internal_revenue_service number release date cc ebeo date district_counsel attn assistant chief_counsel employee_benefits and exempt_organizations patricia mcdermott significant service_center advice - this memorandum is a reconsideration of the issues raised in your request for significant service_center advice dated date concerning the proper amount and reporting of compensation received by employees of international organizations who are united_states citizens issue sec_1 what is the correct method of calculating reportable compensation_for employees of international organizations who are u s citizens how should u s citizen employees report their compensation on form_1040 should the advice in this memorandum be applied retroactively conclusion sec_1 reportable compensation_for employees of international organizations who are u s citizens is gross salary minus the mandatory reduction but including the tax reimbursement paid during the year employees of international organizations who are u s citizens should report their compensation on line of form_1040 as wages salaries tips etc and on schedule se we recommend that the advice in this memorandum not be applied retroactively facts your inquiry deals with u s citizens who are employees of international organizations as defined in sec_7701 of the internal_revenue_code the code the compensation provided to employees of international organizations commonly consists of a nominal gross salary which is subject_to a mandatory reduction all employees are subject_to the reduction amounts representing the reduction are retained by the organizations for their own use the reduction is neither credited to nor used for the benefit of the particular employee to whose compensation it was applied thus the employee’s gross salary is a fiction employees of international organizations who are citizens of the united_states must pay u s federal taxes as well as state taxes and local_taxes on their compensation employees of international organizations who are not u s citizens are generally not subject_to u s federal state or local taxation in order to provide comparable net compensation to all their employees international organizations commonly reimburse u s employees for their federal state and local_taxes the amount of a u s employee’s tax reimbursement may be based on an approximation of the employee’s tax_liabilities it appears that some years ago the internal_revenue_service advised that for federal tax purposes it was acceptable to report the amount of an international_organization employee’s gross salary rather than an amount that reflects the mandatory reduction and the tax reimbursement analysi sec_1 what is the correct method of calculating reportable compensation_for employees of an international_organization who are u s citizens code sec_61 provides that gross_income includes compensation_for services 279_us_716 holds that an employer’s payment of an employee’s federal tax_liability is income to the employee see also sec_1_61-14 income_tax regulations stating another person’s payment of the taxpayer’s income taxes constitutes gross_income to the taxpayer unless excluded by law under sec_1_451-1 of the income_tax regulations gains profits and income are to be included in gross_income for the taxable_year in which they are actually or constructively received by the taxpayer compensation is not constructively received however if the money has not been paid or made unconditionally available to the employee or made subject_to the employee's control see sec_1_451-2 it does not appear that employees of international organizations ever actually or constructively receive the mandatory reductions described above we are unaware of any economic benefit direct or indirect received by the employees in connection with the unpaid reductions the employees apparently do not receive possession dominion or control_over the mandatory reductions that the organizations treat on their books as a nominal part of the employees’ salaries see 348_us_426 1955_1_cb_207 the amount of the reduction therefore is not compensation to the employee however the amount that a u s employee receives as a tax reimbursement is includible in the employee's compensation how should u s citizen employees report their compensation on form_1040 as noted above sec_61 includes compensation_for services in gross_income sec_1_61-2 of the income_tax regulations provides in relevant part that wages and salaries are income to the recipients unless excluded by law in determining adjusted_gross_income sec_62 allows for the deduction of certain listed items from gross_income sec_62 permits a taxpayer to deduct from gross_income those deductions attributable to a trade_or_business carried on by the taxpayer if such trade_or_business does not consist of the performance of services by the taxpayer as an employee sec_3101 of the code imposes tax under the federal_insurance_contributions_act fica on employees’ wages under the common-law rules individuals working for international organizations would generally be categorized as employees code sec_3121 code sec_3121 however generally excludes from the definition of employment for fica purposes services in the employ of an international_organization since their services are not employment employees of international organizations do not receive wages for fica purposes because sec_3121 defines wages as all remuneration for employment sec_3402 of the code requires that income_tax be withheld from employees’ wages code sec_3401 excludes from the definition of wages for purposes of federal_income_tax withholding remuneration paid for services by a citizen or resident_of_the_united_states for a foreign government or an international_organization therefore the compensation of an international organization’s u s employees is not subject_to income_tax_withholding as wages as discussed above the compensation employees receive from international organizations is not subject_to fica tax in order to provide employees with social_security coverage however sec_1402 extends the definition of a trade_or_business for determining self-employment contributions act seca taxes to include employment with an international_organization sec_1402 provides in part that services described in sec_3121 cross-references sec_3121 which defines international_organization with reference to u s c section this section defines the term as follows a public international_organization or international-organization preparatory commission in which the government of the united_states participates this definition is somewhat more inclusive than the definition in sec_7701 sec_3121 performed in the united_states by a citizen_of_the_united_states constitute a trade_or_business for seca purposes sec_1401 imposes seca_tax on an individual’s self-employment_income for purposes of determining self-employment_income sec_1402 defines net_earnings_from_self-employment as the gross_income derived by an individual from a trade_or_business less any deductions attributable to the trade_or_business in 95_tc_639 the tax_court held that a payment to an employee of an international_organization intended to reimburse united_states taxes paid was subject_to seca_tax the opinion states it is well established and petitioner now concedes that the amount of the reimbursement represents gross_income under sec_61 and is subject_to the normal income_tax imposed by chapter see also 222_fsupp_65 s d n y holding imposition of seca_tax on employees of international organizations does not violate uniformity or due process requirements of constitution revrul_84_122 1984_2_cb_184 holding income_tax reimbursements from international_organization received in years after termination of employment are subject_to seca_tax the proper line for reporting the income on form_1040 depends upon the characterization of the income as either salary or gross_income from a trade_or_business the choice of the line for reporting the income raises various compliance questions additionally there are some concerns about the proper method for computing self-employment_income and seca_tax a reporting the income for income_tax purposes there appear to be three possible locations on form for reporting the income paid_by an international_organization on line as wages salaries tips etc on schedule c as business income or loss and on line as other income the first alternative is reporting as wages or salaries as discussed above remuneration paid_by an international_organization to its employees does not constitute wages for purposes of fica or income_tax_withholding the definitions of wages in sec_3121 and sec_3401 are expressly limited however to the chapters of the code in which they are found sec_3121 defines wages for the purposes of chapter of the code concerning fica sec_3401 defines wages for the purposes of chapter of the code concerning collection of income_tax at source on wages the characterization of the income for income_tax purposes should be governed by chapter of the code there is no provision in chapter that prevents the remuneration paid_by an international_organization to its employees from being classified as wages or salary since the remuneration paid_by an international_organization to its employees is compensation_for services the income should be reported on line of form_1040 as wages or salary 2using the form_1040 for the purposes of identifying line numbers additionally reporting the income on line is consistent with the instructions the service gives to ministers whose salaries like those of employees of international organizations are not subject_to either fica tax or federal_income_tax withholding publication entitled social_security and other information for members of the clergy and religious workers pincite provides an example stating that the church reports the remuneration on form_w-2 and the minister reports his compensation on line as wages the second alternative which is being used by some employees of international organizations is reporting the compensation as trade_or_business income on schedule c however sec_1402 defines trade_or_business only for seca purposes thus service performed in the employ of an international_organization is a trade_or_business only for seca purposes not for income_tax purposes generally although sec_3121 provides that services performed in the employ of international organizations are not employment for fica tax purposes the employees of international organizations remain employees for income_tax purposes since the workers are employees they are not considered to carry on a trade_or_business and reporting the income on schedule c would be improper additionally if international_organization employees were to report their income on schedule c they might mistakenly deduct business_expenses on schedule c since these taxpayers are employees they must deduct unreimbursed employee business_expenses on schedule a as miscellaneous_itemized_deductions subject_to the percent floor provided by sec_67 the final alternative is reporting the income on line as other income employees should not be advised to do this since reporting on that line would probably provide the least opportunity for the service to correctly match the income reported on the employee’s return with the income reported by the international_organization b reporting net_earnings from self employment for seca purposes employees of international organizations should report their net_earnings_from_self-employment on schedule se either on section a line or section b part line since the employees can deduct expenses attributable to the trade_or_business in computing net_earnings_from_self-employment and since the employees generally cannot deduct 3under the provisions of sec_3121 services performed by a duly ordained commissioned or licensed minister of a church in the exercise of his ministry are excluded from the term employment since the services are not employment the remuneration is not wages under sec_3121 under the provisions of sec_1402 the minister’s services as described in sec_3121 constitute a trade_or_business for the purpose of determining self-employment taxes 4for the purposes of this analysis the publication for returns is cited the expenses attributable to the trade_or_business from their gross_income in computing adjusted_gross_income there must be a procedure for computing net_earnings_from_self-employment there is no place on schedule se for making the computation publication pincite considers the business deductions and the computation of net_earnings_from_self-employment for ministers advising the minister to compute net_earnings_from_self-employment by reducing gross_income by unreimbursed business_expenses in the comprehensive example in the publication the service advises the minister to attach a schedule computing the net_earnings_from_self-employment to the schedule se on the separate schedule the minister deducts unreimbursed expenses attributable to the trade_or_business of being a minister from his salary to compute the net_earnings_from_self-employment since the code provides similar tax treatment for employees of international organizations and for ministers the reporting and computation of self-employment taxes should be the same for both types of employees employees of international organizations should compute net_earnings_from_self-employment by subtracting employee business_expenses from their salaries on a separate schedule the amount computed should then be used on schedule se to compute self-employment_tax in summary the compensation received by an employee from an international_organization should be reported by the employee on form_1040 line as wages salaries tips etc the employee should compute the amount of net_earnings_from_self-employment by deducting employee business_expenses from the compensation received on a separate schedule that amount should be used on schedule se to compute self-employment_tax for income_tax purposes the employee can deduct unreimbursed employee business_expenses only on schedule a as miscellaneous_itemized_deductions 5in revrul_80_110 1980_1_cb_190 the service ruled that ministers could deduct unreimbursed employee business_expenses from the salary they received from a church in computing net_earnings_from_self-employment although the unreimbursed employee business_expenses were only deductible as miscellaneous_itemized_deductions for income_tax purposes however as discussed in publication the deductibility of some expenses is subject_to limitation 6note that only services performed in the employ of an international_organization in the united_states by united_states citizens are subject_to self-employment_tax the employee would have to account for that salary received due to services performed in the united_states see revrul_67_153 1967_1_cb_221 for a discussion of the method for allocating the income for services performed within and without the united_states should the advice in this memorandum be applied retroactively not applying this advice retroactively appears to be consistent with established policy under sec_7805 the secretary may prescribe the extent if any to which any ruling including any administrative determination other than by regulation relating to the internal revenue laws shall be applied without retroactive effect delegation_order no rev 1992_1_cb_490 delegates this authority to among others the associate chief counsels see sec_301_7805-1 procedural and administrative regulations sec_601_201 of the statement of procedural rules states that except in rare or unusual circumstances the revocation or modification of a ruling will not be applied retroactively to the taxpayer for whom the letter_ruling was issued or to a taxpayer whose tax_liability was directly involved provided in relevant part that there has been no misstatement or omission of material facts the facts at the time of the transaction are not materially different from the facts on which the ruling was based there has been no change in the applicable law and the taxpayer directly involved acted in good_faith in relying on the ruling and the retroactive revocation would be to the taxpayer’s detriment although the service did not issue a formal ruling on these issues there is evidence that some years ago the service received inquiries on behalf of international organizations and their employees and did formulate a position and communicate it in writing in response to those inquiries it appears that both the law and our understanding of the facts at that time were essentially the same as they are today but that our interpretation of the law has changed accordingly criteria analogous to those in which relief has been granted under sec_7805 are present and we recommend that the advice in this memorandum not be applied retroactively thus with respect to the amount of compensation to be reported two methods are acceptable pending further guidance reporting of the amount of the employee’s gross salary or reporting of the legally correct amount of gross_income ie salary net of the mandatory reduction but including the tax reimbursement in addition with respect to the mechanics of reporting on the form_1040 we recommend that outreach or educational efforts be made for example a letter explaining the proper return procedures could be sent to employees of international organizations if you have questions please contact us at


department of the treasury internal_revenue_service washington d c t n x e x e m p t n n d g o v e r n m e n t e n t i t i e s d i v i s i o n number release date date date uil number employer_identification_number legend n dear ------------------ a and b a i of the internal_revenue_code facts contact person identification_number telephone number you request a ruling you qualify as a church within the meaning of sections n is exempt under sec_501 of the code and is described in sec_509 and sec_170 as a religious_organization it was also classified as a religious_order in a private_letter_ruling n employs over big_number staff members and operates through more than ministry divisions in the united_states it has over big_number volunteers it is also active in countries outside of the united_states it ministers to over twenty thousand people weekly throughout the united_states and abroad including weekly bible studies and over weekly worship meetings n operates several camp programs ministering to over big_number students worship services are conducted daily at camp attendance at various n worship services varies widely worship services may include only a few persons at a small bible study group or as many as persons at a regional or national conference or more than big_number persons at an n camp weekly worship services attendance typically averages to people in addition to worship services n ministry staff conducts several other forms of religious services including but not limited to marriages funerals communion bible studies and prayer meetings n has a written_statement of faith which encompasses the basic tenets of the christian faith all board members officers and ministry personnel of n are required to affirm their belief in and adherence to the statement of faith n has a faith and conduct policies for all of its staff and volunteers all n’s staff and volunteers are required to renounce other world views or religious beliefs to the extent such other beliefs are inconsistent with or contradict n’s statement of faith mission statement and other conduct policies as provided in the faith and conduct policies n staff volunteers and teenage attendees are not required to renounce their memberships in other churches or religious orders in order to participate in n n has a formal code of doctrine and discipline for its followers all n staff and volunteers must subscribe to the n statement of faith mission statement and other conduct policies failure to abide by these policies can lead to disciplinary measures including termination of employment with n or a ban from serving n as a volunteer n operates sunday schools_for the religious instruction of the young it also provides religious instruction via its weekly worship and bible study meetings programs and camps n has its own religious literature including books handbooks pamphlets and manuals used for bible studies n has set up an entire division which publishes ministry and religious materials n ministry personnel are required to complete a mi nimum amount of religious education although formal ordination is not required this minimum training for the ministry personnel requires that the ministry personnel demonstrate prior ministry experience biblical knowledge and a desire for additional religious education these courses provide training in basic christian theology philosophy and methodology of youth outreach courses are also offered on biblical knowledge evangelism discipleship leadership development cultural differences relational skills financial stewardship and other areas the courses are taught by n staff some of whom have some advance degree eg a masters of divinity and or substantial ministry experience or by faculty from various seminaries approximately of its staff members are ordained or licensed currently n does require its ministry personnel complete a significant course of study and also encourages formal religious training by offering sabbaticals to its ministry personnel to pursue such training and ordination n also requires ongoing religious training of its staff and volunteers n also holds certain commissioning services for its religious_order members and for some of its missionaries going to a foreign mission field n's religious hierarchy and ecclesiastical government are similar to many denominations n is governed by a board_of directors its chief_executive_officer is the president of n a number of divisional senior executive and ministry team officers serve under the president and they oversee ministerial directors the ministerial directors oversee the activities of their specific ministries which are directly run by pastors lay leaders and volunteers as such the n ministries are the equivalent of local churches and the ministerial directors are in essence local pastors n's president serves in the same type of spiritual overseer role as the president of any denomination and the board_of directors is the equivalent of any denomination's board_of elders all n areas have established places of worship in addition each n camp has a chapel where staff volunteers and campers hold worship services n's central offices and its other offices throughout the world serve as established places of worship as staff and volunteers working in those offices and in the areas hold regular devotions prayer times and bible studies regular worship services are held at all of n's facilities n states none of its funds or property will be used by any officer director employee minister or pastor for his or her personal needs or convenience no officer director or trustee is related by blood or marriage several board members and officers receive compensation from n for services rendered for working hours or more per week n has a conflicts policy in place n has no for-profit or non-profit subsidiaries law sec_509 of the code provides that the term private_foundation means a domestic or foreign organization described in sec_501 other than an organization described in sec_170 other than in clauses vii and viii sec_170 of the code describes a church_or_convention_or_association_of_churches in 490_fsupp_304 d d c the court recognized the service's 14-part test in determining whether a religious_organization was a church the criteria are a distinct legal existence a recognized creed and form of worship a definite and distinct ecclesiastical government a formal code of doctrine and discipline a distinct religious history a membership not associated with any other church or denomination an organization of ordained ministers ordained ministers selected after completing prescribed studies a literature of its own established places of worship regular congregations regular religious services sunday schools_for religious instruction of the young and schools_for the preparation of its ministers in 48_tc_358 an interdenominational organization performed dental work for missionaries and helped to promote the evangelization of the world the court held that this was not a church 380_us_163 provides that in order for an organization to be considered religious in nature its members must have a sincere and meaningful belief in its doctrine occupying a place in members' lives parallel to that filled by god in the lives of traditionally religious persons in 195_fsupp_891 n d cal the court determined that an incorporated religious teaching order which performed no sacerdotal functions was not a church in 88_tc_1341 the court found that an exempt_organization that operated a radio ministry for the purpose of improving spiritual health and self-awareness could be a church rationale the question is whether n is a church described in sec_170 of the code on this question american guidance foundation supra is helpful because it provides a point test to determine what is a church n meets most of the point criteria in american guidance foundation n is fully incorporated and has a distinct legal existence it has a creed and form of worship recognized by its members it has a formal code of doctrine and discipline as evidenced by n’s statement of faith and mission statement as a church organization n has a definite and distinct ecclesiastical government committed to the formation of local ministries ie local churches adhering to a common and distinct doctrinal position the spiritual leadership of n oversees and exercises spiritual authority over the n areas in the u s and also countries also n conducts through weekly bible studies weekly worship meetings and its camps regular worship services at established locations n doesn’t ordain ministers however it does encourage formal levels of religious education and over of its employees are ordained ministers or currently licensed n requires ongoing religious training of its staff and volunteers n has literature of its own n does not have an official established place of worship in the sense there is a specific building called a church in each area where religious services are held however n has weekly services at specific locations in various cities and rural areas in that sense each specific location in each area is an established place of worship for the n attendees n has over weekly worship services depending on the location of each service n has a regular congregation average of between and people n also has regular religious services at its weekly bible studies classes camps and its regional and national conventions while it does not have formal schools_for the preparation of it ministers it has a training program for its staff and volunteers n does not have a traditional membership because its attendees include many teenagers adolescents and college students however the fact remains that numerous people attend n’s weekly services attending either the bible studies classes or the worship services also over big_number college students throughout the u s attend n’s programs throughout the year and over big_number students attend worship services through n’s camps these statistics show a significant number of people associate themselves with n on a regular basis which is the equivalent of membership therefore because the vast majority of the american guidance foundation criteria are present n qualifies as a church within the meaning of sec_170 of the code conclusion accordingly based on the information furnished we rule n qualifies as a church within the meaning of sec_509 and sec_170 of the code this ruling is based on the understanding there will be no material changes in the facts upon which it is based this ruling does not address the applicability of any section of the code or regulations to the facts submitted other than with respect to the sections described this ruling is directed only to the organization that requested it sec_6110 of the code provides it may not be used or cited as precedent if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter in accordance with the power_of_attorney currently on file with the internal_revenue_service we are sending a copy of this letter to your authorized representative sincerely s debra j kawecki esq manager exempt_organizations technical group


internal_revenue_service number release date index number --------------------------------------- ---------------------------------------- ---------------------- ----------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------ id no ------- ---------- telephone number --------------------- refer reply to cc psi plr-137125-10 date march -------------------------------------------------- -------------------------------------------------------------- --------------------------------------------------- -------------------- decedent taxpayer spouse daughter brokerage firm ---------------- brokerage firm ------------- ------------ bank account bank account ------------------------------------------------ a ---------------- date date ------------------ --------------------------- date ---------------------- date ----------------------- date date ------------------------- -------------------------- date --------------------- date --------------------- date court ------------------------------------------------------------------------- -------------------------------------------------------------------------------- state statute dear ------------- this letter responds to your letter dated date requesting a ruling concerning the application of sec_2518 of the internal_revenue_code to a disclaimer plr-137125-10 facts the facts and representations submitted are summarized as follows on date decedent died testate survived by his wife spouse and three children at death decedent held several investments including investments through a traditional individual_retirement_account ira and two sec_403 retirement accounts at brokerage firm as well as investments through a sec_403 retirement account at brokerage firm collectively retirement accounts the beneficiary designation forms for the retirement accounts listed spouse as the primary beneficiary if spouse survived decedent and disclaimed her interests in retirement accounts the trustee of the trust created under article iv of decedent’s will was designated as the contingent beneficiary under article iii of decedent’s will if spouse survived decedent any retirement accounts that name the trustee as beneficiary are to fund a disclaimer_trust established under article iv however if spouse does not survive decedent then any retirement accounts are to pass outright equally to decedent’s living issue per stirpes under the terms of the disclaimer_trust the trustee must distribute all income to spouse during her lifetime and also may make discretionary distributions of principal to her spouse also has the right to withdraw up to a percent of the principal each year as of his date of death decedent was receiving required minimum distributions rmds from retirement accounts the rmds from brokerage firm were made with respect to each investment both brokerage firm and brokerage firm distributed the rmds quarterly by automatic deposit into bank account which was held jointly in the names of decedent and spouse with rights of survivorship spouse died on date on date sec_2 and brokerage firm automatically deposited rmds into bank account on date brokerage firm automatically deposited an rmd into bank account on date court appointed daughter as administratrix of spouse’s estate accordingly on date daughter closed bank account and on the following day opened bank account for spouse’s estate transferring the entire balance of bank account into bank account on date daughter as administratrix petitioned court for authorization to renounce spouse’s entire_interest in the ira and one of the sec_403 accounts as well as her entire_interest attributable to one investment in the other sec_403 account at brokerage firm she also requested authorization to disclaim spouse’s entire_interest in the sec_403 account at brokerage firm as well as spouse’s interest in the disclaimer_trust established under article iv of decedent’s will on date court plr-137125-10 granted daughter’s petition and daughter notified in writing brokerage firm sec_1 and and the decedent’s estate that spouse was disclaiming these interests under state statute the disclaimant is treated as having predeceased the decedent taxpayer represents that the proceeds from the rmds remained in bank account and subsequently bank account from the date of distribution to the date of the disclaimer taxpayer further represents that spouse’s estate will accept a distribution from brokerage firm sec_1 and representing the income attributable to the rmds earned between the decedent’s date of death and the date of the disclaimer taxpayer also represents that no other_amounts have been distributed to spouse or her estate from retirement accounts taxpayer has requested a ruling that the automatic deposits of rmds into bank account and the transfer of the entire balance of bank account into bank account do not constitute an acceptance of any portion of the decedent’s retirement accounts within the meaning of sec_2518 and sec_25_2518-2 of the gift_tax regulations law and discussion sec_2046 provides that disclaimers of interests passing upon death are treated for federal estate_tax purposes as provided by sec_2518 sec_2518 sets forth the requirements that must be met for a disclaimer to be treated as a qualified_disclaimer for federal gift_tax purposes sec_2518 provides that if a person makes a qualified_disclaimer with respect to any interest in property then for purposes of the federal estate gift and generation-skipping_transfer_tax such interest will be treated as if it had never been transferred to the disclaimant sec_2518 defines the term qualified_disclaimer to mean an irrevocable and unqualified refusal by a person to accept an interest in property but only if-- such refusal is in writing such writing is received by the transferor of the interest the transferor's legal_representative or the holder of the legal_title to the property to which the interest relates not later than the date that is months after the later of the date on which the transfer creating the interest in such person is made or the day that the person attains age such person has not accepted the interest or any of its benefits and as a result of such refusal the interest passes without any direction on the part of the person making the disclaimer and passes either to the spouse of the decedent or to a person other than the person making the disclaimer plr-137125-10 sec_25_2518-1 provides in part that if a person makes a qualified_disclaimer then for purposes of the federal estate gift and generation-skipping_transfer_tax provisions the disclaimed interest in property is treated as if it had never been transferred to the person making the qualified_disclaimer instead it is considered as passing directly from the transferor of the property to the person entitled to receive the property as a result of the disclaimer accordingly a person making a qualified_disclaimer is not treated as making a gift sec_25_2518-2 provides that a qualified_disclaimer cannot be made with respect to an interest in property if the disclaimant has accepted the interest or any of the benefits expressly or impliedly prior to making the disclaimer acceptance is manifested by an affirmative act that is consistent with ownership of the interest in property acts indicative of acceptance include using the property or the interest in property accepting dividends interest or rents from the property and directing others to act with respect to the property or interest in the property however merely taking delivery of an interest or title without more does not constitute acceptance moreover a disclaimant is not considered to have accepted property merely because under applicable local law title to the property vests immediately in the disclaimant upon the death of the decedent sec_25_2518-2 provides that a disclaimer is not a qualified_disclaimer unless the disclaimed interest passes without direction on the part of the disclaimant to a person other than the disclaimant except if the disclaimant is the decedent's surviving_spouse if there is an express or implied agreement that the disclaimed interest in property is to be given or bequeathed to a person specified by the disclaimant the disclaimant is to be treated as directing the transfer of the property interest a disclaimer is not a qualified_disclaimer if the disclaimant either alone or in conjunction with another directs the redistribution or transfer of the property or interest in property to another person or the disclaimed property passes to or for the benefit of the disclaimant as a result of the disclaimer except in the case of a disclaimer by the surviving_spouse see sec_25_2518-2 sec_25_2518-3 provides rules regarding the circumstances under which an individual may make a qualified_disclaimer of less than the individual's entire_interest in property and may accept the remaining interest of the property sec_25_2518-3 generally provides that each interest in property that is separately created by the transferor is treated as a separate interest in property sec_25_2518-3 provides that a disclaimer of an undivided portion of a separate interest in property that meets the other requirements of a qualified_disclaimer under sec_2518 and the corresponding regulations is a qualified_disclaimer an undivided portion of a disclaimant's separate interest in property must consist of a fraction or percentage of each and every substantial interest or right owned by the disclaimant in the property and must extend over the entire term of the disclaimant's interest in the property and in other_property into which the property is converted plr-137125-10 sec_25_2518-3 provides that a disclaimer of a specific pecuniary amount out of a pecuniary or nonpecuniary bequest or gift which satisfies the other requirements of a qualified_disclaimer under sec_2518 and the corresponding regulations is a qualified_disclaimer provided that no income or other benefit of the disclaimed amount inures to the benefit of the disclaimant either prior to or subsequent to the disclaimer thus following the disclaimer of a specific pecuniary amount from a bequest or gift the amount disclaimed and any income attributable to that amount must be segregated from the portion of the gift or bequest that was not disclaimed such a segregation of assets making up the disclaimer of a pecuniary amount must be made on the basis of the fair_market_value of the assets on the date of the disclaimer or on a basis that is fairly representative of the value changes that may have occurred between the date of transfer and the date of the disclaimer the regulation further provides that a pecuniary amount that is distributed to the disclaimant from the bequest or gift prior to the disclaimer is treated as a distribution of corpus from the bequest or gift however the acceptance of a distribution from the bequest or gift is considered an acceptance of a proportionate amount of the income earned by the bequest or gift the regulation provides a formula to determine the proportionate share of the income considered to be accepted by the disclaimant at the time of the disclaimer as follows total amount of the distributions received by the disclaimant out of the bequest or gift x total value of the bequest or gift on the date of transfer total amount of income earned by the bequest or gift between the date of transfer and the date of disclaimer revrul_2005_36 2005_1_cb_1368 provides that a beneficiary’s receipt of rmds from an ira constitutes acceptance of that portion of the corpus of such account plus the income attributable to that amount the beneficiary’s acceptance however of these amounts does not preclude the beneficiary from making a qualified_disclaimer with respect to all or a portion of the balance of the ira although the rmds were automatically deposited into bank account and such amounts remained in bank account sec_1 and from the date of distribution until the date of the disclaimer spouse is deemed to have accepted the rmds under sec_2518 and sec_25_2518-2 revrul_2005_36 provides that a beneficiary’s receipt of an rmd constitutes acceptance of both the rmd and the income attributable to that amount the amount of income attributable to the rmds for each account is calculated by dividing the total amount of rmds spouse received from that account by the total value of that account on decedent’s date of death and multiplying the result by the total amount of income earned in that account between the decedent’s date of death and the date of the disclaimer accordingly spouse did not make a qualified_disclaimer of the rmds or of the income attributable to that amount under sec_2518 however spouse may make a qualified_disclaimer of the balance of the retirement accounts if the requirements of sec_2518 have been met plr-137125-10 daughter received a court order granting her petition to disclaim spouse’s interests in retirement accounts and the disclaimer_trust established under article iv of decedent’s will daughter as administratrix then disclaimed those interests in writing and now represents that spouse did not receive any additional distributions from retirement accounts based on the facts submitted and the representations made we conclude that spouse’s disclaimer of the balance of retirement accounts satisfies the requirements for making a qualified_disclaimer under sec_2518 except as expressly provided herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely ______________________________ leslie h finlow senior technician reviewer branch office of associate chief_counsel passthroughs special industries enclosures copy for sec_6110 purposes two copies of this letter


t c summary opinion united_states tax_court james castagnetta petitioner v commissioner of internal revenue respondent docket no 22132-03s filed date james castagnetta pro_se frank j jackson for respondent carluzzo special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue rule references are to the tax_court rules_of_practice and procedure the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority respondent determined a deficiency of dollar_figure in petitioner’ sec_2001 federal_income_tax the issue for decision is whether petitioner’s gambling activity constituted a trade_or_business during the taxable_year in issue background some of the facts have been stipulated and are so found petitioner was not married and had no children during or as of the close of the year in issue at the time the petition was filed in this case petitioner resided in mt kisco new york petitioner is a college graduate with a bachelor’s degree in economics he lives with a roommate in a rented condominium and describes his lifestyle as modest during petitioner was employed part time as a truck driver delivering produce to area restaurants typically he worked on monday tuesday and friday a m to noon he was not paid for holidays or vacations and hi sec_2001 wages from his part-time employment totaled dollar_figure petitioner became interested in horseracing at an early age one of his relatives introduced him to handicapping horseraces he has been handicapping horseraces in some capacity for more the amount in the notice_of_deficiency was incorrectly computed to be dollar_figure the parties stipulate that the correct calculation of the proposed deficiency is dollar_figure than years petitioner has been seriously handicapping horseraces for approximately years petitioner bets on horseraces via a closed circuit simulcast at yonkers raceway yonkers from wednesday through sunday yonkers simulcasts horseraces from several alternating race tracks typically petitioner spends approximately hours per week handicapping and betting on horseraces during petitioner spent more than days handicapping races and betting at yonkers petitioner keeps a detailed account of his daily gambling transactions this includes his daily wagers and winnings as well as a cumulative total of his yearly winnings and losses he also spends a considerable amount of time handicapping races and studying racing programs and other materials as part of handicapping horseraces petitioner prepares his own speed figures using a number of criteria including track length track conditions and weather conditions as well as his observations during the races petitioner determines a final speed figure for the winning horse in each race and compares the speed figure to other horses petitioner maintains a detailed chronological record of his speed figures for the winner of each horserace speed figures can also be purchased from a third party prior to petitioner maintained handwritten tables for the speed figures he prepared during petitioner began using a commercially available computer spreadsheet program to maintain and prepare the tables for his speed figures generally petitioner makes hand-recorded notes during the race and then later enters the information into the spreadsheet program in addition to maintaining detailed speed figures petitioner keeps copies of racing forms racing programs and betting tickets as part of his record keeping he does not maintain a separate checking account with respect to his gambling activity petitioner does not advertise that he handicaps horseraces nor does he sell the speed figures he prepares he does however offer advice to and solicit advice from other regular gamblers petitioner also watches videotapes of the races so he can closely review each race petitioner does not use any wages from his job as a truck driver to finance his gambling activity instead his wagers are a fixed percentage of his bankroll petitioner’s bankroll consists solely of his cumulative winnings at the race track generally petitioner bet sec_2 percent of his bankroll on each race during petitioner earned a 4-percent return on each dollar bet he placed ie petitioner won on average of dollar_figure for each dollar bet he placed according to petitioner yonkers typically pays back about cents for each dollar bet placed petitioner’ sec_2001 federal_income_tax return was timely filed the taxable_income and income_tax_liability shown on that return take into account the standard_deduction applicable to petitioner’s filing_status included with that return is a schedule c profit or loss from business which lists his principal business activity as parimutuel wagering on the schedule c petitioner reported the following amounts gross_receipts from wagers total wagered gross_income total expenses net profit dollar_figure big_number big_number big_number petitioner’s total expenses consisted of supplies of dollar_figure and forms and programs of dollar_figure in the notice_of_deficiency respondent determined that petitioner’s gambling activity did not constitute a trade_or_business during the gambling income reported on the schedule c was recharacterized as other income and the wagering losses were allowed as a miscellaneous itemized_deduction in lieu of the standard_deduction respondent does not contest that petitioner incurred these gambling-related expenses discussion the issue in this case is whether petitioner’s gambling activity constituted a trade_or_business for purposes of sec_162 during if petitioner were engaged in a trade_or_business of gambling wagering losses to the extent deductible under sec_165 would be deducted in computing adjusted_gross_income see sec_62 on the other hand if petitioner were not in a trade_or_business of gambling wagering losses to the extent deductible under sec_165 would be deductible as an itemized_deduction in the computation of taxable_income in general sec_165 allows a taxpayer to deduct any loss sustained during the taxable_year and not_compensated_for_by_insurance_or_otherwise losses from wagering transactions however are allowed only to the extent of the gains from such transactions sec_165 sec_1_165-10 income_tax regs we construed the phrase losses from wagering transactions to include not only losing wagers but also for other expenses_incurred in connection with gambling transactions see 757_f2d_1 1st cir affg tcmemo_1983_247 16_tc_1214 see also praytor v commissioner tcmemo_2000_282 citing kochevar v commissioner tcmemo_1995_607 holding that slot- machine players even if construed to be in the trade_or_business of gambling could deduct gambling_losses and expenses including automatic teller charges office supplies travel mileage and meals only to the extent of the their winnings valenti v commissioner tcmemo_1994_483 holding that a deduction for losses_incurred in wagering transactions is subject_to sec_165 regardless of the fact that the taxpayer was in the trade_or_business of gambling kozma v commissioner tcmemo_1986_177 construing the phrase losses from wagering transactions as used in sec_165 to include expenses_incurred by a professional gambler for transportation meals lodging admission fees and office supplies see 84_tc_980 25_tc_106 consistent with the manner in which petitioner reported the income and expenses attributable to his gambling activity on his federal_income_tax return for the year in issue petitioner claims that his gambling activity constitutes a trade_or_business respondent argues in part that petitioner’s gambling activity does not constitute a trade_or_business because he did not engage in that activity with the requisite intent to profit in general sec_162 allows a deduction for all ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying_on_a_trade_or_business the term trade_or_business is not precisely defined in the internal_revenue_code or the regulations promulgated thereunder however it is well established that in order for an activity to be considered a taxpayer’s trade_or_business for purposes of sec_162 the activity must be conducted with continuity and regularity and the taxpayer’s primary purpose for engaging in the activity must be for income or profit 480_us_23 it is clear that in a single taxable_year a taxpayer may be in engaged in more than one trade_or_business 73_tc_766 barrish v commissioner tcmemo_1984_602 we are satisfied that petitioner’s gambling activity was conducted with the requisite continuity and regularity during the taxable_year to allow for treatment as a trade_or_business within the meaning of sec_162 nevertheless in order for an activity to be considered a trade_or_business within the meaning of that section a taxpayer’s primary purpose fo engaging in the activity must be for income or profit see commissioner v groetzinger supra miller v commissioner tcmemo_1998_463 affd 208_f3d_214 6th cir furthermore as was the situation in groetzinger the activity in question must be the taxpayer’s intended livelihood source commissioner v groetzinger supra pincite the test of whether a taxpayer conducted an activity for profit is whether he or she entered into or continued the activity with an actual or honest objective of making a profit 94_tc_41 78_tc_642 affd without opinion 702_f2d_1205 d c cir sec_1_183-2 income_tax regs although a reasonable expectation of profit on a taxpayer’s part is not required the profit objective must be bona_fide as determined from a consideration of the surrounding facts and circumstances keanini v commissioner supra dreicer v commissioner supra pincite 72_tc_411 affd without published opinion 647_f2d_170 9th cir 45_tc_261 affd 379_f2d_252 2d cir whether petitioner engaged in his gambling activity with an actual and honest objective of realizing a profit must be redetermined year-to-year taking into account all of the relevant facts and circumstances golanty v commissioner supra pincite sec_1_183-2 and b income_tax regs more weight is given to objective facts than to petitioner’s statement of his intent 72_tc_659 sec_1_183-2 income_tax regs the following factors which are nonexclusive should be considered in the determination of whether an activity is engaged in for profit the manner in which the taxpayer carried on the activity the expertise of the taxpayer or his or her advisers the time and effort expended by the taxpayer in carrying on the activity the expectation that assets used in the activity may appreciate in value the success of the taxpayer in carrying on other similar or dissimilar activities the taxpayer’s history of income or losses with respect to the activity the amount of occasional profits if any which are earned the financial status of the taxpayer and elements of personal pleasure or recreation sec_1 b income_tax regs no one factor is determinative in and of itself and our conclusion with respect to petitioner’s profit objective does not depend upon merely counting up those factors that suggest the presence of a profit_motive and comparing the number to those factors that indicate the opposite sec_1_183-2 income_tax regs these factors are nonexclusive and not every factor is relevant in every case vandeyacht v commissioner tcmemo_1994_148 borsody v commissioner tcmemo_1993_534 affd per curiam 92_f3d_1176 4th cir sec_1_183-2 income_tax regs turning to the relevant factors enumerated in sec_1 b income_tax regs we find that petitioner’s gambling activity was operated in a businesslike manner petitioner regularly attended the horseraces at yonkers in addition to keeping copies of betting slips and racing forms and programs petitioner kept detailed records with respect to his gambling activity petitioner kept a detailed account of his daily wagers as well as a cumulative total of his yearly winnings and losses petitioner also maintained numerous statistics for each horserace in the form of speed figures and used this information for handicapping horseraces petitioner reviewed videotapes of the horseraces for further study during the taxable_year in issue petitioner also began to use a computer to maintain a significant amount of his records with respect to his gambling activity although petitioner maintained only a single bank account his gambling winnings and losses were accounted for separately accordingly this factor favors petitioner a profit objective might be indicated where the taxpayer carries on an activity in accordance with practices learned from extensive study of accepted business and economic practices or consultation with experts involved therein sec_1_183-2 income_tax regs petitioner has been gambling on horseraces for more than years petitioner has been seriously handicapping horseraces for years this includes preparing detailed speed figures for the winner of each race petitioner sought advice from as well as provided advice to other individuals who gambled on a regular basis finally through the years petitioner has read numerous books published on gambling and handicapping horseraces this factor favors petitioner a profit objective might be indicated where the taxpayer uses much of his personal time and effort to carry on the activity sec_1_183-2 income_tax regs petitioner spends about hours pursuing his gambling activity during he spent approximately days gambling and handicapping horseraces petitioner’s detailed records including the self- prepared speed figures are evidence of the time and effort expended by petitioner away from the race track we are convinced that petitioner spent a significant amount of time and effort in pursuit of this activity this factor favors petitioner a profit objective is strongly indicated where the taxpayer has experienced a series of profitable years sec_1 b income_tax regs detailed financial information about petitioner’s other taxable years is not available on this record an opportunity to earn a substantial ultimate profit in a highly speculative venture is ordinarily sufficient to indicate that the activity is engaged in for profit even though losses or only occasional small profits are actually generated sec_1 b income_tax regs although it was modest in amount petitioner enjoyed a profit from gambling during the year in issue this factor is neutral or slightly favors petitioner the next factor significant in our inquiry is the financial status of the taxpayer a profit objective might be indicated where the taxpayer does not have substantial income from sources other than the activity sec_1_183-2 income_tax regs petitioner held no substantial investments during and his part-time employment as a delivery truck driver was his only other source_of_income under the circumstances the amount of his wages gives little insight into his profit objective on balance we consider this factor to be neutral a lack of profit objective might be indicated where there are personal motives for carrying on the activity especially where the motive is personal pleasure or recreation sec_1 b income_tax regs profit need not be the only objective however and personal motives may coexist with an actual and honest intent to derive a profit a taxpayer’s enjoyment of an activity does not necessarily indicate that the taxpayer lacks a profit objective if the activity is conducted for profit as shown by other factors see 59_tc_312 sec_1_183-2 income_tax regs the fact that petitioner may have also enjoyed betting on horseraces does not mean that he did not engage in the activity for profit this factor is neutral taking into account the above factors and considering the facts and circumstances relating to petitioner’s gambling activity we conclude that petitioner engaged in his gambling activity with the bona_fide intent of making a profit having found that petitioner conducted his gambling activity with continuity and regularity we conclude that petitioner was in the trade_or_business of gambling during the taxable_year in issue accordingly petitioner’s gambling expenses are deductible under sec_162 to the extent limited by sec_165 the parties are cautioned however that our holding in this case does no more than resolve the year here in issue see sec_1_183-2 and b income_tax regs petitioner’s betting strategy percent of his bankroll raises some question whether his gambling activity was his intended livelihood source commissioner v groetzinger u s pincite as his bankroll was described as cumulative winnings with no mention about withdrawals for livelihood expenditures maintaining a bankroll used exclusively for gambling purposes strongly suggests that his gambling activity does not constitute a trade_or_business to the extent that petitioner’s betting strategy remains consistent over the years a different result might well be reached reviewed and adopted as the report of the small_tax_case division to reflect the foregoing decision will be entered for petitioner


t c memo united_states tax_court caren c hare petitioner v commissioner of internal revenue respondent docket no 5867-14l filed date caren c hare pro_se inga c plucinski-holbrook and charles b burnett for respondent memorandum opinion lauber judge in this collection_due_process cdp case petitioner seeks review pursuant to sec_6320 and sec_6330 of a determination by all statutory references are to the internal_revenue_code in effect at all relevant times and all rule references are to the tax_court rules_of_practice and procedure we round all monetary amounts to the nearest dollar the internal_revenue_service irs or respondent to sustain the filing of a notice_of_federal_tax_lien nftl respondent has moved for summary_judgment under rule contending that there are no disputed issues of material fact and that his determination to sustain this collection action was proper as a matter of law we will grant the motion background the following facts are based on the parties’ pleadings and the affidavits and exhibits attached to the pleadings and respondent’s motion see rule b petitioner resided in utah when she filed her petition the tax_liabilities at issue consist solely of penalties imposed under sec_6702 for the submission of frivolous tax returns the sec_6702 penalty is an assessable penalty sec_6703 the irs determined that petitioner had filed a total of frivolous returns original or amended for tax_year sec_2002 through as authorized by sec_6702 the irs assessed a dollar_figure penalty for each frivolous_return for a total of dollar_figure petitioner challenges the irs’ collection efforts with respect to these unpaid tax_liabilities in date petitioner filed a delinquent but apparently accurate return for the irs had previously assessed a tax_liability for based on a substitute for return when it received the return filed in date it abated the assessment previously made three months later petitioner filed an amended_return for that reflected zero income and zero tax due claiming a refund for the full amount of tax withheld and prior payments made in date petitioner filed a second amended_return for again reflecting zero income and zero tax due the irs ruled both of these zero returns frivolous and assessed two dollar_figure penalties against petitioner under sec_6702 see revrul_2004_34 2004_1_cb_619 informing taxpayers that t he zero return position has no merit and is frivolous and warning that filing such returns may subject taxpayers to civil and possibly criminal penalties in date petitioner filed a delinquent_return for that similarly reflected zero income and zero tax due and claimed a refund for the full amount of tax withheld from her paychecks the irs ruled this return frivolous and assessed a dollar_figure penalty against her under sec_6702 in date petitioner filed delinquent returns for and that again reflected for each year zero income and zero tax due and claimed re- funds for the full amounts of tax withheld the irs ruled these returns frivolous petitioner’s income_tax_liability for plus additions to tax and penalties under sec_6651 and sec_6662 were adjudicated by a stipulated decision of this court in hare v commissioner dkt no date and assessed for each return a dollar_figure penalty against her under sec_6702 in date petitioner filed an amended_return for that again re- flected zero income and zero tax due and claimed a refund for the full amount of tax withheld the irs ruled this return frivolous and assessed a dollar_figure penalty against her under sec_6702 in date petitioner filed a delinquent_return for that again reflected zero income and zero tax due and claimed a refund for the full amount of tax withheld the irs ruled this return frivolous and assessed a dollar_figure penalty against her under sec_6702 petitioner filed a timely and apparently accurate return for and paid the tax due shown on that return in date she filed an amended_return for that again reflected zero income and zero tax due and claimed a refund for the full amount of tax withheld and prior payments made the irs ruled this return frivolous and assessed a dollar_figure penalty against her under sec_6702 in response to the assessment of these frivolous_return penalties petitioner in date sent the irs a letter and set of documents making various frivolous arguments she included with this package a second amended_return for that again reflected zero income and zero tax due the next month she sent the irs another set of documents making more frivolous arguments she included with this package a third amended_return for that again reflected zero income and zero tax due the irs ruled both amended returns frivolous and assessed two dollar_figure penalties against her under sec_6702 petitioner filed a timely return for that again reflected zero income and zero tax due and claimed a refund for the full amount of tax withheld the irs ruled this return frivolous and assessed a dollar_figure penalty against her under sec_6702 on date in an effort to collect these outstanding liabilities the irs sent petitioner a notice_of_federal_tax_lien filing and your right to a hear- ing petitioner timely submitted a form request for a collection due pro- cess or equivalent_hearing erroneously listing her income_tax liabili- ties rather than the assessed frivolous-submission penalties as the subject of the hearing the irs treated this as a request for a cdp hearing with respect to the frivolous-submission penalties the case was assigned to a settlement officer so from the irs appeals_office in las vegas on date the so wrote petitioner to schedule a telephone cdp hearing for date the so notified petitioner that the documents and arguments she had previously submitted to the irs were frivolous and that she would not be permitted to raise further frivolous arguments during the hearing prior to the scheduled cdp hearing petitioner corresponded with the so by telephone and in writing submitting a set of documents that the so determined to raise solely frivolous arguments on date petitioner and the so participated in the scheduled cdp hearing during the course of which petitioner raised solely frivolous arguments at this point the so reviewed the administrative file and confirmed that the frivolous-submission penalties had been properly assessed and that all require- ments of applicable law and administrative procedure had been met the so determined that petitioner had not properly raised at the cdp hearing her underlying liabilities for these penalties because she had advanced solely frivolous arguments the so accordingly closed the case and on date sent petitioner a notice_of_determination sustaining the nftl filing petitioner filed a timely petition for review in this court as her explana- tion of her disagreement with the irs determination and of the facts on which she relied she referred to an attached 18-page document captioned request to take judicial_notice pursuant to fre this document which appears to have been drawn from the internet consists of familiar tax-protester arguments cast in boilerplate legalese the document had blank spaces for insertion of the tax- payer’s name and tax years involved petitioner inserted by hand in those spaces her name and tax years this document bears no relationship to the facts of this case and sets forth no allegations of error on the part of the irs this case was calendared for trial at the court’s trial session in salt lake city on date on date respondent moved for summary_judgment by order dated date we ordered petitioner to respond to the irs motion by date our order informed petitioner that under tax_court rule d judgment may be entered against a party who fails to respond to a motion for summary_judgment petitioner did not respond to this court’s order on date we struck the case from the salt lake city trial session in order to give consideration to respondent’s motion for summary_judgment on date the court received a letter from petitioner in which she stated at this time i request extension on my court date of date i have never received the information that they say i have received for my defense i ask that you resubmit information that they say has been sent to me because i have not received they said they sent information and had to be received back by date last i knew court date was on the 14th i ask for at least six month extension so i can decide what to do this letter does not constitute a good-faith response to the irs motion for summary_judgment discussion rule b provides that f or failure of a petitioner to comply with these rules or any order of the court the court may dismiss a case at any time and enter a decision against the petitioner rule governing summary_judgment provides that w hen a motion for summary_judgment is made and supported an adverse_party may not rest upon the mere allegations or de- nials of such party’s pleading but such party’s response must set forth speci- fic facts showing that there is a genuine dispute for trial rule d if the adverse_party does not so respond then a decision if appropriate may be entered against such party ibid petitioner did not comply with this court’s order dated date she did not reply to the irs motion for summary_judgment and she has not com- plied with this court’s rules all the contentions she has advanced are frivolous we accordingly deem it appropriate to grant respondent’s motion for summary_judgment and enter a decision against petitioner under rule d see 115_tc_554 schlussel v commissioner tcmemo_2013_185 richards v commissioner tcmemo_2013_171 sec_6673 authorizes the imposition of a monetary penalty in an amount up to dollar_figure whenever it appears to this court that a taxpayer has insti- tuted or maintained tax_court proceedings primarily for delay or has taken a position that is frivolous or groundless the purpose of sec_6673 is to compel taxpayers to conform their conduct to settled tax principles and to deter the waste of judicial resources see 791_f2d_68 7th cir salzer v commissioner tcmemo_2014_188 petitioner’s initial filing in this case consisted of a boilerplate amalgam of well-trodden tax-protester arguments with no relevance to the actual facts of this case her only other communication with this court was an untimely and incom- prehensible letter demanding a continuance it seems clear to us that petitioner has instituted this proceeding solely for the purpose of delaying the collection of her federal tax_liabilities and we would be justified in imposing a sec_6673 penalty for that reason however because petitioner litigated a previous case in this court without apparent incident we instead offer a warning petitioner is admonished to refrain from advancing frivolous arguments in any future filings she may make in this court because the court is unlikely to show leniency next time failure to heed this warning may lead to the imposition of a substantial monetary penalty under sec_6673 to reflect the foregoing an appropriate order and decision will be entered


t c memo united_states tax_court felix and liliana p prakasam petitioners v commissioner of internal revenue respondent felix prakasam petitioner v commissioner of internal revenue respondent docket nos 12136-04l 12212-04l filed date william e windham for petitioners alan j tomsic for respondent memorandum findings_of_fact and opinion vasquez judge these consolidated cases are before the court on respondent’s motions to dismiss for lack of jurisdiction and petitioner’s motion for partial summary_judgment petitioners filed a petition in response to respondent’s decision letters concerning equivalent_hearing under sec_6320 and or of the internal_revenue_code decision letters the issue for decision is whether the court lacks jurisdiction under sec_6320 and sec_6330 with regard to the years in issue findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time they filed the petition petitioners resided in loma linda california i on date respondent sent petitioner a notice_of_deficiency addressed to petitioner at his last_known_address p o box loma linda ca determining petitioner owed an income_tax deficiency of dollar_figure and a penalty under sec_6662 in the amount of dollar_figure for the tax_year petitioner did not respond to the notice_of_deficiency by petitioning the tax_court within days from date on date respondent filed a notice_of_federal_tax_lien with respect to petitioner concerning the tax_year when we refer to petitioner in the singular we are referring to petitioner felix prakasam unless otherwise indicated all section references are to the internal_revenue_code as amended on date respondent sent to petitioner a notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 petitioner did not timely request a hearing with respect to this notice ii on date respondent sent petitioners a notice_of_deficiency addressed to petitioners at their last_known_address p o box loma linda ca determining petitioners owed an income_tax deficiency of dollar_figure and a penalty under sec_6662 in the amount of dollar_figure for the taxable_year petitioners did not respond to the notice_of_deficiency by petitioning the tax_court within days from date on date respondent filed a notice_of_federal_tax_lien with respect to petitioners concerning the tax_year on date respondent issued to petitioners a notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 with respect to the tax_year petitioners did not timely request a hearing in response to the date notice iii and on date respondent issued a notice_of_federal_tax_lien filing-nominee transferee or alter-ego nominee lien to renaissance health systems llc renaissance in connection with the and tax_liabilities of petitioners on date respondent also issued a notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 to petitioners in connection with the and tax_liabilities on or about date renaissance health systems llc nominee transferee or alter-ego felix k prakasam submitted a form request for a collection_due_process_hearing setting forth disagreement with the filed notice_of_federal_tax_lien on date the appeals_office held a hearing with petitioners’ representatives on date respondent issued a decision letter concerning equivalent_hearing under sec_6320 and or of the internal_revenue_code decision letter i to petitioner for tax_year on date petitioners mailed a petition to this court setting forth their disagreement with decision letter i on date respondent issued a decision letter concerning equivalent_hearing under sec_6320 and or of the internal_revenue_code decision letter ii to petitioners for tax_year on date petitioners filed a petition with this court setting forth their disagreement with decision letter ii in light of our resolution of the case we need not address respondent’s argument that this entity had no rights to its own collection hearing or equivalent_hearing decision letters i and ii both stated in part your due process hearing request was not filed within the time prescribed under sec_6320 and or however you received a hearing equivalent to a due process hearing except that there is no right to dispute a decision by the appeals_office in court under sec_6320 and or petitioner filed a motion for partial summary_judgment as to tax_year respondent filed an objection to petitioner’s motion for partial summary_judgment as to tax_year respondent filed a motion to dismiss for lack of jurisdiction in both of these consolidated cases petitioners filed objections to respondent’s motions to dismiss in docket no 12212-04l respondent filed first and second supplements to the motion to dismiss for lack of jurisdiction in docket no 12136-04l respondent filed a supplement to the motion to dismiss for lack of jurisdiction petitioners filed a supplemental objection to each motion to dismiss the court held a hearing on petitioner’s motion for partial summary_judgment and respondent’s motions to dismiss for lack of jurisdiction opinion the parties dispute whether petitioners are entitled to a collection hearing respondent argues that this court should dismiss the case for lack of jurisdiction as petitioners did not file a timely hearing request in response to the first notice_of_federal_tax_lien filed for tax_year or petitioners argue that they did not receive the date or the date notices that the first notice regarding their and liabilities that they received was in date and they requested a hearing in response to that notice i last_known_address sec_6320 and sec_6330 provide in pertinent part that the secretary shall notify a person in writing of his or her right to an appeals_office hearing regarding the secretary’s filing of a notice of lien under sec_6323 or the secretary’s intent to levy respectively by mailing the notice required by sec_6320 or sec_6330 as the case may be by certified or registered mail to such person at his or her last_known_address the regulations under sec_6320 and sec_6330 reference sec_301_6212-2 proced admin regs to define last_known_address sec_301_6320-1 sec_301_6330-1 proced admin regs under sec_6212 in general the commissioner is entitled to treat the address on a taxpayer’s most recent tax_return as the taxpayer’s last_known_address unless the taxpayer has given clear and concise notification of a different address 123_tc_1 affd 412_f3d_819 7th cir petitioners’ forms certificate of assessments payments and other specified matters for and indicate that the notices of federal tax_liens were filed in date and date respectively the forms are sufficient proof in the absence of evidence to the contrary of the adequacy and propriety of notices and assessments that have been made orum v commissioner supra further respondent submitted copies of these notices listing a certified mail number the letter dates and the date of filing we also note that the address on the copies of the notices is p o box loma linda ca this is the address the petitioners listed on their and tax returns and petitioner testified that he has been receiving mail at this address since on the basis of the record we find that the address used for the date and date notices was petitioners’ last_known_address the only evidence that petitioners presented is petitioner’s testimony that they did not receive the notices the court need not accept at face value a witness’s testimony that is self- interested or otherwise questionable see 227_f2d_270 5th cir affg a memorandum opinion of this court 221_f2d_152 8th cir affg tcmemo_1954_51 schroeder v commissioner tcmemo_1986_467 furthermore petitioner testified that he received a notice from respondent prior to the date notices but he did not recall the nature of that notice ii collection hearing sec_6320 provides that the secretary shall furnish the person described in sec_6321 with written notice ie the hearing notice of the filing of a notice of lien under sec_6323 sec_6320 further provides that the taxpayer may request administrative review of the matter in the form of a hearing within a 30-day period sec_6320 states that a taxpayer shall be entitled to only one hearing with respect to the taxable_period to which the unpaid tax relates taxpayers are entitled to this hearing only if they request administrative review of the matter within the 30-day period following the receipt of the first notice of lien with regard to the unpaid tax sec_301_6320-1 q a- b4 proced admin regs see also orum v commissioner supra sec_301_6320-1 q a-b4 proced admin regs states q-b4 if the irs sends a second cdp_notice under sec_6320 other than a substitute cdp_notice for a tax period and with respect to an unpaid tax for which a sec_6320 cdp_notice was previously sent is the taxpayer entitled to a sec_6320 cdp hearing based on the second cdp_notice a-b4 no the taxpayer is entitled to a cdp hearing under sec_6320 for each tax period only with respect to the first continued reaching the same conclusion in a levy case congress further specified in the conference_report for the internal_revenue_service restructuring and reform act of publaw_105_206 112_stat_685 that the right to a hearing applies only after the first notice of lien with regard to each tax_liability is filed h conf rept pincite 1998_3_cb_747 on date and date respondent sent petitioners notices of federal tax_liens at their last_known_address petitioners did not request a hearing within the 30-day filing period required by sec_6320 under the circumstances respondent was not obliged to conduct a collection hearing pursuant to sec_6320 and sec_6330 orum v commissioner supra pincite in place of the collection hearing the appeals_office granted petitioners an equivalent_hearing for and thereafter the appeals_office issued decision letters to petitioners stating that the proposed collection actions were sustained the decision letters do not constitute notices of determination under sec_6320 and sec_6330 which would provide a basis for petitioners to invoke the court’s jurisdiction for and see moorhous v continued filing of a nftl on or after date with respect to an unpaid tax commissioner 116_tc_263 116_tc_255 in discussing whether the decision letters in this case constitute a determination the parties address 119_tc_252 we differentiated craig v commissioner supra in orum v commissioner supra pincite a case similar to the instant case by stating this case is distinguishable from 119_tc_252 in which we held that we had jurisdiction under sec_6330 when the appeals_office issued a decision letter to the taxpayer id pincite in craig the commissioner mailed to the taxpayer a notice_of_intent_to_levy on date id pincite on date the taxpayer timely requested a sec_6330 hearing by mailing the commissioner a letter accompanied by unsigned forms id pincite on date the commissioner received signed forms but granted the taxpayer only an equivalent_hearing id pincite- a decision letter was then issued to the taxpayer following the equivalent_hearing id pincite the court held that where appeals issued the decision letter to petitioner in response to his timely request for a hearing we conclude that the ‘decision’ reflected in the decision letter issued to petitioner is a ‘determination’ for purposes of sec_6330 id pincite in the instant case as in orum v commissioner supra petitioners did not timely request a collection hearing in response to the date and date notices as a result we do not conclude that the decisions in the decision letters are determinations for purposes of sec_6320 and sec_6330 orum v commissioner supra pincite we shall grant respondent’s motions to dismiss for lack of jurisdiction as to and because the petitions were not filed in response to notices of determination sufficient to confer jurisdiction on the court under sec_6320 and sec_6330 to reflect the foregoing an appropriate order of dismissal for lack of jurisdiction will be entered in docket no 12136-04l an appropriate order and order of dismissal for lack of jurisdiction will be entered in docket no 12212-04l


department of the treasury internal_revenue_service washington d c date apr contact person identification_number telephone number tev g2 employer tdentification number uil nos legend ladies and gentlemen this letter responds to your attorney's letter dated date and previous into z all three of which letters requesting rulings pertaining to a proposed merger of x and y are organizations exempt from federal_income_tax under sec_501 a of the internal_revenue_code x is a nonprofit corporation that is described in sec_501 of the code and y and z are nonprofit_corporations described in sec_501 y is classified under sec_509 as a supporting_organization of x on the basis that x would be a publicly_supported_organization if it were described in sec_501 z is classified under sec_509 the facts presented indicate that x was initially formed to raise and distribute money to charity by conducting an annual golf tournament and an annual charity ball x distributes the net_proceeds from these events to y which uses the funds to make grants to other charitable organizations in the community a portion of each ticket that x sells to the golf tournament and the charity ball represents a charitable_contribution to y x receives these contributions on behalf of y and promptly forwards them to y x's main revenues include sponsorship payments admissions to the golf tournament and charity ball television rights golfer entry fees and advertising the operations of x and y are conducted with substantial amounts of volunteer labor and donated use of facilities both x and y have large all-volunteer boards of directors and significant numbers of volunteers assist the paid employees and contractors several golf courses provide their facilities for the tournaments at a charge that is only a small fraction of fair rental value to cover the cleanup and repair costs from use of the facilities a hotel donates use of its facilities for the ball with respect to the scope and extent of volunteer labor the information submitted indicates that approximately of staff hours provided for the golf tournament is attributable to volunteers while approximately of staff hours provided for the charity ball is attributable to volunteers a souvenir program including both editorial articles and advertising is published each year in connection with the golf tournament x solicits advertising during a nine-month period before the tournament one or more of x's paid employees sells advertising on an ongoing basis during this period volunteers do not conduct the advertising activity you state that the interrelationship between x and y has created disadvantages such as expenses resulting from the operation of two entities instead of one cash shortfalls and public confusion the organizations propose to solve these problems by having x and y merge into z which as noted previously is described in sec_501 of the code as a result of the reorganization z will take over the activities previously conducted by x and y after the merger z will conduct the golf tournament and the charity ball as annual fund raisers to raise money to carry out its exempt_purpose of supporting charitable organizations z requests rulings that the merger will not jeopardize z's status as an organization described in sec_501 of the code and the revenues that z will generate from the annual golf tournament and charity ball fund raisers will not constitute unrelated_business_taxable_income under sec_512 sec_501 of the code in part provides for the exemption from federal_income_tax of organizations organized and operated exclusively for charitable purposes sec_1_501_c_3_-1 of the income_tax regulations provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 of the code an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose revrul_64_182 1964_1_cb_186 holds that an organization that derives its income principally from the rental of space in a large commercial office building and carries out its charitable purposes by aiding other charitable organizations through contributions and grants meets the requirements for recognition of exemption under sec_501 of the code the revenue_ruling states that the organization was shown to be carrying on a charitable program commensurate in scope with its financial resources sec_511 of the code imposes a tax on the unrelated_business_taxable_income of organizations described in sec_501 sec_512 of the code defines unrelated_business_taxable_income generally as gross_income derived by any exempt_organization from any unrelated_trade_or_business regularly carried on by it less allowable deductions with certain modifications bk sec_513 of the code defines the term unrelated_trade_or_business as any trade_or_business the conduct of which is not substantially related aside from the need of such organization for income or funds or the use it makes of the profits derived to the exercise or performance by such organization of its charitable educational or other purpose or function constituting the basis for its exemption under sec_501 sec_513 of the code provides that the term unrelated_trade_or_business does not include any trade_or_business in which substantially_all the work in carrying on such trade_or_business is performed for the organization without compensation sec_513 of the code provides that the term trade_or_business includes any activity that is carried on for the production_of_income from the sale_of_goods or the performance of services sec_513 also states that an activity does not lose identity as a trade_or_business merely because it is carried on within a larger aggregate of similar activities or within a larger complex of other endeavors which may or may not be related to the exempt_purpose of the organization sec_1_513-1 of the regulations provides that gross_income of an exempt_organization subject_to the tax imposed by sec_511 is includible in the computation of unrelated_business_taxable_income if it is income from trade_or_business such trade_or_business is regularly carried on and the conduct of such trade_or_business is not substantially related other than through the production of funds to the organization's performance of its exempt functions sec_1_513-1 of the regulations provides that for purposes of sec_513 of the code the term trade_or_business has the same meaning it has in sec_162 and generally includes any activity carried on for the production_of_income from the sale_of_goods or performance of services activities of producing or distributing goods or performing services from which a particular amount of gross_income is derived do not lose identity as trade_or_business merely because they are carried on within a larger aggregate of similar activities or within a larger complex of other endeavors which may or may not be related to the exempt purposes of the organization thus for example activities of soliciting selling and publishing commercial advertising do not lose identity as a trade_or_business even though the advertising is published in an exempt_organization periodical that contains editorial material related to the exempt purposes of the organization sec_1_513-1 of the regulations provides that in general exempt_organization business activities which are engaged in only discontinuously or periodically will not be considered regularly carried on if they are conducted without the competitive and promotional efforts typical of commercial endeavors for example the publication of advertising in programs for sports events or music or drama performances will not ordinarily be deemed to be the regular carrying on of trade_or_business sec_1_513-1 of the regulations provides that certain intermittent income- producing activities occur so infrequently that neither their recurrence nor the manner of their conduct will cause them to be regarded as trade_or_business regularly carried on for example income-producing or fund raising activities lasting only a short_period of time will not ordinarily be treated as regularly carried on if they recur only occasionally or sporadically furthermore such activities will not be regarded as regularly carried on merely because they are conducted on an annually recurrent basis accordingly income derived from the conduct of an annual dance or similar fund raising event for charity would not be income from trade_or_business regularly carried on sec_1_513-1 of the regulations provides that for the conduct_of_a_trade_or_business to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of the services must contribute importantly to the accomplishment of those purposes in 696_f2d_372 5th cir the court held that the volunteer labor exception under sec_513 of the code did not apply where compensated workers accounted for approximately of the work performed in 92_tc_456 rev'd 914_f2d_1417 cir a o d july nonacg the tax_court held that the ncaa's regular solicitation of program advertising at its annual basketball tournament was unrelated business regularly carried on unlike the tournament itself which was related business the court reasoned that the business at issue was the sale of advertising which is fragmented under sec_513 of the code from the business of circulating the program and from the overall activity of conducting the tournament and that it was inappropriate to decide whether the business at issue was regularly carried on solely by reference to the time span of the tournament itself less than weeks the court held that the contractor that conducted the advertising was an agent of the ncaa under the contract and that the ncaa had failed to furnish evidence that its contractor's activity was not regularly carried on on appeal the circuit agreed that the business of selling advertising space was the relevant business but reasoned that the length of the tournament was what was relevant rather than the preliminary time spent soliciting advertisements because advertising during the tournament was what was being sold and that the length of the tournament was sufficiently intermittent and too infrequent to compete with commercial solicitors of advertising the a o d noted that sec_1_513-1 of the regulations defines as a fragmented business the activity of soliciting selling and publishing advertising soliciting and selling are not mere preparatory activities that preparatory time may be considered as part of a business activity and that the intermittent exceptions in the regulations are not directed to events such as the distribution of program guides and advertising over three extended weekends at a number of locations across the country and by mail by conducting the golf tournament and charity ball and by distributing the net_proceeds from such events to charitable organizations as described above z will be operated exclusively for charitable purposes as required by sec_501 of the code the merger of x and y into z will not result in z being operated for a substantial nonexempt purpose within the meaning of sec_1_501_c_3_-1 of the regulations by making gifts and contributions in the manner described z will be conducting a charitable program commensurate in scope with its financial resources see revrul_64_182 supra under the facts and circumstances presented the merger of x and y into z will not be a transaction that will adversely affect z's tax-exempt status under sec_501 the annuai golf tournament and the charity ball are activities carried on for the production_of_income from the providing of services and thus constitute trade_or_business as defined by sec_513 of the code and sec_1_513-1 of the regulations also neither the golf tournament nor the charity ball contributes importantly to the accomplishment of an exempt_purpose under sec_501 and thus neither activity is substantially related to an exempt_purpose under sec_501 furthermore although there are large numbers of volunteers who assist in carrying out both the golf tournament and the charity ball the information presented does not support a conclusion that substantially_all the work in connection with these activities has been performed without compensation thus the volunteer labor exception under sec_513 does not apply however the facts presented indicate that with the exception of advertising activities both the golf tournament and the charity ball are intermittent activities for purposes of sec_1_513-1 and thus are not regularly carried on trade_or_business under sec_513 since the golf tournament and the charity ball except for the advertising activities are not regularly carried on any revenues derived from such activities will not constitute unrelated_business_taxable_income under sec_512 with respect to the advertising activities the solicitation selling and publishing of advertising in connection with the annual golf tournament is an unrelated_trade_or_business that is fragmented or treated separately from the conduct of the tournament as a whole applying the fragmentation rule_of sec_513 of the code and sec_1_513-1 of the regulations to the golf tournament the trade_or_business of selling advertising space is treated as an activity that is distinct from the trade_or_business of conducting the golf tournament although the tenth circuit in national collegiate athletic association v commissioner supra concluded that program advertising was not a regularly carried on trade_or_business the service position as set forth in a o d is that such advertising activities are regularly carried on moreover the regular selling of advertising is distinguishable from the type of intermittent advertising activity in connection with programs for sports events contemplated in sec_1_513-1 under these circumstances amounts derived from advertising contained in programs published in connection with the golf tournament will constitute unrelated_business_taxable_income under sec_512 based on the foregoing we rule as follows the merger of x and y into z will not jeopardize z's status as an organization described in sec_501 of the code and the revenues that z will generate from the annual golf tournament and charity ball fund raisers other than advertising income will not constitute unrelated_business_taxable_income under sec_512 of the code however the revenues that z will generate from advertising contained in programs published in connection with the golf tournament will constitute unrelated_business_taxable_income under section sec_12 b28 we have not been asked and we express no opinion on whether amounts received from corporate sponsors meet the requirements under sec_513 of the code except as specifically ruled upon above no opinion is expressed concerning the federal_income_tax consequences of the transaction described above under any other provision of the code pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative because this letter could help resolve any future questions about z's tax_liability z should keep a copy of this ruling in its permanent records this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent if you have any questions please contact the person whose name and telephone number appear in the heading of this letter sincerely yours m berkovsky terrell manager exempt_organizations technical group