In re Twisteroo Soft Pretzel Bakeries, Inc., 21 B.R. 665, 667 (Bankr. E.D. Pa. 1982)]
“Initially, it is important to bear in mind the distinction between a tax exclusion and a tax exemption. Tax exemptions are items which the tax payer is entitled to excuse from the operation of a tax and, as such, are to be strictly construed against the tax payer. Tax exclusions, on the other hand, are items which were not intended to be taxed in the first place and, thus, to the extent there is any doubt about the meaning of the statutory language, exclusionary provisions are to be strictly construed against the taxing body. In fact, tax laws in general (with the exception of exemption clauses) are construed in favor of the tax payer and against imposition of the tax unless the legislative intent is clear and unambiguous.”
[In re Twisteroo Soft Pretzel Bakeries, Inc., 21 B.R. 665, 667 (Bankr. E.D. Pa. 1982)]
FOOTNOTES:
See, e.g., Equitable Gas Co. v. Commonwealth, 18 Pa.Commw. 418, 335 A.2d. 892 (1975); Tyger Karl Complete Water Systems Co., Inc. v. Commonwealth, 5 Pa.Commw. 154 (Pa.Commw.Ct. 1972).
26 C.F.R. § 1.6662-4
(2)Tax shelter -
(i)In general. For purposes of section 6662(d), the term "tax shelter" means-
(A) A partnership or other entity (such as a corporation or trust),
(B) An investment plan or arrangement, or
(C) Any other plan or arrangement, if the principal purpose of the entity, plan or arrangement, based on objective evidence, is to avoid or evade Federal income tax. The principal purpose of an entity, plan or arrangement is to avoid or evade Federal income tax if that purpose exceeds any other purpose. Typical of tax shelters are transactions structured with little or no motive for the realization of economic gain, and transactions that utilize the mismatching of income and deductions, overvalued assets or assets with values subject to substantial uncertainty, certain nonrecourse financing, financing techniques that do not conform to standard commercial business practices, or the mischaracterization of the substance of the transaction. The existence of economic substance does not of itself establish that a transaction is not a tax shelter if the transaction includes other characteristics that indicate it is a tax shelter.
(ii)Principal purpose.
The principal purpose of an entity, plan or arrangement is not to avoid or evade Federal income tax if the entity, plan or arrangement has as its purpose the claiming of exclusions from income, accelerated deductions or other tax benefits in a manner consistent with the statute and Congressional purpose.
[EDITORIAL: So a PLAN to use exclusions from gross income that are consistent with statute (such as IRC 872) is NOT a "tax shelter" for purposes of that penalty, according to Treasury. The above is for purposes of determining accuracy-related penalties]
26 U.S.C. §7701(b)(5)
TITLE 26 > Subtitle
F > CHAPTER 79 > Sec. 7701.
Sec. 7701.
- Definitions
(b)(5) Exempt individual defined
For purposes of this subsection -
(A) In general
An individual is an exempt individual for any day if, for
such day, such individual is -
(i) a foreign government-related individual,
(ii) a teacher or trainee,
(iii) a student, or
(iv) a professional athlete who is temporarily in the
United States to compete in a charitable sports event described
in section 274(l)(1)(B).
(B) Foreign government-related individual
The term ''foreign government-related individual'' means
any individual temporarily present in the United States
by reason of -
(i) diplomatic status, or a visa which the Secretary
(after consultation with the Secretary of State) determines
represents full-time diplomatic or consular status for purposes
of this subsection,
(ii) being a full-time employee of an international organization,
or
(iii) being a member of the immediate family of an individual
described in clause (i) or (ii).
(C) Teacher or trainee
The term ''teacher or trainee'' means any individual -
(i) who is temporarily present in the United States under
subparagraph (J) or (Q) of section 101(15) of the Immigration
and Nationality Act (other than as a student), and
(ii) who substantially complies with the requirements
for being so present.
(D) Student
The term ''student'' means any individual -
(i) who is temporarily present in the United States -
(I) under subparagraph (F) or (M) of section 101(15)
of the Immigration and Nationality Act, or
(II) as a student under subparagraph (J) or (Q) of such
section 101(15), and (ii) who substantially complies with
the requirements for being so present.
(E) Special rules for teachers, trainees, and students
(i) Limitation on teachers and trainees
An individual shall not be treated as an exempt individual
by reason of clause (ii) of subparagraph (A) for the current
year if, for any 2 calendar years during the preceding 6
calendar years, such person was an exempt person under clause
(ii) or (iii) of subparagraph (A). In the case of an individual
all of whose compensation is described in section 872(b)(3),
the preceding sentence shall be applied by substituting
''4 calendar years'' for ''2 calendar years''.
(ii) Limitation on students
For any calendar year after the 5th calendar year for
which an individual was an exempt individual under clause
(ii) or (iii) of subparagraph (A), such individual shall
not be treated as an exempt individual by reason of clause
(iii) of subparagraph (A), unless such individual establishes
to the satisfaction of the Secretary that such individual
does not intend to permanently reside in the United States
and that such individual meets the requirements of subparagraph
(D)(ii).