eugene koprowski petitioner v commissioner of internal revenue respondent docket no filed date p and w filed a joint_return for r issued a notice_of_deficiency and p and w filed a petition asking this court to redetermine that deficiency they elected to have the case proceed under small_tax_case procedures pursuant to sec_7463 p signed the petition and all other filings p and w moved for summary_judgment r cross-moved for summary_judgment and p and w opposed on various grounds including p’s entitlement to innocent spouse relief from joint liability under sec_6015 at a calendar call before the court p spoke for himself and w the parties withdrew their cross-motions and submitted a stipulated decision document by which p and w conceded the deficiency in full the court entered decision accordingly in date while the deficiency_suit was pending p had filed a form_8857 request for innocent spouse relief for in date r denied the request for relief and p timely filed a petition challenging that denial r moved for summary_judgment on grounds of res_judicata arising from the entry of decision in the prior deficiency case held res_judicata bars the relitiga- tion of a liability determined in a small_tax_case under sec_7463 held further res_judicata precludes p’s attempted litigation of his sec_6015 claim for the year that was the subject of the prior deficiency case sec_6015 does not prevent the operation of res_judicata since p’s claim for relief was an issue in the prior case and he did participate meaningfully in the prior case eugene koprowski for himself michael t shelton for respondent verdate 0ct jun jkt po frm fmt sfmt v files koprow sheila koprowski v commissioner opinion gustafson judge petitioner eugene koprowski seeks this court’s review pursuant to sec_6015 sec_1 of the denial by the internal_revenue_service irs of his request for relief from his liability for income_tax for for which he filed a joint_return with his wife the case is currently before the court on a motion for summary_judgment filed by respondent the irs under rule we will grant that motion and sustain the irs’s determination on grounds of res_judicata background the following facts are based on the petition our record in mr koprowski’s prior deficiency case of which we take notice pursuant to fed r evid and facts that the irs asserted and supported in its motion for summary_judgment that mr koprowski has not disputed income issues mr and mrs koprowski filed a joint federal_income_tax return for the year the irs thereafter took the position that mrs koprowski had received in that year from the estate of her late father taxable_distributions that were not reported on the koprowskis’ income_tax return in date the irs issued to the koprowskis jointly a notice of defi- ciency determining a tax_deficiency attributable to the inclu- sion of those distributions in their taxable_income deficiency case in date the koprowskis filed a petition in this court challenging the irs’s deficiency determination and asserting that the distributions at issue were non-taxable inheritance both mr and mrs koprowski signed the peti- tion on which they elected to have the case proceed under small_tax_case procedures pursuant to sec_7463 the defi- ciency case proceeded as docket no 1185-09s the koprowskis made three additional filings in docket no 1185-09s- a motion for summary_judgment a motion unless otherwise indicated all section references are to the internal_revenue_code_of_1986 u s c as amended and all rule references are to the tax_court rules_of_practice and procedure verdate 0ct jun jkt po frm fmt sfmt v files koprow sheila united_states tax_court reports to strike and an objection to a motion for summary judg- ment filed by the irs combined with their cross-motion-all of which were signed by both mr and mrs koprowski in the objection and cross-motion filed date the koprowskis stated petitioner mr koprowski maintains an affirmative defense provided by an innocent spouse claim per the case law doctrine_of king v commis- sioner tc no petitioner mr koprowski as the irs’s evidence demonstrates did not receive any income as a beneficiary of a_trust or estate petitioner mr koprowski should be granted innocent spouse relief from the irs regarding its deficiency_notice on date after he received the evidence requested from the irs regarding the estate he immediately filed a request for innocent spouse relief with irs see exhibit b of the objections filing irs form_8857 request for innocent spouse relief emphasis omitted when the deficiency case was first called from the calendar for trial on date mrs koprowski said only good morning and mr koprowski spoke for the couple to schedule argument on the cross-motions for summary judg- ment later that day a volunteer lawyer entered an appear- ance on their behalf and when the case was recalled both parties withdrew their motions for summary_judgment two days later the koprowskis’ volunteer lawyer signed on the koprowskis’ behalf a stipulated decision document by which the court entered decision on date sustain- ing the irs’s deficiency determination we assume that there- after the tax was duly assessed against both the koprowskis as the joint_and_several_liability of each of them the koprowskis have not alleged in this case that there was any defect in those proceedings in docket no 1185-09s and they have not filed in docket no 1185-09s any motion to vacate or revise the decision in that case mr koprowski’s request for relief as is noted above while the deficiency case was pending mr koprowski submitted to the irs in date a form_8857 request for innocent spouse relief seeking to be relieved from liability for the tax attributable to the distribu- tions from his wife’s father’s estate mr koprowski asserts verdate 0ct jun jkt po frm fmt sfmt v files koprow sheila koprowski v commissioner in his petition in the present case -and we assume true for purposes of the irs’s pending motion-that in conjunction with his request to the irs for innocent spouse relief he pre- sented to the irs evidence showing that he did not know and had no reason to know of the understatement at the time the return was signed in date the irs denied the relief he requested proceedings in the present case on date mr koprowski filed his petition com- mencing the instant case seeking review of the irs’s denial of his request for innocent spouse relief the petition indicates that he resides in illinois his petition seeks relief from joint liability on various grounds including that a ny taxes owed on the gift should be paid for by the wife’s father’s estate and irs erred by not following the internal_revenue_manual irm which details how to handle cases hinging on the timely good_faith filing of tax returns the irs filed its answer to the petition on date on date respondent moved for summary_judgment on grounds of res ie that mr koprowski’s suit is precluded by the decision entered against him in the deficiency case by order of date the court ordered mr koprowski to file a response and advised him judicata if mr koprowski disagrees with the facts set out in the irs’s motion then mr koprowski’s response should point out the specific facts in dis- pute the response should support mr koprowski’s version of the facts by attaching relevant documents and or by attaching one or more affidavits ie written statements that are signed and sworn before a notary or unsworn declarations that are made under penalty of perjury see u s c sec if mr koprowski disagrees with the irs’s argument as to the law then his response should also set out his position on the dis- puted legal issues mr koprowski’s attention is directed to tax_court rule available on the court’s website at www ustaxcourt gov which sets out the prin- ciples for filing opposing and resolving motions for summary_judgment in particular mr koprowski should note that rule d provides if the mr koprowski opposes the irs’s motion on the grounds that after months of litigation and numerous briefs and pleadings respondent irs suddenly raises the issue of res_judicata in its latest pleading a motion under rule a however a motion for summary_judgment is timely if raised no later than days before the first day of the court’s session at which the case is calendared for trial since this case is on a calendar set for date the irs’s motion was timely verdate 0ct jun jkt po frm fmt sfmt v files koprow sheila united_states tax_court reports adverse_party ie mr koprowski does not so respond to a motion for summary_judgment then a decision if appropriate may be entered against such party -ie against mr koprowski mr koprowski’s attention is also directed to harbin v commissioner t c no date and haag v commissioner tcmemo_2011_87 date slip op pincite two recent decisions of this court that discuss res_judicata and sec_6015 mr koprowski filed his response on date his response did not discuss sec_6015 the court’s order of date observed- mr koprowski’s recent response does make factual assertions but it was not accompanied by any documents affidavits or unsworn statements under penalty of perjury the court will give him an opportunity to supplement his response with such materials -and ordered him to do so by date on that date mr koprowski did file a supplement to his response his supplement argued generally that res_judicata should not apply but it did not present any evidentiary materials and it did not discuss sec_6015 discussion i general legal principles a relief from joint liability sec_6013 provides that when married taxpayers file a joint_return the tax is computed on their aggregate income and their liability to pay the tax_shown_on_the_return or found to be owing is joint_and_several see also c f_r sec_1_6013-4 income_tax regs that is each spouse is liable for the entire joint tax_liability however sec_6015 provides several means for a taxpayer to seek relief from joint liability and if the irs determines not to grant such relief to a taxpayer sec_6015 gives this court jurisdic- tion to review that determination b small tax cases under sec_7463 sec_7463 provides that where a tax_court petition involves an amount not exceeding dollar_figure- at the option of the taxpayer concurred in by the tax_court pro- ceedings in the case shall be conducted under this section notwith- standing the provisions of sec_7453 such proceedings shall be con- verdate 0ct jun jkt po frm fmt sfmt v files koprow sheila koprowski v commissioner ducted in accordance with such rules of evidence practice and procedure as the tax_court may prescribe the tax_court has implemented this provision in title xvii of its rules ie rules under rule b trials of small tax cases will be conducted as informally as possible consistent with orderly procedure and any evidence deemed by the court to have probative value shall be admissible sec_7463 provides as follows sec_7463 finality of decisions -a decision entered in any case in which the proceedings are conducted under this section shall not be reviewed in any other court and shall not be treated as a precedent for any other case by precluding any appeal of the decision in a small_tax_case sec_7463 deprives the electing petitioner of his oppor- tunity to appeal an adverse decision but it also protects him from the difficulty of defending any appeal by the irs of a decision favorable to him presumably mr and mrs koprowski weighed these considerations in deciding to elect small_tax_case status for their prior deficiency case c res_judicata and collateral_estoppel the irs’s motion now before us invokes only the doctrine_of res_judicata and not the related doctrine_of collateral_estoppel mr koprowski mentions both but in fact collateral_estoppel is not implicated here however we nonetheless include collateral_estoppel in our discussion because the doc- trines have important differences that affect our analysis both these doctrines have the dual purpose of protecting litigants from the burden of relitigating an identical issue and of promoting judicial economy by preventing unnecessary or redundant litigation 91_tc_273 but the reach of these two doctrines is not the same res_judicata res_judicata latin for a thing adjudicated or claim pre- clusion is an affirmative defense developed by the courts to res_judicata is not a jurisdictional defense but rather is an affirmative defense see rule that may therefore be waived see 599_f3d_591 7th cir 266_f3d_705 7th cir thus notwithstanding a prior deficiency case a continued verdate 0ct jun jkt po frm fmt sfmt v files koprow sheila united_states tax_court reports bar repetitious suits on the same cause of action and this doctrine is applicable to tax litigation as the supreme court explained w hen a court of competent jurisdiction has entered a final judgment on the merits of a cause of action the parties to the suit and their privies are thereafter bound not only as to every matter which was offered and received to sustain or defeat the claim or demand but as to any other admissible matter which might have been offered for that purpose income taxes are levied on an annual basis each year is the origin of a new liability and of a separate cause of action thus if a claim of liability or non-liability relating to a particular tax_year is litigated a judg- ment on the merits is res_judicata as to any subsequent proceeding involving the same claim and the same tax_year 333_us_591 quoting crom- well v cnty of sac 94_us_351 emphasis added that is each tax_year is a separate cause of action and res_judicata makes truly final a final judgment on that cause of action where the cause of action of a taxpayer’s liability in a given tax_year has been litigated as mr koprowski’s tax_liability for was litigated in the deficiency case docket no 1185-09s the parties may thereafter be barred from re- litigating that liability-whether by reference either to a matter which was offered in that prior suit such as the adjustments on the notice_of_deficiency or to a matter which might have been offered in the prior suit-unless there is an exception that prevents the application of the doctrine_of res_judicata collateral_estoppel collateral_estoppel or issue preclusion prevents the relitigation of an issue that has been previously litigated between the parties in one controversy but that recurs in other litigation between them in different controversies simply stated the difference between the two doctrines is this sec_6015 claim may be litigated where t he parties previously agreed that any request by petitioner for relief from joint_and_several_liability under sec_6015 would not be determined in the deficiency case greer v commissioner tcmemo_2009_20 slip op pincite aff ’d 595_f3d_338 6th cir however neither in the hearings in docket no 1185-09s nor in the stipulated decision document that the parties submitted in that case did the commissioner waive any res_judicata defense against mr koprowski’s sec_6015 claim verdate 0ct jun jkt po frm fmt sfmt v files koprow sheila koprowski v commissioner under res_judicata a final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action under collateral_estoppel once a court has decided an issue of fact or law necessary to its judgment that decision may preclude relitigation of the issue in a suit on a different cause of action 449_us_90 collateral_estoppel thus precludes relitigation not only in connection with the cause of action previously litigated but even in connection with different claims or causes of action because collateral_estoppel has this broader reach the courts have perceived that its rigid application might have unjust results the supreme court has observed that it might be- unfair to apply offensive estoppel where the second action affords the defendant procedural opportunities unavailable in the first action that could readily cause a different resultdollar_figure 15if for example the defendant in the first action was forced to defend in an inconvenient forum and therefore was unable to engage in full dis- covery or call witnesses application of offensive collateral_estoppel may be unwarranted indeed differences in available procedures may sometimes justify not allowing a prior judgment to have estoppel effect in a subse- quent action even between the same parties or where defensive estoppel is asserted against a plaintiff who has litigated and lost 439_us_322 consequently there are limits to the application of collat- eral estoppel unlike res_judicata which binds the parties as to any matter that might have been offered whether or not that matter was actually litigated collateral_estoppel applies only to issues that were actually litigated in the first suit the rule_of collateral_estoppel provides that w hen an issue of fact or law is actually litigated and determined by a valid and final judgment and the determination is essential to the the potential unfairness of collaterally estopping relitigation of an issue may be aggravated where collateral_estoppel is used offensively -ie where a plaintiff is seeking to estop a de- fendant from relitigating the issues which the defendant previously litigated and lost against another plaintiff parklane hosiery u s pincite-and may be particularly acute where an issue has a small-dollar consequence in the first case and has a large-dollar consequence in the subsequent case if a defendant in the first action is sued for small or nominal damages he may have little incentive to defend vigorously particularly if future suits are not foreseeable id pincite see also 961_f2d_245 d c cir an ex- ample of such unfairness would be when the losing party clearly lacked any incentive to litigate the point in the first trial but the stakes of the second trial are of a vastly greater magnitude 711_f2d_267 d c cir issue p reclusion is some- times unfair if the party to be bound lacked an incentive to litigate in the first trial especially in comparison to the stakes of the second trial these concerns are not implicated where the same cause of action is at issue in both trials and the stakes of the second trial are by defini- tion not greater than but identical to the stakes of the first verdate 0ct jun jkt po frm fmt sfmt v files koprow sheila united_states tax_court reports judgment the determination is conclusive in a subsequent action between the parties whether on the same or a dif- ferent claim restatement judgment sec_2d sec_27 emphasis added see also 440_us_147 some even hold that for purposes of collateral_estoppel the availability of judicial review is a crucial factor in determining preclusive effect 175_f3d_692 9th cir a small_tax_case under sec_7463 involves a small amount is resolved under less formal procedures and receives no appellate review for these reasons the question whether a decision in a small_tax_case gives rise to collateral_estoppel or issue preclusion is controversial cf 131_tc_215 holmes j concurring discussing the collateral_estoppel effect of small tax cases but in this case we do not face the question whether collateral_estoppel arises from a decision in a small_tax_case we resolve only the application of res_judicata ii res_judicata arising from docket no 1185-09s mr koprowski’s income_tax_liability for the year for which he now seeks relief from joint liability has already been decided in the deficiency case and the doctrine_of res_judicata requires us to follow that prior decision under the supreme court’s explication of res_judicata in commissioner v sunnen u s pincite four conditions must be met to preclude relitigation of a claim the parties in each action must be identical or at least be in privity a court of competent jurisdiction must have rendered the first judg- ment the prior action must have resulted in a final judg- ment on the merits and the same cause of action or claim must be involved in both suits see 10_f3d_305 5th cir once these conditions are met each party is prohibited from raising any claim or defense that was or could have been raised as part of the litigation over the cause of action in the prior case id those four conditions are met here in the deficiency case mr koprowski was a petitioner and the commissioner of internal revenue was the respondent in this case mr koprowski is again the peti- verdate 0ct jun jkt po frm fmt sfmt v files koprow sheila koprowski v commissioner tioner and the commissioner is again the respondent thus the parties are identical in the deficiency case the koprowskis filed their defi- ciency suit in the only court authorized under sec_6213 to hear such suits-ie this court clearly we had jurisdic- tion in that prior case the deficiency case concluded with the entry of a deci- sion by the court on date pursuant to the stipulation of the parties our decision was a final judgment on the merits of the koprowskis’ joint_and_several_liability finally in the present case mr koprowski seeks innocent spouse relief from the very liability-ie the joint income_tax liability-as to which this court in the defi- ciency case determined that he was jointly and severally liable the claims are thus identical since the four conditions for claim preclusion are present relitigation of mr koprowski’s claim is barred by res judi- cata unless he can invoke some exception to its application iii arguments against the application of res_judicata a res_judicata arising from a small_tax_case mr koprowski asserts that the deficiency case was a small case that proceeded under sec_7463 and it appears he may be arguing that res_judicata does not arise from such a case if this is his argument then we must reject it to assert that res_judicata does not attach to the decision of a small_tax_case under sec_7463 is to assert that con- gress created in that statute a regime exempt from res judi- cata this assertion however effectively overlooks sec_7463 which explicitly provides sec_7463 finality of decisions -a decision entered in any case in which the proceedings are conducted under this section shall not be reviewed in any other court and shall not be treated as a precedent for any other case if mr koprowski’s denial of res_judicata is prompted by the provision of sec_7463 that a small_tax_case decision shall not be treated as precedent then that position is answered by observing i that res_judicata is a bar to litigation not a precedent that dictates its outcome and ii that before denying precedent status to small_tax_case decisions subsection b first gives those decisions finality by providing that no other court can review them thus in ginalski v commissioner tcmemo_2004_104 we rejected in dictum the argument that the limitation on citing summary opinions as precedence deprives them of the effect of res judi- continued verdate 0ct jun jkt po frm fmt sfmt v files koprow sheila united_states tax_court reports this subsection assures the f inality of a small_tax_case decision by exempting it from appellate review it would flatly contradict the evident congressional purpose to hold that the denial of appellate review deprives the decision of finality if res_judicata did not apply to decisions in small tax cases because of a principle that such cases by their nature should not bar future litigation then this principle would be subject_to anomalies sec_6512 bars a taxpayer from filing a refund_suit for a tax_year for which he has previously filed a timely tax_court petition on the other hand sec_6215 bars the government from filing suit to collect any part of a deficiency determined by the irs that the tax_court has disallowed these provisions equivalent to res_judicata grant preclusive effect to tax_court litigation without distin- guishing between regular cases and small tax cases in light of these provisions it would be incoherent to find that sec_7463 implicitly exempts small tax cases from the effect of res_judicata the court of claims explicitly held that attempted relitiga- tion after a decision in a small_tax_case in the tax_court under sec_7463 is barred under the doctrine_of res judi- cata vaitkus v united_states ct_cl the text of sec_7463 permits no other result we there- fore hold that the doctrine_of res_judicata does bar relitiga- tion after a decision in a small_tax_case under sec_7463 b sec_6015 mr koprowski further resists the application of res judi- cata on the grounds that his entitlement to innocent spouse relief was not raised in previous litigation nor adjudicated on its merits in the previous case mr koprowski is wrong in asserting that the defense was not raised since in the deficiency case he did assert an innocent spouse defense in cata the heading of sec_7463 b - finality of decisions -helps to illuminate its meaning and purpose see 523_us_224 ‘the title of a stat- ute and the heading of a section’ are ‘tools available for the resolution of a doubt’ about the meaning of a statute quoting trainmen v baltimore ohio r co 331_us_519 635_f3d_883 7th cir ‘while a stat- ute’s title does not define its meaning it is relevant’ quoting 274_f3d_1154 7th cir cf sec_7806 descriptive matter relating to the contents of the internal_revenue_code shall not be given any legal effect verdate 0ct jun jkt po frm fmt sfmt v files koprow sheila koprowski v commissioner his opposition to the irs’s motion for summary_judgment as we quote above however in a sense he is correct in asserting that the issue was not adjudicated since the parties withdrew their cross-motions for summary judg- ment and the koprowskis conceded the case in full so that the court entered decision without addressing sec_6015 or any other issue in circumstances outside sec_6015 this would be beside the point since res_judicata bars not just issues that were actually raised but rather issues that were or could have been raised in that action allen u s pincite emphasis added thus in other circumstances we would not inquire to learn the extent to which the particular issue had actually been raised and adjudicated res_judicata would apply in any event however under sec_6015 an innocent spouse claimant can sometimes overcome res_judicata if the claim- ant can meet two conditions sec_6015 provides res_judicata -in the case of any election under subsection b or c or of any request for equitable relief under subsection f if a decision of a court in any prior proceeding for the same taxable_year has become final such decision shall be conclusive except with respect to the qualifica- tion of the individual for relief which was not an issue in such proceeding the exception contained in the preceding sentence shall not apply if the court determines that the individual participated meaningfully in such prior proceeding emphasis added under this statute to escape the effect of res_judicata from prior litigation the requesting spouse must show that his innocent spouse claim was not an issue in the prior pro- ceeding and that he did not participate meaningfully in the prior proceeding mr koprowski meets neither of those conditions first his innocent spouse claim was explicitly put at issue in the prior proceeding by the koprowskis’ objection and cross-motion quoted above for this reason alone sec_6015 does not apply to relieve mr koprowski from the conclusive effect of the prior suit second even if mr koprowski had not explicitly raised an innocent spouse claim in the deficiency case to overcome res_judicata in the present case he would also have to show that he did not meaningfully participate in the deficiency case and to make such a showing he would have to overcome the verdate 0ct jun jkt po frm fmt sfmt v files koprow sheila united_states tax_court reports contrary indications in our records mr koprowski signed the petition in the deficiency case-and all other papers that the petitioners filed with the court the innocent spouse claim which was to his benefit and was to the detriment of mrs koprowski was asserted in their opposition to the irs’s motion for summary_judgment when they appeared in per- son before the court mrs koprowski was all but silent and it was mr koprowski who spoke for the two of them the record thus indicates that he did meaningfully participate in the deficiency case and he does not allege that he did not he therefore fails for this additional reason to satisfy sec_6015 and he is not relieved from the operation of res_judicata in this instance because res_judicata does bar mr koprowski’s relitigation of the income_tax_liability that he already litigated in the deficiency case we will grant the irs’s motion for sum- mary judgment and will affirm the irs’s determination not to grant mr koprowski relief from that liability to reflect the foregoing an appropriate order and decision will be entered reviewed by the court colvin cohen halpern foley vasquez gale thornton goeke wherry kroupa holmes and morri- son jj agree with this opinion of the court marvel and paris jj concur in the result only holmes j concurring i agree with the rest of the court that a final_decision in an s_case precludes any claim in a later case that could have been raised subject_to the statu- tory exception of sec_6015 i write separately only to note that the same result will certainly follow when the court finally addresses the question of whether decisions in s cases collaterally estop losing parties from relitigating the same issues in later cases see 131_tc_215 holmes j concurring the supreme court has reminded us that we should not carve out an approach to administrative review good for tax law only mayo found for med educ research v united verdate 0ct jun jkt po frm fmt sfmt v files koprow sheila koprowski v commissioner states u s ll ll 131_sct_704 the same goes for the federal common_law of judgments the preclusive effect of a federal-court judgment is determined by federal common_law 553_us_880 it is not our job to try to figure out whether pre- clusion is a good policy or a bad one and in what cir- cumstances we think it best applies a fundamental precept of common-law adjudication embodied in the related doc- trines of collateral_estoppel and res_judicata is that a ‘right question or fact distinctly put in issue and directly deter- mined by a court of competent jurisdiction cannot be disputed in a subsequent suit between the same parties or their privies ’ 440_us_147 quoting s pac r r co v united_states 168_us_1 f verdate 0ct jun jkt po frm fmt sfmt v files koprow sheila


t c memo united_states tax_court daniel franklin haines petitioner v commissioner of internal revenue respondent docket no filed date daniel franklin haines pro_se lisa m oshiro for respondent memorandum findings_of_fact and opinion ruwe judge respondent determined deficiencies in petitioner’s federal income taxes and additions to tax as follows additions to tax_year deficiency sec_6651 a sec_6654 dollar_figure dollar_figure dollar_figure big_number big_number big_number big_number big_number big_number the issues for decision are whether petitioner is subject_to federal_income_tax on wage income from united airlines whether petitioner is liable for additions to tax for failing to timely file federal_income_tax returns and for failing to pay estimated_taxes and whether a penalty should be awarded to the united_states under sec_6673 findings_of_fact some of the facts have been deemed stipulated and are so found ‘unless otherwise indicated all section references are to the internal_revenue_code in effect for the years at issue and all rule references are to the tax_court rules_of_practice and procedure the parties did not have a signed stipulation of facts at trial respondent’s proposed stipulation of facts contained facts such as petitioner’s address copies of unsigned form sec_1040 with attached forms w-2 from united airlines inc that petitioner submitted to respondent for the years at issue and that showed petitioner’s wages from united airlines during the relevant years some of the facts were previously admitted in response to respondent’s request for admissions at trial petitioner asserted that the form sec_1040 were irrelevant and then invoked his fifth_amendment rights about each proposed finding of fact based on our review of the entire record including petitioner’s various filings we found that there was no legitimate dispute concerning the facts stated in the proposed stipulation of facts and we granted respondent’s motion_to_compel_stipulation under rule f - - the stipulation of facts and the attached exhibits are incorporated herein by this reference petitioner resided in spanaway washington at the time he filed his petition during the years and petitioner was employed by united airlines as a pilot united airlines paid petitioner the following wages year wages dollar_figure dollar_figure dollar_figure dollar_figure petitioner did not file timely federal_income_tax returns for the tax years and petitioner submitted unsigned form sec_1040 u s individual_income_tax_return with attached forms w-2 wage and tax statement to respondent the form sec_1040 each showed that they were received by respondent’s ogden service_center on date the attached forms w-2 from united airlines inc revealed wages for each of the years in issue in the amounts stated above the form sec_1040 reported no income in the space provided attached to the form sec_1040 were statements generally denying that petitioner was a taxpayer and asserting that there was no statutory authority upon which he could be taxed the notice_of_deficiency for the years in issue was mailed to petitioner on date - opinion on brief petitioner argues that respondent has no jurisdiction over him in this matter and therefore the notice_of_deficiency is void this court lacks subject matter jurisdiction and petitioner is not a person or individual as those terms are defined and applied in title_26 petitioner’s arguments are reminiscent of tax-protester rhetoric that has been universally rejected by this and other courts we shall not painstakingly address petitioner's assertions with somber reasoning and copious citation of precedent to do so might suggest that these arguments have some colorable merit williams v commissioner t c _ __ slip op pincite quoting 737_f2d_1417 5th cir accordingly we hold that petitioner is liable for the deficiency determined by respondent respondent determined that petitioner is liable for an addition_to_tax pursuant to sec_6651 sec_6651 provides an addition_to_tax for failure to timely file a return the addition_to_tax is equal to percent of the amount_required_to_be_shown_as_tax on the return with an additional percent for each additional month or fraction thereof during which such failure continues not exceeding percent in the aggregate a taxpayer may avoid the addition_to_tax by establishing that the failure_to_file a timely return was due to reasonable_cause and not willful neglect see rule a 469_us_241 the form sec_1040 that petitioner submitted for the years in issue were unsigned undated and stamped received by respondent’s ogden service_center on date long after the due dates for filing returns for the years in issue the only information petitioner provided on the form sec_1040 was his name a mailing address and his social_security_number where other information was reguired petitioner simply wrote not required to each form_1040 petitioner attached a form_w-2 as provided by united airlines petitioner also attached to each form_1040 a typed explanation as to why he intentionally omitted non-required information from his f orm respondent also determined that petitioner is liable for additions to tax pursuant to sec_6654 sec_6654 provides an addition_to_tax for failure to pay estimated_taxes unless petitioner demonstrates that one of the statutory exceptions applies imposition of this addition_to_tax is mandatory where prepayments of tax either through withholding or by making estimated quarterly tax_payments during the course of the taxable_year do not equal the percentage of total liability required under the statute see sec_6654 99_tc_202 petitioner bears the burden of proving his entitlement to any exception see 78_tc_304 petitioner failed to do so we hold that petitioner is liable for additions to tax under sec_6654 respondent moved for a penalty under sec_6673 under sec_6673 this court may award a penalty to the united_states of up to dollar_figure when the proceeding has been instituted or maintained by the taxpayer primarily for delay or if the taxpayer's position in such proceeding is frivolous or groundless see sec_6673 based on the record we conclude that such an award is appropriate in this case petitioner has pursued a frivolous and groundless position throughout this proceeding and he has refused to cooperate in the discovery and stipulation process petitioner had previously made frivolous and groundless arguments in the u s bankruptcy court for the western district of washington bankruptcy court prior to our proceeding the bankruptcy court clearly informed petitioner that he is a taxpayer and that he is reguired to file valid income_tax returns petitioner has wasted the time and resources of two courts petitioner knew or should have known that his position was groundless and frivolous yet he persisted in maintaining this proceeding primarily to impede the proper workings of our judicial system and to delay the payment of his federal_income_tax liabilities accordingly a penalty is awarded to the united_states under sec_6673 in the amount of dollar_figure an appropriate order and decision will be entered granting respondent’s motion for a penalty and decision will be entered for respondent


internal_revenue_service number release date index number ---------------------- ------------------------------ -------------------------------------- ----------------------------------------- --------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ------------- telephone number -------------------- refer reply to cc corp b04 plr-107776-14 date date legend taxpayer ----------------------------------------------------------------------------------------------- ------------------------- state a ------------ exchange ------------- date date ---------------------- ---------------------- dear --------------- this letter responds to your date request for rulings under sec_301 and sec_305 of the internal_revenue_code_of_1986 as amended the code the information received in that request and in subsequent communications is summarized below summary of facts taxpayer a state a corporation is registered as a closed-end investment_company and business_development_company under the investment_company act of as amended taxpayer has elected to be treated as a regulated_investment_company a ric under subchapter_m of chapter of subtitle a of the code and files plr-107776-14 its federal_income_tax returns as a ric taxpayer regularly distributes its earnings_and_profits as required under sec_852 taxpayer has one class of common_stock outstanding the common_stock the shares of which are publicly traded and listed on the exchange taxpayer has adopted a dividend_reinvestment_plan drip that generally provides for the reinvestment of its distributions on behalf of the holders of its common_stock unless a shareholder affirmatively elects to receive cash subject_to the approval of taxpayer’s board_of directors taxpayer currently intends to make with respect to its common_stock one or more future dividends and or future spillback dividends dividends made after the close of a taxable_year that relate back to that taxable_year pursuant to an election under sec_855 with respect to its taxable years ending on date and date in the form of cash or common_stock at the election of each stockholder except where otherwise indicated references herein to a special dividend or the special dividend refer to each of the dividends referred to in the preceding sentence and references to the special dividends refer to all of the special dividends the total amount of cash payable in a special dividend will be limited to not less than percent of the total value of the special dividend in no event will the total amount of cash available be less than percent of the total value of a special dividend taxpayer expects to declare a special dividend using an election mechanism substantially_similar to that described below taxpayer will transmit to each holder of common_stock an election form relating to a special dividend each holder of common_stock may elect by the election deadline to receive his her or its portion of the special dividend in the form of a cash the cash_option or b common_stock of equivalent value the stock_option if a stockholder fails to make a valid election by the election deadline that stockholder will be deemed to have made an election to receive percent stock the total number of shares of common_stock to be issued in a special dividend will equal i the total amount of the special dividend minus the amount of cash payable pursuant to elections under the cash_option but subject_to the cash limit as defined below divided by ii the average trading price of a share of common_stock on the exchange as of the close of trading during a three-business-day period ending on a date that is as close as possible to the dividend payment_date but that is sufficiently in advance of that date to allow taxpayer to determine the number of shares of common_stock that it will issue and distribute in the special dividend the average trading price although taxpayer does not anticipate that the value of a share of common_stock will change substantially between the time that the average trading price is determined and the dividend payment_date there may be some change in value in that event the total value of the shares of common_stock actually distributed in the special plr-107776-14 dividend may not be precisely equal to the amount of cash that the shareholders electing to receive such shares would have received if those shareholders had elected to receive all-cash distributions while each stockholder will have the option to elect to receive cash in lieu of stock for the stockholder's entire entitlement under a special dividend taxpayer intends to limit the aggregate amount of cash to be distributed in a special dividend to not less than percent of the special dividend such amount the cash limit any cash paid in lieu of fractional shares of common_stock will not count towards the cash limit in no event will the total amount of cash available be less than percent of the total value of a special dividend thus taxpayer may pay more than percent of a special dividend in cash if for any special dividend the total number of shares of common_stock for which a cash election is made cash election shares would result in the payment of cash in an aggregate amount that is less than or equal to the cash limit then the entire portion of such special dividend that is allocable to such cash election shares will be paid in cash if the number of cash election shares would result in the payment of cash in an aggregate amount that is greater than the cash limit then holders of cash election shares will receive their respective portions of such special dividend on their cash election shares as follows a in cash on each stockholder’s cash election shares equal to the proportion that such stockholder’s cash election shares bear to the total cash election shares of all stockholders multiplied by an amount equal to the cash limit plus b in shares of common_stock based on the average trading price as to the remainder as a result if too many stockholders elect to receive a special dividend in cash a holder of cash election shares will instead receive a pro_rata amount of cash but in no case less than percent of its entitlement under a special dividend in cash with respect to any shareholder participating in the drip the drip will apply to a special dividend only to the extent that in the absence of the drip the shareholder would have received the distribution in money the taxpayer has represented that it will satisfy all of the requirements of section dollar_figure of revproc_2010_12 2010_3_irb_302 other than sec_3 thereof provided that for purposes of the representation is substituted for in each place it appears in sec_3 plr-107776-14 rulings based solely on the information provided and the representations made we rule as follows with respect to the special dividends any and all cash and stock distributed in each special dividend by taxpayer will be treated as a distribution of cash and property with respect to its stock to which sec_301 applies sec_301 and sec_305 the amount of the distributions of the stock received by any stockholder who receives stock will be considered equal to the amount of money which could have been received instead sec_1_305-1 and sec_1_305-2 example caveats except as expressly provided herein no opinion is expressed or implied concerning the tax treatment of the proposed transaction under other provisions of the code and regulations or the tax treatment of any condition existing at the time of or effects resulting from the proposed transaction that is not specifically covered by the above rulings in particular no opinion is expressed with regard to whether taxpayer qualifies as a ric under subchapter_m or whether the distributions made pursuant to the ruling will satisfy the required_distribution requirement under sec_4981 procedural statements the rulings contained in this letter are based upon facts 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 materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of this letter_ruling plr-107776-14 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely ______________________________ maury passman branch chief branch office of the associate chief_counsel corporate cc


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division uil numbers l date he é contact person ty cd b identification_number telephone number employer_identification_number legend foundation state company d o u i m m t t a t dear sir or madam this letter responds to the request of counsel for the foundation dated date for rulings regarding the reaffirmation of prior favorable private letter rulings issued to the foundation and the issue of self-dealing under sec_4941 of the internal_revenue_code code the foundation is exempt from federal_income_tax under sec_501 of the code and is classified as a private_foundation within the meaning of sec_509 the foundation is a private non-operating foundation whose exempt_purpose is to receive funds administer its investments and distribute the earnings thereon for charitable purposes the foundation derives its income from a portfolio of stocks and bonds and from substantial holdings of investment real_property located in state the majority of these assets were acquired either by gift from b during his lifetime or as a bequest under b’s will the other principal beneficiaries of the assets of b’s estate the estate were the marital and residual trusts created under b’s will the trusts at the time of the distribution of the estate’s assets the estate received a ruling that provided that the furnishing of certain real_property management investment advisory and general administrative services to the foundation by the company and d who was an employee of the company and was b’s son would not constitute an act of self-dealing under sec_4941 of the code as such services were provided without charge this ruling was later affirmed at that time the company was an unincorporated association utilized for centralizing the management of real_property assets held by the trusts and certain other trusts the beneficiaries of which were various b family members since the date of the prior ruling the composition of the foundation’s real_estate portfolio has changed from a portfolio consisting primarily of real_property leased under long- term ground leases to commercial and residential tenants to a portfolio with a greater number of commercial properties which the foundation leases directly to tenants this shift has occurred in part due to changes in state law which have resulted in major state landowners including a number of large tax-exempt organizations selling their residential leased fee properties and reinvesting in other assets such as self-managed commercial properties the foundation has purchased the commercial leasehold interests from of its commercial ground lessees over the past years the foundation felt that this policy of acquiring the commercial leasehold interests to be prudent as many of the leases were nearing their expiration and as such the lessees had little incentive to properly maintain the buildings and improvements which would have become the property of the foundation upon expiration of the leases by acquiring these interests the foundation believes it has avoided additional renovation costs that would have been necessary if the foundation had simply waited for these leases to expire foundation felt it would obtain a better return on these properties if tenants it leased space directly to in addition the as a result of these changes the foundation’s real_estate portfolio consists of properties in three principal categories first the foundation still holds numerous residential leased fee interests which it has been unable to sell at a reasonable price second the foundation holds leased fee interests in several commercial properties finally the foundation owns commercial properties in which space is leased by the foundation directly to various individual commercial tenants these properties are managed by three foundation employees c e and f neither e nor f is a disqualified_person with respect to the foundation as described herein from time to time additional property management services if necessary are provided by the company at no charge to the foundation consistent with past practices the company a state corporation provides certain property and investment management services for certain b family limited_partnerships the limited_partnership interests in which are held by the trusts the trusts and other trusts the beneficiaries of which are related to b the company's outstanding_stock is owned by the descendants of b through the trusts or other trusts the company has continued its historical role of providing for centralized_management of these assets and currently serves as the general_partner of the various b family limited_partnerships the expenses of the company are paid_by management fees paid to the company by the various b family limited_partnerships the trusts and other b trusts but not the foundation pursuant to the prior ruling issued at the time of the distribution of the assets of the los so estate the company and c although disqualified persons with respect to the foundation provided property management investment advisory and administrative services to the foundation for no compensation the prior ruling specially confirmed that this arrangement despite the status of the company as a disqualified_person does not constitute a prohibited act of self-dealing within the meaning of sec_4941 of the code provided that the compensation paid is not excessive in relation to the services provided by the employees in question the company wishes to i continue to provide such services to the extent they are not provided by the three employees whose time-sharing arrangement is also the subject of this request and what the foundation believes to be necessary appropriate brokerage services free of charge to the foundation necessary to comply with state real_estate licensing laws and ii make available at no charge certain office space telephone and computer hardware and software to the foundation and its employees for their use on foundation business the prior ruling addressed the time-sharing or co-employment of two individuals c and g the ruling found that the employment on a part-time basis of c and g who were also employed by the company did not constitute acts of self-dealing within the meaning of sec_4941 of the code c despite his status as a foundation_manager within the meaning of sec_4946 b provided overall supervisory and management of the foundation as its chief_executive_officer which constituted personal services within the meaning of sec_4941 currently c is president and chief_executive_officer of the company c is also executive vice president of the foundation he is not related to any member of b’s family is not a substantial_contributor to nor related to any person or shareholder officer or director of any entity which is a substantial_contributor to the foundation his only qualification as a disqualified_person with respect to the foundation is his status as a foundation_manager within the meaning of sec_4946 of the code c c is a well-known and respected business executive with numerous ties to various charitable organizations in the state along with being a director or trustee to numerous charitable organizations he was formerly a member of the board_of governors of the state community_foundation in addition to his experience with charitable organizations c has substantial business expertise with respect to the types of properties owned by the foundation c’s activities with respect to the foundation’s real_estate_assets other than supervision of foundation employees and service providers have been extremely limited specifically c’s activities with respect to management of the foundation’s real properties have involved only attempts to sell the few remaining residential leases whose rent comes up for renegotiation c is expected to continue these duties as an employee of the foundation in addition to his duties at the company g had conducted the direct day-to-day management of the foundation’s commercial properties and is one of the employees shared with the company the other being c as ‘described in the prior ruling ‘g's activities consisted primarily of property management and her concurrent employment by the foundation was found not to constitute self-dealing within the meaning of sec_4941 of the code in the prior ruling foundation’s real properties as she has succeeded to g’s duties g has since left the foundation e is currently managing the 2b f whose services are less professional in nature and include more general clerical and f is currently employed by the foundation but it is bookkeeping work currently assists e contemplated she will move to the company offices to better assist e in performing primarily clerical and bookkeeping functions relating to the foundation’s properties as well as the company properties e manages as she will be assisting e with respect to the company properties company and foundation would each employ f on a part-time basis and she would be compensated based upon the time spent working for the benefit of each entity to the extent e and f are unable to manage all of the foundation’s properties from time to time the company expects to continue to provide additional property management services at no charge directly or indirectly to the foundation just as it has since the prior two rulings the foundation is seeking a ruling reaffirming the conclusions reached in the prior rulings regarding time-sharing employment relationships with respect to c e and f based upon the facts as described herein in addition the foundation is seeking a ruling that confirms that the company’s provision to the foundation of certain property management and brokerage services office space and office equipment at no charge does not constitute self-dealing within the meaning of sec_4941 of the code the foundation understands that the rulings requested with respect to c e and f are subject_to the condition that their employment compensation remains reasonable following g’s departure and due to the increased number of commercial properties held by the foundation the foundation sought and hired e for a part-time position the company also hired e under the same time-sharing arrangement as described in the prior ruling with respect to g e performs substantially the same real_property management services that were previously performed by g e is not a director or officer of the foundation and is not related in any manner to any substantial_contributor to the foundation in addition unlike c e is not a foundation_manager because she ultimately reports to c e’s specific duties include principal responsibility for the management of all of the foundation’s commercial properties she also supervises the work of f e negotiates with tenants for some of the foundations’ commercial properties with the bulk of the lease negotiation as well as all of the negotiation with the commercial leased fee leases conducted by the company with the contemplated reassignment of property management duties within the company office the fraction of e’s time that will be devoted to foundation matters will be reduced to approximately and of thi sec_50 approximately will be devoted to property management ie of e's overall time will be devoted to property management for the foundation it is proposed that e's compensation by the foundation reflect only the time she engages in property management services for the foundation and not time engaged in negotiating tenant leases for the commercial properties once the proposed brokerage agreement becomes effective as such her compensation payable by the foundation reflects approximately of her total time subject_to adjustment from time to time to reflect the actual time expended on foundation property management matters and the value received by the foundation for herservices a copy of e’s employment agreement was submitted with the ruling_request currently f is employed by the foundation and works solely on foundation matters given the anticipated move of f to the company office which will provide certain efficiencies given her proximity to e it is expected that the foundation will not need her on a full-time basis as a result it is proposed that f be shared with the company under a similar time-sharing arrangement the percentage of f’s time that she is expected to work on foundation matters will be and her compensation payable is subject_to adjustment from time to time to reflect the actual time she expended on foundation matters and the value received by the foundation for her services the services provided by f that would be compensated by the foundation would be solely property management and related clerical and other services and not brokerage related_services which are the subject of the brokerage agreement a copy of f’s employment agreement was submitted with the ruling_request all workers’ compensation_unemployment insurance and temporary disability insurance benefits have been and will continue to be provided to e and f directly by the foundation ina manner which is directly commensurate with the time they are employed by the foundation as company employees they will be covered on the company’s policies in a manner commensurate with their time as company empioyees c is covered under the company's health policy as the majority of his time is spent working on company matters c’s duties with respect to the foundation have remained substantially as described in the submissions made in support of the prior ruling and the time-sharing arrangement is expected to remain substantially the same c is the ceo of the foundation and spends the bulk of his time for the foundation providing the overall management and is property classified as a foundation_manager under sec_4946 of the code c has general oversight and approval responsibilities regarding e and f’s real_estate duties just as he did with g the bulk of c's duties with respect to the foundation however pertain to monitoring and directing the foundation's considerable grant-making activity another significant aspect of c's duties include supervising the investment of the considerable non-real estate portion of the foundation’s assets including engaging investment advisors and monitoring the foundation’s investment managers as set forth below these services are identical to those provided for some time under the prior ruling and constitute permissible personal services for which c receives reasonable_compensation a copy of c’s employment agreement was submitted with the ruling_request the foundation was recently advised by its state real_property counsel that it and its employees must be licensed under the state's real_estate licensing laws in order to negotiate with tenants for the foundation’s various commercial properties despite the fact that neither the foundation nor the company’s employees provide real_estate management or brokerage services for any other person or entity than their respective employers therefore the foundation sought to engage the services of a licensed real_estate broker with the appropriate real_estate licenses to conduct the negotiations with its tenants that require representation by a licensed broker an employee of the company h holds a real_estate broker's license and company has obtained a license as a real_estate broker with h serving as its principal broker certain other employees of the company including c and e had or have also obtained upon advice of company counsel real_estate licenses c a salesperson’s license and e a broker's license so that they may pursue their real_estate brokerage activities on behalf of the company it is also expected that f will also activate her inactive salesperson’s license in connection with her proposed duties at the company as the company has now become a licensed real_estate broker and has traditionally provided free property management and other services to the foundation to the extent brokerage services are required to meet state’s unique real_estate licensing laws the board_of directors of the foundation determined that it would be in the best interest of the foundation to obtain the services of the company as its broker since the company has offered to provide such services at no charge to the foundation this arrangement is reflected in a proposed commercial brokerage agreement designed to reflect the parties current arrangements and satisfy these unique state real_estate law licensing requirements pursuant to which brokerage services are to be provided at no charge by the company to the foundation the brokerage agreement provides that the company will provide brokerage services to assist in the leasing of the foundation’s commercial properties at no charge to the foundation and reflects the parties’ recent practices in that regard under the brokerage agreement the foundation is not required to reimburse the company for any fees and costs incurred by the company in the course of serving as the foundation’s principal broker in addition the foundation as owner of the properties is not required to either indemnify or provide insurance coverage to the company although h as principal broker of the company is ultimately responsible for the actions of licensed persons under her including c e and f the foundation is not obligated to and will not compensate h c e f or the company directly or indirectly for such brokerage services in addition the foundation does not indirectly pay for any of such brokerage services since it does not pay c e and f for such brokerage services c is compensated solely for his personal services as a foundation_manager and e and f will be compensated only for property management and other services not brokerage services they provide the foundation finally none of the foundation’s assets will be used by the company in the provision of the proposed brokerage services since such activities will be carried out by the company's employees at its offices the foundation represents that this arrangement is extremely beneficial since the foundation will not have to engage and as a result pay another real_estate firm for these brokerage services in addition it will not have to pay for a person with a broker’s license to be employed full-time so as to make the foundation eligible for its own brokerage license the time-sharing employment arrangement discussed in the prior ruling is substantially_similar to the current facts with the substantive differences being i the time-sharing employment of e in place of g ii the time-sharing employment of f and iii the execution of the proposed brokerage agreement that the foundation represents was solely entered into to meet the unique requirements of state’s unique real_estate licensing laws the foundation represents that in the interests of efficiency and at a cost savings to the foundation the company has made available to the foundation office space for some of the foundation’s employees to carry out foundation business including c and e and in the future f the company has also permitted the foundation’s employees to use its phone and computer systems without charge direct or indirect -t- also because of the foundation’s increased need for property management services due to the shift in its real_estate asset mix to the extent e and f are unable to provide all of the property management services required then in such event it is expected the company by and through its employees may provide as described in the prior letter rulings similar services at no charge to the foundation the foundation will pay no fee for these services nor will it be required to reimburse the company for any expenses_incurred in connection therewith directly or indirectly the foundation has requested the following rulings the time-sharing employment arrangement described herein with respect to c e and f will not constitute an act of self-dealing within the meaning of sec_4941 of the code or affect the validity of any prior rulings issued to the foundation provided that the compensation paid_by the foundation to each of c e and f respectively is not excessive in relation to the services provided to the foundation the provision of the brokerage and property management and related_services office space and equipment by the company to the foundation at no charge as described herein will not constitute an act of self-dealing within the meaning of sec_4941 of the cade or affect the validity of any prior rulings issued to the foundation neither i the time-sharing employment arrangement described herein with respect to c e and f or ii the provision of the brokerage and property management and related_services office space and equipment by the company to the foundation without charge as described herein will constitute private_inurement of the foundation’s net_earnings or assets to any other private individuals or entities including the company provided that the compensation paid_by the foundation to each of c e and f respectively is not excessive and is reasonable in relation to the services provided to the foundation neither i the time-sharing employment arrangement described herein with respect to c e and f or ii the provision of the brokerage and property management and related_services office space and equipment by the company to the foundation without charge as described herein will adversely affect the foundation’s tax exempt status under sec_501 of the code provided that the compensation paid_by the foundation to each of c e and f respectively is not excessive and is reasonable in relation to the services provided the foundation sec_501 of the code provides in part for the exemption from federal_income_tax of organizations that are organized and operated exclusively for religious charitable scientific or educational_purposes provided no part of the net_earnings inure to the benefit of any shareholder or individual 21d sec_1_501_c_3_-1 of the income_tax regulations regulations provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 of the code an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_1 c -1 c of the regulations provides that an organization is not operated exclusively for one or more exempt purposes if its net_earnings inure in whole or in part to the benefit of private shareholders or individuals chapter of the code subjects private_foundations described in sec_509 and disqualified persons described in sec_4946 to certain excise_tax provisions including sec_4941 sec_4941 a of the code imposes an excise_tax on each act of self-dealing between a disqualified_person and a private_foundation sec_4941 of the code provides in part that the term self-dealing means any direct or indirect a sale_or_exchange or leasing of property between a private_foundation and a disqualified_person b lending of money or other extension of credit between a private_foundation and a disqualified_person e transfer to or use by or for the benefit of a disqualified_person of the assets of a private_foundation sec_4946 of the code provides in part that the term disqualified_person means with respect to a private_foundation a person who is - a a substantial_contributor to the foundation b a foundation_manager c an owner of more than percent of i the total combined voting power of a corporation which is a substantial_contributor to the foundation d a member_of_the_family of any individual described in subparagraphs a b or c e a corporation in which persons described in subparagraph a b c or d own more than percent of the total combined voting power sec_4941 of the code provides in relevant part that the furnishing of goods services or facilities by a disqualified_person to a private_foundation shall not be an act of self- dealing if the furnishing is without charge _ sec_4941 d e of the code provides in part that payment of compensation and the payment or reimbursement of expenses by a private_foundation to a disqualified_person for personal services which are reasonable and necessary to carrying out the exempt_purpose of a private_foundation shail not be an act of self-dealing if the compensation_for payment or reimbursement is not excessive qq sec_53 d -2 b of the foundation and similar excise_taxes regulations hereafter foundation regulations provides in part that the leasing of property by a disqualified_person to a private_foundation shall not be an act of self-dealing if the lease is without charge sec_52 d -2 d of the foundation regulations provides in part that t he furnishing of goods services or facilities by a disqualified_person to a private_foundation shall not be an act of self-dealing if they are furnished without charge similarly the furnishing of services even though such services are not personal in nature shall be permitted if such furnishing is without charge sec_53 d -2 e of the foundation regulations provides in part that t he payment of compensation by a private_foundation to a disqualified_person shall constitute an act of self-dealing sec_53 d -2 f of the foundation regulations provides in part that t he fact that a disqualified_person receives an incidental benefit from the use by a foundation of its income or assets will not by itself make such use an act of self-dealing sec_53 d -3 c of the foundation regulations provides in part that t he payment of compensation by a private_foundation to a disqualified_person for the performance of personal services which are reasonable and necessary to carry out the exempt purposes of the private_foundation shall not be an act of self-dealing if such compensation is not excessive the term personal services includes the services of a broker serving as an agent for the private_foundation but not the services of a dealer who buys from the private_foundation and sells to third parties sec_53 d -3 c of the foundation regulations in example provides the following example of permitted personal services c a manager of private_foundation x owns an investment counseling business acting in his capacity as an investment counselor c manages x’s investment portfolio for which he receives an amount which is determined to be not excessive the payment of such compensation to c shall not constitute an act of self-dealing revrul_74_591 1974_2_cb_385 provides that a pension for past personal services paid_by a private_foundation to one of its directors a disqualified_person whose total compensation including the pension is not excessive does not constitute an act of self-dealing under sec_4941 of the code regarding c the foundation represents that the only substantive differences between this ruling_request and the prior rulings are required of c due to the increased number of employees and activities undertaken by the foundation and ii the fact that the foundation has been required by state real_estate licensing laws to engage a licensed broker to negotiate with its tenants the proposed entering into of the proposed brokerage agreement described herein with the company and c obtaining his own real salesperson’s license required solely due to his duties at the company do not i the expanded foundation management duties ff alter the conclusion that c is providing personal services to the foundation within the meaning of sec_4941 of the code the time-sharing arrangement with c continues to provide neither a direct or indirect economic benefit to the company c continues to contract directly with the foundation for his services as evidenced by his employment contract regarding e and f the foundation represents the only substantive difference between the arrangement with e and f and the prior arrangement with g is that the increased number of properties held by the foundation and the types of services required property management as well as more clerical bookkeeping necessitate the need for both e and f neither e nor f is a disqualified_person with respect to the foundation neither is a substantial_contributor within the meaning of sec_4946 of the code an owner of more than twenty percent of an entity which is a substantial_contributor within the meaning of sec_4946 a member_of_the_family of any individual described above within the meaning of sec_4946 d or a corporation partnership trust or estate as described in sec_4946 e-g neither is a foundation_manager within the definition under sec_4946 as they are supervised by c and do not have direct final_decision making authority with respect to the foundation’s properties in contrast to c while both e and f are employees of the company and the company will act as broker for the foundation to meet the unique requirements of state’s real_estate licensing laws these employment arrangements do not indirectly benefit the company since i the foundation contracts directly with e and f for their services ii e and f will be compensated by the foundation only for the work they perform managing the foundation’s properties and iii e and f will not be compensated by the foundation for brokerage services therefore there is no self-dealing within the meaning of sec_4941 because the employment of e and f is nota transaction between a private_foundation and a disqualified_person and the employment of e and f does not directly or indirectly benefit the company as stated in the prior rulings the provision of certain property and investment management and general administrative services by the company at no charge has not constituted prohibited self-dealing under sec_4941 of the code however because of the requirements of state’s real_estate licensing laws the foundation has had to seek the services of a licensed real_estate broker and wants to use the free services of the company to meet these requirements pursuant to the proposed brokerage agreement also the provision of space at the company's offices and equipment for foundation employees at no charge is not self-dealing under sec_4941 of the code the company has represented that the foundation is not charged directly or indirectly for these services therefore the transactions have the effect of the disqualified_person providing services at no charge and there was no self- dealing pursuant to the exception contained in sec_4941 d c finally with respect to the proposed time-sharing employment arrangement with c e and f the foundation has represented that each will perform valuable services essential to the foundation’s charitable operations and therefore will not result in prohibited private_inurement of any part of the foundation’s assets of net'earnirigs so long as the compensation paid_by the’ foundation is reasonable follows accordingly based on the information and representations submitted we are ruling as soon oe aa rn ren emenetecn oe cn cues ne eat venga pupae poe ee a the time-sharing employment arrangement described herein with respect to c e and f will not constitute an act of self-dealing within the meaning of sec_4941 of the code or affect the validity of any prior rulings issued to the foundation provided that the compensation paid_by the foundation to each of c e and f respectively is not excessive in relation to the services provided to the foundation the provision of the brokerage and property management and related_services office space and equipment by the company to the foundation at no charge as described herein will not constitute an act of self-dealing within the meaning of sec_4941 of the code or affect the validity of any prior rulings issued to the foundation neither i the time-sharing employment arrangement described herein with respect to c e and f or ii the provision of the brokerage and property management and related_services office space and equipment by the company to the foundation without charge as described herein will constitute private_inurement of the foundation’s net_earnings or assets to any other private individuals or entities including the company provided that the compensation paid_by the foundation to each of c e and f respectively is not excessive and is reasonable in relation to the services provided to the foundation neither i the time-sharing employment arrangement described herein with respect to c e and f or ii the provision of the brokerage and property management and related_services office space and equipment by the company to the foundation without charge as described herein will adversely affect the foundation’s tax exempt status under sec_501 of the code provided that the compensation paid_by the foundation to each of c e and f respectively is not excessive and is reasonable in relation to the services provided the foundation this ruling is directed only to the organization that requested it sec_61 k of the code provides that this ruling may not be used or cited by others as precedent this ruling is limited to the applicability of the provisions of sec_4941 and sec_4946 of the code and does not purport to rule on any facts that were not represented in the ruling_request as supplemented or on any changes of those facts also in this ruling we have not determined whether the compensation paid is reasonable we merely have accepted your representations this ruling is based on the understanding that there will be no material changes in the facts upon which it is based lt if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely teo kistc han sy - robert c harper jr manager exempt_organizations technical group qin


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 1-plr-116527-99 date dec legend x state d1 this responds to your letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated under state law on d1 x’s shareholder intended that x be a subchapter_s_corporation effective d1 however an s_corporation_election to be treated as an s_corporation was not timely filed law and analysis sec_1362 provides that a small_business_corporation can elect to be treated as an s_corporation sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation’s taxable_year then that corporation will be treated as an s_corporation for the year in which the election was made 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 made sec_1362 provides that if an election under sec_1362 is made for any taxable_year after the date prescribed for making such election for such taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make the election then the secretary can treat the election as timely made for such taxable_year plr-116527-99 x’s s_corporation_election was not filed timely for the election to be effective as of d1 nevertheless x has established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and assuming that x otherwise qualifies as a subchapter_s_corporation as of d1 we conclude that x will be recognized as an s_corporation effective as of d1 x should file a completed form_2553 with a copy of this ruling attached reflecting its election of subchapter_s_corporation status as of d1 with the applicable service_center within days of the date of this letter except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x otherwise satisfies the s_corporation eligibility requirements this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative enclosures copy of this letter copy for sec_6110 purposes sincerely david r haglund senior technician reviewer branch office of assistant chief_counsel passthroughs and special industries


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division release number release date date uil code date legend city state dear contact person identification_number telephone number employer_identification_number we have considered your request dated date and revised by letter dated date for a ruling with regard to your adopted plan of dissolution under sec_501 of the internal_revenue_code code and the resulting tax treatment of distributions made to your members facts you are recognized as exempt under sec_501 of the code as a teachers’ retirement fund association of a purely local character you are not a qualified_retirement_plan under sec_401 of the code you accumulate and manage funds to provide retirement death and disability benefits to retired and permanently disabled teachers who are your members memberships are available to professional employees of city's public schools and the city educational association who are in good health and age fifty or younger at the time of application your members pay dues according to the class of membership that they select when a member reaches age they become eligible to receive a retirement benefit that is a monthly annuity not a guaranteed annuity your revenue consists solely of amounts received from assessments on the teaching salaries of your members and income in respect of your investments over the years the number of new members has decreased due to the availability of more attractive retirement and annuity_plans with a decreasing membership your governance and administrative costs have become more prohibitive as a result your trustees decided to dissolve and distribute your assets to your members in satisfaction of all existing obligations to provide current or future retirement benefits neither your original articles of incorporation nor your constitution specifies procedures for dissolution as a result you filed revised articles with the state secretary of state providing procedures for dissolution and amended your constitution to provide for dissolution as authorized under state nonprofit laws your trustees adopted a plan of dissolution and upon receipt of a favorable ruling plan to submit the plan to the members for approval upon such approval you plan to dissolve liquidate and wind up your affairs in accordance with the plan of dissolution the plan of dissolution provides that your trustees shall determine and pay your obligations and liabilities and create a reserve to pay unknown or contingent liabilities and costs incurred related to the dissolution on the termination_date all dues and benefits will cease from the funds remaining after payment of your obligations and liabilities you will make the distributions in the following order to current annuitants a lump sum equal to the actuarial equivalent of their future monthly benefit but not less than dues paid plu sec_3 percent interest compounded annually reduced by the aggregate amount of monthly benefits paid to the annuitant through the termination_date to active members with more than ten years of membership a lump sum equal to the actuarial equivalent of the member's accrued_benefit but not less than the aggregate dues paid_by the member plu sec_3 percent interest compounded annually through the termination_date to active members with less than ten years of membership a lump sum equal to the aggregate dues paid_by the member plu sec_3 percent interest compounded annually through the termination_date to current annuitants and active members any funds remaining distributed pro_rata based on the person’s membership classification rulings requested your dissolution and liquidation according to the plan of dissolution will not adversely affect your exempt status under sec_501 of the code amounts distributed to members according to your plan of dissolution will not be subject_to sec_72 of the code law sec_72 of the code provides rules that govern the income_taxation of all amounts received under annuity_contracts and amounts received during the insured’s life from life_insurance policies and endowment contracts sec_72 of the code provides rules for taxing a distribution that is taxable under sec_72 and is received as an annuity an annuity is a series of periodic_payments for a fixed period or over someone's lifetime sec_72 of the code imposes a percent penalty if any taxpayer receives any amount under an annuity_contract sec_501 of the code states that teachers’ retirement fund associations of a purely local character are exempt from federal tax if a no part of their net_earnings inures other than through payment of retirement benefits to the benefit of any private_shareholder_or_individual and b the income consists solely of amounts received from public taxation amounts received from assessments on the teaching salaries of members and income in respect of investments sec_1_72-2 of the income_tax regulations regulations states that amounts subject_to sec_72 in accordance with subparagraph of this section are considered as amounts received as an annuity only in the event that all of the following tests are met i ii ii they must be received on or after the annuity_starting_date as that term is defined in paragraph b of sec_1_72-4 they must be payable in periodic installments at regular intervals whether annually semiannually quarterly monthly weekly or otherwise over a period of more than one full year from the annuity_starting_date and except as indicated in subparagraph of this paragraph the total of the amounts payable must be determinable at the annuity_starting_date either directly from the terms of the contract or indirectly by the use of either mortality tables or compound interest computations or both in conjunction with such terms and in accordance with sound actuarial theory sec_1_501_c_9_-4 of the regulations states that it will not constitute prohibited inurement if upon termination of a plan established by an employer any remaining assets are applied to provide either directly or through insurance life sick accident or other permissible employee welfare benefits similarly a distribution to members upon the dissolution of the association will not constitute prohibited inurement of the amount distributed to members is determined on the basis of objective and reasonable standards which do not result in either unequal payments to similarly situated members or in disproportionate payments to officers shareholders or highly compensated employees of the employer in 795_f2d_1303 the court noted that sec_501 was similar in purpose and time to sec_501 sec_501 was first enacted as sec_103 of the revenue act of ch 45_stat_791 sec_501 was first enacted in the same statute sec_103 of the revenue act of ch 45_stat_791 the court stated that sec_501 introduced into the law a new kind of exempt_organization namely teachers’ retirement fund associations of a purely local character h_r conf_rep no cong sess at c b part analysis ruling_request sec_501 of the code does not expressly describe the effect of dissolution on exempt status this section does state that no part of such an organization's net_earnings inures other than through payment of retirement benefits to the benefit of any private_shareholder_or_individual without regulations available with respect to sec_501 we can look to the sec_501 regulations for guidance on the tax treatment the regulations under sec_501 were enacted under the same statute as sec_501 and have a similar purpose see 795_f2d_1303 organizations that are exempt under sec_501 and sec_501 of the code are both organized and operated to provide benefits to their members and are subject_to the proscription against inurement under sec_1_501_c_9_-4 of the regulations the dissolution of an organization will not constitute prohibited inurement if the amounts distributed to members are determined based on objective and reasonable standards which do not result in either unequal payments to officers shareholders or highly compensated employees of an employer contributing to or otherwise funding the employees’ association you propose to dissolve your organization and distribute your assets after payment of liabilities first to your annuitants second to your active members with more than ten years membership and third to your newest active members here the amounts of your distributions will be either the actuarial value of the annuitants’ future_benefits or the accrued amount of the active members’ benefits finally if any assets remain you will make pro_rata distributions based on the members’ selected membership classification distributing your assets using criteria such as length of time in membership expected or accrued_benefit amounts and self-selected membership classification do not cause either unequal payments to similarly situated members or disproportionate payments to officers shareholders or highly compensated employees your plan of distribution appears to be in accordance with the plain and ordinary meaning of sec_501 of the code and appears to satisfy the requirements of sec_1 c - d of the regulations and prohibited inurement will not occur under the facts and circumstances described in your ruling_request therefore your plan of dissolution will not adversely affect your status as an organization described in sec_501 of the code ruling_request sec_72 of the code provides rules that govern the income_taxation of all amounts received under annuity_contracts and amounts received during the insured’s life from life_insurance policies and endowments contracts sec_72 provides rules for taxing a distribution that is taxable under sec_72 and is received as an annuity an annuity is a series of periodic_payments for a fixed period or over someone’s lifetime see black and skipper life_insurance ed see also sec_1_72-2 of the regulations for amounts considered as amounts received as an annuity the plan is a plan of dissolution that results in a one-time lump sum distribution of assets the plan is neither an annuity_contract nor in the form of an annuity accordingly sec_72 does not apply to the lump sum payments in question sec_72 of the code imposes a percent penalty on amounts received by a taxpayer under an annuity_contract the legislative_history of sec_72 indicates that congress intended to deter the use of annuity_contracts for short-term investment and income_tax deferral since the payments in question are not subject_to sec_72 the payments are not subject_to the percent penalty imposed under sec_72 conclusion accordingly based on the foregoing we rule as follows your dissolution and liquidation according to your plan of dissolution will not adversely affect your exempt status under sec_501 of the code amounts distributed to members according to your plan of dissolution will not be subject_to sec_72 of the code this ruling will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent this ruling is based on the facts as they were presented and on the understanding that there will be no material changes in these facts this ruling does not address the applicability of any section of the code or regulations to the facts submitted other than with respect to the sections described because it could help resolve questions concerning your federal_income_tax status this ruling should be kept in your permanent records if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter in accordance with the power_of_attorney currently on file with the internal_revenue_service we are sending a copy of this letter to your authorized representative sincerely ronald shoemaker manager exempt_organizations technical group enclosure notice