INVERSPAN N.V. DENIES LIABILITY FOR WITHHOLDING TAX.

In addition to denying all liability for the withholding tax, Inverspan claims that because the notice of deficiency is too vague, it is void.

Period and Amount at Issue: 1988 -- $337,500 plus penalties

Code Section Classification: 1441, 1442, 7521, 6212

The Petitioner, INVERSPAN N.V., by and through its undersigned counsel, hereby petitions for a redetermination of the withholding tax liabilities at the source set forth by the Commissioner of Internal Revenue in his Notice of Deficiency dated April 17, 1992, to determine an overpayment and refund and/or credit to be applied against any determined deficiency. This petition also petitions two same statutory notices of deficiencies sent to petitioner at two other addresses, which otherwise have the same language. Therefore, the allegations below apply to all three letters sent to the above-differing addresses, or any sent c/o Mark Walker, or anywhere else, unless otherwise petitioned separately. As the basis for its case the petitioner alleges the following:

1. The petitioner is a corporation with mailing address at P. O. Box 5670, Buena Park, California 90622 and whose principal place of business is 7662 Beach Blvd., Buena Park, California 90622. The Petitioner's employer identification number stated on the Notice of Deficiency is 59-2222975. The withholding tax return for the period here involved was filed timely with the Internal Revenue Service Center at Atlanta, Georgia.

2. The Notice of Deficiency (a copy of which, including the statements and schedules accompanying the Notice of Deficiency, is attached hereto and marked Exhibit A) was mailed to the Petitioner, and was issued by the office of the Internal Revenue Service at Jacksonville, Florida.

3. The deficiencies proposed by the Commissioner are for income taxes that the Commissioner has determined that the Petitioner should have withheld and paid over to the Commissioner for the calendar year ended December 31, 1988, and penalties, as follows:

Taxable

All of the above deficiencies and any alleged penalties are in dispute.

4. The determinations of tax and penalties set forth in the Notice of Deficiency are based upon the following errors:

(a) The Commissioner erred in failing to describe factual basis for and reasoning of the withholding tax imposition for the taxable year ended July 31, 1988, pursuant to the statutory notice of deficiency which provides that notice is given that "for the taxable years ended July 31, 1988 discloses a deficiency of $337,500. The attached statement shows the computation of the deficiency." The attachments provide explanation of the computations only, however, the attachments refer only to the calendar year ended December 31, 1988, a year not raised or alleged in the statutory notice of deficiency. The Commissioner is now precluded from raising issues not timely raised in the statutory notice of deficiency, in particular, any fraud penalty for the year ended July 31, 1988, or any other period. The Commissioner has further erred by failing to explain the adjustments, either partially or completely, causing the burden of proof to remain on the Commissioner on all issues. Therefore, for the year ended July 31, 1988, or any other period, there is no deficiency and the Court should enter a no deficiency decision.

(b) The Commissioner erred in that the Commissioner has determined and imposed a liability for withholding of income tax at source for a taxable year, when the liability and obligation relate to a calendar year. Therefore, the Commissioner has imposed a liability for an inappropriate period. The Commissioner is now precluded from raising the proper period in the statutory notice of liability, in particular, for any correct calendar year, or any other period. Therefore, for the year ended July 31, 1988, or any other period, there is no deficiency and the Court should enter a no deficiency decision.

(c) Without admitting that any fact, issue, amount or period has been properly proposed or raised, or are properly before this Court, the Commissioner erred in determining that during the taxable year ended December 31, 1988, Inverspan N.V. distributed dividends, interest and/or other income to nonresident alien individuals and/or foreign corporations subject to withholding tax imposed by Internal Revenue Code section 1441 and 1442 in the amount of $1,352,623. The Commissioner also erred in determining that petitioner is liable for paying the tax under Internal Revenue code sections 1441 and 1442, of thirty percent of the distribution.

(d) Without admitting that any fact, issue, amount or period has been properly proposed or raised, or are properly before this Court, the Commissioner erred in determining that during the taxable year ended December 31, 1988, Inverspan N.V. distributed dividends, interest and/or other income to nonresident alien individuals and/or foreign corporations subject to withholding tax imposed by Internal Revenue Code section 1441 and 1442 in the amount of $1,352,623. The Commissioner also erred in failing to show the computation of, or in describing the manner in which this computation refers to the notice of liability for the taxable year ended July 31, 1988. Therefore, this reference, and any related proposed liability, therefore are void as without reference to a particular year or item.

(e) Without admitting that any fact, issue, amount or period has been properly proposed or raised, or are properly before this Court, the Commissioner erred in determining that during the taxable year ended December 31, 1988, Inverspan N.V. distributed dividends, interest and/or other income to nonresident alien individuals and/or foreign corporations subject to withholding tax imposed by Internal Revenue Code section 1441 and 1442 in the amount of $1,352,623. The Commissioner also erred in determining that the alleged income described is income subject to withholding pursuant to Internal Revenue Code sections 1441 and 1442.

(f) Without admitting that any fact, issue, amount or period has been properly proposed or raised, or are properly before this Court, the Commissioner erred in determining that during the taxable year ended December 31, 1988, Inverspan N.V. distributed dividends, interest and/or other income to nonresident alien individuals and/or foreign corporations subject to withholding tax imposed by Internal Revenue Code section 1441 and 1442 in the amount of $1,352,623. The Commissioner also erred in determining that the petitioner had control receipt, custody, disposal or payment of the alleged income described is income subject to withholding pursuant to Internal Revenue Code sections 1441 and 1442.

(g) Without admitting that any fact, issue, amount or period has been properly proposed or raised, or are properly before this Court, the Commissioner erred in determining that during the taxable year ended December 31, 1988, Inverspan N.V. distributed dividends, interest and/or other income to nonresident alien individuals and/or foreign corporations subject to withholding tax imposed by Internal Revenue Code section 1441 and 1442 in the amount of $1,352,623. The Commissioner also erred in determining that Inverspan N.V. was a withholding agent with respect to these alleged distributions pursuant to Internal Revenue Code sections 1441 and 1442.

(h) Without admitting that any fact, issue, amount or period has been properly proposed or raised, or are properly before this Court, the Commissioner erred in determining that during the taxable year ended December 31, 1988, Inverspan N.V. distributed dividends, interest and/or other income to nonresident alien individuals and/or foreign corporations subject to withholding tax imposed by Internal Revenue Code section 1441 and 1442 in the amount of $1,352,623. The Commissioner also erred in failing to apply any relevant exceptions to the withholding requirement on the alleged income pursuant to Internal Revenue Code sections 1441 and 1442, which excepts the petitioner from any obligation to withhold.

(i) Without admitting that any fact, issue, amount or period has been properly proposed or raised, or are properly before this Court, the Commissioner erred in determining that during the taxable year ended December 31, 1988, Inverspan N.V. distributed dividends, interest and/or other income to nonresident alien individuals and/or foreign corporations subject to withholding tax imposed by Internal Revenue Code section 1441 and 1442 in the amount of $1,352,623. The Commissioner also erred in that by imposing the withholding tax obligation on the alleged income, the Commissioner has failed to recognize, disregarded and/or ignored one or more entities, transactions, and further, the Commissioner has acted inconsistent with, failed to respect, disregarded, ignored and/or violated the provisions of one or more treaties, including anti-discrimination clauses, as interpreted or extended, between the United States and one or more countries, including the Netherlands Antilles, the Netherlands and the United Kingdom.

(j) The Commissioner erred in failing to determine and allege that there existed, for any relevant year or years, sufficient earnings and profits of petitioner to support the payment of any dividend in any amount, as well as failing to allow for non-taxable return of capital or capital gains, all of which are exempt from taxation and/or withholding.

(k) The Commissioner erred to the extent he has challenged any off-shore commercial paper offerings transactions, loans, and made any disallowances, adjustments and/or proposed deficiencies. The Commissioner further erred to the extent of any adjustments, disallowances or deficiencies made, claimed or proposed with respect to such transactions reflecting off-shore commercial paper transactions since any such transactions represent bona fide off-shore commercial paper offerings, and all relevant limitations have been complied with.

(l) The Commissioner erred in that in disallowing any deductions, and/or making any adjustments, and/or in failing to recognize or in disregarding or ignoring any entity or entities, transactions, the Commissioner has acted inconsistent with, failed to respect, disregarded, ignored and/or violated the provisions of one or more treaties, including anti-discrimination clauses, as interpreted or extended, between the United States and one or more countries, including the Netherlands Antilles, the Netherlands and the United Kingdom.

(m) The Commissioner erred in failing to determine and recognize that some or all of the alleged distributed dividends, interest and/or other income to nonresident alien individuals and/or foreign corporations represent "portfolio interest" as that term is defined in Internal Revenue Code sections 871 and 881. Therefore, it is not subject to taxation to the nonresident alien individuals/foreign corporations in any event, and is further not subject to withholding pursuant to Internal Revenue Code sections 1441 and 1442.

(n) The Commissioner erred in failing to determine and recognize that some or all of the alleged distributed dividends, interest and/or other income to nonresident alien individuals and/or foreign corporations represent original issue discount, as defined under the Internal Revenue Code some or all of which is on obligations excluded from the applicable of and not subject to taxation to the nonresident alien individuals/foreign corporations under Internal Revenue Code sections 871, 881 and other application Sections, and therefore, not subject to withholding pursuant to Internal Revenue Code sections 1441 and 1442.

(o) The Commissioner has failed to determine the overpayments and/or credits, off-sets or recoupments against any determined deficiency.

(p) The statutory notice of deficiency is so vague that the Petitioner cannot adequately respond. It is also in violation of section 7521.

(q) The violation of Section 7521 voids the statutory notice of deficiency.

(r) The Petitioner is unaware of any Section 482 adjustments, but to the extent of any such Section 482 adjustments, the Commissioner has erred in applying Section 482 of the Internal Revenue Code and in any application of this statute. Further, the application of Section 482 adjustments are an abuse of discretion, arbitrary, capricious, and otherwise require the Court to deny any said adjustments now or in the future. In any event, any such determination is not supported by adequate facts and evidence, and is otherwise incorrect, void, and should not and cannot be sustained.

(s) The Commissioner erred in not providing a specific explanation of, or any factual basis for, the imposition of the fraud penalty for the calendar year ended December 31, 1988. Thus the Petitioner is unable to give a specific assignment of error other than the statement that there was no fraud involved in the year in issue that would support the imposition of the penalty or penalty interest.

(t) The vagueness or lack of a factual basis, explanation or evidence of the adjustments and the violation of Section 7521 precludes the statutory notice, in whole or in part, from having a presumption of correctness. Hence, the burden of proof remains on the Commissioner. Also, the above prejudices the Petitioner, because it is unable to assert all possible assignments of error or plead facts or raise defenses. Likewise, the refusal to provide explanations when requested, not to extend the time for assessments and to provide the promised IRS Appeals hearing have prejudiced the Petitioner.

(u) The above described failures to provide explanations in the notice of deficiency, as well as to provide the promised meetings and explanations have prejudiced Petitioner in its ability to raise assignments of error, raise defenses, and plead facts. Accordingly, the Petitioner raises this failure as an assignment of error and reserves the right to liberally amend this Petition as the facts are developed and the explanations are provided.

(v) The statutory notice of deficiency was not mailed on the date as indicated on the statutory notice of deficiency but was mailed on a later date. Therefore, the notice of deficiency was sent beyond the period for assessment, is invalid, void and without effect. This Court lacks jurisdiction over this matter, and the petition should be dismissed.

(w) The Commissioner allowed the statute of limitations on assessment to run for the year covering the reorganization of the various companies and entities that it is now attempting to ignore, and make adjustments between or among them. Therefore, the Commissioner is prohibited and barred in any later year from attempting to ignore the various entities and their contracts, agreements and transactions and attempts to make adjustments thereto. The Commissioner is further prohibited and barred from ignoring the entities and their validity, business contracts and business commitments and transactions.

5. The facts upon which the petitioner alleges as a basis of its case are as follows:

(a) With respect to assignment of error 4(a), petitioner alleges as a fact the statutory notice of deficiency attached as Exhibit A. Petitioner further alleges that the statutory notice of deficiency has failed completely to describe the withholding tax imposition for the taxable year ended July 31, 1988. Further, the statutory notice of deficiency has completely failed to describe any withholding tax imposition for the calendar year ended December 31, 1988, which provides that notice is given that "for the taxable year ended July 31, 1988 discloses a deficiency of $337,500.00. The attached statement shows the computation of the deficiency." The attachments provide explanation of the computations only. The Commissioner has not, therefore, timely raised any issues not raised in the statutory notice of deficiency, in particular, any deficiency or liability or deficiency for the calendar year ended December 31, 1988 and/or the imposition of the fraud penalty for the calendar year ended December 31, 1988, or any other period. The Commissioner has further erred in that failing to explain the adjustments, either partially or completely, causes the burden of proof to remain on the Commissioner on all issues.

(b) With respect to assignment of error 4(b), the petitioner alleges as a fact that the Commissioner has determined and imposed a liability for withholding of income tax at source for a taxable year, when the liability and obligation relate to a calendar year. Therefore, the Commissioner has imposed a liability for an inappropriate period. Further, the Commissioner is now precluded from raising the proper period in the statutory notice of deficiency, in particular, for any correct calendar year, or any other period. Therefore, for the year ended July 31, 1988, or any other period, there is no deficiency and the Court should enter a no deficiency decision.

(c) With respect to assignments of error 4(c), 4(d), 4(e), 4(f), 4(g), 4(h), and 4(i), and without admitting that any fact, issue, amount or period has been properly proposed or raised, or are properly before this Court, petitioner alleges as a fact that the petitioner did not distribute dividends, interest and/or other income to nonresident alien individuals and/or foreign corporations in the amount of $1,352,623.00, or any other amount, as alleged in the statutory notice of deficiency during the taxable year ended December 31, 1988, and any alleged for any other period, although not described or shown as computed in the attachments to the statutory notice of deficiency.

(d) With respect to assignment of error 4(c), and without admitting that any fact, issue, amount or period has been properly proposed or raised, or are properly before this Court, petitioner alleges as a fact that petitioner is not liable for paying the tax under Internal Revenue Code sections 1441 and 1442, of thirty percent of the alleged distributed dividends, interest and/or other income to nonresident alien individuals and/or foreign corporations described in paragraph 5(c).

(e) With respect to assignment of error 4(d), and without admitting that any fact, issue, amount or period has been properly proposed or raised, or are properly before this Court, petitioner alleges as a fact that the alleged distributed dividends, interest and/or other income to nonresident alien individuals and/or foreign corporations described in paragraph 5(c), the Commissioner has failed to show the computation of, or in describing the manner in which this computation refers to the statutory of deficiency for the taxable year ended July 31, 1988, therefore, this reference, and any related proposed liability, therefore are void as without reference to a particular year or item.

(f) With respect to assignment of error 4(e), and without admitting that any fact, issue, amount or period has been properly proposed or raised, or are properly before this Court, petitioner alleges as a fact that the alleged distributed dividends, interest and/or other income to nonresident alien individuals and/or foreign corporations described in paragraph 5(c), are not subject to withholding tax imposed by Internal Revenue Code section 1441 and 1442.

(g) With respect to assignment of error 4(f), and without admitting that any fact, issue, amount or period has been properly proposed or raised, or are properly before this Court, petitioner alleges as a fact that the Petitioner did not have control receipt, custody, disposal or payment of the alleged distributed dividends, interest and/or other income to nonresident alien individuals and/or foreign corporations described in paragraph 5(c).

(h) With respect to assignment of error 4(g), and without admitting that any fact, issue, amount or period has been properly proposed or raised, or are properly before this Court, petitioner alleges as a fact that the Petitioner is not a withholding agent with respect to any alleged distributed dividends, interest and/or other income to nonresident alien individuals and/or foreign corporations described in paragraph 5(c).

(i) With respect to assignment of error 4(h), and without admitting that any fact, issue, amount or period has been properly proposed or raised, or are properly before this Court, petitioner alleges as a fact that the Commissioner has failed to apply any relevant exceptions to the withholding requirement on the alleged distributed dividends, interest and/or other income to nonresident alien individuals and/or foreign corporations described in paragraph 5(c).

(j) With respect to assignment of error 4(i), and without admitting that any fact, issue, amount or period has been properly proposed or raised, or are properly before this Court, petitioner alleges as a fact that the Commissioner has acted inconsistent with, failed to respect, disregarded, ignored and/or violated entities, transactions, and/or the provisions of one or more treaties, including anti-discrimination clauses, as interpreted or extended, between the United States and one or more countries, including the Netherlands Antilles, the Netherlands and the United Kingdom with respect to any alleged distributed dividends, interest and/or other income to nonresident alien individuals and/or foreign corporations described in paragraph 5(c).

(k) With respect to assignment of error 4(j), the petitioner alleges as a fact that the Commissioner has failed to determine and allege that there existed, for any relevant year or years, sufficient earnings and profits of petitioner to support the payment of any dividend in any amount, as well as failing to allow for return of capital and capital gains, all of which create an exemption from income and/or withholding, or otherwise eliminate any dividend.

(l) With respect to assignment of error 4(k), the petitioner alleges as a fact that the Commissioner has declined to explain his challenge to any off-shore commercial paper transactions, as well as to explain any disallowances, adjustments and/or proposed deficiencies. Therefore, the Petitioner cannot give a statement of facts about any imposition of a withholding obligation except to say that Petitioner's figures are correct, and that the transactions represent valid, bona fide arm's length commercial paper transactions at market interest rules is otherwise valid and acceptable rates, such transactions represent bona fide off-shore commercial paper offerings, and all relevant requirements and/or limitations have been complied with, and the interest paid is exempt from withholding. All the commercial paper was for less than 183 days, was always paid in full and there were no rollovers.

(m) With respect to assignment of error 4(l), the petitioner alleges as a fact that the Commissioner declined to explain the imposition of the withholding obligation in the statutory notice of deficiency. Therefore, Petitioner cannot give a statement of facts about any imposition of the withholding obligation, and their impact to currently existing treaties, as interpreted and/or extended between the United States and other countries. Petitioner can only state that the United States is a party to one or more treaties (including with the Netherlands Antilles, the Netherlands, and the United Kingdom), which currently operate to various degrees on the transactions to which the Petitioner is engaged, and that the imposition of the withholding obligation in the statutory notice of deficiency are inconsistent with, have failed to respect, and have disregarded, ignored and/or violated entities, transactions and/or the provisions of these treaties.

(n) With respect to assignment of error 4(m), the petitioner alleges as a fact that some or all of the amount of alleged dividend, interest and/or other income represent "portfolio interest" as that term is defined in Internal Revenue Code sections 871 and 881, and is therefore not subject to taxation to the nonresident alien individuals/foreign corporations, and is therefore not subject to withholding pursuant to Internal Revenue Code sections 1441 and 1442.

(o) With respect to assignment of error 4(n), the petitioner alleges as a fact that some or all of the amount of alleged dividends, interest and/or other income represent original issue discount, as defined under the Internal Revenue Code, and is excluded and not subject to taxation to the nonresident alien individuals/foreign corporations under Internal Revenue Code sections 871, 881 and other applicable Sections, and is therefore not subject to withholding pursuant to Internal Revenue Code sections 1441 and 1442, and further, all commercial paper was paid at maturity, and there were no rollovers.

(p) With respect to assignment of error 4(o), the petitioner alleges as a fact that overpayments and/or credits, offsets or recoupments exist, including ones created by other petitions involving the petitioner. However, due to the Commissioner's failure to provide any explanation of the statutory notice of deficiency, or to provide an IRS Appeals hearing to discuss the adjustments or imposition of the withholding obligation, Petitioner can only allege at this time that such overpayments, credits, and/or off-sets exist.

(q) With respect to assignment of error 4(p), the petitioner alleges as a fact that the statutory notice of deficiency is so vague that the Petitioner cannot adequately respond. The issuance of the notice is in violation of Section 7521, and voids the statutory notice of deficiency.

(r) With respect to assignment of error 4(q), the petitioner alleges as a fact that the statutory notice of deficiency is so vague that the Petitioner cannot adequately respond. The issuance of the notice is in violation of Section 7521, and voids the statutory notice of deficiency.

(s) With respect to assignment of error 4(r), the petitioner alleges as a fact that, although not specifically referred to in the statutory notice of deficiency, to the extent of any Section 482 adjustments, the Commissioner has erred in applying Section 482 of the Internal Revenue Code and in any application of this statute. Further, the application of Section 482 adjustments are an abuse of discretion, arbitrary, capricious, and otherwise require the Court to deny any said adjustments now or in the future. In any event, any such determination is not supported by adequate facts and evidence, and/or is otherwise incorrect, void, and should not and cannot be sustained.

(t) With respect to assignment of error 4(s), the petitioner alleges as a fact that the Commissioner has not stated the factual basis for the civil penalties or his reasoning, and has refused repeated requests to provide an explanation. Thus, the Petitioner can only state that it has not committed fraud, and the burden of proof to prove fraud is on the Commissioner.

(u) With respect to assignment of error 4(t), the petitioner alleges as a fact that the vagueness or lack of a factual basis and explanation of the adjustments and the violation of Section 7521 precludes the statutory notice, in whole or in part, from having a presumption of correctness. Hence, the burden of proof remains on the Commissioner. Further, the above prejudices the Petitioner because it is unable to assert all possible assignments of error or plead facts or raise defenses. Likewise, the refusal to provide explanations when requested, not to extend the time for assessments and to provide the promised IRS Appeals hearing have prejudiced the Petitioner.

(v) With respect to assignment of error 4(u), the petitioner alleges as a fact that the above described failures to provide explanations in the notice of deficiency, as well as to provide the promised meetings and explanations have prejudiced Petitioner in its ability to raise assignments of error, raise defenses, and plead facts. Accordingly the Petitioner raises this failure as an assignment of error and fact and alleges as a fact that the petitioner has reserved the right to liberally amend this Petition as the facts are developed and the explanations are provided.

(w) With respect to assignment of error 4(v), the petitioner alleges as a fact that the statutory notice of deficiency was not mailed on the date designated on the notice of deficiency, but was mailed at a later date. Further, the statutory notice of deficiency is invalid, void and without effect.

(x) With respect to assignment of error 4(w), the petitioner alleges as a fact that the Commissioner allowed the statute of limitations on assessment to run for the year, which year is now closed, covering the reorganization of the various companies and entities that it is now attempting to ignore, and make adjustments between or among them. Therefore, the Commissioner is prohibited and barred in any later year from attempting to ignore the various entities and their contracts, agreements and transactions and attempts to make adjustments thereto. The Commissioner is further prohibited and barred from ignoring the entities and their validity, business contracts and business commitments and transactions.

(y) With respect to all assignments of error, the petitioner alleges as a fact that due to the lack of factual explanation and reasoning we cannot alleged all facts or all assignments of error.

6. Any assignment of error is deemed to be a fact and any fact is deemed to be an assignment of error. All facts, actions, disallowances and issues in the statutory notice or on the administrative level are put into issue as assignments of error and factually.

WHEREFORE, the Petitioner respectfully requests that this Court hear this case, rule that the deficiencies as determined by the Commissioner and disputed herein are in error, and grant such other additional relief as this Court may deem appropriate.

DATED this 14th day of July, 1992