department of the treasury internal_revenue_service washington d c wo tsrsreet mar division uniform issue list tep kat legend taxpayer a sep ira b financial_institution c company d amount dear this letter is in response to a request for a letter_ruling dated date as supplemented by additional correspondence dated date and date from your authorized representative in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a represents that he took a distribution from sep ira b totaling amount taxpayer a age __ at the time of the distribution asserts that his failure to accomplish a rollover within the 60-day period prescribed by sec_408 of the code was due to errors by financial_institution c and company d taxpayer a further asserts that amount has not been used for any other purpose taxpayer a maintained sep ira b a simplified_employee_pension under sec_408 of the code with financial_institution c as custodian in taxpayer a informed financial_institution c that he wished to use amount from sep ira b to invest in company d prior to doing this taxpayer a instructed both financial_institution c and company d that he desired such investment to remain in a retirement_plan he was told by financial_institution c that amount would have to be distributed from sep ira b to complete the transaction the funds would then be rolled into a new ira from which the investment in company d could be made company d represented to taxpayer a that the investment could be in the name of a sep plan but mistakenly assumed that financial_institution c would continue to hold the investment in company d as part of sep ira b both financial_institution c and company d assured taxpayer a that the rollover would be and was handled properly in consideration of amount taxpayer a on date financial_institution c issued a check for amount in the name of taxpayer a company d signed a convertible promissory note with company d dated date issued in the name of sep ira b the promissory note provided that it could be converted into common_stock at a later date financial_institution c issued a form 1099-r for the distribution of amount from sep ira b taxpayer a reported this as an eligible_rollover_distribution on his form_1040 tax_return for the taxable_year believing amount had been properly rolled over to an eligible_retirement_plan on date the internal_revenue_service informed taxpayer a that he had underreported his income on his tax_return for by amount taxpayer a contacted both financial_institution c and company d to try to determine why amount was not rolled over to an eligible_retirement_plan financial_institution c acknowledged in writing that miscommunication between a representative of financial_institution c and a representative of company d resulted in the failure to deposit amount into an eligible_retirement_plan based on the above facts and representations you request that the internal_revenue_service service waive the 60-day rollover requirement contained in sec_408 of the code with respect to the distribution of amount sec_408 of the code provides that except as otherwise provided in sec_408 of the code any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if - i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such - individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 of the code sec_408 of the code provides that sec_408 of the code does not apply to any amount described in sec_408 of the code received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 of the code from an ira which was not includible in gross_income because of the application of sec_408 of the code sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 of the code the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and the documentation submitted by taxpayer ais consistent with his assertion that his failure to accomplish a timely rollover of amount was due to errors by financial_institution c and company d therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount from sep ira b taxpayer a is granted a period of days from the issuance of this letter_ruling to contribute no more than amount back into sep ira b or another rollover ira provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution the contribution will be considered a rollover_contribution within the meaning of sec_408 no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter 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 a copy of this letter_ruling has been sent to your authorized representative pursuant to a power_of_attorney on file in this office this ruling please contact if you wish to inquire about i d at sincerely yours - cuil a wuiine manager employee_plans technical group enclosures deleted copy of this letter notice of intention to disclose notice cc


t c memo united_states tax_court tom i lincir and diane c lincir petitioners v commissioner of internal revenue respondent docket no filed date michael d savage and louis samuel for petitioners wilton a baker and kim a palmerino for respondent memorandum findings_of_fact and opinion dawson judge this case was assigned to chief special_trial_judge peter j panuthos pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_183 the court agrees with and adopts the opinion of the special_trial_judge which is set forth below all section references are to the internal_revenue_code of as amended and in effect for the years in issue unless otherwise indicated all rule references are to the tax_court rules_of_practice and procedure opinion of the special_trial_judge panuthos chief special_trial_judge respondent determined deficiencies in and additions to petitioners' federal income taxes as follows additions to tax_year deficiency sec_6653’ sec_6661 dollar_figure dollar_figure -- big_number dollar_figure -- big_number dollar_figure -- big_number dollar_figure --- dollar_figure dollar_figure for returns required to be filed after date if the addition_to_tax under sec_6653 applies the addition_to_tax under sec_6653 will also apply in an amount to be determined respondent also determined that once the deficiencies are determined petitioners are liable for increased interest on underpayments attributable to a tax-motivated transaction as defined in sec_6621 c the deficiencies in this case result from respondent's disallowance of certain losses the losses include those attributable to petitioners' participation in the arbitrage and carry gold trading promoted by futures trading inc fti the losses also include those attributable to petitioners’ participation in the treasury bill t-bill option and stock forward transactions promoted by merit securities inc merit a company that is related to fti the parties have stipulated that--- all adjustments relating to the t-bill options and the stock forward contracts programs promoted by merit shall be redetermined in the same manner as comparable adjustments in rivera v commissioner_tax_court docket nos and controlling cases the above-mentioned controlling cases are two of seven consolidated cases reported as leema enterprises inc v commissioner tcmemo_1999_18 therein we addressed issues concerning the merit t-bill and stock forward trades and held that-- the merit markets lacked economic_substance although the form appeared as markets for particular financial instruments the substance was the creation of straddles to generate loss deductions without corresponding economic losses in short the merit trades cannot support the losses claimed we alternatively held that even if the transactions had substance the individual merit investors' primary objective was obtaining tax benefits and thus they failed to meet the statutory requirements for deducting the losses at issue our holding in leema enterprises inc accordingly disposes of the merit t-bill and stock forward losses at issue here for the reasons stated therein those losses are not allowed in this case the parties have also entered into a second stipulation of facts wherein they agreed that all transactions involving the arbitrage and carry 'a c' program promoted by futures trading inc 'fti' will be ignored for federal_income_tax purposes in four consolidated cases seykota v commissioner tcmemo_1991_234 supplemented by tcmemo_1991_541 we addressed issues concerning the fti a c transactions therein we held that the fti a c program was an economic sham and disallowed continued this second stipulation resolved other issues concerning the deficiencies at issue after additional concessions the issues remaining for decision are whether petitioners are liable for additions to tax for negligence or intentional disregard of rules or regulations pursuant to sec_6653 or pursuant to sec_6653 and for the years and whether petitioners are liable for increased interest on underpayments attributable to a tax-motivated transaction pursuant to sec_6621 and whether petitioners are liable for the addition_to_tax imposed under sec_6661 for making a substantial_understatement for the year findings_of_fact the parties filed two stipulations of settlement of tax_shelter adjustments a first stipulation of facts with attached exhibits a second stipulation of facts anda third stipulation of facts with more attached exhibits the facts reflected are continued deductions claimed by the taxpayers for losses_incurred in connection with that program in the parties filed a stipulation of settlement of tax_shelter adjustment that resolved issues relating to the dorchester litigation project the parties have also stipulated that petitioner diane c lincir is not entitled to innocent spouse relief pursuant to sec_6013 for the years at issue we also note that the parties' first stipulation of facts indicates that the deficiencies for the years involved might be affected by questions of net_operating_loss and investment_tax_credit carrybacks from years not before the court we accept the parties' representations that these carryback issues have been resolved by their other agreements so found and by this reference are incorporated herein additionally the controlling cases reported as leema enterprises inc v commissioner supra are incorporated by this reference petitioners tom i lincir and diane c lincir were married and resided in san pedro california when their petition was filed they were divorced in petitioners are high school graduates mr lincir has taken some junior college classes and is trained as a metalworker after graduating from high school mrs lincir took some junior college courses in bookkeeping between and petitioners operated two successful physical-fitness businesses one sta-slim products engaged in manufacturing light exercise items and the other ivanko barbell co engaged in the importation and sale of weightlifting equipment mr lincir was involved in every aspect of the businesses while mrs lincir handled the accounts_payable and ran the office side of the businesses by sales of the two companies totaled more than dollar_figure million annually between and mr lincir was also involved in dealing in coins and precious metals he attended weekly seminars that had been formed to discuss investing in precious metals mr lincir additionally invested in real_estate one of his associates in an apartment house venture introduced mr lincir to an accountant named robert schenkman a specialist in real_estate mr schenkman became petitioners’ accountant he assisted mr lincir with incorporating petitioners' businesses establishing a system for payroll_taxes and preparing petitioners' federal_income_tax returns mr schenkman helped petitioners to establish a retirement program which invested its assets in gold mr schenkman also provided mr lincir with information about the fti merit promotions mr schenkman worked with a representative of fti rusty london more or less as a team concerning fti merit and its clients mr schenkman billed mr london for the time mr schenkman expended in lining up clients for fti merit mr schenkman routinely disclosed to his clients this financial arrangement with mr london mr schenkman explained to mr lincir that for tax purposes the fti merit program would generate gains in the form of long-term_capital_gains and losses as ordinary losses mr lincir shared this knowledge with mrs lincir mr schenkman also provided mr lincir with a private_placement memorandum about the fti merit program mr lincir tried to read this document but did not understand it ’ mr lincir assumed that mr schenkman profited in some way from the business generated by referring clients to fti merit the stipulations in this case reflect that the fti merit programs in which petitioners participated took three forms--a gold cash-and-carry program the trading of options in t-bill futures contracts and the trading of stock forward contracts mr lincir apparently considered the changes in form of the fti merit promotion to be a continuation of the same program as he understood it the tax code had been changed or something and you can't use gold anymore mr lincir did not know the particulars of such arrangements however and he had no knowledge of whether fti merit compensated mr schenkman directly in mr lincir invested approximately dollar_figure in the fti merit programs fti merit provided information concerning the tax ramifications of mr lincir's investments directly to mr schenkman that information was not provided to mr lincir first mr schenkman told petitioners that the deductions generated by the fti merit program were in accordance with the tax laws the following table is derived from petitioners' federal_income_tax returns for the years at issue the table compares petitioners' salary income from their businesses with their supplemental losses from fti merit reported on their schedules supplemental schedule of gains and losses year salary income fti merit losses dollar_figure dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number the large losses did not concern mr lincir he had total confidence in mr schenkman and felt that bigger gains would come later because that was the way the program was described mr schenkman proposed other investment opportunities to petitioners but they did not accept any such investment recommendations opinion additions to tax under sec_6653 and sec_6653 and sec_6653 and beginning with taxable_year sec_6653 provides for an addition_to_tax equal to percent of any underpayment if any part of the underpayment is due to negligence or intentional_disregard_of_rules_and_regulations sec_6653 beginning with the tax_year provides for an addition_to_tax equal to percent of the interest payable on the deficiency with respect to the portion of the underpayment which is attributable to negligence or intentional_disregard_of_rules_and_regulations negligence under sec_6653 and sec_6653 and is the lack of due care or the failure to act as a reasonable person would act under the same circumstances where there is a legal duty to act see 85_tc_934 petitioners bear the burden of proving that no part of the underpayments for the years at issue is due to negligence or intentional_disregard_of_rules_and_regulations see rule a 58_tc_757 in this case the high writeoffs generated by the fti merit programs were reflected as consistent annual losses of hundreds of thousands of dollars the losses approached and often exceeded petitioners' income from their two businesses write- offs of this magnitude should have alerted petitioners that their deductions were at best questionable see 857_f2d_1383 9th cir affg dister v commissioner tcmemo_1987_217 in such cases taxpayers have a duty to show that they made reasonable inquiry into the validity of the investment plans that generated such deductions see 731_f2d_1417 9th cir affg 79_tc_714 petitioners have not made such a showing their reliance upon the advice of mr schenkman did not constitute a reasonable inguiry an accountant's advice cannot shield taxpayers from liability for the negligence penalties when the accountant lacks knowledge of pertinent facts relating to the venture as to which the taxpayers are seeking advice see collins v commissioner supra petitioners have not demonstrated that mr schenkman possessed sufficient expertise to advise them about the gold trading or financial instruments involved in the fti merit programs to the contrary mr schenkman has conceded that he was not a specialist in gold trading or financial instruments he has stated that he merely tried to lay out what the tax consequences would be based on the information given to me by the promoter mr lincir had substantial exposure to the practices of precious metal trading he knew or should have known of mr schenkman's relative lack of experience moreover it was not reasonable for petitioners to base substantial tax losses solely upon the advice of a tax adviser who has an economic_interest in promoting the investment investors instead have a duty to consult with competent advisers -- - who are independent of the program or they must otherwise examine the validity of the program see 92_tc_958 affd without published opinion 921_f2d_280 9th cir mr schenkman was not independent of the fti merit programs he instead stood to profit from the business generated by getting his clients into the fti merit programs and he routinely advised his clients of that fact mr lincir concededly knew that in some fashion mr schenkman would earn additional income by getting his clients into the program we do not accept the notion that petitioners are naive and trusting individuals who were led astray by bad tax_advice petitioners have developed and maintained two successful businesses these businesses have generated millions of dollars in sales and annual incomes for petitioners in the hundreds of thousands of dollars moreover in addition to being a successful businessman mr lincir participated in precious metal trading and real_estate ventures we conclude that petitioners possessed enough experience and knowledge of business to have known that they should have evaluated the substantial tax deductions at issue more carefully on the record before us petitioners have failed to show that we should reject respondent's determined additions to tax for negligence sec_6621 additional interest sec_6621 formerly sec_6621 provides for an increase in the interest rate where there is a substantial_underpayment 1ie one that exceeds dollar_figure in any taxable_year in which the understatement is attributable to or more tax_motivated_transactions petitioners bear the burden_of_proof as to this issue see rule a boyd v commissioner t1t c in seykota v commissioner tcmemo_1991_234 supplemented by tcmemo_1991_541 we found that the fti merit transactions were tax-motivated transactions within the meaning of sec_6621 we again made the same finding with respect to the merit t-bill and stock forward trades in leema enterprises inc v commissioner tcmemo_1999_18 petitioners have presented no evidence to show that these findings should not apply to them accordingly the additional interest imposed by sec_6621 is applicable to petitioners substantial_understatement of tax under sec_6661 respondent has determined additions to tax under sec_6661 for for returns due after date but before date sec_6661 provides for an addition_to_tax equal to percent of the amount of any underpayment attributable to a substantial_understatement an understatement the first stipulation of facts recites that some of the deficiencies at issue related to the dorchester project as opposed to the fti merit programs in a stipulation filed date however the parties agreed that petitioners were entitled to only percent of the claimed deductions relating to the dorchester project and further that any underpayments attributable to dorchester transactions were attributable to tax-motivated transactions within the scope of sec_6621 is substantial when the understatement for the taxable_year exceeds the greater of percent of the tax required to be shown on the return or dollar_figure the understatement is reduced to the extent that the taxpayer has adequately disclosed his or her position or has substantial_authority for the tax treatment of an item see sec_6661 sec_1 a income_tax regs petitioners again bear the burden of showing that they are not subject_to the addition_to_tax determined by respondent see rule a 107_tc_18 petitioners presented no evidence to show that respondent erroneously determined the addition_to_tax under sec_6661 accordingly we hold that petitioners are liable for the addition_to_tax under sec_6661 their concessions with respect to the deficiencies at issue show that their understatement for exceeds the greater of dollar_figure or percent of the tax required to be shown on their return for respondent determined that all of petitioners' underpayment is attributable to that substantial_understatement because petitioners have not disputed this determination we so hold in view of the foregoing decision will be entered under rule


t c summary opinion united_states tax_court richard a eichinger and diana suarez petitioners v commissioner of internal revenue respondent docket no 25369-12s l filed date richard a eichinger and diana suarez pro sese mark j tober for respondent summary opinion armen special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not unless otherwise indicated all section references are to the internal_revenue_code as amended and in effect at all relevant times all rule references are to the tax_court rules_of_practice and procedure reviewable by any other court and this opinion shall not be treated as precedent for any other case this case is before the court on a petition for review of respondent’s determination to sustain the filing of a notice_of_federal_tax_lien relating to an assessment of income_tax as well as accrued penalties and interest for see sec_6320 sec_6330 the sole issue presented to the court for decision at the trial of this case in date was whether petitioners are entitled to dependency_exemption deductions for the three children of petitioner richard a eichinger and his former wife christel eichinger background petitioners resided in the state of florida at the time that the petition was filed with the court after a prior trial in date the court decided that petitioners were not barred by sec_6330 from challenging the existence or amount of the underlying liability for and remanded the case to the internal_revenue_service irs appeals_office for further proceedings the parties were not successful in settling the case and it was therefore recalendared for trial at the court’s trial session in tampa florida in date in a prior opinion in docket no the court upheld respondent’s disallowance of inter alia petitioner richard a eichinger’s claim of dependency_exemption deductions for for children he had with his former wife christel eichinger eichinger v commissioner tcmemo_2010_123 petitioner richard a eichinger mr eichinger married christel eichinger in date the couple had three children a daughter born in a second daughter born in and a son born in collectively the three children individually the older daughter the younger daughter and the son in date when the family was living in ft wayne indiana mr eichinger and christel eichinger separated at which time christel eichinger filed a petition for dissolution of marriage in the circuit_court for allen county indiana circuit_court in the circuit_court entered its decree of dissolution of marriage after making exhaustive findings regarding the fitness of each parent the circuit_court expressly concluded that an award of joint legal custody would not be in the best interest of the three children and granted christel eichinger sole legal custody of the three children christel eichinger continued to live in ft wayne indiana after the divorce with the three children mr eichinger also continued to live in the area for a while but later moved to ohio in he relocated to orlando florida where he has lived ever since the county seat of allen county as well as the largest city is ft wayne mr eichinger challenged the decree but was not successful during the eichingers’ older daughter lived with her mother christel eichinger in ft wayne indiana and attended college full time as a day student at saint francis university in ft wayne during the eichingers’ younger daughter and son also lived with their mother christel eichinger in ft wayne and attended public school high school and middle school respectively in ft wayne one or more of the children visited mr eichinger in orlando florida during but the time each child spent with him during these visits was less than the time that any of the children spent living with their mother christel eichinger in ft wayne indiana at all relevant times the three children received most of their support from their parents also at all relevant times the three children lived with one or the other of their parents throughout the year in mr eichinger and petitioner diana suarez collectively petitioners were married and they filed a joint income_tax return for that year on their return petitioners claimed dependency_exemption deductions for mr eichinger’s three children by his former wife christel eichinger petitioners did not attach to their return a form_8332 release revocation of release of claim to exemption for mr eichinger provided support generally through court-ordered payroll deductions child by custodial_parent or a similar written_statement signed by christel eichinger as christel eichinger never executed such a form or a similar written_statement an examination of petitioners’ return concluded with the issuance of a notice_of_deficiency in which respondent disallowed the dependency_exemption deductions for the three children although properly mailed the notice_of_deficiency was not actually received by petitioners in time for them to commence an action for redetermination accordingly respondent assessed the deficiency and sent petitioners notice_and_demand for payment when the amount owing was not paid respondent filed a notice_of_federal_tax_lien and sent petitioners a notice of lien filing petitioners responded by filing a request for administrative review ultimately the irs appeals_office sustained the filing of the lien and sent petitioners a notice_of_determination petitioners then timely commenced the instant action discussion the court decides the disputed issue in this case de novo see 114_tc_604 114_tc_176 it would appear from the record that mr eichinger never asked christel eichinger to execute a form_8332 or a similar written_statement perhaps because their relationship remained acrimonious after their divorce and on the record presented without regard to the burden_of_proof see rule a 290_us_111 cf sec_7491 in so doing the court is mindful of the fundamental principles articulated by the u s supreme court that deductions are a matter of legislative grace and a taxpayer must therefore be entitled under law to any deduction claimed on a tax_return 503_us_79 292_us_435 in computing taxable_income sec_151 allows as a deduction an exemption for each dependent of a taxpayer sec_152 defines the term dependent to mean either a qualifying_child see sec_152 c or a qualifying_relative see sec_152 d of the taxpayer in order to be a taxpayer’s qualifying_child an individual must a bear a specified relationship to the taxpayer b have the same principal_place_of_abode as the taxpayer for more than one-half of the taxable_year c meet certain age requirements d have not provided more than one-half of his or her own support for the year and if married e have not filed a joint_return other than only for a claim of refund with his or her spouse sec_152 the term qualifying_relative means an individual a who bears a specified relationship to the taxpayer b whose gross_income is less than the exemption_amount c with respect to whom the taxpayer provides over one-half of the individual’s support and d who is not a qualifying_child of the taxpayer or of any other taxpayer sec_152 during the eichingers’ three children attended school and resided with their mother christel eichinger in ft wayne indiana for most of the year thus the three children did not have the same principal_place_of_abode as mr eichinger and for that reason were not his qualifying children under sec_152 for see sec_152 nor were the three children the qualifying relatives of mr eichinger under sec_152 for as the three children were the qualifying children of christel eichinger for that year see sec_152 d d notwithstanding the foregoing a special rule exists in the case of parents who are divorced or separated or who live apart at all times during the last six months of the calendar_year this special rule is set forth in sec_152 and serves to determine which parent is entitled to a dependency_exemption deduction for a child thus under sec_152 and as relevant herein a child who is in the custody of one or both of the child’s parents for more than one-half of the calendar_year and who receives more than one-half of his or her support for the year from his or her parents is considered the qualifying_child of the noncustodial_parent if the custodial_parent signs a written declaration that she will not claim such child as a dependent and the noncustodial_parent attaches the written declaration to his return sec_152 sec_1_152-4 income_tax regs see 114_tc_184 aff’d sub nom 293_f3d_1208 10th cir for purposes of sec_152 the term custodial_parent means the parent having custody for the greater portion of the calendar_year whereas the term noncustodial_parent means the parent who is not the custodial_parent sec_152 applicable regulations expand on the meaning of these terms thus sec_1_152-4 income_tax regs provides in pertinent part as follows d custodial parent-- in general --the custodial_parent is the parent with whom the child resides for the greater number of nights during the calendar_year and the noncustodial_parent is the parent who is not the custodial_parent a child is treated as residing with neither parent if the child is emancipated under state law for purposes of this section a child resides with a parent for a night if the child sleeps-- i at the residence of that parent whether or not the parent is present or ii in the company of the parent when the child does not sleep at a parent’s residence for example the parent and child are on vacation together clearly as to the minor children ie the younger daughter and the son christel eichinger was the custodial_parent having both legal custody as well as physical custody for more than one-half of the year presumably she never released her claim to exemption pursuant to sec_152 as petitioners never attached to their return any form_8332 or similar written_statement under these circumstances it follows that petitioners are not entitled to dependency_exemption deductions for mr eichinger’s younger daughter and son see sec_152 insofar as the older daughter is concerned she may have been an adult in see ind code ann sec lexisnexi sec_2012 however given that she was both under years of age in and a full-time university day student who lived at home with her mother christel eichinger during that year it would appear that the older daughter was not emancipated under indiana law see id sec lexisnexis supp before its amendment effective date lowering the operative age from years to years hirsch v oliver n e 2d ind thus for christel eichinger would have been the custodial_parent see sec_152 sec_1_152-4 income_tax regs accordingly given the absence of any form_8332 or similar written_statement petitioners would not be entitled to a dependency_exemption deduction for mr eichinger’s older daughter see sec_152 on the other hand even if the older daughter were emancipated in thereby rendering the special rule_of sec_152 inapplicable kaechele v commissioner tcmemo_1992_457 see sec_1_152-4 example income_tax regs petitioners would still not be entitled to a dependency_exemption continued on brief petitioners argue that they provided more than one-half of the support through court-imposed impounds of mr eichinger’s salary for the three children in however the court need not consider whether the evidentiary record would support such a finding of fact because the matter is irrelevant as a matter of law thus as previously discussed for a noncustodial_parent such as mr eichinger the touchstone for decision is whether the custodial_parent executed a form_8332 or a similar written_statement and whether the noncustodial_parent then attached such form or statement to his return see id finally petitioners argue that the taking of additional tax from eichinger suarez who are entitled to dependency deductions for all of the children they support amounts to a harsh and oppressive unconstitutional taking of their property but as previously stated the u s supreme court has made clear for many years that deductions are a matter of legislative grace and a taxpayer must continued deduction because mr eichinger’s older daughter did not have the same principal_place_of_abode as petitioners for more than one-half of the year see sec_152 and she was still the qualifying_child of christel eichinger see d d see sec_1_152-4 example income_tax regs indicating that if sec_152 and sec_1_152-4 income_tax regs do not apply then whether an individual is qualifying_child or a qualifying_relative is determined under sec_152 or d to the extent that sec_152 might not be applicable see supra note the child’s principal_place_of_abode becomes determinative therefore be entitled under law to any deduction claimed on a tax_return indopco inc v commissioner u s pincite new colonial ice co v helvering u s pincite in that regard this court stated as follows in a case remarkably similar to the instant one congress created several objective tests in sec_152 these tests draw bright lines and without these tests there would need to be rules that are sensitive to a wide variety of family circumstances such rules would be difficult to craft and hard for the commissioner and the courts to administer and would likely require government intrusion into delicate family issues the court is required to apply the law as passed by congress and the rules of sec_152 d and e are explicit sec_152 prevents a parent in petitioner’s circumstances from claiming a dependency_exemption deduction irrespective of the amount of financial support he provided his children walters v commissioner t c memo at further the walters opinion was cited with approval by the court in 139_tc_508 which went on to add the following our obligation to follow the statute as written applies whether the resulting disadvantage is suffered by a custodial_parent who executed a form_8332 but bore an undue and unintended burden of child_support or is instead suffered by a noncustodial_parent who bore the burden of child_support but did not receive an executed form_8332 see 139_tc_468 aff’d 745_f3d_890 8th cir conclusion in order to give effect to our disposition of the sole disputed issue decision will be entered for respondent


internal_revenue_service number release date index numbers - ---------------------------- ----------------------------------------- -------------------------- department of the treasury washington dc person to contact ------------------------------ ---------------------- ----------------------------------------------------- - telephone number --------------------- refer reply to cc psi - plr-132482-05 date date ------------- ---------------- ---------------------------- ------------------------------------------------- legend x ---------------------------------- ---------------- y state d1 dear ------------------- this letter responds to your letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations for x to file an election to be classified as an association_taxable_as_a_corporation for federal tax purposes state limited_liability_company x intended to be classified as an association_taxable_as_a_corporation for federal tax purposes however x failed to timely file a form_8832 entity classification election the information submitted states that on d1 y organized x a wholly-owned sec_301_7701-3 provides that an eligible_entity may elect to be sec_301_7701-3 provides guidance on the classification of a domestic sec_301_9100-1 provides that the commissioner has discretion to grant a sec_301_7701-3 provides that an election under sec_301_7701-3 plr-132482-05 eligible_entity for federal tax purposes under sec_301_7701-3 unless it elects otherwise a domestic eligible_entity is disregarded as an entity separate from its owner if it has a single owner classified other than as provided in sec_301_7701-3 by filing form_8832 with the service_center designated on form_8832 will be effective on the date specified on form_8832 or on the date filed if no such date is specified on the form the effective date specified on form_8832 cannot be more than days prior to the date the form is filed and cannot be more than months after the date on which the form is filed reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register making certain elections determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 under sec_301_9100-3 a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government reasonably and in good_faith if the taxpayer failed to make the election because after exercising reasonable diligence taking into account the taxpayer's experience and the complexity of the return or issue the taxpayer was unaware of the necessity of the election or the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election requirements of sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file form_8832 and elect to be sec_301_9100-2 provides the rules governing automatic extensions of time for based on the facts submitted and representations made we conclude that the sec_301_9100-3 provides that a taxpayer is deemed to have acted sec_301_9100-3 sets forth the standards the commissioner will use to plr-132482-05 classified as an association_taxable_as_a_corporation for federal tax purposes effective d1 a copy of this letter should be attached to the form_8832 the federal tax consequences of the transaction described above under any other provision of the code sec_6110 provides that it may not be used or cited as precedent except as specifically set forth above no opinion is expressed or implied as to this ruling is directed only to the taxpayer on whose behalf it was requested in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to x enclosures copy of this letter copy for sec_6110 purposes sincerely heather c maloy associate chief_counsel passthroughs and special industries


internal_revenue_service number release date index number -------------------------- --------------------------------------------- ------------------------- ------------------------- ------------------------------------------------------------- --------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ----------------- telephone number --------------------- refer reply to cc corp b03 plr-109830-12 date date legend parent ----------------------------------------------------------- -------------------------- date date date x -------------------------- -------------------------- --------------------------- -- company official ----------------------------------------------------------------------------------------------------- -------------------------------------------------------------- ------------------ tax professional ---------------------------------------------------------------- ------------------------------------------------------- -------------------------------- dear --------------- this letter responds to a letter dated date submitted on behalf of parent requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election in particular parent is requesting an plr-109830-12 extension of time for the consolidated_group of which parent is the common parent to elect an extended carryback period the election for a consolidated_net_operating_loss cnol the material information submitted for consideration is summarized below parent is the common parent of a consolidated_group the parent group parent group incurred a cnol in the taxable_year ending date the year cnol parent seeks to carry back the year cnol x years to its taxable_year ending on date under sec_172 parent was required to file the election in order to carry back the year cnol to its taxable_year ending on date and to obtain the benefit of sec_56 the election was due on date parent intended to file the election but for various reasons a valid election was not filed after the due_date for the election it was discovered that the election had not been filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file the election the period of limitations on assessment under sec_6501 has not expired for the parent group’s consolidated_income_tax_return for the taxable_year in which the year cnol was incurred or any subsequent taxable_year parent has represented that it is not seeking to alter a return position for which an accuracy related penalty has been or could be imposed under sec_6662 at the time the taxpayer requested relief taking into account any qualified_amended_return filed sec_1_6664-2 sec_172 of the internal_revenue_code generally permits a taxpayer to carry back a net_operating_loss to each of the taxable years preceding the taxable_year of the nol sec_172 of the internal_revenue_code permits a taxpayer to elect to carry back an applicable net_operating_loss to each of the or taxable years preceding the taxable_year of the applicable nol in lieu of the 2-year period provided by sec_172 sec_172 provides that the term applicable net_operating_loss applicable nol means the taxpayer’s net_operating_loss for a taxable_year ending after date and beginning before date sec_172 provides that the election under sec_172 shall be made by the due_date including extension of time for filing the return for the taxpayer’s last taxable_year beginning in the election is irrevocable and in general may be made only with respect to one taxable_year sec_1502 provides that the secretary shall prescribe such regulations as he may deem necessary in order that the tax_liability of any affiliated_group_of_corporations making a consolidated_return and of each corporation in the group both during and after the period of affiliation may be returned determined computed assessed collected and adjusted in such manner as clearly to reflect the income_tax_liability and the various factors necessary for the determination of such liability and in order to prevent plr-109830-12 avoidance of such tax_liability in carrying out the preceding sentence the secretary may prescribe rules that are different from the provisions of chapter that would apply if such corporations filed separate returns sec_1_1502-21 provides that losses taken into account in determining a cnol may be carried to other taxable years whether consolidated or separate only under paragraph b of sec_1_1502-21 sec_1_1502-21 provides that net_operating_loss_carryovers_and_carrybacks to a taxable_year are determined under the principles of sec_172 and sec_1 sec_1_1502-21t provides that a consolidated_group can elect an extended carryback period pursuant to sec_172 with regard to a cnol arising in a taxable_year ending after date and beginning before date revproc_2009_52 2009_49_irb_744 provides when and how a taxpayer may make an election under sec_172 sec_4 of revproc_2009_52 provides that the common parent of a consolidated_group makes the election for the group sec_4 and of revproc_2009_52 permit the election to be made for consolidated taxpayers by attaching a statement to the original or amended consolidated_return for the taxable_year of the applicable cnol by attaching a statement to the taxpayer’s amended consolidated_return applying the applicable cnol to the carryback_year or by attaching a statement to a claim for a tentative_carryback_adjustment on form_1139 sec_4 b and b of revproc_2009_52 require the election regardless of the manner in which made to be filed no later than the due_date including extensions for filing the return for the taxpayer’s last taxable_year beginning in under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 the election by a consolidated_group to extend the carryback period under sec_172 for a cnol is a regulatory election therefore the commissioner has plr-109830-12 discretionary authority under sec_301_9100-3 to grant an extension of time for parent to file the election provided parent establishes to the satisfaction of the commissioner that it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by parent company official and tax professional explain the circumstances that resulted in the failure to timely file a valid election the information establishes that parent reasonably relied on a qualified_tax professional who failed to make or advise parent to make the election and that the request for relief was filed before the failure to timely make the election was discovered by the internal_revenue_service see sec_301_9100-3 and v based on the facts and information submitted including the affidavits submitted and the representations made we conclude that parent has shown it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly provided the parent group qualifies substantively to file the election we grant an extension of time under sec_301_9100-3 until sixty days from the date on this letter for parent to file the election the time in which parent may file a form_1139 for the year cnol has expired however parent may file the election under sec_172 to carry back the year cnol to its taxable_year ending on date on form 1120x amended u s_corporation income_tax return for the tax_year ending either date or date according to the procedures set forth in revproc_2009_52 a copy of this letter must be attached to the form 1120x if parent files form 1120x electronically parent may satisfy the requirement of attaching a copy of this letter by attaching a statement to the parent group’s amended_return that provides the date and control number plr-109830-12 of this letter_ruling the above extension of time is conditioned on the parent group’s tax_liability if any not being lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money we express no opinion as to the parent group’s tax_liability for the years involved a determination thereof will be made by the director’s office upon audit of the income_tax returns involved except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any item discussed or referenced in this letter in particular we express no opinion with respect to whether parent qualifies substantively to make the election in addition we express no opinion as to the tax effects or consequences of filing the election late under the provisions of any other section of the internal_revenue_code or regulations or as to the tax treatment of any conditions plr-109830-12 existing at the time of or resulting from filing the election late that are not specifically set forth in this letter for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made under penalty of perjury by parent company official and tax professional the director however should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election any penalties and interest that would otherwise be applicable continue to apply this letter_ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file in this office a copy of this letter is being sent to your authorized sincerely _________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc


internal_revenue_service appeals_office east river dr st east hartford ct release number release date date date a b department of the treasury taxpayer_identification_number cc person to contact tax period s ended f certified mail uil dear this is a final adverse determination regarding your exempt status under sec_501 of the internal_revenue_code the code’ tis determined that you do not qualify as exempt from federal_income_tax under sec_501 of the code effective d the revocation of your exempt status was made for the foliowing reason s more than an insubstantial part of the organization's activities are not in furtherance of exempt purposes therefore the organization fails to meet the operational_test as defined in regulation c -1 a contributions to your organization are not deductible under sec_170 of the code you are required to file federal_income_tax returns on forms e for the tax periods stated in the heading of this letter and for all tax years thereafter file your return with the appropriate internal_revenue_service center per the instructions of the return for further instructions forms and information please visit www irs gov processing of income_tax returns and assessments of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the code if you decide to contest this determination you may file an action for declaratory_judgment under the provisions of sec_7428 of the code in one of the following three venues united_states tax_court the united_states court of federal claims or the united_states district_court for the district of columbia a petition or complaint in one of these three courts must be filed within days from the date this determination_letter was mailed to you please contact the clerk of the appropriate court for rules for filing petitions for declaratory_judgment to secure a petition form from the united_states tax_court write to the united_states tax_court second street n w washington d c see also publication you also have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matters that may not have been resolved through normal channels get prompt and proper handling if you want taxpayer_advocate assistance please contact the taxpayer_advocate for the irs office that issued this letter you may call toll-free for the taxpayer_advocate or visit www irs gov advocate for more information we will notify the appropriate state officials of this action as required by code sec_6104 you should contact your state officials if you have any questions about how this determination may affect your state responsibilities and requirements if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours s appeals team manager co g enclosure publication department of the treasury - internal_revenue_service form 886a iit explanation of items schedule no or exhibit year period ended xx thru xx legend org - organization name country - country xx - date city - city state - state ra dir-1 - dir-6 - through dir website - website ra-1 ra-2 ra-3 - g 3r co-1 through co-12 - through companies issue is the organization described below entitled to continued tax exempt status under internal_revenue_code sec_501 issue are contributions to the organization described below deductible under sec_170 of the internal_revenue_code facts hereinafter referred to as the organization was incorporated on july 19xx in the state of state the organization was granted tax exempt status under sec_501 as a public charity described in sec_509 and sec_170 of the code on january 19xx the organization’s purpose as stated in their certificate of incorporation is in furtherance of its purpose the organization provides monetary support to educational facilities to meet the religious and educational needs of country the supported foreign organization has a similar name to the domestic organization which is schools in country ee hereinafter referred to as co-1 and they operate a network of the organization derives substantially_all of its income in the form of contributions from foundations individuals and the general_public during the examination it was determined that the organization maintained accounts at co-2 co-3 and co-3 from which funds were sent via checks or wire transfers to support the foreign organization the website for co-1 website provides a history of the organization form 886-a crev department of the treasury - internal_revenue_service page -1- foe department of the treasury - internal_revenue_service form_886 a explanation of items no or ff exhibit year period ended xx thru xx the form_990 returns also show expenses classified as social work programs the organization represented that this expense category was the direct payment of salaries to teachers at the country schools_for the years under examination salary payments to a review of the organization’s form_990 information returns for tax years december 20xx through december 20xx disclosed that the organization’s primary activity is providing financial support totaling dollar_figuredollar_figure dollar_figuredollar_figure dollar_figuredollar_figure and dollar_figuredollar_figure respectively to co-1 department of the treasury - internal_revenue_service financial information form 886-a rev page -2- _ form_886 a department of the treasury - internal_revenue_service explanation of items schedule no or exhibit year petiod ended xx thru xx individuals for calendar years 20xx 20xx 20xx and 20xx were dollar_figure dollar_figuredollar_figure dollar_figuredollar_figure and dollar_figuredollar_figure respectively the organization provided itemized schedules of disbursements for co-1 and the social work programs for each year under examination the schedules revealed that a significant number of checks and wire transfer receipts including bank statements were missing the amounts referenced on the various tables below were extracted from the schedules provided by the organization per the table below summarizes payments the organization represents to have been made for the benefit of co-1 20xx 20xx 20xx dollar_figuredollar_figure dollar_figuredollar_figure 20xx_ total dollar_figuredollar_figure dollar_figuredollar_figure direct support dollar_figuredollar_figure for co-1 payments for teachers - social work program sec_3 subtotal dollar_figuredollar_figure percentage of funds earmarked for specific individuals total payments for teachers dollar_figuredollar_figure dollar_figuredollar_figure dollar_figuredollar_figure dollar_figuredollar_figure dollar_figuredollar_figure dollar_figuredollar_figure dollar_figuredollar_figure dollar_figuredollar_figure dollar_figuredollar_figure dollar_figuredollar_figure divided by total distributions dollar_figuredollar_figure direct payments of salaries to teachers the organization was asked why in addition to making direct support payments to the educational_institution they also made direct payment of salaries to individuals at three of the schools the representative stated that the foreign organization had requested that payment be made directly to the individuals in order to lessen the school’s administrative burdens in addition he indicated that this was done in order to segregate those payments from the country organization’s regular cash_flow for budgeting purposes this enabled them to better track the portion of their payroll that they needed to cover from other sources the representative was also asked if these individuals receiving payments were united_states citizens he indicated that to the best of our knowledge these individuals are not u s citizens the organization stated that co-1 periodically submitted a request listing the names of individuals and the amounts to be paid to each on behalf of the foreign organization the form 886-a rev department of the treasury - internal_revenue_service page -3- 886a schedule no or form explanation of items department of the treasury - internal_revenue_service orm exhibit year period ended xx tho xx organization drafts the checks payable to the identified individuals sends the checks to the foreign organization who in turn distributes them to the payees the service issued an information_document_request idr dated august 20xx in which the organization was asked what controls were in place to determine that the individuals are employed by the schools in country and to submit personnel files for these individuals the organization’s representative indicated that the board members visit the country organization on a monthly basis during the visitation they inspect records and of the schools a board member resides in country and make unannounced onsite visits constantly monitors usage of funds provided by the organization _ both hand written and printed from the the organization provided documents in school facilities operated in country the documents included photo identifications w-4 equivalents and personnel files as verification that the individuals receiving payments are in fact employees of the country schools however the organization did not provide photo identifications for all individuals who received direct payments additional correspondence received from the director of the schools in country listed the names employment dates school locations and job function for each of the individuals to whom payments were made by the organization the service did not accept these documents as evidence that the individuals are employees of the schools because they were unofficial documents and appeared to be self-serving furthermore payments earmarked for specific individuals are not deductible under sec_170 of the internal_revenue_code a discussion of this issue is presented under the law section of this form 886-a payments made to the director of co-1 and other individuals 20xx the table below dir-1director dollar_figuredollar_figure dollar_figuredollar_figure dir-2 the organization’s representative stated that the school is often in need of immediate cash to cover operational expenses when this results the representative stated that the director frequently advances his own funds and the organization reimburses the director the organization also made payments to other individuals for which they did not provide records to establish the exempt_purpose of these disbursements summarizes these payments dir-3 dir-4 dir-5 dir-6 department of the treasury - internal_revenue_service dollar_figuredollar_figure dollar_figuredollar_figure dollar_figuredollar_figure dollar_figuredollar_figure form 886-acev 20xx _ total dollar_figuredollar_figure dollar_figure dollar_figure dollar_figuredollar_figure page -4- dollar_figuredollar_figure dollar_figuredollar_figure dollar_figuredollar_figure dollar_figuredollar_figure dollar_figuredollar_figure dollar_figuredollar_figure 20xx 20xx dollar_figuredollar_figure dollar_figure dollar_figuredollar_figure dollar_figure department of the treasury - internal_revenue_service form_886 a explanation of items schedule no or exhibit year period ended xx thru xx subtotal percentage of non-substantiated payments to director of co-1 and other individuals total payments to director individuals dollar_figuredollar_figure divided by total distributions dollar_figuredollar_figure dollar_figuredollar_figure dollar_figuredollar_figure es dollar_figuredollar_figure dollar_figuredollar_figure payments made to non-exempt entities the organization made payments totaling dollar_figuredollar_figure to co-4 dollar_figuredollar_figure to co-5 and dollar_figuredollar_figure to co-6 these entities were not listed in the publication as organizations to which contributions are deductible the table below summarizes these payments 20xx 20xx 20kx 20xx_ total dollar_figuredollar_figure dollar_figuredollar_figure co-4 co-5 co-6 subtotal percentage of payments to non-exempt entities total payments to non-exempt entities dollar_figuredollar_figure divided by total distributions dollar_figure dollar_figuredollar_figure dollar_figuredollar_figure dollar_figuredollar_figure dollar_figuredollar_figure dollar_figuredollar_figure dollar_figuredollar_figure dollar_figuredollar_figure dollar_figuredollar_figure other questionable_payments and_transactions based on the breakdown of disbursements on form_990 for co-1 and the schedules provided there were other questionable transactions that required further substantiation to establish that funds were used for sec_501 c purposes the table below summarizes these transactions total 20xx_ 20xx 20xx 20xx loans made directly by individuals to country ra-2 transfers classified as suspense school co-7 withdrawal co-1 subtotal form 886-a mev department of the treasury - internal_revenue_service page -5- department of the treasury - internal_revenue_service form_886 a explanation of items schedule no or exhibit yeat petriod ended xx thru xx percentage of other non-substantiated transactions total other questionable transactions dollar_figure divided by total distributions dollar_figuredollar_figure review of cancelled checks wire transfers bank statements a sampling of the cancelled checks issued to teachers disclosed that a ae the checks were deposited into the same account of a particular bank in _ tort of for tax cashed at various financial institutions located in country the organization’s representative indicated that the checks were cashed at a check cashing agency that in turn deposits the checks in the co-8 it was also determined that a few of the payments to teachers represented to be working overseas were deposited in local u s banks checks payable to one individual were routinely deposited in an account maintained at co-2 located in state checks payable to another individual were regularly deposited into co-9 located in city state the representative indicated that some of the checks were deposited to us banks because those teachers have american bank accounts managed by relatives who live in the us and requested their checks to be deposited to those accounts it was also noted that the checks made payable to the director of the schools were deposited into an account maintained at co-2 based in state even though he resides in country a review of the bank statements showed a very high frequency of large deposits and subsequent withdrawals of the same amounts within a matter of days the co-2 statements showed significant transfer of funds but did not identify the beneficiary the co-3 - statements showed substantial transfers of funds that named the beneficiary as f the wire transfers the service was unable to determine whether the wire transfers represented to have been made in support of foreign_entity were used for sec_501 purposes because of inadequate recordkeeping by the organization although the bank statements for co-3 and co-3 identified the beneficiary of failure to respond to requests for information that would verify exempt_purpose of payments the service issued information document requests idr dated february 20xx for each year under examination the idr included specific requests for missing checks wire transfer receipts bank statements documents to substantiate reimbursements to the director records to substantiate that funds were used for sec_501 purposes records to substantiate loans made directly by individuals to country and clarification on particular transactions the organization did not respond to our request for information form 886-a crev page -6- department of the treasury - internal_revenue_service department of the treasury - internal_revenue_service explanation of items form_886 a schedule no or exhibit year petiod ended xx thru xx tax attaché due to the taxpayer’s lack of substantiation of payments sent overseas the area office sought the assistance of the service’s foreign tax attaché the foreign tax attaché contacted the country taxing authority and conducted a collateral investigation the following is a summary of their interview with officials of the foreign_entity according to the report the co-1 employs approximately ij workers in different educational institutions in country eighty percent of the workers gr workers are employed directly being paid_by the country workers twenty workers are being paid only by the country by co-1 and some are a of the co-1 receives revenues from the country ps municipalities tuition fees and donations from abroad it maintains four bank accounts which are co-10 acct co-10 acct co- acct and co-12 acct the foreign organization’s manager ra-3 claims all of the wire transfers and checks of the us organization were deposited in one of the bank accounts of co-1 he also claims that there was no case of a donation received from abroad and transferred to the account of one of the employees co-1 is registered as a non-profit organization but is not recognized as an organization that country citizens can donate to and receive a tax_credit according to article fi of the country tax ordinance some of the workers who were listed on the social work programs schedule were found to be registered employees of co-1 however the checks sent from the organization specially for these teachers were not recorded on the books of co-1 in addition to the report the service received the foreign entity’s bank statements from the country authorities indicated that funds totaling approximately pf notations within a number of the statements approximately u s dollars today were returned to the u s based charity during the years 20xx through 20xx form 886-arev law department of the treasury - internal_revenue_service page -7- schedule no or exhibit year period ended xx thru xx form_886 a department of the treasury - internal_revenue_service explanation of items sec_501 of the code describes in pertinent part organizations organized and operated exclusively for religious charitable and educational_purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual sec_170 c allows a charitable_contribution_deduction for a gift to or for_the_use_of a corporation trust community chest or foundation that is created or organized in the united_states or in any possession thereof or under the laws of the united_states any state the district of columbia or any possession thereof but only if the gift is made for exclusively public purposes sec_1_501_c_3_-1 of the income_tax regulations the 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 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_501_c_3_-1 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 sec_1 a -1 c of the regulations provides that the terms private_shareholder_or_individual as used in sec_501 refer-to persons having a personal and private interest in the activities of the organization sec_1_501_c_3_-1 of the regulations provides that an organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest thus in order to meet this requirement it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests in better business bureau v united_states the supreme court stated that the presence of a single nonexempt purpose if more than insubstantial in nature will defeat exemption under sec_501 of the code regardless of the manner or importance of the truly exempt purposes an organization is not described in sec_501 if it serves a private interest more than incidentally see rev_rul c b revrul_78_86 1978_1_cb_151 and revrul_76_152 1976_1_cb_151 if however the private benefit is only incidental to the exempt purposes served and not substantial it will not result in a loss of exempt status rev_rul 1971_2_cb_231 provides that a domestic organization that conducts some or all of its activities outside the united_states is not precluded from qualifying for exempt status under sec_501 form a rev ‘department of the treasury - internal_revenue_service page -8- departinent of the ‘treasury - internal_revenue_service form_8 a explanation of items schedule no or exhibit year period ended xx thro - xx revrul_63_252 1963_2_cb_101 holds that for a contribution to a domestic organization to be deducible under sec_170 a grant that is sent to a foreign_entity must be reviewed and approved by the domestic organization this ensures that the grant is not earmarked and subject_to the control of the domestic organization revrul_66_79 1966_1_cb_48 clarifies revrul_63_252 revrul_66_79 1966_1_cb_48 provides rules for determining whether a domestic charitable_organization has and exercises sufficient control as to the use of contributions for the purposes of sec_170 contributions to a foreign charity generally are not deductible while a domestic charity can use the contributions abroad it cannot merely transfer them to a foreign charity revrul_66_79 describes the following factors that indicate that the domestic organization has discretion and control_over the use of monies sent abroad the bylaws of the corporation provide in part that the making of grants and contributions and otherwise rendering financial assistance for the purposes expressed in the charter of the organization shall be within the exclusive power of the board_of directors in furtherance of the organization's purposes the board_of directors shall have power to make grants to any organization organized and operated exclusively for charitable scientific or educational_purposes within the meaning of sec_501 of the code the board_of directors shall review all requests for funds from other organizations shall require that such requests specify the use to which the funds will be put and if the board_of directors approves the request shall authorize payment of such funds to the approved grantee the board_of directors shall require that the grantees furnish a periodic accounting to show that the funds were expended for the purposes which were approved by the board_of directors and the beard of directors may in its absolute discretion refuse to make any grants or contributions or otherwise render financial assistance to or for any or all the purposes for which funds are requested revrul_68_489 1968_2_cb_210 provides that an exempt_organization under sec_501 does not jeopardize its exempt status by distributing funds to organizations not themselves exempt under sec_501 provided the exempt_organization this revenue_ruling concluded that contributions to this organization are deductible because gifts received were used for the domestic organization’s charitable purpose and the domestic organization maintained control and discretion over the use of the funds form 886-a ev retains control and discretion as to the use of the funds department of the treasury - internal_revenue_service page -9- department of the treasury - internal_revenue_service explanation of items form_886 a schedule no or exhibit year period ended xx thru xx maintains records establishing that the funds were used for sec_501 purposes and limits distributions to specific projects that are in furtherance of its own exempt purposes revrul_56_304 1956_2_cb_306 holds that an organization described in sec_501 may make distributions of their funds to individuals provided such distributions are made on a true charitable basis organizations that make distributions to individuals should maintain adequate_records and case histories to show the name and address of each recipient of aid the amount distributed to each the purpose for which the aid was given the manner in which the recipient was selected and the relationship if any between the recipient and members officers or trustees of the organization a grantor or substantial_contributor to the organization or a member_of_the_family of either and a corporation controlled by a grantor or substantial_contributor in order that any or all distributions made to individuals can be substantiated upon request by the internal_revenue_service rationale exemption in order to qualify for tax exempt status under sec_501 an organization must engage primarily in activities which accomplish one or more exempt purposes and no more than an insubstantial part of its activities may be in furtherance of a nonexempt purpose sec_1_501_c_3_-1 the organization does not satisfy the conditions outlined in this regulation a review of the charts in the facts section of this report indicates that over a four year period approximately ofs dollars were disbursed as follows to to non-exempt entities teachers wy to the divector of co-1 and other individuals andi for other questionable transactions the representative stated that some payments to individuals were for salaries and to - reimburse a director of organization for advances he made to co-1 the organization did riot substantiate that the payments made to the teachers were to subsidize co-1’s salary expense over the four year examination period the salary expense was dollar_figure but assuming that the representative’s oral testimony is accurate and this was indeed a valid salary expense having the organization make these payments instead of co-1 serves to frustrate the administration of the country income_tax laws by having these monies escape reporting requirements this is a substantial nonexempt purpose form 886-arev department of the treasury - internal_revenue_service page -10- department of the treasury - internal_revenue_service explanation of items form_886 a i schedule no or exhibit year period ended xx thru xx if these payments were not for salary expense then the organization did not maintain the records outlined in revrul_56_304 to establish that a charitable purpose was served by these payments organizations activities were not in furtherance of exempt purposes in either event more than an insubstantial part of the over a four year period the taxpayer made payments of over a director of co-1 the oral testimony of the representative indicated that these payments were reimbursements for advances by the director of co-1 if the director did advance co-1 that much money and the organization wanted to assist in alleviating the foreign organization’s debt the organization could just as easily given the money to co-1 and not the individual the organization has not established that these payments did not serve private interests more than insubstantially see sec_1 c -1 d of the income_tax regulation ____ ‘dollars directly to other questionable_payments and transactions totaling of the organization made disbursements for which no substantiation was provided to establish whether the funds were used for a c purposes the organization also made contributions te non- exempt entities and did not maintain records to establish that an exempt_purpose was served by these disbursements deductibility in order for contributions to be deductible the domestic charitable_organization must ensure that grants made to a foreign organization or monies paid to an individual have been reviewed and approved in advance to ensure that the exempt_purpose of the domestic charity is furthered revenue rulings and dealing with deductibility of contributions hold that if payments are made to a foreign organization that have not been reviewed and approved in advance by the board_of the domestic organization then contributions to the domestic organization are not deductible because the domestic organization is acting as a conduit for the foreign organization and the domestic organization cannot establish that the funds were not earmarked for the foreign organization a foreign organization should be viewed as a non-exempt organization since that entity has not established that it meets the requirements of tax exempt status under sec_501 based on revrul_68_489 an exempt_purpose can be established if a grant made to a non-exempt organization is subject_to the discretion and control of the exempt charitable_organization the organization described in the revenue_ruling accomplished this by form 886-a crev department of the treasury - internal_revenue_service page -11- form_886 a depatment of the t'reasuty - internal_revenue_service explanation of items schedule no or exhibit year period ended xx thru xx limiting its grant to a specific project that it reviewed in advance and by maintaining records to establish that an exempt_purpose is served foreign organizations should be treated as non-exempt entities since they have not established that they meet the requirements for exemption under sec_501 and the rationale in revrul_68_489 should be applied for the years under examination substantially_all of the organization’s disbursements were reportedly made to or for the benefit of co-1 these payments were not for specific projects but for the general operating_expenses of co-1 the organization did not maintain records to establish that the making of grants was within the exclusive power of the board_of directors the board_of directors reviewed all requests for funds and required that the recipient organization specify the use to which the funds will be put the board_of directors required that the grantees furnish a periodic accounting to show that the funds were expended for the purposes which were approved by the board_of directors and the board_of directors may in its absolute discretion refuse to make any grants or contributions or otherwise render financial assistance to or for any or all the purposes for which funds are requested the organization has not established that it maintained contemporaneous written substantiation to verify that it maintained discretion and control of its funds to comply with the contribution deductibility rules outlined in revenue rulings and the organization did not establish that it funded specific projects reviewed in advance instead the organization acted as a conduit for co-1 in effect making co-1 the actual donee organization government’s primary position based upon our examination we determined that more than an insubstantial part of form 886-acrev department of the treasury - internal_revenue_service page -12- form_886 a department of the ‘treasury - internal_revenue_service iil explanation of items schedule no or exhibit year period ended xx thru xx the organization’s activities are not in furtherance of exempt purposes and as a result the organization fails to meet the operational_test as defined in regulations sec_1 c - a with respect to payments made to individuals represented by the organization as employees of the schools the organization has failed to provide acceptable documentation as proof that these individuals are employees with respect to the payments to a director of co-1 the service asserts that payments to him serve a private rather than a public interest see sec_1 c -1 d ii government’s secondary position if the government’s primary position is not sustained the government secondary position is that contributions to the organization are not deductible the organization failed to exercise discretion and control of monies sent abroad the organization acted as a conduit contributions are only deductible if made to a domestic organization for_the_use_of the domestic organization’s exempt_purpose to establish that monies sent outside the united_states serve the domestic organization’s exempt_purpose the domestic organization must establish discretion and control_over the use of the funds the organization did not exercise discretion and control and acted as a conduit for co-1 accordingly contributions to the organization are not deductible under sec_170 taxpayer’s position information document requests submitted to the organization regarding their position on the issues contained herein remain unanswered conclusion based upon the fact stated herein we determined that the organization does not qualify for exemption under sec_501 of the code we therefore propose to revoke its exemption under erc sec_501 effective january 20xx secondarily the organization acted as a conduit for a foreign organization and contributions to the organization are not deductible department of the treasury - internal_revenue_service form 886-a cev page -13-


internal_revenue_service p o box cincinnati oh number release date department of the treasury employer_identification_number contact person - id number date date contact telephone number uil 4945-dollar_figure legend b city state c county state d state x university y city z individual dear you asked for advance approval of your scholarship grant procedures under sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax you requested approval of your scholarship program to fund the education of certain qualifying students our determination we approved your procedures for awarding scholarships based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding scholarships meet the requirements of code sec_4945 as a result expenditures you make under these procedures will not be taxable also awards made under these procedures are scholarship or fellowship grants and are not taxable to the recipients if they use them for qualified_tuition_and_related_expenses subject_to the limitations provide in code sec_117 description of your request you will operate a program to provide scholarships to students attending x working toward a degree in music the number of scholarships that will be awarded each year and the amount of each scholarship will vary depending on the amount of funds available to be distributed you estimate that you will award between three and six scholarships annually ranging between dollar_figure and dollar_figure the trust is required to annually distribute the greater of letter catalog number 58263t the net_income of the trust or the amount that must be distributed to satisfy code sec_4942 in january of each year you will run an ad in the y newspaper announcing the application process at the same time you will prepare and mail information such as memos and flyers to the financial aid director and the chairman of the music department at x your selection process will be based on the provisions and limitations provided in the last will and testament of z eligibility criteria are as follows applicants must be current college students enrolled at x applicants must be working toward a degree in music applicants must have a minimum cumulative grade-point-average gpa of on a scale applicants must demonstrate financial need applicants must demonstrate traits of high personal character and leadership preference will be given to applicants in the following order applicants from b applicants from c applicants from d applicants selected by x if applicants are selected by x x will provide you with that information each year you will advise the scholarship advisory committee of the amount of funds available to be awarded as scholarships the members of your committee review the scholarship applications and rank the applicants based on gpa and demonstrated traits of high personal character and leadership the committee then makes a recommendation to your trustee of the amount that should be awarded to each applicant all scholarships are awarded on an objective and non-discriminatory basis no scholarship may be awarded to any disqualified_person as defined in code sec_4946 your scholarships may be renewed on an annual basis for up to three additional years or until the bachelor's degree is obtained whichever is earlier provided a recipient maintain their undergraduate status and a cumulative gpa of on a scale of you will pay the scholarship proceeds directly to x for the benefit of the recipient upon receipt of a grade report transcript and a payment form you will also provide a letter to x specifying that acceptance of the funds constitutes agreement to i refund any unused portion of the scholarship if a scholarship recipient fails to meet any term or condition of the scholarship and ii notify you if the scholarship recipient fails to meet any term or condition of the scholarship if x will not agree to such terms you will obtain the needed reports and grade transcripts from the scholarship recipient letter catalog number 58263t you represent that you will arrange to receive and review grantee reports annually and upon completion of the purpose for which the grant was awarded investigate diversions of funds from their intended purposes and take all reasonable and appropriate steps to recover diverted funds you will also ensure other grant funds held by a grantee are used for their intended purposes and withhold further payments to grantees until you obtain grantees' assurances that future diversions will not occur and that the grantees will take extraordinary precautions to prevent future diversions you also represent that you will maintain all records relating to individual grants including information obtained to evaluate grantees identify whether a grantee is a disqualified_person establish the amount and purpose of each grant and establishing that you undertook the supervision and investigation of grants basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is a scholarship or fellowship subject_to the provisions of code sec_117 the grant is to be used for study at an educational_organization described in code sec_170 a ii other conditions that apply to this determination this determination only covers the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don't differ significantly from those described in your original request this determination applies only to you it may not be cited as a precedent you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes to your program to the cincinnati office of exempt_organizations at internal_revenue_service exempt_organizations determinations p o box cincinnati oh letter catalog number 58263t you cannot award grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 b you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary please keep a copy of this letter in your records if you have questions please contact the person listed at the top of this letter sincerely director exempt_organizations letter catalog number 58263t