In Uncategorized on 07/26/2021 at 16:24

Back in October last year I told the story of Chidozie Ononuju, formerly M.D., and his revoked 501(c)(3). In that story (see my blogpost “Nigeria Calling?” 10/5/20) I noted that “Mrs Ononuju, who also had signatory power on the bank account, is in for her own excise tax separately.”

Well, today Mrs O, mother of eight (count ’em, eight) children, has her innings in Gloria Ononuju, 2021 T. C. Memo. 94, filed 7/26/21. And she doesn’t do so well, as she got plenty of money out of the 501(c)(3) for doing nothing in particular, although she was a signatory on the bank account and got certified checks from the bank payable to herself. Her story that she cashed them and gave the money to poor people in MI at her husband’s direction is a nonstarter. And her sad tales about her financial condition are unsupported.

So Mrs O is on the hook for the $130K Section 4958 excess benefits to a disqualified person. And as disqualification extends even to great-grandchildren of controlling persons, Mrs O is hit with the tier one $32,500 excise tax; and tier two $260K (twice what she took) is on the menu if she doesn’t correct, that is, pay up to the extent possible, and put the 501(c)(3) in the position it would have been in had the disqualified not taken the money.

But there’s good news for Mrs. O. Because of Section 4961, “… the ‘correction period’ will remain open at least until this Court’s decision has become final following any appeal. See secs. 6213(a), 7481(a). Section 4961(b) grants us jurisdiction ‘to conduct any necessary supplemental proceeding to determine whether the taxable event was corrected during the correction period.’ Any such proceeding must begin within 90 days ‘after the last day of the correction period.’ Sec. 4961(b). Petitioner thus retains the opportunity to avoid assessment and collection of the second-tier tax.” 2021 T. C. Memo. 94, at p. 24. (Footnote omitted, biut it says Mrs O can even duck the tier one tax if she can show reasonable cause (ignorance is not on the table, though), and corrects in the same time frame.)

IRS also wants the five-to-twentyfive Section 6651 add-on because Mrs O never filed Form 4720 to report the excess benefit. But can Judge Albert G. (“Scholar Al”) Lauber do it?

“We have not previously addressed, at least not squarely, whether additions to tax apply when a disqualified person fails to file timely a Form 4720 reporting excess benefit transactions. In analogous contexts we have ruled that additions to tax may apply when individuals affiliated with tax-exempt entities failed to file other IRS forms reporting excise taxes under other Code provisions. In those cases we reasoned that section 6651(a)(1) generally applies to the non filing of ‘any return required under authority of subchapter A of chapter 61,’ and that the filing requirement in question was imposed by regulations issued under section 6011, which is included within subchapter A of chapter 61.

“Section 6011(a) provides that, ‘[w]hen required by regulations prescribed by the Secretary any person made liable for any tax imposed by this title * * * shall make a return or statement according to the forms and regulations prescribed by the Secretary.’ The Secretary has prescribed regulations under section 6011 mandating that ‘[e]very person liable for tax imposed by section[] * * * 4958(a) * * * shall file an annual return on Form 4720.’ Sec. 53.6011-1(b), Foundation Excise Tax Regs. Because this filing requirement was promulgated under the authority of section 6011(a), petitioner’s failure to file Form 4720 may subject her to liability for an addition to tax.” 2021 T. C. Memo. 94, at pp. 25-27. (Citations omitted).

Mrs O can try the reasonable cause excuse, but she filed no brief and produced no evidence. She claims she didn’t know.

“The Form 4720 is admittedly an exotic species: The obligation to file this return–unlike the obligation to file (say) Form 1040–is far from common knowledge, especially for someone not actually involved in a charity’s operations. Petitioner had received monthly checks from [the 501(c)(3)] for prior years, and we do not believe that she understood that such transactions needed to be reported on an excise tax return. ‘[I]gnorance of the law, however, does not amount to reasonable able cause.’” 2021 T. C. Memo. 94, at pp. 28-29. (Citation and footnote omitted, but read the footnote. It says Mrs O had counsel at exam, but Judge Scholar Al won’t say what would have happened had Mrs O proffered a Form 4720 before the RA gave her an SFR version.)

Judge, I doubt most counsel would know what Form 4720 was, much less when to file it.


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