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The Finance Court docket in Transient – Might 2021 | Freeman Legislation

May 25, 2021

The Finance Court in brief

Freeman Law's "The Tax Court in Brief" covers every substantive statement of the Tax Court and offers a weekly brief overview of its decisions in clear, concise prose.

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The week from May 3rd to May 7th, 2021

Chancellor v. Comm’r, T.C. Memo. 2021-50 | May 4, 2021 | Urda, J. | Dkt. No. 20389-18

Short Summary:: Chancellor Ms. Chancellor requested deductions for business expenses, charitable donations, and state and local taxes in her 2015 income tax return. The IRS banned the deductions and issued a notice of defects. The Chancellor filed a petition with the US Treasury Court objecting to the proposed adjustments to the notice of defects.

Key question: Whether the Chancellor has adequately justified her alleged deductions.

Primary holdings:: No – not beyond those already granted by the IRS.

Important legal points::

  • The Commissioner's findings in a complaint are considered correct and the taxpayer generally bears the burden of proving them correct. Rule 142 (a); What v. Helvering, 290, US 111, 115 (1933).
  • In the case of disputed deductions, the taxpayer must meet the special requirements for an asserted deduction. See INDOPCO, Inc. v Comm & # 39; r, 503, US 79, 84 (1992). In addition, a taxpayer must keep records sufficient to substantiate the points underlying his claimed deductions. 6001; Sweetheart. Reg. § 1.6001-1 (a). Failure to keep and submit accurate records has a major impact on the taxpayer's attempted proof. See Rogers v. Comm’r, T.C. Memo. 2014-141.
  • If a taxpayer's records are lost or destroyed by circumstances beyond his or her control, he or she can justify the cost through reasonable construction. See Boyd v. Comm & # 39; r, 122 T.C. 305, 320 (2004). The inability to produce a record that is accidentally lost, whether by the taxpayer or by a third party, while changing the type of evidence that can be offered to establish a fact, does not affect the burden of proof of a fact. Malinowski v. Comm’r, 71 T.C. 1120, 1125 (1979). It is critical to this reconstruction that the secondary evidence is credible. See e.g. B. Boyd v. Comm & # 39; r, 122 T.C. If no other documentation is available, the court may, but does not have to, accept credible statements from a taxpayer to substantiate any costs.
  • 170 (a) (1) allows a deduction to be made to an organization described in Section 170 (c) within the tax year. Such deductions are only permitted if the taxpayer meets the legal and official justification requirements. Sec. 170 (a) (1); Sweetheart. Reg. § 1.170A-13. The type of justification required depends on the type and amount of the contribution. For contributions of cash, checks or other monetary gifts, a donor must “keep a record of such contribution as a bank document or a written communication from the recipient stating the name of the recipient organization, the date of contribution and the amount of the contribution. Sec. 170 (f) (17). Otherwise, a donor must “keep reliable written records showing the recipient's name, contribution date, and contribution amount” in the absence of a “canceled check or receipt from the recipient's nonprofit”. Sweetheart. Reg. § 1.170A-13 (a).
  • Section 164 contains the rules by which taxpayers who choose to use individual deductions can deduct certain taxes. Figures v. Comm’r, T.C. Memo. 2012-296. Section 164 (a) (3) allows a deduction for state and local income taxes paid during the tax year. Section 164 (b) (5) (A) allows a taxpayer to deduct state and local general sales tax in lieu of state and local income taxes. A taxpayer can deduct the VAT deduction actually paid, for which a justification would be required. Numbers v. Comm’r, at 11- Alternatively, for administrative reasons, the Commissioner allows taxpayers to calculate the amount of the deduction based on guidelines published by the IRS in the optional state and certain local sales tax tables. Sec. 164 (b) (5) (H).
  • Section 162 (a) allows a taxpayer to deduct all normal and necessary expenses paid or accrued during the tax year for the pursuit of a trade or business. A general statement by a taxpayer that the expenses incurred in operating a trade or business were paid is insufficient to demonstrate that the expenditure was reasonably directly related to such trade or business. Sham v. Comm’r, T.C. Memo. 2020-119. Personal expenses are generally not permitted as deductions. 262 (a). The taxpayer bears the burden of proof for the costs on which his claimed deductions are based. Sec. 142 (a); Sweetheart. Reg. § 1.6001-1 (a), (e).
  • Section 274 (d) sets higher justification requirements for travel, meal and lodging-related expenses for absence, entertainment, gifts, and “listed property” as defined in Section 280F (d) (4), including cars and computers. Pursuant to Section 274 (d), no deduction or credit is permitted under Section 162 or 212 for these expenses, unless the taxpayer justifies the amount, time, place, business purpose and business relationship with the taxpayer of the person who Performance for each person receives expenses through adequate records or sufficient evidence to support their own statements. Temp. Honey. Reg. § 1.274-5T (a), (b) and (c). A court cannot apply the Cohan Rule to approximate expenses that fall under Section 274 (d). See Sanford v. Comm & # 39; r, 50 T.C. 823 (1968).

insight:: The decision of the Chancellor confirms the importance of keeping good records for each tax year. To the extent that a taxpayer has lost such records, the taxpayer can attempt to reconstruct these records using the information available. However, the taxpayer will still need to provide evidence of entitlement to any claimed deductions that appear on the tax return in question.

Barnes v. Comm’r, T.C. Memo. 2021-49 | May 4, 2021 | Lauber, J. | Dkt. No. 6330-19L

Short Summary:: Taxpayers complained about a proposed deficiency in the tax court in connection with their 2003 tax year. Taxpayers filed a voluntary Chapter 11 petition in the District of Columbia Bankruptcy Court before the tax court issued an opinion. The IRS entered the bankruptcy process and submitted evidence of the tax deficiency claim – however, the 2003 tax year was not taken into account.

After the plan was confirmed, the IRS requested that auto-reside be lifted so the Revenue Court could make a decision on the 2003 taxpayers' year. The bankruptcy court granted the motion and the tax court ruled that taxpayers owed deficiencies, fines and tax increases for 2003, as stated in the notice of deficiency.

The IRS later assessed the 2003 liability and issued a notice of federal tax lien for taxpayers' 2003, 2008 and 2009 tax years. Taxpayers requested a hearing on the debt collection process (CDP) in good time. The IRS Settlement Officer agreed to partially clear the NFTL, stating that the 2008 and 2009 tax liabilities were included in the taxpayers' bankruptcy. However, the SO concluded that filing the 2003 lien was appropriate.

Key question: Whether the SO misused its discretion to determine that the tax debt from 2003 was recoverable after the bankruptcy relief.

Primary holdings:: The SO did not misuse its discretion when it found that the 2003 tax liability was recoverable after the bankruptcy relief, as unrecognized tax liabilities are not recoverable.

Important legal points::

  • The purpose of the global assessment is to expedite litigation and avoid costly, time-consuming and unnecessary legal proceedings. Peach Corp. against Comm’r, 90 T.C. 678: 681 (1988). The tax court can issue a summary judgment if no major disputes are seriously disputed and a decision can be made for legal reasons. Rule 121 (b); Sundstrand Corp. against Comm’r, 98 T.C. 518: 520 (1992).
  • Section 6320 (c) does not provide the standard of review that the tax court should use in reviewing an IRS administrative decision in a CDP case. The general parameters for such a review are set by the Tax Court's precedents. When it comes to the validity or amount of the taxpayer's underlying liability, the tax court reviews the decision of the IRS de novo. Goza v. Comm & # 39; r, 114 T.C. 176, 181-1 82 (2000). If the taxpayer's underlying liability is not properly filed in the tax court, the tax court will review the IRS misuse of powers complaint. See ID. There is a misuse of discretion when a provision is arbitrary, capricious, or has no valid factual or legal basis. Murphy v. Comm & # 39; r, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1. 2006).
  • Taxpayers can contest the existence or the amount of their underlying tax liability in a CDP case, but only if they have not received a statutory notice of defects or otherwise had an opportunity to contest their liability in advance. 6330 (c) (2) (B). Whether a debt is still recoverable instead of being paid or settled is not a challenge to the underlying tax liability. Accordingly, it is a question that is properly addressed when examining whether the SO has misused his discretion. Melasky v. Comm’r, 151 T.C. 89, 92 (2018), aff’d, 803 F. App’x 732 (5th Cir. 2020).
  • In determining whether an SO has misused its discretion in maintaining an NFL, the tax court will consider whether it: (1) has properly verified that the requirements of any applicable law or administrative process have been met; (2) examined all relevant issues raised by the taxpayer; and (3) determine whether a proposed collection measure reconciles the need for efficient collection of taxes with the taxpayer's legitimate concern that a collection measure will not be more intrusive than necessary. 6320 (c), sec. 6330 (c) (3). If the SO's finding was based on a misunderstanding of the law and the taxpayer's liability went bankrupt, the tax court must reject the IRS's views and determine that there has been an abuse of power. See Swanson v. Comm & # 39; r, 121 T.C. 111, 119 (2003).
  • In general, an unevaluated income tax liability is not taxable. 11 U.S.C. Sec. 523 (a) (1) (A). And the provisions of 11 U.S.C. Sec. 1141 (d) (2) prohibits a bankruptcy court from paying a debt that is not recoverable under 11 U.S.C. Sec. 523

insight:: The Barnes Ruling shows the complexity involved when a taxpayer tries to settle tax liabilities through bankruptcy proceedings. In these cases, taxpayers should ensure they have an attorney who is knowledgeable about both tax and bankruptcy cases to ensure that their best arguments are put forward in these two proceedings.

Jacobs v. Comm’r, T.C. Memo. 2021-51 | May 5, 2021 | Toro, J. | Dkt. No. 7118-19

Short Summary:: Mr. Jacobs is a full-time college professor. He has published a book on BP's oil spill and also represents clients as a lawyer. In his personal income tax returns for 2014 and 2015, Mr. Jacobs requested Appendix C deductions. Generally, these deductions related to meals and housing payments for his visiting scholar position at UCLA, business use of his home, cash fees, and other professional fees and travel expenses . The IRS did not allow the alleged deductions at the audit level. On IRS Appeals, the IRS acknowledged some of the deductions but issued a legal notice of defects as the statute of limitations on the appraisal is about to expire. Mr. Jacobs filed a petition with the tax court in a timely manner and Mr. Jacob's case was referred back to IRS Appeals. IRS Appeals granted some additional deductions but closed the case with deficiencies due. When the IRS attorney received the case, the IRS attorney admitted that there were no shortcomings in either year. Thereafter, Mr. Jacobs submitted an application for the allocation of his legal costs.

Key question: Whether Mr. Jacobs is entitled to have his litigation costs allocated in accordance with Section 7430?

Primary holdings:: No, the IRS was essentially entitled to reject the claimed deductions at the time of filing its response with the tax court.

Important legal points::

  • Section 7430 provides that a taxpayer should be awarded reasonable legal costs in proceedings initiated by or against the United States to determine taxes, interest, or penalties. Such an award may be made if the taxpayer can demonstrate that it: (1) is the predominant party; (2) has exhausted the administrative remedies available within the IRS; (3) did not inappropriately prolong the proceedings; and (4) claimed "reasonable" charges. 7430 (a) and (b) (1), (3), (c) (1) and (2); Morrison v Comm & # 39; r, 565 F.3d 658, 661 (9th Cir. 2009). These requirements are subjunctive; Failure to meet one of these points precludes the taxpayer from assuming the costs. See Alterman Tr. V. Comm & # 39; r, 146 T.C. at 227; see also Minahan v. Comm & # 39; r, 88 T.C. 492: 497 (1987). The decision on the award of fees is at the discretion of the tax court. Morrison v. Comm & # 39; r, 565 F.3d at 661 n.3.
  • To be the "predominant party", a taxpayer must meet certain wealth requirements and "substantially prevail" on the amount in dispute or "the main issue or issues raised". 7430 (c) (4) (A). However, the taxpayer is generally not treated as the predominant party if the IRS determines that "the United States' position in the proceeding was essentially justified". Sec. 7430 (c) (4) (B) (i). The IRS bears the burden of making this representation. I would. The "position of the United States" in a tax court case is that set out in the Commissioner's reply. Sec. 7430 (c) (7) (A); Huffman v. Comm & # 39; r, 978 F.2d at 1148.
  • A position is “substantially justified” if it is “justified to the extent that a reasonable person could be satisfied” or has “an adequate legal and factual basis”. Swanson v. Comm & # 39; r, 106 T.C. 76, 86 (1996). The determination of appropriateness is based on all the facts of the individual case and the legal precedents available. Maggie Mgmt. Co. v. Comm & # 39; r, 108 T.C. Indeed, a position has reasonable basis when there is such relevant evidence that a reasonable mind might accept as adequate to support a conclusion. Underwood, 487 USA, 565. A position has a reasonable legal basis when a precedent materially supports the position of the commissioner, given the facts at his disposal. Maggie Mgmt. Co. v. Comm & # 39; r, 108 T.C. at 443.
  • As the Supreme Court has found, justified essentially means more than just the undeserved sanctions for frivolity. S. v. Yochum, 89 F.3d 661, 671 (9th Cir. 1996). The commissioner's position, even if wrong, can be essentially justified when a reasonable person could see it as right. Maggie Mgmt. Co. v. Comm & # 39; r, 108 T.C. The courts found that the Commissioner's position was essentially justified in cases where the main issues were factual. See e.g. B. Bale Chevrolet Co. v USA, 620 F.3d 868 (8th Cir. 2010). And the fact that the IRS loses a case or makes a concession "does not in itself determine that the position taken is inappropriate" but "a factor that can be considered". Maggie Mgmt. Co. v. Comm & # 39; r, 108 T.C. at 443.
  • In order to be able to deduct an expense according to § 162, the taxpayer must prove that the amount is a normal and necessary expense that is paid or incurred in the exercise of a trade or business. 162 (a); INDOPCO, Inc. v Comm’r, 503 USA, 84. In order to be able to deduct the costs in Appendix C, the taxpayer must also prove that the costs were not related to the activities of the taxpayer as an employee. See e.g. B. Weber v. Comm & # 39; r, 103 T.C. 378: 386 (1994).
  • Both the Finance Court and the U.S. Court of Appeals for the Ninth Circuit, which would be appealed in this case unless the parties agree otherwise (see 7482 (b)), have repeatedly ruled that the actions of the IRS are administrative it does not matter whether his position in legal disputes was essentially justified. Rather, the tax court assesses the adequacy of the IRS's position for administrative and judicial proceedings separately. See Maggie Mgmt. Co. v. Comm & # 39; r, 108 T.C. at 442; see also Kenney versus USA, 458 F.3d 1025, 1032-33 (9th Cir. 2006). For the allocation of litigation costs, the tax court will therefore review the measures taken by the IRS after the application has been submitted and will not base its decision on the activity at the administrative level, even if this activity led to the litigation. Pac. Fisheries Inc., 484, 1110-1111.

insight:: The Jacobs decision is a reminder to taxpayers that in certain cases they may be awarded legal costs (i.e. costs of their attorney). However, Jacobs' decision is also a reminder to taxpayers of how difficult a task can be.

Berry v. Comm’r, T.C. Memo. 2021-52 | May 5, 2021 | Kerrigan, J. | Dkt. No. 6584-19 and 11180-19

Short Summary:: Mr. Berry is a broker and has reported his income on Schedule C. In the years in question he also took part in car races. For 2014 and 2015, he made $ 8,700 and $ 1,200, respectively, winning drag racing tournaments. He transferred these profits to Phoenix Construction and Remodeling, Inc. (Phoenix). For the years in question, Phoenix also paid expenses related to Mr. Berry's race car driving.

Phoenix is ​​an S-company owned equally by Mr. Berry and his father. Phoenix has been involved in construction projects in California. On June 13, 2016, Phoenix filed its 2014 Form 1120S, which reported gross income of $ 1,664,364 and costs to sell of $ 1,329,575, including $ 150,414 for building permits. Phoenix also filed for a Section 179 allowance totaling $ 135,297 on 11 items, including an excavator and a utility vehicle trailer.

The IRS examined the Berrys' 2014 tax returns and later issued a notice of defects finding that the Berrys had not adequately reported their Schedule E income from Phoenix. The IRS also prohibited the claimed Section 179 deduction and the cost of goods sold for building permits.

The IRS later also examined Berrys' 2015 Form 1040. In the notice of defects, the IRS prohibited a depreciation charge of $ 8,000.

Key question: Whether: (1) $ 8,700 and $ 1,200, respectively, for 2014 and 2015 should be re-characterized as other Berry income rather than Phoenix gross income; (2) Phoenix is ​​entitled to deduct the cost of car racing for 2014 and 2015. (3) Phoenix is ​​entitled to a deduction under Section 179 for an excavator and a commercial vehicle trailer for 2014; (4) Phoenix has a cost of goods sold of $ 33,294 for 2014 building permits; (5) The Berrys are entitled to deduct the depreciation and amortization specified in Appendix C for 2015 in the amount of $ 8,000. (6) The Berrys are subject to a tax increase pursuant to Section 6651 (a) (1) for 2014; and (7) the Berrys are liable for the 2014 Accuracy Penalty under Section 6662 (a).

Primary holdings::

  • (1) In the absence of evidence that auto racing was part of Phoenix's business, the income for the years in question is included in the Berrys' other income.
  • (2) Since the Berrys could not prove the connection between the construction business of Phoenix and the reported racing car costs, Phoenix is ​​not entitled to deduct the costs for car races for 2014 and 2015.
  • (3) Since the Berrys could not prove the expenses according to § 179 for the excavator and the commercial vehicle trailer, Phoenix is ​​not entitled to deductions according to § 179 for these items.
  • (4) Since the Berrys were unable to prove the IRS unapproved cost of goods sold, Phoenix is ​​not entitled to a 2014 cost of goods deduction.
  • (5) Since the Berrys did not provide any information about the cost of the truck, the percentage of vehicle use, and the previous allowable depreciation, the Berrys are not eligible for an Appendix C. depreciation allowance of $ 8,000.
  • (6) Since the Berrys have not established a reasonable cause, the Berrys are liable for failure to submit the penalty under Section 6651 (a) (1) for 2014.
  • (7) Since the Berrys did not contest the penalty associated with accuracy, the penalty is upheld.

Important legal points::

  • Generally, the findings of the inspector in a complaint are considered correct and the taxpayer bears the burden of proving that those findings are incorrect. Rule 142 (a) (1); What v. Helvering, 290, US 111, 115 (1933).
  • Deductions are a matter of the legislature's grace and a taxpayer must demonstrate their entitlement to a deduction. INDOPCO, Inc. v Comm & # 39; r, 503, US 79, 89 (1992); New Colonial Ice Co. v Helvering, 292, US 435, 440 (1934). In general, a shareholder of the S-Gesellschaft determines his tax liability taking into account a proportionate share of the income, losses, deductions and credits of the S-Gesellschaft. 1366 (a) (1). If a notice of defects contains adjustments to S-Corporation items with other items unrelated to S-Corporation, the tax court has jurisdiction to determine the accuracy of the adjustments. Winter v. Comm & # 39; r, 135 T.C. 238 (2010).
  • A taxpayer claiming a deduction on a federal income tax return must provide evidence that the deduction is permitted under a law and also demonstrate that the expenses to which the deduction relates have been paid or have been incurred. 6001; Hrasdesky v. Comm’r, 65 T.C. 87, 89- 90 (1975).
  • A taxpayer may determine the nature of his income not only on the basis of a certain form or by labeling at his own discretion, but must report his income according to the economic realities of the situation. Walker v. Comm & # 39; r, 101 T.C. 537: 544 (1993).
  • According to Section 162, taxpayers can deduct all ordinary and necessary business expenses paid or incurred during the tax year. Ordinary expense is an expense that is common or frequent in the taxpayer's business. Deputy v. Du Pont, 308, US 488,495 (1940). A necessary effort is appropriate and helpful in running the taxpayer's business. Comm & # 39; r v. Heininger, 320, US 467, 471 (1943); Sweetheart. Reg. § 1.162-1 (a).
  • Pursuant to section 179, a taxpayer can treat the costs of real estate under section 179 as costs that are not charged to a capital account. If a taxpayer makes such a choice, the costs will be granted as a deduction for the tax year in which the assets under section 179 are put into operation. 179 (a). Section 179 property includes material property, that is, Section 1245 property that is necessary for the active pursuit of a trade or business. Sec. 179 (d) (1) (B). In order to be entitled to a deduction under section 179, the taxpayer must keep records of how and by whom the property was acquired under section 179 and when it was put into operation. Sweetheart. Reg. § 1.179-5 (a).
  • The cost of goods sold is an offset that is deducted from gross income when determining gross income. Reg. § 1.61-3 (a); Sweetheart. Reg. § 1.61-6 (a). It is not a deduction. Metra Chem. Corp. v. Comm’r, 88 T.C. 654, 661 (1987). Any amount claimed as the cost of goods sold must be justified and taxpayers are required to keep records sufficient for that purpose. Sec. 6001; Nunn v. Comm’r, T.C. Memo. 2002-250; Sweetheart. Reg. § 1.6001-1 (a).
  • To be eligible for a depreciation allowance, a taxpayer must determine the property's depreciable base by specifying the property's cost, its useful life and the previous allowable depreciation. Cluck v. Comm’r, 105 T.C. 324, 337 (1995). In addition, any deduction claimed in relation to "Listed Real Estate," a category including "Passenger Cars," is subject to the increased justification requirements set out in Section 274 (d) (4). See chap. 280F (d) (4).
  • Section 6651 (a) (1) provides for a tax increase if the taxpayer fails to file his income tax return by the required due date (including any extension of the filing period). A taxpayer must demonstrate that the failure to file on time was due to a reasonable cause and not willful neglect. 6651 (a) (1); Higbee v. Comm & # 39; r, 116 T.C. 438: 447 (2001).
  • Pursuant to Section 7491 (c), the Commissioner bears the burden of proving the taxpayer's liability for any tax increases. See Higbee v. Comm & # 39; r, 116 T.C. at 446-47.
  • The commissioner bears the production burden in relation to the penalty imposed in Section 6662 (a). 7491 (c). The production load includes evidence that the commissioner has complied with the procedural requirements of Section 6751 (b). Frost v. Comm & # 39; r, 154 T.C. 23, 34 (2020). Once the commissioner pays this burden, the taxpayer will have to provide evidence to the contrary. I would.
  • The commissioner must demonstrate compliance with Section 6751 (b), which requires certain penalties to be personally approved in writing by the immediate manager of the person making the decision. See Graev v. Comm & # 39; r, 149 T.C. 485, 493 (2017).
  • Section 6662 (a) imposes a 20% penalty on the accuracy of any portion of an underpayment of taxes that must be reported on a tax return if the underpayment referred to in Section 6662 (b) (1) was due to "negligence or negligence" is disregard of rules or regulations. “Negligence includes any failure to make a reasonable attempt to comply with internal tax law, and disregard includes any negligent, reckless, or willful disregard. 6662 (c). Negligence also includes the taxpayer's failure to keep adequate books and records or to properly document objects. Sweetheart. Reg. § 1.6662-3 (b) (1).

insight:: The Berry decision shows that the shareholders of an S company are subject to IRS scrutiny at the shareholder level. Accordingly, shareholders should ensure that they have an opportunity to request books and records from the company to substantiate items related to the S company that are not approved by the IRS during the audit.

Tikar, Inc. v Comm’r, T.C. Memo. 2021-53 | May 6, 2021 | Leyden, J. | Dkt. No. 14410-17X

Short Summary:: Tikar, Inc. (Tikar) was organized as a not for profit in Texas on May 14, 1999. According to its articles of association, Tikar was organized to “provide information on objections from society. Negotiating contracts with museums and other organizations for the organization of exhibitions. Promotion of African art through exhibitions by the company itself or through museums. To do everything necessary and incidental for the stated purpose, but in no. . (Away) in violation of Section 501 (c) (3) of the Internal Revenue Code. "

The IRS investigated the activities of Tikar, Inc. (Tikar) and issued a definitive adverse determination letter revoking tax exemption status. The IRS noted that Tikar was not operated solely for tax-exempt purposes. Tikar challenged the IRS's decision by filing a motion with the tax court in good time for a judgment to be established.

Key question: Wurde Tikar ausschließlich für einen oder mehrere freigestellte Zwecke gemäß Abschnitt 501 (c) (3) betrieben?

Primärbeteiligungen:: Nein, weil es nicht bewiesen hat: (1) dass es die afrikanischen Artefakte oder die Seghers-Sammlung besaß und (2) dass alle seine Aktivitäten in Bezug auf diese Artefakte in erster Linie dem privaten Interesse von Dr. Seghers oder der Seghers Foundation oder beiden zugute kommen .

Wichtige Rechtspunkte::

  • § 7428 (a) (1) (A) überträgt dem Finanzgericht die Zuständigkeit für die Abgabe einer Erklärung im Falle einer tatsächlichen Kontroverse, die eine Feststellung des IRS in Bezug auf die anfängliche Qualifikation einer fortgesetzten Qualifikation einer Organisation als beschriebene Organisation beinhaltet in Abschnitt 501 (c) (3), der gemäß Abschnitt 501 (a) von der Steuer befreit ist. „Eine Entschlossenheit in Bezug auf eine Weiterqualifikation. . . schließt jeden Widerruf oder jede andere Änderung einer Qualifikation ein. “ 7428 (a). Der Steuerzahler trägt die Beweislast dafür, dass die Feststellung des IRS falsch ist. Regel 142 (a); Partners in Charity Inc. gegen Comm’r, 141 T.C. 151, 162 (2013).
  • Abschnitt 501 (a) befreit von den in Abschnitt 501 (c) beschriebenen Bundeseinkommensteuerorganisationen. Um gemäß Abschnitt 501 (c) (3) freigestellt zu werden, muss eine Organisation sowohl ausschließlich für einen oder mehrere der in dem als organisatorischer Test bezeichneten freigestellten Zwecke angegebenen freigestellten Zwecke organisiert sein als auch ausschließlich für solche Zwecke betrieben werden, die als bekannt sind die Funktionsprüfung. Reg. § 1.501 (c) (3) -1 (a) (1). Wenn eine der beiden Prüfungen nicht erfüllt wird, wird eine Ausnahme gemäß Abschnitt 501 (c) (3) ausgeschlossen. Ich würde.
  • In der Anwendung des Betriebstests bedeutet "ausschließlich" nicht "ausschließlich" oder "absolut ausnahmslos". Nationalist Movement v. Comm'r, 102 T.C. 558, 576 (1994). Das Vorhandensein eines einzigen nicht freigestellten Zwecks, sofern er wesentlich ist, schließt jedoch den Ausnahmestatus aus, unabhängig von der Anzahl oder Bedeutung der wirklich freigestellten Zwecke. Besserer Bus. Burea of ​​Wash., D. C. gegen USA, 326, US 279, 283 (1945).
  • In Bezug auf die Funktionsprüfung gilt eine Organisation nur dann als ausschließlich für einen oder mehrere freigestellte Zwecke betrieben, wenn sie hauptsächlich Tätigkeiten ausübt, die einen oder mehrere der in Abschnitt 501 (c) (3) genannten freigestellten Zwecke erfüllen. Eine Organisation wird nicht so angesehen, wenn mehr als ein unwesentlicher Teil ihrer Aktivitäten nicht einem freigestellten Zweck dient. Reg. § 1.501 (c) (3) -1 (c) (1).
  • Die Funktionsprüfung bekräftigt auch das ausdrückliche Diktat von Abschnitt 501 (c) (3) dahingehend, dass davon ausgegangen wird, dass ein Unternehmen nicht ausschließlich für befreite Zwecke tätig ist, wenn das Nettoeinkommen ausgeschüttet oder anderweitig zugunsten von Privatpersonen gezahlt wird. Reg. § 1.501 (c) (3) -1 (c) (2), (3). Obwohl eine Organisation möglicherweise nur eine einzige Aktivität ausführt, die auf mehrere Zwecke ausgerichtet ist, sowohl ausgenommen als auch nicht ausgenommen, führt die Nichterfüllung des Betriebstests dazu, dass ein nicht ausgenommener Zweck wesentlich ist. Redlands Surgical Servs. v. Comm'r, 113 T.C. Ausgenommen sind wiederum die in Abschnitt 501 (c) (3) genannten Zwecke, wie z. B. religiöse, gemeinnützige, wissenschaftliche und pädagogische. Schatz. Reg. § 1.501 (c) (3) -1 (d) (1) (i).
  • Wenn nachgewiesen werden kann, dass eine Organisation privaten Interessen zugute kommt, eine Beschränkung, die sich im Wesentlichen überschneidet, aber mehr als nur die Beschaffung von Erträgen für Insider umfasst, wird davon ausgegangen, dass dies einen nicht freigestellten Zweck fördert. Kampagne Acad. v. Comm’r, 92 T.C. bei 1066, 1068-69. Private Leistungen im Rahmen des Verbots können einen Vorteil, einen Gewinn, eine Frucht, ein Privileg, einen Gewinn oder ein Interesse umfassen. Ich würde. bei 1065-66.
  • Eine beträchtliche Anzahl von Rechtsprechern hat das Konzept des privaten Nutzens im Rahmen der Beziehung zwischen einer Organisation, die den Steuerbefreiungsstatus beansprucht, und ihrem Gründer (oder einer kleinen Gruppe verwandter Insider) untersucht. Founding Church of Scientology gegen USA, 412 F.2d 1197, 1199-1202 (Ct. Cl. 1969); Church of Eternal Life & Liberty, Inc. gegen Comm'r, 86 T.C. 916, 927 & ndash; 28 (1986). Zu den Faktoren, die wiederholt als Hinweis auf verbotene Beschaffung und privaten Nutzen auftreten, gehört die Kontrolle des Gründers über die Mittel, Vermögenswerte und Auszahlungen des Unternehmens. Verwendung von Unternehmensgeldern für persönliche Ausgaben; Zahlung des Gehalts oder der Miete an den Gründer ohne begleitende Beweise oder Analyse der Angemessenheit der Beträge; und angebliche Kredite an den Gründer, aus denen eine private Kreditquelle hervorgeht. Siehe Gründungskirche von Scientology, 412 F.2d bei 1200-1202; Church of Eternal Life & Liberty, Inc. v. Comm’r, 86 T.C. at 927-28.
  • Upon a conclusion that the relevant facts reveal private benefit, the organization will not qualify as operating primarily for exempt purposes “absent a showing that no more than an insubstantial part of its activities further the private interests or any other nonexempt purposes.” Campaign Acad. v. Comm’r, 92 T.C. at 1066.

Insight:: The Tikar decision shows that a tax-exempt organization can lose its exempt status under Section 501(c)(3) if it benefits the founder or a close group of related persons. If the organization loses its tax-exempt status, the organization is taxable on its income and any donors who contribute to the organization will not be permitted a charitable contribution deduction for such donations.

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