office_of_chief_counsel internal_revenue_service memorandum number release date cc tege eoeg et2 agkelley presp-135451-10 third party communication none date of communication not applicable uilc date date to paul marmolejo program manager tax exempt government entities te_ge from lynne camillo chief employment_tax branch exempt_organizations employment_tax government entities office of the division counsel associate chief_counsel tax exempt and government entities subject federal_agency wage_base issues this chief_counsel_advice responds to your request for assistance this advice may not be used or cited as precedent this memorandum concerns the obligations of a federal_agency branch or department to pay social_security_tax under the federal_insurance_contributions_act fica with respect to remuneration paid to a federal employee who also receives wages from one or more other federal agencies branches or departments and whose combined remuneration from the federal agencies exceeds the maximum wage_base for social_security_tax purposes ie the social_security contribution_and_benefit_base dollar_figure for there are a number of situations in which this issue could arise payment of social_security_taxes on wages in excess of the maximum wage_base by two or more federal agencies could occur even if the employee works for just one agency during the year if the agency uses a shared service_center to make certain wage payments to employees shared service centers provide common administrative support services to federal agencies under u s c the shared service_center may provide the delivery of human resources payroll and relocation services to customer agencies in some cases a shared service_center may use other shared service centers to make certain types of wage payments to employees working for the agency that has contracted with the shared service_center in other cases employees work for one federal_agency presp-135451-10 during a portion of the year and then work for one or more other agencies during the remainder of the year in all these situations the possibility arises that federal agencies may pay social_security_taxes on wages in excess of the social_security contribution_and_benefit_base to federal employees after providing background information we discuss issues raised by these situations together with the answers in the remainder of the letter background fica_taxes include two taxes that are imposed on employers and employees with respect to wages the old-age_survivors_and_disability_insurance_tax oasdi or social_security_tax which is imposed by sec_3101 employee’s portion and sec_3111 employer’s portion and the hospital insurance medicare_tax imposed by sec_3101 employee’s portion and sec_3111 employer’s portion fica_taxes apply to wages as defined in sec_3121 of the code there is no limit on the_amount_of_wages subject_to the medicare_tax however sec_3121 provides an exception in the case of social_security_taxes for that part of the remuneration for employment not otherwise excepted from wages which after remuneration equal to the contribution_and_benefit_base with respect to employment has been paid to an individual by an employer during the calendar_year with respect to which such contribution_and_benefit_base is effective is paid to such individual by such employer to such individual during such calendar_year thus in order for the exception to apply to remuneration it must be shown that the employee had received other wages equal to the contribution_and_benefit_base before receiving the remuneration sec_3122 of the code provides that in the case of fica_taxes with respect to services performed in the employ of the united_states or in the employ of a united_states instrumentality the determination of the amount of remuneration for such service and the return and payment of fica_taxes shall be made by the head of the federal_agency or instrumentality having the control of such service or by such agent as such head may designate sec_3122 further provides that nothing in sec_3122 shall be construed to affect the secretary’s authority to determine under sec_3121 and b whether any such service constitutes employment the periods of such employment and whether the remuneration paid for any such service constitutes wages in addition sec_3122 provides that the person making such return may for convenience of administration make payments of the tax imposed under sec_3111 the fica employer tax with respect to such service without regard to the contribution_and_benefit_base limitation in sec_3121 and he shall not be required to obtain a refund of the tax paid under sec_3111 on that part of the remuneration paid for any such service not included in wages by reason of sec_3121 sec_6413 provides in part that if more than the correct amount of tax imposed by sec_3101 or sec_3111 is paid with respect to any payment of remuneration proper adjustments with respect to both the tax and the amount to be deducted shall be made presp-135451-10 without interest in such manner and at such times as the secretary may by regulations prescribe sec_6413 provides that for purposes of sec_6413 in the case of remuneration received from the united_states or a wholly owned instrumentality thereof during any calendar_year each head of a federal_agency or instrumentality who makes a return pursuant to sec_3122 and each agent designated by the head of a federal_agency or instrumentality who makes a return pursuant to such section shall be deemed a separate employer sec_6413 provides that if by reason of an employee receiving wages from more than one employer during a calendar_year the wages received by him during such year exceed the contribution_and_benefit_base which is effective with respect to such year the employee shall be entitled subject_to the provisions of sec_31 to a credit or refund of any amount of tax with respect to such wages imposed by sec_3101 and deducted from the employee’s wages whether or not paid to the secretary which exceeds the tax with respect to the amount of such wages received in such year which is equal to such contribution_and_benefit_base sec_6413 provides that in the case of remuneration received from the united_states or a wholly owned instrumentality thereof during any calendar_year each head of a federal_agency or instrumentality who makes a return pursuant to sec_3122 and each agent designated by the head of a federal_agency or instrumentality who makes a return pursuant to such section shall for purposes of sec_6413 be deemed a separate employer and the term wages includes for purposes of sec_6413 the amount not to exceed an amount equal to the contribution_and_benefit_base for any calendar_year with respect to which such contribution_and_benefit_base is effective determined by each such head or agent as constituting wages paid to an employee issues issue whether the federal government is considered one employer for purposes of the maximum wage_base imposed by sec_3121 of the internal_revenue_code for purposes of the exception provided by sec_3121 branches departments and agencies of the federal government are considered one employer the united_states government under sec_3121 the exception for remuneration paid in excess of the contribution_and_benefit_base applies only if the wages received are from one employer the definition of employer for this purpose is the employer under the common_law rules thus it is necessary to determine whether the different component parts such as agencies of the government are separate common_law employers and have separate and distinct employment relationships with a federal employee presp-135451-10 the issue of whether the united_states government is one employer has arisen in a different tax context in revrul_58_599 1958_2_cb_45 the irs considered whether a member of the armed_forces on the retired list for physical disability is absent from work for purposes of the former exclusion provided in former sec_105 of the code when he performs services in another department agency or branch of the united_states government under the sec_105 regulations relevant to the ruling an employee is not absent from work when he performs any services for his employer at his usual place or places of employment or substantial services for his employer at a place other than the usual place of employment the ruling concluded that the united_states government is considered one employer and that the individual is considered not absent from work from his employer when he performs services as an employee of the united_states whether such services are performed in the same department or in another department agency or branch of the united_states government revrul_58_599 provides that while the power_of_appointment with respect to officers and employees in the government of the united_states other than that specifically reserved to the president by the constitution is vested by the congress in the president in the courts of law or in the heads of the departments and independent establishments the relationship of employer and employee is between the united_states and the individual so appointed revrul_58_599 cite sec_24 comp gen and sec_31_3401_d_-1 of the employment_tax regulations as authority for its position see also revrul_77_15 1977_1_cb_26 holding that a federal employee who retired on disability was not absent from work for purposes of sec_105 when he performed services as an employee of the u s postal service because he was performing substantial services for his employer the united_states government and black v commissioner tcmemo_1981_474 retired marine corps master gunnery sergeant was not absent from work for purposes of sec_105 when he performed services as a civilian employee of the marine corps the rationale of revrul_58_599 also applies for purposes of the exception provided by sec_3121 with respect to branches agencies and departments of the united_states government the united_states government is a single employer for purposes of sec_3121 therefore a federal_agency can consider social_security wages paid_by another federal government department agency or branch to the employee for purposes of determining whether the employee has received wages equal to the contribution_and_benefit_base the united_states government’s status as a single employer is also consistent with the need for congress to make provision under sec_6413 for federal employees to obtain special refunds of excess social_security_taxes paid as a result of working for two or more federal agencies if the special rule_of sec_6413 were not provided the employee presumably would have been required to get any refund of excess social_security_tax paid as a result of working for two federal agencies from the agencies making the excess social_security_tax payments rather than taking a credit on their income_tax returns the relevant authorities deal with whether branches agencies and departments of the united_states government are considered one employer we are not addressing whether instrumentalities of the united_states are considered part of the united_states government for purposes of sec_3121 presp-135451-10 in the case of services in the employ of the united_states sec_3122 provides that the head of the federal_agency or instrumentality having control of the employee’s service or such agents as such head may designate are required to make the return and payment of fica_taxes also for purposes of the special_refund of fica employee tax under sec_6413 each head of a federal_agency or instrumentality and each agent designated by the head of the federal_agency or instrumentality is considered a separate employer however the treatment of agency heads and designated agents as separate employers for purposes of these administrative rules concerning the filing of returns payment of taxes and claiming of the sec_6413 credit does not mean that each such agency head or designated agent is a separate employer for purposes of the definition of wages and employment under sec_3121 and sec_3121 a federal_agency head having control of the employee’s service could appoint several agents to make payments to individuals working for that agency but this does not cause each of the agents to be considered a separate employer for purposes of sec_3121 this memorandum concerns employees who are working for one or more agencies departments or branches of the united_states government and are receiving wages paid_by two or more heads of agencies departments or branches or agents appointed by the heads issue are agencies required to coordinate with other agencies to insure that the agencies together do not exceed the social_security_tax on the maximum wage_base or can an agency pay social_security_tax up to the maximum wage_base without regard to whether another federal_agency or payor has paid social_security_tax with respect to the employee during the calendar_year federal government persons who are required to pay fica_taxes and file returns under sec_3122 federal government employment_tax return filers on behalf of an agency department or branch of the federal government are not required to coordinate with other agencies to insure that the agencies together do not pay social_security_tax on amounts in excess of the contribution_and_benefit_base a person required to pay fica_taxes and file returns under sec_3122 with respect to federal employment may pay social_security_tax on an employee’s wages up to the maximum wage_base without regard to whether another federal_agency or payor has paid social_security_tax with respect to the employee during the calendar_year sec_3122 gives federal government employment_tax return filers the authority to ignore wages paid_by other payors in determining whether the social_security maximum wage and the answer may well be different in that context see h_r rep no 81st cong 1st sess and sen_rep no 81st cong 2d sess indicating that a federal instrumentality in determining the amount of remuneration for services performed in employment which constitutes wages for social_security_tax purposes may not take into consideration amounts of remuneration paid_by any other instrumentality or any federal department or agency presp-135451-10 base has been reached sec_3122 provides that the person making returns under sec_3122 may for convenience of administration make payments of the tax imposed under sec_3111 with respect to such service without regard to the contribution_and_benefit_base limitation in sec_3121 and he shall not be required to obtain a refund of the tax paid under sec_3111 on that part of the remuneration not included in wages by reason of sec_3121 although the statute merely references the employer tax under sec_3111 it is clear that sec_3122 and sec_6413 together were intended to allow federal government employment_tax return filers to withhold and pay the social_security_tax on the maximum wage_base with respect to an employee’s wages without regard to whether the employee had received wages from other federal employers the legislative_history related to sec_3122 indicated that the provision was intended to relieve a person making a return on behalf of any federal department or agency of ascertaining whether any wages have been reported for the particular employee during the calendar_year by any other reporting unit of any federal department or agency h_r rep no 81st cong 1st sess sen_rep no 81st cong 2d sess the federal government employment_tax return filer could only be relieved of ascertaining whether wages have been paid_by another federal return filer if it can withhold and pay the employee tax without regard to wages paid_by other federal return filers the employee is able to recover the employee portion through the special_refund of overwithheld social_security_tax provided by sec_6413 which provides that each federal government employment_tax return filer who makes a return pursuant to sec_3122 shall for purposes of sec_6413 be deemed a separate employer and that in calculating the amount of the refund under sec_6413 the term wages includes for purposes of sec_6413 the amount not to exceed an amount equal to the contribution_and_benefit_base for any calendar_year issue is a federal_agency permitted to file a refund claim for the employer portion of the social_security_tax paid in excess of the maximum wage_base by the agency and another federal return filer but instruct employees to obtain a credit for the employees’ form sec_1040 u s individual_income_tax_return for any employee social_security_taxes withheld in excess of the maximum wage_base no in order to obtain a refund of social_security_tax or obtain credit through the adjustment procedure the federal return filer must follow the normal procedures for obtaining a refund or making an adjustment and also must demonstrate that it paid social_security_taxes for which it is claiming a refund or making an adjustment after wages equal to the contribution_and_benefit_base were paid to the employee by the federal government as discussed below the requirements for obtaining a refund or making an adjustment include certain employee notification procedures that would not be satisfied simply by telling the employee to claim a credit of the employee social_security_tax portion on his or her federal_income_tax return also a federal employer presp-135451-10 cannot claim the refund of employer fica_taxes if another federal employer is in fact entitled to the refund there are two procedures that may be used to correct an overpayment of fica_taxes the adjustment procedure claim_for_refund an adjustment or a claim_for_refund of the employer fica_taxes must meet certain requirements whether the claim may be granted or the adjustment approved depends upon whether the requirements for an employer to claim a refund of fica_taxes or make an adjustment under the statute and regulations have been satisfied and whether the federal government employment_tax return filer can establish that the particular wage payment with respect to which it is claiming a refund was paid after the employee had received fica wages equal to the contribution_and_benefit_base for the calendar_year in situations where the employer has collected more than the correct amount of social_security_taxes with respect to employees an ideal solution would be correction of that overcollection before the form_941 is filed for the quarter in which the overcollection occurs and before the employee is issued form_w-2 wage and tax statement the employer could repay the employee the overcollection of employee social_security_tax thus the form_941 and form_w-2 would reflect the wages and taxes as adjusted by the repayment to the employee this would eliminate the need for filing for a refund of social_security_taxes by the employer or by the employee because the overcollection would have been taken care of before returns are filed general requirements for making an adjustment or obtaining a refund of fica_taxes a claim_for_refund of fica_taxes or an adjustment of an overpayment of fica_taxes by an employer is filed on form 941-x adjusted employer’s quarterly federal tax_return or claim_for_refund when the employer is correcting underlying fica tax that was paid and reported on form_941 employer’s quarterly federal tax_return the general requirements for applying for and receiving a refund of fica_taxes or making an adjustment for overpayment of fica_taxes are discussed in detail in the regulations under sec_31_6402_a_-2 refunds and a -2 adjustments of the employment_tax regulations and the instructions for form 941-x the following material is not intended to be a comprehensive discussion of all the requirements for filing claims for refunds and adjustments for refunds the form 941-x is filed separately from form_941 and a separate form 941-x is used for each form_941 an employer is correcting if an employer’s corrections relate to overpaid fica_taxes the employer must follow prescribed procedures which are designed to assure that an employee’s rights to recover overpaid employee social_security and medicare taxes that were withheld are protected the employer receiving a refund of or making an adjustment for social_security_taxes also is required to furnish to the employee and file forms w-2c corrected wage and tax statement reflecting the correct amount of social_security wages and the social_security_tax withheld with respect to refunds sec_31_6402_a_-2 of the regulations discusses the employer’s obligations to notify the employee as part of the process of obtaining a presp-135451-10 refund of fica_taxes sec_31_6402_a_-2 of the regulations provides that the claim for credit or refund must be filed on the form prescribed by the irs and must designate the return_period to which the claim relates explain in detail the grounds and facts relied upon to support the claim and set forth such other information as may be required by the regulations and by the instructions relating to the form used to make such claim no refund_or_credit pursuant to this section for employer tax will be allowed unless the employer has first repaid or reimbursed its employee or has secured the employee’s consent to the allowance of the claim_for_refund and includes a claim for the refund of such employee tax however this requirement does not apply to the extent that the taxes were not withheld from the employee or after the employer makes reasonable efforts to repay or reimburse the employee or secure the employee’s consent the employer cannot locate the employee or the employee will not provide consent no refund_or_credit of employee fica tax overcollected in an earlier year will be allowed if the employee has claimed a refund_or_credit of the amount of the overcollection which has not been rejected or if the employee has taken the amount of such tax into account in claiming a credit against or refund of the employee’s income_tax including instances in which the employee has included an overcollection of employee fica tax in computing a special_refund under sec_6413 with respect to adjustments of overpaid tax sec_31_6413_a_-2 also provides for the requirement of employee notification sec_31_6413_a_-2 provides that every adjusted return on which an overpayment is corrected shall certify that the employer has repaid or reimbursed the employee except where taxes were not withheld from the employee or where after reasonable efforts the employer cannot locate the employee every adjusted return filed by an employer for overpayment of employee fica tax under sec_3101 collected from an employee in a calendar_year prior to the year in which the adjusted return is filed must also certify that the employer has obtained the employee’s written_statement that the employee has not claimed refund_or_credit for the amount of the overcollection or if so such claim has been rejected and that the employee will not claim refund_or_credit of the amount as part of the process of adjusting a social_security_tax overpayment or claiming a refund of overpaid social_security_tax the employer is required to file amended forms w-2 forms w-2c reflecting the correct amount of wages the amended form_w-2 would show the amended amount of social_security wages the problem here is that the original forms w-2 could be used by the employees to claim credit under sec_6413 for the overwithheld social_security_tax if the overwithholding is the result of the employee receiving wages in excess of the contribution_and_benefit_base from two or more federal government employment_tax return filers or other employers the employee’s original form_w-2 will reflect the social_security wages on which social_security_taxes were paid and the amount of social_security_tax withheld if amended forms w-2 are given to the employees those amended forms w-2 would show reduced social_security wages and if the taxes were repaid to the employee by the employer reduced social_security_taxes thus there would be an inconsistency in a presp-135451-10 government agency telling the federal employee to claim credit for the excess social_security_tax withheld on his or her form_w-2 which would require the employee to file form_1040 with the original form_w-2 attached showing the excess social_security wages and tax and then also making an adjustment for overpayment of or claiming a refund of the employer portion of the social_security_tax on form 941-x which requires filing of corrected forms w-2 that would show amended social_security wages inconsistent with entitlement to the sec_6413 credit for excess social_security_tax withheld in summary the employer claiming a refund of social_security_tax must satisfy one of the following three requirements in order to receive a refund of the employer portion of the social_security_tax on an overpayment of social_security_taxes with respect to an employee the employer repays the employee the amount of the overpaid employee portion of the social_security_taxes in which case the employer can request a refund of or make adjustment for the overpayment of the employer and the employee portions of social_security_taxes the employer obtains the employee’s consent to file for a refund of the overpaid employee portion of the tax see page of the instructions for form 941-x for the form and contents of the consent the employer can request a refund of the employer and the employee portions of the social_security_taxes in that case the employer notifies the employee but does not obtain a consent to file a claim_for_refund of the employee portion of the social_security_tax for example because the employee has already filed for a credit of the employee portion of the tax on form_1040 in this case the employer could request a refund or make an adjustment of the employer portion of the social_security_tax only and not the employee portion the employer would need to file form w-2c regardless of which of the above options applied specific requirements for obtaining a refund of fica tax or making an adjustment of an overpayment of fica tax applicable in this case in addition to the general requirements there are specific requirements that would apply in this case because the agency would need to show that the wages were paid after the employee had received wages equal to the contribution_and_benefit_base from two or more federal agencies by way of illustration we will present an example where a federal employee works for two federal government agencies agency x and agency y in he works for x for the first half of the year and y for the second half of the year as mentioned earlier the social_security contribution_and_benefit_base for is dollar_figure under this example agency x pays the employee dollar_figure in the first half of and the head of the federal_agency reports and pays the fica tax pursuant to sec_3122 and withholds and pays fica_taxes on the entire amount of the wages it pays to the employee and presp-135451-10 agency y pays the employee dollar_figure in the second half of the year and the head of the federal_agency reports and pays the fica tax pursuant to sec_3122 and pays fica_taxes on the entire amount of wages it pays to the employee under this example only agency y can receive a refund of social_security_taxes because it is the only agency paying wages to the employee after the employee has been paid wages equal to the contribution_and_benefit_base from two or more united_states government return filers in order for agency y to receive a refund of employer fica_taxes paid with respect to the employee the agency would be required to satisfy the usual requirements for obtaining a refund of fica_taxes as described above and it would also be required to establish the dates of the wages paid the employee in by the federal employers and the date the employee’s wages from x and y exceeded the contribution_and_benefit_base similarly if for example two federal government employment_tax return filers are paying wages throughout the year to an employee because for example one employer is acting as an agent in paying moving_expenses for another employer and the combined wages paid that are subjected to fica tax are in excess of the contribution_and_benefit_base the determination of which filer can receive the refund of fica_taxes provided it meets the general requirements for receiving a refund or make an adjustment for overpayment of the fica_taxes would be based on the order in which the wages were paid an employer requesting a refund or making an adjustment would need to be able to establish when the employee received payments of wages from both employers and when the wages received by the employee exceeded the contribution_and_benefit_base and adjust for any wages repaid by the employee although the procedures for obtaining a refund of the employer social_security_tax or making an adjustment for an overpayment of employer social_security_tax involve some administrative work congress did not set up any special procedure for refund of the employer tax in this situation congress’s remedy was not to change the procedures applicable to an employer’s request for refund of fica tax but to provide that the person making returns under sec_3122 shall not be required to obtain a refund of the tax paid under sec_3111 on that part of the remuneration not included in wages by reason of sec_3121 thus congress recognized that obtaining the refund would involve some administrative effort and expense for an agency and provided that the agency is not required to pursue a refund of the employer fica tax when the overpayment results from the payment of social_security_taxes on amounts in excess of the contribution_and_benefit_base the agency is also not required to make an adjustment with respect to the overpayment of employer fica_taxes in this situation in other examples of consecutive employment of this nature it is possible that the agency that employed the employee during the first half of the year may make a payment of remuneration during the second half of the year for example back pay that is paid after the employee has received total wages equal to the contribution_and_benefit_base from both agencies and may pay employer social_security_taxes with respect to that payment in such a case the agency employing the employee during the first half of the year could obtain a refund of the employer social_security_taxes paid with respect to the payment of remuneration in the second half of the year presp-135451-10 issue would a federal_agency using two shared service centers to pay wages to employees be required to claim a refund of any overwithholding of employee social_security_tax or overpayment of employer social_security_tax regardless of the amount no under sec_3122 a federal government employment_tax return filer is not required to claim a refund of any overwithholding of employee social_security_tax or overpayment of employer or employee social_security_tax resulting from the employee receiving wages from two or more federal government employment_tax return filers the employer would also not be required to make an adjustment with respect to any overpayment of employee or employer social_security_tax resulting from the employee receiving wages from two or more federal government employment_tax return filers in contrast if a single federal government employment_tax return filer under sec_3122 withholds employee social_security_tax on amounts in excess of the contribution_and_benefit_base and issues a form_w-2 reporting social_security wages in excess of the contribution_and_benefit_base and social_security_taxes in excess of the maximum that should be withheld by one employer the federal government employment_tax return filer would be required to make an adjustment for or claim a refund of the overpayment of social_security_tax and file amended forms w-2 for example if a shared service_center paid social_security_taxes on amounts in excess of the contribution_and_benefit_base for an employee based on remuneration that the shared service_center only paid to the employee the shared service_center would be required to make an adjustment for or claim a refund of the overpaid employee social_security_tax and issue appropriate amended forms w-2 this would be necessary because the employee could not claim a refund of the overpaid employee social_security_tax under sec_6413 on his or her federal_income_tax return in that situation the employee would have received one form_w-2 reporting social_security wages in excess of the contribution_and_benefit_base the federal government employment_tax return filer must correct this mistake and correct the forms w-2 as part of the correction and refund process the federal government employment_tax return filer would also be making an adjustment for employer tax or getting a refund of the employer tax in the example situation described in this paragraph however if the overpayment of social_security_tax by the federal government employment_tax return filer results from the fact that the employee also received wages from another federal government employment_tax return filer then sec_3122 provides that the federal government employment_tax return filer is not required to make an adjustment for or claim a refund of such overpayment issue a if a shared service_center and an agency coordinate social_security_tax withholding during the year and still encounter overwithheld social_security_taxes at year end are the shared service_center and or the agency required to coordinate year-end adjustments through the payroll provider to insure that the withholding limit is not exceeded b alternatively can the shared service_center and or the agency instruct the employee to obtain a refund on his or her form_1040 tax_return for any overwithheld presp-135451-10 social_security_taxes and file for a refund of the agency’s employer portion of the social_security_taxes using a form 941x a under sec_3122 the shared service_center and or the agency are not required to coordinate year end adjustments of social_security_taxes withheld in excess of the contribution_and_benefit_base as a result of the employee receiving wages from two or more federal government employment_tax filers b as noted above in the answer to issue the shared service_center and or the agency can only obtain a refund_or_credit of the overwithheld employer social_security_tax by following the usual refund or adjustment procedures and providing the other information described above in the answer to the fourth issue please call if you have any further questions _____________________________ lynne camillo branch chief employment_tax branch exempt_organizations employment_tax government entities tax exempt government entities


t c memo united_states tax_court estate of bonnie w deese deceased gladys deese personal representative petitioner v commissioner of internal revenue respondent docket no 13920-06l filed date gladys deese for petitioner lauren b epstein for respondent memorandum opinion thornton judge this matter is before the court on respondent’s motion for summary_judgment filed pursuant to rule as discussed in detail below we shall grant respondent’s motion background on date respondent received a form 870-ad offer to waive restrictions on assessment and collection of tax_deficiency and to accept overassessment showing signatures of bonnie w deese mr deese and his wife gladys deese ms deese consenting to the immediate_assessment and collection of specified deficiencies in their joint federal tax_liabilities for taxable years through on date mr deese died on date respondent assessed these agreed-upon deficiencies along with interest on date respondent sent the deceased mr deese a notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 with respect to taxable years and no collection hearing was requested in response to this notice on date respondent sent the deceased mr deese another notice_of_federal_tax_lien filing and your right to a hearing under sec_6320 this time for taxable years through in response to this notice on date unless otherwise indicated all rule references are to the tax_court rules_of_practice and procedure and all section references are to the internal_revenue_code in effect for the years at issue ms deese as personal representative of the deceased mr deese submitted a form request for a collection_due_process_hearing cdp hearing after a face-to-face hearing between respondent’s appeals officer ms deese and her c p a representative respondent’s appeals_office issued petitioner a notice_of_determination concerning collection action s under sec_6320 and or for taxable years and respondent also issued petitioner a decision letter concerning equivalent_hearing under sec_6320 and or for taxable years and the notice and decision letter upheld the filing of notice of tax_lien against the deceased mr deese for the respective relevant years on date the petition was timely filed ms deese then residing in georgia signed the petition as personal representative for bonnie w deese deceased on date respondent filed his motion for summary_judgment on date we ordered petitioner to file a response to the petition states that it is with respect to petitioner’s taxable years and by order dated date this court granted respondent’s motion to dismiss for lack of jurisdiction and to strike as to taxable years and on the ground that petitioner had failed to make a timely request for a sec_6320 hearing within the statutorily mandated period after respondent sent the first notice of tax_lien_filing for those years on date consequently only taxable years and remain at issue respondent’s motion for summary_judgment by date the court has received no response discussion summary_judgment may be granted where there is no genuine issue of any material fact and a decision may be rendered as a matter of law rule a and b see 98_tc_518 affd 17_f3d_965 7th cir 90_tc_753 when a motion for summary_judgment is made and properly supported the adverse_party may not rest upon mere allegations or denials of the pleadings but must set forth specific facts showing that there is a genuine issue for trial rule d if appropriate a decision may be entered against a party who fails to respond to a motion for summary_judgment id sec_6321 imposes a lien in favor of the united_states on all property and property rights of a person who is liable for and fails to pay tax after demand for payment has been made for the lien to be valid against certain third parties the secretary must file a notice_of_federal_tax_lien within business days thereafter the secretary must provide written notice to the person against whom the lien is filed sec_6320 sec_6323 within days commencing the day after the end of the business days the person may request an administrative hearing before an appeals officer sec_6320 sec_301_6320-1 proced admin regs at the appeals_office hearing the person against whom the lien is filed generally may raise any relevant issue including spousal defenses challenges to the appropriateness of the commissioner’s intended collection action and possible alternative means of collection sec_6320 sec_6330 at the hearing the person may challenge the existence or amount of the underlying tax_liability only if the person did not receive a notice_of_deficiency or did not otherwise have an opportunity to dispute the liability sec_6330 see 114_tc_604 114_tc_176 once the appeals_office issues a notice_of_determination the person may seek judicial review in this court sec_6320 sec_6330 in the petition ms deese contends that she as the surviving_spouse should not be liable for the underlying tax_liabilities the proposed collection action and notice_of_determination upon which this case is based however relate only to the unpaid tax_liabilities of the deceased mr deese consequently notwithstanding that ms deese may be responsible for paying the underlying joint tax_liabilities both in her individual capacity and in her capacity as the personal representative of mr deese’s estate her personal liability in either capacity is outside the scope of judicial review in this proceeding moreover by submitting the form 870-ad consenting to the immediate_assessment and collection of their deficiencies mr and ms deese waived their right to a notice_of_deficiency and gave up any right to challenge their underlying liabilities in a collection proceeding see sec_6330 117_tc_324 rivera v commissioner tcmemo_2003_35 affd 102_fedappx_594 9th cir hence to the extent that petitioner means to challenge the underlying liabilities of mr deese such a challenge is precluded in this collection proceeding the petition alleges that gladys deese ms deese signed the form 870-ad offer to waive restrictions on assessment and collection of tax_deficiency and to accept overassessment for herself and her ailing husband bonnie w deese mr deese we might question this allegation inasmuch as the form 870-ad seems to show the signatures of mr and ms deese in two different hands in his motion for summary_judgment respondent alleges that both mr and ms deese signed the form 870-ad since petitioner filed no response to respondent’s motion for summary_judgment we might assume that petitioner no longer disputes that mr deese signed the form 870-ad see eg bergmann v commissioner tcmemo_1985_290 we need not decide this issue however even if we were to assume for purposes of argument that ms deese signed the form 870-ad on behalf of mr deese it would make no material difference for purposes of our ruling upon respondent’s motion for summary_judgment in particular the petition does not allege or suggest that ms deese lacked authority to sign the form 870-ad on behalf of her husband to the contrary in the petition ms deese appears to justify her allegedly signing mr deese’s signature by reason of his illness similarly petitioner has not alleged any duress coercion fraud or misrepresentation such as might invalidate the waiver see shireman v commissioner tcmemo_2004_155 we conclude that there is no genuine issue of material fact requiring a trial in this case we hold that respondent is entitled as a matter of law to the entry of a decision sustaining the filing of the notice of tax_lien an appropriate order and decision will be entered


number release date id office uilc cca_2010082416330444 -------------- from ---------------------- sent tuesday date pm to --------------------- cc ----------------------------------------- subject pre-ajca sec_6707 questions ----------- below is our response to your pre-ajca sec_6707 questions i you asked whether based on the language of sec_6671 the pre-ajca sec_6707 penalty could assessed against a person other than the person required to register the tax_shelter under pre-ajca sec_6111 as a confidential_corporate_tax_shelter the penalty under pre-ajca sec_6707 is limited to those individuals who had a duty as tax_shelter_organizer under pre-ajca sec_6111 to register a tax_shelter as the term tax_shelter_organizer is defined in sec_6111 also sec_6111 clarifies that in addition to a promoter as that term is defined in d b persons other than a promoter may be required to register a confidential_corporate_tax_shelter as provided in sec_6111 therefore in pre-ajca sec_6111 congress specifically identified the individuals who were required to register a tax_shelter under sec_6111 see pre-ajca sec_6111 and d the penalty for failure_to_register a tax_shelter imposed by pre-ajca sec_6707 is aimed only at those individuals who have failed to comply with pre-ajca sec_6111’s registration requirements therefore sec_6671 may not be used to impose the pre-ajca sec_6707 penalty on those persons who did not have an obligation to register the tax_shelter under pre-ajca sec_6111 ii you asked if the pre-ajca sec_6707 penalty is a divisible_tax divisible assessments are those taxes or penalties that are composed of several independent assessments created by separate transactions examples of divisible taxes are payroll and excise_taxes see 566_f2d_50 9th cir 362_us_145 n ndollar_figure pre- ajca sec_6707 provides that the penalty shall be the greater of one percent of the aggregate amount invested in the tax_shelter or dollar_figure for ratio tax_shelters or the greater of of the fees paid to all promoters of the shelter or dollar_figure for confidential_corporate_tax_shelters the penalty is not assessed on each individual transaction like payroll_taxes are but instead are assessed based on the aggregate amount invested in the tax_shelter or the aggregate amount of fees paid to promoters of the tax_shelter see pre-ajca sec_6707 and thus pre-ajca sec_6707 penalties are non-divisible and must be paid in full before commencing a refund_suit sec_301_6111-2t e i as effective in t d provides that confidential corporate transactions involving similar_business assets and similar plans or arrangements that are offered to corporate taxpayers by the same person or related_persons are aggregated and considered part of a single tax_shelter pre-ajca sec_6707 penalties are assessed on a tax_shelter by tax_shelter basis therefore if multiple sec_6707 penalty assessments are made against the same entity or individual each assessment would involve different tax_shelters thus the assessed individual or entity could pay one pre-ajca sec_6707 penalty assessment and file a refund_suit with respect to the paid penalty without paying the other assessments the individual could not however litigate the merits of the unpaid penalty assessments in the refund_suit please let me know if you have additional questions


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division date sep index number contact person identification_number contact number t eo b4 employer_identification_number legend dear sir or madam this is in response to m's letter dated date as supplemented in which m requested a set-aside ruling of t under sec_4942 of the internal_revenue_code the code facts m is a nonprofit corporation exempt from federal_income_tax under sec_501 of the code m files a form_990-pf on a calendar_year basis until the n calendar_year m was classified as a private_operating_foundation however in n m failed to distribute two-thirds of its minimum_investment_return m needs a favorable response to this ruling_request to facilitate reclassification as a private_operating_foundation for the year u since m was formed it has owned and operated a residential facility for the aged and needy on approximately two acres in a residential area in recent years there have been changes in the surrounding neighborhood to assure the continuity of service to and safety for the aged and needy ie fo continue the tax-exempt function of providing a residential facility for the aged and needy m's board decided that it must relocate the facility it determined that approximately five acres of land would be needed on which to construct a new facility thus m's board will purchase the real_estate at a cost not less than t before w m's board also authorized the hiring of a real_estate consultant m's board originally authorized the purchase of approximately five acres of land for t m’s real_estate consultant recommended that t could pay for approximately two acres the original ou estimate of m's board was based upon a judgment made as part of an initial consideration of the subject m represents that the number of acres will depend upon proximity to shopping availability of public transportation factors relating to the safety of m’s residents and other market_value factors to date no final_decision has been made as to whether the building itself will be built up or extend horizontally m believes that it would be premature to hire an architect until it has purchased the real_estate although no architect has prepared any plans m anticipates that the total cost of the project land and building will likely be in the x range or higher and alternative financial arrangements are being considered m has specifically requested that the internal_revenue_service issue a ruling confirming that setting aside t to be expended to purchase land before w on which it will construct a new residential facility is a qualifying_distribution for the year u and satisfies the suitability test of sec_4942 i of the code and sec_53_4942_a_-3 of the foundation and similar excise_taxes regulations under the facts and circumstances m believes that the acquisition of the land can better be accomplished by using a set-aside rather than the immediate payment of funds law analysis sec_4942 of the code defines a qualifying_distribution as a any amount_paid to accomplish one or more purposes described in sec_170 other than any contribution to i an organization controlled by the foundation or one or more disqualifying persons or ii a private_foundation that is not an operating_foundation except as otherwise provided or b any amount_paid to acquire an asset used directly in carrying out one or more purposes described in sec_170 sec_4942 of the code provides that for all taxable years beginning on or after date an amount set_aside for a specific project that comes within one or more purposes described within sec_170 may be treated as a qualifying_distribution if it meets the requirements of subparagraph b of sec_4942 sec_4942 of the code provides that an amount set_aside for a specific project may be treated as a qualifying_distribution if at the time of the set-aside the foundation establishes to the satisfaction of the secretary that the amount will be paid for the specific project within five years and the project is one that can be better accomplished by such set- aside rather than by immediate payment of funds the suitability test sec_4942 of the code defines the term operating_foundation in general as a private_foundation that engages directly in the active_conduct of charitable religious educational and similar activities while other private_foundations make grants for sec_501 purposes sec_53_4942_a_-3 of the regulations provides that an amount set_aside fora specific project that is for one or more of the purposes described in sec_170 or b may be treated as a qualifying_distribution in the year in which set_aside but not in the year in which actually paid if the requirements of sec_4942 and this paragraph are satisfied the requirements of this paragraph b are satisfied if the private_foundation establishes to the a satisfaction of the commissioner that the amount set_aside will be paid for the specific project within months after it is set-aside and i the set-aside satisfies the suitability test or ii the foundation satisfies the cash distribution test sec_53_4942_a_-3 of the regulations provides that the suitability test is satisfied if the foundation establishes that the specific project is one in which relatively long-term grants or expenditures must be made to assure the continuity of particular charitable projects or program- related investments the regulation cites as an example of a suitable project a plan to erect a building to house the direct charitable educational or similar exempt activity of the foundation such as a museum building in which paintings are to be hung even though the exact location and architectural plans have not been finalized m states that its proposed set-aside will be used to purchase land on which to construct a residential facility for the aged and needy thus it will be used to accomplish a purpose described in sec_170 of the code furthermore the amount set_aside will actually be paid for the project before w which is within months after it is set_aside as required by a -3 b of the regulations the set-aside satisfies the suitability test because the t minimum cost for vacant land on which m will construct a new residential facility cannot practically be made in the year u and because the facility will be used to assure continuity of m's charitable activity as required by sec_53_4942_a_-3 of the regulations and the example cited therein supra m has established that the project is long-term in nature and is better accomplished by a future expenditure than by a current one ruling based on the foregoing we rule that the set-aside of t specifically devoted to the purchase of land on which m will construct a new facility meets the requirements of sec_4942 i of the code and sec_53_4942_a_-3 of the regulations accordingly m can treat the set-aside as a qualifying_distribution expended directly for the active_conduct of exempt_activities for its taxable_year ending december u we direct your attention to sec_53_4942_a_-3 of the regulations entitled evidence of set-aside this section provides that a set-aside approved by the internal_revenue_service shall be evidenced by the entry of a dollar amount on the books_and_records of a private_foundation as a pledge or obligation to be paid at a future date or dates we are informing the ohio te_ge office of this action please keep a copy of this ruling with your permanent records ad3k this ruling is directed only to m sec_6110 of the code provides that it may not be used or cited as precedent sincerely sterelal v brok gerald v sack manager exempt_organizations technical group


internal_revenue_service department of the treasury index numbers washington dc person to contact telephone number refer reply to cc intl br5 plr-118030-98 date date bank country a country b city a city b city c city d date a dear this is in reply to a letter dated date requesting rulings under sec_882 of the internal_revenue_code_of_1986 the code additional information was submitted in a letter dated date the information submitted for consideration is substantially as set forth below 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 this office has not verified any of the material submitted in support of the request for rulings verification of the factual information representations and other data may be required as part of the audit process ca fs cc intl br5 plr-118030-98 on i bank is an international banking institution incorporated under the laws of country a bank files a form 112of to report the income earned by its u s operations bank is an accrual basis taxpayer with a date a tax and financial year-end through its branches and agencies located in city a city b city c city d and country b the u s branches bank is engaged in the u s ina commercial wholesale banking business which includes but is not limited to lending activity issuance of lines of credit deposit taking activity and dealing in derivatives the country b branch of bank was created in order to facilitate deposit-taking activity from the eurodollar market the country b branch is an offshore shell branch having no employees and managed by personnel of the city a branch of bank specifically the employees of the city a branch identify the prospective depositors and negotiate the terms of the deposit the country a branch's sole activity is to raise third party funds from the euro deposit market in order to make the funds available to the u s operations of bank for their general banking operations the city a branch personne who perform the deposit taking categories for the country b branch also place the funds acquired with the city a branch the city a and country b branches of bank each maintain a separate set of books in order to meet u s and foreign regulatory requirements because the country b branch is licensed by a foreign jurisdiction any transactions entered into under such foreign banking license must be booked in country b and may not be booked by a branch licensed to do business in the u s however since the country b branch’s deposit transactions are entered into by the city a personnel for use in the u s operations city a personnel maintain the books_and_records of the country b branch this activity is recorded on the respective country b branch and city a branch books correlatively as interbranch loans and borrowings that accrue offsetting interbranch interest_income and expense the interbranch book assets liabilities income and expenses are disregarded by bank in computing its u s taxable_income although the u s operations extend loans to more than -owned foreign affiliates thereby generating interest_income that is non-effectively connected to bank's u s trade_or_business pursuant to sec_864 i the income with respect to the loans extended by the u s operations is predominantly effectively connected with bank's u s trade_or_business sec_882 of the code imposes u s tax on income of a foreign_corporation that is effectively connected with the u s trade_or_business sec_882 allows foreign cc intl br5 plr-118030-98 y917zo081 corporations a deduction against effectively_connected_income to the extent such deduction is connected with income which is effectively connected with a conduct of a sec_1_882-5 of the regulations provides rules for trade_or_business within the u s determining a foreign corporation's interest_expense allocable under sec_882 to effectively_connected_income eci sec_1_882-5 provides that the amount of deductible_interest expense allocable to eci is determined under a three step process provided in sec_1_882-5 c and d or e under step a foreign_corporation first determines the total value of its u_s_assets under sec_1_882-5 under step the foreign_corporation determines the amount of u_s_liabilities under regulation sec_1_882-5 under step interest_expense is computed either under the adjusted u s booked liabilities method provided in sec_1_882-5 or the separate currency pool method provided in sec_1_882-5 under the adjusted u s booked liabilities method the adjustment to the amount of interest_expense paid_or_accrued by the u s trade_or_business is determined by comparing the amount of u s -connected liabilities for the taxable_year with the average_total_amount_of_u_s_booked_liabilities properly reflected on the books of the u s trade_or_business if u_s_liabilities exceed u s booked liabilities interest_expense is determined under sec_1_882-5 as the amount of interest accrued or paid_by the u s trade_or_business during the taxable_year plus the excess of u_s_liabilities over u s booked liabilities multiplied by the rate of u s dollar borrowing of if u_s_liabilities are equal or less than u s the taxpayer's branches outside the u s booked liabilities interest_expense is determined under sec_1_882-5 as the product of the total amount of interest accrued or paid_by the u s trade_or_business during the taxable_year times a fraction referred to as the scaling_ratio the numerator of which is the amount of u_s_liabilities and the denominator of which is the average total amount of booked liabilities sec_1_882-5 iii provides special rules for determining when u s booked liabilities are properly reflected on the book of a u s trade_or_business of a foreign_corporation that is a bank as follows a liability whether interest bearing or non-interest bearing is properly reflected on the books of the u s trade_or_business of a foreign_corporation that is a bank as described in sec_585 without regard to the second sentence thereof if - the bank enters the liability on a set of books relating to an activity that produces eci before the close of the day on which the liability is incurred and cc intl br5 plr-118030-98 ama sl og there is a direct connection or relationship between the liability and that activity whether there is a direct connection between the liability and an activity that produces ec depends on the facts and circumstances of each case accordingly based solely on the facts and representations submitted it is held that for purposes of sec_1_882-5 the country b books and the u s branch and agency books collectively are considered a single set of books for purposes of sec_1_882-5 the single set of books relates to an activity that produces eci under section d iii a on the basis that the u s bank operations produce effectively_connected_income and the liabilities of the country b branch are used to fund the general business of the u s branches and agencies the liabilities of the country b branch book will qualify as booked liabilities under sec_1_882-5 if such liabilities are entered onto the country b branch book before the close of the day on which they are incurred the country b branch book liabilities have a direct connection or relationship to an activity that produces eci within the meaning of section big_number d iiii a without requiring that country b's liabilities be individually traced to specific effectively connected loans or other assets consequently under the facts and representations submitted it is held that the country b branch book third-party liabilities are properly reflected on the books of bank's u s trade_or_business within the meaning of sec_1_882-5 no opinion is expressed with respect to sec_1_882-5 concerning whether any country b liabilities treated as properly reflected under the requirements of sec_1_882-5 were incurred or held for the principal purpose of artificially increasing the interest_expense of the u s booked liabilities within the meaning of sec_1_882-5 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item not discussed or referenced in this letter this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent cc intl br5 plr-118030-98 sincerely yours si paul epstein senior technical reviewer branch office of associate chief_counsel international


department of the treasury internal_revenue_service washington d c date number release date cc el gl br1 gl-705496-99 uil-50 memorandum for direct counsel midwest region milwaukee cc msr mwd mil from alan c levine chief branch general litigation cc el gl bo1 subject advisory opinion waiver of due process rights this is in response to your memorandum dated date requesting our review and comments with respect to your proposed advisory opinion subsequent to that memorandum several telephone conversations took place between you james m klein of your office and jerome sekula of this office pursuant to those discussions your office issued an advisory opinion to the chief appeals_division midwest region on date we have reviewed that memorandum which we received on date issue whether the internal_revenue_service service may suggest to a taxpayer that the taxpayer waive collection_due_process cdp rights allowed under the internal_revenue_service restructuring and reform act of rra98 conclusion if the service determines that it may be in the best interest of the taxpayer a revenue_officer may advise or suggest to the taxpayer or the taxpayer’s representative if the taxpayer is represented that the taxpayer waive certain of the collection_due_process rights granted to a taxpayer under sec_6320 and sec_6330 as added by rra98 sec_3401 facts recently the service effectuated a waiver of due process rights under rra98 to enable the filing of a notice_of_federal_tax_lien which the taxpayer desired although the lien filing was made at the taxpayer’s request the filing was made earlier than the service’s administrative procedures would otherwise require to protect itself against possible claims that it had not met all administrative gl-705496-99 procedures for the purposes of sec_6330 prior to the filing collection requested the taxpayer to execute a waiver of the taxpayer’s right to the collection_due_process cdp hearing to which the taxpayer would otherwise be entitled to request following the filing of the lien you have asked our office when it is appropriate for the service to discuss and accept waivers of cdp rights law and analysis sec_6320 requires the service to provide within five business days after lien filing cdp notification and the opportunity for an independent hearing and possible subsequent appellate court review to persons against whom a nftl has been filed sec_6330 requires the service to provide at least days before the first levy cdp notification and the opportunity for an independent hearing and possible subsequent appellate court review to persons against whose property the service intends to levy upon for the payment of tax the purpose of these two provisions is to permit a taxpayer who owes tax to have both an administrative and a judicial hearing to challenge the service’s determination of tax_liability and or the service’s collection actions discussions with a taxpayer or the taxpayer’s representative concerning a waiver of the taxpayer’s cdp rights do implicate at least tangentially the provisions of rra98 section that section prohibits service employees from requesting a taxpayer to waive the taxpayer’s right to bring a civil_action against the united_states or any service employee for any_action taken in connection with the internal revenue laws unless the taxpayer waives that right knowingly and voluntarily or that request is made in person and the taxpayer’s attorney or representative is present or the request is made in writing to the taxpayer’s attorney or representative taxpayers who waive their right to a cdp hearing do not receive a cdp hearing or a notice_of_determination by appeals from which they could otherwise seek court review accordingly the consequences of a waiver of the taxpayer’s right to a cdp hearing should be discussed with the taxpayer or the taxpayer’s representative if the taxpayer is represented case development hazards and other considerations discussions concerning waivers of cdp rights will not be appropriate in all cases and should be engaged in only when the facts and circumstances of a particular case indicate they may be warranted the service must attempt to avoid circumstances that might be construed as being under duress when a waiver of cdp rights is executed by a taxpayer the service should agree to permit a taxpayer to execute a waiver of the taxpayer’s cdp rights only when the taxpayer desires that the service take some further administrative action that the service would not be able to do because of sec_6320 or sec_6330 for example a third-party levy that is otherwise delayed because of the notice provision requirements of either of the two sections gl-705496-99 the filing of a notice_of_federal_tax_lien nftl does not require pre-notification to the taxpayer of cdp rights accordingly any waiver concerning lien filings should normally be secured as was done here prior to such a filing pursuant to sec_6331 and sec_6330 in levy situations notification must be given at least days prior to the day of the first levy to prevent any misunderstandings in levy situations the taxpayer must first be given a cdp_notice only after that cdp_notice has been given should the taxpayer be allowed to waive the taxpayer’s cdp rights we agree that a revenue_officer can advise or suggest to a taxpayer or the taxpayer’s representative to consider such waivers whenever the facts and circumstances indicate it may be beneficial to the taxpayer and the service to have the taxpayer waive his or her rights to enable the service to act quickly in performing some administrative function it could not otherwise take since currently there is no written prescribed waiver form revenue officers should contact district_counsel to draft or review a waiver on an as-needed basis if you have any comments or questions please contact jerome d sekula of this office pincite-3610 cc audrey m morris acting assistant regional_counsel gl midstates region george e bowden technical assistant fs


internal_revenue_service department of the treasury index number washington dc number release date person to contact telephone number refer reply to cc dom p si - plr-104508-99 date date x y a b date date date date date dear this letter responds to a date ruling_request and subsequent correspondence submitted on behalf of x by its authorized representative concerning relief under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on date and began business on date x elected to be an s_corporation under sec_1362 of the code effective date the shareholders of x are a and b y was incorporated on date with equal shareholders a and b as a consequence of a number of issues concerning y’s growth and expansion pursuant to a plan_of_reorganization y became a wholly owned subsidiary of x on date thus x’s s_corporation_election terminated on date on date also pursuant to the plan_of_reorganization y was liquidated into x the shareholders of x and y represent that they were not aware that the transaction could terminate x’s s_corporation_election in addition the shareholders represent that the termination was not for purposes of tax_avoidance or any type of retroactive tax planning x and its shareholders represent that they have filed their respective tax returns consistent with the treatment of x as an s_corporation further x and its shareholders agree to make any adjustments consistent with the treatment of x as an s_corporation as may be required by the secretary sec_1361 of the code provides that the term s_corporation means with respect to any taxable_year a small_business_corporation for which an election under sec_1362 is in effect for such year sec_1361 of the code defines the term small_business_corporation as a domestic_corporation which is not an ineligible_corporation for taxable years beginning on or before date under sec_1361 of the code the term ineligible_corporation included any corporation which is a member_of_an_affiliated_group determined under sec_1504 without regard to the exceptions contained in sec_1504 however effective for taxable years beginning after date the term ineligible_corporation no longer includes a corporation that is a member_of_an_affiliated_group sec_1362 of the code provides that an election under sec_1362 shall terminate whenever at any time on or after the 1st day of the 1st taxable_year for which the corporation is a small_business_corporation such corporation ceases to be a small_business_corporation sec_1362 provides that any termination under sec_1362 will be effective on and after the date of cessation sec_1362 of the code provides in part that if an election under sec_1362 by any corporation was terminated under paragraph or of sec_1362 the secretary determines that the circumstances resulting in the termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the termination steps were taken so that the corporation is a small_business_corporation and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to this subsection agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in the termination the corporation will be treated as an s_corporation during the period specified by the secretary based solely on the facts and representations submitted we hold that x terminated its election to be an s_corporation on date as a result of x becoming the percent owner of y we also hold that the termination was inadvertent within the meaning of sec_1362 of the code we further hold that under the provisions of sec_1362 of the code x will be treated as continuing to be an s_corporation from date to date and thereafter provided that x’s s_corporation_election was valid and provided that the election was not otherwise terminated under sec_1362 as shareholders a and b must report their pro_rata shares of the separately and nonseparately computed items of x as provided in sec_1366 make any adjustments to stock basis as provided in sec_1367 and take into account any distributions made by x as provided in sec_1368 if x or its shareholders fail to treat x as described above this ruling will be null and void except as specifically ruled above we express no opinion concerning the federal tax consequences of the transactions described above under any other provision of the code specifically we express no opinion concerning the proper characterization of the transactions of date and date by x y and their shareholders this ruling is directed to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file a copy of this letter is being sent to x’s authorized representative sincerely h grace kim assistant to the chief branch office of the assistant chief_counsel passthroughs and special industries enclosures copy of letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c number info release date number release date cc intl br1gfleeman cor-107430-00 date re taxation of distribution under annuity_contract dear this letter responds to your letter dated date concerning the treatment of a distribution under an annuity_contract with a u s insurance_company you asked whether it is proper for the insurance_company to withhold a 15-percent u s tax from a distribution to a canadian citizen who does not reside in the united_states you particularly asked about a statement in publication indicating that most tax_treaties provide that private pensions and annuities are exempt from withholding the u s -canada income_tax treaty canadian treaty is an exception to the rule that most u s income_tax treaties do not impose withholding on private pension and annuity distributions to residents of the other country under article xviii of the canadian treaty both the united_states and canada are entitled to tax pensions and annuities arising in one country and paid to a resident of the other country however the tax imposed by the country where the pension or annuity arises is limited to percent thus if an annuity arising in the united_states is paid to a resident of canada the united_states is entitled to impose a 15-percent tax the insurance_company or other person that makes the annuity distribution is responsible for withholding the 15-percent tax and sending it to the internal_revenue_service that person also is responsible for issuing a form 1042-s to the recipient of the distribution reporting the amount of the distribution and the amount of the tax withheld the recipient will not be required to file a return with the internal_revenue_service as long as he or she does not receive any other income from the united_states cor-107430-00 we hope this information will be helpful to you if you have any questions you may contact the undersigned id at not a toll-free number this general information_letter is advisory only and has no binding effect on the internal_revenue_service sincerely m grace fleeman assistant to the branch chief branch office of the associate chief_counsel international


tcmemo_2014_42 united_states tax_court judy macdonald petitioner v commissioner of internal revenue respondent docket no 26118-08l filed date judy macdonald pro_se heather l lampert and cindy l wofford for respondent memorandum opinion holmes judge judy macdonald has been filing frivolous tax returns or no returns at all since at least the commissioner finally caught on and filed notices of federal_tax_lien nftls covering years he also assessed frivolous- return penalties against her for of them since then macdonald has only made more frivolous arguments she demanded a collection_due_process cdp hearing and then failed to show up she petitioned this court and then refused to engage in informal_discovery never signed a stipulation of facts and didn’t appear at calendar call we’d usually dispose_of such a case with a quick order what makes this case unusual is that the appeals officer determined--at the cdp hearing that macdonald skipped--several points in her favor he then issued a notice_of_determination that concluded that tax assessments for six of the years were invalid the commissioner objected to this conclusion and the appeals officer then testified at an abbreviated trial he said he was well and truly mistaken and he even joined in the commissioner’s request that he be found to have abused his discretion in ruling even in part in favor of the absent nontaxpayer this was an odd request oddly made and we asked the parties to brief the question of what we should do background macdonald failed to submit a proper return for each of the tax years in question for tax years macdonald filed form sec_1040nr u s nonresident_alien income_tax return on the forms she consistently took frivolous positions--inserting n a in various spaces she also listed her country as usa national aka natural born free citizen constitutionally oregon republic and included a brief message at the bottom of each form with express reservations of my unalienable rights of my constitutional privileges and immunities at and of the lesser ucc uniform commercial code at with reservation of all our rights for the record the commissioner understandably regarded these returns coming from an american citizen living in arizona as frivolous and assessed against her a frivolous-return penalty under sec_6702 for each of the years she did this-- tax years for tax years macdonald simply didn’t submit any_tax returns at all and the commissioner prepared substitutes for returns for those years he then sent her notices of deficiency for tax years and she never filed a case with us challenging these notices in the commissioner began trying to collect the overdue taxes and penalties he sent nftls to her and macdonald asked for a cdp hearing in her request she attached a generic list of reasons for demanding a hearing and checked every single box on the form notably including spousal relief--notable all section references are to the internal_revenue_code in effect at all relevant times unless we say otherwise all rule references are to the tax_court rules_of_practice and procedure because she had no joint liabilities and therefore cannot possibly win relief from having filed a joint_return see sec_6015 she also argued that the administrative record was invalid and incomplete thereby making collection actions inappropriate she didn’t have an opportunity to dispute her tax_liabilities because the commissioner didn’t send her notices of deficiency the revenue_officer didn’t meet the requirements of all applicable law and administrative procedure and the collection action was intrusive under sec_6330 the commissioner didn’t send her cdp_notice or copies of the nftls and the civil penalty for wasn’t applicable because she had begun a case that was still pending macdonald also told appeals that she intended to make an audio recording of her hearing under sec_7521 and that she was withdrawing any positions classified as frivolous or groundless the appeals officer who conducted the hearing used the commissioner’s internal information including computer transcripts to verify that all legal and procedural requirements had been met these allowed him to confirm that the statute_of_limitations had not run because macdonald had filed for bankruptcy protection so many times during the years in question see eg in re macdonald no bankr d ariz date order granting motion to dismiss with prejudice finding bad faith and barring macdonald from filing another petition for five years in re macdonald no bankr d ariz date order dismissing case with prejudice directing clerk of bankruptcy court not to accept any new petitions from macdonald for six years in a first notice_of_determination the appeals officer sustained the lien filing and all of macdonald’s tax_liabilities macdonald petitioned us and the commissioner then conceded that at least a few of her arguments were not necessarily frivolous the commissioner’s practice is to offer face-to-face hearings to taxpayers who raise nonfrivolous arguments since the record was unclear about whether the appeals officer had offered such a hearing to macdonald the commissioner suggested that we remand the case for a supplemental and face-to-face hearing we agreed macdonald didn’t raise any additional issues in this supplemental hearing she did not even show up although the appeals officer rescheduled it twice at her request in the end he closed out the case by determining that the assessments for macdonald’s tax years and the liens imposed to collect them were valid as were all of the civil penalties but this time around he determined that the assessments were invalid he issued a supplemental notice_of_determination reflecting his conclusions we then restored the case to the general docket but even so macdonald didn’t cooperate in discovery agree to a stipulation of facts or appear at calendar call the usual rule here is to dismiss for default or failure to properly prosecute rule but in this case the commissioner himself challenged the determination not to proceed with collection of macdonald’s taxes and during a brief trial asked us to let him amend the supplemental notice_of_determination the commissioner’s argument was simple the appeals officer had abused his discretion by applying the wrong rule_of law when he mistakenly reasoned that he had to verify whether macdonald had received the notices of deficiency sent to her for those tax years and not simply whether the irs had sent them to her last_known_address see sec_6212 he asks us to rely on the credible testimony at trial from the appeals officer saying that he had made a mistake failing to cooperate once again macdonald failed to send us her posttrial brief the trial took place in texas where macdonald is currently a resident discussion we begin with the easy part the appeals officer determined that the liens against macdonald’s property with respect to her tax_liabilities for the years were valid as were all the penalties we agree rule allows us to enter a default judgment against macdonald for failing to plead or otherwise proceed as provided by the rules of this court see 91_tc_1049 aff’d 926_f2d_1470 6th cir braden v commissioner tcmemo_1994_496 wl at macdonald failed in this manner and this is more than enough reason to enter a decision against her on those issues under rule see eg smith v commissioner t c pincite but what about the issues on which the appeals officer found in macdonald’s favor he determined that the notices of federal_tax_lien for macdonald’s tax_liabilities were invalid because he was unable to verify that macdonald lived at the address to which the commissioner mailed the notices of deficiency and so couldn’t determine whether she had actually received those notices the commissioner did not question this part of the determination in any pleading it was only when the calendar call neared that the commissioner’s counsel seems to have recognized something was off the law requires proof only that notification was properly sent to a taxpayer’s last_known_address --not that the taxpayer actually received it sec_6212 there is however no statutory definition of last_known_address and the resulting gap has been filled with a plethora of case law decided by this and other courts marks v commissioner tcmemo_1989_575 wl at aff’d 947_f2d_983 d c cir the general_rule the commissioner tells us now is what we held in 91_tc_1019 that a taxpayer’s last_known_address is that address which appears on the taxpayer’s most recently filed return unless respondent has been given clear and concise notification of a different address macdonald had not filed a return--even a frivolous return--for any of the years and the appeals officer correctly noted that the notices of deficiency for those years which he mailed in and were mailed to the address she had put down on the last frivolous_return she had filed macdonald had sent a letter to the irs in with a different address--and it’s unclear if that different address was just on a return-address label on the envelope or on the letter itself but neither would be enough by itself it would seem to change a taxpayer’s last_known_address in 763_f2d_89 2d cir for example a taxpayer who lived in new york when he filed his tax_return had moved to new jersey in date he argued that he had told the commissioner of his move to new jersey in a letter he had written to the irs in date on stationery printed with his new jersey address id pincite his letter asked for copies of correspondence and said that he needed the copies to replace originals that he had lost or misplaced in the process of moving id the second circuit held that the letter was a mere routine inquiry not amounting to an official change_of address the letter indicated neither that tadros had permanently moved nor whether the jersey city address on the letterhead was his new place of residence nor did it mention the old address or indicate that it was no longer to be used id simply putting a different return address on an envelope or letter mailed to the irs is not enough the commissioner realizes this now and asks that we decide that the supplemental notice_of_determination was invalid and that we uphold the nftls for the years unsure of exactly what to call this motion he labeled it a motion to conform the pleadings with the proof it is unclear if we can do anything about this ourselves we are a court of limited jurisdiction see sec_7442 83_tc_309 and sec_6330 says that a taxpayer may appeal such determination to the tax_court and the tax_court shall have jurisdiction with respect to such matter emphasis added such matter must include such determination even if it extends to the entire collection action that is the subject of the determination but the unusual position that the commissioner finds himself in raises several intricate questions what allows us to broaden the subject matter of our review from the portions of the determination that a petitioner challenges to portions that the commissioner disagrees with does such a challenge by the commissioner involve a jurisdictional problem of standing --after all the code gives standing to appeal only to the taxpayer not to any aggrieved person or similarly broader class standing of course is a doctrine mostly about who gets to be a plaintiff or petitioner the commissioner argues by analogy to his undoubted right to argue in favor of an increased deficiency see sec_6214 119_tc_242 which certainly can come up in a trial see eg 76_tc_512 aff’d 693_f2d_1189 5th cir that he should be able to challenge part of a determination that we have jurisdiction over a closer analogy however would be to treat the commissioner’s contentions as a counterclaim and counterclaims --generally speaking--are subject_to the rules of standing see eg 145_f3d_74 2d cir in determining whether a party has standing however we should bear in mind that we are not an article iii court and therefore are not fully constrained by article iii’s case or controversy limitation 432_f3d_972 9th cir we take our cue regarding standing from the code--and not from article iii would it matter that the commissioner could not himself petition to challenge the determination we think it best in such an uncertain situation to remand the case a second time we’ve hinted in the past that we can remand if it would be helpful see wells v commissioner tcmemo_2003_234 wl at n aff’d 108_fedappx_440 9th cir see also ashlock v commissioner tcmemo_2008_58 wl at noting taxpayer declined remand to consider changed financial circumstances phrased another way we return a case to appeals if we consider a rehearing ‘necessary or productive ’ martin v commissioner tcmemo_2003_288 wl at quoting 117_tc_183 aff’d 436_f3d_1216 10th cir there is precedent for the government’s suing itself eg 337_us_426 recognizing the anomaly but finding that the situation result ed from the statutes at issue defining the attorney general’s duties and for a federal_agency to sue a federally owned corporation eg tva v whitman 336_f3d_1236 11th cir see generally louis l jaffe standing to secure judicial review private actions harv l rev but noting the disputing agencies have to be sufficiently independent of one another and that is what we’ll do here an appropriate order will be issued we also note that when we remand a case to irs appeals the further hearing is a supplement to the taxpayer’s original sec_6330 hearing and not a new hearing 130_tc_79 the commissioner then issues supplemental determinations after the further hearing which we can review id once the commissioner issues supplemental determinations however we cannot review any of the prior notices of determination see id t he position of the commissioner that we review is the position taken in the last supplemental determination we would expect to apply this principle to any supplemental determination in this case even one that corrected what seemed to be an obvious mistake the commissioner also urges us to sanction macdonald under sec_6673 for her history of frivolousness macdonald however is a first-time offender in this court her choice to default meant that she didn’t waste too much of our time and we are upholding the collection of several years’ worth of penalties for her submission of frivolous returns we’ll therefore let her off with a warning that any frivolous future litigation will subject her to penalties of up to dollar_figure


number release date internal_revenue_service index number - --------------------------- ------------------------ ----------------------------------------------- -------------------------------- department of the treasury washington dc person to contact ---------------------- --------- ------------- telephone number -------------------- refer reply to cc psi - plr-154588-05 date date legend ------------------------ x --------------------------------------------------- a d1 dear ---------------- ------------- --------------------------- ------------------ this letter responds a letter dated date and subsequent correspondence submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 a x’s sole shareholder intended for x to be an s_corporation effective d1 however no form_2553 election by a small_business_corporation was timely filed for x 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 sec_1362 provides that if an s election is made within the first two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made under sec_1362 however if an s election is made after the first two and one-half months of a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is filed except as specifically set forth above no opinion is expressed concerning the sec_1362 provides that if -- a an election under sec_1362 is made for plr-154588-05 any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation effective d1 accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 effective d1 along with a copy of this letter with the appropriate service_center within days from the date of this letter then such election will be treated as timely made for d1 federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code provides that it may not be used or cited as precedent being sent to x’s authorized representative enclosures beverly katz senior technician reviewer branch associate chief_counsel passthroughs and special industries this ruling is directed only to the taxpayer who requested it sec_6110 pursuant to a power_of_attorney on file with this office a copy of this letter is copy of this letter copy for sec_6110 purposes sincerely yours