t c memo united_states tax_court roy jay stallard petitioner v commissioner of internal revenue respondent docket no filed date roy jay stallard pro_se michelle l maniscalco for respondent memorandum opinion chiechi judge this case is before the court on respon- dent’s motion to dismiss for failure to state a claim upon which relief can be granted and to impose a penalty under sec_6673 respondent’s motion 1all section references are to the internal_revenue_code in continued background on date petitioner filed a petition with respect to the notice_of_deficiency notice which respondent issued to him for his taxable_year and in which respondent determined inter alia a deficiency of dollar_figure in petitioner’s federal_income_tax tax for that year the petition contains statements contentions and arguments that the court finds to be frivolous and groundless for example the petition states in pertinent part i request that the balance due in the amount of big_number found and shown on line of the form 4549a attached to the subject notice_of_deficiency be redetermined and set to zero or in the alternative that the notice_of_deficiency be remanded to the irs for perfection i am entitled to the relief requested because as stated by the secretary of treasury pincite cfr f rule an exaction by the united_states government which is not based upon law statutory or otherwise is a taking of prop- erty without due process of law in violation of the fifth_amendment to the u s constitution continued effect at all relevant times all rule references are to the tax_court rules_of_practice and procedure 2in the notice respondent also determined additions to petitioner’s tax under sec_6651 and f for his taxable_year in respondent’s motion respondent concedes those additions to tax 3in the notice respondent determined a deficiency of dollar_figure in petitioner’s tax for his taxable_year the notice further showed adjustments to prepayment_credits of dollar_figure and a balance due of dollar_figure excluding interest and penalties accordingly an appeals representative in his or her conclusions of fact or application of the law shall hew to the law and the recognized standards of legal construction it shall be his or her duty to determine the correct amount of the tax with strict impartiality as between the tax- payer and the government and without favoritism or discrimination as between taxpayers empha- sis added unlike the penalties proposed at lines 7a and 7b of the form 4549a attached to the notice of defi- ciency infra the form 4549a report does not give any notice of the law statutory or otherwise which was applied in concluding that i was indeed the person made liable for the payment of the purported debt this omission raises the question of whether or not liability to pay might arises out of some non-statutory law whatever the case may be the notice of defi- ciency does not give fair notice of it because with respect to a tax imposed on the transfer of property the person made liable for its payment may be the transferor transferee or as in the case of the death_tax a third party due process requires that congress identify the person made liable for payment of each tax imposed and so it usually does the legal personality of each person made liable for the payment every other tax imposed by congress is described clearly within the irc but such is not the case with regard to the purported tax debt here there is neither an act of congress nor a treasury regulation which clearly and unequivocally identifies the person made liable for the payment of the purported tax debt reproduced literally on date respondent filed respondent’s motion on date the court issued an order court’s date order in which it ordered petitioner to file a written response to respondent’s motion by date in that order the court also indicated that the petition contains statements contentions and arguments that the court finds to be frivolous and groundless in the court’s date order the court reminded petitioner about sec_6673 and admonished him as follows in the event that petitioner continues to advance frivolous and or groundless statements contentions and arguments the court will be inclined to impose a penalty not in excess of dollar_figure on petitioner under sec_6673 i r c on date the court received from petitioner one document petitioner’s document which contained peti- tioner’s memorandum in opposition to respondent’s motion to dismiss for failure to state a claim upon which relief can be granted and to impose a penalty under sec_6673 and an amended petition on date the court had that document returned to petitioner unfiled because an amended petition must be separate from any other document furnished to the court and must bear petitioner’s original signature on date petitioner filed an amended petition in total disregard of the court’s date order petitioner included in the amended petition statements conten- tions and arguments that the court finds to be frivolous and groundless for example the amended petition states in perti- nent part assignments of error factual basis and relief requested the notice_of_deficiency is notice in name only and does not meet due process of law requirements for notice a the notice_of_deficiency is ambiguous and without legal effect the error is an error of omis- sion commissioner erred in drafting and issuing the document captioned notice_of_deficiency in that he omitted certain fundamental elements due process of law requires for such notice to have substantive legal effect facts a on the notice_of_deficiency or the accompany- ing documents there is no unequivocal statement of the law statutory or otherwise1 by which the purposed tax debt was established b on the notice_of_deficiency or the companying documents there is no unequivocal statement of the law statutory or otherwise that identifies the legal per- sonality of the person made liable for payment of the purported debt c on the notice_of_deficiency or the accompany- ing documents there is no unequivocal statement of fact made under penalty of perjury that brings the impact of the law specified in and above against me d on the notice_of_deficiency or the accompany- ing documents there is no unequivocal statement of fact made under penalty of perjury that brings the impact of the statutes imposing the penalties against me i request that the court redetermine all of the liabilities purported on the notice_of_deficiency and the accompanying documents and set it them to zero on account of the facial defects of the so-called notice _______________________ sec_601_106 liability for payment of debt line b the commissioner erred in determining that i am the person made liable for the payment of dollar_figure the error is an error of commis- sion facts a either i am or i am not the person made liable by a particular statutory provision that describes the person made liable or for payment or in the alterna- tive i am or i am not made liable for its payment by non-statutory law we are left to guess at what that law might be but whatever the law might be i deny liability for want of notice b the commissioner made a determination based upon presumption or inference rather than law and fact because the notice_of_deficiency does not specify the law or fact upon which determination of liability shown on line is based i am without knowledge as to the basis for the purported debt due to the commissioner’s non-disclosure of it and therefor i am unable to frame a more specific assignment of error i request that the amount shown on line of the form 4595a be set to zero for want of any factual or legal basis or because the amount shown was deter- mined by inference presumption wishful thinking or some other inappropriate methodology but not by the application of specific law to specific fact revenue due process is not some carnival guessing game where the law is hidden under a shell and the player may be slapped with an outrageous penalty for failing to detect the palming of it by a debt trickster on date the court issued an order in which it noted that it had returned unfiled to petitioner on date petitioner’s document that the court received from petitioner on date and ordered petitioner to 4see supra note file a written response to respondent’s motion by date on date the court received from petitioner a certificate of service petitioner’s certificate of service but no document was submitted to the court with that certificate on date the court had petitioner’s certificate of service returned to petitioner unfiled with a reminder to peti- tioner that a written response to respondent’s motion must be received by the court by date the court did not receive from petitioner any such written response on date respondent filed a supplement to respondent’s motion respondent’s supplement to respondent’s motion respondent attached as an exhibit to that supplement a document entitled petitioner’s memorandum in opposition to respondent’s motion to dismiss for failure to state a claim upon which relief can be granted and to impose a penalty under sec_6673 petitioner’s memorandum in opposition that petitioner served on respondent on date in total disregard of the court’s date order petitioner included in petitioner’s memorandum in opposition that petitioner served on respondent on date statements contentions and arguments that the court finds to be frivolous and groundless on date the court issued an order in which it ordered the clerk of the court to file as of date as petitioner’s response to respondent’s motion a copy of peti- tioner’s memorandum in opposition that respondent attached as an exhibit to respondent’s supplement to respondent’s motion discussion rule b provides in pertinent part that a petition with respect to a notice_of_deficiency is to contain clear and concise assignments of each and every error which the petitioner alleges to have been committed by the commissioner in the determination of the deficiency any issue not raised in the assignments of error shall be deemed to be conceded clear and concise lettered statements of the facts on which the petitioner bases the assignments of error the petition that petitioner filed on date and the amended petition that petitioner filed on date do not contain a clear and concise statement of the errors allegedly committed by respondent in determining the deficiency with respect to petitioner’s taxable_year and a clear and concise statement of the facts that form the basis of petitioner’s assignments of alleged error we conclude that both the petition and the amended petition that petitioner filed do not comply with the tax_court rules_of_practice and procedure as to the form and content of a petition moreover we have found that the petition and the amended petition that petitioner filed contain statements contentions and arguments that are frivolous and groundless a petition that makes only frivolous and groundless arguments makes no justiciable claim 115_tc_523 see also 123_tc_213 a petition and an amended petition did not state a claim upon which relief may be granted where they lacked a clear statement of error and contained nothing more than frivo- lous rhetoric and legalistic gibberish we find that petitioner’s claims in the petition and the amended petition state no justiciable basis upon which relief may be granted in respondent’s motion respondent also asks the court to impose a penalty on petitioner under sec_6673 sec_6673 states in pertinent part whenever it appears to the tax_court that-- a proceedings before it have been insti- tuted or maintained by the taxpayer primarily for delay or b the taxpayer’s position in such proceed- ing is frivolous or groundless the tax_court in its decision may require the tax- payer to pay to the united_states a penalty not in excess of dollar_figure in the court’s date order the court inter alia indicated that the petition contains statements conten- tions and arguments that the court finds to be frivolous and groundless in that order the court reminded petitioner about sec_6673 and admonished him that in the event he continued to advance frivolous and or groundless statements contentions and arguments the court would be inclined to impose a penalty not in excess of dollar_figure on him under sec_6673 in total disregard of the admonitions in the court’s date order petitioner included in the amended petition and in petitioner’s memorandum in opposition which he served on respondent on date and which the court had filed as petitioner’s response to respondent’s motion state- ments contentions and arguments that the court finds to be frivolous and groundless petitioner is no stranger to this court he previously raised frivolous challenges to determinations that the commis- sioner of internal revenue made with respect to certain of his other taxable years stallard v commissioner tcmemo_1992_ in stallard we imposed a penalty of dollar_figure on petitioner under sec_6673 because he advanced frivolous arguments in that case id we find that petitioner remains undeterred in advancing frivolous and groundless statements contentions and arguments we further find that petitioner has instituted this proceeding 5the court had petitioner’s memorandum in opposition filed as petitioner’s response to respondent’s motion as of date 6see stallard v commissioner u s app lexis d c cir date granting motion to dismiss appeal for improper venue primarily for delay under the circumstances presented we shall impose a penalty of dollar_figure on petitioner under sec_6673 to reflect the foregoing an appropriate order and decision will be entered for respondent


t a x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n number release date uil department of the treasury intern al revenue service washi ng ton d c date person to contact and id number contact telephone number the honorable peter welch member u s house of representative sec_30 main street suite burlington vt dear congressman welch this letter responds to your email dated date you asked whether using to raise funds for an organization establishing a project would prevent potential future qualification by the organization as a charity described in sec_501 no prohibition exists against a 501_c_3_organization using an internet fundraising platform to raise funds web site or e-mail solicitations should comply with the same rules that apply to other solicitations an organization that intends to apply for recognition of c status and wants to raise funds whether via the internet or otherwise must ensure that it structures its fundraising programs in a manner consistent with c status the organization must consider any fees that a fundraiser or any other private party may charge and determine whether payment of such fees and any other aspect of the arrangement between the organization and the private party is reasonable and is consistent with c status a 501_c_3_organization must not be organized or operated for the benefit of private interests such as the creator or the creator's family shareholders of the organization other designated individuals or persons controlled directly or indirectly by such private interests no part of the net_earnings of a sec_501 organization may inure to the benefit of any private_shareholder_or_individual a private_shareholder_or_individual is a person having a personal and private interest in the activities of the organization the organization should consider whether payments or benefits to fundraisers or other private parties may be excessive or may constitute impermissible direct or indirect private benefit or private_inurement for more information on private benefit and inurement see publication 4221-pc compliance guide for c public_charities available at http www irs gov pub irs-pdf p4221pc pdf an organization that provides something of value to donors in exchange for donations must consider carefully the possibility that doing so may violate the rules against private benefit or private_inurement and must comply with any substantiation and disclosure requirements for quid pro quo contributions for more information see publication 4221-pc and publication charitable_contributions substantiation and disclosure requirements at http www irs gov pub irs-pdf p1771 pdf an organization that is raising funds and has not yet received recognition as exempt from tax under sec_501 should make clear in its solicitation materials whether a website or otherwise that it has not received c recognition and that therefore contributions may not be deductible this statement should be conspicuous and easily recognizable in the solicitation see http www irs gov charities- -non-profits solicitation-notice for more information an organization applying for recognition of c status must describe its actual and planned fundraising activities in its application form application_for recognition of exemption under sec_501 of the internal_revenue_code and must report any expenses_incurred with regard to fundraising both on form_1023 and in its annual information returns form_990 form 990-ez or form 990pf whichever applies in addition the organization should consider any state laws and regulations that may apply to internet fundraising by non-profit or tax-exempt organizations for more information see http www irs gov charities- -non-profits state-links this letter is for informational purposes only and is intended to provide general statements of well-defined law it is not a ruling and may not be relied on as such see revproc_2013_4 2013_1_irb_126 or its successor this letter will be made available for public inspection the internal_revenue_service will delete any name address and other identifying information as appropriate under the freedom_of_information_act see announcement 2000_2_irb_295 if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely lois g lerner director exempt_organizations


internal_revenue_service department of ine significant index number washington dc contact person telephone number in reference to t ep ra t1 date apr mm legend taxpayer a taxpayer b ira x dear this is in response to a ruling_request dated november from your authorized representative concerning an individual_retirement_arrangement ira described under sec_408 of the internal_revenue_code ‘code’ the following facts and representations have been submitted on your behalf taxpaxyers a and b married on august and divorced on date taxpayer a is currently age and taxpayer b among the marital assets is an ira account ira x owned by taxpayer b it is represented that taxpayer b began receiving substantially_equal_periodic_payments from ira x in at the age of of approximately dollar_figure a month pursuant to the decree of dissolution of marriage between taxpayer a and taxpayer b a portion of ira x is to be transferred by means of a trustee to trustee transfer from taxpayer b’s ira x to a new ira account to be owned by taxpayer a taxpayer a’s decreed transfer is equal to dollar_figure or of the balance of taxpayer b's total account balance in ira x based on the foregoing facts and representations you have requested the following rulings that the division of ira x as described and subsequent transfer of the amount specified in the dissolution document pursuant to the decree of dissolution will be considered a nontaxable transfer per code sec_408 taxpayer a is not required to continue in a proportionate amount her transferred portion of ira x to the total ira the substantially_equal_periodic_payments under code sec_72 from her share of her former husband’s ira account and by not continuing these payments does not activate the code sec_72 early withdrawal penalties because of code sec_72 a modification of a series of substantially_equal_periodic_payments code sec_408 states that except as otherwise provided in this subsection any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 code sec_408 states that the transfer of an individual's interest in an ira to his or her spouse or former spouse under_a_divorce_or_separation_instrument described in subparagraph a of code sec_71 is not considered to be a taxable transfer made by such individual notwithstanding any other provision of this subtitle and such interest at the time of the transfer is to be treated as an ira of such spouse and not such individual thereafter such ira for purposes of this subtitle is to be treated as maintained for the benefit of such spouse code sec_71 defines the term divorce or separation instrument’ means a a decree of divorce or separate_maintenance or a written instrument incident to such a decree b a written_separation_agreement or c a decree not described in subparagraph a requiring a spouse to make payments for the support or maintenance of the other spouse sec_1_408-4 of the income_tax regulations provides that the transfer of an individual's interest in whole or in part in an ira to his or her former spouse under a valid divorce decree or a written instrument incident to such divorce shall not be considered to be distribution from an ira to such individual or the former spouse sec_1_408-4 provides that the interest described in this paragraph g which is transferred to the former spouse shall be treated as an ira of such former spouse if the interest is in an ira in order to apply sec_72 to amounts distributed from an ira such ira distribution must be taxable under sec_408 code sec_408 provides an exception to code sec_408 that ira transfers incident ta a divorce are not taxable at the time of the transfer accordingly we conclude with respect to ruling bay request that the division of ira x and the subsequent transfer pursuant to the decree of dissolution of marriage will be considered a nontaxable transfer under sec_408 with regard to ruling_request code sec_72 provides that if any taxpayer receives any amount from a qualified_retirement_plan as defined in code sec_4974 which includes an ra the taxpayer's tax under this chapter for the taxable_year in which such amount is received shall be increased by an amount equal to percent of the portion of such amount which is includible in gross_income code sec_72 provides that a distribution from a qualified_retirement_plan that is part of a series of substantially_equal_periodic_payments not less frequently than annually made for the life or life expectancy of the employee or joint lives or joint life expectancies of such employee and his designated_beneficiary is not subject_to the tax in code sec_72 code sec_72 states that if paragraph does not apply to a distribution by reason of the paragraph a iv and the series of payments under such a paragraph are subsequently modified other than by reason of death or disability - i before the close of the 5-year period beginning with the date of the first payment and after the employee attains age or ii before the employee attains age the taxpayer's tax for the first taxable_year in which such modification occurs shall be increased by an amount determined under regulations equal to the tax which but for paragraph a iv would have been imposed plus interest for the deferral_period code sec_72 defines the term deferral_period as the period beginning with the taxable_year in which without regard to paragraph a iv the distribution would have been includible in gross_income and ending with the taxable_year in which the modification described in subparagraph a occurs code sec_408 provides that the interest transferred pursuant to a decree of divorce is treated as an ira of the former spouse and not the individual because taxpayer a’s ira is treated as her own ira taxpayer a is not required to begin receiving distributions from her ira after the transfer incident to the divorce decree to preclude the application of code sec_72 or sec_72 to her ira thus we rule that taxpayer a is not required to continue to receive in a proportionate amount substantially_equal_periodic_payments from her share of taxpayer b’s ira x transferred to her ira to preclude the application of code sec_72 with respect to her ira bar this ruling is conditioned on ira x and taxpayer a’s ira satisfying the requirements of code sec_408 at ail relevant times this ruling does not address whether code sec_72 or sec_72 applies to ira x this ruling is directed only to the taxpayer who requested it code sec_6110 provides that it may not be used or cited by others as precedent a copy of this ruling is being sent to your authorized representative pursuant to a power_of_attorney on file in this office sincerely yours lar buon manager employee_plans technical group tax_exempt_and_government_entities_division enclosures deleted copy of the ruling notice cc


internal_revenue_service number release date index number ------------------------ --------------- ---------------------------- ------------------------ ------------------------------------- -------------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ----------------------------- id no ------------- ----------------------------------------------------- telephone number --------------------- refer reply to cc corp plr-124469-10 date date legend parent ---------------------------------------------------------------------------- -------------------------------------------------------------------- ---------------------------- sub ---------------------------------------------------------------------------- -------------------------------------------------------------------- --------------------------------------------- fsub -------------------------------------------------------------------------- --------------------------------------------------------- ----------------------------------------- fsub -------------------------------------------------------------------------- --------------------------------------------------------- -------------------------------------------- fsub -------------------------------------------------------------------------- --------------------------------------------------------- ----------------------------------- newco -------------------------------------------------------------------------- --------------------------------------------------------- ---------- llc ------------------------------------------------------------------------------------------------- ------------------------------------------------------ plr-124469-10 --------------------------------------------------------- llc ------------------------------------------------------------------------------------------------- --------------------------------------------------------- ------------------------------------------------------ llc ------------------------------------------------------------------------------------------------ --------------------------------------------------------- ----------- state y country x old instrument new instrument agreement a agreement b date ------------- ----------- ------------------------ --------------------------- -------------------------------------------- --------------------------------------------------------- ------------------------------------- date ------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------ date ------------------------------------------------------------ date ----------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- ----------------------------------------------------------------------- a b c dear --------------- -------------- --------------- -------- this letter responds to your date request for rulings regarding certain federal_income_tax consequences of a proposed transaction the proposed plr-124469-10 transaction the information submitted in that request and in later correspondence is summarized below the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process summary of facts parent a publicly-traded corporation is the common parent of an affiliated_group_of_corporations that files a consolidated federal_income_tax return parent owns through direct and indirect ownership all of the outstanding_stock of sub a state y corporation sub owns all of the outstanding_stock of llc a country x entity which is treated as a disregarded_entity for federal_income_tax purposes llc owns all of the outstanding common and preferred_stock of fsub1 a country x corporation fsub owns all of the outstanding_stock of fsub a country x corporation and llc a country x entity which is treated as a disregarded_entity for federal_income_tax purposes fsub and fsub own all the outstanding interests in fsub3 a country x partnership that has elected to be taxed as an association for federal_income_tax purposes fsub1 has two classes of authorized stock a shares of common_stock old fsub common_stock and b shares of preferred_stock old fsub preferred_stock together the old fsub stock fsub has accrued but unpaid dividends with respect to the old fsub preferred_stock fsub also has an instrument with llc old instrument sub fsub fsub fsub llc and llc serve in part as the holding_company structure of parent's country x and certain non-country x businesses proposed transaction management of parent desires to restructure the holding_company structure of parent's country x and certain non-country x businesses accordingly to accomplish this pursuant to country x law and serve what the taxpayer has represented as valid business reasons the following transactional steps have been proposed recapitalization i on date fsub will recapitalize its old fsub stock into a single class of common_stock new fsub stock the recapitalization reorganization plr-124469-10 ii on date sub will incorporate newco in country x iii iv v vi vii viii ix x xi xii xiii xiv beginning on date fsub will borrow the country x equivalent of dollar_figurec in exchange for a note note fsub will transfer all of its assets and liabilities including note to newco with the exception of dollar_figurec and old instrument in exchange for newco preferred shares sub will transfer its preferred shares in llc to newco in exchange for common_stock of newco llc will redeem its preferred shares held by newco by issuing a note to newco note newco will redeem its preferred shares held by fsub by issuing a note to fsub note fsub will transfer note to llc note held by llc and note held by newco will offset llc and fsub will convert from country x entities to state y entities each of llc and fsub will thereafter be treated as entities disregarded from sub for federal_income_tax purposes sub will form llc in state y llc will at all times be treated as an entity disregarded from sub for federal_income_tax purposes fsub will lend the country x equivalent of dollar_figurec to sub in exchange for a note note sub will lend the country x equivalent of dollar_figurec to newco through the issuance of new instrument llc and newco will enter into agreement a and sub and llc will enter into agreement b newco will repay note on date using the country x equivalent of dollar_figurec collectively steps ii through xiv referred to as the reorganization representations the following representations have been submitted regarding each named transaction plr-124469-10 proposed transaction a the transfers and exchanges constituting the proposed transaction will occur under a plan agreed upon before the proposed transaction in which the rights of the parties are defined b all exchanges described in the reorganization of the proposed transaction will occur between date and date c old instrument is treated as common equity for federal_income_tax purposes d new instrument will be treated as common equity for federal_income_tax purposes recapitalization e the fair_market_value of the new fsub stock held by sub through llc immediately following the recapitalization will equal the fair_market_value of the old fsub stock held by sub through llc immediately before the recapitalization f the recapitalization is a single isolated transaction and it is not part of a plan to periodically increase the proportionate interest of any shareholder in the assets or earnings_and_profits of fsub g the fair_market_value of the new fsub stock issued to sub through llc as part of the recapitalization with respect to the old fsub preferred_stock will not exceed the issue_price of the old fsub preferred_stock surrendered plus the accrued but unpaid dividends h the deemed_distribution pursuant to sec_305 with respect to the old fsub preferred_stock with dividends in arrears will be paid out of fsub 1's current and accumulated_earnings_and_profits as of the date of the recapitalization i sub through llc will include as gross_income the portion of the deemed_distribution pursuant to sec_305 with respect to old fsub preferred_stock as a dividend to the extent of current and accumulated_earnings_and_profits j fsub is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 of the code k fsub and sub through llc will each pay their own expenses if any incurred in connection with the recapitalization plr-124469-10 reorganization l immediately after the reorganization the proportionate interest of newco held by sub will be the same as the proportionate interest that sub1 held in fsub through llc immediately before the reorganization m the fair_market_value of the common_stock of newco and new instrument that will be received by sub will be approximately equal to the fair_market_value of the new fsub stock and old instrument that will be surrendered by sub through llc in the reorganization n immediately after the reorganization for federal_income_tax purposes sub1 will have the same rights and interest in newco that it held in fsub1 immediately before the reorganization o immediately after the reorganization sub will for federal_income_tax purposes own only common_stock of newco and new instrument and will for federal_income_tax purposes own such stock solely by reason of its ownership through llc of the new fsub stock and old instrument of fsub immediately before the reorganization p for federal_income_tax purposes the assets and liabilities of newco immediately after the reorganization will be the same as those of fsub immediately before the reorganization except for i assets used to pay expenses in connection with the reorganization which will be less than one percent of the fair_market_value of the net assets of fsub immediately prior to the reorganization and ii nominal cash contributed to newco to meet minimal capital requirements under country x law q at the time of the reorganization and immediately after the recapitalization of fsub each of fsub and newco will have outstanding a single class of stock neither fsub nor newco will have outstanding any convertible securities warrants or options or any other type of right or instrument pursuant to which any person could acquire stock in fsub or newco r for federal_income_tax purposes the liabilities of fsub to be assumed within the meaning of sec_357 by newco in the reorganization plus the liabilities if any to which the transferred assets are subject were incurred by fsub in the ordinary course of its business and are associated with the assets to be transferred s immediately after the reorganization fsub will cease to exist for federal_income_tax purposes plr-124469-10 t each of fsub newco and sub will pay its own expenses if any incurred in connection with the reorganization u fsub is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 of the code v at all times prior to acquiring the assets of fsub in the reorganization i newco will have been engaged in no business activity ii newco will have had no federal_income_tax attributes attributes described in sec_381 and iii newco will have held no assets except for holding a minimal amount of assets if such assets are required for the purpose of paying newco's incidental_expenses or required in order to maintain newco's status as a corporation in accord with country x law w for federal_income_tax purposes sub through llc will receive solely newco stock in the reorganization x newco has no plan or intention to redeem or otherwise reacquire any stock issued in the reorganization y newco will not have at the time of the reorganization any plan or intention to issue additional stock following the reorganization z fsub is not and has never been a passive_foreign_investment_company as defined in sec_1297 of the code a pfic aa fsub is and immediately before the reorganization will be a controlled_foreign_corporation as defined in sec_957 of the code a cfc and newco will be a cfc immediately after the reorganization bb each person that is a sec_1248 shareholder within the meaning of sec_1_367_b_-2 of fsub immediately before the proposed transaction will be a sec_1248 shareholder of newco immediately after the reorganization cc the notice requirements of sec_1_367_b_-1 will be met with respect to the reorganization dd sub will comply with sec_1_367_b_-4 with respect to subsequent exchanges of newco stock as applicable rulings based solely on the information submitted and representations set forth above we rule as follows regarding each named transaction plr-124469-10 recapitalization the exchange by sub through its ownership of llc of its old fsub stock for the new fsub stock will qualify as a recapitalization and therefore a reorganization within the meaning of sec_368 fsub will be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by fsub on the receipt of its old fsub stock for the new fsub stock sec_1032 no gain_or_loss will be recognized by sub through llc except pursuant to the deemed_distribution under sec_305 for dividends in arrears upon the exchange of the old fsub preferred_stock for the new fsub stock as described above sec_354 sub through llc will include in gross_income the amount of deemed_distribution under sec_305 equal to the lesser_of i the amount by which the fair_market_value or liquidation preference whichever is greater of the new fsub stock received in the recapitalization exceeds the issue_price of old fsub preferred_stock or ii the amount of dividends in arrears sec_1_305-7 sec_1_368-2 the basis of the new fsub stock received by sub through llc in the recapitalization after making adjustments pursuant to the deemed_distribution under sec_305 for dividends in arrears will be the same as the basis of the old fsub stock surrendered in the exchange sec_358 the holding_period of the new fsub stock received by sub through llc will include the period during which the old fsub stock surrendered in exchange therefore was held provided the old fsub stock surrendered was held as a capital_asset on the date of the exchange sec_1223 the new fsub stock received by sub through llc will not be sec_306 stock within the meaning of sec_306 except as required for purposes of the deemed_distribution under sec_305 for dividends in arrears the recapitalization will not be treated as a distribution_of_property to which sec_301 applies by reason of the application of sec_305 and c regardless of any book entries made and except as necessary for purposes of the deemed_distribution under sec_305 for dividends in arrears the exchanges of stock as described in the recapitalization will not diminish the accumulated_earnings_and_profits of fsub available for the subsequent plr-124469-10 distribution of dividends within the meaning of sec_316 sec_1 b and c reorganization for federal_income_tax purposes steps ii through xiv will be treated as a direct transfer by fsub of its assets to newco in exchange for all of the newco stock and the assumption by newco of the liabilities of fsub followed by the liquidation of fsub and the distribution of all the newco stock to sub through llc the reorganization will qualify as a reorganization described in sec_368 fsub and newco will each be a_party_to_a_reorganization within the meaning of sec_368 no gain_or_loss will be recognized by fsub upon the transfer of its assets and liabilities to newco in exchange for the newco common_stock and new instrument sec_361 and sec_357 no gain_or_loss will be recognized by fsub upon the distribution of the newco common_stock and new instrument to its shareholders in the reorganization sec_361 no gain_or_loss will be recognized by newco upon the receipt of the assets of fsub in the reorganization in exchange for newco common_stock and new instrument sec_1032 the basis of the assets of fsub held by newco will be the same as the basis of that asset in the hands of fsub immediately prior to the reorganization sec_362 the holding_period of each asset of fsub held by newco will include the holding_period of that asset in the hands of fsub sec_1223 no gain_or_loss will be recognized by sub upon its exchange of the shares of the new fsub stock and old instrument for the common_stock of newco and new instrument sec_354 the basis of the common_stock of newco and new instrument received by sub will in each instance be the same as the basis of the new fsub stock and old instrument for which each will be exchanged sec_358 provided the new fsub1 stock and old instrument were held as a capital_asset at the time of the reorganization the holding_period of the common_stock of newco and new instrument received in the exchange therefor will plr-124469-10 include the holding_period of the new sub1 stock and old instrument sec_1223 as provided by sec_381 newco will succeed to and take into account the tax_attributes of fsub enumerated in sec_381 including any fsub earnings_and_profits or any deficit therein caveats no opinion is expressed about the tax treatment of the proposed transaction under other provisions of the code or regulations or the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not specifically covered by the above rulings in addition we express no opinion about the federal_income_tax characterization of the old instrument and new instrument as equity common or preferred or indebtedness procedural matters 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 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative sincerely lewis k brickates branch chief branch office of the associate chief_counsel corporate cc


vvu816034 department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division release date date date xkxxxkxk xxxkxxxk xxxxxx xxxxkxx contact person identification_number telephone number employer_identification_number xxxxxx uniform issue list dear this is in response to your request for a ruling that certain proposed contractual relationships will not generate unrelated_business_taxable_income under sec_512 of the internal_revenue_code the code’ you are exempt under sec_501 of the code as an organization described in sec_501 and have been classified as an educational_organization under sec_509 and sec_170 you are the trustee of a number of charitable_remainder trusts collectively the trusts in addition you have a remainder and as trustee you are the legal owner of the trusts’ assets interest in each of the trusts as a result of the relationship with the trusts as both trustee and beneficiary you have a substantial interest in the value of each trust moreover the donors to the trusts have funded the trusts with the intention that you benefit substantially from the assets of the trusts and that the assets will be managed to achieve the greatest possible return on investment your endowment is invested in a diversified manner with investments in domestic and foreign equity hedge funds fixed income assets cash real_estate and other assets much of the income earned by the portfolio consists of passive dividends interest rents and long and short-term_capital_gains but some income is debt-financed or otherwise treated as unrelated_business_taxable_income you propose to create a contractual obligation pursuant to which you would issue a contract right to each of the trusts for a proportionate share of your endowment the cumulative value of the shares would be the dollar value of the assets held by the individual trusts xxxxxx combined with the shares of the endowment held by the various departments and schools making up your institution the contract right would entitle the trusts to receive periodic_payments based on the shares owned by each of the trusts the trusts would thereby be able to receive an investment return equal to that of the endowment you determine a payout rate on the endowment each year based in part on the endowment’s investment performance you calculate the market_value of each endowment share on a quarterly basis the market_value of each endowment share initially equals the value_of_the_gift or contribution to the endowment and is subsequently adjusted in accordance with the market_value of the endowment each department and division is entitled to an amount equal to the payout rate times the number of shares it holds you seek to enable the trusts to invest in the endowment in a manner identical to your departments or schools a_trust would acquire a share in the endowment which would give the trusts a contractual right against the university but no interest whatsoever in the underlying investment_assets of the endowment the shares would have the same value that you use for internal accounting purposes the contract would provide that each trust would receive payments on the shares held by it equal to the payout rate you establish for the endowment with payouts made at least annually or more frequently as appropriate a_trust could choose either to reinvest part of the payout or redeem additional shares depending on its cash requirements the trusts will treat payouts as ordinary_income regardless of the character of the underlying income of the endowment whether capital_gain ordinary_income or return_of_capital and regardless of whether the payout is made entirely by distributions of income or in part by redemption of shares the trusts will treat redemptions of shares over and above receipt of the payout rate as generating long or short-term_capital_gain or loss depending on the holding_period of the redeemed shares under the contract the trusts would not have any ownership_interest in the underlying assets of the endowment or any contract rights with respect to the other trusts the trusts would have no power or right of any kind to control direct supervise recommend or review your business activities operations or decisions with respect to the endowment except the right to review the payout computations they would not have the right to veto or opt_out of any of the underlying endowment investments the contract would provide that with respect to the issuance of shares you are neither a partner nor an agent of the trusts that the trusts would never be or become liable for any cost expense or payment incurred or due by you or for which you are liable or responsible relating to the endowment or the underlying endowment assets and you would indemnify and hold the trusts harmless from and against any liability arising out of any_action or inaction by you with respect to the endowment or the underlying endowment assets you have requested the following ruling the issuance of shares by you to the trusts the making or receipt of payments with respect to the shares and the holding or redemption of the shares will not generate unrelated_business_taxable_income to you or the trusts xxxxxx section dollar_figure of revproc_2008_4 provides that the service will not issue letter rulings pertaining to unrelated_business_income_tax issues arising when charitable_lead_trust assets are invested with charitable organizations thus the word trusts as used in this letter refers only to your charitable_remainder trusts and the ruling issued by this letter relates only to the participation by your charitable_remainder trusts in your endowment law sec_511 of the code in part imposes a tax on the unrelated_business_taxable_income of organizations described in sec_501 sec_512 of the code defines the term unrelated_business_taxable_income as the gross_income derived by any organization from any unrelated_trade_or_business regularly carried on by it less the allowable deductions which are directly connected with the carrying on of such trade_or_business both computed with the modifications provided in sec_512 sec_512 of the code sets forth so-called modifications which are excluded from the computation of unrelated_business_taxable_income these modifications include dividends interest royalties rent from real_property and gain from the sale of property sec_513 of the code defines the term unrelated_trade_or_business as any trade_or_business the conduct of which is not substantially related aside from the need of such organization for income or funds or the use it makes of the profits derived to the exercise or performance by such organization of its exempt_purpose or function sec_513 of the code provides that the term trade_or_business includes any activity which is carried on for the production_of_income from the sale_of_goods or the performance of services sec_1_513-1 of the income_tax regulations provides that gross_income of an exempt_organization subject_to the tax imposed by sec_511 of the code is includible in the computation of unrelated_business_taxable_income if it is income from a trade_or_business such trade_or_business is regularly carried on by the organization and the conduct of such trade_or_business is not substantially related other than through the production of funds to the organization's performance of its exempt functions sec_1_513-1 of the regulations provides that for purposes of sec_513 of the code the term trade_or_business has the same meaning it has in sec_162 and generally includes any activity carried on for the production_of_income from the sale_of_goods or performance of services sec_1_513-1 of the regulations provides that in determining whether trade_or_business from which a particular amount of gross_income derives is regularly carried on within the meaning of sec_512 of the code regard must be had to the frequency and continuity with which the activities productive of the income are conducted and the manner in which they xxxxxx are pursued for example specific business activities of an exempt_organization will ordinarily be deemed to be regularly carried on if they manifest a frequency and continuity and are pursued in a manner generally similar to comparable commercial activities of non-exempt organizations sec_1_513-1 of the regulations provides that in general gross_income derives from unrelated_trade_or_business within the meaning of sec_513 of the code if the conduct of the trade_or_business which produces the income is not substantially related other than through the production of funds to the purposes for which exemption is granted the presence of this requirement necessitates an examination of the relationship between the business activities which generate the particular income in question -- the activities that is of producing or distributing the goods or performing the services involved -- and the accomplishment of the organization's exempt purposes sec_1_513-1 of the regulations provides that trade_or_business is related to exempt purposes in the relevant sense only where the conduct of the business activities has a causal relationship to the achievement of exempt purposes and is substantially related for purposes of sec_513 of the code only if the causal relationship is a substantial one thus for the conduct of trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of those purposes where the production or distribution of the goods or the performance of the services does not contribute importantly to the accomplishment of the exempt purposes of an organization the income from the sale of the goods or the performance of the services does not derive from the conduct of related trade_or_business whether activities productive of gross_income contribute importantly to the accomplishment of any purpose for which an organization is granted exemption depends in each case upon the facts and circumstances involved revrul_69_528 1969_2_cb_127 describes an organization that was formed to provide investment services on a fee basis exclusively to organizations exempt under sec_501 of the code it receives funds from the participating exempt_organizations invests in common stocks reinvests income and realized appreciation and upon request liquidates a participant's interest and distributes the proceeds to the participant the rev_rul states that providing investment services on a regular basis for a fee is a trade_or_business ordinarily if the services were regularly provided by one tax-exempt_organization for carried on for profit other tax-exempt organizations such activity would constitute unrelated_trade_or_business the rev_rul holds that the organization is not exempt under sec_501 as noted previously organizations described in sec_501 of the code are in order for such an subject_to tax on their unrelated_business_income under sec_511 organization's income to be subject_to the unrelated_business_income_tax three requirements must be met the income must be from a trade_or_business the trade_or_business must be regularly carried on and the conduct of the trade_or_business must not be substantially related to the organization's exempt_purpose or function see sec_1_513-1 of the regulations xxxxxx analysis you propose to enter into a contractual relationship with certain trusts that are charitable_remainder trusts in which you have an interest as a beneficiary and serve as trustee of the trust under such a contractual relationship each trust would receive payments on the shares held by it equal to the payout rate you establish for your endowment with payouts made as determined by you each trust would acquire shares from your endowment which would give the trusts a contractual right against you but no interest whatsoever in the underlying investment_assets of the endowment the contract between you and the trusts would provide that the price of the shares would equal their value at the time of acquisition the shares would have the same value that you use for internal accounting purposes consequently a_trust could choose either to reinvest part of the payout or redeem a portion of the shares depending on its cash requirements thus under the contractual relationship with you the trusts would have a right to the payout declared by you plus the right to redeem the shares at the value that you use for internal accounting purposes generally an organization that otherwise qualifies for recognition of exemption under sec_501 of the code and provides investment services on a regular basis for a fee to other exempt or nonexempt organizations would be engaged in an unrelated_trade_or_business under sec_513 see revrul_69_528 supra such an activity would constitute a trade_or_business under sec_513 and sec_1_513-1 of the regulations and would be regularly carried on under sec_512 and sec_1_513-1 thus if you charged a fee for investment management services provided to organizations unrelated to you or generated income from the management of the funds invested by such organizations these activities could result in unrelated_business_taxable_income under sec_512 here however you are not charging a fee for services and not otherwise receiving income from the services provided to the trusts thus under these circumstances you will not receive unrelated_business_taxable_income under sec_512 the fact that you will engage in the investment activity for the benefit of individuals who are co-beneficiaries of the trusts at the same time that you engage in investment activity for your own benefit as the remainder beneficiary limits the scope of the service provided to others and distinguishes it from a commercial venture in view of the foregoing we rule as follows the issuance of shares from you to the trusts the making or receipt of payments with respect to the shares and the holding or redemption of the shares will not generate unrelated_business_taxable_income to you this ruling is based on the following two assumptions you will not charge any fee for managing the investment of the trusts in your endowment other third party management firms charge a fee and receive xxxxkxxk reimbursement of expenses for management services provided to your endowment these fees and expenses are charged against the aggregate return of the endowment and will be reflected indirectly in the payout to the trusts and others participating in the endowment you will also be entitled to the fees any trustee may receive with respect to the administering the trusts you are the sole charitable_beneficiary of each charitable_remainder_trust this ruling is based on the understanding that there will be no material changes in the facts upon which it is based we express no opinion as to the tax consequences of the proposed transaction under any other section of the code pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to your authorized representatives a copy of this letter should be kept in your permanent records this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent if there are any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely robert c harper jr manager exempt_organizations technical group enclosure notice


department of the treasury washington dc internal_revenue_service number release date index no telephone number person to contact refer reply to cc intl br1 plr-120252-02 date date a date b country c dear this is in response to your letter dated date as supplemented by additional information provided on date requesting a ruling under sec_877 of the internal_revenue_code_of_1986 code that a’s loss of u s citizenship will not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code 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 the information submitted for consideration is substantially as set forth below a is a dual united_states country c citizen by birth who has resided in country c since birth a’s spouse child parents and siblings also reside in country c a intends to relinquish united_states citizenship on date b 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 taxed under sec_877 and 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 plr-120252-02 avoid u s taxes page 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 or former long term-resident 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 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 the information required by notice_98_34 including any additional information requested by the service after review of the submission a’s net_worth is expected to exceed the sec_877 amount on date b a is eligible to request a ruling because a became at birth a citizen_of_the_united_states and country c and will continue to be a citizen of country c as described in sec_877 provided that a expatriates within one year of the date of this letter_ruling and based solely on the information submitted and the representations made a has made a complete and good_faith submission in accordance with sec_877 however because the information submitted does not clearly establish either 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 had 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 taxable periods prior to his loss of permanent residence status or for taxable periods after his loss of permanent residence status under sections of the code other than sec_877 sec_2107 and sec_2501 plr-120252-02 page a copy of this letter must be attached to a's u s income_tax return for the year in which a obtained 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’s representative sincerely yours ________________________ m grace fleeman senior counsel branch office of the associate chief_counsel international cc


t c memo united_states tax_court xibitmax llc petitioner v commissioner of internal revenue respondent docket no 3867-15l filed date eric william johnson for petitioner shannon m harmon melissa jane hedtke and john schmittdiel for respondent memorandum findings_of_fact and opinion nega judge this case is before the court on a petition for review of a notice_of_determination concerning collection action s under section s and or notice_of_determination petitioner seeks review of respondent’s determination to proceed with the collection of dollar_figure in penalties and additions to tax arising from petitioner’s failure_to_file timely form sec_941 employer’s quarterly federal tax_return for consecutive quarters ending date through date and form_940 employer’s annual federal unemployment futa_tax return for tax_year as well as for failure to pay and make required deposits of the associated employment and trust_fund_taxes for all periods above periods at issue 1all section references are to the internal_revenue_code in effect at all relevant times all rule references are to the tax_court rules_of_practice and procedure all monetary amounts are rounded to the nearest dollar 2we use the term employment and trust fund tax to refer to taxes under the federal_insurance_contributions_act fica the federal_unemployment_tax_act futa and employee_income_tax_withholding see 138_tc_348 stevens tech inc v commissioner tcmemo_2014_13 at otto’s e-z clean enters inc v commissioner tcmemo_2008_54 slip op pincite n after concessions by the parties the only issues remaining for decision are whether petitioner is liable for the additions to tax under sec_6651 and and for the penalty under sec_6656 findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference petitioner xibitmax llc is a limited_liability_company organized and having its principal_place_of_business in minnesota bruce powell founded petitioner in he has always been its sole shareholder and officer petitioner operates nationally in the business of designing and constructing trade_show displays the nationwide scope of petitioner’s business requires mr powell to travel frequently to various conventions and trade shows where he supervises and coordinates the installation of his designs and displays in late owing to this frequent travel mr powell sought to hire an additional employee to manage petitioner’s day-to-day front office operations on 3petitioner concedes that it did not seek a collection alternative or challenge the lien or the proposed levy as defective or on procedural grounds and does not seek to do either as part of this case respondent concedes that petitioner was not previously afforded an opportunity to dispute the penalties and additions to tax for the periods at issue and may do so as part of this case the recommendation of his colleagues within the community mr powell hired a full-time office administrator who had ably performed with other similarly sized businesses in the area she was initially tasked with maintaining petitioner’s accounts_payable and receivable and tracking basic job costs as time progressed however mr powell recognized he would soon need to begin addressing petitioner’s payroll and the associated employment and trust_fund_taxes mr powell assigned these duties to the office administrator believing she was wholly capable of managing these new responsibilities without giving regard to the fact that she--like mr powell--had no experience in these fields mr powell did not establish any controls or other means for monitoring her performance in late the office administrator assumed part-time status working only one or two days a week although her attendance had become sporadic mr powell believed she was keeping up with all of her job assignments faced with unfavorable market conditions and difficulties sustaining cashflow in the first quarter of mr powell directed the office administrator to defer payment of petitioner’s employment and trust_fund_taxes until later that year which she did in late mr powell directed the office administrator to resume payment of petitioner’s employment and trust_fund_taxes she did not although mr powell had by this time assumed some of the administrator’s office duties--in the light of her waning attendance--and had full access to and often reviewed petitioner’s books and only checking account it eluded his attention that petitioner was continually failing to pay its employment and trust_fund_taxes throughout this period petitioner continued to pay its suppliers vendors and creditors while continuing to withhold employment_taxes from its employees in petitioner discharged the office administrator mr powell hired temporary staffers to address the backlog in her work and he transferred administration of petitioner’s payroll to an outside agency the temporary staffers brought to mr powell’s attention their discovery of petitioner’s continued tax noncompliance despite this discovery mr powell directed the staffers to focus on other issues and declined to address petitioner’s tax noncompliance it was not until when respondent contacted petitioner’s outside payroll agency and requested petitioner’s delinquent filings that petitioner made an effort to come into full compliance with its tax filing but not its tax payment obligations on date petitioner filed form_941 returns for its first and second quarters of on date petitioner filed its remaining form_941 returns for all quarters of and and its form_940 for year as petitioner filed these returns respondent assessed the tax there reported and applied additions to tax and penalties under sec_6651 and and while petitioner has made some payments toward these accumulated liabilities to date each period at issue still carries a balance on date respondent sent a letter notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 with respect to petitioner’s unpaid liabilities for the first and second quarters of on date respondent mailed petitioner a letter final notice--notice of intent to levy and notice of your right to a hearing for the same on date respondent mailed petitioner another letter this one seeking to collect by levy petitioner’s unpaid and liabilities in response to each of these letters petitioner filed a timely form request for a collection_due_process or equivalent_hearing in its request petitioner sought only abatement of the assessed penalties and additions to tax on date a settlement officer so with respondent’s appeals_office conducted a face-to-face collection_due_process cdp hearing with petitioner’s representative the so determined petitioner was ineligible for the requested relief as petitioner was unable to show its failures were grounded in reasonable_cause on date the appeals_office issued petitioner a notice_of_determination sustaining the collection actions additions to tax and penalties opinion i jurisdiction and standard of review sec_6320 and sec_6330 require the commissioner to notify a taxpayer if he has filed a lien or intends to levy on that taxpayer’s property the notice must inform the taxpayer of his or her right to a cdp hearing regarding the filing of a lien or the proposed collection action sec_6330 sec_6320 in a cdp hearing taxpayers may raise any relevant issue or request the consideration of a collection alternative sec_6330 taxpayers may not challenge the existence or amount of the underlying tax_liability unless they did not otherwise have an opportunity to do so sec_6330 once the commissioner issues a notice_of_determination at the conclusion of the cdp hearing the taxpayer may seek judicial review by filing a petition with this court sec_6330 when the underlying tax_liability was properly at issue in the cdp hearing we review the commissioner’s determination de novo 114_tc_604 respondent concedes that petitioner is entitled to challenge its underlying liabilities for the penalties and additions to tax accordingly we review petitioner’s liabilities de novo petitioner concedes it failed to file timely and failed to pay and deposit the required employment and trust_fund_taxes petitioner maintains its failures were due to reasonable_cause and believes the assessed penalties and additions to tax are inappropriate petitioner bears the burden of proving reasonable_cause and establishing that the penalties or additions to tax are inappropriate see rule a 116_tc_438 ii sec_6651 addition_to_tax failure to timely file sec_6651 imposes upon taxpayers an addition_to_tax for failure_to_file a timely return the addition_to_tax will not apply if the taxpayer shows its failure was due to reasonable_cause not willful neglect id a taxpayer demonstrates reasonable_cause when it shows that despite exercising ordinary business care and prudence it was unable to file the return on time sec_301_6651-1 proced admin regs the obligation to file timely is the taxpayer’s unambiguous and nondelegable and reliance on an agent generally will not amount to reasonable_cause for untimely filing 469_us_241 taxpayers bear a heavy burden when attempting to prove reasonable_cause for failure_to_file timely id pincite see 77_f3d_236 8th cir petitioner concedes it failed to file timely returns for all periods at issue petitioner argues however it had reasonable_cause as it had relied on its employee for the timely preparation and filing of form sec_941 and mr powell as petitioner’s sole owner and officer was aware of petitioner’s employment and trust fund tax filing obligations but was unfamiliar with the process and procedure despite his own unfamiliarity he tasked an administrative employee with the duty_of preparing and filing petitioner’s tax returns this employee did not hold herself out as having any credentials experience or training in the preparation filing or payment of employment and trust fund tax returns mr powell however believed she would be up to the task despite her lack of know-how and experience petitioner did not supervise or monitor the quality of the employee’s work and had no system in place to do so the employee worked part time-- once or twice a week --during the periods in issue although the employee was often the only worker managing petitioner’s front-office affairs petitioner was not concerned with her irregular attendance and continued to believe she would be capable of executing her collective duties not just the management of petitioner’s employment and trust fund tax filings but also the administration of nearly every other aspect of its day-to-day front office operations petitioner was by no means disabled from ensuring it was meeting its statutory duties it was not rendered incapable of filing by a series of factors largely beyond its control see boyle u s pincite n petitioner’s failure_to_file timely resulted from its reliance on an unqualified part-time_employee supervision of the output and quality of an employee’s work product is a factor wholly under an employer’s control petitioner’s failure to adequately oversee its employee’s performance--or here to ensure that the employee was simply performing--was objectively unreasonable and is indicative of a lack of business care and prudence if not reckless indifference we sustain respondent’s determination as to the sec_6651 additions to tax iii sec_6651 addition_to_tax failure to timely pay sec_6651 imposes upon a taxpayer an addition_to_tax for failing to pay taxes when due like the addition for failure_to_file timely this addition will not be applied if the taxpayer establishes reasonable_cause for its failure sec_6651 to show reasonable_cause the taxpayer must have exercised ordinary business care and prudence in making adequate provision for its reasonably foreseeable tax obligations and have taken the appropriate and prudent steps necessary to ensure compliance therewith sec_301_6651-1 proced admin regs when payment of trust_fund_taxes is at issue taxpayers may be held to a heightened standard id subpara see 390_f3d_1035 7th cir concert staging servs inc v commissioner tcmemo_2011_231 slip op pincite petitioner concedes it failed to and has yet to fully pay its employment and trust fund tax_liabilities for the periods at issue as before petitioner’s reasonable_cause argument takes the shape of reliance on its employee and as before reliance on an undersupervised underqualified part-time_employee is insufficient to establish ordinary business care and prudence mr powell testified that on at least one occasion he directed his employee not to remit--to defer --payment of petitioner’s employment and trust_fund_taxes this was done in early while petitioner was facing cashflow problems during a national economic recession later that year however he instructed his employee to resume making timely payments on petitioner’s tax obligations but the payments never resumed during all periods at issue petitioner continued to withhold employment_taxes from the paychecks of its employees and continued to pay its vendors and creditors although he had access to and would frequently review petitioner’s only bank account mr powell never noticed or chose to overlook the fact that petitioner’s employment and trust fund tax_payments were not being drawn from its account when petitioner’s noncompliance was brought to its attention in petitioner declined to take any remedial actions petitioner took no action until to date petitioner has failed to fully pay the principal balances for the periods at issue to the extent that petitioner attempts to present hardship or inability to pay as reasonable_cause petitioner fails to meet its burden_of_proof petitioner offered only the uncorroborated testimony of its sole officer and shareholder as to the nature of petitioner’s financial status during the periods at issue although mr powell credibly testified that petitioner suffered during the economic downturn of the periods at issue this does not alone establish reasonable_cause during the periods at issue petitioner was able to continue operations market its services to clients and pay its vendors creditors and employees petitioner’s failure to comply with its employment and trust fund tax obligations resulted from a choice to focus on business matters rather than tax compliance there was no ordinary and prudent care or consideration taken by petitioner to ensure it complied with its known federal tax obligations we sustain the additions to tax under sec_6651 iv sec_6656 penalty failure to deposit sec_6656 imposes a penalty for a taxpayer’s failure_to_make_timely_deposits of tax unless the failure was due to reasonable_cause and not willful neglect in evaluating reasonable_cause under sec_6656 the court looks to the analogous provisions of sec_6651 see stevens techs inc v commissioner tcmemo_2014_13 at petitioner admits it failed to make its required deposits for the periods at issue under the facts of this case including the alleged miscommunication between mr powell and his office administrator and the poor performance of the same petitioner has not established reasonable_cause for its failures we sustain the sec_6656 penalties see mcnair eye ctr inc v commissioner tcmemo_2010_81 in the light of our holdings above and recognizing the concessions between the parties we sustain the notice_of_determination and the related collection actions we have considered all the other arguments made by the parties and to the extent not discussed above find those arguments to be irrelevant moot or without merit to reflect the foregoing decision will be entered for respondent


internal_revenue_service number release date index number ------------------------------- ------------------------ -------------------- ------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------- id no ---------------- telephone number -------------------- refer reply to cc psi b01 plr-120420-14 date november legend x ---------------------------------------- ------------------------ trust ----------------------------------- date ----------------- date date --------------------------- --------------------- state -------------------- dollar_figurea ------------------------------------------------------------- dear ---------------- this responds to a letter dated date and supplemental information submitted on behalf of x by x’s authorized representative requesting relief under sec_1362 of the internal_revenue_code the code facts according to the information submitted and representations within x was incorporated on date under the laws of state effective date x elected to be taxed as an s_corporation prior to date trust was a grantor_trust and as such an eligible plr-120420-14 shareholder of x on date trust ceased being a grantor_trust a timely election to treat trust as an esbt was not made thus trust became an ineligible shareholder of x causing x’s s_corporation_election to terminate effective date x represents that trust has at all times met the requirements of an esbt within the meaning of sec_1361 throughout the period that trust has been a shareholder of x it did not file its federal_income_tax returns consistent with being an esbt thus resulting in a tax_liability due of dollar_figurea x represents that its s_corporation_election termination was inadvertent and was not motivated by tax_avoidance or retroactive tax planning further x represents that x and its shareholders agree to make any adjustments required as a condition of obtaining relief under the inadvertent_termination_rule as provided under sec_1362 of the code that may be required by the secretary law and analysis sec_1361 of the code provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 defines a small_business_corporation as a domestic_corporation which is not an ineligible_corporation and which does not a have more than shareholders b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual c have a nonresident_alien as a shareholder and d have more than class of stock sec_1361 provides that for purposes of sec_1362 an electing_small_business_trust esbt may be an s_corporation shareholder sec_1361 provides that an esbt means any trust if i such trust does not have as a beneficiary any person other than i an individual ii an estate iii an organization described in sec_170 which holds a contingent_interest in such trust and is not a potential_current_beneficiary ii no interest in such trust was acquired by purchase and iii an election under sec_1361 applies to such trust sec_1361 provides that the term electing_small_business_trust shall not include i any qualified_subchapter_s_trust as defined in sec_1361 if an election under sec_1361 applies to any corporation the stock of which is held by such trust ii any trust exempt from tax under subtitle a and iii any charitable_remainder_annuity_trust or charitable_remainder_unitrust as defined in sec_664 sec_1361 provides that an election under sec_1361 shall be made by the trustee any such election shall apply to the taxable_year of the trust for which made and all subsequent taxable years of such trust unless revoked with the consent of the plr-120420-14 secretary sec_1_1361-1 provides that the trustee of an esbt must make the esbt election by signing and filing with the service_center where the s_corporation files its income_tax return a statement that meets the requirements of sec_1_1361-1 sec_1_1361-1 provides that the trustee of an esbt must file the esbt election within the time requirements prescribed in sec_1_1361-1 for filing a qsst election generally within the 16-day-and-2-month period beginning on the day that the stock is transferred to the trust sec_1362 provides in relevant part that if an election under sec_1362 by any corporation was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or was terminated under sec_1362 or the secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in such ineffectiveness or termination steps were taken so that the corporation for which the election was made or termination occurred is a small_business_corporation and the corporation for which the election was made or termination occurred and each person who was a shareholder in such corporation at any time during the period specified pursuant to sec_1362 agrees to make the adjustments consistent with the treatment of such corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in such ineffectiveness or termination such corporation shall be treated as an s_corporation during the period specified by the secretary conclusion based solely on the facts submitted and the representations made we conclude that x’s s election inadvertently terminated within the meaning of sec_1362 on date when trust became and ineligible shareholder pursuant to the provisions of sec_1362 x will be treated as an s_corporation from date and thereafter provided x’s s_corporation_election is not otherwise terminated under sec_1362 this letter is contingent upon the following conditions an adjustment payment in the amount of dollar_figurea and a copy of this letter_ruling must be sent to the following address internal_revenue_service cincinnati service_center west rivercenter blvd covingtn ky stop terri lackey manual deposit this payment must be sent no later than days from the date of this letter within days from the date of this letter an election to treat trust as an esbt effective date must be made with the appropriate service_center a copy of this letter should be attached to the esbt election if these conditions are not met then this ruling is null and void furthermore if these conditions are not met x must send notification that its s election has plr-120420-14 terminated to the service_center with which x’s s election was filed except as specifically ruled upon above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code specifically we express or imply no opinion regarding x’s eligibility to be an s_corporation this ruling is directed only to the taxpayer who requested it according to sec_6110 this ruling may not be used or cited as precedent pursuant to the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative sincerely faith p colson faith p colson senior counsel branch office of the chief_counsel passthroughs special industries enclosures copy of this letter copy of this letter for sec_6110 purposes cc