internal_revenue_service number release date index number department of the treasury washington dc person to contact ------------------------------ id no ------------ --------- telephone number ---------------------- refer reply to cc psi b04 - plr-120840-16 date date ---------------------- ---------------------------- ---------------------------------- --------------------------- legend date grantor distribution committee -------------------- ------------------------------------------------------------- ----------------------------------------------------------------------------- ---------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- --------------------------------------------------- son son daughter daughter daughter granddaughter granddaughter trust ------------------------------------------------------- ------------------------------------------------------- ---------------------------------------------------------- ------------------------------------------------- --------------------------------------------------- ----------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------------------------ -------------------------------------------------------------------------------------- foundation state trustee permissible beneficiaries ----------------------------------------------------------------------------- -------------------------------------------------------- -------------- ------------------------------------------------------- --------------------------------------------------------- dear ------------------ plr-120840-16 this letter responds to your authorized representative’s letter of date requesting rulings under sec_671 sec_2501 sec_2514 and sec_2041of the internal_revenue_code the facts submitted and representations made are as follows on date grantor created an irrevocable_trust trust for the benefit of himself his descendants and foundation permissible beneficiaries a corporate trustee trustee is the sole trustee trust is represented to be a domestic_trust sited in state and pursuant to the trust agreement is governed by the laws of state during grantor’s lifetime trustee must distribute such amounts of net_income and or principal of trust to grantor and the permissible beneficiaries as directed by the distribution committee and or grantor as follows trustee pursuant to the direction of a majority of the distribution committee with the written consent of grantor shall distribute to or for the benefit of the permissible beneficiaries all or any portion of the net_income and principal of trust grantor’s consent power trustee pursuant to the direction of all of the distribution committee members shall distribute to any permissible beneficiaries all or any portion of the net_income or principal of trust unanimous member power and at any time trustee shall distribute to any of the permissible beneficiaries other than grantor and foundation all or any portion of the principal of trust as the grantor directs for the health education maintenance or support of the permissible beneficiaries grantor’s sole power such distribution power shall be exercisable by the grantor in a nonfiduciary capacity the distribution committee may appoint income or principal equally or unequally and to or for the benefit of any one or more of the permissible beneficiaries of trust to the exclusion of others any net_income not distributed by trustee will be accumulated and added to principal upon the death of grantor trustee shall distribute the remaining property of trust as grantor appoints in grantor’s last will in any manner and in favor of any person other than grantor’s estate the grantor’s creditors or the creditors of grantor’s estate grantor’s testamentary power any remaining property held in trust that has not been effectively appointed by will shall be distributed to trusts for the benefit of grantor’s descendants the distribution committee is initially composed of son son daughter daughter and daughter trust provides that at all times at least two adult plr-120840-16 individuals who are permissible beneficiaries other than grantor must be members of the distribution committee if at any time there are fewer than three adult members serving on the distribution committee then the vacancy will be filled in the following order first by granddaughter and then by granddaughter grantor shall not serve as a member of the distribution committee the members of the distribution committee shall serve or act in a non-fiduciary capacity the distribution committee ceases to exist upon the earlier of the death of grantor or the date the distribution committee has less than two members other than grantor if the distribution committee ceases to exist during grantor’s life distributions to the beneficiaries may only be made to the grantor’s descendants pursuant to the grantor’s sole power the permissible beneficiaries grantor and trustee are all united_states persons within the meaning of sec_7701 trust provides that grantor also has the authority and responsibility exercisable solely in a fiduciary capacity to direct the trustee of the trust with respect to all decisions of the trust relating to the investment management and voting powers granted to the trustee with respect to trust property you have requested the following rulings as long as the distribution committee is serving no portion of the items of income deductions and credits against tax of trust shall be included in computing the taxable_income deductions and credits of grantors or any member of the distribution committee under sec_671 the contribution of property to trust by grantor will not be a completed_gift subject_to federal gift_tax any distribution_of_property by the distribution committee from trust to grantor will not be a completed_gift subject_to federal gift_tax by any member of the distribution committee any distribution_of_property by the distribution committee from trust to any beneficiary of trust other than to grantor will not be a completed_gift subject_to federal gift_tax by any member of the distribution committee the members of the distribution committee do not possess a general_power_of_appointment within the meaning of sec_2041 and accordingly trust will not be includible in any distribution committee member’s gross_estate under sec_2041 ruling sec_671 provides that where it is specified in subpart e of part i of subchapter_j that the grantor or another person shall be treated as the owner of any portion of a plr-120840-16 trust there shall then be included in computing the taxable_income and credits of the grantor or the other person those items of income deductions and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under chapter in computing taxable_income or credits against the tax of an individual sec_672 provides for purposes of subpart e the term adverse_party means any person having a substantial_beneficial_interest in the trust which would be adversely affected by the exercise or nonexercise of the power which he possesses respecting the trust sec_673 through specify the circumstances under which the grantor is treated as the owner of a portion of a_trust sec_673 provides that the grantor shall be treated as the owner of any portion of a_trust in which the grantor has a reversionary_interest in either the corpus or the income therefrom if as of the inception of that portion of the trust the value of such interest exceeds five percent of the value of such portion sec_674 provides in general that the grantor shall be treated as the owner of any portion of a_trust in respect of which the beneficial_enjoyment of the corpus or the income therefrom is subject_to a power of disposition exercisable by the grantor or a nonadverse_party or both without the approval or consent of any adverse_party sec_674 provides that sec_674 shall not apply to the powers described in sec_674 regardless of whom held sec_674 provides that sec_674 shall not apply to a power exercisable only by will other than a power in the grantor to appoint by will the income of the trust where the income is accumulated for such disposition by the grantor or may be so accumulated in the discretion of the grantor or a nonadverse_party or both without the approval or consent of any adverse_party sec_674 provides that sec_674 shall not apply to a power to distribute corpus to or for a beneficiary provided that the power is limited by a reasonably_definite_standard under sec_675 and applicable regulations the grantor is treated as the owner of any portion of a_trust if under the terms of the trust agreement or circumstances attendant on its operation administrative control is exercisable primarily for the benefit of the grantor rather than the beneficiary of the trust plr-120840-16 sec_675 provides that the grantor shall be treated as the owner of any portion of a_trust in respect of which a power_of_administration is exercisable in a nonfiduciary capacity by any person without the approval or consent of any person in a fiduciary capacity for purposes of sec_675 the term power_of_administration includes a a power to vote or direct the voting of stock or other_securities of a corporation in which the holdings of the grantor and the trust are significant from the viewpoint of voting control and b a power to control the investment of the trust funds either by directing investments or reinvestments or by vetoing proposed investments or reinvestments to the extent that the trust funds consist of stocks or securities of corporations in which the holdings of the grantor and the trust are significant from the viewpoint of voting control under sec_675 the power_of_administration includes the power to control the investment of the trust funds either by directing investments or reinvestment sec_1_675-1 of the income_tax regulations provides that if a power is not exercisable by a person as trustee the determination of whether the power is exercisable in a fiduciary or a nonfiduciary capacity depends on all the terms of the trust and the circumstances surrounding its creation and administration sec_676 provides that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under any other provision of part i subchapter_j chapter where at any time the power to revest in the grantor title to such portion is exercisable by the grantor or a nonadverse_party or both sec_677 provides in general that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such owner under sec_674 whose income without the approval or consent of any adverse_party is or in the discretion of the grantor or a nonadverse_party or both may be distributed to the grantor or the grantor's spouse held or accumulated for future distribution to the grantor or the grantor's spouse or applied to the payment of premiums on policies of insurance on the life of the grantor or the grantor's spouse sec_678 provides that a person other than the grantor shall be treated as the owner of any portion of a_trust with respect to which such person has a power exercisable solely by himself to vest the corpus or the income therefrom in himself or such person has previously partially released or otherwise modified such a power and after the release or modification retains such control as would within the principles of inclusive subject a grantor of a_trust to treatment as the owner thereof sec_679 provides that a united_states_person who directly or indirectly transfers property to a foreign_trust shall be treated as the owner for his taxable_year of the portion of such trust attributable to such property if for such year there is a united_states_beneficiary of any portion of such trust plr-120840-16 accordingly based solely on the facts submitted and the representations made we conclude that an examination of trust reveals none of the circumstances that would cause grantor to be treated as the owner of any portion of trust under sec_673 sec_674 sec_676 or sec_677 as long as the distribution committee remains in existence also as long as trust is a domestic_trust grantor will not be treated as the owner of any portion of trust under sec_679 we cannot determine at this time whether grantor will be treated as the owner of trust under sec_675 the circumstances surrounding the administration of trust determine whether grantor holds the power_of_administration in a fiduciary capacity this is a question of fact the determination of which must be deferred until the federal_income_tax returns of the parties involved have been examined by the office of the district_director having examination jurisdiction over the returns further because none of the members of the distribution committee has a power exercisable by himself to vest trust income or corpus in himself none shall be treated as the owner of trust under sec_678 ruling sec_2 and sec_2501 provides that a tax is imposed for each calendar_year on the transfer of property by gift during such calendar_year by any individual resident or nonresident sec_2511 provides that the gift_tax applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-2 of the gift_tax regulations provides that a gift is complete as to any property or part thereof or interest therein of which the donor has so parted with dominion and control as to leave in the donor no power to change its disposition whether for his own benefit or for the benefit of another but if upon a transfer of property whether in trust or otherwise the donor reserves any power over its disposition the gift may be wholly incomplete or may be partially complete and partially incomplete depending upon all the facts in the particular case accordingly in every case of a transfer of property subject_to a reserved power the terms of the power must be examined and its scope determined sec_25_2511-2 provides an example where the donor transfers property to another in trust to pay the income to the donor or accumulate it in the discretion of the trustee and the donor retains a testamentary power to appoint the remainder among the donor's descendants the regulation concludes that no portion of the transfer is a completed_gift however if the donor had not retained a testamentary_power_of_appointment but instead provided that the remainder should go to x or his heirs the plr-120840-16 entire transfer would be a completed_gift sec_25_2511-2 provides that a gift is incomplete in every instance in which a donor reserves the power to revest the beneficial title in himself or herself a gift is also incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries as between themselves unless the power is a fiduciary power limited by a fixed_or_ascertainable_standard under sec_25_2511-2 a donor is considered as himself having a power if it is exercisable by the donor in conjunction with any person not having a substantial adverse_interest in the disposition of the transferred property or the income therefrom a trustee as such is not a person having an adverse_interest in the disposition of the trust property or its income sec_25_2511-2 provides that the relinquishment or termination of a power to change the beneficiaries of transferred property occurring otherwise than by death of the donor is regarded as the event which completes the gift and causes the gift_tax to apply sec_25_2511-2 provides that if a donor transfers property to himself as trustee or to himself and some other person not possessing a substantial adverse_interest as trustees and retains no beneficial_interest in the trust property and no power over it except fiduciary powers the exercise or nonexercise of which is limited by a fixed_or_ascertainable_standard to change the beneficiaries of the transferred property the donor has made a completed_gift and the entire value of the transferred property is subject_to the gift_tax sec_25_2511-2 does not define substantial adverse_interest sec_25_2514-3 provides in part that a taker in default of appointment under a power has an interest that is adverse to an exercise of the power sec_25_2514-3 also provides that a co-holder of a power is considered as having an adverse_interest where he may possess the power after the possessor's death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate in 308_us_39 the taxpayer created a_trust for the benefit of named beneficiaries and reserved the power_to_revoke the trust in whole or in part and to designate new beneficiaries other than himself six years later in the taxpayer relinquished the power_to_revoke the trust but retained the right to change the beneficiaries in the taxpayer relinquished the right to change the beneficiaries the court stated that the taxpayer’s gift is not complete for purposes of the gift_tax when the donor has reserved the power to determine those others who would ultimately receive the property accordingly the court held that the taxpayer's plr-120840-16 gift was complete in when he relinquished his right to change the beneficiaries of the trust a’s retention of a power to change the beneficial interests in a_trust causes the transfer to the trust to be incomplete for gift_tax purposes even though the power may be defeated by the actions of third parties 37_tc_897 see also 51_tc_352 in this case grantor retained the grantor’s consent power over the net_income and principal of trust under sec_25_2511-2 a donor is considered as himself having a power if it is exercisable by him in conjunction with any person not having a substantial adverse_interest in the disposition of the transferred property or the income therefrom the distribution committee members are not takers in default for purposes of sec_25_2514-3 they are merely co-holders of the power under sec_25_2514-3 a co-holder of a power is only considered as having an adverse_interest where he may possess the power after the possessor's death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate in this case the distribution committee ceases to exist upon the death of grantor accordingly the distribution committee members do not have interests adverse to grantor under sec_25_2514-3 and for purposes of sec_25_2511-2 therefore grantor is considered as possessing the power to distribute net_income and principal to any beneficiary himself because he retained the grantor’s consent power grantor also retained the grantor’s sole power over the principal of trust under sec_25_2511-2 a gift is incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries as between themselves unless the power is a fiduciary power limited by a fixed_or_ascertainable_standard in this case the grantor’s sole power gives grantor the power to change the interests of the beneficiaries even though grantor's power is limited by an ascertainable_standard ie health education maintenance and support grantor's power is not a fiduciary power accordingly the retention of the grantor’s consent power and the grantor’s sole power causes the transfer of property to trust to be incomplete for federal gift_tax purposes further grantor retained the grantor’s testamentary power to appoint the property in trust to any persons other than to the grantor’s estates grantor’s creditors or the creditors of grantor’s estates under sec_25_2511-2 the retention of a testamentary power to appoint the remainder of a_trust is considered a retention of dominion and control_over the remainder accordingly the retention of this power causes the transfer of property to trust to be incomplete with respect to the remainder for federal tax purposes finally the distribution committee members possess the unanimous member power over net_income and principal this power is not a condition_precedent to grantor’s powers grantor’s powers over the net_income and principal are presently plr-120840-16 exercisable and not subject_to a condition_precedent grantor retains dominion and control_over the net_income and principal of trust until the distribution committee members exercise their unanimous member power accordingly the unanimous member power does not cause the transfer of property to be complete with respect to the income_interest for federal gift_tax purposes see 37_tc_897 51_tc_352 accordingly based on the facts submitted and the representations made we conclude that the contribution of property to trust by grantor is not a completed_gift subject_to federal gift_tax any distribution from trust to grantor is merely a return of grantor’s property therefore we conclude that any distribution_of_property from trust by the distribution committee to grantor will not be a completed_gift subject_to federal gift_tax by any member of the distribution committee further upon the death of grantor the fair_market_value of the property in trust is includible in his gross_estate for federal estate_tax purposes ruling sec_4 and sec_2514 provides that the exercise or release of a general_power_of_appointment created after date shall be deemed a transfer of property by the individual possessing such power sec_2514 provides that the term general_power_of_appointment means a power which is exercisable in favor of the individual possessing the power possessor the possessor's estate the possessor's creditors or the creditors of the possessor's estate sec_25_2514-1 provides that a power_of_appointment is not a general power if by its terms it is exercisable only in favor of one or more designated persons or classes other than the possessor or his creditors or the possessor's estate or the creditors of the estate or expressly not exercisable in favor or the possessor or his creditors or the possessor’s estate or the creditors of his estate sec_2514 provides that in the case of a power_of_appointment created after date if the power is exercisable by the possessor only in conjunction with the creator of the power such power is not deemed a general_power_of_appointment sec_2514 provides that in the case of a power_of_appointment created after date if the power is not exercisable by the possessor except in conjunction with a person having a substantial interest in the property subject_to the power which is adverse to the exercise of the power in favor of the possessor such power shall not be deemed a general_power_of_appointment for purposes of plr-120840-16 sec_2514 a person who after the death of the possessor may be possessed of a power_of_appointment with respect to the property subject_to the possessor's power which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the possessor's power sec_25_2514-3 provides in part that a coholder of a power has no adverse_interest merely because of his joint possession of the power nor merely because he is a permissible appointee under a power however a co-holder of a power is considered as having an adverse_interest where he may possess the power after the possessor's death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate thus for example if x y and z held a power jointly to appoint among a group of persons which includes themselves and if on the death of x the power will pass to y and z jointly then y and z are considered to have interests adverse to the exercise of the power in favor of x similarly if on y's death the power will pass to z z is considered to have an interest adverse to the exercise of the power in favor of y sec_2041 provides that the value of the gross_estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of death a general_power_of_appointment created after date or with respect to which the decedent has at any time exercised or released such a power by a disposition which is of such nature that if it were a transfer of property owned by the decedent such property would be includible in the decedent's gross_estate under sec_2035 to inclusive under sec_2041 the term general_power_of_appointment is defined in relevant part to mean a power which is exercisable in favor of the decedent his estate his creditors or the creditors of his estate sec_2041 provides however that in the case of a power_of_appointment created after date if the power is not exercisable by the decedent except in conjunction with the creator of the power such power is not deemed a general_power_of_appointment sec_2041 provides however that in the case of a power_of_appointment created after date if the power is not exercisable by the decedent except in conjunction with a person having a substantial interest in the property subject_to the power which is adverse to the exercise of the power in favor of the decedent -- such power shall not be deemed a general_power_of_appointment for purposes of sec_2041 a person who after the death of the decedent may be possessed of a power_of_appointment with respect to the property subject_to the decedent's power which he may exercise in his own favor shall be deemed as having plr-120840-16 an interest in the property and such interest shall be deemed adverse to such exercise of the decedent's power sec_20_2041-3 of the estate_tax regulations provides in part that a co-holder of a power_of_appointment has no adverse_interest merely because of his joint possession of the power nor merely because he is a permissible appointee under a power however a co-holder of a power is considered as having an adverse_interest where he may possess the power after the decedent's death and may exercise it at that time in favor of himself his estate his creditors or the creditors of his estate thus for example if x y and z held a power jointly to appoint among a group of persons which includes themselves and if on the death of x the power will pass to y and z jointly then y and z are considered to have interests adverse to the exercise of the power in favor of x similarly if on y's death the power will pass to z z is considered to have an interest adverse to the exercise of the power in favor of y the power held by the distribution committee members under the grantor’s consent power is a power that is exercisable only in conjunction with the creator grantor accordingly under sec_2514 and sec_2041 the distribution committee members do not possess general powers of appointment by virtue of possessing this power further the power held by the distribution committee members under the unanimous member power is not a general_power_of_appointment for purposes of sec_2514 and sec_2041 as in the examples in sec_25_2514-3 and c the distribution committee members have substantial adverse interests in the property subject_to this power accordingly any distribution made from trust to a beneficiary other than to grantor pursuant to the exercise of these powers the grantor's consent power and the unanimous member power are not gifts by the distribution committee members instead such distributions are gifts by grantor based on the facts and representations made we conclude that any distribution_of_property from trust by the distribution committee to any beneficiary of trust other than grantor will not be a completed_gift subject_to federal gift_tax by any member of the distribution committee further we conclude that any distribution_of_property from trust to a beneficiary other than to grantor will be completed gifts by grantor finally we conclude that the powers held by the distribution committee are not general powers of appointment for purposes of sec_2041 and accordingly no member of the distribution committee upon his or her death will include in his or her estate any property held in trust because such member is deemed to have a general_power_of_appointment within the meaning of sec_2041 over property held in trust except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code specifically we express no opinion on the trust provisions plr-120840-16 permitting trustee to distribute income or principal to trustees of other trusts decanting this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely enclosure copy for sec_6110 purposes lorraine e gardner lorraine e gardner senior counsel branch office of associate chief_counsel passthroughs and special industries


internal_revenue_service department of the treasury index number number release date washington dc person to contact telephone number refer reply to cc dom p si plr-115989-98 date date legend donor trust company trustee trustee trustee state statutes tin this is in response to your letter of date and prior correspondence in which you requested rulings concerning the income gift estate and generation- skipping transfer_tax consequences of a proposed partition of a_trust donor created trust in for the benefit of his issue and the spouses of his issue trust’s corpus consists primarily of stock in company trust is irrevocable and trustee trustee and trustee are the current trustees of trust article dollar_figure provides that the beneficiaries of the trust are identified by classes article i provides that the class one beneficiaries shall consist of donor’s children article ii provides that the class two beneficiaries shall consist of donor’s grandchildren article dollar_figure iii provides that the class three beneficiaries shall consist of donor’s great-grandchildren article iv provides that the class four beneficiaries shall consist of the spouses of donor’s children article v provides that the class five beneficiaries shall consist of the spouses of donor’s grandchildren article vi provides that the class six beneficiaries shall consist of the spouses of donor’s great-grandchildren plr-115989-98 article dollar_figure provides that trust is irrevocable however donor or any other person shall have the power to contribute additional properties to the trust estate at any time article provides that in each year during which a contribution is made to the trust the amount of such contribution on the date of the contribution shall be allocated equally among each of the members of classes one two three four five and six living on the date of the contribution and each member of classes one two three four five and six shall have the absolute right on or before december of the year in which the contribution is made exercisable either personally or through a legally appointed guardian to withdraw from the principal of the trust estate assets having a value as of the date or dates of withdrawal that shall not exceed with respect to each contributor the lesser_of dollar_figure if the contributor is unmarried on the date of the contribution or dollar_figure article dollar_figure provides that the power to make distributions from the trust of income and any principal not withdrawn and not capable of being withdrawn pursuant to sec_3 shall be vested solely in the trustees possessing the power of discretionary distributions under article all income not distributed shall be accumulated and added to principal distributions may be made to one some or all living members of any of classes one two three four five and six in such proportions and amounts equal or unequal as the trustees possessing the power of discretionary distributions under article dollar_figure deem advisable in their sole discretion and without regard to whether any portion of the trust assets upon being contributed to the trust was allocated among the members only of one or more particular classes the power to make distributions shall include the power to make complete distribution of all the trust assets at any time and thereby terminate the trust article dollar_figure provides that the trustees possessing the power of discretionary distributions shall be all those trustees acting hereunder from time to time except any trustee a who by possessing a discretionary power to distribute or withhold any income or principal from any trust created hereunder would be a younger_generation_beneficiary having a present power b to whom income or principal may be currently distributed from any trust created hereunder or who has the legal_obligation to support a beneficiary to whom income or principal may be currently distributed from any trust created hereunder or c who with respect to me or to any other contributor to any trust hereunder is a related or subordinate party’ within the meaning of sec_672 c of the internal_revenue_code article dollar_figure provides that if trust has not terminated pursuant to other provisions of the trust instrument the trust shall terminate twenty-one years after the death of plr-115989-98 the survivor of all donor’s issue who are living at the execution of the agreement and the spouses of such issue any trust assets governed by a statute or rule_of law under which such assets could not validly remain in trust until this date shall be distributed on the last date on which such assets can validly remain in trust on termination pursuant to this paragraph distributions shall be made among the living members of classes one two three four five and six in such amounts as the trustees deem advisable article dollar_figure provides that any distributions from trust may be made directly to the beneficiary or by expending the payments for the beneficiary’s benefit or in the case of a beneficiary who is a minor or under other legal disability to a legal guardian or conservator provided that a no such payment or distribution shall be made to a guardian or conservator if the payment would cause such person to become a younger_generation_beneficiary having a present_interest or a present power in the trust and b no distributions may be made to or on behalf of a beneficiary that discharges any legal_obligation of another person to support such beneficiary or otherwise further distributions from the trust may in the sole discretion of the trustees be retained for the sole benefit of such beneficiary in a separate trust referred to as a distributions trust the terms of which are specified in the trust instrument article provides that any trustee has the right to resign by written instrument in addition the individual trustee or trustees may at any time appoint one or more individual trustees or a corporate trustee or any combination thereof as a co- trustee or co-trustees article 501bdollar_figure of state statutes provides that a trustee may without the approval of any court divide a_trust before or after it is funded into two or more separate trusts if the trustee determines that dividing the trust is in the best interests of all persons interested in the trust and will not substantially impair the accomplishment the purposes of the trust the trustees propose to divide trust into three separate trusts family trust no family_trust no and family trust no each trust will be governed by the terms of the original trust and an operating_agreement discussed below that will be executed when trust is divided with respect to family trust no trustee and trustee will resign as trustees of this trust the remaining trustee trustee may make discretionary distributions to one some or all living members of any of classes one through six in any proportions and amounts if not terminated sooner family trust no will terminate twenty-one years after the death of the last to die of all potential individual beneficiaries in all of classes one through six living on the date of the execution of trust with respect to family trust no trustee and trustee will resign as trustees of this trust the remaining trustee trustee may make discretionary distributions to one some or all living members of any of classes one through six in plr-115989-98 any proportions and amounts if not terminated sooner family trust no will terminate twenty-one years after the death of the last to die of all potential individual beneficiaries in all of classes one through six living on the date of the execution of trust with respect to family trust no trustee and trustee will resign as trustees of this trust the remaining trustee trustee may make discretionary distributions to one some or all living members of any of classes one through six in any proportions and amounts if not terminated sooner family trust no will terminate twenty-one years after the death of the last to die of all potential individual beneficiaries in all of classes one through six living on the date of the execution of trust with respect to all three trusts if the trust terminates on the expiration of years after the death of the last to die of all potential individual beneficiaries in all of classes one to six living on the date the trust was executed the trust corpus is to be distributed as provided in article dollar_figure of trust ie among the living members of class one two three four five and six in such amounts as the trustee deems advisable in addition to the partition each of the trustees intend to enter into an operating_agreement operating_agreement and donor will also become a party to the agreement the operating_agreement provides that following the division of trust the trustees intend to coordinate certain of their activities in order to preserve the equity and voting position with respect to the stock in company that was held by trust before the division paragraph of the operating_agreement provides that all of the voting rights associated with the shares of company held by the trusts shall be exercised as follows a b all of the company stock held in the trusts shall be voted as a block in connection with any matter coming before the shareholders of company the voting of the block in connection with any matter coming before shareholders of company shall be determined according to the following procedures i for each of the trusts there shall be determined the number of votes associated with the shares of company held by the trust that may be cast in connection with such matter coming before the shareholders of company the sum of the trust votes for the trusts is referred to herein as the aggregate votes plr-115989-98 ii a majority of the aggregate votes shall control how the block is voted for such purposes the trustee of a_trust shall have a number of votes equal to the trust votes for such trust paragraph of the operating_agreement provides that no trust shall sell exchange distribute or otherwise transfer during any calendar_year more than percent of company stock held by the trust at the beginning of the year without the approval of the trustees of the other trusts in addition any sale shall be subject_to the provisions of paragraph of the operating_agreement paragraph provides that any trust wishing to sell or exchange any company stock or any distributee from any trust who wishes to sell any stock that was at any time held by any of the trusts whether to a permitted transferee or a non-permitted transferee as defined in article of the bylaws of company shall give advanced written notice to the trusts and all issue of donor who will have options to acquire the stock afterwards the parties described in paragraph a and b shall have the option to purchase the shares of stock to the maximum extent allowed by article of the bylaws of company the shares may be purchased at a price equal to the lesser_of the per-share price in the purchase offer and the value per share determined by an appraisal on behalf of the esop of company paragraph a provides that the child of donor for whose family the trust that has proposed to sell or exchange the stock in company is primarily administered or that previously distributed the stock to a distributee who has proposed to sell or exchange the stock shall have first option to purchase the shares if the child is not living the child’s issue shall have the first option to purchase the shares on a per-stirpital basis any such option may be assigned in whole or in part by its holder to any issue of the child any trust that has one or more issue of the child as its primary beneficiaries or any other entity that is directly or indirectly controlled by one or more such issue paragraph b provides that to the extent that the first option provided for in paragraph a is not exercised within days after providing the notice required above then the trusts other than the trust that has proposed to sell or exchange the company stock or that previously distributed company stock to a distributee who has proposed to sell or exchange the company stock shall each have the second option to purchase one-half the remaining portion of the stock and if one such trust does not exercise its second option to purchase the remaining portion of the stock within days of the expiration of the first option the other trust shall have the option to purchase the remaining portion of the stock within days of the expiration of the second option paragraph further provides that if all of the preceding options are not exercised with respect to the company stock within the time allotted the proposed sale_or_exchange may proceed at the price and on the terms and conditions stated in the bona_fide purchase or exchange_offer but must be completed within days after the plr-115989-98 notice donor agrees to exercise any authority that he may have under article of the bylaws of company discussed below to preserve the order of priority of the options set forth in the operating_agreement article of company’s bylaws pertains to the sale of company stock to a non- permitted transferee if any shareholder transfers or attempts to transfer any shares of common_stock to a non-permitted transferee the transfer gives rise to certain the purchase options article lists the individuals that have the option to purchase the stock and also lists the order and time that the option may be exercised generally the family_member who is most closely related to the transferee has the first option to purchase the stock if the family_member fails to exercise the option within the allowed time other more remote family members have the right to purchase the stock and if they fail to purchase the stock company has the right to purchase the stock if company fails to purchase the stock the stock may be sold to a non-permitted transferee if donor is classified as a transferor as that term is defined in article he can specify a different priority with respect to the order of the parties that may exercise the option to purchase the stock under the bylaws donor is classified as a transferor and therefore has the power to modify the priority of the right_of_first_refusal the trustees have represented that between date and date transfers were made to trust and that all of the transfers qualified for the gift_tax annual exclusion provided in sec_2503 of the internal_revenue_code furthermore the trustee have represented that the transfers which were subject_to the right of withdrawal specified in article lapsed and that at the time of the lapse the amount that each individual could withdraw was less than percent of the value of the assets of trust the trustees have requested the following rulings the proposed division and resignations will not cause any distribution from or termination of any interests in the trust to be subject_to the generation-skipping_transfer_tax under sec_2601 the proposed division and resignation will not cause the trust the family trusts or any beneficiary to recognize any gain_or_loss from a sale_or_other_disposition of property under sec_61 or sec_1001 the proposed division and resignation will not cause any beneficiary to be considered as having made a taxable gift and will not constitute a taxable gift to any beneficiary under sec_2501 the basis and holding periods in each asset transferred to the family trusts from the trust will for tax purposes be the same as the trust’s basis and holding_period in each such asset at the time of transfer under sec_1015 and sec_1223 plr-115989-98 the donor’s participation as a party to the operating_agreement is not a retained right or power within the meaning of sec_2036 and sec_2038 ruling_request sec_2601 imposes a tax on every generation-skipping_transfer made by the transferor to a skip_person sec_2611 defines a generation-skipping_transfer as a taxable_termination a taxable_distribution or a direct_skip section b a of the tax_reform_act_of_1986 the act vol c b and sec_26_2601-1 of the generation-skipping_transfer_tax regulations provide that the generation-skipping_transfer_tax gstt shall not apply to any generation-skipping_transfer under a_trust that was irrevocable on date but only to the extent that such transfer is not made out of corpus added to the trust after date or out of income attributable to corpus so added sec_26_2601-1 provides that any trust in existence on date will be considered an irrevocable_trust except as provided in sec_26 b ii b or c which relate to property includible in a grantor's gross_estate under sec_2038 and sec_2042 in the present case the trust is considered to have been irrevocable on date because neither sec_2038 nor sec_2042 apply sec_26_2601-1 provides that if an addition is made after date to an irrevocable_trust that is excluded from chapter by reason of sec_26_2601-1 b a pro_rata portion of subsequent distributions from and terminations of interests in property held in the trust is subject_to the provisions of chapter if an addition is made the trust is thereafter deemed to consist of two portions a portion not subject_to chapter the non-chapter portion and a portion subject_to chapter the chapter portion each with a separate inclusion_ratio as defined in sec_2642 the non-chapter portion represents the value of the assets of the trust as it existed on date the applicable_fraction as defined in sec_2642 for the non-chapter portion is deemed to be one and the inclusion_ratio for such portion is zero the chapter portion of the trust represents the value of all additions made to the trust after date the inclusion_ratio for the chapter portion is determined under sec_2642 sec_26_2601-1 requires separate portions of one trust only for purposes of determining inclusion ratios in the present case the trustees have represented that between date and date transfers were made to trust under sec_26 b iv a a pro_rata portion of trust is subject_to the provisions of chapter and trust is deemed to consist of two portions the portion of trust that is attributable to the additions made after date is subject_to chapter and this portion of the trust has a separate inclusion_ratio determined under sec_2642 plr-115989-98 under sec_2631 in computing the gst tax an individual is allowed a lifetime exemption of dollar_figure adjusted for inflation as prescribed in sec_2631 in general under sec_2602 the amount of gst tax imposed is determined by multiplying the taxable_amount by the applicable_rate under sec_2641 the applicable rated is defined as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer the inclusion_ratio with respect any property transferred in trust is defined in sec_2642 as the excess of over the applicable_fraction determined for the trust under sec_2642 the applicable_fraction is generally defined as a fraction a the numerator of which is the amount of gst_exemption allocated to the trust and b the denominator of which is the value of the property transferred to the trust sec_2642 in effect at the time of the transfers provided that any non-taxable gift that is not a direct_skip and that is made to a_trust shall not be taken into account under sec_2642 sec_2642 in effect at the time of the transfers provided that in the case of any non-taxable gift referred to in sec_2642 that is the first transfer to the trust the inclusion_ratio for the trust shall be zero sec_2642 defines a non-taxable gift as any transfer of property to the extent the transfer is not treated as a taxable gift by reason of sec_2503 taking into consideration the application of sec_2513 the trustees have represented that transfers to trust were non-taxable gifts under sec_2642 assuming the transfers were non- taxable_gifts under sec_2642 the transfer to the trust were excluded from the denominator of the applicable_fraction the non-chapter portion represents the value of the assets of the trust as it existed on date and any increase or decrease in the value of the assets attributable to the assets the applicable_fraction for this portion is deemed to be one and therefore the inclusion_ratio for this portion of trust is zero under the plan of partition trust will be partitioned into three trusts family trust no family_trust no and family trust no trust currently has three trustees trustee trustee and trustee each of the current trustees will resign as trustee of two of the three partitioned trusts and after the partition each of the trustees will emerge as a trustee of one of the partitioned trusts furthermore after the partition each of the trusts will continue to be governed by the terms of trust and distributions from each of the trusts may be made to any beneficiary described in article sec_2642 was amended by the technical_and_miscellaneous_revenue_act_of_1988 1988_3_cb_1 plr-115989-98 based on the fact submitted and the representations made we conclude that the proposed division and resignations will not alter the quality value or timing of interests under the original trust as it will not confer any additional powers or beneficial interests upon any of the beneficiaries and will not create any additional generation-skipping transfers or increase the amount of generation-skipping transfers accordingly the proposed division and resignations will not cause any distribution from or termination of any interests in either the non-chapter portion of the trust or the chapter portion of trust to be subject_to the generation-skipping_transfer_tax under sec_2601 we note that we are specifically not ruling on whether the transfers to trust made between date and date qualified for the gift_tax annual exclusion under sec_2503 ruling_request sec_61 provides that gross_income includes gains derived from dealings in property sec_1001 provides that the gain from the sale_or_other_disposition of property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis provided in sec_1011 for determining loss over the amount_realized sec_1_1001-1 of the income_tax regulations provides that except as otherwise provided in subtitle a of the code the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or loss sustained a partition of jointly owned property is not a sale_or_other_disposition of property where the co-owners of the joint property sever their joint_interests but do not acquire a new or additional interest as a result thereof thus neither gain nor loss is realized on the partition see revrul_56_437 1956_2_cb_507 in revrul_69_486 1969_2_cb_159 a non-pro rata distribution of trust property was made in_kind by the trustee although the trust instrument and local law did not give the trustee authority to make a non-pro rata distribution_of_property in_kind the distribution was effected as a result of a mutual agreement among the trustees and the beneficiaries because neither the trust instrument nor local law conveyed authority to the trustee to make a non-pro rata distribution revrul_69_486 held that the transaction was equivalent to a pro_rata distribution followed by an exchange between the beneficiaries and was subject_to the provisions of sec_1001 and sec_1002 499_us_554 concerns the issue of when a sale_or_exchange has taken place that results in realization of gain or plr-115989-98 loss under sec_1001 in cottage savings a financial_institution exchanged its interests in one group of residential mortgage loans for another lender’s interests in a different group of residential mortgage loans the two groups of mortgage loans were considered substantially identical by the agency that regulated the financial_institution in cottage savings pincite u s pincite the supreme court concluded that sec_1_1001-1 reasonably interprets sec_1001 and stated that an exchange of property gives rise to a realization event under sec_1001 if the properties exchanged are materially different in defining what constitutes a material difference for purposes of sec_1001 the supreme court stated that properties are different in a sense that is material to the code so long as their respective possessors enjoy legal entitlements that are different in_kind or extent cottage savings u s pincite the supreme court held pincite u s pincite that mortgage loans made to different obligors and secured_by different homes embodied distinct legal entitlements and that the taxpayer realized losses when it exchanged the loans it is consistent with the supreme court’s opinion in cottage savings to find that the interests of the current individual beneficiaries of the three successor family trusts family trust no family_trust no and family trust no will not differ materially from their interests in the trust the proposed transaction will not change the beneficial interests of the individual beneficiaries each of whom will remain a potential distributee of all the same assets after the proposed transaction as before although a distinct portion of those assets will be held in each family_trust the proposed transaction is similar to the kinds of transactions discussed in revrul_56_437 since the trust is to be partitioned but all other provisions of the trust will apply to determine the beneficiaries’ respective interests in the three successor family trusts thus the transaction will not result in a material difference in the kind or extent of the legal entitlements enjoyed by the beneficiaries the conclusion that the proposed partition will not result in a material_change is unaffected by the fact that it is anticipated that after the partition the trustees of the successor family trusts may cause the trusts to invest in dissimilar assets or by the fact that it is anticipated that after the partition the trustee of each successor family_trust will choose to make discretionary distributions only to members of the family of the donor’s child for whom that trust is primarily administered further based on the trust’s representation that none of trustee trustee and trustee is a_related_or_subordinate_party within the meaning of sec_672 to the donor any of the donor’s issue or the spouse of any of the donor’s issue the fact that the trustees of the trust will selectively resign as trustees of the family trusts so that each new family_trust will have a sole trustee who was suggested as a successor trustee of the trust by the donor’s child for whose family that family_trust is primarily administered will not have any consequences under sec_61 or sec_1001 each sole trustee plr-115989-98 of a family_trust will be required to continue to exercise the same standard of fiduciary responsibility as the trustee previously exercised with respect to the trust finally the execution of the operating_agreement by each family trust’s trustee and the donor will not have any consequences under sec_61 or sec_1001 accordingly we conclude that the trust the three successor family trusts family trust no family_trust no and family trust no and the beneficiaries of any of these trusts will not as a result of the proposed transactions realize gain_or_loss under sec_1001 or have income under sec_61 ruling_request sec_2501 imposes a tax on the transfer of property by gift by an individual sec_2511 provides that the tax imposed by sec_2501 applies whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_2512 provides that if a gift is made in property the value thereof at the date of the gift shall be considered the amount_of_the_gift in this case the interest of each beneficiary will remain the same after the proposed division accordingly based on the fact submitted and the representations made we conclude that the proposed division and trustee resignations will not cause any beneficiary to be considered as having made a taxable gift under sec_2501 ruling_request sec_1015 provides that if a property is acquired by a transfer in trust other than by a transfer in trust by a gift bequest or devise the basis shall be the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized to the grantor on the transfer sec_1_1015-2 provides that in the case of property acquired by transfer in trust other than by a transfer in trust by a gift bequest or devise the basis_of_property so acquired is the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized to the grantor upon such transfer under the law applicable to the year in which the transfer was made in addition the principles in sec_1_1015-1 concerning the uniform basis are applicable in determining the basis_of_property where more than one person acquires an interest in property by transfer in trust sec_1_1015-1 provides that property acquired by gift has a single or uniform basis although more than one person may acquire an interest in the property the uniform basis of the property remains fixed subject_to proper adjustment for items under sec_1016 and sec_1017 plr-115989-98 because sec_1001 will not apply to the proposed division of trust the basis of the assets in the three separate trusts family trust no family_trust no and family trust no will be the same as the basis of the assets currently held in trust sec_1223 provides that in determining the period for which the taxpayer has held property however acquired there shall be included the period for which such property was held by any other person if under chapter of the code such property has for purposes of determining gain_or_loss from its sale by the taxpayer the same basis in whole or in part in the taxpayer’s hands as it would have in the hands of the other person as noted above the basis of the assets held by the three partitioned trusts will be the same as the assets currently held by trust accordingly under sec_1223 the holding_period of the assets in each of the partitioned trusts will include the holding periods of the same assets in trust ruling_request sec_2036 provides that a decedent's gross_estate includes the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise under which he has retained for his life or for any period not ascertainable without reference to his death or any period that does not in fact end before his death the possession or enjoyment of or the right to the income from the property or the right either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom sec_2038 provides that the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power in whatever capacity exercisable by the decedent alone or by the decedent in conjunction with any other person without regard to when or from what source the decedent acquired such power to alter amend revoke or terminate or were any such power is relinquished during the 3-year period ending on the date of the decedent's death in this case as part of the operating_agreement donor has agreed to exercise any authority that he may have under article of the bylaws of company in a manner that will preserve the priority of the options to purchase the shares of company under the operating_agreement under article of the bylaws of company if donor is plr-115989-98 classified as the transferor with respect to certain stock of company and there is an offer to purchase the stock donor may specify a different priority with respect to the order of the parties that may exercise the right to acquire the stock donor however cannot prevent a_trust from receiving full and adequate_consideration for the stock if a trustee decides to sell all or part of the stock that it holds in company based on the fact submitted and the representations made we conclude that donor’s participation as a party to the operating_agreement is not a retained right or power within the meaning of sec_2036 and sec_2038 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination this ruling is directed only to the taxpayer s requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely yours assistant chief_counsel passthroughs and special industries by george masnik chief branch enclosure copy for sec_6110 purposes


t c memo united_states tax_court alvin sheldon kanofsky petitioner v commissioner of internal revenue respondent docket no 10283-13l filed date alvin sheldon kanofsky pro_se alex shlivko for respondent memorandum opinion dawson judge this collection review case is before the court on respondent’s motion for summary_judgment filed on date pursuant to rule petitioner timely filed an objection to the motion petitioner had previously petitioned the court to review a determination of the internal_revenue_service irs office of appeals appeals sustaining the filing of a notice_of_federal_tax_lien to collect petitioner’s unpaid federal_income_tax liabilities for and years in issue we must decide two issues whether appeals abused its discretion in sustaining the filing of the notice_of_federal_tax_lien and whether petitioner should be required to pay the united_states a penalty pursuant to sec_6673 both issues were raised in respondent’s answer to the petition and the motion for summary_judgment background petitioner has been a physics professor at lehigh university since he resided in pennsylvania when he filed his petition petitioner’s underlying income_tax liabilities were assessed in accordance with the court’s decision entered in the deficiency case at docket no for and see kanofsky v commissioner t c all rule references are to the tax_court rules_of_practice and procedure all section references are to the internal_revenue_code as amended and in effect at all relevant times we note that although petitioner’s deficiency case involved his and tax years this collection case involves only petitioner’s continued memo 271_fedappx_146 3d cir the facts surrounding the underlying deficiency litigation are summarized in the subsequent levy case kanofsky v commissioner tcmemo_2010_46 424_fedappx_189 3d cir as follows a overview for each subject year petitioner filed a federal_income_tax return on which he reported on a schedule c profit or loss from business_expense deductions which offset any_tax liability for the year respondent issued to petitioner a notice_of_deficiency which i disallowed most of petitioner’s claimed schedule c expense deductions and ii determined a negligence_penalty for under sec_6662 continued and tax years in the notice_of_deficiency dated date respondent determined deficiencies in petitioner’s federal_income_tax and an accuracy-related_penalty as follows year deficiency dollar_figure big_number big_number big_number penalty sec_6662 --- dollar_figure --- --- --- b court’s decision and subsequent appeals on date petitioner petitioned the court to redetermine the disallowed trade_or_business expense deductions and the negligence_penalty in kanofsky i t c memo we found mostly for respondent and in doing so disallowed a portion of petitioner’s claimed trade_or_business_expenses and found petitioner liable for the negligence_penalty we entered our decision on date and on date denied a motion by petitioner to vacate or revise the decision petitioner appealed our decision to the u s court_of_appeals for the third circuit without filing a bond under sec_7485 to stay assessment and collection the court_of_appeals affirmed our decision on date 271_fedappx_146 3d cir on date petitioner again sought relief from the court_of_appeals by filing a petition for rehearing on decision of date affirming u s tax_court decision on date the court_of_appeals denied the petition for rehearing petitioner subsequently filed a petition for writ of certiorari with the supreme court of the united_states to review the court of appeals’ judgment certiorari was denied on date kanofsky v commissioner 129_sct_741 and petitioner’s petition for rehearing with the supreme court was denied on date kanofsky v commissioner 129_sct_1406 during petitioner’s various appeals respondent pursued collection against him on date respondent issued to petitioner a final notice_of_intent_to_levy and notice of your right to a hearing for and petitioner requested a collection_due_process cdp hearing by filing form request for a collection_due_process or equivalent_hearing but did not propose any collection alternatives or provide requested documents on date appeals issued to petitioner a notice_of_determination concerning collection action s under sec_6320 and or sustaining the proposed levy petitioner filed a petition in docket no this court sustained the levy in kanofsky ii and on appeal the court_of_appeals for the third circuit affirmed our decision in 424_fedappx_189 in doing so the court_of_appeals held that petitioner’s obstruction of justice corruption fraud and whistleblower activity arguments were irrelevant to the levy to collect petitioner’s unpaid federal_income_tax id pincite on date petitioner filed a petition for rehearing en_banc and before an original panel which the court_of_appeals summarily denied on date on date petitioner filed a petition for writ of certiorari with the supreme court which was denied on date the current collection case on date respondent issued to petitioner a letter notice_of_federal_tax_lien filing and your right to a hearing under lien notice for the years in issue with respect to petitioner’s federal_income_tax liabilities as follows year unpaid balance of assessment dollar_figure dollar_figure dollar_figure dollar_figure the lien notice provided petitioner with an opportunity to request a cdp hearing with appeals on date he timely submitted form requesting a hearing in his request petitioner checked the box identifying the notice_of_federal_tax_lien as the basis for his hearing request and stated amount due is far in excess of any amount owed no expenses or deductions for numerous business_expenses allowed still in litigation petitioner did not propose any collection alternatives petitioner’s request was assigned to settlement officer dawn attivissimo so who had no prior involvement with respect to the years in issue on date the so sent petitioner a letter that scheduled a cdp telephone hearing for date requested that he submit copies of his unfiled and income_tax returns and a completed form 433-a collection information statement for wage earners and self-employed individuals if he wanted the so to consider collection alternatives and advised him that he could not dispute the underlying tax_liabilities as part of the cdp hearing because the deficiency for the years in issue were the result of a decision entered by the u s tax_court petitioner did not call the so on date regarding the hearing scheduled in the date letter petitioner sent the so a facsimile that included the first page of the february letter upon which he wrote this is in litigation regards alvin kanofsky by letter dated date the so gave petitioner an additional days to respond and provide the requested information although petitioner timely responded to the so by facsimile and discussed his current and pending litigation he did not provide the requested information necessary for the so to consider a collection alternative on date appeals issued to petitioner a notice_of_determination concerning collection action under sec_6320 and or notice_of_determination sustaining the notice_of_federal_tax_lien for the years in issue the so stated in her summary and recommendation that all legal and procedural requirements in filing the notice_of_federal_tax_lien had been followed and that the notice was appropriate appeals determined that collection alternatives could not be considered because petitioner had not filed his required income_tax returns for later years or provided the requested financial information on date petitioner timely filed his petition in this case for review of the determination sustaining the filing of the notice_of_federal_tax_lien he asserted in his petition various grounds to challenge his underlying income_tax liabilities for and most of which he had previously raised in his deficiency kanofsky i and levy kanofsky ii cases regarding the same liabilities in paragraph points of disagreement with irs determination of his petition petitioner stated in part am presently appealing whether i am in business or not am presently appealing whether previous lien is correct the deficiency is based on my having no expenses at all i have had major expenses for building repairs mortgages taxes interest etc all of which have not been recognized by the irs i am a major whisteblower in several instances for example i was the first and major whisteblower on the university of medicine and dentistry of new jersey umdnj case my older brother was in charge of the billing system and was brutally discharged just before umdnj double and triple billed medicaid and medicare the case went on for many years in federal court my brother died within a week of being fired governor christie finally several years later as u s attorney for n j successfully prosecuted umdnj for widespread fraud and corruption but only after a newspaper expose none of the amounts withdrawn from my deceased brother’s tiaa-cref accounts is personal income i am continually subjected to fraud and corruption extortion and bribery i am continually subjected to retaliation for whistle blowing i have substantial business good-will which is diminished by the irs actions petitioner further stated in paragraph facts on points of disagreement of his petition the tax_court the irs and the justice_department have successfully blocked any of my evidence and testimony on my business activity the tax_court the irs and the justice_department have successfully blocked any of my evidence and testimony on the rampant fraud and corruption which serves as an affirmative defense they apparently do not recognize fraud and corruption or an affirmative defense given the recent spate of fraud and corruption trials both federal and state and the many revelations involving fraud and corruption both locally statewide nationwide and world wide it would seem appropriate to finally recognize the business environment in which the petitioner operates the petitioner seeks reward and compensation_for his whistle blowing activity and retaliation for it also he seeks compensation_for retaliation of his claims of fraud and corruption respondent then filed his motion for summary_judgment on date to which petitioner has objected discussion summary_judgment is intended to expedite litigation and avoid unnecessary and expensive trials fla peach corp v commissioner 90_tc_678 we may grant summary_judgment only if there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law rule b 85_tc_527 respondent as the moving party bears the burden of showing that the case is ripe for summary adjudication 115_tc_554 in deciding whether to grant summary_judgment the factual materials and the inferences drawn from them must be considered in the light most favorable to the nonmoving party id whether facts are material depends upon the context in which they are raised and the legal issues presented 87_tc_214 when the moving party has carried its burden however the party opposing the summary_judgment motion must do more than simply show that there is some metaphysical doubt as to the material facts 475_us_574 specifically rule d imposes the following duty on the nonmoving party when a motion for summary_judgment is made and supported as provided in this rule an adverse_party may not rest upon the mere allegations or denials of such party’s pleading but such party’s response by affidavits or declarations or as otherwise provided in this rule must set forth specific facts showing that there is a genuine dispute for trial emphasis added see ramdas v commissioner tcmemo_2013_104 at where the record viewed as a whole cannot lead a reasonable trier of fact to find for the nonmoving party there is no ‘genuine issue for trial’ matsushita elec indus co u s pincite quoting 391_us_253 on this record we conclude that there is no genuine dispute as to any material fact in this case and that a decision may be rendered as a matter of law in his motion for summary_judgment respondent contends that pursuant to sec_6330 petitioner’s receipt of the notice_of_deficiency for and and his subsequent challenges of the same income_tax liabilities in this court preclude him from challenging them once again in this case the so did not abuse her discretion in sustaining the filing of the notice_of_federal_tax_lien in an attempt to collect the same tax_liabilities and this court should impose a sec_6673 penalty against petitioner for instituting this proceeding primarily for delay and or for asserting frivolous or groundless positions petitioner’s objections to the motion for summary_judgment are mainly that this court and the internal_revenue_service have erroneously blocked his subpoenas for witnesses and submission of evidence his fraud and corruption arguments as well as his whistleblower claims are legitimate and not frivolous or instituted for delay and he is working with groups who are trying to reform the tax system and that this case is certainly one of the main cases in the country being cited for reform of the tax codes collection procedures sec_6321 imposes a lien in favor of the united_states upon all property and rights to property of a person liable for taxes when there is a failure to pay the taxes after demand for payment see 122_tc_287 the lien generally arises at the time assessment is made sec_6322 sec_6323 authorizes the commissioner to file a notice_of_federal_tax_lien pursuant to sec_6320 the commissioner must provide the taxpayer with notice of the lien filing and an opportunity for an administrative review of the propriety of the filing see 115_tc_329 generally the hearing is to be conducted in accordance with the procedures set forth in sec_6330 d e and g sec_6320 a taxpayer may raise at the hearing any relevant issue relating to the unpaid tax including offers of collection alternatives sec_6330 a taxpayer may also raise at the hearing challenges to the existence or amount of the underlying tax_liability for any_tax period if the person did not receive a statutory_notice_of_deficiency for such tax_liability or did not otherwise have an opportunity to dispute such tax_liability sec_6330 sec_6330 provides in pertinent part that an issue may not be raised at the hearing if the issue was raised and considered in a previous administrative or judicial proceeding and the person seeking to raise the issue participated meaningfully in such hearing or proceeding see also sec_301_6320-1 proced admin regs scope of review the commissioner must send a notice_of_deficiency to the taxpayer before the commissioner may assess collect or reduce to judgment most income_tax liabilities 724_f2d_808 9th cir crain v commissioner tcmemo_2012_97 petitioner received a notice_of_deficiency for the years in issue in docket no contested the deficiency in a trial in this court and lost therefore he is precluded from challenging the same underlying tax_liabilities again in this lien case in view of respondent’s allegations in his answer and his arguments in the motion for summary_judgment res_judicata claim preclusion also bars us from reconsidering petitioner’s underlying income_tax liabilities for the same years see 333_us_591 stating that a final judgment on the merits of a cause of action absent fraud or some other factor invalidating the judgment binds the parties to the lawsuit ‘not only as to every matter which was offered and received to sustain or defeat the claim or demand but as to any other admissible matter which might have been offered for that purpose ’ quoting 94_us_351 138_tc_54 where the underlying liability is not properly in issue we review an appeals determination for abuse_of_discretion see 117_tc_183 114_tc_176 appeals abuses its discretion if its determination was arbitrary capricious or without sound basis in fact or law see eg 129_tc_107 in reviewing the so’s determination the court will consider only those sec_6330 issues that the taxpayer raised at the hearing id pincite petitioner raised no relevant issues other than the underlying income_tax deficiency and offered no collection alternatives the record shows that the so properly verified that the requirements of all applicable laws and administrative procedures were met in processing petitioner’s case considered the issues petitioner presented and determined that the proposed collection action balanced the need for the efficient collection_of_taxes with petitioner’s concerns that the collection action be no more intrusive than necessary see sec_6330 in sum we hold that appeals did not abuse its discretion in sustaining the filing of the notice_of_federal_tax_lien we conclude that respondent is entitled to judgment as a matter of law and may proceed with his collection action therefore we will grant respondent’s motion for summary_judgment we have considered petitioner’s arguments and to the extent not discussed above conclude that they are irrelevant moot or without merit sec_6673 penalty in his answer filed in this proceeding and his motion for summary_judgment respondent requests the court to impose a penalty on petitioner under sec_6673 that section authorizes this court to require the taxpayer to pay to the united_states a penalty not in excess of dollar_figure whenever it appears that the taxpayer has instituted or maintained proceedings primarily for delay the taxpayer’s position is frivolous or groundless or the taxpayer unreasonably failed to pursue available administrative remedies a taxpayer’s position is frivolous or groundless if it is ‘contrary to established law and unsupported by a reasoned colorable argument for change in the law ’ 114_tc_136 quoting 791_f2d_68 7th cir see also 136_tc_498 the purpose of sec_6673 is to compel taxpayers to think and to conform their conduct to settled tax principles it was designed to deter frivolity and waste of judicial resources see 791_f2d_68 grasselli v commissioner tcmemo_1994_581 petitioner is no stranger to this court he was warned in prior proceedings that his conduct could subject him to a penalty if he continued to repeat the arguments he made in earlier cases before this court and the court_of_appeals for the third circuit in his deficiency and levy cases for the tax years and he has also litigated in this court in docket no his case involving income_tax deficiency for and in each case petitioner ha sec_4 in addition to docket no regarding the underlying deficiency for and petitioner filed two additional petitions concerning the lien and levy collection actions for those years the petitions in those cases are similar to the petition filed in the instant case in docket no 21821-13l involving the levy for and petitioner requests washington d c as the place of trial that case is calendared for the date trial session in docket no 22008-13l involving the lien for and petitioner has requested baltimore maryland as the place of trial continued to raise arguments of fraud corruption and whistleblowing activities nearly identical to those raised in this lien case during the date trial in docket no the court cautioned petitioner in plain words against making those arguments as follows now to the extent that you start off on side trips that i don’t think are relevant i’m going to warn you but if it turns out that you persist in making arguments -- now you know the government has been yelping about the fact that you’re taking positions they view as frivolous and groundless and to some degree if those positions are the same positions you asserted in your previous two visits to the tax_court kanofsky i and ii i may well agree with them if i do you’ve run the risk that you might be penalized because there is a penalty under the internal_revenue_code that i can impose in my discretion if i conclude that various arguments and positions are being asserted that are frivolous groundless have been rejected over and over again so you just need to be forewarned the court rendered a bench opinion in that case on date and entered its decision in accordance with that opinion petitioner appealed and on the decision in docket no states in part additions to tax under i r c sec sec sec year deficiency a a a dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure big_number dollar_figure the amount of any addition_to_tax under sec_6651 shall continued date the u s court_of_appeals for the third circuit affirmed in 520_fedappx_95 3d cir the court_of_appeals specifically held that neither the tax_court nor the irs improperly obstructed petitioner’s presentation of evidence and agreed with the tax_court that his allegations of fraud and corruption and his assertion of whistleblower status were irrelevant to the merits of his case the court_of_appeals stated kanofsky alleged similar facts below they permeated his filings from his original petition to his post-trial rule motion he did not explain to the tax_court and does not explain now how events as disparate as the sandusky prosecution or alleged corruption related to the barnes foundation have any bearing on his tax_liability as we have explained to him before arguments based on obstruction of justice corruption and fraud committed by public figures in pennsylvania and new jersey as well as his alleged extensive whisteblower activity are not relevant and do not advance his cause 424_fedappx_189 3d cir per curiam id pincite n in the collection case before us petitioner has returned a fourth time to this court once again raising his arguments about fraud corruption and whistleblowing activities he admits that he has been admonished by us and the court_of_appeals for the third circuit to which an appeal in this case would lie continued be determined pursuant to sec_6651 b and c it is clear that petitioner has violated sec_6673 he has repeatedly asserted irrelevant and meritless arguments he designed his petition to delay the collection of the income_tax he owes the court_of_appeals this court and respondent’s counsel have repeatedly warned petitioner of the potential implications of continuing to delay payment of his tax_liabilities and of asserting irrelevant and groundless arguments this court has unequivocally warned taxpayers that abusing the procedural protections afforded by sec_6320 and sec_6330 by pursuing frivolous lien or levy actions for purposes of delaying the tax payment process will result in penalties under sec_6673 when that section is applicable 115_tc_576 petitioner did not heed the advice and warning he was given he has persisted in challenging his underlying income_tax liabilities for the years in issue he received a notice_of_deficiency with respect to those liabilities and challenged them in his deficiency case his allegations of fraud and corruption and his appeals to whistleblower status were irrelevant in the deficiency and levy cases and have no bearing in this case petitioner has abused the judicial process and delayed collection of his unpaid tax_liabilities petitioner is a well-educated individual who admits that he understood cautions and warnings given by this court yet he continues to reiterate the same irrelevant and groundless arguments he has wasted the time and resources of both respondent and this court accordingly in exercising our discretion we conclude that a penalty under sec_6673 is appropriate and justified in this case and we shall require petitioner to pay to the united_states a penalty of dollar_figure under sec_6673 see eg streiffert v commissioner tcmemo_2014_62 hill v commissioner tcmemo_2013_265 golub v commissioner tcmemo_2013_196 we also warn petitioner again that we will consider imposing additional penalties if he returns and continues to raise irrelevant frivolous and groundless arguments or institutes or maintains further proceedings in this court to delay the payment of federal_income_tax lawfully assessed against him to reflect the foregoing an appropriate order and decision will be entered


sw in i700 -o8 department of the treasury internal_revenue_service washington d c contact person danny smith identification_number telephone number t eo ra t dear sir or madam this is in reference to your letter of date requesting advance approval of your grant procedures under sec_4945 of the internal_revenue_code the information submitted indicates that grants will be administered and supervised by b b is exempt from federal_income_tax under sec_501 of the internal_revenue_code of and has been classified as other than a private_foundation under sec_509 and sec_170 your scholarship program is called c under the terms of an agreement you will make annual contributions to b to fund scholarships for the children of the employees of d b will prepare and furnish application forms receive all applications determine the recipients and amount to be awarded notify the recipients of the award confirm enrollment in an educational_institution make payment of the award and supervise and investigate the use of the grant funds by the recipients in their educational programs recipients are determined solely by b utilizing selection criteria whereby each candidate is evaluated based on the following scholastic aptitude as measured by performance on the scholastic aptitude test scholastic performance measured by rank in class counselor appraisal and interests activities and leadership contributions you will not however require b to consider financial need in the selection of recipients the scholarships will not be used as a means of inducement to recruit employees for d nor will a grant be terminated if the employee leaves the company scholarships will only be awarded to students that pian to enroll in an institution that meets the requirements of sec_170 of the code the recipient will not be restricted in his her course of study b will a oa s pech ook ee ay eng nnreanrbeh i morsaaaasomeam dna supply statistical information on applications received and grants made which will enable you to maintain the records required by revproc_76_47 1976_2_cb_670 you will ensure compliance with the percentage tests under section dollar_figure of revproc_76_47 in the aggregate with respect to your other scholarship programs available to the same individuals sec_4945 of the code provides for the imposition of taxes on each taxable_expenditure of a private_foundation sec_4945 of the code provides that the term taxable_expenditure means any amount_paid or incurred by a private_foundation as a grant to an individual for travel study or other similar purposes by such individual unless such grant satisfies the requirements of sec_4945 sec_4945 of the code provides that sec_4945 shall not apply to an individual grant awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance by the secretary if it is demonstrated to the satisfaction of the secretary that the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 and is to be used for study at an educational_institution described in sec_170 of the code revproc_76_47 1976_2_cb_670 sets forth guidelines for a private_foundation conducting an employer related grant program to obtain advance approval of its procedures for conducting such a program under sec_4945 of the code sections dollar_figure through dollar_figure set forth seven conditions which a private_foundation must meet in order to obtain advance approval of its procedures under sec_4945 of the code section dollar_figure provides that a private_foundation which makes scholarship awards to children of employees of a company or to the employees themselves will meet this test if it limits these grants to of all eligible applicants or of all those shown to be eligible in any given year renewals of grants awarded in prior years will not be considered in determining the number of grants awarded in a current_year based upon the information submitted and assuming your program will be conducted as proposed with a view to providing objectivity and nondiscrimination in the awarding of scholarship grants we rule that your grants to b for the awarding of scholarship grants comply with the requirements of sec_4945 of the code thus expenditures made in accordance with these procedures will not constitute taxable_expenditures within the meaning of sec_4945 of the code and as such are eligible for the exclusion from income provided for in sec_117 of the code to the extent that such grants are actually used for qualified_tuition_and_related_expenses within the meaning of sec_117 of the code this ruling is conditioned on the understanding that there will be no material changes in the facts upon which it is based it is further conditioned on the understanding that no grants will be awarded to creators officers directors trustees or members of the selection committee or for a purpose inconsistent with the purposes described in sec_170 of the code please note that this ruling is only applicable to grants awarded under your scholarship program as outlined above before you enter into any other scholarship programs you should a b submit a request for advance approval of that program we are informing the ohio te_ge offi ce of this action please keep a copy of this ruling with your organization's permanent records this ruling is directed only to the organization that requested it sec_61 k of the code provides that it may not be used or cited as precedent sincerely geratd v sack manager exempt_organizations technical group o


t c memo united_states tax_court susan p obersteller petitioner v commissioner of internal revenue respondent docket no 7693-o1l filed date susan p obersteller pro_se t richard sealy iii and catherine tyson for respondent memorandum opinion swift judge this matter is before us on respondent’s motion under rule for summary_judgment unless otherwise indicated all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure - - the issue for decision is whether respondent abused his discretion in relying upon transcripts of account to verify assessment of petitioner’s tax_liabilities for purposes of sec_6330 background at the time the petition was filed petitioner resided in portland texas on date respondent filed a notice_of_federal_tax_lien lien filing against petitioner relating to petitioner’s assessed and unpaid federal income taxes for and on date petitioner timely submitted to respondent’s appeals_office a written request for a collection hearing under sec_6320 to challenge respondent’s lien filing in petitioner’s written request petitioner did not identify any specific issues or the basis for any specific challenges to respondent’s lien filing on january and respondent’s appeals_office mailed letters to petitioner inviting petitioner to meet personally with respondent’s appeals officer and respondent enclosed with those letters copies of petitioner’s transcripts of account for and form meftra and a plain language computer printout of petitioner’s account for and the individual_master_file imf between january and date petitioner petitioner's spouse and petitioner’s legal_representative exchanged a number of letters with respondent’s appeals officer in which petitioner explained that petitioner would only be satisfied if respondent provided to petitioner not the above transcripts of account but specifically form sec_23c summary record of assessments relating to petitioner’s federal income taxes for and in his letters respondent’s appeals officer made it clear that respondent was relying on the above referenced transcripts of account not form sec_23c to verify the assessments that were the bases for the lien filing and that respondent was willing to meet face-to-face with petitioner and petitioner’s spouse and representative and to make available to petitioner additional copies of those transcripts respondent’s letters also suggested specific dates for a face-to-face meeting but petitioner and petitioner’s representative refused to meet with respondent’s appeals officer unless a commitment was made by the appeals officer to obtain and to have at the meeting a copy of form sec_23c relating to petitioner’s and federal income taxes on date respondent’s appeals_office mailed to petitioner’s representative a notice_of_determination in which it was explained that the above lien filing made by respondent with q4e- respect to petitioner’s assessed and unpaid taxes for and was sustained on date petitioner filed under sec_6330 a petition for judicial review of the above final_determination made by respondent regarding collection of petitioner’s assessed and unpaid taxes for and on date petitioner filed an amended petition discussion petitioner asserts that because respondent refused to provide a copy of a signed form 23c at the collection hearing respondent’s appeals officer failed to properly verify under sec_6330 that respondent’s lien filing met the requirements of any applicable law or administrative procedure we have repeatedly held that absent irregularities respondent may rely on forms and transcripts of account for the purpose under sec_6330 of verifying data relevant to respondent’s assessments of tax deficiencies against taxpayers 118_tc_162 lindsey v commissioner tcmemo_2002_87 howard v commissioner tcmemo_2002_81 holliday v commissioner tcmemo_2002_67 duffield v commissioner tcmemo_2002_53 mann v commissioner tcmemo_2002_48 in the alternative petitioner asserts generally that she did not receive the type of due process hearing that is anticipated under sec_6330 to the contrary petitioner and petitioner’s representative were repeatedly notified of respondent’s willingness to meet of suggested dates and times for a meeting and of respondent’s willingness to consider any specific good_faith issues raised by petitioner under sec_6330 c petitioner makes only frivolous arguments respondent’s appeals_office did not abuse its discretion in sustaining respondent’s lien filing we shall grant respondent’s motion for summary_judgment an appropriate order and decision will be entered


internal_revenue_service number info release date index number -------------------------------------------- ---------------------------------------- --------------------------- ------------------------ - in re ------------------------- ---------------------------- department of the treasury washington dc person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 - genin-138356-03 date november dear ------------------- we are responding to your correspondence requesting s_corporation status effective as of date based on the facts as presented and your account history it appears that automatic late s_corporation relief under revproc_2003_43 copy enclosed applies to your situation in order to obtain relief you must follow the steps outlined in sec_4 of revproc_2003_43 we have provided a blank form_2553 for your use please send your completed election form and the declaration required by revproc_2003_43 to the following address via certified mail irs cincinnati service_center attn entity control cincinnati oh in addition we would like to introduce you to two free cd-roms developed by the irs to help educate small_business owners introduction to federal taxes for small_business self-employed and a virtual small_business workshop these items can be ordered by calling the website www irs gov smallbiz is also dedicated to providing information to small_business taxpayers please keep this letter with your tax records and feel free to provide a copy of it to your authorized representative we hope that the above information proves helpful s dianna k miosi sincerely yours dianna k miosi chief branch associate chief_counsel passthroughs and special industries