internal_revenue_service number release date -------------------------------------------- ------------------------- ----------------------------- -------------------- ------------------------------------- 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 corp plr-159175-05 date date --------------------------------------------------------- -------------------------------- acquiring -------------------------------------------------------------------- ----------------------------------------------------------- corporation -------------------------------------------------------------------- ----------------------------------------------------------- corporation ------------------------------ -------------------------------------------------------------------- ------------------------------------------------------ corporation ---------------------------- ----------------------------------------------------------------- ----------------------------------------------------------- corporation -------------------------------------------------------------------- ----------------------------------------------------------- corporation -------------------------------------------------------------------- ----------------------------------------------------------- corporation ------------------------------- -------------------------------------------------------------------- ----------------------------------------------------------- corporation -------------------------------- -------------------------------------------------------------------- ----------------------------------------------------------- corporation ------------------------------------- --------------------------------------- -------------------------------------- --------------------------------- ----------------------------------- ---------------------------------------- ------------------------------------------ ---------------------------------------------------------------- plr-159175-05 --------------------------------------------------------------------------------------------------------------------- --------- corporation -------------------------------------------------------------------- ----------------------------------------------------------- corporation -------------------------------------------------------------------- ----------------------------------------------------------- corporation -------------------------------------------------------------------- ----------------------------------------------------------- corporation -------------------------------------------------------------------- ----------------------------------------------------------- corporation -------------------------------------------------------------------- ----------------------------------------------------------- corporation -------------------------------------------------------------------- ----------------------------------------------------------- corporation -------------------------------------------------------------------- ----------------------------------------------------------- shareholder ---------------------------------------------------------------------------------------------------- ------------------------------------------------------------ shareholder ------------------------------------------------------------- shareholder ------------------------------------------------------------- shareholder ------------------------- ------------------------------------------------------------- shareholder ----------------------- ------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------- --------------------------- -------------------------- ------------------------- ------------------------------ ----------------------------- ---------------------------- --------------------------- -------------------------- ------------------- plr-159175-05 shareholder ------------------------------------------------------------- shareholder ------------------------------------------------------------- shareholder ------------------------------------------------------------- shareholder ------------------------------------------------------------- shareholder -------------------------------------------------------------- shareholder ------------------------------------------------------------- shareholder ------------------------- ------------------------------------------------------------- shareholder ------------------------------------------------------------- shareholder ------------------------------------------------------------- shareholder ------------------------------------------------------------- state x state y date date date dear ---------------- ------------------------- -------------------------- ---------------------- ---------------------- ---------------------- -------------------- ----------------- ---------------------------- this letter is in reply to your letter dated date requesting expedited corporation corporation corporation corporation corporation acquiring is a state x corporation that was incorporated on date and elected to plr-159175-05 rulings under revproc_2005_68 additional information was submitted in supplemental letters the information submitted for consideration is summarized below be taxed as a subchapter_s_corporation for federal_income_tax purposes on date acquiring is owned by ----------- individual shareholders and a_trust shareholder through shareholder respectively collectively the shareholders corporation corporation corporation corporation corporation corporation corporation corporation and corporation are state x corporations and corporation is a state y corporation collectively the corporations each corporation elected at inception to be taxed as a subchapter_s_corporation for federal_income_tax purposes except for corporation corporation corporation and corporation which are former c corporations each of these former c corporations has been an s_corporation for more than years exception for corporation which elected s status on date the shareholders collectively own all of the issued and outstanding_stock of each corporation the shareholder owns at least percent of all of the issued and outstanding_stock of each corporation some of the corporations’ wholly owned corporate subsidiaries have elected to be treated as qualified subchapter_s subsidiaries the qsubs for federal_income_tax purposes the affiliate qsubs purposes the shareholders desire to consolidate the operations of the corporations and acquiring to accomplish these goals the taxpayer intends to complete the following proposed transactions the proposed transactions the shareholders will simultaneously transfer percent of the stock of corporation through corporation to acquiring the contributions in exchange for additional shares of acquiring voting_stock and non-voting stock as a qsub and to treat each affiliate qsub as a qsub the qsub elections for federal_income_tax purposes the qsub elections will result in the deemed liquidations of corporation through corporation into acquiring the liquidations the contribution to and liquidation of each of corporation through corporation are referred to herein as the corporation proposed transaction corporation proposed transaction and so on through the corporation proposed transaction the additional transactions are being contemplated and may or may not occur regardless of whether any or all of the proposed transactions is consummated one or more shareholders will contribute stock in one or more foreign_corporations and one or more c corporations to acquiring shareholders and acquiring will make in addition to the proposed transactions the following additional transactions acquiring will elect to treat each of corporation through corporation the taxpayer represents that in order to accomplish corporate business ii i the fair_market_value of the acquiring stock received by each corporation with respect to each of the proposed transactions the corporation proposed plr-159175-05 certain modifications to existing shareholder agreements shareholders will have all or a portion of their stock in acquiring and or corporations redeemed or acquired pursuant to the terms of existing incentive compensation plans the incentive compensation plans and acquiring will amend its articles of incorporation and issue both voting and non-voting stock in the proposed transactions the taxpayer represents that the voting and non-voting stock have identical distribution and liquidation rights and only differ with respect to voting rights transaction through the corporation proposed transaction the taxpayer has submitted certain representations in these representations the term corporation refers to corporation with respect to the corporation proposed transaction to corporation with respect to the corporation proposed transaction and so on through the corporation proposed transaction specifically with respect to each of the proposed transactions the taxpayer represents that a shareholder will be approximately equal to the fair_market_value of the corporation stock deemed surrendered in the exchange b incentive compensation plans there is no plan or intention by the shareholders of corporation who own one percent or more of the corporation stock and to the best of the knowledge of the management of corporation there is no plan or intention on the part of the remaining shareholders of corporation to sell exchange or otherwise dispose_of a number of shares of acquiring stock received in the transaction that would reduce the corporation shareholders' ownership of acquiring stock to a number of shares having a value as of the date of the transaction of less than percent of the value of all of the formerly outstanding_stock of corporation as of the same date for purposes of this representation shares of corporation stock exchanged for cash or other_property or exchanged for cash in lieu of fractional shares of acquiring stock will be treated as outstanding corporation stock on the date of the transaction moreover shares of corporation stock and shares of acquiring stock held by corporation shareholders and otherwise sold redeemed or disposed of prior or subsequent to the transaction will be considered in making this representation c and at least percent of the fair_market_value of the gross assets held by corporation immediately prior to the transaction for purposes of this representation amounts used by corporation to pay its reorganization expenses all redemptions and any distributions except for regular normal dividends made by corporation immediately preceding the transfer will be included as assets of corporation held immediately prior to the transaction acquiring will acquire at least percent of the fair_market_value of the net assets except for redemptions and acquisitions that might occur pursuant to the following the transaction acquiring will continue the historic_business of after the transaction the shareholders of corporation will be in control of acquiring has no plan or intention to sell or otherwise dispose_of any of the the liabilities of corporation transferred to acquiring plus the liabilities if any to except for redemptions and acquisitions that may occur pursuant to the incentive plr-159175-05 d acquiring within the meaning of sec_368 of the internal_revenue_code the code e compensation plans acquiring has no plan or intention to reacquire any of its stock issued in the transaction f assets of corporation acquired in the transaction except for dispositions made in the ordinary course of business g which the transferred assets are subject were incurred by corporation in the ordinary course of its business and are associated with the assets transferred h corporation or use a significant portion of the historic_business_assets of corporation in a business at the time of the transaction acquiring will not have outstanding any warrants i options convertible securities or any other type of right pursuant to which any person could acquire stock in acquiring that if exercised or converted would affect the corporation shareholders' acquisition or retention of control of acquiring as defined in sec_368 of the code j respective expenses if any incurred in connection with the transaction k corporation that was issued acquired or will be settled at a discount l sec_368 and iv of the code m the total fair_market_value of the assets transferred to acquiring by corporation will exceed the sum of a the amount of liabilities assumed by acquiring in connection with the exchange b the amount of liabilities owed to acquiring that are discharged or extinguished in connection with the exchange and c the amount of any money and the fair_market_value of any other_property other than stock permitted to be received under sec_361 without the recognition of gain received by corporation in connection with the exchange the fair_market_value of the assets of acquiring will exceed the amount of its liabilities immediately_after_the_exchange acquiring_corporation and the shareholders of corporation will pay their no two parties to the transaction are investment companies as defined in there is no intercorporate indebtedness existing between acquiring and the payment of cash in lieu of fractional shares of acquiring stock is solely for plr-159175-05 n the total adjusted_basis of the assets of corporation transferred to acquiring will equal or exceed the sum of the liabilities to be transferred to acquiring plus the amount of liabilities if any to which the transferred assets are subject o corporation is not under the jurisdiction of a court in a title_11_or_similar_case within the meaning of sec_368 of the code p the purpose of avoiding the expense and inconvenience to acquiring of issuing fractional shares and does not represent separately bargained-for consideration the total cash consideration that will be paid in the transaction to the shareholders of corporation instead of issuing fractional shares of acquiring stock will not exceed percent of the total consideration that will be issued in the transaction to the shareholders of corporation in exchange for their shares of corporation stock the fractional share interests of each shareholder of corporation will be aggregated and no shareholder of corporation will receive cash in an amount equal to or greater than the value of one full share of acquiring stock q except as provided in the incentive compensation plans none of the compensation received by any shareholder-employee of corporation will be separate consideration for or allocable to any of his or her shares of corporation stock none of the shares of acquiring stock received by any shareholder-employee will be separate consideration for or allocable to any employment agreement and the compensation paid to any shareholder-employee will be for services actually rendered and will be commensurate with amounts paid to third parties bargaining at arm's-length for similar services r acquiring will pay or assume only those expenses of corporation that are solely and directly related to the transaction in accordance with the guidelines established in revrul_73_54 1973_1_cb_187 based solely on the information submitted and on the representations set forth above we hold as follows with respect to each of the proposed transactions for federal_income_tax purposes the contribution and liquidation will be treated as the transfer by corporation of substantially_all of its respective assets to acquiring in exchange for acquiring stock and the transfer to acquiring of all of the liabilities of corporation followed by the liquidation of corporation meaning of sec_368 of the code for purposes of this ruling substantially_all means at least percent of the fair_market_value of the net assets and at least percent of the fair_market_value of the gross assets of corporation acquiring and corporation will each be a_party_to_a_reorganization within the meaning of sec_368 of the code the contribution and liquidation will constitute a reorganization within the no gain_or_loss will be recognized to corporation upon the distribution of no gain_or_loss will be recognized to corporation on the transfer of substantially no gain_or_loss will be recognized to the corporation’s shareholders by reason of plr-159175-05 all of its assets to acquiring in exchange for acquiring voting and non-voting stock sec_361 and sec_357 no gain_or_loss will be recognized to acquiring upon the receipt of substantially_all of the assets of corporation in exchange for acquiring voting and non-voting stock sec_1032 the exchange of such shareholders’ shares of corporation stock solely for shares of acquiring voting and non-voting stock sec_354 acquiring voting_stock to the corporation’s shareholders sec_361 the basis of corporation’s assets in the hands of acquiring will be the same as the basis of those assets in the hands of corporation immediately prior to the transfer sec_362 the period during which such assets were held by corporation sec_1223 corporation’s shareholders will be the same as their basis in the corporation stock surrendered in exchange therefor sec_358 the holding_period of the acquiring voting and non-voting stock received by the corporation’s shareholders will include the holding_period of the corporation stock surrendered in exchange therefor provided that such corporation stock is held as a capital_asset on the date of the exchange sec_1223 the taxable_year of corporation will end at the close of the day before the qsub election becomes effective sec_381 and sec_1_381_b_-1 sec_1_1361-4 and sec_1_1361-4 of the income_tax regulations the regulations pursuant to sec_381 of the code and sec_1_381_a_-1 of the regulations acquiring will succeed to and take into account as of the date of the proposed transfer as defined in sec_1_381_b_-1 of the regulations the items of corporation described in sec_381 of the code subject_to the conditions and limitations specified in sec_381 sec_382 sec_383 and sec_384 of the code and the regulations thereunder as provided by sec_381 of the code and sec_1_381_c_2_-1 of the regulations acquiring will succeed to and take into account the earnings_and_profits or deficit in earnings_and_profits of corporation as of the date of transfer any deficit in the the basis of the shares of acquiring voting and non-voting stock received by the the holding_period of corporation’s assets in the hands of acquiring will include plr-159175-05 earnings or profits of either corporation or acquiring will be used only to offset the earnings_and_profits accumulated after the date of transfer sec_381 to the extent that the assets of corporation are presently subject_to the built-in_gain provisions of sec_1374 they will continue to be subject_to the built-in_gain provisions of sec_1374 in the hands of acquiring on the same basis as they were subject_to such provisions in the hands of corporation the payment of cash to a corporation’s shareholder in lieu of issuing fractional share interests of acquiring stock will be treated as if the fractional shares were distributed as part of the exchange and then were redeemed by acquiring these cash payments will be treated as having been received as distributions in full payment in exchange for the stock redeemed as provided in sec_302 of the code this receipt of cash will result in gain_or_loss measured by the difference between the basis of such fractional share interest and the cash received such gain_or_loss will be capital_gain or loss to the corporation’s shareholder provided the acquiring stock or the corporation stock as the case may be is a capital_asset in the hands of such shareholder and as such will be subject_to the provisions and limitations of subchapter_p of chapter revrul_66_365 1965_2_cb_116 and revproc_77_41 1977_2_cb_574 the voting and nonvoting_stock that will be issued to the shareholders of corporation in the reorganization will not be considered different classes of stock within the meaning of sec_1361 therefore assuming acquiring’s s election is otherwise valid the issuance of the voting and nonvoting common_stock will not cause acquiring’s s election to terminate sec_1_1361-1 provisions of the code or the regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the proposed transactions that are not specifically covered by the above rulings in particular no ruling was requested and no opinion is expressed regarding the tax consequences of the additional transactions or the validity of the subchapter_s_election or the qsub elections the rulings contained in this letter are predicated upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by the 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 part of the audit process the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent each affected taxpayer must attach a copy of this letter to the taxpayer's federal this ruling letter has no effect on any earlier documents and is directed only to we express no opinion about the tax treatment of the transaction under other in accordance with the power_of_attorney on file in this office a copy of this letter plr-159175-05 income_tax return for the taxable_year in which the transaction covered by this letter_ruling is consummated 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 is being sent to your authorized representative cc ___________________________ lisa a fuller senior counsel branch office of associate chief_counsel corporate sincerely yours


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 b01 plr-103835-12 date june legend taxpayer state ipo date a -------------------------------------------------- ------------ ----------------- --- dear -------------- - this is in reply to a letter dated date and subsequent correspondence requesting rulings that the inclusion of the taxpayer’s deferred offering costs on its balance_sheet determined in accordance with generally_accepted_accounting_principles gaap will not cause taxpayer to fail the asset test under sec_856 of the code facts taxpayer is a newly formed state corporation that intends to acquire multifamily properties in selected markets throughout the united_states taxpayer intends to make an election to be treated as a reit within the meaning of sec_856 for its first taxable_year taxpayer is a calendar_year taxpayer using an accrual_method of accounting in addition to owning multifamily properties tor rent taxpayer may also acquire senior mortgage loans subordinate loans or mezzanine debt secured_by interests in multifamily properties and partnership interests in multifamily properties on form 10-q filed for its first quarter ending date taxpayer listed the following four assets highly liquid investments with original maturities of three months of less deposits and other assets principally two mortgage application fees related to financings on two real_estate acquisitions that closed in april of due from other parties fees owed to taxpayer by its external advisor the manager for plr-103835-12 trademark related legal fees that taxpayer had previously paid on behalf of the manager and deferred offering costs non-deductible costs incurred by taxpayer in connection with its planned ipo of common_stock which closed on ipo date during its first quarter taxpayer was in its development stage and had no assets other than the items listed above the deferred offering costs accounted for over a of the assets listed on taxpayer’s 10-q for the quarter ending date in order to pay for some of the expenses of its ipo prior to its closing on ipo date taxpayer borrowed money from a related_party these expenses included legal accounting underwriting fees and expenses printing and mailing travel sales and marketing and similar expenses associated with the ipo taxpayer has represented that the trustees acting in good_faith have determined that the fair value of the ipo offering costs are zero under the circumstances described above taxpayer has requested a ruling that the inclusion of the deferred offering costs on taxpayer’s balance_sheet will not cause taxpayer to fail the asset test for the first quarter of law and analysis sec_856 provides that at the close of each quarter of its taxable_year at least percent of the value of the reit’s total assets must be represented by real_estate_assets cash and cash items including receivables and government securities the aforementioned asset test sec_1_856-2 defines the term total assets as gross assets of the trust determined in accordance with gaap sec_856 provides that the term value means with respect to securities for which market quotations are readily available the market_value of such securities and with respect to other_securities and assets fair value as determined in good_faith by the trustees with a limitation on the value assignable to the securities of other real_estate_investment_trusts see also sec_1_856-3 the assets that are includible in the asset test are determined under gaap in accordance with sec_1_856-2 and the value applied to those assets is determined under sec_856 the offering costs described in taxpayer’s request are an asset under gaap and are includible in total assets in the asset test in accordance with sec_1 d the value of the offering costs are zero as determined in good_faith by the trustees of taxpayer in accordance with sec_856 including the offering costs in the asset test at a value of zero produces the same numerical result as if the offering plr-103835-12 costs were not included at all and therefore the inclusion of taxpayer’s deferred offering costs on its gaap balance_sheet will not cause taxpayer to fail the asset test under sec_856 ruling_request the inclusion of taxpayer’s deferred offering costs on its gaap balance_sheet will not cause taxpayer to fail the asset test under sec_856 holdings the inclusion of taxpayer’s deferred offering costs on its gaap balance_sheet will not cause taxpayer to fail the asset test under sec_856 the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely robert a martin robert a martin senior technician reviewer branch office of associate chief_counsel financial institutions products


t c memo united_states tax_court laurel ann curtis petitioner v commissioner of internal revenue respondent docket no filed date laurel ann curtis pro_se kimberly l clark and aimee r lobo-berg for respondent 1petitioner was represented by counsel ronald h hoevet throughout the pretrial proceedings when petitioner’s case was called for trial however mr hoevet moved for leave to withdraw as counsel on grounds that he could not assert a position unless there is a basis of law and fact for doing so that is not frivolous respondent did not object to this motion which the court granted memorandum findings_of_fact and opinion thornton chief_judge respondent determined the following deficiencies in and additions to petitioner’s federal_income_tax year deficiency dollar_figure big_number big_number big_number big_number sec_6651 dollar_figure big_number big_number big_number big_number additions to tax sec_6651 dollar_figure big_number big_number big_number big_number sec_6654 dollar_figure big_number big_number big_number 1on brief respondent conceded that petitioner is not liable for additions to tax under sec_6651 for taxable years through 2in his answer respondent conceded that there is no deficiency or addition_to_tax for tax_year the issues for decision are whether petitioner is required to include in income certain amounts she received as rental income during tax years and whether petitioner is required to include in income certain 2unless otherwise indicated all section references are to the internal_revenue_code in effect for the relevant taxable years and all rule references are to the tax_court rules_of_practice and procedure monetary amounts are rounded to the nearest dollar 3in the stipulation of settled issues the parties agreed to the amounts of rental income petitioner received during tax years through in agreeing to these amounts respondent conceded that petitioner did not receive rental continued amounts she received as capital_gain income from the sale of real_property during tax years and whether petitioner’s failure_to_file federal_income_tax returns for the tax years through years at issue was fraudulent within the meaning of sec_6651 whether the sec_6654 addition_to_tax applies to petitioner’s failure to pay estimated_taxes for the years at issue and whether the court should impose a penalty on petitioner under sec_6673 continued income of dollar_figure dollar_figure dollar_figure and dollar_figure for tax years and respectively as determined in the notice_of_deficiency 4in the stipulation of settled issues the parties agreed to the amount of net_capital_gain income petitioner received from the sale of real_property during tax years and in agreeing to these amounts respondent conceded that petitioner did not receive dollar_figure in capital_gain income during tax_year as determined in the notice_of_deficiency 5respondent argues that if the court does not find petitioner liable for the addition_to_tax pursuant to sec_6651 for the years at issue the court should find petitioner liable in the alternative for the sec_6651 addition_to_tax for the years at issue findings_of_fact the parties have stipulated some facts which we find accordingly the stipulation of facts together with the attached exhibits is incorporated herein by this reference when she filed her petition petitioner lived in oregon real_estate activities during the years at issue petitioner owned rental properties in portland oregon petitioner rented these properties and received rental income from tenants during and petitioner sold some of the properties she received income from her real_estate activities as follows 6at trial petitioner stated that she wanted to challenge some of the figures and statements in the stipulated facts because she signed the stipulation of facts without having the information in order to act appropriately stipulations are generally treated as conclusive admissions rule e we may disregard stipulations where justice so requires if the evidence contrary to the stipulation is substantial or the stipulation is clearly contrary to the facts disclosed by the record 93_tc_181 see 577_f2d_1206 5th cir 66_tc_312 petitioner did not specify the stipulations with which she disagreed and did not address the issue on brief accordingly we do not set_aside the stipulations because petitioner presented no evidence contrary to them and because we treat petitioner’s failure to address the issue on brief in effect as a concession see rule e and 96_tc_226 year net rents received1 dollar_figure big_number big_number -0- net capital_gains received -0- -0- 2dollar_figure 3big_number 1these amounts reflect respondent’s concessions discussed supra note 2in petitioner received dollar_figure in net capital_gains from the sale of real_property pincite8 se 23rd ave in portland or and dollar_figure in net capital_gains from the sale of real_property pincite se madison st portland or 3this amount reflects respondent’s concession as discussed supra note petitioner received dollar_figure in net capital_gains from the sale of real_property pincite se 32nd pl in portland or tax-protester activities and first tax_court case in the early 1980s after attending a seminar by irwin schiff and reading one of his books petitioner decided to stop filing federal_income_tax returns she has not filed a federal_income_tax return since 7irwin schiff is the author of several publications including the biggest con how the government is fleecing you how anyone can stop paying income taxes and the federal mafia how it illegally imposes and unlawfully collects income taxes his activities in protest of the tax laws are well known to this court see eg carrillo v commissioner tcmemo_2005_290 schiff v commissioner tcmemo_1992_183 schiff has been convicted of numerous tax-related crimes including conspiracy to defraud the government for the purpose of impeding and impairing the internal_revenue_service assisting in the preparation of false income_tax returns tax_evasion and filing false income_tax returns see 510_f3d_1114 n 9th cir in mr schiff incorporated freedom foundation inc in nevada to propagate his views concerning the voluntary nature of the income_tax petitioner was listed as the treasurer of freedom foundation inc from through on date after respondent sent her notices of deficiency for tax years through petitioner filed a petition in this court mr schiff assisted her in preparing for her first tax_court case and she unsuccessfully attempted to call him as an expert witness during the trial at the time petitioner was aware that mr schiff had previously been convicted fined and imprisoned for willfully failing to file federal_income_tax returns on date this court issued its opinion in petitioner’s first tax_court case sustaining the commissioner’s determination that rents petitioner had received were taxable_income to her and that she was liable for additions to tax under sec_6651 and sec_6654 curtis v commissioner tcmemo_1996_484 rev’d and remanded without published opinion 232_f3d_893 9th cir the court also imposed 8petitioner also filed a complaint regarding tax years through with the oregon tax_court on date the oregon tax_court issued its opinion in that case finding that rental income petitioner received was taxable by the state the court also awarded the oregon department of revenue dollar_figure in damages as well as attorney’s fees because it found that t here is no objectively reasonable basis for petitioner’s legal positions curtis v dep’t of revenue or tax or t c on date the supreme court of oregon affirmed the decision curtis v dep’t of revenue p 3d or a dollar_figure penalty on petitioner pursuant to sec_6673 having found that she never substantively addressed the pertinent issues in her case but instead asserted absurd discredited and misguided tax-protester arguments id after her first tax_court case petitioner continued to espouse her tax- protester beliefs on date she handed out antitax documents at a post office in portland oregon in she wrote a book entitled irs exposed bullies liars thieves the true account of how one woman fought the shameful abuse of the irs and won the documents and the book advanced petitioner’s view regarding the voluntary nature of the income_tax system and encouraged readers not to file federal_income_tax returns 9on appeal the u s court_of_appeals for the ninth circuit remanded the case for clarification as to the evidence this court relied upon in its findings regarding the amounts of petitioner’s unreported income see curtis v commissioner 232_f3d_893 9th cir rev’g and remanding tcmemo_1996_484 on remand this court reentered its original order and decision see curtis v commissioner tcmemo_2001_308 aff’d in part and rev’d in part 73_fedappx_200 9th cir petitioner appealed that decision to the court_of_appeals for the ninth circuit which affirmed most of this court’s findings including the imposition of the sec_6673 penalty and reversed and remanded the case for clarification of a discrepancy regarding one of the tax years see 73_fedappx_200 on date we entered a decision in that case audit for the years at issue in date respondent contacted petitioner and requested that she provide bank records business records and other materials that would be relevant in determining her income for the years through the following month petitioner met with respondent’s revenue_agent but did not provide the requested documents instead she argued with the revenue_agent and questioned her authority on date petitioner met with respondent’s revenue_agent and the revenue agent’s manager but again provided no documents at this second meeting petitioner again argued with the revenue_agent and questioned her authority because petitioner did not provide the requested documentation respondent’s revenue_agent summoned banks and other third parties in an attempt to reconstruct petitioner’s income the summonses indicated that petitioner had rental income and property sales income during the years through respondent then prepared substitutes for returns sfrs on petitioner’s behalf pursuant to sec_6020 i statute_of_limitations opinion petitioner argues that the limitations periods for assessing her tax for the years at issue have expired petitioner is mistaken the limitations_period on assessment begins to run only after a taxpayer files a return see sec_6501 mccormack v commissioner tcmemo_2009_233 if a taxpayer does not file a return then the tax may be assessed or a proceeding in court for the collection of such tax may be begun without assessment at any time sec_6501 sfrs prepared by the commissioner do not start the running of the period of limitations on assessment and collection sec_6501 petitioner did not file federal_income_tax returns for the years at issue accordingly the periods of limitation on assessment and collection have not expired ii petitioner’s unreported income the commissioner’s determinations in a notice_of_deficiency are generally presumed correct and the taxpayer bears the burden of proving that those determinations are incorrectdollar_figure rule a 10although sec_7491 may shift the burden to the commissioner in certain circumstances the section is applicable only to court proceedings that arise in connection with examinations commencing after date see 123_tc_144 n nis family_trust v commissioner continued petitioner did not file federal_income_tax returns for the years at issue and stipulated that she received income from rents and capital_gains during those years therefore respondent has met his burden of establishing an evidentiary foundation showing that petitioner received unreported income see 680_f2d_1268 9th cir 596_f2d_358 9th cir rev’g 67_tc_672 gross_income includes all income from whatever source derived including rental income and gains from dealings in property sec_61 petitioner stipulated that she received the income but asserts using arguments that this court has long deemed frivolous that the income was not taxable_income within the meaning of the lawdollar_figure petitioner failed to show that the income was not taxable or that she continued 115_tc_523 the examination in this case commenced in date therefore sec_7491 is not applicable 11petitioner offers numerous arguments generally objecting to the imposition of an income_tax including there can be no deficiency unless a return was filed the commissioner has no authority to assess an estimated_tax unless it is a tax payable by stamp only corporate entities can have income under sec_61 respondent is not legally authorized to prepare a substitute for return real_estate rents are not subject_to the income_tax authorized by the sixteenth_amendment and no u s citizen is statutorily liable for an income_tax petitioner’s meritless arguments have repeatedly been rejected by this and other courts see eg 848_f2d_1007 9th cir aff’g tcmemo_1987_225 784_f2d_1006 9th continued received any less than the amounts stipulated during the years at issue accordingly we sustain respondent’s adjustment in those amountsdollar_figure iii additions to tax and penalties a sec_6651 failure_to_file addition_to_tax petitioner did not file federal_income_tax returns or pay income_tax including estimated_tax for through respondent determined that continued cir 771_f2d_471 10th cir aff’g tcmemo_1983_433 136_tc_498 lawson v commissioner tcmemo_2009_147 turner v commissioner tcmemo_2004_251 we shall not painstakingly address petitioner’s assertions with somber reasoning and copious citation of precedent to do so might suggest that these arguments have some colorable merit see 737_f2d_1417 5th cir 12petitioner’s argument that the sfrs respondent prepared are invalid because respondent failed to comply with sec_6020 is meritless sec_6020 allows the secretary or other authorized internal revenue_officer or employee to prepare a return from his own knowledge and from such information as he can obtain through testimony or otherwise see also sec_301_6020-1 proced admin regs the regulations provide that a substitute for return is valid if it identifies the taxpayer by name and taxpayer_identification_number contains sufficient information from which to compute the taxpayer’s tax_liability and purports to be a return sec_301_6020-1 proced admin regs additionally the return must be signed by an internal revenue_officer or employee to signify that the officer_or_employee has adopted the document as a return for the taxpayer id the sfrs respondent prepared are valid under the regulations see malone v commissioner tcmemo_1998_372 finding that taxpayers failed to state a claim upon which relief could be granted when they argued that sfrs not signed by taxpayers were invalid petitioner’s failure_to_file was fraudulent and that she is liable for sec_6651 additions to taxdollar_figure respondent must establish by clear_and_convincing evidence that petitioner’s failure_to_file was an intentional attempt to evade tax known to be owing see sec_7454 rule b 489_f3d_1018 9th cir aff’g in part rev’g in part tcmemo_2004_28 279_f3d_767 9th cir vacating and remanding 111_tc_57 692_f2d_587 9th cir aff’g in part rev’g in part 74_tc_1160 in deciding whether a failure_to_file is fraudulent under sec_6651 we consider the same elements that are considered in imposing the addition_to_tax for fraud under sec_6663 and former sec_6653 102_tc_632 those elements are the existence of an underpayment and fraudulent intent with respect to some portion of the underpayment see 92_tc_661 there is no question that petitioner has an underpayment for each year at issue since she stipulated and we determined that she had taxable_income during the years at issue but failed to pay tax for any of those years further petitioner does 13as previously noted respondent has conceded that petitioner has no deficiency and is not liable for additions to tax for not argue that she is entitled to any credits or deductions for the years at issue that would negate any underpayment fraudulent intent is a question of fact that must be considered on the basis of an examination of the record and the taxpayer’s course of conduct drawing reasonable inferences therefrom 317_us_492 petzoldt v commissioner t c pincite because fraudulent intent can seldom be established by direct proof it may be proved by circumstantial evidence see clayton v commissioner t c pincite petzoldt v commissioner t c pincite thus intent to defraud may be inferred from any conduct the likely effect of which would be to conceal mislead or otherwise prevent the collection_of_taxes believed to be owing spies u s pincite courts look to a nonexclusive list of factors or badges_of_fraud to determine whether fraudulent intent exists 99_tc_202 they include failure_to_file income_tax returns failure to maintain adequate_records failure to cooperate with tax authorities assertion of frivolous arguments and objections to the tax laws lack of credibility in testimony failure to make estimated_tax payments understatement of income and concealment of income see 889_f2d_910 9th cir aff’g norman v commissioner tcmemo_1987_265 796_f2d_303 9th cir aff’g tcmemo_1984_601 91_tc_874 no single factor is determinative of fraud however the existence of several indicia may constitute persuasive circumstantial evidence of fraud niedringhaus v commissioner t c pincite petzoldt v commissioner t c pincite the taxpayer’s background and the context of the events in question may also be considered circumstantial evidence of fraud spies u s pincite 465_f2d_299 7th cir aff’g tcmemo_1970_274 we address the badges_of_fraud individually failure_to_file income_tax returns petitioner did not file federal_income_tax returns for the years at issue and has an extended history of not filing returns dating back to considering the extent of her communication with various taxing authorities and her involvement in prior tax_court litigation it is clear that petitioner knew that her income was taxable and that she had a requirement to file income_tax returns petitioner’s argument and testimony that she believed she should not have to file returns are irrelevant a belief that the tax laws are unconstitutional and should not apply is not a sufficient defense to fraud niedringhaus v commissioner t c pincite citing 498_us_192 this factor weighs heavily against petitioner failure to maintain adequate_records petitioner failed to maintain books_and_records to document her income during the years at issue petitioner argues that she did not keep records because she never received any notice from the secretary or_his_delegate either to keep records or to file a return taxpayers are required to maintain sufficient records to allow the commissioner to determine their correct federal_income_tax liabilities sec_6001 petitioner’s argument that she did not keep records because she did not receive notice is specious and her failure to maintain books_and_records is evidence of fraudulent intent failure to cooperate with tax authorities petitioner failed to comply with respondent’s multiple requests to provide books_and_records or otherwise cooperate with respondent during the course of her audit petitioner argued with respondent’s revenue_agent and raised frivolous arguments regarding the agent’s authority petitioner’s refusal to cooperate prolonged her audit as respondent was forced to summon bank and title companies to obtain information about her income failure to cooperate with revenue agents during an audit indicates an intention to evade the payment of tax see 251_f2d_311 9th cir aff’g tcmemo_1956_112 79_tc_888 temple v commissioner tcmemo_2000_337 aff’d 62_fedappx_605 6th cir accordingly this factor weighs against petitioner assertion of frivolous arguments and objection to the tax laws as discussed above petitioner asserted arguments that have long been deemed frivolous irrelevant and otherwise totally lacking in merit such arguments coupled with affirmative acts designed to evade federal_income_tax support a finding of fraud see mooney v commissioner tcmemo_2011_35 chase v commissioner tcmemo_2004_142 houser v commissioner tcmemo_2000_111 petitioner’s continued assertion of frivolous arguments her association with known tax protesters such as irwin schiff her failure_to_file returns since and her activities to encourage others to adopt her tax-protester beliefs demonstrate a clear intent to evade the assessment and collection of tax this factor weighs heavily against petitioner lack of credibility in testimony petitioner asserted only frivolous arguments at trial this factor weighs against petitioner see laurins v commissioner f 2d pincite failure to make estimated_tax payments petitioner made no estimated_tax payments for the years at issue this factor weighs against petitioner see bradford v commssioner f 2d pincite understatement of income petitioner failed to report taxable_income for the four years at issue and has not filed a federal_income_tax return since she stipulated however that she received significant rental and capital_gains income during the years at issue consistent failure to report substantial amounts of income over a number of years is highly persuasive evidence of fraudulent intent see temple v commissioner tcmemo_2000_337 this factor weighs heavily against petitioner concealment of income respondent argues that following her first tax_court case petitioner sold many of her rental properties for cash and transferred others to a partnership that she controlled in order to conceal her assets and financial affairs from respondent petitioner counters that she formed the partnership on the advice of an attorney for estate_planning reasons and that she sold the properties because her failing health prevented her from being able to maintain them we need not and do not decide this issue because even if it were favorable to petitioner the other factors discussed above are clearly sufficient to establish fraud without regard to whether she concealed income conclusion considering all the facts and circumstances we conclude that the record shows by clear_and_convincing evidence that petitioner understated her income and that her failure_to_file returns was fraudulent we hold that petitioner is liable for additions to tax under sec_6651 for the taxable years at issue b sec_6654 failure to pay estimated_tax addition_to_tax sec_6654 imposes an addition_to_tax in the case of any underpayment of estimated_tax by an individual a taxpayer generally has an obligation to pay estimated income_tax for a particular year only if he or she has a required_annual_payment for that year sec_6654 petitioner’s frivolous challenges to her obligation to pay tax do not specifically address any issue regarding this addition_to_tax in addition we have sustained respondent’s determination that petitioner had a federal_income_tax liability for each of the years at issue and she does not dispute that she failed to make estimated_tax payments for the years at issue petitioner also neither argued nor established any of the defenses enumerated in sec_6654 we deem petitioner to have conceded this issue and sustain respondent’s determination as to the additions to tax under sec_6654 see holmes v commissioner tcmemo_2010_42 c sec_6673 penalty respondent has moved for a penalty under sec_6673 which authorizes the court to impose a penalty of up to dollar_figure if the taxpayer took frivolous or groundless positions in the proceeding instituted or maintained the proceeding primarily for delay or unreasonably failed to pursue available administrative remedies petitioner has based her entire case on frivolous and groundless positions she made these arguments in several written submissions to the court and through her testimony at trial petitioner’s numerous and lengthy filings have caused this court and respondent to waste significant time and resources she has maintained her positions for many years despite repeated warnings and the imposition of a dollar_figure penalty pursuant to sec_6673 in her first tax_court case we are convinced she has instituted and maintained these proceedings primarily for delay moreover she has unreasonably failed to pursue available administrative remedies as previously discussed she refused to cooperate during her audit consequently we shall grant respondent’s motion for a penalty and require petitioner to pay a penalty of dollar_figure to the united_states pursuant to sec_6673 the court in reaching its holdings has considered all arguments made and to the extent not mentioned concludes that they are moot irrelevant or without merit to reflect the foregoing an appropriate order will be issued and decision will be entered under rule


internal_revenue_service office symbols cc dom fs fi p case number tl-n-5961-95 date uilc number release date internal_revenue_service national_office field_service_advice memorandum for district_counsel from subject deborah a butler assistant chief_counsel field service this field_service_advice is in response to your memorandum dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be relied upon or otherwise cited as precedent legend a b c d e dollar_figuref dollar_figureg dollar_figureh dollar_figurei dollar_figurej dollar_figurek dollar_figurel dollar_figurem dollar_figuren o p q r date date date date date date date date date date date date preamble a the taxpayer has argued that sec_1274 but not sec_1235 applies to this transaction we are not opining on sec_1235 but rather on whether the transaction falls under sec_1274 issues assuming that the original_issue_discount oid rules apply was a’ sec_1 interpretation of sec_1274 reasonable whether a may rely on prop sec_1_1012-1 and sec_1_1274-2 in determining its basis in the debt instruments issued for the patent or patent rights that it purchased from the partners of b in date if a could have relied on the prop sec_1_1012-1 or sec_1_1274-2 which statute would control in order to determine the basis of the instruments conclusions a’s deductions are not allowable under sec_1274 in date when the debt instruments were issued the taxpayer may rely on prop sec_1_1012-1 and sec_1_1274-2 a sec_2 substantial_authority under sec_6662 the proposed_regulations however have no more legal authority than a litigating position and do not preclude the service from contending that the transaction was not in harmony with the statutes to which the proposed_regulations relate if a’s determination of basis was reasonable or if a could have relied on the regulations then a would possibly have been able to determine its basis under prop sec_1_1012-1 and sec_1_1274-2 a could not rely on the proposed_regulations and therefore existing statutory authority legislative_history regulations and case law are controlling to determine basis facts a the taxpayer is a large company that organized and formed b on date b consisted of q limited partners owning r partnership units divided into class a limited partners and class b limited partners each full partnership unit represented an investment of dollar_figureh c a subsidiary of a was the general_partner of b and owned o of b the purpose of the b partnership was to develop produce and derive income from the sale of certain products for human pharmaceutical use on date a and b entered into several agreements under one of these agreements the cross license agreement a granted to b an exclusive license to use background technology defined as all patent rights technical information and biological materials owned or controlled by a b funded the research on the products but a actually conducted the research a product known as d was eventually developed and which has been financially successful in date a had an option to purchase all of the r class a and class b limited_partnership interests in b under the partnership purchase option agreement a had the choice of paying for the partnership interests in either a stock or in cash the purchase_price would be contingent upon the success and sales of d a exercised its class a options on date a notified the class b limited partners of its intent to exercise its option to purchase the class b partnership interests in date a paid the class a limited partners an initial payment of dollar_figuref cash per full partnership unit and paid the class b limited partners dollar_figureg cash per full partnership unit a issued debt instruments to both classes of limited partners pursuant to which a was obligated to make future payments to be paid quarterly beginning with the quarter ending date and continuing through the fourth quarter of date these instruments the payments to the b partners are the instruments at issue all of the payments have been without stated_interest none of the debt instruments issued to b the patents themselves or the partnership interests are publicly traded in date a deducted dollar_figurej and deducted dollar_figurei interest for a total amount deducted of dollar_figurem in date a deducted dollar_figurel and deducted dollar_figurek in interest for a total amount deducted of dollar_figuren a calculated these amounts that it amortized and deducted by determining the fair_market_value of the annual contingent payments to the partners by projecting a p growth in the sales of the underlying product the d the b partners were to receive contingent payments based on the success of the d after calculating the payments over the e year period from date to date a discounted the amount by the applicable_federal_rate to determine the issue_price of the contingent_liability under sec_1274 a then amortized the issue_price over e years a has stated that the basis for the instruments is determined under sec_1_1012-1 and prop sec_1_1274-2 it is district counsel’s position that a should not have included the fair_market_value of these instruments in basis it is district counsel’s position that 4_tc_979 acq 1946_1_cb_1 and acq 1959_2_cb_3 is controlling for the determination of the amortization deduction of contingent payments and consequently a is limited to deducting the amounts that it had paid out in each year as the amount becomes fixed a has stated that these instruments are oid instruments and that sec_1235 does not apply to this transaction this analysis assumes that the instruments are debt instruments issued in exchange for property this analysis also assumes that sec_1235 does not apply to this transaction law and analysis sec_1274 sec_1271 through provide the rules for the inclusion of oid in income the income from the oid to the holder of the instrument is determined under sec_1272 sec_1274 determines the issue_price of the instrument in the case of a debt_instrument issued for property the daily_portion of the amount includible in income to the holder is determined by allocating to each day in any accrual_period its ratable portion of the increase during such accrual_period in the adjusted_issue_price of the debt_instrument sec_1274 the adjusted_issue_price is the issue_price of the debt_instrument at the beginning of the period and the adjustments before the first day of such accrual_period sec_1274 thus the holder accrues interest_income and the issuer can deduct the amount equal to the sum of the daily portions of the original_issue_discount for each day during the taxable_year on which such holder held such debt_instrument under sec_163 sec_1274 provides that where adequate_stated_interest has not been provided for the issue_price shall be the imputed_principal_amount sec_1274 the imputed_principal_amount is equal to the sum of the present values of all payments due under the debt_instrument except in potentially_abusive_situations as of the date of the sale_or_exchange and using a discount rate sec_1274 the present_value of the instrument is determined as of the date of the sale_or_exchange and by using a discount equal to the applicable_federal_rate compounded semiannually sec_1274 sec_1275 reads in relevant part as follows the secretary may prescribe regulations providing that where by reason of contingent payments the tax treatment under this subpart or sec_163 does not carry out the purposes of this subpart or sec_163 such treatment shall be modified to the extent appropriate to carry out the purposes of this subpart or sec_163 this language authorizing the secretary to prescribe regulations on contingent payments is the only reference to contingent payments in the oid statutes congress granted the secretary regulatory authority to make appropriate modifications to the treatment under these provisions if because of contingent payments or other circumstances the tax treatment otherwise accorded to the borrower and lender or the purchaser and seller is inconsistent with the purposes of these provisions s rep no 98th cong 2d sess vol thus congress acknowledged that the treatment of instruments with contingent payments may be different from the treatment generally of instruments with fixed payments legislative_history to sec_1274 states that where the oid rules do not apply the parties will report the transaction according to the terms of the instrument and their normal methods_of_accounting in general however the committee expects that where a transaction involving deferred payments is not subject_to the oid rules any changes imposed for the borrower’s right to the use of funds will be computed according to an economically sound method id pincite the application of sec_1274 to the contingent payments at hand does not produce the deduction that a has proposed sec_1272 and sec_1274 determine interest based on a principal_amount that is already fixed and creates no exception in the treatment of contingent payments therefore under sec_1274 the oid is calculated by using the issue_price as determined by imputed_principal_amount in sec_1275 congress specifically directs the secretary to provide regulations for contingent payments which are otherwise not provided for in the oid statutes generally or in regulations other than those that were proposed during this transaction as discussed below the proposed_regulations that could be applicable are discussed below proposed_regulations for oid instruments were published in and final regulations were published in and in under the proposed_regulations that were published in the federal_register in date and reprinted as lr-189-84 1986_1_cb_820 contingent payments were not generally taken into account in determining oid rather the contingent payments were accounted for separately under prop sec_1_1274-2 the cost_basis of the property was the issue_price of the instrument 1986_1_cb_820 under prop sec_1_1275-4 a contingent payment was not taken into account until the payment became fixed 1986_1_cb_820 these proposed_regulations were proposed to be effective for debt instruments issued after date on date the service published prop sec_1_1012-1 as follows debt instruments issued in exchange for property in the case of any debt_instrument issued in exchange for property the amount of the basis of the property attributable to the debt_instrument is the issue_price of the debt_instrument as determined under paragraphs c or e of sec_1_1273-2 or sec_1_1274-2 1993_1_cb_734 prop sec_1_1274-2 read as follows debt instruments that do not provide for adequate_stated_interest imputed_principal_amount the issue_price of a debt_instrument that does not provide for adequate_stated_interest is the imputed_principal_amount of the debt_instrument as determined under paragraphs c d and e of this section 1993_1_cb_734 prop sec_1_1274-2 proposed in provided as follows contingent payments- general_rule for purposes of paragraph c of this section the stated principal_amount of a debt_instrument that provides for contingent payments is the maximum amount of the contingent and noncontingent payments excluding any amount of stated_interest whether or not contingent the imputed_principal_amount of such a debt_instrument is the sum of the present values of the noncontingent payments as determined under paragraph c of this section and the fair_market_value of the contingent payments as of the issue_date if the fair_market_value of the contingent payments cannot be determined when separated from the noncontingent payments the imputed_principal_amount of the debt_instrument is its fair_market_value only in rare and extraordinary cases will the fair_market_value of the debt_instrument be treated as not reasonably ascertainable for additional rules relating to contingent payments see sec_1_1275-4 special rule for earn-outs notwithstanding paragraph e of this section the imputed_principal_amount of a debt_instrument that provides for contingent_interest payments is its stated principal_amount if - i all or a portion of the contingent_interest payments are conditioned on a return from the exploitation of the property acquired for the debt_instrument including payments conditioned on profits sales rents production or royalties ii the debt_instrument would provide for adequate_stated_interest under paragraph c of this section at a test rate of interest equal to percent of the test rate applicable to the debt_instrument and iii it is reasonable to expect that contingent payments of interest described in paragraph e i of this section will raise the total yield on the debt_instrument to at least the test rate of interest applicable to the debt_instrument 1993_1_cb_734 with regard to the effective dates prop sec_1_1012-1 and sec_1 were proposed to be effective for debt instruments issued on or after the date that is days after the date the regulations are finalized the proposed_regulations are also proposed to be effective for lending transactions sales and exchanges that occur on or after the date that is days after the date the regulations are finalized 1993_1_cb_734 these proposed_regulations altered the treatment of contingent payments in oid instruments that was proposed in the regulations proposed in allowed for the determination of basis of the contingent payments using fair_market_value the proposed regulation under prop sec_1_1012-1 was made final in t d 1994_1_cb_38 the final_regulation under sec_1 g reads g debt instruments issued in exchange for property- in general for purposes of paragraph a of this section if a debt_instrument is issued in exchange for property the cost of the property that is attributable to the debt_instrument is the issue_price of the debt_instrument as determined under sec_1_1273-2 or sec_1_1274-2 whichever is applicable if however the issue_price of the debt_instrument is determined under sec_1273 the cost of the property attributable to the debt_instrument is its stated principal_amount reduced by any unstated_interest as determined under sec_483 this paragraph g applies to sales or exchanges that occur on or after date taxpayers however may rely on this paragraph g for sales and exchanges that occur after date and before date 1994_1_cb_38 the preamble to the final regulations under sec_1_1012-1 states that sec_1_1274-2 of the proposed_regulations no longer remains as a proposed regulation 1994_1_cb_38 on date the final regulations regarding the tax treatment of debt instruments that provide for one or more contingent payments were filed with the federal_register and were published as t d 1996_2_cb_84 the final regulations concerning contingent payments apply to transactions occurring after date the final_regulation under sec_1_1012-1 published in reads as above in it was republished and reads as follows debt instruments issued in exchange for property- in general for purposes of paragraph a of this section if a debt_instrument is issued in exchange for property the cost of the property that is attributable to the debt_instrument is the issue_price of the debt_instrument as determined under sec_1_1273-2 or sec_1_1274-2 whichever is applicable if however the issue_price of the debt_instrument is determined under sec_1273 the cost of the property attributable to the debt_instrument is its stated principal_amount reduced by any unstated_interest as determined under sec_483 effective date this paragraph g applies to sales or exchanges that occur on or after date 1996_2_cb_84 the final_regulation under sec_1_1274-2 does not adopt the treatment of contingent payments that was proposed in the final_regulation sec_1_1274-2 provides in pertinent part g treatment of contingent payment debt instruments notwithstanding paragraph b of this section if a debt_instrument subject_to sec_1274 provides for one or more contingent payments the issue_price of the debt_instrument is the lesser_of the instrument’s noncontingent principal payments and the sum of the present values of the noncontingent payments as determined under paragraph c of this section however if the debt_instrument is issued in a potentially_abusive_situation the issue_price of the debt_instrument is the fair_market_value of the noncontingent payments for additional rules relating to a debt_instrument that provides for one or more contingent payments see sec_1_1275-4 this paragraph g applies to debt instruments issued on or after date 1996_2_cb_84 sec_1_1275-4 provides that contingent payments and noncontingent payments are to be treated separately sec_1_1275-4 reads in relevant part as follows t he issuer and the holder are treated as if the issuer had issued a separate debt_instrument on the date the payment becomes fixed maturing on the date the payment is due the stated principal_amount of this separate debt_instrument is the amount of the payment that becomes fixed 1996_2_cb_84 a’s use of other than the issue_price for determining the principal_amount of the instrument upon which the oid was calculated was not reasonable under sec_1274 or under the legislative_history see 15_f3d_1275 5th cir analyzing statute through language of statute legislative_history and by avoiding absurd or unreasonable outcomes a determined issue_price using contingent payments instead of payments that were fixed reliance on prop sec_1_1012-1 and prop sec_1_1274-2 a filed its date federal_income_tax return on date and its date federal_income_tax return on date the instruments at hand were issued to the b partners in either date or date regulations are authorized under sec_7805 the regulations explain the service’s position and prescribe the operating rules for compliance with the tax laws as a general matter proposed_regulations constitute a body of informed judgment which courts may draw on for guidance and are accorded no more weight than a litigation position 108_tc_100 the court in garvey inc v united_states cl_ct aff’d 726_f2d_1569 fed cir explained as the term itself makes clear proposed amendments to regulations are merely preliminary proposals they are published in the federal_register pursuant to the administrative_procedure_act u s c sec_553 in order to give notice to the public of a proposed regulation that is under consideration but there is nothing that requires the government to adopt in final form a regulation published as a proposed amendment proposed_regulations are treated as substantial_authority for the purposes of the accuracy-related_penalties under sec_6662 see t d 1994_1_cb_38 although the final regulations dispose_of the underlying proposed_regulations the irs will allow taxpayers to treat the proposed_regulations as authority under sec_6662 of the code for debt instruments issued after date and prior to date this is in contrast to those cases in which the service has expressly stated that taxpayers may rely on proposed_regulations for guidance pending the issuance of final regulations and that the service will apply the proposed_regulations in issuing rulings and in examining returns with respect to taxpayers the service did not make the final regulations retroactive it provided that the final regulations under both sec_1012 and sec_1274 had prospective application_for purposes of determining basis see t d 1994_1_cb_42 because the final regulations became effective after the transaction at issue the question becomes whether the proposed_regulations which were revoked prior to the time a filed its income_tax returns could be relied upon neither the final regulations nor the proposed_regulations apply with the force of law to the debt instruments that a has issued the question is whether the taxpayer’s treatment of the transaction is in harmony with the statutes therefore in order for a to properly take the deductions for the contingent payments based on projections a’s reliance on the proposed_regulations must fit within the statute basis determination as a general matter a taxpayer’s basis in purchased property is equal to the cost of the property sec_1012 cost under sec_1012 includes any valid liabilities incurred in financing the purchase 331_us_1 recourse_liabilities generally pose no problem because the borrower is unconditionally obligated to pay a fixed amount with interest in this case however there apparently is no set price for each partnership_interest instead the amount depends on the profits generated by the sale of d over a e-year period thus the total amount the taxpayer is obligated to pay is not fixed under these circumstances we conclude that the taxpayer’s obligation is too contingent for purposes of determining cost_basis and therefore no oid can be determined on the contingent payments 86_tc_848 aff’d 841_f2d_264 9th cir 52_tc_367 aff’d on another issue 451_f2d_173 9th cir among the issues in dispute in waddell was the taxpayers' entitlement to depreciation_deductions and investment tax_credits related to their investment in four medical equipment franchises the amount of the disputed deductions and credits depended on the taxpayers' basis in the property the taxpayers' investment totaled dollar_figure dollar_figure of which was paid in cash the remaining dollar_figure was in the form of a promissory note the note labeled recourse was for an initial term of years and called for interest pincite per year on the unpaid balance if payments were current at the end of the initial term the taxpayers could extend the note for an additional 7-year period during the extended period the taxpayers had the option of converting the note to a nonrecourse note by paying dollar_figure for each franchise interest waddell t c pincite the note called for minimum payments to be applied against accrued interest any other_payments on the note were to come only from net receipts from the exploitation of the purchased equipment the court analyzed the likelihood of payment of the note according to its terms and concluded it was too speculative for the note to be recognized for federal tax purposes id pincite instead the court allowed the taxpayers to compute basis based on their cash down payment the minimum required_payments and conversion and renewal fees all of which the court concluded constituted bona_fide debt in wofford v commissioner tcmemo_1997_62 the issue was whether the taxpayer was entitled to amortization deductions related to her interest in a customer list in connection with becoming a distributor of safeguard products the taxpayer was required to buy the right to receive commissions on sales to a base of customers within a defined geographical territory from a current or former distributor the distributor agreement the taxpayer entered into had an initial term of years it called for the taxpayer to pay a total of dollar_figure for the protected right to sell safeguard products to certain listed customers it provided that safeguard would withhold from the taxpayer's pay fixed monthly amounts in accordance with a territory payback schedule until the purchase_price was paid however no territory payback schedule was ever executed by the taxpayer or attached to the agreement further no interest rate was ever stated in connection with the taxpayer's payment obligation and there was no set time for final payment of the obligation the agreement provided that if it was terminated before the taxpayer paid the full amount for the customer list the taxpayer would have no further liability for additional payments in addition if commissions were insufficient to cover the territory paybacks due in that month as a matter of practice safeguard would pay the former distributor the amount due amounts were withheld from the taxpayer in and as follows respectively dollar_figure dollar_figure dollar_figure and dollar_figure the taxpayer claimed amortization deductions related to the customer list based on a cost_basis of dollar_figure and a useful_life of years this resulted in amortization deductions on the taxpayer's schedule c in the amounts of dollar_figure dollar_figure dollar_figure and dollar_figure for and respectively the commissioner adjusted the amortization deductions based on a determination that the taxpayer's liability for making the territory paybacks was contingent and therefore could not be included in computing the taxpayer's basis in her distributorship the tax_court agreed because the taxpayer's obligation was payable only out of commissions and the monthly withholding amount was not set at the inception of the transaction the court was convinced that the taxpayer's liability was conditioned on her success in earning commissions in addition in wofford neither the taxpayer nor safeguard required or was subject_to a final payment_date a written repayment schedule a minimum repayment amount or a specified interest factor these facts persuaded the court that the taxpayer's liability under the agreement was contingent and could not be included in computing her cost_basis in the distributorship the facts of this case are similar to the wofford case in that other than the cash payments made at the outset the taxpayer's obligation to pay the limited partners is conditioned entirely on future profits from sales of d there is no written payment schedule minimum repayment amount or specified interest factor moreover unlike the situation in waddell or in wofford the overall obligation in this case is not even fixed under these circumstances we conclude that the taxpayer's obligation does not constitute a genuine obligation for purposes of determining the basis in the partnership or the partnership assets instead the taxpayer's basis should be limited to actual cash payments the current regulation under sec_1_1012-1 which went into effect in provides that the cost of the property that is attributable to the debt_instrument is the issue_price of the debt_instrument thus for the periods before and after the first date of the transaction in date the basis of the instrument was determined by the issue_price of the instrument a has stated that although the regulation sec_1_1274-2 by its own terms states that it does not apply to sales or exchanges that occur before date the general effective date of the new original_issue_discount regulations a taxpayer's basis in property has long been held to include the amount of money paid and the fair_market_value of any debt_instrument given for the property see crane v commissioner however a's conclusion is incorrect and the basis for these contingent payments when determining the oid on the instrument is not the fair_market_value of the instrument including the contingent payments rather the basis is limited to the payments on the instrument that are fixed although sec_1_1012-1 in both the proposed and final forms clearly contemplates including in cost_basis any amount attributable to debt instruments issued in exchange for property the regulation does not eliminate the need to test the purported debt accordingly we do not view the regulation as supporting the taxpayer's contention that it is entitled to estimate its basis in the b partnership interests based on its purported obligation to make future payments to limited partners because those amounts are so contingent as not to be valued in 4_tc_979 the tax_court determined that the petitioner was entitled to a deduction for exhaustion of the patents equal to the total payments of dollar_figure made in that year and no more than the amount_paid associated patentees t c pincite the petitioner in associated patentees acquired certain patents and paid as consideration percent of the yearly income it received from licenses granted for use of the patents the payments were therefore contingent upon actual income in determining the depreciation of the patents the court said that it is impossible to determine in this year what the total cost will be since it will include a percentage of earnings_of petitioner in each year of that term these earnings can not now be determined associated patentees t c pincite the court determined that petitioner could not deduct the value of the patent but rather was limited to deducting the cost the court determined that the petitioner’s method for computing the depreciation deduction was reasonable that is depreciating the full amount in the year paid because it is the cost pertaining to that year alone therefore petitioner could only deduct what it paid in that tax_year the tax treatment of contingent payments would then necessarily have to be determined using the normal methods_of_accounting as congress required when the oid rules do not apply s rep no 98th cong 2d sess vol pincite sec_1012 and its regulations and case law in effect would then be used to determine basis under sec_1012 the contingent payments are too contingent to be included in basis under associated patentees a is limited to deducting the amount that it actually paid out each year case development hazards and other considerations the deductions claimed were not allowable in light of the statutory authority legislative_history existing regulations and case law nevertheless the fact that the final regulations under sec_1_1012-1 published in state that taxpayers may rely on the regulation for transactions that occur after date and date although without the support of sec_1_1274-2 which was not finalized until gives some support to a’s position as indicated above the instruments at issue here were issued in date and date and therefore fit within this time frame deborah a butler by _________________________ joel e helke chief field service financial institutions and products


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc intl br1-plr-100821-02 date date ty a date b country c date d dear this is in response to your letter dated date requesting a ruling that a’s loss of lawful permanent resident status expatriation did not have for one of its principal purposes the avoidance of u s taxes under subtitle a or subtitle b of the code additional information was submitted in letters dated january and february and the information submitted for consideration is substantially as set forth below 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 request for rulings it is subject_to verification on examination a was born on date b in country c a came to the united_states for business reasons and obtained a green card soon after his arrival in the united_states a is also a citizen of country c where he now lives on date d a relinquished his green card a will be subject_to country c tax on his worldwide income on the date of a’s expatriation his net_worth exceeded the applicable_amount set forth in sec_877 plr-100821-02 sec_877 generally provides that a citizen who loses u s citizenship or a u s long-term_resident who ceases to be taxed as a lawful permanent resident individuals who expatriate within the 10-year period immediately preceding the close of the taxable_year will be subject_to the special rules of sec_877 for such taxable_year unless such loss did not have for one of its principal purposes the avoidance of u s taxes sec_2107 and sec_2501 provide special estate and gift_tax regimes respectively for individuals who expatriate with a principal purpose to avoid u s taxes a former u s citizen or former u s long-term_resident will be treated as having expatriated with a principal purpose to avoid u s taxes for purposes of sec_877 sec_2107 and sec_2501 if the individual’s average income_tax_liability or the individual’s net_worth on the date of expatriation exceed certain thresholds see sec_877 sec_2107 and sec_2501 a former u s citizen whose net_worth or average tax_liability exceeds these thresholds however will not be presumed to have a principal purpose of tax_avoidance if that former citizen is described within certain statutory categories and submits a request for a ruling within one year of the date of loss of u s citizenship for the secretary’s determination as to whether such loss had for one of its principal purposes the avoidance of u s taxes see sec_877 sec_2107 and sec_2501 under notice_98_34 1998_2_cb_29 modifying notice_97_19 1997_1_cb_394 a former long-term_resident whose net_worth or average tax_liability exceeds the applicable thresholds will not be presumed to have a principal purpose of tax_avoidance if that former resident is described within certain categories and submits a complete and good_faith request for a ruling as to whether such loss had for one of its principal purposes the avoidance of u s taxes notice_98_34 requires that certain information be submitted with a request for a ruling that an individual’s expatriation did not have for one of its principal purposes the avoidance of u s taxes a is eligible to request a ruling pursuant to notice_98_34 because he is a citizen and resident fully subject_to tax in country c the country in which he was born a submitted all of the information required to be submitted by notice_97_19 as modified by notice_98_34 including additional information requested by the service after review of the submission accordingly based solely on the facts submitted and the representations made we conclude that a has made a complete and good_faith submission in accordance with sec_877 and notice_98_34 therefore a will not be presumed under sec_877 to have had as one of his principal purposes for expatriating the avoidance of u s taxes however because the information submitted does not clearly plr-100821-02 establish the existence or lack of a principal purpose to avoid taxes under subtitle a or b of the code no opinion is expressed as to whether a’s expatriation had for one of its principal purposes the avoidance of such taxes 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 in addition no opinion is expressed as to a’s u s tax_liability for the taxable years prior to or after his expatriation under sections of the code other than sec_877 sec_2107 and sec_2501 a copy of this letter must be attached to a’s u s income_tax return for the year in which a obtained the ruling whether or not a is otherwise required to file a return this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to a sincerely w edward williams senior technical reviewer cc intl br1


significant index no tax_exempt_and_government_entities_division department of the treasury internal_revenue_service washington d c sep 60m iw hospital system state county this letter constitutes notice that a waiver of the minimum_funding_standard for the above-named plan for the plan_year ending december eel has been granted subject_to the following conditions collateral acceptable to the pbgc be provided to the plan for the full amount of the waiver by the later of a days from the date of the ruling letter or b the earlier of i the date the pbgc notifies the service in writing that this condition has not been met or ii days from the date of the ruling letter the company provide to the pbgc a copy of any ruling requests it makes under sec_412 of the code the company makes ail required quarterly contributions to the plan in a timely manner while the plan is subject_to a waiver of the minimum_funding_standard and the company make contributions to the plan in amounts sufficient to meet the minimum_funding requirements for the plan for the years endin plan ss oc a by respectively without applying for a waiver of the minimum_funding_standard your authorized representative agreed to these conditions in an e-mail dated date if any one of these conditions is not satisfied the waiver is retroactively null and void this conditional waiver has been granted in accordance with sec_412 of the internal_revenue_code code and sec_303 of the employee_retirement_income_security_act_of_1974 erisa the amount for which this conditional waiver has been granted is the contribution that would otherwise be required to reduce the balance in the funding_standard_account to zero as of december the hospital is a sec_503 tax-exempt not-for-profit corporation on date the hospital assumed operations of the system from the hospital commission of the county the hospital operate sec_2 hospitals an outpatient healthcare facility and a nursing home under a 50-year lease agreement with the county in the last few years the hospital has been faced with the same difficulties affecting other non-profit hospitals rising staffing costs flat or lower reimbursement rates and increasing numbers of uninsured and underinsured patients the hospital is the largest provider of healthcare services in the county and also serves a sizable portion of the uninsured and underinsured population in surrounding areas the state is the only remaining all-payor state where a government agency regulates the rates that hospitals can charge for services in general all hospitals in the state must charge regulated rates this business restraint is exacerbated by the fact that hospitals in a nearby jurisdiction are not subject_to these restraints therefore large health insurers have negotiated better rates in the nearby jurisdiction and have chosen to limit their contracts with the hospital also the high proportion of indigent patients has forced the hospital to contract for coverage from many physicians which is critical for the continued operation of the hospital and to provide services to the community the hospital serves supplemental payments to independent physicians providing hospital- based services have caused the hospital to suffer losses over the last years furthermore rising costs associated with the maintenance of the plan have cased the hospital to suffer severe cash-flow restraints until date there had been no significant changes to the operations of the hospital however the financial position of the hospital had deteriorated considerably by date and the governor of the state and the executive director of the county found it necessary to intervene in the hospital’s administration their intervention lead to the execution of a memorandum of understanding that called for dollar_figure in financial assistance over a period of years the establishment of an oversight committee which reports to the board_of directors of the hospital the county and the state and the selection of a turnaround management consulting firm the financial information provided by the hospital clearly shows that the company has suffered a substantial business hardship however the county and state have recognized the hospital’s need for increased reimbursement rates and additional revenue to fund operations the hospital is a crucial health care provider in the county and the state and the county have committed themselves to finding a solution to the hospital's financial hardship the hospital has also taken a number of steps to improve its financial condition the county and state have made short-term commitments to provide additional funding to the hospital in the form of higher reimbursements one time contributions for capital expenditures and on-going subsidies for operating_expenses the hospital has brought in new management and has hired an experienced healthcare professional turnaround firm to improve operations the hospital has taken steps to sell its interest in the nursing facility it operates the hospital is actively marketing additional properties that are not critical to its operations the hospital has hired a new actuarial firm to assess the plan and to advise it on its pension funding and reporting obligations and _the hospital has proposed to cease accruals to the plan on or before an and is actively pursuing negotiations with the unions representing participants in the plan to finalize the proposal furthermore the hospital’s financial condition has improved for the fiscal_year ending june interim financial information provided for the fiscal period ending may show the hospital operating without a loss furthermore the financial projections do not take into account a potential cessation of accruals to the plan or additional operational improvements based on this information it appears that the financial hardship is temporary a i a of the minimum_funding_standard for the plan for the plan_year ending conditions listed above has been granted subject_to the your attention is called to sec_412 of the code and sec_304 of erisa which describe the consequences that would result in the event the plan is amended to increase benefits change the rate in the accrual_of_benefits or to change the rate of vesting while any portion of the waived_funding_deficiency remains unamortized please note that any amendment to a profit sharing plan or any other retirement plans covering employees covered by this plan maintained by the company to increase the liabilities of those plans would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa similarly the establishment of a new profit sharing plan or any other retirement_plan by the company covering employees covered by this plan would be considered an amendment for purposes of sec_412 of the code and sec_304 of erisa this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent when filing form_5500 for the plan_year endin gill the date of this letter should be entered on schedule b actuarial information for this reason we suggest that you furnish a copy of this letter to the enrolled_actuary who is responsible for the completion of the schedule b we have sent a copy of this letter to the manager ep classification in and to the manager ep compliance unit in if you require further assistance in this matter please contact sincerely yours na carol d gold director employee_plans