www.alphonsemourad.com
www.uscorruptjudges.com
www.bostonmandelascandal.com

Phone 617-316-2639 Fax 617-316-2605
Internal Revenue Service
Insolvency Unit I P.O. Box 9112, Stop 20800 J.F.K. Post Office Boston, Ma 02203
Date: May 2, 2000
Alphonse Mourad 125 West Street Hyde Park, MA 02136
Mr. Mourad:
As I explained to you on the telephone this afternoon, in accordance with our discussion of April 25, 2000,1 have reviewed the various case files regarding yourself and your former business, V & M Management, Inc. My review has revealed that we have previously responded to your inquiries regarding the right of the Chapter 11 Trustee to claim a Low Income Housing Credit and the flow through of income to an individual shareholder when a sub-chapter S corporation is in Chapter 11 bankruptcy.
Our counsel has advised that a Chapter 11 Trustee ahs the right to take advantage of the Low Income Housing Credit. Furthermore, the income for an 'S-Corp' continues to flow through to the shareholders even after the filing of a petition under Chapter 11 of Title 11 of the United States Code.
As I explained to you, the Privacy Act prohibits any employee of the Internal Revenue Service from discussing any matters related to the investigation of any taxpayer with any other party not holding a valid power of attorney for that taxpayer. Therefore, we are not at liberty to discuss with you any potential investigation of alleged wrong doing by the Chapter 11 Trustee or any other party.
I hope that this information has been helpful to you. Any further questions that you have regarding these issues should be referred to Gregory Smith of our Examination Division. Mr. Smith can be reached at 617-316-2284.
lames P. Clifford i Insolvency Advisor

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE WASHINGTON, D.C. 20224
LARGE AND MID-SIZE BUSINESS DIVISION
May 8, 2002
Mr. Alphonse Mourad 125 West Street HydePark,MA 02136
Dear Mr. Mourad:
I am a Revenue Agent assigned to the Large and Mid-size Business Division of the Examination function of the IRS. I am also a technical advisor with respect to the Low-Income Housing Credit under Internal Revenue Code § 42. This matter has been referred to me from our Criminal Investigation Division and our National Office for review. You have provided substantial documents and we have discussed several issues as they pertain to you. At your request, and in an effort to provide you with a summary of my findings pertaining to the property commonly referred to as the Mandela Project, I have prepared the following narrative.
The information you have submitted also reflects that the IRS has responded to you previously on a number of occasions. Revenue Agent Chester Chapman became involved with this matter in February 1999 and responded to your request. Insolvency Advisor James P. Clifford became involved with this case in May 2000 and responded to your request. In July 2000, the Office of the Commissioner of the IRS became involved with this matter and forwarded your request to the Taxpayer Advocate Service (TAS). In August 2000, Revenue Agent Thomas McCabe, of the TAS, responded to your request. In September 2001, you called the Office of the Commissioner of the IRS and they again referred your request to the TAS for consideration. Supervisory Program Analyst, Alfredo Esannason of TAS, responded to your request.
In reviewing all of your requests as well as all of their responses, I will try to summarize everything to bring this to a final resolution. You have currently requested clarification with respect to the following:
1) What happened to approximately $2 million of HDD monies purportedly received by your court appointed trustee?
2) Who is entitled to the low-income housing credits awarded by the state?
3) Why is capital gains and other items being issued to you for 1999 when the S-corporation was apparently dissolved by your trustee in 1999?
4) Why are amounts owed on your 1995 return?
With respect to item 1, the allegations you made with respect to the trustee's handling of MUD monies cannot be proven either true or false based on the information you have submitted our offices. Your information reflects that V & M Management, Inc., had gross income from low income housing rental real estate activities of $3,073,868 in 1997. This number was also consistent with those reflected in prior years. The net income from 1997 rentals was reflected at $810,687. This is also the year where the return reflects that all depreciable assets were disposed of and reflects a corresponding capital gain to you of $1.8 million. The rental income reported is well in excess of the amounts of monies you stated MUD paid to your S-corporation for the project. As a result, there is no evidence that your trustee improperly reported the HDD monies. Also, because the statute of limitations for this 1997 S-corporation return has expired, the IRS is precluded from examining it. Further, there is no indication, other than your testimony, that such return warrants examination. Overall, there has been no proof that the HDD monies were not part of the more than $3 million that was reflected by your trustee.
With respect to item 2, you were the previous owner of the project since approximately 1981. You were not entitled to any Low-Income Housing Credits under IRC § 42 because you acquired the project before these provisions came into affect. You also were not entitled to any Rehabilitation Credits (IRC § 47) because the project was not old enough to qualify for such credits. Overall, as the previous owner of the project, there is no provision in the Code that allows you to claim any credits on the project for the years in question.
Then, in 1997, the information you sent indicates that your trustee sold the project to a new owner. Because a new owner acquired your existing buildings, there are provisions in IRC § 42 that allow forsuch credits. IRC § 42(d)(2) illustrates how new owners must compute the eligible basis of any existing buildings acquired. Coupled with that, IRC § 42(e) provides for additional basis for any rehabilitation expenditures that meet the requirements of this section. Based on all the information you sent, the new owners of your property could be eligible to receive such credits under these sections of the Code. These rehabilitation expenditures are separate and distinct from those referred to in IRC § 47. The rehabilitation expenditures provided for in IRC § 42 are those paid or incurred by the taxpayer with respect to any building. There is no limitation as to age or historic significance of the project in this regard. As a result, it is not considered a rehabilitation credit, but a low-income housing credit that is allocated and awarded by the state.
You are currently contesting your trustee's right to sell the project, whether or not your trustee owned the property after he was appointed trustee, your trustee's actions regarding the handling of credit applications for the project, your trustee's actions concerning whether or not the state's requirement for "Evidence of Site Control" was established, and, your trustee's actions with respect to handling monies of your S-corporation prior to and subsequent to the sale of the project. All of your above contentions are matters for the court to decide. Overall, until proven otherwise by the courts, the IRS must rely on the documents of sale for the project
and all supporting documents from responsible third-parties (as the state did) in considering the extent of any credits allocable under IRC § 42.
With respect to item 3,1 must again rely on the copies of returns you supplied our office. You have indicated that the S-corporation was dissolved in 1998. However, the balance sheet associated with the 1999 returns reflects $4,977,202 million of loans receivable from you and another $547,478 of assets including cash, other current assets, and real estate loans receivable. This return also reflects numerous (at least 13) Forms 6252, Installment Sales Income forms attached to the return. During 1999, you received payments on all of these contracts, which accounts for the $536,931 in capital gain that was reported to you on a Schedule K-1 for 1999.
Because of all these ongoing financial activities, it is evident that no final return could be filed for the S-corporation. Although your trustee may have ended the corporate status with the state, the S-corporation return is required to be filed until all of the installment contracts are met or until all assets are either liquidated or distributed to the shareholder. It should be noted that if this were done, there would be another substantial tax impact to you as the "loans to shareholder" that are attributable to you would result in income to you as a forgiveness of debt by the S-corporation.
With respect to item 4, the 1995 return filed in 1999 reflected $5,613 of Alternative Minimum tax, primarily generated because of the Net Operating Loss Deduction that was utilized during that year. And because the return was filed late, additional penalties and interest were assessed. A notice that you received from the Andover Service Center dated March 20, 2002 reflects additional penalties of $2,497.78 and additional interest of $2,607.89. Further, these amounts will continue to accrue and increase until all amounts are paid in full. Overall, this liability did not result from any IRS examination, but is based on the figures you reflected on the return as filed.
In summary, and as the IRS has previously responded to you, these issues are under the jurisdiction of the Bankruptcy Court and there is nothing more the IRS can do to assist you with these matters. The allegations you have made cannot be corroborated by any of the information reviewed. And, the years you allege all the wrongdoing occurred are beyond the statute of limitations for the IRS to consider. Therefore, the IRS is precluded from auditing these old returns (whether 1996,1997 or 1998) of your trustee or any other party involved with the financial transactions of the project.
You would not be entitled to any credits under IRC § 42 and your trustee would not be entitled to any credits under IRC § 42. The new owners of the project may be entitled to claim credits under IRC § 42 so long as they meet all of the necessary provisions discussed above.
You have also provided information and made allegations with respect to the tenants no longer qualifying and the character of the project changing from low-income to
non-low-income. Again, these matters pertain to the new owners of the project and cannot be discussed with, or disclosed to you.
You have also contended that the Revenue Agent's Reports for the years 1995 through 1997 are in error. In reviewing the information you submitted, you provided a copy of a no-change letter from us to you for the 1995 year. As indicated above, your tax liability was computed based on the return you filed. For 1996, the Revenue Agent determined no tax liability for 1996. For 1997, the year the project was sold, a tax liability was determined. The information you presented further shows that the Revenue Agent did a lot of work in determining the extent of loss carryovers to which you were entitled. The fact that a tax liability resulted for your 1997 year was solely attributable to the disposition of the project that generated a significant profit. I have seen no information that would contradict this finding. Based on my discussions with you--after considering the initial cost of the project--less all depreciation claimed by you over the past years--it is readily understood how a substantial profit could result.
Overall, it is evident that you are pursuing legal remedies through the courts in an effort to resolve this matter. Your primary concerns appear to be focused on the actions taken by your court appointed trustee and on whether there was sufficient evidence of site control for which the state allocated credits on the project to the new owners. These issues are not under the jurisdiction of the IRS, but a civil matter for the courts to decide. Therefore, the IRS must consider this matter closed.
If you have any additional questions, you may contact me at (715) 836-8752. Any written correspondence may be sent to me at the following address: 1320 W. Clairemont Ave., Suite 200, Eau Claire, Wl 54701-6026.

Kent H. Rinehart, I.D. #39-00509 Internal Revenue Agent
Internal Revenue Service
District Director
Department of the Treasury
J.F.K. Federal Building Boston. MA 02203
Mr. Mourad
125 West St. HydePark,MA02136
Person to Contact
Greg Smith Telephone Number
(617)565-4538 (not a toll free number) Refer Reply to:
E:Y502:GS Date: June 24.1999
We have been advised that during bankruptcy proceedings, income generated in an S Corporation flows through to the shareholders).
In the case of V&M Management Inc., you are the sole shareholder. Therefore income and expenses reported to you on Form K-1 for 1995 through 1997 are reportabte on your Form 1040.
You may avail yourself of the information and blank forms provided to you on April 15,1999, or if you need assistance please contact me at (617) 565-4539.
Sincerely,

Greg Smith

ALPHONSE MOURAD
125 West Street, Hyde Park, MA 02136 (617)361-2793 http://members.aol.coni/scandal637/corruption.htinl
July 2,1999
Ms. Joan Ferraro
Department of Treasury
Internal Revenue Service
New England District Group Manager
JFK Federal Building
Boston, MA 02203
HAND DELIEVERED
Dear Ms. Ferraro,
This letter is a follow-up inquiry based on a letter prepared by Greg Smith, dated June 24, 1999. Mr. Smith's letter - which was intended to be a summary of findings from the IRS pending tax investigation - was incomplete. On February 26, 1999, IRS Agent Chester Chapman sent me a memorandum stating that the IRS would establish whether under IRS Code 42 - a bankruptcy trustee could apply for the Low Income Housing Credit (Exhibit 1). This matter was never discussed or concluded in Greg Smith's letter as mentioned above.
Therefore, I would appreciate a prompt response to the following issues by July 9, 1999; as stated in my previous letter as the final appeal to the bankruptcy case is scheduled for July 15, 1999 and your responses to the questions are key to resolve open questions regarding the case. The June 24, 1999 letter made no mention of V&M Management's position as the owner and sole shareholder regarding 1997 income tax liability. There was also no mention of the validity under IRS regulation of the Trustee's use of a low-income tax credit on a property for which 1) no payment was made to V&M Management for purchase value or 2) no transfer of ownership is recorded in the name of Stephen Gray for property owned by V&M Management. Please provide an update on the criminal investigation you initiated of Stephen Gray and Beacon management regarding property owned by V&M Management during the tax years 1995, 1996, and 1997.
My queries as initially expressed to the IRS are as follows:
* Is it within IRS regulations for Stephen Gray to record only on V&M Management's 1997 tax return those liabilities incurred for Bankruptcy Expenses, known and calculated tax liabilities, and billings for utilities during tax years 1995 and 1996? Instructions for filing 1120S and K-1 define accrued expenses as those incurred during the tax period that can be figured with reasonable accuracy.
* The Court significantly reduced the value of the property arbitrarily to $100,000. Should Stephen Gray adjust the basis of the building in future tax returns? How would this impact a low-income tax credit calculation?
Ms. Joan Ferraro, p. 2 regarding V&M Management
* Is it within IRS regulations for Stephen Gray, a Trustee, to take ownership of V&M Management's property without a) a payment of money to V&M Management and b) a signed document by V&M Management's sole shareholder demonstrating a valid sale or transfer of property?
* Is it within IRS regulations for Stephen Gray, a Trustee to violate the requirements stated in Section 42(d)(2)(A) and (B) which require: The eligibility rules for new and existing buildings differ. Under section 42(d)(2), an existing building may be eligible for me low-income housing credit based upon the acquisition cost and amounts chargeable to capital account (to the extent properly included in eligible basis) if-- (1) The taxpayer acquires the building by purchase (as defined in section 179(d)(2), as applicable under section 42(d)(2)(D)(iii)(I)),(2) There is a period of at least 10 years between the date of the building's acquisition by the taxpayer and the later of--(i) The date the building was last placed in service, or(ii) The date of the most recent nonqualified substantial improvement of the building, and (3) The building was not previously placed in service by the taxpayer, or by a person who was a related person(as defined in section 42(d)(2)(D)(iii)(U)) with respect to the taxpayer as of the time the building was last previously placed in service.
* Is it within IRS regulations for Stephen Gray, a Trustee to violate the requirements stated in Section 42(d)(6) by acquiring a waiver for the 10 year holding period without a written application or approval by HUD as required in Section 42(d)(6)? Section 42(d)(6)provides that a taxpayer may apply for a waiver of the 10-year holding period requirement specified in paragraph (a)(2) of this section. The Internal Revenue Service will grant a waiver only if- (1) The existing building satisfies all of the requirements in paragraph (c) of this section, and (2) The taxpayer makes an application in conformity with the requirements in paragraph (d) of this section.(c) Waiver requirements--(1) Federally-assisted building. ... (2) Federal mortgage funds at risk. ... with respect to a mortgage that is secured by the building or a project of which the building is a part. ... (i) To satisfy the requirement of this paragraph, a letter or other written statement must be made or received and approved by the national office of the Department of Housing and Urban Development ... In order to receive a waiver of the 10-year holding period requirement specified in paragraph (a)(2) of this section, a taxpayer must file an application (including the applicable user fee) that complies with the requirements of this paragraph (d) and Rev. Proc. 90-1, 1990-11.R.B. 8 (or any subsequent applicable revenue procedure).
I look forward to your reply and am hopeful that it will add a greater level of clarity before the tax appeal case is heard in the bankruptcy appeal court on July 15, 1999. I have taken the liberty of enclosing the 'Motion For Recusal and To Remand' as supplemental information for your investigation.
Sincerely, . /
''; / -. / /
-^ ''/' ^/- ^>-i / ''^^.r' / ' f

Alphonse Mourad Sole Shareholder of V&M Management
cc: Barry W. Mawl, Special Agent In Charge, FBI Donald Stem, U.S. Attorney
Frederick Aufier, Criminal Investigation Department, IRS Kamal Nawash, American-Arab Anti-Discrimination Committee
Internal Revnir Service
memorandum
date: February 26, 1999 to: Mr. Alphonse Mourad
from; Chester Chapman, Revenue Agent C^
subject; problem resolution
A« we discussed on Thursday, February 18, 1999, myself or another revenue agent should be able to help you with the following!
1. Determine if the regulations under Internal Revenue Code Section 42 give any guidance on whether a bankruptcy trustee can apply for the Low Income Housing Credit.
2. Assist you with the preparation of any federal income tax returns required to be filed. This includes any administrative procedure to follow if you disagree with the information on Schedule K.
Internal Revenue Service Department OT trie I reasury
District New England District Director
> Mr. Alphonse Mourad Date APR o 5 125 West Street " Hyde Park, MA 02136-3027
Dear Mr. Mourad:
On 3/15/99, Agent Chester Chapman, badge #03798 offered assistance to you regarding your inquiry about Internal Revenue Code Section 42 and your personal federal income tax returns. This letter is a follow-up to that conversation.
For your information, enclosed is Private Letter Ruling 9213020 regarding Internal Revenue Code Section 42 and the waiver of the 10-year holding period depending on the facts and circumstances. Although a private letter ruling cannot be cited as authority or precedent in this matter, it is persuasive evidence of the Court's view on the regulations.
A letter ruling is the conclusion of the Service on the application of the tax law (1) to the particular transaction described in the ruling request and (2) for the purposes of determining the liability of the taxpayer requesting the ruling. Consequently, a ruling issued to a taxpayer is a "holding of the Service on that transaction only."
In the case ofV&M Management. Inc., of which you were the shareholder, the bankruptcy trustee, may be eligible to qualify for the low income housing credit, as a separate bankruptcy estate was not established in this case.

Department of the Treasury Internal Revenue Service

19SK----ISERVICE 1111 Constitution Ave NW Washington, D. C. 20224 (202) 622-4300
Alphonse Mourad September 26, 2001
125 West Street
Hyde Park, MA 02136-3027
Dear Mr. Mourad:
This is to advise that your call to the Commissioner of the Internal Revenue Service (IRS) was referred to the Taxpayer Advocate Service for consideration.
Our records indicate the Local Advocate Office in New England previously responded to you on this issue. Enclosed is a letter by Thomas McCabe, the Technical Advisor in the New England Advocate Office, dated on July 20, 2000. Mr. McCabe explained in detail the interpretation of your Bankruptcy issue. He also informed you that the Taxpayer Advocate Service cannot reverse legally correct tax determinations.
After reviewing your case it has been concluded that the Taxpayer Advocate Service can no longer assist you regarding this tax situation. The issue that you are proposing is under the jurisdiction of the Bankruptcy Trustee.
You also raise another issue concerning the integrity of an employee of the IRS. Please contact the Treasury Inspector General for Tax Administration (TIGTA) at (800) 366-4484 or write to Treasury Inspector General for Tax Administration, P.O. Box 589, Ben Franklin Station, and Washington, D.C. 20044-0589. TIGTA has the responsibility to investigate the matter that you raise.
We wish you well in your efforts to rectify this unfortunate circumstance.
Sincerely,

Supervisory Program Analyst
Enclosure
Letter 1671 (Rev. 01/2001)
Internal Revenue Service
*TAXPAYER ADVOCATE
18ERVICE

Department of the Treasury
P.O. Box 9112, Stop#10775 Boston, MA 02203
Phone: (617)316-2690 Facsimile (617) 316-2700
Date: August 31, 2000
Alphonse Mourad 125 West St. HydePark.MA 02136-3027
Dear Mr. Mourad,
As requested, I have enclosed substantial information on the low-income housing credit as well as basic guidance on the tax liability of S corporation shareholders. Since an S corporation is treated as a conduit, each shareholder must include on his return, on a pro rata basis, each item of income, loss, deduction or credit of the S corporation that can affect computation of his tax liability as defined in the Internal Revenue Code (IRC). Such separately stated items include those involved in the determination of the investment tax credit and all other credits against tax, such as the low-income housing credit. On August 28, 2000 I advised all information forwarded would be general in nature concerning the credit, and would not constitute an endorsement of any subsequent low-income housing credit claim by V & M Management, Inc., the bankruptcy estate, any other entity, any shareholders) or other individual. In addition, you agreed, upon receipt of this information; responsibility for claiming any low-income housing credit for any taxable period and establishing eligibility, falls to the appropriate entity, shareholders) or others. Accordingly, forms and other enclosed information are for more recent years, may not be appropriate for those periods at issue and is not considered all-inclusive. Please note: the regulations governing the credit are complex as well as comprehensive. Caution should be exercised in calculating and claiming the allowance given the potential complicating factors such as the bankruptcy estate, trustee considerations, if any, and other limitations. The following is a general discussion of the credit and procedures.
In general, the low-income housing credit is a nonrefundable income tax credit that may be claimed by the owner of a newly constructed or substantially rehabilitated qualified low-income housing project (IRC section 42(a)) The low-income housing credit is claimed as one of the components of the general business credit under IRC section 38. Accordingly, the low-income housing credit, as a component of the general business credit, is subject to the limitation of section 38 and the carryback and carryforward rules of IRC section 39.
The following are general requirements:
Compliance period. A building must satisfy the IRC section 42 requirements for the compliance period, which comprises the 15 tax years beginning with the first tax year of the credit period.
Long-term low-income housing use agreement. To qualify for the credit, the owner of a low-income building must be subject to a long-term low-income housing use agreement with a housing agency.
Nonprofitable activity limitations. Low-income housing credit tax benefits are available to taxpayers investing in low-income housing even though an investment would not otherwise provide a potential for economic return
Limitations. The low-income housing credit may be limited or disallowed under other provisions or principles of tax law including the following:
(1) limitation based on the amount of tax liability (IRC section 38(c),
(2) limitation on investment interest (IRC section 163(d),
(3) limitation based on the amount at risk (IRC section 465),
(4) limitation on passive activities (IRC section 469),
(5) a sham or economic substance analysis,
(6) an ownership analysis.
Assuming the S corporation is the entity calculating the credit which will then flow-through to a shareholder, a Form 1120S with a correct Schedule K-1 for the taxable period must be filed. To correct an error on a Form 1120S already filed; i.e. a change in the distribution of any income or other information provided any shareholder, an amended Form 1120S must be filed with an amended Schedule K-1.
The reporting requirements for the low-income housing credit have also been provided along with the appropriate forms; Form 8586, Low Income Housing Credit; and, Form 8609, Low-Income Housing Credit Allocation Certification. Please note: the instructions for these forms provide specific guidelines for S corporations claiming the credit to pass through to shareholders. Relevant parts have been highlighted.
I hope this information is helpful.
Sincerely,
^/~^^i^j /^^^^c3
Thomas McCabe Internal Revenue Agent 04-04600
617-316-2488
Enclosures.
Form 1120S& Instructions (27) Form 8609 & Instructions (4) Form 8586 & Instructions (2) IRC section 42 (27) Reg. 1.42-1T (10) Reg. 1.42-3 (1)
Explanations Low-income housing credit:
Synopsis (1)
Certification requirements (1)
Reporting requirements (2)
Allocation of credit authority by state or local agencies (3)
Continuing compliance and recapture (3)
Explanations Tax liability of S Corporation shareholders:
Synopsis - tax liability of S corporation shareholders (1) Shareholder's portion of S corporation items (2) Pass-through items (2) Restrictions on passthrough of certain items (1)
Internal Revenue Service
TAXPAYER ICATE
(SERVICE

Department of the Treasury
P.O. Box 9112, Stop#10775 Boston, MA 02203
Phone: (617)316-2690 Facsimile (617) 316-2700
Date: July 20, 2000
Alphonse Mourad 125 West St. HydePark,MA 02136-3027
Dear Mr. Mourad,
Please be advised your call to the Office of the Commissioner in Washington, D.C. has been referred to the local taxpayer advocate for consideration. Substantial documentation totaling 161 pages was received by PAX on July 13 supplementing your original call. Most of the information provided pertains to the bankruptcy ofV&M Management, Inc., a Subchapter S corporation of which you are sole shareholder, and the findings of the Bankruptcy Court under Chapter 11.
The unresolved tax issue to which you refer concerns the legitimacy of Schedules K-1 (Form 1120S), Shareholder's Share of Income, Credits, Deductions, Etc. prepared by V & M Management, Inc. Bankruptcy for calendar years 1996 and 1997. The Schedules K-1 were prepared in conjunction with the operation of V & M by the trustee which attributed a total of approximately 1.3 million dollars as your distributive share for those years. This point has been a main focus of your motions before the Bankruptcy Court where the accuracy of the results have been questioned as well as the assertion that income cannot be attributed to a shareholder which is not received.
Internal Revenue Code section 1399 provides guidance in determining the taxable entity during a Title 11 bankruptcy proceeding.
NO SEPARATE TAXABLE ENTITIES FOR PARTNERSHIPS, CORPORATIONS, ETC.
"Sec. 1399 [1986 Code]. Except in any case to which section 1398 applies, no separate taxable entity shall result from the commencement of a case under title 11 of the United States Code".
"This provision insures the commencement of a bankruptcy proceeding for a partnership or corporation does not create a separate tax entity. Therefore, the bankruptcy trustee is required to file annual information returns for a partnership and must file annual income tax returns and pay corporate income tax for a corporation".
In the case ofV&M Management Inc. Bankruptcy, the trustee filed the Schedules K-1 to report any distributive share of tax items as required even though as you contend such amounts did not reflect actual distributions. This interpretation was endorsed by the Bankruptcy Court in Harbor Village Development;
"Bankrupt partnership. - A partnership's filing of a Chapter 11 bankruptcy case did not create a separate taxable entity; thus, the partners, and not the bankruptcy estate, were liable for the payment of federal and state (Massachusetts) income taxes during the trustee's administration of the estate. Although the partner's did not actually receive the profits from the post-petition operation of the partnership's shopping center, the income was used to satisfy the claims of the partners' creditors and inured to the partners' benefit. (Harbor Village Development, BC-DC Mass., 95-1 USTC H 50,032).
Accordingly, the holding of the Court would tend to validate the treatment by the bankruptcy estate in reporting the distributive share and baring malfeasance accepted as correct.
A review of prior contacts with IRS personnel regarding this issue has determined that you were informed of this authority on two prior occasions. In a letter dated June 24, 1999, Internal Revenue Agent Greg Smith advised Counsel had concluded income and expenses reported on Schedule K-1 were reportable by you as sole shareholder. In another letter dated May 2, 2000, James Clifford, Collection Division Insolvency Advisor repeated this position and noted the filing of a petition under Title 11 did not alter the responsibilities of an S corporation shareholder.
Since your tax liability for years 1996 and 1997 is currently under examination by Greg Smith, you do have the opportunity to provide evidence in support of your position within the Internal Revenue Code and regulations. I have enclosed Publication 3498, The Examination Process, which may be of assistance.
It is the objective of the Taxpayer Advocate Service to insure that all taxpayers are fully informed of their rights and understand how the law has been applied. Accordingly, I have enclosed the cited authority above for your review. Please remember the Taxpayer Advocate Service is not a substitute for established IRS procedure and cannot reverse legally correct tax determinations.
If I can be of further assistance, please do not hesitate to contact me.
Enclosures.
IRCSec. 1399
Harbor Village Development (BC-DC Mass., 95-1 USTC H 50,032) Publication 3498
Sincerely,
/y-^fe^-^3 ..^ c^*f<^)
v-' »/ Thomas McCabe Internal Revenue Agent 04-04600
617-316-2488
ALPHONSE MOURAD 125 West Street, Hyde Park, MA 02136 (617)312-4919
November 22, 1999
Ms. Joan Ferraro
Department of Treasury
Internal Revenue Service
New England District Group Manager
JFK Federal Building
Boston, MA 02203
Dear Ms. Ferraro,
I write to you once again to discuss the issuance of the Low Income Housing Tax Credit - which is nearly $10 million in value - to Stephen S. Gray & Beacon Management in 1997. The tax credit which was a central component to Beacon's Plan for Reorganization in the V&M Management Bankruptcy proceedings appears to have yet another piece of documentation challenging its legitimacy. .
On November 1, 1999, Stephen S. Gray submitted the following motion to the Housing Court, Motion of Third-Party Witness Stephen S. Gray To Quash Subpoena. This motion states that, "Gray was the trustee in bankruptcy of Mandela Homes. On December 31, 1997, Mandela Homes was sold to Beacon Properties, (exhibit 1)." I am putting this information before you so that you may clarify how Stephen Gray - who admits the property was sold to Beacon Properties on December 31, 1997 - still qualified for 1998 tax credit dollars. Mr. Gray was the primary applicant in his tax credit application with Beacon as an additional applicant. Without Stephen Gray, Beacon Properties does not have the ten years of site control and cannot qualify for the tax credit. And now it appears that Beacon Properties received the tax credits in 1998 even though Gray dissolved the partnership with Beacon on December 31, 1997. Under these circumstances, the application appears to be illegal.
I am requesting that your office investigate this inconsistency and render an explanation. As I am sure you are aware, there are several issues surrounding the legitimacy of Beacon and Gray's tax credit application currently being reviewed by the Federal Appeals Court. Your assistance in the matter is appreciated.
Sincerely, /^
^^-^//
Alphonse Mourad i
cc: Arthur Goldsmith, Esq. Dr. Mathew Mallon US Appeals Court Victor Aranow, Esq.
COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss.
HOUSING COURT
CITY OF BOSTON DIVISION
SUMMARY PROCESS NO. 993870

)
MANDELA HOMES. L.P.
)
)
Plaintiff,
)
)
V.
)
)
GRACE ROMERO
)
)
Defendant.
)
)
MOTION OF THIRD-PARTY WITNESS STEPHEN S. GRAY TO QUASH SUBPOENA
Stephen S. Gray ("Gray") moves to quash a trial subpoena that was left at his place of business on Friday, October 29, 1999, on the ground that he has no knowledge of any facts that could possibly be of relevance in this matter.
Gray was the trustee in bankruptcy of Mandela Homes. On December 31,1997, Mandela Homes was sold to Beacon Properties. Since that date. Gray has had no involvement in the management of Mandela Homes.
Gray understands that this is an action for rent. arising from the defendant's alleged non-payment of rent after Mandela Homes had been acquired by Beacon Properties. Gray further understands that the defendant's counterclaims have been dismissed. All this being so, Gray has no knowledge of any facts that could possibly have any relevance in this matter.
WHEREFORE. Gray's Motion to Quash Subpoena should be allowed. STEPHEN S. GRAY By his attorney,
A.(?L^^ ^n^
Anthony J. Fitzpatrick (BBO # 564324) DUANE, MORRIS & HECKSCHER LLP One International Place Boston. MA 02110 (617)598-3100
November 1, 1999
u -i-n .A-4^ - *^ ^-i (^
Department of the Treasury January 25, 1998
Internal Revenue Service
Ann Mr Donald Mavrides
P. 0. Box 9112 Room 825
J.F.K. Post Office
Boston, MA 02203
Mr. Donald Mavrides,
I agree that payroll taxes should have been paid by the Trustee as their Fiduciary duty. On January 29, 1998 there is a Creditors' hearing to determine legitimate claims and amounts to be distributed from the Trustee to the Creditors. A determination of amounts due to the IRS will be approved on that date. According to the Examiner appointed by the court on January 9, 1996, there were excess funds to cover all payroll taxes. See attached Three Month Budget jointly prepared by the Examiner and the Certified Public Accountant of V&M Management, that identifies an allocation to pay payroll taxes. As of January 1996,1 was placed under the supervision of a Court appointed Examiner who reviewed and approved payment of all invoices in excess of $500 and checks in excess of $2,000. On April 1, 1996 the Trustee, Stephen S. Gray, was appointed and the Examiner was released.
Please refer to case no. 96-10123-CJK, the Transcript of Confirmation Hearing on Joint Plan of Reorganization of Stephen S. Gray, Chapter 11 Trustee, (pages 70,73,74,77) dated September 26, 1997. The Court discusses on page 70 that tax credits apply only to one who has site control; defined as ownership on page 73. The Court resolves the question of site control and ownership on page 77, which states "Mr. Gray has site control as an owner. He is the owner in his capacity as Trustee of the debtor."
The Trustee completed financial statements and tax returns for tax years ending December 31, 1995 and December 31, 1996 on June 13, 1997 and July 31, 1997, respectively. The December 31, 1996 statement identifies net profit of $838,033. This net profit results from the Trustee acting fraudulently in not paying payroll and real estate taxes, and denying the residents critical services or rehabilitation of 20 vacant units for one year. If the IRS would refer to V&M's tax returns, tax identification number 04-2819605, you will note net losses for the last ten years. (See December 20, 1995 HUD letter prepared by V&M's CPA demonstrating prior year losses.) None of the $838,033 in cash was distributed to me as an owner of a Subchapter S Corporation during 1996 to the present.
Internal Revenue Service 1/25/98 p.2
I am currently bankrupt and unable to secure a CPA or tax counsel to address these issues; therefore, I turn to the IRS for help in answering the following questions: 1) If Stephen S. Gray is the owner at the time of appointment as Trustee, is the Trustee responsible for all tax liabilities? 2) Does the Trustee have a Fiduciary duty to pay all taxes and valid liabilities of a Company that he is responsible to run as appointed by a Court? 3)Based on the $838,033 in cash, am I required to pay personal income taxes on net profits of a Subchapter S Corporation when no cash was distributed to me? 4) Am I responsible for taxes on net profit of a Company for whom I am not an owner according to the Court? 5) Can an entity show net profits when there are outstanding tax liabilities that are not reflected in the financial statements?
Please advise. If the IRS determines that the net profit of December 31, 1996 belongs to me as the owner; I understand that I will owe taxes on the $83'8,033 after I receive the cash distribution from the Trustee for the full amount of $838,033. I await your response and appreciate your assistance in resolving this matter.

Alphonse Mourad Taxpayer
IRS 125.doc
uc\jai i-iiiciii. ui i.ne i reasury
Date: AU9 0 8 2008
ALPHONSE MOURAD 125 WEST ST HYDEPARK, MA 02156
IF YOU WRITE OR CALL US,
refer to this information Number of this letter: 915(DO)
Tax period(s) ended;
199612 199712
For assistance you may call;
Name:
Joan Ferraro Telephone Number:
(617)316-2273
Dear ALPHONSE MOURAD:
We are enclosing two copies of our report of income tax examination changes explaining the action we took on your tax return. Please read this report and decide whether you agree or disagree.
IF YOU AGREE with the changes in the report, you should sign, date, and return one copy to us within 30 days from the date of this letter. If you owe more tax, please include your payment for the full amount you owe; this will limit interest and penalty charges.
IF YOU CAN'T PAY the full amount you owe now, pay as much as you can. If you want us to consider an installment agreement, please complete the endosec Form 9465, Installment Agreement Request. If we approve your request, you will be charged a $43 user fee to help offset the cost of providing this service. We will take the fee from your first installment payment. Penalties and interest will continue to increase until you pay the full amount you owe.
IF YOU DON'T AGREE, within 30 days from the date of this letter, you should do one of the following:
1. Mail us any additional information.
2. Discuss the report with the examiner.
3. Discuss your position with the group manager.
4. Request a conference with an appeals officer, as explained in the enclosed Publication 5.
IF YOU DON'T TAKE ANY OF THE ABOVE ACTIONS within 30 days we will process your case based on the enclosed report. You will then receive a statutory notice of deficiency that allows you 90 days to petition the United States Tax Court. If you allow the 90-day period to expire without petitioning the Tax Court, we will bill you for any additional tax, interest, and penalties.
(Continued on next page)
JFK Federal Building Boston, MA 02203 Letter 915(DO)(CG) (Rev. 9-96)
-2-
If you write us about your case, please the most convenient time to call in case we enclosed an envelope for your convenience. the person shown above.
include your telephone number and
need more information. We've
If you prefer, you may telephone

Stephen Daige District Director
Enclosures:
Exami nation Form 9465 Publication Envelope
Report (2) 5
JFK Federal Building Boston, MA 02203
Letter 915(DO)(CG) (Rev. 9-96)
Appeals Office Small Business / Self Employed
10 Causeway Street
Room 493 Person to Contact:
Boston, MA 02222 VemonJ Smith
Employee ID Number: 04-55132
Tel: 617-565-7939 Date: February 6, 2001 Fax: 617-565-5472 Refer Reply to:
AP:SB:BOS:VJS Alphonse Mourad In Re:
125 West Street Income HydePark,MA 02136 Tax Period(s) Ended:
12/1996
12/1997 Date and Time of Conference:
9:30 AM March 15, 2001 Place:
't C^vsc^^ ^i
Alphonse Mourad: ^w ^c/^
'S^tc-fv, ^W I scheduled the conference you requested on this case for the date and time shown above. Please let me know within 10 days from the date of this letter whether this is convenient. If it is not, I will be glad to arrange another time.
This conference will be informal. You may present facts, arguments, and legal authority to support your position. If you plan to introduce new evidence or information, send it to me at least 10 days before the conference. Statements of fact should be presented as affidavits or signed under penalties of perjury. '-
You can authorize an attorney, certified public accountant, or person enrolled to practice before the Internal Revenue Service to represent you at the conference. Your authorization should be made on a Form 2848 (Power of Attorney and Declaration of Representative), Form 8821 (Tax Information Authorization and Declaration of Representative), or a similar document.
I hope our conference will resolve your case. Call me if you have any questions or need additional information.
Sincerely,
Vemon Appeals Officer

MO.. 1 965 - Non Docketed Letter (Rev. 05/1994)
Alphonse Mourad 125 West Street
-..--- ''^i||^
Hyde Park, MA 02136 "'^ff/cy
(617) 361-2793 or (617) 312-4919
SEP -o ^ September ^2(^0
Mr. Stephen Daige District Director Internal Revenue Service New England District Boston, Mass.
SS 034-32-0832 Letter No. 915 (DO) (CG)
Re: Appeal of Alphonse Mourad from Determinations of the IRS Dear Mr. Daige:
By way of this letter, I hereby amend my previously submitted appeal and give you notice that I am continuing to appealing certain adverse administrative rulings of the Internal Revenue Service, and in particular, the following findings effect and rulings of law from determinations made by the IRS in conjunction with matters concerning V&M Management, a sub-chapter S corporation of which I am the sole stockholder.
1. Did the IRS disallow an investment interest expense of $965,226 in 1994, and if so, was that disallowance in error?
2. Did the IRS find as a matter of fact that Mourad did not utilize a carry forward to 1995 of the investment interest expense of $965,226, and if so, was that finding in error?
3. Was the finding by the IRS that there was a capital gain of $2,088,554 from the sale of corporate assets in error?
4. Was the denial ofMourad's claim that the alleged capital gain of $2,088,554 arose solely from HUD subsidies and tenant rentals in error?
5. Did the IRS find as a matter of fact that Mourad did not apply the $965,226 in 1995 against a capital gain of $2,088,554, and was that finding in error?
6. Was the finding by the IRS that a capital gain of $2,088,554 for 1996 and 1997 was attributable to Mourad in error?
7. Was the finding by the IRS that profit aod losses from the Mandela Apartments, the sole asset of the sub-chapter S corporation, continued to flow through Mourad after Mourad had been divested of all legal and equitable interests in the property by the bankruptcy court in error?
8. Was the ruling that Mourad was not entitled to the benefits of the Low Income Housing Credit (Housing Tax Credit) in error?
9. Was the ruling by the IRS that Stephen Gray, acting as United States Trustee, was entitled to the Housing Tax Credit, in error?
10. Was the ruling by the IRS that Stephen Gray was entitled to the Housing Tax Credit for 1998 when he dissolved his partnership with Beacon Management on December 31,1997, in error?
11. Was the ruling by the IRS that any party other than Mourad, holding the assets as a trustee or owner, was entitled to the Housing Tax Credit in error?
12. Was the ruling by the IRS that the requirement that an owner hold the property for more than ten years in order to become entitled to the Housing Tax Credit did not apply to either Stephen Grey or Beacon Management in error?
13. Was the finding by the IRS that the bankruptcy proceeding did not create a separate taxable entity when the Trustee assumed all title and interests in the property, and Mourad was denied the benefits of the Housing Tax Credit, in error?
14. Was the finding that the IRS did not waive all claims against Mourad at the September 26,1997 Confirmation Hearing in error.
As you may be aware, I have been unable to obtamthe assistance of counsel to represent me in this matter. Therefore, I would request permission to file an amended notice of appeal within thirty days after I have had the opportunity to at least consult with persons who may be able to advise me in this matter. Further, if this notice of appeal is procedurally defective in some fashion, I would request that your office advise me of the proper procedure, and that I be permitted to resubmit a notice of appeal within thirty days of such advice.
Under the penalties of perjury, I declare that I examined the facts stated in this protest, including any accompanying documents, and, to the best of my knowledge and belief, they are true, correct and complete.
Thank you for your attention to this matter.

2
^rK. MCT'D.RECTOR
V. UPLAND DISTRICT Alphonse Mourad
125 West Street HydePark,MA02136 im SEP -8 A ^ 30 (617)361-2793
September 8,2000
Mr. Stephen Daige District Director For New England District JFK Federal Building Boston, MA 02203
Re: Letter 915(DO) Dear Mr. Daige,
Alphonse Mourad, President ofV&M Management, Inc. (Sub Chapter S Corporation) hereby protests and appeals the IRS findings to the Appeals Office. Mourad hereby request that all records and documents regarding V&M Management, Inc. and Mourad as a personal shareholder be transferred to the Appeals Office.
In a June 24,1999 letter, Greg Smith of the IRS states "During bankruptcy proceedings, income generated in an S Corporation flows through to the shareholders). In the case of V&M Management, Inc. you are the sole shareholder, therefor income and expenses reported to you on Form K-l for 1995 through 1997 are reportable on your Form 1040." What Greg Smith failed to acknowledge was the fact that tax credits also are required to flow only through the shareholders) and the tax credits application was submitted and approved in 1997 for $11,000,000. Mourad says that the tax credit belongs to him as the sole shareholder for V&M Management, Inc. Further Mourad says that he possessed site control of the Mandela Apartments for approximately fifteen years, whereas Trustee Gray had control as a manager (not a shareholder) for only two years. Mourad says that the IRS has not given him the right to the tax credits, but instead, has burdened him only with V&M Management's liabilities.
The Mandela Homes was sold to Beacon Properties on December 31,1997. The Chapter 11 Trustee Stephen Gray was the primary applicant in his tax credit application with Beacon as an additional applicant. How does Stephen Gray still qualify for 1998 tax credit dollars when Gray dissolved his partnership with Beacon on December 31,1997? Furthermore, the tax credits should have gone through Mourad instead of Gray, for Mourad is the sole shareholder.
The IRS claims that the $2,088,554 capital gains came from the sale of corporate assets. Mourad disputes that claim, and says that the capital gain came only from HUD subsidies and rent from tenants. This money was kept by the Trustee and was never distributed to Mourad personally.
Mourad says that he is liable for debts exceeding $5,000,000 because he signed on all of his notes personally, and the creditors of the estate were paid only 9 cents on the dollar. Thus,
there was no profit from the sale of the property. Then, Mourad received the tax returns for the years 1996 and 1997, and found that Trustee Gray had reported a profit which the Trustee kept after he sold the property. Mourad says that he should not be liable to pay income tax on money he had never received. If Mourad is liable to pay the taxes on the profits the Trustee kept for those years that he ran the development, then Mourad should also be entitled to all of the 'profit', as well as the tax credits, for all profits and liabilities and tax credits flow only through the shareholder.
IRS states "Fact: the 1994 form 1040 that Mr. Mourad filed shows a disallowed investment interest expense of $965,226 to be carried forward to 1995. The 1995 form 1040 that Mr. Mourad filed did not utilize any of the interest expense. Mourad says that that is not true and that the $965,226 was applied to the $2,088,554 capital gain. The IRS now asserts that Mourad owes $189,745 in taxes. Mourad disputed this claim. All losses prior to 1996 belong to Mourad personally. Mourad says that the income flowing from V&M Management for the years 1996 till the present is not his as he never received it. That income belongs to the trustee and not Mourad. Mourad says that his prior losses should not be used to offset income of the trustee. Mourad wants to keep the prior losses to offset his future income.
Mourad says that he had only found out about his tax liability for the years 1996 and 1997 in an August 20,1998 letter from Trustee Gray's accountant stating that Mourad was responsible. Mourad says that this was deliberately done by the trustee so that Mourad would have no time to object or protest this assertion in the bankruptcy court.
Ultimately, Mourad says that he will accept any liability bestowed upon him from V&M Management, Inc. as long as all of the profits, and especially the tax credits flow through him as well. Mourad requests that the tax credits be awarded to him to offset his personal liabilities.
Mourad has attached further documents to support his claims. Mourad reserves the right to amend this appeal.
Under the penalties of perjury, I declare that I examined the facts stated in this protest, including any accompanying documents, and, to the best of my knowledge and belief, they are true, correct and complete.

^Imteb plates ^ankruptcrr Court ^3 {strict of Massachusetts
*************************
In re *
* Chapter 11 V & M MANAGEMENT, INC., * Case No. 96-10123-CJK
Debtor *
*************************
^7^,^
MEMORANDUM OF DECISION ON
MOTION OF ALPHONSE MOURAD TO COMPEL THE TRUSTEE TO PAY THE FEDERAL TAXES OF V & M MANAGEMENT
Alphonse Mourad has moved for orders that would (1) compel Stephen Gray, as Chapter 11 Trustee in this case. to pay the federal taxes and penalties assessed against V&M Management, Inc., and (2) relieve Mr. Mourad of any obligation to pay those taxes.
1. Demand for Relief Against the Taxing Authority
I begin with the latter request: for an order relieving Mr. Mourad of any obligation to pay federal taxes owed by the Debtor. This request amounts to a dispute between only two parties, Mr. Mourad and the United States (through the Internal Revenue Service) ("the IRS"). Neither of these parties is the debtor in this case; and the effect of their dispute on this bankruptcy case is speculative and attenuated at best. If the dispute would have no effect on the case, the matter would not be "related to [a case] under Title 11," 28 U.S.C. §§1334 and 157(a), and this Court would have no subject-matter jurisdiction over it.' In view of this Court's questionable and, at best, limited subject matter jurisdiction and of the doubtful effect of this controversy on this
' Even if their dispute would have an effect on this case, such that it fell within this Court's subject-matter jurisdiction, it is not a core proceeding and therefore not a proceeding as to which the Court can enter a final judgment without both parties' express assent. 28 U.S.C. §157 (b) and (c). Neither Mr. Mourad nor the IRS has assented. Therefore, if it had jurisdiction at all, this Court could enter only proposed findings and rulings, subject to de novo review in the District Court, and that would be a waste of this Court's resources.
bankruptcy case, the Court, in the interest of justice and pursuant to 28 U.S.C. 1334(c). will abstain from exercising jurisdiction over it.
2. Demand for Relief Against the Trustee
Mr. Mourad also seeks an order compelling the Chapter 11 Trustee to pay the federal taxes and penalties assessed against V&M Management. Inc. However, the motion fails to identify the kinds of taxes at issue, the periods to which the taxes pertain, the amounts at issue, and the basis (or bases) on which Mr. Mourad is jointly liable for those taxes, all of which are necessary to determine (1) the amount and extent of the estate's liability for the taxes and (2) whether, if the estate is liable for such taxes. Mr. Mourad shares that liability and therefore has standing to seek this relief. Without this information, the Trustee cannot formulate a meaningful response to the motion, and the Court cannot adjudicate it.
A separate order will enter in accordance with the above rulings.
DaA ^ ^

cc: Mr. Alphonse Mourad
Paul Moore, Esq., for Trustee Unites States Attorney, for IRS Internal Revenue Service
(/*S.T^^o-
Trial Calendar: Boston, Massachusetts Date: May 20, 2002
TRIAL MEMORANDUM FOR RESPONDENT
DOCKET NO. 7873-01
Respondent:
Christine Colley (617) 565-7877
NAME OF CASE:
Alphonse Mourad v. Commissioner of Internal Revenue
ATTORNEYS:
Petitioner:
Pro Se 617-312-4919
AMOUNT IN DISPUTE:
Year
1997
Deficiency
$189,745.00
STIPULATION OF FACTS: Completed In Process X
ISSUES:
1. Whether petitioner realized a capital gain in the amount of $2,088,554 from the sale of assets by his S-Corporation, V&M Management, Inc.
2. Whether petitioner is entitled to a low income housing credit for the 1997 tax year.
3. Whether respondent waived all claims for payment of petitioner's income tax for 1997 at a September 26, 1997 Bankruptcy Court confirmation hearing.
WITNESSES RESPONDENT EXPECTS TO CALL:
1. Respondent may call Alphonse Mourad.
Docket No. 7873-01 - 2 -
2. Respondent reserves the right to call rebuttal witnesses as necessary.
CURRENT ESTIMATE OF TRIAL TIME: 3 hours
SUMMARY OF FACTS:
The petitioner failed to file an individual tax return for the 1997 year, and a substitute for return was prepared by respondent. Petitioner was the sole 'shareholder of an S-Corporation, V&M Management, Inc., (V&M) that provided low income housing in the Boston area, which owned a 276 unit apartment complex, the Mandela Apartments. V&M filed for bankruptcy under Chapter 11 on January 6, 1996, with over $9 million in debts. The bankruptcy court appointed Stephen Gray as trustee of the bankruptcy estate on April 2, 1996. Since there were no corporate returns filed for 1995, 1996, and 1997, Mr. Gray had the 1995, 1996, and 1997 corporate returns (Forms 1120S) prepared by an independent accounting firm. The 1997 return was filed on October 2, 1998. The respondent accepted the 1997 return as filed. No low-income housing credit was claimed on the return. The Schedule K-l issued to petitioner by V&M Management, Inc., shows that the corporation received $2,088,554 of gain in 1997 due to the sale of assets, which flowed through to petitioner. There was a total section 1231 gain of $1,794,602, and a long term capital gain of $293,952. After adjustments for a carried forward interest expense deduction of $965,226, an unused net operating loss of $433,167, in addition to the standard deduction allowance of $4,150, petitioner's corrected individual taxable income was determined to be $686,011 for the 1997 year.
Pursuant to a plan confirmed by the bankruptcy court on July 26, 1997, the trustee sold V&M's interest in Mandela Apartments to Beacon Management, Inc. Petitioner claims that he should not be charged with a capital gain on the property because he was not the owner at the time of the sale, and that he should have been credited with a $14 million low income housing credit. Petitioner also alleges that respondent waived all claims for payment of his individual income tax at the bankruptcy confirmation hearing. However, petitioner has produced no evidence in support of this allegation.
Docket No. 7873-01 - 3
BRIEF SYNOPSIS OF LEGAL AUTHORITIES:
1. Petitioner's chief objection is not to respondent's calculation of the capital gain, but rather that the income earned and recapture of depreciation by the S-Corporation, V&M Management, Inc. (hereinafter "V&M") while in receivership should not be attributable to him.
In the bankruptcy case, petitioner was not a "debtor in possession," as in most Chapter 11 bankruptcies, where the debtor will usually remain in control of its business after a reorganization is commenced. 11 U.S.C. § 1101(1). In petitioner's case, the bankruptcy court ordered that a trustee be appointed, pursuant to 11 U.S.C. § 1104(a) . Trustees in bankruptcy who have possession or hold title to substantially all of the property or business of a corporation, whether or not they are operating the businesses or using the property, are required to file or make returns for the corporation in the same manner and form as the corporation. I.R.C. § 6012(b)(3); Treas. Reg. § 1.6012-3(b)(4). Although no separate taxable entity is crested in a corporate Chapter 11 reorganization pursuant to I.R.C. § 1399, the trustee is essentially charged with managing the affairs of the debtor, which includes the filing of corporate tax returns and the payment of taxes that are due. The trustee is also authorized to sign the returns on behalf of the debtor corporation. I.R.C. §§ 6062 and 6012(b)(3).
Since a separate taxable entity was not created by the corporate reorganization under Chapter 11 of the Bankruptcy Code, the corporation's income was taxed as it would have been outside of the bankruptcy. Therefore, in this case, the Sub-chapter S corporate income is not taxed at the corporate level, but is passed through and taxed to its shareholder in a manner similar to a partnership. I.R.C. § 1366. Items of income, loss, deductions, and credits are generally passed through to shareholders, and included on their tax returns in the same form as received, paid, or incurred by the corporation. Id. Thus, the Form K-l issued to petitioner accurately attributed to him the gain from the sale of property in 1997 by V&M.
2. Under I.R.C. § 42 (entitled "Low-Income Housing Credit") and I.R.C. § 38 (entitled "General Business Credit"), a non-refundable income tax credit can be claimed by the owner of a newly constructed or substantially rehabilitated qualified low-income housing project placed in service after 1986 and generally before July 1, 1992. I.R.C. §§ 42(a) and (o)(1); I.R.C. § 38(b) (5) .
Docket No. 7873-01
To qualify for ~.'r.e credit, the owner of a low-income building must be subject to a long-term low-income housing use agreement with a housing agency. I.R.C. § 42(h)(6)(A) and (D). Moreover, a building will not qualify unless there is a period of at least 10 years bet'.-:een the date of its acquisition by the taxpayer and the date the building was last placed in service. I.R.C. § 42 (d) (2) (B);ii). Petitioner has not yet provided evidence of the date V&M purchased the property and the date it was last placed in service. However, the trustee had the authority to act on behalf of V&M in preparing and filing tax returns. Thus, if the debtor was eligible for the credit, the trustee had the authority to claim it. By the plain terms of the statute, in order to claim the credit, the taxpayer had to have purchased the property and held it for 10 years to become eligible. V&M did r-c^ claim the low-income housing credit on .its 1997 Form 1.1203, nor is there any evidence that petitioner claimed this credit cr. an amended return for the 1997 year. Petitioner has produced no evidence that he is entitled to claim the low-income housir-g credit.
3. Petitioner has presented no evidence that respondent waived any claims for payme----: of petitioner's 1997 individual income taxes.
EVIDENTIARY PROBLEMS: None anticipated at this time.
Date:
MAY - 2 MB

CHRISTINE COLLEY / Senior Attorney (SBSE) / Tax Court Bar No. CC025R
Docket No. 7873-01
CERTIFICATE OF SERVICE
This is to certify that a copy of the foregoing TRIAL
MEMORANDUM FOR RESPONDENT was served on petitioner by mailing the
MAY - ^ Moz
same on _________________ in a postage paid wrapper addressed
as follows:
Alphonse Mourad 125 West Street Hyde Park, MA 02136
MAY - 2 20B.'
Date:

CHRISTINE COLLEY / Senior Attorney (SBSE) / Tax Court Bar No. CC025/J
Form 886A
Schedule No. or Exhibit A
Department ot'tbe Tre»«my - Internal Revenue Service
Explanation of Items
Name of Taxpayer Alphonse Mourad
Year/Period Ended
199712
A) CAPITAL GAIN
Per Return: 0 Per Examination: 2,088,554
Adjustment: $2,088,554
FACT: The Schedule K-l provided by Mr. Mourad from V & M Management Inc., a S corporation, shows capital gains from the sale of corporate assets. Mr. Mourad is the sole shareholder ofV&M Management Inc. The capital gains from the K-l are as follows:
Line 4e(2) Net Long Term Capital Gain $293,952
Line5a 28% Rate Gain Section 1231 19,136
Line5b Total 1231 Gain 1,794,602
Total Capital Gain 2,088,554
The Supplemental Information to the K-l shows $17,500 of Section 179 expense recapture (Section 1245) and $757,484 ofunrecaptured Section 1250 gain, both of which are included in the total section 1231 gain.
LAW:
I.R.C. Section 61. GROSS INCOME DEFINED.
(a) GENERAL DEFINITION.- Except as otherwise provided in this subtitle, gross income means all income from
whatever source derived, including (but not limited to) the following items:
(a)(3) Gains derived from dealings in property.
I.R.C. Section 1011. ADJUSTED BASIS FOR DETERMINING GAIN OR LOSS. (a) GENERAL RULE." The adjusted basis for determining the gain or loss from the sale or other disposition of property, whenever acquired, shall be the basis (determined under section 1012 or other applicable sections of this subchapter C (relating to corporate distributions and adjustments), K (relating to partners and partnerships), and P (relating to capital gains and losses)), adjusted as provided in section 1016.
I.R.C. Section 1012. BASIS OF PROPERTY-COST. The basis of the property shall be the cost of such property, except as otherwise provided in this subchapter and subchapters C (relating to partners and partnerships), and P relating to capital gains and losses). The cost of real property shall not include any amount in respect of real property taxes which are treated under section 164(d) as imposed by the taxpayer.
I.R.C. Section 1231. PROPERTY USED IN THE TRADE OR BUSINESS AND INVOLUNTARY
CONVERSIONS.
(a) GENERAL RULE-
(a)(l) GAINS EXCEED LOSSES.- tf-
(a)( 1 )(A) the section 1231 gains for any taxable year, exceed
(a)(l)(B) the sections 1231 losses for such taxable year,
such gains and losses shall be treated as long-term capital gains or long-term capital losses, as the case may be.
(b) DEFINITION OF PROPERTY USED IN THE TRADE OR BUSINESS.-For purposes of this section-
Form 886-A<rev.4-ti8) department="" of="" the="" treasury-internal="" revenue="" service<br="">Page; -1-
Form 886A
Schedule No. or Exhibit A
Department of the Treasury - Internal Revenue Service
Explanation of Items
Name of Taxpayer Alphonse Mourad
Year/Period Ended
199712
(b)(l) GENERAL RULE.- The term "property used in the trade or business" means property used in the trade or business, of a character which is subject to the allowance for depreciation provided in section 167, held more than 1 year, and real property used in the trade or business, held more than 1 year, which is not-
I.R.C. Section 1245. GAIN FROM DISPOSITION OF CERTAIN DEPRECIABLE PROPERTY.
(a) GENERAL RULE.-
(a)(l) ORDINARY INCOME.- Except as otherwise provided in this section, if section 1245 property is disposed of
the amount by which the lower of-
(a)(l)(A) the recomputed basis of the property, or
(a)(l)(B)(i) in the case of a sale, exchange, or involuntary conversion, the amount realized, or
(a)(l)(B)(ii) in the case of any other disposition, the fair market value of such property,
exceeds the adjusted basis of such property shall be treated as ordinary income. Such gain shall be recognized
notwithstanding any other provision of this subtitle.
(aX3) SECTION 1245 PROPERTY.-For purposes of this section, the term "section 1245 property" means any
property which is or has been property of a character subject to the allowance for depreciation provided in section
167 and is either--
(a)(3)(C) so much of any real property (other than any property described in subparagraph B)) which has an adjusted
basis in which there are reflected adjustments for amortization under section 169, 179...
I.R.C. Section 1250. GAIN FROM DISPOSITIONS OF CERTAIN DEPRECIABLE REALTY.
(a)GENERAL RULE.- Except as otherwise provided in this section-
(a)(l) ADDITIONAL DEPRECIATION AFTER DECEMBER 31, 1975.-
(a)OXA) IN GENERAL.- If section 1250 property is disposed of after December 31,1975, then the applicable
percentage of the lower of-
(a)(I)(A)(i) that portion of the additional depreciation (as defined in subsection (b)(l) or (4) attributable to periods
after December 31, 1975, in respect of the property, or
(a)(l)(A)(ii) the excess of the amount realized (in the case of a sale exchange, or involuntary conversion),or the fair
market value of such property (in the case of a disposition), over the adjusted basis of such property,
shall be treated as a gain which is ordinary income. Such gain shall be recognized notwithstanding any other provision of this subtitle.
GOVERNMENT'S POSITION: That the K-l issue to Mr. Mourad by V & M Management Inc. shows that the company received $2,088,554 of gain in 1997 due to the sale of assets. The Sections 1245 and 1250 recapture total $774,984 which is treated as ordinary income. The Section 1231 property that is to be taxed at 28% is $19,136. The remaining gain of $1,294,434 is to be taxed at the long-term capital gain rate.
MR. MOURAD'S POSITION: He also stated that he was not the owner of the corporation. The corporation filed for bankruptcy and the judge appointed a trustee to administer the corporation. Mr. Mourad stated that the bankruptcy judge said that the bankruptcy trustee is-the owner of the corporation.
GOVERNMENT'S REPLY TO MR. MOURAD: That the income reported on the K-l will be reported by Mr. Mourad on his 1997 Form 1040. Internal Revenue Code Section 1399 states that "no separate taxable entity shall result from the commencement of a case under title 11 of the United States Code". This provision insures that a separate taxable entity is not established upon commencement of bankruptcy proceedings. The bankruptcy trustee is required to file annual information returns for a partnership and must file annual income tax returns and pay corporate income tax for a corporation. The case of Harbor Village Development, BC-DC Mass., 95-1 USTC illustrates this
Form 88<s-a<rev.-k8) department="" of="" the="" treaiiiy-="" internal="" revenue="" service<br="">Page:-2-
Form 886A
Schedule No. or Exhibit A
Department of the Treasury - Internal Revenue Service
Explanation of Items
Name of Taxpayer Alphonse Mourad
Year/Period Ended
199712
concept "The partners of a partnership in bankruptcy, not the Chapter 11 estate, were liable for the payment of federal and state income taxes incurred during the trustee's administration of the estate because filing of the partnership's bankruptcy case did not create a separate taxable entity. The income from the post-petition operation of the partnership's shopping center was used to satisfy the claims of the partners creditors and inured to the partners benefit.".
Form 886-A<rev.4-<m)
Department of the Treasury - Internal Revenue Service
Page: -3-
Form 886A
Schedule No. or Exhibit C
Department of the Treasuiy - Internal Revenue Service
Explanation of Items
Name of Taxpayer Alphonse Mourad
Year/Period Ended
1997
C) INVESTMENT INTEREST EXPENSE
Per the Return: 0 Per Examination: 265,226 Adjustment: (965,226)
FACT: The 1994 Form 1040 that Mr. Mourad filed shows disallowed investment interest expense of $965,226 to be carried forward to 1995. The 1995 Form 1040 that Mr. Mourad filed did not utilize any of the interest expense.
Mr. Mourad was the sole shareholder ofV&M Management hie., an S corporation. The corporation was forced into chapter 11 bankruptcy. A trustee was appointed by the bankruptcy judge to administer V & M Management in 1996. The K-l issued to Mr. Mourad by the trustee for 1997 reflects income that is to be reported on the shareholders 1997 Form 1040. The examination division prepared a substitute for return for 1996 and 1997 as Mr. Mourad did not file these returns. The purpose of this adjustment is to give Mr. Mourad the benefit of the unused investment interest expense.
LAW:
SECTION 163. INTEREST.
(a) GENERAL RULE.- There shall be allowed as a deduction all interest paid or accrued within the taxable year on
indebtedness.
(d) LIMITATION ON INVESTMENT INTEREST. -
(1) IN GENERAL.-In the case of a taxpayer other than a corporation, the amount allowed as a deduction under this
chapter for investment interest for any taxable year shall not exceed the net investment income of the taxpayer for the
taxable year.
(4)(B)(2) INVESTMENT INCOME.- The term "investment income" means the sum of-
(i) gross income from property held for investment (other than any gain taken into account under clause (ii)(l),
(ii) the excess (if any) of-
(I) the net capital gains attributable to the disposition of property held for investment, over
(II)the net capital gain determined by only taking into account gains and losses from dispositions of property held for investment, plus
(iii) so much of the net capital gain referred to in clause (ii)(II)(or, if lesser, the net gain referred to in clause (ii)(I) as the taxpayer elects to take into account under this clause.
GOVERNMENTS POSITION: That Mr. Mourad should be allowed an investment interest expense of $965,226 to reduce his taxable income for 1997.
MR. MOURADS POSITION: That the bankruptcy trustee for V & M Management is liable for any taxes resulting from income of the corporation. He does not want his investment interest expense to be used to offset the trustee's income.
GOVERNMENTS REPLY: The income from an S corporation in bankruptcy still flows to the shareholder per IRC 1399. This section is discussed on the schedules that relate to income.
Form 886-A(Rev.4-(S8) Department of the Treasury * Internal Revenue Service
Page; -1-
Form 886A
Schedule No. or Exhibit D
'Department of the TtCtaury - Internal Revenue Service
Explanation of Items
Name of Taxpayer Alphonse Mourad
Year/Period Ended
1997
GOVERNMENTS REPLY: The income from a S corporation in bankruptcy still flows to the shareholder per IRC 1399. This section is discussed on the schedules that relate to income.
Form 886-A(Rev.4-68)
Department of the Treasury - Internal Revenue Service
Page:-2-
Form 886A
Schedule No. or Exhibit E
Department of the Treasury - Internal Revenue Service
Explanation of Items
Name of Taxpayer Alphonse Mourad
Year/Period Ended
1996 and 1997
E) SCHEDULE E
1997
1996
Per Return: 0 Per Examination: 998
Adjustment: 998 0
FACT: Mr. Mourad did not file a Form 1040 income tax return for 1996 and 1997. A substitute for return was filed for Mr. Mourad by the examination division. The examination results for this issue were determined by using documentation and oral testimony provided by Mr. Mourad.
Mr. Mourad is the sole shareholder ofV&M Management. V & M Management is an S corporation. V & M Management filed for Chapter 11 bankruptcy in 1996. The bankruptcy court appointed a trustee to manage V & M Management in the beginning of 1996 according to Mr. Mourad. Mr. Mourad did not actively participate in the operation of V & M Management in 1996. Mr. Mourad had prior year unallowed passive activity loss of $1,029,809. The 1996 K-l issued to Mr. Mourad by the trustee for V & M Management shows $487,860 of rental income and $353,556 of interest income. The 1997 K-l issued to Mr. Mourad by the trustee for V & M Management shows ordinary loss of $1,006,904, rental income of $810,687 and interest income of $397,496. The interest income is imputed interest on a loan to the shareholder. V & M Management is in the business of renting residential properties.
Mr. Mourad also owned a rental property in Hyde Park, MA. Mr. Mourad stated that the net income from this property was the same in 1996 and 1997 as it was in 1995. The net income from this rental property according to Mr, Mourad's 1995 return was $998.
LAW: IRC 469(c) PASSIVE ACTIVITY DEFINED.-For purposes of this section-
(1) IN GENERAL.-The term "passive activity" means any activity-
(A) which involves the conduct of any trade or business, and
(B) in which the taxpayer does not materially participate.
(2) PASSIVE ACTIVITY INCLUDES ANY RENTAL ACTIVITY.- Except as provided in paragraph (7), the term "passive activity" includes any rental activity.
IRS Regulation 1.469-7T. Treatment of certain lending transactions between taxpayers and passthrough entities. (a) In general-(l) Applicability and effect of rules. This section sets forth rules that apply, for purposes of section
469 and the regulations thereunder, in the case of a lending transaction between a taxpayer and a passthrough entity
in which the taxpayer owns a direct or qualifying interest. The rules-(i) Treat certain interest income resulting from these lending transactions as passive activity income;
IRS Regulation 1.179-2(c)(5). Ordering rule for circular problems-COIn General. A taxpayer who elects to expense the cost of section 179 property (the deduction of which of which is subject to the taxable income limitation) also may have to apply another Internal Revenue Code section that has a limitation based on the taxpayer's taxable income. .... First, taxable income is computed for the other section of the Internal Revenue Code....
Fonn 886-A(R«v.4^8) Department of the TrcMUly- Internal Revenue Service
Page:-l-
Form 886A
Dep»runent of the Tieaamy - Internal Revenue Service
Explanation of Items
Schedule No. or Exhibit E
Name of Taxpayer Alphonse Mourad
Year/Period Ended
1996 and 1997
COMPUTATION:
1996
0 487,860 353,556
841,416
17,500
1997
(1,006,904) 810,687 397,496
201,279
(188,393) 201,279
(188,393) 12,886
0 17,500 13,884
998
3,616
Passive losses
Passive income
Self charged interest income
Total passive income
Prior year unallowed losses (1,029,809) Total passive income 841,416
Total PAL allowed (841,416)
Passive income 0
Section 179 per K-l 17,500
Section 179 carryover used 0
Section 179 deduction used 0
Section 179 carryover
Rental Income 998
Schedule E Income 998
GOVERNMENTS POSITION: That the Schedule E income for 1996 is $998 and zero for 1997. Mr. Mourad had made a election in a prior year to treat the self-imputed interest as passive income per Regulation 1.469-7T. Mr. Mourad was removed from active management and participation in the operation of the corporation so the income from the rental activities is passive income. The passive losses washed out the passive income so there is no benefit to Mr. Mourad in using the Section 179 deduction in 1996. Regulation 1.179-(2)(c)(5) states that the deductions for other sections are applied before the Section 179 deduction. The unused 1996 Section 179 deduction was carried forward to 1997. The fact that Mr. Mourad did not actively participate in the operation of the company during 1996 and 1997 should not deny him the use of this deduction as his intent was to actively participate. He was removed from managing the company by the bankruptcy judge in 1996.
MR. MOURAD'S POSITION: That the income flowing from V & M Management is not his as he never received it. He stated that the income belongs to the trustee and not him. He stated that his prior losses should not be used to offset income of the trustee. He wants to keep the prior losses to offset his future income.
GOVERNMENT'S REPLY; That IRS Section 1399 states "Except in any case to which section 1398 applies, no separate taxable entity shall result from the commencement of a case under title 11 of the United States Code". This section is illustrated by the case of Harbor Village, BC-DC Mass., 95-1 USTC "A partnership's filing of a Chapter 11 bankruptcy case did not create a separate taxable entity; thus, the partner's, and not the bankruptcy estate, were liable for the payment of federal and state (Massachusetts) income tax during the trustee's administration of the estate. Although the partners did not actually receive the profits from the post-petition operation of the partnership's shopping center, the income was used to satisfy the claims of the partners creditors and inured to the partners benefit.". The income and losses reported by the company on the K-l are reportable by Mr. Mourad and not the bankruptcy trustee.
Form 886-A(Rev.4-68)
Department of the Treasury - Internal Revenue Service
Page: -2-
Form 886A
Schedule No. or Exhibit D
Department of the Treasury - Internal Revenue Service
Explanation of Items
Name of Taxpayer Alphonse Mourad
Year/Period Ended
1997
D) NET OPERATING LOSS
Per Return: 0 Per Examination: (43 3,167)
Adjustment: (433,167)
FACT: According to the 1994 Form 1040 filed by Mr. Mourad he had unused net operating losses of $488,507 that were created in 1984, 1985 and 1986. On Mr. Mourads 1995 Form 1040, that was prepared by the examination division, 355,340 of the net operating loss was used. The remaining amount of unused net operating loss is $433,167.
Mr. Mourad was the sole shareholder ofV&M Management Inc., an S corporation. The corporation was forced into chapter 11 bankruptcy. A trustee was appointed by the bankruptcy judge to administer V & M Management in 1996. The K-l issued to Mr. Mourad by the trustee for 1997 reflects income that is to be reported on the shareholders 1997 Form 1040. The examination division prepared a substitute for return for 1996 and 1997 as Mr. Mourad did not file these returns. The purpose of this adjustment is to give Mr. Mourad the benefit of his unused net operating loss.
LAW:
I.R.C. Section 172. NET OPERATING LOSS,
(a) DEDUCTION ALLOWED.-There shall be allowed as a deduction for the taxable year an amount equal to the aggregate of(l) the net operating loss carryovers to such year, plus (2) the net operating loss carrybacks to such year. For purposes of this subtitle, the term "net operating loss deduction" means the deduction allowed by this subsection.
(b) NET OPERATING LOSS CARRYBACKS AND CARRYOVERS.-
(1) YEARS TO WHICH LOSS MAY BE CARRIED.-
(A) GENERAL RULE.-Except as otherwise provided in this paragraph, a net operating loss for any taxable year-
(ii) shall be the net operating loss carryover to each of the 15 taxable years following the loss.
(E)(2) AMOUNT OF CARRYBACKS AND CARRYOVERS.-The entire amount of the net operating loss for any
taxable year (hereinafter in this section referred to as the "loss year") shall be carried to the earliest of the taxable
years to which (by reason of paragraph (1)) such loss may be carried. The portion of such loss which shall be carried
to each of the other taxable years shall be the excess, if any, of the amount of such loss over the sum of the taxable
income for each of the prior taxable years to which such loss may be carried.
GOVERNMENTS POSITION: Mr. Mourad has unused net operating loss carryovers of $433,167 which should be used to reduce his taxable income for 1997. The full amount of the remaining net operating loss carryover was used in 1997.
MR. MOURADS POSITION: That the bankruptcy trustee for V & M Management owns the corporation and is liable for all taxes resulting from the income from the corporation.
Form 886-A<rcv.4-68) department="" of="" the="" treasury-internal="" revenue="" service<br="">Page: -1-
Now.,. the rest of the stories.
page 5 August 10,2000 [Vol. 21, No. 29]

Worry in Mandela
Despite new ownership, tenants fret
- - : *-:. *_ <*»",' *-. ^ jnr~ -i.T^-';^-,^
over future
BY LESLIE ROBAflCC
STAffWRtrfR
In September, 1W, the Boston Redevelopment Authority ap-proved the creation of a limited partnership between Washington Street's Mandela Home! and Bea-con Residential Properties (an agreement which would eventu-ally allow the residents to become ownen) [Daily residents and com-munity activists bdicved the court-room drama would be over for good.
Unfortunately, it was only the. beginning. - - ' -
Nearly three }eai» since tocBRA's move, some dissatisfied residents have argued (and taken to court) claims that UK Mandela tenants' oiguuzanon was elected through ..iU)»g«l--l>)tla«Rrt«Bd^a covspwf. among the board of directors.
Qthersaiguethatlhetdflg-sou^ht rehabilitation, which "was co(n-pleted in Septenibcx, 1999, was done haphazardly and is itill in-complete-
But snore ominously, some resi-dents point to the reccnteviction of a long-time resident, Grace Romefo, as.lbc Gist move by the partnership between the board of directon and die Beacon Rcsiden-tial to remove tenants.
"Anybody who has lived here for 30 years does not deserve this Und of Ireaftnenr,"' uid Mandela resi-dent Thelrna Ban-os.
While soine residents {many sup-
porters offoiiner owner Alphonsc Mouiad who lost control- of the property in a bankruptcy ruling) are convinced (hicy will lose their homes, die management organiza-tion appwvcdtiylhecity to nm the 276-unit complex said titose fear's .ace unfounded.
*Beacon Residential Properties president Howard Cohen believes that the suspicion among the ten-ants glow during Mourad's owner-ship, and continues ihongh hccom-panyislceputgMandcla'stinanccs above water.
"There u still an enroninpus amount of distrust among tenants. y& well as the developer. We've ful-filled our obligations. The develop-ment has a resident organization with funding. The community, lias had a hard time pulling itself to-
Continues on page 13

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