t c summary opinion united_states tax_court henry a rabago petitioner v commissioner of internal revenue respondent docket no 2504-o1s filed date henry a rabago pro_se nicholas j richards for respondent couvillion special_trial_judge this case was heard pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated section references are to the internal_revenue_code in effect for the years at issue all rule references are to the tax_court rules_of_practice and procedure respondent determined deficiencies of dollar_figure and dollar_figure in petitioner's federal income taxes for and respectively at trial respondent conceded petitioner's entitlement to a child_care_credit under sec_21 for both years the issues for decision are whether petitioner during the years at issue was a statutory_employee under sec_3121 a or whether as respondent contends a common-law employee under sec_3121 and whether petitioner is entitled to deductions for either employee business_expenses or trade_or_business_expenses under sec_162 some of the facts were stipulated those facts with the exhibits annexed thereto are so found and are incorporated herein by reference petitioner was a legal resident of lakewood california at the time the petition was filed for some years petitioner delivered bakery products to various stores and vendors in his home area for and on behalf of best foods agent for entenmann's inc best foods the products petitioner delivered were baked breads and cakes bearing the brand names oroweat and entenmann's petitioner's duties were to report each morning at approximately a m ata distribution facility and load the delivery vehicle provided to him from which he proceeded to deliver the products to six or seven store locations on a route designated for him his delivery schedule was usually completed anywhere between a m and approximately p m each day he generally had no further duties after completing his route although he could be called upon to supplement a store's supply if the situation warranted petitioner did not own the vehicle used in his deliveries nor was he liable for the gasoline and other operational and maintenance_expenses he was required to punch a time clock each day at the commencement and at the conclusion of his deliveries he could make deliveries only on the route designated for him by best foods petitioner was required to bid for any new route or changes to his route petitioner was required to become a member of a labor_union the teamsters which had a collective bargaining agreement with best foods while on his route petitioner was required to wear a shirt that bore the logo or trade names of the products he delivered petitioner shelved the products he delivered solicited and accepted sales orders at each location monitored the needs or requirements of the stores on his route and filed invoices of his deliveries with best foods petitioner also removed from each delivery point any stale unsold or outdated goods from prior deliveries petitioner did not purchase or own the products he delivered nor did petitioner have any ownership or investment in any of the facilities or equipment used in connection with the baked goods he delivered for his services petitioner was paid a base salary plus a commission on the goods he delivered his commissions however were reduced for any stale or unsold goods that were removed from store shelves petitioner was allowed paid vacation and sick leave fach year including the years at issue best foods issued to petitioner an irs form_w-2 wage and tax statement which reflected the net amounts paid to petitioner for his delivery services the payments to petitioner were characterized as wages from which federal and state income and social_security_taxes were withheld block of the form_w-2 indicating whether petitioner was a statutory_employee was not marked on his federal_income_tax returns for the years at issue petitioner reported the income shown on his forms w-2 as gross_receipts from a trade_or_business activity on a schedule c profit or loss from business he subtracted from gross_receipts an amount for cost_of_goods_sold representing the stale and unsold products he had removed from store shelves during the year petitioner then claimed deductions for expenses_incurred in the activity in the notice_of_deficiency respondent determined that petitioner was a common-law employee and as such his income constituted salary or wage income and not gross_receipts from a trade_or_business activity respondent also disallowed the cost_of_goods_sold adjustment and all the claimed schedule c expense deductions for lack of substantiation respondent made no allowance for deduction of any of the claimed expenses as itemized_deductions the child_care_credit claimed for both years was disallowed however respondent conceded that adjustment at trial petitioner's claimed head-of--household filing_status under sec_2 was allowed with respect to the first issue adjusted_gross_income generally consists of gross_income less trade_or_business_expenses except in the case of the performance of services by an employee sec_62 an individual performing services as an employee may deduct miscellaneous_itemized_deductions incurred in the performance of services as an employee only to the extent such expenses exceed percent of the individual's adjusted_gross_income sec_67 a the deduction for business_expenses under sec_162 is included in miscellaneous_itemized_deductions sec_67 the commissioner has ruled that an individual who is a statutory_employee under sec_3121 which relates to employment_taxes is not an employee for purposes of sec_62 and sec_67 and therefore a statutory_employee under sec_3121 is not subject_to the sec_67 2-percent limitation for expenses_incurred by such employee in the performance of services as an employee revrul_90_93 1990_2_cb_33 thus an individual who is a statutory_employee under sec_3121 is allowed to deduct expenses from gross_income that otherwise would be subject_to the 2-percent limitation of sec_67 an employee for employment_tax purposes is defined in pertinent part by sec_3121 as follows sec_3121 employee ---for purposes of this chapter the term employee means--- any officer of a corporation or any individual who under the usual common_law rules applicable in determining the employer-employee relationship has the status of an employee or any individual other than an individual who is an employee under paragraph or who performs services for remuneration for any person-- a as an agent-driver or commission-driver engaged in distributing meat products vegetable products bakery products beverages other than milk or laundry or dry-cleaning services for his principal emphasis added if the contract_of_service contemplates that substantially_all of such services are to be performed personally by such individual except that an individual shall not be included in the term employee under the provisions of this paragraph if such individual has a substantial investment in facilities used in connection with the performance of such services other than in facilities for transportation an individual is a statutory_employee under sec_3121 d a only if such individual is not a common-law employee under sec_3121 there is no dispute that petitioner was engaged in the distribution and delivery of bakery products as described in sec_3121 a petitioner however did not have a substantial investment in the facilities used in connection with the performance of his services moreover the first part of sec_3121 states clearly that sec_3121 applies only to an individual other than an individual who is an employee under paragraph or therefore it is necessary for purposes of this case to view petitioner's situation under sec_3121 and and if his situation falls within either of these categories petitioner cannot gualify as a statutory_employee under sec_3121 an individual is a statutory_employee under sec_3121 d a only if such individual is not a common-law employee under either sec_3121 or lickiss v commissioner tcmemo_1994_103 whether an individual is a common-law employee under sec_3121 is a question of fact 89_tc_225 affd 862_f2d_751 9th cir 64_tc_974 among the relevant factors in determining the substance of an employment relationship are the following the degree of control exercised by the principal over the details of the work the taxpayer's investment in facilities the taxpayer's opportunity for profit or loss permanency of the relationship between the parties the principal's right of discharge whether the work performed is an integral part of the principal's business what relationship the parties believe they are creating and the provision of employee_benefits nlrb v united ins co 390_us_254 331_us_704 721_f2d_979 4th cir simpson v commissioner supra pincite leitch v commissioner tcmemo_1993_154 sec_31_3121_d_-1 employment_tax regs setting forth criteria for identifying common-law employees no one factor is determinative 490_us_730 instead all the incidents of the relationship must be assessed and weighed nlrb v united ins co supra pincite united_states v silk supra pincite simpson v commissioner supra pincite the factors should not be weighed equally but should be weighed according to their significance in the particular case 980_f2d_857 2d cir matt v commissioner tcmemo_1990_ based on the facts recited earlier the court holds that petitioner was a common-law employee under sec_3121 and therefore was not a statutory_employee under sec_3121 respondent is sustained on this issue the second issue is petitioner's entitlement to deductions for expenses_incurred in connection with his employment as itemized_deductions to the extent such expenses exceed percent of his adjusted_gross_income each year sec_67 the first item to be considered is the cost_of_goods_sold that petitioner claimed as a reduction of his gross_receipts petitioner explained at trial that the amounts claimed represented stale unsold merchandise he removed from store shelves the court holds that petitioner is not entitled to such reduction because he had not purchased the products he delivered consequently he had no basis in the returned goods although petitioner lost the commissions on the returned goods the court concludes from the record that the income amounts shown on the forms w-2 represented the net commissions paid to petitioner after deducting the forfeited commissions petitioner therefore is not entitled to either a cost_of_goods_sold adjustment or a deduction for forfeited commissions the expenses deducted by petitioner on schedules c for both years were legal and professional dollar_figure dollar_figure taxes and license sec_104 telephone safety equipment uniform sec_250 union due sec_384 office in the home big_number big_number charity totals dollar_figure dollar_figure respondent disallowed all the deductions claimed for lack of substantiation the explanatory schedules in the notice_of_deficiency state that the deductions were disallowed because we did not get an answer to our request for information to support your entries at trial petitioner presented no documentation to substantiate any of the expenses shown above he admitted that the amounts listed above for charity were for contributions he made to his church and the legal and professional expenses were incurred in connection with divorce and custody proceedings against his former wife these are all personal expenses that are not deductible under sec_262 the court however is satisfied from the record that petitioner incurred expenses for union dues and uniforms pursuant to 39_f2d_540 2d cir the court allows petitioner a deduction of dollar_figure for each year for uniforms and the amounts of dollar_figure and dollar_figure claimed on the returns as union dues for and the court makes no determination whether these allowed amounts will provide any_tax benefit to petitioner as a result of the applicability of sec_67 respondent is sustained in the disallowance of all the other deductions since petitioner presented no substantiating evidence to support the expenses deducted ’ reviewed and adopted as the report of the small_tax_case division decision will be entered under rule sec_7491 under certain circumstances places the burden of production on the secretary with respect to a taxpayer's liability for taxes penalties and additions to tax in court proceedings arising in connection with examinations commencing after date the record is unclear as to whether the examination of petitioner's returns commenced before or after date nevertheless the burden_of_proof did not shift to respondent because petitioner did not provide substantiation and credible_evidence in connection therewith 116_tc_438


internal_revenue_service p o box room cincinnati oh number release date date date department of the treasury exempt_organizations rulings and agreements employer_identification_number contact person - id number contact telephone number legend uil foundation scholarship z university school of medicine amount annually for years dear we have considered your request for advance approval of your grant-making program under sec_4945 of the intemal revenue code dated date our records indicate that x was recognized as exempt from federal_income_tax under sec_501 of the code and that it is classified as a private_foundation as defined in sec_509 your letter indicates that x will operate a grant-making program called y the purpose is to provide year scholarships to qualifying students at z x expects to award scholarship pet year in the amount of x made payable to z scholarships would be used for tuition eligible applicants will be a student at z the scholarship information is sent to all students who have been accepted at z to apply an individual will submit an essay providing information about their ability to contribute to the educational benefits derived from a diverse student body the selection criteria will be a financial need b practice potential academic achievement clinic exposure experience e community involvement public service tenacity and g not be a disqualified_person as defined in sec_4946 of the code candidate's essays and financial information are pre-screened by z's scholarship committee who select finalists selection is made on a nondiscriminatory basis with preference to ethnic minorities these are forwarded to the scholarship committee at x scholarships will be awarded by the scholarship committee composed of the chairman of the board_of x and bis appointees members are selected from the general_public z is responsible for maintaining records that substantiate the students healthcare community training institutions and from the current board_of x announcement of the scholarship award may be published or acknowledged by both x and z in year sec_2 through x receives confirmation from z x will pay scholarship funds to z that the student is still enrolled and considered a student in good standing prior to release of funding continued enrollment and good standing z is also responsible for notifying x if the student terminates his or her student status or otherwise becomes no longer a student in good standing in such a case the scholarship will be withdrawn from the current recipient pro_rata for the time of the students’ good standing status x reserves the right to require the withdrawn funds be returned to x or they may choose to allow the remaining funding to be awarded to one of the remaining finalists provided such student is currently in good standing sec_4945 and b of the code impose certain excise_taxes on taxable_expenditures made by a private_foundation sec_4945 of the code provides that the term taxable_expenditure means any amount_paid or incurred by a private_foundation as a grant to an individual for travel study or other similar purposes by such individual unless such grant satisfies the requirements of subsection sec_4945 of the code provides that sec_4945 shall not apply to individual grants awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance if it is demonstrated that the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 and is to be used for study at an educational_organization described in sec_170 b a ii the grant constitutes a prize or award which is subject_to the provisions of sec_74 if the recipient of such prize or award is selected from the general_public or the purpose of the grant is to achieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar capacity skill or talent of the grantee sec_53_4945-4 of the regulations provides that to secure approval a private_foundation must demonstrate that i gi its grant procedure includes an objective and nondiscriminatory selection process ‘such procedure is reasonably calculated to result in performance by grantees of the activities that the grants are intended to finance and the foundation performed activities that the grants are intended to finance plans to obtain reports to determine whether the grantees based on the information submitted and assuming your award programs will be conducted as proposed with a view to provide objectivity and nondiscrimination in making the awards we have determined that your procedures for granting the awards comply with the requirements contained in sec_4945 of the code and that awards granted in accordance with such procedures will not constitute taxable_expenditures within the meaning of sec_4945 in addition we have determined that awards made under your procedures are excludable from the gross_income of the recipients subject_to the limitations provided by sec_117 of the code this determination is conditioned on the understanding that there will be no material_change in the facts upon which it is based it is further conditioned on the premise that no grants will be awarded to foundation managers or members of the selection committee or for a purpose that is inconsistent with the purpose described in sec_170 b of the code the approval of your award program procedures herein constitutes a one-time approval of your system standards and procedures designed to result in awards which meet the requirements of sec_4945 of the code this determination only covers the grant programs described above thus approval shall apply to subsequent award programs only as long as the standards and procedures under which they are conducted do not differ materially from those described io your request any funds you distribute to individuals must be made on a true charitable basis in furtherance of the purposes for which you are organized therefore you should maiatain adequate_records and case histories so that any or all award distributions can be substantiated upon request by the internal_revenue_service this determination is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as a precedent you must report any future changes in your grant making procedures please keep a copy of this letter in your permanent records we have sent a copy of this letter to your representative as indicated in your power_of_attorney if you have any questions please contact the person whose name and telephone number are shown above sincerely yours robert choi director exempt_organizations rulings and agreements enclosures sanitized copy of this letter notice


id office uilc cca_2009011412334741 ----------------------------- number release date from --------------- sent wednesday date pm to --------------------------------------------------------------- cc -------------------- subject re irm re rrb language i'm late in responding to this one chapter is fica tp could owe fica on some ees and rrta on others chapter is futa 23a is rurt that is inactive chapter is itw it is my understanding we cannot disclose chapter or to rrb we need to nail this down for appeals irm according to ------- the irm already says you can't send this info-- draft irm states --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------- -------- - what did you hear back from ----- i will also run by ---------


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc tege eoeg teb plr-121024-01 date date legend state year year a b dear this is in response to a request submitted by state for an extension of time under sec_301_9100-1 of the procedure and administrative regulations to file an amended form_8328 carryforward election of unused private_activity_bond volume_cap in order to make a carryforward election under sec_146 of the internal_revenue_code facts and representations you make the following factual representations on february of year state timely filed a form_8328 carryforward election of unused private_activity_bond volume_cap with respect to dollar_figurea of unused private_activity_bond volume_cap from the prior year in the form_8328 state specified that dollar_figureb of the dollar_figurea of unused volume_cap was to be used for qualified enterprise_zone_facility bonds in january of the following year year in connection with the preparation of the form_8328 for year state determined that the form_8328 it had previously filed in february of year should not have specified dollar_figureb of the dollar_figurea unused volume_cap for qualified enterprise_zone_facility bonds because state could not issue bonds for that purpose the error was made because the state official who prepared and filed the form_8328 on february of year was under the mistaken impression that certain state law provisions gave the state the authority to issue qualified enterprise_zone_facility bonds had state been aware that it was not eligible to issue qualified enterprise_zone_facility bonds it would have elected to have the entire dollar_figureb designated as a carryforward for a permitted carryforward_purpose on february of year state filed with the irs a proposed amended form plr-121024-01 by which it amended the form_8328 filed on february of year to redesignate dollar_figureb as a carryforward to finance solid_waste disposal facilities soon thereafter state filed a request for a private_letter_ruling with the irs before this letter_ruling request was filed the irs had not discovered the invalid carryforward designation contained in the original form_8328 law and analysis sec_146 provides that if an issuing authority’s volume_cap for any calendar_year after exceeds the aggregate amount of tax-exempt private_activity_bonds issued during the calendar_year by the authority the authority may elect to treat all or any portion of the excess as a carryforward for one or more carryforward purposes the election is made by filing form_8328 with the internal_revenue_service center ogden ut under notice_89_12 1989_1_cb_633 form_8328 must be filed by the earlier of february of the calendar_year following the year in which the excess_amount arises or the date_of_issue of bonds issued pursuant to the carryforward election the election must identify the purpose for which the carryforward is elected and specify the amount to be carried forward for that purpose sec_146 the election is irrevocable sec_146 when a taxpayer makes an election that it is not entitled to make the election is invalid and the taxpayer is treated as if it had not made the election see 346_f2d_1016 9th cir taxpayer who elected method of reporting that was not available to taxpayer was not bound by election 97_tc_632 taxpayer who elected improper method of carrying over net operating losses was treated as not having made election sec_301_9100-1 of the procedure and administrative regulations provides in part that the commissioner has discretion to grant a reasonable extension of time to make a regulatory election defined in sec_301_9100-1 as an election whose due_date is prescribed by regulations or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides that requests for extensions of time for regulatory elections that do not meet the requirements for automatic extensions in sec_301_9100-2 must be made under the rules of sec_301_9100-3 requests for relief will be granted if the taxpayer provides evidence establishing to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that the grant of relief will not prejudice the interests of the government sec_301_9100-3 provides in part that the taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer requested relief under that section plr-121024-01 before the failure to make the regulatory election is discovered by the irs sec_301_9100-3 provides in part that the interests of the government are prejudiced if granting relief would result in a taxpayer having a lower tax_liability than if the election had been made timely taking into account the time_value_of_money in the instant case state elected to carryforward dollar_figureb of its unused volume_cap for qualified enterprise_zone_facility bonds this election was not available to state because state could not issue qualified enterprise_zone_facility bonds accordingly we conclude that the election was invalid and state should be treated as if it had not made an election for the dollar_figureb of volume_cap moreover we conclude that under the facts and circumstances of this case state acted reasonably and in good_faith and that granting an extension of time under sec_301_9100-1 to file an amended from will not prejudice the interest of the government conclusion based on the facts and representations submitted state is granted an extension of time to days after the date of this letter to file the amended form_8328 by which it amends the original form_8328 to redesignate the dollar_figureb as a carryforward for the purpose of issuing qualified exempt facility bonds to finance solid_waste disposal facilities the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for a ruling it is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer s 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 state government entities sincerely yours assistant chief_counsel exempt_organizations employment_tax by rebecca l harrigal chief tax exempt bond branch


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 b02 - plr-139928-03 date date ------------------------------ a -------------------------------------------- b ------------------------ -------------------------- ---------------------- --------- country d1 dear ----------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of b by its authorized representative requesting a ruling that b be given an extension of time to elect under ' c of the procedure and administration regulations to be classified as a disregarded_entity for federal tax purposes the information submitted states that a is a us partnership for federal tax purposes b a limited_company was formed on d1 pursuant to the laws of country b is wholly owned by a b represents that pursuant to ' a b is a foreign eligible_entity that is not required to be classified as a corporation for federal tax purposes b has single owner that has limited_liability as defined in sec_301_7701-3 b intended to disregarded for federal tax purposes effective d1 however b inadvertently failed to timely file a form_8832 entity classification election sec_301_7701-3 provides that a business_entity that is not classified as a corporation under ' b or an eligible_entity can elect its classification for federal tax purposes a business_entity is any entity recognized for federal tax purposes that is not properly classified as a_trust under sec_301_7701-4 or otherwise subject_to special treatment under the internal_revenue_code sec_301_7701-2 sec_301_7701-3 provides that unless a foreign eligible_entity elects otherwise the entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owners if it has a single owner that does not have limited_liability sec_301_7701-3 provides that for purposes of ' b i a member of a foreign eligible_entity has limited_liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member sec_301_7701-3 provides that to elect to be classified other than as provided in ' b an eligible_entity must file form_8832 entity classification election with the designated service_center sec_301_7701-3 provides that an election will be effective on the date specified on the form_8832 or on the date filed if no such date is specified the effective date specified on the form_8832 cannot be more than days prior to the date the election is filed under c the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or an announcement published in the internal_revenue_bulletin use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of ' granted when the taxpayer provides evidence to establish that the taxpayer acted sec_301_9100-3 provides that requests for relief under ' will be sec_301_9100-1 and sec_301_9100-3 provide the standards the commissioner will based solely on the facts submitted and representations made we conclude that reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer failed to make the election because after exercising reasonable diligence taking into account the taxpayer's experience and the complexity of the return or issue the taxpayer was unaware of the necessity for the election the requirements of ' have been satisfied as a result b is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect under ' c to be classified as a disregarded_entity for federal tax purposes effective for d1 a copy of this letter should be attached to the form_8832 a copy is included for that purpose federal tax consequences of the facts described above under any other provision of the code the internal_revenue_code provides that it may not be used or cited as precedent sent to b’s authorized representatives except as specifically set forth above no opinion is expressed concerning the pursuant to a power_of_attorney on file with this office a copy of this letter is being this ruling is directed only to the taxpayer who requested it sec_6110 of sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for ' purposes


t c memo united_states tax_court stacey l bogart and timothy p bogart petitioners v commissioner of internal revenue respondent docket no 4568-12l filed date scott alan schumacher john alfred clynch jr and emily j yamada for petitioners lisa m oshiro for respondent memorandum opinion kroupa judge this collection review matter is before the court on the parties’ cross-motions for summary_judgment filed pursuant to rule a all rule references are to the tax_court rules_of_practice and procedure continued petitioners’ federal tax troubles stem from the criminal conduct of their former bookkeeper petitioners submitted an offer-in-compromise oic of dollar_figure to resolve deficiencies of dollar_figure plus interest on the grounds that the oic promoted effective tax_administration eta oic respondent rejected the eta oic and issued a determination notice sustaining a final notice_of_intent_to_levy proposed levy action see sec_6330 respondent contends that he acted within his discretion when he rejected the eta oic petitioners contend that respondent was obligated to accept the eta oic as a matter of law petitioners alternatively contend that we should remand the matter because respondent failed to adequately consider the eta oic on public policy and equity grounds we conclude that respondent has yet to adequately consider the eta oic on those grounds we will therefore deny the cross-motions for summary_judgment without prejudice and remand the matter for respondent to consider the eta oic on public policy and equity grounds continued and all section references are to the internal_revenue_code as amended and in effect for all times relevant unless otherwise indicated all monetary amounts rounded to the nearest dollar background we recite uncontested facts reflected in the petition the stipulation of facts and the exhibits attached to these documents petitioners resided in washington when they filed the petition petitioners are a married couple with four children they operated a construction business during the relevant times petitioners treated the construction business as an s_corporation for federal_income_tax purposes petitioners were not wealthy but they had accumulated dollar_figure in assets in the form of real_property equity personal_property retirement accounts and other investments before petitioners relied on teresa sanak to prepare federal_income_tax returns on their behalf petitioners expanded ms sanak’s role in to serve as the bookkeeper for the construction business unbeknownst to petitioners ms sanak was a gambling addict ms sanak stole from petitioners to feed her addiction she systematically siphoned funds from petitioners between date and date ms sanak avoided detection by routing the stolen funds around petitioners’ bank accounts all told ms sanak embezzled at least dollar_figure from petitioners ms sanak prepared for petitioners and timely filed joint federal_income_tax returns for and the stolen funds were not reported as gross_income respondent later examined those returns petitioners uncovered ms sanak’s fraud through the course of that examination respondent ultimately increased petitioners’ income and determined deficiencies for and petitioners reported ms sanak’s conduct to local authorities and respondent’s office_of_professional_responsibility in ms sanak pleaded guilty to counts of theft in the first degree the state of oregon sentenced her to serve prison and probation terms she was also ordered to pay petitioners restitution of dollar_figure she has yet to make any payments to petitioners and petitioners have not satisfied the and liabilities respondent subsequently initiated the proposed levy action petitioner sec_3 timely requested a collection hearing petitioners agreed that the tax_liabilities were correct settlement officer so monica garcia verified that the irs met all requirements of applicable law and administrative procedure in issuing the levy petitioners at first were represented by so-called tax resolution services co trs trs twice requested additional time for petitioners to provide information it appears that trs never submitted information on petitioners’ behalf petitioner wife then contacted the settlement officer petitioner wife indicated that she would provide the information that her representative did not provide petitioners then represented themselves until counsel from the tax clinic at the university of washington school of law appeared in this matter notice so garcia also directed petitioners to submit financial information and proposed alternative collection methods petitioners submitted all requested information the eta oic and two payments towards the eta oic petitioners offered to pay a total of dollar_figure to compromise the and liabilities so garcia transferred the matter to so brian hefty for additional consideration of the eta oic so hefty focused on whether petitioners could demonstrate economic hardship he concluded petitioners could not so hefty also concluded that he did not perceive considering the eta oic on public policy grounds so hefty transferred the file to so kimberly lewis so lewis also concluded that the eta oic did not satisfy the requirements for acceptance respondent issued the determination notice sustaining the proposed levy action respondent verified that legal and procedural requirements were met respondent indicated that petitioners’ circumstances did not warrant consideration for compromising the liabilities to promote effective tax_administration petitioners timely filed the petition discussion we must now decide whether either party is entitled to summary_judgment we begin with the summary_judgment standard and then review collection actions generally we then consider the proposed levy action a summary_judgment we first consider the summary_judgment standard a motion for summary_judgment will be granted if the pleadings and other acceptable materials together with the affidavits if any show that there is no genuine dispute as to any material fact and that a decision may be rendered as a matter of law see rule b 118_tc_226 the moving party has the burden of proving that no genuine issue of material fact exists and that it is entitled to judgment as a matter of law see eg 119_tc_157 the party opposing summary_judgment must set forth specific facts showing that there is a genuine issue for trial and may not rely merely on allegations or denials in the pleadings rule d see also 477_us_317 b collection actions generally the commissioner is authorized to collect an unpaid federal tax_liability by lien or levy sec_6321 sec_6331 the commissioner must apprise a taxpayer of the taxpayer’s right to a collection hearing before an officer with the commissioner’s office of appeals appeals officer sec_6320 sec_6330 the appeals officer conducting the collection hearing must determine whether the commissioner will sustain a proposed collection action sec_6330 the taxpayer must provide all relevant information the appeals officer requested for consideration of the facts and issues involved in the collection hearing sec_301_6320-1 sec_301_6330-1 proced admin regs the appeals officer must then verify that the commissioner has satisfied all applicable legal and administrative requirements sec_6330 the appeals officer must consider all relevant issues a taxpayer raises sec_6330 finally the appeals officer must balance the intrusiveness of a proposed collection action against the need for effective tax collection sec_6330 a taxpayer may appeal a determination sustaining a proposed collection action to this court sec_6330 c review of the determination notice we now turn to respondent’s determination respondent contends that he appropriately exercised his discretion when rejecting the eta oic petitioners disagree for two reasons first petitioners argue that as a matter of law their circumstances required respondent to accept the eta oic for public policy or equity reasons second petitioners contend that respondent failed to evaluate those reasons when rejecting the eta oic standard of review petitioners do not contest the validity of the unpaid tax_liabilities we therefore review respondent’s sustaining the proposed collection action for abuse_of_discretion 114_tc_604 114_tc_176 respondent abused his discretion if he acted in a manner that was arbitrary capricious or without sound basis in fact or law see 125_tc_301 aff’d 469_f3d_27 1st cir we have concluded that the commissioner abused his discretion when he failed to adequately consider a proposed collection alternative see blosser v commissioner tcmemo_2007_323 harris v commissioner tcmemo_2006_186 collection alternative we now consider the proposed collection alternative a taxpayer may submit an oic as a collection alternative to a proposed levy sec_6330 the commissioner has wide discretion to accept or reject an oic see churchill v commissioner tcmemo_2011_182 the commissioner may accept an oic when he determines that a genuine dispute as to the existence or amount of the correct_tax liability exists or the liability exceeds the taxpayer’s income and assets sec_7122 sec_301_7122-1 and proced admin regs if the commissioner determines neither ground exists he may accept an oic that promotes effective tax_administration sec_301 b proced admin regs the commissioner may determine that an oic would promote effective tax_administration when collection in full would create economic hardship see sec_301_7122-1 iii proced admin regs if collection would not cause economic hardship the commissioner may still compromise a tax_liability to promote effective tax_administration when the taxpayer identifies compelling public policy or equity considerations see sec_301_7122-1 proced admin regs petitioners do not challenge the liabilities or their ability to satisfy them respondent determined and petitioners acknowledge that the eta oic did not meet the economic hardship standard see sec_301_6343-1 proced admin regs thus the cross-motions focus on the rejection of the eta oic under only public policy and equity considerations see sec_301_7122-1 proced admin regs the commissioner will accept an oic for public policy or equity reasons only if the taxpayer demonstrates that exceptional circumstances exist and meets three requirements sec_301_7122-1 c ii proced admin regs internal_revenue_manual irm pt date first the taxpayer must have remained in compliance since incurring the liability and must not have an overall compliance history that weighs against compromise irm pt second the taxpayer must also show he or she acted reasonably and responsibly in incurring the liability id third the commissioner must also determine that other taxpayers would view the compromise as fair and equitable id the commissioner must base his determination on all facts and circumstances sec_301_7122-1 proced admin regs respondent’s determination we now consider whether either party is entitled to summary_judgment regarding the eta oic rejection a respondent’s motion for summary_judgment we begin with respondent’s motion for summary_judgment respondent contends that there is no factual dispute that he acted within his discretion in denying the eta oic we disagree respondent argues that embezzlement does not constitute exceptional circumstances because petitioners can claim a theft_loss deduction see sec_165 sec_1_165-8 income_tax regs but at the administrative level repondent did not consider whether the theft_loss constituted exceptional circumstances--even though petitioners requested relief on public policy and equity grounds the administrative record indicates that respondent did not consider those grounds but focused solely on economic hardship grounds he merely concluded that the eta oic did not merit consideration under public policy or equity grounds respondent did not adequately consider this issue notwithstanding respondent contends he is entitled to summary_judgment because petitioners’ circumstances do not conform with the examples provided in the regulations petitioners counter that those examples are not the exclusive circumstances under which the commissioner may accept an oic for public policy or equity reasons we agree with petitioners as noted the commissioner has wide discretion to accept an oic under varying circumstances the examples however are not the only scenarios under which the commissioner may accept an oic for public policy or equity reasons see keller v commissioner tcmemo_2006_166 aff’d in part rev’d in part on another issue 568_f3d_710 9th cir example contemplates a taxpayer that was assessed a large deficiency because the taxpayer could not manage his own financial affairs because of serious illness sec_301_7122-1 example proced admin regs the taxpayer in example has a deficiency that results from the taxpayer’s actions based on erroneous advice from the commissioner id in the view of the taxpayer_advocate the commissioner uses oics under public policy or equity reasons too infrequently when the deficiency stems from third-party failures nina e olson national_taxpayer_advocate annual report to congress the commissioner must consider and address collection alternatives a taxpayer raises the fact that the examples in the regulations differ from petitioners’ circumstances does not relieve respondent of that requirement thus respondent is not entitled to summary_judgment b petitioners’ motion for summary_judgment we now turn to petitioners’ arguments in support of their summary_judgment motion first petitioners claim that they satisfied the requirements as a matter of law for respondent to accept the eta oic see irm pt we disagree it is undeniable that ms sanak perpetrated a fraud against petitioners the commissioner maintains however wide discretion when evaluating an oic and determining whether a taxpayer demonstrated exceptional circumstances the record does not establish as a matter of law that respondent was obligated to accept the eta oic next petitioners argue that respondent abused his discretion when the so rejected the eta oic without forwarding it to respondent’s neh-eta group see id pt again we disagree the appeals officer maintains discretion to accept an oic that promotes effective tax_administration and forward only those oics to the neh-eta group id the irm does not require the appeals officer to forward every oic based on public policy or equity grounds to the neh-eta group thus the appeals officer could have rejected the eta oic without forwarding it to the neh-eta group see id pt date last petitioners contend that the matter should be remanded for further consideration because respondent did not adequately consider the eta oic we agree notwithstanding respondent’s wide discretion he still must review the issues petitioners raised during the hearing the undeveloped record demonstrates that respondent has not fully considered the eta oic as required the record does not allow for meaningful review see 131_tc_197 thus we will deny the cross-motions for summary_judgment without prejudice and remand the matter for further consideration neh stands for noneconomic hardship we have considered all arguments made in reaching our decision and to the extent not mentioned we conclude that they are moot irrelevant or without merit to reflect the foregoing an appropriate order will be issued


department of the treasury i n t e r n a l r e v e n u e s e r v i c e washington d c date cc pa apjp b01 conex-160367-05 office_of_chief_counsel number info release date uil 6050p 6050p ---------------------------------------- ----------------------------------------------------- -------------------------------- dear ----------------- this letter responds to your inquiry to commissioner mark everson internal_revenue_service dated date on behalf of organizations e ngaged in the business of buying and collecting outstanding delinquent debt these organizations wrote to you about the information reporting requirements for cancellation of indebtedness under sec_6050p of the internal_revenue_code the code and regulations background any applicable_entity including an applicable_financial_entity that discharges indebtedness of dollar_figure or more of any person during a calendar_year must file an information_return with the internal_revenue_service irs and furnish an information statement to the debtor showing the amount of discharged indebtedness sec_6050p of the code in congress expanded the definition of applicable_financial_entity to include any organization a significant trade_or_business of which is the lending of money by adding sec_6050p see sec_533 of the tax relief extension act of public law previously an applicable_financial_entity included in general only banks thrifts and credit unions their government-supervised subsidiaries and certain government agencies like the fdic that often succeed to the loan assets of failed financial institutions on date the irs and the treasury_department issued proposed_regulations under sec_6050p of the code in sec_1_6050p-2 of the income_tax regulations see f_r big_number sec_1_6050p-2 of the proposed_regulations stated e acquisition of indebtedness by subsequent holder for purposes of this section lending money includes acquiring an indebtedness and gross_income arising from such an acquired indebtedness is treated as gross_income from lending money without regard to whether the indebtedness was originated by either an applicable_entity or a related_party consistent with irs and treasury_department practice we provided a three-month notice-and- comment period during which we received several comments a hearing followed this period conex-160367-05 on date we received additional communications that were made part of the record and were carefully considered in the preparation of the final regulations we received no communications from the debt-buying collecting industry at any time during the regulation process we issued the final regulations on date more than two years after the hearing see f_r big_number the definition in the final regulations that corresponds to the language quoted above reaches the same result as in the proposed_regulations and articulates that result with even greater clarity e acquisition of an indebtedness from a person other than the debtor included in lending money for purposes of this section lending money includes acquiring an indebtedness not only from the debtor at origination but also from a prior holder of the indebtedness gross_income arising from indebtedness is gross_income from the lending of money without regard to who originated the indebtedness if an organization acquires an indebtedness the organization is required to report any cancellation of the indebtedness if the organization is engaged in a significant trade_or_business of lending money the regulations are effective for discharges of indebtedness occurring on or after date meeting with industry representatives at the industry’s request personnel from our office_of_chief_counsel met with representatives of the debt-buying collecting industry on date during this meeting certain industry representatives requested a one-year delay in the applicability of the reporting requirements under sec_6050p and the regulations to this industry the representatives expressed two main concerns complying with the regulations might increase the threat of litigation under the fair debt collection practices act fdcpa and without the requested one-year delay complying with the reporting requirements would be very difficult threat of litigation the industry represents that typically a lender or debt-seller does not provide a breakdown of a delinquent debt into principal interest penalties or other_amounts and the debt-buyer typically purchases the delinquent debt in a lump sum amount as a result an organization that buys debt may not be able to provide the most complete information on form 1099-c cancellation of debt and certain industry representatives believe that the debt- buying collecting industry may face the threat of litigation under the fdcpa for providing false or misleading information see u s c section 1692k in a lending transaction an applicable_entity is not required to report amounts other than stated principal sec_1_6050p-1d of the regulations the aggregate amount of cancelled debt reported in box on form 1099-c may include stated principal fees stated_interest penalties conex-160367-05 or other_amounts but any amount of interest that is included in box should be separately reported in box an organization that buys delinquent debt for a lump sum however may not know and cannot obtain the breakdown of the amount owed into principal fees interest etc in such a case if the buyer cancels the debt it might consider including along with the form 1099-c that is furnished to the debtor a notification that the amounts reported on the forms 1099-c are based on the best available information and that box may include interest that is not reported in box but that would have been so reported if more complete information had been available we note that u s c section 1692k c of the fdcpa provides that a debt collector may not be held liable in any_action if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona_fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error one-year delay as mentioned above certain representatives of the debt-buying collecting industry have requested a one-year delay in order to obtain more complete information from lenders or debt- sellers and to otherwise comply with the reporting requirements of sec_6050p and the regulations although we continue to study how the pre-1999 rules and regulations under sec_6050p should apply to applicable financial entities newly subject_to reporting under sec_6050p we do not think it is appropriate to grant a one-year delay of the reporting requirement for the debt-buying collecting industry form 1099-c is a useful tool for the irs in identifying taxpayers who may have income as a result of cancelled debt even without the breakdown between pri ncipal and interest and the irs might not otherwise be able to identify these taxpayers if we grant a delay of the reporting requirements moreover in date the proposed_regulations alerted the debt- buying collecting industry that it might be subject_to reporting responsibilities under sec_6050p of the code the industry has had sufficient time since date when we published the final regulations to prepare to comply with these requirements we understand that some members of the industry knew about this reporting obligation and have taken steps to timely comply granting blanket relief for noncompliance regardless of whether an industry member had reasonable_cause for failure to comply might discourage and disadvantage those industry members who devoted the time and resources to fulfilling their reporting obligations as noted above some organizations that buy delinquent debt are ready to comply with the reporting requirements of sec_6050p of the code and the regulations at this time organizations that cannot fully comply at this time may on a case-by-case basis request under sec_6724 and the regulations a waiver for reasonable_cause of any penalties proposed under sec_6721 failure_to_file_correct_information_returns and sec_6722 failure to furnish correct information statements a filer may establish reasonable_cause if there are significant mitigating factors with respect to the failure including that the filer was never previously required to file the particular type of return or to furnish the particular type of statement or if conex-160367-05 the failure arose from events beyond the filer’s control sec_301_6724-1 of the regulations on procedure and administration in addition a filer must show that it acted in a responsible manner both before and after the failure occurred we are confident that this case-by-case process for reviewing requests for penalty relief will work better than a blanket waiver to provide relief to qualifying organizations without disadvantaging those organizations who have taken the steps to comply with their statutory and regulatory obligations i hope this information is helpful if you have any additional questions please contact either ------------------at ---------------------or --------------------at -------------------- of my office sincerely curtis g wilson assistant chief_counsel administrative provisions judicial practice procedure administration