department of the treasury internal_revenue_service teige eo examination fulton street room dollar_figure breckiyn ny tar exempt and gos vernment extities division uil dollar_figure-01 release number release date legend organization d date date taxpayer_identification_number person to contact identification_number contact telephone number last date for filing a pleading with the tax_court the claims_court or the united_states district_court for the district columbia dear _ this ig a final adverse determination_letter as to o's exempt status under sec_501 cx of the internal_revenue_code recognition of your exemption from federal_income_tax as an organization deseribed in internal_revenue_code section dollar_figure c is retroactively revoked effective d for the following reasons you have not demonstrated that you are operated exclusively for exempt purposes within the meaning of internal_revenue_code sec_501 c you are not a charitable_organization within the meaning of sec_1 cx3 -1 d you operate substantially for non-exempt purposes you are not an organization which operates exclusively for one or more of the exempt purposes which would qualify it as an exempt_organization please refer to the attached form 886-a which sets forth the facts law and analysis upon which this final adverse determination is based contributions to your organization are no longer deductible under sec_170 of the internal_revenue_code oe wy you are required to file federal_income_tax returns on form_1120 these returns should be filed with the appropriate service_center for the year ending december thereafter and for all years processing of income_tax returns and assessment of eny taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code hyou decide to contest this determination in court you must file a pleading seeking a declaratory_judgment in the united_states tax_court the united_states court of federal claims or the united_states district_court for the district of columbia before the day after the date this final_determination was mailed to you please contact the clerk of the appropriate court for rules regarding ling pleadings for declaratory judgments and refer to the enclosed publication you may write to these courts at the following addresses united_states tax_court second street nw washington d united_states court of federal claims madison place nw washington d c unned states district_court for the district of columbia constitution avenue nw washington d infemal revenue service taxpayer_advocate services metrotech center fulton street brooklyn ny you also have the right to contact the office_of_the_taxpayer_advocate however you should first contact the person whose name and telephone number are shown above since this person can access your tax information and can help you get answers you can eall and ask for taxpayer advovate assistance or you cen contact the taxpayer_advocate from the site where the tax_deficiency was determined by calling or writing to taxpayer_advocate assistance cannot be used as a substitute for established irs procedures formal appeals processes etc the taxpayer_advocate is not able to reverse legal or technically correct_tax determinations nor extend the time fixed by law that you have to file a petition in the united_states tax_court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper hardlling we will notify the appropriate state officials of this action as required by sec_6104 c of the internal_revenue_code if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours marshe a ramirez director eo examinations enclosure form publication so poa form whether o ls opersted exclusively for exempt purposes described within internal_revenue_code section s01 a whether o is engaged primarily in activities thet accomplish an exempt_purpose b whether more tae an insubstantial part of o's activities are in fartherance of non-exempt purpose an audit of o was commenced on di for the year ended d2 co was incorporated under the laws of the dollar_figure of the not-for-profit corporation law on in determination_letter dated d4 waz determined to be exempt from federal_income_tax ag an organization described in sec_301 c it was further determined to be classified as public charity as deseribed under sec_509 a o was located at a in rs articles of incorporation stated its purpose to be a to assist needy debtors to improve their finances through educating tom ss to better means of managing their money and through secking for them if appropriste an extension or other reorganization of thelr debts to have in furtherance of lis not-for-profit corporate purposes all of the powers conferred upon corporations organized under the not-for-profit corporation law subject_to any limitations thereof contained in this certificate of incorporation or in the laws of the dollar_figure the board_of directors of of the organization owas comprised of only the officers and key employees ol president o2 former president and director key_employee kay employes per the form_990 filed by the organization for the tax_year ending d2 the officers were c1 president o2 former president director o3 secretary director treasurer director and administrator's and salaries for the year ended d2 reflected on form_990 part v page were as follows the agent was informed afier various contacts with the president of the organization and its accountant that the organization had ceased operations at the end of and had stopped secepting new clients the organization’s place of business has been closed since the organization has indicated in their responses to certain information_document_request items thet some of the requested records were placed in storage and are not readily available form_990 returns were filed for the years ended d2 and d3 operating losees were reported on both returns the organization's representative provided a copy of a servicing agreement exhibit b which indicated that effective as of d6 501_c_3_organization the obligation to provide ongoing credit_counseling_services to its existing clients o provided all client files including documentation and information regarding cach dmp client to the b the servicing agreement stated that the b a corporation unaffiliated with e would simultaneously-be terminating its contract with o that hed provided payment processing for the clients b and o had made an arrangement with e to take over the provision of these services shad assigned to bl an based sec _ the servicing agreement stated that o assigns to e the obligation to provide the following services to clients and e accepts such assignment a ongoing credit counseling and education b processing dmp payments responding to inquiries from cllents with dmp 's and related responsibilities pursuant to en arrangement with ballenger under en existing fulfillment agreement between e and b di processing regulatory requests with respect to the clients although remains processing refunds although o remains responsible for funding such refunds responsible for funding compliance with such regulatory requests to the extent those requirements cannot be satisfied directly by by information_document_request number item requested information as to whether or not form_990 was sled for the year ended d7 and if so requested the date fled or form_990 was not fled expected filing_date the representative responded that the and the expected filing_date is unknown due to the lack of material information needed fo complete the return and fo current nonpayment of accounting fees information_document_request number item requested information as to when the final form_990 is expected to be aled and for what year it will be aled the organization final return was t be filed it would probably be for the d7 stated in its response thet if tax yore information_document_request number item asked whether or not a certificate of thssolution had been aled with the and ifthe certificate of dissolution was filed to provide a copy the organization responded thet the cerfificete of dissolution had not beon filed if hasn't been filed because the attorney is owed several thousand dollars by for past services information_document_request number tem ze requested a written narrative of the activities of the organization o responded that it was a non profit credit counseling company thal would counsel individuals who were in financial debt the organization dealt mainly with eredit card debt o claimed in the response to itom 2c that it had trained credit counselors to counsel customers on how to lower their monthly bills by drastically lowering the interest mies on thelr credit cards this would help to bring them current with overdue credit card bills o claimed that they would do this strictly for a voluntary contribution customers would fill out paper work explaining in detail their credit card bills they would then send the orgenization thelr first monthly payment which was supposedly a voluntary contribution information_document_request number item 3f requested copy of the audited financial statements and report for the year ended d2 a copy wes submitted as requested note a to the financial statements stated the following the company is e non-profit corporation created for the purpose of helping tn reduce personel bankruptey by educating the public about personal money management skills and by assisting needy imdividuale and families who have floancial problems the principal activities of the company sre providing information te the general_public on sound money management counseling individuals and families who have financial problems and preparing budget plane for those individuals and families who can benefit from them 0's primary source of revenue was fees which have been incorrectly reflected on form_990 as gifts grants and contributions received there was no breakdown on page part vil of form_990 for the revenues received from creditor pair share payments client enrollment fees monthly service fees or gills grants and contributions if any interest dividends and other investment_income gf any or any other sources of revenue a breakdown of revenue was requested in information_document_request tem for the revenues derived from client enroliment fees monthly service fees creditor fair shere payments contributions interest dividends and other revemue per the t response the revenues received for the perind ending d2 were as follows d2 percentage of totel revenue contributions made al time of enrollment convibutions made at time of monthly debt installments revenues not classified - my e tote the breakdown of revenue received for the years ended de and d9 was as follows ds percentageof ds total revenus percentage of total revenue s contributions made at time of enrollment contributions made at time of monthly debt installments revenues cot classified total based on the response o's primary sources of revenue were fees paid_by clients af the time of enrollment and fees paid at the time of monthly installments these fees represented dollar_figure of the total revenue generated for the year ended dz the organization did not separate fair share oayments from contributions in their response information_document_request tem requested information as to whether or not the organization received pair share payments from credit card companies and if co to provide a list of all creditors the organization received fair shars payments from the organization responded yes majority of all existing credit cards the organization did not provide the requested listing information_document_request tem requested how the amount percontage of the fair share payment is determined and also to provide all documents which show the pair shere payment for cach of the creditors the organization received fair share payments from the organization responded to item as follows credit card company makes that decision the organization did not provide any documents or records listing the fair share payments from the creditors information_document_request tem mquested copies of all materials provided t the consumer explaining the fees to be charged for services the organization responded to item as follows contracts signed by the debtor’s explained the voluntary contributions some copies of contracts are in storage information_document_request item requested information on initial fees and if they were partially or totally waived and ifso what percentage were partielly waived and what percentage were totally waived the organization responded to tem as follows it depends on the member and what they choose to contribute information_document_request hem requested details on the fee structure including details on how fees are determined the organization responded that voluntary contributions were dollar_figure per month per account and the organization also asked for a voluntary contribution of percent of their totel debt load item requested information on the procedures used for clients who declined or refused to pay the fees the organization responded thet the procedures were the same for all clients hem requested deta on the number of clients who a did not initially pay any portion of the requested fee for enrollment and b did not pay any portion of the requested fee for monthly services the organization responded n a to tem lack of records documentation and substantiation the organization did not provide a list of event presenters or the training cach presenter had received ag requested in information_document_request rem as documented above the organization provided no records documentation and substantiation for various ems which were requested in information_document_request numbers through the organization did not provide copies of any syllabus agenda rosters sign in sheets handouts video or audio tapes as requested in information_document_request mumber hem the organization did not provide documents electronic or paper created when slent was contacted and enrolled in a dmp as requested in information_document_request umber hern the organization did not provide documents which reflected the fair share payment from each of the creditors ag requested in information_document_request mumber item the organization did not provide copies of client files maintained for dmp enrollees ag well ag non-dimp enrollees as requested in information_document_request number item the organization responded some contracts in storage non dmp s were not kent ‘the organization did not provide records stating the number of clients who a did net initially pay any portion of the requested fee for enroliment and b did not pay any portion of the requested fee for monthly services as requested in information_document_request number item the organization did not provide any details as to the certification process of the counselors or the name of the certifying organization as requested in information_document_request number item the organization did not provide copies of written counselor evaluations os requested in information_document_request number tem the organization did not provide copies of any reports on monitoring of counselor's phone calls as requested in information_document_request number tem the organization did not provide a log of in person interviews and or counseling sessions the counselors conducted during the year ended d2 as requested in information_document_request number item or in the event the web site was activity description the organization did not provide coples of any seripis and or job aids utilized by the counselors as requested in information_document_request number item the organization did not provide any reports generated from the web site as requested in information_document_request number rem ‘the organization did not provide copies of statistical dats compiled maintained or tracked pertaining to the orgenization’s web elie as requested in information_document_request number rem the organization did not provide a printout of each of their web site peges as they appeared during the year ending december revised the pages of the new version of the web site as requested in information_document_request munber tem the primary activity engaged in by o during the year under examination based on the additional information submitted was solicitation of clients to enroll in debt management plans hereinafisr dmips _ information_document_request number item requested date on the number of clients thar were enrolled in a dmp for the year ended dz the organization stated that there were clients enrolled information_document_request number tem requested information on the initial telephone call and if there was any discussion of any financial matters other than the potential enrollment of the client ina dmp the organization responded as follows yes discusgion of whether a dmp might enable them to pay their bills on their own and discussions of credit and how it will be affected and discussions of the contribation - information_document_request number hem requested information concerning what other counseling is provided in the event thet the potential client does not qualify for a dmp the organization basically stated that they will recomanend that the individual call a local attorney for help if they do not qualify or choose to participate im the dimp information_document_request number tem requested all documentation electronic or paper created when a client is contacted and enrolls ina dmp the organization responded to item by stating the following some contracts are in storage information_document_request number rem requested information on the certification process of the counselors and asked for a detailed deacription of the certification process and who the certifying organization is the organization responded that the counselors have hours of training they didn't provide any specifics on the training program informetion document request number item requested information on whether or not phone calls were monitored by supervisors and if eo requested copies of any monitoring reports prepared by supervisors the organization's respons stated that phone calls were monitored but there are no reports available information_document_request number item requested information on how offen the counselors receive writen verbal evaluations of their performance and on what qualities slements they are evaluated information_document_request number rem also requested copies of counselor evaluations the organization responded to nera stating that weekly verbal evaluations were given copies of counselor evaluations were not provided information_document_request nuraber item requested log of in person interviews and or counseling sessions that the counselors conducted for the year ended date the organization responded not applicable t jocumentation this request information_document_request mamber item asked to identify and explain each of the programs events and or activities the organization conducted during the year ended d2 including the relevant details such as the date and location the number of participants details of any fees charged the minimum requirements for client participation samples of forms letters and agresments used in connection with these programs identification of any co-spongors and the name of the chairpereon or members of the organizing committee the organization responded not applicable information_document_request number item requested a list of all event presenters and requested the training cash presenter had received the organization responded not applicable to this request information_document_request number itera requested copies of any syllabus agenda rosters sign in shects handouts videos or audio tapes distributed during the event and information on whether or not the participants were required to pay for materiale during the events otc the organization responded not applicable to this item information_document_request number jtem requested a proposed budget reflecting the future funding to be allocated to educational axtivities the organization responded that no future seminars will be held as the company is no longer in existence information_document_request number item requested data on a the number of clients in each of the educational programs at the beginning of the year and b the nuntber of clients in each of the educational programs at the end of the year the organization responded not applicable to this kem the organization did not provide any substantiation for any programs events or activities that may have been conducted during the year ended dz information_document_request munber item requested copiss of pamphlets brochures newsletters and other printed imerature about the organization the organization responded nat applicable to item information_document_request number tem requested to identify each of the programs that had received accreditation certification or licensing from any federal or state_agency educational_institution industry association or other organization and provide information on the certifying organization the date the certification was originally received and the date of the most recent review along with any avereditation letters or reports the organization responded none to this hem information_document_request mamber item requested information on the company's web site item also requested whether or not education was provided on the web site and who may access this information the organization responded that education web site was provided on the web site and anyone could access it they provided no documentation of this information_document_request number item requested a printout of each of the web site's pages as they appeared during the year ended d2 hem also requested printout’s of the new version of the web alte when it was introduced and the nature of the revision in the event the materials were revised the orgenizstion responded not applicable to item information_document_request number item requested a list of the statistical data compiled maintained or tacked pertaining to the web site the organization responded not applicable to hem information_document_request number item requested information on how frequently web site statistical data is compiled the organization responded not applicable’ to item information_document_request number item requested all reports generated from the web site during the year ended d2 the organization responded not applicable to item the home page contained a section what we do and listed the following reduce your monthly payment by almost reduce your interest rate as low as stop creditors harassing phone calls re-age past due accounts to improve credit rating and tate fees and over the limit charges will be waived when you're on the program there were no sectiong containing educational information on the web sile’s home page we were able to obtain a copy of the home page for o's web site from as the organization did not provide any printouts of thelr web site this page was dated ds and is attached the o web site contained sections for various subject areas including who are we online services financial center customer service get documents quick quote your privacy testirnonials loans and vou web search faqs and links some of these hinks had various drop_down menus containing sub areas corresponding to the tab selecting a certain subject area often provided a choice of sub areas however clicking on ont of these sub areas ar major sections did not allow this user to access any information we were only able to view the home page of the web site sec_5001 of the internal_revenue_code atates that every person hable for any_tax imposed by this title or for the collection thereof shall keep such records render such statements make such returns and comply with such rules and regulations as the seoretery may from time to time preseribe whenever in the judgment of the secretary it ig necessary he may require any person by notice served upon such person or by regulations to make such returns render such statements or keep such records as the dave secretary deems sufficient to show whether or not euch person is hable for tax uoder thig tide sec_6033 of the internal_revenue_code states in part that every organization_exempt_from_taxation under a shall keep such records render under oath such statements make such other returns and comply with such rulee and regulations as the secretary may from time ta time presoribe regulation requires ant exempt_organization to keep permanent books_and_records sufficient to show specific tems of gross_income receipts and disbursements and to substantiate the information required by internal_revenue_code sec_6033 regulation discusses retention of records and states the following the books_or_records required by this section shall be kept at all times available for inspection by authorized internal revenue officers or employees and shall be retained so long aa the contents thereof may become material in the administration of any internal revenue law section s01 a of the internal_revenue_code provides that an organization described in section dollar_figureo1 e is exempt from income_tax sec_501 of the internal_revenue_code exempts from federal_income_tax corporations organized and operated exclusively for charitable educational and other purposes provided that no part of the net eamings inure to the benefit of any private_shareholder_or_individual the tenn chariighle includes relief of the poor and distressed income_tax regs sec_1 - sec_1 g - a1 of the regulations provides that in order to be exempt as an organization described in sec_501 c an organization must be both organized and operated exclusively for one or more of the purposes specified in such section fan organigation fails to meet either the organizational_test or the operational_test itis not exempt the term educational includes a instruction or training of the individual for the purpose of improving or developing his capabilities and b instruction of the public on subjects gseful to the individual and beneficial to the community sec_1 1d in other words the owe components of education are public education and individual training sec_1 c -1 of the regulations provides that an organization will be sogarded as operated exclusively for one or more exempt purposts only if ii engeges primarily in activities thet accomplish one or more of such exempl purposes specified in section so1 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose the existence of a substantial nonexempt purpose regardless of the mumber or importance of exempt will cause failure of the operations test us 726_us_279 better ig buren d c eo bk bf see spas i b ee educational_purposes include instruction or training of the individual for the purpose of - improving or developing hig capabilities and instruction of the meee on useful and reg s01 - dy in beger business burssu of beneficial subjects see washington d c inc v united siates u8 the sunnie court held that the presence ofa ak non-exempt purpose if substantisl in nature will destroy the exemption regardless of the number or importance of truly exempt purposes the court found that the wade association hed an underlying commercial motive that distinguished its educational program from that carried out by a university sth ic rese d states 302_f2d_934 c2 cl the court considered the ate of ant organization tha provided analyses of securities and industries and of the economic climate in general the organization sold subscriptions to various periodicals and services providing advice for purchases of individual securitics although the court noted that education is a broad concept and assumed for the sake of argument thet the organization hed an educational purpose it held that the organization had a significant nonexerapt commercial purpose that was not incidental 1o the educational purpose and was not entitled to be regarded as exempt the service has issued two rulings holding credit counseling organizations to be tax exempt revrul_65_299 o b granted exemption te a s01 c organization whose purpose was to assist families and individuals with nancial i group inc vy commissioner 70_tc_392 the court found that a corporation formed to provide consulting services wes not exempt under section s01 c becouse its activities constituted the conduct of a wade or business that is ordinarily carried on by commercial ventures organized for profit is primary purpose wee not charitable educations nor scientific but rather cormmercial problems and to help reduce the incidence of personal bankruptcy re primary activity appears ic have been meeting with people in financial difficulties to analyze the specific problems involved and counsel on the payment of their debts the organization also advised applicants on proration and payment of debs negotiated with creditors and set up debt repayment plans li did not restrict its services ta the needy f made no charge for the counseling services indicating they were separate from the ‘debt repayment arrangements made a nominal charge for monthly prorating aervices to cover postage and supplies por financial support it relied upon valuntary contributions from local businesses lending agencies and labor unions the court found that the corporation had completely failed to demonstrate that its services were not in competition with commercial businesses the court found thet the organization's financing did not resemble thal of a typical 501_c_3_organization it had not solicited nor had it received voluntary contributions from the general_public is only source_of_income was from fees for services and those fees were set high enough to recoup all projected casts and to produce a profit moreover it did not appear that the corporation ever planned to charge a fee lees than enst and finally the corporation had failed to limit its chentele to organizations that were sec_301 c exempt oe oe organizations rev_rul 1969_2_cb_115 granted c status to an organization with two functions it educeted the public on personal money management using films speakers and publications and provided individual counseling to low-income individuals and families as part of its counaeling h established budget plans le debt management plans for some of its clients the debt management services were provided without charge the organization was supported by contributions primarily from creditors by virtue of aiding low income people without charge a3 well as providing education to the public the orgenization qualified for section so1 status af t ro dd d c ona the district c court for the fe district of columbia held that a credit_counseling_organization qualified as charitable and educational under sec_501 ci3 i fulfilled charitable purposes by educating the public on subjects useful to the individual and beneficial to the community sec_1 c - hgs ib for this ft charged no fee the court found thet the counseling programa were also educational and cheritable the debt management and creditor intercession activities were an integral part of the agencies’ counseling function and thus were charitable and educational even if this were not the cess the court viewed the debt management and creditor intercession activities as incidental tw the ageacies’ principal fictions ag only approximately percent of the counselors’ time was applied to debt management programs and the charge for the service was nominal the court also considered the facts that the agency was publicly supported and thet i bad a board dominated by members of the general_public as factors indicating a charitable operation see also credit counseling centers of oklahoma inc vy united_states u s t c odl ia which the tects ane g cente eo pens wee ae es to abamis inv v united_states credit mer discussed paiedieely above ‘the organizations included in the above decision waived the monthly fkes when the payments would cause a financial hardship the professional counselors employed by the organizations spent about percent of their time in activities such ag information dissemination and counseling assistance rather than those connected with the debt management programs the primary sources of revenue for theese organizations were provided by government and private_foundation grants contributions and assistance from labor agencies and the united way outside the context of credit counseling individual counseling hes in a muraber of instances been held to be s tax-oxempt charitable activity revrul_78_99 c 1dollar_figure hee individual and group counseling of widows revrul_76_205 1976_1_cb_134 lee counseling and english instruction for iomigrants revrul_73_569 3973_2_cb_179 tfree counseling to pregnant women rey rul 1970_2_cb_116 clinic to help users of mind-altering drugs revrul_70_640 1970_2_cb_117 ues of marriage counseling revrul_68_71 1968_1_cb_249 career planning education through free vocational counseling and publications sald at a nominal charge crerwhelmingly the counseling activities deseribed in these rulings were provided free and the organizations were supported by contributions from the public the credit repair organizations act croa u s c el seg effective _ date imposes restrictions on oredit repair organizations including forbidding the making of untrue or misleading statements and forbidding advance_payment before services are fully performed u s c significantly section dollar_figure organizations ere excluded from regulation under the croa the croa define sec_2 oredit repair organization as a any person who uses any instrumentality of interstate coramerce or the muds to sell provide or perform or represent that such person can or will sell provide or perform any service in return for the payment of money or other valuable consideration for the express or implied - purpose af- improving any consumer's credit meord credit history of oredit rating of i providing advice or assistance to any consumer with regard to any activity or service described in clause usc the courts have interpreted this definition broadly to apply to credit counseling agencies the federal trade commission's policy is that fan entity communicates with consumers in any way about the consumers’ oredil situation it is providing service covered by the croa ip re nations credit management group llc f_supp 2d nding businesses are prohibited from cold-calling consumers who have put their phone numbers on the national do-not-call registry which is maintained by the federal trade commission cer sec_3 04g gby cer sec_64 section dollar_figure ci organizations are not subject_to this rule against cold-calling because organizations are exempt from reguistion under the croa and the cold-calling restrictions organizations that are involved in credit repair have added incentives to be recognized as sec_501 organizations even if they do not intend to operate primarily for exempt purposes ‘the primary activity of o wus not educational or charitable as defined under the infernal revenue code its regulations or other lege precedent the primary activity wes the enrollment of debtors in debt management plans the operations of o wers not consistent with organizations described in sec_501 c of the internal_revenue_code and its exeraplion should be revoked was not engaged primarily in activities that accomplish an exempt_purpose the organization operated to serve a substantial non-exempt purpose ‘the purpose of o's activities differs substantially from those of the organizations in revrul_64_299 rev_rul and consumer credit cou seling service of alsbers inc v us in this case o engaged in minimal activities which furthered an exempt_purpose the majority of income for the yeer ended d2 was derived from barollment fees monthly fees and fair share revenue all of these fees were generated from the operation of the dabt management program dmp the organization did not provide records documentstion and substantiation for various items which were requested in information document requests and lacked specific books_and_records to substantiate mowy of the activities it claimed to perform inchiding counseling and education during the year under examination the organization provided no records io substantiate thelr claim that counseling was performed for hs clisnts during the year under examination the organization provided no records to substantiate any seminars classes outreach or any other educational activities there is nb evidence to substantiate that the primary activity of the organization was education and outreach when the primary activities were placing individuals in debt management plans there was no documentation provided to eubstantlate that any educational counseling or followup was performed by q with their clients the educational requirement of sec_501 was not met during the year under audit as no documentation was furnished to substantiete that any educational activities or events took place there was also no information provided to substantiate that any educational counseling of individuals took place either in person or on the telephone be client files were provided records were not provided with respect to seminars including cutlines sylishus rosters of attendees sign in sheets of participants or any other related documentation regulation dealing with retention of records states the following the books_or_records required by this section shall be kept at all times available for inspection by suthorized internal revenue officers or employees and shall be retained so long as the contents thereof may becoms material in the administration of any internal revenue lew in addition o had a substantia non-exempt purpose of selling a product the debt management plan o was not furthering any charitable or educational purpose by offering a debt management plan in summary o was not operated exclusively for educational or for any other exempt purposes within the meaning of section dollar_figure c g of the internal_revenue_code sines ite primary activity was the sale of debt menagement plans dmp s o did not engage primarily in activities which accomplish an exempt_purpose more than an insubstantial part of the activities of o were in firtherance of non-exempt purpose the organization did not provide records documentation and substantiation for various items which were requested in information document requests and lacked specific books_and_records to substantiate many of the activities it claimed to have performed especially in the areas of counscling and education section a of the internal_revenue_code as stated previously states in part that every organization_exempt_from_taxation under a shall keep such records render under oath such statements make such other returns and comply with such rules and regulations as the seeretsry may from time to time preseribe regulation requires an exempt_organization to keep permanent books nod records sufficient to show specific items of gross_income receipts and disbursements and to substantiate the information required by internal revere code sec_6033 regulation retention of records states the following ths books_or_records required by this section shall be kept at all times available for inspection by suthorized internal revenue officers or employess and shall be retained so long as the contents thereof may become material in the administration of any intemal revenue law the amount of time devoted to education and outreach activities was very minimal compared to o's primary activity of setting up debt management plans there was no documentation provided on any counseling activities educational workshops gemminars outreach or any other educational programs o was unable to substantiate any educational or outreach activities it conducted during the year ended d2 sould not provide copies of any client files for individual’s who were enrolled in dmp’s stated that files were not kept for individuals who were not enrolled in a omp o did not provide copies of any written counsslor evaluations or logs of any in person interviews and or counseling sessions conducted during the year ended dz 1g accordingly it is determined that is not an organization deseribed in section s01 and jg not exempt from federal_income_tax under sec_301 of the internal_revenue_code the organization should be revoked effective d9 iy redection legend o organization d1 date i dz date z a3 gate d4 date ds date dollar_figure dg date date ds date date a aldresa officer officer officer officer os officer officer si state dollar_figure state eo unrelated c organization b limited_liability corporetion ig


t c memo united_states tax_court yousef rouzmehr petitioner v commissioner of internal revenue respondent docket no filed date glenn abel for petitioner michelle ferreira for respondent memorandum opinion parr judge respondent determined a deficiency in petitioner's federal_income_tax for in the amount of dollar_figure and a penalty under section in the amount of dollar_figure after mutual concessions which the parties have all section references are to the internal_revenue_code in effect for the taxable_year in issue and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated stipulated the only remaining issue for trial is whether petitioner is liable for an accuracy-related_penalty under sec_6662 the parties filed a stipulation of settled issues showing that petitioner failed to report a state tax_refund of dollar_figure interest_income of dollar_figure and net gambling income of dollar_figure the parties also stipulated agreed adjustments to schedule c of petitioner's income_tax return as follows description per return agreed adjustment to return agreed total gross_receipts dollar_figure dollar_figure dollar_figure less cost of big_number big_number big_number sales gross_income big_number big_number big_number petitioner had deducted schedule c expenses of dollar_figure the parties agree to an adjustment of dollar_figure or total schedule c expenses in the amount of dollar_figure these agreements result in net schedule c income in the amount of dollar_figure ie dollar_figure-dollar_figure as opposed to a loss of dollar_figure claimed on the return there will also be an automatic_adjustment to self-employment_tax which will be computed mathematically some of the facts have been stipulated and are so found the stipulation and attached exhibits are incorporated herein by this reference at the time of filing the petition herein petitioner resided in san jose california petitioner was born date in tabriz iran he attended but did not complete college in the united_states and became a permanent resident in since that time he has been employed as an engineer in mid-1988 petitioner started a business called esti memory international emi petitioner's father died in his mother still lives in iran although petitioner did keep some records as shown by respondent's concessions his books_and_records were not adequate to determine his correct income therefore respondent performed a bank_deposits analysis on petitioner's business checking account the use of the bank_deposits method for computing income has long been sanctioned by this court 102_tc_632 96_tc_858 affd 959_f2d_16 2d cir this analysis revealed excess deposits in the amount of dollar_figure which respondent identified and attributed to unreported schedule c gross_receipts the stipulations show that petitioner failed to report net gambling income_interest income and a state tax_refund totaling dollar_figure he underreported schedule c income by dollar_figure by claiming a loss of dollar_figure instead of positive net_income of dollar_figure he also failed to pay self- employment_tax petitioner's return was prepared by mr hassan g aslanpour an iranian who was recommended to petitioner by friends mr aslanpour was not called by either party although respondent had listed him as a witness respondent stated that she had decided not to call him because he had no memory of the return and no records of it mr aslanpour apparently did not give petitioner a copy of his return the copy in evidence came from respondent's files at trial petitioner stated that the schedule c attached to his return does not bear the name of his company and has no relationship to his income and expenses he also said he had never seen this schedule c before however petitioner did sign his form_1040 and the loss shown on line of schedule c is reflected on page of the form_1040 line it appears however that mr aslanpour did create the schedule c out of whole cloth with the prime purpose of showing a loss during the course of the audit which first involved a revenue_agent and later an appeals officer petitioner was represented at various times by at least three knowledgeable people two of whom were c p a 's and one of whom was a former internal_revenue_service irs agent petitioner claims that each of these individuals told him to lie about certain aspects of his return for instance at trial he claimed contrary to the stipulation of settled issues that the funds he expended in gambling were not receipts from his business but an inheritance from his father this was the first time petitioner had raised this claim and we held him to his stipulation which he had agreed to while represented by a c p a and with full knowledge and acquiescence rule e provides a stipulation shall be treated to the extent of its terms as a conclusive admission by the parties to the stipulation the court will not permit a party to a stipulation to qualify change or contradict a stipulation in whole or in part except that it may do so where justice requires to allow petitioner at this late date to contradict his stipulation without any warning or advance notice to respondent or to the court would be highly prejudicial to respondent and we exercise our discretion to hold petitioner to his stipulation petitioner also claimed that he questioned his return preparer about showing a loss from his schedule c business because he knew at the time he filed his petition that the business had made money however he signed the return as it was because according to him the preparer told him the irs would not audit the return sec_6662 imposes a 20-percent addition on the amount of underpayment due to negligence or disregard of rules and regulations negligence includes any failure to make a reasonable attempt to comply with the provisions of the internal revenue laws or to exercise ordinary and reasonable care in the preparation of a tax_return sec_1_6662-3 income_tax regs negligence also includes any failure by the taxpayer to keep adequate books_and_records or to substantiate items properly marcello v commissioner 380_f2d_499 5th cir affg in part and remanding in part 43_tc_168 and tcmemo_1964_299 sec_1_6662-3 income_tax regs petitioner has the burden of proving that respondent's determination with regard to negligence is erroneous marcello v commissioner supra pincite 103_tc_111 a taxpayer cannot avoid his duty to file accurate returns simply by shifting responsibility to his agents 63_tc_149 the ultimate responsibility for a correct return lies with the taxpayer who must furnish the necessary information to his agent who prepared the return 57_tc_781 petitioner has been in this country for more than years attended college here and is doing business here he has a responsibility and a duty to comply with the income_tax laws and to familiarize himself with them we thus find and hold that petitioner is liable for the penalty for negligence to reflect the foregoing decision will be entered under rule l55


internal_revenue_service number release date index number 468a -------------------------------- ------------------------------------------------------ -------------------------- ----------------------------------------- ------------------------ department of the treasury washington dc person to contact ----------------------- id no ------------- telephone number --------------------- refer reply to cc psi b06 plr-101826-08 date date legend taxpayer intermediate ----------------------------------------------- ----------------------- ------------------------------------------- ----------------------- parent ----------------------------------------------------------- --------------------------- transferee ------------------------- transferee parent ------------------------------------------------------------ ------------------------------ transferee owner ------------------------------------------------------------ ----------------------------- plant ---------------------------------------------------- ---------------------------------------------------- dear ------------ this letter responds to your request for private_letter_ruling dated date you requested that we rule on the tax consequences under sec_468a of the internal_revenue_code to taxpayer transferee and their qualified nuclear decommissioning funds of the transfer by taxpayer to transferee of plant plr-101826-08 facts taxpayer has represented the following facts and information relating to the ruling_request taxpayer is a single-member limited_liability_company llc that is disregarded for federal tax purposes taxpayer is wholly owned by intermediate a single-member llc that has elected to be treated as a corporation for federal tax purposes intermediate is wholly owned by parent parent files a consolidated tax_return for an affiliated_group and the activities of taxpayer and intermediate are reflected on that return taxpayer is principally engaged in the generation and sale of electricity at wholesale taxpayer has established a qualified nuclear decommissioning fund qdf for each nuclear reactor in plant transferee is a single-member llc disregarded for federal tax purposes transferee is wholly owned by transferee parent an llc that is disregarded for federal tax purposes transferee parent is wholly owned by transferee owner transferee owner files a corporate tax_return that will include the activities of transferee and transferee parent transferee owner specializes in nuclear facility decommissioning services and it ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------- plant consists of two nuclear reactors -------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------- on ----------------------- taxpayer and transferee parent executed a term sheet describing the principal terms of the transfer of plant taxpayer’s related qdfs and the obligation to decommission plant from taxpayer to transferee transferee will establish and maintain a qdf for each reactor in plant under an arrangement that qualifies as a_trust under applicable state law on -------------------------- the parties executed definitive agreements related to the transfer under these agreements the taxpayer will transfer to transferee plant including the licenses granted by the nuclear regulatory commission nrc the related qdfs and the obligation to decommission plant and decontaminate the land underneath plant the transaction taxpayer will retain ownership of the land underneath plant but will lease the land to transferee and transferee will assume the obligation to decontaminate the land plr-101826-08 will close and the transfer will take place when all regulatory approvals of the transfer including that of the nrc are obtained following the transfer taxpayer will retain access to the site of plant as necessary to operate ---------------------------------------------various other equipment and improvements to the facility in addition taxpayer will have access to the site and personnel of transferee to monitor the decommissioning and site restoration but has no authority to manage or direct these decommissioning activities by transferee taxpayer has requested the following rulings requested ruling pursuant to sec_1_468a-6t the transfer will be treated as a transfer of the assets of taxpayer’s qdf in connection with the sale exchange or other_disposition by taxpayer of all or a portion of taxpayer’s interest in plant to transferee requested ruling taxpayer’s qdfs will not become disqualified by reason of the transfer of the assets in those funds to transferee’s qdfs requested ruling taxpayer’s qdfs will not recognize any gain_or_loss upon the transfer of the assets in those funds to the transferee’s qdfs requested ruling taxpayer will not recognize any income upon the transfer of the assets from taxpayer’s qdfs to the transferee’s qdfs requested ruling transferee’s qdfs established to hold the assets transferred from taxpayer’s qdfs will be treated as satisfying the requirements of sec_468a and sec_1_468a-6t requested ruling transferee will not recognize gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of assets of taxpayer’s qdfs to the transferee’s qdfs requested ruling transferee’s qdfs will not recognize gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of assets of taxpayer’s qdfs to the transferee’s qdfs requested ruling on the date of closing transferee’s qdfs will retain the same basis in the assets received from taxpayer’s qdfs as taxpayer’s qdfs had in such assets immediately prior to the transfer plr-101826-08 requested ruling following the transfer payments of reasonable_compensation by transferee’s qdfs to transferee and its affiliates as compensation_for the performance of reasonable and necessary services in connection with the entombment decontamination dismantlement removal and disposal of structures systems and components of plant as well as any other services constituting nuclear decommissioning costs within the meaning of sec_1_468a-1t b will not constitute self-dealing requested ruling transferee and its affiliates will report as taxable_income amounts received from transferee’s qdfs as payments for or reimbursements of qualifying decommissioning expenditures or any actual or deemed distributions from transferee’s qdfs requested ruling transferee and its affiliates will be entitled to current deductions for amounts paid_or_incurred in connection with the provision of decommissioning services requested ruling taxpayer and its affiliates will not report as taxable_income amounts transferee receives from transferee’s qdfs as payments for or reimbursements of qualifying decommissioning expenditures or any actual or deemed distributions from transferee’s qdfs requested ruling taxpayer and its affiliates will not be entitled to current deductions for amounts transferee pays or incurs in connection with transferee’s provision of decommissioning services law and analysis sec_468a of the code provides that a taxpayer may elect to deduct payments made to a nuclear decommissioning reserve fund that meets the requirements of sec_468a ie a fund that is a qualified nuclear decommissioning fund sec_468a provides that any amount distributed from a qualified nuclear decommissioning fund during any taxable_year is includible in the taxable_income of the taxpayer for that year sec_468a provides that in addition to contributions to a qualified nuclear decommissioning fund that are deductible under sec_468a there is allowable as a deduction the amount of nuclear decommissioning costs with respect to which economic_performance occurs within the meaning of sec_461 during the taxable_year nuclear decommissioning costs are defined in sec_1_468a-1t b as all otherwise plr-101826-08 deductible expenses to be incurred in connection with the entombment decontamination dismantlement removal and disposal of the structures systems and components of a nuclear power plant that has permanently ceased the production of electric energy this term includes all otherwise deductible expenses to be incurred in connection with the preparation for decommissioning such as engineering and other planning expenses and all otherwise deductible expenses such term does not include otherwise deductible expenses to be incurred in connection with the disposal of spent nuclear fuel under the nuclear waste policy act of public law an expense is considered otherwise deductible for purposes of sec_1_468a-1t b if it would be deductible under chapter of the code without regard to sec_280b sec_468a provides that for purposes of sec_4951 a qualified nuclear decommissioning fund is treated as a_trust described in sec_501 sec_1_468a-1t b provides that a qualified nuclear decommissioning fund is a fund that satisfies the requirements of sec_1_468a-5t sec_1_468a-5t a sets out the qualification requirements for nuclear decommissioning funds it provides in part that a qualified nuclear decommissioning fund must be established and maintained pursuant to an arrangement that qualifies as a_trust under state law sec_1_468a-5t a iii provides that an electing taxpayer can establish and maintain only one qualified nuclear decommissioning fund for each nuclear power plant sec_1_468a-6t provides rules applicable to the transfer of an interest in a nuclear power plant and transfer of the qualified nuclear decommissioning fund where certain requirements are met for purposes of sec_1_468a-6t a nuclear power plant includes a plant that previously qualified as a nuclear power plant and that has permanently ceased to produce electricity sec_1_468a-6t b provides that sec_1_468a-6t applies if-- immediately before the disposition the transferor maintained a qualified nuclear decommissioning fund with respect to the interest disposed of and immediately after the disposition-- i the transferee maintains a qualified nuclear decommissioning fund with respect to the interest acquired plr-101826-08 ii the interest acquired is a qualifying interest of the transferee in the nuclear power plant in connection with the disposition either- i the transferee acquires part or all of the transferor’s qualifying interest in the plant and a proportionate amount of the assets of the transferor’s fund is transferred to a fund of the transferee or ii the transferee acquires the transferor’s entire qualifying interest in the plant and the transferor’s entire fund is transferred to the transferee and the transferee continues to satisfy the requirements of sec_1_468a-5t a iii which permits an electing taxpayer to maintain only one qualified nuclear decommissioning fund for each plant sec_1_468a-6t c provides that a disposition that satisfies the requirements of sec_1_468a-6t b will have the following tax consequences at the time it occurs neither the transferor nor the transferor’s qualified nuclear decommissioning fund will recognize gain_or_loss or otherwise take any income into account by reason of the transfer of a proportionate amount of the assets of the transferor’s qualified nuclear decommissioning fund to the transferee’s qualified nuclear decommissioning fund or by reason of the transfer of the transferor’s entire qualified nuclear decommissioning fund to the transferee for purposes of the regulations under sec_468a this transfer or the transfer of the transferor’s qualified nuclear decommissioning fund will not be considered a distribution of assets by the transferor’s qualified nuclear decommissioning fund neither the transferee nor the transferee’s qualified nuclear decommissioning fund will recognize gain_or_loss or otherwise take any income into account by reason of the transfer of a proportionate amount of the assets of the transferor’s qualified nuclear decommissioning fund to the transferee’s qualified nuclear decommissioning fund or by reason of the transfer of the transferor’s entire qualified nuclear decommissioning fund to the transferee for purposes of the regulations under sec_468a this transfer or the transfer of the transferor’s qualified nuclear decommissioning fund will not constitute a payment or a contribution of assets by the transferee to its qualified nuclear decommissioning fund transfers of assets of a qualified nuclear decommissioning fund to which this section applies do not affect basis thus the transferee’s qualified nuclear decommissioning fund will have a basis in the assets received from the transferor’s plr-101826-08 qualified nuclear decommissioning fund that is the same as the basis of those assets in the transferor’s qualified nuclear decommissioning fund immediately before the distribution under sec_1_468a-6t f the service may treat any disposition of an interest in a nuclear power plant as satisfying the requirements of the regulations if the service determines that such treatment is necessary or appropriate to carry out the purposes of sec_468a sec_1_468a-5t a provides that the assets of a qualified nuclear decommissioning fund are to be used exclusively a to satisfy in whole or in part the liability of the electing taxpayer for decommissioning costs of the nuclear plant to which the fund relates b to pay administrative and other incidental costs of the trust fund and c to the extent not currently required for the purposes described in a and b above to make investments sec_1_468a-5t b provides that except as otherwise provided in sec_1_468a-5t b the excise_taxes imposed by sec_4951 shall apply to each act of self- dealing between a disqualified_person and a nuclear decommissioning fund sec_1_468a-5t b defines self-dealing for purposes of sec_468a and the temporary regulations thereunder as any act described in sec_4951 except i a payment by a nuclear decommissioning fund for the purpose of satisfying in whole or in part the liability of the electing taxpayer for decommissioning costs of the nuclear power plant to which the nuclear decommissioning fund relates ii a withdrawal of an excess_contribution by the electing taxpayer pursuant to the rules of paragraph c of this section iii a withdrawal by the electing taxpayer of amounts that have been treated as distributed under paragraph c of this section iv a payment of amounts remaining in a nuclear decommissioning fund to the electing taxpayer after the termination of such fund as determined under paragraph d of this section v any act described in sec_4951 b or c vi any act that is described in sec_53_4951-1 and is undertaken to facilitate the temporary investment of assets or the payment of reasonable administrative expenses of the nuclear decommissioning fund or plr-101826-08 vii a payment by a nuclear decommissioning fund for the performance of trust functions and certain general banking services by a bank or trust company that is a disqualified_person if the banking services are reasonable and necessary to carry out the purposes of the fund and the compensation paid to the bank or trust company for such services taking into account the fair interest rate for_the_use_of the funds by the bank or trust company is not excessive sec_1_468a-5t b provides that the term disqualified_person includes each person described in sec_4951 and sec_53_4951-1 sec_1_468a-5t c i provides that if at any time during the taxable_year a qualified nuclear decommissioning fund does not satisfy a requirement of sec_1_468a-5 the service may in its discretion disqualify all or a portion of the fund as of the date that the fund does not satisfy such requirements sec_1_468a-5t c provides that if all or any portion of a qualified nuclear decommissioning fund is disqualified under sec_1_468a-5t c the portion of the qualified nuclear decommissioning fund that is disqualified is treated as distributed to the electing taxpayer on the date of the disqualification such a distribution shall be treated for purposes of sec_1001 as a disposition of property held by the qualified nuclear decommissioning fund in addition the electing taxpayer must include in gross_income for the taxable_year that includes the date of disqualification an amount equal to the product of the fair_market_value of the assets of the fund determined as of the date of disqualification reduced by certain amounts including any_tax that is imposed on the income of the fund is attributable to income taken into account before the date of the disqualification or as a result of the disqualification and has not been paid as of the date of the disqualification and the fraction of the qualified nuclear decommissioning fund that was disqualified under sec_1_468a-5t c sec_4951 of the code imposes a tax on each act of self-dealing between a disqualified_person and a_trust described in sec_501 sec_4951 of the code describes self-dealing as any act between the fund and a disqualified_person including direct or indirect sale exchange or leasing of real or personal_property lending of money or other extension of credit furnishing of goods services or facilities payment of compensation or payment or reimbursement of expenses and transfer to or use by or for the benefit of a disqualified_person of the fund's income or assets sec_4951 of the code states that for purposes of paragraph the payment of compensation and the payment or reimbursement of expenses by such trust to a disqualified_person for personal services which are reasonable and necessary to carrying out the exempt_purpose of the trust shall not be an act of self- dealing if the compensation or payment or reimbursement is not excessive plr-101826-08 sec_4951 of the code describes a disqualified_person as including contributors to the fund trustees of the fund owners of or more of a contributor to the fund officers directors and employees of contributors to the fund spouses ancestors lineal_descendants and spouses of lineal_descendants of the preceding persons corporations of which the preceding persons own more than of total combined voting power partnerships of which those persons own more than of the profits interest and trusts_and_estates in which those persons own more than of the beneficial interests conclusions based on the information submitted by taxpayer and expressly conditioned on the transaction taking place with no material_change to the terms and conditions described in material submitted to this office and on nrc approval of the transfer of the plant and related licenses to transferee we reach the following conclusions requested ruling the transfer will be treated as a transfer of the assets of taxpayer’s qdf in connection with the sale exchange or other_disposition by taxpayer of all or a portion of taxpayer’s interest in plant to transferee requested ruling taxpayer’s qdfs will not become disqualified by reason of the transfer of the assets in those funds to transferee’s qdfs requested ruling taxpayer’s qdfs will not recognize any gain_or_loss upon the transfer of the assets in those funds to the transferee’s qdfs requested ruling taxpayer will not recognize any income upon the transfer of the assets from taxpayer’s qdfs to the transferee’s qdfs requested ruling transferee’s qdfs established to hold the assets transferred from taxpayer’s qdfs will be treated as satisfying the requirements of sec_468a and sec_1_468a-6t requested ruling transferee will not recognize gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of assets of taxpayer’s qdfs to the transferee’s qdfs requested ruling transferee’s qdfs will not recognize gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of assets of taxpayer’s qdfs to the transferee’s qdfs plr-101826-08 requested ruling on the date of closing transferee’s qdfs will retain the same basis in the assets received from taxpayer’s qdfs as taxpayer’s qdfs had in such assets immediately prior to the transfer requested ruling based on the facts and circumstances we conclude first that the transferee is a disqualified_person and second that the payments of compensation by the qualified nuclear decommissioning funds to the transferee and its affiliates for the performance of personal services are not acts of self- dealing because they are reasonable in amount and necessary to carrying out the exempt purposes of the qualified nuclear decommissioning funds accordingly we find that payments of reasonable_compensation by the transferee’s qualified nuclear decommissioning funds to the transferee and its affiliates for the performance of reasonable and necessary services in connection with the entombment decontamination dismantlement removal and disposal of structures systems and components of the plants and any other services which would constitute nuclear decommissioning costs under sec_1 468a- 1t b will not constitute self-dealing requested ruling transferee as owner of the qdfs after the transfer will report as taxable_income any actual or deemed distributions from transferee’s qdfs if transferee pays amounts to any other person whether the affiliates of transferee or to an unrelated_person in connection with the provision of decommissioning services or for any other reason the person receiving the payment will report taxable_income in the amount of the payment requested ruling transferee will be entitled to current deductions for amounts paid_or_incurred in connection with the provision of decommissioning services in the year in which economic_performance occurs the person receiving these amounts whether the affiliates of transferee or an unrelated_person will report income as discussed in ruling above and will be entitled to a deduction in the year in which economic_performance occurs under sec_1_468a-2t d and e for example if the qdf pays dollar_figure in to a company affiliated with transferee for decommissioning services performed in the transferee has deemed income of dollar_figure under sec_1_468a-2t d and a deduction of the same amount when economic_performance occurs under sec_1_468a-2t e in addition the affiliated company has dollar_figure in income and may deduct such amounts as it pays for salaries equipment rent or any other expenses that satisfy the rules of chapter of the code requested ruling taxpayer and its affiliates will not report as taxable_income amounts transferee receives from transferee’s qdts as payments for or reimbursements of qualifying decommissioning expenditures or any actual or deemed distributions from transferee’s qdts plr-101826-08 requested ruling taxpayer and its affiliates will not be entitled to deductions for amounts transferee pays or incurs in connection with transferee’s provision of decommissioning services except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above specifically we do not rule or provide any opinion on whether any particular payments by transferee’s qdfs to transferee and its affiliates qualify as nuclear decommissioning costs within the meaning of sec_1_468a-1t b or whether those payments are reasonable in addition no opinion is expressed or implied concerning whether any of the entities described herein as disregarded for tax purposes are properly disregarded for tax purposes this letter_ruling is directed only to the taxpayer that requested it sec_6110 provides that this ruling 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 taxpayer’s authorized representative we are also sending a copy of this letter_ruling to the industry director natural_resources and construction lm nrc sincerely peter c friedman senior technician reviewer branch office of associate chief_counsel passthroughs and special industries


id office uilc cca_2009052912553047 -------------- number release date from -------------- sent friday date pm to ------------------- cc ----------------- subject form 1040-ss filing deadline extension questions dear ------- - here are the questions you asked and the answers please let me know if you have any more questions thank you and enjoy your weekend question sec_1 may taxpayers who file form 1040-ss receive an extension of the deadline for filing may taxpayers who file form 1040-ss be eligible for an automatic deadline extension to the fifteenth day of the sixth month under sec_1_6081-5 why does paragraph of irm only refer to the virgin islands answer sec_1 no there is no basis for an extension for filers of form 1040-ss sec_31_6081_a_-1 specifically provides that for any return or other document required by the federal_insurance_contributions_act fica an extension of the filing deadline is not allowed as form 1040-ss is used in part to report net_earnings_from_self-employment and to pay self-employment_tax on that income the form is a return required by fica as such no extension of time to file is allowed for this form no form 1040-ss is more analogous to form_941 filed by employers in the united_states than to form_1040 form 1040-ss does not report income_tax but rather self-employment_tax sec_1_6081-5 grants automatic extensions for filing returns of income and therefore does not apply to form 1040-ss which is not a return of income it is unclear but it is likely incorrect while the u s virgin islands are treated separately from other u s possessions elsewhere in the tax code compare sec_932 with sec_931 and sec_933 there does not appear to be any basis for its distinctive treatment in paragraph of irm irm also states the that u s virgin islands citizens and residents have an automatic_extension of time to file a form 1040-ss to june 15th to the extent that the deadline for virgin islands citizens and residents to file form 1040-ss is extended because of sec_1 a it is an incorrect interpretation of the law because form 1040-ss is not a return of income note that as this is an international tax situation there may be some other authority such as a tax_treaty that might provide for an extension


tcmemo_2008_253 united_states tax_court william c wyatt and lisa m wyatt petitioners v commissioner of internal revenue respondent docket no filed date robert j stientjes for petitioners michael w bitner for respondent memorandum findings_of_fact and opinion thornton judge respondent determined the following deficiencies addition_to_tax and penalty with respect to petitioners’ federal income taxes year deficiency dollar_figure big_number big_number addition_to_tax and penalty sec_6651 sec_6662 -- -- dollar_figure -- -- -- dollar_figure -- after concessions by petitioners these issues remain for decision whether petitioners are entitled to a theft_loss deduction for whether petitioners are liable for the sec_6651 addition_to_tax for and whether petitioners are liable for the sec_6662 accuracy-related_penalty for findings_of_fact the parties have stipulated some facts which are so found when they petitioned the court petitioners resided in maryland from through early anderson ark associates anderson ark marketed and sold investment programs anderson ark with over big_number clients was based in costa rica had administrative offices in hoodsport washington and maintained a presence in four other countries in date petitioners learned about anderson ark from a friend who claimed to have made money from anderson ark investments after attending a promotional meeting in hickory unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure all dollar amounts are rounded to the nearest dollar north carolina and learning about purported financial planning opportunities and reputed tax advantages william c wyatt petitioner husband decided to invest with anderson ark one program sold by anderson ark was called the look back program this program offered investors the opportunity to participate in purported joint ventures with anderson ark entities including macro media advertising l l c macro media which was purportedly engaged in the advertising of books electronic media and audiotapes one of the publications that macro media proposed to distribute was a book entitled 21st century tax strategies and structures by tara lagrand and gary kuzel the business ventures were purportedly to be financed in large part by loans from la maquina blanca s a a costa rican entity that anderson ark controlled as it turned out the loans were nonexistent another anderson ark investment program the loan four program also known as the factoring program was marketed as a short-term investment that would yield large returns this program was later revealed to be a pyramid scheme petitioners allege that between april and date they made six payments to anderson ark totaling dollar_figure for investments in the look back program and the loan four program it was apparently not until date however that petitioner husband effected his investment in the look back program by forming a partnership called wilwyatt joint_venture wilwyatt with macro media the purported partnership_agreement indicates that petitioner husband received a 95-percent interest in wilwyatt in return for a dollar_figure payment as part of petitioner husband’s participation in the look back program the loan four program or both anderson ark formed an entity in costa rica called acuerta com s a with petitioner husband as its owner acuerta com s a or some other anderson ark affiliate provided petitioners with one or more visa debit cards with which they could withdraw funds at automatic teller machines in the united_states between date and date petitioners withdrew at least dollar_figure from their investments with anderson ark on date the u s district_court for the district of massachusetts issued arrest warrants with respect to several principals of anderson ark the anderson ark defendants on date u s law enforcement officials and costa rican authorities raided anderson ark’s offices in santa ana costa rica on that same day u s law enforcement officials raided anderson ark domestic locations the copy of the purported partnership_agreement in the record is signed only by petitioner husband petitioners characterize the dollar_figure payment as a loan fee for a loan to finance their initial investment in wilwyatt included in the record is a copy of an undated promissory note signed only by petitioner husband indicating a dollar_figure 10-year loan to wilwyatt from la maquina blanca s a to be funded upon payment of dollar_figure in fees following their indictment on date in the anderson ark defendants were convicted in the u s district_court for the eastern district of california on charges of money laundering and or conspiracy to commit money laundering see 371_f3d_606 9th cir also in the same anderson ark defendants and two other anderson ark principals hereafter collectively referred to as the anderson ark defendants were indicted in the u s district_court for the western district of washington in the anderson ark defendants were convicted in the washington district_court on charges of conspiracy to defraud the united_states mail fraud wire fraud money laundering and aiding and assisting the filing of false tax returns with respect to their participation in anderson ark as well as counts of wire and mail fraud for defrauding anderson ark clients of over dollar_figure million in fees for the nonexistent loans associated with the look back program in addition one of the principals keith anderson was convicted of defrauding anderson ark clients of dollar_figure million with respect to their investments in the loan four program petitioners’ federal_income_tax return was due after an extension on date petitioners did not file their return until date the return was prepared by tara lagrand lagrand a certified_public_accountant who was affiliated with anderson ark and coauthored the aforementioned 21st century tax strategies and structures lagrand also prepared petitioners’ federal_income_tax return which she signed on date lagrand was later incarcerated for her involvement in anderson ark on their return petitioners claimed a dollar_figure loss from wilwyatt and resulting net_operating_loss carrybacks to and and a carryforward to petitioners claimed no theft_loss from their anderson ark investments with respect to any of these years in the notice_of_deficiency respondent disallowed the purported wilwyatt loss_carrybacks and carryforwards primarily on the grounds that petitioners had failed to establish that they had basis in wilwyatt the petition assigns error to this determination in an amendment to their petition petitioners claim a dollar_figure theft_loss deduction for with respect to their anderson ark investments opinion petitioners concede that respondent properly disallowed the dollar_figure passthrough loss from wilwyatt and the related carrybacks and carryforwards the primary issue for decision i sec_3 on brief petitioners claim that they are entitled to theft_loss deductions totaling dollar_figure we deem petitioners to have conceded that they are entitled to no greater theft_loss deduction whether petitioners are entitled to a theft_loss deduction as claimed in their amendment to petition i evidentiary issue before trial the parties stipulated certain facts and exhibits including petitioners’ exhibits 17-p and 22-p exhibit 17-p is a u s department of justice press release dated date this press release discusses the convictions of six individuals associated with anderson ark in the stipulation of facts petitioners reserved objections to this exhibit on the ground that it constitutes hearsay except for select portions of which petitioner asserts are admissible as an exception to the hearsay rules at trial petitioners’ counsel did not seek to withdraw this exhibit but requested that only certain sentences and sentence fragments should come into evidence as admissions of a party opponent and that everything else should be stricken from the record exhibit 22-p is a grand jury indictment case no 02-cr- in the u s district_court for the western district of washington against specified individuals associated with anderson ark it contains paragraph sec_1 through in the stipulation of facts petitioner reserved a hearsay objection to paragraph sec_28 through on the grounds that those paragraphs and only in the stipulations respondent also reserved an objection to exhibit 17-p on the grounds of hearsay but withdrew the objection at trial those paragraphs did not constitute admissions of a party opponent the court overruled petitioners’ objections to exhibits 17-p and 22-p on brief petitioners renew their objections to these exhibits the exhibit numbers indicate that these stipulated exhibits were offered by petitioners see rule b petitioners have offered no explanation as to why they have chosen to offer as their own exhibits documents in a form they find objectionable cf 529_us_753 generally a party introducing evidence cannot complain on appeal that the evidence was erroneously admitted in any event the court has not relied upon for their truth the portions of the exhibits to which petitioners object ii burden_of_proof in general_deductions are a matter of legislative grace 503_us_79 taxpayers are required to maintain records sufficient to enable the commissioner to determine their correct_tax liability sec_6001 116_tc_438 sec_1_6001-1 income_tax regs the records must substantiate both the amount and purpose of the claimed deductions higbee v commissioner supra pincite petitioners have the burden of proving they are entitled to the claimed deduction see rule a 290_us_111 petitioners argue that pursuant to sec_7491 the burden_of_proof should shift to respondent sec_7491 provides that if in any court_proceeding a taxpayer introduces credible_evidence with respect to any factual issue relevant to ascertaining the liability of the taxpayer the secretary shall have the burden_of_proof with respect to such issue this burden-shifting provision is inapplicable unless the taxpayer has among other things complied with all requirements under the code to substantiate any item and unless the taxpayer has maintained all records required under this title and has cooperated with reasonable requests by the secretary for witnesses information documents meetings and interviews sec_7491 and b the taxpayer has the burden of establishing that all the requirements of sec_7491 have been met higbee v commissioner supra pincite petitioners did not cooperate with respondent’s reasonable requests for witnesses information documents meetings and interviews as required by sec_7491 because of petitioners’ failure to cooperate in pretrial proceedings the court granted respondent’s rule c motion to compel responses to respondent’s interrogatories and his rule f motion_to_compel_stipulation moreover petitioners have failed to produce credible_evidence in that as discussed with more particularity infra they have failed to produce evidence of such quality that after critical analysis we would find it sufficient upon which to base a decision on the issue if no contrary evidence were submitted see higbee v commissioner supra pincite quoting h conf rept pincite 1998_3_cb_747 finally petitioners were required to keep records sufficient to establish whether they are liable for tax see sec_6001 sec_1_6001-1 income_tax regs petitioners have produced only fragmentary records as evidence of their investments in anderson ark-related programs petitioners have not alleged or shown that they have maintained all records required under sec_6001 and the regulations thereunder petitioners have not shown that sec_7491 applies to shift the burden_of_proof to respondent and the burden_of_proof remains on petitioners iii theft_loss deduction sec_165 generally allows a deduction for uncompensated losses resulting from theft for the year in which the taxpayer discovers the loss sec_165 c e petitioners claim to have made the following payments to anderson ark for investment purposes date total amount dollar_figure big_number big_number big_number big_number big_number big_number petitioners concede that they withdrew dollar_figure from anderson ark between date and date they claim that the amount of the purported theft consists of their dollar_figure of alleged total investments less their dollar_figure of withdrawals or dollar_figure respondent contends that petitioners’ total investments in anderson ark were less than the dollar_figure of their withdrawals which respondent suggests were likely to have included earnings on their investments we need not resolve that issue for even if we were to assume for purposes of argument that petitioners’ investments in anderson ark equaled at least the dollar_figure that they withdrew petitioners have failed to substantiate any additional_amount of investment and consequently have failed to show that they suffered a loss in particular other than petitioner husband’s vague and self-serving testimony there is no evidence in the record of the dollar_figure and dollar_figure investments that allegedly were made on august and respectively this court is not bound to accept a taxpayer’s self-serving unverified and undocumented testimony 112_tc_183 see also ganas v commissioner tcmemo_1990_143 affd without published opinion 943_f2d_1317 11th cir similarly petitioners have failed to substantiate the dollar_figure investment that they claim to have made on date attempting to substantiate this investment petitioners rely primarily on a photocopy of a facsimile document captioned wire disbursement inquiry which shows a dollar_figure early distribution from petitioner husband’s ira to key services corporation in albany new york for the benefit of petitioner husband the parties have stipulated that these funds were deposited into an account held by denarius financial group at keybank petitioner husband testified that this was the wire transfer one of the wire transfers that i used to move my money to anderson’s ark petitioner husband also testified however that he did not know how the funds went from denarius financial group to anderson ark in costa rica the record does not establish and petitioners have not explained the relationship if any between denarius financial group and anderson ark petitioners have not shown by competent evidence that the dollar_figure was ever invested in anderson ark because petitioners have failed to substantiate dollar_figure of their alleged dollar_figure investment in anderson ark we need not consider the evidence supporting the remaining dollar_figure of alleged investment inasmuch as this amount is less than the dollar_figure that petitioners admit having withdrawn from anderson ark moreover because of the fragmentary nature of petitioners’ records we have no great confidence that the amount that petitioners withdrew was not greater than they have admitted because petitioners have failed to show that they invested more with anderson ark than they withdrew they have failed to establish the existence or amount of any loss nor have they presented sufficient evidence to establish a rational basis for estimating any such loss see 39_f2d_540 2d cir hossbach v commissioner tcmemo_1981_291 moreover the record does not support a finding that if a theft_loss did occur petitioners sustained it in a theft_loss is treated as sustained during the taxable_year in which the taxpayer discovers the loss sec_165 the regulations provide that if in the year of discovery there exists a claim for reimbursement with respect to which there is a reasonable_prospect_of_recovery then no portion of the loss with respect to which reimbursement may be received is sustained for purposes of sec_165 until the taxable_year in which it can be ascertained with reasonable certainty whether or not such reimbursement will be received sec_1_165-1 income_tax regs whether a reasonable_prospect_of_recovery exists with respect to loss reimbursement claim is a question of fact to be determined upon an examination of all facts and circumstances sec_1_165-1 income_tax regs a reasonable_prospect_of_recovery exists when the taxpayer has bona_fide claims for recoupment from third parties or otherwise and when there is a substantial possibility that such claims will be decided in his favor 61_tc_795 affd 521_f2d_786 4th cir the loss deduction need not be postponed however if the potential for success of a claim is remote or nebulous id the determination as to whether there is a reasonable_prospect_of_recovery is based primarily on objective factors the taxpayer’s subjective belief may also be considered but it is not the sole or controlling criterion id see 128_f3d_1410 10th cir affg tcmemo_1995_342 petitioners have failed to establish that they had no reasonable_prospect_of_recovery at the end of petitioner husband testified that in weekly telephone calls with anderson ark representatives before date he was told that anderson ark would be vindicated because everything they did was legal he testified that he later participated in several conference calls with other investors and attorneys in costa rica who were trying to form a group of former anderson ark investors to fund a lawsuit he testified that he declined to retain an attorney because i’d thrown enough money down there and i didn’t think that it would be profitable to go any further with it and because nobody really knew where the money was other than this uncorroborated testimony there is no evidence that petitioners had no reasonable prospect for recovery in of amounts allegedly invested with anderson ark and not already withdrawn other than allegedly participating in some conference calls petitioners apparently made no efforts to recover the sizeable amounts they now claim to have been stolen tellingly petitioners retained lagrand their anderson ark-affiliated planner who coauthored the book that was implicated in petitioners’ alleged fleecing by anderson ark to prepare not only their return claiming significant pass-through losses from wilwyatt but also their federal_income_tax return which was prepared in date ie the year after petitioners allegedly discovered the theft it seems to us implausible that in petitioners would have simply abandoned any efforts to recover over dollar_figure in funds allegedly stolen by anderson ark and yet would have continued as late as date to rely upon lagrand to prepare their tax returns on reply brief petitioners attempt to minimize the significance of their continued involvement with tara lagrand stating lagrand was not responsible for the theft of the money petitioners do not blame lagrand for the theft of the money and simply chose to continue using her certified public accounting services after the discovery of the theft by the principals of anderson’s ark inconsistently in their pretrial memorandum petitioners state that after lagrand prepared their return they learned that the accountant was in league with continued in the first half of several anderson ark defendants had been arrested and indicted petitioner husband was apparently aware of these legal difficulties whether he chose to believe as he had been told that anderson ark ultimately would be vindicated or whether he was indifferent to anderson ark’s legal problems because he had already withdrawn all or most of the funds he had invested with anderson ark or whether he made a calculated decision to continue relying on lagrand’s services in hopes of realizing the bogus tax losses from his anderson ark investments the result is the same petitioners have failed to establish that it was reasonably certain at the end of that they would not recover their alleged anderson ark losses iv addition_to_tax and penalty sec_6651 imposes an addition_to_tax for failure_to_file a federal_income_tax return by its due_date determined with regard to any extension of time for filing previously granted the addition equal sec_5 percent for each month that the return is late not to exceed percent id unless otherwise provided the commissioner has the burden of production with respect to this addition_to_tax sec_7491 petitioners’ federal_income_tax return was due on date under an extension of time to file their return continued the investment managers who defrauded petitioners the parties have stipulated that the irs received petitioners’ tax_return on date respondent has met his burden of production pursuant to sec_7491 the addition_to_tax under sec_6651 shall not apply if it is shown that the failure to timely file is due to reasonable_cause and not due to willful neglect sec_6651 a delay is due to reasonable_cause if the taxpayer exercised ordinary business care and prudence and was nevertheless unable to file the return within the prescribed time sec_301_6651-1 proced admin regs petitioners bear the burden of proving that their failure to timely file was due to reasonable_cause and not to willful neglect see higbee v commissioner t c pincite petitioners argue that they failed to file their return on time because lagrand falsely informed petitioners that she had filed a second request for extension of time to file their federal_income_tax return and that the due_date would be validly extended from date until date a taxpayer has however a personal and nondelegable duty to file a timely return reliance on a bookkeeper or accountant does not provide reasonable_cause for an untimely filing 469_us_241 sparkman v commissioner tcmemo_2005_136 affd 509_f3d_1149 9th cir petitioners have not established reasonable_cause for their late filing petitioners are liable for the sec_6651 addition_to_tax pursuant to sec_6662 and b and a taxpayer may be liable for a penalty of percent on the portion of an underpayment_of_tax that is attributable to negligence or disregard of rules or regulations or any substantial_understatement of tax a substantial_understatement of tax is defined as an understatement_of_tax that exceeds the greater of percent of the tax required to be shown on the tax_return or dollar_figure see sec_6662 on their income_tax return petitioners claimed a dollar_figure loss which they now concede to have been erroneous resulting in a dollar_figure deficiency respondent has met his burden of production with respect to the accuracy-related_penalty no penalty shall be imposed under sec_6662 with respect to any portion of an underpayment if it is shown that there was reasonable_cause and that the taxpayer acted in good_faith sec_6664 whether a taxpayer acted in good_faith depends upon the facts and circumstances of each case sec_1_6664-4 income_tax regs reliance in good_faith on the advice of a qualified adviser may constitute reasonable_cause id reliance may be unreasonable if the taxpayer knows or should have known that the adviser has an inherent conflict of interest 115_tc_43 affd 299_f3d_221 3d cir rogers v commissioner tcmemo_2005_248 petitioners did not obtain independent advice or look beyond their anderson ark-affiliated accountant lagrand in claiming a dollar_figure tax loss from wilwyatt which they now concede to have been erroneous and for which they offer no substantive justification as far as the record reveals petitioners took no steps to verify that lagrand had sufficient expertise or was sufficiently independent of anderson ark to justify their reliance lagrand did not testify at trial and the specific nature of her advice to petitioners is unclear we conclude that petitioners did not make a good_faith effort to determine their tax_liability that it was not reasonable for them to rely on lagrand and that they are liable for the sec_6662 penalty for substantial_understatement of their tax_liability to reflect the foregoing and concessions by petitioners decision will be entered for respondent