office_of_chief_counsel internal_revenue_service memorandum number release date cc nta slhartford postn-136718-11 uilc date january to frederic m blinn local taxpayer_advocate indianapolis from susan l hartford technical advisor to the special counsel national_taxpayer_advocate subject timeliness of refund claim this chief_counsel_advice responds to your request for assistance this advice may not be used or cited as precedent legend taxpayer ---------------------- amount1 dollar_figure------------ amount2 dollar_figure--------- amount3 dollar_figure--------- amount4 dollar_figure------------- amount5 dollar_figure--------- date ------------------- date ------------------- date -------------------------- postn-136718-11 date -------------------------- date ------------------------- date ------------------------- issue whether taxpayer’s form_843 was a permissible amendment to her timely filed form 1040x rather than a new untimely claim_for_refund for tax_year conclusion sec_6511 provides that a refund cannot be allowed unless a timely claim_for_refund is filed taxpayer timely filed a form 1040x for tax_year the facts upon which the later-filed form_843 did not require an investigation of new matters as taxpayer was merely reiterating the claim she had made on form 1040x moreover the commissioner had overlooked the grounds upon which she was claiming a refund in the form 1040x therefore the form_843 should be viewed as a permissible amendment to the form 1040x and her refund for tax_year is not time-barred facts beginning in and continuing until sometime in early taxpayer invested dollar_figureamount1 with a businessman for tax_year taxpayer received a form int reporting dollar_figureamount2 in interest_income and reported that amount on her form_1040 filed on date in taxpayer learned the businessman had been embezzling funds and the investment was a ponzi scheme taxpayer filed form 1040x for eliminating the dollar_figureamount2 as interest_income as she had never actually received any interest_income as a result taxpayer timely claimed a refund for of dollar_figureamount3 the irs received the form 1040x on date because taxpayer was able to recover dollar_figureamount4 of the dollar_figureamount1 she had invested taxpayer claimed the remaining dollar_figureamount5 as a theft_loss on form_1040 for tax_year on date the irs issued letter to taxpayer disallowing her claim_for_refund for the tax_year the explanation for the denial was as follows any loss arising from theft is treated as sustained in the year in which the taxpayer discovers the loss see sec_165 the amount of a theft_loss is reduced by any recovery in addition a taxpayer is not entitled to a theft_loss if she has a claim for reimbursement and there is a reasonable_prospect_of_recovery see sec_1_165-1 and a on date taxpayer filed form_843 for tax_year again requesting a refund for that year on the theory that the interest_income originally reported was fictitious and the postn-136718-11 money taxpayer actually received was a return_of_capital the irs received form_843 on date on date taxpayer contacted the irs to ascertain the status of the form_843 the irs responded on date indicating the irs was still doing research taxpayer never heard anything further from the irs law and analysis as a preliminary matter we note that our analysis focuses on the timeliness of a refund claim not the proper income_tax treatment of the losses resulting from this failed investment scheme we have confirmed with cc ita that taxpayer’s treatment of the fictitious interest_income for and was properly reflected on her form sec_1040x in addition we have confirmed with cc ita that the amount of funds taxpayer did not recover from the scheme dollar_figureamount5 was properly claimed as a loss on taxpayer’s form_1040 sec_6402 of the internal_revenue_code authorizes the secretary_of_the_treasury to make refunds when a taxpayer overpays taxes the regulations on procedure and administration under sec_6402 provide that refunds of overpayments may not be allowed or made after the expiration of the statutory period of limitation properly applicable unless before the expiration of such period a claim therefor has been filed by the taxpayer sec_301_6402-2 sec_6511 provides that a claim for credit or refund of an overpayment of any_tax in respect of which the taxpayer is required to file a return shall be filed within three years from the time the return was filed or two years from the time the tax was paid whichever of such periods expires later or if no return is filed by the taxpayer within two years from the time the tax was paid sec_6511 provides that no credit or refund shall be allowed or made after the expiration of the period of limitation prescribed in sec_6511 unless a claim for credit or refund is filed by the taxpayer within such period in the present case the three-year period prescribed by sec_6511 in which to file a claim_for_refund for expired on date thus the form 1040x for that the irs received on date was a timely refund claim for the form_843 for taxpayer had initially reported interest_income on her tax_return as well and subsequently filed a form 1040x for that year claiming zero interest_income the irs issued a partial notice of claim disallowance for but the explanation for the partial_disallowance was not attached to the notice we received and we have been unable to locate a copy therefore we have focused our analysis on the tax_year date was a sunday and date was emancipation day a legal_holiday in the district of columbia pursuant to sec_7503 a claim_for_refund for the tax_year is considered timely filed if filed on the next succeeding day that is not a saturday sunday or legal_holiday postn-136718-11 however was received by the irs on date and was therefore an untimely refund claim unless it relates back to the timely refund claim filed on form 1040x two considerations are relevant in determining whether a supplemental claim_for_refund is considered an amendment to the original claim rather than an untimely new claim if these two requirements are satisfied there is no specific time period within which a supplemental claim must be filed first the supplemental claim will not be considered an amendment to the original claim if it would require the investigation of new matters that would not have been disclosed by the investigation of the original claim 302_us_517 105_f2d_183 2d cir such a supplemental claim is a new claim rather than an amendment to the existing timely claim the policy ground for not allowing time-barred claims that vary from timely claims is that t he commissioner does not possess the time or resources to perform extensive investigations into the precise reasons and facts supporting every taxpayer s claim_for_refund 444_f2d_1391 5th cir second a supplemental claim will not generally be considered an amendment if the irs took final action on the original claim by either rejecting or allowing the claim in whole or in part in either case the supplemental claim is untimely because once the irs has taken final action on the original claim there is no longer any claim left to amend 338_fsupp_786 e d n y aff’d 469_f2d_1394 2d cir 109_f2d_640 1st cir aff’g u s t c cch d mass there are certain narrow exceptions to the rule concerning final action by the irs for example the irs’s disallowance of a claim will not constitute final action by the irs if the irs did not fully consider all grounds for the refund 289_us_28 in bemis bros bag co the irs denied a claim_for_refund by rejecting one of the three grounds stated in the claim while overlooking two independent grounds for the claim id pincite the taxpayer then submitted an amended claim reiterating the grounds stated in the original claim the supreme court held that the claim as amended was timely the irs has adopted this exception in this regard the irm contains the following exception where the service’s final action was insufficient there is a narrow exception to the rule concerning the effect of the service’s disallowance of a claim the disallowance will not constitute final action if the service did not fully consider all grounds for the refund and the taxpayer asks for reconsideration of those grounds 289_us_28 the service overlooked two independent grounds for the claim irm b moreover the irm notes that o verlooking a ground in the claim_for_refund is not the same as making an incorrect determination regarding the facts or law of a claim id postn-136718-11 applying the logic of united_states v andrews and pink v united_states supra taxpayer’s form_843 for tax_year did not require investigation of new matters the form_843 and the form 1040x claimed the same basis for a refund - namely that taxpayer was claiming zero interest_income rather than the interest_income amount initially reported on her form_1040 the facts upon which the form_843 was based would have been ascertained by the commissioner in determining the merits of the form 1040x if the commissioner had evaluated the precise grounds in the form 1040x rather than concluding that taxpayer was trying to recoup her entire loss from the investment scheme in addition although the irs acted on the form 1040x by issuing a notice of claim disallowance for that was not final action because the irs overlooked the grounds stated in the form 1040x taxpayer was not seeking to claim the amount of her loss from the investment scheme when she filed form 1040x rather taxpayer was seeking a refund as a result of improperly including a fictitious amount of interest_income on her original return for tax_year thus applying the supreme court’s logic taxpayer’s claim as amended does not differ in matter of substance from the claim as first presented bemis bro bag co u s pincite taxpayer reiterated that she was claiming zero interest_income for those two years and therefore was requesting a refund - a refund which had nothing to do with the amount of her loss from the investment scheme that she was unable to recover consequently taxpayer’s form_843 should be viewed as a permissible amendment to the timely filed form 1040x and therefore her refund for tax_year is not time-barred in providing this advice we coordinated with cc pa and they concur with the conclusion set forth above this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call if you have any further questions


internal_revenue_service number release date index number ------------------------------------------------------------------ ------------------------------------------------------------------ --------------------------- --------------------------------------- ---------------------- --------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------- id no ----------------- telephone number --------------------- refer reply to cc psi b3 plr-119527-15 date date legend trust ------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------- ---------------------------------------------------------- ------------------------------------------------------------ ----------------------------------------- --------------------------------------------- a --------------------------------- b -------------------------- ------------------------------------------------- x --------------------------- ----------------------------------------------- state ------------ to whom it may concern this is in reply to your letter of date and supplemental correspondence submitted on behalf of trust requesting a ruling under sec_1361 of the internal_revenue_code code that trust is eligible to be a qualified_subchapter_s_trust and thus an eligible shareholder of x an s_corporation plr-119527-15 facts a created trust for the benefit of child b b is a citizen_of_the_united_states article seventh sec_3 of the trust agreement provides that the income from trust shall be paid in convenient installments at least quarterly to b until complete distribution of the trust or his prior death article seventh sec_3 of the trust agreement further provides that t he trustee may also pay to the child such sums from the principal of trust as the trustee deems necessary or advisable from time to time for the health maintenance in reasonable comfort education including postgraduate and best interests of the child and his descendants individually and as a group considering the income of each of them from all sources known to the trustee no payment made for a descendant of the child shall be charged against the share hereinafter provided for the descendant or his ancestor or descendants article seventh sec_3 of the trust agreement continues to provide i t is my intention that my child be the primary beneficiary of trust accordingly the trustee may disregard the interests of the remaindermen of such trust in the investment of the trust assets and in making discretionary distributions of trust property to the child pursuant to the laws of state which govern trust interested parties may enter into a binding non-judicial settlement agreement with respect to the validity interpretation or construction of the terms of a_trust that is final and binding on the trustee on all beneficiaries of the trust both current and future and on all other interested persons as if ordered by a court pursuant to this procedure the trustees and beneficiary of trust entered into a non-judicial settlement agreement regarding the administration of trust under the terms of the agreement each party agreed that the power of the trustees to distribute the principal of trust pursuant to article seventh sec_3 of the trust agreement is limited to a distribution to b and is not for the benefit of any other person during the life of b that the terms of the trust agreement governing trust do not authorize or permit distributions of principal to any descendant of b directly or indirectly during the life of b and that principal distributions from trust may only be made for b’s benefit that the provisions of trust do not create nor did a intend to create any right claim or cause of action in any such descendant as against b or the trustees to compel or require b or the trustees to pay over any part or all of a principal distribution to such descendants or any of them whether or not the trustees took into account the health maintenance in reasonable comfort education and best interests of plr-119527-15 those descendants in determining the amount of the principal distribution law sec_1361 of the code provides that in the case of a qualified_subchapter_s_trust with respect to which a beneficiary makes an election under sec_1361 such trust shall be treated as a_trust described in sec_1361 relating to trusts that may be shareholders of a small_business_corporation under sec_1361 sec_1361 provides that for purposes of sec_678 the beneficiary of a qualified_subchapter_s_trust shall be treated as the owner of that portion of the trust consisting of stock in an s_corporation with respect to which the election under d is made sec_1361 provides in general for the time and manner in which a beneficiary of a qualified_subchapter_s_trust may elect to have the provisions of sec_1361 apply sec_1361 defines the term qualified_subchapter_s_trust as a_trust all of the income within the meaning of sec_643 of which is distributed or required to be distributed currently to one individual who is a citizen or resident_of_the_united_states in addition the terms of the trust must require that during the life of the current income_beneficiary there shall be only one income_beneficiary of the trust any corpus distributed during the life of the current income_beneficiary may be distributed only to such beneficiary the income_interest of the current income_beneficiary in the trust shall terminate on the earlier of such beneficiary's death or the termination of the trust and upon the termination of the trust during the life of the current income_beneficiary the trust shall distribute all of its assets to such beneficiary sec_643 provides that for purposes of subpart a b c and d of the code the term income when not preceded by the words taxable distributable net undistributed net or gross means the amount of income of the estate_or_trust for the taxable_year determined under the terms of the governing instrument and applicable local law items of gross_income constituting extraordinary dividends or taxable stock_dividends which the fiduciary acting in good_faith determines to be allocable to corpus under the terms of the governing instrument and applicable local law shall not be considered income sec_1_643_c_-1 of the income_tax regulations provides that the term ‘beneficiary‘ includes any person with respect to an amount used to discharge or satisfy that person's legal_obligation as that term is defined in sec_1_662_a_-4 plr-119527-15 sec_1_662_a_-4 provides in part that any amount which pursuant to the terms of a will or trust instrument is used in full or partial discharge or satisfaction of a legal_obligation of any person is included in the gross_income of such person under sec_662 or whichever is applicable as though directly distributed to him as a beneficiary conclusion based on our examination of the trust described above and the additional information submitted we conclude that trust meets the requirements of sec_1361 of the code except as specifically ruled upon above no opinion is expressed concerning the federal_income_tax consequences of the transaction described above under any other provisions of the code specifically no opinion is expressed concerning whether x meets the requirements of a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representatives the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination sincerely bradford r poston senior counsel branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury employer_identification_number contact person - id number contact telephone number uil internal_revenue_service p o box cincinnati oh number release date date date legend b grant program c nominating organization d selection committee dear we have considered your request dated date for advance approval of your grant-making program under sec_4945 of the internal_revenue_code our records indicate that you have been recognized as exempt from federal_income_tax under sec_501 of the code and that you are classified as a private_foundation as defined in sec_509 your letter indicates that you will operate a grant-making program called b you were established to nurture and promote artists and art forms to support innovation to encourage diversity to promote interdisciplinary collaboration among the arts and to demonstrate an impact on the community the purpose of your grant program is to identify and award artists who demonstrate the capacity to have an impact on their communities by working on innovative and interdisciplinary art initiatives the impact of these initiatives would include but not be restricted to developing social understanding improving environment enhancing education and encouraging wellness for communities the purpose will be to emphasize the notion that art is basic to the culture and well being of a community the number of annual grants will be determined by the quality of applications and the amount of your foundation’s funds available it is anticipated that you will provide nine to twelve grants within the next three years grants of at least dollar_figure for up to but not exceeding three years will be awarded across all artistic disciplines the eligible pool of grant recipients includes artists from across the entire united_states a key resource will be c which includes over art organizations practicing at these organizations are both master and emerging artists providing a large pool of potential nominations announcements of the grants will be published to a select group of artists whose work is recognized as having community impact through collaboration or whose work has the potential for achieving the defined purpose of the grant often the potential applicants will have completed a residency course of work or seminar for which they were vetted to ensure a minimum standard of excellence however there is no particular defined class or group of artists that the grants will be restricted to the residencies seminars and other programs reviewed by your foundation for potential applicants are non-discriminatory art forms supporting diversity and promoting interdisciplinary collaboration among the arts and demonstrating an impact on the community however you intend to restrict your invitations to applicants who have already demonstrated excellence in the arts by limiting potential applicants you will be better able to reduce administrative costs while utilizing your resources for actual grants in order to carry out your exempt_purpose of nurturing and promoting artists and announcements of the grants will be sent to c the home_office of c will be requested to send out your newsletter to all of its member organizations which will include information about the grants available through your foundation key persons who play the role of selecting nurturing and supporting artists at each organization will be requested to consider nominating or consider requesting an invitation for an artist who meets the criteria for receiving a grant from your foundation you will request applications and nominations throughout the year for each applicant the following criteria will be used for selection successful completion of a vetted residency program course of study or seminar demonstrated interdisciplinary collaboration or an innovative idea for collaboration demonstrated results from an artistic collaboration on community nomination from an individual or community organization that describes the work and results of that work and or potential that the artist’s work has for community impact applicants will be asked to respond to the mission of your foundation nurturing and promoting artists and art forms supporting innovation encouraging diversity promoting interdisciplinary collaboration among the arts and demonstrating an impact on the community in addition each applicant’s artistic vision will be evaluated on specificity inclusion of interdisciplinary and community values and innovation particular attention will be paid to the applicant’s sensitivity to the power that art has in effecting community impact toward positive change your board_of directors by majority vote will make the grantee selections after considering the recommendations from the grant committee of your foundation the current grant committee members are d all of these individuals have extensive experience in both performance of the arts as well as in administration of a program or institution currently the president and two board members artist administrators are on the selection committee to be eligible to serve on the committee a director must be an artist who has been or is presently involved in administration of an art program or organization devoted to the arts a committee member may be removed by a maj ority vote of your board_of directors whenever in its judgment the best interest of the corporation will be served thereby similarly your board_of directors may replace such committee members with other board members who are eligible to serve the board_of directors is required to be made up of at least two directors who are attorneys accountants or other professionals with expertise in fiduciary matters with at any time that the number of directors exceeds three at least two directors who are artists and have been or are presently involved in administration of art programs or organizations devoted to the arts no relatives of the members of the selection committee or of your officers and directors or substantial contributors are eligible for the grant award renewal of a grant depends on the following conditions the recipients must provide specific progress reports at least every quarter to your board_of directors reports will include action progress taken budget allocations and any changes to the original objectives of the project in the event that the initial grant is for a single year the recipient demonstrates specific results during the first year having successfully completed the project with a specific plan goal to extend the reach and impact of the project to additional communities inthe event the recipient has received a multiple year grant the recipient must have specific objectives for each of the two or three years and must have demonstrated progress toward those goals in addition to quarterly reports requested from grant recipients a conference call or interview will be held with applicants at the six-month point to determine progress toward objectives transformation of recipient’s approach thinking unanticipated barriers to completion and specific next steps in the plan for project completion grants will be awarded in three stages to ensure ongoing evaluation and objectives will be linked with the stages of the project to assist in monitoring if the recipients do not provide reports demonstrate an ongoing vision and dedication to their original proposals collaborate with other artists and community supports or show progress on stated objectives you will require that the grant money be returned to you and shall take all reasonable and necessary steps to recover such funds no further redistributions will be made by the foundation in that event you will maintain records including i ii ill iv the names and addresses of all grant recipients the purpose and amount of each grant the manner of selection of each successful grant applicant records showing the results achieved by individual artists sec_4945 and b of the code impose certain excise_taxes on taxable_expenditures made by a private_foundation sec_4945 of the code provides that the term taxable_expenditure means any amount_paid or incurred by a private_foundation as a grant to an individual for travel study or other similar purposes by such individual unless such grant satisfies the requirements of subsection g sec_4945 of the code provides that sec_4945 shall not apply to individual grants awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance if it is demonstrated that the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 and is to be used for study at an educational_organization described in sec_170 ii the grant constitutes a prize or award which is subject_to the provisions of sec_74 if the recipient of such prize or award is selected from the general_public or the purpose of the grant is to achieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar capacity skill or talent of the grantee sec_53_4945-4 of the regulations provides that to secure approval a private_foundation must demonstrate that i ii iii its grant procedure includes an objective and nondiscriminatory selection process such procedure is reasonably calculated to result in performance by grantees of the activities that the grants are intended to finance and the foundation plans to obtain reports to determine whether the grantees performed activities that the grants are intended to finance based on the information submitted and assuming your award programs will be conducted as proposed with a view to provide objectivity and nondiscrimination in making the awards we have determined that your procedures for granting the awards comply with the requirements contained in sec_4945 of the code and that awards granted in accordance with such procedures will not constitute taxable_expenditures within the meaning of sec_4945 this determination is conditioned on the understanding that there will be no material_change in the facts upon which it is based it is further conditioned on the premise that no grants will be awarded to foundation managers or members of the selection committee or for a purpose that is inconsistent with the purpose described in sec_170 of the code the approval of your award program procedures herein constitutes a one-time approval of your system standards and procedures designed to result in awards which meet the requirements of sec_4945 of the code this determination only covers the grant programs described above thus approval shall apply to subsequent award programs only as long as the standards and procedures under which they are conducted do not differ materially from those described in your request we have not considered whether grants made under your procedures are excludable from the gross_income of recipients under sec_117 of the code any funds you distribute to individuals must be made on a true charitable basis in furtherance of the purposes for which you are organized therefore you should maintain adequate_records and case histories so that any or all award distributions can be substantiated upon request by the internal_revenue_service this determination is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited as a precedent you must report any future changes in your grant making procedures please keep a copy of this letter in your permanent records we have sent a copy of this letter to your representative as indicated in your power_of_attorney a you have any questions please contact the person whose name and telephone number are shown above sincerely yours robert choi director exempt_organizations rulings and agreements


internal_revenue_service number release date index number --------------------- ------------------------------ ---------------------------------- ------------------------- ----------------------------------- ein ---------------- - dear ------------ dear ------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------- id no ------------- telephone number --------------------- refer reply to cc ita plr-116415-04 date this letter responds to your letter dated date submitted on the above-named taxpayer requesting that the taxpayer's form_8716 be considered timely filed under the authority of ' of the procedure and administration regulations the information submitted indicates that the taxpayer a personal_service_corporation incorporated on ---------------------- but did not conduct any business until ----- ------------------ the taxpayer's form_8716 was due ------------------------ but was not filed by that date however the information furnished shows that the taxpayer intended to file form_8716 on a timely basis due to an error or misunderstanding the form_8716 was not timely filed the error was not due to any lack of due diligence or prompt action on the part of the taxpayer sec_1_444-3t of the temporary income_tax regulations provides among other requirements that form_8716 must be filed by the earlier of i the 15th day of the fifth month following the month that includes the first day of the tax_year for which the election will first be effective or ii the due_date without regard to extensions of the income_tax return resulting from the ' election sec_301_9100-1 set forth rules respecting the granting of extensions of time for making certain elections under these rules the commissioner in his discretion may grant a reasonable extension of time to make a regulatory election under subtitle a provided the taxpayer acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government sec_301_9100-2 sets forth rules governing automatic extensions for regulatory elections including elections to use other than the required tax_year under ' if the provisions of ' do not apply to the taxpayer's situation as in the instant case the provisions of ' other extensions may apply plr-116145-04 sec_301_9100-3 sets forth standards that the commissioner will employ in determining whether to grant discretionary relief in situations that do not meet the requirements of ' the standards applied are whether the taxpayer acted reasonably and in good_faith in the matter and whether the granting of relief will prejudice the interests of the government generally a taxpayer will be deemed to have acted reasonably and in good_faith where the taxpayer reasonably relied on a qualified_tax professional and that professional failed to make or advise the taxpayer to make the election at issue the information submitted and representations furnished by the taxpayer and its tax professionals establish that it acted reasonably and in good_faith in respect of this matter furthermore we have determined that the granting of relief in this case will not prejudice the interests of the government within the intendment of ' c accordingly the requirements of ' for the granting of relief have been satisfied an electing personal_service_corporation must comply with the minimum distribution_requirements of sec_280h for each year a sec_444 election is in effect f the personal_service_corporation does not meet these requirements the applicable_amounts it may deduct for payments made to employee-owners may be limited within days of the date of this ruling the taxpayer should file with its appropriate irs service_center a form_8716 electing to use a tax_year ending ------------ ------------------- effective for its first tax_year beginning ---------------------- and ending ----- --------------------------- a copy of this letter_ruling should accompany such submission and the taxpayer should type or print at the top of the form afiled under ' of the regulations except for the specific ruling above which is restricted to the filing of form_8716 we express or imply no opinion concerning the federal_income_tax consequences of the facts of this case under any other provision of the code plr-116415-04 this ruling is directed only to the taxpayer who requested it according to ' k this ruling may not be used or cited as precedent enclosure copy for ' purposes sincerely william jackson chief branch office of associate chief_counsel income_tax and accounting


t c memo united_states tax_court dwayne worth champ petitioner v commissioner of internal revenue respondent docket no filed date dwayne worth champ pro_se cheryl m d rees for respondent memorandum opinion dinan special_trial_judge this case was heard pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_182 unless otherwise indicated all section references are to the internal_revenue_code in effect for the taxable_year in issue all rule references are to the tax_court rules_of_practice and procedure respondent determined a deficiency in petitioner's federal_income_tax for in the amount of dollar_figure the issue for decision is whether petitioner received and failed to report income during some of the facts have been stipulated and are so found the stipulations of fact and attached exhibits are incorporated herein by this reference petitioner resided in charlottesville virginia on the date the petition was filed in this case petitioner's occupation was not revealed in his petition or by the evidence presented at trial from the limited record in this case we have gleaned that petitioner worked as a construction laborer on his return petitioner reported receiving the following amounts during s di gregorio son inc l f jennings inc dulles drywall inc charles town races inc dollar_figure big_number in the statutory_notice_of_deficiency respondent determined that petitioner received and failed to report employee wages in the amount of dollar_figure from american property construction company american nonemployee compensation in the amount of dollar_figure from d b associates inc d b and nonemployee compensation in the amount of dollar_figure from bryant dickinson drywall bryant respondent's determinations in the statutory_notice_of_deficiency are presumed to be correct and petitioner bears the burden of proving otherwise rule a 290_us_111 sec_61 includes in gross_income all income from whatever source derived including but not limited to compensation_for services sec_61 american petitioner concedes that he received dollar_figure for services performed as american's employee we hold that such amount is includable in his gross_income sec_61 d b petitioner concedes that he received nonemployee compensation from d b for services performed during he disputes however respondent's determination that he received a total of dollar_figure from d b respondent submitted photocopies of of d b's canceled checks made out to petitioner in the total amount of dollar_figure at trial petitioner verified his signature on photocopies of the back of each of the checks based on this evidence and petitioner's concession we find that he received nonemployee compensation from d b in the amount of dollar_figure during and hold that such amount is includable in his gross_income and is subject_to self-employment taxes bryant petitioner concedes that he received dollar_figure for services performed for bryant he does not concede however that he is subject_to self-employment taxes for such amount sec_1401 imposes a tax on self-employment_income for old-age survivors and disability insurance an additional tax for hospital insurance is imposed on self-employment_income pursuant to sec_1401 self-employment_income is defined as the net_earnings_from_self-employment derived by an individual during any taxable_year sec_1402 the phrase net_earnings_from_self-employment is in turn defined as the gross_income derived by an individual from any trade_or_business carried on by such individual less any attributable deductions sec_1402 petitioner presented no evidence or testimony which supports a finding contrary to respondent's determination and we accordingly sustain such determination to reflect the foregoing decision will be entered for respondent


internal_revenue_service number release date index number ------------------------------------------------ --------------------------- ------------------------ --------------------------------- ----------------------------- - department of the treasury washington dc person to contact ----------------------------------------------------- --------- telephone number --------------------- refer reply to cc psi - plr-118044-04 date date ------------- ----------------------- ------------------------- --------------------------- --------------------------- legend lp --------------------------------------------------- a b state d1 d2 year dear ------------------ requesting that the service grant lp an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to make an election under sec_754 of the internal_revenue_code the information submitted states that lp is a state limited_partnership formed on d1 on d2 of year a a partner of lp died b lp's general_partner represents that lp having relied on a professional tax advisor who failed to advise it of the availability and benefits of an election under sec_754 filed its tax_return for the year taxable_year without a sec_754 election to adjust the basis of the partnership property this responds to a letter dated date submitted on behalf of lp ------------------ ------- sec_754 provides that a partnership may elect to adjust the basis of sec_1_754-1 of the income_tax regulations provides that an election sec_301_9100-1 provides that the commissioner may grant a reasonable plr-118044-04 partnership property in the case of a transfer of a partnership_interest the election applies with respect to all distributions of property by the partnership and to all transfers of interests in the partnership during the taxable_year with respect to which such election is filed and all subsequent taxable years under sec_754 to adjust the basis of partnership property under sec_734 and sec_743 with respect to a distribution_of_property to a partner or a transfer of an interest in a partnership shall be made in a written_statement filed with the partnership return for the taxable_year during which the distribution or transfer occurs for the election to be valid the return must be filed not later than the time prescribed by sec_1 e including extensions thereof for filing the return for that taxable_year extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin will use to determine whether to grant an extension of time to make the election making certain elections determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result lp is granted an extension of time for making the sec_754 election until days following the date of this letter the election should be made in a written_statement filed with the appropriate service_center for association with lp’s tax_return for the year taxable_year a copy of this letter should be attached to the sec_754 election a copy is enclosed for that purpose sec_301_9100-2 provides the rules governing automatic extensions of time for sec_301_9100-2 and sec_301_9100-3 provide the standards the commissioner based solely on the information submitted and the representations made we sec_301_9100-3 provides the standards the commissioner will use to pursuant to a power_of_attorney on file with this office a copy of this letter is except as specifically set forth above no opinion is expressed concerning the this ruling is directed only to the taxpayer s requesting it sec_6110 plr-118044-04 federal tax consequences of the facts described above under any other provision of the code provides that it may not be used or cited as precedent being sent to lp’s authorized representative enclosures heather c maloy associate chief_counsel passthroughs and special industries copy of this letter copy for sec_6110 purposes sincerely yours


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b1-plr-145792-01 date date legend x date this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated on date the shareholders of x desired that x elect s_corporation treatment effective on date but the election to be treated as an s_corporation was not timely filed accordingly x requests a ruling that it will be treated as an s_corporation effective date law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides in relevant part that if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made under sec_1362 however if an s election is made after the first two and one-half months of a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is filed sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply plr-145792-01 x did not timely file an election to be treated as an s_corporation under sec_1362 x has however established reasonable_cause for not making a timely s election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and the representations made and provided that x otherwise qualifies as an s_corporation we conclude that x will be treated as an s_corporation effective date within days from the date of this letter x should submit a properly completed form_2553 effective date with a copy of this letter attached to the relevant service_center except as specifically set forth above no opinion is expressed or implied as to the federal_income_tax consequences of the transaction described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent sincerely dianna k miosi chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index number -------------------------------------------- ---------------------------------------------------- ---------------------------------------------------------- ----------------------- ---------------------------------- ----------------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc psi b1 plr-114214-08 date date legend x -------------------------------------------------- --------------------------------------------- country date ---------------------- ----------------- dear ------------ this is in response to a letter dated date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to file an election to treat x as an entity disregarded as separate from its owner for federal tax purposes under sec_301_7701-3 facts according to the information submitted x is an entity organized under the laws of country x intended to make an election to be treated as a disregarded_entity effective date however due to an oversight form_8832 entity classification election was not timely filed law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes an eligible_entity with a single owner plr-114214-08 can elect either to be classified as an association and thus a corporation under sec_301_7701-2 or to be disregarded as an entity separate from its owner sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally unless the entity makes an election to be treated otherwise a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability if a foreign eligible_entity has only one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 if a foreign eligible_entity has more than one owner it may elect to be treated as a partnership pursuant to the rules in sec_301_7701-3 sec_301_7701-3 further provides that an entity classification election must be filed on form_8832 entity classification election and can be effective up to days prior to the date the form is filed or up to months after the date on which the form is filed under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election with a deadline prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 conclusion based solely upon the information submitted we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result an extension of days from the date of this letter is granted to elect to treat x as a disregarded_entity for federal tax purposes effective date the entity classification election should be made by filing form_8832 with the appropriate service_center a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose plr-114214-08 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer s requesting it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives sincerely curtis g wilson curtis g wilson deputy associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court summa holdings inc et al petitioners v commissioner of internal revenue respondent docket nos filed date neal j block robert s walton john t bender and rebecca lock for petitioners john q walsh jr sarah s sandusky and peter n scharff for respondent cases of the following petitioners are consolidated herewith james benenson iii and clement chambers benenson trust james benenson jr fiduciary docket no clement c benenson docket no james benenson jr and sharen benenson docket no and james benenson iii docket no memorandum opinion kerrigan judge these consolidated cases are before the court on respondent’s motion for partial summary_judgment and petitioners’ cross-motion for summary_judgment in respondent’s motion for partial summary_judgment respondent contends that payments made by petitioner summa holdings inc summa and its consolidated subsidiaries to jc export inc jc export during were not domestic_international_sales_corporation disc commission payments but dividends to summa’s shareholders followed by contributions to roth individual_retirement_accounts roth iras in their cross-motion for summary_judgment petitioners contend that respondent may not recharacterize the disc commission payments in this manner and that as a result summa is not liable for the income_tax deficiencies and penalties under sec_6662a or sec_6662 that respondent determined for the tax_year ending date petitioner summa also contends that if its position regarding the character of the payments is upheld the other petitioners in these cases are also entitled to summary_judgment unless otherwise indicated all section references are to the internal_revenue_code code in effect for the tax years at issue and all rule references are to the tax_court rules_of_practice and procedure we round all monetary amounts to the nearest dollar background some of the facts are stipulated and are so found petitioner summa was a c_corporation incorporated in delaware with its principal_place_of_business in ohio when its petition was filed petitioners james benenson jr james jr and sharen benenson sharen husband and wife resided in new york when their petition was filed petitioners clement c benenson clement and james benenson iii james iii resided in massachusetts when their petitions were filed james jr and sharen were the trustees of petitioner james benenson iii and clement chambers benenson trust benenson trust when its petition was filed the benenson family and the benenson trust james jr and sharen are the parents of clement and james iii the benenson trust was established in james jr and sharen were named the trustees of the benenson trust and clement and james iii were named the beneficiaries of the benenson trust from to no portion of the benenson trust’s principal or income was paid to james jr or sharen the roth iras in james iii established a roth_ira james iii ira and transferred dollar_figure to it james iii made no additional contributions through in clement established a roth_ira clement ira and transferred dollar_figure to it clement made no additional contributions through jc export and jc holding on date the james iii ira and the clement ira collectively benenson roth iras each purchased big_number shares of stock in jc export a delaware corporation in exchange for dollar_figure jc export filed a form 4876-a election to be treated as an interest_charge_disc disc election the disc election became effective for the tax_year beginning date from its inception through jc export’s board_of directors consisted of james jr james iii clement and john v curci we may disregard a stipulation of fact when the stipulation is clearly contrary to facts disclosed by the record 93_tc_181 the parties stipulated that james iii is the beneficiary of the james iii ira however the attached exhibits indicate that clement is the primary beneficiary of the james iii ira we will follow the exhibits see supra note the parties stipulated that clement is the beneficiary of the clement ira however the attached exhibits indicate that james iii is the primary beneficiary of the clement ira we will follow the exhibits on date the benenson roth iras each transferred big_number shares of jc export stock to jc export holding inc jc holding a delaware corporation for big_number shares of jc holding stock jc holding a c_corporation was incorporated on date from date through date jc export was wholly owned by jc holding which was owned by the james iii ira and by the clement ira from its inception through jc holding’s board_of directors consisted of james jr james iii clement and mr curci jc holding was organized in part so that the benenson roth iras would not have unrelated_business_income and the associated tax reporting obligations and in part so that the custodians of the benenson roth iras would no longer be involved as shareholders of jc export and thus would avoid being required to take shareholder actions regarding jc export summa james jr founded summa in summa is a fiscal_year taxpayer with a tax_year that ends april summa is the parent_corporation of a consolidated_group of manufacturing companies that make a wide variety of industrial products summa’s subsidiaries include vesper corp all star bleachers inc all star at the time summa was known as arrowhead holdings corp manufacturing inc arrowhead products corp bijur lubricating corp cleveland gear co inc columbia gear corp farval lubrication systems inc hellan strainer co lubesite systems inc milwaukee machine works inc and penco products inc collectively summa subsidiaries from january to date summa had big_number outstanding shares of common_stock james jr owned big_number common shares the benenson trust owned big_number common shares industrial manufacturing co llc owned big_number common shares and clement owned common shares on date james jr redeemed big_number common shares from to james jr had the power to direct summa’s operations including the transfer of its funds in summa had outstanding shares of preferred_stock james jr owned preferred shares clement owned preferred shares and james iii owned preferred shares the transactions in the summa subsidiaries and jc export entered into a series of agreements pursuant to these agreements the summa subsidiaries paid jc export dollar_figure dollar_figure dollar_figure and dollar_figure on january april july and date respectively summa also paid dollar_figure of expenses on behalf of jc export and jc holding during the summa subsidiaries paid jc export dollar_figure on date in jc export paid dollar_figure in the form of dividends to jc holding as follows dollar_figure dollar_figure dollar_figure and dollar_figure on january april july and date respectively each time jc export received a payment from the summa subsidiaries it immediately transferred the entire amount of the payment to jc holding as a dividend each time jc holding received a payment from jc export it estimated the tax due as a result of the payment withheld the estimated_tax and immediately transferred as a dividend one-half of the remainder of the payment to each of the benenson roth iras both benenson roth iras received dollar_figure dollar_figure dollar_figure and dollar_figure from jc holding on january april july and date respectively both benenson roth iras received dollar_figure from jc holding on date jc export reported the dollar_figure payment that it received from the summa subsidiaries on date as payment of an account receivable that accrued in tax_year jc export reported the dollar_figure payment that it received from the summa subsidiaries on date as payment of an account receivable that accrued in tax_year the james iii ira reported on form_5498 ira contribution information a yearend fair_market_value of dollar_figure for the clement ira reported on form_5498 a yearend fair_market_value of dollar_figure for for tax years jc export received only the initial dollar_figure stock purchase_price from the benenson roth iras and commissions from the summa consolidated_group petitioners’ sole reason for entering into the transactions at issue was to transfer money into the benenson roth iras so that income could accumulate on the assets of the benenson roth iras and then be distributed tax free petitioners had no nontax business_purpose or economic purpose for establishing the benenson roth iras jc export and jc holding from the organization of jc export through tax_year jc export received commissions from the summa consolidated_group that if treated as contributions to the benenson roth iras for that year exceeded the annual contribution limits tax returns james jr and sharen filed timely a joint form_1040 u s individual_income_tax_return for tax_year they did not report any dividend distributions on their form_1040 clement filed timely a form_1040 for tax_year he reported dollar_figure of gross_income on his form_1040 he did not attach a form_5329 additional taxes on qualified_plans including iras and other tax- favored accounts james iii filed timely a form_1040 for tax_year he reported dollar_figure of gross_income on his form_1040 he did not attach a form_5329 the benenson trust filed timely a form_1041 u s income_tax return for estates and trusts for tax_year the benenson trust did not report any dividend distributions on its form_1041 jc export filed timely a form 1120-ic-disc interest charge domestic_international_sales_corporation return for tax_year it reported dollar_figure of gross qualified_export_receipts and dollar_figure of gross_income which consisted entirely of commission sales jc export also reported dollar_figure as a dividend distribution jc export reported that it had dollar_figure of accounts_receivable at the beginning of tax_year and dollar_figure of accounts_receivable at the end of tax_year jc export reported dollar_figure as taxable_income on its schedule k shareholder’s statement of ic-disc distributions jc export reported dollar_figure as a taxable_distribution jc holding filed timely a form_1120 u s_corporation income_tax return for tax_year jc holding reported dollar_figure of gross_income which consisted entirely of dividend income it paid income_tax on the dividend income at the applicable corporate rate jc holding reported dollar_figure of distributions jc holding reported that it had dollar_figure of accounts_receivable at the beginning of tax_year and dollar_figure of accounts_receivable at the end of tax_year summa filed timely forms for its taxable years ending date tax_return and date tax_return on its tax_return summa reported dollar_figure of gross_sales dollar_figure of which was derived from the sale of qualified export_property under sec_993 it claimed a deduction of dollar_figure for disc commissions on its tax_return summa reported dollar_figure of gross_sales dollar_figure of which was derived from the sale of qualified export_property under sec_993 it claimed a deduction of dollar_figure for disc commissions protective refund claims on date respondent issued jc holding a letter apprising it of its right to file a protective refund claim for income_tax reported on its form_1120 in date jc holding filed a protective refund claim that changed its total income from dollar_figure to zero also in date jc export filed a protective amended form_1040 changing its gross_income commission sales and dividend distributions from dollar_figure to zero notices of deficiency on date respondent issued each petitioner a notice_of_deficiency in the notices of deficiency respondent determined that the payments that the summa subsidiaries made to jc export were in substance dividends to summa’s shareholders followed by contributions by the shareholders into the benenson roth iras respondent disallowed the disc commission deductions that summa claimed for the payments it made on january and date and dollar_figure of the deduction for dollar_figure of expenses that it paid on behalf of jc export and jc holding during determined that james jr received dollar_figure in dividends from summa as the sole shareholder of summa or in the alternative that he received dollar_figure and the benenson trust received dollar_figure in dividends from summa on the basis of their respective ownership interests in summa and determined that summa’s shareholders contributed dollar_figure to each of the benenson roth iras since the contributions to the benenson roth iras exceed the annual contribution limits for roth iras respondent determined that james iii and clement each had an excise_tax deficiency under sec_4973 of dollar_figure for respondent also determined that summa is liable for a penalty under either sec_6662a or sec_6662 of dollar_figure for its taxable_year ending on date discussion i summary_judgment full or partial summary_judgment may be granted where the pleadings and other materials show that there is no genuine dispute as to any material fact and that a decision may be rendered as a matter of law rule b 98_tc_518 aff’d 17_f3d_965 7th cir the burden is on the moving party to demonstrate that there is no genuine dispute as to any material fact and that he or she is entitled to judgment as a matter of law 116_tc_73 petitioners moved for summary_judgment and respondent moved for partial summary_judgment and the parties agree that there is no genuine dispute as to any material fact after reviewing the pleadings and the comprehensive stipulation of facts and the attached exhibits we conclude that a decision may be rendered as a matter of law ii statutory framework a discs7 a disc provides a mechanism for deferral of a portion of the federal_income_tax on income from exports the disc itself is not taxed but instead the disc’s shareholders are currently taxed on a portion of the disc’s earnings in the form of a deemed_distribution sec_991 sec_995 this allows for deferral of taxation on the remainder of the disc’s earnings until those earnings are actually distributed the shareholders dispose_of their disc stock in a taxable transaction or the corporation ceases to qualify as a disc sec_995 c a a disc sometimes does not generate the income it reports on its returns and might otherwise not be recognized as a corporate entity for tax purposes if it were in the 1980s several european nations complained that the disc regime constituted an illegal export subsidy in violation of the general agreement on tariffs and trade s prt vol i pincite comm print in response the united_states largely abandoned the disc regime as part of the deficit_reduction_act_of_1984 defra pub_l_no sec_801 stat pincite see 110_tc_375 defra did not repeal the code secs that created the disc regime but rather created a new entity the foreign_sales_corporation fsc to serve as a practical replacement for the disc the fsc regime was met with similar criticism and the code provisions that created the fsc were repealed by the fsc repeal and extraterritorial_income_exclusion act of pub_l_no sec_2 stat pincite the only remaining type of disc still in use is the interest-charge disc ic-disc which is governed by code secs see generally ryan l losi ic-discs the last remaining export incentive just got some staying power prac tax strategie sec_118 not a disc 90_tc_1207 aff’d 887_f2d_660 6th cir jet research inc v commissioner tcmemo_1990_463 see also sec_1_992-1 income_tax regs the disc may be no more than a shell corporation which performs no functions other than to receive commissions on foreign sales made by its parent 773_f2d_300 fed cir 91_tc_434 see also jet research inc v commissioner tcmemo_1990_463 b excess_contributions to the roth iras and related determination sec_1 roth iras congress authorized the roth_ira a type of retirement account with the enactment of sec_408a as part of the taxpayer_relief_act_of_1997 pub_l_no sec_302 sec_111 stat pincite the distinguishing feature of a roth_ira is the back-end timing of the tax_benefit contributions to a roth_ira are not tax deductible but all earnings accumulate tax free and all qualified distributions are tax free sec_408a c d 133_tc_202 aff’d 679_f3d_1109 9th cir by comparison contributions to a traditional_ira are deductible and earnings accrue tax free except with respect to sec_511 unrelated_business_income but distributions from a traditional_ira are includable in the recipient’s gross_income see sec_219 sec_408 d e the code establishes a maximum aggregate amount that an individual can contribute to all of his or her roth iras for a taxable_year and that amount is phased out between levels of modified_adjusted_gross_income see sec_408a and sec_4973 imposes for each taxable_year an excise_tax of for excess_contributions computed on the lesser_of the amount of the excess_contribution and the value of the account as of the end of the taxable_year the tax applies each year until the excess_contributions are eliminated from the taxpayer’s roth_ira see sec_4973 an excess_contribution is defined in part as a contribution to a roth_ira that exceeds the amount allowable as a contribution sec_4973 dividends_paid on stock held by a roth_ira are considered earnings_of the roth_ira itself rather than contributions by the owner of the roth_ira and do not count towards the contribution limits of sec_408a see taproot admin servs inc v commissioner t c pincite notice_2004_8 2004_1_cb_333 the internal_revenue_service irs issued notice_2004_8 2004_1_cb_333 to address a type of transaction taxpayers are using to avoid roth_ira contribution limits notice_2004_8 c b pincite states that where a taxpayer’s preexisting business enters into transactions with a corporation owned by the taxpayer’s roth_ira in certain cases t he acquisition of shares the transactions or both are not fairly valued and thus have the effect of shifting value into the roth_ira the notice identified three ways in which the irs would attempt to challenge these transactions apply sec_482 to allocate income from the corporation to the taxpayer the preexisting business or other entities under the control of the taxpayer assert that under sec_408 the transaction gives rise to one or more prohibited_transactions between a roth_ira and a disqualified_person described in sec_4975 and assert that the substance of the transaction is that the amount of the value shifted from the preexisting business to the corporation is a payment to the taxpayer followed by a contribution by the taxpayer to the roth_ira and a contribution by the roth_ira to the corporation substance over form generally the substance and not the form of a transaction determines its tax consequences 293_us_465 58_tc_854 aff’d 513_f2d_824 9th cir where a series of transactions taken as a whole shows either that the transactions themselves are shams or that the transactions have no purpose substance or utility apart from their anticipated tax consequences the transactions are not recognized for federal tax purposes 364_f2d_734 2d cir aff’g 44_tc_284 see also 324_us_331 the commissioner may challenge the purported tax benefits of a transaction where the underlying substance is demonstrably inconsistent with its form see 302_us_609 the supreme court has looked to the objective economic realities of a transaction rather than to the particular form the parties employed 435_us_561 the substance_over_form_doctrine applies when the transaction on its face lies outside the plain intent of the statute and respecting the transaction would be to exalt artifice above reality and to deprive the statutory provision in question of all serious purpose gregory v helvering u s pincite the parties’ arguments respondent contends that petitioners through the transactions at issue shifted value to the benenson roth iras far in excess of the annual contribution limits respondent argues that simply labeling the payments disc commissions does not immunize the payments from the application of substance over form principles respondent further contends that petitioners had no nontax business purpose for establishing the benenson roth iras jc export and jc holding and petitioners did not received any nontax economic benefits from the transaction at issue petitioners contend that there is no reason to disallow deductions for the commissions paid to the disc or reclassify the commissions as dividends petitioners rely on hellweg v commissioner tcmemo_2011_58 and argue that the three possible grounds for adjustment pursuant to notice_2004_8 supra cannot be applied against them petitioners further contend that under addison int’l inc and jet research inc reclassification of the transaction using substance over form principles is improper because it would result in disregarding disc transactions the instant cases are distinguishable from hellweg like the commissioner in hellweg respondent does not object to the transaction on the basis of sec_482 or sec_408 see hellweg v commissioner slip op pincite respondent contends that the substance of the transaction fails to comport with its form in hellweg the commissioner argued a variation of the third approach of notice_2004_8 supra contending that the transaction lacked substance for excise_tax purposes only hellweg v commissioner slip op pincite the commissioner did not argue that the transaction was invalid for income_tax purposes id see also mazzei v commissioner tcmemo_2014_55 slip op pincite in hellweg we held that a transaction that is valid for income_tax purposes must also be valid for excise_tax purposes hellweg v commissioner slip op pincite in hellweg the disc was indirectly owed by roth iras which were owned by individuals who held ownership interests in the operating company that paid commissions to the disc id pincite in hellweg the income_tax treatment of the transaction was not at issue id pincite but we stated that in the absence of fraud or an illegal purpose behind the transaction the commissioner could not challenge the substance of the transaction for income_tax purposes because to do so would require the disc to be disregarded id pincite respondent is not arguing here that the disc should be disregarded but rather is arguing that a transaction involving a disc should be recharacterized to prevent an abusive transaction respondent does not disregard jc export or frustrate the congressional intent behind the disc provisions the transaction at issue involves shifting value to roth iras and one of the business entities involved is a disc the choice of the business_entity does not affect the substance of the transaction under respondent’s recharacterization the purported commission payments in substance did not occur respondent is arguing that there were no disc commission payments made the existence of jc export is a distinct issue from the issues of whether jc export engaged in transactions with the summa consolidated_group and if so what the substance of these transactions was the parties stipulated that petitioners’ sole reason for entering into the transaction at issue was to transfer money into the benenson roth iras so that income on assets could accumulate and be distributed tax free petitioners had no nontax business_purpose for the transactions nor did they receive any economic benefit from the transactions in repetto v commissioner tcmemo_2012_168 pursuant to notice_2004_8 supra we recharacterized service payments made to purported service corporations that were owned by roth iras we found that the agreements were designed to permit and did permit the taxpayer to make excessive contributions to the roth iras through the disguised service payments repetto v commissioner slip op pincite in the instant cases there was a series of transactions shifting value into the benenson roth iras these transactions involved a disc owned by a holding corporation rather than a service corporation as in repetto these transactions like the transaction in repetto were used for the purpose of shifting millions of dollars into roth iras in violation of the statutory contribution limits in this situation recharacterization under substance over form principles is appropriate in addison int’l inc v commissioner t c pincite9 a former_disc became disqualified because of a failure to comply with certain disc technical rules there was no roth_ira involved in the transaction in addison int’l inc we did not address the issue of whether the substance_over_form_doctrine is an appropriate remedy when a disc is used to avoid roth_ira contribution limits id pincite3 we specifically addressed the treatment of a former_disc and relied on legislative_history to reach the conclusion that the current income of a disc is taxable to the disc itself and dividends when paid to the shareholders qualify for the dividends received deduction id the instant cases do not involve disqualified discs but involve a disc that is part of a larger tax_avoidance transaction that is not related to a disc transaction or disc benefits in jet research inc v commissioner tcmemo_1990_463 we concluded that reallocation of income of a disqualified disc to its parent_corporation was improper because the disc carried on substantive business activities in that case the commissioner did not apply substance over form principles to recast a transaction that was circumventing a code provision rather the commissioner was looking to see whether the transactions between the operating company and the disc were done at arm’s length id in jet research the commissioner was trying to determine which party earned the income at issue therefore jet research inc is distinguishable from the instant cases the payments that the summa consolidated_group made to jc export during were not disc commissions but deemed dividends to summa’s shareholders followed by contributions to the benenson roth iras iii sec_995 petitioners contend that the payment of disc_dividends to a roth_ira cannot be treated as an excess_contribution because congress specifically addressed the ownership of a disc by an ira when it enacted sec_995 sec_995 provides that when a tax-exempt_entity that is a shareholder of a disc is deemed to receive a distribution from a disc actually receives a distribution from a disc of previously untaxed income or realizes gain from disposition of disc shares which is treated as a dividend then that income is treated as derived from the conduct of an unrelated_trade_or_business sec_995 was enacted to ensure that taxable entities could not shield active business income from tax by assigning disc stock to controlled tax-exempt entities h_r rept no pincite6 u s c c a n congress amended sec_995 to clarify that the section is not limited to tax-exempt entities described in sec_511 and b but rather includes other tax-exempt entities such as iras which are subject_to taxation on their unrelated_business_income petitioners argue that since congress could have prohibited_transactions involving discs owned by iras but chose not to do so congress was comfortable with iras’ holding disc stock we rejected this argument in hellweg as we stated in hellweg this argument is logically erroneous see hellweg v commissioner slip op pincite congress’ choice to prevent one particular abusive transaction involving discs and iras does not indicate that congress approves of all other abusive transactions involving discs and iras see id pincite sec_995 was enacted in almost years before the enactment of the roth_ira provisions which were enacted as part of the taxpayer_relief_act_of_1997 sec_302 they became effective for tax years beginning after date id sec_302 sec_111 stat pincite congress could not have been aware of the type of abusive transaction involving roth iras at issue here at the time of enactment of sec_995 iv conclusion for these reasons we hold that the payments to jc export were not disc commissions but rather dividends to summa’s shareholders followed by contributions to the benenson roth iras accordingly we will grant respondent’s motion for partial summary_judgment and deny petitioners’ motion for summary_judgment any contentions we have not addressed are irrelevant moot or meritless to reflect the foregoing an appropriate order will be issued


department of the treasury employer_identification_number contact person - id number contact telephone number uil internal_revenue_service p o box cincinnati oh number release date date date legend x name y quantity z dollars amount dear you asked for advance approval of your educational grant procedures under internal_revenue_code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax our determination we approved your procedures for awarding educational grants based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding educational grants meet the requirements of code sec_4945 as a result expenditures you make under these procedures won't be taxable the effective date of this approval is march description of your request your letter indicates that you will operate an educational grant program called x the purpose of x is to encourage thought leaders and storytellers working in photography to produce work that illustrates or brings about positive social change the awards will be used by the recipients to build on a work or project they have already created with the goal of achieving a higher level of excellence in visual storytelling innovation in distribution and measurable social impact examples of projects you will fund include projects addressing underreported social and global issues such as work place discrimination climate change and inequalities in the criminal justice system you will have partners who will cosponsor each award as well as be involved in distributing the contents of the recipient's projects and providing guidance and expertise to the recipient each recipient will work with one of the partners throughout the duration of the award period in general the number and the amount of the awards will be determined by your budget and ability to find willing partners for distribution support in the first year you anticipate there will be y awards of z dollars each the awards will generally provide funding for one year for the recipients to pursue their projects they are not renewable but may be extended or shortened depending on whether the circumstances warrant x is open to working professionals of any age and from any country who have demonstrated excellence in working with photography visual storytelling and a commitment to influencing social change your intent is to attract a wide range of talent and diverse representation of individuals that represent different geographical areas demographics and are involved with social justice issues applicants must be working independently therefore business entities and institutions will not be eligible relatives of members of the selection committee or of your officers directors or substantial contributors are not eligible for awards made under x potential applicants can find information on x on your website through social media and photography as well as arts media you also encourage candidates to contact you directly regarding x to find well qualified candidates you will form a nominating committee consisting of experts and individuals from diverse backgrounds who will nominate worthy individuals furthermore you will draw qualified candidates through an open call all candidates must submit a completed application including work samples professional references a written proposal describing their project's scope and potential ideas for partnerships and distribution channels that best fit the proposal candidates must also explain how they will utilize the resources and available support you will provide to them that will help ensure a defined outcome applicants are not required to limit or tailor their proposals to the subject areas established by your partners however applicants must illustrate an awareness that will demonstrate that their projects are suited to the goals of in addition applicants can direct their application towards one of your partners but all x applicants will be considered equally for each partnership all applications will be reviewed and shortlisted by the selection committee whose members you will choose based on seniority and recognition within the industry a strong desire to be involved in the process and geographic diversity selection committee members will be drawn from the nominating committee to replace any committee members as needed for the final selection the selection committee will be joined by your partners who will select the recipients your selection committee will select individuals with the best proven track record for using their work for positive social awareness and who have demonstrated successful partnerships with media ngos art institutions and or governmental institutions each recipient will also have demonstrated creative leadership through current work and show their potential for leveraging social awareness and engagement letter catalog number 58222y in addition the committee will ensure that the recipients have shown that they understand the value of employing other creative techniques and channels to enhance the impact of their projects after the recipients are identified you will notify them and will require them to sign an agreement specifying the terms of the award at this time you will connect each recipient with one of your partners who are co-sponsoring the fellowship in addition you will give the recipients direction on social media responsibilities distribution goals and publicity you will require the recipients to regularly report to their partner who will be involved in distributing the contents of the projects the recipients are also required to attend a series of events during the award period after the award period ends there will be a celebration and speaking engagement to promote the projects provide live community engagement and raise awareness for the social issues addressed by the projects the recipients will also be required to deliver museum quality works upon completion of the projects for archival storage once the recipients have been selected they will receive one-half of the award before disbursing additional funds you will periodically conduct a review of the project against the stated goals and if this is satisfactory you will disburse another portion of the award during the award period you will require the recipients to adhere to the highest ethical standards in the preparation and presentation of any work produced under your name if at any time you determine the terms of the awards have been violated no further payments will be made and you will attempt to recover any unspent funds you also reserve the right to revoke the awards and reclaim all funds if a project is found to deliberately present misleading information or if anyone associated with the project has been coerced into participation or if financial inducements have been offered above reasonable expenses you will check the ofac list of specially designated nationals and blocked persons for names of individuals and entities with whom you are dealing to determine if they are included on the list you will comply with all statutes executive orders and regulations that restrict or prohibit persons from engaging in transactions and dealings with designated countries entities or individuals or otherwise engaging in activities in violation of economic sanctions administered by ofac if necessary you will acquire from ofac the appropriate license and registration you represent that you will complete the following arrange to receive and review grantee reports annually and upon completion of the purpose for which the grant was awarded investigate diversion of funds from their intended purposes take all reasonable and appropriate steps to recover the diverted funds ensure other grant funds held by a grantee are used for their intended purposes and withhold further payments to grantees until you obtain grantees’ assurances that future diversions will not occur and that grantees will take extraordinary precautions to prevent future diversion from occurring letter catalog number 58222y you represent that you will maintain the following all records relating to individual grants including information obtained to evaluate grantees identify whether a grantee is a disqualified_person establish the amount and purpose of each grant and establish that you undertook the supervision and investigation of grants described above basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure e e e the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is - - - ascholarship or fellowship subject_to sec_117 and is to be used for study at an educational_organization described in sec_170 or a prize or award subject_to the provisions of sec_74 if the recipient of the prize or award is selected from the general_public or to achieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar skill or talent of the recipient to receive approval of its educational grant procedures sec_53_4945-4 requires that a private_foundation show e e e the grant procedure includes an objective and nondiscriminatory selection process the grant procedure results in the recipients performing the activities the grants were intended to finance the foundation plans to obtain reports to determine whether the recipients have performed the activities that the grants were intended to finance other conditions that apply to this determination e e e this determination covers only the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don't differ significantly from those described in your original request this determination applies only to you it may not be cited as precedent you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes in your program to the cincinnati office of exempt_organizations at letter catalog number 58222y internal_revenue_service exempt_organizations determinations p o box cincinnati oh e e e you cannot make grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and must further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary we've sent a copy of this letter to your representative as indicated in your power_of_attorney please keep a copy of this letter in your records if you have any questions please contact the person listed at the top of this letter sincerely stephen a martin director exempt_organizations rulings and agreements letter catalog number 58222y