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Bulletin No.

2004-12
March 22, 2004

HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.

INCOME TAX Rev. Rul. 2004–30, page 622.


Frivolous tax returns; attempting to avoid taxes under
section 861. This ruling emphasizes to taxpayers, and to
Rev. Rul. 2004–27, page 625. promoters and return preparers who assist taxpayers with tax
Tax avoidance schemes; meritless “corporation sole” ar- schemes, that there is no authority in sections 861 through
guments. This ruling emphasizes to taxpayers, tax scheme 865 of the Code that permits an individual to take the position
promoters and return preparers that, while a “corporation sole” that either the individual or the individual’s U.S. based income
is a legitimate corporate form that may be used by a religious is not subject to federal income tax. The ruling also describes
leader to hold property and conduct business for the benefit of many of the possible civil and criminal penalties that apply to
the religious entity, a taxpayer cannot avoid income tax by es- people who make frivolous section 861 arguments to evade
tablishing a religious organization for tax avoidance purposes. tax.
Rev. Rul. 2004–28, page 624. Rev. Rul. 2004–31, page 617.
Frivolous tax returns; excluding gross income under sec- Frivolous tax returns; meritless “removal arguments.”
tion 911. This ruling emphasizes to taxpayers, and to promot- This ruling emphasizes to taxpayers, and to promoters and re-
ers and return preparers who assist taxpayers with frivolous tax turn preparers who assist taxpayers with schemes, that there
schemes, that there is no basis for excluding income earned in is no law, court decision or other authority that permits a tax-
a State, Commonwealth, or Territory of the United States un- payer to remove himself from the federal tax system in order
der section 911 of the Code. The ruling also describes many to avoid otherwise applicable taxes. Arguments to the contrary
of the possible civil and criminal penalties that apply to people are not only wrong, but frivolous.
who claim tax benefits on their return based on frivolous claims
under section 911. Rev. Rul. 2004–32, page 621.
Frivolous tax returns; meritless home-based business
Rev. Rul. 2004–29, page 627. deductions. This ruling emphasizes to taxpayers, and to pro-
Frivolous tax returns; meritless “claim of right” argu- moters and return preparers who assist taxpayers with claiming
ments. This ruling emphasizes to taxpayers, and to promot- frivolous deductions based on a purported home-based busi-
ers and return preparers who assist taxpayers with frivolous ness, that there is no basis for claiming personal, living, and
tax schemes, that there is no “claim of right” doctrine that per- family expenses as business deductions. This return position
mits an individual to take the position that either the individual has no merit and is frivolous.
or the individual’s income is not subject to federal income tax.
The ruling also describes many of the possible civil and crimi-
nal penalties that apply to people who make frivolous “claim of
right” arguments to evade tax.

(Continued on the next page)

Finding Lists begin on page ii.


Rev. Rul. 2004–33, page 628.
Frivolous tax returns; “reparations tax credit.” This ruling
emphasizes to taxpayers, and to promoters and return prepar-
ers who assist taxpayers with tax schemes, that there is no
“reparations tax credit” that permits an individual to take the
position that the individual based on certain classifications is
entitled to a large refund the individual would not otherwise re-
ceive. The ruling also describes many of the possible civil and
criminal penalties that apply to people who claim refunds or
other tax benefits on their returns based on frivolous repara-
tions tax credits.

Rev. Rul. 2004–34, page 619.


Frivolous tax returns; filing a “zero return.” This ruling em-
phasizes to taxpayers, and to promoters and return preparers
who assist taxpayers with tax schemes, that a “zero return” will
not succeed in permitting an individual to take the position that
the individual or the individual’s income is not subject to federal
income tax. The ruling also describes many of the possible civil
and criminal penalties that apply to people who file a frivolous
“zero return” that requires the Service to conduct a deficiency
inquiry.

Rev. Rul. 2004–36, page 620.


Fringe benefits aircraft valuation formula. For purposes
of section 1.61-21(g) of the regulations, the Standard Industry
Fare Level (SIFL) cents-per-mile rates and terminal charge in
effect for the first half of 2004 are set forth for determining the
value of non-commercial flights on employer-provided aircraft.

Notice 2004–13, page 631.


This notice provides information about common mistakes that
individual taxpayers make when they prepare their individual
federal income tax returns. Taxpayers who avoid these mis-
takes can save themselves time in correcting the mistakes and
speed up the receipt of any refunds.

Notice 2004–22, page 632.


This notice informs and educates taxpayers about how to avoid
making frivolous arguments and what will happen if they do.
This notice describes many of the frivolous arguments that peo-
ple have made recently to reduce or eliminate their taxes. It
also describes many of the possible civil and criminal penalties
that apply to people who pay less tax than they owe or refuse
to file their returns based on frivolous arguments.

EXEMPT ORGANIZATIONS

Announcement 2004–17, page 635.


A list is provided of organizations now classified as private foun-
dations.

Announcement 2004–18, page 639.


Championship Drivers Association Benevolence Fund, of Indi-
anapolis, IN, and Children’s Express Foundation, Inc., of Wash-
ington, DC, no longer qualify as organizations to which contri-
butions are deductible under section 170 of the Code.

March 22, 2004 2004-12 I.R.B.


The IRS Mission
Provide America’s taxpayers top quality service by helping applying the tax law with integrity and fairness to all.
them understand and meet their tax responsibilities and by

Introduction
The Internal Revenue Bulletin is the authoritative instrument of court decisions, rulings, and procedures must be considered,
the Commissioner of Internal Revenue for announcing official and Service personnel and others concerned are cautioned
rulings and procedures of the Internal Revenue Service and for against reaching the same conclusions in other cases unless
publishing Treasury Decisions, Executive Orders, Tax Conven- the facts and circumstances are substantially the same.
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
The Bulletin is divided into four parts as follows:
Superintendent of Documents on a subscription basis. Bul-
letin contents are consolidated semiannually into Cumulative
Bulletins, which are sold on a single-copy basis. Part I.—1986 Code.
This part includes rulings and decisions based on provisions of
It is the policy of the Service to publish in the Bulletin all sub- the Internal Revenue Code of 1986.
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod- Part II.—Treaties and Tax Legislation.
ify, or amend any of those previously published in the Bulletin. This part is divided into two subparts as follows: Subpart A,
All published rulings apply retroactively unless otherwise indi- Tax Conventions and Other Related Items, and Subpart B, Leg-
cated. Procedures relating solely to matters of internal man- islation and Related Committee Reports.
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published. Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
Revenue rulings represent the conclusions of the Service on the included in this part are Bank Secrecy Act Administrative Rul-
application of the law to the pivotal facts stated in the revenue ings. Bank Secrecy Act Administrative Rulings are issued by
ruling. In those based on positions taken in rulings to taxpayers the Department of the Treasury’s Office of the Assistant Sec-
or technical advice to Service field offices, identifying details retary (Enforcement).
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements. Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be The last Bulletin for each month includes a cumulative index
relied on, used, or cited as precedents by Service personnel in for the matters published during the preceding months. These
the disposition of other cases. In applying published rulings and monthly indexes are cumulated on a semiannual basis, and are
procedures, the effect of subsequent legislation, regulations, published in the last Bulletin of each semiannual period.*

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

* Beginning with Internal Revenue Bulletin 2003–43, we are publishing the index at the end of the month, rather than at the beginning.

2004-12 I.R.B. March 22, 2004


Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 61.—Gross Income against these taxpayers and against pro- individuals argue that they may reclaim,
Defined moters and return preparers who assist or “chargeback,” their own value from the
taxpayers in taking these frivolous posi- Government as a result of the Govern-
Frivolous tax returns; meritless “re- tions. Frivolous returns and other similar ment’s wrongful conduct and then use that
moval arguments.” This ruling empha- documents submitted to the IRS are pro- value to pay the individuals’ debts. Par-
sizes to taxpayers, and to promoters and cessed through the Service’s Frivolous ticipants in removal schemes often attempt
return preparers who assist taxpayers with Return Program. As part of this program, to offset, collect or “redeem” their asserted
schemes, that there is no law, court deci- the Service confirms whether taxpayers claims against the Government by using or
sion or other authority that permits a tax- who take frivolous positions have filed filing liens, bills of exchange, and various
payer to remove himself from the federal all of their required tax returns, computes Uniform Commercial Code (UCC) forms,
tax system in order to avoid otherwise ap- the correct amount of tax and interest due, or by relying on misinterpretations of fed-
plicable taxes. Arguments to the contrary and determines whether civil and crimi- eral laws and the Uniform Commercial
are not only wrong, but frivolous. nal penalties should apply. The Service Code.
also determines whether civil or criminal Participants in the removal schemes
Rev. Rul. 2004–31 penalties should apply to return preparers, may rely on one or more of the follow-
promoters, and others who assist tax- ing erroneous arguments, alleged facts or
PURPOSE
payers in taking frivolous positions, and actions to support their frivolous claims:
The Service is aware that some individ- recommends whether a court injunction (a) the bankruptcy of the United States
uals are attempting to reduce their federal should be sought to halt such activities. occurred contemporaneously with the cre-
income tax obligations by claiming that Other information about frivolous tax po- ation of the Federal Reserve, the start of
they have been “removed” or “redeemed” sitions is available on the Service website the Great Depression, the removal of the
from the federal tax system. Although the at www.irs.gov. United States from the gold standard, or
specific arguments made by these individ- the passage of House Joint Resolution
DISCUSSION OF REMOVAL AND 192 (claimed to be a declaration of bank-
uals vary, some argue that the Government
REDEMPTION ARGUMENTS AND ruptcy); (b) the Government’s use of birth
commits a fraud when it attempts to col-
SCHEMES certificates of taxpayers as registered se-
lect debts, including tax debts, and that
this purported fraud allows individuals to curities; (c) the filing of documents with
Removal arguments and schemes are
“chargeback” debts that the Government variations on a taxpayer’s name, (e.g.,
loosely related and take a variety of dif-
purportedly owes to these individuals to using all capital letters in some documents
ferent forms. Proponents of removal argu-
eliminate any asserted tax liability. “Re- and standard capitalization in others) cre-
ments and schemes typically claim, even
moval,” “redemption,” and “chargeback” ates a “straw man” or “nom de guerre” as
though they remain citizens or residents
schemes are referred to here collectively the debtor to the Government that replaces
of the U.S., that they are not required to
as “removal schemes” and “removal argu- the individual who has removed himself
file federal tax returns and pay their tax
ments.” Some promoters are marketing a from the Government’s jurisdiction; (d)
obligations because they have been re-
package, kit, or other materials that claim the “redemption” of debts from the Gov-
moved or redeemed from the federal tax
to show individuals how they can avoid ernment by filing UCC forms, such as
system. As a result of participating in
paying income taxes based on these and the UCC–1 form; (e) the submission of
removal schemes, these individuals do not
other meritless arguments. documents to the U.S. Secretary of the
file required returns or pay the income tax
This revenue ruling emphasizes to indi- Treasury to establish a fictitious bank
that they owe.
viduals, and to promoters and return pre- account (sometimes referred to as a “Trea-
In some variations of the removal ar-
parers who assist individuals with these sury Direct Account”) where the value
gument, individuals claim that the Gov-
schemes, that there is no authority under of charged back debts is located; (f) the
ernment commits a fraud when it attempts
any U.S. law that supports the argument practice of “accepting for value” official
to collect debts, including tax debts, and
that an individual can be “removed” or “re- Government documents and the “charging
that this purported fraud allows individu-
deemed” from the federal tax system to back” of those documents by responding
als to “chargeback” debts that the Govern-
avoid tax liabilities or that an individual to them with a “private notice” that may
ment purportedly owes to these individu-
can satisfy debts, including tax liabilities, include a “Treasury Direct Account Num-
als to eliminate any liability to the Gov-
by making “chargeback” or other similar ber,” a “Memory of Account Number”
ernment. In other variations, individuals
arguments. Removal and redemption ar- or a “Posted Certified Account Number”;
argue that Federal Reserve notes, or “pa-
guments have no merit and are frivolous. and (g) the use of “Bills of Exchange,”
per money,” are not legal tender and that
The Service is committed to identify- Form UCC–3 and “Sight Drafts” to dis-
the Government has been wrongfully us-
ing individuals who attempt to avoid or charge debts to the Government. This list
ing taxpayers and their labor as security
evade their tax obligations. The Service is not exclusive, however. Participants in
for the Government’s obligations. Other
will take vigorous enforcement action

2004-12 I.R.B. 617 March 22, 2004


removal schemes also make other equally their tax when the return is due. Section is up to 75 percent of the amount of taxes
frivolous arguments. 6311 requires payment of taxes by com- the taxpayer should have reported on the
Instead of filing federal income tax re- mercially acceptable means as prescribed return ; (2) the section 6651(a)(1) penalty
turns with the Service, participants in re- by Treasury Regulations. for failure to file, which is equal to up to 25
moval schemes frequently send documents Courts repeatedly have rejected re- percent of the amount of taxes the taxpayer
and other correspondence to the Service moval arguments and other similar ar- should have reported on the return; (3) the
and other Government agencies. Exam- guments as frivolous and have penalized section 6651(a)(2) penalty for failure to
ples of these documents include: improp- taxpayers who make these types of argu- pay, which is equal to .5 percent of the tax
erly filed Forms 1040–ES, Estimated Tax ments. See, e.g., United States v. Sloan, for each month or fraction of a month the
for Individuals, reporting the location of 939 F.2d 499, 500 (7th Cir. 1991) (affirm- tax remains unpaid, not to exceed a total
the funds in a fictitious bank account from ing criminal conviction for tax evasion of 25 percent; and; (4) a penalty of up to
which the IRS can collect taxes; improp- and rejecting “wholly defective” argu- $25,000 under section 6673 if the taxpayer
erly filed Fiduciary Tax Returns; improp- ments that the federal tax laws did not makes frivolous arguments in the United
erly filed Forms 8300, Report of Cash Pay- apply to taxpayer because he was a “free- States Tax Court.
ments Over $10,000 Received in a Trade born, natural individual, a citizen of the Individuals relying on this scheme also
or Business, reporting that a person or en- State of Indiana, and a ‘master’ — not may face criminal prosecution for: (1) at-
tity has “charged back” after “accepting — ‘servant’ of his Government”); United tempting to evade or defeat tax under sec-
for value” the Government’s documents; States v. Condo, 741 F.2d 238, 239 (9th tion 7201 for which the penalty is a fine of
improperly filed Forms W–9, Request for Cir. 1984) (affirming criminal conviction up to $100,000 and imprisonment for up to
Taxpayer Identification Number and Certi- for tax fraud and rejecting as “frivolous” 5 years; (2) willful failure to make a return
fication, to obtain a social security or em- the argument that Federal Reserve Notes or pay tax under section 7203 for which
ployee identification number of a person or are not valid currency, cannot be taxed, the penalty is up to $25,000 and imprison-
entity to include on the Form 8300; “com- and are merely “debts”); United States ment of up to 1 year, or (3) making false
mercial affidavits” in lieu of tax returns v. Rickman, 638 F.2d 182, 184 (10th Cir. statements under section 7206 for which
stating that the filer is a secured party and 1980) (affirming criminal conviction for the penalty is a fine of up to $100,000 and
has no income for a particular year; and willfully failing to file a return and re- imprisonment for up to 3 years.
documents and correspondence to “accept jecting the taxpayer’s argument that “the Persons who promote this scheme and
for value” IRS notices of tax liens and Federal Reserve Notes in which he was those who assist taxpayers in claiming tax
levies to have the tax balances paid from paid were not lawful money within the benefits based on this scheme also may
the filer’s “Treasury Direct Account.” meaning of Art. 1, § 8, United States Con- face penalties. Potential penalties include:
There is no authority under any U.S. stitution”). (1) a $250 penalty under section 6694 for
law that supports the claim that individ- Although individuals who rely on these each return prepared by an income tax re-
uals may avoid their federal income tax removal arguments generally do not file turn preparer who knew or should have
obligations based on removal arguments federal income tax returns with the Ser- known that the taxpayer’s argument was
such as those described in this revenue rul- vice, some individuals also are relying on frivolous (or $1,000 for each return where
ing. Similarly, there is no authority under removal or similar frivolous arguments to the return preparer’s actions were will-
any U.S. law that supports the claim that claim that they can reduce or eliminate ful, intentional or reckless); (2) a $1,000
requiring payment of a debt owed to the their tax by filing tax returns in which penalty under section 6701 for aiding and
Government by commercially acceptable they report zero income and tax liability. abetting the understatement of tax; and (3)
means amounts to a fraud by the Govern- See Rev. Rul. 2004–34, 2004–12 I.R.B. criminal prosecution under section 7206
ment. Section 61 of the Internal Revenue 619 (3/22/2004), for a discussion of this for which the penalty is a fine of up to
Code provides that gross income includes frivolous position. $100,000 and imprisonment for up to 3
all income from whatever source derived, years for assisting or advising about the
including compensation for services. Ad- CIVIL AND CRIMINAL PENALTIES preparation of a false return or other docu-
justments to income, deductions, and cred- ment under the internal revenue laws. Pro-
its must be claimed in accordance with the The Service will challenge the claims of moters and others who assist taxpayers in
provisions of the Internal Revenue Code individuals who attempt to avoid or evade engaging in these schemes also may be en-
and the Treasury regulations thereunder their federal tax liability by refusing to file joined from doing so under section 7408.
and other applicable federal law. Section returns and pay tax on the basis that they
6011 provides that any person liable for have been removed or redeemed from the HOLDING
any tax imposed by the Internal Revenue federal tax system. In addition to liability
Code shall make a return when required by for the tax due plus statutory interest, in- Individuals may not avoid or evade
Treasury regulations, and that returns must dividuals who fail to file and pay tax or their tax liability by refusing to file re-
be in accordance with Treasury regulations who claim refunds based on this or any turns and pay tax on the basis that they
and IRS forms. Section 6012 identifies the other frivolous arguments face substantial have been removed or redeemed from
persons who are required to file income tax civil and criminal penalties. Potential civil the federal tax system or by claiming that
returns. Section 6151, except as specifi- penalties include: (1) the section 6651(f) they can “chargeback” their debts to the
cally provided, requires that taxpayers pay penalty for fraudulent failure to file, which Government. Arguments that individuals

March 22, 2004 618 2004-12 I.R.B.


may be removed or redeemed from the including return preparers, are advising 2004–31, 2004–12 I.R.B. 617 and Notice
federal tax system or may “chargeback” or recommending that taxpayers take this 2004–22, 2004–12 I.R.B. 632 (March 22,
their debts to the Government have no frivolous position. Some promoters may 2004).
merit and are frivolous. Individuals who be marketing a package, kit, or other ma- There is no authority under U.S. law
attempt to reduce their federal tax liabil- terials that claim to show taxpayers how that permits a taxpayer that has taxable in-
ity by taking frivolous positions based they can avoid paying income taxes based come to avoid income tax by filing a zero
on these arguments will be liable for the on this and other frivolous arguments. return. The claim that the filing of a zero
actual tax due plus statutory interest. In This revenue ruling emphasizes to return will allow a taxpayer to avoid in-
addition, the Service will determine civil taxpayers, and to promoters and return come tax liability, or will permit a refund
penalties against individuals where appro- preparers who assist taxpayers with these of any tax withheld by an employer, is
priate, and those individuals may also face schemes, that a taxpayer cannot avoid frivolous. Section 61 of the Internal Rev-
criminal prosecution. The Service also income tax by filing a zero return. The enue Code provides that gross income in-
will determine appropriate civil penalties zero return position has no merit and is cludes all income from whatever source
against persons who prepare frivolous re- frivolous. derived, including compensation for ser-
turns or promote frivolous positions, and The Service is committed to identifying vices. Adjustments to income, deductions,
those persons may also face criminal pros- taxpayers who attempt to avoid or evade and credits must be in accordance with the
ecution. Promoters and others who assist their tax obligations by taking frivolous provisions of the Internal Revenue Code
taxpayers in engaging in these schemes positions, such as the filing of a zero and the Treasury regulations thereunder
also may be enjoined from doing so under return. The Service will take vigorous en- and other applicable federal law. Section
section 7408. forcement action against these taxpayers 6011 provides that any person liable for
and against promoters and return prepar- any tax imposed by the Internal Revenue
DRAFTING INFORMATION ers who assist taxpayers in taking these Code shall make a return when required by
frivolous positions. Frivolous returns Treasury regulations, and that returns must
This revenue ruling was authored by the
and other similar documents submitted be in accordance with Treasury regulations
Office of Associate Chief Counsel (Proce-
to the Service are processed through its and IRS forms. Section 1.6011–1(b) of the
dure and Administration), Administrative
Frivolous Return Program. As part of this Treasury Regulations provides, in relevant
Provisions and Judicial Practice Division.
program, the Service confirms whether part, that each taxpayer should set forth
For further information regarding this rev-
taxpayers who take frivolous positions fully and clearly the information required
enue ruling, contact that office at (202)
have filed all of their required tax returns, to be included on the return. Section 6012
622–4940 (not a toll-free call).
computes the correct amount of tax and identifies the persons who are required to
interest due, and determines whether civil file income tax returns.
Frivolous tax returns; filing a “zero and criminal penalties should apply. The Courts repeatedly have penalized tax-
return.” This ruling emphasizes to taxpay- Service also determines whether civil or payers who filed zero returns despite hav-
ers, and to promoters and return preparers criminal penalties should apply against ing income sufficient to give rise to a tax
who assist taxpayers with tax schemes, that return preparers, promoters, and others liability and have rejected frivolous argu-
a “zero return” will not succeed in permit- who assist taxpayers in taking frivolous ments used by taxpayers to justify a zero
ting an individual to take the position that positions, and recommends whether a return position. See, e.g., Gillett v. United
the individual or the individual’s income court injunction should be sought to halt States, 233 F. Supp. 2d 874 (W.D. Mich.
is not subject to federal income tax. The such activities. Other information about 2002) (“Numerous federal courts have up-
ruling also describes many of the possible frivolous tax positions is available on the held the imposition of the $500 sanction by
civil and criminal penalties that apply to Service website at www.irs.gov. the IRS pursuant to 26 U.S.C. § 6702(a)
people who file a frivolous “zero return” [for frivolous returns], where, as here, a
DISCUSSION OF THE ZERO RETURN tax form is filed stating that an individ-
that requires the Service to conduct a defi-
POSITION ual had no income, but the attached W–2
ciency inquiry.
forms show wages, tips, or other compen-
Proponents of the zero return position sation of greater than zero.”); Hill v. Com-
Rev. Rul. 2004–34
file income tax returns that report no in- missioner, T.C. Memo. 2003–144 (impos-
PURPOSE come and no tax liability even though these ing $15,000 penalty under section 6673 for
taxpayers have wages, salary or other in- frivolous “zero return” position); Rayner v.
The Service is aware that some taxpay- come. Taxpayers taking this position typi- Commissioner, T.C. Memo. 2002–30 (im-
ers are attempting to reduce their federal cally attach to the zero return a Form W–2 posing $5,000 penalty under section 6673
income tax liability by filing a return or other information return that reports in- for frivolous “zero return” position).
that reports no income and no tax lia- come and income tax withholding and re-
bility (a “zero return”) even though they quest refunds from the Service of the with- CIVIL AND CRIMINAL PENALTIES
have taxable income. A taxpayer filing held taxes. These taxpayers typically rely
a zero return invariably requests a refund on one or more frivolous arguments to sup- The Service will disallow any refund
of any taxes withheld by an employer. port the position that wage or other income claim based on the filing of a zero return
The Service also is aware that promoters, is not subject to tax. See, e.g., Rev. Rul and will determine the correct amount of

2004-12 I.R.B. 619 March 22, 2004


tax due from the taxpayer. The Service abetting an understatement of tax; and (3) 26 CFR 1.61–21: Taxation of fringe benefits.
also will seek the return of any erroneous criminal prosecution under section 7206
refund resulting from a zero return. In ad- for which the penalty is up to $100,000 Fringe benefits aircraft valuation for-
dition to liability for tax due plus statutory and imprisonment for up to 3 years for as- mula. For purposes of section 1.61-21(g)
interest, individuals who claim tax bene- sisting or advising about the preparation of the regulations, the Standard Industry
fits on their returns based on this and other of a false return or other document under Fare Level (SIFL) cents-per-mile rates and
frivolous arguments face substantial civil the internal revenue laws. Promoters and terminal charge in effect for the first half
and criminal penalties. Potentially appli- others who assist taxpayers in engaging in of 2004 are set forth for determining the
cable civil penalties include: (1) the sec- these schemes also may be enjoined from value of non-commercial flights on em-
tion 6662 accuracy-related penalty, which doing so under section 7408. ployer-provided aircraft.
is equal to 20 percent of the amount of
taxes the taxpayer should have paid; (2) the HOLDING Rev. Rul. 2004–36
section 6663 penalty for civil fraud, which
A taxpayer cannot use a zero return to For purposes of the taxation of fringe
is equal to 75 percent of the amount of
avoid or evade the taxpayer’s federal in- benefits under section 61 of the Inter-
taxes the taxpayer should have paid; (3) a
come tax liability. Taxpayers attempting nal Revenue Code, section 1.61–21(g) of
$500 penalty under section 6702 for filing
to avoid or evade their federal tax liability the Income Tax Regulations provides a
a frivolous return; and (4) a penalty of up to
by taking frivolous positions will be liable rule for valuing noncommercial flights
$25,000 under section 6673 if the taxpayer
for the actual tax due plus statutory inter- on employer-provided aircraft. Section
makes frivolous arguments in the United
est. In addition, the Service will determine 1.61–21(g)(5) provides an aircraft valua-
States Tax Court.
civil penalties against taxpayers where ap- tion formula to determine the value of such
Taxpayers relying on this scheme also
propriate, and those taxpayers may also flights. The value of a flight is determined
may face criminal prosecution for: (1) at-
face criminal prosecution. The Service under the base aircraft valuation formula
tempting to evade or defeat tax under sec-
also will determine appropriate penalties (also known as the Standard Industry Fare
tion 7201 for which the penalty is a fine of
against persons who prepare frivolous re- Level formula or SIFL) by multiplying
up to $100,000 and imprisonment for up to
turns or promote frivolous positions, and the SIFL cents-per-mile rates applicable
5 years; or (2) making false statements on
those persons may also face criminal pros- for the period during which the flight was
a return under section 7206 for which the
ecution. Promoters and others who as- taken by the appropriate aircraft multiple
penalty is a fine of up to $100,000 and im-
sist taxpayers in engaging in these schemes provided in section 1.61–21(g)(7) and then
prisonment for up to 3 years.
also may be enjoined from doing so under adding the applicable terminal charge. The
Persons who promote this scheme and
section 7408. SIFL cents-per-mile rates in the formula
those who assist taxpayers in claiming tax
and the terminal charge are calculated by
benefits based on this scheme also may DRAFTING INFORMATION the Department of Transportation and are
face penalties. Potential penalties include:
reviewed semi-annually.
(1) a $250 penalty under section 6694 for This revenue ruling was authored by the The following chart sets forth the termi-
each return prepared by an income tax re- Office of Associate Chief Counsel (Proce- nal charges and SIFL mileage rates:
turn preparer who knew or should have dure and Administration), Administrative
known that the taxpayer’s argument was Provisions and Judicial Practice Division.
frivolous (or $1,000 for each return where For further information regarding this rev-
the return preparer’s actions were will- enue ruling, contact that office at (202)
ful, intentional or reckless); (2) a $1,000 622–4940 (not a toll-free call).
penalty under section 6701 for aiding and

Period During Which Terminal SIFL Mileage


the Flight Is Taken Charge Rates
1/1/04 – 6/30/04 $34.45 Up to 500 miles
= $.1884 per mile
501–1500 miles
= $.1437 per mile
Over 1500 miles
= $.1381 per mile

DRAFTING INFORMATION Chief Counsel (Tax Exempt and Govern- Ms. Edmondson at (202) 622–6040 (not a
ment Entities). For further information toll-free call).
The principal author of this revenue regarding this revenue ruling, contact
ruling is Kathleen Edmondson of the
Office of Division Counsel/Associate

March 22, 2004 620 2004-12 I.R.B.


Section 262.—Personal, and against promoters and return prepar- actions taxpayers take as part of a home-
Living, and Family Expenses ers who assist taxpayers in taking these based business scheme, such as the plac-
frivolous positions. Frivolous returns ing of a filing cabinet in a bedroom, invari-
(Also, § 280A.)
and other similar documents submitted ably are taken for the purpose of claiming
to the Service are processed through its personal, living or family expenses as de-
Frivolous tax returns; meritless
Frivolous Return Program. As part of this ductible business expenses, and not for the
home-based business deductions. This
program, the Service confirms whether purpose of carrying on a bona fide trade or
ruling emphasizes to taxpayers, and to
taxpayers who take frivolous positions business. Home-based business schemes
promoters and return preparers who assist
have filed all of their required tax re- typically are used by taxpayers who per-
taxpayers with claiming frivolous deduc-
turns, computes the correct amount of tax form all of their work at their employers’
tions based on a purported home-based
and interest due, and determines whether place of business.
business, that there is no basis for claim-
civil and criminal penalties should ap- Section 262 disallows deductions for
ing personal, living, and family expenses
ply. The Service also determines whether personal, living or family expenses, except
as business deductions. This return posi-
civil or criminal penalties should apply as otherwise expressly provided by the In-
tion has no merit and is frivolous.
to return preparers, promoters, and others ternal Revenue Code. Medical expenses,
who assist taxpayers in taking frivolous for example, are deductible only if the spe-
Rev. Rul. 2004–32
positions, and recommends whether a cific requirements of section 213 are sat-
PURPOSE court injunction should be sought to halt isfied. Similarly, the provisions of sec-
such activities. Other information about tion 163(h) govern when an individual tax-
The Service is aware that some tax- frivolous tax positions is available on the payer may deduct interest on a mortgage or
payers are attempting to reduce their fed- Service website at www.irs.gov. home equity loan. See I.R.C. §§ 163(h)(2)
eral tax liability by claiming that otherwise and (h)(3).
nondeductible personal, living or family DISCUSSION OF HOME-BASED With respect to business expenses, only
expenses are deductible because they re- BUSINESS SCHEMES expenses paid or incurred during the tax-
late to a purported home-based business able year in carrying on a trade or business
of the taxpayer that, in fact, is not a bona Several promoters are selling packages may be deducted under section 162(a).
fide home business. The purported busi- of materials (sometimes referred to as a A trade or business expense deduction
ness in these schemes is no more than an “Tax Toolbox” or a “Tax Toolkit”) con- under section 162, however, is not permit-
attempt to create the appearance of hav- taining video or audio tapes, workbooks, ted with respect to a taxpayer’s residence
ing a home-based business where none ac- record-keeping aids, or other materials that unless specifically permitted in limited
tually exists. The Service also is aware the promoters claim will assist taxpayers in circumstances by section 280A. I.R.C.
that promoters, including return preparers, taking tax deductions for a taxpayer’s per- § 280A(a). For example, with respect to
are advising or recommending that taxpay- sonal, living or family expenses under the the business use of a taxpayer’s residence,
ers take frivolous positions based on this guise of conducting a business, usually out section 280A provides that in order for
argument. Some promoters may be mar- of the taxpayer’s home. The promoters of allocable expenses to be deductible under
keting a package, kit, or other materials, these packages typically make one or more that section, the portion of the taxpayer’s
that claim to show taxpayers how they can of the following claims: (1) taxpayers can residence must be used exclusively by the
avoid paying income taxes based on this legally reduce or eliminate their federal in- taxpayer on a regular basis as a principal
and other meritless arguments. This home- come taxes by establishing a business, re- place of business for the taxpayer’s trade
based business scheme and the promotion gardless of whether the business is a bona or business, or to meet or deal with pa-
of this scheme are described in more detail fide business conducted for profit; (2) op- tients, clients or customers in the normal
in this revenue ruling. erating a business will permit the deduc- course of the taxpayer’s trade or busi-
This revenue ruling emphasizes to tax- tion of personal expenses (such as wed- ness. If the taxpayer is an employee, the
payers, and to promoters and return pre- dings, children’s allowances, and vaca- exclusive and regular use of a portion of
parers who assist taxpayers with home- tions) as legitimate business expenses; (3) the taxpayer’s residence must be for the
based business schemes, that they cannot placing a calendar, desk, file cabinet, tele- convenience of the taxpayer’s employer
avoid income tax by claiming otherwise phone, or other office-type item in each before any expenses relating to that part of
nondeductible personal, living or family room of a home will allow taxpayers to the taxpayer’s residence may be deducted.
expenses as business deductions that sup- deduct all or most of the costs of operat- I.R.C. § 280A(c).
posedly relate to a purported home-based ing their personal residences; or (4) by us- Taxpayers participating in home-based
business that is not a bona fide trade or ing the materials that the promoter sells, business schemes invariably do not have
business. This argument has no merit and taxpayers are guaranteed to receive a large a bona fide home-based business and are
is frivolous. federal income tax refund or to reduce their not using any portion of their residences
The Service is committed to identi- federal income tax liability by a substantial exclusively and regularly for a work-re-
fying taxpayers who attempt to avoid amount. lated use. These schemes will not con-
their tax obligations by taking frivolous Whether an individual is carrying on a vert otherwise nondeductible personal, liv-
positions. The Service will take vigorous bona fide trade or business depends on the ing or family expenses into legitimate de-
enforcement action against these taxpayers facts and circumstances. Nevertheless, the ductions. Moreover, detailed recordkeep-

2004-12 I.R.B. 621 March 22, 2004


ing cannot create a permissible deduction of taxes the taxpayer should have paid; (2) frivolous positions will be liable for the
unless the expenses at issue are legitimate the section 6663 penalty for civil fraud, actual tax due plus statutory interest. In
business expenses. Although deductions which is equal to 75 percent of the amount addition, the Service will determine civil
must be substantiated in order to be al- of taxes the taxpayer should have paid; penalties against taxpayers where appro-
lowable, a taxpayer also must establish en- (3) a $500 penalty under section 6702 for priate, and those taxpayers also may face
titlement to the deduction, e.g., that the filing a frivolous return; and (4) a penalty criminal prosecution. The Service also
claimed expenses were ordinary and nec- of up to $25,000 under section 6673 if the will determine appropriate civil penalties
essary for the production of income in a taxpayer makes frivolous arguments in the against persons who prepare frivolous re-
trade or business. United States Tax Court. turns or promote frivolous positions, and
Courts routinely reject the types Taxpayers relying on this scheme also those persons also may face criminal pros-
of arguments made by participants in may face criminal prosecution for: (1) at- ecution. Promoters and others who assist
home-based business schemes as frivolous tempting to evade or defeat tax under sec- taxpayers in engaging in these schemes
and penalize taxpayers who make these tion 7201 for which the penalty is a fine of also may be enjoined from doing so under
types of arguments. Courts also have en- up to $100,000 and imprisonment for up to section 7408.
joined promoters who market frivolous 5 years; or (2) making false statements on Even if a taxpayer is engaged in a bona
tax avoidance schemes that utilize these a return under section 7206 for which the fide trade or business or is conducting ac-
frivolous arguments. See, e.g., United penalty is a fine of up to $100,000 and im- tivities from his home for the convenience
States v. Estate Preservation Services, prisonment for up to 3 years. of his employer, the taxpayer must satisfy
202 F.3d 1093 (9th Cir. 2000) (order- Persons who promote this scheme and the specific requirements of the Internal
ing an injunction against a promoter of a those who assist taxpayers in claiming tax Revenue Code, such as those contained in
trust scheme who made fraudulent state- benefits based on this scheme also may sections 162 and 280A, to be entitled to
ments that expenses related to a personal face penalties. Potential penalties include: deduct expenses related to those activities.
residence could be deducted if the resi- (1) a $250 penalty for each return pre- Personal, living or family expenses are not
dence was transferred to a trust); United pared by an income tax return preparer deductible except as otherwise expressly
States v. Buttorff, 761 F.2d 1056, 1060 who knew or should have known that the provided by the Internal Revenue Code.
(5th Cir. 1985) (ordering an injunction taxpayer’s argument was frivolous (or I.R.C. § 262(a).
against a promoter of a trust scheme who $1,000 for each return where the return
made fraudulent statements that personal preparer’s actions were willful, intentional DRAFTING INFORMATION
consumption expenses could be deducted or reckless); (2) a $1,000 penalty under
if personal property was transferred to a section 6701 for aiding and abetting the This revenue ruling was authored by the
trust); Peete v. Commissioner, T.C. Memo. understatement of tax; and (3) criminal Office of Associate Chief Counsel (Proce-
2004–31 (imposing accuracy-related prosecution under section 7206 for which dure and Administration), Administrative
penalty against taxpayer who deducted the penalty is a fine of up to $100,000 Provisions and Judicial Practice Division.
personal and living expenses as purported and imprisonment for up to 3 years for For further information regarding this rev-
business expenses related to recruiting assisting or advising about the preparation enue ruling, contact that office at (202)
participants in a tax avoidance pyramid of a false return or other document under 622–4910 (not a toll-free call).
scheme); Manley v. Commissioner, T.C. the internal revenue laws. Promoters and
Memo. 1983–558 (disallowing deductions others who assist taxpayers in engaging in
of claimed personal and living expenses these schemes also may be enjoined from Section 861.—Income
and imposing both an accuracy-related doing so under section 7408. From Sources Within the
penalty and a penalty under section 6673 United States
for advancing frivolous arguments). HOLDING
(Also, §§ 6662, 6663, 6702.)
CIVIL AND CRIMINAL PENALTIES Taxpayers cannot use schemes de-
signed to create the appearance of having Frivolous tax returns; attempting to
In determining the correct amount of a home-based business, where none actu- avoid taxes under section 861. This rul-
tax, the Service will disallow personal, ally exists, for the purpose of converting ing emphasizes to taxpayers, and to pro-
living or family expenses that have been otherwise nondeductible personal, liv- moters and return preparers who assist tax-
improperly claimed as business deduc- ing or family expenses into purportedly payers with tax schemes, that there is no
tions. In addition to liability for tax due legitimate deductions. Arguments that authority in sections 861 through 865 of
plus statutory interest, individuals who such schemes generate tax benefits are the Code that permits an individual to take
claim tax benefits on their returns based frivolous. A taxpayer who is not engaged the position that either the individual or the
on home-business schemes and other in a bona fide home-based trade or busi- individual’s U.S. based income is not sub-
frivolous arguments face substantial civil ness cannot deduct, as a trade or business ject to federal income tax. The ruling also
and criminal penalties. Potentially ap- expense under section 162, any expenses describes many of the possible civil and
plicable civil penalties include: (1) the alleged to relate to a purported home-based criminal penalties that apply to people who
section 6662 accuracy-related penalty, business. Taxpayers attempting to reduce make frivolous section 861 arguments to
which is equal to 20 percent of the amount their federal income tax liability by taking evade tax.

March 22, 2004 622 2004-12 I.R.B.


Rev. Rul. 2004–30 their required tax returns, computes the CIVIL AND CRIMINAL PENALTIES
correct amount of tax and interest due,
PURPOSE and determines whether civil and crimi- In determining the correct amount of
nal penalties should apply. The Service tax due, the Service will include income
The Service is aware that some tax- that taxpayers attempt to exclude based
also determines whether civil or criminal
payers are attempting to reduce their fed- on the Section 861 position. In addition
penalties should apply to return prepar-
eral tax liability by taking the position that to liability for tax due plus statutory in-
ers, promoters, and others who assist tax-
United States citizens and residents of the terest, individuals who claim tax benefits
payers in taking frivolous positions, and
United States are not subject to tax on on their returns based on this and other
recommends whether a court injunction
their wages and other income earned or de- frivolous arguments face substantial civil
should be sought to halt such activities.
rived within the United States (“the Sec- and criminal penalties. Potentially appli-
Other information about frivolous tax po-
tion 861 position”). These taxpayers rely cable civil penalties include: (1) the sec-
sitions is available on the Service website
on sections 861 through 865 of the Code tion 6662 accuracy-related penalty, which
at www.irs.gov.
and the regulations (in particular, Treasury is equal to 20 percent of the amount of
Regulation § 1.861–8) to argue that taxes taxes the taxpayer should have paid; (2) the
ISSUE
are only imposed on income derived from section 6663 penalty for civil fraud, which
certain foreign-based activities. The Ser- Whether an individual may avoid in- is equal to 75 percent of the amount of
vice also is aware that promoters, includ- come tax by claiming that, under sections taxes the taxpayer should have paid; (3) a
ing return preparers, are advising or rec- 861 through 865, United States citizens $500 penalty under section 6702 for filing
ommending that taxpayers take frivolous and residents are not subject to tax on a frivolous return; and (4) a penalty of up to
positions based on this argument. Some wages and other income earned or derived $25,000 under section 6673 if the taxpayer
promoters may be marketing a package, in the United States. makes frivolous arguments in the United
kit, or other materials that claim to show States Tax Court.
taxpayers how they can avoid paying in- FACTS Taxpayers relying on this scheme also
come taxes based on this and other merit- may face criminal prosecution for: (1) at-
less arguments. A taxpayer who is either a citizen or tempting to evade or defeat tax under sec-
This revenue ruling emphasizes to tax- a resident of the United States files a re- tion 7201 for which the penalty is a fine of
payers, and to promoters and return prepar- turn excluding income received from U.S. up to $100,000 and imprisonment for up to
ers who assist taxpayers with this scheme, sources, claiming that the income is not 5 years; or (2) making false statements on
that there is no authority in sections 861 subject to tax because sections 861 through a return under section 7206 for which the
through 865 that permits an individual to 865 purportedly provide that only certain penalty is a fine of up to $100,000 and im-
take the position that either the individual foreign source income is subject to tax. prisonment for up to 3 years.
or the individual’s U.S.-based income is Persons who promote this scheme and
not subject to federal income tax. This ar- LAW AND ANALYSIS those who assist taxpayers in claiming tax
gument has no merit and is frivolous. The benefits based on this scheme also may
rules of sections 861 through 865 have sig- Sections 861 through 865 do not limit face penalties. Potential penalties include:
nificance solely in determining whether in- gross income subject to United States tax- (1) a $250 penalty for each return pre-
come is considered from sources within ation to foreign-source income. In Notice pared by an income tax return preparer
the United States or without the United 2001–40, 2001–1 C.B. 1355, the Service who knew or should have known that the
States, which is relevant, for example, in advised taxpayers that it considers the Sec- taxpayer’s argument was frivolous (or
determining whether a U.S. citizen or res- tion 861 position to be a frivolous position. $1,000 for each return where the return
ident may claim a credit for foreign taxes Courts repeatedly have rejected this and preparer’s actions were willful, intentional
paid. similar arguments as frivolous, and have or reckless); (2) a $1,000 penalty under
The Service is committed to identifying penalized taxpayers who make these types section 6701 for aiding and abetting the
taxpayers who attempt to avoid their tax of arguments. See, e.g., Takaba v. Com- understatement of tax; and (3) criminal
obligations by taking frivolous positions, missioner, 119 T.C. 285 (2002) (conclud- prosecution under section 7206 for which
such as the Section 861 position. The Ser- ing that “[t]he 861 argument is frivolous” the penalty is a fine of up to $100,000
vice will take vigorous enforcement ac- and sanctioning both the taxpayer and his and imprisonment for up to 3 years for
tion against these taxpayers and against attorney for making such frivolous argu- assisting or advising about the preparation
promoters and return preparers who assist ments); Madge v. Commissioner, T.C. of a false return or other document under
taxpayers in taking these frivolous posi- Memo. 2000–370 (concluding that the ar- the internal revenue laws. Promoters and
tions. Frivolous returns and other sim- gument that only foreign income is taxable others who assist taxpayers in engaging in
ilar documents submitted to the Service is frivolous). For more information, please these schemes also may be enjoined from
are processed through its Frivolous Return see Notice 2001–40. Notice 2001–40 and doing so under section 7408.
Program. As part of this program, the other information on frivolous tax posi-
Service confirms whether taxpayers who tions are available on the Service website
take frivolous positions have filed all of at www.irs.gov.

2004-12 I.R.B. 623 March 22, 2004


HOLDING Rev. Rul. 2004–28 also determines whether civil or criminal
penalties should apply to return preparers,
Any position that, under sections 861 PURPOSE promoters, and others who assist tax-
through 865, United States citizens and payers in taking frivolous positions, and
residents are not subject to tax on wages The Service is aware that some taxpay- recommends whether a court injunction
and other income earned or derived in the ers are attempting to reduce their federal should be sought to halt such activities.
United States is frivolous. Taxpayers at- tax liability by taking the position that their Other information about frivolous tax po-
tempting to reduce their federal tax liabil- wages or other income are excluded from sitions is available on the Service website
ity by taking frivolous positions based on gross income under section 911 of the In- at www.irs.gov.
this argument will be liable for the actual ternal Revenue Code because the State,
tax due plus statutory interest. In addi- Commonwealth, or Territory of the United ISSUE
tion, the Service will determine civil penal- States in which they resided or performed
ties against taxpayers where appropriate, Whether an individual may exclude in-
services is a foreign country. The Ser-
and those taxpayers also may face crimi- come under section 911 by claiming that
vice also is aware that promoters, includ-
nal prosecution. The Service also will de- he met the requirements of section 911 be-
ing return preparers, are advising or rec-
termine appropriate civil penalties against cause a State, Commonwealth, or Territory
ommending that taxpayers take frivolous
persons who prepare frivolous returns or of the United States is considered to be a
positions based on this argument. Some
promote frivolous positions, and those per- foreign country under section 911.
promoters may be marketing a package,
sons also may face criminal prosecution. kit, or other materials that claim to show FACTS
Promoters and others who assist taxpay- taxpayers how they can avoid paying in-
ers in engaging in these schemes also may come taxes based on this and other merit- Situation 1. A, an individual, resides in
be enjoined from doing so under section less arguments. State X, a State or Commonwealth of the
7408. This revenue ruling emphasizes to tax- United States, and performs services ex-
payers, and to promoters and return prepar- clusively in State X. A was present in State
DRAFTING INFORMATION
ers who assist taxpayers with this scheme, X for all of his taxable year and is therefore
This revenue ruling was authored by the that there is no basis under section 911 not eligible in that taxable year for the ex-
Office of Associate Chief Counsel (Proce- for excluding income earned in a State, clusion from income under section 911 for
dure and Administration), Administrative Commonwealth, or Territory of the United citizens or residents of the United States
Provisions and Judicial Practice Division. States. This argument has no merit and living abroad. Based on the advice of a
For further information regarding this rev- is frivolous. Section 911 of the Inter- person who promotes the view that sec-
enue ruling, contact that office at (202) nal Revenue Code permits a taxpayer to tion 911 excludes income earned in a State,
622–4910 (not a toll-free call). elect to exclude income from gross income Commonwealth, or Territory of the United
for U.S. income tax purposes only when States because such State, Commonwealth
the taxpayer earns income and resides out- or Territory is a foreign country, A files
Section 911.—Citizens or side the United States under the conditions a return including a Form 2555, Foreign
Residents of the United and limitations set forth in that section. Earned Income, or a Form 2555–EZ, For-
States Living Abroad For purposes of section 911, States, Com- eign Earned Income. On the Form 2555 or
monwealths, and Territories of the United Form 2555–EZ, A asserts that he is entitled
(Also, Sections 6662, 6663, 6702.)
States are not foreign countries. to the exclusion from gross income under
Frivolous tax returns; excluding The Service is committed to identify- section 911 because he earned such income
gross income under section 911. This ing taxpayers who attempt to avoid their by performing services in, is a bona fide
ruling emphasizes to taxpayers, and to tax obligations by taking frivolous posi- resident of, and has a tax home in, a foreign
promoters and return preparers who as- tions, such as frivolous positions based on country (i.e., State X). A acknowledges on
sist taxpayers with frivolous tax schemes, meritless section 911 arguments. The Ser- Form 2555 or Form 2555–EZ that the ser-
that there is no basis for excluding in- vice will take vigorous enforcement action vices were performed in State X and that
come earned in a State, Commonwealth, against such taxpayers and against promot- he was a bona fide resident of State X, but
or Territory of the United States under ers and return preparers who assist taxpay- contends that State X is a foreign country
section 911 of the Code. The ruling also ers in taking these frivolous positions. and not a part of the United States.
describes many of the possible civil and Frivolous returns and other similar Situation 2. Same as Situation 1 ex-
criminal penalties that apply to people who documents submitted to the Service are cept that A, a resident of State X, claims
claim tax benefits on their return based on processed through its Frivolous Return an exclusion from gross income under sec-
frivolous claims under section 911. Program. As part of this program, the tion 911 based upon his physical presence
Service confirms whether taxpayers who in State X. Specifically, A claims he sat-
take frivolous positions have filed all of isfies the physical presence test of section
their required tax returns, computes the 911 because he was physically present in a
correct amount of tax and interest due, foreign country for at least 330 days during
and determines whether civil and crimi- his taxable year. A acknowledges on Form
nal penalties should apply. The Service 2555 or Form 2555–EZ that he was present

March 22, 2004 624 2004-12 I.R.B.


in State X, but contends that State X is a federal enclaves within States and U.S. HOLDING
foreign country and not a part of United territories is “utterly without merit”).
States. Any position that the exclusion from
Situation 3. B, an individual, per- CIVIL AND CRIMINAL PENALTIES gross income under section 911 applies
formed services in and resided on John- to a taxpayer’s income because a State,
In determining the correct amount of Commonwealth, or Territory of the United
ston Island, one of the islands on Johnston
tax due, the Service will include income States is considered to be a foreign coun-
Atoll. The Johnston Atoll is a Territory of
that taxpayers attempt to exclude based on try is frivolous. Taxpayers attempting to
the United States. B files a U.S. Federal
frivolous section 911 arguments. In addi- reduce their federal tax liability by taking
Income Tax Return with a Form 2555 or
tion to liability for tax due plus statutory frivolous positions based on this argument
a Form 2555–EZ in which he asserts that
interest, individuals who claim tax bene- will be liable for the actual tax due plus
he is entitled to the exclusion from gross
fits on their returns based on this and other statutory interest. In addition, the Service
income under section 911 because he per-
frivolous arguments face substantial civil will determine civil penalties against tax-
formed services in, is a bona fide resident
and criminal penalties. Potentially appli- payers where appropriate, and those tax-
of, and has a tax home in, a foreign coun-
cable civil penalties include: (1) the sec- payers also may face criminal prosecution.
try (i.e., Johnston Atoll).
tion 6662 accuracy-related penalty, which The Service also will determine appropri-
LAW AND ANALYSIS is equal to 20 percent of the amount of ate civil penalties against persons who pre-
taxes the taxpayer should have paid; (2) the pare frivolous returns or promote frivolous
Section 911 allows individuals that section 6663 penalty for civil fraud, which positions, and those persons also may face
meet its requirements to elect to exclude is equal to 75 percent of the amount of criminal prosecution. Promoters and oth-
from gross income certain foreign earned taxes the taxpayer should have paid; (3) a ers who assist taxpayers in engaging in
income. To qualify for the exclusion un- $500 penalty under section 6702 for filing these schemes also may be enjoined from
der section 911, a U.S. citizen or resident a frivolous return; and (4) a penalty of up to doing so under section 7408.
working abroad must have a tax home in a $25,000 under section 6673 if the taxpayer
foreign country and satisfy either the bona makes frivolous arguments in the United DRAFTING INFORMATION
fide residence test or the physical presence States Tax Court.
test. For purposes of section 911, States, Taxpayers relying on this scheme also This revenue ruling was authored by the
Commonwealths, and Territories of the may face criminal prosecution for: (1) at- Office of Associate Chief Counsel (Proce-
United States are not foreign countries. tempting to evade or defeat tax under sec- dure and Administration), Administrative
Treas. Reg. § 1.911–2(g) & (h). tion 7201 for which the penalty is a fine of Provisions and Judicial Practice Division.
In the situations described above, A up to $100,000 and imprisonment for up to For further information regarding this rev-
and B do not meet the requirements for the 5 years; or (2) making false statements on enue ruling, contact that office at (202)
exclusion from gross income under section a return under section 7206 for which the 622–4910 (not a toll-free call).
911. The claim that section 911 excludes penalty is a fine of up to $100,000 and im-
income earned in a State, Commonwealth, prisonment for up to 3 years.
or Territory of the United States because Persons who promote this scheme and Section 6651.—Failure to
such State, Commonwealth or Territory is those who assist taxpayers in claiming tax File Tax Return or to Pay Tax
a foreign country has no basis in law or benefits based on this scheme also may
Tax avoidance schemes; meritless
fact. Courts repeatedly have rejected simi- face penalties. Potential penalties include:
“corporation sole” arguments. This rul-
lar arguments as frivolous, imposed penal- (1) a $250 penalty for each return pre-
ing emphasizes to taxpayers, tax scheme
ties for making arguments such as these pared by an income tax return preparer
promoters and return preparers that, while
in court, and upheld criminal tax evasion who knew or should have known that the
a “corporation sole” is a legitimate corpo-
convictions against individuals making taxpayer’s argument was frivolous (or
rate form that may be used by a religious
such arguments. Courts repeatedly have $1,000 for each return where the return
leader to hold property and conduct busi-
rejected similar arguments as frivolous, preparer’s actions were willful, intentional
ness for the benefit of the religious entity,
imposed penalties for making arguments or reckless); (2) a $1,000 penalty under
a taxpayer cannot avoid income tax by
such as these in court, and upheld criminal section 6701 for aiding and abetting the
establishing a religious organization for
tax evasion convictions against individu- understatement of tax; and (3) criminal
tax avoidance purposes.
als making such arguments. See, e.g., In prosecution under section 7206 for which
re Becraft, 885 F.2d 547, 549–50 (9th Cir. the penalty is a fine of up to $100,000
Rev. Rul. 2004–27
1989) (rejecting the claim that federal law and imprisonment for up to 3 years for
governs only the District of Columbia and assisting or advising about the preparation PURPOSE
U.S. territories and sanctioning attorney of a false return or other document under
for making frivolous arguments); United the internal revenue laws. Promoters and The Service is aware that some tax-
States v. Ward, 833 F.2d 1538, 1539 (11th others who assist taxpayers in engaging in payers are attempting to reduce their fed-
Cir. 1987) (affirming tax evasion con- these schemes also may be enjoined from eral tax liability by taking the position that
viction and noting that claim that federal doing so under section 7408. the taxpayer’s income belongs to a “cor-
law applies only the District of Columbia, poration sole” created by the taxpayer for

2004-12 I.R.B. 625 March 22, 2004


the purpose of avoiding taxes on the tax- “corporation sole” created by the taxpayer to the benefit of a legitimate religious or-
payer’s income. The Service also is aware for the purpose of avoiding taxes on the ganization.
that promoters, including return preparers, taxpayer’s income. A taxpayer cannot avoid income tax or
are advising or recommending that taxpay- other financial responsibilities by purport-
ers take frivolous positions based on this FACTS ing to be a religious leader and forming
argument. Some promoters may be mar- a corporation sole for tax avoidance pur-
keting a package, kit, or other materials A “corporation sole” is a corporate form poses. The claims that such a corporation
that claim to show taxpayers how they can authorized under certain state laws to en- sole is described in section 501(c)(3) and
avoid paying income taxes based on this able bona fide religious leaders to hold that assignment of income and transfer
and other meritless arguments. property and conduct business for the ben- of assets to such an entity will exempt an
This revenue ruling emphasizes to efit of the religious entity. A number of individual from income tax are meritless.
taxpayers, and to promoters and return individuals are promoting the use of these Courts repeatedly have rejected similar
preparers who assist taxpayers with this entities to avoid taxes on income and con- arguments as frivolous, imposed penalties
scheme, that a taxpayer cannot avoid in- ceal the taxpayer’s assets from tax col- for making such arguments, and upheld
come tax by establishing a corporation lection. Participants in this scheme apply criminal tax evasion convictions against
sole for the purpose of avoiding taxes on for incorporation under the pretext of be- those making or promoting the use of
the taxpayer’s income. A corporation sole ing an official of a church or other reli- such arguments. See, e.g., United States v.
may be used only by a bona fide religious gious organization or society. Participants Heineman, 801 F.2d 86 (2d Cir. 1986) (up-
leader for specific, limited purposes relat- then are provided with a state identifica- holding conviction for promoting use of
ing to the religious leader’s office. The tion number that can be used to open fi- purported church entities to avoid taxes);
argument that a taxpayer’s income can be nancial accounts. Participants claim that United States v. Adu, 770 F.2d 1511 (9th
assigned to a corporation sole, and thus be their income is exempt from federal and Cir. 1985) (upholding conviction for aid-
exempted from taxation, has no merit and state taxation because this income belongs ing and assisting in the preparation and
is frivolous. to the corporation sole, which is claimed presentation of false income tax returns
The Service is committed to identifying to be a tax exempt organization described with respect to false charitable contribu-
taxpayers who attempt to avoid their tax in section 501(c)(3) of the Internal Rev- tion deductions to same type of purported
obligations by taking frivolous positions, enue Code. Participants may further claim church entities involved in Heineman);
such as frivolous positions based on a mer- that because the taxpayer’s assets are held Svedahl v. Commissioner, 89 T.C. 245
itless “corporation sole” argument. The by the corporation sole, the taxpayer is not (1987) (sanctioning taxpayer for using
Service will take vigorous enforcement ac- subject to collection actions for the pay- contributions to purported church entities
tion against these taxpayers and against ment of personal federal or state income similar to those involved in Heineman to
promoters and return preparers who assist taxes or for the payment of other obliga- shield income and pay personal expenses).
taxpayers in taking these frivolous posi- tions, such as child support.
tions. Frivolous returns and other sim- CIVIL AND CRIMINAL PENALTIES
ilar documents submitted to the Service LAW AND ANALYSIS
In addition to having to pay the ac-
are processed through its Frivolous Return
A valid corporation sole enables a bona tual tax due plus statutory interest, indi-
Program. As part of this program, the
fide religious leader, such as a bishop or viduals who claim tax benefits on their re-
Service confirms whether taxpayers who
other authorized church or other religious turns based on a “corporation sole” scheme
take frivolous positions have filed all of
official, to incorporate under state law, in or other frivolous arguments face substan-
their required tax returns, computes the
his capacity as a religious official. See, tial civil and criminal penalties. Poten-
correct amount of tax and interest due,
e.g., Berry v. Society of Saint Pius X, 69 tially applicable civil penalties include: (1)
and determines whether civil and crimi-
Cal. App. 4th 354 (1999) (“One purpose the section 6662 accuracy-related penalty,
nal penalties should apply. The Service
of the corporation sole is to insure [sic] the which is equal to 20 percent of the amount
also determines whether civil or criminal
continuation of ownership of property ded- of taxes the taxpayer should have paid; (2)
penalties should apply to return prepar-
icated to the benefit of a religious organi- the section 6663 penalty for civil fraud,
ers, promoters, and others who assist tax-
zation which may be held in the name of which is equal to 75 percent of the amount
payers in taking frivolous positions, and
its titular head.”). A corporation sole may of taxes the taxpayer should have paid; (3)
recommends whether a court injunction
own property and enter into contracts as a a $500 penalty under section 6702 for fil-
should be sought to halt such activities.
natural person, but only for the purposes of ing a frivolous return; and (4) a penalty
Other information about frivolous tax po-
the religious entity and not for the individ- of up to $25,000 under section 6673 if the
sitions is available on the Service website
ual office holder’s personal benefit. Title taxpayer makes frivolous arguments in the
at www.irs.gov.
to property that vests in the office holder United States Tax Court.
ISSUE as a corporation sole passes not to the of- Taxpayers relying on this scheme also
fice holder’s heirs, but to the successors to may face criminal prosecution for: (1) at-
Whether a taxpayer may exclude in- the office by operation of law. A legitimate tempting to evade or defeat tax under sec-
come from taxation based on the argument corporation sole is designed to ensure con- tion 7201 for which the penalty is a fine of
that the taxpayer’s income belongs to a tinuity of ownership of property dedicated up to $100,000 and imprisonment for up to

March 22, 2004 626 2004-12 I.R.B.


5 years; or (2) making false statements on Section 6662.—Imposition a meritless “claim of right” argument. The
a return under section 7206 for which the of Accuracy-Related Service will take vigorous enforcement ac-
penalty is a fine of up to $100,000 and im- Penalty tion against these taxpayers and against
prisonment for up to 3 years. promoters and return preparers who assist
Persons who promote this scheme and Frivolous tax returns; meritless taxpayers in taking these frivolous posi-
those who assist taxpayers in claiming tax “claim of right” arguments. This ruling tions. Frivolous returns and other sim-
benefits based on this scheme also may emphasizes to taxpayers, and to promoters ilar documents submitted to the Service
face penalties. Potential penalties include: and return preparers who assist taxpayers are processed through its Frivolous Return
(1) a $250 penalty for each return pre- with frivolous tax schemes, that there is no Program. As part of this program, the
pared by an income tax return preparer “claim of right” doctrine that permits an Service confirms whether taxpayers who
who knew or should have known that the individual to take the position that either take frivolous positions have filed all of
taxpayer’s argument was frivolous (or the individual or the individual’s income their required tax returns, computes the
$1,000 for each return where the return is not subject to federal income tax. The correct amount of tax and interest due,
preparer’s actions were willful, intentional ruling also describes many of the possi- and determines whether civil and crimi-
or reckless); (2) a $1,000 penalty under ble civil and criminal penalties that apply nal penalties should apply. The Service
section 6701 for aiding and abetting the to people who make frivolous “claim of also determines whether civil or criminal
understatement of tax; and (3) criminal right” arguments to evade tax. penalties should apply to return prepar-
prosecution under section 7206 for which ers, promoters, and others who assist tax-
the penalty is a fine of up to $100,000 Rev. Rul. 2004–29 payers in taking frivolous positions, and
and imprisonment for up to 3 years for recommends whether a court injunction
assisting or advising about the preparation PURPOSE should be sought to halt such activities.
of a false return or other document under Other information about frivolous tax po-
the internal revenue laws. Promoters and The Service is aware that some taxpay- sitions is available on the Service website
others who assist taxpayers in engaging in ers are attempting to reduce their federal at www.irs.gov.
these schemes also may be enjoined from tax liability by taking the position that ei-
doing so under section 7408. ther they or their incomes are not subject ISSUE
to tax based on what they describe or refer
Whether section 1341, relating to
HOLDING to as a “claim of right.” The Service also is
amounts “held under claim of right,”
aware that promoters, including return pre-
allows an individual to reduce his or her
A taxpayer cannot use a corporation parers, are advising or recommending that
federal income tax liability with respect
sole as a means to exclude the taxpayer’s taxpayers take frivolous positions based on
to an item that was not included in gross
income from taxation. Taxpayers attempt- this argument. Some promoters may be
income for a prior taxable year.
ing to reduce their federal tax liability by marketing a package, kit, or other materi-
taking frivolous positions based on this ar- als that claim to show taxpayers how they FACTS
gument will be liable for the actual tax due can avoid paying income taxes based on
plus statutory interest. In addition, the Ser- this and other meritless arguments. Individual taxpayer A has gross income
vice will determine civil penalties against This revenue ruling emphasizes to tax- for taxable year 1. A claims deductions
taxpayers where appropriate, and those payers, and to promoters and return prepar- that equal or exceed A’s gross income on
taxpayers also may face criminal prose- ers who assist taxpayers with this scheme, A’s individual income tax return for tax-
cution. The Service also will determine that there is no “claim of right” doctrine able year 1. A’s claimed deductions may
appropriate civil penalties against persons that permits an individual to take the po- appear on various places on the return. For
who prepare frivolous returns or promote sition that either the individual or the indi- example, A may claim the deductions: (i)
frivolous positions, and those persons also vidual’s income is not subject to federal in- on Schedule A as compensation for per-
may face criminal prosecution. Promoters come tax. This argument has no merit and sonal labor; (ii) on Schedule C as a cost
and others who assist taxpayers in engag- is frivolous. Section 1341 (“Computation of A’s labor; or (iii) on other schedules or
ing in these schemes also may be enjoined of tax where taxpayer restores substantial elsewhere on A’s return. Alternatively, A
from doing so under section 7408. amount held under claim of right”) of the simply may not report all or some of A’s
Internal Revenue Code applies only when gross income on A’s return. Although the
DRAFTING INFORMATION a taxpayer properly reports an amount of specific nature of A’s “claim of right” ar-
income in one taxable year and later repays gument for the position taken on the return
This revenue ruling was authored by the all or a portion of that same amount in a may vary, A’s position generally is that un-
Office of Associate Chief Counsel (Proce- later taxable year because the taxpayer, in der a “claim of right,” either A or A’s in-
dure and Administration), Administrative fact, did not have an unrestricted right to come, or both, are not subject to federal in-
Provisions and Judicial Practice Division. that income. come taxes.
For further information regarding this rev- The Service is committed to identify- No portion of A’s claimed deductions,
enue ruling, contact that office at (202) ing taxpayers who attempt to avoid their or the amount of A’s gross income not re-
622–7950 (not a toll-free call). tax obligations by taking frivolous posi- ported on the return, was included in A’s
tions, such as frivolous positions based on gross income in any prior taxable year.

2004-12 I.R.B. 627 March 22, 2004


LAW AND ANALYSIS is equal to 20 percent of the amount of ties against persons who prepare frivolous
taxes the taxpayer should have paid; (2) the returns or promote frivolous positions, and
Section 1341 governs the computation section 6663 penalty for civil fraud, which those persons also may face criminal pros-
of income tax if: (i) an amount of income is equal to 75 percent of the amount of ecution. Promoters and others who as-
was included in a taxpayer’s gross income taxes the taxpayer should have paid; (3) a sist taxpayers in engaging in these schemes
in a prior year(s) because it appeared that $500 penalty under section 6702 for filing also may be enjoined from doing so under
the taxpayer had an unrestricted right to a frivolous return; and (4) a penalty of up to section 7408.
such item; and (ii) a deduction exceeding $25,000 under section 6673 if the taxpayer
$3,000 is allowable in the current taxable makes frivolous arguments in the United DRAFTING INFORMATION
year because, after the close of such prior States Tax Court.
This revenue ruling was authored by the
taxable year, it is established that the tax- Taxpayers relying on this scheme also
Office of Associate Chief Counsel (Proce-
payer did not have an unrestricted right to may face criminal prosecution for: (1) at-
dure and Administration), Administrative
all or a portion of such item of income. tempting to evade or defeat tax under sec-
Provisions and Judicial Practice Division.
There is no “claim of right” doctrine under tion 7201 for which the penalty is a fine of
For further information regarding this rev-
U.S. law, including the Internal Revenue up to $100,000 and imprisonment for up to
enue ruling, contact that office at (202)
Code, that permits an individual to take the 5 years; or (2) making false statements on
622–7950 (not a toll-free call).
position that either the individual or the in- a return under section 7206 for which the
dividual’s income is not subject to federal penalty is a fine of up to $100,000 and im-
income tax. prisonment for up to 3 years. Frivolous tax returns; “reparations
Individuals such as Taxpayer A who Persons who promote this scheme and tax credit.” This ruling emphasizes to tax-
make meritless “claim of right” arguments those who assist taxpayers in claiming tax payers, and to promoters and return prepar-
do not purport to have repaid amounts pre- benefits based on this scheme also may ers who assist taxpayers with tax schemes,
viously reported as income, but instead face penalties. Potential penalties include: that there is no “reparations tax credit” that
simply claim that either they or their in- (1) a $250 penalty for each return pre- permits an individual to take the position
comes are not subject to tax. In many re- pared by an income tax return preparer that the individual based on certain classi-
spects, the so-called “claim of right” argu- who knew or should have known that the fications is entitled to a large refund the in-
ment being made by these taxpayers is no taxpayer’s argument was frivolous (or dividual would not otherwise receive. The
different than the argument that some tax- $1,000 for each return where the return ruling also describes many of the possi-
payers have made that compensation for preparer’s actions were willful, intentional ble civil and criminal penalties that apply
personal services is not subject to taxa- or reckless); (2) a $1,000 penalty under to people who claim refunds or other tax
tion. Courts repeatedly have rejected these section 6701 for aiding and abetting the benefits on their returns based on frivolous
types of arguments as frivolous and have understatement of tax; and (3) criminal reparations tax credits.
penalized taxpayers who make these types prosecution under section 7206 for which
of arguments. See, e.g., Stelly v. Commis- the penalty is a fine of up to $100,000 Rev. Rul. 2004–33
sioner, 761 F.2d 1113, 1115 (5th Cir. 1985) and imprisonment for up to 3 years for
(finding that the argument that taxing wage assisting or advising about the preparation PURPOSE
and salary income is unconstitutional be- of a false return or other document under
cause compensation for labor is an even the internal revenue laws. Promoters and The Service is aware that some taxpay-
exchange is obviously frivolous); Abrams others who assist taxpayers in engaging in ers are attempting to reduce their federal
v. Commissioner, 82 T.C. 403, 413 (1984) these schemes also may be enjoined from income tax liability by taking the posi-
(rejecting argument that wages are not sub- doing so under section 7408. tion that they are entitled to a “reparations
ject to the imposition and collection of tax tax credit” or other similarly named credit
as frivolous and groundless and imposing HOLDING because they are a member of a group
a $5,000 penalty under section 6673). or class based on race, ancestry, ethnic-
Any claim that a taxpayer can use a ity, gender or other classification. Com-
CIVIL AND CRIMINAL PENALTIES “claim of right” argument to reduce the mon examples of the purported reparations
taxpayer’s federal income tax liability with tax credit that have been promoted include
The Service will disallow deductions or respect to any item not included in gross the African-American reparations credit,
other claimed tax benefits, including the income for a prior tax year is frivolous. the Black Heritage tax credit, and the Na-
exclusion of income, based on frivolous Taxpayers attempting to reduce their fed- tive American reparations credit. The Ser-
“claim of right” arguments. In addition eral tax liability by taking frivolous posi- vice also is aware that promoters, includ-
to liability for tax due plus statutory in- tions based on this argument will be liable ing return preparers, are advising or rec-
terest, individuals who claim tax benefits for the actual tax due plus statutory inter- ommending that taxpayers take frivolous
on their returns based on this and other est. In addition, the Service will determine positions based on this argument. Some
frivolous arguments face substantial civil civil penalties against taxpayers where ap- promoters may be marketing a package,
and criminal penalties. Potentially appli- propriate, and those taxpayers also may kit, or other materials that claim to show
cable civil penalties include: (1) the sec- face criminal prosecution. The Service taxpayers how they can receive large re-
tion 6662 accuracy-related penalty, which also will determine appropriate civil penal- funds based on this claim, or how taxpay-

March 22, 2004 628 2004-12 I.R.B.


ers can avoid paying income taxes based or excess refundable credits. Participants arguments face substantial civil and crimi-
on this and other meritless arguments. often claim the reparations tax credit either nal penalties. Potentially applicable civil
This revenue ruling emphasizes to on Form 2439, Notice to Shareholder of penalties include: (1) the section 6662
taxpayers, and to promoters and return Undistributed Long-Term Capital Gains, accuracy-related penalty, which is equal
preparers who assist taxpayers with these identifying a fictitious regulated invest- to 20 percent of the amount of taxes the
schemes, that there is no reparations tax ment company or real estate investment taxpayer should have paid; (2) the sec-
credit that entitles an individual to a refund trust, or as a withholding credit, Earned tion 6663 penalty for civil fraud, which
of tax or to any other tax benefit, such as a Income Credit, investment tax credit or is equal to 75 percent of the amount of
credit against tax liability. This position is another similar credit. taxes the taxpayer should have paid; (3) a
frivolous and has no merit. Although the No law, including the Internal Rev- $500 penalty under section 6702 for filing
Internal Revenue Code does allow special enue Code, allows taxpayers to claim a a frivolous return; and (4) a penalty of up to
tax treatment for charitable organizations reparations tax credit or any other sim- $25,000 under section 6673 if the taxpayer
described in section 501(c)(3) that may ilarly-named credit. Courts repeatedly makes frivolous arguments in the United
help individuals who are needy or oth- have rejected reparations tax credit claims States Tax Court.
erwise distressed and who are part of a as frivolous and penalized taxpayers mak- Taxpayers relying on this scheme also
general class of charitable beneficiaries, ing these claims and promoters and return may face criminal prosecution for: (1) at-
there is no U.S. law that allows for a repa- preparers who assist taxpayer in making tempting to evade or defeat tax under sec-
rations tax credit. these frivolous claims. See, e.g., United tion 7201 for which the penalty is a fine of
The Service is committed to identi- States v. Bridges, 86 A.F.T.R.2d (RIA) up to $100,000 and imprisonment for up to
fying taxpayers who attempt to avoid 5280 (4th Cir. 2000) (rejecting as frivolous 5 years; or (2) making false statements on
paying income tax by taking frivolous po- the non-existent “Black Tax Credit” and a return under section 7206 for which the
sitions, such as claiming a reparations tax upholding conviction for aiding and assist- penalty is a fine of up to $100,000 and im-
credit. The Service will take vigorous en- ing the preparation of false tax returns); prisonment for up to 3 years.
forcement action against these taxpayers United States v. Haugabook, 2002 U.S. Persons who promote this scheme and
and against promoters and return prepar- Dist. LEXIS 25314 (M.D. Ga. 2002) those who assist taxpayers in claiming tax
ers who assist taxpayers in taking these (ordering a permanent injunction against benefits based on this scheme also may
frivolous positions. Frivolous returns a promoter prohibiting the preparation face penalties. Potential penalties include:
and other similar documents submitted of returns or other documents claiming a (1) a $250 penalty for each return pre-
to the Service are processed through its tax credit for slavery reparations or other pared by an income tax return preparer
Frivolous Return Program. As part of this similar frivolous credits and requiring that who knew or should have known that the
program, the Service confirms whether the promoter place an advertisement in taxpayer’s argument was frivolous (or
taxpayers who take frivolous positions the local newspaper declaring that there $1,000 for each return where the return
have filed all of their required tax re- are no such tax credits); United States preparer’s actions were willful, intentional
turns, computes the correct amount of tax v. Mims, 2002 U.S. Dist. LEXIS 25291 or reckless); (2) a $1,000 penalty under
and interest due, and determines whether (S.D. Ga. 2002) (ordering a permanent in- section 6701 for aiding and abetting the
civil and criminal penalties should ap- junction against a promoter prohibiting the understatement of tax; and (3) criminal
ply. The Service also determines whether preparation of returns or other documents prosecution under section 7206 for which
civil or criminal penalties should apply claiming a tax credit for slavery repara- the penalty is a fine of up to $100,000
to return preparers, promoters, and others tions or other similar frivolous credits); and imprisonment for up to 3 years for
who assist taxpayers in taking frivolous United States v. Foster, 2002–2 U.S.T.C. assisting or advising about the preparation
positions, and recommends whether a (CCH) ¶ 50,785 (E.D. Va. 2002) (hold- of a false return or other document under
court injunction should be sought to halt ing “no provision of the Internal Revenue the internal revenue laws. Promoters and
such activities. Other information about Code allows for a tax credit for slavery others who assist taxpayers in engaging in
frivolous tax positions is available on the reparations” and ordering a permanent these schemes also may be enjoined from
Service website at www.irs.gov. injunction prohibiting the preparation of doing so under section 7408.
returns or refund claims based on a “fabri-
DISCUSSION OF REPARATIONS TAX cated tax credit for slavery reparations”). HOLDING
CREDIT SCHEME
CIVIL AND CRIMINAL PENALTIES Any claim that a taxpayer is entitled to
Participants in the reparations tax credit a reparations tax credit or a refund or other
scheme typically file individual income The Service will disallow credits or re- tax benefit based on a reparations tax credit
tax returns that correctly report the tax- funds based on a reparations tax credit is frivolous. Taxpayers attempting to re-
payers’ income, tax liability, and income and will seek to recover any refund er- duce their federal tax liability by taking
tax withholding, but claim reparations tax roneously made to a taxpayer based on a frivolous positions based on this argument
credits in amounts that typically exceed reparations tax credit. In addition to liabil- will be liable for the actual tax due plus
their tax liabilities to reduce taxes that ity for tax due plus statutory interest, in- statutory interest. In addition, the Service
otherwise are owed and request refunds of dividuals who claim tax benefits on their will determine civil penalties against tax-
purported overpayments of withheld taxes returns based on this and other frivolous payers where appropriate, and those tax-

2004-12 I.R.B. 629 March 22, 2004


payers may also face criminal prosecution. these schemes also may be enjoined from dure and Administration), Administrative
The Service also will determine appropri- doing so under section 7408. Provisions and Judicial Practice Division.
ate civil penalties against persons who pre- For further information regarding this rev-
pare frivolous returns or promote frivolous DRAFTING INFORMATION enue ruling, contact that office at (202)
positions, and those persons may also face 622–7800 (not a toll-free call).
criminal prosecution. Promoters and oth- This revenue ruling was authored by the
ers who assist taxpayers in engaging in Office of Associate Chief Counsel (Proce-

March 22, 2004 630 2004-12 I.R.B.


Part III. Administrative, Procedural, and Miscellaneous
Common Mistakes on Tax Credit or Child Tax Credit must be in- 2004–8, and Publication 596, and through
Returns cluded on the return exactly as they appear links at 1040 Central at www.irs.gov.
on the social security cards. 8. Failing to pay and report domes-
Notice 2004–13 3. Failing to use the correct forms tic payroll taxes. Taxpayers employ-
and schedules. Taxpayers should review ing household workers, such as a house
The purpose of this notice is to alert tax- the instructions to all applicable forms and cleaner, an in-home caregiver, or a nanny,
payers about common mistakes made by schedules to be sure they have correctly must pay and report payroll taxes for those
individuals while preparing their federal used, and accurately completed, each form individuals where the payments exceed
income tax returns. These mistakes may or schedule. certain threshold amounts. Failure to pay
result in taxpayers failing to fully pay their 4. Failing to sign and date the return. and report payroll taxes may result in the
correct tax liabilities. In addition, these Taxpayers must sign and date their return assessment of additional tax due, interest
mistakes may result in delays in process- under penalties of perjury. If the return is on the unpaid amounts, and penalties. The
ing returns and receiving any refunds. Tax- not signed, it will not be accepted as filed Instructions to the Form 1040, Publication
payers should carefully read all the instruc- by the Service. Both spouses must sign a 926 (Household Employer’s Tax Guide),
tions to the tax forms and schedules and joint return. and Publication 15–A (Employer’s Sup-
review their entire return before filing. In 5. Claiming ineligible dependents. plemental Tax Guide) contain detailed
addition, e-filing, either through the Ser- Taxpayers may claim a person as a de- information to assist taxpayers in deter-
vice’s Free File Program at www.irs.gov or pendent only if that person meets the mining whether an individual providing
through a tax professional, will help reduce legal definition of a dependent. Taxpayers household help is a household employee
errors and speed refunds. Taxpayers who should consult the Instructions to Form for whom the taxpayer must pay and report
e-file and use direct deposit will receive 1040 to confirm whether a person quali- payroll taxes.
their refunds in as little as two weeks. fies as a dependent. Each dependent must 9. Failing to report income because it
Additional taxpayer resources, includ- have a valid social security number, which was not included on a Form W–2, Form
ing answers to frequently asked questions, must be included on the tax return. The 1099 or other information return. Tax-
also can be found at www.irs.gov. Taxpay- failure to include a dependent’s name and payers must report all income, even if the
ers can learn more about common mis- social security number, or claiming an income was not reported on a third-party
takes and find an error checklist on page ineligible dependent, may result in an un- reporting statement such as a Form W–2,
60 of the Instructions to the 2003 Form derpayment of tax and/or a denial of the Form 1099, or other similar statement.
1040 Federal Income Tax Return; this Earned Income Credit. Failure to report all income may result in
information also is available at TeleTax 6. Failing to file for the Earned In- the assessment of additional tax due, inter-
Topic 303 on the internet at www.irs.gov come Credit. Taxpayers should review est on the unpaid amounts, and penalties.
and from the toll-free TeleTax number, carefully the eligibility requirements for 10. Treating employees as indepen-
1–800–829–4477. the Earned Income Credit, including in- dent contractors. Employers may not treat
1. Choosing the wrong filing status. come limits, before filing returns. For an employee as an “independent contrac-
Taxpayers should confirm that the filing example, many military families may tor” to avoid paying and reporting payroll
status (i.e., single, married filing jointly, qualify for the Earned Income Credit be- taxes. Employers who improperly treat
married filing separately, head of house- cause supplemental payments and combat an employee as an independent contractor
hold, qualifying widower) selected on the pay are exempt from the income calcula- may be liable for additional tax due, in-
return is correct. For example, taxpay- tions. Detailed instructions for claiming terest on the unpaid amounts, and penal-
ers often incorrectly claim “head of house- and computing the Earned Income Credit ties. Publication 15–A (Employer’s Sup-
hold” filing status without meeting the re- are contained in the Instructions to the plemental Tax Guide) contains detailed in-
quirements for that status. In addition to Form 1040, Fact Sheet 2004–8, in Pub- formation to assist taxpayers in determin-
delaying the processing of the return and lication 596 and through links at 1040 ing whether an individual is an employee
any refund, designating the wrong filing Central at www.irs.gov. or an independent contractor.
status on a return also may affect a tax- 7. Improperly claiming the Earned In- 11. Failing to file a return when due
payer’s eligibility for the Earned Income come Credit. Taxpayers must have a qual- a refund. Taxpayers must file a return to
Credit. The Instructions to the 2003 Form ifying amount of earned income to claim claim a refund of withheld taxes when a re-
1040 provide detailed information to assist the Earned Income Credit. For example, a fund is due. Taxpayers will forfeit refunds
taxpayers in choosing their correct filing taxpayer whose sole income is from the re- of withheld tax if a return requesting a re-
status. ceipt of disability payments does not have fund is not filed within three years of the
2. Failing to include or using incor- qualifying earned income and is ineligible due date.
rect social security numbers. The names for the Earned Income Credit. Detailed in- 12. Failing to check liability for the al-
and social security numbers for the tax- structions for claiming and computing the ternative minimum tax. Taxpayers should
payer, taxpayer’s spouse, dependents, and Earned Income Credit are contained in the determine whether the alternative mini-
qualifying children for the Earned Income Instructions to the Form 1040, Fact Sheet mum tax, or AMT, applies. If the taxpayer

2004-12 I.R.B. 631 March 22, 2004


is liable for AMT, the Service may reduce where appropriate. The Service also will • “A taxpayer can escape income tax
or deny a requested refund or may assess determine appropriate penalties against by putting assets in an offshore bank
any additional tax due, interest on the un- persons who promote these schemes and account.” A citizen or resident of the
paid amounts and penalties. who prepare frivolous returns based these United States cannot use an offshore
This notice was authored by the Of- schemes. arrangement (such as a foreign bank or
fice of Associate Chief Counsel (Proce- brokerage account, or a credit card is-
dure and Administration), Administrative SECTION 2 COMMON FRIVOLOUS sued by a foreign bank) to avoid his
Provisions and Judicial Practice Division. ARGUMENTS tax obligations. In addition, taxpayers
For further information regarding this no- are required to disclose foreign finan-
tice, contact that office at (202) 622–7800 This section sets out many common cial accounts to the Treasury Depart-
(not a toll-free call). frivolous arguments used by taxpayers to ment and may face civil and criminal
avoid or evade tax. penalties if they fail to do so.

Frivolous Arguments to Avoid • “The 16th Amendment is invalid be- • “A taxpayer can eliminate tax by es-
cause it contradicts the original Con- tablishing a ‘corporation sole.’” A
stitution, and it was not properly rati- taxpayer cannot avoid income tax by
Notice 2004–22 establishing a corporation sole for the
fied.” The 16th Amendment, which au-
thorizes the income tax, was properly purpose of avoiding tax on the tax-
SECTION 1 INTRODUCTION
ratified and is valid. payer’s income. A corporation sole
As April 15 approaches, taxpayers are may be used only by a bona fide reli-
reminded to steer clear of tax-avoidance • “A taxpayer can make a ‘claim of gious leader for specific, limited pur-
schemes that purportedly reduce or elim- right’ to exclude the cost of his labor poses relating to the religious leader’s
inate taxes. If an idea to save on taxes from income.” There is no “claim of office.
seems too good to be true, it probably is. right” doctrine under any federal law,
Tax-avoidance schemes are based on including the Internal Revenue Code,
• “A taxpayer can place all of his as-
sets in a trust to escape income tax
frivolous arguments that the Service and that permits a taxpayer to deduct or ex-
while still retaining control over those
the federal courts have repeatedly rejected. clude the value of his labor.
assets.” A taxpayer who places assets
These schemes typically are sold by pro-
in a trust but retains certain powers or
moters for a substantial fee, and may be • “Only income from a foreign source
interests over the assets, including the
sold over the Internet, through advertise- is taxable under section 861.” Sec-
power to control the beneficial enjoy-
ments in newspapers and magazines, at tions 861–865 do not exclude income
ment of the assets, is treated as the
conferences and seminars (including con- from tax. In particular, nothing in
owner of the assets and is subject to tax
ferences for professional groups such as these sections or the Treasury regula-
on the income from those assets.
doctors or dentists), and through recom- tions provides that only income earned
mendations of friends or acquaintances from certain foreign sources is subject • “A taxpayer can deduct any amount
who have learned about these schemes. to U.S. tax. paid to maintain his household by es-
Section 2 of this notice sets out many tablishing a home business.” Business
of the most common frivolous arguments • “I am not a ‘citizen’ or a ‘person’ expenses, including expenses related
used by these tax-avoidance schemes. The within the meaning of the Internal to a home-based business, are not de-
Service is committed to identifying tax- Revenue Code.” A citizen of each of ductible unless the expenses relate to
payers who attempt to avoid their tax obli- the 50 States (e.g., New York or Cal- a bona fide, profit-seeking business.
gations by using schemes based on these ifornia) of the United States and the Promoters of home-based business
and other frivolous arguments. Frivolous District of Columbia is also a citizen schemes improperly encourage tax-
returns and other similar documents sub- of the United States. payers to claim household expenses
mitted to the Service are processed through as business deductions although the
its Frivolous Return Program. The Ser- • “Citizens of States, such as New York, purported home-business used in these
vice also reviews other non-return doc- are citizens of a foreign country and schemes is not a bona fide trade or
uments making frivolous arguments sub- therefore not subject to tax.” Section business.
mitted by taxpayers, such as correspon- 911 permits a taxpayer to elect to ex-
dence, to determine whether these indi- clude income from U.S. income tax • “Nothing in the Internal Revenue
viduals have filed required tax returns and only when the taxpayer earns income Code section imposes a requirement
paid all taxes due for previous years. and resides outside the United States to file a return.” Section 6011 ex-
Section 3 of this notice identifies poten- under the conditions and limitations set pressly authorizes the Service to re-
tial civil and criminal penalties. Taxpayers forth in that section. For purposes of quire, by Treasury regulation, the fil-
who engage in tax-avoidance schemes will section 911, States (e.g., New York or ing of returns. Section 6012 identifies
be liable for unpaid taxes and interest. In California), Commonwealths, and Ter- persons who are required to file in-
addition, the Service will impose civil ritories (e.g., Johnston Atoll) of the come tax returns. Under Treasury reg-
and criminal penalties against taxpayers United States are not foreign countries. ulations, taxpayers who receive more

March 22, 2004 632 2004-12 I.R.B.


than the statutory minimum amount of payers must file income tax returns us- • “A taxpayer may sell (or purchase)
gross income must file returns. Tax- ing the forms prescribed by the Ser- the right to use dependents in order to
payers also are required to pay any tax vice. No law, including the Internal increase the amount of EIC claimed.”
owed. Revenue Code, permits a taxpayer to A taxpayer may not purchase or sell the
file a document or series of documents right to use additional dependents for
• “Filing a tax return is ‘voluntary.’” to remove himself from the income tax purposes of the Earned Income Credit.
Some people mistake the word “vol- system. To be claimed as a dependant, a child
untary” for “optional” — but filing must be a qualifying child under the
a tax return is not optional for those • “A taxpayer can avoid tax by filing Earned Income Credit rules.
who meet the law’s requirements. The a return with an attachment that dis-
word “voluntary,” as used in IRS pub- claims tax liability.” A return with an The Service and the federal courts
lications, refers to the fact that the U.S. attached disclaimer of tax liability is also have repeatedly rejected variations
tax system is a voluntary compliance not a valid tax return under the law. of these arguments as well as numerous
system, which means that taxpay- Filing a disclaimer of tax may result in other tax avoidance schemes and frivolous
ers themselves determine the correct penalties for failure to file in addition arguments used by taxpayers to avoid or
amount of tax and complete the ap- to other applicable civil and criminal evade taxes.
propriate returns, rather than have the penalties.
government determine tax for them. SECTION 3 CIVIL AND CRIMINAL
For those who do not comply with their • “A taxpayer can file a return with an PENALTIES
tax obligations, the tax law authorizes altered penalties of perjury statement
various compliance measures. to generate a tax refund.” Alterations Civil and criminal penalties may ap-
to an income tax return or to the penal- ply to taxpayers who make frivolous argu-
• “Because taxes are voluntary, as an ties of perjury statement may nullify a ments. Potentially applicable civil penal-
employer, I don’t have to withhold in- return. Filing an altered document may ties include: (1) the section 6651 additions
come or employment taxes from my result in penalties for failure to file in to tax for failure to file a return, failure to
employees.” Every taxpayer is respon- addition to other applicable civil and pay the tax owed, and fraudulent failure
sible for completing and filing required criminal penalties. to file a return; (2) the section 6662 accu-
returns and paying the correct amount racy-related penalty, which is equal to 20
of tax. An employer is required by • “Certain taxpayers can claim a ‘repa-
percent of the amount of taxes the taxpayer
law to withhold income and employ- rations tax credit’ to right wrongs
should have paid; (3) the section 6663
ment taxes from salary and wages paid done in the past.” No law, including
penalty for civil fraud, which is equal to
to employees. Employers also must the Internal Revenue Code, permits a
75 percent of the amount of taxes the tax-
deposit the amounts withheld with the “reparations tax credit.”
payer should have paid; (4) a $500 penalty
IRS.
• “By purchasing equipment and ser- under section 6702 for filing a frivolous re-
turn; and (5) a penalty of up to $25,000
• “A taxpayer can refuse to pay taxes if vices for an inflated price, a taxpayer
under section 6673 if the taxpayer makes
the taxpayer disagrees with the gov- can use the Disabled Access Credit
to reduce tax or generate a refund.” frivolous arguments in the United States
ernment’s use of the taxes it collects.”
The Disabled Access Credit, which is Tax Court.
No law, including the Internal Revenue
limited to specific medical equipment, Taxpayers who engage in tax-avoid-
Code, permits a taxpayer to avoid or
may only be claimed for amounts ac- ance schemes also may face criminal
evade tax obligations on grounds that
tually paid by a taxpayer. Promot- prosecution for: (1) attempting to evade
the taxpayer does not agree with the
ers of this scheme improperly offer to or defeat tax under section 7201 for which
Government’s past or possible future
sell equipment or services at highly in- the penalty is a fine of up to $100,000 and
use of the taxes collected.
flated prices in order to generate a large imprisonment for up to 5 years; and (2)
• “A taxpayer can avoid tax by filing a credit. Taxpayers participating in this willful failure to file a return under section
return that reports zero income and scheme, however, ultimately are not 7203 for which the penalty is a fine of up
zero tax liability.” All taxpayers who required to pay, and do not pay, the en- to $25,000 and imprisonment of up to one
receive more than the statutory mini- tire price stated in the sales contract. year; and (3) making false statements on
mum amount of gross income must file a return under section 7206 for which the
returns and pay tax. No law, including • “A taxpayer can deduct the amount penalty is a fine of up to $100,000 and
the Internal Revenue Code, permits a of Social Security taxes under section imprisonment for up to 3 years.
taxpayer who has received wage and 3121 that he paid and get a refund Persons who promote tax-avoidance
other income to file a return with zero of those taxes.” Section 3121 does not schemes and those who assist taxpay-
income and zero tax liability. exclude wages from taxation and does ers in claiming tax benefits based on
not authorize a refund of Social Secu- a tax-avoidance scheme also may face
• “A taxpayer can escape income taxes rity taxes paid. penalties. Potential penalties include: (1)
or the tax system by filing a set of doc- a $250 penalty for each return prepared by
uments in lieu of a tax return.” Tax- an income tax return preparer who knew

2004-12 I.R.B. 633 March 22, 2004


or should have known that the taxpayer’s taxpayers in engaging in these schemes Provisions and Judicial Practice Division.
argument was frivolous (or $1,000 for also may be enjoined from doing so under For further information regarding this no-
each return where the return preparer’s ac- section 7408. tice, contact that office at (202) 622–7800
tions were willful, intentional or reckless); (not a toll-free call).
(2) a $1,000 penalty under section 6701 SECTION 4 ADDITIONAL
for aiding and abetting the understatement INFORMATION
of tax; and (3) criminal prosecution under
section 7206 for which the penalty is a Other information about frivolous tax
fine of up to $100,000 and imprisonment positions is available on the Service web-
for up to 3 years for assisting or advising site at www.irs.gov.
about the preparation of a false return or This notice was authored by the Of-
other document under the internal revenue fice of Associate Chief Counsel (Proce-
laws. Promoters and others who assist dure and Administration), Administrative

March 22, 2004 634 2004-12 I.R.B.


Part IV. Items of General Interest
Foundations Status of Certain American Asthma Association, Boys and Girls Club of Jay Oklahoma,
Organizations New York, NY Inc., Oaks, OK
American Community Development Breastfeeding Education and Support
Announcement 2004–17 Fund, Inc., Columbus, OH Network of New York City, Inc.,
American Recovery Center, Fairfax, VA New York, NY
The following organizations have failed American Youth Dance Theater Bridge-Logos International Trust, Inc.,
to establish or have been unable to main- Foundation, Inc., New York, NY Gainesville, FL
tain their status as public charities or as op- Angel Hearts, Incorporated, Bronx Mass Ministries, Inc., Bronx, NY
erating foundations. Accordingly, grantors Williamsville, NY Brookland Manor Brentwood Village
and contributors may not, after this date, Animal Care Association, Inc., SPCA, Residents Association, Washington, DC
rely on previous rulings or designations Scranton, PA Burns Heights Tenant Council,
in the Cumulative List of Organizations Antioch Community Corp., Duquesne, PA
(Publication 78), or on the presumption New Brunswick, NJ Calder Race Course Education
arising from the filing of notices under sec- Aptitudes for Living Institute, Foundation, Inc., Miami, FL
tion 508(b) of the Code. This listing does St. George, UT California Safe Boating Foundation,
not indicate that the organizations have lost Art for Peace, Ft. Washington, PA Long Beach, CA
their status as organizations described in Association of the Brethren in Ways of Calvin Duncan Ministries, Inc.,
section 501(c)(3), eligible to receive de- Jesus Christ, Kingston, PA Richmond, VA
ductible contributions. Atlantic Charitable Foundation, Inc., Camp Oink, Inc., Ojai, CA
Former Public Charities. The follow- Atlantic City, NJ Cancer Services of Crawford County,
ing organizations (which have been treated Atlantic City Rights of Passage, Inc., Meadville, PA
as organizations that are not private foun- Atlantic City, NJ Capital City Teen Production,
dations described in section 509(a) of the Auburn Towers Resident Council, Richmond, VA
Code) are now classified as private foun- Pittsburgh, PA Capital District Coalition for Crime
dations: Audubon Housing Development Fund Victims Rights, Inc., Albany, NY
Corporation, New York, NY Cardiology Medical Education &
18th Ward Athletic Association, Barbaras Christmas Foundation, Ilion, NY Research Fund, Pittsburgh, PA
Reading, PA Bartenders Foundation, Inc., C A R E United Methodist Outreach,
190 Cultural Enrichment Trust, Basking Ridge, NJ Mcarthur, OH
Penn Valley, PA Be Attitudes Educational Foundation, Carecom, Inc., New York, NY
Abundant Life Bible Study, Canton, OH Inc., Toms River, NJ Caring and Sharing Outreach Ministry,
AC Instrumental Booster Club, Inc., Beekman Hill Association, Inc., Chesapeake, VA
Atlantic City, NJ New York, NY Carrington House Corporation,
Adirondack Kitchen Project, Inc., Bergen County Wellness Self-Awareness Baltimore, MD
Hamilton, NY & Recovery Group, Paramas, NJ Catalyst Association, Incorporated,
Advantage Ephrata Task Force, Inc., Best Practices New Jersey, Inc., Bloustein Albany, NY
Ephrata, PA School 5th Floor, New Brunswick, NJ Catholic Leadership Conference,
Africa 2000 Productions, Purcellville, VA Bethany-Development Outreach Plymouth Meeting, PA
African Solidarity Foundation, Inc., Housing Development Fund Corp., Center El Centro, Gettysburg, PA
New York, NY New York, NY Center for Cosmopolitan Culture, Inc.,
Afro American Club of Roch NY, Inc., Bethlehem Community Development Philadelphia, PA
Rochester, NY Corporation, East Orange, NJ Center for Ecumenical Spirituality, Inc.,
Agape Community Health Corporation, Better World Charitable Foundation, Inc., Orchard Park, NY
Sorento, FL Englewood Cliffs, NJ Center for the New Internationalism, Inc.,
Ahepa Monroe Chapter 75 Nonprofit Bhagwan Vardham Global Education New York, NY
Housing Corp., North Brunswick, NJ Fund, Germantown, MD Center of Healing, Inc., Gibsonville, NC
Aiding Communities Through Service Birth of Unique Individuals Lessens Center of Hope, Inc., Phillipsburg, NJ
Acts, Inc., Philadelphia, PA Delinquency, Philadelphia, PA Central New York Behavioral Health
Akita Rescue of WNY, Inc., Buffalo, NY Boaters Against Drunk Driving, Inc., Consortium, Inc., Syracuse, NY
Akram Research & Educational Battle Creek, MI Central New York Sickle Cell Disease
Foundation, Inc., Windsor, NJ Boston Terrier Rescue Southwest, Association, Syracuse, NY
Allison Stohner Scholarship Foundation, Desoto, TX Central Virginia Chronic Fatigue
Inc., Cherry Hill, NJ Boyle Childrens Cancer Foundation, Inc., Syndrome & Fibromyalgia Association,
American Association of Complimentary Greenwich, CT Inc., Charlottesville, VA
Medicine, Inc., Sleepy Hollow, NY

2004-12 I.R.B. 635 March 22, 2004


Centre County Family Ties, Inc., Dover Housing Finance Corporation, Franklin St. Johns Community Center,
Belle Fort, PA Dover, NJ Inc., Newark, NJ
C E R C, Inc., E. Rutherford, NJ Duke Ellington Legacy, Inc., Frederick Douglass Institute,
CFIDS United, Inc., Amherst, NY New York, NY Alexandria, VA
Chaplain Ministry Services, Inc., Dunbar Township Science Center, Friends of Bandy Field, Richmond, VA
Americus, GA Connellsville, PA Friends of Bosnia and Herzegovina
Chelten Christian Crusade for All People, Earthbound Land Trust, Incorporated, Fobah, Washington, DC
Inc., Philadelphia, PA Syracuse, NY Friends of Lesc, Inc., New York, NY
Chester Education Association East Rochester Youth Activity Center, Friends of the Fayetteville Free Library,
Philanthropic Fund, Inc., Chester, NJ Inc., E. Rochester, NY Fayetteville, NY
Chester Youth Initiative, Inc., Chester, PA Eddie Werner Memorial Foundation, Inc., Friends of the Homeless Animals
Chesterfield Aging & Disabled, Inc., Jackson, NJ of Trenton-Mercer County, Inc.,
Chesterfield, VA Educational and Scientific Trust of Princeton, NJ
Child Search, Inc., Boise, ID Simon Kramer Institute of Therpeutic, Friends of the Jewish Museum Berlin,
Childrens Cultural Center at Red Bank, New Phila, PA Princeton, NJ
Inc., Red Bank, NJ Eglise Sainte Marie-Madeleine, Friends of Ujima, Inc., Mount Vernon, NY
Childrens Educational Foundation, Inc., Philadelphia, PA Friendship World Foundation,
Kenilworth, NJ Elmwood House Foundation, Inc., New York, NY
Childrens Home Workshop, Inc., Cherry Hill, NJ Gaynews Network, Washington, DC
Holley, NY Empire State Forestry Foundation, Inc., Generation X-Cel Youth & Family
Childs Voice, Inc., NY State Grandparents Albany, NY Services, Chesterfield, VA
Rights Organization, Kinderhook, NY Endless Horizons Childrens Discovery George Beach Foundation,
Chosen Vessels, Philadelphia, PA Center, Inc., Middlesex, NJ Philadelphia, PA
Christian Education Scholarship Fund, Environment Equity Information Institute, Giles County Youth Adult Partnership,
Williamsport, PA Hampton, VA Pearisburg, VA
Church Health Network, Inc., Irwin, OH Ephesian House, Inc., Ravena, NY Gill Foundation for Children, Inc.,
Cincinnati Street Railway, Inc., Face It-South Bend, Berrien Springs, MI Rockville, MD
Cincinnati, OH Family and School Association of Chews Ginnys House, Inc., West Orange, NJ
Circus Millennia, Arlington, VA School FSA, Blackwood, NJ Gloucester City Community Playground,
City of Refuge Ministry, Erie, PA Family Hearing Loss Support Network, Inc., Cherry Hill, NJ
Clear View Community Development Inc., Kennett Square, PA Gods Second Blessing Thrift Shop,
Corporation, Newark, NJ Family Home Care of Rochester and Allentown, PA
Clinton Avenue Housing Development Monroe County, Inc., Rochester, NY Good Samaritans of the Knights Templar
Fund Company, Inc., Albany, NY Family Life to the Community, Inc., Foundation, Alexandria, VA
Clinton Hill Congregations United, Inc., Portsmouth, VA Good Shepherd Community Development
Newark, NJ Feed My Sheep, Pittsburgh, PA Corporation, Willingboro, NJ
Coalition of Independent Artist & Feral to Friendly Felines, Inc., Gordon B. Hancock Memorial
Artisians, Williamsport, PA Phillipsburg, NJ Community Development and
Community Circle of Friends, Inc., Fidelio Opera Company, Wilkes Barre, PA Housing Corp., Richmond, VA
Ellenville, NY F I N D of Northern Virginia, Inc., Greater Rochester Harvest Crusade, Inc.,
Community Compass, Inc., Oakton, VA Rochester, NY
Toms River, NJ Florence Bowser Educational Fund, Inc., Guardian Angel, Nutley, NJ
Community Fire Company of Leonardo, Newport News, VA H A A P P Y, Inc., No. Arlington, NJ
Inc., Red Bank, NJ Flower of Carmel, Inc., Westwood, NJ Habitate Newark Homeowners
Community Resources for Achievement, Flying Vision Mission, Inc., & Neighborhood Community
Inc., Willow Grove, PA Saranac Lake, NY Improvement, Newark, NJ
Community Washington House Foundation for East Amwell Community Hackensack River Festival, Inc.,
Corporation, E. Alexandria, VA Education, Inc., Ringoes, NJ Ridgefield, NJ
Courthouse Chamber Orchestra, Inc., Foundation for Living Organ Donation Harbor of Refuge, Inc., New York, NY
Moon, VA Education, Inc., Newtown, PA Harger Foundation, Hamilton, NJ
C R A V E Cops Racing Against Violence Foundation for Psychoanalytic Thought, Harlem Historical Society, New York, NY
Through Education, Trenton, NJ Absecon, NJ Harmonious Volunteer Center, Inc.,
Crossing Limits, Inc., Pittsburgh, PA Foundation for Research and Conservation Philadelphia, PA
Davids Youth Center for Adolescent of Andean Monuments, New York, NY Health is Wealth Foundation, Inc.,
Health Education, East Orange, NJ Foundation for Youth Ice Hockey Montgomery Village, MD
Delta Community Non-Profit Corporation, Association of Fair Lawn, Inc., Hebrew Passover Relief Society, Inc.,
Wrightstown, NJ Paramus, NJ Roseland, NJ
Discover Oasis, Poughkeepsie, NY

March 22, 2004 636 2004-12 I.R.B.


Helderberg Safe Haven, Inc., Maggie Walker High School Renovation Newark Community Concert Choir
Altamont, NY Foundation, Richmond, VA C-O Metropolitan Baptist Church,
Help for the Children, Inc., Richmond, VA Main Street Marietta, Inc., Marietta, PA Newark, NJ
Helping Other People Through Manna Tabernacle of Victory, Newark Environmental Coalition, Inc.,
Empowerment, Inc., Baltimore, MD Incorporated, Lodi, NJ Newark, NY
Heritage Hunters of Saratoga County New Marshall Heights Youth Development Newburgh Rowing Club, Newburgh, NY
York, Saratoga Springs, NY Program, Washington, DC Niagara Frontier Veterinary Society Pet
Hero Foundation, Bryn Mawr, PA Maya Orchestra, Inc., Hawthorne, NJ Emergency Fund, Inc., Buffalo, NY
High School Network of New Jersey, Mercyworks, Incorporated, Syracuse, NY Noahs Ark Outreach, Inc., Piscataway, NJ
Incorporated, Morganville, NJ Messages to the Future Corp., Nonprofit Vietnamese-American
Highlands Community Development Cranford, NJ Community Corporation of Middle &
Corporation, West Milford, NJ Metroeast, Inc., New York, NY Southern New Jersey, Trenton, NJ
HIV AIDs Survivors Guilt Awareness, Metropolitan Equity Project, Inc., Northeast Center for Spiritual Growth,
Inc., Binghamton, NY New York, NY Inc., Schodack Lndg, NY
Hornell Elementary Parent Teacher Michael L. Clancy Foundation, Northern Catskill Youth Association, Inc.,
Organization, Hornell, NY Chatham, NJ Cairo, NY
Hudson Valley Aids Auction, Inc., Minority Bhulua College Fund Northgate 1 Tenant Association,
Kingston, NY Incorporation, Washington, DC Camden, NJ
Hudson Valley Bluegrass Association, Miracles of God Project, Inc., Reston, VA NPL Communications, Inc.,
Highland, NY Mission Relief Services, Inc., East Orange, NJ
In Limine, Inc., Ho Ho Kus, NJ Cortland, NY Nunda Preservation Association, Inc.,
Innerfaith Performing Arts Center, Inc., Monticello High School Athletic Boosters Nunda, NY
Paterson, NJ Club, Inc., Charlottesville, VA Odyssey of Hope, Incorporated,
International Fund for Nonviolence, Monticello High School Music Boosters, Adelphi, MD
Spencertown, NY Inc., Charlottesville, VA Onondaga Breast Cancer Mapping
Jamaica Impact, Inc., Brooklyn, NY More Perfect Union, Inc., New York, NY Project, Inc., Syracuse, NY
Jersey City Affordable Housing Coalition, Mount Ida Preservation Association, Opio Foundation, Boca Raton, FL
Jersey City, NJ Troy, NY Opsail Philadelphia 2000, Jenkintown, PA
Jersey City Religious Freedom Defense Mt. Sinai Center for Community Orange Council on Race Relations, Inc.,
Fund, Jersey City, NJ Enrichment, Inc., Briarwood, NY Orange, VA
Keep Elevating Yourself K E Y Project Nami Sussex, Newton, NJ Outreach 2000, Inc., Lattimore, NC
Services, Inc., Pennsauken, NJ National Center for Brownfields P Street Recreation, Inc., Washington, DC
Kidstown, Newark, NJ Reclamation, Alexandria, VA Pan-African Foundation for Humanity
Korean History Project, Incorporated, National Police K9 Foundation, Inc., International, Richmond, VA
Roanoke, VA Rhinebeck, NY Pascack Valley PFO Scholarship Tr.,
Ladies Auxiliary of the Sussex Fire National Sports Training Foundation, Inc., Hillsdale, NJ
Department, Sussex, NJ Port Washington, NY Peninsula Baseball Umpires Association,
Lake Shore Youth Football, Inc., Nebula A Foundation for Educational Yorktown, VA
Derby, NY Enrichment, Philadelphia, PA Pennington Court Tenants Assn., Inc.,
Lakeshore Fire Department Auxiliary, Network for Senior Service Professionals, Newark, NJ
Fairview, PA Inc., Shrewsbury, NJ Pennsylvania Consumer Education
Lambda Theta Phi Latin Fraternity New-Ark Management Foundation, Inc., Project, Reading, PA
Foundation, Inc., Union City, NJ Brooklyn, NY Peoples Community Development
Lean On Me Little Tots Childrens New Future Unlimited, Inc., Corporation, New Brunswick, NJ
Coalition, Dorchester, MA Binghamton, NY Pequea Valley Youth Soccer Association,
Legacy Foundation, New York, NY New Jersey Civil War Heritage Gap, PA
Legacy Voices 2000, Annadale, VA Association, Parsippany, NJ PIC-Protein Intolerant Children,
Liberty Outreach, Inc., Lynchburg, VA New Jersey Herpetological Society, Inc., Harrisonburg, VA
Literacy Now, Inc., W. Berlin, NJ Brown Mills, NJ Plainfield Coalition, Inc., N. Plainfield, NJ
Living Stones Ministries a NJ Nonprofit New Jersey New York Football Coaches Plum Creek Chamber Orchestra, Inc.,
Corporation, Medford, NJ Governors Bowl, Forked River, NJ Pittsburgh, PA
Livingston Junior Lancer Lacrosse New Millennium Group of Western NY, Police Stress Unit, Inc., Williamstown, NJ
League, Inc., Livingston, NJ Inc., Buffalo, NY Pond View Farms, Inc., Voorheesville, NY
Loaves & Fishes Job Training, Inc., New York Brigade, Inc., New York, NY Positive Drop-In Center, Wellsville, NY
Brooktondale, NY Newark Athletic Sports Association, Inc., Prayer Garden, Purcellville, VA
Longport Life Guard Alumni Association, Newark, NJ Pregnant With Cancer Support Group,
Inc., Linwood, NJ Inc., Buffalo, NY
Mad River Chorales, Inc., Fayston, VT Prescient Systems, Inc., Ithaca, NY

2004-12 I.R.B. 637 March 22, 2004


Prince George Economic Alliance, Southern New Jersey Council for Team Tampa Bay, Inc., St. Petersburg, FL
Prince George, VA Parish-Congregational Health Support, Teen After School Club, Hamilton, NJ
Priority One Primates, Inc., Cape May Court House, NJ Temple Community Development
Niagara Falls, NY Sparta Educational Foundation, Inc., Corporation of America, Piscataway, NJ
Project Hugs, Inc., Jersey City, NJ Sparta, NJ Tender Dreams Cancer Foundation,
Project Playground Sponsored by Specialink Org, Cincinnati, OH Tacoma, WA
Montville Kiwanis, Inc., Montville, NJ Sports-Learning Foundation, Chicago, IL Terranova, Inc., Water Mill, NY
Quality Living for Families, Springfield Hope Community Texas Care Communities, Inc.,
Schenectady, NY Development Corporation, Pasadena, TX
Rafael Nieves Heart Foundation for Springfield, OH Theodoras Fund, Inc., Spring Valley, NY
Children, Silver Spring, MD Spruce Top Sanctuary, Thompson, PA Tibettan Association of Santa Fe, Inc.,
Rapha Foundation, Fairfax, VA St. Brendan Knights of Columbus Santa Fe, NM
Rappahannock Area Alliance of Health Religious Education Laity Instruct, Tigers-Girls A S A Fastpitch Organization,
& Wellness Professionals, Inc., Hilliard, OH Inc., Hammonton, NJ
Fredericksburg, VA St. Francis Hughes Community Tilden Housing Development
Recovery Awareness Foundation, Redevelopment Corporation, Corporation, Omaha, NE
Atlantic, VA Hughes, AR Timothy Healey Foundation, Inc.,
Richie Ashburn Foundation, Blue Bell, PA St. Paul Amateur Sports Federation, Randolph, NJ
Rittenhouse Center for Performing Arts of Minneapolis, MN Tom Bell Foundation, Inc., Rochester, NY
Norristown, Inc., Norristown, PA St. Theresa of Avila Foundation, Inc., Tomorrows Promise, Batesville, VA
Roberto Clemente Memorial Committee, Wyckoff, NJ Total Surrender, Philadelphia, PA
Paterson, NJ Stanley M. Klein Foundation, Inc., Totton Peters Communications, Inc.,
Rochester Junior Soccer Club, New York, NY Hershey, PA
Rochester, NY Starburst Foundation for Childrens Town of Amenia Civic Renewal Corp.,
Rupert Fund, Bryn Mawr, PA Health, Inc., Montclair, NJ Pawling, NY
Sammy Davis Jr. Foundation, Inc., Steinbeck Unlimited, Inc., Salinas, CA Tri-County Community Development
New York, NY Stephanie Powell Danse Ensemble, Inc., Corporation, Inc., Miramar, FL
Save Our Future Action Coalition, Inc., Baltimore, MD Troup Haven, Inc., Lagrange, GA
Vails Gate, NY Steward Ship, Inc., Lindenwold, NJ Twenty One Club, Irvington, NJ
Schafer Housing Development Fund Stolzer Foundation, Inc., Twin County Sports Program, Inc.,
Corporation, New York, NY New Brunswick, NJ Galax, VA
Scott A. Curley Memorial Fund for the Stone Harbor Parent Teacher Connection, Two By Two Ministries, Inc.,
Symphony of Life, Cambridge, MA Inc., Stone Harbor, NJ Arenzville, IL
Second Baptist Community Development Student Business Incubator, Inc., Uganda Childrens Fund, Inc.,
Corporation, Paterson, NJ Moscow, ID Bowling Green, KY
Seeds for Needs, Inc., Philadelphia, PA Students for Life and Liberty, Ulster and Delaware Railroad Preservation
Semper Audere, Inc., Bergenfield, NJ Chapel Hill, NC Society, Inc., Glenford, NY
Seniors for Kids, Waterford, PA Suburban Soccer Club Liverpool, Union-Liberty Community Arts Council,
Sert Association, Inc., Caldwell, NJ Chester, NJ West Chester, OH
Share a Dream, Fredonia, NY Sundance Community Resource Center, United African Education Foundation,
Sharespace Foundation, Los Angeles, CA Inc., Corinth, NY Philadelphia, PA
Silver Spring Equine Rescue, Inc., Susquehanna Trails Community United Nations African Mothers
New Castle, VA Association, Delta, PA Association, Inc., New York, NY
Skyview Development Group, Inc., T & A Healthful Living Ltd., United Sisters Christian Womens
Camden, NJ Philadelphia, PA Ministries, Latham, NY
Smiles to Share, Inc., Tenafly, NJ Tabernacle Economic Development, Inc., United States & China Foundation,
Smooth & Easy Hand Dance Institute, Dorchester, MA New York, NY
Washington, DC Tabernacle of Faith Youth Center, Inc., Upstate Case Management, Inc., Troy, NY
Solid Foundation Family Learning Center, Camden, NJ Urban Dynamics Institute, Inc.,
Inc., Trenton, NJ Tallahassee Harambee Arts & Cultural Waterbury, CT
Something to Believe in Foundation, Heritage Council, Inc., Tallahassee, FL Valley Community Development
Morganville, NJ Tasting Tao Center, Inc., Kaneohe, HI Corporation, Belleville, NJ
South Georgia Rails to Trails, Taylor Adult and Youth Resident Council, Valley Forge Citizens for Deer Control,
Incorporated, Albany, GA Inc., Troy, NY Wayne, PA
South Louisiana Transportation, T E A M Cure ALS Foundation, Inc., Vennell Tavern Committee, Inc.,
Ville Platte, LA Beaverton, OR Pennsauken, NJ
Southeast Ohio Educational Assistance Team Drop Dead Center Foundation, Inc., Veterans for Integrity in Government,
Foundation, Athens, OH Gunnison, CO Inc., Centreville, VA

March 22, 2004 638 2004-12 I.R.B.


Victory Community Development Women of Destiny, Norwalk, CT listed organization on or before the date
Corporation, Perth Amboy, NJ Youth Ice Hockey Association of Fair of announcement in the Internal Revenue
Vietnam Veterans of Central New York Lawn, Inc., Fair Lawn, NJ Bulletin that an organization no longer
Foundation, Liverpool, NY Youth Time Services International, Inc., qualifies. However, the Service is not
Vietnamese Franciscan Association of Buffalo, NY precluded from disallowing a deduction
America, Huntington, Beach, CA Yuba City Youth Football and Cheer, for any contributions made after an or-
Vietnamese National Institute of Yuba City, CA ganization ceases to qualify under section
Administration Alumni Association, 170(c)(2) if the organization has not timely
Falls Church, VA If an organization listed above submits filed a suit for declaratory judgment under
Village Housing Development Corp., information that warrants the renewal of section 7428 and if the contributor (1) had
New York, NY its classification as a public charity or as knowledge of the revocation of the ruling
Villages of Glanlita, Inc., Cincinnati, OH a private operating foundation, the Inter- or determination letter, (2) was aware that
Vinnie Debarros Memorial Boxing Club, nal Revenue Service will issue a ruling or such revocation was imminent, or (3) was
Inc., Waterbury, CT determination letter with the revised clas- in part responsible for or was aware of the
Violence Intervention & Prevention, sification as to foundation status. Grantors activities or omissions of the organization
Salisbury, MD and contributors may thereafter rely upon that brought about this revocation.
Virginia Citizens League, Norfolk, VA such ruling or determination letter as pro- If on the other hand a suit for declara-
Virginia Foster Care Association, Inc., vided in section 1.509(a)–7 of the Income tory judgment has been timely filed, con-
Culpeper, VA Tax Regulations. It is not the practice of tributions from individuals and organiza-
Virginias House, Inc., Union, NJ the Service to announce such revised clas- tions described in section 170(c)(2) that
Vision of Hope Community Services, sification of foundation status in the Inter- are otherwise allowable will continue to
York, PA nal Revenue Bulletin. be deductible. Protection under section
Visionary Institute for Healthcare Policy 7428(c) would begin on November 5,
and Studies, Jensen Beach, FL 2001, and would end on the date the court
W. J. Logan Community Center, first determines that the organization is
Union, NJ Deletions From Cumulative not described in section 170(c)(2) as more
Wake Up Justice Corporation, List of Organizations particularly set forth in section 7428(c)(1).
New York, NY For individual contributors, the maximum
Contributions to Which
Wall Track Club, Spring Lake, NJ deduction protected is $1,000, with a hus-
West Essex High School Student are Deductible Under Section band and wife treated as one contributor.
Scholarship Fund, Inc., 170 of the Code This benefit is not extended to any indi-
North Caldwell, NJ vidual, in whole or in part, for the acts or
West Martinsburg Scottish-Irish Arts Announcement 2004–18 omissions of the organization that were
Society, Inc., Lowville, NY the basis for revocation.
Westmont Lions Club Foundation, Inc., The names of organizations that no
Westmont, NJ longer qualify as organizations described Championship Drivers Association
Whitaker Goodnews, Inc., in section 170(c)(2) of the Internal Rev- Benevolence Fund
Newport News, VA enue Code of 1986 are listed below. Indianapolis, IN
Winslow Township Creative Playground, Generally, the Service will not disallow Children’s Express Foundation, Inc.
Inc., Cedar Brook, NJ deductions for contributions made to a Washington, DC

2004-12 I.R.B. 639 March 22, 2004


Definition of Terms
Revenue rulings and revenue procedures and B, the prior ruling is modified because of a prior ruling, a combination of terms
(hereinafter referred to as “rulings”) that it corrects a published position. (Compare is used. For example, modified and su-
have an effect on previous rulings use the with amplified and clarified, above). perseded describes a situation where the
following defined terms to describe the ef- Obsoleted describes a previously pub- substance of a previously published ruling
fect: lished ruling that is not considered deter- is being changed in part and is continued
Amplified describes a situation where minative with respect to future transac- without change in part and it is desired to
no change is being made in a prior pub- tions. This term is most commonly used in restate the valid portion of the previously
lished position, but the prior position is be- a ruling that lists previously published rul- published ruling in a new ruling that is self
ing extended to apply to a variation of the ings that are obsoleted because of changes contained. In this case, the previously pub-
fact situation set forth therein. Thus, if in laws or regulations. A ruling may also lished ruling is first modified and then, as
an earlier ruling held that a principle ap- be obsoleted because the substance has modified, is superseded.
plied to A, and the new ruling holds that the been included in regulations subsequently Supplemented is used in situations in
same principle also applies to B, the earlier adopted. which a list, such as a list of the names of
ruling is amplified. (Compare with modi- Revoked describes situations where the countries, is published in a ruling and that
fied, below). position in the previously published ruling list is expanded by adding further names in
Clarified is used in those instances is not correct and the correct position is subsequent rulings. After the original rul-
where the language in a prior ruling is be- being stated in a new ruling. ing has been supplemented several times, a
ing made clear because the language has Superseded describes a situation where new ruling may be published that includes
caused, or may cause, some confusion. the new ruling does nothing more than re- the list in the original ruling and the ad-
It is not used where a position in a prior state the substance and situation of a previ- ditions, and supersedes all prior rulings in
ruling is being changed. ously published ruling (or rulings). Thus, the series.
Distinguished describes a situation the term is used to republish under the Suspended is used in rare situations
where a ruling mentions a previously pub- 1986 Code and regulations the same po- to show that the previous published rul-
lished ruling and points out an essential sition published under the 1939 Code and ings will not be applied pending some
difference between them. regulations. The term is also used when future action such as the issuance of new
Modified is used where the substance it is desired to republish in a single rul- or amended regulations, the outcome of
of a previously published position is being ing a series of situations, names, etc., that cases in litigation, or the outcome of a
changed. Thus, if a prior ruling held that a were previously published over a period of Service study.
principle applied to A but not to B, and the time in separate rulings. If the new rul-
new ruling holds that it applies to both A ing does more than restate the substance

Abbreviations
The following abbreviations in current use ER—Employer. PRS—Partnership.
and formerly used will appear in material ERISA—Employee Retirement Income Security Act. PTE—Prohibited Transaction Exemption.
EX—Executor. Pub. L.—Public Law.
published in the Bulletin.
F—Fiduciary. REIT—Real Estate Investment Trust.
FC—Foreign Country. Rev. Proc.—Revenue Procedure.
A—Individual.
FICA—Federal Insurance Contributions Act. Rev. Rul.—Revenue Ruling.
Acq.—Acquiescence.
B—Individual. FISC—Foreign International Sales Company. S—Subsidiary.
FPH—Foreign Personal Holding Company. S.P.R.—Statement of Procedural Rules.
BE—Beneficiary.
F.R.—Federal Register. Stat.—Statutes at Large.
BK—Bank.
B.T.A.—Board of Tax Appeals. FUTA—Federal Unemployment Tax Act. T—Target Corporation.
FX—Foreign corporation. T.C.—Tax Court.
C—Individual.
G.C.M.—Chief Counsel’s Memorandum. T.D. —Treasury Decision.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations. GE—Grantee. TFE—Transferee.
GP—General Partner. TFR—Transferor.
CI—City.
GR—Grantor. T.I.R.—Technical Information Release.
COOP—Cooperative.
Ct.D.—Court Decision. IC—Insurance Company. TP—Taxpayer.
I.R.B.—Internal Revenue Bulletin. TR—Trust.
CY—County.
LE—Lessee. TT—Trustee.
D—Decedent.
DC—Dummy Corporation. LP—Limited Partner. U.S.C.—United States Code.
LR—Lessor. X—Corporation.
DE—Donee.
M—Minor. Y—Corporation.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation. Nonacq.—Nonacquiescence. Z —Corporation.
O—Organization.
DR—Donor.
P—Parent Corporation.
E—Estate.
EE—Employee. PHC—Personal Holding Company.
PO—Possession of the U.S.
E.O.—Executive Order.
PR—Partner.

March 22, 2004 i 2004-12 I.R.B.


Numerical Finding List1 Revenue Procedures: Revenue Rulings— Continued:
2004-34, 2004-12 I.R.B. 619
Bulletins 2004–1 through 2004–12 2004-1, 2004-1 I.R.B. 1
2004-36, 2004-12 I.R.B. 620
Announcements: 2004-2, 2004-1 I.R.B. 83
2004-37, 2004-11 I.R.B. 583
2004-3, 2004-1 I.R.B. 114
2004-1, 2004-1 I.R.B. 254 2004-4, 2004-1 I.R.B. 125 Tax Conventions:
2004-2, 2004-3 I.R.B. 322 2004-5, 2004-1 I.R.B. 167
2004-3, 2004-7 I.R.B. 486
2004-3, 2004-2 I.R.B. 294 2004-6, 2004-1 I.R.B. 197
2004-4, 2004-4 I.R.B. 357 2004-7, 2004-1 I.R.B. 237 Treasury Decisions:
2004-5, 2004-4 I.R.B. 362 2004-8, 2004-1 I.R.B. 240
9099, 2004-2 I.R.B. 255
2004-6, 2004-3 I.R.B. 322 2004-9, 2004-2 I.R.B. 275
9100, 2004-3 I.R.B. 297
2004-7, 2004-4 I.R.B. 365 2004-10, 2004-2 I.R.B. 288
9101, 2004-5 I.R.B. 376
2004-8, 2004-6 I.R.B. 441 2004-11, 2004-3 I.R.B. 311
9102, 2004-5 I.R.B. 366
2004-9, 2004-6 I.R.B. 441 2004-12, 2004-9 I.R.B. 528
9103, 2004-3 I.R.B. 306
2004-10, 2004-7 I.R.B. 501 2004-13, 2004-4 I.R.B. 335
9104, 2004-6 I.R.B. 406
2004-11, 2004-10 I.R.B. 581 2004-14, 2004-7 I.R.B. 489
9105, 2004-6 I.R.B. 419
2004-12, 2004-9 I.R.B. 541 2004-15, 2004-7 I.R.B. 490
9106, 2004-5 I.R.B. 384
2004-13, 2004-9 I.R.B. 543 2004-16, 2004-10 I.R.B. 559
9107, 2004-7 I.R.B. 447
2004-14, 2004-10 I.R.B. 582 2004-17, 2004-10 I.R.B. 562
9108, 2004-6 I.R.B. 429
2004-15, 2004-11 I.R.B. 612 2004-18, 2004-9 I.R.B. 529
9109, 2004-8 I.R.B. 519
2004-17, 2004-12 I.R.B. 635 2004-19, 2004-10 I.R.B. 563
9110, 2004-8 I.R.B. 504
2004-18, 2004-12 I.R.B. 639
Revenue Rulings: 9111, 2004-8 I.R.B. 518
Notices: 9112, 2004-9 I.R.B. 523
2004-1, 2004-4 I.R.B. 325
9113, 2004-9 I.R.B. 524
2004-1, 2004-2 I.R.B. 268 2004-2, 2004-2 I.R.B. 265
9114, 2004-11 I.R.B. 589
2004-2, 2004-2 I.R.B. 269 2004-3, 2004-7 I.R.B. 486
2004-3, 2004-5 I.R.B. 391 2004-4, 2004-6 I.R.B. 414
2004-4, 2004-2 I.R.B. 273 2004-5, 2004-3 I.R.B. 295
2004-5, 2004-7 I.R.B. 489 2004-6, 2004-4 I.R.B. 328
2004-6, 2004-3 I.R.B. 308 2004-7, 2004-4 I.R.B. 327
2004-7, 2004-3 I.R.B. 310 2004-8, 2004-10 I.R.B. 544
2004-8, 2004-4 I.R.B. 333 2004-9, 2004-6 I.R.B. 428
2004-9, 2004-4 I.R.B. 334 2004-10, 2004-7 I.R.B. 484
2004-10, 2004-6 I.R.B. 433 2004-11, 2004-7 I.R.B. 480
2004-11, 2004-6 I.R.B. 434 2004-12, 2004-7 I.R.B. 478
2004-12, 2004-10 I.R.B. 556 2004-13, 2004-7 I.R.B. 485
2004-13, 2004-12 I.R.B. 631 2004-14, 2004-8 I.R.B. 511
2004-14, 2004-9 I.R.B. 526 2004-15, 2004-8 I.R.B. 515
2004-15, 2004-9 I.R.B. 526 2004-16, 2004-8 I.R.B. 503
2004-16, 2004-9 I.R.B. 527 2004-17, 2004-8 I.R.B. 516
2004-17, 2004-11 I.R.B. 605 2004-18, 2004-8 I.R.B. 509
2004-18, 2004-11 I.R.B. 605 2004-19, 2004-8 I.R.B. 510
2004-19, 2004-11 I.R.B. 606 2004-20, 2004-10 I.R.B. 546
2004-20, 2004-11 I.R.B. 608 2004-21, 2004-10 I.R.B. 544
2004-21, 2004-11 I.R.B. 609 2004-22, 2004-10 I.R.B. 553
2004-22, 2004-12 I.R.B. 632 2004-23, 2004-11 I.R.B. 585
2004-24, 2004-10 I.R.B. 550
Proposed Regulations:
2004-25, 2004-11 I.R.B. 587
REG-116664-01, 2004-3 I.R.B. 319 2004-26, 2004-11 I.R.B. 598
REG-122379-02, 2004-5 I.R.B. 392 2004-27, 2004-12 I.R.B. 625
REG-139845-02, 2004-5 I.R.B. 397 2004-28, 2004-12 I.R.B. 624
REG-126459-03, 2004-6 I.R.B. 437 2004-29, 2004-12 I.R.B. 627
REG-126967-03, 2004-10 I.R.B. 566 2004-30, 2004-12 I.R.B. 622
REG-156232-03, 2004-5 I.R.B. 399 2004-31, 2004-12 I.R.B. 617
REG-156421-03, 2004-10 I.R.B. 571 2004-32, 2004-12 I.R.B. 621
REG-167217-03, 2004-9 I.R.B. 540 2004-33, 2004-12 I.R.B. 628

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2003–27 through 2003–52 is in Internal Revenue Bulletin
2003–52, dated December 29, 2003.

2004-12 I.R.B. ii March 22, 2004


Findings List of Current Actions on Revenue Procedures— Continued: Revenue Procedures— Continued:
Previously Published Items1 2000-38 2004-4
Modified by Modified by
Bulletins 2004–1 through 2004–12
Rev. Proc. 2004-11, 2004-3 I.R.B. 311 Rev. Proc. 2004-15, 2004-7 I.R.B. 490
Announcements:
2000-50 2004-5
2003-56 Modified by Modified by
Modified by Rev. Proc. 2004-11, 2004-3 I.R.B. 311 Rev. Proc. 2004-15, 2004-7 I.R.B. 490
Ann. 2004-11, 2004-10 I.R.B. 581 2002-9 2004-6
Notices: Modified and amplified by Modified by
Rev. Rul. 2004-18, 2004-8 I.R.B. 509 Rev. Proc. 2004-15, 2004-7 I.R.B. 490
98-5 Modified by
Revenue Rulings:
Withdrawn by Rev. Proc. 2004-11, 2004-3 I.R.B. 311
Notice 2004-19, 2004-11 I.R.B. 606 55-748
2002-71
2003-76 Superseded by Modified and superseded by
Modified by Rev. Proc. 2004-13, 2004-4 I.R.B. 335 Rev. Rul. 2004-20, 2004-10 I.R.B. 546
Notice 2004-19, 2004-11 I.R.B. 606 92-19
2003-1
Proposed Regulations: Superseded by Supplemented in part by
Rev. Proc. 2004-1, 2004-1 I.R.B. 1 Rev. Rul. 2004-14, 2004-8 I.R.B. 511
REG-110896-98
2003-2 94-38
Corrected by
Superseded by Clarified by
Ann. 2004-14, 2004-10 I.R.B. 582
Rev. Proc. 2004-2, 2004-1 I.R.B. 83 Rev. Rul. 2004-18, 2004-8 I.R.B. 509
REG-115037-00
2003-3 98-25
Corrected by
As amplified by Rev. Proc. 2003-14, and as Clarified by
Ann. 2004-7, 2004-4 I.R.B. 365
modified by Rev. Proc. 2003-48 superseded by Rev. Rul. 2004-18, 2004-8 I.R.B. 509
REG-143321-02 Rev. Proc. 2004-3, 2004-1 I.R.B. 114
Withdrawn by
2003-4
REG-156232-03, 2004-5 I.R.B. 399
Superseded by
REG-146893-02 Rev. Proc. 2004-4, 2004-1 I.R.B. 125
Corrected by
2003-5
Ann. 2004-7, 2004-4 I.R.B. 365
Superseded by
REG-163974-02 Rev. Proc. 2004-5, 2004-1 I.R.B. 167
Corrected by
2003-6
Ann. 2004-13, 2004-9 I.R.B. 543
Superseded by
Revenue Procedures: Rev. Proc. 2004-6, 2004-1 I.R.B. 197

87-19 2003-7
Obsoleted in part by Superseded by
Rev. Proc. 2004-18, 2004-9 I.R.B. 529 Rev. Proc. 2004-7, 2004-1 I.R.B. 237

93-15 2003-8
Obsoleted in part by Superseded by
Rev. Proc. 2004-18, 2004-9 I.R.B. 529 Rev. Proc. 2004-8, 2004-1 I.R.B. 240

94-41 2003-23
Superseded by Modified and superseded by
Rev. Proc. 2004-15, 2004-7 I.R.B. 490 Rev. Proc. 2004-14, 2004-7 I.R.B. 489

94-55 2003-26
Obsoleted in part by Supplemented by
Rev. Proc. 2004-18, 2004-9 I.R.B. 529 Rev. Proc. 2004-17, 2004-10 I.R.B. 562

98-16 2004-1
Suspended by Corrected by
Notice 2004-12, 2004-10 I.R.B. 556 Ann. 2004-8, 2004-6 I.R.B. 441

1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2003–27 through 2003–52 is in Internal Revenue Bulletin 2003–52, dated December 29,
2003.

March 22, 2004 iii *U.S. Government Printing Office: 2004—304–774/60127 2004-12 I.R.B.