywhere accordingly in date petitioner paid a fee and signed a_trust instrument establishing the centurion trust the trust instrument designated first pacific trust services ltd as the trustee and mathews multi-service petitioner mrs mathews and their children as beneficiaries petitioner never funded the centurion trust nor did he have the necessary education experience or acumen to understand how if at all the existence of the centurion trust could affect his federal_income_tax liability petitioner has never visited belize and does not have an office there paragraph of the deemed stipulation of facts states petitioner insisted during respondent’s civil examination of his return that one of his businesses was actually the beneficiary of a_trust in belize when in fact the true beneficiaries of the trust were relatives of petitioner however the trust document attached to the stipulation states that mathews multi-service was the trust_beneficiary so long as he she sic lives after which time petitioner and his family would become beneficiaries under rule e the court may relieve parties of a stipulation if justice so requires we will relieve petitioner of stipulated paragraph because it is contrary to the record see 93_tc_181 petitioner’s tax returns and using tax preparation software petitioner prepared his and mrs mathews’ joint federal_income_tax returns for tax years and although he does not have bookkeeping accounting or taxation experience petitioner thought he could just buy the software fill in the blanks and file his taxes for and mrs mathews received forms w-2 wage and tax statement from her employer petitioner received forms 1099-misc miscellaneous income which reported commissions petitioner had earned selling physical products as mathews multi-sales on their return petitioner and mrs mathews reported mrs mathews’ wage income the return also included a schedule c profit or loss from business for petitioner reflecting the principal business as networking and the business name as mathews multisales the schedule c reported gross_receipts of dollar_figure cost_of_goods_sold cogs of dollar_figure gross_profit of dollar_figure no expenses and net profit of dollar_figure to calculate his gross_receipts petitioner used the amounts listed on forms 1099-misc he had received petitioner and mrs mathews reported mrs mathews’ wage income on their return the return also included a schedule c-ez net profit from business for petitioner reflecting the principal business as networking and the business name as mathews multiservice the schedule c-ez reported gross_receipts of dollar_figure no expenses and net profit of dollar_figure to calculate his gross_receipts petitioner used the amounts listed on forms 1099-misc he had received on their return petitioner and mrs mathews reported mrs mathews’ wage income the return did not include a schedule c for petitioner and did not report business income or losses for either mathews multi-sales or mathews multi-service petitioner believed that of the funds he received through the multi- service programs belonged to the other member-recruiters petitioner also believed that he had deductible expenses with respect to the multi-service programs on the basis of these beliefs petitioner did not report any income from the multi-service programs on his and returns civil examination in date respondent selected petitioner’s return for examination revenue_agent ra thurman crawford was assigned to because petitioner had earned the reported gross_receipts as mathews multi-sales it appears that the reference to mathews multi-service on the schedule c was in error respondent has not alleged that petitioner’s reference to mathews multi-service was intended to confuse the internal_revenue_service irs or thwart a governmental investigation cf yu v commissioner tcmemo_1973_188 holding that the use of an alias in conducting business affairs in order to thwart a governmental investigation is evidence of fraud petitioner’s examination before his initial meeting with petitioner ra crawford visited wtia’s website a few things caught his eye for one the website described wtia as a compensation program second the associate terms conditions page stated that the agreement was governed under the laws of belize on the basis of these discoveries ra crawford began to suspect that wtia was a source_of_income to petitioner and an offshore business designed to shield petitioner’s income from federal taxation on date ra crawford met with petitioner at his home over the next two days ra crawford interviewed petitioner who admitted that his taxes were a mess ra crawford asked petitioner about the nature of mathews multi-service which petitioner had reported as the business name on his schedule c petitioner stated that the reference to mathews multi-service was a mistake that he had really meant his other business mathews multi-sales and that the income reported on the schedule c related to his coffee sales petitioner described mathews multi-service as an online network-marketing business for which he wrote marketing material petitioner stated that he received no income from mathews multi-service that it was a beneficiary of a belize trust and that all taxes were handled in belize wtia was the most prominent of the multi-service programs in response to a question about wtia petitioner stated that the program was part of mathews multi-service petitioner also stated that wtia used paypal internet gold and storm pay in and that he had sole access to these online payment accounts petitioner admitted that he used some of the funds in the online payment accounts for personal or other expenses he also stated that he could not recall whether funds were transferred from the paypal account to bank accounts but that he never provided personal bank information to paypal in an information_document_request issued to petitioner before the interview ra crawford had requested all bank statements debit and credit memoranda and canceled checks for all personal and business accounts from date through date on the first day of the interview petitioner offered ra crawford access to his online banking accounts ra crawford declined the following day petitioner provided ra crawford with paper statements for a joint account at first security bank account number ending fsb account ra crawford scheduled a third meeting with petitioner for date before the meeting ra crawford reviewed petitioner’s paypal account records which referenced an account at first community bank account number ending fcb account at the date meeting ra crawford asked petitioner about this account petitioner told ra crawford that first community bank had become first security bank where he maintained his joint account with mrs mathews petitioner did not immediately identify the fcb account as his and stated that he did not give online payment systems his personal bank account information later that afternoon petitioner called ra crawford and stated that he had spoken with a first security bank representative and now remembered that the fcb account was a closed mathews multi- service bank account ra crawford believed that petitioner had deliberately concealed the account he informed petitioner that the examination would be expanded to tax_year sometime thereafter petitioner asked to record all future meetings with ra crawford ra crawford countered with an offer to redo and record the initial interview at the local irs office petitioner accepted on date ra crawford interviewed petitioner asking the same questions as in the initial interview petitioner provided many of the same answers during the second interview as the first interview however he provided different details about his role with wtia ra crawford also asked petitioner additional questions about the centurion trust petitioner stated that he learned about foreign trusts from the irs the internet law firms and offshore businesses petitioner however did not identify who at the irs had told him about foreign trusts he also did not identify the law firm that purportedly created the trust after the interview ra crawford noticed that the associate terms conditions on the wtia website had been altered to reflect that wtia was a subsidiary of the centurion trust in date ra crawford expanded the examination to tax years and and scheduled another meeting with petitioner for early september ra crawford then met with a fraud technical adviser at the irs after this meeting ra crawford referred petitioner’s case to respondent’s criminal_investigation_division cid several days later petitioner left a message for ra crawford asking whether the year amount in dispute was down to zero in a return phone call to petitioner ra crawford canceled the september meeting return petitioner prepared his return and filed it on date in a break with past practice petitioner and mrs mathews filed separate returns petitioner’s return included a schedule c for centurion trust mathews multi- service with a principal business of online admin facilitation consultation the schedule c reported gross_receipts of dollar_figure depreciation of dollar_figure and net profit of dollar_figure cid’s initial research and search warrant in date cid accepted ra crawford’s referral special_agent sa erica williams was assigned as the lead special_agent for cid’s criminal investigation of petitioner through internet research and an undercover operation sa williams confirmed that petitioner was the owner of mathews multi-service and that he received income from the multi-service programs sa williams found it significant that one of the program websites had a quotation from al capone signaling to her that petitioner may have intended to evade tax on the morning of date cid executed a search warrant at petitioner’s home during the execution of the search warrant petitioner agreed to submit to an interview with sa williams in response to a question about his cash on hand petitioner stated that he had dollar_figure in his pocket but no other cash in his home later that morning special agents uncovered two fire safes one fire safe had dollar_figure in cash and the other had dollar_figure petitioner stated that he had forgotten about the first fire safe and that he had never seen the second fire safe when sa williams threatened to al capone was convicted of tax_evasion see 255_f3d_394 7th cir question mrs mathews about the second fire safe petitioner admitted that the dollar_figure in the second safe was his sa williams asked petitioner about his online multilevel marketing business petitioner stated that he operated several programs under mathews multi-service including wtia dollar_figure miracle fortune minutes the glad club and it’s no miracle petitioner explained that mathews multi-service was the beneficiary of the centurion trust in belize he admitted that mathews multi- service received funds through paypal e-gold internet gold safepay solutions and storm pay additionally petitioner acknowledged that he had not reported income from wtia on returns for at least years but contended that the gross_receipts from the multi-service programs were not his income at another point in the interview petitioner stated he did not know how to report income from the multi-service programs when the civil examination came up petitioner stated that ra crawford had determined that his unreported income for all of the years under examination totaled dollar_figure petitioner also stated that ra crawford had not yet taken deductions into consideration it appears from the record that petitioner was fearful that the special agents would seize the cash the special agents photographed the cash but allowed petitioner to keep it responding to a question about the status of his federal_income_tax return petitioner stated that he had filed a request for an extension of time to file because he didn’t know what to do for his taxes return petitioner prepared his return and filed it on date petitioner and mrs mathews again filed separate returns petitioner’s return included a schedule c for mathews multi-service with a principal business of internet advertising the schedule c reported gross_receipts of dollar_figure and no expenses the dollar_figure petitioner declared as income pertained to a form_1099 he had received from i-net enterprises which was neither owned by petitioner nor affiliated with mathews multi-service thus petitioner did not report any income from the multi-service programs on his schedule c petitioner attached to his return a typed statement in which he wrote i have prepared thi sec_1040 to the best of my ability in july of this year cid took all my paperwork financial statements 1099s receipts credit card statements bank statements statements from charities business_expenses receipts for business_expenses and personal deductions etc sic and even my tax preparation software disk in other words everything i would need in order to file income taxes for the year leaving me with nothing so this is my very best effort to file this return from memory i know for a fact that i have other deductions both for home_office expenses personal deductions charitable_contributions and much more but i do not have access to the records cid took from my home and flatly refuse to return therefore i reserve the right to amend my returns whenever the items are returned to me cid additional research and bank_deposits analysis after the execution of the search warrant sa williams summoned petitioner’s bank records for through using the bank records sa williams performed a bank_deposits analysis sa williams’ analysis included only amounts received in petitioner’s bank accounts her analysis did not include amounts received in petitioner’s online payment system accounts sa williams determined that petitioner had unreported gross_receipts as follows year gross_receipts per sa williams gross_receipts as reported unreported gross_receipts dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure big_number --- big_number big_number dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure in the course of her investigation sa williams suspected that petitioner was starting to withdraw cash from a business checking account at centennial bank account number ending cb account and deposit similar amounts of cash into the fsb account petitioner and mrs mathews paid their living_expenses out of the fsb account sa williams also obtained a car loan application dated date signed by petitioner therein petitioner stated that he was employed by mathews multi-service as a network consultant and that his gross monthly salary was dollar_figure criminal prosecution at the conclusion of the investigation sa williams referred petitioner’s case to the u s department of justice doj with a recommendation to prosecute petitioner for tax_evasion the doj forwarded the case to the u s attorney’s office in the eastern district of arkansas on date petitioner was indicted for tax_evasion under sec_7201 and subscribing to a false return under sec_7206 for tax years through after the indictment was issued a new prosecutor took over the case and abandoned the tax_evasion charges in a superseding indictment petitioner was charged with subscribing to false income_tax returns under sec_7206 for through petitioner was also charged with impeding administration of the internal revenue laws under sec_7212 after a jury trial petitioner was convicted of all charges in the superseding indictment and sentenced to a 27-month prison term petitioner appealed his conviction to the u s court_of_appeals for the eighth circuit the court_of_appeals affirmed the district court’s criminal judgment in a published opinion 761_f3d_891 8th cir notices of deficiency and ra crawford was assigned to respondent’s civil examination of petitioner’s and tax returns after obtaining petitioner’s bank statements and account statements from the online payment systems ra crawford determined that petitioner had gross_receipts for as follows sa williams testified that the new prosecutor believed the sec_7206 charges would make for a cleaner case than the sec_7201 charges as discussed infra sec_7206 does not require the government to prove that the defendant intended to evade tax see 572_f2d_340 2d cir see also 484_f2d_670 7th cir 377_f2d_469 n 1st cir 84_tc_636 account storm pay inc fsb account safepay solutions e-gold cb account total deposits transfer from safepay solutions transfer from e-gold nontaxable bank_deposits total gross_receipts amount dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure big_number big_number big_number dollar_figure after determining that petitioner’s safepay solutions deposits were transferred to petitioner’s bank accounts ra crawford debited this amount to avoid double-counting income after determining that some of petitioner’s e-gold deposits were transferred to petitioner’s bank accounts ra crawford debited this amount to avoid double-counting income this amount is the sum of mrs mathews’ deposited wage income and nontaxable deposits on the basis of this analysis ra crawford determined that petitioner had unreported gross_receipts of dollar_figure the difference between dollar_figure and the gross_receipts reported on petitioner’s return ra crawford also identified a number of outgoing transfers from petitioner’s accounts as potential business expenses ra crawford characterized these expenses as cost_of_goods_sold cogs and determined that for petitioner had cogs of dollar_figure for ra crawford determined that petitioner had gross_receipts as follows account amount e-gold cb account total dollar_figure dollar_figure dollar_figure on the basis of this analysis ra crawford determined that petitioner had unreported gross_receipts of dollar_figure the difference between dollar_figure and the gross_receipts reported on petitioner’s return as he did for ra crawford also identified a number of outgoing transfers from petitioner’s accounts as potential business_expenses ra crawford characterized these expenses as cogs and determined that for petitioner had cogs of dollar_figure respondent issued petitioner notices of deficiency for and reflecting these adjustments respondent determined that petitioner was liable for it is unclear from the record why respondent did not concurrently issue notices of deficiency for tax years and on date petitioner sought redetermination of alleged deficiencies for and see mathews v commissioner t c dkt no date in a motion to dismiss for lack of jurisdiction respondent’s counsel stated continued fraud penalties for both years under sec_6663 respondent determined in the alternative that petitioner was liable for sec_6662 accuracy-related_penalties petitioner timely sought redetermination in this court and a trial was held in little rock arkansas opinion while petitioner does not dispute respondent’s determinations that he had unreported income for and he argues that the periods of limitation have expireddollar_figure petitioner also disputes the applicability of the sec_6663 fraud penalties sec_6501 provides generally that the amount of any_tax must be assessed within three years of the filing of a return the notices of deficiency in these cases were issued more than three years after the relevant returns were filed therefore the periods of limitation for the years in issue have expired and assessment is barred unless an exception to the general limitation period applies continued that as of date no notices of deficiency for those years had been issued the court granted respondent’s motion and dismissed the case for lack of jurisdiction petitioner raised the periods of limitation at the calendar call of the trial session and respondent did not object accordingly we find that the issue was tried by consent see rule b respondent relies on the sec_6501 fraud exceptiondollar_figure under sec_6501 if a taxpayer files a false_or_fraudulent_return with the intent to evade tax the tax may be assessed at any time the commissioner has the burden of proving exceptions to the general limitation period see eg 116_tc_31 to satisfy his burden in these cases respondent must show by clear_and_convincing evidence that an underpayment exists for each year and petitioner intended to evade taxes known to be owing by conduct intended to conceal mislead or otherwise prevent the collection_of_taxes sec_7454 rule b 94_tc_654 this is the same as his burden under sec_6663 to prove applicability of the civil_fraud penalty which is also at issue see eg browning v commissioner tcmemo_2011_261 wl at a underpayment petitioner conceded that he underreported income for and we are satisfied that respondent has established by clear_and_convincing evidence an underpayment_of_tax by petitioner for each of the years in issue at trial respondent conceded that no other exceptions to the general limitation period apply for and b fraudulent intent the second prong of the fraud test requires the commissioner to prove that for each year in issue at least some portion of the taxpayer’s underpayment_of_tax is due to fraud see parks v commissioner t c pincite butler v commissioner tcmemo_2002_314 slip op pincite aff’d sub nom 384_f3d_965 8th cir fraud for this purpose is defined as intentional wrongdoing with the specific purpose of avoiding a tax believed to be owing see eg 96_tc_858 aff’d 959_f2d_16 2d cir the commissioner must therefore prove that the taxpayer intended to evade tax believed to be owing by conduct intended to conceal mislead or otherwise prevent the collection of tax see eg browning v commissioner wl at fraudulent intent must exist at the time the taxpayer files the return 24_tc_941 aff’d 245_f2d_237 6th cir the existence of fraud is a question of fact to be resolved from the entire record 67_tc_181 aff’d without published opinion 578_f2d_1383 8th cir because direct proof of a taxpayer’s intent is rarely available fraud may be proven by circumstantial evidence and reasonable inferences may be drawn from the relevant facts 317_us_492 79_tc_995 aff’d 748_f2d_331 6th cir a taxpayer’s entire course of conduct can be indicative of fraud 56_tc_213 53_tc_96 the sophistication education and intelligence of the taxpayer are relevant to determining fraudulent intent see 99_tc_202 stephenson v commissioner t c pincite 19_tc_631 over the years courts have developed a nonexclusive list of factors that demonstrate fraudulent intent these badges_of_fraud include understating income maintaining inadequate records implausible or inconsistent explanations of behavior concealment of income or assets failing to cooperate with tax authorities engaging in illegal activities an intent to mislead which may be inferred from a pattern of conduct lack of credibility of the taxpayer’s testimony filing false documents failing to make estimated_tax payments and dealing in cash see spies v commissioner u s pincite mcgraw v commissioner f 3d pincite 899_f2d_164 2d cir 796_f2d_303 9th cir aff’g tcmemo_1984_601 91_tc_874 although no single factor is necessarily sufficient to establish fraud the combination of a number of factors constitutes persuasive evidence 732_f2d_1459 6th cir aff’g per curiam tcmemo_1982_603 92_tc_661 we find that respondent has failed to prove by clear_and_convincing evidence that petitioner had the specific intent to evade tax believed to be owing when he filed his and returns before proceeding with our analysis we will comment on the credibility of the parties’ witnesses as a trier of fact it is our duty to listen to the testimony observe the demeanor of the witnesses weigh the evidence and determine what we believe kropp v commissioner tcmemo_2000_148 wl at in 58_tc_560 we observed that the process of distilling truth from the testimony of witnesses whose demeanor we observe and whose credibility we evaluate is the daily grist of judicial life these statements regarding our role as a trier of fact are particularly apt here petitioner lied on numerous occasions to ra crawford and sa williams during respondent’s civil examination and criminal investigation however we do not believe he did so in this proceeding before trial petitioner had served a substantial prison sentence stemming in large part from his behavior during the audit and criminal investigation we believe this experience impressed upon petitioner the importance of telling the truth at trial petitioner admitted to making mistakes he was respectful towards respondent and respondent’s witnesses and he was cooperative with the court his testimony was convincing and withstood cross-examination we will therefore credit as specified below portions of petitioner’s testimony ra crawford and sa williams also testified at trial we found each of them to be honest forthright and credible however we disagree with their conclusions about petitioner’s fraudulent intent petitioner is not a sophisticated taxpayer or financially astute he dropped out of high school after the 10th grade and has no training or experience in bookkeeping taxation or accounting at trial he appeared confused about the nature of his tax_liabilities and at one point credibly testified i t’s over my head given petitioner’s lack of sophistication we question whether he knew there was a tax owing from the multi-service programs when he prepared his and returns petitioner consistently maintained throughout trial that he didn’t know how to report income from the multi-service programs this testimony is consistent with his statements to sa williams during the date interview petitioner’s testimony also accords with the general confusion petitioner expressed in the typed statement he attached to his return from the record it appears that the source of petitioner’s confusion was his belief that of the funds he received through the multi-service programs belonged to the member-recruiters petitioner testified to this belief at trial and sa williams confirmed that the multi-service programs required payouts to its membersdollar_figure the record also reflects that petitioner believed he had deductible expenses with respect to the multi-service programs notes taken by ra crawford and sa williams during their respective investigations corroborate petitioner’s confusion about the taxability of the multi- service program income in an activity log dated date ra crawford described a voice message from petitioner in which petitioner asked whether the year amount in dispute was down to zero in a memorandum recounting the date interview sa williams noted petitioner’s statement that for all years under examination at the time through his total unreported income sa williams testified wealth team international association wtia i believe was maybe a dollar_figure fee one-time fee for one entry and then once you recruit others to join and you help them recruit based on your level in the program you would get payouts for your efforts was no more than dollar_figure before taking deductions into considerationdollar_figure sa williams also recounted petitioner’s statement that he didn’t know what to do for his taxes it is respondent’s burden to prove that petitioner underreported gross_receipts on his and returns with the specific purpose of avoiding a tax known to be owing see dileo v commissioner t c pincite because petitioner has demonstrated genuine confusion about the calculation of his tax_liabilities respondent must negate the possibility that the underreporting was attributable to a misunderstanding see 498_us_192 niedringhaus v commissioner t c pincite mcculley v commissioner tcmemo_1997_285 the misunderstanding need not be objectively reasonable though reasonableness may be relevant for purposes of assessing the credibility of the claim see cheek u s pincite niedringhaus v commissioner t c pincite in these cases the misunderstanding was petitioner’s belief that his gross_receipts from the multi-service programs did not generate tax_liabilities because was owed to other members and because he had other deductible expenses sa williams later determined that petitioner’s unreported gross_receipts for and totaled dollar_figure having observed petitioner at trial we find petitioner’s misunderstanding credible in the light of his background and sophistication level after a thorough review of the record we also find that petitioner’s misunderstanding was not corrected before he filed his and returnsdollar_figure to be sure this is a close case as the court_of_appeals for the eighth circuit observed in its opinion affirming petitioner’s convictions under sec_7206 and sec_7212 petitioner’s reported gross_receipts were a small fraction of the receipts deposited into his bank account mathews f 3d pincite furthermore mathews petitioner repeatedly lied to irs agents during the audit he failed to disclose one of his bank accounts and denied receiving compensation from one of his businesses during the search of his home he lied about the presence of dollar_figure in cash he was misleading and evasive about his business operations continually changing key details about his role and the flow of funds he claimed money from one of his businesses was actually income from a_trust in belize id pincite at trial respondent introduced a date car loan application in which petitioner reported a monthly gross salary of dollar_figure as evidence that petitioner knew his income from mathews multi-service was taxable however it is unclear from the record what gross salary means in this context as neither party contends petitioner was a salaried employee of mathews multi-service given this gap in the record we decline to draw any inferences from this document furthermore if gross salary means gross_receipts this document does not establish that petitioner knew he had positive net_income from the multi- service programs in many cases these facts might support an inference that petitioner filed false and fraudulent_returns with the intent to evade tax see eg 449_f2d_311 9th cir holding that gross understatement of income coupled with misstatements during audit is a sufficient basis for a finding of fraud aff’g per curiam tcmemo_1969_48 fuller v commissioner tcmemo_2007_62 holding that understated income overstated deductions and failure to cooperate with the commissioner justify a finding of fraud see also sec_6501 however the existence of fraud is a question of fact to be resolved from the entire record gajewski v commissioner t c pincite and the sophistication education and intelligence of the taxpayer are relevant to determining fraudulent intent see niedringhaus v commissioner t c pincite stephenson v commissioner t c pincite iley v commissioner t c pincite moreover conduct of the taxpayer even though reprehensible will not justify a finding of fraud unless the fraudulent intent is shown to have existed when the return was made holmes v commissioner tcmemo_2012_251 at aff’d 593_fedappx_693 9th cir barrier v commissioner tcmemo_1983_258 semple v commissioner a memorandum opinion of this court dated date tax ct memo lexi sec_124 at in these cases the record establishes that petitioner was an unsophisticated taxpayer with little if any financial acumen while petitioner behaved reprehensibly during respondent’s civil examination and criminal investigation which for the most part pertained to tax years not in issue we believe he was genuinely confused about the taxability of the multi-service program income when he filed his and returns see cheek u s pincite accordingly his misconduct during respondent’s civil examination and criminal investigation does not establish that his and returns were fraudulent with respect to petitioner’s criminal case a sec_7206 conviction does not collaterally estop a taxpayer from denying that his returns were fraudulent 84_tc_636 wheadon v commissioner tcmemo_1992_633 cox v commissioner tcmemo_1985_324 under sec_7206 it is a crime to willfully make and submit any return verified by a written declaration that is made under penalties of perjury which the taxpayer does not believe to be true and correct as to every material matter the intent to evade taxes is not an element of the crime charged under sec_7206 which penalizes the filing of a false return even though the falsity would not produce tax consequences 572_f2d_340 2d cir see also 484_f2d_670 7th cir 377_f2d_469 n 1st cir wright v commissioner t c pincite thus although petitioner’s conviction under sec_7206 may be evidence of fraudulent intent it does not establish as a matter of law that he intended to evade taxes see wright v commissioner t c pincite having considered all of the facts and circumstances of these consolidated cases we find that respondent failed to prove by clear_and_convincing evidence that petitioner filed false and fraudulent_returns with the intent to evade tax for and we now address whether we will relieve petitioner of four stipulated paragraphs that say otherwise c stipulated paragraph sec_63 sec_64 sec_65 and sec_66 before trial and pursuant to rule f we deemed stipulated inter alia paragraph sec_63 sec_64 sec_65 and sec_66 after petitioner did not respond to our order to show cause why proposed facts and evidence should not be accepted as established paragraph states that petitioner fraudulently and with intent to evade tax omitted income from his and income_tax returns paragraph states that the deficiencies in these cases are due to petitioner’s fraudulent intent to evade tax paragraph sec_65 and sec_66 state that for and petitioner is liable for deficiencies of dollar_figure and dollar_figure respectively and for sec_6663 penalties of dollar_figure and dollar_figure respectivelydollar_figure generally the court will not permit a party to a stipulation to qualify change or contradict a stipulation in whole or in part except where justice requires rule e or good cause is shown 26_tc_171 see also 820_f2d_1543 9th cir stipulations should be enforced unless manifest injustice would result aff’g tcmemo_1986_23 in deciding whether to allow a party to set_aside or modify a stipulation we look at factors such as inconvenience to the court and possible injustice to the moving party if the stipulation were enforced 108_tc_320 citing 85_tc_359 aff’d without published opinion 208_f3d_205 3d cir at the calendar call respondent’s counsel stated that the deemed stipulation of facts establishes both the deficiency and the civil_fraud penalty in the case however respondent’s counsel also stated that respondent was prepared to try the case if the court was not willing to determine deficiencies and civil_fraud penalties on the basis of the stipulation the court informed the parties that a trial would be necessary and a full-day trial commenced later that week in the cases at bar stipulated paragraph sec_63 through are legal conclusions and or statements of ultimate fact16 which we have found to be contrary to the record if we enforced the deemed stipulated paragraphs against petitioner we would effectively preclude him from contesting respondent’s determinations because we doubt that petitioner filed false and fraudulent_returns with the intent to evade tax for the years in issue this result would be manifestly unjust accordingly we will relieve petitioner of stipulated paragraph sec_63 sec_64 sec_65 and sec_66 d conclusion having failed to establish by clear_and_convincing evidence that petitioner filed false and fraudulent_returns with the intent to evade tax for and respondent is barred by the sec_6501 limitations_period from assessing deficiencies and alternative sec_6662 accuracy-related_penalties against petitioner for those yearsdollar_figure in reaching our decision we have considered all an ultimate fact generally refers to a factual conclusion derived from intermediate facts see black’s law dictionary 10th ed after trial respondent filed a motion to reopen the record to introduce evidence of compliance with the written supervisory approval requirement under sec_6751 we will deny respondent’s motion as moot arguments made by the parties and to the extent not mentioned or addressed they are irrelevant moot or without merit to reflect the foregoing an appropriate order will be issued and decisions will be entered for petitioner


internal_revenue_service department of the treasury index no number info release date washington dc person to contact john t sapienza jr id no telephone number refer reply to cc dom it a - cor-111387-00 date date dear commissioner rossotti asked me to respond to your letter concerning obesity and weight-loss programs you asked the internal_revenue_service to issue a revenue_ruling allowing obese individuals to deduct the costs of weight-loss programs as medical_care expenses under sec_213 of the internal_revenue_code the current irs position on weight-loss programs is stated in revrul_79_151 1979_1_cb_116 this ruling holds that if participation in the program was to improve the participant’s appearance general health and sense of well-being the expenses of the program are not for medical_care and therefore are not deductible of course the expenses of a weight-loss program prescribed to treat a specific disease are for medical_care and are deductible we appreciate your suggestion and the references you provided to studies on obesity each year the irs and the department of the treasury review the many suggestions for revenue rulings and other forms of guidance to be published the projects selected are announced in the annual priority guidance plan input such as you have provided is helpful to us in selecting projects for the priority guidance plan i hope this information is helpful please call john t sapienza jr at the number above if you have any questions sincerely deputy assistant chief_counsel income_tax accounting by robert a berkovsky chief branch


internal_revenue_service number release date index number --------------------- -------------------------- ----------------------------------------------------- -------------------------------------- ------------------------- ---------------------------- in re ----------------------------------------- ------------------------------------- legend 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 corp b02 plr-144056-13 date date parent ----------------------------------------------------------------------------- --------------------------------------------------------------------- --------------------------------------- bank ----------------------------------------------------------------------------- --------------------------------------------------------------------- ---------------------------------- agency date date date date date x agency tax professional ----------------------------------------------------- --------------------------- ---------------------- --------------------------- ---------------------------- ------------------- -- ----------------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------- plr-144056-13 dear ------------ this letter responds to a letter dated date submitted by agency as agent of the consolidated_group of which parent is the common parent the parent group requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election in particular agency is requesting an extension of time for the parent group to elect an extended carryback period the election for a consolidated_net_operating_loss cnol the material information submitted for consideration is summarized below parent is the common parent of the parent group of which bank is a member on date bank was closed and agency was appointed receiver on date pursuant to sec_301_6402-7 agency was authorized by the internal_revenue_service to act as an agent of the carryback_year group the loss_year group or any other group of which bank is a member for any matter pertaining to the determination of the refund or tentative_carryback_adjustment for the carryback and loss years of the parent group the parent group incurred a cnol in the taxable_year ending date the year cnol agency on behalf of the parent group seeks to carry back the year cnol x years to the parent group’s taxable_year ending on date under sec_172 of the internal_revenue_code the parent group was required to file the election in order to carry back the year cnol to its taxable_year ending on date and to obtain the benefit of sec_56 the election was due on date but for various reasons a valid election was not filed after the due_date for the election it was discovered that the election had not been filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file the election agency has represented that the parent group is not seeking to alter a return position for which an accuracy related penalty has been or could be imposed under sec_6662 sec_172 generally permits a taxpayer to carry back a net_operating_loss nol to each of the taxable years preceding the taxable_year of the nol sec_172 permits a taxpayer to elect to carry back an applicable net_operating_loss applicable nol to each of the or taxable years preceding the taxable_year of the applicable nol in lieu of the 2-year period provided by sec_172 sec_172 provides that an applicable nol is the taxpayer’s nol for a taxable_year ending after date and beginning before date plr-144056-13 sec_172 provides that the election under sec_172 shall be made by the due_date including extension of time for filing the return for the taxpayer’s last taxable_year beginning in the election is irrevocable and in general may be made only with respect to one taxable_year sec_1502 provides that the secretary shall prescribe such regulations as he may deem necessary in order that the tax_liability of any affiliated_group_of_corporations making a consolidated_return and of each corporation in the group both during and after the period of affiliation may be returned determined computed assessed collected and adjusted in such manner as clearly to reflect the income_tax_liability and the various factors necessary for the determination of such liability and in order to prevent avoidance of such tax_liability in carrying out the preceding sentence the secretary may prescribe rules that are different from the provisions of chapter that would apply if such corporations filed separate returns sec_1_1502-21 of the income_tax regulations provides that losses taken into account in determining a cnol may be carried to other taxable years whether consolidated or separate only under paragraph b of sec_1_1502-21 sec_1_1502-21 provides that nol carryovers and carrybacks to a taxable_year are determined under the principles of sec_172 and sec_1_1502-21 sec_1_1502-21t provides that a consolidated_group may elect an extended carryback period pursuant to sec_172 with regard to a cnol arising in a taxable_year ending after date and beginning before date revproc_2009_52 2009_49_irb_744 provides when and how a taxpayer may make an election under sec_172 sec_4 of revproc_2009_52 provides that the common parent of a consolidated_group makes the election for the group sec_4 and of revproc_2009_52 permit the election to be made for consolidated taxpayers by attaching a statement to the original or amended consolidated_return for the taxable_year of the applicable cnol by attaching a statement to the taxpayer’s amended consolidated_return applying the applicable cnol to the carryback_year or by attaching a statement to a claim for a tentative_carryback_adjustment on form_1139 corporation application_for tentative refund sec_4 b and b of revproc_2009_52 require the election regardless of the manner in which made to be filed no later than the due_date including extensions for filing the return for the taxpayer’s last taxable_year beginning in under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than plr-144056-13 six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 the election by a consolidated_group to extend the carryback period under sec_172 for a cnol is a regulatory election therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for the parent group to file the election provided the parent group establishes to the satisfaction of the commissioner that it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by agency and agency tax professional explain the circumstances that resulted in the failure to timely file a valid election the information establishes that the request for relief was filed before the failure to timely make the election was discovered by the internal_revenue_service see sec_301_9100-3 and v based on the facts and information submitted including the affidavits submitted and the representations made we conclude that the parent group acted reasonably and in good_faith that the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and that granting relief will not prejudice the interests of the government accordingly provided that and to the extent that the parent group qualifies substantively to file the election we grant an extension of time under sec_301_9100-3 until sixty days from the date on this letter for the parent group to file the election this letter does not extend the period of time described in sec_6511 by which a taxpayer is required to file a claim for credit or refund of an overpayment_of_tax the parent group may file the election under sec_172 to carry back the year cnol to its taxable_year ending on date on form 1120x amended u s_corporation income_tax return for the taxable_year ending either date or date according to the procedures set forth in revproc_2009_52 a copy of this letter must be attached to the form 1120x if the parent group files form 1120x electronically the parent group may satisfy the requirement of attaching a copy of this letter by attaching a statement to the parent group’s amended_return that provides the date and control number plr-144056-13 of this letter_ruling plr-144056-13 the above extension of time is conditioned on the parent group’s tax_liability if any not being lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money we express no opinion as to the parent group’s tax_liability for the years involved a determination thereof will be made by the director’s office upon audit of the income_tax returns involved except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any item discussed or referenced in this letter in particular we express no opinion with respect to whether the parent group qualifies substantively to make the election in addition we express no opinion as to the tax effects or consequences of filing the election late under the provisions of any other section of the internal_revenue_code or regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in this letter for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made under penalty of perjury by agency and agency tax professional the director however should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election any penalties and interest that would otherwise be applicable continue to apply this letter_ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely ken cohen acting chief branch office of associate chief_counsel corporate


internal_revenue_service uil nos number info release date date the honorable u s house of representatives washington d c dear the commissioner has asked me to respond to your date letter concerning the federal_income_tax treatment of certain educational benefits provided by a voluntary employees’ beneficiary association veba to its members specifically you asked whether educational benefits provided by a veba are excluded from gross_income under sec_117 of the internal_revenue_code the code generally gross_income does not include any amount received as a qualified_scholarship or fellowship_grant sec_117 of the code the exclusion does not extend to amounts that represent compensation_for services however where educational benefits are paid in an employment context a question may arise as to whether the amounts are received as qualified_scholarship or fellowship grants or as compensation_for services to resolve this matter we have to consider all relevant facts and circumstances which include the history of the benefits program source of funding eligibility requirements selection criteria independence of the selection committee the nature of any employee preference or limitation and the percentage of eligible applicants normally receiving awards disclosure provisions of the code prohibit me from discussing any specific actions proposed or taken by the internal_revenue_service toward a particular taxpayer i share your concern that the tax laws be administered in a fair and reasonable manner as intended by the congress it is our goal to properly and consistently determine whether grants made for educational_purposes meet the requirements for exclusion from income as qualified_scholarship or fellowship grants i hope this information is helpful please contact me at if i can be of further assistance sincerely heather maloy deputy associate chief_counsel domestic


department of the treasury internal_revenue_service washington d c date cc dom fs proc tl-n-5371-98 number release date uilc memorandum for from subject internal_revenue_service national_office field_service_advice linda j bourquin acting senior technician reviewer cc dom fs proc request for field_service_advice this field_service_advice responds to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend taxpayer a year year year year year year x dollars y dollars z dollars dollar_figure dollar_figure dollar_figure year year year year year year a dollars b dollars dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure m dollars n dollars o dollars r dollars dollar_figure dollar_figure dollar_figure dollar_figure i dollars ii dollars iii dollars issue s whether a timely executed form 870-ad offer of waiver of restriction on assessment and collection of deficiency in tax and of acceptance of overassessment constitutes a claim_for_refund of deficiency_interest arising under the circumstances described if so whether the period of limitations provided by sec_6511 remains open where a notice of disallowance has not been issued to the taxpayer conclusion for the reasons discussed below the form 870-ad executed by the taxpayer under these circumstances does not set forth the purported claim for a refund of interest with sufficient particularity to provide notice to the service of the basis for the taxpayer s claim and accordingly is not a claim_for_refund since the answer to the first question is no this issue does not arise and will not be addressed further facts a filed a timely form_1120 corporate_income_tax return for year and claimed an overpayment in october of year the service refunded x dollars without interest in year sec_3 and respectively a received refunds of tentative carrybacks which applied losses from year sec_2 and to year in september of year a and the service executed the first of two forms 870-ad hereinafter the first 870-ad the first 870-ad recorded a s agreement to the assessment of a deficiency of y dollars for year the deficiency of y dollars consisted of a general adjustment for year of a dollars and a deficiency for year of b dollars resulting from the recapture of the year tentative carryback the service computed the interest on this deficiency to be z dollars the z dollar figure was excessive the service incorrectly charged interest on the a dollar amount by setting its beginning date as march of year instead of october of year it also failed to allow interest free periods for the allowance of the carryback tentative refunds for year sec_2 and the y dollar deficiency was assessed in year and a worksheet detailing the interest computation was sent to a a remitted its final payment of the y dollar deficiency and the z dollar interest in year a never filed a claim_for_refund of the overpaid deficiency_interest although it now admits that in year it had all the information it needed to discover the three interest computation errors but did not discover them in year after an examination for years subsequent to year a carryback from year to year and an additional carryback from year to year became available to a this resulted in an overassessment for year in the amount of i dollars and consisted of a carryback credit of ii dollars from year and a carryback credit of iii dollars from year the iii dollar credit was in addition to the previously allowed credit carried back from year in october of year a and the service executed a second form 870-ad hereinafter the second 870-ad in which a agreed to the i dollar overassessment no refund interest amount was specified in the second 870-ad although the form s standard language states that the taxpayer consents to athe assessment and collection of the following deficiencies with interest as provided by law the form also states athis offer when executed and timely submitted will be considered a claim_for_refund for the above overassessments as provided in revrul_68_85 1968_1_cb_555 no specific reference to any amount of interest whether deficiency_interest or overpayment interest appears on the second 870-ad in connection with the second 870-ad the service computed the interest due on the overassessment to be m dollars this amount was not correct because the service computed the refund interest from the dates the year and credits had been allowed to the date that the i dollar overassessment was paid in year the interest should have been calculated from the dates of a s most recent payments into the account in years and as a result of this mistake the m dollar amount of interest due to a on the i dollar refund was n dollars too high although it was offset by o dollars in interest charged to a on the z dollar interest computation the final result is a potential overassessment of r dollars a filed a form_843 claim_for_refund and request for abatement for this amount in year law and analysis sec_6601 provides that if an amount of tax is not paid on or before its due_date interest on the amount at the underpayment rate shall be paid from the due_date to the date the tax is paid this interest is usually referred to as deficiency_interest pursuant to sec_6601 an overpayment of deficiency_interest may be recovered within the limitations_period found in sec_6511 454_f2d_1379 ct_cl sec_6611 provides that interest shall be allowed on any overpayment_of_tax at the overpayment rate a claim for the payment of interest on an overpayment is not a claim_for_refund but such interest may be recovered within six years from the date the overpayment was allowed see rev ruls 1956_2_cb_959 1956_2_cb_959 1957_1_cb_452 33_fedclaims_4 sec_6511 provides generally that a claim_for_refund of an overpayment must be filed within three years of the time the return was filed or two years from the time the tax was paid whichever is later recovery on a timely claim may be limited by the application of sec_6511 which provides that if a claim_for_refund is filed within the three year period specified in sec_6511 the amount of credit or refund cannot exceed the portion of the tax paid within the three years preceding the claim if the claim is not filed within the sec_6511 three year period the amount of credit or refund may not exceed the portion of the tax paid within the preceding two years treas reg ' states that for a claim_for_refund to be valid it must set forth in detail each ground upon which a credit or refund is claimed and facts sufficient to apprise the commissioner of the exact basis for the claim revrul_68_65 1968_1_cb_555 holds that a form_870 on which a taxpayer has agreed to an overassessment of tax determined by the service will if executed and filed within the limitations_period for claiming a refund be considered a valid claim_for_refund of the overpayment attributable to the overassessment the grounds for determining the overassessment are considered to be the grounds for the refund claim revrul_68_65 is based in part on the reasoning that the form_870 supplies the same information a claim_for_refund on form_843 would supply where a taxpayer fails to file a timely formal claim_for_refund courts have held that an informal claim_for_refund can supply the same information and will suffice to hold the period for filing a timely claim open see eg 314_us_186 furst v united_states ct_cl however the informal claim must be in writing and it must adequately apprise the service that a refund for certain years is sought american radiator standard sanitary corp v united_states ct_cl in 783_f2d_190 fed cir the claims_court rejected the taxpayer s claim that a form 870-ad met this requirement in arch engineering the taxpayer agreed to proposed deficiencies and executed a form 870-ad consenting to the assessment of those deficiencies however the taxpayer expressly reserved the right to file a claim_for_refund with respect to the issue the form 870-ad specifically stated that it was not to be construed as a claim_for_refund with respect to the reserved issue a change in the law provided the taxpayer with grounds for relief on the reserved issue however the change in the law occurred after the period of limitations for filing a formal claim had expired taxpayer sued for a refund claiming that the form ad constituted an informal claim_for_refund on the reserved issue the claims_court rejected this claim and the federal_circuit affirmed the federal_circuit reasoned that the taxpayer had not yet paid the tax agreed to in the form 870-ad and therefore did not have a right to file a refund claim at the time the form 870-ad was executed in deluxe check printers inc v united_states cl_ct the service assessed a deficiency in self dealing tax against the taxpayer and also assessed deficiency_interest on the amount the self dealing tax is technically a penalty and not a tax and therefore as the claims_court noted assessment of interest on that amount was limited by operation of sec_6601 under those limited circumstances the claims_court held that a claim_for_refund of the self dealing tax implicitly included a claim_for_refund of the interest which had been unlawfully assessed case development hazards and other considerations although the result in deluxe check printers could be broadly interpreted to stand for the proposition that a claim_for_refund of an assessed deficiency the taxpayer contends is an overpayment_of_tax implicitly includes a claim for a refund of deficiency_interest no matter what the circumstances it is plain from the cases that the courts analyze informal claims for refund based on all the facts and circumstances of each individual case an analysis of all the facts and circumstances here makes it plain that a did not submit any writing asserting an error in the interest computations the service performed we conclude that a did not file an informal claim_for_refund of deficiency_interest therefore we think that even if a were to file suit here the service would have a good chance of success a argues that the forms 870-ad implicitly include a claim for a refund of deficiency_interest in support we anticipate a would cite united_states v csx corp u s t c big_number e d va in csx the taxpayer filed form sec_1102x requesting refunds of tax on an issue which was being litigated in order to protect the statute_of_limitations subsequently the service agreed to schedule overpayments of tax based on the same issue the taxpayer eventually received an additional payment of overcharged deficiency_interest but the service determined this amount was erroneously refunded and filed suit the district_court held that the formal claims for refund of the tax were submitted timely that the additional payment of deficiency_interest had been made within the period of limitations and that therefore the refund was not erroneous we believe csx is distinguishable on its facts a did not file formal claims for refund within the period of limitations here and instead relies on its claim that it filed informal claims within the period of limitations in addition in csx the interest clearly related to the issue that formed the basis of the formal claims for refund the same issue was the subject of litigation between the parties for other years and the service was plainly well aware of the grounds for the refund of the tax as well as the interest on that tax by contrast an evaluation of all the facts and circumstances in this case makes it plain that the only issues reserved on the forms 870-ad did not relate to interest but to the substantive adjustments governed by a related tefra proceeding a s right to a refund of the deficiency_interest arguably came into being in year when a fully paid the admittedly incorrect amount of interest on the year deficiency and received incorrect explanations of the interest calculations performed with respect to both forms 870-ad yet a filed no document intimating that it might be entitled to any amount of interest recovery whether of deficiency_interest or overpayment interest neither form 870-ad refers to interest in any respect except in the standard language of the form even if the forms 870-ad executed here could constitute timely informal claims for refund of some amount the claim would only be timely if that claimed amount related to or resulted from the allowance of an item that was reserved in the forms 870-ad the interest issues here do not so relate to allow a refund of the deficiency_interest a claims here would therefore violate the doctrine_of variance see union pacific railroad v united_states ct_cl a argues that the period for assessing the deficiency attributable to the recapture of the carryback credit from year to year was still open at the time the service paid the i dollar overassessment a reasons from this that a claim for the interest due from failure to allow the year interest free period was encompassed by agreement to an overassessment in the second form 870-ad we disagree no course of conduct appears that would suggest that the service s representatives might have been aware of any desire on a s part for a refund of deficiency_interest a s claim for a return of excess_interest was not brought to the service s attention in any form until year at which time the period for filing a refund claim to recover the deficiency_interest had passed the service recognizes that generally where a taxpayer files a claim_for_refund of a tax on which he has previously paid deficiency_interest a claim_for_refund of that tax includes a claim_for_refund of the interest_paid on that tax see brandt 300_f2d_457 ct_cl a argues from this principle that an agreement to an overassessment for a year constitutes a claim_for_refund of any interest overpayment which might exist for that year or any year that is impacted by that year therefore a argues that the service has an obligation to check its interest computations for any year impacted by an agreed overassessment to determine whether a taxpayer might have a claim for a refund of interest for that year we decline to interpret claims for refund of tax and the associated interest so broadly in our view when an agreed overassessment may give rise to an overpayment of interest for a year impacted by the overassessment it is incumbent on the taxpayer to act to apprise the service of the potential overpayment of interest given the doctrines of variance and informal claims the taxpayer could satisfy this obligation by inquiring whether the interest computation for the impacted year is correct a did not do that here although it possessed enough information to discover the error and request correction of it in addition we note that a portion of interest claimed in this matter is overpayment interest as noted above a claim for recovery_of excess overpayment interest is not a claim_for_refund and is subject_to a six year period of limitations taxpayer should have filed suit for the amount of overpayment interest it desired returned before year we believe it is appropriate to continue to maintain the position that a s claim for payment of this interest is time barred if you have any further questions please call the branch telephone number linda j bourquin acting senior technician reviewer