t c memo united_states tax_court carol a johanson and alfred f melzig jr petitioners v commissioner of internal revenue respondent docket no filed date c and j entered into a marital settlement agreement in connection with a divorce terminating their marriage which was characterized as a marriage of long duration under california law cal fam law code sec west the agreement provided that j would make monthly spousal support payments of dollar_figure each from a date specified in the agreement through date the agreement contained no provision regarding continuation or termination of the payments in the event of c’s death before date the cal fam law code sec provides that in the absence of an agreement in writing support payments terminate upon the death of the payee spouse sec_71 i r c provides that to constitute alimony or separate_maintenance payments there must be no liability to make any such payment for any period after the death of the payee spouse held since j has no liability to make payments after the death of c the periodic_payments to c constitute gross_income includable as alimony payments under sec_71 i r c they are therefore taxable to c marjorie a o’connell for petitioners jeffrey e gold and ann m welhalf for respondent memorandum findings_of_fact and opinion nims judge by deficiency_notice dated date respondent determined a deficiency in petitioners’ income_tax for in the amount of dollar_figure and a penalty under sec_6662 and b in the amount of dollar_figure unless otherwise indicated all section references are to sections of the internal_revenue_code in effect for all relevant times hereunder rule references are to rules contained in the tax_court rules_of_practice and procedure respondent concedes the aforementioned penalty consequently the only issue remaining for decision is whether the payments totaling dollar_figure which petitioner carol a johanson petitioner or carol received in from her former spouse john weiler john are taxable as alimony under sec_71 petitioners resided in california when they filed their petition findings_of_fact some of the facts have been stipulated and are so found petitioner and john the parties were married on date and separated on or about date at the time of the separation the parties had one minor child seth weiler born date on date the parties each filed a petition in the superior court of california county of santa clara for dissolution of the marriage which actions were then consolidated the parties subsequently executed a marital settlement agreement agreement and the superior court thereafter on date entered a judgment of dissolution approving and incorporating by reference the agreement the agreement recited that it was to be subject_to and interpreted under the laws of california as required by the agreement john made payments to petitioner totaling dollar_figure as spousal support in the purpose of the agreement is stated to be to make a final and complete settlement of all rights and obligations arising out of our marital relationship among other things the agreement provides -- t hat the terms of this agreement constitute a fair and equal division of the assets and debts and that neither party owes an equalization payment to the other --carefully spelled out arrangements for child custody and support these arrangements are separate and apart from the provisions for spousal support see infra --that john would receive all of the stock of sea supreme inc a company in which the parties owned a 50-percent interest and would hold carol harmless from its debts and obligations carol agreed with john’s valuation in the vicinity of dollar_figure million --detailed provisions for spousal support the provisions for spousal support are as follows iv spousal support each party is aware of the right of each party to receive spousal support from the other party based upon the relative income and needs of the parties and the duration of the marriage both parties are aware that this marriage is one considered and characterized as a marriage of long duration as a result certain responsibilities for support may exist between the parties for some unknown length of time after separation and after a dissolution is entered unless both parties freely and voluntarily waive their rights to support and agree to the termination of the courts sic jurisdiction over the issue of spousal support once this waiver and agreement is entered it is non-reversible and may work a considerable hardship on either one or both of the parties being aware of the above the court will retain jurisdiction over john’s right to collect spousal support from carol until date at which time his right to collect such support shall permanently terminate this termination_date is absolute and non-modifiable under any circumstances being aware of the above john agrees to pay spousal support to carol in the amount of dollar_figure per month beginning the first month following the sale of the residence close of escrow spousal support shall be due one-half on the first of each and every month and one-half on the 15th of each and every month spousal support shall continue at this amount through date at which time carol’s right to collect spousal support from john will permanently terminate this termination_date is absolute and non-modifiable under any circumstances spousal support shall be payable by wage assignment which shall be issued along with the entry of the agreement as a judgment service of the wage assignment is stayed unless and until john is ten days or more late with any support payment in the event john is ever ten days or more late with any support payment the wage assignment shall be served with no further notice to john the duration of spousal support is non- modifiable and the court will not have jurisdiction to modify the length of time john will pay spousal support to carol specifically the court does not have jurisdiction to award any spousal support payable from john to carol for any period beyond date regardless of the circumstances that may arise and regardless of whether any motion to modify spousal support is filed before on or after date the court also does not have jurisdiction to modify the amount of spousal support payable from john to carol except for two circumstances john’s death prolonged unemployment or john’s disability upon john’s death spousal support will terminate permanently upon john’s prolonged unemployment the court has the jurisdiction to lower the amount of support for the length of the unemployment provided appropriate efforts are being made by john to find employment upon john’s disability the court has the jurisdiction to lower the amount of support for the length of the disability disability is defined as the inability to pursue an occupation because of physical or mental impairment if such a modification is sought by john and ordered by the court the court may increase or decrease the amount of support as the circumstances warrant but under no circumstances does the court have the jurisdiction or the authority to raise spousal support over the amount of dollar_figure per month medical insurance carol acknowledges that she is responsible from sic her own medical insurance and expenses opinion this case is another chapter in the long saga of cases decided by this court involving the failure of parties to divorce settlement agreements to specify what happens to payments should the payee-spouse die see eg berry v commissioner tcmemo_2005_91 kean v commissioner tcmemo_2003_163 affd 407_f3d_186 3d cir hoover v commissioner tcmemo_1995_183 affd 102_f3d_842 6th cir by failing to so specify the divorce litigants simply abdicate making a serious financial decision that others may then make for them as here john and carol both testified in this case and unsurprisingly their testimony was contradictory on most points the testimony of the respective parties was for the most part aimed at supporting explaining or modifying the express terms of the agreement consequently we base our decision solely on the terms of the agreement itself rather than on any extrinsic evidence proffered by the parties’ testimony we must decide whether payments from john to carol in totaling dollar_figure were alimony a property settlement installment or part of a guaranteed stream of payments for a fixed term to carol or her estate in the agreement the payments were specifically denominated spousal support alimony or separate_maintenance payments are taxable to the recipient sec_71 and deductible by the payor sec_215 so the proper characterization of the payments is very significant the correct_tax treatment of any other type of payments periodic or otherwise is not at issue here alimony or separate_maintenance payments are defined in sec_71 which provides sec_71 alimony and separate_maintenance payments a general_rule b alimony or separate_maintenance payments defined --for purposes of this section-- in general --the term ‘alimony or separate_maintenance payment’ means any payment in cash if-- a such payment is received by or on behalf of a spouse under_a_divorce_or_separation_instrument b the divorce_or_separation_instrument does not designate such payment as a payment which is not includible in gross_income under this section and not allowable as a deduction under sec_215 c in the case of an individual legally_separated from his spouse under a decree of divorce or of separate_maintenance the payee spouse and the payor spouse are not members of the same household at the time such payment is made and d there is no liability to make any such payment for any period after the death of the payee spouse and there is no liability to make any payment in cash or property as a substitute for such payments after the death of the payee spouse the parties agree that the requirements of sec_71 b and c have been met they disagree as to whether sec_71 has been met that subparagraph requires that the payor spouse have no liability to make any payment for any period after the death of the payee spouse or to make any substitute therefor after the death of the payee spouse cal fam law code sec west provides sec termination of support order death remarriage except as otherwise agreed by the parties in writing the obligation of a party under an order for the support of the other party terminates upon the death of either party or the remarriage of the other party while the parties made specific provision in the agreement for termination or modification of spousal support in the event of john’s death or prolonged unemployment or disability they made no provision regarding termination of support payments in the event of carol’s death consequently the california statute will apply should she die before date the support obligation of john under the agreement which as previously stated was incorporated by reference into the superior court’s judgment of dissolution will terminate under the california statute if carol dies during the term of his obligation payments which are a property settlement are not taxable to the recipient under sec_71 hoover v commissioner tcmemo_1995_183 affd 102_f3d_842 6th cir petitioner seeks to convince us that this stream of cash payments totaling nearly dollar_figure payable in monthly installments was for carol’s percent ownership_interest in sea supreme there is nothing in the agreement that remotely connects the dollar_figure monthly spousal support payments to carol to her interest in sea supreme the agreement recites that john estimated the value of sea supreme to be in the vicinity of dollar_figure million and that carol agrees with this valuation since previous to the divorce carol owned percent of sea supreme the value of her interest would be in the neighborhood of dollar_figure a far cry from the total support payments carol expected to receive under the agreement the agreement recites under equalization provision that the parties agree that the terms of this agreement constitute a fair and equal division of the assets and debts and that neither party owes an equalization payment to the other the agreement contains a careful division of the marital assets including an agreement that john would receive all of the stock in sea supreme as his sole and separate_property it would be illogical to suppose that the parties intended the spousal support payments to carol to be a disguised form of property payments the agreement recites that each party is aware of the right of each party to receive spousal support from the other party based upon the relative income and needs of the parties and the duration of the marriage there is a presumption under california law that a marriage of years or more is a marriage of long duration cal fam law code sec west the agreement contains under spousal support a carefully detailed spelling out of the parties’ respective rights and obligations with regard to spousal support there is nothing in the agreement that would lead one to conclude either by express statement or inferentially that the payments in question are intended as anything other than support payments by the same token there is nothing in the agreement to suggest that john’s payments to carol are periodic installments on an overall lump-sum obligation no lump-sum amount is referred to anywhere in the agreement nor is there any basis for inferring that such exists we therefore reject petitioner’s arguments on this point the parties dispute whether the burden_of_proof in this case has been shifted to respondent pursuant to sec_7491 sec_7491 imposes the burden_of_proof on respondent if the taxpayer introduces credible_evidence with respect to any factual issue and complies with the requirements of sec_7491 and b to substantiate all items at issue maintain required records and cooperate with reasonable requests of respondent we find it unnecessary to decide whether petitioners have met the prerequisites of sec_7491 because the record in this case is not evenly weighted and the resolution of the issues in controversy does not depend upon which party bears the burden_of_proof we render a decision on the preponderance_of_the_evidence in the record see generally 116_tc_438 goode v commissioner tcmemo_2006_48 we hold that the spousal support payments by john to carol constitute alimony under sec_71 since there is no liability on john’s part to make any such payment for any period after the death of carol the payee spouse as provided by sec_71 to give effect to the foregoing decision will be entered under rule


t c memo united_states tax_court eddie stricklin petitioner v commissioner of internal revenue respondent docket no filed date eddie stricklin pro_se david d choi for respondent memorandum opinion gale judge respondent determined the following deficiencies in and additions to petitioner's federal income taxes 1unless otherwise noted section references are to the internal_revenue_code in effect for the years in issue and rule references are to the tax_court rules_of_practice and procedure year deficiencies dollar_figure big_number additions to tax sec sec_6651 dollar_figure big_number dollar_figure dollar_figure the issues for decision are as follows whether petitioner received unreported income for the years in issue as determined by respondent we hold that he did whether petitioner is liable for self-employment taxes under sec_1401 for the years in issue we hold that he is whether petitioner is liable for additions to tax under sec_6651 for failure_to_file timely returns for the years in issue we hold that he is whether petitioner is liable for additions to tax under sec_6654 for failure to make estimated_tax payments for the years in issue we hold that he is some of the facts have been stipulated and are so found we incorporate by this reference the stipulation of facts and attached exhibits at the time of filing the petition petitioner resided in hammond indiana during the years in issue petitioner worked as a truck driver and earned_income in that capacity in petitioner was employed by the following companies and received w-2 income in the following amounts ray cossette trucking citywide constructing bork transport weston corporation dollar_figure big_number in petitioner was employed by and received w-2 income from dana transport totaling dollar_figure in addition to the w-2 income received during and petitioner worked for and received income from lighthouse transport lighthouse during both years petitioner had no other source_of_income during these years during the years in issue petitioner resided in chicago illinois with his aunt to whom he paid rent in the amount of approximately dollar_figure per month petitioner gave money to his year-old daughter who was not living with him and also paid his own living_expenses which included the cost of food clothing recreation gasoline and car insurance in addition petitioner paid lodging_expenses for stays in motels between six and eight times a month petitioner had no checking or savings accounts during the years in issue in petitioner was employed by dana transport from which he received somewhere between dollar_figure and dollar_figure in w-2 income during the taxable_year on date petitioner was involved in a traffic accident resulting in a fire in his truck in which all of his then-existing records were destroyed respondent mailed a notice_of_deficiency to petitioner with respect to and on date because petitioner did not file income_tax returns for these years the notice_of_deficiency was based upon substitute returns prepared by respondent in the notice_of_deficiency respondent determined that the income received from ray cossette trucking citywide constructing bork transport and weston corporation in and from dana transport in constituted w-2 income that was not reported in addition to the w-2 income respondent determined that petitioner had schedule c gross_receipts of dollar_figure in and dollar_figure in that were not reported the deficiency_notice further determined that petitioner was liable for self- employment_taxes on the schedule c gross_receipts in the amounts of dollar_figure for and dollar_figure for the notice did not identify the source of the schedule c gross_receipts or otherwise disclose how these income determinations were made petitioner admits receiving all of the w-2 income determined in the notice_of_deficiency however petitioner disputes the dollar_figure and dollar_figure amounts determined by respondent to be schedule c gross_receipts in and respectively petitioner has stipulated that he worked for lighthouse as a truck driver during these years and received income as a result but contends that he received less than the amounts determined by respondent to be schedule c gross_receipts specifically petitioner testified that he received approximately dollar_figure by check from lighthouse in but that lighthouse's checks thereafter began to bounce and he insisted on payment in cash for the rest of and all of these payments were made on a commission basis by which petitioner received a percentage of the price paid to lighthouse for each truckload or delivery he made on the company's behalf petitioner testified that he didn't keep track of the amounts received from lighthouse and did not have any idea how much cash he received from the company nonetheless he contends it was less than the amounts determined by respondent although respondent made a determination in the deficiency_notice that petitioner had received and not reported schedule c gross_receipts in the amounts previously noted neither party produced a form_1099 or any other evidence to document the precise amount of the payments from lighthouse to petitioner petitioner did not keep any record of the amount of cash he received from lighthouse concedes that he did not file federal_income_tax returns containing estimates of the amounts received and was unable to make an estimate of these amounts at trial however petitioner's own testimony and stipulations link him to an income-generating activity and to the receipt of schedule c gross_receipts that were not reported other than his unsubstantiated assertion that the specific amounts are too great petitioner has produced no evidence that the schedule c gross_receipts determined in the notice_of_deficiency were erroneous respondent provided evidence that petitioner incurred significant expenses during the years in issue and had no other source_of_income beyond the w-2 income totaling dollar_figure for dollar_figure for and whatever amounts he received from lighthouse in addition respondent elicited testimony from petitioner that he earned between dollar_figure and dollar_figure from his truck driving activities in the year immediately following the years in issue this evidence from indicates that petitioner was capable of earning from truck driving the amounts determined by respondent to be unreported gross_receipts in the years in issue the court_of_appeals for the seventh circuit has made clear in this context that in order for a deficiency determination to be entitled to the presumption of correctness it need not pinpoint the exact amount of the deficiency rather the determination need only be rationally based it is significant that we have described the necessary showing as arbitrary and erroneous not just erroneous as the eighth circuit has observed in a related context the commissioner's assessment is intended to be an estimate it is expected to be rational not flawless 100_f3d_1308 7th cir affg tcmemo_1995_243 citations omitted because there is sufficient predicate evidence to support the deficiency determination we conclude that the unreported schedule c gross_receipts determinations made by respondent are not arbitrary and erroneous or without rational foundation sec_6001 requires a taxpayer to maintain adequate_records supporting the amount of gross_income deductions credits and other matters required to be shown on his income_tax return see sec_1_6001-1 income_tax regs we find that petitioner failed to keep adequate_records relating to his cash receipts from lighthouse as required by sec_6001 petitioner concedes that he did not keep track of the cash he received from lighthouse and was unable to provide even an estimate of the amounts received from or the number of deliveries made on behalf of the company even accepting petitioner's contention that he kept all of his records in his truck and that they were destroyed when the truck burned in an accident in we do not believe this affects the result in this case in light of petitioner's concession that he did not keep any record of the cash he received from lighthouse in and accordingly we conclude that petitioner has failed to meet his burden of proving that the amounts of unreported schedule c gross_receipts determined by respondent for the years in issue are erroneous therefore we sustain respondent's determinations which were based upon income-producing activities that petitioner concedes occurred and which bear a rational relationship to amounts that petitioner concedes he earned from similar income-producing activities in the immediately subsequent year respondent also determined that petitioner is liable for self-employment taxes pursuant to sec_1401 of dollar_figure for and dollar_figure for sec_1401 imposes a tax on self- employment income which consists of the gross_income derived from any trade_or_business carried on by the taxpayer less allowable deductions attributable to such trade_or_business sec_1402 respondent's determination that petitioner is liable for self-employment_tax on his schedule c gross_receipts is presumed correct and petitioner bears the burden of proving that it is erroneous rule a siebert v commissioner tcmemo_1997_6 petitioner has failed to produce any evidence on the issue of his liability for self-employment taxes therefore we sustain respondent's determination that petitioner is liable for self-employment taxes for and the last issues to be addressed concern whether petitioner is liable for the additions to tax under sec_6651 and sec_6654 proposed by respondent sec_6651 provides an addition_to_tax for failure_to_file a federal_income_tax return by its due_date determined with regard to extensions unless the taxpayer shows that such failure was due to reasonable_cause and not willful neglect the taxpayer bears the burden of proving both 469_us_241 a showing of reasonable_cause requires that the taxpayer demonstrate that he exercised ordinary business care and prudence but nevertheless was unable to file the return within the prescribed time sec_301_6651-1 proced admin regs see also united_states v boyle supra pincite petitioner stipulated that he did not file individual income_tax returns for the years and but claims to have reasonable_cause because of the destruction of his records in the truck accident previously discussed however the destruction of his records in date does not constitute reasonable_cause for failing to file returns for and which were due on date and date respectively therefore we find that petitioner has failed to show reasonable_cause and is liable for the addition_to_tax under sec_6651 for each of the years in issue as to the addition_to_tax for failure to pay estimated_tax pursuant to sec_6654 no relief is available unless petitioner shows that he falls within an exception provided under sec_6654 petitioner has failed to make such a showing and therefore is liable for the addition_to_tax under sec_6654 for each of the years in issue to reflect the foregoing decision will be entered for respondent


tax_exempt_and_government_entities_division department of the treasury internal_revenue_service attn mandatory review mc dal commerce st dallas tx date january number release date legend org organization name org address xx date -addkess address brl employer_identification_number person to contact id number contact numbers certified mail - return receipt requested dear in a determination_letter dated february 20xx you were held to be exempt from federal_income_tax under sec_501 of the internal_revenue_code the cade based on recent information received we have determined you have not operated in accordance with the provisions of sec_501 of the code accordingly your exemption from federal_income_tax is revoked effective january 20xx this is a final adverse determination_letter with regard to your status under sec_501 of the code we previously provided you a report of examination explaining why we believe revocation of your exempt status is necessary at that time we informed you of your right to contact the taxpayer_advocate as well as your appeal rights on ‘september 20xx you signed form 6018-a consent to proposed action agreeing to the revocation of your exempt status under sec_601 c of the code you have filed taxable returns on form s 1120-pc u s property and casualty insurance_company income_tax return for the year s ended december 20xx 20xxx with us appropriate service_center indicated in the instructions for the return for future periods you are required to file form 1120-pc with the you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please contact the person whose name and telephone number are shown at the beginning of this letter sincerely vicki l hansen acting director eo examinations department of the treasury internal_revenue_service commerce street datias tx date tax_exempt_and_government_entities_division legend org organization name xx date address address poa poa taxpayer_identification_number org address forms tax_year s ended person to contact ld number contact numbers telephone fax dear we have enclosed a copy of our report of examination explaining why we believe an adjustment of your organization's exempt status is necessary we have also enclosed publication exempt_organization appeal procedures for unagreed issues and publication the examination process these publications include information on your rights as a taxpayer including administrative appeal procedures within the internal_revenue_service if you request a conference with appeals we will forward your written_statement of protest to the appeals_office and they will contact you for your convenience an envelope is enclosed if you and appeals do not agree on some or ail of the issues after your appeals_conference the appeals_office will advise you of its final_decision if you elect not to request appeals consideration but instead accept our findings please sign and return the enclosed form 6018-a consent te proposed adverse action we will then send you a final letter modifying or revoking your exempt status under ilr c sec_501 c if we do not hear from you within days from the date of this letter we will process your case on the basis of the recommendations shown in the report of examination and send a final letter advising of our determination in either situation outlined in the paragraph above execution of form 6018-a or failure to respond within days you are required to file federal_income_tax returns for the tax period s shown above for all years still open under the statute_of_limitations and for all later years file the federal tax_return for the tax period s shown above with this agent within days from the date of this letter unless a request for an extension of time is granted file returns for later tax years with the appropriate service_center indicated in the instructions for those returns you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance hyou have any questions please call the contact person at the telephone number shown in the heading of this letter the most convenient time to call if we need to contact you if you write please provide a telephone number and thank you for your cooperation sincerely marsha a ramirez director eo examinations enclosures publication publication form report of examination envelope cc poa tom 886a bern ofs tsao rete seve explanation of items schedule no or exhibit ‘year period ended 20xx ‘name of taxpayer org legend org organization name country country xyz state trustee-1 trustee owner co0 co-b co-9 co-10 co- co-12 co-19 co-20 co-21 a towers xx date address address city city ‘tower-1 tower-2 tower-3 tower-4 owner-1 owner-2 owner-3 qwner-4 co-13 ot -co-1 co-2 3t4 co-6 co-14 co-15 co-16 co-1 co- co-4 of om co-3 gm ge sec_21 companies co-5 issue sec_1 dees org qualify for tax exempt status under internal revere code irc sec_501 for the years beginning january 20xx iforg does not qualify for tax exempt status for years beginning january 20xx what are the tax consequences if the tax exempt status is revoked how will it affect future years facts org org was formed in the city in the country on february 19xx association listed the following objects its memorandum of undertake and carry on the business of professional malpractice hospital comprehensive general liability product_liability accident employers’ liability fidelity guarantee third party burglary theft fire accident marine storm earthquake flood war risk insurrection riot civil commotion strike vehicle aviation ship steam boiler plate glass workers’ compensation insurances against or upon the contingency or injury damage or loss to persons by accident or misadventure injury loss insurances to protect employers and principals against liability on account of or damage either sustained or caused by workmen servants employee or agents in their employment or acting on their behalf insurances of factories warehouses premises houses tenements merchandise and all other_property and effects real and person against loss or damage by fire explosion lightning storm tempest flood aiveraft and things dropped therefrom to reinsure counter-insure or co-insure any of the risk undertaken by the company share capital of the company is dollar_figuredollar_figure divided into dollar_figure shares of dollar_figuredollar_figure each par_value there would be any where from one to seven directors on may 20xx org made a d election to be taxed as a domestic organization on the election they stated the following shareholders form 886-a teres page -1- department of te trearory- fecal revenue sevice fomn 686a ‘name of taxpayer org schedles noor exhibit ‘year period ended 20xx ‘depart of tran tove revenue sev explanation of items trustee-1 trustee co-1 co-2 form_1024 application_for recognition of exemption under sec_501 was filed by the organization seeking tax exempt status under internal_revenue_code irc c its purpose as stated in the application form was as follows to provide warranty and guaranty insurance protection with respect to certain of the commercial operations of co-3 for the benefit of co-3 its customers in the telecommunications industry and other entities engaged in similar or related businesses the application form stated that there would be dollar_figure shares authorized dollar_figure par_value issued and outstanding shares based on the information in the application form the service issued a determination_letter dated february 20xx granting tax exempt status to org under sec_501 org entered into policy no two year indemnification policy the policy was from may 20xx through april 20xx the policy provided the following information org the company a country company duly licensed is held and firmly bound unto co-4 fk a co-3 an xyz corporation co-4 and its affiliates all as identified and designated on schedule a attached co-5 a xyz corporation co-5 and co-6 a xyz corporation co-6 as beneficiary pursuant to and in accord with the terms and provisions herein set forth and contacted whereas co-4 has entered into agreements for construction work with co-7 for telecommunications tower system design engineering construction and or maintenance to be performed at various locations ‘as whereas the obligation for performance of the remaining services and warranties under the contracts must be guaranteed and assured in order to collect and receive all remaining outstanding invoices and retainage due co-4 from co-7 ‘as whereas co-5 financed by means of a sale leaseback the complete facilities and has certain exposures and responsibilities directly and indirectly as a result of and in connection with said financing structure form 886-a reve page -2- ‘department of te treasury ntecaal revenue secvice fou 886a ‘name of taxpayer org schedule noor exhibic ‘year feriod ended 20xx ‘beparenant of the tremor tatora revenue seaice explanation of items and whereas co-6 operates and maintains the subject tower facility for the benefit of the identified owners and various present and future users or lessees of the subject tower facilities ‘therefore for and in consideration of premium of dollar_figure the company hereby warrants and guarantees to co-4 on its behalf and on behalf of limited to co-5 and co-6 as follows its affiliates and designees specifically but not all workmanship and materials rendered or delivered shall conform to the drawings submittals and specifications as to kind qualify function and characteristic of materials and workmanship specified by the co-7 owner pursuant to and in accord with the terms and provisions of the subject plans design and specifications act and shall remain in good condition and shall be free from any fault or defect for years from the date thereof company shall indemnify and hold harmless co-4 its owners affiliates agents directors and employees against any and all liabilities claims judgments losses orders awards damages costs fines penalties cost of defense and attomey fees to the extent the arise from or in connection with fumishing performance or use of any material supplied by co-4 or its affiliates or subcontractors defects in workmanship rendered pursuant to and in accorded with the provisions of the subject plans designs and specifications obligation of the company shall be limited to an amount not to exceed of any claint of loss or damage per schedule a of policy the following was listed affiliates and designees co- c06 co-15 co-16 co-17 co-18 co-19 co-20 co-21 co-7 tower structures tower-1 address city xyz form 886-acmensm page -3- deparment ofthe treasury invemal revere service fo 886a doparino of ie fema orl kavos see explanation of items ‘name of taxpayer org schedule noor exhibit ‘year petiod ended 20xx tower-2 address city xyz tower-3 address city xyz tower-4 address city xyz tower site owners owner-1 owner-2 qwner-3 owner-4 no other business has been conducted other than the policy mentioned above no new business has been solicited no new policies have been issued form_990 was filed for the 20xx tax_year the following is a breakdown of the gross_receipts received by org for the year ending december 20xx and the percentage of gross premiums to gross_receipts for the same year per notice_2006_42 20xx_ law and analysis no tax_return has been filed for the 20xx tax_year as of this writing org premiums- total premiums interest_income total gross_receipts percentage- gross premium reinsurance income to gross_receipts the amount shown as premiums above was determined by making an adjustment to the unearned_premium account for premiums that were paid in a prior year and earned in this year an election under sec_831 has never been filed as of the writing of this report there has never been a filing of the election either with the filing of the forms or separately internat revenue code sec_501 a exempts from federal_income_tax insurance_companies as defined in sec_816 other than life including interinsurers and reciprocal underwriters if- does internal_revenue_code irc sec_501 for the years beginning january form 886-ag evaes page department ofthe treasury - tnternal revenue service qualify for tax exempt status under pom 886a ‘name of taxpayet part af ie tsay ral revaos ae explanation of items schedsle no or exhibit ‘yeat period ended 20xx_ org i d the gross_receipts for the taxable_year do not exceed dollar_figure and i1 more than percent of such gross_receipts consist of premiums or ii in the case of a mutual insurance company- the gross_receipts of which for the taxable_year do not exceed dollar_figure and more than percent of such gross_receipts consist of premiums clause ii shall not apply to a company if any employee of the company ot a member of the employee's family as defined in sec_2032 is an employee of another company exempt from taxation by reason of this paragraph or would be so exempt but for this sentence sec clarification of exemption from tax for small property and casualty insurance_companies of the pension funding equity act of p l amended sec_501 c a to change the definition of small property and casualty insurance_companies insurance_companies other than life_insurance_companies exempt from income taxes to a company whose gross_receipts for the taxable_year do not exceed dollar_figure and over half such gross_receipts consist of premiums currently whose net written premiums or if greater direct written premiums for the taxable_year do not exceed dollar_figure or a mutual_insurance_company a whose gross_receipts for the taxable_year do not exceed dollar_figure and more than percent of which consist of premiums and b none of whose employees or member of the employee's family is an employee of another company exempt from tax under sec_501 these changes were applicable after date notice_2006_42 irb provides guidance as to the meaning of gross_receipts for purposes of sec_501 of the internal_revenue_code this notice advises taxpayers that the service will include amounts received from the following sources during the taxable_year in gross_receipts for purposes of s01 c a a premiums including deposits and assessments without reduction for retum premiums or premiums_paid for reinsurance b items described in sec_834 gross_investment_income of a non-life insurance_company and c other items that are properly included in the taxpayer’s gross_income under subchapter_b of chapter subtitle a of the code thus gross_receipts include both tax-free interest and the gain but not the entire amount_realized fiom the sale_or_exchange of capital assets because those items ate described in sec_834 gross_receipts do not however include amounts other than premium income or gross_investment_income unless those amounts are otherwise included in gtoss income accordingly the term gross_receipts does not include contributions to capital excluded from gross_income under sec_118 or salvage or reinsurance recovered accounted for as offsets to losses_incurred under sec_832s ang form 886-aqun 4e5 page department of the treaeory - ternal revenue sevion explanation of ems ‘deparment of he teas atonal revere seioe schedule no or eshibit year petiod ended 20xx foun 686a ‘name of taxpayer org sec_834 of the intemal revenue code includes under gross_receipts the gains from the sale or exchanges of capital assets to the extent provided in subchapter_p sec_1201 and following relating to capital_gains_and_losses sec_834 of the intemal revenue code allows a deduction for capital losses to the extent provided in subchapter_p sec_1201 and following plus losses from capital assets sold or exchanged in order to obtain funds to meet abnormal insurance losses and to provide for the payment of dividends_and_similar_distributions to policyholders based on the changes in the limitations under intemal revenue code irc sec_501 a and the operation of that did not qualify for tax exempt status for the years beginning january it was determined from the chart above during _ ‘was able to meet the gross_receipts requirement of under dollar_figure dollar_figure however they since their gross premiums to gross_receipts percentage could not meet the requirement of more than of gross premiums to gross_receipts _ requirement since requirements that are for mutual companies only _ did not exceed the did not qualify for tax exempt status for years starting january was a stock company it did not have the ability to try to meet the second set of section e of the pension funding act of p l provides the effective date of the new requirements for exemption under sec_501 c it states effective date- in general except as provided in paragraph the amendments made by this section shall apply to taxable years beginning after date transition rule for companies in receivership or liquidation- in the case of a company or association which-- a for the taxable_year which includes date meets the requirements of sec_501 a of the internal_revenue_code_of_1986 as in effect for the last taxable_year beginning before date and on date is in a receivership liquidation or similar proceeding under the supervision of a state court the amendments made by this section shall apply to taxable years beginning after the earlier of the date such proceeding ends or date ‘was not involved in a court ordered liquidation during therefore section does not apply to this organization for 886-aqn page -6- department ofthe teeasury-tntemal revenue service explanation of items pa tie tay taaral resos soe tom 886a ‘name of taxpayer org therefore for the years beginning january did not qualify for tax exempt status under sec_501 schedule no or exhibit ‘yeac period ended 20xk wf years beginning january what are the tax consequences does not qualify for tax exempt status for since beginning january january fotm 1120-pc for yeats beginning january did not qualify for tax exempt status under sec_501 for the years tax exempt status should be revoked for years beginning should have filed filings of the forms were incorrect sec_831 discusses tax on insurance_companies other than life_insurance_companies sec_831 states as a general_rule taxes computed as provided in sec_11 shall be imposed for each taxable_year on the taxable_income of every insurance_company other than a life_insurance_company sec_831 provides an alternative_tax for certain small companies it states in sec_831 that in general in lieu of the tax otherwise applicable under subsection a there is hereby imposed for each taxable_year on the income of every insurance_company to which this subsection applies a tax computed by multiplying the taxable_investment_income of such company for such taxable_year by the rates provided in sec_11 sec_831 discusses the companies to which this subsection applies a in general this subsection shall apply to every insurance_company other than life including interinsurers and reciprocal underwriters if- gi the net written premiums or if greater direct written premiums for the taxable_year do not exceed dollar_figure and such company elects the application of this subsection for such taxable_year the election under clause ii shall apply to the taxable_year for which made and for all subsequent taxable years for which the requirements of clause are met such election once made may be revoked only with the consent of the secretary regulations regs a discusses the time for making elections under i it states in general that except as otherwise provided in this section the elections described in paragraph a of this section must be made by the later of- a the due_date taking into account any extensions of time to file obtained by the taxpayer of the tax_return for the first taxable_year for which the election is effective or form 886-a gievdollar_figure page -7- department of the treasury -tnteroal reveaue service foun 886a ‘name of taxpayer org schedule novor exhibit ‘yeat period ended 20xx explanation of items ‘efirimcne ofthe teena tnteral revenue benes b date in which case the election generally must be made by amended_return regs a mentioned above includes sec_831 regs a describes the manner of making elections it states except otherwise provided in this seotion the elections described in paragraph a of this section must be made by attaching a statement to the tax_return for the first taxable_year for which the election is to be effective based on the code and regulation sections above b for years under examination and for any future year until they decide to file the election the election has never been filed either with the form_990 or separately any election filed now or in the future would only be effective for the year the election was filed and all subsequent years the election can not be made retroactive is not entitled to the relief under if the tax exempt status is revoked how will it affect future years the tax exempt status should be revoked for the years beginning january pc is required for each year and all future years where does aot qualify for exemption if form meets the requirements under sec_501 c in future years it may be allowed to file the form_990 for each year they qualify as a self-declared entity otherwise form 1120-pc would be required any year in the future that the form 1120-pc is required is allowed to make an election under sec_831 b once the election is made itis effective for the year the election was made and for all future years that the form 1120-pc is required the election can not be made retroactive taxpayer's position unknown at the time of this writing summary tis the governments position based on the above facts law and analysis that the tax exemption status of org for the years beginning january 20xx should be revoked based on not meeting the qualifications for exemption under sec_501 form 1120-pc would be requized to be filed for any year where org does not qualify for exemption under sec_501 fon 886-acne sec_5 page -8 ‘departnent of the teeasury - internal revemie service


significant index no 20u73uu29 department of the treasury internal_revenue_service washington d c tax exempt and government entities may tep ra ti re plan x plan y company this letter constitutes notice that with respect to the plan sec_401a of the internal_revenue_code code and section i of the employment retirement income security act of erisa do not apply to the amendment described below sec_401 of the code provides that a plan is not a qualified_plan if an amendment is adopted while the employer is a debtor in a case under title united ‘states code or similar federal or state law and such amendment increases liabilities of the plan by reason of i any increase in benefits ii any change in the accrual_of_benefits or iii any change in the rate at which benefits become nonforfeitable under the plan with respect to employees of the debtor and such amendment is effective prior to the effective date of such employer's plan_of_reorganization section i of erisa prohibits a plan amendment that increases the liabilities of a plan maintained by an employer that is a debtor under title of the united_states_code or similar federal or state law by reason of a any increase in benefits b any change in the accrual_of_benefits or c any change in the rate at which benefits become nonforfeitable under the plan with respect to employees of the debtor and such amendment is effective prior to the effective date of such employer's plan_of_reorganization the company is a supplier of cockpit modules automotive floors acoustic systems instrument panels automotive fabric plastic-based trim and convertible-top systems the company and substantially_all of its domestic subsidiaries filed for on protection under chapter of the u s bankruptcy code seeking reorganization relief from the merger of the plan is a defined_benefit_plan that was formed on plan x and plan y the plan covers salaried hourly union and non-union employees under various benefit formulas three days prior to filing for chapter bankruptcy protection the on company entered into a collective-bargaining agreement with a union representing certain participants in the plan to increase the monthly retirement benefit multiplier under the plan for these participants it is clear from the information submitted with the request that the company was not a debtor in bankruptcy when the amendment in question was effectively adopted by the signing of the collective-bargaining agreement because the amendment was adopted prior to the date of the company's bankruptcy filing which is also the date the company became a debtor in bankruptcy sec_401 of the code and section i of erisa do not apply to the amendment this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent we have sent a copy of this letter to the to the and to your authorized representative pursuant to a power_of_attorney on file in this office if you require further assistance in this matter please contact sincerely yours jen ulla go james e holland jr manager employee_plans technical


y jun internal_revenue_service technical_advice_memorandum eo area manager taxpayer's name taxpayer's address taxpayer's ein tax years involved legend x issues jk f- ll - 5ol o0-0 o -00 gh2 should the initial excise_taxes due under sec_4942 of the internal_revenue_code on x's undistributed_income for the years ending date through date be abated under sec_4962 should the initial excise_taxes due under sec_4943 on x's excess_business_holdings for the years ending date through date be abated under sec_4962 should the initial excise_taxes due under sec_4944 on x's jeopardizing investment for the years ending date through date be abated under sec_4962 should the initial excise_tax due under sec_4945 on x's taxable_expenditures for the year ending date be abated under sec_4962 facts x is an organization described in c of the code x received an advance_ruling as a public charity in and was reclassified as a private_foundation in date in x began construction of a hotel in the hotel opened for business and x placed the hotel in a wholly owned for-profit subsidiary x relied on the written advice of counsel that its ownership of the subsidiary would not result in a violation of chapter of the code in the service issued a technical_advice_memorandum date which determined violations under sec_4942 sec_4943 and sec_4944 resulting from the ownership of the subsidiary x has completed action to correct the chapter violations in x made grants of stock to several organizations also on the advice of counsel the technical_advice_memorandum also held that x failed to exercise its expenditure_responsibility requirements in connection with the grants in the stock produced no dividends in the situation was corrected in applicable law sec_4962 of the code provides that if it is established to the satisfaction of the secretary that-- a taxable_event was due to reasonable_cause and not to willful neglect and such event was corrected within the correction_period for such event then any qualified_first_tier_tax imposed with respect to such event including interest shall not be assessed and if assessed the assessment shall be abated and if collected shall be credited or refunded as an overpayment the section applies to taxable events occurring after date h_r rep no pt cong 2d sess and s rep no vol cong 2d sess indicate the intent of congress that a chapter violation due to ignorance of the law is not to qualify for abatement under sec_4962 of the code delegation_order no rev updated date delegates authority to abate substantial first-tier excise_taxes to the director exempt_organizations substantial qualified first-tier tax amount is described as a sum exceeding dollar_figure for all such tax_payments or deficiencies excluding interest other taxes and penalties involving all related parties and transactions arising from chapter taxable events within the statute_of_limitations as determined by the key district_office involved see irm conclusion the initial excise_taxes due under sec_4942’ of the internal_revenue_code on x's undistributed_income for the years ending date through date should be abated under sec_4962 the initial excise_taxes due under sec_4943 on x's excess_business_holdings for the years ending date through date should be abated under sec_4962 the initial excise_taxes due under sec_4944 on x's jeopardizing investment for the years ending date through date should be abated under sec_4962 the initial excise_tax due under sec_4945 on x's taxable_expenditures for the year ending date should be abated under sec_4962 a copy of this technical_advice_memorandum is to be given to x sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent -end-