t c memo united_states tax_court thomas and julia bo petitioners v commissioner of internal revenue respondent docket no filed date thomas and julia bo pro_se michael d zima for respondent memorandum findings_of_fact and opinion colvin judge respondent issued a final_determination disallowing petitioners’ claim under sec_6404 for abatement of interest related to their income_tax liabilities for that accrued from date to date respondent concedes that petitioners are entitled to abatement of interest that accrued from june to date the issue for decision is whether respondent’s denial of petitioners’ remaining claim_for_abatement of interest relating to petitioners’ tax years was an abuse_of_discretion we hold that it was with respect to the time from july to date section references are to the internal_revenue_code as amended rule references are to the tax_court rules_of_practice and procedure references to petitioner are to thomas bo findings_of_fact some of the facts have been stipulated and are so found a petitioners petitioners are married and lived in malabar florida when they filed the petition they have four children petitioner operated a business through which he sold leased and installed security monitoring and alarm systems petitioner wife did the office work for the business including compiling data needed to prepare petitioners’ tax returns at a respondent filed a motion for summary_judgment which we granted with respect to whether petitioners are entitled to relief under sec_6404 which applies to any deficiency attributable to any ministerial delay by respondent we did so because respondent determined no deficiencies with respect to the years in issue we denied respondent’s motion for summary_judgment with respect to sec_6404 and the flush language of sec_6404 as to whether petitioners’ delay in paying their taxes was attributable to erroneous or dilatory performance of a ministerial_act by an officer_or_employee of the internal_revenue_service and if so whether petitioners caused any significant aspect of the delay time not specified in the record petitioner wife had serious medical conditions which prevented her from compiling that tax data petitioner suffered substantial personal injuries in an automobile accident on date which left him permanently percent disabled during the years after the accident petitioners struggled financially were evicted from two homes and had one vehicle repossessed b petitioners’ federal_income_tax returns and payments petitioners requested and received an extension of time to date to file their federal_income_tax return petitioners submitted dollar_figure with that request they later reported a tax_liability of dollar_figure for petitioners did not request or receive extensions of time in which to file their federal_income_tax returns for petitioners requested and received an extension of time to date to file their return petitioners submitted dollar_figure with this request they later reported a tax_liability of dollar_figure for petitioners untimely filed their federal_income_tax returns on date h_r block prepared those returns on those returns petitioners reported the following income_tax liabilities year tax dollar_figure big_number big_number total big_number petitioners did not pay any_tax with their returns for respondent assessed the tax which petitioners reported on their return for on date for and on date and for and on date respondent also assessed additions to tax for failure to timely file under sec_6651 and failure to pay the tax_shown_on_the_return under sec_6651 as follows year sec_6651 sec_6651 additions to tax dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure total dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure on date petitioners gave respondent a check in the amount of dollar_figure to be applied to their balance due for the issuing bank did not honor this check c events occurring from date to date petitioners filed their returns for on date petitioner knew in and early in that petitioners had not paid the taxes they reported were due on those returns he believed that petitioners had not correctly reported their tax_liabilities on their returns for the years in issue because he thought they had not deducted enough for telecommunication expenses cell phones and pagers in and early petitioner told annette davis davis an employee of respondent that he believed petitioners had reported owing more tax than they owed davis recommended that petitioners submit an offer_in_compromise d events from date to date date petitioner mailed a letter to davis on date in which he referred to a conversation he had had with her in that conversation petitioner had told davis that he believed that petitioners’ returns were incorrect because they did not include deductions for telecommunication costs of about dollar_figure per year on date petitioner wrote to respondent and asked respondent to consider petitioners’ situation as an economic hardship case in that letter petitioner said that his accident on date had caused severe physical injuries to him and substantial financial losses to his business annette davis’s position with respondent at that time is not in the record she later became a group manager petitioners contend that interest on their underpayment for that accrued from date to the present should be abated petitioners submitted an offer_in_compromise to respondent in late april or early date respondent returned it to petitioners on date because petitioners had not filed a return for petitioners resubmitted their offer_in_compromise on date with their tax_return for in the resubmitted offer_in_compromise petitioners proposed to pay dollar_figure to settle their tax_liabilities on a date not stated in the record petitioner called davis to ask about the status of petitioners’ case he learned that davis was on maternity leave and that phyllis mclaughlin mclaughlin was responsible for petitioners’ case petitioner spoke with mclaughlin many times one of respondent’s employees not identified in the record told petitioner that respondent was returning petitioners’ offer_in_compromise because petitioner had apparently included his business gross_receipts in his personal income the employee told petitioner to separate his personal and business items so that respondent’s evaluators would not assume that petitioner’s income included his business gross_receipts mclaughlin suggested to petitioners that they seek help from an accountant to separate those items petitioners retained john holder holder r chambers chambers a member of respondent’s collection_division in melbourne florida faxed to petitioners on date a letter that chambers had prepared for petitioners to sign the letter stated without explanation that petitioners requested to withdraw their pending offer_in_compromise for petitioner signed the letter and returned it to chambers on date davis told petitioners that their offer_in_compromise to settle their liability for was considered withdrawn on date administrative proceedings under sec_6330 respondent filed a notice_of_federal_tax_lien with respect to petitioners’ federal_income_tax liabilitie sec_2 days after petitioners withdrew their offer_in_compromise the lien adversely affected petitioner’s credit including his ability to buy alarm equipment on credit to install for his customers on date petitioners timely filed a request for a collection_due_process_hearing on dates not stated in the record a petitioner asked respondent’s employees not identified in the record why respondent had filed a federal_tax_lien b petitioner was told that he had not resubmitted an offer_in_compromise c petitioners submitted to respondent a offer_in_compromise that holder had helped to prepare respondent did not accept it because petitioners had not filed all tax returns that were due and petitioners prepared returns that were due and submitted them with the offer_in_compromise on date petitioners filed amended returns in response to respondent’s assessment of petitioners’ tax_liabilities for petitioners reported lower tax_liabilities for in those amended returns than they had reported in their original returns for those years respondent assigned petitioners’ collection_due_process case to appeals officer vivian watson watson on date watson attended job-related training from april to date on date watson wrote to petitioners to schedule a collection_due_process_hearing for date watson enclosed a form 433-a collection information statement for individuals that she asked petitioners to complete and return to her by date petitioners completed the form 433-a and returned it to watson on date at petitioners’ request watson conducted the collection_due_process_hearing on date immediately after the hearing watson wrote a letter to petitioners in which she enclosed a form 433-b collection information statement for businesses to be returned by date watson also asked for a copy of petitioners’ original returns spreadsheets used to prepare the amended returns and telecommunication bills for expenses claimed on the amended returns petitioner worked on the spreadsheets every night for weeks then submitted them to watson petitioner telephoned watson on date and told her that he had found canceled checks for the telecommunication expenses watson then agreed to withhold a decision on whether the filing of a lien was proper until respondent’s examination_division reviewed petitioners’ telecommunication expense deductions for the years in issue watson incorrectly told petitioner on date that petitioners’ file would be sent to the examination_division in melbourne florida instead it was sent to psp an internal address of respondent not further identified in the record on date petitioner asked watson to expedite consideration of petitioners’ case because the lien was hurting his credit petitioner told watson that he could not obtain a car loan while their case was pending watson told petitioner that petitioners’ file was supposed to be in melbourne and that she had been unable to find it petitioner brought records to watson on date but personnel in respondent’s melbourne examination_division could not work on petitioners’ case because they did not have petitioners’ file watson began looking for petitioners’ file on date watson learned that arthur washburn washburn an employee of respondent in psp had signed a transmittal document for petitioners’ file watson called washburn and he found petitioners’ file on date petitioner called watson on date to ask her to give him a statement that respondent was trying to resolve his case washburn delivered the file to watson on date on that day watson called respondent’s examination_division and asked for an expedited audit of petitioners’ returns when she received them watson did not work on petitioners’ case during unspecified dates between date and date because she was busy working on cases calendared for trial that month and because she took annual leave that she would otherwise have lost watson received petitioners’ original and amended returns from an employee of respondent on date watson resumed working on petitioners’ case on date on date using some of the checks petitioner had provided watson showed him that the amounts that petitioners had reported on their original returns for telecommunications expenses were correct petitioner agreed that watson was correct watson told petitioner that petitioners must pay taxes they owed to remove the lien on date petitioner told watson that petitioners wanted to file an offer_in_compromise because they did not have enough money to pay the tax and interest watson told petitioners that they needed to file returns for and that had not been filed watson sent offer_in_compromise forms to petitioners closed the case on date and so informed petitioners petitioners submitted an offer_in_compromise on date in it petitioners did not check the box to indicate whether the offer was on account of doubt as to liability or as to collectibility and did not state an amount to settle their case respondent returned the offer_in_compromise because petitioners had not filed their or return petitioners submitted another offer_in_compromise on date in which they offered to pay dollar_figure to satisfy their liabilities for the years in issue they also submitted a form 433-b for their business in which they separated petitioner’s personal income and gross business receipts petitioners did not check the box on the form to indicate whether the offer was on account of doubt as to liability or as to collectibility the taxpayer_advocate_service on date petitioners wrote to respondent’s taxpayer_advocate_service office in jacksonville florida and asked it to expedite the processing of their offer_in_compromise and to release the lien petitioners wanted their offer_in_compromise to be considered by an office near their home on date diane wilkes wilkes an employee in respondent’s taxpayer_advocate_service office wrote to petitioners to tell them that she was working on their case and would contact them by date around date wilkes asked petitioner to provide letters from his creditors stating that they would not sell products to him because of the tax_lien on date wilkes spoke to watson who said that petitioners’ case had not been released from appeals as required to begin processing petitioners’ offer_in_compromise and that she would check to see what had to be done to release it watson called wilkes later that day and said that she had been unable to identify who to contact to release petitioners’ case from appeals petitioner called wilkes on date and asked what her office could do for petitioners wilkes told petitioner she could monitor the processing of petitioners’ offer_in_compromise which normally takes to months wilkes also told petitioner that only respondent’s collections office could release the tax_lien wilkes told petitioner that he had weeks to send letters to her from his creditors stating that they would not do business with him because of the tax_lien on date petitioner faxed to wilkes a letter from a creditor stating that because of the lien petitioner’s purchases had to be cash on delivery wilkes told petitioner that the letter was not enough to justify releasing the lien on date petitioner faxed three more letters to wilkes from third parties stating that the lien and petitioner’s credit reports showing the lien had caused them to eliminate or limit their line of credit to petitioner’s business on date respondent’s brookhaven service_center in holtsville new york received a note from petitioner marked urgent stating that the tax_lien was causing him to lose business petitioner attached the three letters he had provided to wilkes from third parties around that time petitioner lost the godfather pizza account stores which was his largest account on date respondent’s brookhaven service_center received an offer_in_compromise from petitioners in which they proposed to settle their tax_liability for dollar_figure on date petitioners filed their income_tax returns for and with the taxpayer_advocate_service office in them petitioners reported net losses for petitioner’s business of dollar_figure for and dollar_figure for and net_income from renting equipment of dollar_figure for and dollar_figure for petitioner told wilkes on date that he had called the offer_in_compromise unit daily and had spoken with laura greco greco wilkes told petitioner that she could not intervene in the offer_in_compromise process but that she would call greco on date wilkes called greco greco told her that she could not work on petitioners’ offer_in_compromise because petitioners’ account had a collection_due_process code on it and the code to release it was not present in their account wilkes tried to find which internal_revenue_service irs office could provide the collection_due_process release code for petitioners’ account she told petitioner on date that she was trying to correct the codes entered into petitioners’ account so that respondent could process petitioners’ offer_in_compromise wilkes discussed petitioners’ case with her group manager on date and prepared a letter to petitioners stating that the lien was not causing a hardship to petitioners because the lien was not preventing petitioner from doing business the group manager said that she could enter the appropriate code in respondent’s computer system to release petitioners’ case so that petitioners’ offer_in_compromise could be considered if wilkes would fax her the collection_due_process closing letter not otherwise described in the record wilkes could not find the closing letter in the file wilkes called watson and watson faxed a copy of the closing letter to wilkes on date wilkes then faxed the letter to the group manager on date on date wilkes wrote petitioners and said a respondent would not release the federal_tax_lien and that it would remain in effect until petitioners’ taxes were paid in full their liability was satisfied through an offer_in_compromise or the statute_of_limitations prevented collection b she had transferred petitioners’ offer_in_compromise to the jacksonville office for processing and c she was closing her file on petitioners on date watson gave petitioners written payoff figures for their taxes dues for if paid_by date on date watson gave petitioners written payoff figures for their taxes due for their taxes due for if paid_by date payment of tax and interest petitioners borrowed money using their residence as collateral and on date paid their taxes due in full as follows dollar_figure for dollar_figure for dollar_figure for dollar_figure for and dollar_figure for petitioners paid interest of dollar_figure for dollar_figure for dollar_figure for dollar_figure for and dollar_figure for petitioners sent wilkes a letter on date and enclosed a copy of a form_843 claim_for_refund and request for abatement in which they requested abatement of interest that had accrued for their tax years on date respondent abated the additions to tax for failure to timely file under sec_6651 and for failure_to_pay_tax shown on the return under sec_6651 for and abated interest on these additions to tax on date petitioner telephoned the taxpayer_advocate_service office and spoke with christy elliott elliott petitioner also wrote to elliott on that date to confirm that he told her that he had submitted form_843 on date on date respondent refunded the overpayments resulting from the abatement of additions to tax and related interest on date on date respondent returned petitioners’ form_843 because petitioners had not indicated why respondent should abate interest for petitioners on date petitioner sent elliott copies of some of petitioners’ correspondence to and from respondent on date diane elm elm accounts management respondent’s ogden utah service_center wrote to tell petitioners that the service_center had not completed the processing necessary to resolve petitioners’ case elm said that the irs would contact petitioners within days opinion a contentions of the parties and background petitioners contend that interest should be abated from date when petitioners sent a letter to davis stating that their returns were wrong through date when petitioners fully paid their taxes and interest for because respondent’s employees had erroneously advised petitioners to seek relief through an offer_in_compromise and delayed working on petitioners’ case because they lost petitioners’ files took maternity leave regular leave and job- related training and delayed it to work on other cases respondent contends that respondent’s denial of petitioners’ request to abate interest was not an abuse_of_discretion the commissioner may abate interest assessed on any deficiency or payment of tax to the extent that any error or delay in payment of the tax is attributable to erroneous or dilatory performance of a ministerial_act by an officer_or_employee of the commissioner and the taxpayer caused no significant aspect of the delay sec_6404 a sec_6404 as enacted in and as applicable here provides sec_6404 assessments of interest attributable to errors and delays by internal_revenue_service -- in general --in the case of any assessment of interest on-- a any deficiency attributable in whole or in part to any error or delay by an officer_or_employee of the internal_revenue_service acting in his official capacity in performing a ministerial_act or continued ministerial_act is a procedural or mechanical act that does not involve the exercise of judgment or discretion by the commissioner sec_301_6404-2t b temporary proced admin regs fed reg date we apply an abuse_of_discretion standard in reviewing the commissioner's determination not to abate interest 113_tc_145 112_tc_230 to be eligible for relief under sec_6404 the taxpayer must establish a correlation between the alleged error or delay by the commissioner and a continued b any payment of any_tax described in sec_6212 to the extent that any delay in such payment is attributable to such officer_or_employee being dilatory in performing a ministerial_act the secretary may abate the assessment of all or any part of such interest for any period for purposes of the preceding sentence an error or delay shall be taken into account only if no significant aspect of such error or delay can be attributed to the taxpayer involved and after the internal_revenue_service has contacted the taxpayer in writing with respect to such deficiency or payment in congress amended sec_6404 to permit abatement of interest that accrues as a result of an unreasonable error or delay in performing a ministerial or managerial act sec_6404 and b taxpayer bill of right sec_2 tbor publaw_104_168 110_stat_1457 the amendment applies to deficiencies or payments for tax years beginning after date tbor sec_301 110_stat_1457 and thus does not apply here specific period for which interest should be abated as a result of that error or delay palihnich v commissioner tcmemo_2003_297 donovan v commissioner tcmemo_2000_220 douponce v commissioner t c memo b date to date alleged erroneous advice by davis petitioners contend that davis erred in recommending that they file an offer_in_compromise and that she should have instead recommended that they address issues concerning telecommunication expenses when petitioner told her on date that they did not include all telecommunication expenses in their original returns for we disagree that this is an appropriate basis to consider relief for petitioners because davis’s advice the merit of which we need not consider requires judgment and thus was not ministerial sec_301_6404-2t b temporary proced admin regs supra maternity leave petitioners contend that respondent delayed working on their case during an unspecified period between date and date because davis was on maternity leave we disagree that this is an appropriate basis to consider relief for petitioners granting maternity leave to an employee of the commissioner assigned to the taxpayer’s case without reassigning the case is not a ministerial_act under sec_6404 sec_301_6404-2t b and example temporary proced admin regs supra job-related training petitioners point out that watson attended job-related training from april to date and contend that this delay is due to a ministerial_act we disagree the decision to send watson to job-related training and to not reassign the case is not a ministerial_act under sec_6404 durham v commissioner tcmemo_2004_125 goettee v commissioner tcmemo_2003_43 jean v commissioner tcmemo_2002_256 camerato v commissioner tcmemo_2002_28 jacobs v commissioner tcmemo_2000_123 sec_301_6404-2t b example temporary proced admin regs supra c june to date respondent lost petitioners’ file from june to date the commissioner’s loss of a taxpayer’s file is a ministerial_act palihnich v commissioner supra respondent concedes that interest that accrued during this period should be abated petitioners contend that respondent lost petitioners’ files many other times however petitioners have not identified those times and the record does not support that conclusion d date to date watson did not work on petitioners’ case during unspecified periods between date and to date because she was working on other cases and she took annual leave petitioners contend that watson’s caseload and her annual leave were ministerial acts which caused a delay in working on petitioners’ case deciding how and when to work on cases on the basis of an evaluation of the entire caseload and workload priorities is not a ministerial_act bartelma v commissioner tcmemo_2005_64 mekulsia v commissioner tcmemo_2003_138 affd 389_f3d_601 6th cir granting annual leave is not a ministerial_act see scott v commissioner tcmemo_2000_369 there is no evidence that a ministerial_act delayed respondent’s consideration of petitioners’ case from date to date e january to date we next decide whether respondent’s failure to enter the code to release petitioners’ file from cdp status from january to date was a ministerial_act for which they are entitled to relief under sec_6404 the code releasing petitioners’ case from cdp status should have been entered on date when watson closed their cdp file the record is silent as to when the code was entered on date wilkes wrote petitioners and said she had transferred petitioners’ offer_in_compromise to the jacksonville office for processing we infer that the cdp release code was entered on date because respondent was able to work on petitioners’ case on that date everything in the record relating to entering the cdp release code in petitioners’ file suggests that the delay in doing so was a ministerial_act sec_301_6404-2t b temporary proced admin regs supra and that the delay was an error see palihnich v commissioner tcmemo_2003_297 failure_to_pay_tax attributed to the commissioner’s loss of file jacobs v commissioner tcmemo_2000_123 lack of evidence held against the commissioner because the commissioner is in the best position to know what actions were taken by irs officers and employees during the period for which the taxpayers’ abatement request was made douponce v commissioner supra failure_to_pay_tax attributed to the commissioner’s failure to provide correct payoff amount however petitioners are not entitled to relief under sec_6404 from january to date because they did not file their tax returns for and as required by respondent before considering their offer_in_compromise until date thus a significant aspect of respondent’s delay was due to petitioners we consider next whether respondent’s failure to enter the proper code from july to date delayed petitioners’ payment of tax petitioners fully paid their taxes and interest for when respondent finished working on their case we believe that they would have fully paid earlier if respondent had acted more promptly and that failure to enter the proper code delayed petitioners’ payment of tax the decision whether to abate interest may take into account an error or delay only where no significant aspect can be attributed to the taxpayer sec_6404 flush language petitioners had no role in respondent’s failure to enter the proper cdp release code we conclude that respondent’s failure to abate interest from july to date was an abuse_of_discretion f july to date petitioners fully paid the taxes and interest due for on date on a date not specified in the record between july and date petitioners decided to borrow money to fully pay their taxes and interest watson gave petitioners payoff figures for those years in early and late date we conclude that no ministerial_act by respondent caused petitioners to delay paying their taxes from july to date g conclusion respondent’s decision not to abate interest for the period from july to date was an abuse_of_discretion respondent’s decision not to abate interest for any remaining period not previously conceded was not an abuse_of_discretion to reflect the foregoing decision will be entered under rule


internal_revenue_service department of the treasury number release date index number re washington dc person to contact telephone number refer reply to cc psi b09 plr-142966-02 date date legend taxpayer trust date law firm daughter a corporation t b year spouse c year d corporation u e f year plr-142966-02 g corporation v h i year j corporation w k corporation x l m n year p q year r corporation y s_corporation z t u v accounting firm plr-142966-02 dear this is in response to your letter dated date requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to make an allocation of generation-skipping_transfer gst tax exemption the facts and representations submitted are summarized as follows taxpayer created trust on date trust was drafted by an attorney at law firm article first of the trust instrument provides that during each taxable_year of the trust the trustees shall pay the net_income at least quarterly to daughter after daughter’s death and until the expiration of the trust term as specified in article second the trustees shall pay the net trust income at least quarterly to daughter’s issue article second of the trust instrument generally provides that the trust shall terminate upon the death of taxpayer and all of the issue of taxpayer but in no event later than twenty-one years after the death of the survivor of taxpayer and daughter upon the termination of the trust the trustees shall pay over the principal to daughter’s then living issue on date taxpayer transferred a shares of corporation t stock into trust taxpayer timely filed a form_709 united_states gift generation-skipping_transfer_tax return gift_tax_return for year reporting the transfer to trust on the gift_tax_return taxpayer represented that the value of the shares of corporation t stock transferred to trust on date had a value of dollar_figureb none of taxpayer’s gst_exemption was allocated on the year gift_tax_return taxpayer and spouse consented under sec_2513 of the internal_revenue_code to have the gifts treated as if one-half dollar_figurec had been made by each of them in year taxpayer transferred d shares of corporation u stock into trust taxpayer timely filed a gift_tax_return for year reporting the transfer to trust on the gift_tax_return taxpayer represented that the value of the shares of corporation u stock transferred to trust in year had a value of dollar_figuree none of taxpayer’s gst_exemption was allocated on the year gift_tax_return taxpayer and spouse consented under sec_2513 of the internal_revenue_code to have the gifts treated as if one-half dollar_figuref had been made by each of them in year taxpayer transferred g shares of corporation v stock into trust taxpayer filed a gift_tax_return for year reporting the transfer to trust on the gift_tax_return taxpayer represented that the value of the shares of corporation v stock transferred to trust in year had a value of dollar_figureh none of taxpayer’s gst_exemption was allocated on the year gift_tax_return taxpayer and spouse consented under plr-142966-02 sec_2513 of the internal_revenue_code to have the gifts treated as if one-half dollar_figurei had been made by each of them in year taxpayer transferred j shares of corporation w stock and k shares of corporation x stock into trust taxpayer filed a gift_tax_return for year reporting the transfers to trust on the gift_tax_return taxpayer represented that the shares of corporation w stock transferred to trust in year had a value of dollar_figurel and the shares of corporation x stock transferred to trust in year had a value of dollar_figurem none of taxpayer’s gst_exemption was allocated on the year gift_tax_return taxpayer and spouse consented under sec_2513 of the internal_revenue_code to have the gifts treated as if one-half dollar_figuren had been made by each of them in year taxpayer transferred dollar_figurep into trust taxpayer timely filed a gift_tax_return for year reporting the transfer to trust on the gift_tax_return none of taxpayer’s gst_exemption was allocated on the year gift_tax_return taxpayer and spouse consented under sec_2513 of the internal_revenue_code to have the gifts treated as if one-half dollar_figureq had been made by each of them in year taxpayer transferred r shares of corporation y stock and s shares of corporation z stock into trust taxpayer timely filed a gift_tax_return for year reporting the transfers to trust on the gift_tax_return taxpayer represented that the shares of corporation y stock transferred to trust in year had a value of dollar_figuret and the shares of corporation z stock transferred to trust in year had a value of dollar_figureu none of taxpayer’s gst_exemption was allocated on the year gift_tax_return taxpayer and spouse consented under sec_2513 of the internal_revenue_code to have the gifts treated as if one-half dollar_figurev had been made by each of them the gift_tax returns for year year year year year and year were prepared by an accountant at accounting firm the accountant prepared the gift_tax returns based on conversations and information provided to him by the attorney at law firm neither the accountant nor the attorney ever advised taxpayer of the existence of the gst_exemption the desirability of allocating that exemption to the transfers or the consequence of not allocating the exemption to the transfers reported on the gift_tax returns taxpayer has requested an extension of time to make allocations of taxpayer’s gst_exemption under sec_2632 and sec_2642 for the transfers made to trust in year year year year year and year sec_2513 of the internal_revenue_code provides that a gift made by one spouse to any person other than the other spouse shall for the purposes of this chapter be considered as made one-half by him and one-half by his spouse but only if at the time of the gift each spouse is a citizen or resident_of_the_united_states plr-142966-02 sec_2513 provides that paragraph shall apply only if both spouses have signified under the regulations provided for in subsection b their consent to the application of paragraph in the case of all such gifts made during the calendar_year by either while married to the other sec_25_2513-2 of the gift_tax regulations provides that consent to the application of the provisions of sec_2513 with respect to a calendar_period shall in order to be effective be signified by both spouses if both spouses file gift_tax returns within the time for signifying consent it is sufficient if the consent of each spouse is signified on his own return sec_2601 imposes a tax on every generation-skipping_transfer a generation-skipping_transfer is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption of dollar_figure adjusted for inflation under sec_2631 which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_2642 provides that except as provided in sec_2642 if the allocation of the gst_exemption to any transfers of property is made on a gift_tax_return filed on or before the date prescribed by sec_6075 for such transfer or is deemed to be made under sec_2632 or c - a the value of such property for purposes of sec_2642 shall be its value as finally determined for purposes of chapter within the meaning of sec_2001 or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period on and after the close of such estate_tax_inclusion_period and b such allocation shall be effective on and after the date of such transfer or in the case of an allocation deemed to have been made at the close of an estate_tax_inclusion_period on and after the close of such estate_tax_inclusion_period sec_2642 provides generally that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph plr-142966-02 sec_2642 provides that in determining whether to grant relief under this paragraph the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief under this paragraph the time for making the allocation or election shall be treated as if not expressly prescribed by statute notice_2001_50 2001_34_irb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a generation-skipping_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 must be made under the rules of sec_301_9100-3 under sec_301_9100-1 a regulatory election includes an election whose due_date is prescribed by a notice published in the internal_revenue_bulletin in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election plr-142966-02 based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore taxpayer is granted an extension of time of days from the date of this letter to file supplemental form sec_709 and a notices of allocation for year year year year year and year on which taxpayer will allocate taxpayer’s gst_exemption to trust the allocations will be based on the values of the stock at the time of the individual transfers and will be effective as of the date of the individual transfers to trust a copy of this letter should be attached to each supplemental form_709 and filed with the internal_revenue_service center cincinnati ohio except as expressly provided herein no opinion is expressed or implied concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter in addition we express or imply no opinion regarding the value of the property transferred to trust the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination this ruling is directed only to the taxpayer s requesting it sec_6110 provides that it may not be used or cited as precedent sincerely heather c maloy heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court geoffrey k calderone sr petitioner v commissioner of internal revenue respondent peter a calderone petitioner v commissioner of internal revenue respondent docket nos filed date john t mulhall iii thomas e redding and charles e rutherford for petitioners john q walsh jr for respondent petitioners were represented by arthur jacob when they filed their petition robert w hesselbacher jr entered the case on date mr jacob and mr hesselbacher withdrew on date charles e rutherford and mark l nowak entered the case on date mr nowak withdrew on date thomas e redding entered the case on date john t mulhall iii entered the case on date j purported to form a qualified_employee stock ownership plan for ps r determined deficiencies and j on behalf of ps petitioned this court r believed j had a conflict of interest under rule g tax_court rules_of_practice and procedure j informed ps as to his potential conflict of interest received ps’ informed consent to continue representing them in the proceeding and retained h to represent ps as co- counsel r informed the court of j’s potential conflict of interest during a conference call and in a pretrial memorandum the cases settled before trial decisions were entered and these decisions are now final ps move the court to vacate the decisions asserting primarily that r and j did not adequately inform the court of j’s potential conflict of interest which in turn constituted fraud on the court held ps’ motion will be denied for failure to establish a fraud on the court memorandum findings_of_fact and opinion laro judge petitioners move the court for leave to file a motion under rule to vacate the stipulated decisions which were entered in these cases on date the motion asserts that those decisions were the result of fraud on the court following an evidentiary hearing on the substance of petitioners’ motion we decide whether petitioners have established a fraud on the court sufficient for us to vacate these cases were reassigned to judge david laro on date by order of the chief_judge unless otherwise noted rule references are to the tax_court rules_of_practice and procedure section references are to the applicable versions of the internal_revenue_code those decisions we hold they have not and shall deny their motion i background findings_of_fact some facts were stipulated we incorporate herein by this reference the parties’ stipulation of facts and the exhibits submitted therewith we find the stipulated facts accordingly in date geoffrey k calderone sr geoffrey and his brother peter a calderone peter formed the maryland pennysaver group inc mpg geoffrey who resided in fort lauderdale florida when his petition was filed was mpg’s president peter who resided in park city utah when his petition was filed was mpg’s vice president and secretary before date geoffrey and peter were the only stockholders of mpg with geoffrey owning percent and peter owning percent arthur jacob jacob is a certified_public_accountant and was an attorney in maryland until he was disbarred on date jacob has known petitioners since he began providing tax services to mpg in or about or in or about petitioners asked jacob to review an offer from landmark communications inc to buy all of their mpg stock jacob advised petitioners to reject the offer and instead to sell their mpg stock to an employee_stock_ownership_plan esop which he would form petitioners accepted this advice and on date sold their stock to the first management co inc employee_stock_ownership_plan and trust first management which jacob formed on date jacob geoffrey peter and two of mpg’s longtime employees michael onorato onorato and wayne morgan morgan participated in the esop before forming the esop jacob sent a letter to geoffrey peter onorato and morgan advising them that his role in the formation of first management and its subsequent purchase of stock created a likelihood of potential or perceived conflicts of interest jacob advised each of the four to seek the advice of an independent attorney regarding the esop none of them did so as part of the consideration for petitioners’ sale of their mpg stock to first management jacob as the trustee of first management executed a secured promissory note dated date under the note first management promised to pay to geoffrey and peter the principal sum of dollar_figure plus interest in equal monthly installments payments under the note were made to jacob who accepted the payments as the representative of geoffrey and peter petitioners gave jacob we call the underlying plan an esop for convenience not because it met the requirements of sec_4975 the plan in fact did not meet the requirements of sec_4975 authority to make decisions with respect to the sale proceeds potentially millions of dollars jacob prepared tax returns for petitioners for the relevant years those returns did not recognize any gain from the sale of the mpg stock to first management but included a statement entitled election to defer gain on sale of qualified_securities under sec_1042 which disclosed the date and nature of the sale to first management in geoffrey peter and jacob were notified by the law firm of weinberg green llc who had previously represented mpg and were at that time representing morgan and onorato that there were problems with the esop on date geoffrey and peter entered into an amended and restated stock purchase agreement drafted by weinberg green llc amended esop jacob was not involved in the drafting of the amended esop but he signed it with geoffrey and peter under the amended esop petitioners agreed that first management failed the definition of an esop as set forth in sec_4975 petitioners also agreed that they would if necessary file amended returns to correct the treatment of payments in prior years insofar as that treatment was inconsistent with the characterization of the purchase and sale transactions under the amended esop as part of the amended esop the previous promissory note was canceled and was replaced with another secured promissory note in which first management promised to pay petitioners the same amount of consideration on the same terms for their shares when this new note was paid off in geoffrey reported no gain from the sale on his federal_income_tax return peter did not file a federal_income_tax return ii notice_of_deficiency and prior proceedings on date respondent issued a notice_of_deficiency to geoffrey for determining a deficiency of dollar_figure an addition_to_tax under sec_6651 of dollar_figure and an accuracy-related_penalty under sec_6662 of dollar_figure respondent determined that the payment on the note in made the remaining amount of capital_gain dollar_figure taxable in on date geoffrey authorized jacob to file a petition with this court on his behalf as to on date respondent issued a similar notice_of_deficiency to peter for determining a deficiency of dollar_figure an addition_to_tax under sec_6651 of dollar_figure and an addition_to_tax under sec_6654 of dollar_figure that notice determined that the payment in triggered recognition of capital_gain of dollar_figure on date peter authorized jacob to file a petition with this court on his behalf as to thereafter respondent’s counsel concluded jacob might be needed as a witness at trial on date respondent’s counsel communicated this concern to jacob through a letter that referred to rule g and rule of the model rules of professional conduct and stated that respondent would for those reasons move the court to disqualify jacob under rule g jacob discussed this letter’s contents with petitioners shortly after he received it he told geoffrey that respondent wanted jacob to testify regarding the formation of the esop but that any such testimony could be stipulated obviating the need for jacob to testify geoffrey told jacob that he wanted jacob to continue to represent him and they agreed jacob would remain jacob also discussed the subject with peter in date he told peter that if jacob had to testify at trial another lawyer would have to represent petitioners when peter expressed concern about this jacob said that he would still be involved and would be directing the progress of the case later in that month jacob advised petitioners that robert w hesselbacher jr hesselbacher had been retained as co-counsel and would step in to represent petitioners should jacob be needed as a witness in date jacob secured the informed consent of petitioners to continue to represent them notwithstanding any conflict of interest stemming from his formation of the esop following these discussions jacob sent a letter to respondent on date in which he informed respondent that he had obtained his clients’ informed consent to obviate any conflict under rule g and that hesselbacher would be entering an appearance as co-counsel to resolve any problems that might arise under rule g jacob stated that the transaction might be stipulated thereby removing any need for him to testify but in the event he could no longer represent petitioners under rule g he would immediately withdraw his appearance copies of this letter were sent to hesselbacher and to petitioners during respondent and jacob exchanged numerous correspondence and discovery documents all of which were provided to petitioners by jacob in or about date respondent’s counsel contacted their national_office for guidance on how to deal with the rule g issues in these cases the national_office responded that jacob could continue to represent petitioners with the understanding that in the event he was called as a witness he would withdraw and hesselbacher would try the case on date hesselbacher entered his appearance as co-counsel for petitioners geoffrey knew that hesselbacher was representing him jacob asked hesselbacher to become familiar with the cases so that if the need arose he could take over as trial counsel as of date respondent started corresponding with hesselbacher regarding the cases even sending hesselbacher an outline of respondent’s interpretation of the transactions at issue so hesselbacher would be familiar with the issues in the case sometime in date hesselbacher went to jacob’s office and spent time to get familiar with jacob’s voluminous files thereafter respondent’s counsel concluded that jacob would be a necessary witness at trial informed jacob of this fact and asked jacob if he would withdraw from the case voluntarily on date jacob sent a letter to respondent in which he again confirmed his intention to withdraw from the cases when the circumstances warrant copies of this letter were sent to petitioners and to hesselbacher on date respondent’s counsel jacob and hesselbacher participated in a conference call with the court respondent’s counsel did not advise the court during this call that jacob was going to be called as a witness at trial since respondent’s counsel was awaiting the necessary approval from the national_office to file a motion to disqualify jacob on date the court set the trial for date during the court’s baltimore session also on date jacob sent a letter to respondent stating respondent’s counsel had recently drafted such a motion and sent it to the national_office with a request for approval to file it with the court that he would withdraw as counsel copies of this letter were sent to petitioners and to hesselbacher on date jacob sent another letter to respondent in which he indicated petitioners’ desire to settle their cases but stated again that if settlement could not be reached he would withdraw on date the court held another conference call with all counsel at that time respondent’s counsel informed the court that jacob had been involved in planning the transaction that he was a necessary witness whom they anticipated calling at trial and that they were preparing to file a motion under rule g to disqualify him the court indicated that any such motion if filed would be heard at the calendar call on date following the conference call respondent and jacob discussed settling the cases and respondent faxed to jacob drafts of a proposed stipulation of settled issues for each of the cases the next day jacob sent a letter to respondent in which he acknowledged receipt of the proposed stipulations of settled issues and requested some changes copies of this letter were sent to petitioners and to hesselbacher geoffrey received a copy of this letter on date counsel for the parties reached a tentative basis for settlement of which they informed the court during a conference call held later that day hesselbacher and jacob were involved in the settlement negotiations that resulted in the settlement of the cases on date respondent sent a letter to jacob which enclosed drafts of a proposed stipulation of settled issues for each case on date respondent’s counsel submitted to the court a trial memorandum for these cases that trial memorandum stated that respondent anticipated calling jacob as a witness and that jacob if called would testify about how he set up the transaction for petitioners to sell their stock the trial memorandum also stated as an evidentiary problem respondent intends to call arthur jacob as a witness mr jacob is petitioners’ counsel of record mr jacob told respondent’s counsel that he would file a motion to withdraw as petitioners’ counsel if mr jacob does not file a motion to withdraw respondent intends to file a motion that the court disqualify mr jacob as petitioners’ counsel under tax_court rule g as part of a letter dated date jacob enclosed a signed stipulation for each case copies were sent to petitioners and to hesselbacher the stipulations of settled issues were executed on behalf of respondent on date and filed with the court on date in date jacob sent several letters to respondent each of which stated that petitioners’ cases had been settled copies of these letters were sent to petitioners in date jacob sent two letters to respondent which made reference to decision documents to be filed copies of these two letters were sent to petitioners on date jacob sent a letter to each petitioner which referenced his case and stated that jacob had received the last of the requisite documents from the internal_revenue_service wrapping up the nine-year mess related to your sale of pennysaver petitioners each received a copy of this letter and both understood from this letter that the cases pending before this court were being resolved on date jacob sent a letter to respondent enclosing executed decision documents for both cases copies of this letter and the decision documents were sent to petitioners and to hesselbacher on date the court ordered the parties to file status reports on or before date jacob sent a letter dated date in response to the order in which he advised the court that he had signed decision documents and returned them to respondent copies of this letter were sent to petitioners on date the stipulated decisions were entered by the court those decisions found geoffrey liable for a tax_deficiency of dollar_figure and related penalties totaling dollar_figure together with related interest on both amounts peter was found liable for a tax_deficiency of dollar_figure and related penalties totaling dollar_figure together with related interest on both amounts iii subsequent proceedings on date petitioners retained another attorney mark l nowak nowak to represent them with respect to these cases in date nowak learned about the stipulated decisions that had been entered in date nowak was not aware of any basis for challenging the underlying tax_liabilities as set forth in the decisions on or about date petitioners filed in the circuit_court of baltimore county a lawsuit against jacob and others alleging among other things malpractice by jacob arising in part from the transactions at issue nowak helped prepare the complaint in that lawsuit and his law firm rutherford mulhall p a represented petitioners petitioners and jacob reached a basis for settlement in that matter whereby jacob agreed to pay petitioners a total of dollar_figure million opinion petitioners request permission to move the court under rule to vacate the stipulated final decisions that rule provides that any motion to vacate a decision shall be filed within days after the decision was entered unless the court shall otherwise permit where the taxpayers file such a motion after the court’s decision has become final our authority to vacate the decision though limited may be exercised in situations where the taxpayers establish the existence of a fraud on the court 122_tc_264 fraud on the court is a fraud which harms the integrity of the judicial process 322_us_238 429_us_17 petitioners bear a heavy burden of establishing specific facts to show a convincing case of palpable fraud on the court 387_f2d_689 7th cir petitioners primarily argue that jacob and respondent’s counsel committed a fraud on the court by not appropriately informing the court that there were problems under rule g with jacob’s continued representation of petitioners according rule g provides in relevant part g conflict of interest if any counsel of record was involved in planning or promoting a transaction or operating an entity that is connected to any issue in a case or is a potential witness in a case then such counsel must either secure the informed consent of the client but only as to items and withdraw from the case or take whatever other steps are necessary to obviate a conflict of interest or other violation of the aba model rules of professional conduct and particularly rule sec_1 and thereof this rule became effective as rule f on date it was subsequently redesignated rule g in an amendment which became effective on date when the court adopted rule f the precursor to rule g we noted paragraph f of rule is new it has been added because the court is concerned about the integrity of its decisions all too frequently a continued to petitioners jacob was the architect of the esop and as such was precluded by rule g from representing them petitioners also assert that jacob was a potential witness who was precluded from representing them by rule g on the basis of the record at hand we reject petitioners’ primary argument contrary to petitioners’ assertions the court was informed on two occasions by respondent as to an issue involving jacob and rule g first respondent informed the court on date that there were problems under rule g with jacob’s representation second respondent informed the court in his pretrial memorandum filed date that there were potential problems under rule g and with jacob’s representation as petitioners correctly state a necessary element of fraud on the court is the court’s lack of knowledge regarding a material fact so that damage to the judicial process is sustained 937_fsupp_551 e d va in spence-parker the plaintiff sued the defendant insurance_company alleging that she was entitled to recover under an insurance_policy issued by the defendant to a third party in a prior action against the third continued disappointed party challenges a decision on the ground that the party’s prior counsel had a conflict of interest paragraph f is designed to insure that the bar of this court disclose or rectify any conflict of interest t c party counsel for the third party had secretly negotiated a deal with the plaintiff whereby the third party would settle the case for dollar_figure million and assign its rights to sue the insurance_company in exchange for plaintiff’s agreeing to not collect from the third party when the plaintiff sued the insurance_company and moved for summary_judgment the insurance_company moved to set_aside the previous judgment on the grounds that the court before which the earlier lawsuit was brought was not informed of the facts underlying the settlement and would not have approved it had the court been so aware the court in spence-parker agreed holding that such concealment constituted damage to the judicial system in that the court in the earlier lawsuit would not have approved the settlement had it been fully informed of the facts id in contrast to spence-parker the court did not lack knowledge of a material fact so as to damage the judicial process when it approved the settlement in these cases petitioners argue in the alternative that respondent’s and jacob’s overall conduct in these cases constituted fraud on the court we reject this argument petitioners note in their brief that allegations that one’s attorney was grossly negligent or lacked authority are insufficient to demonstrate fraud upon the court petitioners attempt to circumvent this rule by asserting that jacob’s conduct was deceitful and unethical primarily on the basis of jacob’s involvement in the cases while under rule g conflicts of interest we find this attempt unavailing on the records at hand we do not find any violation of rule g that rises to the level of fraud on the court a rule g rule g provides that an attorney’s conflict of interest under rule g may be waived by the informed consent of his or her client it is one of our common law’s oldest principles that silence and acquiescence by the client constitutes ratification and adoption of an agent’s actions or representations see eg 77_us_141 lone star life ins co v commissioner tcmemo_1997_465 the credible_evidence in this case establishes that jacob kept his clients informed of his actions and that he advised them regarding his conflict of interest under rule g the credible_evidence also establishes and we have found as a fact that both petitioners gave jacob their informed consent to continue representing them notwithstanding his involvement with the esop both petitioners recalled discussing this issue with jacob and they were sent copies of all jacob’s correspondence regarding the cases in fact jacob even sent petitioners copies of a letter in which he represented to respondent that he had obtained their informed consent to continue with the representation while petitioners claim they never received this letter we find that claim incredible petitioners admitted to receiving many of the other letters and documents which jacob sent to them jacob also copied hesselbacher on all correspondence after he was retained to protect the petitioners interests hesselbacher received this correspondence petitioners also admitted that they were aware jacob might not be able to try the cases due to a conflict of interest and that jacob had retained hesselbacher to represent them at trial in the event jacob could not b rule g where an attorney may potentially be called as a witness rule g requires that the attorney either withdraw or take whatever other steps are necessary to obviate a conflict of interest or other violation of the aba model rules of professional conduct rule in contrast to rule g rule g cannot be satisfied by obtaining the informed consent of the client as early as date respondent and jacob were aware that jacob might be called as a witness at trial and made efforts to satisfy rule g respondent and jacob exchanged extensive correspondence on the issue culminating in the retention of hesselbacher jacob also undertook efforts to stipulate any testimony from him that respondent deemed necessary we conclude that jacob took sufficient steps to obviate a conflict of interest or other violation of the aba model rules of professional conduct rule see rule g ____________________________ we conclude that petitioners have not met their burden of introducing evidence as to specific and credible facts which would lead us to conclude that a fraud was perpetrated which subverted the integrity of the court in re intermagnetics am inc 926_f2d_912 9th cir in so concluding we note a split of authority between two courts of appeals as to whether prejudice is a necessary element of fraud on the court compare 316_f3d_1041 9th cir revg tcmemo_1999_101 with 113_f3d_670 7th cir affg tcmemo_1995_209 without deciding that prejudice is an element of proving fraud on the court we find that petitioners have not established facts proving prejudice on the contrary petitioners were represented by independent counsel as well as by jacob we could not find prejudice given the presence of hesselbacher we therefore hold that petitioners have failed to meet their burden of showing a fraud on the court sufficient to set_aside a decision entered over 1½ years before they moved to vacate it we have considered all of the arguments of the parties and have rejected those not discussed herein as meritless accordingly an appropriate order will be issued denying petitioners’ motion


t c memo united_states tax_court ron l and gayle r stevenson petitioners v commissioner of internal revenue respondent docket no filed date ron l stevenson and gayle r stevenson pro sese armand g begun for respondent memorandum opinion laro judge petitioners petitioned the court to redetermine respondent's determination of an dollar_figure deficiency in their federal_income_tax a dollar_figure addition_to_tax under sec_6651 and a dollar_figure accuracy-related_penalty under sec_6662 after concessions by the parties we decide the following issues for whether petitioners must include in income dollar_figure from the sale of real_property we hold they must to the extent set forth herein whether petitioners are entitled to schedule a itemized_deductions of dollar_figure we hold they are to the extent set forth herein whether petitioners are entitled to schedule c expenses of dollar_figure we hold they are not whether petitioners are liable for self-employment_tax of dollar_figure we hold they are whether petitioners are liable for the addition_to_tax under sec_6651 determined by respondent we hold they are whether petitioners are liable for the penalty under sec_6662 determined by respondent we hold they are unless otherwise noted section references are to the internal_revenue_code in effect for rule references are to the tax_court rules_of_practice and procedure references to petitioner are to ron l stevenson ‘respondent briefed the issue of whether petitioners were entitled to a dependency_exemption for their daughter jill stevenson petitioners specifically conceded this issue at trial and we do not address it herein background some of the facts are stipulated and are so found the stipulated facts and the exhibits submitted therewith are incorporated herein by this reference petitioners resided in tonia michigan when they petitioned the court petitioner has been a real_estate broker for over years he was self-employed during and reported the income and expenses of his business for federal_income_tax purposes ona schedule c gayle r stevenson was employed by the ionia county health department on date petitioners purchased lot sec_24 and sec_25 the lots of a development known as meadowland estates for dollar_figure dollar_figure per lot petitioners held the lots for investment and not in connection with petitioner's real_estate business in petitioners sold both parcels for a contract_price of dollar_figure the title company which handled the closing reduced the proceeds remitted to petitioners by dollar_figure in selling_expenses and by dollar_figure in delinquent taxes on the property for through petitioners filed their federal_income_tax return on date petitioners did not report any income or gain from the sale of the lots petitioners claimed total schedule a itemized_deductions of dollar_figure comprising dollar_figure in medical_expenses dollar_figure in taxes dollar_figure in mortgage interest and dollar_figure in charitable_contributions petitioners claimed schedule c business_expenses of dollar_figure including expenses for advertising utilities and insurance expenses by notice_of_deficiency dated date respondent determined petitioners had dollar_figure in ordinary_income from the sale of the lots which represents the sale price dollar_figure less dollar_figure in adjusted_basis respondent also disallowed petitioners' claimed schedule a and schedule c deductions for lack of substantiation discussion before turning to the substantive issues we address a motion made by petitioners at trial to dismiss for lack of jurisdiction petitioners allege this court lacks jurisdiction because the period of limitations for assessment has expired petitioners' motion lacks merit petitioners' return was due_date petitioners filed their return on date and respondent had at least years after that to assess tax for that year see sec_6501 respondent issued the notice_of_deficiency before the expiration of this 3-year period which tolls the applicable assessment_period see sec_6503 moreover the period of limitations is an affirmative 7of this amount dollar_figure was for real_property_taxes defense and not a bar to jurisdiction see rule we will deny petitioners' motion we turn to the substantive issues on all of which petitioners bear the burden_of_proof see rule a 290_us_111 sec_61 provides that gross_income includes income from whatever source derived including gains derived from dealings in property see sec_61 the gain from the sale of property is the excess of the amount_realized over the taxpayer's adjusted_basis in the property see sec_1001 generally the adjusted_basis in property is its cost see sec_1012 and the expenses of the sale reduce its sale price see eg 75_tc_497 ndollar_figure and the cases cited therein see also 422_f2d_481 6th cir petitioners' amount_realized from the sale of the lots was dollar_figure dollar_figure - dollar_figure and their adjusted_basis in the lots was dollar_figure petitioners therefore realized a dollar_figure gain on the sale which must be recognized as a capital_gain we sustain respondent's determination on this issue to the extent of dollar_figure respondent's argument that petitioners' adjusted_basis in the property was dollar_figure is without merit petitioner established through documentary and testimonial evidence that he paid dollar_figure for the lots and the language in the deeds that the consideration was one dollar is not controlling we are also unpersuaded by respondent's argument that petitioners realized ordinary_income from the sales while petitioner was a real_estate broker by profession the evidence established that the lots which petitioners held for over years were not held in connection with petitioner's business petitioner claimed itemized_deductions of dollar_figure comprising dollar_figure in medical_expenses dollar_figure in taxes dollar_figure in mortgage interest and dollar_figure in charitable_contributions deductions are a matter of legislative grace and taxpayers must establish entitlement to them see 308_us_488 petitioners are required to keep books_and_records to substantiate claimed expenses see sec_1_446-1 income_tax regs petitioners have proven they paid dollar_figure in real_property_taxes on the lots during petitioners as cash_method taxpayers are entitled to deduct the taxes when paid see sec_164 mitchell v commissioner tcmemo_1983_155 as to the dollar_figure balance of itemized_deductions dollar_figure - dollar_figure petitioners neither presented documentary_evidence nor proffered specific and convincing testimony substantiating the deductions petitioners have failed to meet their burden_of_proof and we sustain respondent's determination to the extent of dollar_figure petitioners claimed schedule c business_expenses of dollar_figure including expenses for advertising utilities and insurance expenses sec_162 provides for deduction of all ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying_on_a_trade_or_business petitioners presented no evidence documentary or otherwise to substantiate these expenses and we sustain respondent's determination on this issue as to self-employment_tax petitioner was a self-employed real_estate broker during and reported the income and expenses of his business on schedule c petitioner presented no evidence on this issue we hold petitioner's income from self- employment is subject_to self-employment_tax see sec_1401 and sec_1402 and we sustain respondent's determination on this issue respondent determined that petitioners are liable for the addition_to_tax under sec_6651 that section reads in pertinent part swhile petitioners do not argue application of the rule articulated in 39_f2d_540 2d cir affg in part and revg in part 11_bta_743 we note it does not apply to this case in cohan the court allowed the taxpayer to make a reasonable approximation of deductions through the use of detailed evidence of the amount of his expenditures even though the taxpayer could not establish the exact amounts see id pincite petitioners presented no testimony to which we could apply the cohan_rule in case of failure_to_file any return on the date prescribed therefor unless it is shown that such failure is due to reasonable_cause and not due to willful neglect there shall be added to the amount_required_to_be_shown_as_tax on such return percent of the amount of such tax if the failure is for not more than month with an additional percent for each additional month or fraction thereof during which such failure continues not exceeding percent in the aggregate to escape the addition_to_tax for filing late returns petitioners have the burden of proving that the failure_to_file did not result from willful neglect and that the failure was due to reasonable_cause see 469_us_241 reasonable_cause requires taxpayers to demonstrate that they exercised ordinary business care and prudence but nevertheless were unable to file the return within the prescribed time sec_301_6651-1 proced admin regs petitioners’ return was due_date see sec_6072 petitioners filed their return on date the record in this case is void of any evidence of the reason for this failure_to_file timely thus the record is devoid of evidence that the failure was for reasonable_cause we sustain respondent's determination of the addition_to_tax under sec_6651 a respondent determined petitioners are liable for the accuracy-related_penalty under sec_6662 and b for both years in issue this section imposes a penalty equal to percent of the portion of an underpayment that is attributable to among other things negligence petitioners will avoid this penalty if the record shows that they were not negligent l e they made a reasonable attempt to comply with the provisions of the internal_revenue_code and they were not careless reckless or in intentional disregard of rules or regulations see sec_6662 c 942_f2d_444 7th cir affg 94_tc_96 drum v commissioner tcmemo_1994_433 affd without published opinion 61_f3d_910 9th cir negligence connotes a lack of due care or a failure to do what a reasonable and prudent person would do under the circumstances see 92_tc_1 affd 925_f2d_348 9th cir 85_tc_934 this penalty is not applicable to any portion of an underpayment to the extent that an individual has reasonable_cause for that portion and acts in good_faith with respect thereto see sec_6664 petitioners put forth no evidence from which we could conclude they were not negligent or that reasonable_cause existed for the failure to report income or for the disallowed items in fact petitioner admitted at trial that he did not report all his income and he did not explain this failure we sustain respondent's determination on this issue -- - in reaching our decision we have considered all arguments made by the parties and to the extent not addressed herein find them irrelevant or meritless to reflect the foregoing an appropriate order will be issued and decision will be entered under rule


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division legend uniform issue list feb -1 ot ep vats taxpayer a taxpayer b tax deferred_annuity b qualified pian c amount d amount e entity f date date date date date dear the following facts and representations have been submitted under penalty of perjury in support of the ruling requested this is in response to a letter dated date and supplemented by letters dated date and date in which your authorized representative requests a waiver of the 60-day rollover requirement contained in sec_402 cx3 a of the internal_revenue_code the code as applicable to a retirement_plan qualified within the meaning of sec_401 of the intemal revenue code code and contained in code sec_403 as applicable to an annuity described in code sec_403 taxpayer a age deferred_annuity retirement account described in code sec_403 as well as a distribution from qualified_plan c representing amount d and amount e respectively were intended to be directly rolled over into an individual_retirement_account ira described in code sec_408 taxpayer a asserts that his failure to accomplish rollovers within the 60-day period prescribed by sec_402a and applicable in his situation pursuant to code sec_403 was due to a mistaken belief that the full amount of federal taxes had already been withheld _ represents that a distribution from tax deferred_annuity b a tax - - taxpayer a and taxpayer b were married on date taxpayer b died and was survived by taxpayer a taxpayer b was __ years of age at the time of her death at the time of her death taxpayer b was a participant in qualified_plan c and the owner of tax qualified annuity b entity f sponsors both tax deferred_annuity b and qualified_plan c on date taxpayer a requested the distribution of all amounts due him from taxpayer b’s account under tax deferred_annuity b and all amounts due him from taxpayer b’s account under qualified_plan c on date after processing taxpayer a’s request entity f confirmed the impending distribution of amounts due taxpayer a and indicated that federal income taxes had been withheld prior to the distribution of amount d and amount e to taxpayer a on or about date entity f sent separate checks for amount d and amount e to taxpayer a on date taxpayer a deposited both checks in a non-tax qualified account non-ira that he had previously established in the name of the estate of taxpayer b in a tax-qualified account ie an taxpayer a did not deposit amount d or amount e ira within days of receipt of either distribution _ in his correspondence dated date taxpayer a asserts that the sole reason he did not roll over either amount d or amount e into an ira was because he believed the federal tax withheld by entity f was the entire amount of tax due based on the above facts and representations you through your authorized representative request that the service waive the 60-day rollover requirement with respect to the distribution of amount d and amount e because the failure to waive such requirement would be a hardship and against equity or good conscience with respect to your ruling_request sec_402 of the code provides generally that except as otherwise provided in sec_402 any amount actually distributed from a_trust described in sec_401 which is exempt from tax under sec_501 of the code shall be taxable to the distributee in the taxable_year of the distribute in which distributed under sec_72 of the code sec_402 of the code provides in general that if any portion of an eligible_rollover_distribution from a qualified_trust is transferred to an eligible_retirement_plan the portion of the distribution so transferred shall not be includible in gross_income in the taxable_year in which paid sec_402 of the code provides rules governing rollovers of amounts from exempt - trusts to eligible retirement plans including iras sec_402 of the code provides that except as provided in subparagraph b paragraph shall not apply to any transfer of a distribution made after the 60th day following the day on which the distributee received the property distributed - sec_402 of the code provides that the secretary may waive the 60-day requirement under sec_402 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_402 of the code sec_402 of the code defines eligible_rollover_distribution excepted from the definition of eligible_rollover_distribution is any distribution required under code sec_401 sec_402 of the code defines an eligible_retirement_plan as i an individual_retirement_account described in sec_408 of the code ii an individual_retirement_annuity described in sec_408 of the code other than an endowment_contract iii a qualified_trust iv an annuity plan described in sec_403 of the code v an eligible_deferred_compensation_plan described in sec_457 of the code which is maintained by an eligible_employer described in sec_457 a and vi an annuity_contract described in sec_403 of the code sec_402 of the code provides that if a distribution attributable to an employee is paid to the spouse of the employee after the employee’s death sec_402 of the code will apply to such distribution in the same manner as if the spouse were the employee sec_403 of the code flush language provides in relevant part that any amount distributed out of an annuity_contract described in sec_403 shall be taxable to the distributee in the taxable_year of the distributee in which distributed in the manner provided under sec_72 of the code relating to annuities sec_403 of the code provides that if any portion of the balance_to_the_credit of an employee in a b annuity_contract is paid to him in an eligible_rollover_distribution within the meaning of sec_402 and the employee transfers any portion of the distribution to an eligible_retirement_plan described in sec_402 then the distribution to the extent transferred shall not be includible in gross_income for the taxable_year in which it was distributed sec_403 of the code provides that rules similar to the rules of paragraphs through and of sec_402 shall apply for purposes of sec_403 a revproc_2003_16 r b date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_402 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the ‘case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted on behalf of taxpayer a indicates that he had no intent to roll over either amount d or amount e at the time he received either distribution at that time he mistakenly believed that sufficient taxes had already been withheld from the distributions no further taxes were due and that there were no further federal tax consequences he chose to accept said tax consequences when he subsequently discovered there were additional tax consequences he reconsidered his decision and decided that he should have rolled over amounts d and e into an ira neither code sec_402 code sec_403 nor revproc_2003_16 authorize the service to extend the 60-day rollover period under such circumstances therefore pursuant to sec_402 and sec_403 of the code the service hereby declines to waive the 60-day rollover requirement with respect to the distribution of amount d and amount e from tax deferred_annuity b and qualified_plan c respectively no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto pursuant to a power_of_attorney on file with this office a copy of this letter_ruling is being sent to your authorized representative this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent if you wish to inquire about this ruling please contact please address all correspondence to se t ep ra t sec_3 at sincerely yours frances v sloan employee_plans technical group manager cc enclosures deleted copy of letter_ruling notice of intention to disclose


internal_revenue_service number release date index numbers ------------------------------------------------------------ ------- ------------------------- ------------------------------------- -------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------------ telephone number -------------------- refer reply to cc psi b03 plr-137938-12 date date legend company -------------------------------------------------------------------------------------------------------- a state date date -------------------------------------------------------------------------------------------------------------------- ------- --------------------- --------------------------- ---------------------- dear ------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of company by its authorized representative requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_301_7701-3 to be treated as an association_taxable_as_a_corporation for federal tax purposes as well as relief to file a late s_corporation_election under sec_1362 of the internal_revenue_code code facts company was formed on date as a state limited_liability_company company's sole member a intended that company be treated as an s_corporation for federal tax plr-137938-12 purposes effective date however company inadvertently failed to timely file a form_8832 entity classification election and a form_2553 election by a small_business_corporation law sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1362 provides that an election under sec_1362 may be made by a small_business_corporation for any taxable_year a at any time during the preceding_taxable_year or b at any time during the taxable_year and on or before the 15th day of the third month of the taxable_year sec_1362 provides that if a a small_business_corporation makes an election under sec_1362 for any taxable_year and b the election is made after the 15th day of the third month of the taxable_year and on or before the 15th day of the third month of the following taxable_year then the election shall be treated as made for the following taxable_year sec_1362 provides that if a an election under sec_1362 is made for any taxable_year determined without regard to sec_1362 after the date prescribed by sec_1362 for making the election for the taxable_year or no sec_1362 election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat the election as timely made for the taxable_year and sec_1362 shall not apply sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible_entity with a single owner can elect to be classified as an association and thus a corporation under sec_301_7701-2 or to be disregarded as an entity separate from its owner sec_301_7701-3 provides that except as provided in sec_301_7701-3 unless the entity elects otherwise a domestic eligible_entity is i a partnership if it has two or more members or ii disregarded as an entity separate from its owner if it has a single owner sec_301_7701-3 provides in part that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 plr-137938-12 sec_301_7701-3 provides that an election under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed if an election specifies an effective date more than days prior to the date on which the election is filed it will be effective days prior to the date it was filed sec_301_7701-3 provides that an eligible_entity that timely elects to be an s_corporation under sec_1362 is treated as having made an election under sec_301_7701-3 to be classified as an association provided that as of the effective date of the election under sec_1362 the entity meets all other requirements to qualify as a small_business_corporation under sec_1361 subject_to sec_301_7701-3 the deemed_election to be classified as an association will apply as of the effective date of the s_corporation_election and will remain in effect until the entity makes a valid election under sec_301_7701-3 to be classified as other than an association sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but not more than months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based solely on the facts submitted and representations made we conclude that company has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 accordingly company is granted an extension of time of one-hundred and twenty days from the date of this letter to elect to be treated as an association_taxable_as_a_corporation for federal tax purposes effective date the election should be made by filing a properly executed form_8832 with the appropriate service_center a copy of this letter should be attached to the election plr-137938-12 in addition we conclude that company has established reasonable_cause for failing to timely make an election to be an s_corporation and thus is eligible for relief under sec_1362 provided that company otherwise qualifies as an s_corporation we conclude that company will be recognized as an s_corporation effective date if company files a completed form_2553 effective date with the appropriate service_center within one-hundred and twenty days from the date of this letter a copy of this letter should be attached to the election except as expressly provided herein we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion as to whether company is otherwise eligible to be an s_corporation for federal tax purposes 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 we are sending a copy of this letter to your authorized representative 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 ruling_request it is subject_to verification on examination sincerely associate chief_counsel passthroughs special industries by ___ s _________________ mary beth carchia senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


department of the treasury internal_revenue_service washington d c 20vu804027 tax_exempt_and_government_entities_division uniform issue list taxpayer a financial advisor b financial advisor c amount c ira x state m date date dear this is in response to your letter dated date as supplemented by additional correspondence dated date date and date as submitted by your authorized representative in which you request a waiver of the day rollover requirement contained in sec_408 of the internal_revenue_code the code 20uu804027 page the following facts and representations have been submitted under penalty of perjury in support of the ruling requested taxpayer a age represents that on date acting on the advice of financial advisor b he withdrew amount c from ira x and deposited amount c in his personal account taxpayer a represents that he failed to accomplish a rollover within the day period prescribed by sec_408 of the code due to financial advisor b taxpayer a further represents that amount c is invested in liquid_assets and could be moved at anytime a financial error by financial advisor b a licensed and practicing cpa in state m advised taxpayer a to take all of his funds out of ira x to find a better investment but failed to inform him of the 60-day rollover requirement financial advisor b was age at the time and had been taxpayer a’s tax preparer and advisor for over years relying on financial advisor b’s advice on date taxpayer a requested and received a distribution of amount c from ira x on date taxpayer a sought a second opinion from financial advisor c on his decision to liquidate ira x financial advisor c advised taxpayer a that the advice to take a distribution without completing a rollover was incorrect from both a financial and tax perspective and that erroneous advice had been made by financial advisor b based on the facts and representations you request that the internal_revenue_service waive the day rollover requirement contained in sec_408 of the code with respect to the distribution of amount c sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if- i ii the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such page individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary may waive the 60-day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 r b provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign county of postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented by taxpayer a demonstrates that taxpayer a relied on the advice of financial advisor b and took a distribution of amount c from ira x based on is a licensed and the erroneous advice of financial advisor b financial advisor b practicing cpa who was aware of the tax ramifications of his advice based on the financial error of financial advisor b taxpayer failed to accomplish a timely rollover of amount c therefore pursuant to sec_408 of the code the service waives the 60-day rollover requirement with respect to the distribution of amount c from ira x you are granted a period of days from the date_of_issuance of this letter to rollover amount c 20u804027 page into a rollover ira provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to amount c such amount will be considered a rollover_contribution within the meaning of sec_408 of the code no opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter has been sent to your authorized representative in accordance with a power_of_attorney on file in this office if you wish to inquire about this ruling please contact at sincerely yours employee_plans technical group manager enclosures deleted copy of ruling letter notice of intention to disclose cc