internal_revenue_service number release date index number ------------------------------ --------------------------------------- --------------------------------------- ------------------------------ in 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 b04 plr-130192-12 date january legend decedent estate court court state date date date date ----------------------------------------------------------------- ---------------------------------------------------------------------------- --------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------- -------------- --------------------------- -------------------------- -------------------- -------------------- dear -------------------- this letter responds to your authorized representative’s submission dated date and subsequent correspondence in which you requested rulings under sec_2601 and sec_2055 of the internal_revenue_code the facts submitted and the representations made are as follows on date a date prior to date decedent executed a will subject_to the laws of state the will provided for decedent’s property to be distributed to her surviving_spouse children grandchildren and charity shortly after she executed the will and before date decedent was adjudged incompetent by court decedent did not regain competency prior to her death on date decedent’s executors timely filed a form_706 united_states estate and generation-skipping_transfer_tax return including therein a copy of the judgment of incompetency after decedent’s death each beneficiary advocated for his or her own interpretation of decedent’s will and state law insofar as the beneficiaries did not agree on the amount each beneficiary was to receive under the terms of the will as a result plr-130192-12 on date decedent’s estate estate petitioned court for construction and reformation of decedent’s will to resolve the issue as to the amount each beneficiary was to receive under decedent’s will estate and the beneficiaries were represented by separate counsel the charitable beneficiaries were represented by the attorney_general of state estate and the beneficiaries agree that each beneficiary’s proposed resolution of the issue has merit moreover they seek to avoid the expense uncertainty and delay that would result if they should continue to litigate this issue accordingly before court ruled on the substantive issue estate and the beneficiaries entered into a settlement agreement settlement court approved the settlement by order on date decedent’s estate is requesting the following two rulings amounts distributed pursuant to the settlement are not subject_to the generation-skipping_transfer gst tax and estate will receive a charitable deduction under sec_2055 for amounts distributed to charity pursuant to the settlement law and analysis ruling sec_2601 of the code imposes a tax on every gst made after date under b c of the tax_reform_act_of_1986 act the tax does not apply to any gst -- i under a_trust to the extent such trust consists of property included in the gross_estate of a decedent other than property transferred by the decedent during his life after the date of the enactment of the act or reinvestments thereof or ii that is a direct_skip that occurs by reason of the death of any decedent but only if such decedent was on the date of the enactment of the act under a mental_disability to change the disposition of his property and did not regain his competence to dispose_of such property before the date of death sec_26_2601-1 of the generation-skipping_transfer_tax regulations provides that if an individual was under a mental_disability to change the disposition of his or her property continuously from date until the date of his or her death the provisions of chapter do not apply to any gst -- a under a_trust as defined in sec_2652 to the extent such trust consists of property or the proceeds of property the value of which was included in the gross_estate of the individual other than property transferred by or on behalf of the individual during the individual's life after date or b which is a direct_skip other than a direct_skip from a_trust that occurs by reason of the death of the individual plr-130192-12 sec_26_2601-1 provides that the term mental_disability means mental incompetence to execute an instrument governing the disposition of the individual's property whether or not there was an adjudication of incompetence and regardless of whether there has been an appointment of a guardian fiduciary or other person charged with either the care of the individual or the care of the individual’s property sec_26_2601-1 provides that if the decedent has been adjudged mentally incompetent on or before date a copy of the judgment or decree and any modification thereof must be filed with the form_706 sec_26_2601-1 provides rules for determining when a modification judicial construction settlement agreement or trustee action with respect to a_trust exempt from the gst tax under sec_26_2601-1 sec_26_2601-1 or sec_26_2601-1 will not cause the trust to lose its exempt status sec_26_2601-1 provides that a court-approved settlement of a bona_fide issue regarding the administration of the trust or the construction of terms of the governing instrument will not cause an exempt trust to be subject_to the provisions of chapter if -- the settlement is the product of arm’s length negotiations and the settlement is within the range of reasonable outcomes under the governing instrument and applicable state law addressing the issues resolved by the settlement a settlement that results in a compromise between the positions of the litigating parties and reflects the parties’ assessments of the relative strengths of their positions is a settlement that is within the range of reasonable outcomes based upon the facts submitted and the representations made we find that decedent was under a mental_disability to change the disposition of decedent’s property continuously from date until her death the settlement is the product of arm’s length negotiations the settlement resolves the issue as to the amount each beneficiary is to receive in a manner consistent with applicable state law the settlement represents a compromise between the beneficiaries and reflects the parties’ assessments of the relative strengths of their positions further the settlement is within the range of reasonable outcomes under the will and applicable state law accordingly based upon the facts submitted and the representations made we find that the provisions of chapter do not apply to any gst resulting from the settlement ruling under sec_2055 for estate_tax purposes the value of the taxable_estate shall be determined by deducting from the value of the gross_estate the amount of all bequests legacies devises or transfers to or for_the_use_of any corporation organized and operated exclusively for religious charitable scientific literary or educational plr-130192-12 purposes a_trust that qualifies under sec_501 is one that is organized and operated exclusively for these purposes sec_2055 disallows the estate_tax charitable deduction where an interest in property other than an interest described in sec_170 passes or has passed_from_the_decedent to a person or for a use described in sec_2055 and an interest other than an interest which is extinguished upon the decedent's death in the same property passes or has passed for less than an adequate_and_full_consideration in money_or_money's_worth from the decedent to a person or for a use not described in sec_2055 unless -- a in the case of a remainder_interest such interest is in a_trust which is a charitable_remainder_annuity_trust or a charitable_remainder_unitrust described in sec_664 or a pooled_income_fund described in sec_642 or b in the case of any other interest such interest is in the form of a guaranteed annuity or is a fixed percentage distributed yearly of the fair_market_value of the property to be determined yearly in revrul_89_31 1989_1_cb_277 the estate was entitled to a charitable deduction under sec_2055 for a remainder_interest in a split interest trust passing directly to a named charity pursuant to a settlement of a bona_fide will_contest in this case the settlement is a settlement of a bona_fide will_contest within the meaning of revrul_89_31 accordingly based upon the facts submitted and the representations made we conclude that estate is entitled to a charitable deduction under sec_2055 for amounts passing to charity pursuant to the settlement 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 this ruling is directed only to the taxpayer requesting it sec_6110 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 plr-130192-12 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 leslie h finlow leslie h finlow senior technician reviewer branch passthroughs special industries enclosures copy for sec_6110 purposes cc


department of the treasury internal_revenue_service washington d c contact person identification_number telephone number employer_identification_number tax_exempt_and_government_entities_division release number release date vil date date m n oo dear this is in response to a letter dated date requesting a ruling that certain proposed contractual relationships will not generate unrelated_business_taxable_income under sec_512 of the internal_revenue_code the code to m mis exempt under sec_501 of the code as an organization described in sec_501 and has been classified as an educational_organization under sec_509 and sec_170 n is a charitable_remainder_unitrust mis the trustee of a number of charitable_remainder trusts including n collectively the trusts and as trustee mis the legal owner of the trusts’ assets in addition mhas a remainder_interest in each of the trusts the charitable_remainder trusts distribute to individual beneficiaries either a unitrust_amount equal to a percentage of the market_value of trust assets or an annuity amount with the remainder_interest distributed in either case to m after a term of years or upon the death of the life beneficiaries as a result of its relationship with the trusts as both trustee and beneficiary mhas a substantial interest in the value of each trust moreover the donors to the trusts have funded the trusts with the intention that m benefit substantially from the assets of the trusts and that the assets will be managed to achieve the greatest possible return on investment in this regard donors often express their desire for the return on the assets to match the return on ms endowment or for the assets to participate in the return on the endowment donors have expressed their concern when the investment return of a_trust has been lower than the return on m's endowment most of m’s endowment is invested in what m refers to as its o the o is invested ina widely diverse manner including substantial investments in both public and private domestic and foreign equity fixed income hedge funds and real_estate much of the income earned by the portfolio consists of passive dividends interest rents and long and short-term_capital_gains but some income is debt-financed or otherwise treated as unrelated_business_taxable_income mhas provided information showing that the endowment has outperformed the trusts on an annualized return basis in most years m would like to achieve greater economies of scale in the management of the trusts a potentially higher investment return for the trusts and increased diversification of the trusts’ investments m seeks to accomplish these goals by enabling the trusts to participate albeit indirectly in the return on m’s endowment m proposes to create a contractual obligation pursuant to which it would issue a contract right to each of the trusts for so-called o units units the value of the units would equal the value of the shares of the endowment held by the various academic departments and schools that comprise m the contract right would entitle the trusts to receive periodic_payments based on the number of units owned the trusts would thereby be able to receive an investment return equal to that of the oo mstates that it uses a unit concept internally with respect to the various restricted mseeks to enable the trusts to invest in a manner similar to a department or school of m a_trust would acquire units from m's o that would give the trusts a contractual right against m but no interest whatsoever in the underlying investment_assets of the endowment the contract between m and the trusts would provide that the price of the units would equal their value at the time of acquisition the units would have the same value that m uses for internal accounting purposes funds departments and schools at m each department or school owns a certain number of units of the o the value of which is based on the value of the underlying o investments m determines a payout rate on the o each year based in part on the o’s investment performance each department is entitled to a payout in an amount equal to the payout rate times the number of units it holds msets the value of the units on a quarterly basis based on the underlying asset value of the o the contract would provide that each trust would receive payments on the units held by it equal to the payout rate m establishes for the o with payouts made at least annually or more frequently as appropriate a_trust could choose either to reinvest part of the payout or redeem additional shares depending on its cash requirements the trusts will treat payouts as ordinary_income regardless of the character of the underlying income of the endowment whether capital_gain ordinary_income or return_of_capital and regardless of whether the payout is made entirely by distributions of income or in part by redemption of shares the trusts will treat redemptions of shares over and above receipt of the payout rate as generating long or short-term_capital_gain or loss depending on the holding_period of the redeemed shares under the contract the trusts would not have any ownership_interest in the underlying assets of the o or any contract rights with respect to the other trusts the trusts would have no power or right of any kind to control direct supervise recommend or review m's business activities operations or decisions with respect to the o except the right to review the payout computations they would not have the right to veto or opt_out of any of the underlying o investments the contract would provide that with respect to the issuance of shares mis neither a partner nor an agent of the trusts that the trusts would never be or become liable for any cost expense or payment incurred or due by m or for which mis liable or responsible relating to the o or the underlying o assets and m would indemnify and hold the trusts harmless from and against any liability arising out of any_action or inaction by m with respect to the o or the underlying assets the costs of management are borne by the entire o and the return paid to the trusts will reflect those costs mwill not charge a fee for managing units of the trusts in o m's investments are managed by a controlled tax-exempt affiliate of m those managers typically charge a fee and receive reimbursement of expenses in the process of managing o these fees and expenses are charged against the aggregate return of o and either directly or indirectly reduce m's total return on its endowment consequently those fees will be reflected indirectly in the spending rate payments to be made to the trusts m has the right to be reimbursed for reasonable and necessary expenses_incurred in connection with the oversight of the portfolio investments of its endowment including fees indirectly charged by the affiliated managers for management of o m has the sole charitable_remainder interest in each of the trusts that will be permitted to purchase units in o you have requested the following ruling the issuance of units from m to the trusts the making or receipt of payments with respect to the units and the holding or redemption of the units will not generate unrelated_business_taxable_income to n law sec_511 of the code in part imposes a tax on the unrelated_business_taxable_income of organizations described in sec_501 sec_512 of the code defines the term unrelated_business_taxable_income as the gross_income derived by any organization from any unrelated_trade_or_business regularly carried on by it less the allowable deductions which are directly connected with the carrying on of such trade_or_business both computed with the modifications provided in sec_512 sec_512 of the code sets forth so-called modifications which are excluded from the computation of unrelated_business_taxable_income these modifications include dividends interest royalties rent from real_property and gain from the sale of property _ sec_513 of the code defines the term unrelated_trade_or_business as any trade or buginess the conduct of which is not substantially related aside from the need of such organization for income or funds or the use it makes of the profits derived to the exercise or performance by such organization of its exempt_purpose or function ‘ sec_513 of the code provides that the term trade_or_business includes any activity which is carried on for the production_of_income from the sale_of_goods or the performance of services sec_1_513-1 of the income_tax regulations provides that gross_income of an exempt_organization subject_to the tax imposed by sec_511 of the code is includible in the computation of unrelated_business_taxable_income if it is income from a trade_or_business such trade_or_business is regularly carried on by the organization and the conduct of such trade_or_business is not substantially related other than through the production of funds to the organization's performance of its exempt functions sec_1_513-1 of the regulations provides that for purposes of sec_513 of the code the term trade_or_business has the same meaning it has in sec_162 and generally includes any activity carried on for the production_of_income from the sale_of_goods or performance of services sec_1_513-1 of the regulations provides that in determining whether trade_or_business from which a particular amount of gross_income derives is regularly carried on within the meaning of sec_512 of the code regard must be had to the frequency and continuity with which the activities productive of the income are conducted and the manner in which they are pursued for example specific business activities of an exempt_organization will ordinarily be deemed to be regularly carried on if they manifest a frequency and continuity and are pursued in a manner generally similar to comparable commercial activities of non-exempt organizations sec_1_513-1 of the regulations provides that in general gross_income derives from unrelated_trade_or_business within the meaning of sec_513 of the code if the conduct of the trade_or_business which produces the income is not substantially related other than through the production of funds to the purposes for which exemption is granted the presence of this requirement necessitates an examination of the relationship between the business activities which generate the particular income in question -- the activities that is of producing or distributing the goods or performing the services involved -- and the accomplishment of the organization's exempt purposes sec_1_513-1 of the regulations provides that trade_or_business is related to exempt purposes in the relevant sense only where the conduct of the business activities has a causal relationship to the achievement of exempt purposes and is substantially related for purposes of sec_513 of the code only if the causal relationship is a substantial one thus for the conduct of trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of those purposes where the production or distribution of the goods or the performance of the services does not contribute importantly to the accomplishment of the exempt purposes of an organization the income from the sale of the goods or the performance of the services does not derive from the conduct of related trade_or_business whether activities productive of gross_income contribute importantly to the accomplishment of any purpose for which an organization is granted exemption depends in each case upon the facts and circumstances involved revrul_69_528 1969_2_cb_127 describes an organization that was formed to provide investment services on a fee basis exclusively to organizations exempt under sec_501 of the code it receives funds from the participating exempt_organizations invests in common stocks reinvests income and realized appreciation and upon request liquidates a participant's interest and distributes the proceeds to the participant the rev_rul states that providing investment services on a regular basis for a fee is a trade_or_business ordinarily if the services were regularly provided by one tax-exempt_organization for carried on for profit other tax-exempt organizations such activity would constitute unrelated_trade_or_business the rev_rul holds that the organization is not exempt under sec_501 as noted previously organizations described in sec_501 of the code are subject_to tax on their unrelated_business_income under sec_511 in order for such an organization's income to be subject_to the unrelated_business_income_tax three requirements must be met the income must be from a trade_or_business the trade_or_business must be regularly carried on and the conduct of the trade_or_business must not be substantially related to the organization's exempt_purpose or function see sec_1_513-1 of the regulations analysis here m proposes to enter into a contractual relationship with certain trusts that are charitable_remainder trusts in which m has an interest as a beneficiary and serves as trustee of the trust under such a contractual relationship each trust would receive payments on the units held by it equal to the payout rate m establishes for its o with payouts made annually or more frequently at the option of m each trust would acquire units from the mo which would give the trusts a contractual right against m but no interest whatsoever in the underlying investment_assets of the o the contract between mand the trusts would provide that the price of the units would equal their value at the time of acquisition the shares would have the same value that m uses for internal accounting purposes consequently a_trust could choose either to reinvest part of the payout or redeem additional shares depending on its cash requirements thus under the contractual relationship with m the trusts would have a right to the payout declared by m plus the right to redeem the units at the value that m uses for internal accounting purposes generally an organization that otherwise qualifies for recognition of exemption under sec_501 of the code and provides investment services on a regular basis for a fee to other éxempt or nonexempt organizations would be engaged in an unrelated_trade_or_business under' sec_513 see revrul_69_528 supra such an activity would constitute a trade_or_business under sec_513 and sec_1_513-1 of the regulations and would be regularly carried on under sec_512 and sec_1_513-1 thus if m charged a fee for investment management services provided to organizations unrelated to m or generated income from the management of the funds invested by such organizations these activities could result in unrelated_business_taxable_income under sec_512 here however m is not charging a fee for its services and not otherwise receiving income from the services it provides to the trusts thus under these circumstances m will not receive unrelated_business_taxable_income under sec_512 the fact that m will engage in the investment activity for the benefit of individuals who are co-beneficiaries of the trusts at the same time that it engages in investment activity for its own benefit as the remainder beneficiary limits the scope of the service provided to others and distinguishes it from a commercial venture the trusts do not have a position of ownership in the underlying assets of ms endowment since the contractual relationship between m and the trusts is not in the nature of a partnership or agency the income earned by the trusts from the payout m establishes for the endowment reflects ordinary_income and does not take on the character of the income of the underlying assets or debt-financed or unrelated_business_taxable_income m would pay any_tax owed on ubti earned by the endowment portfolio with no deduction taken against ubti for any payments made to the trusts as stated above under the contract the trusts would not have any ownership_interest in the underlying assets of the endowment nor any contract rights with respect to the other trusts the trusts would have no power or right of any kind to control direct supervise recommend or review m's business activities operations or decisions with respect to the endowment except the right to review the payout computations they would not have any right to veto or opt_out of any of the underlying endowment investments the contract would provide that with respect to the issuance of the shares mis neither a partner nor an agent of the trusts that the trusts would never be or become liable for any cost expense or payment incurred or due by m or for which mis liable or responsible relating to the endowment or the underlying endowment assets and m would indemnify and hold the trusts harmless from and against any liability arising out of any_action or inaction by m with respect to the endowment or the underlying endowment assets the issuance of units from m to the trusts the making or receipt of payments with respect to the units and the holding or redemption of the units will not generate unrelated_business_taxable_income to n as stated above under the contract the trusts would not have any ownership interst in the underlying assets of the endowment nor any contract rights in view of the foregoing we rule as follows this ruling is based on the understanding that there will be no material changes in the facts upon which it is based we express no opinion as to the tax consequences of the proposed transaction under any other section of the code pursuant to a power_of_attorney on file in this office a copy of this letter is being sent to mss authorized representatives a copy of this letter should be kept in m's permanent records this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent if there are any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter sincerely robert c harper jr manager exempt_organizations technical group enclosure notice


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 b4 plr-152820-07 date date legend legend ------------------------------------------------------------ taxpayer -------------------------------------------------- parent state a dollar_figurex z ----------------------------------- ------ ------- -------- dear ------------------- this is a reply to your date letter submitted by your authorized representative asking us to grant taxpayer a waiver pursuant to sec_7702 of the internal_revenue_code with respect to the failure of certain life_insurance contracts to satisfy the cash_value_accumulation_test cva of sec_7702 and b in addition you have asked us to rule that taxpayer’s addition of a corrective endorsement to the contracts to comply with the cva test does not affect the contracts’ issue dates or the dates upon which they are considered to have been entered into and does not result in a material_change or exchange for federal_income_tax purposes facts taxpayer is a stock_life_insurance_company organized and operated under the laws of state a and is subject_to tax under sec_801 taxpayer joins in the filing of a consolidated life non-life federal tax_return with parent on an accrual accounting_method and on a calendar_year basis taxpayer issued number z individual non-participating flexible premium variable life_insurance contracts contracts that are designed to satisfy the requirements of the cva test all contracts were issued after date the effective date of sec_7702 plr-152820-07 as discussed in more detail below the cash_value of each contract reflects net_premiums paid under the contract cost of insurance charges any increases or decreases as a result of market performance in the variable subaccounts the amount of any partial surrenders policy indebtedness and all other fees deductions and charges assessed under the contract each contract provides for a minimum death_benefit that is calculated by multiplying the contract’s cash_value by a percentage identified in the contract the applicable_percentage is intended to equal the amount required to maintain the contract’s compliance at all times with the cva test each contract provides for the payment of planned premiums which are the premiums that the contract owner expects to pay in specified installments over the life of the contract premiums_paid by a contract owner net of the certain charges are allocated and may be later reallocated by the owner to one or more variable subaccounts available under the contract amounts allocated or reallocated to a particular subaccount are applied to purchase accumulation units in that subaccount and the value of such units fluctuates with the investment experience of the assets in which the subaccount is invested charges that are assessed under a contract are deducted on a pro_rata basis from the values held in the subaccounts each contract provides that the taxpayer can borrow up to percent of the contract’s net cash_value if the contract owner exercises its right under the contract to borrow against the contract’s cash_value a portion of the cash_value equal to the loan plus any accrued unpaid interest thereon policy indebtedness is transferred to and held in the loan account which is part of the taxpayer’s general_asset_account interest is charged on policy indebtedness at a rate no greater than a guaranteed rate specified in the contract after the first contract_year a contract owner may request a partial withdrawal from the contract the contract must have a net cash_value of at least dollar_figurex following a partial withdrawal partial withdrawals will reduce the contract’s cash_value and may reduce the face_amount of insurance under the contract in limited circumstances upon the full surrender of a contract the taxpayer will pay the contract owner certain amounts remittances which represent a portion of premium loads assessed in the year of surrender in addition to the contract’s net cash_value under the contracts the net cash_value on the surrender date equals the cash_value on that date less any outstanding policy indebtedness the remittance is payable only for surrenders occurring during the first three contract years and applies only to premiums_paid in the contract_year of surrender not to all premiums_paid since issue the specific amount of the remittance differs plr-152820-07 depending upon the particular contract but in general it equals a percentage of the premiums received in the year of surrender in all cases the remittance is less than the premium loads that were deducted from the premiums incorporating the various benefits and charges applicable to the contracts each contract defines cash_value as follows after the free look period the cash_value is the value of the contract’s accumulation units in each subaccount plus the amount in the loan account less any mortality and expense risk charges which have accrued since the last monthly deduction date under the terms of the contracts the amount of a potential remittance is not included in the contract’s cash_value and the taxpayer did not treat the remittances as part of the cash_value in administering the contracts taxpayer interpreted the legislative_history of sec_7702 as indicating that the cash_surrender_value of a contract is any amount that the contract owner can both i receive upon surrender and ii borrow under the contract that is that both characteristics must be present for an amount to be considered part of the value based upon this interpretation of sec_7702 taxpayer concluded that because the net cash_value of a contract does not include the remittance the remittance is not subject_to borrowing under the contract accordingly taxpayer concluded that the remittance may be excluded from a contract’s cash_surrender_value because it did not affect the amount available for a loan under the contracts as a result of taxpayer’s exclusion of the remittance from a contract’s cash_value the remittance is not credited with interest or earnings as are other_amounts that comprise the cash_value and the cash_value is not increased in any manner as a result of the remittance in addition the amount of a potential remittance does not decrease the net amount of insurance risk with respect to a contract and hence it does not decrease the cost of insurance charges that are assessed under the contracts based upon that amount exclusion of the remittance from a contract’s cash_value means that the minimum death_benefit under the contract during the first three contract years ie the period in which the remittance is payable is less than what it would be if the remittance were included in the cash_value consequently taxpayer’s failure to include the amount of a potential remittance in the contracts’ cash_value caused an error under the cva test in that the contracts did not ensure that their cash_surrender_value within the meaning of sec_7702 did not at any time exceed the net_single_premium that would have to be paid at such time to fund future_benefits under the contract plr-152820-07 taxpayer has corrected the error caused by the remittance by adding an endorsement endorsement to the contracts that includes the remittance in the contracts’ cash_value during the period that the remittance could become payable the endoresment is effective as if added to the contracts at issuance as a result of the endorsements the remittance is taken into account in calculating the minimum death_benefit for the contracts in addition taxpayer will recalculate the death_benefit that was paid under the contract for each contract under which the insured died at a time when a remittance was payable but before the endorsement was added to the contract by taking the remittance into account as part of the value that is used to determine the minimum death_benefit if a lower death_benefit was paid with respect to such a contract the taxpayer will pay the contract owner or beneficiary the difference between the actual death_benefit paid and the death_benefit calculated as just described with interest taxpayer represents that it has not issued any life_insurance contracts using the forms upon which the contracts were issued since the date the endorsement was added to all in-force contracts and that if additional contracts are issued they will include the endorsement at issuance law and analysis in general sec_7702 applies to all life_insurance contracts issued after date under sec_7702 to be considered a life_insurance_contract for federal tax purposes a contract that is a life_insurance contact under the applicable law must satisfy either the cva test or the guideline_premium_limitation and cash_value corridor requirements of sec_7702 c and d sec_7702 provides that a contract satisfies the cva test if by the terms of the contract the cash_surrender_value of the contract may not at any time exceed the net_single_premium which would have to be paid at such time to fund future_benefits under the contract for this purpose sec_7702 provides that the cash_surrender_value of any contract shall be its cash_value determined without regard to any surrender charge policy loan or reasonable termination dividends under sec_7702 the secretary_of_the_treasury may waive the failure to satisfy the requirements of sec_7702 if the taxpayer establishes that the requirements were not satisfied due to reasonable error s and that reasonable steps are being taken to remedy the error s the common definition of cash_surrender_value is the amount made available contractually to a withdrawing policy owner who is terminating his or her protection plr-152820-07 kenneth black jr and harold d skipper jr life health insurance 13th ed see also john h magee life_insurance 3rd ed the cash_value represents the amount available to the policyholder upon the surrender of the life_insurance_contract in relevant part the legislative_history of sec_7702 defines cash_surrender_value as the cash_value of any contract ie any amount to which the policyholder is entitled upon surrender and against which the policyholder can borrow determined without regard to any surrender charge policy loan or a reasonable termination dividend s prt no pincite h_r rep no pincite sec_1_7702-2 of the proposed income_tax regulations defines cash_value of a life_insurance_contract as the greater of i the maximum amount payable under the contract determined without regard to any surrender charge or policy loan or ii the maximum amount that the policyholder can borrow under the contract fed reg big_number date sec_1_7702-2 of the proposed_regulations provides that the cash_surrender_value of a contract generally equals its cash_value as defined in sec_1_7702-2 of the proposed_regulations in notice_93_37 1993_2_cb_331 the service announced that the effective dates of the proposed_regulations under sec_7702 would be no earlier than the date of publication of final regulations in the federal_register the notice also indicated that insurance_companies generally would be allowed a period of time after final regulations are published to bring their contracts into compliance with any new rules conclusion the remittance that could be payable under a contract should have been included as part of the contract’s cash_surrender_value within the meaning of sec_7702 because the sec_7702 proposed regulation’s definition of cash_surrender_value is not identical to the definition in sec_7702’s legislative_history and because the proposed_regulations have not been finalized we conclude that the contracts’ failure to satisfy the requirements of the cva test is waived pursuant to sec_7702 because it was due to reasonable error and taxpayer’s method of remedying the errors was reasonable we further conclude that taxpayer’s correction of the errors will not affect the contracts’ issue dates or the dates upon which they are considered to have been entered into and does not result in a change in benefits under sec_7702 or a material_change under sec_7702a thus the addition of the corrective endorsement to the contracts will not cause the contracts to lose their grandfathered status for purposes of sec_72 sec_101 sec_264 sec_7702 or sec_7702a will not require retesting or the plr-152820-07 beginning of a new test period under sec_264 sec_7702 b - e and 7702a c and will not be treated as an exchange for federal_income_tax purposes the rulings contained in this letter are based upon information and representations submitted by 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 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 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely s sheryl b flum branch chief branch office of associate chief_counsel financial institutions products


internal_revenue_service department of the treasury index number u i l no washington dc person to contact telephone number refer reply to cc dom p si plr-115116-99 date date number release date legend company state shareholders a dear this letter responds to a letter dated date requesting a ruling on behalf of company under sec_1362 of the internal_revenue_code the information submitted discloses that company was incorporated on a in state company has three shareholders shareholders it is represented that company has intended to be an s_corporation since its incorporation believing itself to be an s_corporation company has operated accordingly since a after the end of its taxable_year beginning on a however company discovered that its s election had not been timely filed company requests a ruling that its sec_1362 election will be treated as timely made for its taxable_year that begins on a sec_1362 provides that a small_business_corporation may elect to be an s plr-115116-99 corporation sec_1362 explains when an s election will be effective generally if an s election is made within the first two and one half months of a corporation’s taxable_year then that corporation will be treated as an s_corporation for the year in which the election is made sec_1362 provides that if an s election is made after the first two and one half months of a corporation’s taxable_year then that corporation will not be treated as an s_corporation until the taxable_year following the year in which the s election is made sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply applying the relevant law to the facts submitted and representations made we rule that company's sec_1362 election will be treated as timely made for its taxable_year that begins on a however this ruling is contingent on company filing form_2553 election by a small_business_corporation with an effective date of a with the appropriate service_center within days from the date of this ruling a copy of this letter should be attached to the form_2553 except as specifically set forth above we express no opinion concerning the federal tax consequences of the foregoing facts specifically we express no opinion on whether company otherwise qualifies as an s_corporation this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours william p o’shea chief branch office of the assistant chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


t c memo united_states tax_court anne c somervill petitioner v commissioner of internal revenue respondent docket no filed date a kelly williams for petitioner wanda m cohen for respondent memorandum findings_of_fact and opinion fay judge respondent determined deficiencies in federal individual income_tax against petitioner as follows additions to tax and increased interest year deficiency dollar_figure big_number big_number big_number big_number big_number sec_6621 sec_6659 -- -- -- -- -- dollar_figure 1to be determined big_number big_number all section references are to the internal_revenue_code in effect for the taxable years in issue and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated after concessions the issue for decision is whether petitioner qualifies as an innocent spouse with respect to any portion of the income_tax deficiencies findings_of_fact some of the facts have been stipulated and are so found the stipulation and the attached exhibits are incorporated herein by this reference petitioner resided in harlingen texas at the time the petition was filed petitioner and her then husband robert c somervill filed joint federal_income_tax returns for all of the years in issue respondent issued a notice_of_deficiency on date for the tax years through respondent's notice_of_deficiency disallowed in full the ordinary losses from an investment in oxnard properties a partnership claimed by petitioner and robert somervill on their joint federal_income_tax returns for certain of the years in issue additionally the notice disallowed an investment_tax_credit carryback from to 1petitioner and robert c somervill divorced in but were married throughout the years in issue in the amount of dollar_figure furthermore the notice disallowed the ordinary losses claimed from an investment in progressive properties a partnership in the years and petitioner was raised in a small town of big_number people she completed high school and continued on to junior college for years petitioner then attended northwestern university in evanston illinois and was awarded a bachelor of arts degree in psychology immediately after completing college petitioner worked at northwestern university's medical school answering phones in the registrar's office petitioner met and married robert somervill a medical student at northwestern university in their first child was born months thereafter in their second in their third in and twins in petitioner and her family moved to san benito texas in and remained there for all of the years in issue in petitioner received her real_estate license and began working in a real_estate office as an agent petitioner testified that she was not a successful agent and that her first sale took place in however a joint federal_income_tax return filed for the tax_year reflects a net profit from petitioner's real_estate activity in petitioner became a real_estate broker the requirements for which are more burdensome than those for a real_estate agent petitioner's husband worked as a physician during the years in issue petitioner had very little involvement in her husband's medical practice she testified that her involvement was limited to picking up a bank bag from her husband's office and delivering it to the bank petitioner maintained her own checking account during the years in issue petitioner would pay for food the family's clothing and gas for her car from her checking account she would also pay the family's utility bills out of her checking account when petitioner needed money to deposit in her checking account she would ask pamela mitchell her husband's secretary to write her a check petitioner did not live a lavish lifestyle during the years in issue she and her family lived in an old farmhouse that was simply furnished petitioner maintained a social membership at the harlingen country club but the record is unclear as to what year the membership began petitioner was active in a garden club during the years in issue she even held the position of secretary and president for year petitioner and her husband acquired several properties in san benito during the years in issue during they acquired the east jackson property the sunshine strip property the sunshine property and the south commerce property in petitioner and her husband acquired property on west jackson in they acquired property pincite south carolina and in property pincite north 25th street during the years in issue tim radder a certified_public_accountant c p a prepared petitioner and her husband's returns petitioner's husband's secretary would compile the information needed by the c p a to complete the tax returns petitioner would compile the information relating to the expenses associated with her own real_estate activities and any charitable_contributions that she made petitioner would sign the return when her husband's secretary called to tell her the completed return was available petitioner testified that no one ever explained to her the different deductions or schedules on her tax_return nor did she ask anyone to explain the return or the deductions on it petitioner further testified however that no one prevented her from examining the returns in issue instead she simply chose not to examine them petitioner testified at trial that she had no knowledge of her husband's investments in either the oxnard properties or progressive properties partnerships however sol finkelman or a member of his accounting firm petitioner and robert somervill met for lunch or dinner during which there was some discussion of the oxnard properties and progressive properties petitioner testified that she did not understand what was being discussed as to oxnard properties and progressive properties nonetheless petitioner testified that while she had the opportunity to ask questions during these meetings she did not do so on date a form_906 closing_agreement on final_determination covering specific matters relating to progressive properties was executed pursuant to that agreement petitioner agreed to be bound by the final_decision in finkelman v commis- sioner t c memo affd without published opinion 937_f2d_612 9th cir also on date another form_906 was executed this one relating to oxnard properties pursuant to this form_906 petitioner agreed to be bound by the final_decision in finkelman v commissioner supra amongst other issues finkelman had at issue the deductibility of losses from investment in oxnard properties and progressive properties once again petitioner testified that she signed the form_906 simply because she was instructed by her husband's secretary to do so on date this court filed an opinion holding that the losses generated by certain partnerships including oxnard properties and progressive properties were disallowed id opinion when a husband and wife file a joint federal_income_tax return liability for the tax due is joint_and_several sec_6013 however an innocent spouse can find relief under the provisions of sec_6013 in order to invoke the provisions of sec_6013 the spouse seeking relief must satisfy the following requirements that a joint_return was filed that on the return there is a substantial under- statement of tax that the understatement is attributable to grossly_erroneous_items of the other spouse that the spouse seeking relief did not know and had no reason to know of the substantial understatements of tax and considering all the facts and circumstances it would be inequitable to hold the spouse liable for the deficiencies in income_tax sec_6013 failure to meet any one of the statutory requirements will prevent petitioner from qualifying for relief under sec_6013 992_f2d_1132 11th cir affg 94_tc_126 826_f2d_470 6th cir affg 86_tc_228 petitioner bears the burden of proving that she is entitled to relief as an innocent spouse under sec_6013 rule a the parties agree that petitioner and her then husband filed joint federal_income_tax returns for the years in issue and that there was on each return a substantial_understatement of tax attributable to items of his respondent contends however that petitioner is not entitled to innocent spouse relief for the taxable years in issue because the understatements of tax on the subject returns are not attributable to grossly_erroneous_items petitioner knew or had reason to know of the understatements and it is not inequitable to hold petitioner liable for the deficien- cies in tax for purposes of sec_6013 grossly_erroneous_items are defined as any item_of_gross_income attributable to such spouse which is omitted from gross_income and any claim of a deduc- tion credit or basis by such spouse in an amount for which there is no basis in fact or law sec_6013 and b purcell v commissioner supra pincite ordinarily a deduction has no basis in law or fact if it is 'fraudulent ' 'frivolous ' 'phony ' or 'groundless ' bokum v commissioner supra pincite quoting 872_f2d_1499 n 11th cir affg t c memo see 954_f2d_1495 9th cir revg 94_tc_784 a deduction has no basis in fact when the expense for which it is claimed was never in fact made 86_tc_758 a deduction has no basis in law when the expense even if made does not qualify as deductible expense under well-settled legal principles or when no substantial legal argument can be made in support of its deductibility id the fact that the deduction has been disallowed does not however dictate a finding that the deduction is grossly erroneous ness v commissioner supra pincite the deductions in question arose from petitioner's husband's investment in progressive properties and oxnard properties part- nerships formed and managed by sol finkelman the losses claimed by progressive and oxnard for the years in issue and the dis- tributive shares of those losses claimed by one of the partners were among the deductions whose deductibility was decided in a test case finkelman v commissioner tcmemo_1989_72 the major issue considered in finkelman involved the tax consequences of leveraged real_estate transactions the focus of the court's inquiry was whether the transactions should be disregarded for federal_income_tax purposes because they lacked economic_substance and or were primarily tax motivated the court determined that the transactions were lacking in economic_substance and profit objective and accordingly were not to be respected for tax purposes although the deductions were not allowed the court declined to sustain the sec_6653 negligence additions to tax against the promoter in so holding the court explained that the taxpayer's favorable financing argument was not an untenable theory that it had some support in the case law and that the claimed losses were supported by a credible and unprecedented albeit erroneous theory petitioner claims that the holding in finkelman that the transactions lacked economic_substance and that there was no profit objective mandates the conclusion that the deductions can have no basis in law we cannot agree with petitioner the court in finkelman acknowledged that although the transactions were not reasonable that does not however render petitioner's theory untenable finkelman v commissioner supra despite the court's rejection of the taxpayer's arguments in that case they were not without some support in the case law id moreover the court stated that the claimed losses were supported by a credible and unprecedented albeit erroneous theory our opinion in finkelman makes clear that the deduc- tions while disallowed were not frivolous fraudulent or phony we find that under the circumstances presented herein the deductions are not attributable to grossly_erroneous_items within the meaning of sec_6013 petitioner is therefore not relieved of joint liability with respect to any part of the income_tax deficiencies decision will be entered for respondent


t c memo united_states tax_court raymond wright petitioner v commissioner of internal revenue respondent docket no 6240-o1l filed date p failed to file returns for and p received a notice_of_deficiency for and p petitioned the court the court ruled for r and p appealed the court_of_appeals affirmed our decision r sent a notice_of_intent_to_levy and notice of your right to a hearing to p for and p requested a sec_6330 i r c hearing r held a sec_6330 i r c hearing with p r determined that r could proceed with the proposed levy action held p raised the issue of interest abatement at the sec_6330 i r c hearing therefore we have jurisdiction over this issue 115_tc_329 held further p is not entitled to interest abatement for amounts greater than those abated or conceded by r because p failed to file returns for and and failed to pay in full the amount of tax he owed for those years held further r’s determination to proceed with collection was not an abuse_of_discretion raymond wright pro_se marie eb small for respondent memorandum findings_of_fact and opinion vasquez judge pursuant to sec_6330 petitioner seeks review of respondent’s determination to proceed with collection of his and tax_liabilities findings_of_fact none of the facts have been stipulated at the time he filed the petition petitioner resided in new york new york deficiency proceedings petitioner did not file returns for and on date respondent filed substitute returns for petitioner’s and tax years on date respondent sent petitioner a notice_of_deficiency for and setting forth deficiencies of dollar_figure and dollar_figure respectively and additions to tax pursuant to sec_6651 of dollar_figure and dollar_figure respectively on date petitioner filed a petition with the unless otherwise indicated all section references are to the internal_revenue_code and all rule references are to the tax_court rules_of_practice and procedure - - court in which he disputed that he was liable for self-employment taxes on income he received in and and for additions to tax pursuant to sec_6651 for and on date the court issued an opinion and entered a decision in favor of respondent for the amounts set forth in the notice_of_deficiency ’ on date respondent assessed dollar_figure of income_tax a dollar_figure addition_to_tax pursuant to sec_665l1 a and dollar_figure of statutory interest for respondent also assessed dollar_figure of income_tax a dollar_figure addition_to_tax pursuant to sec_6651 and dollar_figure of statutory interest for on date the u s court_of_appeals for the second circuit affirmed the court’s decision payments on date petitioner mailed respondent a payment of dollar_figure on date respondent applied the dollar_figure payment to petitioner’s unassessed liabilities for and 1989--sdollar_figure to and dollar_figure to refund on date respondent sent petitioner a refund check of in our memorandum opinion we found that petitioner did not file returns for and wright v commissioner tcmemo_1998_224 affd without published opinion 173_f3d_848 2d cir dollar_figure for his tax_year the check represented petitioner’s refund for of dollar_figure and dollar_figure in interest sec_6330 proceedings on date respondent sent petitioner a final notice notice_of_intent_to_levy and notice of your right to a hearing levy notice with respect to petitioner’s and taxable years on date petitioner filed a form request for a collection_due_process_hearing for and hearing request petitioner attached a two-page letter to the hearing request explaining his disagreement with the levy notice in the two-page letter petitioner stated among other things that the irs inordinately delayed billing me for years thereby drastically increasing the amount owed the irs sent what it admitted to be a wrong bill and then sent an amended bill which was itself apparently wrong for years the irs failed to respond to my timely regquest for an installment_plan i experienced a delay of well over days and often months and years to resolve specific issues the irs failed to respond to my request for information about the amount owed about installment_payment procedures about abatement and the irs made numerous errors and delays petitioner also requested an offer-in-compromise on date appeals officer phyllis cayenne held a - - sec_6330 hearing with petitioner at the hearing appeals officer cayenne explained the collection alternatives available to petitioner petitioner indicated that he wanted respondent to consider an offer-in-compromise appeals officer cayenne gave petitioner the appropriate forms to file an offer-in-compromise petitioner did not submit an offer-in-compromise before issuing the notice_of_determination appeals officer cayenne reviewed petitioner’s transcript of account for and determined that respondent had sent petitioner his refund for that year after the sec_6330 hearing appeals officer cayenne sent petitioner transcripts of his account for and appeals officer cayenne also submitted a request for petitioner to be given credit for withholding for and that had not been credited to him on date respondent sent petitioner a notice_of_determination concerning collection action s under sec_6320 and or notice_of_determination for and concluding that respondent could proceed with the proposed levy action the notice_of_determination stated that the levy should reflect allowance of withholding credits of dollar_figure for and dollar_figure for and that forms had been forwarded to effect this change withholding credits and abatement of interest on date respondent mailed petitioner two notices---- - - one reflecting changes to his account for and the other reflecting changes to his account for the notice for credited petitioner’s account dollar_figure for tax withheld and abated dollar_figure in interest the notice for credited petitioner’s account dollar_figure for tax withheld unpaid balance as of date petitioner had unpaid income_tax liabilities including penalties and interest for and of dollar_figure and dollar_figure respectively opinion pursuant to sec_6330 a a taxpayer may raise at the sec_6330 hearing any relevant issue with regard to the commissioner’s collection activities including spousal defenses challenges to the appropriateness of the commissioner’s intended collection action and alternative means of collection 114_tc_604 114_tc_176 if a taxpayer received a statutory_notice_of_deficiency for the years in issue or had the opportunity to litigate the underlying tax_liability the taxpayer is precluded from challenging the existence or amount of the underlying tax_liability sec_6330 b sego v commissioner supra pincite goza v commissioner supra pincite additionally a taxpayer is precluded from relitigating issues raised and considered in any previous appeals hearing or any other - administrative or judicial proceeding in which the taxpayer meaningfully participated sec_6330 115_tc_329 petitioner received a notice_of_deficiency for and and he litigated the underlying tax_liability in this court wright v commissioner tcmemo_1998_224 affd without published opinion 173_f3d_848 2d cir accordingly petitioner cannot contest the underlying tax_liability for and sec_6330 b katz v commissioner supra pincite sego v commissioner supra pincite goza v commissioner supra pincite where the validity of the underlying tax_liability is not properly in issue we review the commissioner’s determination for an abuse_of_discretion sego v commissioner supra pincite did petitioner raise interest abatement at the sec_6330 hearing the parties disagree on whether petitioner raised the issue of interest abatement at the sec_6330 hearing petitioner argues that he raised the issue of interest abatement in his request for a hearing and at the sec_6330 hearing respondent contends that he did not if as part of a sec_6330 proceeding a taxpayer makes a the doctrine_of res_judicata also precludes relitigation of the issues decided in petitioner’s underlying tax case 115_tc_329 ndollar_figure _- _- request for abatement of interest we have jurisdiction over the request for abatement of interest that is the subject of the commissioner’s collection activities katz v commissioner supra pincite generally the court considers only arguments issues and other matters that were raised by the taxpayer at the sec_6330 hearing or otherwise brought to the attention of the appeals_office 118_tc_488 115_tc_582 n sego v commissioner supra pincite petitioner’s hearing request is peppered with references to internal_revenue_service irs errors and delays including the irs’s failure to respond to petitioner and it specifically mentions abatement petitioner’s testimony made it clear to the court that he raised the issue of interest abatement any time he was in contact with respondent ’ furthermore appeals officer cayenne testified that she recalled petitioner’s mentioning at the sec_6330 hearing an 18-month delay various other errors and delays by respondent and delays by the appeals officer assigned to petitioner’s we also note that in the underlying tax case petitioner raised the issue of interest abatement as to his and tax years but the court concluded that petitioner’s request for abatement of interest was premature---at that time there was neither an assessment of such interest nor a final_determination by respondent not to abate interest wright v commissioner supra --- - deficiency case she also stated that it was possible that petitioner raised the issue of interest abatement at the sec_6330 hearing we conclude that petitioner raised the issue of interest abatement at the sec_6330 hearing b is petitioner entitled to interest abatement sec_6404 provides in pertinent part that the commissioner may abate the assessment of interest on any deficiency if the interest is attributable to any error or delay by an officer_or_employee of the irs acting in his official capacity in performing a ministerial_act 112_tc_19 a ministerial_act means a procedural or mechanical act that does not involve the exercise of judgment 113_tc_145 donovan v commissioner tcmemo_2000_220 this court may order abatement where the commissioner abuses his discretion by failing to abate interest sec_6404 in order to prevail a taxpayer must prove that the commissioner in sec_6404 was amended under sec_301 of the taxpayer bill of right sec_2 publaw_104_168 110_stat_1452 to permit the commissioner to abate interest with respect to an unreasonable error or delay resulting from managerial and ministerial acts the new provision applies to interest accruing with respect to deficiencies or payments for tax years beginning after date therefore it 1s not applicable to the case at bar 112_tc_19 n -- - exercised this discretion arbitrarily capriciously or without sound basis in fact or law woodral v commissioner supra pincite congress intended for the commissioner to abate interest where the failure to abate interest would be perceived as grossly unfair lee v commissioner supra pincite congress however did not intend for abatement to be used routinely to avoid the payment of interest id an error or delay is taken into account only if no significant aspect of the error or delay can be attributed to the taxpayer and after the irs has contacted the taxpayer in writing with respect to the deficiency or payment sec_6404 lee v commissioner supra pincite petitioner’s complaint essentially is that because respondent failed to restore his withholding credits totaling dollar_figure until if he had paid his tax_liability for and before he would have paid the wrong amount petitioner’s argument has no merit even though respondent did not give petitioner credit for his withholdings until this delay did not prevent petitioner from filing tax returns for and in fact respondent mailed petitioner seven taxpayer delinquency notices informing him that he had not filed his or tax_return tf petitioner had filed returns for and respondent would then have been able to assess the taxes petitioner owed sec_6201 petitioner did not file returns for those years therefore respondent was forced to issue a notice_of_deficiency for and secs the conference committee report for the tax_reform_act_of_1986 publaw_99_514 100_stat_2085 states in pertinent part as follows if a taxpayer files a return but does not pay the taxes due this provision would not permit abatement of this interest regardless of how long the irs took to contact the taxpayer and request payment 118_tc_22 h conf rept vol ii at ii-811 1986_3_cb_1 it follows that if a taxpayer fails to file a return and fails to pay the tax he owes sec_6404 does not apply to the interest that accrues on the unpaid tax before the commissioner contacts the taxpayer in writing with respect to the tax respondent could not send petitioner a bill until after respondent assessed the taxes for and sec_6213 sec_6303 a in this case petitioner’s returns for and were due on date and date respectively sec_6072 sec_7503 petitioner failed to file these returns on date pursuant to sec_6213 and -- c respondent issued a notice_of_deficiency to petitioner petitioner then chose to petition the court regarding his underlying tax_liabilities and to appeal the court’s decision on date petitioner filed a notice of appeal in the underlying tax case petitioner however did not post a bond_to_stay_assessment_and_collection as required by sec_7485 therefore the earliest respondent could have assessed petitioner’s taxes for and was on date-- the day after the notice of appeal was filed ’ sec_6213 sec_7481 sec_7483 sec_7485 50_tc_28 the record shows that on date respondent assessed the taxes additions to tax and interest for and that same day respondent issued to petitioner a statutory notice of balance due on date respondent issued to pursuant to sec_6501 in the case of failure_to_file a return the tax may be assessed or a proceeding in court for the collection of such tax may be begun without assessment at any time ’ tf a taxpayer files a notice of appeal from a tax_court decision assessment and collection of the deficiency are not stayed unless the taxpayer posts a bond secured_by the guaranty of an approved surety company or furnishes other satisfactory collateral sec_7485 50_tc_28 - petitioner a notice of balance due and on date respondent issued to petitioner a statutory notice_of_intent_to_levy any delay in sending petitioner a final bill for his and tax years was attributable to petitioner’s failure_to_file tax returns for those years additionally the mere passage of time in the litigation phase of a tax dispute does not establish error or delay by the commissioner in performing a ministerial_act lee v commissioner t c pincite while at one point petitioner’s account may not have been credited with his dollar_figure payment or his withholding credits totaling dollar_figure as of the date of trial his account was credited with those amounts furthermore the evidence established that petitioner’s refund was mailed to him therefore petitioner’s refund could not be applied against his outstanding liabilities for and as he argues additionally on date respondent abated dollar_figure in interest associated with for the dollar_figure credit for tax withheld furthermore respondent concedes that the interest associated with the dollar_figure withholding credit for should be abated ’ petitioner admits that he has received credit for his withholding for and as of the time of trial respondent had not abated this continued the evidence does not establish that petitioner is entitled to abatement of interest in amounts greater than those abated or conceded by respondent we conclude that respondent did not abuse his discretion in not abating interest for or for any amounts greater than those he abated or conceded cc remaining sec_6330 issues petitioner stated that he wanted to make an offer-in- compromise at the sec_6330 hearing however petitioner did not follow through appeals officer cayenne gave petitioner the appropriate forms to file an offer-in-compromise but petitioner did not submit an offer-in-compromise petitioner has failed to raise a spousal defense make a valid challenge to the appropriateness of respondent’s intended collection action or offer alternative means of collection these issues are now deemed conceded rule b accordingly we conclude that respondent’s determination to proceed with collection with respect to petitioner’s and tax years was not an abuse_of_discretion no motions remain outstanding in reaching all of our continued interest in his reply brief respondent proffered that as of the date of the filing of his reply brief respondent had abated the interest associated with petitioner’s withholding credit for the record does not contain evidence that the aforementioned interest has been abated therefore we will incorporate respondent’s concession of this issue into our decision -- - holdings herein we have considered all arguments made by the parties and to the extent not mentioned above we conclude they are irrelevant or without merit to reflect the foregoing an appropriate decision will be entered


internal_revenue_service number release date index numbers ------------------------------------------------- ---------------------------- ---------------------------- ------------------------------ legend 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-136023-17 date date --------------------------------- x ---------------------------------------- ------------------------------------------ a ---------------------------------- --------------------------------------------------------------- ----- ---------------------------------------------------- state -------------- date ---------------------- n ------ year -------- dear ---------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_754 of the internal_revenue_code code plr-136023-17 facts the information submitted states that x is a state professional services limited_liability_company and is classified as a partnership for federal tax purposes on date a purchased n interest in x x inadvertently failed to make a timely election under sec_754 for the year of a’s purchase year x represents that it has acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government law and analysis sec_754 provides that a partnership may elect to adjust the basis of partnership property when there is a distribution_of_property or a transfer of a partnership_interest an election under sec_754 applies with respect to all distributions of property by the partnership and to all transfers of interests in the partnership during the taxable_year with respect to which the election was filed and all subsequent taxable years sec_1_754-1 of the income_tax regulations provides that an election under sec_754 to adjust the basis of partnership property under sec_734 and sec_743 with respect to a distribution_of_property to a partner or a transfer of an interest in a partnership must be made in a written_statement filed with the partnership return for the taxable_year during which the distribution or transfer occurs for the election to be valid the return must be filed not later than the time prescribed by sec_1_6031_a_-1 including extensions for filing the return for such taxable_year under sec_301_9100-1 the commissioner may 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 code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides rules for requesting extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer plr-136023-17 acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based solely upon the facts submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to make a sec_754 election for its year taxable_year and thereafter the election should be made in a written_statement filed with the appropriate service_center for association with x’s year tax_return a copy of this letter should be attached to the statement filed except as specifically ruled upon above we express or imply no opinion concerning the tax consequences of any facts discussed or referenced in this letter specifically we express or imply no opinion as to whether x is a partnership for federal tax purposes 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 in accordance with the power_of_attorney on file with this office we are sending a copy of this letter_ruling to your authorized representative the ruling contained in this letter is 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 ruling_request it is subject_to verification on examination sincerely associate chief_counsel passthroughs and special industries by ________________________________ caroline e hay assistant to the branch chief branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy of this letter for sec_6110 purposes


internal_revenue_service department of the treasury number release date index numbers washington dc person to contact telephone number refer reply to cc psi - plr-129839-00 date date x state a partnerships management properties plr-129839-00 d1 d2 dollar_figurez dollar_figurey dear this responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting a ruling that x’s rental income from the properties is not passive_investment_income within the meaning of sec_1362 and sec_1375 of the internal_revenue_code the information submitted states that x was incorporated under state law on d1 and plans to elect under sec_1362 to be an s_corporation x has two shareholders a and b x has accumulated_earnings_and_profits x is engaged in the business of owning and operating commercial rental real_estate office and industrial buildings x owns interests in the properties either directly or through the partnerships x has a general_partnership interest and limited_partnership_interest in the partnerships management a corporation owned equally by a and b manages the properties as well as other rental properties owned by corporations related to x in addition x retains various independent contractors to provide services with respect to the properties through management and contractors the services provided by x include not all services are provided to all properties maintaining exterior areas including policing of grounds window washing painting roofing landscaping parking areas and driveways areas maintaining heating cooling lighting and electrical systems and providing janitorial and scavenger services plr-129839-00 in addition to the services x provides to tenants x through management performs the usual leasing and administrative activities involved in managing real_estate these activities include collecting rents including taking legal action against delinquent tenants collecting and analyzing rental market information reviewing prospective tenants drafting individual leases reviewing and approving tenant improvements and providing on call emergency services in the fiscal_year ending d2 x either directly or as part of its distributive_share of the partnerships’ items accrued approximately dollar_figurez in rents and incurred approximately dollar_figurey in relevant expenses sec_1361 defines an s_corporation as a small_business_corporation for which an election under sec_1362 is in effect for the taxable_year sec_1362 provides that an election under sec_1362 shall be terminated whenever the corporation has accumulated_earnings_and_profits at the close of each of consecutive taxable years and has gross_receipts for each of such taxable years more than percent of which are passive_investment_income sec_1362 provides that except as otherwise provided the term passive_investment_income means gross_receipts derived from royalties rents dividends interest annuities and sales or exchanges of stock_or_securities sec_1375 provides that if at the close of a taxable_year an s_corporation has subchapter_c_earnings_and_profits and gross_receipts more than percent of which are passive_investment_income a tax is imposed on the excess_net_passive_income of the corporation sec_1375 provides that the terms passive_investment_income and gross_receipts have the same respective meanings as when used in sec_1362 sec_1_1362-2 of the income_tax regulations provides that rents means amounts received for_the_use_of or right to use property whether real or personal of the corporation sec_1_1362-2 provides that rents does not include rents derived in the active trade_or_business of renting property rents received by a corporation are derived in an active trade_or_business of renting property only if based on all the facts and circumstances the corporation provides significant services or incurs substantial costs in the rental business generally significant services are not rendered and substantial costs are not incurred in connection with net leases whether significant services are performed or substantial costs are incurred in the rental business is determined based upon all the facts and circumstances including but not limited to the number of persons employed to provide the services and the types and plr-129839-00 amounts of costs and expenses_incurred other than depreciation based solely on the facts and the representations submitted we conclude that the rental income that x derives from the properties is income from the active trade_or_business of renting property and is not passive_investment_income as described in sec_1362 and sec_1375 except as specifically set forth above we express no opinion as to the federal tax consequences of the facts of this case under any other provision of the code specifically we express no opinion on whether x is a small_business_corporation eligible to make an s election further the passive_investment_income rules of sec_1362 are completely independent of the passive_activity rules of sec_469 unless an exception under sec_469 applies the rental_activity remains passive for purposes of sec_469 this ruling is directed only to the taxpayer requesting it sec_6110 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 x’s authorized representative sincerely yours j thomas hines chief branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service index no number release date cc dom ps i plr-101888-99 in re legend dear on date the internal_revenue_service issued a letter_ruling ltr to taxpayer concerning the applicability of sec_4251 of the internal_revenue_code to amounts paid for certain audio conferencing services in accordance with dollar_figure of revproc_99_1 1999_1_irb_6 the service is revoking ltr consistent with sec_12 of revproc_99_1 the effective date of the revocation is date sec_6110 provides that this document may not be used or cited as precedent sincerely assistant chief_counsel passthroughs and special industries by bernard h weberman assistant to the chief branch enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service number release date index numbers -------------------------- ---------------------------------------------------------- ------------------------------------------------------ ------------------------------------ department of the treasury washington dc person to contact ----------------------- id no -------------- telephone number ---------------------- refer reply to cc psi b03 - plr-127540-12 date november legend x ------------------------------------------------------------ ------------------------------------------------- y ------------------------------------------------------------ --------------------------------------- state a -------------- -------------------- dear -------------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be classified as an association for federal tax purposes facts the information submitted discloses that x was formed on a as a limited_liability_company under the laws of state x’s ultimate owner is y the common parent_corporation of an affiliated_group that files a consolidated_return x failed to file timely a form_8832 entity classification election to be classified as an association for federal tax purposes effective a law and analysis plr-127540-12 sec_301_7701-3 provides in part that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership and an eligible_entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that except as provided in sec_301 b unless the entity elects otherwise a domestic eligible_entity is i a partnership if it has two or more members or ii disregarded as an entity separate from its owner if it has a single owner sec_301_7701-3 provides in part that except as provided in sec_301_7701-3 and v an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 entity classification election with the service_center designated on form_8832 sec_301_7701-3 provides in part that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed under sec_301_9100-1 the commissioner may 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 code except subtitles e g h and i sec_301_9100-1 provides that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government plr-127540-12 conclusion based on the facts and representations submitted x has established that the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied consequently x is granted an extension of time of one hundred twenty days from the date of this letter to elect under sec_301_7701-3 to be treated as an association effective a x must file form_8832 within the extension period with the appropriate service_center with a copy of this letter attached except for the specific ruling above we express or imply no opinion concerning the federal tax consequences of the facts of this case under any other provision of the code in addition sec_301_9100-1 provides that the granting of an extension of time for making an election is not a determination that the taxpayer is otherwise eligible to make the election this ruling is directed only to the taxpayer requesting it according to sec_6110 of the code this ruling may not be used or cited as precedent under a power_of_attorney on file with this office we are sending a copy of this letter to x’s authorized representatives sincerely associate chief_counsel passthroughs special industries by s james a quinn senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes