department of the treasury int ernal revenue service washington d c o f f i c e o f c h i e f c o u n s e l number release date date cc lm mct slc hmlewis spr-116598-01 uilc 7213a memorandum for john petrella director of field operations east communications technology media lm ctm from cynthia j mattson deputy division counsel large and mid-size business cc lm subject execution of nondisclosure and nonuse agreement between service expert and taxpayer this chief_counsel_advice responds to your inquiry of date in accordance with sec_6110 this chief_counsel_advice should not be cited as precedent issue whether the service as requested by taxpayers should permit experts engaged by the service to enter into nondisclosure and nonuse agreements with the taxpayers conclusion the experts retained by the service should not enter into nondisclosure and nonuse agreements with taxpayers the federal statutory safeguards presently in place adequately protect the interests of taxpayers when experts engaged by the service have access to returns or return_information and should be the exclusive means for preventing improper disclosure and use of such information facts the service entered into a contract with a corporation to provide outside expert assistance with respect to the examination of taxpayer claims the experts' duties include the examination of taxpayers' books_and_records supporting the claims and interviewing taxpayers' employees when the service enters into a contract with a third party contractor it is standard practice to have the contract contain provisions concerning disclosure and safeguarding of taxpayer information the service’s contract with the corporation includes standard irs acquisition procedures irsap clauses regarding unauthorized disclosure irsap disclosure of information-safeguards date irsap disclosure of information date and irsap disclosure of information-inspection date the disclosure of information-safeguard portion of the contract provides in part that the corporation agrees to comply and assumes responsibility for compliance by its employees with respect to these disclosure matters failure to comply with these procedures is a breach of the contract and the contract may be terminated disclosure or referral to other than an officer_or_employee of the corporation is prohibited unless prior written approval is given by the service the contract sets forth the penalties prescribed by the code with respect to an unauthorized disclosure of return and return_information by the corporation's experts the corporation is required to inform in writing each person who receives taxpayer returns or return_information that such information can be used only for a purpose and to the extent authorized by the contract and that further disclosure of such information for an unauthorized purpose constitutes a felony punishable by a fine not exceeding dollar_figure and imprisonment of up to five years or both together with the costs of prosecution see sec_7213 the corporation is also required to inform in writing each such person that any unauthorized disclosure of information may result in an award of civil damages against that person in an amount not less than dollar_figure for each instance of unauthorized disclosure plus in case of willful disclosure or a disclosure from gross negligence punitive_damages plus the cost of that action see sec_7431 and c see also sec_301 n the contract sets forth the penalties prescribed by the code with respect to an unauthorized inspection of return and return_information by the corporation's experts the corporation is required to inform in writing each person that the inspection of returns or return_information for a purpose not authorized therein constitutes a criminal misdemeanor punishable upon conviction by a fine not exceeding dollar_figure or imprisonment not to exceed one year or both together with the costs of prosecution see sec_7213 and b the corporation is also required to inform in writing each such person that any unauthorized inspection may also result in an award of dollar_figure against that person for each act of unauthorized inspection or disclosure or the sum of actual damages sustained by the plaintiff plus in the case of a willful inspection or an inspection as a result of gross negligence punitive_damages and costs of the action see sec_7431 and c the contract requires the corporation to inform its officers and employees of the penalties for improper disclosure imposed by the privacy_act of u s c sec_552 it also provides that u s c sec_552a i which is made applicable to contractors by u s c sec_552a m provides that any officer_or_employee of a contractor who knowingly and willfully makes a disclosure that is prohibited by the privacy_act is guilty of a misdemeanor and fined not more than dollar_figure the contract provides that the corporation will advise personnel receiving official use only information that the official use only information disclosed to them can be used only for the purpose and to the extent authorized and that further disclosure of official use only information by any means for a purpose not authorized may subject the offender to criminal sanctions imposed by u s c sec_641 and sec_641 of u s c provides that whoever knowingly converts to his use or the use of another or without authority sells conveys or disposes of any record of the united_states or whoever receives the same with the intent to convert it to his use or gain knowing it to have been converted will be guilty of a crime punishable by a fine or imprisoned up to ten years or both and section provides for the amounts of fines to be imposed the contract also gives the service the right to send its personnel into the corporation’s offices for inspection of the facilities and operations and on the basis of such inspection may require specific measures where the corporation is found to be noncompliant with contract safeguards to comply with the requirements of the contract the corporation has its experts execute a nondisclosure agreement this agreement states that the corporation has provided the expert with a copy of the corporation’s contract with the service concerning the disclosure of information-safeguard portions of the contract and that the expert has read understood and agreed to comply with these disclosure of information-safeguard portions in this nondisclosure agreement the expert also states that the expert is aware that there are penalties for improper disclosure imposed by the privacy_act of u s c sec_552 sec_7213 and sec_7431 of the code and u s c sec_641 and in addition the experts engaged by the corporation receive specific training concerning unauthorized disclosure of taxpayer information you have received notification from several taxpayers that they are concerned about the disclosure of their respective property proprietary information business processes and business practices to the corporation's experts the taxpayers appear to be more concerned that the experts may be able to utilize the information that is provided to them for the experts’ gain or as future competitors rather than disclosure of their tax information several taxpayers have advised the service that they will not provide relevant information to the service unless or until the corporation or the corporation's experts enter into separate nondisclosure and nonuse agreements with the taxpayer in support of this position the taxpayers have argued in the main they want to have privity with the expert so that they can bring their own action against the expert and not rely on the service or the department of justice to enforce the provision they believe that the monetary penalties under the statutory provisions listed in the contract do not give them adequate compensation_for any damages caused if the expert converted the information to his or her own use or sold it to a competitor thus they insist that the separate nondisclosure and nonuse agreement with the expert contain equitable provisions such as injunctions against the expert and also provide for litigations and cost awards they believe that the statute_of_limitations for bringing an action under sec_7431 does not provide them sufficient protection and have requested a five year statute_of_limitations from the date of the original disclosure to the expert they believe that the privacy_act provides them no protection they want the contract to provide that the expert will advise the taxpayer of all other corporation experts that are furnished such information and each of these experts will also execute a similar nondisclosure agreement with the taxpayer prior to being furnished such information they want the expert to be required to notify the taxpayer if the expert is requested or required to provide testimony about the information in any legal or other proceeding and the expert will cooperate with the taxpayer if the taxpayer seeks to obtain a protective_order we also note that taxpayers’ proposed nondisclosure and nonuse agreements contain provisions that are not uniform for example they each provide that the agreements will be governed by the laws of different states they have different periods for bringing suits against the expert the remedies and damages are not the same in addition what constitutes a breach of the agreement is not the same law and analysis federal statutes provide for both civil and criminal penalties in the event of unauthorized inspection or disclosure of returns and return_information by an outside expert hired by the service in answer to the first of the taxpayer concerns these statutes provide the taxpayer the right to bring its own civil suit against the expert sec_6103 and its implementing regulation sec_301_6103_n_-1 allow for the disclosure of returns and return_information to contractors for services relating to tax_administration under sec_7431 a taxpayer whose return or return_information was knowingly or negligently inspected or disclosed by an officer_or_employee of the united_states may sue the united_states in district_court for economic damages resulting from the disclosure under sec_7431 if the unauthorized inspection or disclosure is made by a person who is not a government employee or officer the taxpayer may sue that person in district_court thus in the case of an unauthorized inspection or disclosure by an employee of a sec_6103 contractor such as one of corporation’s experts that employee would be liable to the taxpayer not the united_states the taxpayer need not rely on the service or the department of justice to enforce the provisions against unauthorized inspection or disclosure another concern raised by the taxpayers is the adequacy of recovery in a sec_7431 lawsuit particularly with respect to the use of their property or business practices to their competitive disadvantage sec_7431 provides for the recovery whether the defendant is the united_states or an individual of the greater of the plaintiff’s actual damages resulting from the unauthorized inspection or disclosure plus punitive_damages if willful or dollar_figure for each unauthorized act if a corporation expert made an unauthorized inspection or disclosure of a taxpayer’s return_information the taxpayer would be entitled to recover under sec_7431 all economic damages resulting from the disclosure the recoverable damages would include any damages from a competitor’s use of the return_information assuming the taxpayer can establish that the disclosure was the cause of the damages see 9_fsupp2d_1119 d neb holding that the common_law elements of causation must be proven to recover actual damages under sec_7431 that is cause in fact and proximate cause rev’d in part on other grounds 207_f3d_508 8th cir the taxpayers have also expressed their desire to be able to recover litigation costs and attorney fees when bringing suit against the corporation's experts as well as pursuing injunctions and other equitable remedies against the experts under sec_7431 a plaintiff may recover reasonable attorney fees if the plaintiff is the prevailing_party and the plaintiff’s net_worth does not exceed certain prescribed dollar amounts and litigation costs as for equitable remedies such as temporary or permanent injunctions although sec_7431 does not by its terms provide for them some courts have indicated that a plaintiff may nevertheless obtain equitable remedies in response to an unauthorized disclosure or threatened disclosure see eg 718_f2d_449 d c cir plaintiffs were entitled to a declaratory_judgment that contemplated disclosures were unauthorized where statutory damages under sec_7431 were an inadequate remedy the taxpayers have also expressed concern that the two-year statute_of_limitations for an action under sec_7431 is too short and that the nondisclosure restrictions on the corporation's experts should be five years from receipt of the information sec_6103 however is more protective than this five-year rule because the in the case of a corporation the company’s net_worth may not exceed dollar_figure million at the time the action was filed sec_7430 sec_7431 u s c d b while a taxpayer may have an equitable remedy against the corporation's experts for unlawful disclosures no such remedy would exist against the united_states for disclosures in the context of examination or collection activity due to the statutory bar of the anti-injunction_act sec_7421 prohibition on unauthorized disclosure of return_information in sec_6103 has no such time limit the two-year statute_of_limitations in sec_7431 commences to run on the date the plaintiff discovered the unauthorized inspection or disclosure which is ample time for an aggrieved taxpayer to file suit it should be noted that sec_7431 seems to codify the discovery rule which is the general_rule that federal courts apply in determining when a cause of action accrues 528_us_549 920_f2d_446 7th cir under the discovery rule a plaintiff's cause of action accrues and the statute_of_limitations commences to run when he discovered or reasonably should have discovered the injury 444_us_111 935_f2d_336 d c cir as for sec_7431 at least one court has held that the period begins to run when the plaintiff knew or should have known of the disclosure simpson v united_states no 90-30021-rv u s dist lexis at n d fla date additionally courts have held that claims for unauthorized disclosure under the privacy_act accrue when the plaintiff knew or should have known of the disclosure although the limitations language of the privacy_act is slightly different than that of sec_7431 within two years from the date on which the cause of action arises 821_f2d_789 d c cir 641_fsupp_489 d d c in addition to the civil remedies available to the taxpayers other federal statutes serve as a safeguard for the protection of tax_return information by imposing severe criminal penalties for willful unauthorized disclosure or inspection of returns and return_information specifically sec_7213 provides that any federal employee or sec_6103 contractor such as one of corporation's experts who willfully discloses return_information in violation of sec_6103 shall be guilty of a felony punishable by a maximum fine of dollar_figure and imprisonment up to five years under sec_7213a willful unauthorized inspection of returns and return_information by a government employee or a sec_6103 contractor is a crime punishable by a fine not to exceed dollar_figure imprisonment up to one year or both the taxpayers which are corporations are correct about the inapplicability of the privacy_act to them by its terms the privacy_act only applies to information on an individual which is defined as a citizen_of_the_united_states or an alien lawfully admitted for permanent residence u s c sec_552a a all of the protective provisions of the act apply only to individuals it is our position that individuals acting in an entrepreneurial capacity eg as a sole_proprietor are covered although there is a additionally under u s c whoever with intent to convert a trade secret without authorization copies sends mails or communicates information to the economic benefit of someone that is not the owner of the information and that will injure the owner of a trade secret is subject_to a fine under title or imprisonment for not more than ten years or both split among authorities on this point compare 452_fsupp_306 n d tex and omb privacy_act guidelines fed reg big_number big_number with henke v united_states dep’t of commerce no u s dist lexis at d d c date the corporate taxpayers however involved with this matter are not individual entrepreneurs but this fact does not severely limit a corporate taxpayer’s protection from unauthorized inspection or disclosure because sec_6103 is the controlling statutory authority on disclosure of tax returns and return_information congress intended that sec_6103 preempt the more general provisions of the privacy_act see 162_f3d_113 d c cir 703_f2d_271 7th cir finally some courts have held that sec_7431 is the exclusive remedy for damages for unauthorized disclosure of returns and return_information see 993_fsupp_1136 s d ohio sec_7431 provides plaintiffs with the exclusive remedy by which they may bring a cause of action for improper disclosure of return_information malis v united_states no u s dist lexis at c d cal date but see sinicki v united_states dep’t of treasury no 97-civ-0901 u s dist lexi sec_2015 s d n y date plaintiff entitled to pursue recovery for wrongful disclosure under both the privacy_act and sec_7431 when a statute like former sec_7217 sec_7431's predecessor creates a new cause of action and provides a remedy to enforce that cause of action the remedy is exclusive 386_us_714 571_fsupp_287 n d cal vandalia r r co v schnull n e ind rev’d on other grounds 255_us_113 other remedies including common_law remedies such as breach of contract are impliedly excluded 285_us_467 585_fsupp_879 e d pa common_law breach of contract claim for alleged age discrimination excluded by pennsylvania human relations act a suit to enforce a nondisclosure agreement like those proposed by taxpayers would presumably be a basic breach of contract action arguably then these sorts of agreements which seek to provide a common_law remedy in addition to that of sec_7431 are void as a matter of law cf 47_f3d_716 5th cir subsequent history omitted for purposes of the federal tort claims act the court found no indication that texas would create nor would the court create on its own a common_law cause of action for violation of sec_6103 where there was already a prior sec_7217 was repealed in and replaced with sec_7431 current sec_7217 concerns unlawful influence of certain executive branch officials over audits and tax investigations regarding passage of former sec_7217 the senate_finance_committee decided to establish a civil remedy for any taxpayer damaged by an unlawful disclosure of returns or return_information s rep no pincite comprehensive and express statutory private cause of action ie sec_7217 predecessor to sec_7431 for the reasons stated above we believe that the contract between the corporation and the service the nondisclosure agreements by the experts and sec_6103 sec_7431 sec_7213 and sec_7213a are adequate protection for taxpayers and should be the exclusive means of redress for unauthorized inspection and disclosure of returns and return_information the nondisclosure agreements that taxpayers want the corporation's experts to sign do not offer any measurably greater protection to the companies than already exists under the framework provided by congress the taxpayers' proposed agreements prohibit use of confidential information by the experts beyond the limits of any examinations of tax claims as a practical matter such a prohibition is the same as that which applies to the experts under sec_6103 they may not inspect or disclose any return_information which is essentially all information of the taxpayers the experts receive beyond providing expert consulting services in furtherance of tax_administration admittedly the proposed agreements state that the taxpayers will be entitled to injunctions in the event of a breach or threatened breach of the agreements while sec_7431 does not expressly allow for injunctive relief although a court has not held that a plaintiff may obtain an injunction under sec_7431 we are aware of no court that has held that an injunction may not be obtained in addition to obtain any injunction whether to enforce a confidentiality agreement or to prevent an unauthorized disclosure of return_information a plaintiff must satisfy the same elements including an inadequate remedy at law and irreparable harm taxpayers want to provide that the expert will advise the taxpayer of all other corporation experts that are furnished such information and each of these experts will also execute a similar nondisclosure agreement with the taxpayer prior to being furnished such information we believe the same protection is provided by the existing contract and nondisclosure agreements executed by the corporation's experts the taxpayers also want the experts to be required to notify the taxpayers if an expert is requested or required to testify about confidential information and cooperate in securing a protective_order to the extent such a provision might impact or complicate the ability of an expert to testify on behalf of the service in connection with the taxpayer’s liability the provision is unacceptable to the extent an expert might be compelled to make an unauthorized disclosure of return_information while testifying in any proceeding including private litigation the service through the department of justice would seek a protective_order we also have a concern about nondisclosure agreements that potentially conflict with sec_6103 sec_6103 is both a restrictive and permissive statute while sec_6103 lays out the general_rule prohibiting the disclosure of returns and return_information subsections c through o provide exceptions permitting specific limited disclosures the nondisclosure agreements of the sort proposed by the taxpayers do not provide similar exceptions and there might be circumstances under which sec_6103 allows for a corporation expert to disclose return_information but a nondisclosure agreement with the taxpayer does not indeed there might be times when the service would want the expert to disclose return_information pursuant to a sec_6103 exception but a nondisclosure agreement is a barrier for example consider the following hypothetical situation in the course of investigating a corporate taxpayer’s taxpayer a’s claim for a tax_benefit a corporation expert who entered into a nondisclosure agreement with the taxpayer similar to those proposed by the taxpayers examined information relating to another taxpayer taxpayer b as well as taxpayer a the information has relevance to b’s entitlement to a business deduction under sec_162 of the code the information is the return_information of a because it was obtained by the service in regard to a’s tax_liability but it is not the return_information of b because it was not obtained by the service in connection with b’s liability additionally there is a transactional relationship between a and b ie b provided ancillary services to a in developing the property for which the tax_benefit was claimed the services b provided relate in part to its claimed business_expense taxpayer b is the plaintiff in a tax_court case involving the sec_162 deduction the service proposes to have the expert testify in the case and disclose a’s return_information as it relates to b’s deduction under sec_6103 such disclosure of a’s return_information would be permissible sec_6103 provides a return or return_information may be disclosed in a federal or state judicial or administrative_proceeding pertaining to tax_administration but only- c if such return or return_information directly relates to a transactional relationship between a person who is a party to the proceeding taxpayer b and the taxpayer taxpayer a which directly affects the resolution of an issue in the proceeding although sec_6103 would permit the testimony the expert could not testify without exposing himself or herself to liability under the terms of the nondisclosure agreement as proposed by the taxpayers consequently the expert might refuse to testify or otherwise make it very difficult for the service to secure his or her testimony such a situation would obviously be adverse to the service’s interests we also believe that the taxpayers' proposals could create unncessary complexity and conflict first the proposed taxpayer agreements contain provisions that will be in conflict or differ from the existing contractual provisions the existing agreements are governed by federal_law while the proposed agreements would be governed by a mix 5additionally disclosure of computer_software under these facts would be permissible under sec_7612 discussed below of various federal and state laws additionally the agreements have different terms and conditions specifically regarding periods of effectiveness and definitions these differences in the agreements will cause uncertainty and added burden were there ever an unauthorized disclosure that resulted in litigation the courts would have to determine what law applies state or federal and either reconcile the two agreements or determine that one applies and the other does not this could result in separate suits in separate courts and quite possibly inconsistent outcomes further we note that the service receives returns from millions of taxpayers from all states the service and counsel engage many experts and third-party contractors to perform its tax_administration duties if it became routine practice for a taxpayer to require all experts or third-party contractors that had access to its respective tax information to enter into a separate agreement with the taxpayer then it would severely impact the administration of the tax system taxpayers would request different provisions and request that different state law provisions apply any agreement would probably necessitate negotiation and cause delay we recognize that some taxpayers may be making this request for legitimate reasons but it also could be used to cause delay and to subvert the examination system moreover given the proper circumstances the service can summon the necessary records for its expert’s review without the need for the expert to acquiesce to taxpayer demands for various additional agreements see sec_7602 in this way there is no reason why an expert should subject itself to further liability and agree to enter into these agreements with the taxpayer doing so can only cloud the expert’s contractual relationship with the service in lieu of the expert entering into additional nondisclosure agreements with the taxpayers the service should provide a copy of the expert’s nondisclosure agreement and those contract terms dealing with disclosure and privacy to the taxpayer in order to assure the taxpayer that the corporation and the experts understand their statutory obligations regarding unauthorized inspections and disclosures


t c memo united_states tax_court carolyn rogers petitioner v commissioner of internal revenue respondent docket no filed date frank agostino brian d burton catherine engell and kathryn keneally for petitioner mimi wong lyle b press and rebekah a myers for respondent memorandum findings_of_fact and opinion colvin judge respondent determined a deficiency in income_tax and additions to tax as follows additions to tax_year deficiency sec_6651 sec_6651 sec_6654 dollar_figure dollar_figure dollar_figure dollar_figure after concessions the issues for decision are whether petitioner’s failure to timely file a income_tax return was due to reasonable_cause and not willful neglect pursuant to sec_6651 we hold that petitioner’s failure to timely file was due to reasonable_cause and not willful neglect whether petitioner’s failure to timely pay income_tax for was due to reasonable_cause and not willful neglect pursuant to sec_6651 we hold that petitioner’s failure to timely pay income_tax for was due to reasonable_cause and not willful neglect findings_of_fact petitioner resided in new york when she filed the petition petitioner was age in section references are to the internal_revenue_code as amended and in effect for the year in issue rule references are to the tax_court rules_of_practice and procedure monetary amounts are rounded to the nearest dollar a fires in petitioner’s apartment in and during petitioner resided in an apartment in a cooperative she operated a business from her apartment called talk of the town singles that assisted single people who wished to meet other singles a fire in petitioner’s apartment on date fire damaged the living room the kitchen and a walk-in closet after that fire petitioner moved out of her apartment which the fire had made uninhabitable petitioner did not conduct her home business after the fire because she no longer had a home_office or the necessary storage space a second fire damaged petitioner’s entire apartment on date fire at the time of the fire petitioner was in the apartment working by candlelight packing items to be put into storage shortly after the fire the new york city department of buildings barred her from reoccupying her apartment until it was declared safe by the department the local newspaper printed a negative article about petitioner describing her involvement in the fires subsequently she was harassed by people in her neighborhood b petitioner’s insurance coverage and claim petitioner was insured by liberty mutual at the times of the fire and the fire she received dollar_figure in payment of her claim for damages for the fire petitioner notified the insurance_company a day or two after the fire that damage had occurred in date she gave the insurance_company a list of destroyed or damaged personal_property petitioner estimates that her losses from the fire exceeded dollar_figure in petitioner received dollar_figure in payment of her claim for damages for the fire c petitioner’s circumstances from date through date petitioner lived with an acquaintance from date to date from date to date she rented a very small room with shared kitchen and bath facilities at a young women’s christian association ywca while living at the ywca petitioner had considerable difficulty dealing with the ywca board and with several other residents on occasion the police were called to resolve conflicts petitioner found living under those conditions to be dehumanizing after the fires petitioner experienced bouts of depression around date petitioner fell off a subway platform and hit her head on the subway rails fracturing her skull after her fall petitioner spent five days in a hospital in the intensive care unit medical personnel were with her continuously while she was in the hospital while there petitioner was interviewed by a psychiatrist regarding the circumstances of her fall onto the subway tracks otherwise she has not seen a doctor for emotional conditions petitioner suffered from dizzy spells after her fall d tax returns petitioner prepared and timely filed form sec_1040 u s individual_income_tax_return for tax years and petitioner knew at relevant times that tax returns are due on april of the following year in the absence of an extension that if there is an extension then the tax_return is due on october of the following year unless that date falls on a weekend or holiday and that no return is required if the taxpayer’s income for the year is below minimal amounts generally petitioner made significant efforts to correctly prepare her income_tax returns she consulted books and electronic sources describing tax rules she thought applied to her and she sometimes contacted the internal_revenue_service for information petitioner did not have an accountant or use the services of tax preparers to prepare her tax returns and returns petitioner did not claim a casualty_loss deduction relating to the fire on her or federal_income_tax return when she filed those returns she erroneously believed that her casualty_loss was not deductible until her insurance claim was settled for taxable_year petitioner paid dollar_figure of tax due as reported on her federal_income_tax return return petitioner did not file a form_1040 for petitioner believed that after taking into account her deductible casualty_loss she was not required to file an income_tax return for on date respondent prepared a substitute for return for petitioner’s tax_year pursuant to sec_6020 for respondent prepared a form sec_6020 certification and attached the documents referenced by that form e settlement of the casualty_loss issue after filing the petition petitioner met with respondent in an effort to settle the case petitioner realized that she had erred regarding the year of deduction of her casualty_loss and she settled that issue except for the additions to tax at issue here opinion the issues for decision are whether petitioner is liable for an addition_to_tax for failure to timely file under sec_6651 and an addition_to_tax for failure to timely pay under sec_6651 a failure_to_file sec_6651 imposes an addition_to_tax for failure to timely file a required tax_return sec_7491 places on the commissioner the burden of producing evidence of liability for additions to tax to meet that burden the commissioner must produce evidence showing that it is appropriate to impose that particular addition_to_tax but the commissioner need not produce evidence relating to defenses such as reasonable_cause or substantial_authority 116_tc_438 h_r conf rept no pincite 1998_3_cb_747 respondent has met the burden of production with respect to this addition_to_tax because petitioner was required to timely file but did not file a return for once the commissioner meets the burden of production the taxpayer must in order to avoid liability for additions to tax produce evidence that the commissioner’s determination is incorrect eg that the failure was due to reasonable_cause and not willful neglect sec_6651 469_us_241 higbee v commissioner t c pincite h_r conf rept no supra pincite c b pincite reasonable_cause exists if the taxpayer exercised ordinary business care and prudence but nevertheless could not file or pay the tax when due boyle u s pincite 93_tc_462 w illfull neglect means a conscious the record establishes that petitioner’s income exceeded the income threshold for nonfilers for see sec_6012 intentional failure or reckless indifference boyle u s pincite the delay is due to reasonable_cause if the taxpayer exercised ordinary business care and prudence and was nevertheless unable to file the return within the prescribed time see sec_1 c income_tax regs petitioner correctly handled her tax filings and payments before petitioner testified that her losses from the fire exceeded dollar_figure she also testified that she believed her loss was deductible for the year she settled the insurance claim and that her casualty_loss to the extent not compensated by insurance more than offset her income obviating the requirement that she file a return we have found taxpayers liable for the failure to timely file addition_to_tax where the taxpayer was functioning at a very high level in a business endeavor 88_tc_1175 26_tc_528 aff’d 243_f2d_954 4th cir 25_tc_13 watts v commissioner tcmemo_1999_416 wright v commissioner tcmemo_1998_224 aff’d 173_f3d_848 2d cir and where the taxpayer’s failure_to_file late filing or late payment of tax was chronic 88_tc_1175 ruggeri v commissioner tcmemo_2008_300 joye v commissioner tcmemo_2002_14 we have also found taxpayers not liable for the addition_to_tax for failure to timely file where illness or family hardship effectively prevented timely filing of a tax_return tabbi v commissioner tcmemo_1995_463 harris v commissioner tcmemo_1969_49 those cases are instructive but not controlling because the result in each case depends on all of the facts and circumstances one of the facts and circumstances meriting consideration here is precisely what the error was that petitioner made which led her to believe she was not required to file a return that error related to the question of the proper timing of her casualty_loss deduction resulting from the fire at the time her return was due petitioner believed the loss was deductible for because that was the year her claim was resolved if an insurance claim is not paid in the year of the loss and the taxpayer has a reasonable_prospect_of_recovery the deduction for the loss is deferred until it can be ascertained whether such reimbursement will be received sec_1_165-1 income_tax regs however if or to the extent there is no reasonable prospect for compensation_for the loss through insurance the loss is deductible for the year incurred sec_165 sec_1_165-1 and iii income_tax regs the parties’ settlement of this issue suggests that there was no reasonable_prospect_of_recovery of a portion of the loss under petitioner’s insurance_policy petitioner’s error regarding the proper year of deduction of the portion of a casualty_loss for which there is no prospect of recovery from insurance is considerably different from the errors made by a taxpayer whose failure_to_file late filing or late payment is chronic erroneously deducting a loss in a year later than the correct year is not usually considered to be a blatant tax_avoidance technique especially compared with chronic failure_to_file tax returns petitioner’s life was in a state of upheaval after the second fire and through the period when the return was due she was barred from reoccupying her apartment and during the times relevant to the return she was living under conditions she found to be dehumanizing at a ywca later she experienced bouts of depression a fall from a subway platform in and a skull fracture she was subject_to continuous monitoring and psychiatric examination while hospitalized she did not resume conduct of the business she had operated from her apartment talk of the town singles her living conditions and the resulting bouts of depression make reasonable her not understanding the correct year of deduction taking into account all of the facts and circumstances we conclude that petitioner exercised ordinary business care and prudence under the difficult circumstances in which she was living at the time leading up to the due_date of her return and that her error claiming a deduction for a year later than the current_year did not constitute a conscious intentional failure or reckless indifference to her tax filing obligations for b failure to pay sec_6651 provides for an addition_to_tax where there is a failure to timely pay the amount of tax shown on a return a substitute for return properly prepared by the secretary under sec_6020 is treated as the return filed by the taxpayer for purposes of determining an addition_to_tax under sec_6651 sec_6651 the substitute for return meets the requirements of sec_6020 respondent has met the burden of production under sec_7491 by producing evidence showing that petitioner was required to but did not timely pay tax for thus to prevail petitioner must show that her failure to timely pay was due to reasonable_cause and not willful neglect the reasonable_cause standard under sec_6651 is given an analysis similar to that under sec_6651 see russell v commissioner tcmemo_2011_81 slip op pincite the court’s analysis in boyle addressed penalties for failure_to_file tax returns under sec_6651 the language concerning the standard for failure_to_file a return is identical to the language in sec_6651 and sec_6656 for failure to pay and to deposit we see no reason why the court’s analysis under sec_6651 should not guide our analysis of sec_6651 and sec_6656 quoting e wind indus inc v united_states 193_f3d_499 n 3d cir see also 164_f3d_814 n 2d cir while the analysis in boyle addressed penalties for failure_to_file a return under sec_6651 and not for a failure to pay or deposit taxes under sec_6651 or sec_6656 the language concerning the standard is identical in all three provisions unless otherwise noted therefore we shall inform our analysis of sec_6651 and sec_6656 with those precedents that address sec_6651 90_f3d_1190 n 6th cir same therefore for the reasons stated above in our discussion of the addition_to_tax under sec_6651 we hold that petitioner is not liable for the addition_to_tax under sec_6651 for failure to pay timely the tax due for to reflect the foregoing decision will be entered under rule


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi 1-plr-102174-02 date date legend x a b d1 d2 p1 p2 p3 p4 p5 p6 p7 p8 p9 p10 p11 p12 p13 p14 plr-102174-02 p15 p16 p17 p18 p19 a b dear this responds to your letter dated date submitted on behalf of x requesting a ruling that the rental income received by x in the course of its operations from the properties p1 through p19 is not passive_investment_income within the meaning of sec_1362 of the internal_revenue_code facts x made an election to be treated as an s_corporation effective as of d1 under sec_1362 p1 through p16 are owned by partnerships in which x is a general_partner p17 is partially owned by x as a tenant in common p18 and p19 are wholly owned by x x employs a to manage p1-p5 p7 p8 p10 and p13-p19 in addition a employs b to provide services for p6 p9 p11 and p12 the services provided by a and b include but are not limited to periodic inspection repair and maintenance of roofs foundations plumbing electrical systems heating air conditioning systems interior and exterior walls including painting of walls and trims maintenance and repair of parking and pavement spaces landscape maintenance repair and supervision of contractors including mowing trimming shrubbery maintenance seasonal flowers and sprinklers periodic inspection for decay dry rot insect termite and other pest damage telephone services and other electronic equipment and services for use of tenants periodic inspection and maintenance of fire alarm sprinkler system and security system engagement and supervision of contracted janitorial and cleaning services inspection repair and maintenance of exterior signs security guards for building and tenants maintenance of fire and extended coverage insurance on premises resolution of tenant complaints garbage collection and water services collection of rents seasonal decoration and displays for plr-102174-02 building on holidays solicitation of tenants maintenance of lease files negotiation of leases or consultation with leasing agents and review of property expenses and preparation of property reports x performs the following operational and managerial tasks x reviews daily cash flows reviews monthly operational and financial statements for each property discusses with property management all exceptions noted on operational statements and details on all rental activities approves large expenditures reviews summarization of monthly cash transfer activity between properties assists in routine accounting and tax matters including preparation of fixed asset records and depreciation schedules for properties and the majority of partnership tax returns obtains financing and refinancing for properties facilitates annual appraisal of properties reviews liability and property insurance coverage and terms participates in the resolution of any legal matters that arise in connection with the properties assists in strategic planning involving the properties and the partnership holdings participates in decisions on all significant rental activities including review of all purchases sales and exchanges and the relevant documents for the tax_year ending d2 x received dollar_figurea in rental income and paid_or_incurred dollar_figureb in relevant operating_expenses law and analysis except as provided in sec_1362 sec_1362 provides that a small_business_corporation may elect in accordance with the provisions of sec_1362 to be a subchapter_s_corporation sec_1362 provides that an election under sec_1362 terminates whenever the corporation i has accumulated_earnings_and_profits at the close of each of three consecutive tax years and ii has gross_receipts for each of such tax years more than percent of which are passive_investment_income sec_1375 imposes a tax on the income of an s_corporation if the s_corporation has accumulated_earnings_and_profits at the close of such taxable_year and gross_receipts more than percent of which are passive_investment_income sec_1362 provides that except as otherwise provided the term passive_investment_income means gross receipt derived from royalties rents dividends interest annuities and sales or exchanges of stock_or_securities sec_1_1362-2 of the income_tax regulations provides that rents means amounts received for_the_use_of or the right to use property whether real or personal of the corporation sec_1_1362-2 provides that rents does not include rents derived in the active trade_or_business of renting property rents received by a plr-102174-02 corporation are derived in an active trade_or_business of renting property only if based on all the facts and circumstances the corporation provided significant services or incurs substantial costs in the rental business generally significant services are not rendered and substantial costs are not incurred in connection with net leases whether significant services are performed or substantial costs are incurred in the rental business is determined based upon all the facts and circumstances including but not limited to the number of persons employed to provide the services and the types and amounts of costs and expenses_incurred other than depreciation conclusion based solely on the facts as presented in this ruling_request and viewed in light of the applicable law and regulations we conclude that the rents x receives from the rental of the properties p1 through p19 are not passive_investment_income under sec_1362 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts of this case under any other provision of the code specifically no opinion is expressed concerning whether x otherwise satisfies the s_corporation eligibility requirements under sec_1361 further the passive_investment_income rules of sec_1362 are completely independent of the passive_activity rules of sec_469 unless an exception under sec_469 applies the rental_activity remains passive for purposes of sec_469 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 the taxpayer sincerely carolyn gray acting assistant to the branch chief branch office of associate chief_counsel passthroughs and special industries


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 b04 plr-114097-15 date september legend decedent date spouse date -------------------------------------------------------- ---------------------- ------------------------ ----------------------- dear -------------- this letter responds to your personal representative’s letter of date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to file a form_706 united_states estate and generation-skipping_transfer_tax return to make the election under sec_2010 of the internal_revenue_code code portability election to allow a decedent’s surviving_spouse to take into account that decedent’s deceased spousal unused exclusion dsue amount the facts and representations submitted are as follows decedent died on date survived by spouse date is a date after the effective date of the amendment to sec_2010 which provides for portability of a dsue amount to a surviving_spouse to obtain the benefit of portability of decedent’s dsue amount to spouse decedent’s estate was required to file form_706 united_states estate and generation-skipping_transfer_tax return on or before the date that is months after decedent’s date of death or the last day of the period covered by an extension the estate did not file a form_706 to make the portability election the estate discovered its failure to elect portability after the due_date for making the election on date spouse died the executor of spouse’s estate represents that the value of decedent’s gross_estate is less than the basic exclusion amount in the year of the decedent’s death and plr-114097-15 that during his lifetime decedent made no taxable_gifts executor of spouse’s estate requests an extension of time pursuant to sec_301_9100-3 to elect portability of decedent’s dsue amount pursuant to sec_2010 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2010 provides that a credit of the applicable credit_amount shall be allowed to the estate of every decedent against the tax imposed by sec_2001 sec_2010 provides that the applicable credit_amount is the amount of the tentative_tax that would be determined under sec_2001 if the amount with respect to which such tentative_tax is to be computed were equal to the applicable_exclusion_amount on date congress amended sec_2010 effective for estates of decedents dying and gifts made after date to allow portability of a decedent’s unused applicable_exclusion_amount between spouses tax relief unemployment insurance reauthorization and job creation act of pub_l_no sec_303 124_stat_3296 sec_2010 provides that the applicable_exclusion_amount is the sum of the basic exclusion amount and in the case of a surviving_spouse the dsue amount sec_2010 generally provides that the basic exclusion amount is dollar_figure to be adjusted for inflation annually after calendar_year sec_2010 defines the dsue amount to mean the lesser_of a the basic exclusion amount or b the excess of -- i the applicable_exclusion_amount of the last deceased spouse of the surviving_spouse over ii the amount with respect to which the tentative_tax is determined under sec_2001 on the estate of such deceased spouse sec_2010 provides that a dsue amount may not be taken into account by a surviving_spouse under sec_2010 unless the executor of the estate of the deceased spouse files an estate_tax_return on which such amount is computed and makes an election on such return that such amount may be so taken into account the election once made shall be irrevocable no election may be made if such return is filed after the time prescribed by law including extensions for filing such return sec_2010 provides that the secretary shall prescribe regulations as may be necessary or appropriate to implement sec_2010 plr-114097-15 sec_20_2010-2t a of the estate_tax regulations as in effect on date provides that to allow a decedent’s surviving_spouse to take into account that decedent’s dsue amount the executor of the decedent’s estate must elect portability of the dsue amount on a timely-filed form_706 under sec_20_2010-2t a the due_date of an estate_tax_return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been granted under sec_20_2010-2t a the portability election is made by timely filing a complete and properly prepared estate_tax_return unless the executor satisfies the requirements for the election not to apply in sec_20_2010-2t a i sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that the term statutory election means an election whose due_date is prescribed by statute the term regulatory election means an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute a request for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election the due_date for the portability election is prescribed by statute in the case of an estate required to file an estate_tax_return under sec_6018 see sec_2010 sec_6075 and sec_6018 in the case of an estate that is not required to file an estate_tax_return under sec_6018 the due_date is prescribed by regulation see sec_20_2010-2t a see also sec_20_2010-2 and revproc_2014_18 2014_7_irb_513 sec_2 accordingly in the latter case a taxpayer may seek an extension of time to elect portability under the provisions of sec_301_9100-3 plr-114097-15 sec_6018 requires the filing of an estate_tax_return in all cases where the gross_estate exceeds the basic exclusion amount in effect under sec_2010 for the calendar_year which includes the date of death for purposes of this determination under sec_6018 the basic exclusion amount is reduced but not below zero by the sum of a the amount of the adjusted_taxable_gifts within the meaning of sec_2001 made by the decedent after date plus b the aggregate amount allowed as a specific exemption under sec_2521 as in effect before its repeal by the tax reform act of with respect to gifts made by the decedent after date the executor represents that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is not required to file an estate_tax_return under sec_6018 under these facts the commissioner has discretionary authority under sec_301 to grant to decedent’s estate an extension of time to elect portability based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly we grant an extension of time of days from the date of this letter in which to elect portability under sec_2010 the election should be made by filing a complete and properly-prepared form_706 and a copy of this letter within days from the date of this letter to the cincinnati service_center at the following address internal_revenue_service cincinnati service_center stop cincinnati oh for purposes of electing portability a form_706 filed by decedent’s estate within days from the date of this letter will be considered to be timely filed 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 if it is later determined that based on the value of the gross_estate and taking into account any taxable_gifts decedent’s estate is required to file an estate_tax_return pursuant to sec_6018 the commissioner is without authority under sec_301_9100-3 to grant to decedent’s estate an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-114097-15 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely associate chief_counsel passthroughs special industries by ____________________________ lorraine e gardner senior counsel branch office of the associate chief_counsel passthroughs special industries enclosure copy for sec_6110 purposes copy of this letter ----------------------------------- ------------------------------------------ -------------------------------------------------- --------------------------------- -------------------------------------------------- ------------------------------------------- ---------------------------- ----------------------------------- ---------------------------- ---------------------------------------------


department of the treasury internal_revenue_service washington d c t a x e x e m p t a 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 date toll free contact number accounting_period ending advance_ruling ending date employer_identification_number person to contact and id number date date number release date uil legend a b c m n w x date date year dear a this is in response to your request for an advance_ruling pursuant to sec_1_507-2 of the income_tax regulations pertaining to your proposed termination of private_operating_foundation status pursuant to the provisions of sec_507 of the internal_revenue_code facts you have filed an appropriate consent under sec_6501 of the code to extend the period of limitation of assessment of tax due under sec_4940 of the code you have notified exempt_organizations determinations that you will begin a 60-month termination of your private_operating_foundation status on date beginning on this date and for a continuous 60-month period thereafter you expect to operate as a non-private foundation as described in sec_509 and sec_170 of the code to do this you state that you will operate in the manner specified below you are an organization described in sec_501 of the internal_revenue_code and are classified as a private_operating_foundation under sec_4942 of the code you were established in year in the state of m for the purpose of providing social and recreational programs for youth to promote the health physical social educational vocational character and leadership of the youth membership today you offer classes for preschool children through adults as well as summer camp academic educational physical and recreational activities your activities include among others leadership social development and teamwork training exercises computer classes dance art and music lessons athletic activities cooking and sewing classes and family-oriented events you were initially funded and the main facility was contributed by members of the b family over the years you were funded primarily by c an exempt_private_foundation described in sec_501 of the code and nominally from amounts charged to the youth membership for participation in your activities fees are set at an amount that permits maximum participation in activities by low income members in the recent past you hired a director of development and implemented a development program as a result your current and anticipated funding sources include in addition to c contributions from corporations government agencies private_foundations and individual supporters you expect development activities to continue to expand and continue to seek additional funding sources amounts charged to the youth membership for participation in activities weekly dues and additional fees to cover costs for some programs remain nominal your board_of directors consists of w individuals representing the greater n community including individuals with significant experience in education social work and youth services two of the board members were formerly or are currently employed by organizations affiliated with the b family you anticipate that the board composition in addition to the increased development will generate significant support from the public during and after the 60-month period that begins on date and ends on date you state that you expect to receive at least of your support from public sources and that your main sources of support will be from contributions from corporations government agencies private_foundations and individual supporters ruling requested you are requesting the ruling that as contemplated by sec_1_507-2 of the income_tax regulations you can be expected to satisfy the requirements of sec_507 of the code during the 60-month termination period law sec_507 of the internal_revenue_code provides generally that the status as a private_foundation of any organization shall be terminated if i the organization meets the requirements of paragraph or of sec_509 for a continuous period of calendar months beginning with the first day of any taxable_year which begins after date ii the organization notifies the secretary before the commencement of the 60-month period that it is terminating its private_foundation_status and iii the organization establishes to the satisfaction of the secretary immediately after the expiration of the 60-month period that it has complied with clause i of sec_507 of the code sec_509 of the code provides in part that the term private_foundation includes 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_1_507-2 of the regulations provides that an organization which files the notification required by sec_507 of the code that it is commencing a 60-month termination may obtain an advance_ruling from the commissioner that it can be expected to satisfy the requirements of sec_507 during the 60-month period such an advance_ruling may be issued if the organization can reasonably be expected to meet the requirements of sec_507 during the 60-month period the issuance of the ruling will be discretionary with the commissioner sec_1_507-2 of the regulations provides that in determining whether an organization can reasonably be expected to meet the requirements of sec_507 of the code for the 60-month period the basic consideration is whether its organizational structure taking into account any revisions made prior to the beginning of the 60-month period proposed programs or activities intended method of operation and projected sources of support are such as to indicate that the organization is likely to satisfy the requirements of sec_509 or and sec_1_507-2 of the regulations during the 60-month period in making such a determination all pertinent facts and circumstances shall be considered sec_1_507-2 of the regulations provides that for the purposes of sec_170 sec_545 sec_642 sec_2055 sec_2106 sec_2522 sec_4942 and sec_4945 grants or contributions to an organization which has obtained an advance_ruling pursuant to this paragraph will be treated as made to an organization described in sec_509 or as the case may be until notice that such advance_ruling is being revoked is made to the public such as by publication in the internal_revenue_bulletin the preceding sentence shall not apply however if the grantor or contributor was responsible for or aware of the act or failure to act that resulted in the organization’s failure to meet the requirements of sec_509 or of the code or acquired knowledge that the internal_revenue_service had given notice to such organization that its advance_ruling would be revoked sec_1_507-2 of the regulations provides that an organization obtaining an advance_ruling pursuant to this paragraph cannot rely on such a ruling therefore if the organization does not pay the tax imposed by sec_4940 of the code for any taxable_year or years during the 60-month period and it is later determined that such tax is due for such year the organization is liable for interest analysis pursuant to sec_1_507-2 of the regulations you filed the notification required by sec_507 of the code that you are commencing a 60-month termination of your private_foundation_status and may therefore obtain an advance_ruling that you can reasonably be expected to satisfy the requirements of sec_507 during the 60-month period pursuant to sec_1_507-2 of the regulations you have stated that during the 60-month termination period you will expand your development efforts such that you expect to normally receive a substantial percentage at least and based on recent years over x of your support from corporations government agencies private_foundations and individual supporters continue to be organized and operated so as to attract new and additional public and governmental support through a continuous and bona_fide program for solicitation of funds through your development activities continue the public nature of your operations as you have since year which insures broad and loyal public support maintain a board_of directors that represents the broad interests of the greater n m community and continue to maintain your facilities for public access and enjoyment including charging nominal fees so that membership is available to a broad cross-section of youth and the public has tremendous access to your resources on a continuous basis conclusion based on the information submitted we rule as follows under sec_1_507-2 and of the regulations taking into account your organizational structure proposed programs or activities intended method of operation and projected sources of support you can reasonably be expected to satisfy the requirements of sec_507 of the code during the 60-month period beginning date within days after the end of your month period you must establish to the satisfaction of the internal_revenue_service that you have qualified as an organization which meets the requirements of paragraph or of sec_509 of the code for the month period if you do establish that fact you will be so classified for all purposes beginning with the first day of the first taxable_year of the month period and thereafter so long as you continue to meet the requirements of sec_509 or if however you do not meet these requirements for the month period you will be classified as a private_foundation as of the first day of the first taxable_year of the month period pursuant to sec_1_507-2 of the regulations for the purposes of sec_170 sec_545 sec_642 sec_2055 sec_2106 sec_2522 sec_4942 and sec_4945 of the code grants or contributions to you as an organization which has obtained this ruling will be treated as made to an organization described in sec_509 until notice that such advance_ruling is being revoked is made to the public such as publication in the internal_revenue_bulletin the preceding sentence shall not apply however if the grantor or contributor was responsible for or aware of the act or failure to act that resulted in your failure to meet the requirements of sec_170 of the code or acquired knowledge that the service had given notice to you that your advance_ruling would be revoked pursuant to the provisions of sec_1_507-2 of the regulations you cannot rely on this ruling to avoid the imposition of tax under sec_4940 of the code consequently if you do not pay the tax imposed by sec_4940 of the code for any taxable_year or years during the 60-month period and it is subsequently determined that such tax is due for such year or years because you did not in fact complete a successful termination pursuant to sec_507 and were not treated as an organization described in sec_170 of the code for such year or years you will be liable for interest in accordance with sec_6601 for any amount of tax under sec_4940 which has not been paid on or before the last date prescribed for payment however since any failure to pay such tax during the 60-month period or period prior to the revocation of this ruling would be due to reasonable_cause the penalty under sec_6651 with respect to the tax imposed by sec_4940 shall not apply if you fail to satisfy the requirements of sec_170 of the code for the continuous 60-month period but satisfy the requirements of sec_170 for any taxable_year or years during such 60-month period you will be treated as a public charity exempt under that section only for such taxable_year or years grants or contributions made to you during such taxable_year or years shall be treated as made to a sec_509 organization as described in sec_170 of the code in addition sec_507 through and chapter shall not apply to you for any taxable_year within such 60-month period for which you meet the requirements of sec_170 even though you are treated as a non-private foundation for some purposes pursuant to sec_6033 of the code you are still required to file annual return form_990-pf return of private_foundation page of form_990-pf has a block to indicate that you are in the process of terminating your private_foundation_status you should attach a copy of this ruling to each 990-pf you file during the 60-month period of your termination in the event you supply eo determinations within days after the expiration of your 60-month termination period with information that shows the termination was effective then you should file form_990 for the final year of the termination period this applies even if eo determinations has not yet affirmed that you have appropriately terminated your private_operating_foundation status by the time the return for the final year of termination is due this ruling is based on the understanding there will be no material changes in the facts upon which it is based any changes that may have a bearing upon your tax status should be reported to the service 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 that it may not be used or cited by others as precedent this ruling will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice because this letter could help resolve any future questions about tax consequences of your activities you should keep a copy of this ruling in your permanent records 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 and declaration of representative currently on file with the service we are sending a copy of this letter to your authorized representative enclosures notice debra j kawecki manager exempt_organizations technical group form 872-c sincerely


department of the treasury internal_revenue_service 4923chi simpson s dearborn street chicago il date number release date uil tax_year s ended taxpayer’s name taxpayer_identification_number taxpayer’s address form certified mail - return receipt requested dear ---- this is our final adverse determination_letter as to your exempt status under sec_501 of the internal_revenue_code our adverse determination was made because for the year s of the examination you did not qualify for exempt status under sec_501 of the internal_revenue_code your exempt status is revoked effective date you have agreed to this revocation which is based upon a technical_advice_memorandum tam dated date we have enclosed a copy of the tam further explaining why we believe an adjustment of your organization’s exempt status is necessary we have also enclosed publication exempt_organization appeal procedures for unagreed issues and publication the examination process these publications include information on your rights as a taxpayer they explain appeal rights and the procedure for obtaining technical_advice because this case involves exemption under sec_501 you cannot contest the adverse determination in a declaratory_judgment action under sec_7428 you can however contest the revocation of exempt status in the context of any related deficiency case involving adjustments that flow from the loss of exemption thus you may file suit in united_states tax_court the united_states court of federal claims or united_states district_court from any deficiency_notice issued in this case or a related case after satisfying procedural and jurisdictional requirements as described in publications and you are required to file federal_income_tax returns for the tax period s shown above for all years still open under the statute_of_limitations and for all later years file the federal tax_return for the tax period s shown above with the ogden service_center within days from the date of this letter unless a request for an extension of time is granted file returns for later tax years with the appropriate service_center indicated in the instructions for those returns you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at taxpayer_advocate office room stop 1005-chi chicago il fax if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation enclosures publication publication technical_advice_memorandum r c johnson director eo examinations sincerely


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 tege eoeg e01 plr-t-103499-15 date date legend college trust agreement x l l dear this letter responds to a letter from your authorized representative dated date and subsequent correspondence requesting a ruling that the contractual arrangement described below will not generate unrelated_business_taxable_income to college college represents the facts as follows plr-t-103499-15 facts college is an educational_institution recognized as a tax-exempt_organization described in sec_501 and sec_170 of the internal_revenue_code_of_1986 as amended the code college maintains an endowment comprised of privately raised moneys which was established to provide economic resources for its educational activities the endowment is heavily diversified in both domestic and international markets and utilizes alternative investment strategies to reduce the overall risk of the portfolio and to enhance investment returns much of the income earned by the endowment consists of passive dividends interest rents and long- and short-term_capital_gains but some income is debt-financed or otherwise is treated as unrelated_business_taxable_income within the meaning of sec_512 of the code college uses a unit concept as a financial recordkeeping device for various college funds each fund is allocated a certain number of units of the endowment the value of each unit is determined by dividing the total value of the endowment by the number of outstanding units each fund is entitled to a periodic_payment based on the number of units owned and the annual spending rate college sets the spending rate to provide a responsible annual contribution to operations and provide a measure of protection against declining returns college’s spending policy provides that income distributed per unit will typically increase by y annually as long as the resulting spending rate is more than y and less than z of the endowment market_value trust is a charitable_remainder_unitrust described in sec_664 of the code college is the sole charitable_remainder beneficiary under the terms of the trust agreement trust’s donor is entitled to an annual payout of a unitrust_amount equal to a percentage of the net fair_market_value of trust’s assets see sec_664 the remainder_interest in trust will be distributed to college as the remainder beneficiary upon the death of the donor presently trust’s assets are invested in mutual funds managed by x college will become the sole trustee of trust prior to the exchange of assets for units in its capacity as trustee college will want to achieve greater economies of scale in the management of trust’s assets a higher and more stable investment return and a greater diversification of investment to this end as trustee college will propose to enable trust to participate indirectly in the return on college’s endowment by entering into the agreement that will provide for the exchange of trust assets for units with respect to the endowment the number of units trust will receive will be in proportion to the value of trust’s investment with respect to the endowment at the time of the issuance of the units each unit will give trust a contractual right to receive periodic_payments based on the number of units owned multiplied by the same spending rate that college uses to fund its various college funds as described above the contract will provide that trust plr-t-103499-15 can choose to either reinvest part of the periodic_payments in additional units or redeem units depending on trust’s cash requirements for meeting its minimum distribution the value of the units both at the time of acquisition and redemption will be based on the value of all underlying investment_assets held in the endowment under the contract trust will have no ownership_interest in the underlying assets of the endowment and no contractual rights with respect to other trusts also invested in units with respect to the endowment all endowment investments will continue to be made in college’s name and for college’s benefit except for the right to review the payout computation trust will have no power or right of any kind to control direct supervise recommend or review college’s business activities operations or decisions with respect to the endowment trust will not have the right to veto or opt_out of any of the underlying endowment investments when decisions are made by college regarding the endowment investments college will not be acting in its capacity as trustee of trust the contract will provide that with respect to the issuance of units college is neither a partner nor an agent of trust trust will not be or become liable for any cost expense or payment incurred or due by college or for which college is liable or responsible relating to the endowment or the underlying endowment assets other than bearing its allocable portion of the costs of management as described below college will indemnify and hold trust harmless from and against any liability arising out of any_action or inaction by college with respect to the endowment or the underlying assets college also will pay any_tax owed on unrelated_business_taxable_income earned by the endowment’s portfolio college represents that it will not assess a trustee’s fee or any other charges for its services as trustee of the trust however it may recover actual costs of administration of the trust in addition college expects to recover its actual costs of management of the endowment including the actual costs of management of trust assets as a charge against the total investment return of the endowment these costs will decrease the value of trust’s units trust is representative of a number of charitable_remainder trusts with respect to which college has and will have the sole charitable_remainder interest and for which college will be the trustee college will make units available to these trusts on the same terms as described in this letter for trust similarly college represents that it will not assess a trustee’s fee or any other charge for the administrative services it will provide as trustee of any of these trusts law and analysis sec_501 of the code in part describes as exempt from federal_income_tax entities organized and operated exclusively for charitable educational scientific and certain other purposes plr-t-103499-15 sec_511 of the code in part imposes a tax on the unrelated_business_taxable_income of organizations described in sec_501 of the code sec_512 of the code defines the term unrelated_business_taxable_income as the gross_income derived by any organization from any unrelated_trade_or_business regularly carried on by it less the allowable deductions which are directly connected with the carrying on of such trade_or_business both computed with the modifications provided in sec_512 of the code 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 the organization for income or funds or the use it makes of the profits derived to the exercise or performance by such organization of its exempt_purpose or function sec_513 of the code provides that the term trade_or_business includes any activity which is carried on for the production_of_income from the sale_of_goods or the performance of services an activity does not lose its 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 purposes of the organization sec_664 of the code defines a charitable_remainder_unitrust as a_trust a from which a fixed percentage which is not less than percent nor more than percent of the net fair_market_value of its assets valued annually is to be paid not less often than annually to one or more persons at least one of which is not an organization described in sec_170 of the code and in the case of individuals only to an individual who is living at the time of the creation of the trust for a term of years not in excess of years or for the life or lives of such individual or individuals b from which no amount other than the payments described in subparagraph a and other than qualified gratuitous transfers described in subparagraph c may be paid to or for_the_use_of any person other than an organization described in sec_170 of the code c following the termination of the payments described in subparagraph a the remainder_interest in the trust is to be transferred to or for_the_use_of an organization described in sec_170 of the code or is to be retained by the trust for such a use and d with respect to each contribution of property to the trust the value determined under sec_7520 of the code of such remainder_interest in such property is at least percent of the net fair_market_value of such property as of the date such property is contributed to the trust sec_1_513-1 of the income_tax regulations regulations includes gross_income of an exempt_organization subject_to the tax imposed by sec_511 of the code in the computation of unrelated_business_taxable_income if it is income from a trade_or_business such trade_or_business is regularly carried on by the organization 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 plr-t-103499-15 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 of the code and generally includes any activity carried on for the production_of_income from the sale_of_goods or performance of services sec_1_513-1 of the regulations provides that in determining whether a trade_or_business from which a particular amount of gross_income derives is regularly carried on within the meaning of sec_512 of the code regard must be had to the frequency and continuity with which the activities productive of the income are conducted and the manner in which they are pursued sec_1_513-1 of the regulations provides that in general gross_income derives from an unrelated_trade_or_business within the meaning of sec_513 of the code if the conduct of the trade_or_business which produces the income is not substantially related other than through the production of funds to the purposes for which exemption is granted this requirement necessitates an examination of the relationship between the business activities which generate the particular income in question - the activities of producing and distributing the goods or performing the services involved - and the accomplishment of the organization’s exempt purposes sec_1_513-1 of the regulations provides that a trade_or_business is related to exempt purposes in the relevant sense only where the conduct of the business activities has a causal relationship to the achievement of exempt purposes other than through the production_of_income and is substantially related for purposes of sec_513 of the code only if the causal relationship is a substantial one whether activities productive of gross_income contribute importantly to the accomplishment of any purpose for which an organization is granted exemption depends in each case upon the facts and circumstances revrul_69_528 1969_2_cb_127 describes an organization that was formed to provide investment services on a fee basis exclusively to organizations exempt under sec_501 of the code the organization received funds from unrelated exempt_organizations and invested the proceeds in stocks reinvested the income and realized appreciation and upon request liquidated participant's interests and distributed the proceeds to the participant the service held that providing investment services on a regular basis for a fee is a trade_or_business ordinarily carried on for profit the service further held that the activity would constitute an unrelated_trade_or_business even if the services were regularly provided by one tax-exempt_organization for other tax-exempt organizations thus the service concluded that the organization was not tax exempt under sec_501 of the code because it was regularly carrying on a business of providing investment services that would be an unrelated_trade_or_business if carried on by any of the tax-exempt organizations on whose behalf it operated plr-t-103499-15 an organization described in sec_501 of the code is subject_to the tax imposed by sec_511 of the code on its unrelated_business_taxable_income as defined in sec_512 of the code see sec_511 and generally gross_income of an exempt_organization is includible in the computation of unrelated_business_taxable_income if is it 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 see sec_1_513-1 college has represented that it will not charge a fee for the investment services it provides to trust or other similarly situated charitable_remainder trusts although trust will indirectly bear its proportional costs that college incurs in administering the endowment college is not pursuing income by providing services to trust by issuing units making and receiving payments with respect to the units and redeeming units college’s situation is also distinguishable from the entity in revrul_69_528 which provided investment services on a regular basis for a fee the service held that activity to be a trade_or_business carried on for profit and found that it was unrelated to the entitiy’s exempt_purpose because the services were provided to unrelated organizations even though the services were regularly provided by one tax-exempt_organization for the benefit of other tax-exempt organizations college represents that it will not charge any fees for the investment services it proposes to provide to trust or to other trusts rather college will only recover the actual costs of managing its endowment and administrating the trust therefore college’s services provided under the contractual arrangement as represented will not arise to a trade_or_business within the meaning of sec_513 of the code and will not generate unrelated_business_taxable_income conclusion based solely on the facts and representations submitted we rule that the contractual arrangement described herein under which the college will issue units to the trust in exchange for the assets of the trust make payments on the units and receive payments to cover costs allocable to the management of the trust assets will not generate unrelated_business_taxable_income to college the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an individual with authority to bind the taxpayer this office has not verified any of the material submitted in support of the request for rulings and such material is subject_to verification on examination plr-t-103499-15 no ruling is granted as to whether college qualifies as an organization described in sec_501 of the code and except as expressly provided above no opinion is expressed or implied concerning the federal_income_tax consequences of any other aspects of any transaction or item_of_income set forth in the ruling letter this ruling letter is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely mary jo salins acting branch chief exempt_organizations branch tax exempt government entities


t c memo united_states tax_court christy lyn godsey petitioner v commissioner of internal revenue respondent docket no filed date bryant t hinkley for petitioner jeri l acromite and miles b fuller for respondent memorandum findings_of_fact and opinion foley judge after concessions the issue for decision is whether petitioner may change her filing_status from head_of_household to married_filing_jointly findings_of_fact during petitioner was married to and living with james godsey who did not receive income or file a tax_return relating to petitioner timely filed her form 1040a u s individual_income_tax_return and mistakenly claimed head_of_household filing_status in a notice_of_deficiency issued on date respondent determined petitioner was not entitled to head_of_household filing_status and recalculated her tax_liability pursuant to single tax_rates petitioner while residing in utah timely filed a petition with the court on date in which she sought to change her filing_status to married_filing_jointly opinion petitioner meets the married_filing_jointly status requirements does not meet the head_of_household or single filing_status requirements and thus is entitled to married_filing_jointly status see sec_1 788_f3d_834 8th cir holding that a married taxpayer who erroneously filed a head_of_household return could file jointly rev’g and remanding tcmemo_2014_8 camara v commissioner t c ___ ___ slip 1unless otherwise indicated all section references are to the internal_revenue_code relating to the year in issue and all rule references are to the tax_court rules_of_practice and procedure op pincite date stating that a married taxpayer may correct a single or head_of_household filing_status claimed in error contentions we have not addressed are irrelevant moot or meritless to reflect the foregoing decision will be entered under rule