department of the treasury employer_identification_number person to contact - id contact telephone numbers vil internal_revenue_service p o box cincinnati oh number release date date date legend b name c state d year e name f county names x dollars amount y dollars amount dear we have considered your date request for recognition of an unusual grant under sec_1_170a-9 and related provisions based on the information provided we have concluded that the proposed grant will constitute an unusual grant under sec_1_170a-9 and related provisions of the regulations the basis for our conclusion is set forth below facts you were formed in the state of c in d you are a nonprofit corporation exempt from taxation under sec_501 of the internal_revenue_code and classified as a public charity under sec_509 and sec_170 of the code your purpose is to promote the mental moral intellectual artistic and physical improvement of those in f which is a rural_area in c you will receive a grant from b for x dollars the grant will be a distribution of cash or investments from b and will take effect on the death of the grantor a condition of the receipt of the grant requires that you will hold the funds in a separate endowment known as e the grant will be used to benefit of residents in f at the discretion of your board_of directors you received one small grant for y dollars from b several years ago b does not stand in a position of authority over you you have carried on a successful program of public solicitation to attract public support and have consistently met the public support_test your program of public solicitation includes conducting an annual mailing campaign to solicit contributions from the general_public and sending letters to the local funeral homes requesting they inform families of your existence so that they can make memorial gifts to you is not your creator and letter catalog number 58230y furthermore you have a large board including an elected county official an elected member from the local board_of education an officer employee of a local bank from your community as well as three directors elected at large other than your current president serving as b’s attorney there are no other relationships between you and b law sec_1_170a-9 and sec_1_509_a_-3 set forth the criteria for an unusual grant sec_1_170a-9 states that for purposes of applying the 2-percent limitation to determine whether the percent-of-support test is satisfied one or more contributions may be excluded from both the numerator and the denominator of the applicable percent-of-support fraction the exclusion is generally intended to apply to substantial contributions or bequests from disinterested parties which e e e are attracted by reason of the publicly supported nature of the organization are unusual or unexpected with respect to the amount thereof and would by reason of their size adversely affect the status of the organization as normally being publicly supported sec_1_509_a_-3 states that all pertinent facts and circumstances will be taken into consideration to determine whether a particular contribution may be excluded no single factor will necessarily be determinative such factors may include e whether the contribution was made by a person who a b c d e created the organization previously contributed a substantial part of its support or endowment stood in a position of authority with respect to the organization such as a foundation_manager within the meaning of sec_4946 directly or indirectly exercised control_over the organization or was in a relationship described in internal_revenue_code sec_4946 through a g with someone listed in bullets a b c or d above a contribution made by a person described in a - e is ordinarily given less favorable consideration than a contribution made by others not described above e e e whether the contribution was a bequest or an inter_vivos transfer a bequest will ordinarily be given more favorable consideration than an inter_vivos transfer whether the contribution was in the form of cash readily marketable_securities or assets which further the exempt purposes of the organization such as a gift of a painting to a museum whether except in the case of a new organization prior to the receipt of the particular contribution the organization a has carried on an actual program of public solicitation and exempt_activities and b has been able to attract a significant amount of public support e e e e whether the organization may reasonably be expected to attract a significant amount of public support after the particular contribution continued reliance on unusual grants to fund an organization's current operating_expenses as opposed to providing new endowment funds may be evidence that the organization cannot reasonably be expected to attract future public support whether prior to the year in which the particular contribution was received the organization met the one-third support_test described in sec_1_509_a_-3 without the benefit of any exclusions of unusual grants pursuant to sec_1 c whether the organization has a representative governing body as described in sec_1_509_a_-3 and whether material restrictions or conditions within the meaning of sec_1_507-2 have been imposed by the transferor upon the transferee in connection with such transfer application of law based on the information provided the proposed grant meets the requirements of sec_1_170a-9 because the grant is from a disinterested party and the grant was attracted by reason of your publicly supported nature the grant is unusual or unexpected with respect to the amount the grant will adversely affect your status as normally being publicly supported a the grant was not made by a person who created you or who previously contributed the grantor also does not stand in a position the grant meets the requirements of sec_1_509_a_-3 based on the following facts and circumstances d you have met the public support_test in past years e because you have relied on public support in the past it can be assumed that you b the grant is a bequest and is in the form of cash or investments c you have carried on an actual program of public solicitation have exempt_activities a substantial amount of your support of authority with respect to you and does not exercise control_over you will be able to maintain that level of public support in the future you have a large representative governing body and have attracted a significant amount of public support over the years f in addition no material restrictions or conditions within the meaning of sec_1_507-2 have been imposed by the transferor upon the transferee in connection with such transfer for all the forgoing reasons the grant should be characterized as an unusual grant within the meaning of sec_1_509_a_-3 if you have any questions please contact the person listed in the heading of this letter sincerely stephen a martin director exempt_organizations rulings and agreements


t c summary opinion united_states tax_court armando vega petitioner v commissioner of internal revenue respondent docket no 1434-01s filed date armando vega pro_se susan smith canavello for respondent powell special_trial_judge this case was heard pursuant to sec_7463 of the internal_revenue_code in effect at the time the petition was filed the decision to be entered in this case is not reviewable by any other court and this opinion should not be cited as authority respondent determined a deficiency in petitioner’s ' unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue and rule references are to the tax_court rules_of_practice and procedure - - federal_income_tax and an addition_to_tax under sec_6651 of dollar_figure and dollar_figure respectively the issues are whether a distribution from a retirement_plan of dollar_figure is includable in petitioner’s gross_income for the taxable_year whether petitioner failed to report interest_income of dollar_figure for and whether petitioner is liable for the addition_to_tax under sec_6651 for the taxable_year ’ petitioner resided in baton rouge louisiana at the time the petition was filed the facts may be summarized as follows in date petitioner received a distribution from a retirement_plan of dollar_figure some time prior to this petitioner had opened a individual_retirement_account ira and a cash management account cma with merrill lynch the distribution from the retirement_plan was deposited into the cma petitioner believed that he had instructed his broker at merrill lynch to put the distribution on his federal_income_tax return petitioner reported taxable_income of dollar_figure from a teacher’s retirement_system respondent concedes that petitioner overstated this income by dollar_figure in the notice_of_deficiency respondent determined that the addition_to_tax for late filing under sec_6651 wa sec_15 percent of the amount of tax required to be shown on the return respondent concedes that the correct percentage i sec_5 percent the precise nature of this retirement_plan is not contained in the record the parties agree however that the plan is some type of a deferred income retirement program similar to a sec_401 plan the amount of the distribution was dollar_figure respondent agrees that only dollar_figure was taxable into the ira a statement from merrill lynch for the period ending date however clearly shows that the distribution had been deposited into the cma during petitioner had a savings account with hibernia national bank that account generated interest_income of dollar_figure that petitioner did not withdraw during the year petitioner obtained extensions of time within which to file his federal_income_tax return to date he did not file his return until date petitioner did not report income from the distribution from the retirement_plan or the dollar_figure interest_income from hibernia national bank respondent determined that dollar_figure of the retirement_plan distribution and the dollar_figure interest_income are includable in gross_income respondent also imposed an addition_to_tax under sec_6651 for not timely filing the tax_return discussion retirement_plan distribution the taxable_portion of a distribution from a retirement_plan under sec_401 is generally taxable in the year of receipt see sec_402 sec_402 a and c however provides the facts concerning the retirement_plan distribution and the unreported interest are not in dispute and sec_7491 concerning the burden_of_proof with respect to factual issues is not pertinent to the resolution of these issues - - a general_rule --if-- any portion of the balance_to_the_credit of an employee in a qualified_trust is paid to him the employee transfers any portion of the property he receives in such distribution to an eligible_retirement_plan and in the case of a distribution_of_property other than money the amount so transferred consists of the property distributed then such distribution to the extent so transferred shall not be includible in gross_income for the taxable_year in which paid c transfer must be made within days of receipt --- subparagraph a shall not apply to any transfer of a distribution made after the 60th day following the day on which the employee received the property distributed the distribution from the retirement_plan was received by petitioner on or about date petitioner did not deposit the funds into an ira rather the funds were deposited into a cma accordingly the exemption of the distribution from gross_income contained in sec_402 a does not apply petitioner’s argument seems based on an overly expansive reading of our opinion in 93_tc_114 wood involved a distribution from a profit-sharing_plan where the taxpayer established an ira within the 60-day period and transferred the distribution to a trustee because of a bookkeeping error by the trustee of the ira a portion of the distribution was not credited to the ira account within the day period this court held that the bookkeeping error did not preclude the rollover however in 105_tc_29 we noted that where the requirements of a statute relate to the substance or essence of the statute they must be rigidly observed on the other hand if the requirements are procedural or directory in that they do not go to the essence of the thing to be done but rather are given with a view to the orderly conduct of business they may be fulfilled by substantial compliance citations omitted see also 110_tc_1 reese v commissioner tcmemo_1997_346 orgera v commissioner tcmemo_1995_575 there was no substantial compliance here while petitioner maintained an ira with merrill lynch the distribution was not transferred to that account and the monthly statement clearly shows that this was the fact this was not a bookkeeping error on the part of merrill lynch furthermore even if there were an error that error quickly could have been remedied by petitioner when he received the monthly statement for either october or november petitioner however did not make any effort to remedy the alleged error we sustain respondent’s determination unreported interest_income petitioner did not report dollar_figure that was credited to his savings account by hibernia national bank during as we understand petitioner contends that since the money was not actually withdrawn by him it was not taxable sec_1 -- - a income_tax regs provides inter alia income although not actually reduced to a taxpayer’s possession is constructively received by him in the taxable_year during which it is credited to his account however income is not constructively received if the taxpayer’s control of its receipt is subject_to substantial limitations or restrictions there were no restrictions on petitioner’s ability to withdraw these funds and we sustain respondent’s determination failure_to_file timely return sec_6651 provides for an addition_to_tax where a return is not timely filed unless it is shown that such failure is due to reasonable_cause and not due to willful neglect the amount of the addition_to_tax is percent of the amount of the correct_tax if the failure is for not more than month with an additional percent for each additional month or fraction thereof not exceeding percent in the aggregate sec_6651 petitioner’s return was filed date respondent initially determined that petitioner’s return was due_date but now concedes that the return was due_date and that the maximum addition_to_tax sec_5 percent petitioner does not dispute that the return was late and offered no evidence or argument with respect to whether the failure to timely file was due to - j- reasonable_cause and not due to willful neglect we sustain respondent’s determination as modified by the concession as to when the return was due reviewed and adopted as the report of the small_tax_case division decision will be entered under rule sec_7491 provides that respondent has the burden of production for the addition_to_tax that burden is satisfied when respondent shows that the return was not timely filed it does not include establishing that there was not reasonable_cause see 116_tc_438


internal_revenue_service number release date index number ----------------- -------------------------------- ------------------------ ------------------------------------------- - department of the treasury washington dc third party communication government agency -01 date of communication date person to contact ----------------------- no ---------------- telephone number --------------------- refer reply to cc tege eoeg teb presp-156571-05 date date dear -------------- this letter is in response to the application dated ------------------------- for designation of - -------------------------- the project as a qualified_green_building_and_sustainable_design_project under sec_142 and sec_142 of the internal_revenue_code the code sec_701 of the american_jobs_creation_act_of_2004 pub_l_no the act added sec_142 and sec_142 to the code in general sec_142 and sec_142 authorize up to dollar_figure of tax-exempt private_activity_bonds to be issued by state or local governments for qualified green building and sustainable design projects sec_142 defines qualified_green_building_and_sustainable_design_project as any project meeting certain requirements that is designated by the secretary_of_the_treasury after consultation with the administrator of the environmental protection agency as a qualified_green_building_and_sustainable_design_project notice_2005_48 2005_27_irb_9 the notice provides that each application_for designation of a project as a qualified_green_building_and_sustainable_design_project must be prepared and submitted in accordance with section application requirements of the notice the notice requires that the application must demonstrate and provide written assurances that the project will satisfy each basic eligibility requirement and must describe in detail the conservation and technology innovation features of the project we have reviewed your application and have concluded that your application does not meet the requirements of the notice below are the principal reasons why your application does not met these requirements leed certification under the green building and sustainable design basic eligibility requirement of leed certification the notice provides that the application must demonstrate and provide written assurances that at least of the square footage of commercial buildings that are part of the project is registered for united_states green building council’s the council leed certification and is reasonably expected by the presp-156571-05 applicant to receive such certification based on all the facts and circumstances including statements of the council opinions of independent experts in green building and sustainable design and relevant experience of the project developer the notice also provides that the application must include leed letter templates indicating which leed credits the applicant intends to pursue and the applicants planned approach to pursuing such credits documentation demonstrating the applicants plans to design and construct leed-certified sustainably-designed buildings including where applicable architectural plans drawings and specifications policy statements contracts leases and other applicable documents and other related applicable information information on how plans to build leed-certified sustainbly-designed buildings will be implemented through the managements structure information on any plans to attract broader expertise and perspectives to the project that could support the effort to achieve leed certification through such means as green building design charettes or consultation with additional green building experts and information on financial incentives and penalties that will be included in the design construction engineering and other building contracts and subcontracts to tie a part of the contractors’ and subcontractors’ compensation to their level o success in designing and constructing leed-certified sustainbly-designed buildings your application does not reasonably demonstrate and provide any assurances that the project meets this requirement your application fails to state that of the commercial building of the project has been registered with the council fails to include leed letter templates architectural plans drawings or specifications or documents demonstrating the engagement of green building professionals throughout the project management structure or the implementation of appropriate financial incentives and disincentives as provided in the notice your representations that the owner or developer of the project plans or intends to register the commercial building space with the council and implement the leed design through the project construction management structure and provide construction_contract incentives and disincentives is insufficient for purposes of the leed certification requirement under the notice state and local support the notice requires that the application demonstrate and provide written assurances that the project will receive state_or_local_government resources that will support the project in the amount equal to at least dollar_figure at any time between date and the maturity of the bond issued under sec_142 for this purpose resources includes tax abatement benefits_and_contributions in_kind your application indicates that the ------------------------------------------------------- has committed the state job tax_credit incentive projected to be more than dollar_figure--------------- however the letter from the ----------------------------------- supporting the application states that the incentives will go to the industries locating at the site and that further incentives will be evaluated on a project-by-project basis the letter also states that all incentives are evaluated individually and must meet the approval of the ------------------------------------ ----------------------------------------------------------------- before any formal commitment can be made neither the letter from the ----------------------------------- nor any other submission presp-156571-05 from you provides conclusive support that there is a commitment by any state_or_local_government to provide the project with resources in the amount of at least dollar_figure employment the notice requires that the project is projected to provide permanent employment of at least big_number full time equivalents full time equivalents in rural states when completed and construction employment of at least big_number full time equivalents full time equivalents in rural states your application provides insufficient information that would reasonably demonstrate and provide written assurances that the project will meet this requirement specifically your application fails to provide the basis for the projection that the project will provide -------- full time equivalents when completed and -------- full time equivalents during construction the independent analysis submitted as appendix a to your application provides no information to support the conclusion that the projected employment at the project is reasonable goals for conservation and technology innovation the notice provides that for purposes of accomplishing the goals for conservation and technology innovation of the brownfields demonstration program the application must describe the amount of electric consumption in megawatt hours reduced by the project as compared to conventional construction and conventional generation the amount of sulfur dioxide daily emissions reduced by the project as compared to coal generation the amount of the gross installed_capacity of the project’s solar photovoltaic capacity measured in megawatts and the amount in megawatts of the project’s fuel cell energy generation capacity which includes the fuel cells’ generation of thermal and electrical energy used by the project your application fails to provide any information as to the amount of reduction in electric consumption and daily sulfur dioxide emissions by the project although your application provides that the project will expand the domestic solar photovoltaic market in the united_states by percent as compared to the expansion of that market from to it fails to provide any documentation reasonably demonstrating that the project is will achieve that goal similarly although your application indicates that the project will use at least megawatts of fuel cell generation it fails to provide any documentation reasonably demonstrating that the project will achieve that goal your statement that documentation with respect to the goals for conservation and technology innovation shall be provided as it is generated is insufficient to meet the requirements of the notice finally your application raises significant questions as to whether it is reasonable to expect that the project will be completed as described in the application because as indicated in the letter dated ------------------------- from the ----------------------------- to the --- ------------------------------------------------------- none of the parts of the project have received building permits and certain parts of the project are inconsistent with the -------- ----------land use plan and zoning ordinance presp-156571-05 accordingly we conclude that the information submitted in your application_for designation of the project as a qualified_green_building_and_sustainable_design_project under the brownfields demonstration program does not meet the requirements of notice_2005_48 and therefore that the project may not be designated as a qualified_green_building_and_sustainable_design_project under sec_142 and sec_142 we appreciate your submission of the application_for our consideration and encourage you to continue to pursue your plans for constructing a green building and sustainable design project this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely assistant chief_counsel exempt_organizations employment_tax government entities tax exempt government entities by timothy l jones senior counsel tax-exempt_bonds branch cc


internal_revenue_service department of the treasury index no washington dc number info release date dear person to contact john t sapienza jr id no telephone number refer reply to cc dom it a - cor-112254-00 date date commissioner rossotti asked me to respond to your letter concerning obesity and weight-loss programs you asked the internal_revenue_service to issue a revenue_ruling allowing obese individuals to deduct the costs of weight-loss programs as medical_care expenses under sec_213 of the internal_revenue_code the current irs position on weight-loss programs is stated in revrul_79_151 1979_1_cb_116 this ruling holds that if participation in the program was to improve the participant’s appearance general health and sense of well-being the expenses of the program are not for medical_care and therefore are not deductible of course the expenses of a weight-loss program prescribed to treat a specific disease are for medical_care and are deductible we appreciate your suggestion and the references you provided to studies on obesity each year the irs and the department of the treasury review the many suggestions for revenue rulings and other forms of guidance to be published the projects selected are announced in the annual priority guidance plan input such as you have provided is helpful to us in selecting projects for the priority guidance plan i hope this information is helpful please call john t sapienza jr at the number above if you have any questions sincerely associate chief_counsel income_tax accounting by robert a berkovsky chief branch


t c memo united_states tax_court susanne shaw petitioner v commissioner of internal revenue respondent docket no filed date jeffrey d stoermer for petitioner donald e edwards for respondent memorandum opinion gerber chief_judge this matter is before us on petitioner’s motion pursuant to rule for an award of reasonable administrative and litigation costs under sec_7430 in accordance with rule the parties have filed affidavits and memoranda in support of their respective positions the primary issues to be addressed are whether petitioner exhausted the administrative remedies available to her within the internal_revenue_service as required by sec_7430 and is eligible for an award of litigation costs whether the position_of_the_united_states in the administrative_proceeding was substantially justified so as to preclude an award of administrative costs to petitioner under sec_7430 whether the position_of_the_united_states in this tax_court proceeding was substantially justified so as to preclude an award of litigation costs to petitioner under sec_7430 and in the event that petitioner is determined to be entitled to recover administrative and or litigation costs whether she is entitled to recover as part of her litigation costs any additional expense she incurs in pursuing this motion background at the time that she filed her petition petitioner resided in tulsa oklahoma on the federal_income_tax return that she filed for petitioner claimed that she was entitled to head_of_household filing_status and a dollar_figure refund among other things on her return petitioner claimed dependency unless otherwise indicated all section references are to the internal_revenue_code as amended and all rule references are to the tax_court rules_of_practice and procedure exemptions for her two children brent shaw brent and ronald shaw ronald an earned_income_tax_credit of dollar_figure and a child_tax_credit of dollar_figure on date respondent’s compliance center in austin texas mailed a 30-day_letter to petitioner proposing to disallow her head_of_household filing_status and instead to treat her as a single filer dependency_exemptions for her two children brent and ronald earned_income_tax_credit and child care tax_credit the 30-day_letter included an address and telephone number to contact by date if petitioner did not agree with the proposed changes to her return shortly after she received the date 30-day_letter petitioner retained jeffrey d stoermer petitioner’s counsel to represent her in the above matter concerning her claimed tax_refund petitioner did not respond to the 30-day_letter on date respondent issued to petitioner a notice_of_deficiency for in which respondent determined an income_tax deficiency of dollar_figure among other things respondent determined that petitioner should use a filing_status of single and disallowed her earned_income_credit child_care_credit and claimed exemptions for her two children on date petitioner filed her tax_court petition2 in this case seeking review of the notice_of_deficiency that was issued to her for at no time during the period from her receipt of the date 30-day_letter through date when she filed her petition did petitioner request an appeals_office conference on date respondent filed his answer asserting that his determinations in the notice_of_deficiency should be sustained from date through date petitioner provided substantial information and documentation to the internal_revenue_service supporting her entitlement to head_of_household filing_status and to her claimed exemptions and earned_income and child care credits petitioner and her representatives advised respondent that petitioner was married but they maintained that in petitioner and her husband lived apart initially petitioner’s counsel communicated only with the taxpayer advocate’s office and an examiner in respondent’s examination_division later on date after petitioner filed her petition and respondent prepared his answer respondent’s counsel forwarded the administrative file to the appeals_office in oklahoma city though the court filed the petition on date the date date of the postmark on the cover in which the petition was mailed is deemed to be the date of delivery see sec_7502 on date an appeals officer sent petitioner’s counsel a letter offering petitioner an appeals_conference thereafter petitioner’s counsel and the appeals officer corresponded and held telephone conferences concerning the issues and evidence in the case on date petitioner’s counsel sent the appeals officer a fax indicating he needed to gather more information and had to interview two potential witnesses before discussing the possibility of settlement with the appeals officer on date this court issued its notice setting this case for trial at the trial session in oklahoma city oklahoma beginning on date on date the appeals officer having received no further documentation from petitioner’s counsel forwarded her appeals transmittal and case memorandum to respondent’s associate area_counsel thereby releasing the case from the appeals_office the appeals officer still questioned whether petitioner lived apart from her husband for the requisite amount of time during the taxable_year to qualify for head_of_household filing_status see sec_2 c b if petitioner and her husband had filed jointly for their combined incomes would have exceeded the threshold for qualifying for the earned_income_credit by a married couple filing jointly with more than one child if petitioner’s correct filing_status were married_filing_separately rather than head_of_household she also would not qualify for the earned_income_credit for that year see sec_32 on date respondent’s associate area_counsel reviewed the administrative file and determined that consideration should be given to conceding all issues in the case on date respondent’s appeals officer spoke with petitioner’s counsel and learned that petitioner would be obtaining from her husband an affidavit stating that her husband did not live with her during the last months of on date respondent’s associate area_counsel approved a settlement memorandum recommending respondent’s full concession of the case in a letter to petitioner’s counsel dated date respondent notified petitioner of respondent’s decision to concede the case on date after the filing of the parties’ supplemental stipulation of settlement petitioner filed her instant motion seeking an award of administrative and litigation costs under sec_7430 in her motion petitioner seeks to recover certain fees and costs that she incurred from date through date plus any additional expenses that she might incur in pursuing that motion from date through date petitioner incurred the following fees and costs type of fees and costs total attorney’s fees dollar_figure paralegal’s fees dollar_figure miscellaneous costs fax dollar_figure photocopies dollar_figure postage and express mail dollar_figure long distance dollar_figure filing fee dollar_figure dollar_figure dollar_figure total of the dollar_figure in attorney’s fees and dollar_figure in paralegal’s fees dollar_figure covered work done from april through date when petitioner filed her tax_court petition of the dollar_figure dollar_figure may have related to the preparation and filing of the petition discussion petitioner seeks to recover under sec_7430 administrative and litigation costs that she incurred after respondent’s date 30-day_letter was mailed to her respondent acknowledges petitioner substantially prevailed both with respect to the amounts in controversy and with respect to the most significant issues presented petitioner meets the net_worth requirements provided by law petitioner has not unreasonably protracted the administrative and court proceedings and the specified costs that petitioner claims are reasonable in amount within sec_7430 in opposing petitioner’s recovery_of administrative and litigation costs respondent primarily contends however because petitioner did not request and participate in an appeals_office conference before filing her tax_court petition she failed to exhaust her administrative remedies and is precluded from recovering litigation costs under sec_7430 the position_of_the_united_states in the administrative_proceeding was substantially justified so that petitioner was not a prevailing_party in that proceeding and is not entitled to recover administrative costs under sec_7430 and c b and the position_of_the_united_states in this judicial proceeding was substantially justified so that petitioner was not a prevailing_party in this proceeding and is not entitled to recover litigation costs under sec_7430 and c b except as provided in sec_7430 petitioner must show that she meets each of the requirements of sec_7430 see rule e i exhaustion of administrative remedies sec_7430 requires that a taxpayer take advantage of all available administrative remedies to be eligible for an award of litigation costs 117_tc_48 affd 55_fedappx_476 9th cir see h rept pincite explaining that this statutory requirement is intended to preserve the role that the administrative appeals process plays in the resolution of tax disputes by requiring taxpayers to pursue such remedies before litigation a taxpayer generally is not regarded as having exhausted available administrative remedies unless before filing a tax_court petition the taxpayer participates in an appeals_office conference or if no appeals_office conference is granted the taxpayer before the issuance of a notice_of_deficiency in the case of a tax_court petition a requests an appeals_office conference and b files a written protest if a written protest is required to obtain an appeals_office conference sec_301_7430-1 and b proced admin regs see rogers v commissioner tcmemo_1987_374 noting that before the issuance of a notice_of_deficiency the internal_revenue_service is seeking facts to decide whether it should determine a tax_deficiency and thereby force a taxpayer to incur litigation costs or pay the determined tax noting further that the regulations are designed to require a taxpayer to either disclose information needed by the internal_revenue_service to make its decision or forgo recovery_of the taxpayer’s litigation costs though not applicable here certain limited exceptions apply to relieve taxpayers of the requirement that they either participate in or request an appeals_office conference in order to be treated as having exhausted available administrative remedies sec_301_7430-1 and g examples and proced admin regs see also 758_f2d_1 1st cir burke v commissioner tcmemo_1997_127 petitioner failed to request an appeals_office conference before respondent’s issuance of the notice_of_deficiency even though the date 30-day_letter advised petitioner of her right to file an administrative appeal indeed petitioner did not commence dealing with the appeals_office until well after she filed her tax_court petition accordingly we hold that petitioner failed to exhaust her available administrative remedies as required by sec_7430 and is ineligible for an award of reasonable_litigation_costs under sec_7430 see haas associates accountancy corp v commissioner supra pincite roginiel v commissioner tcmemo_2002_270 swanagan v commissioner tcmemo_2000_294 in light of this holding for the purposes of deciding whether to award petitioner reasonable_litigation_costs we need not decide whether the position_of_the_united_states in this proceeding was substantially justified so that petitioner would not be treated as the prevailing_party petitioner’s litigation costs are those incurred in connection with the preparation and filing of her tax_court petition and after the filing of the petition see sec_301_7430-4 and example proced admin regs ii reasonableness of the position_of_the_united_states in the administrative_proceeding with respect to administrative costs as previously discussed respondent contends that petitioner does not qualify for an award of reasonable_administrative_costs because the position_of_the_united_states in the administrative_proceeding was substantially justified a taxpayer is not treated as a prevailing_party if the commissioner can establish that the commissioner’s position in the administrative_proceeding was substantially justified sec_7430 rule e we must identify the point at which the united_states is first considered to have taken a position in the administrative_proceeding and then decide whether that position from that point forward was substantially justified for purposes of the administrative_proceeding in this case respondent’s position is that which was articulated in the notice_of_deficiency issued to petitioner on date as the appeals_office never considered petitioner’s entitlement to her claimed refund before the issuance of the notice_of_deficiency see sec_7430 fla country clubs inc v commissioner 122_tc_73 affd f 3d 11th cir date 108_tc_430 sec_301_7430-5 proced admin regs a position in the notice_of_deficiency is substantially justified if it is justified to a degree that could satisfy a reasonable person and has a reasonable basis in both law and fact 487_us_552 interpreting similar language in the equal_access_to_justice_act u s c sec 106_tc_76 a reasonable basis exists if legal precedent substantially supports the commissioner’s position given the facts available to the commissioner 94_tc_685 in deciding whether the commissioner acted reasonably this court must consider the basis for the commissioner’s legal position and the manner in which the position was maintained 86_tc_962 the fact that the commissioner eventually loses or concedes the case is not conclusive as to whether the taxpayer is entitled to an award of administrative costs coastal petroleum refiners inc v commissioner supra pincite wasie v commissioner supra pincite it remains however a relevant factor to consider in deciding the degree of the commissioner’s justification 931_f2d_1044 5th cir award of litigation costs in the court_of_appeals affg tcmemo_1990_123 swanson v commissioner supra pincite as of date when respondent issued the notice_of_deficiency petitioner had not responded to the date 30-day_letter or communicated in any way with the examiner except perhaps to make one telephone call to the taxpayer advocate’s office although petitioner eventually provided substantial documentation and information much of which earlier had been requested in the 30-day_letter supporting her claimed filing_status personal exemptions for her two children earned_income_credit and child_care_credit virtually all of this documentation and information was provided to the internal_revenue_service well after the notice_of_deficiency was issued on date it was not until date that petitioner first began providing documents to the examiner as of date when petitioner filed her petition she had still failed to establish her entitlement to head_of_household filing_status and the earned_income_credit indeed not until much later on date did petitioner inform respondent that she would be obtaining an affidavit from her husband that he did not live with her during the last months of see supra p we find that the position respondent took in the notice_of_deficiency and maintained through date was substantially justified coastal petroleum refiners inc v commissioner supra pincite see also 115_tc_366 n citing mcdaniel v commissioner tcmemo_1993_148 for the propositions that whenever there is a factual determination the commissioner is not obliged to concede a case until the commissioner receives the necessary documentation to prove the taxpayer’s contentions and the commissioner must be given reasonable_time to analyze the documents and make adjustments after receiving the documents from date the date of the notice_of_deficiency through date the date upon which petitioner filed her petition respondent’s position with respect to all issues in the administrative_proceeding was substantially justified see sec_7430 sec_301_7430-5 proced admin regs as a result we hold that petitioner is not eligible to receive an award of reasonable_administrative_costs under sec_7430 costs petitioner incurred in connection with the preparation and filing of her tax_court petition and after the date filing of the petition would be litigation costs rather than administrative costs sec_301_7430-4 and example proced admin regs as we have previously held petitioner is ineligible for an award of reasonable_litigation_costs because of her failure_to_exhaust_administrative_remedies as required by sec_7430 iii additional expenses in pursuing this motion in light of our above holdings that petitioner is not eligible to recover reasonable administrative and litigation costs under sec_7430 we hold that petitioner is not entitled to recover as part of her litigation costs additional expenses if any she incurred in pursuing this motion to reflect the foregoing an appropriate order and decision will be entered


internal_revenue_service number release date index number ----------------------------------- -------------------------------------------- -------------------------- ------------------------------ legend department of the treasury washington dc person to contact ------------------ id------------------ telephone number --------------------- refer reply to cc fip b02 plr-134721-09 date date fund --------------------------------------------------------------------- -------------------------------------------------- trust ---------------------------- sub ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------ company state offshore dear --------------- ------------------------------------ -------------------- --------------------- this is in response to a letter dated date requesting a ruling that income earned by fund from an investment in its wholly-owned subsidiary that qualifies as a controlled_foreign_corporation cfc constitutes qualifying_income under sec_851 of the internal_revenue_code facts fund is a series of trust trust is a business_trust organized under the law of state fund is registered as an open-end management company under the investment_company act of u s c 80a-1 et seq the act plr-134721-09 fund intends to qualify each year as a regulated_investment_company ric under sec_851 of the code fund intends to form a wholly-owned subsidiary sub under the laws of offshore a non-united states jurisdiction under offshore’s laws sub will be formed as a company a company provides limited_liability for its shareholders sub will file an election on form to be taxed as a corporation pursuant to sec_301_7701-3 of the procedure and administration regulations fund represents that although sub will not be registered as an investment_company under the act it will comply with the requirements of section f of the act investment_company act release no and related sec guidance pertaining to asset coverage with respect to transactions in commodity futures and other transactions in derivatives fund will invest a portion of its assets in sub subject_to the asset diversification limitations set forth in sec_851 of the code fund expects that all of sub’s income will be subpart_f_income but fund may also receive income from sub that is not properly characterized as subpart_f_income law sec_851 of the code provides that a corporation is not considered a ric for any taxable_year unless it meets an income test under this test at least percent of its gross_income must be derived from certain sources under sec_851 qualifying_income includes dividends interest payments_with_respect_to_securities_loans as defined in sec_512 and gains from the sale_or_other_disposition of stock_or_securities as defined in sec_2 of the act or foreign_currencies or other income including but not limited to gains from options futures or forward contracts derived with respect to its business of investing in such stock securities or currencies sec_2 of the act defines the term security as any note stock treasury_stock security future bond debenture evidence_of_indebtedness certificate of interest or participation in any profit-sharing agreement collateral-trust certificate preorganization certificate or subscription transferable share investment contract voting-trust certificate certificate of deposit for a security fractional undivided_interest in oil gas or other mineral rights any put call straddle option or plr-134721-09 privilege on any security including a certificate of deposit or on any group or index of securities including any interest therein or based on the value thereof or any put call straddle option or privilege entered into on a national securities exchange relating to foreign_currency or in general any interest or instrument commonly known as a security or any certificate of interest or participation in temporary or interim certificate for receipt for guarantee of or warrant or right to subscribe to or purchase any of the foregoing sec_851 of the code provides that for purposes of sec_851 the term dividends includes amounts included in gross_income under sec_951 or sec_1293 for the taxable_year to the extent that under sec_959 or sec_1293 there is a distribution out of the earnings_and_profits of the taxable_year which are attributable to the amounts so included sec_957 of the code defines a cfc as any foreign_corporation in which more than percent of the total combined voting power of all classes of stock entitled to vote or the total value of the stock is owned by united_states_shareholders on any day during the corporation’s taxable_year a united_states_shareholder is defined in sec_951 as a united_states_person who owns percent or more of the total voting power of a foreign_corporation sec_951 of the code provides that if a foreign_corporation is a cfc for an uninterrupted period of days or more during any taxable_year every person who is a united_states_shareholder of the corporation and who owns stock in it on the last day of the taxable_year in which the corporation is a cfc shall include in gross_income the sum of the shareholder’s pro_rata share of the cfc’s subpart_f_income for the taxable_year sec_952 defines subpart_f_income to include foreign_base_company_income determined under sec_954 under sec_954 foreign_base_company_income includes foreign_personal_holding_company_income determined under sec_954 sec_954 defines foreign_personal_holding_company_income to include dividends interest royalties rents and annuities sub’s investments may generate foreign_personal_holding_company_income under sec_954 which is subpart_f_income fund would therefore include in income sub’s subpart_f_income for the taxable_year in accordance with sec_951 analysis and conclusion fund has represented that sub will be a wholly-owned subsidiary of fund fund is a united_states_person based upon fund’s representations sub will qualify as a cfc under these provisions plr-134721-09 based on the facts as represented we rule that subpart_f_income of sub that is attributable to fund is income derived with respect to fund’s business of investing in the stock of sub and thus constitutes qualifying_income under sec_851 this ruling is directed only to the taxpayer who requested it and is limited to the facts as represented by the taxpayer sec_6110 provides that this letter 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 representative sincerely susan thompson baker_____________ susan thompson baker assistant to the branch chief branch financial institutions and products


number release date id office uilc cca_2010021810005341 ----------------------------- from --------------- sent thursday date am to ----------------------- cc --------------------- subject re inquiry thanks i recall our email dialogue about this i know you said it's a for-profit entity but being that the issue could also come up in eo context i'm copying --------------- in case he has any thoughts on the issue i would agree--i see no reason it wouldn't be subject_to income_tax ---------------------------------------------- ------------------------- imposition of seca_tax here would be questionable due to the need for an underlying trade_or_business a highly factually question that is likely not to be satisfied in at least some of the situations i think an employment relationship is even more unlikely on the facts and --------------------------------------- ----------------------------------------------------------------------------------------- i suppose we don't have a statute problem on the et if there were no 941s filed ------------------------------------------------------------------------------ -------------------------------------------------------------------------------------------------------------- - let me know if you want to discuss


t c memo united_states tax_court alexander m moye and judy h moye petitioners v commissioner of internal revenue respondent docket no filed date stephen r klorfein for petitioners larry d anderson and beverly bann for respondent memorandum findings_of_fact and opinion colvin judge for respondent determined that petitioners have a deficiency in income_tax of dollar_figure and are liable for a penalty under sec_6662 of dollar_figure - - - - the issues for decision are whether petitioners' police dog training business was a sole_proprietorship or a c_corporation in if it was a sole_proprietorship petitioners may deduct its net_loss of dollar_figure on their individual_income_tax_return we hold that petitioners' police dog training business was incorporated on date and that petitioners may not deduct the loss on their personal income_tax return for whether petitioners are liable for the substantial_understatement_penalty under sec_6662 for we hold that they are unless otherwise indicated section references are to the internal_revenue_code as in effect for rule references are to the tax_court rules_of_practice and procedure references to petitioner are to judy h moye references to mr moye are to alexander m moye a petitioners i findings_of_fact petitioners lived in fayetteville georgia when they filed the petition in this case mr moye is a retired airline pilot petitioner served as a member of the georgia state senate around the year in issue - - - - b jam bonding co inc around petitioners began to operate a bonding business called jam bonding co jam bonding several months after they began to operate jam bonding petitioners discussed their business with paul c oddo jr oddo a certified_public_accountant oddo told petitioners the benefits of incorporating petitioners decided to incorporate jam bonding however they deferred incorporating it so they could deduct the losses on their personal tax returns james a bischoff bischoff an attorney incorporated jam bonding petitioners owned and operated jam bonding in jam bonding's gross_receipts were dollar_figure petitioners' income from jam bonding was dollar_figure in c police dog training busine sec_1 inception around petitioners decided to start a police dog training business petitioner applied to the bureau of alcohol_tobacco_and_firearms batf and to the drug enforcement administration dea for licenses to handle narcotics and explosives needed to train police dogs - - - - insurance for the police dog training business petitioners' police dog training business obtained insurance from the snellings walters insurance agency of atlanta georgia on date mr moye applied for a general liability insurance_policy for rosewood kennels and southern police dog academy snellings walters insurance agency typed an x in a box on the application indicating that the insured was a corporation the policy period was from date to date mr moye deleted president which had been added to the insurance application by snellings walters insurance agency and inserted sec treas next to his name on date mr moye applied for georgia workers'_compensation insurance for rosewood kennels and southern police dog academy inc effective date mr moye deleted president which had been added by snellings walters insurance agency and inserted sec treas in the section entitled corporations officers sole proprietors or partners he also wrote sec treas under his signature on the application on date the snellings walters insurance agency addressed a letter to mr moye at rosewood kennels southern police dog academy inc the agency asked him to sign a georgia form wc form wc states that its use is required if a corporate officer desires to decline workers'_compensation coverage from the state board_of workers'_compensation it provided in part - - - - notice to reject i alexander moye jr certify that i am an officer of rosewood kennels and southern police dog academy inc and hereby elect to reject the provisions of the georgia workers'_compensation law mr moye signed the form on date on date commercial union insurance co prepared and issued a workers'_compensation and employers' liability policy to rosewood kennels and southern police dog academy inc for date to date the policy included jam bonding's federal identification_number as though it belonged to rosewood kennels buying land for the business in date petitioners told oddo that they were in the process of establishing their police dog training business on date petitioners bought acres in pike county georgia the land was titled in their individual names petitioners used of the acres for their police dog training business d sba loan initial sba loan application on date petitioners applied to the u s small_business administration sba for a dollar_figure loan guaranty thomas l redding the controller of the united bank corp of barnesville georgia united bank prepared the application part of the application said if applicant is a proprietor or - - - - general_partner sign below petitioners left that section blank below that section the application said if applicant is a corporation sign below southern police dog academy a division of rosewood kennels was typed on the line in that section called corporate name and seal there was no seal affixed to the document petitioner signed in the corporate section above the word president and mr moye signed above the words corporate secretary on date petitioner signed next to the word president a document entitled estimated projection and forecast of two year's earnings in which the applicant's name was listed as southern police dog academy inc on date mr moye signed under the words southern police dog academy a document entitled compensation agreement for services in connection with application and loan from or in participation with small_business administration he was required to submit that document with the application_for the sba loan guaranty sba review of the loan application on date an sba loan specialist reviewed petitioners' date loan application and suggested that the loan be reduced from dollar_figure to dollar_figure douglas j tuttle tuttle a senior vice president of united bank in concurred with that action tuttle had first done business with - - - - petitioners late in when they borrowed money from united bank to finance their police dog business on date the sba mailed a loan agreement to united bank it stated that the sba had approved a loan guaranty for the dollar_figure loan made to rosewood kennels inc d b a southern police dog academy the loan agreement included forms for petitioners to sign the signature line was as follows rosewood kennels inc d b a southern police dog academy williamson georgia by date judy h moye president petitioner signed and mr moye attested the document e incorporation of rosewood kennels inc near the end of petitioners met with oddo at the future construction site of the police dog training business they generally discussed incorporating the business oddo believed that petitioners would delay incorporating for several months because of the construction petitioners wanted to operate the police dog training business as the southern police dog academy a division of rosewood kennels inc petitioners asked bischoff to organize a corporation for them in named rosewood kennels inc petitioners told him that they wanted to preserve the name and that the corporation would begin to do business later bischoff applied for and on date the secretary of state of - - - - georgia issued a name reservation certificate for rosewood kennels inc it was valid for months on date bischoff filed articles of incorporation for rosewood kennels inc with the secretary of state of georgia in date bischoff billed petitioners dollar_figure for filing the articles of incorporation petitioners paid that bill with a check drawn on their personal checking account f events after petitioners filed the sba loan application interim construction loan united bank provided interim construction financing for the police dog training business petitioners each signed a promissory note on date for an interim loan to build buildings and roads for the police dog training business that loan provided financing until the loan guaranteed by the sba closed petitioners used that construction loan and a loan from home south mortgage to buy assets for the business premium finance agreement on date mr moye signed a premium finance agreement which is a federal truth-in-lending agreement snellings walters insurance agency prepared the document the document states the total amount of premiums and payments the downpayment the amount financed the finance charge the annual percentage rate and the payment schedule the document listed - - - - alex moye jr judy moye rosewood kennels inc t a southern police dog academy under insured and address invoices in april and date pete w onni onni an employee of petitioners' police dog training school sent invoices totaling dollar_figure to police departments for equipment and hours of dog handler training the invoices were on letterhead for southern police dog academy a division of rosewood kennels inc the letterhead stated that petitioner was president mr moye was secretary treasurer and onni was director petitioners' conveyance of land to rosewood kennels inc on date petitioners conveyed acres of land by deed to rosewood kennels inc g the sba loan closing on date the sba loan closed on date at the closing petitioner signed a document entitled compensation agreement for services in connection with application and loan from or in participation with small_business administration beneath rosewood kennels inc applicant and above judy h moye president petitioner also signed an sba settlement statement for rosewood kennels inc at the loan closing petitioners each signed personal guaranties for the dollar_figure loan the guaranties stated that the - - - - loan was being made to rosewood kennels inc mr moye signed a guaranty for jam bonding for the dollar_figure loan to rosewood kennels inc petitioners also signed an sba compliance agreement in which they agreed not to discriminate on the basis of race color religion sex or national origin it stated that the sba had approved a loan to rosewood kennels inc the following appeared at the bottom of the form rosewood kennels inc woodcreek road williamson georgia by judy h moye president typed name title of authorized official petitioner signed below her name and title mr moye signed above signature of authorized official the form called for a corporate seal but no seal was affixed to the document on date mr moye signed a dollar_figure note from rosewood kennels inc to united bank petitioner signed above her name and president and mr moye signed above secretary treasurer the rosewood kennels inc corporate seal was affixed to the note they also signed an agreement for rosewood kennels inc which granted to united bank for the dollar_figure note a security_interest in all equipment machinery furniture fixtures inventory raw materials work in process - - - - supplies and accounts_receivable owned by rosewood kennels inc it provided in part in witness whereof the undersigned rosewood kennels inc for and in consideration of the sum of five hundred thousand dollars dollar_figure has this day executed and delivered the within security_agreement rosewood kennels inc by judy h moye president petitioner signed the security_agreement beneath rosewood kennels inc and above judy h moye president mr moye signed above alexander m moye jr secretary treasurer petitioners never met anyone from the sba while they were applying for the loan some sba loan documents said that the loan was being made to southern police dog academy without referring to it as incorporated h documents that petitioners signed in after the sba closing environmental disclosure statement in date petitioner certified to united bank that rosewood kennels inc was complying with environmental laws and regulations the environmental disclosure statement stated in part if a corporate entity affix the corporate seal and execute in the corporate name by a duly authorized officer if a partnership execute environmental - - - - disclosure statement in firm name together with signature of general partners if an individual have signature notarized the corporate seal of rosewood kennels inc was affixed to the form petitioner signed above her name and president and mr moye signed above his name and secretary treasurer their signatures were not notarized date note petitioners signed a personal note for a construction loan for the police dog training business on date they used the proceeds of the date loan to build buildings and roads for the business insurance endorsements on date mr moye signed three endorsements smoke heat detection exclusions for actions based on sexual harassment claims and lead paint poisoning effective date for an insurance_policy issued to rosewood kennels and southern police dog academy inc by western world insurance co workers'_compensation election on date petitioner signed georgia form wc corporate officer rejection state board_of workers'_compensation in that form she certified that she was an officer of southern police dog academy and elected to be excluded from certain workers'_compensation insurance coverage - - - - i oddo's discovery that bischoff had filed the articles of incorporation on date oddo called mr moye and suggested that it was time to incorporate the police dog training business because it was the end of its first quarter of operations mr moye told oddo to call bischoff oddo called bischoff's office bischoff's secretary told oddo that bischoff had already incorporated petitioners' police dog training business oddo decided to keep the books as if the police dog training business were a sole_proprietorship until the end of the year the record does not indicate whether oddo discussed this with petitioners j bank account business records and tax_return sec_1 business bank account and records in petitioners conducted all of the banking for their police dog training business through a bank account which was in their individual names oddo prepared a general ledger and general journal for southern police dog academy for january to date under loans - officers shareholders the ledger and journal lists several loans from petitioners on date oddo sent to petitioner at rosewood kennels d b a southern police dog academy a balance_sheet and income statement for southern police dog academy as of december - - - - total liabilities included loans of dollar_figure from officers and shareholders business cards for the police dog training business and correspondence such as vendor and utility bills and marketing brochures did not state that the business was incorporated some of those documents were prepared in the name of southern police dog academy petitioners applied for a federal identification_number for rosewood kennels inc on date s_corporation_election on date rosewood kennels inc received a notice from respondent accepting its s_corporation_election petitioners' income_tax returns on date petitioners and oddo signed petitioners' income_tax return for petitioners reported the income and expenses from the police dog training business on a schedule c petitioners reported that the business lost dollar_figure in petitioners deducted the mortgage interest they paid on the united bank loan on that schedule c they said the business was rosewood kennels inc d b a southern police dog academy petitioners filed their return on date oddo prepared an undated corporate return with zeros throughout for rosewood kennels inc southern police dog academy for - - - - ii opinion a parties' contentions and background respondent determined and contends that petitioners' police dog training business was incorporated on date and that petitioners may not deduct its loss on a schedule c for that year the commissioner's determination is presumed to be correct and the taxpayer has the burden of proving otherwise rule a 290_us_111 petitioners contend that they may deduct the dollar_figure loss from the police dog training business on their individual tax_return because they intended it to be a sole_proprietorship in petitioners contend that we should disregard the incorporation of rosewood kennels inc because they did not intend to incorporate it or operate it as a corporation in and did not know until date that bischoff had incorporated it state law governs whether a corporation is formed and governs the legal relationships that are established when an entity is formed 66_tc_710 27_tc_137 affd 250_f2d_429 10th cir sec_301_7701-1 proced admin regs federal_law governs whether an entity is taxed or disregarded as a corporation 269_us_110 carver v united_states ct - - - - cl 412_f2d_233 stoody v commissioner supra pincite sec_301_7701-1 proced admin regs we will first decide whether rosewood kennels inc was incorporated in under georgia law we will then decide whether its incorporation should be disregarded for federal tax purposes b whether rosewood kennels inc was incorporated in petitioners contend that stock must be issued and organizational minutes must be filed before a corporation exists under georgia law we disagree under georgia law a corporation exists as soon as the articles of incorporation are filed with the secretary of state ga code ann sec supp the secretary of state of georgia filed the articles of incorporation for rosewood kennels inc on date thus petitioners' corporation began to exist on that date id bischoff testified that he did not tell petitioners that he filed the articles of incorporation for rosewood kennels inc whether or not he did petitioners knew by date that bischoff had filed the articles of incorporation because that is when they received and paid bischoff's bill bischoff had been petitioners' attorney for about years and had incorporated jam bonding for petitioners years earlier he was petitioners' agent when he reserved the name rosewood kennels inc in - - - - date petitioners asked him to incorporate their police dog training business petitioners took no action to disavow or void the filing after date when they paid the bill for the incorporation or even after date when they contend they first learned about it petitioners contend that they did not know bischoff had billed them for incorporating their business and that their employees must have paid the bill we disagree petitioners used their personal checking account for rosewood kennels we believe it is unlikely that petitioners let employees use their personal checking account the check used to pay the bill is not in evidence however the three checks on that account that are in evidence as examples of expenses paid for petitioners' police dog training business were signed by mr moye section of the official code of georgia annotated supp provides that an entity must complete its organization before it may engage in business petitioners contend that because of that section rosewood kennels inc must complete its organization before it is formed or recognized for tax purposes petitioners also cite saxton v luke s e 2d ga ct app for the proposition that a corporation may not begin to operate in georgia until stock is issued and organizational minutes are filed we disagree the fact that petitioners did business through the corporation in - - - - before it issued stock or held an organizational meeting does not mean it was not incorporated under section of the official code of georgia annotated in saxton v luke supra forrester and saxton incorporated forrester saxton inc on date the business did not issue stock or file corporate minutes on date luke contracted with forrester saxton inc for a paving project saxton and forrester stopped operating their business early in before they completed luke's paving project luke sued saxton and forrester for breach of contract the court held that saxton and forrester were personally liable for the debts of the corporation in part because the corporate form could be disregarded to avoid fraud or evasion of contractual or tort responsibility the saxton case does not hold that the owners of a corporation may disavow it when it would be advantageous for them to do so as petitioners seek to do here we conclude that rosewood kennels inc was incorporated on date c whether petitioners' corporation should be disregarded for federal tax purposes we will not disregard a corporation for federal tax purposes if it served an intended business function or engaged in business 319_us_436 the corporation's tax existence is established if either - - - - test applies carver v united_states supra a corporation's tax identity is rarely ignored unless it is a sham 699_f2d_450 8th cir affg 78_tc_458 692_f2d_97 10th cir 66_tc_12 affd without published opinion 553_f2d_94 2d cir the lack of compliance with formalities of state laws does not affect whether the corporation is disregarded under moline properties 711_f2d_575 5th cir 557_f2d_1095 5th cir affg in part and revg in part tcmemo_1974_267 whether rosewood kennels inc engaged in business petitioners contend that we should disregard the incorporation of rosewood kennels inc we disagree because under the second part of the moline properties test we do not disregard the incorporation of an entity if it actually engaged in business moline properties inc v commissioner supra 412_f2d_233 only a minimal amount of business activity is required to meet the second part of the moline properties test 431_f2d_227 5th cir 150_f2d_334 2d cir corporation recognized because it borrowed dollar_figure 81_tc_520 strong v - - - - commissioner t c pincite corporation recognized because it owned insurance borrowed money and had a checking account rosewood kennels inc did considerably more than the corporations in paymer and strong rosewood kennels inc owned acres of land which it used as collateral it borrowed dollar_figure it applied for and obtained insurance policies it sent its customers invoices which showed that it sold equipment and provided services to them in petitioners contend that rosewood kennels inc did not engage in business in we disagree a significant amount of documentary_evidence contradicts their testimony cases cited by petitioners petitioners contend that we should disregard their corporation just as we did the corporations in 54_tc_584 barker v commissioner tcmemo_1993_280 and 596_fsupp_574 w d wis we disagree the taxpayers in blue flame gas co v commissioner supra had a partnership when they filed articles of incorporation they contributed no property to the corporation the corporation did no business and was abandoned we held that the losses at issue were attributable to the partnership id pincite in barker v commissioner supra we held that the business should not be taxed as a corporation because it lacked assets and had no - - - - business activities in bystry v united_states supra pincite the taxpayers transferred no land or other assets to their business and never did business as a corporation petitioners point out that the taxpayers in barker and bystry had no corporate bank accounts and contend that this fact is dispositive we disagree in contrast to the facts in those cases rosewood kennels inc owned property borrowed money obtained insurance and did business the invoices petitioners contend that their employee onni had the rosewood kennels inc letterhead printed and used it without their knowledge petitioners both testified that onni concluded without petitioner's telling him that rosewood kennels was incorporated and that petitioner was president and mr moye was secretary treasurer we do not find petitioners' testimony in this regard to be credible we decide whether a witness is credible on the basis of objective facts the reasonableness of the testimony the consistency of statements made by the witness and the demeanor of the witness 140_us_417 338_f2d_602 9th cir affg 41_tc_593 330_f2d_119 5th cir 89_tc_105 ndollar_figure petitioners' testimony about the letterhead was implausible we - - - - do not believe that onni decided the contents of and printed and used petitioners' business letterhead without their knowledge some documents were silent about rosewood kennels' corporate status petitioners point out that some of the documents in the record did not state that rosewood kennels was incorporated in and some documents refer only to the southern police dog academy petitioners also point out that not all of the documents that called for a corporate seal had one petitioners contend that these facts show that it did not do business as a corporation we disagree rosewood kennels inc clearly owned property borrowed money had insurance and did business whether petitioners knew that their police dog training business represented itself as a corporation petitioners deny that they were responsible for or knew about the many legal and financial documents that they signed that referred to rosewood kennels as a corporation they contend that they did not know that they transferred property to rosewood kennels inc or that it had applied for and received an sba loan and various insurance policies because they did not prepare the documents for those transactions we disagree petitioners are reasonably sophisticated about business they founded jam bonding which had gross_receipts of more than dollar_figure in they delayed incorporating jam bonding so they could deduct its losses on their personal returns - - - - they signed many documents that clearly stated that rosewood kennels was incorporated and that petitioners were its officers some of the documents included the corporate seal we believe that petitioners knew what they were signing for example petitioners knew that they conveyed acres of land to rosewood kennels inc on date rosewood kennels inc used the acres of land as collateral when it borrowed dollar_figure petitioners' claim of ignorance is unconvincing petitioners contend that it is insignificant that petitioner signed her name as president petitioner testified that she did not think that a president was a corporate officer petitioners' denial is not credible petitioners contend that the fact that they used jam bonding's federal identification_number on documents for rosewood kennels inc shows that rosewood kennels inc was not incorporated and that it did not do business as a corporation we disagree petitioners offer no authority for their position petitioners point out that rosewood kennels inc filed a federal tax_return with all zeros for that fact does not necessarily lead us to disregard it as a corporate entity see strong v commissioner supra pincite - - - - conclusion we conclude that the second part of the moline properties test is met because rosewood kennels inc actually engaged in business thus we recognize rosewood kennels inc as a corporation in for federal tax purposes petitioners have not shown that any of the losses were their personal losses we sustain respondent's determination that the losses at issue were those of rosewood kennels inc in d substantial_understatement of tax respondent determined that petitioners are liable for the accuracy-related_penalty because they substantially understated their tax under sec_6662 the penalty under sec_6662 does not apply to any part of an underpayment for which there was reasonable_cause and the taxpayer acted in good_faith sec_6664 whether a taxpayer acted with reasonable_cause and in good_faith depends on all pertinent facts and circumstances sec_1_6664-4 income_tax regs circumstances that may indicate reasonable_cause and good_faith include an honest misunderstanding of fact or law that is reasonable in light of the experience knowledge and education of the taxpayer id in light of our conclusion we need not decide whether the first part of the 319_us_436 test is met - - - - petitioners contend that they had reasonable_cause to take the position on their return that their police dog training business was not incorporated in they contend that they acted in good_faith and relied on oddo we disagree to show good_faith reliance on the advice of a competent adviser the taxpayer must show that he or she gave the return preparer complete and accurate information that an incorrect return was a result of the preparer's mistakes and that the taxpayer believed in good_faith that he or she was relying on the advice of a competent return preparer 88_tc_654 59_tc_473 petitioners did not give oddo full details or complete and accurate information about those transactions they did not tell him that they transferred land to rosewood kennels inc that it borrowed dollar_figure and that it did business as a corporation in thus they are not entitled to rely on his advice metra chem corp v commissioner supra petitioners rely on 89_tc_287 the taxpayer in larotonda reasonably but erroneously assumed that an involuntary assignment of the taxpayer's keogh account was not income that case involved essentially a technical or legal question in contrast the issue here is essentially factual ie whether petitioners knew that rosewood - - - - kennels inc was incorporated owned land borrowed money and did business we sustain respondent's determination and conclude that petitioners are liable for the penalty for substantial_understatement of tax under sec_6662 for to reflect the foregoing decision will be entered for respondent