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 ita b05 plr-113720-18 date date legend taxpayer shareholder shareholder date year ------------------------- ---------------------------------------- -------------------------- -------------------------- ---------------------- ----------------------- ------- this letter responds to taxpayer’s request dated date for a private_letter_ruling for permission to revoke its election out of the installment_method pursuant to sec_453 of the internal_revenue_code and sec_15a_453-1 of the temporary income_tax regulations in connection with the sale of taxpayer facts taxpayer was an s_corporation owned by shareholder and shareholder collectively referred to as shareholders all the stock in taxpayer was sold on date to an unrelated corporation the buyer and the shareholders jointly made an election under sec_338 to treat the sale of the stock as if taxpayer sold all of its assets and then immediately liquidated in return for the sale of taxpayer the shareholders received a cash payment on date an additional cash payment to be paid in months placed in escrow subject_to certain claims and indemnification escrow amount and a contingent earn-out of future payments - based on post-sale performance objectives - to be paid in increments over the three years following the end of year plr-113720-18 soon after date taxpayer’s accountant prepared a draft final short_year form_1120s for the year ending date short_year return for taxpayer shareholder an officer of taxpayer signed the draft short_year return taxpayer’s accountant filed the short_year return with the internal_revenue_service before the effective due_date of the short_year return excepting shareholder no other party to the sale transaction reviewed the short_year return on the short_year return taxpayer’s accountant reported the gain on the deemed sale of assets using both the cash payment at closing on date plus the escrow amount taxpayer’s accountant did not include the contingent earn-out amounts to be paid over three years as part of the sale proceeds taxpayer effectively elected out of the installment_method under sec_453 by including the escrow amount on the short_year return shareholder filed his federal_income_tax return for year consistent with the treatment on taxpayer’s return relying on the k-1 from taxpayer to govern his reporting thus shareholder reported as income his portion of the sales proceeds - both the cash received upon the sale of taxpayer and the escrow amount but none of the contingent earn-out shareholder determined that his k-1 inadvertently included the escrow amount as part of the amount_realized from the sale of taxpayer instead of following the k-1 shareholder filed his federal_income_tax return for year reporting only his portion of the cash received upon the sale of taxpayer intending to report the escrow amount and any contingent earn-outs when received in years following year taxpayer’s accountant provided an affidavit indicating that the accountant made the erroneous computation of gain cash payment at closing plus the escrow amount the affidavit states that the decision to elect out of the installment_method under sec_453 was made solely by the accountant who generated the k-1s for the shareholders taxpayer’s accountant’s affidavit also indicates that the shareholders were unaware that the return for year elected out of the installment_method shareholder also provided an affidavit indicating that he did not plan or participate in the decision to elect out of the installment_method under sec_453 and although he followed the k-1 taxpayer’s accountant’s action was the sole reason the installment_method was not used shareholder also provided an affidavit wherein he states that he did not plan or participate in the decision to elect out of the installment_method under sec_453 and in fact he alerted shareholder of the erroneous election out and ultimately filed his federal_income_tax return for year inconsistent with the k-1 he received from taxpayer plr-113720-18 taxpayer and the shareholders have represented that the requested revocation of the election out of the installment_method does not have as one of its purposes the avoidance of federal income taxes and no taxable_year of taxpayer or the shareholders in which payments were received is closed to assessment or collection pursuant to sec_6501 law and analysis sec_453 provides that generally a taxpayer shall report income from an installment_sale under the installment_method sec_453 defines an installment_sale as a disposition of property for which at least one payment is to be received after the close of the taxable_year of the disposition sec_15a_453-1 defines payment to include amounts actually or constructively received in the taxable_year under an installment_obligation sec_453 and sec_15a_453-1 provide that a taxpayer may elect out of the installment_method in the manner prescribed by the regulations sec_15a d provides that a taxpayer who reports an amount_realized equal to the selling_price including the full face_amount of an installment_obligation on a timely filed tax_return for the taxable_year in which the installment_sale occurs is considered to have elected out of the installment_method except as otherwise provided in the regulations sec_453 requires a taxpayer who desires to elect out of the installment_method to do so on or before the due_date including extensions of the taxpayer's federal_income_tax return for the taxable_year of the sale sec_15a_453-1 provides that an election under sec_453 is generally irrevocable an election may be revoked only with the consent of the internal_revenue_service sec_15a_453-1 provides that revocation of an election out of the installment_method is retroactive and will not be permitted when one of its purposes is the avoidance of federal income taxes in the instant case taxpayer’s accountant’s erroneous action when preparing taxpayer’s short_year return led the accountant to inadvertently elect out of the installment_method under sec_453 the shareholders were not aware of the accountant’s action nor did the shareholders plan or participate in the action although shareholder signed the taxpayer’s return as an officer of the taxpayer he was unaware of taxpayer accountant’s action when the shareholders realized the accountant’s erroneous computation taxpayer filed a request for permission to revoke its election out of the installment_method the information submitted indicates that taxpayer and the shareholders’ desire to revoke the election out of the installment_method is due to inadvertence rather than hindsight by the taxpayer of shareholders or a purpose of avoiding federal income taxes plr-113720-18 conclusion based on careful consideration of all of the information submitted and the representations made taxpayer is granted permission to revoke its election out of the installment_method for the sale of taxpayer on date and provide corrected k-1’s to the shareholders permission is granted for the period that end sec_75 days after the date of this letter in order to revoke its election out of the installment_method taxpayer must file an amended federal_income_tax return for the short_year ending on date and any other previously filed returns on which a portion of the gain from the sale is reportable under the installment_method a copy of this letter_ruling must be attached to any amended_return 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 including the computation of gain to be reported under the installment_method likewise no opinion is expressed or implied concerning the tax consequences of any aspect of either shareholder’s return for year this ruling is directed only to taxpayer who requested this ruling 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 the rulings contained in this letter are based upon information and representations submitted by taxpayer’s accountant shareholder and shareholder and accompanied by a penalty of perjury statement executed by appropriate parties 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 christina m glendening senior counsel branch income_tax accounting office_of_chief_counsel cc


i tax_exempt_and_government_entities_division department of the treasury internal_revenue_service washington d c uniform issue list mar nna legend taxpayer a amount b ira c bank d bank e brokerage firm f dear taxpayer a this is in response to your letter dated in which you request a waiver of the 60-day rollover requirement contained in sec_408 of the internal_revenue_code the code the following facts and representations have been submitted under penalty of perjury in support of the ruling requested on other investments to redeem some of his maturing investments taxpayer a went to bank e where he had established ira c and page taxpayer a wanted to make withdrawals from maturing certificate of deposits and to invest those funds in an investment product that offered him a higher rate of return as part of this withdrawal taxpayer a received amount b from ira c taxpayer a invested amount b and other funds that were also withdrawn by purchasing investment bonds while being assisted by brokerage firm f form 1099r showing amount b as a it was not until taxpayer a received his taxable_distribution that taxpayer a realized that the maturing investment funds withdrawn as amount b on issued the check for amount b gave taxpayer a no explanation or information about the distribution being from an ira account and that taxpayer a had a 60-day period to roll over amount b into an ira account to avoid any adverse tax consequences any effort to rectify the incorrect distribution from ira c with bank e was too late because the 60-day period allowed by the code to avoid the tax_liability had already expired were funds from ira c the bank teller that bank d acquired bank e where ira c had been established on wrote a letter where it admitted errors in terminating ira c without explaining to taxpayer a that the distribution of amount b was from an ira account and by not requesting him to complete an ira disbursement form bank d you represent that no other amount was distributed from ira c within the one year period since the last distribution based on the above facts and representations you request that the service waive the 60-day rollover requirement with respect to the distribution of amount b because the failure to waive such requirement would be against equity or good conscience sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if- i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or page ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 2003_4_irb_359 provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented by taxpayer a demonstrates that he relied completely on bank e’s teller who handled his request of taxpayer a’s trust in the correctness of the transaction involving the maturing investments by bank e’s employee prevented taxpayer a from depositing amount b into an ira within the 60-day rollover period since the distribution the failure to deposit amount b into an ira within the day period was solely because of the lack of information from bank e and the failure to waive the 60-day requirement would be against equity or good conscience page therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount b taxpayer a is granted a period of days from the issuance of this ruling letter to contribute amount b into an ira provided ali other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contributions these amounts will be considered rollover_contributions within the meaning of sec_408 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_61 k of the code provides that it may not be used or cited as precedent if you wish to inquire about this ruling please contact please address ail correspondence to at sincerely yours ce da ey em employee_plans technical group manager enclosures deleted copy of ruling letter notice of intention to disclose


t c memo united_states tax_court yeagle drywall company inc petitioner v commissioner of internal revenue respondent docket no filed date joseph h o’donnell jr for petitioner linda p azmon for respondent memorandum opinion jacobs judge this case is before the court on a petition for redetermination of a notice_of_determination concerning worker classification under sec_7436 notice_of_determination tt was submitted to the court fully stipulated under rule the - - sole issue to be decided is whether john g yeagle mr yeagle is an employee of petitioner for the period at issue each of the four guarters of and for purposes of federal employment_taxes ’ rule references are to the tax_court rules_of_practice and procedure and except as otherwise noted section references are to the internal_revenue_code in effect for the years at issue background the stipulation of facts and the attached exhibits are incorporated herein the stipulated facts are hereby found petitioner is an s_corporation that was incorporated in pennsylvania on date at the time the petition was filed petitioner’s principal_place_of_business was in quakertown pennsylvania petitioner operates a drywall construction business that is the sole source of petitioner’s income mr yeagle owns percent of petitioner’s stock mr yeagle’s wife terree yeagle mrs yeagle owns the remaining percent since petitioner’s incorporation mr yeagle has been its president and mrs yeagle has been its vice president and secretary mr yeagle performs many services for petitioner including soliciting business ordering supplies entering into oral and for convenience we use the term federal employment_tax to refer to taxes under secs enacted as federal_insurance_contributions_act fica ch 53_stat_175 and secs enacted as federal_unemployment_tax_act futa ch 53_stat_183 written agreements overseeing finances collecting money owed to petitioner hiring and firing independent contractors obtaining clients maintaining client relationships and generally managing petitioner’s business affairs during the period at issue all payments made to petitioner were deposited into petitioner’s checking account mr yeagle is the only person with signature_authority on petitioner’s bank account petitioner did not make regular payments to mr yeagle mr yeagle withdrew money from petitioner’s bank account at his discretion mr yeagle also paid personal expenses from petitioner’s bank account at his discretion mr yeagle did not receive any wages salary or tips from any other business_entity or income from any other s_corporation during and during the period at issue petitioner did not treat any individual including mr yeagle as an employee and it did not file a form_941 employer’s quarterly federal tax_return or a form_940 employer’s annual federal unemployment tax_return for any guarter during the period at issue petitioner treated individuals who performed services for it other than mr yeagle as independent contractors and issued forms 1099-misc miscellaneous income to those individuals petitioner did not issue a form 1099-misc or a form_w-2 wage and tax statement to mr yeagle for or q4e- on forms 1120s u s income_tax return for an s_corporation petitioner reported net_income from its trade_or_business for and in the respective amounts of dollar_figure dollar_figure and dollar_figure petitioner paid these amounts to mr yeagle and reported these amounts as the yeagles’ share of its income on schedules k-1 shareholders’ shares of income credits deductions etc of the forms 1120s during and petitioner distributed all of its net_income to the yeagles petitioner reported on schedules m-2 analysis of accumulated_adjustments_account other adjustments account and shareholders’ undistributed_taxable_income previously taxed of the forms 1120s that the amounts it paid to the yeagles were distributions other than dividend distributions paid from accumulated_earnings_and_profits the yeagles timely filed form sec_1040 u s individual income_tax returns for and on schedules e supplemental income and loss of the yeagles’ form sec_1040 they reported their share of petitioner’s income as indicated on schedules k-11 as nonpassive_income from an s_corporation on date respondent issued to petitioner a notice_of_determination in which respondent determined that mr yeagle was petitioner’s employee for purposes of federal employment petitioner did not allocate the income between mr and mrs yeagle - - taxes and petitioner was not entitled to safe_harbor relief from these taxes as provided by sec_530 of the revenue act of publaw_95_600 92_stat_2885 sec_530 attached to the notice_of_determination was a schedule detailing the amount of the proposed federal employment_taxes thereafter petitioner filed with the court a timely petition seeking our review of respondent’s notice_of_determination discussion petitioner contends that mr yeagle was not its employee and that it properly distributed its net_income to the yeagles as its only shareholders pursuant to sec_1366 on the other hand respondent contends that mr yeagle was an employee of petitioner because he was an officer of petitioner and performed substantial services on petitioner’s behalf sec_3111 and sec_3301 impose fica social_security and futa unemployment taxes on employers for wages paid to their employees an officer of a corporation who performs substantial services for a corporation and who receives remuneration in any form for those services is considered an employee whose wages are subject_to federal employment_taxes veterinary surgical consultants p c v commissioner t c slip op pincite see also sec_3121 d sec_31 d - b employment_tax regs -- - with respect to the case at hand mr yeagle is an officer of petitioner who performed substantial services for petitioner including soliciting business ordering supplies entering into oral and written agreements overseeing finances collecting money owed to petitioner hiring and firing independent contractors obtaining clients maintaining client relationships and generally managing petitioner’s business affairs petitioner distributed all of its net_income to the yeagles those distributions were compensation_for the services provided to petitioner by mr yeagle petitioner contends that the amounts paid to mr yeagle were distributions of its corporate net_income rather than wages and that mr yeagle properly reported the net_income as nonpassive_income from an s_corporation on his form sec_1040 mr yeagle’s reporting the distributions as nonpassive_income from an s_corporation has no bearing on the federal employment_tax treatment of those wages veterinary surgical consultants p c v commissioner supra at __ slip op pincite we hold that mr yeagle is an employee of petitioner for the period at issue and as such the payments to him from petitioner constitute wages subject_to federal employment_taxes despite our determination that mr yeagle is an employee of petitioner and that the payments to him from petitioner are wages subject_to federal employment_taxes sec_530 allows petitioner relief from employment_tax liability if two conditions are - j- satisfied sec_530 provides in relevant part in general --if a for purposes of employment_taxes the taxpayer did not treat an individual as an employee for any period and b in the case of periods after date all federal tax returns including information returns required to be filed by the taxpayer with respect to such individual for such period are filed on ae basis consistent with the taxpayer's treatment of such individual as not being an employee then for purposes of applying such taxes for such period with respect to the taxpayer the individual shall be deemed not to be an employee unless the taxpayer had no reasonable basis for not treating such individual as an employee here the first of the two conditions is satisfied petitioner did not treat mr yeagle as an employee during the period in issue since its incorporation petitioner filed its tax returns reflecting all withdrawals by mr yeagle as distributions of petitioner’s net_income not wages however the second condition of sec_530 is not satisfied because petitioner had no reasonable basis for not treating mr yeagle as an employee for purposes of sec_530 a taxpayer is treated as having a reasonable basis for not treating an individual as an employee if the taxpayer’s treatment of the individual was in reasonable reliance of judicial precedent published rulings technical_advice with respect to the taxpayer a letter_ruling to the taxpayer or longstanding --- - recognized practice of a significant segment of the industry in which the individual was engaged sec_530 see also veterinary surgical consultants p c v commissioner supra at slip op pincite revproc_85_18 1985_1_cb_518 petitioner cites to the identical cases and ruling addressed in veterinary surgical consultants p c v commissioner supra and makes the same arguments as those made by the taxpayer in that case for the reasons set forth in that opinion we find that petitioner did not have a reasonable basis for not treating mr yeagle as an employee in this case respondent’s position is supported by the plain language of the statute the applicable treasury regulations published revenue rulings and cases interpreting the applicable statutes petitioner’s position is inconsistent with the weight of authority we have considered all of petitioner’s arguments and to the extent not specifically addressed we find them unpersuasive or irrelevant after the petition was filed in this case congress amended sec_7436 to provide this court with jurisdiction to determine the correct amounts of federal employment_taxes that relate to the secretary’s determination concerning worker classification see community renewal tax relief act of - crtra publaw_106_554 sec f stat 2763a-643 that amendment was made retroactive to the effective date of sec_7436 crira sec g stat 2763a-643 the parties filed a stipulation of settled issues setting forth the proper amount of federal employment_taxes owed by petitioner in the event we find that mr yeagle is petitioner’s employee for purposes of federal employment_taxes which we do the amount so stipulated will be reflected in our decision document to reflect the foregoing decision will be entered for respondent and in accordance with the parties’ stipulations as to amounts


t c memo united_states tax_court lori r lamb petitioner v commissioner of internal revenue respondent gary e lamb petitioner v commissioner of internal revenue respondent docket nos filed date frederick j o’laughlin for petitioners jamie m stipek and h elizabeth h downs for respondent memorandum findings_of_fact and opinion marvel judge these cases are consolidated for purposes of trial and opinion the cases involve the federal_income_tax of lori r lamb and gary e lamb a married couple in a notice_of_deficiency issued to mrs lamb on date respondent determined a deficiency in her federal_income_tax of dollar_figure and additions to tax under sec_6651 and of dollar_figure and dollar_figure respectively in a notice_of_deficiency issued to mr lamb on date respondent determined a deficiency in his federal_income_tax of dollar_figure and additions to tax under sec_6651 and and a of dollar_figure dollar_figure and dollar_figure respectively after concessions the issues for decision are whether mr lamb received unreported nonemployee compensation whether petitioners received additional income attributable to unreported cash withdrawals from their business bank accounts whether petitioners are entitled to various deductions claimed on their untimely filed return whether petitioners are liable for additions unless otherwise indicated section references are to the internal_revenue_code in effect for the year in issue and rule references are to the tax_court rules_of_practice and procedure some monetary amounts have been rounded to the nearest dollar petitioners concede that they are liable for the gambling income as determined by respondent and mrs lamb concedes that she is liable for the wage income as determined by respondent respondent concedes that petitioners are entitled to a joint filing_status and are each entitled to claim a dollar_figure personal_exemption deduction for respondent also concedes that petitioners are entitled to the child_tax_credit withholding credits and rebate recovery credits claimed on their untimely filed return as well as deductions for the home mortgage interest and state_income_tax withholding claimed on an attached schedule a itemized_deductions to tax under sec_6651 and and whether mr lamb is liable for an addition_to_tax under sec_6654 findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts is incorporated herein by this reference petitioners resided in oklahoma at the time they filed their petitions i background a petitioners’ business activities mrs lamb is a registered nurse during she received wages of dollar_figure from midwest regional medical center llc mr lamb works in the residential construction industry mr lamb provides new home construction services through his business gary lamb construction llc gary lamb construction he also provides framing services through express framing a subsidiary business of gary lamb construction for respondent received a number of information returns with respect to mr lamb including the following a form 1099-misc miscellaneous income from willie lambs construction wlc reporting nonemployee compensation of dollar_figure a form 1099-misc from wholesale granite wlc is a business owned and operated by mr lamb’s brother countertops reporting nonemployee compensation of dollar_figure and a schedule_k-1 partner’s share of income deductions credits etc from gary lamb construction b petitioners’ bank accounts during petitioners maintained two accounts at first national bank an account account no titled gary lamb construction llc and an account account no titled lori r lamb dba express framing and custom home building petitioners also maintained a personal bank account both petitioners had access to all three accounts c petitioners’ gambling activities in addition to their business activities during petitioners spent a significant amount of time gambling at casinos in oklahoma including sac fox casino kickapoo casino and chickasaw nation casino to fund their gambling activities petitioners made cash withdrawals from automatic teller machines atms at the casinos from their two business bank accounts as follows petitioners withdrew dollar_figure from account no and petitioners withdrew dollar_figure from account no petitioners did not keep any written records with respect to their gambling activities neither petitioners nor respondent introduced a copy of the schedule_k-1 during mrs lamb received gambling income of dollar_figure from sac fox casino during mr lamb received gambling income as follows dollar_figure from sac fox casino dollar_figure from kickapoo casino and dollar_figure from chickasaw nation casino ii petitioners’ tax reporting and the notices of deficiency petitioners failed to timely file federal_income_tax returns for respondent subsequently prepared substitutes for returns for petitioners under sec_6020 on date respondent issued to mrs lamb a notice_of_deficiency for respondent determined that mrs lamb failed to report wages of dollar_figure and gambling winnings of dollar_figure respondent also determined that she was liable for additions to tax under sec_6651 and on date respondent issued to mr lamb a notice_of_deficiency for respondent determined that mr lamb failed to report gambling income of dollar_figure and self-employment_income of dollar_figure respondent also determined that he was liable for additions to tax under sec_6651 and and a iii petitioners’ tax_court proceedings after petitioners received the notices of deficiency frederick j o’laughlin filed a petition with this court on behalf of each petitioner by notices dated date the court set each of petitioners’ cases for trial during the court’s date oklahoma city oklahoma trial session and mailed to each of them and mr o’laughlin a notice setting case for trial and a standing_pretrial_order the standing_pretrial_order required the parties among other things to exchange documents and other data that the parties intended to use at trial not less than days before the first day of the trial session to stipulate facts to the maximum extent possible and to prepare a pretrial memorandum and submit it to the court and the opposing party not less than days before the first day of the trial session on date petitioners filed a joint form_1040 u s individual_income_tax_return for mr o’laughlin prepared petitioners’ return on the form_1040 petitioners reported wages of dollar_figure and gambling income of dollar_figure on an attached schedule a petitioners claimed deductions for state_income_tax real_estate_taxes and home mortgage interest as well as a gambling loss of dollar_figure petitioners also attached a schedule c profit or loss from business for gene’s muffler on which they claimed a net_loss of dollar_figure on an attached schedule e supplemental income and loss petitioners reported net_income from rental property of dollar_figure and a nonpassive loss from gary lamb construction of dollar_figure on an attached statement petitioners acknowledged that mr lamb received forms 1099-misc from wlc and wholesale granite countertops but indicated that mr lamb did not report the nonemployee compensation on petitioners’ return because the income was received and reported by gary lamb construction despite the court’s standing_pretrial_order and multiple requests from respondent’s counsel mr o’laughlin did not submit to respondent’s counsel copies of documents petitioners intended to use at trial by the document exchange deadline date on date mr o’laughlin attempted to untimely provide to respondent’s counsel supporting documentation with respect to petitioners’ claimed deductions although petitioners had filed a joint_return on date mr o’laughlin did not provide respondent’s counsel with a copy of that return before trial mr o’laughlin also failed to prepare and submit to the court and respondent’s counsel a pretrial memorandum for either of petitioners’ cases as required by the court’s standing_pretrial_order on date the court called these cases from the calendar and held a pretrial conference during the pretrial conference the court questioned mr o’laughlin regarding his failure to comply with the court’s standing_pretrial_order mr o’laughlin represented that he was unable to provide pretrial memoranda to the court because of his caseload he further represented that petitioners failed to timely provide him all of the relevant documentation mr o’laughlin also asserted that he was not required to provide the documentation because respondent’s paralegal rather than respondent’s counsel made the request for the documentation by order dated date the court consolidated these cases for purposes of trial briefing and opinion the court held a trial in these cases on date at the conclusion of the trial the court ordered petitioners to produce to respondent within days documentation to substantiate the amounts reported on their purportedly filed return including the income and expenses claimed on their schedule c and schedule e copies of petitioners’ bank account statements annotated to direct respondent to any withdrawals that related to gambling expenses and a copy of the return for gary lamb construction as well as related books_and_records the court ordered respondent to verify whether petitioners had filed their return the court also ordered the parties to file a joint status report by date on date respondent filed a status report in the status report respondent’s counsel represented that petitioners had filed a signed return for on date respondent’s counsel also represented that gary lamb construction had filed a return for the filed return showed zeroes on every line and although gary lamb construction later filed an amended_return respondent’s counsel was unable to obtain a copy of the amended_return finally respondent’s counsel represented that neither petitioners nor mr o’laughlin had attempted to provide any of the requested documentation and that mr o’laughlin had refused to communicate with respondent’s counsel or participate in a conference call with respondent’s counsel and the court petitioners failed to file a status report on date respondent filed a motion for leave to amend answers to conform pleadings to the evidence pursuant to rule and the court lodged the amendments to the answers in the motion respondent requested leave to amend the answers to assert that petitioners received unreported taxable_income when they withdrew cash from their business accounts to use for personal gambling purposes by order dated date this court ordered petitioners to file a response to respondent’s motion on or before date petitioners failed to do so accordingly by order dated date the court granted respondent’s motion and ordered that respondent’s amendments to answers be filed opinion i burden_of_proof generally the commissioner’s determinations in a notice_of_deficiency are presumed correct and the taxpayer bears the burden of proving that the determinations are erroneous see rule a 290_us_111 the burden_of_proof shifts to the commissioner however if the taxpayer produces credible_evidence to support the deduction or position the taxpayer complied with the substantiation requirements and the taxpayer cooperated with the secretary with regard to all reasonable requests for information sec_7491 see also 116_tc_438 in addition if the commissioner raises a new issue or seeks an increase in the deficiency the commissioner has the burden_of_proof as to the new issue or the increased deficiency see rule a the term secretary means the secretary_of_the_treasury or_his_delegate sec_7701 and the term or_his_delegate means any officer employee or agency of the treasury_department duly authorized by the secretary_of_the_treasury directly or indirectly by one or more redelegations of authority to perform the function mentioned or described in the context sec_7701 petitioners do not contend that sec_7491 applies and the record establishes that they did not satisfy the sec_7491 requirements consequently petitioners bear the burden_of_proof as to any disputed factual issues except with respect to the new issue asserted in respondent’s amendments to answer see rule a under rule a respondent bears the burden_of_proof with respect to the issue of whether petitioners received additional unreported taxable_income when they withdrew cash from their business bank accounts to use for personal gambling purposes under sec_6201 if a taxpayer asserts a reasonable dispute with respect to an item_of_income reported on an information_return filed by a third party and the taxpayer meets certain other requirements the commissioner bears the burden of producing reasonable and probative evidence in addition to the information_return concerning the deficiency attributable to the income item at trial mr lamb disputed that he personally received nonemployee compensation from wholesale granite countertops and wlc during mr lamb admitted however that he performed services for and received payment from those two companies he also admitted that his social_security_number appeared on both of the forms 1099-misc petitioners have not raised any reasonable dispute with respect to the accuracy of the information returns accordingly the burden of production with respect to the income did not shift to respondent under sec_6201 ii unreported income sec_61 defines gross_income as all income from whatever source derived and includes compensation paid for services whether furnished by the taxpayer as an employee a self-employed_person or an independent_contractor a taxpayer must maintain books_and_records establishing the amount of his or her gross_income sec_6001 if a taxpayer fails to maintain the required books_and_records the commissioner may determine the taxpayer’s income by any method that clearly reflects income see sec_446 92_tc_661 the commissioner’s reconstruction_of_income need only be reasonable in light of all surrounding facts and circumstances petzoldt v commissioner t c pincite the commissioner has great latitude in reconstructing a taxpayer’s income see sec_446 petzoldt v commissioner t c pincite the commissioner may reconstruct a taxpayer’s income using third-party information returns see 117_f3d_785 5th cir ketler v commissioner tcmemo_1999_68 the commissioner also may use bank records and other third-party records to reconstruct a taxpayer’s income see 647_f2d_875 9th cir aff’g tcmemo_1979_319 see also 999_f2d_760 4th cir aff’g tcmemo_1992_153 as noted above the commissioner’s deficiency determination normally is entitled to a presumption of correctness see 937_f2d_1548 10th cir aff’g tcmemo_1989_552 however when a case involves unreported income and is appealable to the u s court_of_appeals for the 10th circuit as these cases appear to be absent a stipulation to the contrary see sec_7482 the commissioner’s determination of unreported income is entitled to a presumption of correctness only if the determination is supported by some reasonable foundation such as evidence linking the taxpayer to an income- producing activity see 596_f2d_358 9th cir rev’g 67_tc_672 or evidence that the taxpayer owned liquid_assets see erickson v commissioner f 2d pincite2 once the commissioner produces such evidence the burden shifts to the taxpayer to rebut the presumption by establishing that the commissioner’s determination is arbitrary or erroneous see 476_f2d_502 10th cir aff’g in part remanding in part tcmemo_1971_194 petitioners admitted that they had gambling income in but that they did not keep any records of their gambling activity mr lamb also admitted that he provided services to third-party payors for compensation although mr lamb claimed that he maintained records for gary lamb construction and that the income in question belonged to gary lamb construction he did not introduce those records or make any attempt to reconstruct those records because the record establishes that petitioners were engaged in income- producing activities during respondent’s determinations of unreported income in the notices of deficiency are entitled to a presumption of correctness we also find that because the record contains no evidence that petitioners maintained books_and_records to establish the amounts of their income respondent acted reasonably in reconstructing petitioners’ income we address each disputed income item in turn a unreported nonemployee compensation respondent introduced a copy of mr lamb’s account transcript showing that respondent received the forms 1099-misc from wholesale granite countertops and wlc showing payment of nonemployee compensation to mr lamb during mr lamb testified that during he provided services to wholesale granite countertops and wlc and that he subsequently received the forms 1099-misc from both businesses however he contends that the income reported on the forms 1099-misc was income of gary lamb construction rather than his personal income mr lamb testified that the forms 1099-misc erroneously were issued to him and that the forms 1099-misc should have been issued to gary lamb construction the entity that purportedly received the income mr lamb further testified that gary lamb construction had filed returns for previous years and that he did not know whether gary lamb construction had filed a return for but that he believed that gary lamb construction had filed an amended_return for however mr lamb also testified that gary lamb construction reported the income shown on the forms 1099-misc on its return for although petitioners introduced copies of their bank account statements for their business bank accounts the bank account statements do not show any deposits that match the amounts reported on the forms 1099-misc petitioners’ bank account records do not include copies of the checks deposited into either account petitioners did not introduce copies of their personal bank account statements for despite the court’s instructions at the conclusion of trial petitioners failed to provide to respondent’s counsel a copy of the return for gary lamb construction the schedule_k-1 issued to mr lamb or any books_and_records relating to gary lamb construction in addition petitioners offered no explanation as to why both wholesale granite countertops and wlc issued forms 1099-misc to mr lamb individually rather than to gary lamb construction petitioners have failed to prove that the nonemployee compensation reported on the forms 1099-misc was taxable_income of gary lamb construction and that gary lamb construction reported that compensation as income on its return accordingly petitioners must include in income the amounts reported on the forms 1099-misc see eg zaklama v commissioner tcmemo_2012_346 at brodsky v commissioner tcmemo_2001_ slip op pincite b additional income from gary lamb construction in the amendments to answers respondent asserts that petitioners received additional income attributable to atm cash withdrawals from their business bank accounts respondent further asserts that petitioners used the cash for personal gambling purposes under rule a respondent bears the burden_of_proof with respect to the issue of whether petitioners received additional unreported taxable_income when they withdrew cash from their business bank accounts to use for personal gambling purposes although petitioners both testified that they regularly withdrew cash from the business bank accounts for personal gambling purposes respondent has failed to show that these withdrawals constituted taxable_income to them respondent failed to introduce any evidence regarding the financial status of gary lamb construction or whether gary lamb construction earned any taxable business income during the year in issue more importantly respondent failed to introduce any evidence to show that the withdrawals represented taxable_income to petitioners during the year in issue rather than for example a nontaxable return_of_capital or a loan repayment accordingly we are unable to find that petitioners received additional unreported taxable_income attributable to their cash withdrawals from the business bank accounts during the year in issue iii petitioners’ claimed deductions deductions are a matter of legislative grace and ordinarily a taxpayer must prove that he is entitled to the deductions he claims 503_us_79 a taxpayer must maintain records to substantiate claimed deductions and to establish the taxpayer’s correct_tax liability higbee v commissioner t c pincite see also sec_6001 the taxpayer must produce such records upon the secretary’s request sec_7602 see also sec_1_6001-1 income_tax regs adequate substantiation must establish the nature amount and purpose of a claimed deduction higbee v commissioner t c pincite see also 65_tc_87 aff’d per curiam 540_f2d_821 5th cir in deciding whether a taxpayer adequately substantiated a claimed deduction we are not required to accept the taxpayer’s self-serving unverified and undocumented testimony 112_tc_183 when a taxpayer establishes that he paid_or_incurred a deductible expense but does not establish the amount of the expense we may estimate the amount of the deductible expense 39_f2d_540 2d cir however we cannot estimate the amount unless the taxpayer introduces evidence that he paid_or_incurred the expense and the evidence is sufficient for us to develop a reasonable estimate 245_f2d_559 5th cir in estimating the amount we bear heavily upon the taxpayer who failed to maintain and produce the required records see cohan v commissioner f 2d pincite a schedule a deductions the only itemized_deduction remaining at issue is petitioners’ claimed deduction of dollar_figure attributable to their gambling_losses a taxpayer in the trade_or_business of gambling may deduct wagering losses as ordinary and necessary business_expenses see sec_62 sec_162 calvao v commissioner tcmemo_2007_57 a taxpayer who is not in the trade_or_business of gambling may deduct wagering losses as an itemized_deduction see sec_165 jackson v commissioner tcmemo_2007_373 in either instance l osses from wagering transactions shall be allowed only to the extent of the gains from such transactions sec_165 whether a taxpayer has sustained gambling_losses and the amount thereof is a question of fact to be resolved upon consideration of the taxpayer’s evidence and credibility 939_f2d_874 9th cir aff’g in part rev’g in part tcmemo_1989_390 see also szkircsak v commissioner tcmemo_1980_129 noting that the court relied on copies of canceled checks and the credible testimony of the taxpayer to estimate the amount of gambling_losses mrs lamb testified that petitioners regularly withdrew cash at casino atms to use for gambling purposes mrs lamb testified that all atm withdrawals identified with the address east highway were withdrawals that petitioners made at atms at the kickapoo casino the address mrs lamb identified mrs lamb identified a number of cash withdrawals on the bank account statements for account no and one such withdrawal on the bank account statement for account no mrs lamb further testified that petitioners could withdraw only dollar_figure with respect to each of their atm cards and that they often continued matches the address kickapoo casino used on the information returns it issued with respect to mr lamb accordingly we find mrs lamb’s testimony to be credible our review of petitioners’ bank account statements shows that during petitioners withdrew the following amounts from atms at the kickapoo casino petitioners withdrew dollar_figure from account no and petitioners withdrew dollar_figure from account no petitioners regularly withdrew cash from casino atms and used this cash for gambling purposes petitioners both testified that they used the atm withdrawals on their bank account statements to calculate the amount of gambling_losses claimed on their return mr lamb testified that petitioners’ gambling winnings and losses were approximately the same while mrs lamb testified that their gambling_losses exceeded their winnings continued would withdraw dollar_figure during one transaction and then withdraw another dollar_figure in a second transaction the amounts of the withdrawals made at the kickapoo casino atms are consistent with mrs lamb’s testimony although petitioners’ bank statements show a number of other significant atm withdrawals during petitioners did not introduce any evidence to show that these withdrawals occurred at a casino or that they made the withdrawals for personal gambling purposes at the conclusion of trial the court directed petitioners and petitioners’ counsel to provide to respondent copies of petitioners’ bank statements with notations indicating which atm withdrawals were attributable to gambling expenses petitioners failed to do so on the record before us we find that petitioners regularly withdrew cash from atms at kickapoo casino and used the entire amounts of those withdrawals totaling dollar_figure for gambling purposes consequently we will allow petitioners a schedule a deduction for gambling_losses of dollar_figure b schedule c and e deductions generally a taxpayer is entitled to deduct ordinary and necessary expenses paid_or_incurred in carrying_on_a_trade_or_business sec_162 am stores co v commissioner 114_tc_458 an expense is ordinary if it is customary or usual within the particular trade business or industry or if it relates to a transaction of common or frequent occurrence in the type of business involved 308_us_488 an expense is necessary if it is appropriate and helpful for the development of the business see 320_us_467 personal living or family_expenses generally are not deductible see sec_262 schedule c deductions on a schedule c attached to their untimely filed return petitioners reported a net_loss with respect to gene’s muffler mr lamb testified that gene’s muffler was a business owned and operated by his father and that mr lamb was responsible only for any unpaid bills or building maintenance_costs with respect to the muffler shop petitioners failed to prove that they were engaged in a trade_or_business during and they did not introduce any substantiation of the expenses claimed on the schedule c accordingly petitioners have failed to prove that they are entitled to a deduction for their claimed schedule c loss schedule e deductions on a schedule e attached to their untimely filed return petitioners claimed a nonpassive loss of dollar_figure attributable to their ownership of gary lamb construction petitioners however did not introduce any credible_evidence at trial petitioners attempted to introduce various documents purportedly relating to gene’s muffler we declined to admit petitioners’ proffered evidence given their failure to comply with the court’s standing_pretrial_order although petitioners reported gross_receipts of dollar_figure on their schedule c respondent did not include this amount in calculating the increased deficiency asserted in respondent’s amendments to answers accordingly we do not consider whether petitioners had additional income attributable to the gross_receipts reported on their schedule c regarding the income expenses and loss allegedly generated by gary lamb construction accordingly petitioners have failed to prove that they are entitled to deduct the claimed nonpassive loss attributable to gary lamb construction iv additions to tax under sec_7491 the commissioner bears the burden of producing evidence with respect to the liability of the taxpayer for any penalty addition_to_tax or additional_amount see higbee v commissioner t c pincite to meet his burden of production the commissioner must come forward with sufficient evidence that it is appropriate to impose the addition_to_tax id once the commissioner meets his burden the taxpayer must come forward with evidence sufficient to persuade this court that the determination is incorrect id respondent determined that petitioners are liable under sec_6651 for additions to tax for failure to timely file a valid_return for sec_6651 authorizes the imposition of an addition_to_tax for failure to timely file a return unless it is shown that such failure is due to reasonable_cause and not due to willful neglect see 469_us_241 38_f3d_440 9th cir a failure_to_file a timely federal_income_tax return is due to reasonable_cause if the taxpayer exercised ordinary business care and prudence but nevertheless was unable to file the return within the prescribed time see sec_301_6651-1 proced admin regs willful neglect means a conscious intentional failure_to_file or reckless indifference toward filing boyle u s pincite the failure to timely file a return is not excused by the taxpayer’s reliance on an agent to file the required return see id pincite petitioners stipulated that they failed to timely file federal_income_tax returns for in addition respondent introduced copies of petitioners’ account transcripts confirming that petitioners failed to timely file their returns for consequently we conclude that respondent has satisfied his burden of production under sec_7491 and petitioners must come forward with evidence sufficient to persuade the court that respondent’s determinations are in error petitioners appear to contend that their failure to timely file a return was due to reasonable_cause because they relied on mr o’laughlin to prepare and file their return for even if we were to accept mrs lamb’s testimony regarding petitioners’ relationship and interactions with mr o’laughlin as credible petitioners’ reliance on mr o’laughlin does not excuse their failure to timely file their return consequently we sustain respondent’s determinations as to the sec_6651 additions to tax respondent also determined that petitioners are liable under sec_6651 for additions to tax for failure to timely pay tax shown on a return sec_6651 imposes an addition_to_tax for failure to pay the amount of tax shown on a taxpayer’s federal_income_tax return on or before the payment due_date unless such failure is due to reasonable_cause and not due to willful neglectdollar_figure the sec_6651 addition_to_tax applies only when an amount of tax is shown on a return filed by the taxpayer or prepared by the secretary sec_6651 g 120_tc_163 when a taxpayer has not filed a return the sec_6651 addition_to_tax may not be imposed unless the secretary has prepared a substitute for return that satisfies the requirements of sec_6020 see 127_tc_200 aff’d 521_f3d_1289 10th cir respondent introduced into evidence substitutes for returns that satisfy the requirements of sec_6020 as well as copies of petitioners’ account transcript for the substitutes for returns and the account transcripts establish that petitioners failed to pay the tax shown on the substitutes for returns respondent has satisfied the burden of production under sec_7491 the sec_6651 addition_to_tax is of the amount of tax_shown_on_the_return with an additional per month during which the failure to pay continues up to a maximum of petitioners did not introduce any evidence that they were unable to pay the tax owed or that they would have suffered undue_hardship if they had paid the tax on the due_date see sec_301_6651-1 proced admin regs accordingly we hold that petitioners are liable for the sec_6651 additions to tax respondent also determined that mr lamb is liable for an addition_to_tax for failure to pay estimated_tax under sec_6654 sec_6654 imposes an addition_to_tax on an individual who underpays his estimated_tax the addition_to_tax is calculated with reference to four required_installment payments of the taxpayer’s estimated_tax liability sec_6654 and d each required_installment of estimated_tax is equal to of the required_annual_payment sec_6654 the required_annual_payment is equal to the lesser_of of the tax shown on the individual’s return for that year or if no return is filed of his tax for such year or if the individual filed a return for the immediately preceding_taxable_year of the tax shown on that return sec_6654 b and c a taxpayer has an obligation to pay estimated_tax only if he has a required_annual_payment wheeler v commissioner t c pincite see also 121_tc_308 unless a statutory exception applies the sec_6654 addition_to_tax is mandatory see sec_6654 e 91_tc_874 respondent introduced a copy of mr lamb’s account transcript for which shows that he did not make any estimated_tax payments respondent also introduced evidence that mr lamb failed to file a federal_income_tax return for on the basis of this evidence as well as mr lamb’s concessions and our conclusions with respect to his income for we conclude that mr lamb had a required_annual_payment for accordingly we hold that mr lamb is liable for the sec_6654 addition_to_tax for we have considered the parties’ remaining arguments and to the extent not discussed above conclude those arguments are irrelevant moot or without merit to reflect the foregoing decisions will be entered under rule


t c memo united_states tax_court john k kinuthia petitioner v commissioner of internal revenue respondent docket no filed date john k kinuthia pro_se wanda m cohen and stephen r doroghazi for respondent memorandum findings_of_fact and opinion goeke judge respondent determined deficiencies additions to tax and penalties for and as follows year additions to tax_deficiency sec_6651 sec_6651 dollar_figure big_number --- --- dollar_figure dollar_figure --- penalty sec_6662 dollar_figure after concessions the issues for decision are whether petitioner is entitled to his claimed deductions from schedule c profit or loss from business for we hold that he is not whether petitioner failed to report dollar_figure and dollar_figure of income for and respectively we hold that he did whether petitioner is liable for additions to tax under sec_6651 and for we hold that he is and whether petitioner is liable for an accuracy-related_penalty under sec_6662 for we hold that he is respondent agreed to reduce the deficiency to dollar_figure and the penalty to dollar_figure he also agreed to reduce the deficiency to dollar_figure and the penalty under sec_6651 to dollar_figure all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated findings_of_fact petitioner resided in texas when he filed his petition petitioner timely filed a form_1040 u s individual_income_tax_return for but he did not file a return or pay taxes for pursuant to sec_6020 respondent prepared a substitute for return sfr for him on his schedule c petitioner claimed deductions related to his single- member limited_liability_company cio asap llc he deducted car and truck expenses meals and entertainment_expenses depreciation insurance expenses travel_expenses and other expenses the aggregate amount of the deductions he claimed exceeded the gross_receipts he reported thus petitioner reported no tax_liability for respondent conducted a bank_deposits analysis and determined that petitioner had made aggregate deposits of dollar_figure and dollar_figure in and respectively respondent determined the deposits represented unreported income for and to the extent they exceeded the amounts petitioner reported on the basis of his findings respondent issued petitioner a notice_of_deficiency for and petitioner timely petitioned this court this case was originally set for trial on date but was continued to allow petitioner time to have subpoenas served on his many banking institutions petitioner received his bank records and the parties agreed that on date petitioner would meet with the appeals officer to review the documents before the meeting could take place petitioner called the appeals officer and canceled it over the next few months respondent had an increasingly difficult time contacting petitioner this case was set for trial on date but petitioner did not appear respondent filed a motion to dismiss for lack of prosecution we denied the motion because petitioner had offered a stipulation of facts sufficient to allow us to address the merits of his case i burden_of_proof opinion generally taxpayers bear the burden of proving by a preponderance_of_the_evidence that the determinations of the commissioner in a notice_of_deficiency are incorrect rule a 290_us_111 deductions are a matter of legislative grace and taxpayers bear the burden of proving their entitlement to any deductions they claim rule a 503_us_79 when the commissioner has alleged that a taxpayer failed to report income and produced evidence connecting the taxpayer with the alleged unreported income the taxpayer bears the burden of disproving the allegation see portillo v commissioner f 2d 5th cir aff’g in part rev’g in part tcmemo_1990_68 sec_7491 shifts the burden_of_proof to the commissioner if the taxpayer produces credible_evidence on any factual issue and satisfies the requirements of sec_7491 respondent determined that petitioner made bank_deposits during the years in issue in excess of the amounts of taxable_income he reported for those years accordingly respondent has presented evidence sufficient to connect petitioner with the unreported income alleged here petitioner has not provided credible_evidence to support his positions nor has he otherwise met the requirements of sec_7491 consequently petitioner has the burden of proving both that he is entitled to the deductions he claimed and that he did not fail to report income ii substantiation of business_expenses sec_162 provides a deduction for certain business-related expenses taxpayers must maintain records sufficient to substantiate sec_162 deductions they claim sec_6001 65_tc_87 aff’d 540_f2d_821 5th cir see also sec_1_6001-1 e income_tax regs despite numerous opportunities to do so petitioner has not provided any documents to substantiate the deductions respondent disallowed in fact at no point has petitioner even challenged these disallowances petitioner has made numerous allegations regarding respondent’s conduct but he has continually failed to present any evidence or argument regarding his tax_liabilities therefore we hold that petitioner is not entitled to the deductions he claimed for because he failed to carry his burden of proving that respondent’s determinations are incorrect iii unreported income sec_61 defines gross_income as income from whatever source derived the concept of income under sec_61 is broad given congress’ desire to tax all gains except those specifically exempted 348_us_426 621_f2d_731 5th cir sec_6001 requires all taxpayers to maintain sufficient records to determine their correct_tax liabilities when taxpayers fail to keep adequate books_and_records the commissioner may reconstruct income using a method that clearly reflects the full amount of their income sec_446 43_tc_824 see also 237_f2d_830 5th cir aff’g in part rev’g in part tcmemo_1955_112 the reconstruction need only be reasonable in the light of all surrounding facts and circumstances 54_tc_1530 40_tc_30 respondent used the bank_deposits method to reconstruct petitioner’s income for and courts have long accepted the bank_deposits method 102_tc_632 bank_deposits are prima facie evidence of income 87_tc_74 and the taxpayer has the burden of showing that any bank deposit is not income 64_tc_651 aff’d 566_f2d_2 6th cir the bank_deposits method assumes that all money deposited in a taxpayer’s bank account during a given period constitutes taxable_income but the government must take into account any nontaxable source or deductible expense of which it has knowledge 96_tc_858 aff’d 959_f2d_16 2d cir using the bank_deposits method respondent determined that petitioner had received gross_income of dollar_figure in and dollar_figure in petitioner reported income of only dollar_figure for did not file for and failed to present any evidence or argument demonstrating inaccuracies in respondent’s determinations petitioner has not carried his burden of proving that the bank deposits respondent identified were not taxable_income accordingly we sustain respondent’s determinations of unreported income iv additions to tax and penalties a burden_of_proof the commissioner bears the burden of production on the applicability of additions to tax and penalties sec_7491 116_tc_438 once the commissioner meets this burden the taxpayer bears the burden of proving that the additions to tax and penalties are inappropriate because of reasonable_cause or otherwise higbee v commissioner t c pincite b additions to tax sec_6651 imposes an addition_to_tax for failure to timely file a return unless the taxpayer shows that such failure was due to reasonable_cause and not willful neglect respondent imposed on petitioner an addition_to_tax for failing to file his income_tax return the parties stipulated that petitioner the addition_to_tax is equal to of the amount of the tax required to be shown on the return if the failure_to_file is not for more than one month an additional is imposed for each month or fraction thereof in which the failure_to_file continues to a maximum of of the tax the addition_to_tax is imposed on the net amount due sec_6651 and b 120_tc_163 n failed to file his tax_return accordingly we conclude that respondent has produced sufficient evidence to show that the sec_6651 addition_to_tax is appropriate unless petitioner proves that his failure_to_file was due to reasonable_cause petitioner has not produced any evidence demonstrating that his failure_to_file was due to reasonable_cause therefore we hold petitioner liable for the sec_6651 addition_to_tax sec_6651 imposes an addition_to_tax for failure to timely pay the amount of tax shown on a taxpayer’s federal_income_tax return sec_6651 applies only when an amount of tax appears on the taxpayer’s return 120_tc_163 kinslow v commissioner tcmemo_2002_313 as stated petitioner did not file a return for however respondent prepared a valid sfr under sec_6020 pursuant to sec_6651 an having concluded that petitioner’s failure to timely file was without reasonable_cause we need not determine whether it resulted from willful neglect see 482_f3d_792 5th cir the addition_to_tax is equal to of the amount shown as tax on the return if the failure to pay is not for more than one month with an additional for each additional month or fraction thereof during which such failure to pay continues not exceeding in the aggregate sec_6651 the addition_to_tax under sec_6651 is reduced by the amount of the addition under sec_6651 for any month or fraction thereof to which an addition_to_tax under sec_6651 and applies sec_6651 sfr is treated as the taxpayer’s return for purposes of determining the sec_6651 addition_to_tax respondent has presented evidence showing that petitioner did not make any_tax payments in accordingly we conclude that respondent has produced sufficient evidence to show that the sec_6651 addition_to_tax is appropriate unless petitioner proves that his failure to pay was due to reasonable_cause petitioner has not produced any evidence demonstrating that his failure to pay the appropriate amount was due to reasonable_cause therefore we hold petitioner liable for the sec_6651 addition_to_tax c penalties sec_6662 and b imposes a accuracy-related_penalty if any part of an underpayment_of_tax resulted from a substantial_understatement_of_income_tax a substantial_understatement exists if the amount of the understatement exceeds the greater of of the tax required to be shown on the return or dollar_figure sec_6662 and ii respondent determined and we agree that petitioner is liable for the penalty under sec_6662 for the tax_year respondent determined that having concluded that petitioner’s failure to timely pay was without reasonable_cause we need not determine whether it resulted from willful neglect see staff it inc f 3d pincite petitioner should have reported a tax_liability of dollar_figure for but he reported zero the understatement is greater than of the tax required to be shown on the return which is greater than dollar_figure accordingly we conclude that respondent has produced sufficient evidence to show that the penalty is appropriate pursuant to sec_6664 an accuracy-related_penalty under sec_6662 does not apply to any portion of an underpayment for which a taxpayer establishes that he had reasonable_cause and acted in good_faith petitioner has not produced evidence sufficient to satisfy sec_6664 therefore we hold petitioner liable for the penalty under sec_6662 and b in reaching our holdings herein we have considered all arguments made and to the extent not mentioned above we conclude they are moot irrelevant or without merit to reflect the foregoing and respondent’s concessions decision will be entered for respondent in the reduced amounts


department of the treasury internal_revenue_service washington d c o f f ic e o f c h ief c o u n sel number info release date jul uil dear i am responding to your letter the taxation of social_security disability benefits to congressman regarding prior to certain disability payments were excluded from an employee’s gross_income under sec_105 of the internal_revenue_code then the social_security act amendments of repealed this limited exclusion of disability payments since social_security disability payments have been treated in the same manner as other social_security_benefits social_security_benefits are amounts received under title ii of the social_security act which includes social_security disability payments d of the internal_revenue_code up to percent of a taxpayer’s social_security_benefits may be included in gross_income the amount depends on the total amount of the taxpayer’s benefits and other income enclosed is a copy of publication social_security and equivalent railroad retirement benefits which provides more detailed information on the income_tax rules for social_security_benefits sec_86 i hope this information is helpful to you if you have any further questions please contact robyn l mathis id no of my staff at sincerely jerry e holmes chief employment_tax branch tax exempt and government entities office of assistant chief_counsel exempt_organizations employment_tax government entities enclosure cc the honorable


internal_revenue_service number release date index number ------------------------- ------------------------------------------------------- ----------------------------------------- ----------------------- ---------------------------- department of the treasury washington dc third party communication date of communication month dd yyyy person to contact ---------------------- id no ------------ telephone number -------------------- refer reply to cc intl plr-115645-05 date february taxpayer ----------------------------------------------------------------------------------------------- ----------------------- legend legend ------- ------- ------- -------------------------------------------------------------- tax_year tax_year tax_year hseu x dear --------------- this replies to your representative’s letter dated date in which your representative requests on behalf of taxpayer an extension of time under sec_301_9100-3 for taxpayer to file the election and agreement described in sec_1 g i and the annual certifications described in sec_1_1503-2 and sec_1 2t g vi b in accordance with schedules a b and c which are attached to and made a part of this ruling letter additional information was submitted on date date date and date the information submitted for consideration is substantially as set forth below the ruling contained in this letter is predicated upon facts and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party this office has not verified any of the material submitted in support of the request for a ruling verification of the factual information representations and other data may be required as a part of the audit process plr-115645-05 the facts and affidavits submitted indicate that taxpayer’s tax department prepared its consolidated federal_income_tax returns for the years for which taxpayer requests relief during that time taxpayer’s tax department underwent significant personnel changes in addition the tax department was consistently short-staffed this situation contributed to and resulted in the inconsistent application in those years of sec_1_1503-2 and sec_1_1503-2t the dual_consolidated_loss dcl regulations for example taxpayer failed to file required elections for foreign branches and hybrid_entity separate units with respect to their dcls in years indicated on schedules a b and c in addition taxpayer failed to file the required annual certifications for prior year dcls with respect to the hybrid_entity separate units as indicated on schedules b and c thus taxpayer’s tax department was unaware that each such failure was a triggering event that would cause recapture of the previously deducted dcl under sec_1_1503-2 iii during tax_year under the direction of managers and staff who joined the tax department taxpayer’s tax department undertook a review of the dcl rules and taxpayer’s compliance with those rules in order to file its consolidated federal_income_tax return for tax_year this review led to the discovery of the missed elections and annual certifications and alerted the tax department to the related triggering events caused by the failure_to_file the elections and annual certifications taxpayer represents that it filed this application_for relief before the internal_revenue_service discovered the failure_to_file the elections and agreements and the annual certifications with respect to the dcls of the foreign branches and hybrid_entity separate units for the tax years listed on schedules a b and c sec_301_9100-1 provides that the commissioner has discretion to grant a taxpayer a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 provides that an election includes an application_for relief in respect of tax and defines a regulatory election as an election whose due_date is prescribed by a regulation a revenue_ruling revenue_procedure notice or announcement sec_301_9100-3 provides that requests for relief subject_to this section will be granted when the taxpayer provides 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 within the meaning of sec_301_9100-3 subject_to the conditions set forth in sec_301_9100-3 and the grant of relief will not prejudice the interests of the government within the meaning of sec_301_9100-3 in the present situation the election and agreement described in sec_1 g i and the annual certifications described in sec_1_1503-2 and sec_1 plr-115645-05 2t g vi b are regulatory elections as defined in sec_301_9100-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayer an extension of time provided that taxpayer satisfies the rules set forth in sec_301_9100-3 based on the facts and representations submitted we conclude that taxpayer satisfies the standards for relief as set forth in sec_301_9100-3 accordingly taxpayer is granted an extension of time of days from the date of this ruling letter for taxpayer to file the election and agreement described in sec_1_1503-2 and the annual certifications described in sec_1_1503-2 and sec_1_1503-2t g vi b in accordance with schedules a b and c the granting of an extension of time is not a determination that taxpayer is otherwise eligible to file the elections and agreements and the annual certifications sec_301_9100-1 the granting of this extension does not relieve taxpayer from the requirement that it recapture because of a triggering event under sec_1_1503-2 the previously deducted dcls of hseu x on its consolidated federal_income_tax return for tax_year a copy of this ruling letter should be associated with the elections and agreements and the annual certifications this ruling is directed only to taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent no ruling has been requested and none is expressed as to the application of any other section of the code or regulations to the facts presented pursuant to a power_of_attorney on file in this office a copy of this ruling letter is being furnished to your authorized representative sincerely enclosures schedules a b and c copy for purposes associate chief_counsel international by s richard l chewning richard l chewning senior counsel office of the associate chief_counsel international plr-115645-05 ------------------- ------------------------------------------- ----------------------------------- ------------------------------------------- ---------------------------- ------------------------------------------- ----------------- ------------------------------------------- ------------------- ------------------------------------------- --------------------- ------------------------------------------- --------------------- ------------------------------ -------------------------------- ------------------------------------------- ------------------------------------------- --- -- ----------------------------- ------------------------------------------- ------ ------------------------ ------------------------------ schedule a tax years relief requested to file election and agreement under sec_1_1503-2 --------------------- ----------- --------------------- ----------- ----------- ----------- ----------- --------------------- --------------------- ---------- schedule b a election and agreement described in sec_1_1503-2 b annual certification described in sec_1_1503-2 c annual certification described in sec_1_1503-2t g vi b na not applicable --- ------------------------------ ------------------------------------------- ---------------------- -------------------------------------------- ------------------------------ ------------------------------------------------ --- ------- --- -------- ----- --------- - ----- -- ----- ---------- - ----- - --- ----- ----- --------- - ----- -- --- ----- ----- --------- - ----- -- --- ----- ----- ---------- - ------- - plr-115645-05 ---------------------------------------------- --------------------------------------------------- - -- -------------------------------- --------------------------------------------------- - ------------------------------------ ----- ----- -------- ----- ------- ----- ----- -------- ----- ------- ----- ----- -------- ---- ------ schedule c a election and agreement described in sec_1_1503-2 b annual certification described in sec_1_1503-2 c annual certification described in sec_1_1503-2t g vi b na not applicable legend