t c memo united_states tax_court richard a molsbee petitioner v commissioner of internal revenue respondent docket no filed date richard a molsbee pro_se miriam c dillard for respondent memorandum findings_of_fact and opinion wells judge petitioner seeks review of respondent’s determination that petitioner is not entitled to relief pursuant to sec_6015 and f with respect to petitioner’s joint income_tax liabilities for taxable years and 1all section references are to the internal_revenue_code in effect at all relevant times we must decide whether petitioner is precluded from raising the issue of relief from joint_and_several_liability for the taxable years in issue by reason of the doctrine_of res_judicata as set forth in sec_6015 and sec_1_6015-1 income_tax regs and alternatively if the court finds that petitioner is not so barred whether petitioner is entitled to relief under sec_6015 or f findings_of_fact some of the facts and certain exhibits have been stipulated the stipulation of facts received into evidence is incorporated herein by reference and those facts are so found at the time the petition was filed petitioner resided in florida during the years in issue and at all relevant times petitioner and brenda molsbee mrs molsbee were married and living together except during the time that mrs molsbee was incarcerated mrs molsbee was released from incarceration in early petitioner submitted for the years in issue a form_8857 request for innocent spouse relief that respondent received on date request for relief on date respondent sent to petitioner and mrs molsbee a notice_of_deficiency for the years in issue notice_of_deficiency on date petitioner and mrs molsbee filed a petition in the tax_court disputing the notice_of_deficiency and the case was docketed at docket no the previous case in the previous case petitioner and mrs molsbee sought a redetermination of the deficiencies respondent determined for the years in issue monica miller ms miller represented respondent in the previous case neither petitioner nor mrs molsbee was represented by counsel in the previous case on date respondent filed a motion for partial summary_judgment in the previous case partial summary_judgment motion petitioner and mrs molsbee raised the issue of sec_6015 relief from joint_and_several_liability in their response to the partial summary_judgment motion stating that richard a molsbee has no knowledge of money not reported and asks the court to declare him an innocent spouse status in the previous case ms miller engaged in settlement discussions with petitioner and with mrs molsbee as part of those discussions ms miller had a telephone conversation with petitioner regarding whether the facts supported petitioner’s being granted relief from joint_and_several_liability for the years in issue ms miller explained to petitioner why respondent felt that petitioner would not be entitled to relief from joint_and_several_liability stating that petitioner received checks from mrs molsbee’s companies and had substantial improvements made to his residence during the years in issue on date ms miller sent a letter to petitioner and mrs molsbee enclosing a proposed decision a proposed stipulation of settled issues a proposed stipulation of facts and exhibits and three boxes of exhibits ms miller stated in the date letter please note that the decision concedes that mr molsbee is not liable for the fraud additions on date ms miller sent a letter to petitioner and mrs molsbee enclosing a proposed decision on date the court denied respondent’s motion for partial summary_judgment petitioner mrs molsbee and ms miller signed a stipulated decision in the previous case decision the decision states in bold and underlined text that the fraud penalties apply to mrs molsbee only and that petitioner and mrs molsbee are liable for the deficiencies the court entered the decision on date and the decision was not vacated or appealed at the time she signed the decision mrs molsbee was aware of the possibility of sec_6015 relief from joint_and_several_liability because of her belief that her business partner’s husband had been granted such relief on date petitioner filed another form_8857 for the years in issue request for relief petitioner checked the boxes indicating that he was not divorced separated or living apart from mrs molsbee and he did not check the box to request separation of liability respondent determined that petitioner is not entitled to relief from joint_and_several_liability under sec_6015 for the years in issue and on date sent petitioner the notice_of_determination during the years in issue petitioner and mrs molsbee had dollar_figure of construction work performed on their personal_residence residence petitioner knew that the funds for the construction work on the residence came from mrs molsbee’s company the construction work resulted in the size of their residence almost tripling from big_number square feet to big_number square feet the residence is situated on acres of land and worth approximately dollar_figure during the years in issue petitioner performed work for mrs molsbee’s company for which he was compensated during the years in issue mrs molsbee paid petitioner’s living_expenses and petitioner acquired a chevrolet truck during petitioner acquired a new bass boat petitioner has a high school diploma and has a captain’s license and a pilot’s license mrs molsbee has an associate’s degree and is licensed as a real_estate broker and real_estate appraiser during the years in issue petitioner and mrs molsbee maintained a joint checking account from which petitioner’s and mrs molsbee’s living_expenses were paid petitioner and mrs molsbee both had access to the joint checking account and mrs molsbee handled the household finances petitioner was raised in a household where his mother handled the finances so he thought that mrs molsbee should do so also petitioner continues to choose that mrs molsbee handle the household finances and she continues to do so petitioner has not been abused by mrs molsbee petitioner did not allege or submit any evidence as to personal physical or mental health problems petitioner performed physical labor during the years in issue petitioner did not submit evidence of current household_income and expenses sec_6015 opinion we must first decide whether petitioner is precluded from raising the issue of relief from joint_and_several_liability for the years in issue by the doctrine_of res_judicata as set forth in sec_6015 and sec_1_6015-1 income_tax regs under the judicial doctrine_of res_judicata when a court of competent jurisdiction enters a final judgment on the merits of a cause of action the parties to the action are bound by every matter that was or could have been offered and received to sustain or defeat the claim 333_us_591 see gustafson v commissioner 97_tc_85 the doctrine_of res_judicata serves to promote judicial economy and the repose of disputes by precluding repetitious lawsuits gustafson v commissioner supra pincite because federal income taxes are determined on an annual basis each year is a separate cause of action and res_judicata is applied to bar subsequent proceedings involving the same tax_year commissioner v sunnen supra pincite 91_tc_14 sec_6015 modifies the common_law doctrine_of res_judicata with regard to claims for relief from joint_and_several_liability sec_6015 provides sec_6015 credits and refunds -- res_judicata --in the case of any election under subsection b or c or of any request for equitable relief under subsection f if a decision of a court in any prior proceeding for the same taxable_year has become final such decision shall be conclusive except with respect to the qualification of the individual for relief which was not an issue in such proceeding the exception contained in the preceding sentence shall not apply if the court determines that the individual participated meaningfully in such prior proceeding under common_law principles of res_judicata a taxpayer who was a party to a prior proceeding for the same taxable_year would be barred from seeking relief from joint_and_several_liability whether or not the claim had been raised as an issue in the prior proceeding sec_6015 alters that result by providing an individual cannot make an election under sec_6015 or c for any taxable_year that is the subject of a final court decision unless the individual’s qualification for relief under sec_6015 or c was not an issue in the prior court_proceeding and the individual did not participate meaningfully in the prior proceeding 116_tc_272 sec_1_6015-1 income_tax regs provides the following e res_judicata and collateral_estoppel --a requesting spouse is barred from relief from joint_and_several_liability under sec_6015 by res_judicata for any_tax year for which a court of competent jurisdiction has rendered a final_decision on the requesting spouse’s tax_liability if relief under sec_6015 was at issue in the prior proceeding or if the requesting spouse meaningfully participated in that proceeding and could have raised relief under sec_6015 a requesting spouse has not meaningfully participated in a prior proceeding if due to the effective date of sec_6015 relief under sec_6015 was not available in that proceeding also any final decisions rendered by a court of competent jurisdiction regarding issues relevant to sec_6015 are conclusive and the requesting spouse may be collaterally estopped from relitigating those issues there is no dispute that the traditional prerequisites for the application of the doctrine_of res_judicata are present petitioner was a party to the previous case in the tax_court which was a deficiency action that petitioner and mrs molsbee brought to dispute the deficiencies respondent determined for their taxable years and the same taxable years in issue in the instant case the tax_court proceeding was initiated on date well after the date effective date of sec_6015 petitioner raised his claim for relief from joint_and_several_liability under sec_6015 as a defense in the previous case the decision in the previous case is final accordingly the only question remaining is whether the exception to the principle of res_judicata in sec_6015 applies petitioner was aware of the possibility of relief from joint_and_several_liability at least months before the petition was filed in the previous case as evidenced by the fact that during date he initially filed the request for relief at trial mrs molsbee admitted that the issue of petitioner’s eligibility for relief from joint_and_several_liability was raised in the previous case also in his reply petitioner admits that he and mrs molsbee raised the issue of relief from joint_and_several_liability in the previous case in their response to the commissioner’s partial summary_judgment motion petitioner and mrs molsbee in their response to the partial summary_judgment motion in the previous case specifically requested that petitioner be granted sec_6015 relief alleging that petitioner had no knowledge of the unreported funds indeed mrs molsbee admitted that at the time she signed the stipulated decision in the previous case she was aware of the possibility of relief from joint_and_several_liability because of her belief that her business partner’s husband had been granted relief moreover petitioner discussed the issue with respondent’s counsel in the previous case while petitioner disputes that he spoke to ms miller we accept ms miller’s testimony that petitioner engaged in settlement discussions with her ms miller testified that she explained to petitioner that he would not be entitled to relief from joint_and_several_liability because he received checks from mrs molsbee’s companies and had substantial improvements made to his residence during the years in issue additionally the stipulated decision in the previous case explicitly states that the fraud penalties apply to mrs molsbee only and that petitioner and mrs molsbee are liable for the deficiencies we conclude on the basis of the record that sec_6015 relief was raised as an issue in the previous case and that petitioner meaningfully participated in the previous case on the basis of the foregoing we hold that petitioner is barred under sec_6015 from raising the issue of sec_2petitioner did admit that he spoke with one female employee of respondent concerning the tax_liabilities for the years in issue 3this case does not present the type of special circumstances that may overcome the bar of res_judicata such as those present in the case of trent v commissioner tcmemo_2002_285 in trent the taxpayer was precluded by an apparent misunderstanding on her part and on the part of an appeals officer from raising her claim to relief from joint liability in the prior proceeding petitioner was not so precluded and indeed after raising the issue entered into a stipulated decision that both he and mrs molsbee are liable for the deficiencies set forth in the decision relief we therefore need not reach the issue of whether petitioner qualifies for relief under sec_6015 or f we have considered all of the issues raised by the parties and to the extent they are not discussed herein we conclude that they are without merit unnecessary to reach or moot to reflect the foregoing decision will be entered for respondent


internal_revenue_service number release date index number ------------------- ------------------------ ----------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no telephone number --------------------- refer reply to cc fip b04 plr-159502-04 date date legend taxpayer trust ------------------- ------------------------- -------------------------------------------------------- --------------------------------------------------- ------------------------ -------------------------------------------------------- ------------------------------------------------------ ------------------------ trust policy -------------------------------------------------------------------------------------------------------------- state dear --------------- -------------------------------------------- --------------- --------------------------------------------------------------------------------- this is in reply to the ruling_request filed by your representative dated date and supplementary submissions the letter requests that we rule with respect to a proposed transfer of a life_insurance_policy on the life of taxpayer under sec_101 of the internal_revenue_code facts taxpayer has represented that trust and trust are both grantor trusts of taxpayer taxpayer trust and trust are all calendar_year taxpayers trust presently holds policy a life_insurance_policy insuring the life of taxpayer plr-159502-04 taxpayer proposes for valuable consideration to transfer policy from the trustees of trust to the trustees of trust accordingly the transfer of policy will be from one of taxpayer’s grantor trusts to another of taxpayer’s grantor trusts applicable law revrul_85_13 1985_1_cb_184 concludes that if a grantor is treated as the owner of the entire trust the grantor is considered to be the owner of the trust assets for federal_income_tax purposes a d and f gross_income does not include amounts received under a life_insurance_contract if such amounts are paid_by reason of the death of the insured sec_101 of the code provides that except as otherwise provided in sec_101 provides generally that if a life_insurance_contract or any interest therein is transferred for a valuable consideration the exclusion_from_gross_income provided by sec_101 is limited to an amount equal to the sum of the actual value of the consideration and the premiums and other_amounts subsequently paid_by the transferee the term transfer for a valuable consideration is defined for purposes of sec_101 in sec_1_101-1 of the regulations as any absolute transfer for value of a right to receive all or a part of the proceeds of a life_insurance_policy analysis taxpayer has represented that trust and trust are grantor trusts of taxpayer thus taxpayer is treated for federal_income_tax purposes as the owner of all of the assets of both trusts see revrul_85_13 therefore the proposed transfer of policy even though for valuable consideration will be disregarded for federal_income_tax purposes and will not affect the application of sec_101 to amounts the beneficiaries of the policies will receive upon the death of taxpayer ruling based solely on the information submitted and on the representations made it is held that the transfer of policy for a valuable consideration by the trustees of trust to the trustees of trust will be disregarded for federal_income_tax purposes and is not a transfer for value within the meaning of sec_101 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter no opinion is expressed or implied concerning any matter of state law plr-159502-04 this ruling is directed only to the taxpayer 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 a copy of this letter must be attached to any income_tax return to which it is relevant 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 sincerely s donald j drees jr acting chief branch office of associate chief_counsel financial institutions products


internal_revenue_service department of the treasury number release date index number washington dc date person to contact telephone number refer reply to cc tege eb hw plr-125981-00 legend taxpayer trust council holding_company insurance_company year a year b year c year d date a date b date c n p q dear this is in response to the ruling_request dated date on behalf of trust requesting a ruling regarding the applicability of sec_4976 to the payment by trust of certain amounts to members of trust members taxpayer is a member and joined in the ruling_request by letter dated date the ruling_request was further supplemented by submissions dated date date and date facts trust provided group_insurance coverage and other benefit programs to members and their employees trust was originally established in year a as two separate trusts one providing hospital-medical insurance and the other providing life_insurance in year b these two trusts were combined into trust trust was designed to act as a conduit for payment of insurance premiums members of trust consist primarily of firms from constituent chapters of council some members are companies with employees and others are sole proprietors plr-125981-00 members contributed to trust and in turn trust purchased group policies from insurance carriers in year c trust discontinued offering medical dental and life_insurance coverage as of date a_trust ceased offering long-term disability insurance at the beginning of year d only approximately dollar_figuren remained in trust insurance_company was the underwriter for trust’s long-term disability insurance all of trust’s premium payments to insurance carriers were paid with monies contributed by members no portion of any of the premium payments was paid_by employees of members it is represented that trust is and has always been part of a ten or more employer plan described in sec_419a it is further represented that neither trust nor any of the plans of which trust is a part maintains or ever maintained experience-rating arrangements with respect to individual employers your application indicates that you are not requesting a ruling on the issue of whether trust satisfies the sec_419a exception for ten or more employer plans and we are not ruling on that issue rather in addressing the issue raised in your application the applicability of sec_4976 we are relying on the representation that trust satisfies the sec_419a exception while participating in trust each member was part of a group_insurance pool under a policy issued by insurance_company of which trust was the policyholder members made contributions to trust on a monthly basis and these contributions were forwarded after a fee was deducted for trust expenses to insurance_company when a member withdrew from trust either by notice or by not paying a premium no distributions were made by trust to either the employer or its employees except for the payment to providers of medical or disability claims that were covered at the time of withdrawal under the group_insurance policies provided by trust thus all amounts contributed by members for disability insurance were used either to pay insurance_company which paid only disability claims or for trust expenses prior to year d insurance_company was a mutual_insurance_company on date b insurance_company recorded its intent to demutualize the company and reorganize as a stock insurance_company in year d insurance company’s policyholders voted to approve the demutualization the terms of the demutualization plan provided that insurance company’s policyholders as of date b would receive shares of stock in holding_company to this end on date c trust was issued p shares of holding_company common_stock demutualization proceeds on account of its status as a policy holder the value of these shares is estimated at over dollar_figureq to wind up trust’s business in order to terminate trust would like to pass the demutualization proceeds on to members on a pro_rata basis generally plr-125981-00 members would receive holding_company common_stock but some members with a small interest may be partially compensated in cash ruling requested the payment of demutualization proceeds by trust to taxpayer will not result in taxpayer incurring an excise_tax pursuant to code sec_4976 law and analysis sec_419 of the code provides that contributions paid_or_accrued by an employer to a welfare_benefit_fund are not deductible under chapter of the code but if they would otherwise be deductible are subject_to the limitation of sec_419 deductible under sec_419 for the taxable_year in which paid sec_419 of the code provides that the term welfare_benefit_fund means any fund that is part of a plan of an employer and through which the employer provides welfare benefits to employees or their beneficiaries sec_419 defines fund to include a_trust that is not exempt from tax under chapter sec_419a of the code provides that subpart d of chapter of subtitle a of the code consisting of sec_419 and sec_419a shall not apply to any welfare_benefit_fund that is part of a ten or more employer plan however sec_419a further provides that this exception does not apply to any plan that maintains experience-rating arrangements with respect to individual employers sec_419a of the code provides that the term ten or more employer plan means a plan to which more than one employer contributes and to which no employer normally contributes more than ten percent of the total contributions contributed under the plan by all employers sec_4976 of the code imposes an excise_tax in the amount of percent of the amount of any disqualified_benefit provided by a welfare_benefit_plan sec_4976 provides that the term disqualified_benefit means -- a any post-retirement medical_benefit or life_insurance_benefit provided with respect to a key_employee if a separate_account is required to be established for such employee under sec_419a and such payment is not from such account b any post-retirement medical_benefit or life_insurance_benefit provided with respect to an individual in whose favor discrimination is prohibited unless the plan meets the requirements of sec_505 with respect to such benefit whether or not such requirements apply to such plan and plr-125981-00 c any portion of a welfare_benefit_fund reverting to the benefit of the employer sec_4976 of the code provides that sec_4976 does not apply to any amount attributable to a contribution to the fund that is not allowable as a deduction under sec_419 for the taxable_year or any prior taxable_year trust is a welfare_benefit_fund within the meaning of sec_419 because it is part of an employer plan and taxpayer and other members provide welfare benefits to their employees through trust it is represented that trust is part of a ten or more employer plan to which the exception provided by sec_419a applies based upon that representation taxpayer’s contributions to trust were not allowable as a deduction under sec_419 for the taxable_year or any prior taxable_year within the meaning of sec_4976 of the code accordingly pursuant to sec_4976 sec_4976 does not apply to amounts attributable to those contributions including any payment of the demutualization proceeds by trust to taxpayer conclusion pursuant to sec_4976 sec_4976 does not apply to the payment of demutualization proceeds by trust to taxpayer this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent except as specifically ruled above no opinion is expressed as to the federal tax consequences of the transaction described above under any provision of the code specifically this ruling addresses neither of the following issues whether trust is in fact a ten or more employer plan to which the exception provided under sec_419a applies and whether the payment of demutualization proceeds to taxpayer will result in the realization and recognition of gross_income to taxpayer under sec_61 sincerely mark schwimmer senior technician reviewer employee_benefits division counsel associate chief_counsel tax exempt and government entities


internal_revenue_service p o box cincinnati oh date apri113 number release date department of the treasury employer_identification_number contact person - id number contact telephone number legend uil facility p q program name r program name s county state t u name name x dollars amount y number dear why you are receiving this letter this is our response to your date letter requesting approval of a set_aside under sec_4942 you've been recognized as tax-exempt under sec_501 c of the code and have been determined to be a private_foundation under sec_509 our determination based on the information furnished your set-aside program is approved under sec_4942 as required under sec_4942 the set_aside amount must be paid within the 60-month period after the date of the first set-aside description of set-aside request you have requested a set-aside of x dollars for the tax_year ending december to fund the project the nature of the project is to build a p to operate the q to provide hands-on education experiences to local children and to operate the r to provide water quality analysis for adults both programs have been recognized as leading water quality and science education programs these programs have operated out of a very restrictive facility as an outreach to various participating schools the current p is no longer a feasible location to perform water testing with student involvement because it is physically too small and all class interaction must take place on a deck which does not work well if it rains the new p will provide a proper chemistry teaching lab and biology teaching lab each lab will accommodate several students plus instructors you were recently able to obtain a site adjacent to the t facility near u river and crossed by two flowing creeks the new facility will allow students to visit the p and engage in hands-on water quality evaluations the building for the new p will be y square feet and will be built in s the amount to be set_aside to build the p is x dollars in there are no amounts to be added after the initial_amount is set_aside the set-aside total amount will be distributed to construction companies as they reach milestones and complete the construction of the p the project can be better accomplished by a set-aside than by an immediate payment of funds because it would not be prudent to pay the construction contractors the total amount prior to the completion of the entire job because the standard practice is to pay for construction activities as each milestone toward completion is finished further the set-aside approach will allow you to maximize control_over the project with the goal of achieving a better result the set-aside amount should be fully distributed in but in no case no later than months after the total amount is set-aside if p is blocked for some unforeseen reason you will distribute the total amount set-aside on other education buildings that will be built within months basis for our determination sec_4942 states that an amount set_aside for a specific project which includes one or more purposes described in sec_170 may be treated as a qualifying_distribution if it meets the requirements of sec_4942 sec_4942 of the code states that an amount set_aside for a specific project will meet the requirements of this subparagraph if at the time of the set_aside the foundation establishes that the amount will be paid within five years and either clause i or ii are satisfied sec_4942 of the code is satisfied if at the time of the set-aside the private_foundation establishes that the project can better be accomplished using the set-aside than by making an immediate payment sec_53_4942_a_-3 of the foundations and similar excise_taxes regulations provides that a private_foundation may establish a project as better accomplished by a set-aside than by immediate payment if the set-aside satisfies the suitability test described in sec_53_4942_a_-3 sec_53_4942_a_-3 of the foundations and similar excise_taxes regulations provides that specific projects better accomplished using a set-aside include but are not limited to projects where relatively long-term expenditures must be made requiring more than one year's income to assure their continuity in revrul_74_450 1974_2_cb_388 an operating_foundation converted a portion of newly acquired land into a public park under a four-year construction_contract the construction_contract payments were to be made mainly during the final two years this constituted a specific project the foundation's set-aside of all its excess earnings for four years was treated as a qualifying_distribution under sec_4942 what you must do your approved set-aside s will be documented on your records as pledges or obligations to be paid_by the date specified the amounts set_aside will be taken into account to determine your minimum_investment_return under internal_revenue_code sec_4942 and the income attributable to your set_aside s will also be taken into account in computing your adjusted_net_income under sec_4942 of the code additional information this determination is directed only to the organization that requested it internal_revenue_code sec_6110 provides that it may not be used or cited as a precedent please keep a copy of this letter in your records if you have any questions please contact the person listed in the heading of this letter sincerely jeffrey i cooper director exempt_organizations rulings and agreements enclosure


department of the treasury_department of the treasury internal_revenue_service internal_revenue_service washington d c washington d c number release date date cc pa cbs br1 gl-805109-00 uil memorandum for associate area_counsel sbse - san francisco cc sb sf attn trmackinson from alan c levine chief branch collection bankruptcy summonses cc pa cbs br1 subject this memorandum responds to your request for advice dated date this document is not to be cited as precedent sec_6110 question presented can a federal_tax_lien that self-releases after the debtor receives a bankruptcy discharge of the related tax_liabilities be reinstated against pre-petition property in accordance with the procedures under sec_6325 conclusion the lien can be reinstated reinstatement of an erroneously self-released federal_tax_lien under sec_6325 against a debtor’s pre-petition property does not violate the discharge injunction of b c a since the tax_liability underlying the notice_of_federal_tax_lien is unaffected background the debtor had unpaid federal_income_tax liabilities for tax years and in she received a discharge of these liabilities in a chapter bankruptcy case the bankruptcy court determined that the federal tax_liens however still attached to pre-petition property her residence and an adjacent undeveloped parcel and this holding was upheld on appeal to the district_court on the debtor filed an administrative claim for innocent spouse relief with the internal_revenue_service service after her claim was rejected she filed an action in tax_court under sec_6015 gl-805109-00 this action is still pending and has suspended the expiration of the collection statute_of_limitations under sec_6015 the united_states brought a suit to foreclose the tax_liens against the pre-petition property on after the initiation of the suit the notices of federal_tax_lien for three tax periods and erroneously self-released when the mistake was discovered the service issued a revocation of the certificate of release in order to reinstate the assessment liens imposed by sec_6321 a new notice_of_federal_tax_lien was filed in place of the erroneously-released notices of federal tax_liens relating to the three tax years the service estimates the current value of the real_estate to be dollar_figure the total amount of the encumbrances against the property including the tax_liens is about dollar_figure analysis a discharge order in bankruptcy discharges the debtor from a personal obligation to pay and creates an injunction barring creditors from attempting to collect discharged debts from the debtor personally b c a the discharge however does not destroy the pre-petition liability 501_us_78 111_sct_2150 a bankruptcy discharge extinguishes only one mode of enforcing a claim-namely an action against the debtor in personam see also in re conston 181_br_769 d del collecting cases consequently although the service generally may not collect the discharged tax debts from the debtor’s pre-petition property it is not prohibited from collection from exempt abandoned or excluded_property b c sec_522 in addition in this case as with other chapter cases the federal tax_liens pass through bankruptcy unaffected in spite of the discharge given to the debtor see 502_us_410 34_fsupp2d_827 e d n y in re 227_br_806 s d ohio the liens continue to attach to the debtor’s pre-petition property including parcels of real_estate following the close of the case the automatic_stay is lifted and the united_states may proceed to take action to enforce the liens see b c sec_362 in re 901_f2d_744 9th cir in the united_states filed a suit to foreclose the tax_liens but the liens self- released during the pendency of the suit while a self-release may operate to extinguish a federal_tax_lien under sec_6325 the release does not extinguish the underlying liability we have found no authority for the position that the release of a lien has any impact on the liability to the contrary there is specific authority for the position that a certificate of release while conclusive that the lien is extinguished does not conclusively establish that the underlying tax_liability is not owed or has been paid see urwyler v united_states u s t c big_number at big_number e d cal 23_tc_565 aff’d 231_f2d_8 5th cir 50_f2d_887 1st cir cert_denied 284_us_673 see also in re goldston f 3d gl-805109-00 10th cir distinguishing the liability for tax from the assessment revrul_85_67 1985_1_cb_364 same in re 181_br_358 bankr s d ill distinguishes determination of tax_liability and collection of the tax as two distinct steps in the taxation process the argument that the release of a lien extinguishes the tax_liability is also inconsistent other aspects of sec_6325 sec_6325 provides that in addition to when the liability is satisfied or unenforceable the service is authorized to release the lien upon acceptance of a bond clearly in this circumstance the lien may be released but the liability remains until paid or unenforceable it would be incongruous to assert that a release of a lien under sec_6325 extinguishes the underlying liability but a release of a lien under sec_6325 does not in addition sec_6325 provides the service with the authority to revoke a certificate of release and reinstate the lien in certain circumstances by mailing and filing notice of the revocation conceptually the argument that the liability is extinguished upon issuance of a certificate of release seems inconsistent with the service’s authority to make such a revocation without having to reassess the liability see also william d elliot federal tax collection liens and levies pincite prentice hall citing sec_301_6325-1 for the statement that when a lien is released however the underlying tax_liability is not extinguished until the tax has been paid in full or the statutory period for collection of the tax expires accordingly because neither the release of the lien nor the discharge extinguishes the pre-petition liability we conclude that a discharge_in_bankruptcy does not affect the service’s ability to revoke an erroneous lien release see eg united_states v peterson a f t r 2d u s t c big_number in lien foreclosure suit district_court did not identify as an issue the service’s erroneous release of liens based on the taxpayer’s bankruptcy discharge because release was properly revoked in an analogous context we have previously concluded that a taxpayer’s bankruptcy discharge does not affect the service’s ability to reverse an abatement of an assessment and proceed with collection against certain pre-petition assets see notice cc-2001-014 following bankruptcy it is the service’s normal policy to abate such discharged taxes to prevent inadvertent collection see generally irm describing procedures for evaluating and processing discharge however sometimes the abatement is performed in error because for example there exists pre-petition property against which a notice_of_federal_tax_lien was filed from which all or a portion of the liability can be satisfied in order to collect from these sources the service may reverse the discharge abatement under sec_6404 see notice cc-2001-014 united_states v langrehr u s dist lexis d neb date the service may reverse the abatement because as described in notice cc-2001-014 a tax debt exists as long as it has not been satisfied and the period for collection has not expired in a similar manner because release of a lien under sec_6325 does not extinguish the gl-805109-00 liability the tax_lien may be reinstated by mailing and filing notice of the revocation under sec_6325 even though the taxpayer has received a discharge although the released federal_tax_lien can be reinstated the released notice_of_federal_tax_lien and the priority status the notice provides cannot sec_301_6325-1 see 793_fsupp_994 d colo united_states v reid u s t c big_number u s dist lexis thus after revocation the service must refile the erroneously self- released notices of federal_tax_lien to establish a new priority date although refiling is required to reestablish priority the reinstated tax_lien nevertheless attaches to the pre-petition property sec_301_6325-1 the united_states could foreclose on the property even without refiling the notices by relying on the assessment liens refiling does not create a new liability nor is it an effort to collect directly from the debtor see in the matter of hansen u s dist lexis w d tex date discharge_in_bankruptcy affects only the service’s ability to effect certain methods of collection in this case the service’s ability to collect from the pre-petition property of the debtor was unaffected by the discharge the self-release and subsequent refiling of the notices of federal_tax_lien does not alter this ability if you have any questions please call


internal_revenue_service number release date index number ---------------------------- ------------------------------------- --------------------- ------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------- telephone number ------------------- refer reply to cc psi b03 plr-152814-05 date date ----------------------------------------------- ----------------------------------------------- ---------------------------- --------------------------- --------------------------- legend legend x ----------------------------------------------------- ira ----------------------------------------------------- ira ---------------------------------------------------- beneficiary beneficiary shareholders ------------------------------------------ ---------------------------------------------- ------------------------------------------------ -------------------------------------------------- ----------------------------------------------- ----------------------------------------------- --------------------------------------------------------- --------------------------------------------------------- plr-152814-05 state d1 d2 d3 dear --------------- ------------------------------------------------------ ---------------------------------------------------- ---------------------------------------------------- ---------- --------------------- ---------------------- --------------------------- this letter responds to your letter dated date submitted on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code facts x was incorporated under the laws of state on d1 x elected to be an s_corporation effective d1 on d2 x issued stock to ira and ira ineligible shareholders under sec_1361 of the internal_revenue_code when x issued the shares of stock to the ineligible shareholders x’s s_corporation status terminated x represents that issuance of the stock to the ira’s was an inadvertent error and that the shares in ira and ira were transferred to eligible shareholders on d3 x represents that there was no tax_avoidance or retroactive tax planning involved in the transfer of the stock to ira and ira for all taxable years x’s shareholders income was reported consistent with x qualifying as an s_corporation in addition x and the shareholders agree to make any adjustments consistent with the treatment of x as an s_corporation as may be required by the secretary with respect to the period specified by sec_1362 law and analysis sec_1361 provides that for purposes of subchapter_s the term small_business_corporation means a domestic_corporation that is not an ineligible_corporation and that does not among other requirements have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual plr-152814-05 except as provided in sec_1362 sec_1362 provides that a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1362 provides that an election under subsection a is terminated whenever at any time on or after the 1st day of the 1st taxable_year for which the corporation is an s_corporation such corporation ceases to be a small_business_corporation sec_1362 provides that any termination under sec_1362 is effective on and after the date of cessation sec_1362 provides that if an election under sec_1362 by any corporation was terminated under sec_1362 or the secretary determines that the circumstances resulting in termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in termination steps were taken so that the corporation for which the termination occurred is a small_business_corporation and the corporation for which the termination occurred and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agree to make the adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to this period then notwithstanding the circumstances resulting in termination the corporation shall be treated as an s_corporation during the period specified by the secretary sec_1_1362-4 of the income_tax regulations provides that for purposes of sec_1_1362-4 the determination of whether a termination was inadvertent is made by the commissioner the corporation has the burden of establishing that under the relevant facts and circumstances the commissioner should determine that the termination was inadvertent the fact that the terminating event was not reasonably within the control of the corporation and was not part of a plan to terminate the election or the fact that the event took place without the knowledge of the corporation notwithstanding its due diligence to safeguard itself against such an event tends to establish that the termination was inadvertent sec_1_1362-4 provides that the commissioner may require any adjustments that are appropriate in general the adjustments required should be consistent with the treatment of the corporation as an s_corporation during the period specified by the commissioner conclusion based solely on the facts submitted and representations made we conclude that x’s s_corporation_election was terminated on d2 when ira and ira ineligible shareholders acquired stock in x we also conclude that the termination was inadvertent within the meaning of sec_1362 consequently we conclude that x will plr-152814-05 continue to be treated as an s_corporation from d2 and thereafter provided that x’s s_corporation_election was valid and was not otherwise terminated this ruling is contingent on x treating beneficiary as owning the shares of x stock held by ira and beneficiary as owning the shares of x stock held by ira from the period of d2 to d3 and on shareholders treating x as an s_corporation effective d2 accordingly shareholders in determining their respective income_tax liabilities must include their pro_rata share of the separately and nonseperately computed items of x under sec_1366 make any adjustments to stock basis under sec_1367 and take into account any distributions made by x under sec_1368 except for the specific ruling above no opinion is expressed or implied concerning the federal tax consequences of the facts of this case under any other provision of the code specifically no opinion is expressed or implied regarding x’s eligibility to be an s_corporation under a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative this ruling is directed only to the taxpayer who requested it according to sec_6110 this ruling may not be used or cited as precedent cc sincerely s christine ellison chief branch office of the associate chief_counsel passthroughs special industries


t c memo united_states tax_court willie mae barlow davis petitioner v commissioner of internal revenue respondent docket no filed date robert e l gilpin and carla r cole for petitioner robert w west for respondent memorandum opinion fay judge this matter is before the court on respondent's motion for partial summary_judgment and petitioner's motion for partial summary_judgment filed pursuant to rule the parties have filed various briefs and memoranda in support of and in opposition to these motions all section references are to sections of the internal_revenue_code in effect for the year at issue and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated respondent determined a deficiency in petitioner's federal_income_tax of dollar_figure for the taxable_year petitioner resided in hayneville alabama at the time the petition was filed in this case the parties agree that this case may be resolved in its entirety via summary_judgment the issues remaining for decision are whether punitive_damages received by petitioner are includ- able in income and whether the amounts paid for attorney's_fees should be excluded from petitioner's income background the background facts related below are derived from the pleadings filed in this case affidavits filed by respondent's counsel and petitioner's counsel the parties' uncontroverted written representations and the exhibits attached thereto during and petitioner owned a home in alabama where she resided during this time american home improvement services of alabama inc american home was in the business of making home improvements and arranging for the financing of home improvements also during this time union mortgage co union made mortgage loans in alabama in petitioner applied for a dollar_figure home loan from american home and was denied however in date a represen- tative of american home contacted petitioner and advised her that her application could be approved if she made certain repairs to her house the repairs would cost dollar_figure and this amount would be added to american home's loan to petitioner on date petitioner contracted with american home to make the necessary repairs and in return american home lent dollar_figure to petitioner soon thereafter american home assigned the dollar_figure mortgage to union the day after the contracts were signed petitioner decided against making the repairs and attempted to cancel the repair contract and mortgage loan however representatives from american home told petitioner that it was too late to cancel the repair contract and the repairs were made to petitioner's home on date petitioner filed suit in the circuit_court of lowndes alabama against union and american home the complaint sought compensatory and punitive_damages for the defendants' alleged acts of fraud conspiracy and breach of contract the jury awarded petitioner a dollar_figure verdict against union of which dollar_figure was for compensatory_damages and the remaining dollar_figure consisted of punitive_damages after a 1the documents ultimately received by petitioner indicate that contrary to the representations made by american home improvement services of alabama inc on date petitioner had until date to rescind the contracts hearing on the damages the circuit_court affirmed the jury's verdict in its order the court indicated that evidence of mental anguish supported the compensatory award and found that the punitive_damages were not excessive union appealed the judgment to the alabama supreme court which affirmed the judgment but granted a remittitur of dollar_figure union ultimately paid the judgment of dollar_figure to petitioner's attorneys petitioner and her attorneys had entered into a contingent_fee arrangement whereby the attorneys were entitled to a percentage of the proceeds arising out of her case along with the related legal expenses petitioner's share of the jury award after legal fees and expenses were deducted by her attorneys amounted to dollar_figure petitioner did not report any portion of the jury award as income on her federal_income_tax return for in the notice_of_deficiency respondent determined that petitioner is required to report the dollar_figure million she received for punitive_damages as income further respondent determined that petitioner is entitled to deduct the attorney's_fees and costs as a miscel- laneous itemized_deduction discussion 2the court's opinion can be found at union mortgage co v barlow so 2d ala the amounts remitted related to the dollar_figure compensatory_damages and the dollar_figure punitive_damages awarded for the conspiracy claim a motion for summary adjudication may be granted if the pleadings and other materials demonstrate that no genuine issue of material fact exists and the decision may be rendered as a matter of law rule b 98_tc_518 affd 17_f3d_965 7th cir as noted above the parties agree that the issues in this case may be resolved by summary adjudication and we are satisfied that no genuine issue exists as to the material facts first we address whether the punitive_damages petitioner received may be excluded under sec_104 respondent contends that this issue is controlled by the recent supreme court decision in 519_us_79 117_sct_452 in o'gilvie v united_states supra the supreme court held that the exclusion of sec_104 does not apply to punitive_damages id at ___ s ct pincite therefore respondent argues that petitioner's punitive damage award of dollar_figure million is fully taxable petitioner points out that the supreme court in o'gilvie v united_states supra interpreted sec_104 as it read in petitioner notes that sec_104 was amended in and since the award was paid to petitioner in petitioner argues that the rule in o'gilvie does not apply to this case we disagree the amendment to sec_104 was enacted in the omnibus budget reconciliation act of obra publaw_101_239 103_stat_2106 obra sec_7641 103_stat_2379 provides that the amendment to sec_104 shall not apply to any amount received pursuant to any lawsuit filed on or before date petitioner's lawsuit against union was filed on date months before the effective date of the amendment therefore this case is governed by sec_104 as it read before the amendment which is the same version interpreted by the supreme court in o'gilvie v united_states supra we conclude that o'gilvie is controlling authority and accordingly the punitive_damages received by petitioner are not excludable under sec_104 next we address whether the amounts retained by petitioner's attorneys should be excluded from petitioner's income respondent determined that petitioner must include the full amount of the punitive_damages award in income but that she may deduct the attorney's_fees as a miscellaneous itemized_deduction petitioner contends that she is required to report as income only that portion of the award paid to her by her attorneys petitioner relies on 263_f2d_119 5th cir affg in part and revg in part 28_tc_947 in cotnam the taxpayer was awarded a judgment of 3the court_of_appeals for the eleventh circuit which includes alabama has adopted as binding precedent the case law of the former court_of_appeals for the fifth circuit as of continued dollar_figure and paid attorney's_fees of dollar_figure pursuant to a contingent_fee arrangement the commissioner treated the dollar_figure as taxable_income and allowed a deduction for the attorney's_fees the court_of_appeals for the fifth circuit held that the dollar_figure in attorney's_fees should not have been included in the taxpayer's income id pincite respondent makes several arguments to the effect that contingent attorney's_fees should not reduce the amount of a judgment but constitute a miscellaneous itemized_deduction see eg 43_f3d_1451 fed cir 105_tc_396 affd 121_f3d_393 8th cir under the golsen_rule however we follow the law of the circuit in which this case is appealable here the eleventh circuit 54_tc_742 affd 445_f2d_985 10th cir under 661_f2d_1206 11th cir decisions of the former court_of_appeals for the fifth circuit are binding precedent for courts in the eleventh circuit respondent has not brought to our attention any legal authority that overrules the court_of_appeals for the fifth circuit's opinion in cotnam v commissioner supra a case that is squarely continued date unless and until such precedent is overruled or modified by the court_of_appeals for the eleventh circuit 661_f2d_1206 11th cir on point on brief respondent candidly admits that this court may feel constrained to follow the rule in cotnam in fact we do feel so constrained accordingly we find that the portion of the award retained by petitioner's attorneys should be excluded from her income and she is entitled to summary_judgment on this issue we have considered all other arguments made by the parties and find them to be either irrelevant or without merit to reflect the foregoing an appropriate order granting petitioner's motion for partial summary_judgment and granting respondent's motion for partial summary_judgment will be issued and decision will be entered under rule 4recently the bankruptcy court for the middle district of alabama followed the rule in 263_f2d_119 5th cir affg in part and revg in part 28_tc_947 notwithstanding the contrary authority in 43_f3d_1451 fed cir see hamilton v united_states bankr bankr m d ala


internal_revenue_service number release date index number --------------------------------------- ------------------------------ -------------------------------------------------- re ------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------------ telephone number -------------------- refer reply to cc psi b4 plr-132793-18 date date legend decedent -------------------------- ----------------------------------------------------- ------------------------ spouse --------------------------------------------------------------- trust date --------------------- date --------------------------- accountant ------------------- dear ------------------ this letter responds to your authorized representative’s letter dated date in that letter your authorized representative requested an extension of time under sec_301_9100-3 of the procedure and administration regulations to make a reverse qualified_terminable_interest_property qtip_election under sec_2652 of the internal_revenue_code and to make an election to treat a marital trust as two separate trusts under sec_26_2652-2 of the generation-skipping_transfer_tax regulations the facts and representations submitted are summarized as follows on date decedent and spouse created a revocable_trust trust decedent died on date survived by spouse article a of trust provides that upon the death of the first to die of decedent or spouse the trustee shall divide trust into a surviving trustor’s share and a decedent’s plr-132793-18 share article a further directs that the decedent’s share shall consist of the decedent’s separate_property his one-half interest in community_property and his one- half interest in quasi-community_property article a directs the trustee to retain the surviving trustor’s share in a separate trust the surviving trustor’s trust article a directs the trustee to further divide the property in the decedent’s share into three parts the tangible_personal_property share the marital_deduction share and the by-pass share article a a directs the trustee to distribute the tangible_personal_property share to the surviving trustor’s trust article a b defines the marital_deduction share directs the trustee to distribute the marital_deduction share between a martial trust the qtip_trust and the surviving trustor’s trust in the amounts described in article a b article a c directs the trustee to distribute to a by-pass trust the by-pass trust the property remaining in the decedent’s share after distribution of the tangible_personal_property share and marital_deduction share article provides the terms of the qtip_trust article directs the trustee to pay to or apply for the benefit of the surviving_spouse all of the net_income quarter-annually or at more frequently intervals the trustee shall also pay to or apply for the benefit of the surviving_spouse so much of the principal of the qtip_trust for the survivor’s health maintenance support and education in addition the surviving_spouse has the right to occupy without payment of rent any real_property in the qtip_trust moreover the surviving_spouse has a testamentary special_power_of_appointment over the qtip_trust article g directs the trustee to divide any trust with a gst transfer_tax inclusion_ratio other than zero or one into exempt and nonexempt portions to be held as separate trusts in addition article a c provides that the trustee may divide any trust into two or more separate trusts and as an example provides that the trustee may divide any trust into two separate trusts in order that the gst transfer_tax inclusion_ratio for each such trust shall be either zero or one article c provides in part that upon the death of the first to die of decedent and spouse the survivor may amend or revoke the surviving trustor’s trust in whole or in part but any and all other trusts created under trust shall be irrevocable spouse acted as executor of decedent’s estate and trustee of trust spouse relied on accountant to prepare and provide advice regarding decedent’s form_706 united_states estate and generation-skipping_transfer_tax return spouse made an election to have the qtip_trust treated as qualified_terminable_interest_property under plr-132793-18 sec_2056 however accountant failed to attach a schedule r to decedent’s form_706 and failed to advise spouse to divide the qtip_trust into a gst exempt qtip_trust and a gst nonexempt qtip_trust thus decedent’s estate did not make a reverse_qtip_election and did not affirmatively allocate decedent’s gst tax exemption the successor trustee of trust discovered these errors upon review of spouse’s form_706 it is represented that decedent has sufficient gst_exemption to allocate to the gst exempt qtip_trust you have requested an extension of time under sec_301_9100-1 and sec_301_9100-3 to sever the qtip_trust into a gst exempt qtip_trust and a gst nonexempt qtip_trust pursuant to sec_26 b of the gst tax regulations an extension of time under sec_301_9100-1 and sec_301_9100-3 to make a reverse_qtip_election under sec_2652 law and analysis sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2044 provides in part that the value of the gross_estate shall include the value of any property for which a deduction was allowed with respect to the transfer of such property to the decedent under sec_2056 in which the decedent had a qualifying_income_interest_for_life sec_2056 provides that for purposes of the tax imposed by sec_2001 the value of the taxable_estate shall except as limited by sec_2056 be determined by deducting from the value of the gross_estate an amount equal to the value of any interest in property which passes or has passed_from_the_decedent to the surviving_spouse but only to the extent that such interest is included in determining the value of the gross_estate sec_2056 provides that where on the lapse of time on the occurrence of an event or contingency or on the failure of an event or contingency to occur an interest passing to the surviving_spouse will terminate or fail no deduction shall be allowed under this section with respect to such interest -- a if an interest in such property passes or has passed for less than an adequate_and_full_consideration in money_or_money's_worth from the decedent to any person other than such surviving_spouse or the estate of such spouse and b if by reason of such passing such person or his plr-132793-18 heirs or assigns may possess or enjoy any part of such property after such termination or failure of the interest so passing to the surviving_spouse and no deduction shall be allowed with respect to such interest even if such deduction is not disallowed under subparagraphs a and b -- c if such interest is to be acquired for the surviving_spouse pursuant to directions of the decedent by his executor or by the trustee of a_trust sec_2056 provides that in the case of qualified_terminable_interest_property for purposes of sec_2056 such property shall be treated as passing to the surviving_spouse and for purposes of sec_2056 no part of such property shall be treated as passing to any person other than the surviving_spouse sec_2056 defines the term qualified_terminable_interest_property as property i which passes from the decedent ii in which the surviving_spouse has a qualifying_income_interest_for_life and iii to which an election under sec_2056 applies sec_2056 provides that the surviving_spouse has a qualifying_income_interest_for_life if i the surviving_spouse is entitled to all the income from the property payable annually or at more frequent intervals or has a usufruct interest for life in the property and ii no person has a power to appoint any part of the property to any person other than the surviving_spouse sec_2056 provides that an election under sec_2056 with respect to any property shall be made by the executor on the return of tax imposed by sec_2001 such an election once made shall be irrevocable sec_20_2056_b_-7 of the estate_tax regulations provides that in general the election referred to in sec_2056 and v is made on the return of tax imposed by sec_2001 or sec_2101 for purposes of this paragraph the term return of tax imposed by sec_2001 means the last estate_tax_return filed by the executor on or before the due_date of the return including extensions or if a timely return is not filed the first estate_tax_return filed by the executor after the due_date sec_2601 imposes a tax on every generation-skipping_transfer sec_2611 provides that the term generation-skipping_transfer means a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of the gst tax is determined by multiplying the taxable_amount by the applicable_rate sec_2641 provides that the term plr-132793-18 applicable_rate means with respect to any gst transfer the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2631 as in effect on decedent's date of death provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure that may be allocated by the individual or his executor to any property with respect to which the individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual's estate determined with regard to extensions regardless of whether such a return is required to be filed sec_2632 provides that in general any portion of an individual's gst_exemption which has not been allocated within the time prescribed by sec_2632 shall be deemed to be allocated as follows a first to property which is the subject of a direct_skip occurring at such individual's death and b second to trusts with respect to which such individual is the transferor and from which a taxable_distribution or a taxable_termination might occur at or after such individual's death sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides that a decedent's unused gst_exemption is automatically allocated on the due_date for filing the form_706 or form 706na to the extent not otherwise allocated by the decedent's executor on or before that date unused gst_exemption is allocated pro_rata subject_to the rules of sec_26_2642-2 on the basis of the value of the property as finally determined for purposes of chapter chapter value first to direct skips treated as occurring at the transferor's death the balance if any of unused gst_exemption is allocated pro_rata subject_to the rules of sec_26_2642-2 on the basis of the chapter value of the nonexempt_portion of the trust property to trusts with respect to which a taxable_termination may occur or from which a taxable_distribution may be made no automatic allocation of gst_exemption is made to a_trust that will have a new transferor with respect to the entire trust prior to the occurrence of any gst with respect to the trust the automatic allocation is irrevocable sec_2642 provides that generally the inclusion_ratio with respect to any property transferred in a gst is the excess of one over the applicable_fraction determined for the trust sec_2642 provides that in general the applicable_fraction is a fraction the numerator of which is the amount of the gst_exemption plr-132793-18 allocated to the trust and the denominator of which is the value of the property transferred to the trust reduced by the sum of any federal estate_tax or state death_tax actually recovered from the trust attributable to such property and any charitable deduction allowed under sec_2055 or sec_2522 with respect to such property sec_2652 provides that for purposes of chapter the term transferor means a in the case of any property subject_to the tax imposed by chapter the decedent and b in the case of any property subject_to the tax imposed by chapter the donor an individual shall be treated as transferring any property with respect to which such individual is the transferor sec_2652 provides in pertinent part that in the case of any trust with respect to which a deduction is allowed to the decedent under sec_2056 the estate of the decedent may elect to treat all of the property in such trust for gst tax purposes as if the election to be treated as qualified_terminable_interest_property had not been made reverse_qtip_election sec_26_2652-2 provides in part that a reverse_qtip_election is not effective unless it is made with respect to all of the property in the trust to which the qtip_election applies sec_26_2652-2 provides that an election under sec_2652 is made on the return on which the qtip_election is made sec_26_2654-1 provides in part that the severance of a_trust that is included in the transferor's gross_estate or created under the transferor's will into two or more trusts is recognized for purposes of chapter if the trust is severed pursuant to a direction in the governing instrument providing that the trust is to be divided upon the death of the transferor and the terms of the new trusts provide in the aggregate for the same succession of interests and beneficiaries as are provided in the original instrument and the severance occurs prior to the date prescribed for filing the federal estate_tax_return including extensions actually granted for the estate of the transferor and the new trusts are severed on a fractional basis sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose due_date is prescribed by a regulation and not expressly provided by statute plr-132793-18 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 are satisfied therefore decedent’s estate is granted an extension of time of days from the date of this letter to sever the qtip_trust into a gst exempt qtip_trust and a gst nonexempt qtip_trust and to make a reverse_qtip_election with respect to the gst exempt qtip_trust further the automatic allocation rules of sec_2632 apply to automatically allocate decedent’s unused gst_exemption to the gst exempt qtip_trust the reverse_qtip_election should be made on a supplemental form_706 the form_706 should be filed with the cincinnati service_center at the following address internal_revenue_service center cincinnati oh a copy of this letter should be attached to the supplemental form_706 a copy is enclosed for this purpose this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent 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 except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter plr-132793-18 in accordance with the power_of_attorney on file with this office we have sent a copy of this letter to your authorized representatives sincerely associate chief_counsel passthroughs special industries by lorraine e gardner lorraine e gardner senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service department of the treasury number release date index numbers wahco construction inc washington dc person to contact telephone number refer reply to cc corp b06-plr-163770-02 date march27 legend purchaser target seller tax professional date a date b dear this letter responds to a letter dated date submitted on behalf of purchaser and seller requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election purchaser and seller are requesting an extension to file a sec_338 election under sec_338 and sec_338 of the internal_revenue_code and sec_1_338_h_10_-1t c of the income_tax regulations with respect to purchaser’s acquisition of the stock of target sometimes hereinafter referred to as the election on date a all citations in this letter to regulations under sec_338 are to regulations in effect on date a additional information was received in a letter dated date the material information is summarized below plr-163770-02 purchaser is a corporation that is the common parent of an affiliated_group_of_corporations filing a consolidated federal_income_tax return prior to purchaser’s acquisition of all of the stock of target target was an s_corporation and seller owned all of the stock of target on date a purchaser and seller entered into a stock purchase agreement for purchaser to acquire all of the target stock from seller also on date a purchaser acquired all of the stock of target from seller in exchange for cash and stock of purchaser it is represented that purchaser’s acquisition of the stock of target qualified as a qualified_stock_purchase as defined in sec_338 the election was due on date b but for various reasons a valid election was not filed after the due_date for the election it was discovered that the election had not been filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file the election the period of limitations on assessment under sec_6501 has not expired for purchaser’s consolidated group’s target’s or seller’s taxable years in which the acquisition occurred the taxable years in which the election should have been filed or any taxable years that would have been affected by the election had it been timely filed sec_338 permits certain stock purchases to be treated as asset acquisitions if the purchasing_corporation makes or is treated as having made a sec_338 election or a sec_338 election and the acquisition is a qualified_stock_purchase sec_338 permits the purchasing_corporation and the selling shareholder of the target_corporation to elect jointly to treat the target_corporation as deemed to sell all of its assets and distribute the proceeds in complete_liquidation a sec_338 election may be made for target only if purchaser acquires stock meeting the requirements of sec_1504 from a selling_consolidated_group a selling affiliate or the s_corporation shareholders in a qualified_stock_purchase sec_1 h - 1t c under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 plr-163770-02 in this case the time for filing the election is fixed by the regulations ie sec_1_338_h_10_-1t c therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for purchaser and seller to file the election provided purchaser and seller show they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by purchaser seller and tax professional explain the circumstances that resulted in the failure to timely file a valid election the information establishes that purchaser reasonably relied on a qualified_tax professional who failed to make or advise purchaser to make the election the request for relief was filed before the failure to make the election was discovered by the internal_revenue_service and that the government will not be prejudiced if relief is granted see sec_301_9100-3 and v based on the facts and information submitted including the representations made we conclude that purchaser and seller have shown they acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-3 until days from the date on this letter for purchaser and seller to file the election with respect to the acquisition of the stock of target as described above within days of the date on this letter purchaser and seller must file the election on form_8023 executed on or after the date on this letter in accordance with sec_1_338_h_10_-1t c and the instructions to the form a copy of this letter must be attached to form_8023 within days of the date on this letter all relevant parties must file or amend as applicable all returns and amended returns if any necessary to report the transaction as a sec_338 transaction for the taxable_year in which the transaction was consummated and for any other affected_taxable_year a copy of this letter and a copy of form_8023 must be attached to the returns the above extension of time is conditioned on the taxpayers' purchaser's consolidated group’s seller’s and target’s tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayers’ tax_liability for the years involved a determination thereof will be made by the applicable director’s office upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers’ tax_liability is lower sec_301_9100-3 we express no opinion as to whether the acquisition sale of the target stock qualifies as a qualified_stock_purchase under sec_338 whether the plr-163770-02 acquisition sale of target stock qualifies for sec_338 treatment or any other tax consequences arising from the election in addition we express no opinion as to the tax consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by the taxpayers however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election penalties and interest that would otherwise be applicable if any continue to apply purchaser must provide seller with a copy of this letter 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 purchaser 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 sincerely cc ken cohen senior technician reviewer branch office of associate chief_counsel corporate


internal_revenue_service number release date index number ------------------------ ------------------------ ---------------------------------- legend department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------------- telephone number ---------------------- refer reply to cc tege eb ec plr-118264-14 date july ---------------------- ---------- date x employer -------------------------------------- date ---------------------- dear --------------- this letter is in response to your request dated date in which you asked for consent to revoke an election you made under sec_83 of the internal_revenue_code code the facts as represented are as follows on date you were granted an award of x shares of employer common_stock by employer on date you filed an election under sec_83 of the code with the internal_revenue_service center where you file your individual tax_return the sec_83 election referenced all x shares of the common_stock received from employer on date on date less than days after date you sent a letter to this office requesting consent to revoke your sec_83 election sec_83 of the code sets forth the rules for transfers of property in_connection_with_the_performance_of_services sec_83 provides that the excess of the fair_market_value of the property transferred at the time the property becomes substantially_vested over the amount if any paid for the property shall be included as compensation in the service provider's gross_income for the taxable_year in which the property becomes substantially_vested property is substantially_vested when it is either transferable or no longer subject_to a substantial_risk_of_forfeiture sec_83 of the code and sec_1_83-2 of the income_tax regulations permit the service provider to elect to include in gross_income the excess if any of the fair_market_value of the property at the time of transfer over the amount if any paid for the property as compensation_for services under sec_83 of the code an election plr-118264-14 made under sec_83 must be made in accordance with the regulations thereunder and must be filed with the internal_revenue_service no later than days after the date that the property is transferred to the service provider sec_83 of the code and sec_1_83-2 of the income_tax regulations provide that an election under sec_83 may not be revoked without the consent of the commissioner of the internal_revenue_service sec_1_83-2 provides that consent to revoke an election under sec_83 will be granted only in a case where the transferee is under a mistake of fact as to the underlying transaction and must be requested within days of the date on which the mistake first became known to the person who made the election the service has recognized the principle that an election made under the code or regulations may be revoked on or before the due_date for making the election section dollar_figure of revproc_2006_31 2006_1_irb_32 provides that a request for consent to revoke a sec_83 election will generally be granted if the request is filed on or before the due_date for making that sec_83 election in the instant case you filed your request to revoke your sec_83 election within the day time period allowed under sec_83 for making the election based solely on the representations provided and the information and documents submitted consent to revoke your sec_83 election is granted except as specifically ruled above no opinion is expressed as to the federal tax consequences of the transaction described above under any other provision of the code specifically no opinion is expressed concerning other tax consequences of sec_83 and its applicability to the transaction described above this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter should be attached to your income_tax return for sincerely thomas d scholz senior counsel executive compensation branch office of division counsel associate chief_counsel tax exempt and government entities


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 corp b03 - plr-159229-03 date date ------------------- --------------------- -------------------------------- ----------------------------------------- --------------------------------------------------------- taxpayer -------------------------------------------------------------------------- --------------------------------------------------------------------- x --------------------------------------------------------------------- date date date date company official -------------------------------------------------------------------------------------- tax professionals ------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- dear --------------- taxpayer an extension of time under sec_301_9100-1 through of the procedure and administration regulations to file an election the extension is being requested for taxpayer to file an election under sec_1_1502-21 of the income_tax regulations to relinquish the entire carryback period for the consolidated net operating this letter responds to a letter dated date requesting on behalf of ---------------------------------------------------- ------------------------------------- ------------------------------ ----------------- taxpayer intended to relinquish the carryback period for its consolidated group’s plr-159229-03 loss cnol of the consolidated_group of which taxpayer is the common parent for the tax_year ending date additional information was submitted in letters dated date and date the material information submitted for consideration is summarized below cnol on its tax_return for the tax_year ending date the return was timely filed on date consistent with a valid election having been made however for various reasons a valid election was not filed on date which is after date it was discovered that a valid election was not filed subsequently this request was submitted under sec_301_9100-3 for an extension of time to file a valid election the period of limitations on assessment under sec_6501 has not expired for the taxable_year for which the valid election should have been filed or for any subsequent taxable_year s all members of taxpayer’s consolidated_group at any time during the tax_year ending date were members of taxpayer’s consolidated_group during the entire five- year carryback period that would have been applicable to the cnol of taxpayer with the exception of x x joined taxpayer’s consolidated_group on date it has been represented by taxpayer and or x that no portion of the cnol of taxpayer for the tax_year ending date has been or will be carried back to any prior tax_year including any_tax year prior to x becoming a member of taxpayer’s consolidated_group relinquish the carryback period with respect to a cnol for any consolidated_return_year the election is made in a separate statement entitled this is an election under sec_1_1502-21 to waive the entire carryback period pursuant to sec_172 for the insert consolidated_return_year cnols of the consolidated_group of which insert name and employer_identification_number of common parent is the common parent sec_1 b i provides that the statement must be signed by the common parent and filed with the group’s income_tax return for the consolidated_return_year in which the cnol arises extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i election whose due_date is prescribed by a regulation revenue_ruling revenue_procedure notice or announcement sec_301_9100-1 through provide under sec_301_9100-1 the commissioner has discretion to grant a reasonable sec_301_9100-1 defines the term regulatory election as including an sec_1_1502-21 provides that a consolidated_group may elect to plr-159229-03 the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extension of time for making regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 sec_1_1502-21 therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for taxpayer to file the election provided taxpayer establishes it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government in this case the time for filing the election is fixed by the regulations ie information affidavits and representations submitted by taxpayer company official and tax professionals explain the circumstances that resulted in the failure to timely file a valid election the information establishes that taxpayer reasonably relied on a qualified_tax professional who failed to make or advise taxpayer to make the election and that the interests of the government will not be prejudiced if relief is granted see ' b v based on the facts and information submitted including the representations that have been made we conclude that taxpayer has established it acted reasonably and in good_faith in failing to timely file the election the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly we grant an extension of time under sec_301_9100-3 until days from the date on this letter for taxpayer to file the election with respect to the relinquishment of the entire carryback period for the cnol for the tax_year ending date as described above the above extension of time is conditioned on taxpayer’s consolidated group’s tax_liability if any not being lower in the aggregate for all years to which the election applies than it would have been if the election had been made timely taking into account the time_value_of_money no opinion is expressed as to taxpayer’s consolidated group’s tax_liability for the years involved a determination thereof will be made upon audit of the federal_income_tax returns involved further no opinion is expressed as to the federal_income_tax effect if any it if it determined that taxpayer’s consolidated group’s liability is lower sec_301_9100-3 taxpayer should file the election in accordance with sec_1_1502-21 no opinion is expressed as to the tax effects or consequences of filing the plr-159229-03 taxpayer’s returns must be amended to attach the election statement required by sec_1_1502-21 a copy of this letter should be attached to the election statement election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by the taxpayer and its representatives however all of the essential facts must be verified in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election penalties and interest that would otherwise be applicable if any continue to apply provides that it may not be used or cited as precedent sent to your authorized representative pursuant to a power_of_attorney on file in this office a copy of this letter is being this letter is directed only to the taxpayer who requested it sec_6110 sincerely __ken cohen_____________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc