office_of_chief_counsel internal_revenue_service memorandum number release date cc psi b06 postf-145881-14 uilc date date to carol b mcclure associate area_counsel houston group large business international bettina nadler general attorney houston group large business international from brenda m stewart senior counsel branch passthroughs special industries subject treatment under sec_167 of the internal_revenue_code of seismic data acquired in an asset acquisition this chief_counsel_advice responds to your request for assistance this advice may not be used or cited as precedent legend taxpayer seller parent natural_resources -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- ---------------------------------------------------------- ---------------------- a b c date year year city location location -------------- ----- ------------------- ----------------- ---------------- ------- ------- --------------------- ------------------------- ------------------------------ postf-145881-14 assets formation state x issues ------------------------------------------------- ------------------------ ------------- -------- if a taxpayer acquires seismic data as part of an asset acquisition has the taxpayer paid_or_incurred geological and geophysical g g expenditures within the meaning of sec_167 can more than one taxpayer amortize g g expenditures related to the same seismic data under sec_167 does the extent to which a seller used seismic data acquired by a taxpayer affect whether the taxpayer can later amortize g g expenditures related to the same seismic data under sec_167 conclusion sec_1 a taxpayer that acquires seismic data as part of an asset acquisition has not paid_or_incurred g g expenditures within the meaning of sec_167 because we conclude that taxpayer did not pay or incur g g expenditures within the meaning of sec_167 when it acquired seismic data as part of an asset acquisition we do not reach the issue of whether more than one taxpayer can amortize g g expenditures related to the same seismic data under sec_167 because we conclude that taxpayer did not pay or incur g g expenditures within the meaning of sec_167 when it acquired seismic data as part of an asset acquisition we do not reach the issue of whether the extent to which a seller used seismic data acquired by a taxpayer affects whether the taxpayer can later amortize g g expenditures related to the same seismic data under sec_167 facts taxpayer is a wholly-owned subsidiary of parent a diversified global natural_resources company that produces natural_resources in many areas around the world taxpayer is headquartered in city and owns oil_and_gas producing operations located primarily in location and location in an asset acquisition on date taxpayer an independent oil_and_gas company acquired a percent of assets from seller assets included all of seller’s upstream operations in the formation in state including producing and non-producing leases and reserves and the associated wells and field production equipment taxpayer also acquired seller’s midstream pipeline business in the formation area as well as seismic postf-145881-14 data acquired by seller between year and year related to the formation area the total purchase_price for the acquisition as provided in the purchase and sale agreement psa is dollar_figureb the parties to the psa allocated dollar_figurec of the purchase_price to the seismic data related to the formation area the seismic data which is the subject of this chief_counsel_advice is subsurface data that seller had previously acquired and used to locate and drill wells within its formation area leases seller had acquired non-producing leases and used the seismic data to drill wells many of which were successful and producing at the time of the acquisition by taxpayer because of its successful exploration and development seller marketed many of the properties within the formation area to taxpayer as proved and developed at the time of the acquisition there were still undeveloped properties within the formation area but many were offset locations directly adjacent to existing productive wells that were considered proved or probable reserves after the acquisition taxpayer amortized the allocated value of the seismic data dollar_figurec over months as g g expenditures under sec_167 law and analysis sec_167 provides for any g g expenses paid_or_incurred in connection with the exploration for or development of oil or gas within the united_states as defined in sec_638 to be allowed as a deduction ratably over the 24-month period beginning on the date that such expense was paid_or_incurred sec_167 requires that any payment paid_or_incurred during a taxable_year be treated as having been paid_or_incurred on the mid-point of that tax_year sec_167 states that no other depreciation or amortization deduction is allowable with respect to qualified g g expenditures sec_167 provides that if any property with respect to which g g expenditures are paid_or_incurred is retired or abandoned during the 24-month period no deduction is allowed on account of such retirement or abandonment and the amortization deduction continues with respect to such payment sec_167 b provides that in the case of major integrated oil companies sec_167 is to be applied by substituting 7-year for 24-month sec_167 was enacted in the energy policy act of and was subsequently amended by the tax increase prevention and reconciliation act of p l a 119_stat_594 date p l sec_503 120_stat_345 date postf-145881-14 to add sec_167 which extended the 24-month amortization period to five years for g g expenditures paid_or_incurred by major integrated oil companies after date the energy independence and security act of further extended the five year amortization period to seven years for g g expenditures paid_or_incurred by major integrated oil companies after date prior to the enactment of sec_167 several courts held that exploration_expenditures are capital in nature and not ordinary and necessary business_expenses following the rationale of those cases in the service issued i t which held that if a property is acquired or retained on the basis of g g data obtained from an exploration project the cost of the exploration project should be capitalized as a part of the cost of the property acquired or retained under sec_24 of the internal_revenue_code_of_1939 conversely if no property is acquired or retained on the basis of such g g data the cost of the exploration project is deductible as a loss under sec_23 or f of the internal_revenue_code_of_1939 in the service issued revrul_77_1888 which restated and updated under the then current statute and regulations the provisions set forth in i t revrul_77_188 provides guidance regarding the treatment of g g expenditures revrul_78_188 states that g g exploration_expenditures are incurred by the taxpayer for the purpose of obtaining and accumulating data that will serve as a basis for the acquisition or retention of property by a taxpayer who is engaged in exploring for minerals the revenue_ruling further states that the expenditures attributable to such exploration are allocable under sec_263 to the cost of the property or properties as defined in sec_614 sec_3 p l sec_1502 121_stat_1492 date 9_bta_1342 expenditures_for surveys and geological opinions among other costs are not deductible as ordinary and necessary expenses but are capital expenditures to be added to cost of the property and considered in computing gain_or_loss on the sale thereof g e 25_bta_866 deductions for expenditures made in prospecting a mineral lease were held to be capital expenditures and added to the cost of the mine to be recovered through depletion deductions if the development resulted in the discovery of commercial ores or claimed as an abandonment_loss if the prospect is abandoned 46_bta_151 net profits payments to a geologist for exploration advice and other services were part of the cost of acquiring the related properties and 7_tc_507 acq 1946_2_cb_3 aff’d 161_f2d_842 5th cir expenditures paid for a geological survey of property owned for years before the survey to determine whether subsurface structures in the properties appeared sufficiently favorable to justify drilling for oil_and_gas required to be capitalized because the expenditure resulted in the acquisition or retention of a capital_asset i t 1950_1_cb_48 superseded by revrul_77_188 1977_1_cb_76 revrul_77_188 1977_1_cb_76 superseding i t 1950_1_cb_48 id citing 7_tc_507 46_bta_151 25_bta_980 g e 25_bta_866 21_bta_51 c m 10_bta_664 and seletha o 9_bta_1342 id id citing 7_tc_507 46_bta_151 g e 25_bta_866 c m 10_bta_664 and seletha o 9_bta_1342 postf-145881-14 acquired or retained and discusses the allocation of g g expenditures among areas of interest located and identified as the result of such expenditures the revenue_ruling also states that if no property is acquired or retained within or adjacent to an area_of_interest the entire g g expenditure allocable to the area_of_interest is deductible as a loss under sec_165 for the taxable_year in which that particular project_area is abandoned as a potential source of mineral production in the service issue revrul_83_105 to amplify revrul_77_188 revrul_83_105 explains the tax treatment of g g expenditures under revrul_77_188 in seven factual situations in addition it illustrates by example how the various g g expenditures are to be allocated and explains what constitutes an abandonment as a potential source of mineral production issue if a taxpayer acquires seismic data as part of an asset acquisition has the taxpayer paid_or_incurred g g expenditures within the meaning of sec_167 as noted above case law and irs administrative decisions consistently have defined g g expenditures as costs incurred by a taxpayer for the purpose of obtaining and accumulating data that will serve as the basis for the acquisition and retention of mineral properties by taxpayers exploring for minerals although sec_167 changes the prior tax treatment of g g expenditures it does not define the term geological_and_geophysical_expenditures rather the legislative_history underlying sec_167 makes clear congress’ intention to adopt the long-standing income_tax definitions of the terms used in sec_167 for example the legislative_history of sec_167 includes a house ways_and_means_committee report house report that summarizes a proposal for the amortization of g g expenditures found in section of enhanced energy infrastructure and technology tax policy act of dollar_figure consistent with the definition of g g expenditures contained in case law and irs administrative decisions the house report states that g eological and geophysical expenditures g g costs are costs incurred by a taxpayer for the purpose of obtaining and accumulating data that will serve as the basis for the acquisition and retention of mineral properties by taxpayers exploring for minerals the function of g g activities is to locate and identify properties with the potential to produce commercial quantities of oil and natural_gas as well as to determine the optimal location for exploratory and developmental wells these costs are an important and integral part of exploration and production for oil and natural_gas revrul_77_188 characterizes g g expenses as exploration expenses the legislative_history underlying sec_167 also indicates that congress was concerned about providing favorable treatment for costs that foster increased h_r 109th cong 1st sess this language is substantially_similar to sec_167 enacted in the energy policy of h_r rep no pincite postf-145881-14 exploration for new sources of oil_and_gas the house report discussed above summarizes the congress’ intentions when enacting sec_167 the committee believes that substantial simplification for taxpayers significant gains in taxpayer compliance and reductions in administrative cost can be obtained by establishing a clear rule that all geological and geophysical costs may be amortized over two years including the basis of abandoned property the committee recognizes that on average a two-year amortization period accelerates recovery_of geological and geophysical expenses the committee believes that more rapid recovery_of such expenses will foster increased exploration for new sources of supplydollar_figure emphasis added in the present case taxpayer acquired seismic data from seller in an asset acquisition after seller used the same seismic data to locate and identify wells in the formation area seller had acquired non-producing leases and used the seismic data to drill wells many of which were successful and producing at the time of the acquisition by taxpayer because of its successful exploration and development seller marketed many of the properties within the formation area to taxpayer as proved and developed although at the time of the acquisition there were still undeveloped properties within the formation area many were offset locations directly adjacent to existing productive wells that were considered proved or probable reserves because taxpayer acquired properties that were either developed or proved or probable taxpayer did not incur costs to locate and identify properties with the potential to produce commercial quantities of oil and natural_gas in other words taxpayer did not incur costs to obtain and accumulate data that will serve as the basis for the acquisition and retention of mineral properties by taxpayers exploring for minerals accordingly we conclude that taxpayer did not pay or incur g g expenditures within the meaning of sec_167 issue can more than one taxpayer amortize g g expenditures related to the same seismic data under sec_167 because we conclude that taxpayer did not pay or incur g g expenditures within the meaning of sec_167 when it acquired seismic data as part of an asset acquisition we do not reach the issue of whether more than one taxpayer can amortize g g expenditures related to the same seismic data under sec_167 issue does the extent to which a seller used seismic data acquired by a taxpayer affect whether the taxpayer can later amortize g g expenditures related to the same seismic data under sec_167 id postf-145881-14 because we conclude that taxpayer did pay or incur g g expenditures within the meaning of sec_167 when it acquired seismic data as part of an asset acquisition we do not reach the issue of whether the extent to which a seller used seismic data acquired by a taxpayer affects whether the taxpayer can later amortize g g expenditures related to the same seismic data under sec_167 this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call jennifer bernardini at if you have any further questions


internal_revenue_service number release date index number ----------------------- ------------------------------------ ------------------------ ---------------------------- - department of the treasury washington dc person to contact --------------------------- - ------------------------ ----------------------------------------------------- telephone number --------------------- refer reply to cc psi b05 - plr-171615-03 date april legend taxpayer or cooperative llc country a inc d b c d state b state c dear --------------- --------------------------------------------- ---------------------------- ---------------------------- ---------------------------------- ---------------------- ------------------ ----------- ----------------- ------------- ----------------- this is in response to a ruling_request dated date submitted on behalf of taxpayer the ruling concerns the issue of whether taxpayer will be operating_on_a_cooperative_basis within the meaning of subchapter_t of the internal_revenue_code under the facts as fully described below plr-171615-03 taxpayer including its wholly-owned llc subsidiary is a cooperative organization organized and to be operated in the u s taxpayer’s member patrons the growercos are three country a companies which are themselves owned by approximately ----d produce growers the d growers the d growers currently market their crops in country a through a grower-owned d company named inc it is planned that the taxpayer will be responsible for marketing and distributing the growercos crops on behalf of the d growers in the united_states the crops to be marketed include b c and d most of the d growers specialize in producing one of these three types of produce however certain growers may be engaged in the production of more than one type of produce each growerco will deal solely in one of the three crops and will be owned only by the d growers who specialize in that crop with respect to d growers producing more than one type of produce each will hold one share of voting_stock in the growerco representing their predominant crop they will not hold voting_stock in any of the other growercos they may participate in as nonvoting patrons in its role as a member patron of the taxpayer cooperative each growerco will advance and protect the interests of its constituent grower-members while joining with the other growercos to pursue a cooperative marketing strategy through the taxpayer on behalf of their respective members taxpayer will establish its own marketing and distribution facilities in the us through the llc in country a inc will coordinate the initial allocation of crops between country a distribution and us distribution in exchange for a ---- fee to be collected from the d growers with respect to crops allocated by inc to the us market the growercos authorize their members the d growers to each sell its respective us- bound crops at an arm’s-length fair_market_value transfer price directly to taxpayer fob shipping point in country a using the employees and facilities to be acquired and developed by llc taxpayer will then market and distribute the crops in the us market on a cooperative basis and distribute its net_earnings as patronage_dividends to the growercos proposed structure the d growers are primarily unrelated closely-held corporations whose farming activities are conducted in country a growercos a b and c collectively the growercos are country a corporations wholly resident in country a each growerco is owned by a group of d growers who produce the same crop growerco a’s owners all produce b growerco b’s owners all grow c and growerco c’s owners all grow d each growerco represents the unique interests of its constituent grower-owners in dealing with taxpayer for the purpose of marketing their crops on a cooperative basis taxpayer is a general_partnership organized under the laws of state b the taxpayer will make an election under sec_301_7701-3 of the income_tax regulations the regulations to be taxed as an association effective as of the date plr-171615-03 of the partnership’s organizations after such election taxpayer will be taxed as a corporation for us federal_income_tax purposes and operate on a cooperative basis under subchapter_t of the code all of taxpayer’s sales and marketing activities will be carried out by a wholly-owned limited_liability_company llc organized under the laws of the state of state b which it is represented will be a disregarded_entity for us federal_income_tax purposes the growercos are establishing their initial ownership interests in taxpayer in proportion to projected sales of their respective constituent member-growers’ crops to taxpayer it is intended that ownership of taxpayer by the growercos will be maintained in alignment with the sale of each produce type handled by the cooperative voting control of taxpayer is on a one-member one-vote basis operations taxpayer will conduct sales and marketing activities in the us through its wholly- owned llc since llc will sell the crops to us customers for its own account and not as an agent for the growercos or the d growers it will also bear all risks incident to the sale eg credit risk inventory risk market risk etc using its own permanent employees and permanent facilities located in the united_states llc will acquire and take delivery of crops in country a for resale to the us market the growercos will authorize the d growers to deliver crops allocated by inc to the us market directly to llc title to the crops allocated by inc will be passed by the d growers to llc when it takes delivery of the produce llc will acquire the crops for an arms-length price reflecting fair_market_value and the risk borne by llc the crops will be delivered to llc on an fob shipping point basis so title for the crops will transfer to llc in country a the taxpayer but not the growercos will engage in a trade_or_business_within_the_united_states financial results the books_and_records of the cooperative including the llc will be kept on the accrual_method of accounting the cooperative’s principal office is located in state b and its returns will be filed with the internal revenue center in state c the cooperative has adopted a fiscal_year ending december the cooperative’s business will be a us trade_or_business subject_to tax in accordance with the provisions of subchapter_t of the code taxpayer will report its income gains and losses annually on form 990-c farmers’ cooperative association income_tax return the cooperative will be obligated to account on a patronage basis to all its growerco patrons on an annual basis for all amounts received from business conducted with or for the d growers as authorized and arranged by the growercos the patronage_dividend will be such that all amounts of net profit before tax earned by the cooperative in the form of patronage income in any fiscal_year shall be distributed to the members of the cooperative in proportion to the patronage of each patron in that fiscal_year calculated according to volume and or value of produce shipped to or through the cooperative by each of its member-patron growerco’s constituent grower- plr-171615-03 shareholders all patronage_dividends distributed will be distributed to the patrons ie the growercos in cash or qualified written notices of allocation as permitted by sec_1382 of the code pursuant to the partnership_agreement of the cooperative the amount of capital if any furnished by each patron shall at the end of each fiscal_year be clearly reflected and properly credited in the appropriate record to the capital_account of each member the cooperative shall within months after the close of each fiscal_year notify each member of the capital so credited to the member’s account the notice shall be in the form of a written_notice_of_allocation or per-unit_retain_certificate the cooperative’s partnership_agreement provides that upon dissolution after all debts and liabilities of the cooperative basis have been paid all partnership shares redeemed and all capital furnished patronage shall have been retired without priority on a pro_rata basis distribution of any remaining assets shall be made on a patronage basis to all member patrons on the basis of the amount of patronage conducted by them and or their constituent d grower-members to the extent practicable under the terms of the partnership_agreement any entity that applies for and is accepted to membership in the cooperative by such act alone consents that the amount of any distributions with respect to that member’s patronage occurring after acceptance for membership status which are made in written notices of allocation as defined in sec_1388 of the code will be taken into account by the growerco- member at the stated dollar amount in the manner provided in sec_1385 of the code in the taxable_year in which such written notices are received by the member on an annual basis taxpayer’s members ie growercos a b and c will allocate to their d grower-shareholders each grower’s share of the growercos’s earnings from patronage refunds and any nonpatronage earnings allocated and distributed by taxpayer to the growercos the amount to be allocated by the growercos to each grower will be based on each grower’s patronage with the taxpayer cooperative any dividends distributed by the growercos to their respective grower- shareholders will be based on the amount allocated annually to each grower business reasons for the transactions a country a growers’ holding_companies growercos for the purpose of facilitating the sale of each of three types of produce in the us the growercos are organized so that each growerco is owned by the growers of a specific produce type and each growerco will be a member-patron of taxpayer a us cooperative the growerco structure will allow for a straightforward cooperative structure as the taxpayer cooperative will have three members instead of having each d grower as a plr-171615-03 separate member without compromising the goal that each constituent grower will have proper representation in the cooperative conducting us marketing activities on its behalf the growerco structure will facilitate pooling of costs by type of produce and will also allow for the accounting by type of product to be captured in a single legal entity the growerco structure will also facilitate the addition or retirement of growers from the structure without the growerco structure the growers would have to deal with the taxpayer directly and it is generally easier and preferable for the country a growers to deal with a country a corporation as opposed to a us partnership in connection with the retirement or addition of a grower-shareholder and the addition or retirement of growers will not affect or complicate the membership structure of the taxpayer cooperative incident to the management strategy and operating efficiencies described above the growerco structure will permit patronage income to ultimately flow back to the d growers more effectively from a country a income_tax perspective b taxpayer cooperative and llc under the proposed structure a general_partnership has been established under the laws of state b each growercos is a partner in the general_partnership the partnership will be governed by it general partners the growercos on a one-partner one-vote basis without regard to a partner’s interest in the partnership in addition each member of the board_of directors will be elected by partners holding a majority of the partnership interests the partnership will elect under the entity classification rules to be treated as an association_taxable_as_a_corporation for us federal_income_tax purposes the taxpayer’s intent is to operate on a cooperative basis and thus subject_to tax under subchapter_t of the code the taxpayer through its wholly-owned state b llc will conduct sales and marketing activities in the us for produce grown by the d growers it is represented that the llc is disregarded as an entity for federal_income_tax purposes in this case operating as a cooperative organization including the llc as a disregarded_entity is the structure most consistent with the long-term objective of the d growers as it gives them a better presence in the us for marketing their produce it will also facilitate sales by permitting the taxpayer to hire us personnel and establish us storage and distribution facilities it is anticipated that on a long-term basis the taxpayer cooperative may also market produce produced by non-country a growers eg us growers and mexican plr-171615-03 growers the parent partnership llc subsidiary structure will provide more flexibility for introducing different products to the business possibly on a for-profit basis without involving the existing members or their cooperative relationship by just adding a new member to the llc or by adding a new llc which could handle the us sales and marketing activities for non-d grower produce the parent llc subsidiary structure permits the d growers to preserve the cooperative solely for the benefit of the growercos and the d growers using the llc also facilitates the segregation of risks incident to produce sales eg credit risk inventory risk and market risk etc if new sources of produce are introduced by a establishing a new llc under the cooperative from a country a perspective the parent partnership llc subsidiary structure permits a more efficient flow through of patronage_earnings from the cooperative to the growercos taxpayer requests a ruling that taxpayer including llc will be operating_on_a_cooperative_basis within the meaning of sec_1381 of the internal_revenue_code and will be treated as a cooperative under subchapter_t of the code statement of law sec_1381 of the code provides that subchapter_t shall apply to any corporation operating_on_a_cooperative_basis with certain exception not here relevant sec_1_1381-1 of the regulations states that subchapter_t of the code applies to any corporation operating_on_a_cooperative_basis and allocating amounts to patrons on the basis of business done with or for patrons in 44_tc_305 acq c b three principles are described as fundamental to cooperative operation subordination of capital democratic control by the members and operation at cost the vesting in and allocation among the members of all fruits and increases arising from their cooperative endeavor subordination of capital requires that control of the cooperative and ownership of the pecuniary benefits arising from the cooperative’s business remains in the hands of the member patrons of the cooperative rather than with nonpatron equity investors in the cooperative the purpose of this limitation is to insure that the gains that accrue to the cooperative from the business that it transacts with its patrons will largely or completely inure to the benefit of those patrons rather than to its stockholders to be operating_on_a_cooperative_basis a cooperative must limit the financial return with respect to its equity_capital puget sound t c pincite stated differently a cooperative may not be operated for the purpose of paying a return on equity investments democratic control of the cooperative as envisioned in puget sound pincite is typically achieved by voting on a one-member one-vote basis the principle of plr-171615-03 democratic control was further discussed in 462_f2d_259 5th cir in which the court noted that sec_521 regarding exempt_cooperatives contemplates that the stock will be owned by the patrons of the cooperative that section envision s the exempt association organized according to a model of a widely-based participatory democracy in which all the members are able to exercise a franchise of equal strength each member must have a single vote regardless of the size of its investment or the amount of business it does with the corporation the requirement of operation at cost is met if the cooperative’s net_earnings or savings are distributed to the cooperative’s patrons in proportion to the amount of business conducted with them this requirement relates to the proportionate vesting in and allocation among the worker-members of all fruits and increases from their cooperative endeavor is achieved through statutes bylaws and contractual arrangements between the association and its members whereby the elected officers of the associations are required to make periodic allocations of the same among the members in proportion to their active_participation as workers puget sound pincite revrul_70_481 1970_2_cb_170 holds that a corporation supplying services to its members at cost and making distributions to each member based on the value of business done with each member was operating_on_a_cooperative_basis within the meaning of sec_1381 of the code revrul_72_36 1972_1_cb_151 states that in accordance with fundamental cooperative principles the rights and interests of the members in the savings of a cooperative should be determined in proportion to their business with the cooperative with respect to liquidating distributions the service has stated that the cooperative principle of operation at cost requires that a cooperative’s articles of incorporation or bylaws obligate the cooperative to distribute its remaining assets upon liquidation to both its current and former members in proportion to the value or quantity of business that each did with the cooperative over some reasonable number of years sec_1382 of the code provides in part that in determining the taxable_income of a cooperative there shall not be taken into account amounts paid during the payment period for the taxable_year as patronage_dividends to the extent paid in money qualified written notices of allocation or other_property with respect to patronage occurring during such taxable_year sec_1382 of the code and sec_1_1381-2 of the regulations provide in pertinent part that there is allowed as deduction from the gross_income of any cooperative to which part of subchapter_t applies amounts paid to patrons during the payment period for the taxable_year as patronage_dividends to the extent that such amounts are paid in money qualified written notices of allocation or other_property plr-171615-03 other than nonqualified written notices of allocation sec_1388 of the code defines the term nonqualified written notices of allocation as meaning a written_notice_of_allocation other than a qualified_written_notice_of_allocation or a qualified_check that is not cashed on or before the day after the close of the payment period for the taxable_year sec_1382 of the code provides in part that the payment period for any taxable_year is the period beginning with the first day of such taxable_year and ending with the fifteenth day of the ninth month following the close of such year sec_1388 of the code provides that the term patronage_dividend means an amount_paid to a patron by a cooperative on the basis of the quantity or value of business done with or done for such patron sec_1388 provides that a patronage_dividend is an amount_paid under an obligation that must have existed before the cooperative received the amount so paid sec_1388 of the code provides that patronage_dividend means an amount_paid to a patron that is determined by reference to the net_earnings of the corporation from business done with or for its patrons that section further provides that patronage_dividend does not include any amount_paid to a patron to the extent that such amount is out of earnings other than from business done with or for patrons sec_1_1382-3 of the regulations states that income derived from sources other than patronage means incidental income derived from sources not directly related to the marketing purchasing or service activities of the cooperative association sec_301_7701-2 of the regulations provides that a partnership that elects to be taxed as an association is treated as a corporation for all federal tax purposes analysis concerning the requirement of subordination of capital taxpayer does not have any nonpatron investors nor does it plan to accept any nonpatron investors the partnership_agreement contemplates that taxpayer will operate on a cooperative basis for the benefit of its members in addition after dissolution distribution of the remaining assets will be made to all member patrons on the basis of their amount of patronage with taxpayer concerning the requirement of democratic control taxpayer’s partnership_agreement provides that each member shall be entitled to a single vote with majority rule controlling concerning the requirement of operation at cost net_earnings are distributed to the patrons in proportion to the quantity and value of business conducted with them thereby ensuring that it is operated at cost at the country a level the shares of each growerco are held only by d growers there are no non-grower investors nor do they plan to accept non-grower investors as shareholders the articles of the growercos provide that each d grower is limited to one voting share in his respective growerco in the case where a particular grower plr-171615-03 produces more than one type of produce the grower is permitted to hold a voting share only in the capital stock of the growerco handling the grower’s predominant crop accordingly the democratic control requirement is also maintained at the growerco level concerning the requirement of operating at cost even though the directors of the growercos have discretion with respect to the timing of distributions the growercos must on an annual basis allocate to each d grower its share of the patronage refunds from the taxpayer included in the growerco’s earnings the amount allocated will be based on each grower’s patronage and dividends to be paid to each grower will be based on the amount so allocated on a patronage basis with respect to taxpayer’s election under sec_301_7701-2 of the regulations to be taxed as a corporation subchapter_t applies to any corporation operating_on_a_cooperative_basis and allocating amounts to patrons on the basis of the business done with or for such patrons as noted above taxpayer will conduct business as a cooperative and allocate patronage_dividends to patrons on the basis of the patronage-based business done with or for such patrons accordingly taxpayer should be taxed as a cooperative pursuant to subchapter_t of the code based solely on the representatives provided taxpayer including llc will be this ruling is directed only to the taxpayer that requested it under sec_6110 operating_on_a_cooperative_basis within the meaning of sec_1381 of the internal_revenue_code and will be treated as a cooperative under subchapter_t of the code k of the code it may not be used or cited as precedent in accordance with a power_of_attorney filed with the request a copy of the ruling is being sent to coop walter h woo senior technician reviewer branch office of the assistant chief_counsel passthroughs and special industries sincerely yours


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to plr-136235-01 cc psi date date number release date index number legend x shareholders state d1 dear this letter responds to a letter dated date submitted by your authorized representative on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code facts according to the information submitted x was incorporated under state law on d1 at the time of its incorporation x's shareholders decided that x would be an s_corporation the shareholders relied on an accountant to file x's form_2553 election by a small_business_corporation with an effective date of d1 the form_2553 however was not timely filed x requests a ruling that it will be recognized as an s_corporation effective for the taxable_year beginning d1 under sec_1362 law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation's taxable_year plr-136235-01 then the corporation will be treated as an s_corporation for the year in which the election is made if an s election is made after the first two and one-half months of a corporation’s taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making the election or no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary may treat the election as timely made for such taxable_year conclusion based solely on the facts submitted and representations made we conclude that x has established reasonable_cause for not making a timely election and is eligible for relief under sec_1362 accordingly if x makes an election to be an s_corporation by filing with the appropriate service_center a completed form_2553 containing an effective date of d1 for the election within days following the date of this letter then such election will be treated as timely made a copy of this letter should be attached to the form_2553 filed with the service_center a copy is enclosed for that purpose except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically no opinion is expressed concerning whether x is an s_corporation for federal tax purposes this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent under a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative sincerely jeanne sullivan senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury washington dc person to contact telephone number refer reply to cc psi plr-111563-01 date date number release date index number company state shareholder date dear this letter responds to your letter dated date submitted on behalf of company requesting a ruling under sec_1362 of the internal_revenue_code regarding company's late s_corporation_election company represents the following facts facts company was incorporated in state on date with shareholder company represents that it intended to be an s_corporation from inception but for reasons stated in the ruling_request form_2553 election by a small_business_corporation was not timely filed company filed form_1120s u s income_tax return for an s_corporation for its first tax_year law and analysis sec_1362 provides in general that an election by a small_business_corporation under sec_1362 to be an s_corporation may be made for any_tax year-- a at any time during the preceding tax_year or b at any time during the tax_year and on or before the 15th day of the third month of the tax_year sec_1362 provides that if-- a a small_business_corporation makes an election under sec_1362 for any_tax year and plr-111563-01 b that election is made after the 15th day of the third month of the tax_year and on or before the 15th day of the third month of the following tax_year then that election shall be treated as made for the following tax_year sec_1362 provides that if-- a an election under sec_1362 is made for any_tax year determined without regard to sec_1362 after the date prescribed by this subsection for making the election for that tax_year or no such election is made for any_tax year and b the secretary determines that there was reasonable_cause for the failure to timely make the election the secretary may treat such election as timely made for that tax_year and sec_1362 shall not apply based solely on the facts as represented by company in this ruling_request we conclude that there was reasonable_cause for company’s failure to make a timely s_corporation_election therefore we rule that company's late election under sec_1362 shall be treated under sec_1362 as timely filed for its first tax_year beginning date this ruling is contingent however on company filing form_2553 to be effective on date with the appropriate service_center no later than days from the date of this letter a copy of this letter should be attached to the form_2553 except for the specific ruling above no opinion is expressed or implied concerning the federal_income_tax consequences of the facts of this case under any other provision of the code specifically no opinion is expressed on whether company otherwise is eligible to be an s_corporation under a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative this ruling is directed only to the taxpayer who requested it according to sec_6110 this ruling may not be used or cited as precedent sincerely mary beth collins assistant to the chief branch office of associate chief_counsel passthroughs and special industries enclosure copy of this letter copy for sec_6110 purposes


cca_2017052209250619 id uilc number release date from sent monday date am to cc bcc subject ----------------------------------------- hi ---------- - i’ve reviewed the additional information that you sent me and discussed the facts and authorities with my reviewer regarding whether taxpayer complied with the requirement to obtain a contemporaneous written acknowledgement for purposes of substantiating its charitable deduction under the special requirements for contributions to donor advised funds under sec_170 as we discussed on september 19th we believe the language in the sponsoring organization’s documentation meets the requirements of both sec_170 and sec_170 for a contemporaneous written acknowledgement in this case please let us know if you have further questions --------------------------


internal_revenue_service date date number release date org address uil department of the treasury te_ge eo examinations commerce street dallas texas taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your organization's exempt status is necessary if you do not agree with our position you may appeal your case the enclosed publication he examination process explains how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process if you request a conference we will forward your written_statement of protest to the appeals_office and they will contact you for your convenience an envelope is enclosed if you and appeals do not agree on some or all of the issues after your appeals_conference or if you do not request an appeals_conference you may file suit in united_states tax_court the united_states court of federal claims or united_states district_court after satisfying procedural and jurisdictional requirements as described in publication letter rev catalog number 34801v you may also request that we refer this matter for technical_advice as explained in publication exempt_organization appeal procedures for unagreed issues if a determination_letter is issued to you based on technical_advice no further administrative appeal is available to you within the irs on the issue that was the subject of the technical_advice if you accept our findings please sign and return the enclosed form_6018 consent to proposed adverse action we will then send you a final letter revoking your exempt status if we do not hear from you within days from the date of this letter we will process your case on the basis of the recommendations shown in the report of examination and this letter will become final in that event you will be required to file federal_income_tax returns for the tax period s shown above file these returns 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 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 sincerely marsha a ramirez director eo examinations enclosures publication publication form_6018 report of examination envelope letter rev catalog number 34801v form_886 a name of taxpayer org explanation of items schedule no or exhibit year period ended department of the treasury - internal_revenue_service 20xx12 legend org organization name xx date issue whether org qualifies for exemption under sec_501 of the internal_revenue_code code facts exhibit a provides copies of the internal_revenue_service correspondence requesting that exempt_organization contact the service or file the form_990 for the tax period ending 20xx12 exempt_organization failed to respond to the internal_revenue_service correspondence or file the forms for the tax period ending 20xx12 and beyond law sec_6001 of the code provides that every person liable for any imposed by the irc or for the collection thereof shall keep adequate_records as the secretary_of_the_treasury or_his_delegate may from time to time prescribe sec_6033 provides except as provided in sec_6033 every organization exempt from tax under sec_501 shall file an annual return stating specifically the items of gross_income receipts and disbursements and such other information for the purposes of carrying out the internal revenue laws as the secretary may by forms or regulations prescribe and keep such records render under oath such statements make such other returns and comply with such rules and regulations as the secretary may from time to time prescribe sec_1_6001-1 in conjunction with sec_1_6001-1 provides that every organization exempt form tax under sec_501 a and subject_to the tax imposed by sec_511 on its unrelated_business_income must keep such permanent books or accounts or records including inventories as are sufficient to establish the amount of gross_income deduction credits or other matters required to be shown by such person in any return of such tax such organization shall also keep such books_and_records as are required to substantiate the information required by sec_6033 sec_1_6001-1 states that the books_or_records required by this section shall be kept at all time available for inspection by authorized internal revenue officers or employees and shall be retained as long as the contents thereof may be material in the administration of any internal revenue law form 886-acrev department of the treasury - internal_revenue_service page -1- form_886 a name of taxpayer org explanation of items schedule no or exhibit year period ended department of the treasury - internal_revenue_service 20xx12 sec_1_6033-1 of the treas regs provides that every organization which has established its right to exemption from tax whether or not it is required to file an annual return of information shall submit such additional information as may be required by the district_director for the purpose of enabling him to inquire further into its exempt status and to administer the provisions of subchapter_f sec_501 and the following chapter of the code and sec_6033 revrul_59_95 1959_1_cb_627 concerns an exempt_organization that was requested to produce a financial statement and statement of its operations for a certain year however its records were so incomplete that the organization was unable to furnish such statements the service held that the failure or inability to file the required information_return or otherwise to comply with the provisions of sec_6033 and the regulations which implement it may result in the termination of the exempt status of an organization previously held exempt on the grounds that the organization has not established that it is observing the conditions required for the continuation of exempt status in accordance with the above cited provisions of the code and regulations under sec_6001 and sec_6033 organizations recognized as exempt form federal_income_tax a must meet certain reporting requirements these requirements relate to the filing of complete and accurate annual information and other required federal tax forms and the retention of records sufficient to determine whether such entity is operated for the purposes for which it was granted tax-exempt status and to determine its liability for any unrelated_business_income_tax conclusion it is the irs’s position that the organization failed to meet the reporting requirements under sec_6001 and sec_6033 to be recognized as exempt from federal_income_tax under sec_501 c accordingly the organization’s exempt status is revoked effective january 20xx form_1120 returns should be filed for the tax periods ending on or after december 20xx form 886-a crev department of the treasury - internal_revenue_service page -2-


t c summary opinion united_states tax_court geraldine ann peck petitioner v commissioner of internal revenue respondent docket no 22437-04s filed date geraldine ann peck pro_se jeremy l mcpherson for respondent panuthos chief special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure respondent determined a deficiency in petitioner’s federal_income_tax of dollar_figure after a concession by petitioner the issue for decision is whether petitioner’s gross_income includes dollar_figure of settlement proceeds she received from her former employer background some of the facts have been stipulated and are so found the stipulation of facts with attached exhibits and an additional exhibit admitted at trial are incorporated herein by this reference at the time the petition was filed petitioner resided in redding california petitioner began working as a special education teacher for the shasta county office of education scoe in by the late 1990s petitioner’s relationship with scoe had deteriorated significantly in scoe had petitioner evaluated by a panel of mental health experts and filed a complaint against her in state court the complaint alleges that petitioner is mentally unfit to teach and seeks to place her on mandatory sick leave scoe filed the complaint as part of its efforts to terminate petitioner’s employment petitioner concedes that a dollar_figure income_tax refund she received from the state of california is taxable the remaining adjustment in respondent’s notice_of_deficiency is computational therefore we do not address it petitioner denied that she was unfit to teach a pleading petitioner filed with the state court asserts petitioner is not suffering from a mental illness which prevents her from performing her duties as a special education teacher and even if she does suffer from a mental illness she is more than competent to perform her duties in date the state court case was resolved pursuant to a written settlement agreement petitioner resigned her position and executed a release of claims against scoe in exchange scoe paid petitioner dollar_figure on her federal_income_tax return petitioner did not report the dollar_figure as gross_income petitioner had suffered from various physical ailments during her employment with scoe including diabetes inner ear pain and impetigo petitioner believed that the dollar_figure was in whole or in part compensation_for these injuries and therefore nontaxable respondent determined that the dollar_figure was includable in petitioner’s gross_income and issued a notice_of_deficiency to petitioner on date discussion in general the commissioner’s determinations set forth in a notice_of_deficiency are presumed correct and the taxpayer bears the burden of showing that the determinations are in error rule a 290_us_111 pursuant to sec_7491 the burden_of_proof as to factual matters shifts to respondent under certain circumstances petitioner has neither alleged that sec_7491 applies nor established her compliance with the requirements of sec_7491 and b to substantiate items maintain records and cooperate fully with respondent’s reasonable requests petitioner therefore bears the burden_of_proof a taxpayer’s gross_income includes all income from whatever source derived unless excluded by a specific provision of the internal_revenue_code sec_61 gross_income does not include the amount of any damages other than punitive_damages received whether by suit or agreement and whether as lump sums or as periodic_payments on account of personal physical injuries or physical sickness sec_104 to qualify for this exclusion the taxpayer must demonstrate the underlying cause of action giving rise to the recovery is based upon tort or tort type rights and the damages were received on account of personal physical injuries or physical sickness 515_us_323 allum v commissioner tcmemo_2005_177 the terms physical injury and physical sickness do not include emotional distress except to the extent of damages not in excess of the amount_paid for medical_care attributable to emotional distress sec_104 flush language see also prasil v commissioner tcmemo_2003_100 when damages are received pursuant to a settlement agreement the nature of the claim that was the actual basis for settlement controls whether such amounts are excludable under sec_104 504_us_229 prasil v commissioner supra the determination of the nature of the claim is a factual inquiry and is generally made by reference to the settlement agreement 102_tc_116 affd in part and revd in part 70_f3d_34 5th cir if the settlement agreement lacks express language stating what the settlement amount was paid to settle we look to the intent of the payor based on all the facts and circumstances of the case including the complaint that was filed and the details surrounding the litigation 349_f2d_610 10th cir affg tcmemo_1964_33 allum v commissioner supra here the settlement agreement provides that scoe will pay petitioner dollar_figure in exchange for her resignation and a release of claims the settlement agreement does not mention petitioner’s diabetes or other ailments instead it refers generally to disputes and disagreements between the parties and contains boilerplate language that releases scoe from any and all claims by petitioner looking beyond the settlement agreement we likewise find no indication that scoe intended the dollar_figure to compensate petitioner for physical injuries the complaint that scoe filed in state court alleges that petitioner is mentally unfit to teach but it says nothing about her physical health the other pleadings filed in connection with the state court case also omit any mention of petitioner’s physical condition petitioner argues that she suffered work-related physical injuries while employed with scoe and that scoe was aware of her injuries even if petitioner is correct however the question is whether the dollar_figure was paid on account of such injuries see sec_104 there is nothing in the record linking the settlement proceeds to petitioner’s diabetes or other physical injuries accordingly respondent’s determination is sustained based on our resolution of this issue we do not address whether the underlying cause of the state court action was based upon tort or tort type rights see allum v commissioner supra reviewed and adopted as the report of the small_tax_case division to reflect the foregoing decision will be entered for respondent


t c memo united_states tax_court tree-tech inc petitioner v commissioner of internal revenue respondent docket no 11781-09l filed date julie moon an officer and william p moon iii specially recognized for petitioner matthew s reddington for respondent memorandum opinion wells judge this case is before the court on respondent’s motion for summary_judgment pursuant to rule respondent 1unless otherwise indicated section references are to the internal_revenue_code_of_1986 as amended and rule references are to the tax_court rules_of_practice and procedure issued to petitioner a notice_of_determination concerning collection action we must decide whether petitioner may challenge its underlying employment_tax liability despite having signed a closing_agreement whether petitioner may raise its claim for sec_530 relief2 before this court and whether respondent’s determination to proceed with collection was an abuse_of_discretion background the facts set forth below are based upon examination of the pleadings moving papers responses and attachments filed in the instant case petitioner’s principal_place_of_business is in hurt virginia petitioner’s sole officer and director is julie moon mrs moon but for the most part the business is run by mrs moon’s husband william moon mr moon who also serves as its attorney-in-fact pursuant to a power_of_attorney on date respondent sent a letter notifying petitioner that respondent was conducting an employment_tax examination for petitioner’s and tax years initially respondent’s examination focused on petitioner’s failure to report officer’s compensation as wages but after his first meeting with mr and mrs moon respondent’s examiner sec_530 relief refers to the safe_harbor relief available under the revenue act of publaw_95_600 92_stat_2885 as amended william cookenour mr cookenour expanded his examination to include petitioner’s classification of its workers mr cookenour first met with mr and mrs moon on date regarding the examination of petitioner’s returns for its and tax years at that meeting mr cookenour discussed only the officer compensation issue and did not mention worker classification after the meeting mr cookenour apparently did further research on worker classification and determined that there was a reclassification issue petitioner had classified its workers as independent contractors but mr cookenour determined that they should have been classified as employees during the following months mr cookenour had several more conversations with mr moon during which they discussed whether petitioner was entitled to sec_530 relief mr moon contended that petitioner was entitled to such relief but after some research mr cookenour determined that it was not on date after making his determination regarding sec_530 relief mr cookenour again met with petitioner’s representatives and offered to discuss settlement under the classification settlement program on date mr cookenour met with mr and mrs moon to explain the terms of respondent’s offer under the classification settlement program petitioner contends that at the meeting mr cookenour presented mr and mrs moon with two different calculations of petitioner’s liabilities and told them that if they did not accept the offer to settle for the lower amount the internal_revenue_service irs would assess the higher amount petitioner contends that mr cookenour told mr and mrs moon that they could appeal the assessment but that they would not win on appeal mrs moon accepted the settlement offer at that meeting by signing a closing_agreement titled closing_agreement on final_determination covering specific matters regarding worker classification closing_agreement in the closing_agreement petitioner agreed to pay the amount shown on the agreement in full satisfaction of its liability stemming from its worker classification and it agreed to begin treating its workers as employees the closing_agreement reclassified petitioner’s workers only for leaving its classification of workers for and untouched and it granted petitioner relief of percent of its liability relating to worker classification for petitioner concurrently signed a form_2504 agreement to assessment and collection of additional tax and acceptance of overassessment the form_2504 covered not only petitioner’s liability with regard to worker classification but also petitioner’s liability for its failure to report officer’s compensation respondent has not agreed to petitioner’s account of the meeting on date nevertheless respondent contends that even if the facts are as petitioner alleges respondent is still entitled to summary_judgment because petitioner has not alleged facts that amount to duress the closing_agreement signed by mrs moon contained an incorrect employer_identification_number ein in the document heading petitioner’s correct ein ends with a but the ein listed in the document heading of the closing_agreement substituted a for the however the closing_agreement did contain the correct ein in the first paragraph and it identified petitioner by name as tree tech incorporated on date respondent mailed petitioner a final notice_of_intent_to_levy and notice of your right to a hearing notice_of_intent_to_levy petitioner timely filed form request for a collection_due_process or equivalent_hearing throughout its correspondence with respondent’s appeals_office petitioner did not raise any collection alternatives but contended that the closing_agreement contained the incorrect ein and was therefore invalid and that mr cookenour had coerced mrs moon into signing the closing_agreement petitioner contested its underlying liability arguing that it was entitled to sec_530 relief on the worker classification issue the appeals_office determined that petitioner could not raise its underlying tax_liability during the collection_due_process_hearing because the assessments were made in accordance with the closing_agreement signed by mrs moon on date respondent’s appeals_office issued petitioner the notice_of_determination concerning collection action s under sec_6320 and or sustaining the notice_of_intent_to_levy petitioner timely filed its petition on its petition petitioner checked the boxes indicating that it was disputing respondent’s notice_of_determination concerning collection action and respondent’s notice_of_determination concerning worker classification however petitioner was never issued a notice_of_determination concerning worker classification discussion summary_judgment is intended to expedite litigation and avoid unnecessary and expensive trials and may be granted where there is no genuine issue of material fact and a decision may be rendered as a matter of law rule a and b fla peach corp v commissioner 90_tc_678 the moving party bears the burden of proving that there is no genuine issue of 3the original petition was signed only by mr moon but because mr moon is not an officer of petitioner it is unclear whether mr moon had the capacity to sign on behalf of petitioner see rule sec_24 c however mrs moon has since ratified the petition such a ratification relates back to the date of the original petition see mont sapphire associates ltd v commissioner 95_tc_477 57_tc_542 material fact and factual inferences are viewed in a light most favorable to the nonmoving party 98_tc_518 affd 17_f3d_965 7th cir however the party opposing summary_judgment must set forth specific facts that show a genuine issue of material fact exists and may not rely merely on allegations or denials in the pleadings rule d the commissioner may collect a tax by levy upon the property of the taxpayer liable therefor if the taxpayer neglects or refuses to pay the tax_liability within days after notice_and_demand for payment sec_6331 the commissioner generally must provide the taxpayer written notice of the right to a hearing before the levy is made sec_6330 upon a timely request the taxpayer is entitled to an administrative hearing before an impartial officer_or_employee of the appeals_office sec_6330 following the hearing the appeals officer must determine whether the collection action is to proceed taking into account the verification the appeals officer has made the issues raised by the taxpayer at the hearing and whether the collection action balances the need for the efficient collection_of_taxes with the legitimate concern of the taxpayer that any collection action be no more intrusive than necessary sec_6330 we have jurisdiction to review the determination if we have jurisdiction over the type of tax involved in the case sec_6330 122_tc_287 where the validity of the underlying tax_liability is properly in issue we review the matter on a de novo basis 114_tc_604 however where the validity of the underlying liability is not properly in issue we review the determination of the appeals_office for abuse_of_discretion 114_tc_176 the taxpayer may challenge the existence or amount of the underlying tax_liability only if the taxpayer did not receive a notice_of_deficiency or did not otherwise have an opportunity to challenge the underlying liability sec_6330 the taxpayer may waive the right to challenge the underlying liability by consenting to the assessment of a proposed liability see 117_tc_324 a-z optics inc v commissioner tcmemo_2007_27 deutsch v commissioner tcmemo_2006_27 affd 478_f3d_450 2d cir sec_7121 authorizes the commissioner to enter into a written closing_agreement with a taxpayer relating to the liability of such person for any taxable_period it provides that if such agreement is approved by the commissioner or_his_delegate it will be final and conclusive 65_tc_351 closing agreements may be reopened only in exceptional circumstances such as fraud malfeasance or the misrepresentation of a material fact sec_7121 the party seeking to set_aside the closing_agreement bears the burden of proving fraud malfeasance or misrepresentation brinkman v commissioner tcmemo_1989_217 some closing agreements constitute a final_determination of the taxpayer’s liability for the years in issue but others decide only specific issues and bind the parties only as to those issues 126_tc_195 97_tc_1 90_tc_753 petitioner attempts to contest its underlying liability with regard to worker classification before this court asserting that it is eligible for sec_530 relief because petitioner did not receive a notice_of_deficiency or otherwise have the opportunity to dispute its tax_liability it would generally be permitted to challenge its underlying liability as part of the collection_due_process_hearing see sec_6330 however a taxpayer may also waive its opportunity to challenge its underlying tax_liability if it enters into a binding closing_agreement with the commissioner that covers that issue or consents to the liability’s immediate_assessment and collection see aguirre v commissioner supra pincite respondent contends that petitioner waived its right to challenge its underlying liability including the issue of whether it is entitled to sec_530 relief because it signed a closing_agreement consenting to respondent’s determination regarding worker classification petitioner contends that the closing_agreement was invalid and should be set_aside because mrs moon signed it under duress and because it contains the incorrect ein we will first consider whether the closing_agreement is valid or whether it should be set_aside sec_301_7121-1 proced admin regs establishes the procedure to be used with respect to closing agreements and it provides that all closing agreements shall be executed on forms prescribed by the irs see hudock v commissioner supra pincite the closing_agreement signed by mrs moon complies with the procedures established and is executed on the form prescribed see internal_revenue_manual irm pt date the closing_agreement signed by mrs moon states in bold letters this agreement is final and conclusive except in the event of fraud malfeasance or misrepresentation of material fact the closing_agreement settles the worker classification issue providing that petitioner will pay the amount shown in full discharge of its employment_tax liability relating to worker classification and that it will begin treating its workers as employees petitioner contends that the closing_agreement is invalid and should be set_aside because mrs moon was coerced into signing it and because it shows an incorrect ein in the document heading petitioner’s support for its coercion argument consists of its contention that mr cookenour offered mrs moon two different calculations of liabilities and proposed that the irs would assess the lower one if she accepted the closing_agreement yet mr cookenour’s offer is precisely the kind of arrangement contemplated under respondent’s classification settlement program see id pt indeed the very nature of a settlement is that one party offers the other party a concession to induce that party to agree to a matter respondent agreed to assess only a portion of the taxes due under the reclassification in exchange for petitioner’s agreement to settle the matter sec_7121 provides that a closing_agreement shall be final except upon a showing of fraud or malfeasance or misrepresentation of a material fact we understand petitioner to be contending that duress would be the kind of malfeasance that would require the closing_agreement to be set_aside under sec_7121 however the facts petitioner has alleged do not amount to duress petitioner has not set forth any specific facts that would create a genuine issue for trial as to fraud malfeasance or misrepresentation of a material fact accordingly we conclude as a matter of law that there was no fraud malfeasance or misrepresentation of a material fact petitioner also contends that the closing_agreement should be invalid because of a minor error in the ein while it is uncontested that the ein listed in the heading of the closing_agreement is off by one digit petitioner was in no way prejudiced or confused by the minor error accordingly we hold that the closing_agreement is valid despite the incorrect ein in the document heading we therefore hold that the closing_agreement shall not be set_aside respondent contends that if we conclude the closing_agreement is valid petitioner is precluded from raising its claim for sec_530 relief however respondent’s contention appears inconsistent with the position taken by the commissioner in revproc_85_18 1985_1_cb_518 which states relief under sec_530 of the act is available to taxpayers who are under audit by the service or who are involved in administrative including appellate or judicial processes with respect to assessments based on employment status reclassifications relief also is extended to any claim for a refund_or_credit of any overpayment of an employment_tax resulting from the termination of liability under sec_530 provided the claim is not barred on the date of enactment of this provision date by any law or rule_of law 4we have repeatedly held that minor errors will not invalidate notices of deficiency where taxpayers were not prejudiced see eg 82_tc_509 n misspelling of street_name and incorrect digit in zip code did not invalidate notice_of_deficiency where it did not prejudicially delay receipt 57_tc_102 incorrect street number did not invalidate notice_of_deficiency actually received by taxpayer affd 527_f2d_754 9th cir taxpayers who have entered into final closing agreements under sec_7121 of the code or compromises under sec_7122 with respect to employment status controversies are ineligible for relief under the act unless they have not completely paid their liability thus for example a taxpayer who has agreed to or compromised a liability for an amount which is to be paid in installments but who still has one or more installments to pay is relieved of liability for such outstanding installments pursuant to that revenue_ruling which is taken almost verbatim from the legislative_history of sec_530 it would appear that a taxpayer who has entered into a final closing_agreement with the commissioner pursuant to sec_7121 may nonetheless be entitled to sec_530 relief as long as the taxpayer has not completely paid off its tax_liability however we need not decide whether revrul_85_18 supra entitles petitioner to relief under sec_530 because we conclude that we lack jurisdiction to consider petitioner’s claim for sec_530 relief the tax_court is a court of limited jurisdiction and may exercise jurisdiction only to the extent authorized by congress sec_7442 naftel v commissioner 5see h rept pincite 1978_3_cb_629 which states taxpayers who have entered into final closing agreements under code sec_7121 or compromises under sec_7122 with respect to employment status controversies are ineligible for relief under the bill unless they have not completely paid their liability thus for example a taxpayer who has agreed or compromised a liability for an amount which is to be paid in installments but who still has one or more installments to pay is relieved of liability for such outstanding installments t c we have jurisdiction under sec_7436 to decide whether a taxpayer is entitled to sec_530 relief 121_tc_89 affd 425_f3d_1203 9th cir however our jurisdiction under sec_7436 is dependent upon the commissioner’s issuance of a notice_of_determination concerning worker classification id 115_tc_287 petitioner indicated in its petition that it was contesting respondent’s notice_of_determination concerning collection action and notice_of_determination concerning worker classification however because petitioner signed a closing_agreement respondent never issued petitioner a notice_of_determination concerning worker classification by signing the closing_agreement petitioner chose not to receive such a notice and therefore waived its opportunity to challenge its underlying liability regarding worker classification before this court see aguirre v commissioner t c pincite holding that where a taxpayer signed a form_4549 income_tax examination changes consenting to an immediate_assessment and collection of tax the taxpayer chose not to receive a notice_of_deficiency and thereby waived the taxpayer’s right to challenge its underlying liability in this court accordingly we hold that we lack jurisdiction to consider petitioner’s request for sec_530 relief see charlotte’s office boutique inc v commissioner supra pincite aguirre v commissioner supra pincite consequently because as a matter of law petitioner has not alleged facts that would allow the closing_agreement to be set_aside and because we otherwise lack jurisdiction to consider petitioner’s claim for sec_530 relief petitioner may not challenge its underlying liability regarding worker classification before this court finally we consider whether respondent’s appeals_office abused its discretion by sustaining the collection action because petitioner’s underlying tax_liability is not properly in issue we review the determination of respondent’s appeals_office for abuse_of_discretion see sego v commissioner t c pincite the settlement officer considered all of petitioner’s contentions verified compliance by the irs with all applicable laws and regulations and considered whether the proposed collection actions balanced the need for efficient tax collection with petitioner’s concern that they be no more intrusive than necessary on the basis of the record before us we hold that the settlement officer did not abuse her discretion in sustaining the notice_of_intent_to_levy we conclude that respondent is entitled to summary_judgment on the issues of whether the closing_agreement should be set_aside to allow petitioner to challenge its underlying employment_tax liability and whether respondent’s appeals_office abused its discretion in determining that respondent may proceed with collection we shall therefore grant respondent summary_judgment on those issues additionally we conclude that we lack jurisdiction to consider petitioner’s claim that it is entitled to sec_530 relief and we shall therefore dismiss petitioner’s case with respect to that claim in reaching these holdings we have considered all the parties’ arguments and to the extent not addressed herein we conclude that they are moot irrelevant or without merit to reflect the foregoing an appropriate order and decision will be entered for respondent