§1316

104-188, § 1316(d)(3), 110 Stat.

urt as to respondent’s disallowance of Morley entity-level deductions. 8At trial respondent conceded the fraud penalty for all years at issue. 10 [*10] shareholders of S corporations.9 Small Business Job Protection Act of 1996, Pub. L. No. 104-188, § 1316(a), 110 Stat. 1755, 1785–86. These provisions enacted a framework which allowed all of the outstanding shares of an S corporation to be owned by an ESOP, effectively allowing S corporation profits to escape federal income taxation. See Austin v

issue, and all Rule references are to the Tax Court Rules ofPractice and Procedure. We round all monetary amounts to the (continued...) - 3 - [*3] be shareholders ofS corporations. See Small Business Job Protection Act of 1996, Pub. L. No. 104-188, sec. 1316(a), 110 Stat. at 1785. Reduced to its essentials, the scheme worked as follows. The partnership extracted cash from the C corporations in the form ofalleged "factoring fees" and "management fees." The C corporations claimed deductions for th

orporation shareholders. Effective January 1, 1998, Congress amended section 1361(c) to allow ESOPs and other tax-exempt organizations to be eligible S corporation shareholders. Small Business Job Protection Act of 1996 (SBJPA), Pub. L. No. 104-188, sec. 1316(a), 110 Stat. at 1785-1786. Also effective January 1, 1998, Congress amended section 512 so that an ESOP's pro rata share ofS corporation - 13 - [*13] earnings did not constitute "unrelated business taxable income". See Taxpayer ReliefAct o

issue, and all Rule references are to the Tax Court Rules ofPractice and Procedure. We round all monetary amounts to the (continued...) - 3 - [*3] be shareholders ofS corporations. See Small Business Job Protection Act of 1996, Pub. L. No. 104-188, sec. 1316(a), 110 Stat. at 1785. Reduced to its essentials, the scheme worked as follows. The partnership extracted cash from the C corporations in the form ofalleged "factoring fees" and "management fees." The C corporations claimed deductions for th

issue, and all Rule references are to the Tax Court Rules ofPractice and Procedure. We round all monetary amounts to the (continued...) - 3 - [*3] be shareholders ofS corporations. See Small Business Job Protection Act of 1996, Pub. L. No. 104-188, sec. 1316(a), 110 Stat. at 1785. Reduced to its essentials, the scheme worked as follows. The partnership extracted cash from the C corporations in the form ofalleged "factoring fees" and "management fees." The C corporations claimed deductions for th

issue, and all Rule references are to the Tax Court Rules ofPractice and Procedure. We round all monetary amounts to the (continued...) - 3 - [*3] be shareholders ofS corporations. See Small Business Job Protection Act of 1996, Pub. L. No. 104-188, sec. 1316(a), 110 Stat. at 1785. Reduced to its essentials, the scheme worked as follows. The partnership extracted cash from the C corporations in the form ofalleged "factoring fees" and "management fees." The C corporations claimed deductions for th

issue, and all Rule references are to the Tax Court Rules ofPractice and Procedure. We round all monetary amounts to the (continued...) - 3 - [*3] be shareholders ofS corporations. See Small Business Job Protection Act of 1996, Pub. L. No. 104-188, sec. 1316(a), 110 Stat. at 1785. Reduced to its essentials, the scheme worked as follows. The partnership extracted cash from the C corporations in the form ofalleged "factoring fees" and "management fees." The C corporations claimed deductions for th

issue, and all Rule references are to the Tax Court Rules ofPractice and Procedure. We round all monetary amounts to the (continued...) - 3 - [*3] be shareholders ofS corporations. See Small Business Job Protection Act of 1996, Pub. L. No. 104-188, sec. 1316(a), 110 Stat. at 1785. Reduced to its essentials, the scheme worked as follows. The partnership extracted cash from the C corporations in the form ofalleged "factoring fees" and "management fees." The C corporations claimed deductions for th

issue, and all Rule references are to the Tax Court Rules ofPractice and Procedure. We round all monetary amounts to the (continued...) - 3 - [*3] be shareholders ofS corporations. See Small Business Job Protection Act of 1996, Pub. L. No. 104-188, sec. 1316(a), 110 Stat. at 1785. Reduced to its essentials, the scheme worked as follows. The partnership extracted cash from the C corporations in the form ofalleged "factoring fees" and "management fees." The C corporations claimed deductions for th

issue, and all Rule references are to the Tax Court Rules ofPractice and Procedure. We round all monetary amounts to the (continued...) - 3 - [*3] be shareholders ofS corporations. See Small Business Job Protection Act of 1996, Pub. L. No. 104-188, sec. 1316(a), 110 Stat. at 1785. Reduced to its essentials, the scheme worked as follows. The partnership extracted cash from the C corporations in the form ofalleged "factoring fees" and "management fees." The C corporations claimed deductions for th

issue, and all Rule references are to the Tax Court Rules ofPractice and Procedure. We round all monetary amounts to the (continued...) - 3 - [*3] be shareholders ofS corporations. See Small Business Job Protection Act of 1996, Pub. L. No. 104-188, sec. 1316(a), 110 Stat. at 1785. Reduced to its essentials, the scheme worked as follows. The partnership extracted cash from the C corporations in the form ofalleged "factoring fees" and "management fees." The C corporations claimed deductions for th

issue, and all Rule references are to the Tax Court Rules ofPractice and Procedure. We round all monetary amounts to the (continued...) - 3 - [*3] be shareholders ofS corporations. See Small Business Job Protection Act of 1996, Pub. L. No. 104-188, sec. 1316(a), 110 Stat. at 1785. Reduced to its essentials, the scheme worked as follows. The partnership extracted cash from the C corporations in the form ofalleged "factoring fees" and "management fees." The C corporations claimed deductions for th

issue, and all Rule references are to the Tax Court Rules ofPractice and Procedure. We round all monetary amounts to the (continued...) - 3 - [*3] be shareholders ofS corporations. See Small Business Job Protection Act of 1996, Pub. L. No. 104-188, sec. 1316(a), 110 Stat. at 1785. Reduced to its essentials, the scheme worked as follows. The partnership extracted cash from the C corporations in the form ofalleged "factoring fees" and "management fees." The C corporations claimed deductions for th

t: When Congress in 1978 en- acted section 267(e) to address the treatment ofS corporations and their share- holders, ESOPs were not eligible to be S corporation shareholders. See Small -27- Business Job Protection Act of 1996, Pub. L. No. 104-188, sec. 1316, 110 Stat. at 1785-1786 (enacting section 1361(c)(7) with an effective date ofJanuary 1, 1998). See generally Austin v. Commissioner, T.C. Memo. 2017-69. In any event, we are bound by the law that Congress enacted; we are not at liberty to r

t: When Congress in 1978 en- acted section 267(e) to address the treatment ofS corporations and their share- holders, ESOPs were not eligible to be S corporation shareholders. See Small -27- Business Job Protection Act of 1996, Pub. L. No. 104-188, sec. 1316, 110 Stat. at 1785-1786 (enacting section 1361(c)(7) with an effective date ofJanuary 1, 1998). See generally Austin v. Commissioner, T.C. Memo. 2017-69. In any event, we are bound by the law that Congress enacted; we are not at liberty to r

tion. Accordingly, we havejurisdiction to hear this case. -7- [*7] Before 1996 ESOPs were prohibited from owning stock in S corporations. In 1996 Congress removed this restriction. See Small Business Job Protection Act of 1996, Pub. L. No. 104-188, sec. 1316(a), 110 Stat. at 1785 (amending section 1361(b) and (c)). In 1997 Congress furtherrelaxed the rules relating to ESOPs by exempting ESOPs from unrelated business income tax. See Taxpayer ReliefAct of 1997, Pub. L. No. 105-34, sec. 1523(a), 11

qualified as tax- exempt entities under section 401(a). Sec. 4975(e)(7). Before 1996 ESOPs were prohibited from owning stock in S corporation employers; however, with the passage ofthe Small Business Job Protection Act of 1996, Pub. L. No. 104-188, sec. 1316(a), 110 Stat. at 1785, Congress changed this rule and, effective January 1, 1998, ESOPs were allowed to own stock in S corporation employers. In 1997 Congress further amended the rules relating to ESOPs by exempting ESOPs from unrelated busi

qualified as tax- exempt entities under section 401(a). Sec. 4975(e)(7). Before 1996 ESOPs were prohibited from owning stock in S corporation employers; however, with the passage ofthe Small Business Job Protection Act of 1996, Pub. L. No. 104-188, sec. 1316(a), 110 Stat. at 1785, Congress changed this rule and, effective January 1, 1998, ESOPs were allowed to own stock in S corporation employers. In 1997 Congress further amended the rules relating to ESOPs by exempting ESOPs from unrelated busi

1363(a); see also Taproot Admin.

usiness corporation. See sec. 1361(b) (1). In 1996 Congress expanded the definition of a small business corporation to allow certain tax-exempt organizations to own S corporation stock. See Small Business Job Protection Act of 1996, Pub. L. 104-188, sec. 1316(a), 110 Stat. 1785; see also Taproot Admin. Servs., Inc. v. Commissioner, supra at 205. Section 1361(c) (6) now permits qualified pension, profit-sharing, and stock bonus plans (within the meaning of section 401(a)) and exempt organizations