Denial Of Exemption Under IRC 501(c)(15):Tax Court In Brief

Commonwealth Underwriting & Annuity Services, Inc. v. Comm’r, T.C. Memo. 2023-27| March 2, 2023 | Carluzzo, J. | Dkt. No. 8228-18X

Summary: Commonwealth challenges the IRS’s denial of application for tax exemption under 501(a), claiming, by submission for declaratory judgment, to be an organization described in section 501(c)(15). Commonwealth was organized in Belize. Its sole shareholder was “its only flesh and blood officer.” It was formed to engage in any act or activity not prohibited under any law in Belize, including for carrying “on the business of an investment company.” It had no bylaws. It sold annuity contracts to individuals in consideration for purchase payments. Upon receipt, purchase payments were transferred to a segregated trust account and subaccounts administered by an independent trustee. By contract, the assets were the property of Commonwealth rather than of the clients that provided the purchase payments, and each fund was to be assessed investment management fees. The value of each segregated trust account and each annuity depended on the performance of the investment. Commonwealth received $82,621,231 and $2,131,442 in purchase payments in 2013 and 2014, respectively, as consideration for the sale of the annuity contracts. Commonwealth also received $150,000 and $194,782 in maintenance fees in 2013 and 2014, respectively.
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